<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1996
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
APPLIED IMAGING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 3841 77-012490
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION
JURISDICTION OF CLASSIFICATION CODE NUMBER)
INCORPORATION OR NUMBER)
ORGANIZATION)
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(408) 562-0250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ABRAHAM I. CORIAT
CHIEF EXECUTIVE OFFICER
APPLIED IMAGING CORP.
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(408) 562-0250
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
J. CASEY MCGLYNN, ESQ. ROBERT V. GUNDERSON, JR., ESQ.
DAVID J. SEGRE, ESQ. DAVID T. YOUNG, ESQ.
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE
PROFESSIONAL CORPORATION FRANKLIN & HACHIGIAN, LLP
650 PAGE MILL ROAD 600 HANSEN WAY, SECOND FLOOR
PALO ALTO, CA 94304 PALO ALTO, CA 94304
(415) 493-9300 (415) 843-0500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1)(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 2,645,000 $16.00 $42,320,000 14,593.11
</TABLE>
===============================================================================
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) promulgated under the Securities
Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>
APPLIED IMAGING CORP.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Part I Items of Form S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-
1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
---------------------------------- ----------------------
<C> <C> <S>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Forepart of Registration
Statement; Outside Front
Cover Page; Additional
Information
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk
of Earnings to Fixed Charges.............. Factors
4. Use of Proceeds............................ Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price............ Outside Front Cover Page;
Underwriting
6. Dilution................................... Dilution; Risk Factors
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside and Inside Front Cover
Pages; Underwriting
9. Description of Securities to be Registered. Outside Front Cover Page;
Prospectus Summary; Dividend
Policy; Capitalization;
Description of Capital Stock;
Shares Eligible for Future
Sale
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the Registrant. Outside and Inside Front Cover
Pages; Prospectus Summary;
Risk Factors; Use of
Proceeds; Dividend Policy;
Capitalization; Dilution;
Selected Consolidated
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business; Management; Certain
Transactions; Principal
Shareholders; Description of
Capital Stock; Shares
Eligible for Future Sale;
Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 24, 1996
2,300,000 SHARES
[LOGO OF APPLIED IMAGING]
COMMON STOCK
All the shares of Common Stock offered hereby are being sold by Applied
Imaging Corp. ("Applied Imaging" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$14.00 and $16.00. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application has
been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "AICX."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
345,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about , 1996.
-----------
MONTGOMERY SECURITIES
DILLON, READ & CO. INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1996
<PAGE>
SOLUTIONS FOR PRENATAL SCREENING
FETAL CELL LABORATORY
The Company's prenatal screening system, if approved, will be sold to prenatal
diagnostic laboratories where genetic analysis is typically done.
CONSUMABLE ENRICHMENT KIT
The Company's proprietary consumable enrichment kit is designed to enrich the
concentration of fetal blood cells in a maternal blood sample.
FETAL CELL SLIDE SCANNING SYSTEM
The Company is developing an automated system to rapidly identify fetal blood
cells based on adaptations of its image analysis, pattern recognition and
slide scanning technologies incorporated in the Company's current cytogenetic
products.
FETAL CELL
This fetal blood cell was identified using the Company's proprietary
technology. In laboratory studies, the Company has enriched the concentration
of fetal blood cells in maternal blood samples taken during early gestation.
After identification, this fetal cell was subjected to a DNA probe assay.
----------------
The Company's prenatal screening system, including the Company's consumable
enrichment kit, has not been approved for marketing by the United States Food
and Drug Administration ("FDA") or any international regulatory authorities.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
QUANTICELL(R) and CYTOSCAN(R) are registered United States trademarks of the
Company and APPLIED IMAGING(TM), GENEVISION(TM) and CYTOVISION(TM) are
trademarks of the Company. This Prospectus also contains trademarks and
tradenames of other companies.
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which would cause actual results to differ
materially from those indicated by such forward-looking statements. The
following summary is qualified in its entirety by the more detailed
information, including the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Prospectus.
THE COMPANY
Applied Imaging designs, develops, manufactures and markets automated
clinical analysis systems used by cytogenetic laboratories for prenatal and
other genetic testing. The Company's cytogenetic instrumentation business,
which has an installed base at approximately 500 sites in more than 30
countries, includes systems that enable laboratories to automate aspects of the
detection of chromosomal abnormalities associated with conditions such as
Down's Syndrome. In addition to the Company's core instrument business, the
Company is developing a proprietary genetic screening system designed to enable
prenatal screening for genetic abnormalities by isolating nucleated fetal red
blood cells ("fetal blood cells") from a routine maternal blood sample. This
new system is designed to improve current prenatal screening techniques by
providing an accurate, timely and cost-effective procedure without the risks of
miscarriage or fetal damage associated with invasive prenatal testing.
Prenatal genetic testing is currently performed either invasively by
extracting, culturing and analyzing fetal cells taken from amniotic fluid or
placental tissue, or non-invasively by analysis of serum markers derived from a
maternal blood sample. The Company estimates approximately 2.3 million pregnant
women in the United States undergo some form of prenatal screening each year.
Despite the widespread use of prenatal screening, there are significant
shortcomings associated with existing screening methods. Invasive procedures,
which include amniocentesis and chorionic villus sampling ("CVS"), involve
direct extraction of fetal cells. These procedures can accurately detect a
broad range of chromosomal disorders but pose a risk of fetal loss of between
0.5-1%. Due to this risk, these invasive procedures are usually only
recommended for women age 35 or older, at which ages, the risk of having a
child with a chromosomal disorder is greater than the risk of spontaneous
miscarriage associated with these procedures. The Company estimates that these
procedures are performed on approximately 300,000 women annually in the United
States. The non-invasive screening procedures, which include alpha-fetoprotein
("AFP") and the "triple test" are currently broadly used for pregnant women
including those under the age of 35 with approximately 2 million tests
performed annually in the United States. While these tests present no risk to
the fetus since they do not directly analyze fetal cells, they are much less
accurate with detection rates of approximately 60% for chromosomal disorders
and false positive rates of approximately 5%.
The Company's prenatal screening system under development is intended to
provide an accurate, non-invasive test by directly analyzing fetal blood cells
isolated from a routine maternal blood sample. The Company's proprietary
screening system incorporates (i) a patented hematologically-based procedure to
enrich the concentration of fetal blood cells, (ii) automated image analysis
instrumentation to identify the fetal blood cells and (iii) the use of third-
party DNA probes to identify certain chromosomal disorders present in fetal
blood cells. This system is expected to be accurate because it evaluates actual
fetal cells while posing no risk to the fetus.
The Company believes that a key aspect of its prenatal screening system is
its ability to enrich and identify fetal blood cells so that they can be
directly analyzed using available DNA probe technology. As of June 1996, the
Company and its collaborators have used the fetal blood cell enrichment
procedure on a total of 89 maternal blood samples. The Company's system has
achieved fetal blood cell identification in 79 of the 89 samples tested, or 89%
of cases. In 10 maternal blood samples, no fetal blood cells were found. The
Company intends to continue preclinical and clinical evaluation of this system
and anticipates beginning a multi-site international clinical trial during
1996. Additionally, the Company intends to file two separate 510(k)
applications for the fetal cell enrichment and automated imaging system
components of its system in 1996, and an additional application (either a
510(k), tier III or a PMA) for the DNA-probe component of its prenatal
screening system.
The Company's strategy is to establish its system as a broad-based prenatal
screening procedure. The Company anticipates that sales of this system, if
approved, will include both its proprietary consumable enrichment kits, used to
separate fetal blood cells from maternal blood samples and imaging
instrumentation used to analyze the cells. These new image analysis systems are
contemplated to be compatible with the Company's existing installed instrument
base. The Company believes that it can leverage its existing infrastructure,
worldwide distribution capabilities and extensive cytogenetic laboratory
relationships to support the world-wide introduction of this fetal cell
screening system under development. Furthermore, the Company believes that its
new cell enrichment and image analysis system could have clinical utility for
cancer applications and the prenatal diagnosis of single gene disorders, and it
intends to pursue the development of these other potential applications.
The Company was incorporated in California in July 1986. The Company's
principal executive offices are located at 2380 Walsh Avenue, Building B, Santa
Clara, California 95051, and its telephone number at that address is (408) 562-
0250.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock to be offered by the Company....... 2,300,000 shares
Common Stock to be outstanding after the Offer-
ing(1)......................................... 7,347,802 shares
Use of proceeds................................. For research and development
and clinical trials related
to the prenatal screening
system; repayment of
indebtedness; working capital
and general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... AICX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $10,781 $11,711 $ 8,681 $ 9,571 $10,798 $2,399 $2,957
Cost of revenues........ 5,783 6,184 4,965 5,350 5,484 1,161 1,556
------- ------- ------- ------- ------- ------ ------
Gross profit.......... 4,998 5,527 3,716 4,221 5,314 1,238 1,401
Operating expenses:
Research and
development........... 1,164 1,316 1,756 2,821 2,919 693 897
Sales and marketing.... 2,565 3,279 2,543 2,524 2,918 649 725
General and
administrative........ 1,453 1,642 1,229 1,898 2,094 575 460
Restructuring and
reorganization costs.. 396 -- -- -- -- -- --
Write-off of research
and development in
process............... 1,285 -- -- -- -- -- --
------- ------- ------- ------- ------- ------ ------
Total operating
expenses............ 6,863 6,237 5,528 7,243 7,931 1,917 2,082
------- ------- ------- ------- ------- ------ ------
Operating loss......... $(1,865) $ (710) $(1,812) $(3,022) $(2,617) $ (679) $ (681)
======= ======= ======= ======= ======= ====== ======
Net loss............... $ (977) $ (480) $(1,773) $(2,970) $(2,546) $ (660) $ (660)
======= ======= ======= ======= ======= ====== ======
Pro forma net loss per
common share(2)........ $ (0.45) $(0.12)
======= ======
Shares used in computing
pro forma net loss per
common share(2)........ 5,635 5,681
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 3,892 $34,809
Working capital........................................ 2,715 34,050
Total assets........................................... 8,542 39,459
Long-term debt......................................... 223 223
Accumulated deficit.................................... (9,800) (9,800)
Total shareholders' equity............................. 4,091 35,426
</TABLE>
- --------
(1) Based upon shares outstanding as of March 31, 1996. Excludes (i) 506,000
shares issuable upon exercise of options outstanding under the Company's
Amended and Restated 1988 Incentive Stock Option Plan (the "1988 Option
Plan"), (ii) 50,000 shares reserved for issuance under the Company's 1994
Director Option Plan (the "Director Plan"), (iii) 619,150 shares issuable
upon exercise of outstanding warrants to purchase Common Stock and (iv) an
additional 176,238 shares reserved for issuance under the 1988 Option Plan.
Also excludes 720,000 shares reserved after March 31, 1996 for issuance
under the Company's 1988 Option Plan, the Director Plan and the Employee
Stock Purchase Plan. See "Management--Incentive Stock Plans," "Description
of Capital Stock--Warrants."
(2) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
(3) As adjusted to reflect the sale of the 2,300,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $15.00 per share and the receipt of the estimated net proceeds therefrom
and repayment of $418,000 of short-term debt. See "Use of Proceeds."
----------------
Except as set forth in the Financial Statements or as otherwise indicated,
all information in this Prospectus assumes (i) the filing of the Company's
Restated Articles of Incorporation authorizing a class of undesignated
Preferred Stock, to be effective upon the closing of this offering, (ii) the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the closing of this offering and (iii) no exercise of the Underwriters' over-
allotment option. See "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. The following factors should be carefully considered in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
PRENATAL SCREENING SYSTEM IN EARLY STAGE OF DEVELOPMENT; NO ASSURANCE OF
SUCCESSFUL DEVELOPMENT OR COMMERCIALIZATION
The Company's prenatal screening system is in an early stage of development
and testing. To date, the Company's technology for enriching the concentration
of nucleated fetal red blood cells in maternal blood samples has been
subjected only to preclinical testing by the Company. The isolation,
enrichment and analysis of fetal cells from a maternal blood sample is
difficult and poses a significant technical challenge due to their rarity in
maternal blood. Estimates of the frequency of fetal cells in maternal blood
generally range from 1 in 1 million to 1 in 10 billion. Preclinical testing of
the Company's prenatal screening system has only recently shown progress in
fetal cell isolation and detection. As of June 1996, the Company and its
collaborators have used the fetal blood cell enrichment procedure on a total
of 89 maternal blood samples. In these studies, the Company's system achieved
fetal cell identification in 79 of the 89 samples tested. In 10 of these 89
samples, no fetal blood cells were found. In five of the 79 samples in which
fetal cell identification was achieved, the Company's investigators identified
and counted only one fetal cell. The Company has not yet determined how many
fetal cells, if any, can be obtained using its process and whether its results
can be duplicated in larger studies. There can be no assurance that the
Company's prenatal screening system will be able to detect fetal cells in
amounts sufficient to allow for the detection and analysis of chromosomal
abnormalities. In addition, the Company's preclinical testing in analyzing
cells has almost exclusively been limited to detecting male and female
chromosomes and has not yet focused on chromosomal abnormalities such as
Down's Syndrome. There can be no assurance that the Company's prenatal
screening system will be able to effectively and accurately detect Down's
Syndrome or other chromosomal abnormalities. The development and potential
commercialization of the Company's prenatal screening system will require
significant research and development, substantial investment and clinical
testing and regulatory clearances or approvals. The Company plans to continue
to conduct preclinical testing in order to analyze the feasibility of its
prenatal screening system. Such efforts may disclose significant technical
obstacles that need to be overcome prior to pursuing clinical trials and
seeking necessary regulatory approvals. For example, during preclinical
testing the Company discovered that the gel in the preformed density gradients
portion of its prenatal screening system destabilized if not properly stored
at cool temperatures and, in any event, destabilized within two weeks even if
properly stored. Although the Company believes it has identified a modified
gel with greater stability and longer shelf life, there can be no assurance
that this instability will be resolved or that other problems will not be
detected. Such problems could have the effect of delaying or preventing the
successful development of the Company's prenatal screening system. There can
be no assurance that the Company will be able to develop this technology into
a reliable and effective prenatal screening system, that required regulatory
clearances or approvals for commercialization of its system will be obtained
in a timely manner, or at all, or that the Company's prenatal screening system
or other products under development, if introduced commercially, will be
successful. If the Company is unable to successfully develop and market its
prenatal screening system, the Company's business, financial condition and
results of operations would be materially and adversely affected. See
"Business--Applied Imaging's Prenatal Screening System."
LACK OF CLINICAL DATA
The Company has conducted no clinical trials of its prenatal screening
system pursuant to FDA reviewed or FDA approved protocols. There can be no
assurance that the Company will commence such clinical testing, or once
commenced, that such testing can be completed successfully within the
Company's expected time frame and budget, if at all, or that the Company's
products will prove to be reliable and effective in clinical trials. If
clinical trials are initiated, such trials may disclose significant technical
obstacles having the effect of delaying
5
<PAGE>
or preventing the development, testing, regulatory approval and
commercialization of the Company's prenatal screening system. There can be no
assurance that the results of such clinical trials will be consistent with the
Company's limited preclinical results to date or would be sufficient to obtain
regulatory clearance or approval or clinical acceptance. If the Company is
unable to initiate and conclude successfully clinical trials of its prenatal
screening system, the Company's business, financial condition and results of
operations would be materially and adversely affected.
NO ASSURANCE OF CLINICAL ACCEPTANCE
The isolation of fetal cells from maternal blood is a new and novel
development. The clinical acceptance of the Company's prenatal screening
system will depend upon its acceptance by the medical community and third-
party payors as clinically useful, reliable, accurate, and cost-effective
compared to existing and future procedures. Clinical acceptance will depend on
numerous factors, including the establishment of the system's ability to
isolate sufficient numbers of fetal cells during the early stages of
pregnancy, to adequately enrich the concentration of nucleated fetal cells,
and to reliably analyze and detect the presence of chromosomal abnormalities.
Clinical acceptance will also depend on the receipt of regulatory clearances
in the United States and internationally, the availability of third-party
reimbursement and the Company's ability to adequately train laboratory
technicians and cytogeneticists on how to use the prenatal screening system.
In addition, there can be no assurance that the Company's prenatal screening
system will be a preferable alternative to existing procedures such as
maternal AFP or triple test which detect neural tube defects in addition to
chromosomal abnormalities, or that the prenatal screening system will not be
rendered obsolete or noncompetitive by products under development by other
companies. The Company's system is intended to initially screen for Down's
Syndrome and may not compete favorably with widely accepted methodologies such
as amniocentesis or CVS that are highly accurate and diagnose a broader range
of abnormalities from one sample of fetal cells. Patient acceptance of the
Company's prenatal testing system will depend in part upon physician
recommendations as well as other factors, including the effectiveness and
reliability of the procedure as compared to amniocentesis, CVS and serum
marker procedures. Even if the Company's prenatal screening system is
clinically adopted, physicians may elect not to recommend the procedure unless
acceptable reimbursement from health care payors is available. There can be no
assurance that the Company's prenatal screening system under development will
be accepted by the medical community or that market demand for such system
will be sufficient to allow the Company to achieve profitable operations.
Failure of the Company's prenatal screening procedure, for whatever reason, to
achieve significant clinical adoption or failure of the Company's system to
achieve any significant market acceptance would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Applied Imaging's Prenatal Screening System."
DEPENDENCE ON PRENATAL SCREENING SYSTEM; RAPID TECHNOLOGICAL CHANGE
The Company is dependent on the successful development and commercialization
of the Company's prenatal screening system. Unfavorable preclinical or
clinical results, failure to obtain regulatory clearances or approvals in a
timely manner, or at all, or failure to gain widespread market acceptance for
the system would have a material adverse effect on the Company's business,
financial condition and results of operations.
The medical device industry is characterized by rapid and significant
technological change. The Company's future success will depend in large part
on the Company's ability to continue to respond to such changes. Product
research and development will require substantial expenditures and will be
subject to inherent risks, and there can be no assurance that the Company will
be successful in developing products that have the characteristics necessary
to screen or diagnose particular indications or that any new product
introduced will receive regulatory clearance or approval or will be
successfully commercialized. See "Business--Research and Development."
HIGHLY COMPETITIVE MARKET; RISK OF COMPETING SCREENING APPROACHES
The market for the Company's current cytogenetic products is highly
competitive, and the Company expects competition to increase. With respect to
its current cytogenetic products, the Company's current competitors include
Vysis Corp., a biotechnology subsidiary of Amoco Technology Company,
Perceptive Scientific, Inc. and
6
<PAGE>
manual laboratory procedures. The market for the Company's current cytogenetic
products is limited to laboratories and institutions performing prenatal and
other genetic testing. There can be no assurance that the Company's
competitive position in cytogenetic products will be maintained.
The medical diagnostic and biotechnology industries are subject to intense
competition. The Company knows of certain companies that are in the process of
developing genetic screening products based on competing technologies designed
to enrich the concentration of nucleated fetal cells in maternal blood
samples. These companies include Integrated Genetics, Inc., CellPro,
Incorporated, Aprogenex, Inc. and Centocor, Inc. Many of the Company's
competitors have greater financial and technical resources and production and
marketing capabilities than the Company. There can be no assurance that these
competitors will not succeed in developing technologies and products that are
more accurate and effective, easier to use or less expensive than those which
are currently offered or being developed by the Company or that would render
the Company's technology and products obsolete and noncompetitive. In
addition, many of the Company's competitors have significantly greater
experience than the Company in conducting clinical investigations of new
screening and diagnostic products and in obtaining FDA and other clearances or
regulatory approvals of products. Accordingly, the Company's competitors may
succeed in developing and obtaining regulatory approvals for such products
more rapidly than the Company. The Company's prenatal screening system under
development, if commercially marketed, will be subject to intense competition
from existing prenatal screening and diagnostic approaches, such as AFP,
triple test, CVS and amniocentesis. These competing approaches are widely
accepted and screen and/or diagnose a broad range of abnormalities. There can
be no assurance that the Company's prenatal screening system under development
will replace or supplement any of these or other existing procedures. Such
competition from new, developing or existing products could have a material,
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
QUARTERLY FLUCTUATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly operating results. Factors which may
have an influence on the Company's operating results in a particular quarter
include (i) demand for the Company's products, new product introductions by
the Company or its competitors or transitions to new products; (ii) the
results of preclinical or planned clinical trials and, if ever received, the
timing of regulatory and third-party reimbursement approvals; (iii) the timing
of orders and shipments; (iv) the mix of sales between distributors and the
Company's direct sales force; (iv) competition, including pricing pressures;
(v) the timing and amount of research and development expenses, including
clinical trial-related expenditures; (vi) seasonal factors; (vii) foreign
currency fluctuation; and (viii) the delay between incurrence of expenses to
develop new products, including related marketing and service capabilities,
and realization of benefits from such efforts. The Company typically has
experienced increased sales in its first and fourth quarter. The Company
believes this pattern of fluctuating revenues reflects the budgetary spending
practices of the Company's customer base which consists primarily of public
and private cytogenetic laboratories, research organizations and hospitals
operating on annual budgets. There can be no assurance that this trend will
continue. Due to all the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Manufacturing."
ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The Company has expended and will continue to expend substantial funds for
research and development, preclinical testing, planned clinical
investigations, capital expenditures, and manufacturing and marketing of its
products. Although the Company expects that its existing capital resources,
together with the anticipated netproceeds of this offering, will be adequate
to satisfy its funding requirements through 1998, the timing and amount of
spending of such capital resources cannot be accurately determined at this
time and will depend upon several factors, including the progress of its
research and development efforts and planned clinical investigations,
competing technological and market developments, commercialization of products
currently under development,
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and market acceptance and demand for the Company's products. In addition, as
opportunities arise, proceeds also may be used to acquire businesses,
technologies or products that complement the business of the Company, although
the Company is not currently in negotiations regarding any such acquisitions.
To the extent required, the Company may seek to obtain additional funds
through equity or debt financing, collaborative or other arrangements with
other companies and from other sources. If additional funds are raised by
issuing equity securities, further dilution to shareholders could occur. There
can be no assurance that additional financing will be available when needed or
on terms acceptable to the Company. If adequate funds are not available, the
Company could be required to delay development or commercialization of certain
of its products, to license to third parties the rights to commercialize
certain products or technologies that the Company would otherwise seek to
commercialize for itself, or to reduce the marketing, customer support or
other resources devoted to certain of its products each of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds," "Dilution" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
ACCUMULATED DEFICIT; FUTURE LOSSES
From its inception in July 1986 through March 31, 1996, the Company has
generated an accumulated deficit of approximately $9,800,000. The Company
expects its operating losses to continue to increase as it continues its
efforts to develop and test its prenatal screening system. There can be no
assurance that its prenatal screening system under development will be
commercially marketed or, if commercially marketed, that the Company will ever
receive sufficient revenue to achieve profitability and failure to do so would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNCERTAINTY OF FDA OR OTHER REGULATORY CLEARANCES OR APPROVALS
The preclinical and clinical testing, manufacturing, labeling, distribution,
sale, marketing, advertising and promotion of the Company's research,
investigational and clinical screening and diagnostic products are subject to
extensive and rigorous government regulation in the United States and certain
other countries. In the United States and certain other countries, the process
of obtaining and maintaining required regulatory clearances or approvals is
lengthy, expensive and uncertain. The Company's future success will be
significantly dependent upon commercial sales of its prenatal screening system
under development. The Company will not be able to market this prenatal
screening system for clinical diagnostic use in the United States unless and
until the Company obtains clearance or approval from the United States Food
and Drug Administration ("FDA") for each device within the system and will not
be able to market such system overseas until it meets the safety and quality
regulations of each foreign jurisdiction in which the Company, its agents or
distributors seek to sell such system. In the United States, the Company's
products are also subject to regulation by state authorities. The State of
California's requirements in this area, in particular, are extensive and
require the Company to obtain a state permit and pass a good manufacturing
practice ("GMP") inspection before initiating clinical trials. Noncompliance
with applicable FDA requirements can result in, among other things, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, distribution, sales, and marketing, refusal of the
FDA to clear or approve products for marketing, withdrawal of marketing
clearance or approvals, and criminal prosecution.
The Company's Cytoscan products were marketed until 1994 in the United
States pursuant to pre-market notifications to the FDA under Section 510(k) of
the Federal Food, Drug and Cosmetic Act ("510(k)"). A 510(k) pre-market
notification must be supported by appropriate data establishing, to the
satisfaction of the FDA, that a newly developed device is "substantially
equivalent" to a legally marketed device that does not itself require FDA
approval of a premarket approval application ("PMA"). If the device
incorporates new technology, then data demonstrating safety and effectiveness
may be required. Under the FDA's regulatory framework, the decision whether to
seek 510(k) clearance for a changed or modified device is left to the
manufacturer in the first instance. The Company to date has not sought 510(k)
clearance for its CytoVision system, which has been marketed since 1993, on
the basis of the Company's conclusion, reflected in the Company's scientific
report
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addressing this matter, that CytoVision is a new model of Cytoscan and there
have not been any changes or modifications in design, components, method of
manufacture or intended use, which could affect the safety or effectiveness of
the original 510(k)-cleared Cytoscan device. If the Company had concluded, on
the basis of its technical assessment, that there had been a change or
modification that could have significantly affected the safety or
effectiveness of the original device, then the Company would have sought
510(k) clearance for the CytoVision system. There can be no assurance that the
FDA will agree with the Company's decision not to seek 510(k) clearance for
CytoVision, that it will not require the Company to cease sales and
distribution of and seek 510(k) clearance for the CytoVision system, or that
such clearance, if required, will be obtained in a timely manner or to all.
The Company intends to apply for two separate 510(k) clearances for the
fetal cell enrichment and scanning components of its prenatal screening
system. The DNA probe components of the Company's prenatal screening system
will require either FDA clearance of a 510(k) with a tier III level of review
(the most extensive level of FDA review of a 510(k), equivalent to the FDA
review of a PMA in thoroughness and time) or FDA approval of a PMA.
The Company intends to submit a protocol for clinical trials of the DNA
probe component of its prenatal screening system to the FDA during the second
half of 1996 and to initiate a multisite U.S. and international clinical trial
of the DNA probe component of its prenatal screening system to detect
chromosomal disorders in isolated fetal cells in 1996. There can be no
assurance regarding the timing and the nature of the FDA response regarding
the DNA probe related protocol as well as the timing for the commencement of
clinical trials. There can be no assurance that 510(k) clearance for any
portion of the fetal cell screening system under development or any other
future product or modification of an existing product will be granted or that
the clearance process will not be unduly lengthy and subjected to a thorough
internal review equivalent to that ordinarily reserved for devices requiring
premarket approval by the FDA. If substantial equivalence cannot be
established or if the FDA determines that the device or the particular
application for the device requires a more rigorous review which the FDA has
stated is possible for the Company's prenatal screening system under
development, the FDA will require that the Company submit a PMA that must be
reviewed and approved by the FDA prior to sales, distribution and marketing of
these products in the United States. The PMA process is significantly more
complex, expensive and time consuming than the 510(k) process. While the
Company has made determinations regarding the appropriate form of approval, if
any, required for its products, there can be no assurance that such
determinations are correct, that the FDA will concur with such determinations
or that such determinations may not be altered due to new interpretations or
new data that may become available. Currently, the DNA probes that the Company
intends to purchase from third parties to incorporate into its prenatal
screening system are sold on a research basis without FDA approval for
commercial sale. The FDA requires DNA probes to have 510(k) clearance or PMA
approval for commercial sale for clinical diagnostic use, which could cause
the price of DNA probes to increase, making the Company's prenatal screening
system less price competitive compared to existing prenatal genetic test
procedures.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions against manufacture, distribution,
sales and marketing, civil penalties, suspensions or loss of regulatory
approvals, product recalls, seizure of products, operating restrictions and
criminal prosecution. In addition, future governmental regulations may be
established that could prevent or delay regulatory approval of the Company's
products. The regulation of medical devices in a number of such jurisdictions
continues to develop and there can be no assurance that new laws or
regulations will not have a material adverse effect on the Company's business,
financial condition and results of operations. Delays in receipt of clearance
or approvals to market its products, failure to receive these clearances or
approvals, the loss of previously received clearances or approvals, the
determination that 510(k) clearance, pre-market approval or other approval is
required for a product being marketed without such clearance or approval, or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Government Regulation."
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NEED TO COMPLY WITH INTERNATIONAL GOVERNMENT REGULATION
The regulatory review process varies from country to country. Currently, the
Company's products are subject to pre-market approval in several of the
countries that are members of the European Union and subject to other
regulatory requirements in those and other countries. In addition, the
regulation of in vitro diagnostic devices ("IVDs") and other medical devices
continues to change. The Company may rely, in some circumstances, on its
international distributors for compliance with clinical trial requirements in
those countries where the Company intends to use distributors. Any enforcement
action by regulatory authorities with respect to past or future regulatory
noncompliance would have a material adverse effect on the Company's business,
financial condition and results of operations.
The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for FDA approval, and the requirements
may differ. In addition, there may be foreign regulatory barriers other than
pre-market approval. Export sales of investigational devices that are subject
to PMA or investigational device exemption application requirements and have
not received FDA marketing approval generally may be subject to FDA export
permit requirements depending upon, among other things, the purpose of the
export (investigational or commercial), the country to which the device is
intended for export, and on whether the device has valid marketing
authorization in a country listed in the FDA Export Reform and Enhancement Act
of 1996. In order to obtain such a permit, when required, the Company must
provide the FDA with documentation from the medical device regulatory
authority of the country in which the purchaser is located, stating that the
device has the approval of the country. In addition, the FDA must find that
exportation of the device is not contrary to the public health and safety of
the country in order for the Company to obtain the permit.
The Company plans to bring its instruments, when required, into compliance
with the European Parliament's Electromagnetic Emissions Requirement
(89/336/EEC) and to be entitled to apply the CE mark to its instruments. The
European Parliament has made a distinction between Medical Devices (MDs) and
IVDs. Currently the European Union ("EU") and its member states have not
adopted an EU-wide directive specifically regulating IVDs. A "Draft" EU IVD
Directive (95/0013/EEC[COD]) has been prepared but has not been adopted into
law either in the European Parliament or by any member state. To the Company's
knowledge, there is no date established at this time for its enactment.
Transposition into law in the member states may take up to two years to five
years or longer following enactment by the European Parliament. Under the
terms of the "Draft" IVD Directive the Company would be permitted to self-
certify compliance to 95/0013/EEC[COD] without the intervention of a Competent
Authority (a governmental agency of a member state with jurisdiction over
matters pertaining to the directive) or a Notified Body (a private entity
authorized by a Competent Authority to verify the compliance of a regulated
entity with a particular directive) and thus apply the CE mark to its
products. There can be no assurance, however, that the Draft IVD Directive
will be adopted, or if adopted, will be implemented as drafted, or at all,
that if adopted self-certification will be permitted, or that more extensive
and more burdensome requirements will not be imposed. The Company conducted a
regulatory survey in 10 European countries, considered to be important markets
for its products. Presently, seven of these countries (confirmed by the
Company's direct contacts with the respective Ministries of Health) have
either no or limited regulatory or legal requirements for either the
registration or licensing of IVDs. The Company was unable to contact a
representative of the Ministries of Health in three countries to confirm
whether the Company is subject to regulatory requirements in these countries.
There can be no assurance, however, that such countries, or any other European
country, will not adopt statutes or regulations that require premarket
approval of the Company products, or that will otherwise have a material
adverse effect on the Company's business, financial condition, or results of
operations.
PATENTS AND PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company also relies on trade secret protection and on its unpatented
proprietary know-how in the development and manufacturing of its products.
While the Company generally enters into confidentiality agreements with its
employees and consultants, there can be no assurance that the Company's trade
secrets or proprietary technology will not become known or be independently
developed by competitors in such a manner that the Company has no practical
recourse. Nor can there be any assurance that others will not develop or
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acquire equivalent expertise or develop products which render the Company's
current or future products noncompetitive or obsolete. The Company has one
issued United States patent relating to its CytoVision Metaphase Finder, and
also has corresponding issued patents in certain European countries. In
addition, the Company has three United States patents concerning its
technology for enriching the concentration of nucleated fetal red blood cells
from maternal blood samples. Corresponding applications were filed through the
Patent Cooperation Treaty and preserve for the Company the right to file
applications in various countries on the fetal cell enrichment technology. The
patent position of medical technology companies generally is highly uncertain
and involves complex legal and factual questions. There can be no assurance
that the claims allowed under its patents will be sufficiently broad to
protect what the Company believes to be its proprietary rights. In addition,
there can be no assurance that issued patents will not be disallowed or
circumvented by competitors, or that the rights granted thereunder will
provide competitive advantages to the Company. Companies have filed
applications for, or have been issued patents relating to, products or
processes that may be competitive with certain of the Company's products or
processes. The Company is unable to predict how the courts would resolve
issues relating to the validity and scope of such patents.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain.
No assurance can be given that any issued patent or patents based on pending
patent applications or any future patent application will exclude competitors
or provide competitive advantages to the Company, that any of the Company's
patent or patents in which it has licensed rights will be held valid if
subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held or licensed by the Company.
Furthermore, no assurance can be given that others have not developed or will
not develop similar products, duplicate any of the Company's products or
design around any patents issued to or licensed by the Company or that may be
issued in the future to the Company. Since patent applications in the United
States are maintained in secrecy until patents issue, the Company also cannot
be certain that others did not first file applications for inventions covered
by the Company's pending patent applications, nor can the Company be certain
that it will not infringe any patents that may issue to others on such
applications.
Legislation is pending in Congress that may limit the ability of medical
device manufacturers in the future to obtain patents on surgical and medical
procedures. While the Company cannot predict whether the legislation will be
enacted, or precisely what limitations will result from the law if enacted,
any limitation or reduction in the patentability of medical and surgical
technology could have a material adverse effect on the Company's ability to
protect its proprietary methods and procedures.
In addition, patent applications in the United States are maintained in
secrecy until patents issue, and patent applications in foreign countries are
maintained in secrecy for a period after filing. Publication of discoveries in
the scientific or patent literature tends to lag behind actual discoveries and
the filing of related patent applications. The Company has not conducted an
extensive search of patents issued to other companies, research or academic
institutions, or others, and no assurances can be given that such patents do
not exist, have not been filed, or could not be filed or issued, which contain
claims relating to the Company's technology, products or processes. Patents
issued and patent applications filed in the United States or internationally
relating to medical devices are numerous and there can be no assurance that
current and potential competitors and other third parties have not filed or in
the future will not file applications for, or have not received or in the
future will not receive, patents or obtain additional proprietary rights
relating to products or processes used or proposed to be used by the Company.
There are pending applications, which if issued with claims in their present
form, might provide proprietary rights to third parties relating to products
or processes used or proposed to be used by the Company. The Company may be
required to obtain licenses to patents or proprietary rights of others. There
can be no assurance that any such license would be made available or, if
available, would be available on commercially acceptable terms. Failure to
obtain a required license could prevent the Company from commercializing its
products resulting in a material adverse effect on the Company's business,
financial condition and results of operations.
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The medical device industry in general, and the industry segment that
includes products for prenatal diagnostic screening in particular, have been
characterized by substantial competition. Litigation regarding patent and
other intellectual property rights, whether with or without merit, could be
time-consuming and expensive to respond to and could divert the Company's
technical and management personnel. The Company may be involved in litigation
to defend against claims of infringement by the Company, to enforce patents
issued to the Company, or to protect trade secrets of the Company. If any
relevant claims of third-party patents are held as infringed and not invalid
in any litigation or administrative proceeding, the Company could be prevented
from practicing the subject matter claimed in such patents, or would be
required to obtain licenses from the patent owners of each such patent, or to
redesign its products or processes to avoid infringement. The Company has
recently received a letter from Vysis Corp. informing the Company that its
products might fall within the claims of a United States patent exclusively
licensed to Vysis Corp. Vysis Corp. offered the Company the right to obtain a
sublicense to such patent. The Company does not believe it is necessary to
obtain such a sublicense and does not believe it is infringing the patent .
However, there can be no assurance that the Company will not ultimately be
required to seek a license from Vysis Corp. or any other third party or that
such license would be available or, if available, would be available on terms
commercially-acceptable to the Company. In addition, in the event of any
possible infringement, there can be no assurance that the Company would be
successful in any attempt to redesign its products or processes to avoid such
infringement. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling its products, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company intends to vigorously protect and
defend its intellectual property. Costly and time-consuming litigation brought
by the Company may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, or to determine the
enforceability, scope and validity of the proprietary rights of others. See
"Business--Patents and Proprietary Rights" and "--Competition."
The Company also has certain trademark rights in the United States and other
foreign countries. It is possible that third parties may allege superior
rights to one or more of the Company's trademarks, or close variations, for
those countries in which the Company is presently conducting business or may
do so in the future. The Company's rights to use and register its marks in a
given jurisdiction may depend on its rights relative to a third party's rights
as governed by the laws of the pertinent country. Factors utilized to
determine the relevant rights between parties include priority of the use or
registration of the mark, how close the respective marks are in appearance,
sound and/or meaning, as well as the goods to which they are applied. It is
possible that the Company could be prevented from using or registering its
trademarks in certain countries due to a superior third party right.
LIMITED MANUFACTURING EXPERIENCE
To date, the Company's manufacturing activities have consisted primarily of
the assembly and testing of its cytogenetic products. If the Company obtains
necessary regulatory clearances, registrations and approvals for its prenatal
screening system and such systems are successfully introduced, the Company
will be required to increase its manufacturing capacity. The Company has
limited experience in manufacturing the consumable enrichment kit of its
prenatal screening system. Manufacturers often encounter difficulties in
commencing and increasing production, including problems involving production
yields, adequate supplies of components, quality control and assurance
(including failure to comply with the FDA's GMP regulations, international
quality standards and other regulatory requirements) and shortages of
qualified personnel. Difficulties experienced by the Company in manufacturing
could have a material adverse effect on its business, financial condition and
results of operations. There can be no assurance that the Company will be
successful in commencing manufacture of the prenatal screening system in
commercial quantities, increasing manufacturing capacity or that it will not
experience manufacturing difficulties or product recalls in the future. See
"Business--Manufacturing."
The Company plans to initially subcontract third parties to manufacture the
consumable enrichment kit component of its prenatal screening system under
development and may ultimately manufacture such components on its own. For
clinical trials, the Company will purchase the consumable enrichment kit from
a
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third party. The Company may encounter difficulties in scaling up production
of the consumable enrichment kit of its prenatal screening system under
development or in hiring and training additional personnel to manufacture its
consumable enrichment kit products in commercial quantities.
MANAGEMENT OF GROWTH
Significant future growth in the Company's sales and expansion in the scope
of its operations, should they occur, may place considerable strain on the
Company's management, financial, manufacturing and other capabilities,
procedures and controls. There can be no assurance that any existing or
additional capabilities, procedures or controls will be adequate to support
the Company's operations or that its capabilities, procedures or controls will
be designed, implemented or improved in a timely and cost-effective manner.
Failure to implement, improve and expand such capabilities, procedures and
controls in an efficient manner at an appropriate pace could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SINGLE SOURCE COMPONENTS; DEPENDENCE ON KEY DISTRIBUTORS
Certain components of the Company's prenatal screening system under
development are expected to be in consumable enrichment kit form. The Company
intends to initially subcontract the manufacture of such consumable enrichment
kits; however, given the stage of the product's development, neither internal
nor third-party manufacturing processes have been established. The Company
currently relies on a sole supplier for a certain component of its consumable
enrichment kit. There can be no assurance that reliable, high volume
commercial supplies of such component can be established at commercially
reasonable costs or that a new supplier could be qualified in a timely manner
if the supply of such component were interrupted. The Company also relies on a
sole source supplier for its preformed density gradients, an essential
component for its consumable enrichment kit. There can be no assurance that
reliable high volume manufacturing of such gradients can be established at
commercially reasonable costs or that a new supplier could be qualified in a
timely manner if the supply of such gradients were interrupted. In addition,
the Company proposes to incorporate DNA probes into its prenatal screening
system under development, which are currently provided by a limited number of
vendors. The Company has an obligation to purchase certain types of DNA probes
from a particular supplier subject to such supplier meeting various
performance standards. Such probes may require FDA clearance or approval for
marketing for clinical diagnostic procedures in the United States and may
require FDA approval for export. The DNA probe market is characterized by
extensive patent litigation and any court order with respect to infringement
of intellectual property could adversely affect the supply of available and
cost-effective DNA probes. While the Company believes that other sources for
such DNA probes are available, if there were to be interruptions in obtaining
supplies from its present source, the Company would have to qualify new
sources of approved supply. Outside of North America and the United Kingdom,
the Company relies substantially on independent distributors and sales agents
to market and sell its products. There can be no assurance that distributors
and agents will devote adequate resources to support sales of the Company's
products. Moreover, agreements with a number of its distributors require that
the Company indemnify such distributors against costs, expenses and
liabilities relating to litigation regarding the Company's products and,
despite these obligations of the company, distributors may decide to reduce or
end their selling efforts until an infringement dispute is resolved or
settled. See "Risk Factors--Patents and Proprietary Technology; Risk of
Infringement," "Business--Applied Imaging's Prenatal Screening System,"
"Business--Current Cytogenetic Products," "Business--Sales, Distribution and
Marketing" and "Business--Manufacturing."
RELIANCE ON INTERNATIONAL SALES AND OPERATIONS
The Company has significant international operations including approximately
38 employees located in the United Kingdom. In 1993, 1994 and 1995, and in the
quarter ended March 31, 1996 approximately 64%, 62% and 61% and 57%,
respectively, of the Company's total revenues were derived from customers and
distributors outside of the United States and Canada. Until such time, if
ever, as the FDA clears or approves the Company's fetal cell screening system
for marketing in the United States, the Company expects that international
sales of
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cytogenetic products will continue to account for a significant portion of its
revenues. Changes in overseas economic conditions, currency exchange rates,
foreign tax laws, or tariffs or other trade regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations. The international nature of the Company's business subjects it and
its representatives, agents and distributors to laws and regulations of the
foreign jurisdictions in which it operates or in which its products are sold.
The regulation of medical devices in a number of such jurisdictions,
particularly in the European Community, continue to develop and there can be
no assurance that new laws or regulations will not have a material adverse
effect on the Company's business. The laws of certain foreign countries may
not protect the Company's intellectual property rights to the same extent as
do the laws of the United States. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Sales, Distribution
and Marketing," "Business--Manufacturing" and "Business--Facilities."
Most of the Company's international sales are denominated in local
currencies. The Company has not historically attempted to reduce the risk of
currency fluctuations by hedging. The Company may be disadvantaged with
respect to its competitors operating in a foreign country by foreign currency
exchange rate fluctuations that make the Company's products more expensive
relative to those of local competitors. The Company may attempt to reduce
these risks by hedging in the future. Accordingly, changes in the exchange
rates of foreign currencies or exchange controls may adversely affect the
Company's results of operations. There can be no assurance that the Company's
current or any future currency exchange strategy will be successful in
avoiding exchange related losses or that any of the factors listed above will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition and results
of operations. See "Business--Sales, Distribution and Marketing."
INTERNATIONAL UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT; HEALTH CARE
REFORM AND RELATED MATTERS
In the United States, hospitals, physicians and other health care providers
that purchase medical devices generally rely on third-party payors,
principally Medicare, Medicaid, private health insurance plans, health
maintenance organizations and other sources of reimbursement for health care
costs ("Third-Party Payors"), to reimburse all or part of the cost of the
procedure in which the medical device is being used. Certain Third-Party
Payors are moving toward a managed care system in which they contract to
provide comprehensive health care for a fixed cost per person. The fixed cost
per person established by these Third-Party Payors may be independent of the
hospital's cost incurred for the specific case and the specific devices used.
Medicare and other Third-Party Payors are increasingly scrutinizing whether to
cover new products and the level of reimbursement for covered products.
Because the Company's fetal cell screening system is currently under
development and has not received FDA clearance or approval, uncertainty exists
regarding the availability of third-party reimbursement for procedures that
would use the Company's fetal cell screening system. Failure by physicians,
hospitals and other potential users of the Company's products or products
currently under development to obtain sufficient reimbursement from Third-
Party Payors for the procedures in which the Company's products or products
currently under the development are intended to be used could have a material
adverse effect on the Company's business, financial condition and results of
operation.
Third-Party Payors that do not use prospectively fixed payments increasingly
use other cost-containment processes that may pose administrative hurdles to
the use of the Company's products and products currently under development. In
addition, Third-Party Payors may deny reimbursement if they determine that the
device used in a treatment is unnecessary, inappropriate, experimental, used
for a non-approved indication or is not cost-effective. Potential purchasers
must determine that the clinical benefits of the Company's products justify
the additional cost or the additional effort required to obtain prior
authorization or coverage and the uncertainty of actually obtaining such
authorization or coverage.
If the Company obtains the necessary foreign regulatory registrations or
approvals, market acceptance of the Company's products and products currently
under development in international markets would be dependent, in part, upon
the availability of reimbursement within prevailing health care payment
systems. Reimbursement and health care payment systems in international
markets vary significantly by country, and include both
14
<PAGE>
government sponsored health care and private insurance. Although the Company
intends to seek international reimbursement approvals, there can be no
assurance that any such approvals will be obtained in a timely manner, if at
all. Failure to receive international reimbursement approvals could have a
material adverse effect on market acceptance of the Company's products in the
international markets in which such approvals are sought.
The Company believes that in the future reimbursement will be subject to
increased restrictions such as those described above, both in the United
States and in international markets. The Company believes that the overall
escalating cost of medical products and services has led, and will continue to
lead, to increased pressures on the health care industry, both foreign and
domestic, to reduce the cost of products and services, including the Company's
products and products currently under development. There can be no assurance
in either United States or international markets that third-party
reimbursement and coverage will be available or adequate, that current
reimbursement amounts will not be decreased in the future or that future
legislation, regulation or reimbursement policies of Third-Party Payors will
not otherwise adversely affect the demand for the Company's products or
products currently under development or its ability to sell its products on a
profitable basis. The unavailability of Third-Party Payor coverage or the
inadequacy of reimbursement could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, fundamental reforms in the health care industry in the United States
and Europe continue to be considered, although the Company cannot predict
whether or when any health care reform proposals will be adopted and there can
be no assurance that such reform will not materially adversely affect the
Company's business, financial condition and results of operations. See
"Business--Third-Party Reimbursement and Health Care Reform."
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends in significant part upon the continued
service of certain key scientific, technical and management personnel, and its
continuing ability to attract and retain highly qualified scientific,
technical and managerial personnel. Competition for such personnel is intense
and there can be no assurance that the Company can retain its key scientific,
technical and managerial personnel or that it can attract, assimilate or
retain other highly qualified scientific, technical and managerial personnel
in the future. The loss of key personnel, especially if without advanced
notice, or the inability to hire or retain qualified personnel could have a
material adverse effect upon the Company's business, results of operations and
financial condition.
RISK OF SOFTWARE DEFECTS
The Company's cytogenetic products and fetal cell screening system currently
under development involve a software component that facilitates the detection
of chromosomal and genetic abnormalities through the interaction of certain
imaging algorithms with the genetic sample under examination. The software,
including any new versions that may be released, may contain undetected errors
or failures. There can be no assurance that, despite testing by the Company
and current and potential customers, errors will not be found in the software
components of the Company's cytogenetic products or prenatal screening system,
resulting in loss or delay in market acceptance, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
The manufacture and sale of the Company's products involves the risk of
product liability claims. Although the Company maintains product liability
insurance, there can be no assurance that the coverage limits of the Company's
insurance policies will be adequate. The Company intends to evaluate its
coverage on a regular basis and in connection with the introduction of
products currently under development. Such insurance is expensive and in the
future may not be available on acceptable terms, in sufficient amount of
coverage, or at all. A successful claim brought against the Company in excess
of its insurance coverage could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Product Liability and Insurance."
15
<PAGE>
CONTROL BY EXISTING SHAREHOLDERS
After the completion of this offering, current shareholders, including
certain executive officers and directors of the Company and their affiliates,
will own approximately 68.7% of the outstanding Common Stock. As a result,
these shareholders will, to the extent they act together, continue to have the
ability to exert significant influence and control over matters requiring the
approval of the Company's shareholders, including the election of a majority
of the Company's Board of Directors. See "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this offering could materially
and adversely affect the market price of the Common Stock. Such sales also
might make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this offering, the Company will have
7,347,802 shares of Common Stock outstanding, of which the 2,300,000 shares
offered hereby will be freely tradeable (unless held by affiliates of the
Company) without restriction. The remaining 5,047,802 shares will be
restricted securities within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The Company's directors, executive officers
and certain of its shareholders, who in the aggregate hold more than 94% of
the shares of Common Stock of the Company outstanding immediately prior to the
completion of this offering, have entered into lock-up agreements under which
they have agreed not to sell, directly or indirectly, any shares owned by them
for a period of 180 days after the date of this Prospectus without the prior
written consent of Montgomery Securities. Montgomery Securities may, in its
sole discretion and at any time without notice, release all or any portion of
the shares subject to such lock-up agreements. Of such shares, approximately
239,590 will be freely tradeable (unless held by affiliates of the Company)
without restriction. Ninety days following the date of this Prospectus,
approximately 33,571 additional shares currently outstanding will become
eligible for public sale. Upon expiration of the 180-day lock-up agreements,
approximately 3,998,676 additional shares of Common Stock (including
approximately 222,186 shares subject to outstanding vested options and
approximately 110,416 shares of Common Stock issuable upon exercise of certain
outstanding warrants) will become eligible for public resale, subject in some
cases to volume limitations pursuant to Rule 144. The remaining approximately
1,617,301 shares held by existing stockholders (including approximately
508,734 shares of Common Stock issuable upon exercise of certain outstanding
warrants) will become eligible for public resale at various times over a
period of less than two years following the completion of this offering,
subject in some cases to vesting provisions and volume limitations. 4,216,090
of the shares outstanding immediately following the completion of this
offering will be entitled to registration rights with respect to such shares
upon termination of lock-up agreements. The number of shares sold in the
public market could increase if registration rights are exercised and such
sales may have an adverse effect on the market price of the Common Stock. See
"Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK; DILUTION
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
and continue upon the completion of this offering or that the market price of
the Common Stock will not decline below the initial public offering price. The
initial public offering price of the Common Stock has been determined by
negotiations between the Company and the Underwriters, in conformity with
Schedule E of the By-Laws of the National Association of Securities Dealers
(the "NASD"). As such, the initial public offering price is not necessarily
related to the Company's net worth or any other established criteria of value
and may not bear any relationship to the market price of the Common Stock
following the completion of the offering. The market prices for securities of
medical diagnostic instrument companies have historically been highly
volatile. Announcements of technological innovations or new products by the
Company or its competitors, developments concerning proprietary rights,
including patents and litigation matters, publicity regarding actual or
potential results with respect to products under development by the Company or
others, regulatory developments in both the United States and foreign
countries and public concern as to the safety of new technologies changes in
financial estimates by securities analysts or failure of the
16
<PAGE>
Company to meet such estimates and other factors, may have a significant
impact on the market price of the Common Stock. In addition, the Company
believes that fluctuations in its operating results may cause the market price
of its Common Stock to fluctuate, perhaps substantially. Purchasers of shares
of Common Stock offered hereby will experience an immediate dilution of $10.18
in the net tangible book value per share of their Common Stock from the
initial public offering price. See "Underwriting" and "Dilution."
ADVERSE IMPACT OF POSSIBLE ISSUANCES OF PREFERRED STOCK
Upon completion of this offering, the Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock and to fix the
prices, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation. Additionally, the issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect
the market price of and the voting and other rights of the holders of the
Common Stock.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $31,335,000 (approximately
$36,147,750 if the Underwriters' over-allotment option is exercised in full)
assuming an initial public offering price of $15.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
The Company estimates that approximately $10 million of the net proceeds
from this offering will be used for the development and commercialization of
the Company's prenatal screening system, including costs related to clinical
trials and regulatory approvals, approximately $5 million will be used to fund
research and development related to additional applications of its prenatal
screening technology, an aggregate of $418,000 will be used for repayment of
the Company's bank line of credit bearing interest at 9.75% due in September
1996 and the Company's bank note payable bearing interest at 9.875% due in
October 1996, and the remainder will be used for working capital and general
corporate purposes. Although the Company believes the proceeds of this
offering, together with its existing resources will be adequate to satisfy its
capital needs through 1998, the timing and amount of spending of such capital
resources cannot be accurately determined at this time and will depend upon
several factors, including the timing of regulatory approvals or clearances,
progress of its research and development efforts and clinical investigations,
competing technological and market developments, commercialization of products
currently under development, and market acceptance and demand for the
Company's products. The Board of Directors has broad discretion in determining
how the proceeds of this offering will be applied. In the event opportunities
arise, proceeds also may be used to acquire businesses, technologies or
products that complement the business of the Company, although the Company is
not currently in negotiations regarding any such acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Pending such uses, the Company intends to invest the net proceeds in short-
term, interest-bearing investment grade securities.
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception and does not
intend to pay any cash dividends in the foreseeable future. Under the
Company's line of credit agreement, the Company is prohibited from paying cash
dividends without the bank's prior approval.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, on a pro forma basis after giving effect to the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of
the offering made hereby and the restatement of the Company's Restated
Articles of Incorporation to provide for authorized capital stock consisting
of 20,000,000 shares of Common Stock and 5,000,000 shares of undesignated
Preferred Stock, and as adjusted to reflect the application of the estimated
net proceeds from the sale of 2,300,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $15 per share and the repayment
of $418,000 of short-term debt:
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of debt......................... $ 447 $ 447 $ 29
======= ======= =======
Long-term debt less current portion............. 223 223 223
------- ------- -------
Shareholders' equity: (1)
Preferred Stock. 6,000,000 shares authorized;
3,919,179 shares issued and outstanding,
actual; 5,000,000 shares authorized, none
issued and outstanding, pro forma and as
adjusted..................................... 14,041 -- --
Common Stock. 20,000,000 shares authorized;
1,087,785 shares issued and outstanding,
actual; 20,000,000 shares authorized,
5,047,802 shares issued and outstanding, pro
forma; 20,000,000 shares authorized,
7,347,802 shares issued and outstanding,
as adjusted.................................. 1,690 15,731 47,066
Accumulated deficit............................. (9,800) (9,800) (9,800)
Deferred stock compensation..................... (1,473) (1,473) (1,473)
Cumulative translation adjustment............... (367) (367) (367)
------- ------- -------
Total shareholders' equity.................. 4,091 4,091 35,426
------- ------- -------
Total capitalization...................... $ 4,314 $ 4,314 $35,649
======= ======= =======
</TABLE>
- --------
(1) Based upon shares outstanding as of March 31, 1996. Excludes (i) 506,000
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $1.96 per share under the Company's Amended and Restated
1988 Incentive Stock Option Plan (the "1988 Option Plan"), (ii) 50,000
shares reserved for issuance under the Company's 1994 Director Option Plan
(the "Director Plan"), (iii) 619,150 shares issuable upon exercise of
outstanding warrants to purchase Common Stock and (iv) 176,238 shares
reserved for issuance under the 1988 Option Plan. Also excludes 720,000
shares reserved after March 31, 1996 for issuance under the Company's 1988
Option Plan, the Director Plan and the Employee Stock Purchase Plan. See
"Management--Incentive Stock Plans," "Description of Capital Stock--
Warrants."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996 was
approximately $4,052,000 or $.80 per Common share. Pro forma net tangible book
value per share represents the Company's total tangible assets less total
liabilities, divided by the pro forma number of outstanding shares of Common
Stock (after giving effect to the conversion of the Preferred Stock to Common
Stock). Dilution per share represents the difference between the amount per
share paid by investors in this offering and the pro forma net tangible book
value per share after the offering. After giving effect to the sale of
2,300,000 shares in this offering at an assumed initial public offering price
of $15.00 per share and after deducting the estimated underwriting discounts
and commissions and offering expenses, the pro forma net tangible book value
of the Company at March 31, 1996 would have been $35,387,000 or $4.82 per
share. This represents an immediate increase of net tangible book value of
$4.02 per share to existing shareholders and an immediate dilution in net
tangible book value of $10.18 per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $15.00
Pro forma net tangible book value per share before the
offering.................................................... $ .80
Increase attributable to new investors....................... 4.02
-----
Pro forma net tangible book value per share after the offering 4.82
------
Dilution per share to new investors............................ $10.18
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between existing shareholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid at an assumed initial
public offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 5,047,802 68.7% $14,897,000 30.2% $2.95
New investors................ 2,300,000 31.3 34,500,000 69.8% 15.00
--------- ----- ----------- -----
Total...................... 7,347,802 100.0% $49,397,000 100.0%
========= ===== =========== =====
</TABLE>
The computations in the above table (i) are determined before deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company, (ii) assume no exercise of outstanding stock options or
warrants, and (iii) assume the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering. At March
31, 1996, there were options outstanding to purchase 506,000 shares of Common
Stock at a weighted average exercise price of $1.96 per share under the
Company's 1988 Option Plan. At March 31, 1996, there were warrants outstanding
to purchase 619,150 shares of Common Stock at a weighted average exercise
price of $4.69 per share. To the extent outstanding options or warrants are
exercised, there will be further dilution to new investors. See "Management--
Incentive Stock Plans," "Description of Capital Stock--Warrants" and
"Underwriting."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below under the
captions "Statement of Operations Data" and "Balance Sheet Data" for, and as
of the end of, each of the years in the five-year period ended December 31,
1995, are derived from the consolidated financial statements of Applied
Imaging Corp. and subsidiaries, which financial statements have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1994 and 1995, and for
each of the years in the three-year period ended December 31, 1995, and the
report thereon, are included elsewhere in this Prospectus. The selected
consolidated financial data set forth below as of March 31, 1996 and for the
three months ended March 31, 1995 and 1996 were derived from unaudited
consolidated financial statements of the Company, which are included elsewhere
in this Prospectus, and include, in the opinion of the Company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position at that date and results
of operations for those periods. The results for the three months ended March
31, 1996 are not necessarily indicative of the results for any future period.
The selected consolidated financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, the Consolidated
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in the Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales.......... $ 8,995 $ 9,215 $ 6,182 $ 7,021 $ 8,106 $ 1,752 $ 2,261
Software maintenance
and service........... 1,786 2,496 2,499 2,550 2,692 647 696
------- ------- ------- ------- ------- ------- -------
Total revenues....... 10,781 11,711 8,681 9,571 10,798 2,399 2,957
Cost of revenues........ 5,783 6,184 4,965 5,350 5,484 1,161 1,556
------- ------- ------- ------- ------- ------- -------
Gross profit......... 4,998 5,527 3,716 4,221 5,314 1,238 1,401
Operating Expenses:
Research and
development........... 1,164 1,316 1,756 2,821 2,919 693 897
Sales and marketing.... 2,565 3,279 2,543 2,524 2,918 649 725
General and
administrative........ 1,453 1,642 1,229 1,898 2,094 575 460
Restructuring and
reorganization costs.. 396 -- -- -- -- -- --
Write off of acquired
research and
development in
process............... 1,285 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 6,863 6,237 5,528 7,243 7,931 1,917 2,082
------- ------- ------- ------- ------- ------- -------
Operating loss....... (1,865) (710) (1,812) (3,022) (2,617) (679) (681)
Other (expense) income.. 307 (23) 39 52 71 19 21
------- ------- ------- ------- ------- ------- -------
Loss before income
taxes............... (1,558) (733) (1,773) (2,970) (2,546) (660) (660)
Income tax expense
(benefit).............. 65 (253) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss before
extraordinary item.. (1,623) (480) (1,773) (2,970) (2,546) (660) (660)
Extraordinary item...... 646 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss............. $ (977) $ (480) $(1,773) $(2,970) $(2,546) $ (660) $ (660)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per
share.................. $ (.45) $ (.12)
======= =======
Shares used in
calculation of pro
forma net loss per
share.................. 5,635 5,681
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments........... $1,188 $1,151 $4,461 $2,503 $5,156 $3,892
Working capital........ 1,877 1,715 4,756 1,712 3,249 2,715
Total assets........... 7,442 6,567 9,666 7,441 9,373 8,542
Long-term debt......... 353 263 173 336 231 223
Accumulated deficit.... (1,372) (1,852) (3,625) (6,594) (9,140) (9,800)
Total shareholders'
equity................ 2,590 2,595 5,813 2,811 4,714 4,091
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
Since its inception in 1986, the Company has principally been engaged in the
design, development, manufacture and marketing of automated clinical analysis
systems used by cytogenetic laboratories for prenatal and other genetic
screening. The Company's cytogenetic instrumentation products include systems
that enable laboratories to automate aspects of the detection of chromosomal
abnormalities associated with conditions such as Down's Syndrome. The
Company's CytoVision family of products includes an automated metaphase finder
which identifies cells in metaphase, a karyotyper which automates the
classification and presentation of chromosomes within cells and a DNA probe
analysis system which detects DNA probes within cell nuclei. The Company sells
its cytogenetic systems to government and private clinical cytogenetic
laboratories, research institutions, universities and pharmaceutical
companies, and currently has an installed base at approximately 500 sites in
over 30 countries.
Historically, the Company has grown through both internal expansion and
acquisitions. In 1989 and 1991, the Company acquired two separate companies
based in the United Kingdom with complementary technologies and worldwide
market presence. In 1991, the Company restructured its U.K. operations to
combine the two acquired companies. In 1993, the Company eliminated certain
unprofitable product lines in order to focus its efforts on the cytogenetic
screening market.
In 1993, the Company established a research project to develop a proprietary
prenatal screening system to detect chromosomal genetic disorders through the
enrichment and analysis of fetal blood cells from a routine maternal blood
sample. Since that time, the Company has devoted substantial resources to the
development of this prenatal screening system. The Company's proprietary
screening system which the Company is developing incorporates (i) a patented
hematologically-based procedure to enrich and separate the fetal blood cells,
(ii) automated image analysis instrumentation to identify the fetal cells and
(iii) the use of third-party DNA probes to identify certain chromosomal
disorders present in fetal cells. This prenatal screening system under
development is currently in preclinical evaluation, and the Company intends to
continue preclinical and clinical evaluation of this system to establish it as
a broadly applicable prenatal screening procedure. The Company anticipates
that sales of this system, if approved by the FDA, will include both a
consumable enrichment kit used to separate fetal blood cells from maternal
blood and imaging instrumentation used to analyze these cells.
The operating results of the Company have fluctuated significantly in the
past on an annual and quarterly basis. The Company expects that its operating
results will fluctuate significantly from quarter to quarter and year to year
in the future and will depend on a number of factors, many of which are
outside the Company's control. If FDA approval is received, the Company
intends to increase the amount of expenditures for research and development
and sales and marketing activities, principally for the commercial launch of
its prenatal screening system. The Company intends to increase its research
and development expenses related to follow-on products and additional
applications of its fetal cell screening technology. The Company also intends
to increase the amount of expenditures related to marketing and administrative
activities. Management's plans discussed above assume the receipt of the net
proceeds of this offering.
22
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues. The Company's revenues are derived primarily from the sale of
products and software maintenance and instrument service contracts. Revenues
increased by 25% to approximately $3.0 million for the three months ended
March 31, 1996 from $2.4 million for the corresponding quarter of the prior
year. This increase in revenues was primarily attributable to sales of the
Company's CytoVision products to both new customers and existing customers,
who were either adding capacity or replacing earlier generation systems.
Software maintenance and service contract revenue as a percentage of total
revenue decreased to 24% for the three months ended March 31, 1996 from 27% in
the corresponding quarter of the prior year. This decrease was primarily due
to an increased rate of new system sales. Revenues from new system sales are
recognized upon shipment, whereas revenues from the related maintenance and
service contracts are deferred and recognized ratably over one year.
Cost of Revenues. Cost of revenues includes direct material and labor costs,
manufacturing overhead, installation costs, warranty related expenses and
post-warranty service and application support expenses. Cost of revenues as a
percentage of total revenues increased to 53% for the three months ended March
31, 1996 from 48% in the corresponding quarter of the prior year primarily due
to an inventory provision taken in the 1996 period relating to a component
upgrade.
Research and Development Expenses. Research and development expenses consist
of development of new products and software development costs to upgrade
existing products. Research and development expenses increased by 29% to
$897,000 for the three months ended March 31, 1996 from $693,000 in the
corresponding quarter of the prior year. This increase was attributable to
increased expenditures in 1996 for the development of the prenatal screening
system.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries, commissions and related travel expenses of the Company's direct
sales force, as well as commissions paid to independent sales agents. Sales
and marketing expenses increased by 12% to $725,000 for the three months ended
March 31, 1996 from $649,000 in the corresponding quarter of the prior year.
This increase was due to the increase in the Company's orders and revenues
during the first quarter of 1996.
General and Administrative Expenses. General and administrative expenses
consist primarily of payroll costs associated with the Company's management
and support personnel, travel expenses, and legal and accounting fees. General
and administrative expenses decreased by 20% to $460,000 for the three months
ended March 31, 1996 from $575,000 in the corresponding quarter of the prior
year. This decrease was primarily attributable to stock option compensation
recorded in the three months ended March 31, 1995 relating to a transaction
with certain officers that took place during that period.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Revenues. Revenues increased to $10.8 million in 1995 from $9.6 million in
1994, and from $8.7 million in 1993, or annual increases of 13% and 10%,
respectively. The 1995 and 1994 increases in revenues were primarily
attributable to the introduction of the new CytoVision family of products in
the fourth quarter of 1993. Software and service contract revenues as a
percentage of total revenues remained relatively consistent from 1994 to 1995
at 27% and 25% of total revenues, respectively. In 1993, software and service
contract revenues were 29% of total revenues due to higher priced service
contracts associated with earlier-generation products. For the years ended
1995, 1994 and 1993, revenues derived outside of North America represented
approximately 61%, 62% and 64% of total revenues, respectively.
Cost of Revenues. Cost of revenues increased to $5.5 million in 1995 from
$5.4 million in 1994 and from $5.0 million in 1993, or 51%, 56% and 57% as a
percentage of total revenues, respectively. This decrease in cost of revenues
as a percentage of revenues from year to year was attributable to increased
sales volume, engineering design changes to reduce production costs, and the
consolidation of worldwide manufacturing operations in 1994.
23
<PAGE>
Research and Development Expenses. Research and development expenses
increased to approximately $2.9 million in 1995 from $2.8 million in 1994 and
from $1.8 million in 1993. These year to year increases were due to increasing
expenditures on the development of the prenatal screening system which were
partially offset by reduced expenditures on the base cytogenetic
instrumentation business.
Sales and Marketing Expenses. Sales and marketing expenses increased to $2.9
million in 1995 from $2.5 million in 1994, which remained unchanged from 1993.
In 1995, 1994 and 1993, sales and marketing expenses as a percentage of total
revenues remained relatively consistent ranging from 26% to 29%.
General and Administrative Expenses. General and administrative expenses
increased to $2.1 million in 1995, from $1.9 million in 1994, and from $1.2
million in 1993, or 19%, 20% and 14% of total revenues, respectively. This
increased level of general and administrative expenses in 1994 was
attributable primarily to costs associated with the Company's effort to
complete an initial public offering, which was abandoned due to unfavorable
market conditions. In addition, the 1994 amounts include certain patent and
legal costs associated with the prenatal screening system and expenses related
to the addition of quality assurance and regulatory personnel.
LIQUIDITY AND CAPITAL RESOURCES
From inception in July 1986 through March 1996, the Company has generated an
accumulated deficit of approximately $9.8 million. The Company has financed
its operations primarily through the private placement of equity securities
and bank loans. From its inception, the Company has raised a total of
approximately $14.7 million in net proceeds from such private equity
financings. The Company's primary uses of cash were to fund working capital
requirements, for capital expenditures and to consummate acquisitions of
companies with complementary products, technology, and marketing and sales
organizations.
Capital expenditures totaled $808,000, $653,000, and $385,000 in 1995, 1994,
and 1993, respectively, and $112,000 in the quarter ended March 31, 1996. The
Company currently has a $1.0 million credit facility with a U.S. bank
consisting of a term note and revolving credit line, of which approximately
$418,000 was outstanding as of March 31, 1996. Under the line of credit
agreement, the Company cannot pay cash dividends without the bank's prior
approval. The term note, which matures in October 1996 and is subject to
monthly payments of principal and interest, bears interest at the bank's prime
rate plus 1.625% (9.875% at March 31, 1996). The line of credit bears interest
at the bank's prime rate plus 1.5% (9.75% at March 31, 1996). The credit line
expires by its current terms in September 1996 and the Company expects to
negotiate a new bank credit facility after the closing of the offering made
hereby. This credit line currently is secured by the Company's domestic
assets, including two-thirds of the shares of Applied Imaging International,
Ltd. held by the Company. See Note 5 of Notes to Consolidated Financial
Statements. The Company's wholly-owned subsidiary, Applied Imaging
International, Ltd., has a (Pounds)500,000 unsecured line of credit with a
United Kingdom bank guaranteed by the Company. No amounts were outstanding
under this facility as of March 31, 1996.
At March 31, 1996, cash, cash equivalents and short-term investments were
approximately $3.9 million, as compared to approximately $5.2 million at
December 31, 1995. As of March 31, 1996, the Company also had approximately
$582,000 available under its secured domestic line of credit and
(Pounds)500,000 ($763,000) available under its unsecured international line of
credit. Based upon its current plans, the Company believes the proceeds of
this offering, together with its existing resources, will be adequate to
satisfy its capital needs through 1998. The timing and amount of spending of
such capital resources cannot be accurately determined at this time and will
depend on several factors, including the progress of its research and
development efforts and clinical investigations, the timing of regulatory
approvals or clearances, competing technological and market developments,
commercialization of products currently under development, and market
acceptance and demand for the Company's products. In addition, as
opportunities arise, proceeds may also be used to acquire businesses,
technologies or products that complement the business of the Company, although
the Company is not currently in negotiations regarding any such acquisitions.
The Company may seek to obtain additional funds through
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<PAGE>
equity or debt financing, collaborative or other arrangements with other
companies and from other sources. There can be no assurance that additional
financing will be available when needed or on terms acceptable to the Company.
If adequate funds are not available, the Company could be required to delay
development or commercialization of certain of its products, to license to
third parties the rights to commercialize certain products or technologies
that the Company would otherwise seek to commercialize itself, or to reduce
the marketing, customer support or other resources devoted to certain of its
products.
The Internal Revenue Code of 1986 and the California Conformity Act of 1987
substantially restrict the ability of a corporation to utilize existing net
operating losses and credits in the event of an "ownership change". The
several issuances of preferred stock have resulted in multiple ownership
changes since inception of the Company. The majority of the federal net
operating loss carryforwards are limited by an ownership change occurring in
July 1995. Approximately $6,700,000 of the $7,700,000 federal net operating
loss carryforward will be subject to an annual limitation in the aggregate of
$850,000. Any unused annual limitation can be carried over and added to the
succeeding year's annual limitation within the allowable carryforward period.
Management believes that the initial public offering of the Company's stock
will most likely result in an ownership change, however, the July 1995 change
will continue to be the most restrictive limitation because the majority of
the Company's net operating losses were incurred prior to July 1995.
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<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors," and
elsewhere in this Prospectus.
THE COMPANY
Applied Imaging designs, develops, manufactures and markets automated
clinical analysis systems used by cytogenetic laboratories for prenatal and
other genetic testing. The Company's cytogenetic instrumentation business,
which has an installed base at approximately 500 sites in more than 30
countries, includes systems that enable laboratories to automate aspects of
the detection of chromosomal abnormalities associated with conditions such as
Down's Syndrome. In addition to the Company's core instrument business, the
Company is developing a proprietary genetic screening system designed to
enable prenatal screening for genetic abnormalities by isolating nucleated
fetal red blood cells ("fetal blood cells") from a routine maternal blood
sample. This new system is designed to improve current prenatal screening
techniques by providing an accurate, timely and cost-effective procedure
without the risks of miscarriage or fetal damage associated with invasive
prenatal testing.
The Company's prenatal screening system under development is intended to
provide an accurate, non-invasive test by directly analyzing fetal blood cells
isolated from a routine maternal blood sample. The Company's proprietary
screening system incorporates (i) a patented hematologically-based procedure
to enrich the concentration of fetal blood cells, (ii) automated image
analysis instrumentation to identify the fetal blood cells and (iii) the use
of third-party DNA probes to identify certain chromosomal disorders present in
fetal blood cells. This system is expected to be accurate because it evaluates
actual fetal cells while posing no risk to the fetus.
The Company's strategy is to establish its system as a broad-based prenatal
screening procedure. The Company anticipates that sales of this system, if
approved, will include both its proprietary consumable enrichment kits, used
to separate fetal blood cells from maternal blood samples and imaging
instrumentation used to analyze the cells. These new image analysis systems
are contemplated to be compatible with the Company's existing installed
instrument base. The Company believes that it can leverage its existing
infrastructure, worldwide distribution capabilities and extensive cytogenetic
laboratory relationships to support the world-wide introduction of this fetal
cell screening system under development. Furthermore, the Company believes
that its new cell enrichment and image analysis system could have clinical
utility for cancer applications and the prenatal diagnosis of single gene
disorders, and it intends to pursue the development of these other potential
applications.
GENETIC DISORDERS
All genetic information in an organism is contained in chromosomes, made up
of strands of DNA and associated protein molecules. DNA is comprised of paired
nucleotide bases, and genetic information is encoded by the specific order of
the nucleotide bases within units called genes. Genes are organized linearly
along the chromosomes and carry the required information for the synthesis of
the proteins that provide the structural components of cells and tissues, as
well as enzymes for the basic biochemical and physiological functions of the
cells.
Chromosomal Disorders
The nuclei of normal human cells (except sperm and egg cells) contain two
sets of 23 different chromosomes, one set provided by each parent. Sperm and
egg cells are formed in a special cell division process called meiosis, and
they each contain only one set of the 23 individual chromosomes. When these
cells unite during fertilization, each contributes its set of 23 chromosomes
to the genetic information for a new human fetus,
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and the fertilized egg then has the two sets of 23 chromosomes. Chromosomal
disorders may occur when genes or portions of genes move between chromosomes
(chromosomal translations) , when portions of chromosomes and the genes they
contain are missing, or when an abnormal number of chromosomes are present in
the cell. Certain chromosomal disorders are thought to occur during meiosis
when the division of the chromosomes to form the egg cell or the sperm cell
takes place. During this process the chromosomes may not divide properly
resulting in an extra chromosome being present in the cell, an extra piece of
genetic material being attached to a chromosome, or a piece of chromosome
being broken.
Chromosomes can be seen under a light microscope and, when stained with
certain dyes, reveal light and dark bands reflecting regional variations of
certain paired bases comprising the DNA of the cell. Differences in size and
banding pattern allow the chromosomes to be distinguished from each other and
can be used to identify a chromosomal disorder. The most common chromosomal
disorder, Down's Syndrome, also known as Trisomy 21, occurs when there are
three copies of chromosome 21 in the human cell. Syndromes caused by various
chromosomal abnormalities may result in mental retardation, impaired physical
development and abnormal sexual development.
There are approximately four million births in the United States annually.
Of these, approximately 90% are to women under the age of 35. The Company
estimates that there are approximately 11 million births in industrialized
countries where prenatal screening and diagnostic testing is routine.
Approximately 2% of newborns have birth defects, approximately 12% of which
are caused by chromosomal genetic disorders. The risk of bearing a child with
a chromosomal abnormality increases with maternal age and more than doubles
from one in 526 births for mothers of age 20 to more than one in 192 births
for mothers of age 35.
Single Gene Disorders
In addition to chromosomal disorders caused by translocations or an abnormal
number of chromosomes, single gene disorders may occur when the DNA sequences
of individual genes are altered, resulting in incorrect instructions to the
cells and disruption of the normal balance or function of essential proteins.
Single gene disorders are responsible for many inherited diseases such as
cystic fibrosis, sickle cell anemia, Tay-Sachs disease, and may predispose an
individual to cancer, psychiatric illnesses, and other complex diseases.
PRENATAL TESTING
Prenatal testing is the process of detecting certain types of chromosomal
disorders in a fetus at an early stage of pregnancy. Prenatal testing is
currently performed either invasively, by extracting fetal cells or cells
having fetal-cell characteristics and inspecting the chromosomes within such
cells to diagnose chromosomal disorders, or non-invasively, by an analysis of
a maternal blood sample ("serum text").
The invasive diagnostic procedures yield accurate results on a broad range
of chromosomal disorders because actual fetal cells are obtained and analyzed,
however, these procedures involve the risk of spontaneous miscarriage. Due to
the risk of spontaneous miscarriage, invasive diagnostic procedures are
usually recommended to only those women who are age 35 or older, at which ages
the risk of having a child with a chromosomal disorder is greater than the
risk of spontaneous miscarriage due to the procedure. Those women younger than
35 may be screened using non-invasive techniques. For this group, an invasive
diagnostic procedure is generally only recommended to confirm the result of
the non-invasive serum test if such test indicates a heightened risk of a
chromosomal disorder. The serum tests present no risk to the fetus, but are
less accurate because they do not diagnose chromosomal genetic disorders by
direct analysis of fetal cells. Such tests have a relatively high false
negative rate resulting in the failure to identify a significant portion of
chromosomal disorders.
Women under the age of 35 have a lower risk of giving birth to an infant
with a chromosomal disorder than do women age 35 or older, but because the
number of births to women under the age of 35 is significantly higher, the
total number of newborns with chromosomal disorders born to women in this age
group is higher than that of women age 35 and older. Consequently, women
younger than 35 bear over 75% of infants with Down's Syndrome. The graph below
illustrates the number of chromesomally abnormal U.S. birth per year by
maternal age:
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CHROMOSOMALLY ABNORMAL U.S. BIRTHS BY MATERNAL AGE
[Graph: Depicts a relationship
showing absolute number of chromosomally
abnormal births by maternal age.]
The most common prenatal testing procedures are described below.
Invasive Diagnostic Procedures
Amniocentesis. Amniocentesis, usually performed between the 14th and 20th
weeks of pregnancy, is the most common procedure used to obtain fetal cell
samples for prenatal genetic testing. In an amniocentesis procedure a small
amount of amniotic fluid is withdrawn from the amniotic sac via a long needle
inserted through the mother's abdominal wall. Simultaneously during the
procedure, the physician uses ultrasound to guide the needle in order to
minimize potential harm to the unborn child. Once the amniotic sample is
extracted, it is forwarded to a cytogenetic laboratory, where the cells are
cultured and deposited on a slide. The slide is then examined under a
microscope in order to locate and analyze a number of fetal cells in metaphase
(undergoing cell division). In metaphase, a cell's chromosomes are
individually visible in its nucleus.
To find a cell in metaphase a laboratory technician scans the slide manually
to locate cells in metaphase. Once metaphase cells are found, they are
photographed using a camera attached to the microscope. This photograph is
printed and each photographed chromosome is manually cut out of the
photograph, arranged in order and pasted on a sheet to show the two sets of 23
chromosomes present in the cell. This presentation of the chromosomes is
called a karyotype. Alternatively, laboratories may eliminate manual
karyotyping by using an automated computer-based karyotyping system to scan
the slides to locate cells in metaphase, classify the chromosomes, present
them in a display and print hard copies.
Once the karyotype is completed it is then visually analyzed by a trained
geneticist or genetic counselor to determine if any chromosomal abnormalities
are present. The processing and analysis of prenatal genetic samples obtained
by amniocentesis generally requires seven to 14 days. A significant portion of
this time is required to culture the fetal cell samples obtained by the
procedure.
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Medical studies indicate that spontaneous miscarriage occurs in
approximately one in every 200 amniocentesis procedures. As a result, only
pregnant women who are in a high-risk group are regularly tested using
amniocentesis. In the United States, amniocentesis generally costs
approximately $1,000 per procedure. With an estimated fetal loss rate of
approximately 0.5%, (1 in every 200) one normal fetus will be lost by
spontaneous miscarriage resulting from amniocentesis for every one-to-two
fetuses with chromosomal disorders detected by this procedure for women at age
35.
Amniocentesis is the most common and accurate of all prenatal screening
procedures. All principal chromosomal disorders can be detected and the Down's
Syndrome detection rate is greater than 99%.
Chorionic Villus Sampling (CVS). CVS, typically performed between the 9th
and 11th weeks of pregnancy, involves the extraction of placental tissue
samples, generally through the pregnant woman's cervix. The tissue, which is
genetically representative of the fetus, is analyzed in the same manner as the
fetal cells obtained by amniocentesis to determine if chromosomal disorders
are present. CVS is an alternative to amniocentesis and can be performed
earlier in the pregnancy, but poses a risk of miscarriage that is 1 in every
100 CVS procedures, double that of amniocentesis. CVS is generally as accurate
as amniocentesis for detecting chromosomal abnormalities. The cost of the CVS
procedure is approximately $1,000. With an estimated fetal loss rate of
approximately 1% (1 in every 100), two normal fetuses will be lost by
spontaneous miscarriage resulting from CVS for every one-to-two fetuses with
chromosomal disorders detected by this procedure for women at age 35. Due to
its higher associated risk, CVS is used less frequently than amniocentesis.
Non-invasive Screening Procedures
In the United States, approximately 2,000,000 pregnant women under the age
of 35 are screened for chromosomal disorders. Of those screened, a majority
are screened using non-invasive serum tests due to the risk associated with
invasive prenatal diagnostic procedures.
Alpha-fetoprotein Test. A common serum prenatal screening test for certain
chromosomal disorders involves the analysis of alpha-fetoprotein ("AFP") in
the maternal blood. This test is performed on a standard blood sample taken
from the mother that is tested for levels of serum AFP. Down's Syndrome and
other similar chromosomal disorders are associated with low levels of AFP.
Although this serum test is relatively accurate in detecting open neural tube
defects (such as spina bifida), studies indicate that the AFP test can detect
only 20-30% of fetuses with Down's Syndrome.
Triple Test. In recent years, the accuracy of the AFP test has been improved
by combining it with additional blood chemistry tests. This combination is
commonly referred to as "triple marker screening" or the "triple test."
Medical studies indicate that this test accurately identifies Down's Syndrome
in 60% of the pregnancies where Down's Syndrome is present. In 40% of the
cases where Down's Syndrome is present, this test inaccurately concludes
Down's Syndrome is not present (a false negative result). And in approximately
5% of the cases, the triple test indicates the presence of Down's Syndrome
where Down's Syndrome is not present (a false positive result).
Women whose serum screening results indicate a heightened risk of
chromosomal disorder are usually recommended to have an amniocentesis to
confirm these results. Due to the high false positive rate of the triple test,
amniocentesis procedures are performed in many cases where no chromosomal
disorder exists. Assuming 2 million serum screening tests per year and a 5%
false positive rate, as many as 100,000 unnecessary procedures may be
performed on women with healthy fetuses each year in the U.S. In addition,
assuming an average cost of $1,000 per amniocentesis, the unnecessary cost to
the health care system associated with these false positive results could be
as high as $100 million per year. With an estimated fetal loss rate of 0.5%
approximately 500 normal fetuses could be lost each year due to unnecessary
amniocentesis procedures.
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The characteristics of the current prenatal testing procedures are
summarized below:
CURRENT PRENATAL DIAGNOSTIC AND SCREENING PROCEDURES
<TABLE>
<CAPTION>
APPROX.
APPROX. APPROX. DOWN'S WEEK OF
APPROX. DOWN'S RISK OF FALSE TURNAROUND GESTATION APPROXIMATE
ABNORMALITIES U.S. TEST DETECTION FETAL POSITIVE TIME FOR WHEN TEST COST OF
TEST DETECTED VOLUME RATE LOSS RATE RESULTS ADMINISTERED PROCEDURE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVASIVE TESTS:
- ----------------------------------------------------------------------------------------------------------------------
Amniocentesis Chromosomal 99+% 0.5% 0% 1-2 weeks 14-20 weeks $1,000
Disorders
- -------------------------------------300,000--------------------------------------------------------------------------
CVS Chromosomal 99+% 1.0% 0% ~1 week 9-11 weeks $1,000
Disorders
======================================================================================================================
NON-INVASIVE TESTS:
- ----------------------------------------------------------------------------------------------------------------------
AFP Neural Tube Defects 20% 0.0% 5% 1-2 days 15-18 weeks $35 to $70
and certain Chromosomal to
Disorders 35%
- -----------------------------------2,000,000--------------------------------------------------------------------------
Triple Test Neural Tube Defects 60% 0.0% 5% 1-2 days 15-18 weeks $60 to $150
and certain Chromosomal
Disorders
</TABLE>
The most accurate prenatal testing involves direct analysis of fetal cells,
which contain the chromosomes of the fetus. The only commercially-available
procedures to extract fetal cells in order to examine the fetal chromosomes
are invasive and pose risks of injury to the fetus and spontaneous
miscarriage. The non-invasive serum screening procedures, which do not pose
such risks, are much less accurate because they do not allow direct
examination of fetal chromosomes. The Company believes that there is a
significant need for a prenatal testing procedure which would allow direct
analysis of the fetal cells without the risks associated with the currently-
available invasive procedures.
Research has demonstrated that fetal blood cells exist in miniscule
proportions in samples of maternal blood. In contrast to adult red blood
cells, many of these fetal red blood cells are nucleated, that is they contain
a nucleus with chromosomes. A number of companies are attempting to isolate
these fetal blood cells for testing through a variety of methods, including
various combinations of immunologically based separation techniques that use
monoclonal antibodies, flow cytometry, or magnetic separation techniques.
Although the feasibility of genetic analysis of fetal blood cells isolated
from maternal blood has been demonstrated, obtaining a sufficient number of
fetal blood cells for analysis has been difficult and generally not suitable
to routine clinical applications.
APPLIED IMAGING'S PRENATAL SCREENING SYSTEM
The Company is developing a proprietary prenatal screening system to detect
chromosomal abnormalities by identifying fetal blood cells from a routine
maternal blood sample. The Company's proprietary screening system incorporates
(i) a patented hematologically-based procedure to enrich the concentration of
fetal blood cells, (ii) automated image analysis instrumentation to identify
the fetal blood cells and (iii) the use of third-party DNA probes to identify
certain chromosomal disorders present in fetal blood cells. This new system is
designed to improve current prenatal screening techniques by providing an
accurate, timely and cost-effective procedure without the risks of miscarriage
or fetal damage associated with invasive prenatal screening techniques.
In contrast to immunologically-based procedures to isolate fetal blood cells
from maternal blood, the Company is developing a proprietary hematologically-
based procedure for enriching the concentration of fetal blood cells from
maternal blood samples for prenatal genetic testing. The Company's process for
enriching the
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concentration of fetal blood cells from a maternal blood sample involves the
following steps: (1) a centrifugation step for bulk separation of the blood
components, utilizing the Company's patented device which removes the vast
majority of the maternal blood cells; (2) a selective lysis process that
ruptures the remaining maternal red blood cells; and (3) a second
centrifugation step to remove the majority of maternal white blood cells using
the Company's patented preformed density gradient medium. The enrichment
process is designed to increase the concentration of fetal blood cells in a
maternal sample approximately 10,000 times. The fetal cell enriched sample is
then harvested and deposited on a slide for examination through image
analysis. The Company has developed an automated system to rapidly (under one
hour) identify fetal cells on the slide based on adaptations of its image
analysis, pattern recognition, and slide-scanning technologies incorporated in
the Company's current cytogenetic products. See "Current Cytogenetic
Products."
Once fetal cells are located by the automated scanning system, fluorescent
DNA probes are added that specifically bind to certain DNA sequences within
the fetal cells indicating the presence or absence of chromosomal disorders.
DNA probes can be designed to locate specific chromosomal changes, additions,
or deletions that result in genetic disorders. The results of the DNA probe
analysis are captured and processed using the Company's automated
visualization technology for the detection, analysis, and documentation of the
DNA probe results. The Company's prenatal screening system is illustrated
below:
[Graphic depicts the steps in the
Company's prenatal screening system].
Preclinical Data
The Company believes that a key aspect of its prenatal screening system is
its ability to enrich and identify fetal blood cells so that they can be
directly analyzed using available DNA probe technology. As of June 1996, the
Company and its collaborators have used its fetal cell enrichment procedure on
a total of 89 maternal blood samples at sites internationally and in the
United States. The Company's system has achieved fetal blood cell
identification in 79 of the 89 samples tested or (89%) of the cases.
During the first half of 1995, the Company used its fetal cell enrichment
procedure on 37 blood samples obtained from mothers in their 11th to 16th week
of pregnancy shortly after they had undergone an invasive prenatal procedure
(amniocentesis, CVS or termination of pregnancy). The Company achieved fetal
blood cell identification in 33 of the 37 samples, or 89% of the samples. The
Company planned international evaluations of its fetal cell enrichment
procedure in 1995, however, the gel in the preformed density gradients was
found to be destabilized at the international evaluation sites. Following
further investigation, the Company determined that the gel in its preformed
density gradient required use within two weeks of its manufacture.
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<PAGE>
In 1996, utilizing new shipment and handling protocols, the Company
commenced further studies to determine if fetal blood cells could be enriched
and identified in maternal blood samples from mothers in their 11th to 16th
week of pregnancy who had not undergone an invasive prenatal procedure. At the
Company's Santa Clara and Israel sites, a total of 20 samples were tested and
fetal blood cell identification was achieved in all 20 samples. An independent
site in the Netherlands used the fetal cell enrichment procedure on a group of
20 samples and achieved fetal blood cell identification in 16 samples, or 80%
of the samples. At an independent site in the United Kingdom 12 samples were
processed and in 10 samples, or 83% of the samples, fetal blood cells were
found. Overall, as of June 1996, of the 52 samples processed, fetal blood cell
identification was achieved in 46 samples, or 88% of the samples.
In July 1996, the Company plans to conduct further preclinical evaluations
internationally and in the United States. These evaluations will be conducted
using the same protocols as those the Company expects to submit to the FDA for
approval prior to commencing clinical trials, and will utilize a new
formulation of the preformed density gradients, which is expected to be stable
for at least four months. The Company intends to test the fetal cells isolated
from the July studies for the sex of the fetus.
Clinical/Regulatory Matters
The Company intends to apply for two separate 510(k) approvals for the fetal
cell enrichment and scanning components of its system. The DNA probe
components of the Company's system will require either FDA clearance of a
510(k) with a tier III level of review (the most extensive level of FDA review
of a 510(k), equivalent to the FDA review of a PMA in thoroughness and time)
or FDA approval of a PMA. The Company plans to market its prenatal screening
system internationally upon receipt of required regulatory approvals. See
"Business--Government Regulation."
Commercialization Strategy
The Company's prenatal screening system under development is currently
expected to be introduced in Europe in 1997 and subsequently in the United
States and the Pacific Rim, subject to receipt of required clearances or
approvals in such jurisdictions.
The system is being designed to initially screen for chromosomal
abnormalities resulting in conditions such as Down's Syndrome and certain sex
chromosome abnormalities such as Turner Syndrome, Klinefelter Syndrome, Triple
X Syndrome and certain other conditions. These abnormalities account for
approximately 80% of the incidence of all birth defects which result from
chromosome-based genetic disorders. The proprietary prenatal screening system
under development will consist of (i) a prepackaged kit to enrich the
concentration of nucleated fetal red blood cells in the maternal blood sample,
(ii) the Company's instrumentation to automate the identification of fetal
blood cells and the acquisition and presentation of the DNA probe analysis,
and (iii) may or may not include a DNA probe kit that is comprised of DNA
probes available from third parties. The Company's prenatal screening system
under development is being designed to be compatible with its existing
cytogenetic products so that customers could potentially add the prenatal
screening system to their existing installations.
FUTURE APPLICATIONS OF THE PRENATAL SCREENING TECHNOLOGY
The Company's prenatal screening system is being designed to accommodate
various chromosome-specific DNA probes, which are currently commercially
available. The Company believes that its fetal cell enrichment technology
developed for prenatal screening could have future applications for cancer
diagnosis via the isolation of tumor cells from peripheral blood and the
genetic analysis of such cells. The Company is also developing proprietary
uses for its fetal cell analysis that may facilitate the early detection of
single gene disorders such as cystic fibrosis, hemophilia, thalassemia,
sickle-cell anemia and Tay-Sachs. The Company intends to pursue these
potential additional applications to leverage its proprietary technology.
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CURRENT CYTOGENETIC PRODUCTS
In the United States, approximately 500,000 cytogenetic tests are performed
annually. Cytogenetic testing includes prenatal screening for genetic
disorders using amniotic fluid obtained through amniocentesis and fetal tissue
samples obtained through CVS. Other cytogenetic testing includes screening
tests for diagnosis and prognosis of cancer-related conditions using bone
marrow, blood and tumor tissue samples. The Company currently manufactures,
markets and sells a family of automated instruments for cytogenetic
applications. The Company's primary cytogenetic products are described below.
The Company currently has an installed base at approximately 500 sites
worldwide in more than 30 countries. The Company's primary cytogenetic
products currently sell for prices ranging from $50,000 to $125,000.
CytoVision Metaphase Finder. The CytoVision Metaphase Finder consists of a
computer-controlled scanning microscope with a patented autofocus mechanism,
image processing hardware, and pattern recognition software. This product
continuously scans laboratory slides for cells in metaphase and records their
location for future identification and analysis of the cells' chromosomes. The
Metaphase Finder uses the Company's patented autofocus system for continuous
scanning. Cytogenetic analysis involves identifying and inspecting a number of
relatively rare metaphase cells on a slide containing a large number of cells,
a majority of which are not in metaphase. This analysis can take a
cytogeneticist up to one hour per slide if performed manually. The Metaphase
Finder is designed to save laboratory time and cost by automating this labor-
intensive process and can identify the cells in metaphase in approximately ten
minutes. This product is fully compatible with the Company's other cytogenetic
products, which have the potential to save laboratories the expense of using
trained technicians to perform routine tasks prior to actual cytogenetic
analysis.
CytoVision Karyotyper. The CytoVision Karyotyper consists of a computerized
image capture and analysis system which incorporates pattern recognition,
automated chromosome classification algorithms and a high resolution output
device. This product supplants many otherwise manual processes in the
preparation of the data for cytogenetic analysis. The CytoVision Karyotyper
provides automated karyotyping, automatic separation of touching and
overlapping chromosomes, image enhancement features, chromosome rotation and
straightening, image zooming for band analysis, annotation capabilities, and
full screen karyotyping display. This product replaces manual photographing of
cells in metaphase, printing of the photograph, manual cutting out of each
chromosome, identifying the chromosomes, arranging the chromosomes in order,
and pasting them on a sheet of paper. In contrast to the automated process
which takes approximately 10 minutes, this manual process takes approximately
thirty minutes to one hour.
CytoVision Probe. The CytoVision Probe consists of a computerized image
capture and image enhancement system which detects and analyzes fluorescent
DNA probes applied to cell nuclei. These probes are designed to attach
themselves to specific DNA sequences which may indicate genetic disorders.
Fluorescent DNA probes are often very faint when viewed by the human eye
through a microscope. This system enhances images of DNA probes and provides a
range of analytical tools. The Company also offers a comparative genomic
hybridization software upgrade package to the CytoVision Probe to detect
genetic amplifications and deletions in tumor cells. The CytoVision Probe
system is not dependent on specific fluorescent DNA probes and may be used in
conjunction with probes from different manufacturers. In the United States the
CytoVision probe is sold for research purposes only.
All of the products in the CytoVision family are compatible and can be
integrated into a network with common data management protocols. In addition
to the primary products, the Company also sells a number of peripherals
including a range of high quality printers and image capture workstations. A
typical installation will include a number of interconnected CytoVision
systems.
SALES, DISTRIBUTION AND MARKETING
The Company currently sells its cytogenetic products to government and
private clinical cytogenetic laboratories, research institutions, universities
and pharmaceutical companies. The Company has an installed base at
approximately 500 sites in more than 30 countries. These customers utilize the
Company's cytogenetic
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<PAGE>
products for prenatal genetic screening as well as for certain cancer
screening applications. The Company's prenatal screening system under
development is being designed to be compatible with its existing cytogenetic
products so that customers could potentially update their new or existing
installations to accommodate its prenatal screening system. If regulatory
clearance or approval is received, the Company initially plans to sell and
distribute its prenatal screening system directly and through its established
worldwide network of distributors and agents through which it sells and
distributes its current products.
In North America, the Company sells its cytogenetic products directly to its
customers. The North American sales team is comprised of six sales and
application support individuals, four of whom are based in Pittsburgh,
Pennsylvania and two in Santa Clara, California. Outside of North America, the
Company sells its products either directly through local agents who are
remunerated on a commission basis or through independent distributors. The
Company manages its international sales and distribution activities from
Applied Imaging International, the Company's wholly-owned subsidiary located
in the United Kingdom. The international sales team is comprised of eight
sales and application support individuals, all of whom are based in the United
Kingdom. The Applied Imaging International sales team supports all
distributors and agents upon request. The Company's distributors are located
in Australia, Hong Kong, Japan, Italy and South Korea. In addition, the
Company has agents selling its cytogenetic products in other countries
primarily within Europe, the Middle East and the Pacific Rim.
Because the Company's products are technically sophisticated the Company's
sales staff is supported by scientifically qualified and highly trained
product specialists. The Company offers an annual maintenance program to its
customers through its own support organization. The Company's marketing
activities include telemarketing, product advertising and participation in
trade shows and product seminars.
MANUFACTURING
The Company assembles and tests components and subassemblies made by outside
vendors to the Company's specifications and manufactures only when it believes
significant value can be added. The Company's current products are assembled
from a combination of (i) commodity technology components such as computers
and monitors, (ii) custom subassemblies, such as special image capture circuit
boards, and (iii) operating system and application software. Any disruption or
delay in the supply of components or custom subassemblies will have a material
adverse effect on the Company. While the Company typically uses components and
subassemblies which are available from alternate sources, any unanticipated
interruption of the supply of these components or subassemblies could require
the Company to redesign its products.
The Company orders components and subassemblies to forecast and assembles
specific configurations on receipt of firm orders. The Company's research,
investigational and clinical products are subject to regulation by the FDA and
all products are subject to regulation by the U.S. Department of Commerce
export controls, primarily as they relate to the associated computers and
peripherals. The Company has experienced no material difficulties in obtaining
necessary export licenses to date.
The Company plans to initially subcontract third parties to manufacture the
consumable enrichment kit component of its fetal cell screening system under
development and may ultimately manufacture such components on its own. For
clinical trials, the Company will purchase the consumable enrichment kit from
a third party contracted to manufacture the kit. The Company has no experience
manufacturing such components. The Company may encounter difficulties in
scaling up production of the consumable component of its fetal cell screening
system under development or in hiring and training additional personnel to
manufacture its consumable enrichment kit products in commercial quantities.
Under current law, if the Company manufactures finished devices in the
United States, it will be required to comply with the FDA's current GMP
regulations. In addition, the FDA will inspect the Company's manufacturing
facilities on a regular basis to determine such compliance. Failure to comply
with applicable FDA or other regulatory requirements can result in fines,
injunctions, civil penalties, recalls or seizures of products, total or
partial suspensions of production and criminal prosecutions. See "Business--
Government Regulation."
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RESEARCH AND DEVELOPMENT
The Company's research and development efforts include various research,
product development, clinical evaluation and testing, quality assurance and
process development activities. The current focus of the Company's research
and development efforts is the completion of the development of the Company's
prenatal screening system and particularly the initiation of clinical trials.
The Company is using a consultant to assist in the design the protocols for
the planned clinical trials. The Company's future research and development
efforts are expected to include development of additional applications of the
Company's current cytogenetic products and additional applications of the
fetal cell screening system under development. These potential additional
applications include the use of technology developed for fetal cell analysis
for the diagnosis and screening for certain cancers and certain single gene
disorders. Development of these applications will require substantial
additional funds and will be subject to technological, clinical, regulatory
and other risks associated with new medical technologies. There can be no
assurance that the Company will develop its prenatal screening system or any
other future applications of such technology.
In 1995, the Company entered into a clinical testing agreement with the
Academic Medical Center in Amsterdam to evaluate the Company's technology
relating to fetal cell enrichment from maternal blood and associated
instrumentation. The Company has an unrestricted right to use the data
resulting from the evaluation. In 1995, the Company established a wholly-owned
subsidiary in Israel to conduct further research and development focused on
the enrichment aspect of the prenatal screening system. These research
activities are being primarily funded by a $543,000 research grant issued by
the Binational Research and Development ("BIRD") Organization pursuant to
which repayment is required in the form of royalties from the sale of the
prenatal screening system. In 1996, the Company entered into a collaborative
research agreement with Leiden University in the field of enrichment,
isolation and analysis of fetal cells derived from maternal blood.
Research and development expenses were approximately $2.9 million, $2.8
million and $1.8 million for 1995, 1994 and 1993, respectively.
PATENTS AND PROPRIETARY RIGHTS
The Company actively seeks, when appropriate, protection for its products
and proprietary information by means of United States and foreign patents and
trademarks. The Company has one issued United States patent relating to its
CytoVision Metaphase Finder and has corresponding issued patents in certain
European countries. In addition, the Company has three United States patents
concerning its technology for enriching the concentration of nucleated fetal
red blood cells from maternal blood samples. Corresponding applications were
filed through the Patent Cooperation Treaty and preserve for the Company the
right to file applications in various countries. The Company relies upon trade
secrets, know-how and contractual arrangements to protect certain of its
proprietary information and products.
The fields of life science instrumentation and genetic screening processes
are covered by many issued patents and patent applications. The Company is not
currently aware of any patents which it may be infringing; however, patent
applications in the United States remain confidential until a patent is
issued, and, therefore, the Company's products could infringe patents to be
issued in the future. If the Company's technology is determined to use
products, processes or other subject matter that is claimed under other
existing U.S. or foreign patents, or if other patents claiming subject matter
utilized by the Company are issued, such companies may bring infringement
actions against the Company. The Company has recently received a letter from
Vysis Corp. informing the Company that its products might fall within the
claims of a United States patent exclusively licensed to Vysis Corp. Vysis
Corp. offered the Company the right to obtain a sublicense to such patent. The
Company does not believe it is necessary to obtain such a sublicense and does
not believe it is infringing the patent. However, there can be no assurance
that the Company will not ultimately be required to seek a license from Vysis
Corp. or any other third party. The Company may be required to obtain licenses
to patents or proprietary rights of others. There can be no assurance that any
such license would be made available or, if available, would be available on
commercially acceptable terms. Failure to obtain a required license could
prevent the Company from commercializing its products resulting in a material
adverse affect on the Company's business, financial condition and results of
operations.
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The Company generally enters into confidentiality agreements with its
employees and consultants designed to both protect the Company's confidential
information and prevent the disclosure of confidential information of prior
employers and other parties. There can, however, be no assurance that the
Company's trade secrets or proprietary technology will not become known or be
independently developed by competitors in such a manner that the Company has
no practical recourse. Certain employees of and consultants to the Company are
subject to the terms of confidentiality agreements with respect to proprietary
information of their former employers. The failure of these persons to comply
with the terms of their agreements could result in assertion of claims against
the Company and such persons which, if successful, might restrict their roles
within the Company.
In 1996, the Company entered into a collaborative research agreement with
Leiden University ("Leiden") in the field of enrichment, isolation and
analysis of fetal cells derived from maternal blood. Under the terms of the
agreement, the Company has sole ownership of any jointly developed inventions
and has an exclusive license to any issued patents owned solely by Leiden. The
royalty rate for the exclusive license shall not be more than 5% of associated
sales.
The Company also relies upon trademarks to protect certain of its products,
and holds United States trademark registrations for the marks "QUANTICELL" and
"CYTOSCAN." Registrations for these marks and the mark "CYTOVISION" are held
by the Company in certain foreign jurisdictions.
COMPETITION
The market for the Company's current cytogenetic products is highly
competitive. The Company believes that its primary competitors in this market
include Perceptive Scientific, Inc., and Vysis Corp., a biotechnology
subsidiary of AMOCO Technology Company. The principal competitive factors in
this market are product features offered, ease of use, clarity of output,
customer service capabilities, price and installed base. The Company believes
it competes favorably with regard to these factors.
With respect to its prenatal screening system under development, the Company
is aware of a number of companies that are in the process of developing
genetic screening products based on competing technologies designed to enrich
the concentration of fetal blood cells in maternal blood samples. Many of
these companies have greater research and development, marketing and financial
resources than the Company. These companies include Integrated Genetics, Inc.,
CellPro, Incorporated, Aprogenex, Inc., and Centocor, Inc. Integrated Genetics
specializes in providing genetic testing services. CellPro specializes in cell
separation and gene therapy, Aprogenex specializes in providing DNA probes,
and Centocor specializes in providing monoclonal antibodies.
The medical diagnostic and biotechnology industries are subject to intense
competition. The Company's fetal cell screening system under development, if
commercially marketed, will also be subject to intense competition from
existing procedures such as maternal AFP, triple test, CVS and amniocentesis.
There can be no assurance that the Company's fetal cell screening system under
development will replace any existing procedures. The Company expects the
principal competitive factors in the fetal cell screening market to be
reliability, accuracy, range of disorders detected, risk to the fetus and the
price of testing.
Many of the Company's competitors have greater financial and technical
resources and production and marketing capabilities than the Company. There
can be no assurance that these competitors will not succeed in developing
technologies and products that are more effective, easier to use or less
expensive than those which are currently offered or being developed by the
Company or that would render the Company's technology and products obsolete
and noncompetitive. In addition, many of the Company's competitors have
significantly greater experience than the Company in conducting clinical
investigations of new diagnostic products and in obtaining FDA and other
regulatory clearances and approvals of products. Accordingly, the Company's
competitors may succeed in developing and obtaining regulatory approvals for
such products more rapidly than the Company.
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GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, distribution,
sales, marketing, advertising and promotion of the Company's research,
investigational and clinical diagnostic products are subject to extensive and
rigorous government regulation in the United States and in other countries. In
the United States and certain other countries, the process of obtaining and
maintaining required regulatory clearances or approvals is lengthy, expensive
and uncertain. The Company believes that its future success will be
significantly dependent upon commercial sales of its prenatal screening system
under development. The Company will not be able to market this system for
clinical diagnostic use in the United States unless and until the Company
obtains clearance or approval from the FDA and will not be able to market such
system overseas until it meets the safety and quality regulations of each
foreign jurisdiction in which the Company, its agents or distributors seeks to
sell such system. In the United States, the Company's products are also
subject to regulation by state authorities. The State of California's
requirements in this area, in particular, are extensive, and require
registration with the state and compliance with GMP regulations during
clinical trials.
Noncompliance with applicable FDA requirements can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, distribution, sales, and marketing,
refusal of the government to grant approval of a PMA or clearance of a 510(k),
withdrawal of marketing approvals or clearances, a recommendation by the FDA
that the manufacturer or distributor not be permitted to enter into government
contracts, and criminal prosecution. In certain circumstances, the FDA also
has the authority to order the manufacturer or distributor of a device to
repair, replace or refund of the cost of the device. Failure to comply with
regulatory requirements in the United States or abroad could have a material
adverse effect on the company's business, financial condition, and results of
operations.
With exceptions for certain medical devices first marketed before May 28,
1976, prior to their commercial sale in the United States, medical devices
must be cleared or approved by the FDA or be exempted from the requirement of
FDA clearance or approval. In general, the regulatory process can be lengthy,
expensive and uncertain, and securing FDA clearances or approvals may require
the submission of extensive clinical data together with other supporting
information to the FDA.
In the United States, medical devices are classified as Class I, II, or III,
on the basis of the controls deemed by the FDA to be necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, premarket notification and adherence to FDA-mandated
current good manufacturing practices ("GMP") requirements), and Class II
devices are subject to general controls and special controls (e.g.,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Generally, Class III devices are those that must receive
premarket approval by the FDA to ensure their safety and effectiveness (e.g.,
life sustaining, life supporting and implantable devices) and also include
most devices that were not on the market before May 28, 1976 ("new medical
devices") and for which the FDA has not made a finding of "substantial
equivalence" based on a 510(k). Class III devices usually require clinical
testing and FDA approval prior to marketing and distribution.
Before a new medical device can be introduced into the market, the
manufacturer must obtain FDA clearance of a 510(k) or approval of a PMA,
unless the device is exempt from the requirement of such clearance or
approval. A 510(k) clearance will be granted if the submitted information
establishes that the device is substantially equivalent to a legally marketed
Class I or II medical device or to a legally marketed Class III device that
does not itself require an approved PMA prior to marketing ("predicate
device"). A 510(k) must contain information to support a claim of substantial
equivalence, which may include laboratory test results or the results of
clinical studies of the device in humans. Such studies can take years to
complete, analyze, and prepare for submission to the FDA. Commercial
distribution of a device for which a 510(k) is required may begin only after
the FDA issues an order finding the device to be "substantially equivalent" to
a predicate device. The FDA has recently been requiring a more rigorous
demonstration of substantial equivalence than in the past and is more likely
to require the submission of data from one or more human clinical trials. A
510(k) for a device incorporating new technology may be given a tier III level
of review, which is equivalent to the
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review given to a PMA in thoroughness and time. The FDA has no specific time
limitation by which it must respond to a 510(k). It generally takes from five
to twelve months from the date of submission to obtain 510(k) clearance from
the FDA, but it may take longer and 510(k) clearance may never be obtained.
The FDA may determine that a device is not "substantially equivalent" to a
predicate device, or that additional information is needed before a
substantial equivalence determination can be made.
A PMA must be filed with and approved by the FDA before marketing may begin
if a device is not found by the FDA to be substantially equivalent to a
predicate device. A PMA must be supported by valid scientific evidence that
typically includes extensive data, including data from preclinical testing and
human clinical trials to demonstrate the safety and effectiveness of the
device. The PMA process requires the performance of at least two independent,
statistically significant human clinical trials that must demonstrate the
safety and effectiveness of the device in order to obtain FDA approval of the
PMA. If human clinical trials of a device are required and the device presents
a "significant risk," the sponsor of the trial (usually the manufacturer or
the distributor of the device) is required to file an investigational device
exemption ("IDE") application with the FDA prior to commencing human clinical
trials. The IDE application must be supported by data, typically including the
results of animal and laboratory testing. If the IDE application is approved
by the FDA (or the FDA does not notify the sponsor 30 days after receipt of
the application that the trials may not begin) and the study protocol is
approved by one or more appropriate institutional review boards ("IRBs"),
human clinical trials may begin at a specific number of investigational sites
with a specific number of patients, as approved by the FDA. If the device
presents a "nonsignificant risk" to the patient, a sponsor may begin the human
clinical trials after obtaining approval of the study protocol by one or more
appropriate IRBs, but not by the FDA unless the FDA notifies the sponsor that
an IDE application is required. Sponsors of human clinical trials are
permitted under the FDA's regulations to sell those devices distributed in the
course of the trials provided the price charged is not larger than that
necessary to recover the costs of manufacture, research, development and
handling. An IDE supplement must be submitted to, and approved by, the FDA (or
the FDA does not notify the sponsor 30 days after receipt of the supplement
that the change may not be implemented) before a sponsor or an investigator
may make a change to the investigational plan that may affect its scientific
soundness or the rights, safety or welfare of human subjects. The FDA has the
authority to re-evaluate, alter, suspend or terminate clinical testing based
on its assessment of data collected throughout the trials.
The PMA must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling and promotional labeling. Upon submission of a PMA, the FDA
makes a threshold determination regarding whether the application is
sufficiently complete to permit filing for a substantive review. If the FDA
determines that the PMA application is sufficiently complete to permit such
review, the FDA will accept the application for filing. Once the submission is
accepted for filing, the FDA begins an in-depth review of the PMA. An FDA
review of a PMA generally takes one to two years from the date the PMA is
accepted for filing, but may take significantly longer if the FDA requests
additional information and any major amendments to the PMA are filed. The
review time is often significantly extended by the FDA's asking for more
information or clarification of information already provided in the
submission. During the review period, an advisory committee, typically a panel
of clinicians, will likely be convened to review and evaluate the application
and provide recommendations to the FDA regarding whether the PMA should be
approved. The FDA is not bound by the recommendations of the advisory panel.
Toward the end of the PMA review process, the FDA generally will conduct an
inspection of the manufacturer's facilities to ensure that the facilities are
in compliance with the applicable GMP requirements.
If the FDA's evaluations of both the PMA and the manufacturing facilities
are favorable, the FDA will issue either an approval letter (order) or an
"approvable letter" containing a number of conditions that must be met in
order to secure approval of a PMA. When and if those conditions have been
fulfilled to the satisfaction of the FDA, the agency will issue an order
approving the PMA, authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA or manufacturing facilities is
not favorable, the FDA will deny approval of the PMA or issue a "not
approvable letter." The FDA may also determine that additional
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preclinical testing or human clinical trials are necessary, in which case
approval of the PMA could be delayed for several years while additional testing
or trials are conducted and submitted in an amendment to the PMA. The PMA
process can be expensive, uncertain and length, and a number of devices for
which FDA approval has been sought by other companies have never been approved
for marketing.
Under the FDA's regulatory scheme, the decision whether to seek 510(k)
clearance for a changed or modified device is left to the manufacturer in the
first instance. The Company to date has not sought 510(k) clearance for its
CytoVision products on the basis of the Company's conclusion, reflected in the
Company's scientific report addressing this matter, that CytoVision is a new
model of Cytoscan and there have not been any changes or modifications in
design, components, method of manufacture, or intended use, which could
significantly affect the safety or effectiveness of the original device. If the
Company had concluded, on the basis of the technical assessment, that there had
been a change or modification that could have significantly affected the safety
or effectiveness of the original, 510(k)-cleared Cytoscan device, then the
Company would have sought 510(k) clearance for the CytoVision system. There can
be no assurance that the FDA will agree with the Company's decision not to seek
510(k) clearance for CytoVision, and that it will not require the Company to
cease sales and distribution and seek 510(k) clearance for the CytoVision
system, or that such clearance, if required, will be obtained in a timely
manner if at all.
The Company intends to submit a protocol for clinical trials of the DNA probe
component of its prenatal testing system to the FDA during the second half of
1996 and to initiate a multisite United States and international clinical trial
of the DNA probe component of its prenatal testing system to detect chromosomal
disorders in isolated fetal cells in 1996. There can be no assurance regarding
the timing and the nature of the FDA response regarding the DNA probe related
protocol as well as the timing for the commencement of clinical trials. There
can be no assurance that 510(k) clearance for any portion of the prenatal
screening system under development or any other future product or modification
of an existing product will be granted or that the clearance process will not
be unduly lengthy and subjected to a thorough internal review equivalent to
that ordinarily reserved for devices requiring premarket approval by the FDA.
If substantial equivalence cannot be established or if the FDA determines that
the device or the particular application for the device requires a more
rigorous review which the FDA has stated is possible for the Company's prenatal
screening system under development, the FDA will require that the Company
submit a PMA that must be reviewed and approved by the FDA prior to sales,
distribution and marketing of these products in the United States. The PMA
process is significantly more complex, expensive and time consuming than the
510(k) process. While the Company has made determinations regarding the
appropriate form of approval, if any, required for its products, there can be
no assurance that such determinations are correct, that the FDA will concur
with such determinations or that such determinations may not be altered due to
new interpretations or new data that may become available. Currently, the DNA
probes that the Company intends to purchase from third parties to incorporate
into its prenatal screening technology are sold on a research basis without FDA
approval for commercial sale. The FDA requires DNA probes to have 510(k)
clearance or PMA approval for commercial sale for clinical diagnostic use,
which could cause the price of DNA probes to increase, making the Company's
prenatal screening system less price competitive compared to existing prenatal
genetic test procedures.
Export sales of investigational devices that are subject to PMA or
investigational device exemption application requirements and have not received
FDA marketing approval generally may be subject to FDA export permit
requirements depending upon, among other things, the purpose of the export
(investigational or commercial), the country to which the device is intended
for export, and on whether the device has valid marketing authorization in a
country listed in the FDA Export Reform and Enhancement Act of 1996. In order
to obtain such a permit, when required, the Company must provide the FDA with
documentation from the medical device regulatory authority of the country in
which the purchaser is located, stating that the device has the approval of the
country. In addition, the FDA must find that exportation of the device is not
contrary to the public health and safety of the country in order for the
Company to obtain the permit.
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In addition to domestic regulation of medical devices, the Company's current
products and its products under development are subject to corresponding
regulations governing safety processes, manufacturing processes and quality in
foreign jurisdictions in which it operates or such products are sold. The sale
of the fetal cell screening system under development may be materially
affected by the policies of regulatory bodies or the domestic politics of the
countries involved. There can be no assurance that an early prenatal screening
test for genetic disorders will not be prohibited or restricted in some
jurisdictions. In addition, FDA export permits may be required for shipment of
the Company's fetal cell screening system under development to certain foreign
countries. Failure to comply with applicable regulatory requirements can,
among other consequences, result in fines, injunctions, civil penalties,
suspensions or loss of regulatory approvals, product recalls, seizure of
products, operating restrictions and criminal prosecution. In addition, future
governmental regulations may be established that could prevent or delay
regulatory approval of the Company's products. The regulation of medical
devices in a number of such jurisdictions continues to develop and there can
be no assurance that new laws or regulations will not have a material adverse
effect on the Company's business. The European Community and its member
countries currently are imposing more substantial regulation on in vitro
diagnostic devices and equipment-like medical devices, and such regulation may
affect the Company's current products and products under development.
Delays in receipt of clearances or approvals to market its products, failure
to receive these clearances or approvals, the loss of previously received
clearances or approvals or the determination that 510(k) clearance, pre-market
approval or other approval is required for a product being marketed without
such clearance or approval could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, the Company's current products and the fetal cell screening
system under development could be affected by the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA"), which are intended to ensure the
quality and reliability of medical testing in the United States regardless of
where tests are performed. CLIA or regulations thereunder could negatively
affect the Company's ability to market its products.
The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, such as the California Department of Health
Services ("CDHS") and to list its products semi-annually. Marketed devices are
subject to pervasive and continuing regulatory oversight by the FDA, including
record-keeping requirements and reporting of adverse experiences with the use
of the device. Device manufacturers are required to register their
establishments and list their devices with the FDA and certain state agencies
and are subject to periodic inspections. The Federal Food, Drug and Cosmetic
Act requires that medical devices be manufactured in accordance with the FDA's
GMP regulation. This regulation requires, among other things, that (i) the
manufacturing process be regulated and controlled by the use of written
procedures, and (ii) the ability to produce devices which meet the
manufacturer's specifications be validated by extensive and detailed testing
of every aspect of the process. The regulation also requires investigation of
any deficiencies in the manufacturing process or in the products produced and
detailed record keeping. Manufacturing facilities are subject to FDA
inspection on a periodic basis to monitor compliance with GMP requirements. If
violations if the applicable regulations are noted during FDA inspections of
manufacturing facilities, the FDA can prohibit further manufacturing,
distribution and sale of the devices until the violations are cured. The FDA
has proposed changes to the GMP regulation that would, among other things,
subject manufacturers of components to GMP requirements in certain
circumstances, and require pre-production design controls and maintenance of
service records. If finalized these changes would likely increase the cost of
complying with GMP requirements. Other applicable requirements include the
FDA's medical device (manufacturer) reporting regulation, which requires that
the device manufacturer provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its marketed devices,
as well as product malfunctions that would likely cause or contribute to a
death or serious injury if the malfunction were to recur.
Labeling, advertising and promotional activities for investigational and
marketed devices are subject to scrutiny by the FDA and, in certain instances,
by the Federal Trade Commission. The FDA enforces statutory prohibitions
against promoting or marketing products for unapproved uses.
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The Company is also subject to other federal, state, local and foreign laws,
regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, including but not limited to the
requirements of the CLIA. The extent of government regulation that might
result from any future legislation or administrative action cannot be
accurately predicted. Failure to comply with any federal or state regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM
In the United States, the Company's products are purchased primarily by
medical institutions which then bill various third-party payors, such as
Medicaid, other government programs and private insurance plans, for the
health care services provided to their patients. Third-party payors may deny
reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate, experimental or investigational, used for a non-
approved indication, or not cost-effective and typically do not reimburse for
devices used for research and investigational purposes. Accordingly,
physicians must determine that the clinical benefits of genetic screening
procedures justify additional cost. The market for the Company's current
cytogenetic products could be adversely affected by changes in governmental
and private third-party payors' policies and the market for the Company's
fetal cell screening system under development could be materially adversely
effected by the failure of governmental and third-party payors adopting
policies to reimburse health care providers for the use of the Company's fetal
cell screening system under development. The unavailability of third-party
coverage or the inadequacy of the reimbursement for medical procedures using
the Company's products would adversely affect the Company's business,
financial condition and results of operations. In both the United States and
internationally, third-party payors are increasingly challenging the prices
charged for medical products and services. There can be no assurance that
reimbursement for the procedures using the Company's products will be
available or, if currently available, will continue to be available, or that
future reimbursement policies of payors will not adversely affect the
Company's ability to sell its products on a profitable basis. In addition,
there can be no assurance that third-party reimbursement will be available for
diagnostic procedures based on the Company's fetal cell screening system under
development.
The levels of revenues and profitability of medical device companies may be
affected by the continuing efforts of governmental and third-party payors to
contain or reduce the costs of health care through various means. In the
United States, there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement
government regulation of health care costs. It is uncertain what legislative
proposals will be adopted or what actions federal, state or private payers for
health care goods and services may take in response to any health care reform
proposals or legislation. The Company cannot predict the effect health care
reforms may have on its business, and no assurance can be given that any such
reforms will not have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that
such proposals or reforms have a material adverse effect on the business,
financial condition and profitability of the clinical and research
laboratories, hospitals and other institutions that comprise the Company's
customer base, the Company's business, financial condition and results of
operations could be adversely affected.
PRODUCT LIABILITY AND INSURANCE
The Company's business may involve the risk of product liability claims,
including those relating to inaccurate results from its screening products.
Although the Company has not experienced any product liability claims to date,
any such claims could have a material adverse impact on the Company. The
Company maintains product liability insurance at coverage levels which it
deems commercially reasonable; however, there can be no assurance that product
liability or other claims will not exceed such insurance coverage limits or
that such insurance will continue to be available on commercially acceptable
terms, or at all. The Company intends to evaluate, depending on the
circumstances that exist at the time, whether or not to obtain any additional
product liability insurance coverage prior to the time that the Company
engages in any extensive marketing of its fetal cell screening system under
development. Even if the Company obtains additional product liability
insurance,
41
<PAGE>
there can be no assurance that it would prove adequate or that a product
liability claim, insured or uninsured, would not have a material adverse
effect on the Company's business, financial condition and results of
operations. Even if a product liability claim is not successful, the time and
expense of defending against such a claim may adversely affect the Company's
business, financial condition and results of operations.
EMPLOYEES
As of March 31, 1996, the Company had 82 employees, of whom 28 were involved
in research and development, 10 in manufacturing and manufacturing
engineering, 29 in sales, marketing and customer service and 15 in finance and
administration. As of March 31, 1996, 35 of the employees were based in the
United Kingdom, 42 in the United States, 4 in Israel, and 1 in France. A total
of 12 employees hold Ph.Ds, and 2 employees are M.D.s. The Company's employees
include trained cytogeneticists to specify, support and sell its product
range. The Company believes that its relationship with its employees is good.
FACILITIES
In the United States, Applied Imaging leases an approximately 14,000 square
foot facility in Santa Clara, California, under a lease which terminates in
April 1997. The Company also leases an approximately 2,700 square foot
facility in Pittsburgh, Pennsylvania, under a lease which terminates in July
1999. The Company plans to renew. In the United Kingdom, Applied International
leases an approximately 10,000 square foot facility in Sunderland, which lease
terminates in June 1998. In Israel, Applied Imaging Ltd. leases an
approximately 1,500 square foot facility near Tel Aviv under a short-term
lease arrangement. The Company believes that its facilities are adequate to
meet its requirements until at least through mid-1997.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and
Directors
Abraham I. Coriat (1) 47 Chief Executive Officer and Chairman of the
Board of Directors
Michael W. Burgett, Ph.D. 51 President, Genetic Diagnostics Division
Leslie G. Grant, Ph.D. 43 President and Chief Operating Officer,
Cytogenetics Division
Neil E. Woodruff 49 Chief Financial Officer and Secretary
John F. Blakemore, Jr. 56 Director
(1)(2)
Michael S. Elias (1) 36 Director
Gilbert J.R. McCabe (2) 51 Director
Thomas C. McConnell (2) 42 Director
Andre F. Marion 60 Director
Robert C. Miller 30 Director
G. Kirk Raab 60 Director
Key Employees
Alex Saunders, M.D. 65 Chief Scientist and Medical Director
Simon B. Goldbard, Ph.D. 43 Director of Product Development
Paddy O'Kelly 37 Director of Engineering
Paul H. Hardiman 49 Manager of Regulatory Affairs and Quality
Assurance
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
ABRAHAM I. CORIAT the founder of the Company, has been with the Company
since 1986. He is Chief Executive Officer and Chairman of the Board. From 1981
to 1986, he served as Business Area Manager and Engineering Manager for
International Imaging Systems in their medical and industrial imaging
division. Mr. Coriat has 23 years of experience in the imaging and medical
industry, including various senior engineering positions in England, Belgium
and Italy. He holds an Electrical Engineering degree from INSA (Institut
National de Sciences Appliquees), France.
MICHAEL W. BURGETT PH.D., joined the Company as President of the Genetic
Diagnostics Division in February 1996. Dr. Burgett has 23 years of experience
in the medical diagnostics industry, including 14 years in senior management
positions. From 1987 to 1996, Dr. Burgett held various general management,
operations and product development positions with Ortho Diagnostic System
Inc., a Johnson & Johnson Company, most recently acting as Vice President and
General Manager of their blood bank business. Prior to that, Dr. Burgett held
various research and development and program management positions with
SmithKline Beckman, Inc., International Diagnostics Technology, Inc., and
BioRad Laboratories, Inc. Dr. Burgett holds a B.A. and an M.A. in Biology from
San Francisco State University and a Ph.D. in Chemistry from the University of
Texas at Austin.
LESLIE G. GRANT PH.D., has been President and Chief Operating Officer of the
Company's Cytogenetics Division since February 1992. He joined the Company in
October 1991 as Managing Director of Applied Imaging International Ltd. From
1980 to 1991, Dr. Grant held various general management and senior
43
<PAGE>
engineering positions with GEC-Marconi. Dr. Grant has 20 years experience in
the instrumentation and medical industry, including 11 years in senior
management positions. Dr. Grant holds a B.S. in Mathematics and a Ph.D. in
Mathematics and Electronic Engineering from the University of Hull, United
Kingdom.
NEIL E. WOODRUFF has served as Chief Financial Officer of the Company since
April 1990 and Secretary since 1993. Mr. Woodruff has 25 years experience in
finance and the high technology industry. From 1983 to 1990, Mr. Woodruff held
various financial and general management positions with General Signal Corp.
Prior to that, Mr. Woodruff held various finance posts with Epitaxy, Inc.,
National Semiconductor and General Instrument Corp. Mr. Woodruff holds a B.S.
in Finance from the University of Santa Clara.
JOHN F. BLAKEMORE, JR. has been a director of the Company since December
1987. Since 1987 he has been an independent investor and consultant. At
present he is also a director, Vice President and CFO of Pro-Log Corp., an
industrial computer company. From 1979 to 1987 he worked for Compumotor Corp.,
a company he co-founded. Prior to that, he held three general management
positions including Vice President of Wells Fargo Investment Co. Mr. Blakemore
holds a B.S. in Mechanical Engineering and an M.B.A. from Stanford University.
MICHAEL S. ELIAS became a director of the Company in April 1988. From 1987
to 1995, Mr. Elias was a director of Thompson Clive Inc., an investment
advisor to Thompson Clive Ventures and Thompson Clive Ventures (L.P.). He is
currently a director of Thompson Clive & Partners Limited and Thompson Clive
(Jersey) Limited, the manager of Thompson Clive Ventures. Mr. Elias holds an
A.B. in Biological Anthropology from Harvard University and an M.S. in
Neurobiology from Cambridge University in Great Britain. He currently serves
as a member of the Board of Directors of Applied Osteo Systems, Inc., Com'X
S.A., Esker S.A., Sorediv S.A. and Alpha-MOS S.A.
GILBERT J.R. MCCABE has been a director of the Company since June 1990. Mr.
McCabe has been an independent advisor for the past four years to
international investment partnerships investing in start-up companies in North
America, Europe and Asia. For the previous 20 years he was a Vice President
with Citicorp, where he served in the United States, Asia and Europe working
with international investors. He holds an M.A. in Humanities from Oxford
University.
THOMAS C. MCCONNELL became a director of the Company in August 1990. Mr.
McConnell has been with New Enterprise Associates, a venture capital
investment firm since 1983 where he has been a General Partner since 1989.
Previously, he was a Product Manager in the Lisa Division of Apple Computer,
Inc. and a consultant with the Boston Consulting Group. He received an A.B. in
Engineering Science from Dartmouth College and an M.B.A. from the Stanford
University Graduate School of Business. Mr. McConnell serves on the Board of
Directors of CardioThoracic Systems, Inc., Conceptus, Inc., Sequana
Therapeutics, Inc., Innovasive Devices and a number of private companies.
ANDRE F. MARION has been a director of the Company since November 1995. Mr.
Marion was a founder of Applied Biosystems, Inc., a supplier of instruments
for biotechnology research, and served as its Chief Operating Officer from
1983 to 1986, its Chief Executive Officer from 1986 to 1993, and its Chairman
of the Board from 1987 to February 1993, when it merged with the Perkin Elmer
Corporation, a manufacturer of analytical instruments. Mr. Marion served as
Vice President of Perkin Elmer and President of its Applied Biosystems
Division until his retirement in February 1995. Mr. Marion holds a degree in
engineering from the French Ecole Nationale Superieures d'Ingenieurs Arts et
Metiers in both Mechanical and Electronic Engineering. Mr. Marion is an
independent consultant and also a director of Cygnus Corporation and Molecular
Devices Inc.
ROBERT C. MILLER has been a director of the Company since November 1995. He
is a Vice President and Director of the investment banking firm of Allen &
Company Incorporated and has been associated with the firm since June 1986.
Mr. Miller received his B.A. from Williams College and his M.B.A. from the
Leonard N. Stern School of Business, New York University. Mr. Miller is a
director of Envirogen, Inc., Audits & Surveys Worldwide, Inc., and Mediscience
Technology Corp., as well as a director of a number of private companies.
44
<PAGE>
G. KIRK RAAB became a director of the Company in 1996. Mr. Raab was
President and Chief Operating Officer from 1985 to 1989 and President and
Chief Executive Officer from 1990 to July 1995 of Genentech Inc., a
pharmaceutical company. He was with Abbott Laboratories from 1975 to 1985,
serving as President and Chief Operating Officer from 1981 to 1985. He is
currently Chairman of the Board of Shaman Pharmaceuticals, Inc. and Connective
Therapeutics, Inc., and a director of a number of private companies. He
received his B.A. from Colgate University, where he serves as a Trustee.
ALEX SAUNDERS M.D., has been Chief Scientist and Medical Director of the
Company since April 1993. Dr. Saunders is the founder and President of
Chronomed, Inc., a medical device company, where he was employed from 1986 to
1993. Prior to this, he was Director of Clinical Cytometry Systems for Becton
Dickinson, Vice President of Research and Development and Medical Affairs at
Geometric Data, a division of SmithKline Beckman, and Medical Director and
Technical Director at Technicon Corporation. Dr. Saunders has concentrated on
blood cell separation methods for the past ten years. Prior to this, he taught
pathology for eight years at Stanford University School of Medicine. Dr.
Saunders holds a B.A. from Stanford University and an M.D. from University of
British Columbia.
SIMON B. GOLDBARD PH.D., became a Director of Product Development of the
Company since 1994. From 1991 to 1994, Dr. Goldbard was Director of Research
at MediGene Corp., a clinical genetic testing company. Prior to this, he held
various research and development positions at Lifecode Division of Quantum
Chemical Inc., Genet Corp. and Enzo Biochemical Inc. He has 11 years of
biotechnology research and product development experience. Dr. Goldbard holds
a B.S. in Microbiology from the National University of Mexico and a Ph.D. in
Immunobiology from Iowa State University.
PADDY O'KELLY has been Director of Engineering of the Company since June
1992 with responsibilities in both the United States and United Kingdom
facilities for the engineering of the Company's cytogenetic product line. From
1982 to 1992, he held several positions with the Simulation Division of GEC-
Marconi, a computing and imaging systems company. He holds a B.S. in
Mathematics from Imperial College, University of London.
PAUL H. HARDIMAN has been the Manager of Regulatory Affairs and Quality
Assurance of the Company since May, 1994. From 1992 through 1994 Mr. Hardiman
was employed with Chiron Corporation as Manager of Diagnostic Quality Control.
He has 15 years of medical diagnostics experience, holding various positions
in product development, quality control/quality assurance and regulatory
compliance (domestic and international). He holds a B.S.C. in Biochemistry,
Botany and Zoology from the University College, Dublin, Ireland and a M.S. in
Molecular Genetics from the Michigan Technological University.
EMPLOYMENT AGREEMENTS
Under the terms of a letter dated August 12, 1991 (the "Letter Agreement")
setting forth the terms of Leslie G. Grant's employment with the Company, the
Company has agreed to provide Dr. Grant, in addition to an annual salary and
bonus, medical insurance, vacation time, mortgage interest payments on a new
residence purchased by Dr. Grant in connection with his move from Scotland to
England and an option to purchase 45,000 shares of the Company's Common Stock,
upon a change in control of the Company, with accelerated vesting of Dr.
Grant's option. In February 1996, the Letter Agreement was amended (the
"Amendment"). The Amendment contains a confidential nondisclosure provision
that restricts Dr. Grant's ability to disclose the Company's proprietary
information to third parties and a noncompetition provision that temporarily
restricts Dr. Grant's ability to indirectly complete with the Company
following Dr. Grant's termination from the Company.
Under the terms of a letter dated January 20, 1996 setting forth the terms
of Michael Burgett's employment with the Company, the Company has agreed to
provide Dr. Burgett, in addition to an annual salary and bonus, medical
insurance, vacation time and an option to purchase 70,000 shares of the
Company's Common Stock at an exercise price of $1.80 per share, with (i)
reimbursements for relocation expenses incurred by Dr. Burgett in connection
with his move from New Jersey to California up to a maximum of $70,000, (ii) a
severance payment equal to six times Dr. Burgett's then existing monthly
salary in the event his employment is terminated by the Company and (iii) upon
a change in control of the Company, accelerated vesting of Dr. Burgett's
option.
45
<PAGE>
BOARD COMPOSITION
The Company currently has authorized eight directors. In accordance with the
terms of the Company's Restated Articles of Incorporation, effective upon the
closing of this offering, the terms of office of the Board of Directors will
be divided into three classes; Class I, whose term will expire at the annual
meeting of shareholders to be held in 1997; Class II, whose term will expire
at the annual meeting of shareholders to be held in 1998; and Class III, whose
term will expire at the annual meeting of shareholders to be held in 1999. The
Class I directors are Michael S. Elias, Thomas C. McConnell and Gilbert J. R.
McCabe, the Class II directors are John F. Blakemore, Jr., Robert C. Miller
and G. Kirk Raab, and the Class III directors are Abraham I. Coriat and Andre
F. Marion. At each annual meeting of shareholders after the initial
classification, the successors to directors whose term will then expire will
be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, the Company's Restated
Articles of Incorporation provide that the authorized number of directors may
be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the Board
of Directors may have the effect of delaying or preventing changes in control
or management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than
nonemployee directors, devote substantially full time to the affairs of the
Company. The Company's nonemployee directors devote such time to the affairs
of the Company as is necessary to discharge their duties. There are no family
relationships among any of the directors, officers or key employees of the
Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent accountants. The members of the
Audit Committee are Messrs. John F. Blakemore, Jr., Michael S. Elias and
Abraham I. Coriat. The Compensation Committee of the Board of Directors
reviews and recommends to the Board the compensation and benefits of all
officers of the Company and establishes and reviews general policies relating
to compensation and benefits of employees of the Company. The members of the
Compensation Committee are Messrs. Thomas C. McConnell, Gilbert J. R. McCabe
and John F. Blakemore.
DIRECTOR COMPENSATION
Gilbert J. R. McCabe, G. Kirk Raab, John F. Blakemore, and Andre F. Marion
receive $800 per meeting attended and reimbursement of travel expenses from
the Company for their service as members of the Board of Directors. Under the
Company's Director Option Plan, each director who is not also an employee or
consultant of the Company (an "Outside Director") will automatically receive
an option to purchase 5,000 shares of Common Stock upon joining the Board of
Directors or in the case of current Outside Directors, upon re-election to the
Board of Directors at the first annual meeting of the shareholders following
this offering. Thereafter, each Outside Director who has served on the Board
of Directors for at least six months shall receive an option to acquire 5,000
shares of Common Stock on the date of each of the Company's annual meetings of
shareholders, provided such Outside Director is re-elected. Each option
granted under the Director Option Plan will become exercisable ratably over a
four-year period.
46
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information for the years ended December 31, 1993, 1994 and 1995 regarding the
compensation of the Company's Chief Executive Officer and each of the
Company's two other most highly compensated executive officers whose total
annual salary and bonus for such fiscal years were in excess of $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS COMPENSATION
- --------------------------- ---- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Abraham I. Coriat........ 1993 $120,000 $30,000(1) $ -- -- $2,400(2)
Chief Executive Officer 1994 140,000 37,500(3) -- -- 7,950(4)
and Chairman of the
Board
1995 147,000 37,500(5) -- -- 8,373(6)
Leslie G. Grant, Ph.D.... 1993 89,400 -- 36,706(7) 10,000(8) 16,351(9)
President, and Chief 1994 92,256 17,298(3) 13,172(10) -- 17,079(11)
Operating
Officer Cytogenics Divi- 1995 102,570 39,450(5)(12) -- -- 16,197(13)
sion
Neil E. Woodruff......... 1994 92,524 23,200(3)(14) -- -- 4,133(15)
Chief Financial Officer 1995 98,000 15,000(5) -- 10,000(16) 4,465(17)
and Secretary
</TABLE>
- --------
(1) Consists of bonuses earned during the year ended December 31, 1993 but
paid in the year ended December 31, 1994.
(2) Consists of amounts contributed to the Company's retirement plan.
(3) Consists of bonuses earned during the year ended December 31, 1994 but
paid in the year ended December 31, 1995.
(4) Consists of $4,000 contributed to the Company's retirement plan and
$3,950 in insurance premiums paid by the Company on behalf of Mr. Coriat.
(5) Consists of bonuses earned during the year ended December 31, 1995 and
paid in the year ending December 31, 1996.
(6) Consists of $4,392 contributed to the Company's retirement plan and
$3,981 in insurance premiums paid by the Company on behalf of Mr. Coriat.
(7) Consists of a mortgage interest reimbursement paid by the Company to Dr.
Grant.
(8) One-fourth (1/4) of the shares subject to the option became exercisable
on each of October 1, 1993, October 1, 1994 and October 1, 1995. The
remaining one-fourth ( 1/4) of the shares subject to the option shall be
exercisable on October 1, 1996, based upon Dr. Grant's continued
relationship with the Company.
(9) Consists of $9,387 contributed to a private pension scheme, $5,468 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant and $1,496 in insurance premiums paid by the Company on
behalf of Dr. Grant.
(10) Consists of a mortgage reimbursement paid by the Company to Dr. Grant.
(11) Consists of $9,687 contributed to a private pension scheme, $5,784 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant and $1,608 in insurance premiums paid by the Company on
behalf of Dr. Grant.
(12) Consists of bonus earned during the year ended December 31, 1994 but paid
in the year ended December 31, 1995. Does not include the Board's
currently outstanding offer to pay a bonus to Dr. Grant equal to $81,000
solely for the purpose of exercising his stock option to purchase 45,000
shares of Common Stock at $1.80.
(13) Consists of $9,941 contributed to a private pension scheme, $4,500 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant and $1,756 in insurance premiums paid by the Company on
behalf of Dr. Grant.
(14) Consists of bonus earned during the year ended December 31, 1994 but paid
in the year ended December 31, 1995. Consists of $10,000 paid in cash and
$13,200 as payment of the exercise price on certain options granted to
Mr. Woodruff.
(15) Consists of $2,658 contributed to the Company's retirement plan and
$1,475 in insurance premiums paid by the Company on behalf of Mr.
Woodruff.
(16) One-fourth (1/4) of the shares subject to the option became exercisable
on October 24, 1995. One-fourth of the shares subject to the option shall
become exercisable at the end of each full year following October 24,
1995 until all such shares have become exercisable, based upon Mr.
Woodruff's continued relationship with the Company.
(17) Consists of $2,926 contributed to the Company's retirement plan and
$1,539 in insurance premiums paid by the Company on behalf of Mr.
Woodruff.
47
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth each grant
of stock options made during the fiscal year ended December 31, 1995 to each
of the Named Executive Officers:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (4)
------------------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED DURING
OPTIONS FISCAL EXERCISE PRICE EXPIRATION
NAME GRANTED (#)(1) 1995 (%) (2) ($/SH) (3) DATE 5% ($) 10% ($)
---- -------------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Abraham I. Coriat....... -- --% $ -- -- $ -- $ --
Leslie G. Grant, Ph.D... -- -- -- -- -- --
Neil E. Woodruff........ 10,000 15.0 1.80 4/27/05 11,320 28,687
</TABLE>
- --------
(1) Options were granted under the Company's Amended and Restated 1988
Incentive Stock Option Plan and generally vest over four years from the
date of commencement of employment.
(2) Based on an aggregate of 66,500 options granted by the Company in the year
ended December 31, 1995 to employees of and consultants to the Company,
including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price.
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. The
following table sets forth certain information with respect to stock option
exercises during the year ended December 31, 1995 by each of the Named
Executive Officers, and the number and value of securities underlying
unexercised options held by the Named Executive Officers at December 31, 1995:
AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1995 AND
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1995 (#) DECEMBER 31, 1995 ($) (1)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Abraham I. Coriat....... -- -- -- --
Leslie G. Grant, Ph.D... -- -- 45,000 0 594,000 0
-- -- 7,500 2,500 99,000 33,000
Neil E. Woodruff........ 40,000 58,800 -- -- -- --
-- 2,500 7,500 33,000 99,000
</TABLE>
- --------
(1) Based on a value of $15.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of
shares underlying the option.
48
<PAGE>
INCENTIVE STOCK PLANS
Amended and Restated 1988 Incentive Stock Option Plan. The Company's Amended
and Restated 1988 Incentive Stock Option Plan (the "1988 Option Plan") was
adopted by the Board of Directors in October 1988 and approved by the
shareholders in October 1989. As of March 31, 1996, 506,000 shares were
subject to outstanding options at exercise prices ranging from $1.80 to $3.00
per share and 176,238 shares were available for future grant under the 1988
Option Plan. In June 1996 the Board of Directors approved an increase of
450,000 shares available for grant under the 1988 Option Plan subject to
approval of the shareholders within twelve months of the approval by the Board
of Directors. The purposes of the 1988 Option Plan are to attract and retain
qualified personnel, to provide additional incentives to employees, officers
and consultants of the Company and to promote the success of the Company's
business. Pursuant to the 1988 Option Plan, the Company may grant options
which qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to employees (including
officers and directors who are employees) and nonqualified stock options to
employees, officers, directors and consultants.
The Compensation Committee is authorized to administer the 1988 Option Plan,
including the selection of the employees, directors and consultants of the
Company to whom stock options may be granted and the interpretation and
adoption of rules for the operation of the 1988 Option Plan. Options granted
under the 1988 Option Plan generally become exercisable at the rate of 25% of
the shares one year from the grant date and approximately 25% of the shares at
the end of each one-year period thereafter such that the option is fully
exercisable four years from the grant date. However, the vesting schedule is
subject to modification by the Board of Directors. The maximum term for
options granted under the 1988 Option Plan is ten years, except that if at the
time of the grant the optionee possesses more than 10% of the combined voting
power of the Company or is an affiliate (as defined in the Code) of the
Company (a "10% Shareholder"), the maximum term of an incentive stock option
is five years. The exercise price of incentive stock options granted to a 10%
Shareholder must be at least 110% of the fair market value of the stock
subject to the option on the date of grant. The exercise price of nonqualified
stock options granted under the 1988 Option Plan must be at least 85% of the
fair market value of the stock subject to the option on the date of grant.
Payment of the exercise price may be made by cash, promissory note or other
consideration as determined by the Board of Directors. The 1988 Option Plan
may be amended at any time by the Board of Directors, although certain
amendments would require shareholder approval. The 1988 Option Plan will
terminate in 1998, unless earlier terminated by the Board of Directors.
1994 Director Option Plan. The Company's 1994 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors and approved by the
shareholders in February 1994. As of March 31, 1996, 50,000 shares of Common
Stock were reserved for issuance under the Director Plan. In June 1996, the
Board of Directors approved an increase of 70,000 shares of Common Stock
available for grant under the Director Plan subject to approval by the
shareholders within twelve months of Board of Directors approval of such
increase. Each nonemployee director who becomes a director after the date of
this Prospectus will be automatically granted a nonstatutory option to
purchase 5,000 shares of Common Stock on the date on which such person first
becomes a director or in the case of current nonemployee directors, upon re-
election to the Board of Directors at the first annual meeting of the
shareholders following this offering. Thereafter, each nonemployee director
who has served on the Board of Directors for at least six months shall receive
an option to acquire 5,000 shares of Common Stock on the date of each of the
Company's annual meetings of the shareholders, provided such nonemployee
director is re-elected. Each option granted under the Director Plan will
become exercisable ratably over a four-year period. In the event of a change
in control of the Company, including a merger or sale of substantially all of
the Company's assets, outstanding options must be assumed by any successor
corporation, or they will become fully vested and exercisable. The exercise
price of all options granted under the Director Plan after the date of this
Prospectus will be equal to the fair market value of the Common Stock on the
date of grant. Each option grant under the Director Plan will vest on a
cumulative yearly basis over a four-year period. All such options will expire
ten years from the date of grant unless terminated sooner pursuant to the
provisions of the Director Plan. The Board of Directors may amend the Director
Plan at any time. The Director Plan will terminate in February 2004. No
options have been granted under the Director Plan to date.
49
<PAGE>
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Company's Board of Directors in June
1996 and it is anticipated that the Purchase Plan will be approved by the
shareholders prior to the closing of this offering. The Purchase Plan is
intended to qualify under Section 423 of the Code. The Company has reserved
200,000 shares of Common Stock for issuance under the Purchase Plan. Under the
Purchase Plan, an eligible employee may purchase shares of Common Stock from
the Company through payroll deductions of up to 10% of his or her
compensation, at a price per share equal to 85% of the lower of (i) the fair
market value of the Company's Common Stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the Common
Stock on the last day of an offering period. Except for the first offering
period, each offering period will last for six months and will commence the
first day on which the national stock exchanges and The Nasdaq Stock Market
are open for trading, on or after May 1 and November 1 of each year. The first
offering period will begin upon the effective date of this offering and will
end on April 30, 1997. Any employee who is customarily employed for at least
20 hours per week and more than five months per calendar year, who has been so
employed for at least three consecutive months on or before the commencement
date of an offering period is eligible to participate in the Purchase Plan. No
shares have been purchased under the Purchase Plan to date.
EMPLOYEE RETIREMENT PLANS
United States. In January 1994, the Company implemented a Retirement Savings
and Investment Plan that is intended to qualify under Section 401(k) of the
Code (the "401(k) Plan") covering all of the Company's United States based
employees. An employee may elect to defer, in the form of contributions to the
401(k) Plan on his or her behalf, up to 15% of the total compensation that
would otherwise be paid to the employee, not to exceed the amount allowed by
applicable Internal Revenue Service guidelines. The Company will match 100% of
amounts deferred by the employee participants up to 3% of such employee's
total compensation and such matching amounts vest over a three year period
from the initial participation date. During 1993, 1994 and 1995, the Company
made contributions to the 401(k) Plan totalling approximately $18,000, $38,000
and $51,000, respectively. Contributions by employees or by the Company to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan. Contributions by the Company
are deductible by the Company when made.
United Kingdom. The Company's United Kingdom based employees are covered by
retirement savings plans (the "International Retirement Plans"). Under such
plans, an employee may elect to make contributions of 3.5% of such employee's
earnings. Amounts contributed by the Company range from 5.5% to 10.5% of such
employee's earnings. During 1993, 1994 and 1995, the Company paid or accrued
contributions to the International Retirement Plans totaling $83,000, $60,000
and $43,000, respectively. Contributions by employees or by the Company to the
International Retirement Plans, and income earned on plan contributions, are
not taxable to employees until withdrawn from such plans. Contributions by the
Company are deductible by the Company when made.
50
<PAGE>
CERTAIN TRANSACTIONS
In August 1993, the Company issued and sold 1,016,407 shares of Series I
Preferred Stock at a purchase price of $5.25 per share to a total of 33
investors. The 5% shareholders that purchased shares of Series I Preferred
Stock and the number of shares each 5% shareholder purchased are (i) Allen &
Company Incorporated and affiliates, 339,300 shares, (ii) New Enterprise
Associates V, Limited Partnership, 11,905 and (iii) the Thompson Clive Funds,
9,524 shares. In connection with the Series I Preferred Stock Financing, the
Company issued to Allen & Company Incorporated a warrant to purchase 140,000
shares of the Company's Common Stock at a purchase price of $5.25 per share
and the Company paid to Allen & Company Incorporated a placement agent fee in
the amount of $252,504.
In connection with Dr. Grant's relocation from Edinburgh, Scotland to
Sunderland, England, the Company initially agreed to pay the mortgage interest
payments on Dr. Grant's new residence while Dr. Grant sought to sell his prior
residence. Mortgage interest payments made by the Company pursuant to this
arrangement totalled $21,263 and $36,706 in 1992 and 1993, respectively. In
March 1994, this arrangement was replaced as the Company purchased Dr. Grant's
former Edinburgh residence for $262,500 and discontinued payment of mortgage
interest on his new residence. The Company has incurred and expects to
continue to incur reduced interest costs as a result of this transaction.
In July and September 1995, the Company issued and sold 1,106,217 shares of
Series J Preferred Stock at a purchase price of $4.25 per share and issued
warrants for the purchase of 368,734 shares of the Common Stock at a purchase
price of $5.25 per share to a total of 30 investors pursuant to the terms of
the Series J Preferred Stock and Warrant Purchase Agreement. The 5%
shareholders that purchased shares of Series J Preferred Stock and the number
of shares each 5% shareholder purchased are (i) Allen & Company Incorporated
and affiliates, 524,038 and (ii) New Enterprise Associates V, Limited
Partnership, 176,332. Allen & Company Incorporated and affiliates and New
Enterprise Associates V, Limited Partnership were issued warrants to purchase
174,678 and 58,777 shares of Common Stock, respectively. In addition, pursuant
to the terms of the Series J Preferred Stock and Warrant Purchase Agreement,
the Company issued to Allen & Company Incorporated a warrant to purchase
140,000 shares of Common Stock at a purchase price of $4.25 per share in
exchange for the warrant to purchase 140,000 shares of Common Stock at a
purchase price of $5.25 per share issued to Allen & Company Incorporated
pursuant to the Series I Preferred Stock Financing. Additionally, the Company
paid to Allen & Company Incorporated a placement agent fee in the amount of
$238,307.
In January 1996, the Company granted Dr. Grant an option to purchase 35,000
shares of the Company's Common Stock at an exercise price of $1.80 per share.
One-fourth of the shares subject to the option shall become exercisable at the
end of each full year following January 15, 1996 until all such shares have
become exercisable, based upon Dr. Grant's continued relationship with the
Company.
In March 1996, the Company granted an option to Michael W. Burgett,
President, Genetic Diagnostics Division of the Company, to purchase 70,000
shares of Common Stock at an exercise price of $1.80 per share. One-fourth of
the shares subject to the option shall become exercisable at the end of each
full year following March 28, 1996, until all such shares have become
exercisable, based upon Dr. Burgett's continued relationship with the Company.
In March 1996, the Company granted options to certain non-employee members
of the Board of Directors exercisable at $1.80 per share. The following
directors were granted options to acquire the following number of shares of
Common Stock: Mr. Raab, 35,000; Mr. Marion, 20,000; Mr. Blakemore, 20,000; Mr.
McConnell, 5,000; Mr. Elias, 5,000; Mr. McCabe, 5,000; and Mr. Miller, 5,000.
One-fourth of the shares subject to each of these options shall become
exercisable at the end of each full year following March 28, 1996, until all
such shares have become exercisable.
51
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1996 (assuming
the conversion of all outstanding shares of Preferred Stock into Common Stock
and 619,150 shares of Common Stock upon the exercise of all outstanding
warrants , and as adjusted to reflect the sale of Common Stock offered by the
Company hereby for (i) each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each executive officer named in the summary compensation
table and (iv) all directors and officers as a group.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Entities Affiliated with Thompson Clive 706,077 14.0% 9.6%
Ventures/Midland Bank Trustee..................
(Jersey) Ltd. (1)
c/o Midland Bank International Finance
Corporation Limited
P.O. Box 26
28-34 Hill Street.
St. Helier, Jersey, Channel Islands
Individuals and Entities Affiliated with Allen 1,704,972 31.6% 22.1%
Holding Inc.(2)................................
711 Fifth Avenue
New York, NY 10022
Entities Affiliated with New Enterprise 679,756 13.3% 9.2%
Associates (3).................................
2490 Sand Hill Road
Menlo Park, CA 94025
CV Sofinnova Ventures Partners II (4)........... 283,266 5.6% 3.8%
c/o Alix Marduel, M.D.
Stuart Tower, Suite 2630
San Francisco, CA 94105
Michael S. Elias (1)............................ 706,077 14.0% 9.6%
Robert C. Miller (2)............................ 1,704,972 31.6% 22.1%
Abraham I. Coriat (5)........................... 464,568 9.2% 6.3%
Thomas C. McConnell (3)......................... 679,756 13.3% 9.2%
John F. Blakemore, Jr. (6)...................... 76,762 1.5% 1.0%
Gilbert J.R. McCabe (7)......................... 63,571 1.3% *
G. Kirk Raab.................................... -- * *
Andre Marion.................................... 6,269 * *
Leslie G. Grant, Ph.D. (8)...................... 52,500 1.0% *
Neil E. Woodruff (9)............................ 45,000 * *
All executive officers and directors as a group
(11 persons) (1)(2)(3)(5)(6)(7)(8)(9).......... 3,799,475 68.7% 48.5%
</TABLE>
52
<PAGE>
- --------
* Less than 1%.
(1) Consists of 209,348 shares held by Thompson Clive Investments plc, 5,500
shares held by Thompson Clive, Inc. (collectively, the "Thompson Clive
Entities") and 488,479 shares held by Midland Bank Trustee (Jersey)
Limited. Because Midland Bank Trustee (Jersey) Limited acts as the
nominee for the Thompson Clive Entities, the Thompson Clive Entities are
deemed the beneficial owners of the shares held by Midland Bank Trustee
(Jersey) Limited. Michael S. Elias, a director of the Company and a
holder of 2,750 shares, is an affiliate of the Thompson Clive Entities
and disclaims beneficial ownership of the shares held by the Thompson
Clive Entities and Midland Bank Trustee (Jersey) Limited except to the
extent of his proportionate ownership interest therein.
(2) Consists of 198,678 shares and warrants to purchase 179,216 shares held
by Allen & Company Incorporated, 39,859 shares and a warrant to purchase
6,257 shares held by Allen Value Limited, 333,715 shares and a warrant to
purchase 52,388 shares held by Allen Value Partners, L.P. and an
aggregate of 776,635 shares and warrants to purchase an aggregate of
118,224 shares held by certain officers, directors, employees,
individuals related to officers, directors and employees and shareholders
of Allen Holding Inc. or its affiliated entities. Allen Holding Company
is a holding company of each of Allen & Company Incorporated, Allen Value
Limited and Allen Value Partners, L.P. and disclaims beneficial ownership
of the shares held by such entities except to the extent of its
proportionate ownership interest therein. Robert C. Miller, a director of
the Company and a holder of 1,759 shares and a warrant to purchase 586
shares, is an affiliate of Allen Holding Inc. and the related entities,
and disclaims beneficial ownership of the shares held by such entities
except to the extent of his proportionate ownership interest therein.
(3) Consists of 609,214 shares and warrants to purchase 58,777 shares held by
New Enterprise V, Limited Partnership and 11,765 shares held by The
Silverado Fund I, Limited Partnership. Thomas C. McConnell, a director of
the Company, is a general partner of New Enterprise Associates V, Limited
Partnership and The Silverado Fund I, Limited Partnership, and disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate ownership interest therein.
(4) Includes a warrant to purchase 11,755 shares.
(5) Consists of 414,732 shares held as community property by Abraham I.
Coriat and Shira Shamssian and an aggregate of 49,836 shares held by
Abraham I. Coriat and Shira Shamssian as Custodian for each of Salomon
Israel Coriat and Yael Israel Coriat.
(6) Includes an option to purchase 7,500 shares within 60 days of March 31,
1996.
(7) Consists of 10,000 shares held by Mr. McCabe and 53,571 shares held by
SEFTA Trustees Ltd Mr. McCabe, a director of the Company, is the trustee
of SEFTA Trustees Ltd., and disclaims beneficial ownership of the shares
held by SEFTA Trustees Ltd. except to the extent of his proportionate
ownership interest therein.
(8) Consists of options to purchase 52,500 shares within 60 days of March 31,
1996.
(9) Includes an option to purchase 2,500 shares within 60 days of March 31,
1996.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 20,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock and the restatement of the Company's Articles of Incorporation
upon the closing of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Articles of Incorporation which are included as an exhibit to the Registration
Statement of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
As of March 31, 1996, there were 5,047,802 shares of Common Stock
outstanding which were held of record by 135 shareholders, on a pro forma
basis to reflect the conversion of all outstanding shares of Preferred Stock
which will occur upon the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. The holders of 15,000 shares of Common Stock
issued pursuant to the Series H Preferred Stock Financing or their transferees
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be issued upon the
closing of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding upon the closing of this offering. The Board of Directors will
have the authority, without further action by the shareholders, to issue the
undesignated Preferred Stock in one or more series, to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
shareholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.
WARRANTS
As of March 31, 1996, the Company had outstanding a warrant to purchase
140,000 shares of Common Stock at $4.25 per share expiring in July 2000,
warrants to purchase 368,734 shares of Common Stock at $5.25 per share
expiring in July 1998, and warrants to purchase 110,416 shares of Series F
Preferred Stock at $3.40 per share expiring in February 1997. The shares
underlying these warrants are entitled to registration rights. See
"Description Capital Stock--Registration Rights Certain Holders."
54
<PAGE>
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 3,596,940 shares of Common Stock and warrants to purchase
619,150 shares of Common Stock (the "Registrable Securities") or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the
terms of an agreement between the Company and the holders of Registrable
Securities. Subject to certain limitations in the agreement, the holders of at
least a majority of the Registrable Securities may require, on two occasions
beginning six months after the date of this Prospectus, that the Company use
its best efforts to register the Registrable Securities for public resale. If
the Company registers any of its Common Stock either for its own account or
for the account of other security holders, the holders of Registrable
Securities are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. The holders of at least five percent of
the Registrable Securities may also require the Company to register all or a
portion of their Registrable Securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling price (net of any underwriters' discounts or
commissions) is at least $1 million. All registration expenses must be borne
by the Company and all selling expenses relating to Registrable Securities
must be borne by the holders of the securities being registered.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could materially and adversely affect market prices prevailing from
time to time. Sales of substantial amounts of Common Stock of the Company in
the public market after the restrictions lapse could materially and adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon the completion of this offering, the Company will have 7,347,802 shares
of Common Stock outstanding, assuming no exercise of options after March 31,
1996. Of these shares, the 2,300,000 shares sold in this offering will be
freely tradeable without restriction under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 5,047,802 shares of Common Stock held by
existing shareholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144, 144(k) or 701 under the
Securities Act. Such restricted shares will be available for sale in the
public market as follows: (i) approximately 239,590 shares will be eligible
for immediate sale on the date of this Prospectus, (ii) approximately 33,571
additional shares will be eligible for sale 90 days after the date of this
Prospectus, (iii) approximately 3,998,676 additional shares (including
approximately 222,186 shares subject to outstanding vested options and
approximately 110,416 shares of Common Stock issuable upon exercise of certain
outstanding warrants) will be available for sale 180 days after the date of
this Prospectus upon expiration of lock-up agreements and (iv) approximately
1,617,301 additional shares (including approximately 508,734 shares of Common
Stock issuable upon exercise of certain outstanding warrants) will be eligible
for sale at various times thereafter. The Company's directors, executive
officers and certain of its shareholders, who in the aggregate hold more than
94% of the shares of Common Stock of the Company outstanding immediately prior
to the completion of this offering, have entered into lock-up agreements under
which they have agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of, or agree to dispose of, directly or
indirectly, any shares of Common Stock or options to acquire shares of Common
Stock owned by them for a period of 180 days after the date of this
Prospectus, without the prior written consent of Montgomery Securities.
Montgomery Securities may, in its sole discretion, and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements. The Company has entered into a similar agreement, except that the
Company may grant options and issue stock under its current stock option and
stock purchase plans and pursuant to other currently outstanding options.
As of March 31, 1996, 506,000 shares were subject to outstanding options.
All of these shares are subject to the lock-up agreements described above.
3,596,940 of the shares outstanding immediately following the completion of
this offering and up to 619,150 shares of Common Stock subject to outstanding
warrants, if exercised before the expiration of the warrants, will be entitled
to registration rights with respect to such shares upon the release of lock-up
agreements. The number of shares sold in the public market could increase if
such rights are exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner, except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding
(approximately 73,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior
owner, except an affiliate), is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Under Rule 701 under the Securities Act,
persons who purchase
56
<PAGE>
shares upon exercise of options granted prior to the effective date of this
offering are entitled to sell such shares 90 days after the effective date of
this offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.
57
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Dillon,
Read & Co. Inc. and Vector Securities International, Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the number of
shares of Common Stock indicated below opposite their respective names below.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase all of the shares if they purchase any of the shares.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Montgomery Securities................................................
Dillon, Read & Co. Inc. .............................................
Vector Securities International, Inc. ...............................
----------
Total............................................................ 2,300,000
==========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the initial public
offering, the price and concessions and reallowances to dealers may be changed
by the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 345,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,300,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may
be required to make in respect thereof.
The holders of more than 93% of the shares of the Company's Common Stock
outstanding immediately prior to the completion of this offering, including
all of the Company's directors and executive officers, have agreed that, for a
period of 180 days after the date of the final Prospectus relating to this
offering, they will not, without the prior written consent of Montgomery
Securities, directly or indirectly sell, offer to sell or otherwise dispose of
any such shares of Common Stock or any right to acquire such shares. The
Company has agreed that,
58
<PAGE>
for a period of 180 days after the date of the final Prospectus relating to
this offering, it will not, without the prior written consent of Montgomery
Securities or each of the Representatives, issue, offer, sell, grant options
to purchase or otherwise dispose of any of the Company's equity securities or
any other securities convertible into or exchangeable for the Common Stock or
other equity security, other than the grant of options to purchase Common
Stock or the issuance of shares of Common Stock reserved for issuance under
the Company's stock plan's and the issuance of shares of Common Stock pursuant
to the exercise of outstanding options.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations are the history of, and the prospects for,
the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the offering and the market prices of
and demand for publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP Palo Alto, California is acting as counsel for the Underwriters in
connection with certain legal matters relating to the shares of Common Stock
offered hereby. As of March 31, 1996, a certain investment partnership of
Wilson Sonsini Goodrich & Rosati, Professional Corporation beneficially owned
an aggregate of 4,412 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995, have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the
authority of said firm as experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors--Patents
and Proprietary Technology; Risk of Infringement" and "Business--Patents and
Proprietary Rights" have been reviewed and approved by Townsend and Townsend
and Crew, special patent counsel for the Company, as experts in such matters,
and are included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of certain fees prescribed by the Commission.
59
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants .................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (unaudited), and pro forma March 31, 1996 (unaudited)........ F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995, and for the three months ended March 31, 1995
and 1996 (unaudited).................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994, and 1995, and for the three months ended
March 31, 1996 (unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995, and for the three months ended March 31, 1995
and 1996 (unaudited).................................................. F-6
Notes to Consolidated Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Applied Imaging Corp.:
We have audited the accompanying consolidated balance sheets of Applied
Imaging Corp. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Applied
Imaging Corp. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
February 26, 1996, except as
to Note 13, which is as of
June 19, 1996
F-2
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------ ------------------------
1994 1995 ACTUAL PRO FORMA
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents. $ 2,503,000 $ 2,159,000 $ 1,863,000 $ 1,863,000
Short-term investments.... -- 2,997,000 2,029,000 2,029,000
Trade accounts receivable
(less allowance for
doubtful accounts of
$122,000, $166,000, and
$160,000 as of December
31, 1994 and 1995 and
March 31, 1996,
respectively)............ 1,940,000 1,501,000 1,843,000 1,843,000
Inventories............... 1,133,000 880,000 927,000 927,000
Prepaid expenses and other
current assets........... 430,000 140,000 281,000 281,000
----------- ----------- ----------- -----------
Total current assets.... 6,006,000 7,677,000 6,943,000 6,943,000
Property and equipment..... 995,000 1,319,000 1,237,000 1,237,000
Other assets............... 440,000 377,000 362,000 362,000
----------- ----------- ----------- -----------
$7,441,000 $ 9,373,000 $ 8,542,000 $ 8,542,000
=========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
---------------------
Current liabilities:
Current portion of bank
debt..................... $ 710,000 $ 471,000 $ 447,000 $ 447,000
Accounts payable.......... 1,450,000 1,141,000 1,413,000 1,413,000
Accrued expenses.......... 839,000 1,430,000 1,189,000 1,189,000
Deferred revenue.......... 1,295,000 1,386,000 1,179,000 1,179,000
----------- ----------- ----------- -----------
Total current
liabilities............ 4,294,000 4,428,000 4,228,000 4,228,000
----------- ----------- ----------- -----------
Bank debt, less current
portion.................... 336,000 231,000 223,000 223,000
----------- ----------- ----------- -----------
Shareholders' equity:
Preferred stock: 6,000,000
shares authorized;
2,812,962, 3,919,179 and
3,919,179 shares issued
and outstanding, as of
December 31, 1994 and
1995 and March 31, 1996,
respectively, actual;
5,000,000 shares
authorized, none issued
and outstanding, pro
forma.
Aggregate liquidation
preference of
$11,065,000,
$15,766,000, and,
$15,766,000 as of
December 31, 1994 and
1995, and March
31, 1996, respectively.. 9,695,000 14,041,000 14,041,000 --
Common stock: 20,000,000
shares authorized;
973,510, 1,067,785 and
1,087,785 shares issued
and outstanding, as of
December 31, 1994 and
1995 and March 31, 1996,
respectively, actual;
20,000,000 shares
authorized, 5,047,802
shares issued and
outstanding, pro forma... 77,000 180,000 1,690,000 15,731,000
Accumulated deficit....... (6,594,000) (9,140,000) (9,800,000) (9,800,000)
Deferred stock
compensation............. -- -- (1,473,000) (1,473,000)
Cumulative translation
adjustment............... (367,000) (367,000) (367,000) (367,000)
----------- ----------- ----------- -----------
Total shareholders'
equity................. 2,811,000 4,714,000 4,091,000 4,091,000
----------- ----------- ----------- -----------
$ 7,441,000 $ 9,373,000 $ 8,542,000 $ 8,542,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.......... $ 6,182,000 $ 7,021,000 $ 8,106,000 $ 1,752,000 $ 2,261,000
Software maintenance
and service........... 2,499,000 2,550,000 2,692,000 647,000 696,000
------------ ------------ ------------ ------------ ------------
Total revenues....... 8,681,000 9,571,000 10,798,000 2,399,000 2,957,000
------------ ------------ ------------ ------------ ------------
Costs of revenues:
Product sales.......... 3,893,000 3,937,000 4,171,000 844,000 1,170,000
Software maintenance
and service........... 1,072,000 1,413,000 1,313,000 317,000 386,000
------------ ------------ ------------ ------------ ------------
Total cost of
revenues............ 4,965,000 5,350,000 5,484,000 1,161,000 1,556,000
------------ ------------ ------------ ------------ ------------
Gross profit......... 3,716,000 4,221,000 5,314,000 1,238,000 1,401,000
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and
development........... 1,756,000 2,821,000 2,919,000 693,000 897,000
Sales and marketing.... 2,543,000 2,524,000 2,918,000 649,000 725,000
General and
administrative........ 1,229,000 1,898,000 2,094,000 575,000 460,000
------------ ------------ ------------ ------------ ------------
Total operating
expenses............ 5,528,000 7,243,000 7,931,000 1,917,000 2,082,000
------------ ------------ ------------ ------------ ------------
Operating loss....... (1,812,000) (3,022,000) (2,617,000) (679,000) (681,000)
Other income............ 39,000 52,000 71,000 19,000 21,000
------------ ------------ ------------ ------------ ------------
Net loss............. $ (1,773,000) $ (2,970,000) $ (2,546,000) $ (660,000) $ (660,000)
============ ============ ============ ============ ============
Pro forma net loss per
common share........... $ (0.45) $ (0.12)
============ ============
Shares used in computing
pro forma net loss per
common share........... 5,635,393 5,681,061
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK DEFERRED CUMULATIVE TOTAL
--------------------- -------------------- ACCUMULATED STOCK TRANSLATION SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT COMPENSATION ADJUSTMENT EQUITY
--------- ----------- --------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1992............... 1,796,555 $ 4,678,000 934,698 $ 65,000 $(1,851,000) $ -- $(295,000) $ 2,597,000
Exercise of common
stock options......... -- -- 12,875 2,000 -- -- -- 2,000
Issuance of Series I
preferred stock, net
of $319,100 offering
costs................. 1,016,407 5,017,000 -- -- -- -- -- 5,017,000
Cumulative translation
adjustment............. -- -- -- -- -- -- (30,000) (30,000)
Net loss............... -- -- -- -- (1,773,000) -- -- (1,773,000)
--------- ----------- --------- ---------- ----------- ----------- --------- -----------
Balances as of December
31, 1993............... 2,812,962 9,695,000 947,573 67,000 (3,624,000) -- (325,000) 5,813,000
Exercise of common
stock options......... -- -- 25,937 10,000 -- -- -- 10,000
Cumulative translation
adjustment............ -- -- -- -- -- -- (42,000) (42,000)
Net loss............... -- -- -- -- (2,970,000) -- -- (2,970,000)
--------- ----------- --------- ---------- ----------- ----------- --------- -----------
Balances as of December
31, 1994............... 2,812,962 9,695,000 973,510 77,000 (6,594,000) -- (367,000) 2,811,000
Exercise of common
stock options......... -- -- 94,275 44,000 -- -- -- 44,000
Compensation expense
related to employee
stock options......... -- -- -- 59,000 -- -- -- 59,000
Issuance of Series J
preferred stock, net
of $356,500 offering
costs................. 1,106,217 4,346,000 -- -- -- -- -- 4,346,000
Net loss............... -- -- -- -- (2,546,000) -- -- (2,546,000)
--------- ----------- --------- ---------- ----------- ----------- --------- -----------
Balances as of December
31, 1995............... 3,919,179 14,041,000 1,067,785 180,000 (9,140,000) -- (367,000) 4,714,000
Exercise of common
stock options
(unaudited)........... -- -- 20,000 37,000 -- -- -- 37,000
Deferred stock
compensation
(unaudited)........... -- -- -- 1,473,000 -- (1,473,000) -- --
Net loss (unaudited)... -- -- -- -- (660,000) -- -- (660,000)
--------- ----------- --------- ---------- ----------- ----------- --------- -----------
Balances as of March 31,
1996 (unaudited)....... 3,919,179 $14,041,000 1,087,785 $1,690,000 $(9,800,000) $(1,473,000) $(367,000) $ 4,091,000
========= =========== ========= ========== =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (1,773,000) $ (2,970,000) $ (2,546,000) $(660,000) $ (660,000)
Adjustments to
reconcile net loss to
net cash used for
operating activities:
Depreciation and
amortization......... 449,000 602,000 556,000 121,000 187,000
(Gain) loss from
remeasurement........ -- 140,000 (17,000) 11,000 7,000
Compensation expense
related to employee
stock options........ -- -- 59,000 59,000 --
Changes in operating
assets and
liabilities:
Trade accounts
receivable.......... (520,000) 1,025,000 439,000 408,000 (342,000)
Inventories.......... 494,000 (153,000) 253,000 64,000 (47,000)
Prepaid expenses and
other assets........ 6,000 (185,000) 290,000 67,000 (141,000)
Accounts payable..... 206,000 187,000 (309,000) (638,000) 272,000
Accrued expenses..... (80,000) 127,000 591,000 7,000 (241,000)
Deferred revenue..... (67,000) 8,000 91,000 (7,000) (207,000)
Taxes refundable..... 278,000 -- -- -- --
------------ ------------ ------------ ---------- -----------
Net cash used for
operating
activities.......... (1,007,000) (1,219,000) (593,000) (568,000) (1,172,000)
------------ ------------ ------------ ---------- -----------
Cash flows from
investing activities:
Sales of short-term
investments........... -- 3,439,000 -- -- 968,000
Purchase of short-term
investments........... (3,439,000) -- (2,997,000) -- --
Proceeds from sale of
equipment, net........ 87,000 -- -- --
Purchases of equipment. (385,000) (653,000) (808,000) (237,000) (112,000)
Other assets........... (249,000) (259,000) 9,000 (1,000) 15,000
------------ ------------ ------------ ---------- -----------
Net cash provided by
(used for) investing
activities.......... (3,986,000) 2,527,000 (3,796,000) (238,000) 871,000
------------ ------------ ------------ ---------- -----------
Cash flows from
financing activities:
Proceeds from issuance
of preferred stock.... 5,017,000 -- 4,346,000 -- --
Proceeds from issuance
of common stock....... 2,000 10,000 44,000 2,000 37,000
Bank borrowings........ -- 469,000 -- -- --
Payment of bank debt... (130,000) (90,000) (345,000) (20,000) (32,000)
------------ ------------ ------------ ---------- -----------
Net cash provided by
(used for) financing
activities............. 4,889,000 389,000 4,045,000 (18,000) 5,000
------------ ------------ ------------ ---------- -----------
Effect of exchange rate
changes on cash and
cash equivalents....... (25,000) (216,000) -- -- --
------------ ------------ ------------ ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (129,000) 1,481,000 (344,000) (824,000) (296,000)
Cash and cash
equivalents at
beginning of period.... 1,151,000 1,022,000 2,503,000 2,503,000 2,159,000
------------ ------------ ------------ ---------- -----------
Cash and cash
equivalents at end of
period................. $ 1,022,000 $ 2,503,000 $ 2,159,000 $1,679,000 $ 1,863,000
============ ============ ============ ========== ===========
Supplemental disclosure
of cash paid for
interest............... $ 55,000 $ 86,000 $ 110,000 $ 20,000 $ 19,000
============ ============ ============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
APPLIED IMAGING CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31,
1995 AND 1996 IS UNAUDITED.)
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
Applied Imaging Corp. (the Company) was incorporated in 1986 to develop,
manufacture, and market automated clinical analysis systems used by
cytogenetic laboratories in prenatal genetic screening. The Company sells its
products to government and private clinical cytogenetic laboratories, research
institutions, universities, and pharmaceutical companies located primarily in
the United States, Canada, Europe, and the Pacific Rim. The Company is
currently devoting significant resources to the development of a new prenatal
screening designed to enable the detection of prenatal chromosomal disorders
through the analysis of fetal blood cells drawn from maternal blood. There
have been no revenues earned in relation to this new prenatal screening
system.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Applied Imaging International,
Limited (United Kingdom) and Applied Imaging, Limited (Israel). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Foreign Exchange
The Company accounts for its foreign operations in accordance with Statement
of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation.
Prior to April 1994, the functional currency for Applied Imaging International
was the British pound and, accordingly, translation adjustments resulting from
the conversion of the subsidiary's financial statements into U.S. dollars were
accumulated and reported as a separate component of stockholders' equity.
Beginning in April 1994, certain operational and organizational changes within
the Company caused the functional currency for the Company's subsidiary to
become the U.S. dollar. Therefore, monetary assets and liabilities of the
subsidiary are remeasured at year-end exchange rates while nonmonetary items
are remeasured at historical rates. Most income and expense accounts are
remeasured at the average rates in effect during the year. Translation
adjustments resulting from the conversion of the subsidiary's financial
statements into U.S. dollars are currently recognized in the consolidated
statement of operations in the year of occurrence. The functional currency of
Applied Imaging, Limited is also the U.S. dollar.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent 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 those estimates.
Interim Financial Data
The unaudited quarterly consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial information
set forth therein, in accordance with generally accepted accounting
principles. The Company's quarterly results may be subject to fluctuations. As
a result, the Company believes the results of operations for the interim
periods are not necessarily indicative of the results to be expected for any
future period.
F-7
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
Initial Public Offering and Unaudited Pro Forma Financial Information
The Board of Directors authorized the filing of a registration statement
with the Securities and Exchange Commission permitting the Company to issue
and sell up to 5 million shares of its common stock in connection with a
proposed initial public offering (the IPO). The unaudited pro forma amounts
included in the accompanying pro forma balance sheet as of March 31, 1996,
reflect the conversion of all outstanding shares of preferred stock into
3,960,017 shares of common stock, at the closing of the IPO.
Revenue Recognition
The Company recognizes revenue on product sales upon shipment and
concurrently accrues for expected hardware warranty expenses, hardware service
costs, and product returns. Revenue on renewed maintenance contracts,
including amounts attributable to software maintenance bundled in original
product sale agreements, is deferred and recognized ratably over the period of
the contract, generally one year.
Research and Development Expenditures
Research and development expenditures are charged to expense as incurred
unless they are reimbursed under a specific contract.
Pro Forma Net Loss Per Common Share
Pro forma net loss per share data has been computed using the weighted
average number of shares of common stock, including the shares resulting from
the conversion of all outstanding shares of preferred stock at the closing of
the IPO and common equivalent shares from stock options and warrants
outstanding (when dilutive using the treasury stock method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletins, common
equivalent shares issued during the 12-month period prior to the initial
filing of the Company's proposed IPO have been included in the calculation as
if they were outstanding for all periods presented (even if antidilutive),
using the treasury stock method and the $15.00 anticipated initial public
offering price. Due to the significant impact of the conversion of preferred
shares into common shares at the closing of the IPO, historical net loss per
common share is not meaningful and is therefore not presented.
Cash Equivalents and Investments
All highly liquid investments with maturities of three months or less when
acquired are considered by the Company to be cash equivalents.
The Company adopted the provisions of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, effective January 1, 1994. Under
SFAS No. 115, investments in equity and debt securities are classified in
three categories and accounted for based upon the classification. The Company
has accounted for investments in debt securities, consisting of U.S. Treasury
instruments, as "available-for-sale" and has stated applicable investments at
fair value, which approximates cost. Approximately $1,030,000 and $1,047,000
of investments as of December 31, 1995 and March 31, 1996, respectively,
consisted of a U.S. Treasury Note maturing in January 1997.
Inventories
Inventories are stated at the lower of cost (first in, first out) or market.
F-8
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally three to five years.
Capitalized Software Costs
Computer software development costs incurred subsequent to the determination
of product technological feasibility are capitalized in accordance with the
provisions of SFAS No. 86, Accounting for the Cost of Computer Software to be
Sold, Leased or Otherwise Marketed. Amortization of these capitalized costs is
provided using the greater of the ratio of revenues generated in the period
over total future revenues of the product, or the straight-line method over
the estimated market life of the related products, generally three years,
commencing when the product becomes generally available to customers. For the
years ended December 31, 1993, 1994, and 1995 and the three months ended March
31, 1995 and 1996, software development costs incurred subsequent to the
establishment of technological feasibility have not been material. The net
book value of capitalized costs is not significant and is included in other
assets on the balance sheet.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which prescribes an asset and liability approach
that results in the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In estimating
future tax consequences, SFAS No. 109 generally considers all expected future
events other than enactment of changes in tax laws or rates.
Fair Value of Financial Instruments
Financial instruments consist principally of cash equivalents, short-term
investments, trade receivables, notes receivable, accounts payable, and bank
debt. The carrying amounts of cash and cash equivalents, notes receivable,
trade receivables, accounts payable and bank debt approximate fair value.
Financial instruments that potentially subject the Company to concentrations
of credit risk are cash equivalents and short-term investments which the
Company places with high-credit qualified financial institutions and, by
policy, limits the amount of credit exposure to any one financial institution.
The Company sells its products to government and private clinical cytogenetic
laboratories, research institutions, universities, and pharmaceutical
companies located primarily in the United States, Canada, Europe, and the
Pacific Rim. The Company's credit risk is concentrated primarily in the United
States and Europe. The Company does not have a significant concentration of
credit risk with any single customer.
Future Adoption of New Accounting Standard
The Financial Accounting Standards Board recently issued SFAS No. 123,
Accounting for Stock-Based Compensation. This statement requires that the
Company either recognize in its consolidated financial statements costs
related to its stock-based employee compensation plans, including employee
stock purchase plans and stock option plans, or make pro forma disclosures of
such costs in a footnote to the consolidated financial statements. The Company
will adopt SFAS No. 123 effective January 1, 1996. Management plans to remain
on APB No. 25, Accounting for Stock Issued to Employees, as allowed under SFAS
No. 123, for purposes of measurement of compensation expense. SFAS No. 123 is
not expected to have a material effect on the Company's consolidated results
of operations.
F-9
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
(2) INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
MARCH 31,
1994 1995 1996
---------- -------- ---------
<S> <C> <C> <C>
Raw materials............................... $ 852,000 $734,000 $843,000
Work in process............................. 112,000 88,000 48,000
Finished goods.............................. 169,000 58,000 36,000
---------- -------- --------
$1,133,000 $880,000 $927,000
========== ======== ========
</TABLE>
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment................................. $1,297,000 $1,873,000 $1,793,000
Demonstration equipment................... 688,000 760,000 807,000
Furniture and fixtures.................... 102,000 173,000 318,000
---------- ---------- ----------
2,087,000 2,806,000 2,918,000
Less accumulated depreciation............. 1,092,000 1,487,000 1,681,000
---------- ---------- ----------
$ 995,000 $1,319,000 $1,237,000
========== ========== ==========
</TABLE>
(4) ACCRUED EXPENSES
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Warranty.................................. $ 111,000 $ 105,000 $ 116,000
Compensation and related costs............ 352,000 641,000 588,000
Professional fees......................... 131,000 196,000 144,000
Customer deposits......................... -- 198,000 145,000
Royalties................................. 38,000 103,000 55,000
Other..................................... 207,000 187,000 141,000
--------- ---------- ----------
$ 839,000 $1,430,000 $1,189,000
========= ========== ==========
</TABLE>
F-10
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
(5) BANK DEBT
A summary of bank debt follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
Applied Imaging Corp.:
Advances on bank line of credit, available
through September 1996; bearing interest at
9.5%, 10.25%, and 9.75% as of December 31, 1994
and 1995, and March 31, 1996, respectively...... $ 600,000 $358,000 $335,000
Bank note payable in monthly installments of
$7,500 through October 1996, plus interest at
9.625%, 9.75%, and 9.875% as of December 31,
1994 and 1995, and March 31, 1996, respectively. 172,000 83,000 83,000
Applied Imaging International Limited:
Bank note payable in monthly installments through
June 2004; bearing interest at the bank's base
rate plus 3% (7.43%, 6.57%, and 6.26% as of
December 31, 1994 and 1995 and March 31, 1996,
respectively)................................... 274,000 261,000 252,000
--------- -------- --------
1,046,000 702,000 670,000
Less current portion............................. 710,000 471,000 447,000
--------- -------- --------
Long-term portion.............................. $ 336,000 $231,000 $223,000
========= ======== ========
</TABLE>
The line of credit and bank note payable relating to the U.S. Company cannot
exceed $1,000,000 in the aggregate and is subject to a maximum borrowing base
formula based on certain accounts receivable. This bank debt is secured by all
of the Company's domestic assets and the pledge of 660,000 shares of Applied
Imaging International representing approximately 66% of such outstanding
shares. Under the line of credit agreement, the Company cannot pay cash
dividends without the bank's prior approval. The maximum balance outstanding
during 1995 was $773,000, and the average balance during that year was
$608,000.
The bank note relating to Applied Imaging International Limited is
denominated in British pounds and relates to the purchase of real property
from a related party in March 1994. The real property is recorded at cost,
which approximates market value, and is included in other assets in the
accompanying consolidated balance sheet. This note is secured by such real
property.
Applied Imaging International Limited has a (Pounds)500,000 unsecured line
of credit with an international bank which is guaranteed by the Company. No
amounts were outstanding under this facility as of December 31, 1994 and 1995,
and March 31, 1996.
The Company is currently in compliance with all of the covenants contained
in the basic agreements governing these borrowings.
(6) PREFERRED STOCK
As of December 31, 1995 and March 31, 1996, the Company is authorized to
issue 6,000,000 shares of preferred stock.
F-11
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
A summary of preferred stock as of December 31, 1995 and March 31, 1996
follows:
<TABLE>
<CAPTION>
DESIGNATED SHARES NET ORIGINAL
SHARES OUTSTANDING ISSUE PRICE
---------- ----------- ------------
<S> <C> <C> <C>
A...................................... 190,000 180,000 $ 144,000
B...................................... 250,000 198,077 258,000
C...................................... 283,019 220,126 350,000
D...................................... 375,000 200,557 361,000
E...................................... 181,819 181,819 600,000
F...................................... 625,000 460,295 1,551,000
G...................................... 700,000 287,500 1,147,000
H...................................... 300,000 250,000 995,000
I...................................... 1,100,000 1,016,407 5,017,000
J...................................... 1,176,470 1,106,217 4,346,000
Repurchased shares of Series E......... -- (181,819) (727,000)
---------
3,919,179
=========
</TABLE>
The rights, preferences, privileges, and restrictions of the preferred stock
are as follows:
. The shareholders of preferred stock are entitled to preferential
noncumulative dividends, when, as and if declared by the Board of
Directors at a rate of $0.05 per share (in the case of Series A) and at
the rate of $0.08 per share (in the case of all other series).
. The shareholders of Series A, B, C, D, F, G, H, I, and J preferred stock
have liquidation preferences of $0.80, $1.30, $1.59, $1.80, $4.00,
$4.00, $6.50, $5.25, and $4.25 per share, respectively, plus all
declared but unpaid dividends.
. Each share of preferred stock is convertible at any time at the option
of the holder into one share of common stock (or 1.04 shares of common
stock in the case of Series I). Conversion is automatic in the event of
certain defined public offerings of common stock, the achievement by the
Company of certain revenue and income goals, or a majority vote of the
holders of outstanding preferred stock.
. The preferred stock is subject to certain antidilutive provisions
relating to stock splits and stock dividends.
. Each share of preferred stock has voting rights on an "as if converted"
basis.
As of December 31, 1995 and March 31, 1996, there were warrants outstanding
and exercisable for 110,416 shares of Series F preferred stock at $3.40 per
share.
(7) COMMON STOCK
The Company is authorized to issue 20,000,000 shares of common stock. As of
December 31, 1995 and March 31, 1996, there were warrants outstanding to
purchase 508,734 shares of common stock at prices ranging from $4.25 to $5.25
per share.
As of December 31, 1995, 950,000 shares of common stock were reserved for
issuance under the Company's 1988 Amended and Restated Incentive Stock Option
Plan (the 1988 Option Plan). Under the 1988 Option Plan, stock options may be
granted to Board members, officers, key employees, and consultants at the fair
F-12
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
market value of the common stock at the date of the grant, as determined by
the Board of Directors. Options are exercisable over 5 to 10 years from the
date of grant, and typically vest ratably over 4 years. In 1994, the Company
enacted a Directors Option Plan designed to encourage participation on the
Company's Board of Directors (the Board). Under this plan, 3,000 shares per
year are automatically granted to non-employee Directors. The terms of the
plan allow the granting of stock options upon initial election to the Board
and for each subsequent term on the Board. As of March 31, 1996 there were
50,000 shares reserved for issuance under this plan and no options have been
granted. As of December 31, 1995 and March 31, 1996, 5,000 and 75,000 options
were granted to Board members out of the shares reserved under the 1988 Option
Plan.
The Company has recorded for financial statement purposes, a deferred charge
of $1,473,000, representing the difference between the exercise price and the
deemed fair value of the Company's common stock for 246,750 shares subject to
common stock options granted in the 12-month period preceding the IPO, mainly
in the first quarter of 1996. The deferred stock compensation will be
amortized to compensation expense over the period during which the options
become exercisable, generally four years.
Below is a table of stock option activity:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ----------------------
AVAILABLE PRICE
FOR GRANT SHARES PER SHARE
--------- ------- -------------
<S> <C> <C> <C>
BALANCES AS OF DECEMBER 31, 1992........ 141,275 254,050 $ 0.15 - 1.80
Options granted......................... (106,750) 106,750 1.80 - 2.80
Options canceled........................ 20,375 (20,375) 0.33 - 2.80
Options exercised....................... -- (12,875) 0.15 - 0.33
-------- ------- -------------
BALANCES AS OF DECEMBER 31, 1993........ 54,900 327,550 0.15 - 2.80
Shares authorized....................... 440,000 -- --
Options granted......................... (100,000) 100,000 3.00
Options canceled........................ 8,063 (8,063) 1.80 - 2.80
Options exercised....................... -- (25,937) 0.15 - 1.80
-------- ------- -------------
BALANCES AS OF DECEMBER 31, 1994........ 402,963 393,550 0.15 - 3.00
Options granted......................... (66,500) 66,500 1.80 - 3.00
Options canceled........................ 12,525 (12,525) 1.80 - 3.00
Options exercised....................... -- (94,275) 0.15 - 1.80
-------- ------- -------------
BALANCES AS OF DECEMBER 31, 1995
(143,668 exercisable).................. 348,988 353,250 0.15 - 3.00
Options granted......................... (238,750) 238,750 1.80
Options canceled........................ 66,000 (66,000) 1.80 - 3.00
Options exercised....................... -- (20,000) 1.80
-------- ------- -------------
BALANCES AS OF MARCH 31, 1996
(141,875 exercisable).................. 176,238 506,000 $ 1.80 - 3.00
======== ======= =============
</TABLE>
F-13
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
(8) INCOME TAXES
The Company has not recorded an income tax benefit in 1993, 1994, and 1995
due to the recording of a valuation allowance as an offset to net deferred tax
assets. A valuation allowance is provided due to uncertainties relating to the
realization of deferred tax assets.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to the
allowance for doubtful accounts............. $ 45,000 $ 24,000 $ 23,000
Inventories, principally due to the allowance
for obsolete inventory, and additional costs
inventoried for tax purposes................ 134,000 96,000 146,000
Tangible and intangible assets, principally
due to differences in depreciation and
amortization................................ 149,000 45,000 47,000
Revenue deferred for financial statement
purposes, not for tax reporting purposes.... 184,000 241,000 214,000
Accrued expenses, not currently deductible... 70,000 75,000 90,000
Net operating loss carryforwards............. 2,170,000 3,081,000 3,250,000
Business credit carryforwards................ 130,000 282,000 292,000
---------- ---------- ----------
2,882,000 3,844,000 4,062,000
Less valuation allowance................... 2,882,000 3,844,000 4,062,000
---------- ---------- ----------
Net deferred tax assets.................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for U.S. federal, U.K., and California state tax return purposes of
approximately $7,700,000, $945,000, and $1,450,000, respectively. The federal
and California net operating loss carryforwards expire in the years 2011 and
1999, respectively. The Company's U.K. net operating loss carryforward is
available indefinitely to offset its U.K. trading profits arising from
distribution operations. The difference between the tax loss carryforwards and
the accumulated deficit primarily relates to timing differences in the
recognition of deferred revenue, accrued compensation, and certain reserves.
The Internal Revenue Code of 1986 and the California Conformity Act of 1987
substantially restrict the ability of a corporation to utilize existing net
operating losses and credits in the event of an "ownership change". The
several issuances of preferred stock have resulted in multiple ownership
changes since inception of the Company. The majority of the federal net
operating loss carryforwards are limited by an ownership change occurring in
July 1995. Approximately $6,700,000 of the federal net operating loss
carryforward will be subject to an annual limitation in the aggregate of
$850,000. Any unused annual limitation can be carried over and added to the
succeeding year's annual limitation within the allowable carryforward period.
Management believes that the IPO of the Company's stock will most likely
result in an ownership change, however, the July 1995 change will continue to
be the most restrictive limitation because the majority of the Company's net
operating losses were incurred prior to July 1995.
F-14
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
(9) COMMITMENTS
The Company has several noncancelable operating leases for equipment,
vehicles, and facilities expiring through 2005. The facilities' leases
generally contain renewal options for periods ranging from two to three years
and require the Company to pay all executory costs such as maintenance,
property taxes, and insurance. Rent expense under operating leases aggregated
$267,000, $287,000, and $326,000 during 1993, 1994, and 1995, respectively,
and $75,000 and $84,000 during the three months ended March 31, 1995 and 1996,
respectively. The Company's primary lease commitments are for its facilities
in the United Kingdom, which aggregate approximately (Pounds)100,000 per year
through 1998, with a six-year renewal option held by the Company, and for its
facilities in the United States, which aggregate approximately $143,000 and
$42,000 for 1996 and 1997, respectively.
(10) EMPLOYEE BENEFIT PLANS
In January 1994, the Company implemented a retirement savings and investment
plan that is intended to qualify under Section 401(k) of the Internal Revenue
Code (the 401(k) Plan) covering all of the Company's United States-based
employees. An employee may elect to defer, in the form of contributions to the
401(k) Plan on his or her behalf, up to 15% of the total compensation that
would otherwise be paid to the employee, not to exceed the amount allowed by
applicable Internal Revenue Service guidelines. The Company matches 100% of
amounts deferred by the employee participants up to 3% of such employee's
total compensation and such matching amounts vest over a three-year period
from the initial participation date. Contributions by employees or by the
Company to the 401(k) Plan, and income earned on plan contributions, are not
taxable to employees until withdrawn from the 401(k) Plan. Contributions by
the Company are deductible by the Company when made. The Company contributed
$38,000, and $51,000 in 1994 and 1995, respectively, and $12,000 and $18,000
in the three months ended March 31, 1995 and 1996, respectively.
The Company's United Kingdom-based employees are covered by retirement
savings plans (the International Retirement Plans). Under such plans, an
employee may elect to make contributions of 3.5% of such employee's earnings.
Amounts contributed by the Company range 5.5% to 10.5% of such employee's
earnings. During 1993, 1994, and 1995, and during the three months ended March
31, 1995 and 1996, respectively, the Company made contributions to the
International Retirement Plans totaling $83,000, $60,000, $43,000, $11,000,
and $11,000. Contributions by employees or by the Company to the International
Retirement Plans, and income earned on plan contributions, are not taxable to
employees until withdrawn from such plans. Contributions by the Company are
deductible by the Company when made.
F-15
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
(11) FOREIGN OPERATIONS
The Company markets its products worldwide from its operations in the United
States and the United Kingdom and performs research and development in the
United States and Israel. Sales from the United States are primarily to
customers within the United States. Revenues in the United Kingdom resulted
from drop shipments of product from the United States directly to customers
for the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1995 and 1996. Selected financial data by primary geographic area
for the years ended December 31, 1993, 1994 and 1995, and the three months
ended March 31, 1995 and 1996 follow. Operating losses incurred by Israel are
offset by funding received in connection with the grant discussed at Footnote
12.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ----------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers:
United States........... $ 3,159,000 $ 3,639,000 $ 4,254,000 $ 606,000 $1,272,000
United Kingdom.......... 5,522,000 5,932,000 6,544,000 1,793,000 1,685,000
------------ ----------- ----------- ---------- ----------
$ 8,681,000 $ 9,571,000 $10,798,000 $2,399,000 $2,957,000
============ =========== =========== ========== ==========
Operating income (loss):
United States........... $ (478,000) $(2,069,000) $(2,548,000) $ (870,000) $ (648,000)
United Kingdom.......... (1,334,000) (953,000) (69,000) 191,000 (33,000)
------------ ----------- ----------- ---------- ----------
$ (1,812,000) $(3,022,000) $(2,617,000) $ (679,000) $ (681,000)
============ =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total assets:
United States...................... $6,335,000 $3,977,000 $6,473,000 $5,580,000
United Kingdom..................... 3,331,000 3,464,000 2,755,000 2,753,000
Israel............................. -- -- 145,000 209,000
---------- ---------- ---------- ----------
Total............................ $9,666,000 $7,441,000 $9,373,000 $8,542,000
========== ========== ========== ==========
Net assets:
United States...................... $4,494,000 $1,321,000 $4,183,000 $3,314,000
United Kingdom..................... 1,319,000 1,490,000 491,000 587,000
Israel............................. -- -- 40,000 190,000
---------- ---------- ---------- ----------
Total............................ $5,813,000 $2,811,000 $4,714,000 $4,091,000
========== ========== ========== ==========
</TABLE>
Substantially all of the United Kingdom sales are denominated in British
pounds. The Company generally does not enter into any arrangements to hedge
the effect of foreign currency changes on its foreign currency denominated
assets and liabilities.
(12) RESEARCH AND DEVELOPMENT ARRANGEMENT
During 1995, the Company was awarded a grant by the Binational Industrial
Research and Development (BIRD) Foundation. With the funding received from the
grant, the Company began research operations in its
F-16
<PAGE>
APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.)
Israel subsidiary relating to its fetal cell program. All funds received by
the Company in advance of performing the related research and development are
recorded as a deferred credit in the accompanying consolidated balance sheet
and, as expenses are incurred, the deferred credit is depleted. Over the life
of the grant, the Company will receive up to $543,000 in matching funds. These
funds, as well as any accrued interest, will be required to be paid back to
the BIRD Foundation if future revenues are realized from the related research
and development activities, at the rate of 2 1/2% of such future revenues
generated in the first year such revenues occur, and 5% of revenues in
succeeding years, over a six-year period, up to a maximum of 150% of the funds
received. Of the approximately $181,000 in funding received, the Company has
recognized credits to its expenses of approximately $97,000 during 1995 and
$103,000 during the quarter ended March 31, 1996.
(13) SUBSEQUENT EVENTS
On June 19, 1996, the Board of Directors (the Board) took the following
actions:
Proposed Initial Public Offering
Authorized the filing of a registration statement with the Securities and
Exchange Commission permitting the Company to issue and sell up to 5 million
shares of its common stock in connection with a proposed IPO. If the offering
is consummated under terms presently anticipated, all of the currently
outstanding preferred stock will automatically convert into 3,960,017 shares
of common stock. The effect of this conversion has been reflected in the
accompanying pro forma consolidated balance sheet and statement of
shareholders' equity as of March 31, 1996.
Employee Stock Purchase Plan
Adopted the Company's Employee Stock Purchase Plan (the Plan) whereby
eligible employees may purchase common stock through payroll deductions of up
to 10% of compensation, at a per share price of 85% of the fair market value
of the Company's common stock on the enrollment date or the exercise date,
whichever is lower. Commencement of the Plan is upon closing of the IPO. There
are 200,000 shares reserved for issuance under the Plan.
1988 Option Plan
Authorized reserving an additional 450,000 shares of common stock for
issuance under the 1988 Option Plan.
Director Option Plan
Amended the Director Option Plan to increase the number of shares reserved
for issuance by 70,000 shares; and to increase the number of shares subject to
be automatically granted to non-employee directors for subsequent grants from
3,000 shares to 5,000 shares per year.
F-17
<PAGE>
Caption: AUTOMATED SOLUTIONS FOR CYTOGENETICS
The Company currently manufactures, markets and sells a family of automated
cytogenetic systems for prenatal and cancer applications.
[Graphic: Depicts laboratory technician in front of automated karyotyping
equipment]
Caption: CYTOVISION
KARYOTYPER
A high speed imaging instrument for automated classification (karyotyping) of
chromosomes from cells in a particular phase of the life cycle (metaphase) in
which such chromosomes are individually visible.
[Graphic: Picture of paired chromosomes in display referred to as a karotype]
Caption: KARYOTYPE IMAGE
A karyotype produced from a metaphase image.
[Graphic: Picture of chromosomes]
Caption: METAPHASE CHROMOSOMES
Image of chromosomes from a cell in metaphase.
[Graphic: Picture of part of globe with points showing major cities where
Company customers are located.]
Caption: WORLD WIDE INSTALLED BASE
The Company has an installed base of cytogenetic products at approximately 500
sites in more than 30 countries. The Company believes that it can initially
distribute its prenatal screening system, if approved, through its established
world wide distribution channels and that its current customers could add the
Company's prenatal screening system to their existing installations.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of
any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Information............................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 26
Management................................................................ 43
Certain Transactions...................................................... 51
Principal Shareholders.................................................... 52
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Selected Consolidated Financial Statements....................... F-1
</TABLE>
Until , 1996 (25 days after the date of this prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
the distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,300,000 SHARES
[LOGO OF APPLIED IMAGING]
COMMON STOCK
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
DILLON, READ & CO. INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable
by the Company in connection with the sale of Common Stock being registered.
All amounts are estimates except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 14,593
NASD Filing Fee.................................................... 4,732
Nasdaq National Market Listing Fee................................. 40,508
Printing Fees and Expenses......................................... 150,000
Legal Fees and Expenses............................................ 225,000
Accounting Fees and Expenses....................................... 200,000
Blue Sky Fees and Expenses......................................... 15,000
Transfer Agent and Registrar Fees.................................. 15,000
Miscellaneous...................................................... 110,675
--------
Total............................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article V of the Registrant's
Restated Articles of Incorporation provides for indemnification of its
directors, officers, employees and other agents to the maximum extent
permitted under California law. Section 6 of the Registrant's Bylaws provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted under California law. In addition, the Registrant
has entered into Indemnification Agreements with its officers and directors.
Reference is also made to Section 6(b) of the Underwriting Agreement contained
in Exhibit 1.1 hereto, pursuant to which the Underwriters will agree to
indemnify officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1993, the Registrant has issued and sold the following
unregistered securities:
(1) From March 1993 to March 1996, the Registrant issued and sold 148,612
shares of Common Stock to a total of 30 employees at purchase prices
ranging from $0.15 per share to $1.80 per share upon the exercise of stock
options, pursuant to the Registrant's 1988 Option Plan.
(2) In August 1993, the Registrant issued and sold 1,016,407 shares of
Series I Preferred Stock to a total of 33 investors at a purchase price of
$5.25 per share. In connection with the sale of shares of Series I
Preferred Stock, the Registrant issued a warrant to purchase 140,000 shares
of Common Stock at a purchase price of $5.25 per share to Allen & Company
Incorporated (the "Initial Warrant").
(3) In July and September 1995, the Registrant issued and sold 1,106,217
shares of Series J Preferred Stock at a purchase price of $4.25 per share,
and issued warrants to purchase 368,734 shares of Common Stock at a
purchase price of $5.25 per share to a total of 30 investors. In addition,
the Registrant issued a warrant to purchase 140,000 shares of Common Stock
at a purchase price of $4.25 per share to Allen & Company in exchange for
the Initial Warrant.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation, as amended as of .
3.2 Form of Restated Articles of Incorporation to be filed after the
closing of the offering made under this Registration Statement.
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement for directors and officers.
10.2 Amended and Restated 1988 Incentive Stock Option Plan and form of
agreement thereunder.
10.3 1994 Director Option Plan and form of subsequent agreement thereunder.
10.4 Employee Stock Purchase Plan.
10.5* Amended and Restated Registration Rights Agreements, as amended.
10.6 License Agreement dated December 1, 1993 between the Registrant and
Chronomed, Inc.
10.7 Assignment dated December 1, 1993 by and between the Registrant and
Alex Saunders, M.D.
10.8 Lease dated February 15, 1994 for the Registrant's headquarters in
Santa Clara, CA.
10.9(a) Lease for Site No. BT.2003/1A, Hylton Park, Sunderland, England,
between English Industrial Estates Corporation and Applied Imaging
International Ltd., dated June 12, 1992.
10.9(b) Lease for Site No. BT.2003/3A, Hylton Park, Sunderland, England,
between English Industrial Estates Corporation and Applied Imaging
International Ltd., dated June 12, 1992.
10.9(c) Underlease for Site No. BT.2003/1A between Applied Imaging
International Ltd. and RTC North Limited, dated February 14, 1996.
10.9(d) Supplement to Underlease for Site No. BT.2003/1A between Applied
Imaging International Ltd. and RTC North Limited, dated February 14,
1996.
10.10 Lease Agreement dated October 31, 1995 between Asaf Harofe Hospital
and Applied Imaging Ltd. for Registrant's Israeli entity in Tzripin,
Israel.
10.11 Employment Letter Agreement dated August 12, 1991 between the
Registrant and Leslie G. Grant.
10.12 Amendment to Employment Letter Agreement between the Registrant and
Leslie G. Grant, dated February 12, 1996.
10.13 Employment Letter Agreement dated January 12, 1996 between the
Registrant and Michael W. Burgett, Ph.D., and supplement thereto,
dated January 20, 1996.
10.14+ Know-How License Agreement dated November 1989 between Medical
Research Council and Shandon Scientific Limited (assigned to the
Registrant in November 1989), as amended,
July 5, 1994.
10.15 Cooperative Research and Development Agreement, dated June 10, 1995
between Registrant and the National Institute of Health.
10.16+ Supply & Distribution Agreement dated March 3, 1994 between Cytocell
Ltd. and Registrant.
10.17+ Research Purchase Agreement dated March 26, 1996 between Pharmacia
Biotech AB and Registrant.
10.18+ Development Agreement dated February 5, 1996 between EM Industries and
Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
11.1 Calculation of pro forma net loss per common share.
21.1 List of Subsidiaries of the Registrant.
23.1 Report on Schedule and Consent of Independent Certified Public
Accountants
23.2* Consent of Counsel (included in Exhibit 5.1).
23.3 Consent of Special Patent Counsel
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential Treatment Requested.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not, applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereto which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA CLARA, STATE OF
CALIFORNIA, ON THE 24TH DAY OF JUNE, 1996.
Applied Imaging Corp.
/s/ Abraham I. Coriat
By: _________________________________
Abraham I. Coriat Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Abraham I. Coriat and Neil E. Woodruff and each
of them, his attorneys-in-fact, each with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
in all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Abraham I. Coriat Chief Executive Officer June 24, 1996
_________________________________ and Director (Principal
(Abraham I. Coriat) Executive Officer)
/s/ Neil E. Woodruff Chief Financial Officer June 24, 1996
_________________________________ (Principal Financial and
(Neil E. Woodruff) Accounting Officer)
Director , 1996
_________________________________
(John F. Blakemore, Jr.)
Director , 1996
_________________________________
(Michael S. Elias)
II-4
<PAGE>
SIGNATURE TITLE DATE
Director , 1996
_________________________________
(Gilbert J.R. McCabe)
/s/ Thomas C. McConnell Director June 24, 1996
_________________________________
(Thomas C. McConnell)
/s/ Andre F. Marion Director June 24, 1996
_________________________________
(Andre F. Marion)
/s/ Robert C. Miller Director June 24, 1996
_________________________________
(Robert C. Miller)
/s/ G. Kirk Raab Director June 24, 1996
_________________________________
(G. Kirk Raab)
II-5
<PAGE>
SCHEDULE II
APPLIED IMAGING CORP.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT COST AND BALANCE AT
DESCRIPTION BEGINNING OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ----------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Trade accounts Receivable
Year Ended December 31,
1993.................... $ 48 $94 $47 $ 95
==== === === ====
Year Ended December 31,
1994.................... $ 95 $66 $39 $122
==== === === ====
Year Ended December 31,
1995.................... $122 $93 $49 $166
==== === === ====
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation, as amended as of
.
3.2 Form of Restated Articles of Incorporation to be filed
after the closing of the offering made under this
Registration Statement.
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1* Form of Indemnification Agreement for directors and
officers.
10.2 Amended and Restated 1988 Incentive Stock Option Plan
and form of agreement thereunder.
10.3 1994 Director Option Plan and form of subsequent
agreement thereunder.
10.4 Employee Stock Purchase Plan.
10.5* Amended and Restated Registration Rights Agreements, as
amended.
10.6 License Agreement dated December 1, 1993 between the
Registrant and Chronomed, Inc.
10.7 Assignment dated December 1, 1993 by and between the
Registrant and Alex Saunders, M.D.
10.8 Lease dated February 15, 1994 for the Registrant's
headquarters in Santa Clara, CA.
10.9(a) Lease for Site No. BT.2003/1A, Hylton Park, Sunderland,
England, between English Industrial Estates
Corporation and Applied Imaging International Ltd.,
dated June 12, 1992.
10.9(b) Lease for Site No. BT.2003/3A, Hylton Park, Sunderland,
England, between English Industrial Estates
Corporation and Applied Imaging International Ltd.,
dated June 12, 1992.
10.9(c) Underlease for Site No. BT.2003/1A between Applied
Imaging International Ltd. and RTC North Limited,
dated February 14, 1996.
10.9(d) Supplement to Underlease for Site No. BT.2003/1A
between Applied Imaging International Ltd. and RTC
North Limited, dated February 14, 1996.
10.10 Lease Agreement dated October 31, 1995 between Asaf
Harofe Hospital and Applied Imaging Ltd. for
Registrant's Israeli entity in Tzripin, Israel.
10.11 Employment Letter Agreement dated August 12, 1991
between the Registrant and Leslie G. Grant.
10.12 Amendment to Employment Letter Agreement between the
Registrant and Leslie G. Grant, dated February 12,
1996.
10.13 Employment Letter Agreement dated January 12, 1996
between the Registrant and Michael W. Burgett, Ph.D.,
and supplement thereto, dated January 20, 1996.
10.14+ Know-How License Agreement dated November 1989 between
Medical Research Council and Shandon Scientific
Limited (assigned to the Registrant in November 1989),
as amended,
July 5, 1994.
10.15 Cooperative Research and Development Agreement, dated
June 10, 1995 between Registrant and the National
Institute of Health.
10.16+ Supply & Distribution Agreement dated March 3, 1994
between Cytocell Ltd. and Registrant.
10.17+ Research Purchase Agreement dated March 26, 1996
between Pharmacia Biotech AB and Registrant.
10.18+ Development Agreement dated February 5, 1996 between EM
Industries and Registrant.
11.1 Calculation of pro forma net loss per common share.
21.1 List of Subsidiaries of the Registrant.
23.1 Report on Schedule and Consent of Independent Certified
Public Accountants
23.2* Consent of Counsel (included in Exhibit 5.1).
23.3 Consent of Special Patent Counsel
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule
</TABLE>
- -------
* To be filed by amendment.
+ Confidential Treatment Requested.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
APPLIED IMAGING CORP.
Abraham I. Coriat and Neil Woodruff certify that:
A. They are the Chairman and Chief Executive Officer and the Secretary,
respectively, of Applied Imaging Corp., a California corporation.
B. The articles of incorporation of this corporation are amended and
restated to read as follows:
ONE: The name of the Corporation is:
APPLIED IMAGING CORP.
TWO: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The Corporation is authorized to issue two classes of shares, which
shall be designated "Common Stock" and "Preferred Stock". The total number of
shares of Common Stock which the Corporation is authorized to issue is
20,000,000, and the total number of shares of Preferred Stock which the
corporation is authorized to issue is 6,000,000, of which 190,000 shares are
fixed and designated as "Series A Preferred Stock", 250,000 shares are fixed and
designated as "Series B Preferred Stock", 283,019 shares are fixed and
designated as "Series C Preferred Stock", 375,000 shares are fixed and
designated as "Series D Preferred Stock", 181,819 shares are fixed and
designated as "Series E Preferred Stock," 625,000 shares are fixed and
designated as "Series F Preferred Stock", 700,000 shares are fixed and
designated "Series G Preferred Stock", 300,000 shares are fixed and designated
"Series H Preferred Stock", 1,100,000 shares are fixed and designated "Series I
Preferred Stock" and 1,176,470 shares are fixed and designated "Series J
Preferred Stock".
FOUR: Preferred Stock may be issued from time to time in one or more
series. Except for Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock and Series J Preferred Stock, the Board of Directors is
authorized to fix the number of shares in any series of Preferred Stock and to
determine the designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or
<PAGE>
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series.
FIVE: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. The Corporation is authorized to indemnify the directors and officers of
the Corporation to the fullest extent permissible under California law. Any
repeal or modification of the foregoing provisions of this Article Five shall
not adversely affect any right of indemnification or limitation of liability of
an agent of this Corporation relating to acts or omissions occurring prior to
such repeal or modification.
SIX: The rights, preferences, privileges and restrictions granted to or
imposed upon Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock and Series J Preferred Stock are as follows:
1. REFERENCE. For purposes of this Article Six, the Series A Preferred Stock
---------
is referred to as "Series A", the Series B Preferred Stock is referred to as
"Series B", the Series C Preferred Stock is referred to as "Series C", the
Series D Preferred Stock is referred to as "Series D", the Series E Preferred
Stock is referred to as "Series E", the Series F Preferred Stock is referred to
as "Series F", the Series G Preferred Stock is referred to as "Series G", the
Series H Preferred Stock is referred to as "Series H", the Series I Preferred
Stock is referred to as "Series I" and the Series J Preferred Stock is referred
to as "Series J".
2. DIVIDENDS. The holders of Series A, Series B, Series C, Series
---------
D, Series E, Series F, Series G, Series H, Series I and Series J shall be
entitled to receive dividends, out of funds legally available therefor, at the
rate of Five Cents ($0.05), Eight Cents ($0.08), Eight Cents ($0.08), Eight
Cents ($0.08), Eight Cents ($0.08), Eight Cents ($0.08), Eight Cents ($0.08),
Eight Cents ($0.08), Eight Cents ($0.08) and Eight Cents ($0.08), respectively,
per share per annum, calculated to the nearest whole cent, payable when, as and
if, and in such manner as may be, declared by the Board of Directors from time
to time; provided, however, that, whenever any dividend is declared or paid, or
other distribution is made, on Series A, Series B, Series C, Series D, Series E,
Series F, Series G, Series H, Series I or Series J, a pro rata dividend or other
distribution shall be concurrently declared, paid, or made, as the case may be,
on the shares of all ten of such series of Preferred Stock in proportion to the
dividend preferences of such series set forth above (i.e., the per share
dividend or other distribution on Series B, Series C, Series D, Series E, Series
F, Series G, Series H, Series I and Series J shall equal 160% of the per share
dividend or other distribution on Series A); and provided, further, that no
dividends may be declared or paid on the Corporation's outstanding shares of
Common Stock in any fiscal year of the Corporation unless dividends in the
amount of $0.05, $0.08, $0.08, $0.08, $0.08, $0.08, $0.08, $0.08, $0.08 and
$0.08 per share have been declared and paid during such fiscal year to the
holders of Series A, Series B, Series C, Series D, Series E, Series F, Series G,
Series H, Series I and Series J, respectively. The right to dividends on
Preferred Stock shall not be cumulative, and no right to dividends shall accrue
to holders of Preferred Stock unless declared by the Board of Directors.
3. LIQUIDATION RIGHTS. In the event of a voluntary or involuntary
------------------
liquidation, dissolution, or winding up of the Corporation:
-2-
<PAGE>
3.1 (i) The holders of Series A, Series B, Series C, Series D,
Series E, Series F, Series G, Series H, Series I and Series J, shall be entitled
to receive, out of the assets of the Corporation, whether such assets are
capital or surplus, an amount equal to Eighty Cents ($0.80), One Dollar and
Thirty Cents ($1.30), One Dollar and Fifty-Nine Cents ($1.59), One Dollar and
Eighty Cents ($1.80), Three Dollars and Thirty Cents ($3.30), Four Dollars
($4.00), Four Dollars ($4.00), Six Dollars and Fifty Cents ($6.50), Five Dollars
and Twenty-Five Cents ($5.25) and Four Dollars and Twenty-Five Cents ($4.25),
respectively, per share of such series of Preferred Stock, and a further amount
equal to any dividends thereon declared and unpaid on the date of such
distribution, and no more, before any payment shall be made on or any assets
distributed to the holders of Common Stock.
(ii) If upon liquidation, dissolution, or winding up of the
Corporation the assets to be distributed among the holders of Series A, Series
B, Series C, Series D, Series E, Series F, Series G, Series H, Series I and
Series J shall be insufficient to permit the payment to such shareholders of the
full preferential amounts to which they are entitled, then the entire assets of
the Corporation available for distribution shall be distributed ratably among
the holders of Series A, Series B, Series C, Series D, Series E, Series F,
Series G, Series H, Series I and Series J, without priority or preference, in
proportion to the full preferential amount each such holder is otherwise
entitled to receive, and no distribution of the Corporation's assets shall be
made to the holders of Common Stock.
(iii) After payment or distribution to the holders of Series A,
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J of the full preferential amounts aforesaid, the remaining assets of
this Corporation shall be distributed ratably among the holders of the Common
Stock.
3.2 A reorganization, consolidation or merger of the Corporation, or
a sale of all or substantially all of the assets of the Corporation in which all
of the shareholders of the Corporation immediately prior to such transaction own
less than 50% of the voting securities of the surviving or controlling entity
immediately after such transaction, shall be deemed a liquidation, dissolution
or winding up, within the meaning of this Section 3; provided that the holders
of Series A, Series B, Series C, Series D, Series E, Series F, Series G, Series
H, Series I, Series J and Common Stock shall be paid in cash or in securities
received from the acquiring entity or in a combination thereof (in the same
proportions as the consideration received in the transaction). Any securities to
be delivered to the holders of the Series A, Series B, Series C, Series D,
Series E, Series F, Series G, Series H, Series I, Series J and Common Stock upon
a reorganization, consolidation or merger of the Corpora tion, or a sale of all
or substantially all of the assets of the Corporation, shall be valued as
follows:
(i) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) business days prior to the closing; and
(iii) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation and the
holders of not less than a majority of the outstanding shares of Preferred
Stock, provided that if the corporation and the holders of a majority of the
outstanding shares
-3-
<PAGE>
of Preferred Stock are unable to reach agreement, then by independent appraisal
by an investment banker hired and paid by the Corporation, but acceptable to the
holders of a majority of the outstanding shares of Preferred Stock.
4. VOTING RIGHTS. Except as otherwise expressly provided herein or
-------------
as required by law, each holder of shares of Series A, Series B, Series C,
Series D, Series E, Series F, Series G, Series H, Series I and Series J shall be
entitled to vote on all matters and shall be entitled to the number of votes
equal to the largest number of full shares of Common Stock into which such
shares of Series A, Series B, Series C, Series D, Series E, Series F, Series G,
Series H, Series I or Series J could be converted, pursuant to the provisions of
Sec tion 5 hereof, at the record date for the determination of shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is obtained.
Except as otherwise expressly provided herein or as required by law, the holders
of shares of Series A, Series B, Series C, Series D, Series E, Series F, Series
G, Series H, Series I, Series J and Common Stock shall vote together and not as
separate classes.
5. CONVERSION OF PREFERRED STOCK. The holders of Preferred Stock
-----------------------------
shall have the following conversion rights:
5.1 AUTOMATIC CONVERSION.
--------------------
5.1.1 Each share of each series of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
(as defined below) for such series then in effect, immediately upon either (i)
the sale of Common Stock by the Corporation through an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, at a per share public offering price (prior to
underwriting commissions and expenses) of not less than $6.00 per share and with
gross proceeds (prior to underwriting commissions and expenses) of $7,500,000,
(ii) the Corporation's reporting audited consolidated revenues of at least
$50,000,000 for a fiscal year and audited consolidated income before taxes and
extraordinary items (determined in accordance with generally accepted accounting
principles) of at least 10% of the revenues for the same period, or (iii) upon
the vote approving such conversion by holders of at least a majority of the
outstanding shares of such series; however, such conversion of each such series
shall be conditioned upon the Corporation paying all declared and unpaid
dividends on such series, to and including the date of conversion. The
Corporation, may, at its option, in lieu of making a cash payment of all
declared dividends, make payment thereof in whole shares of Common Stock, valued
at such Conversion Price for such series, plus cash in lieu of any fractional
shares, so that such cash plus the value of such Common Stock shall equal the
amount of accrued and unpaid dividends.
5.1.2 Upon the occurrence of any event specified in Section 5.1.1
above as to a series of Preferred Stock, the outstanding shares of such series
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent. Upon the automatic
conversion of a series of Preferred Stock, the holders of such series shall
surrender the certificates representing such shares at the office of the
Corporation or transfer agent for the Common Stock as hereinafter provided, or
shall notify the Corporation or transfer agent that such certificates have been
lost, stolen or destroyed and execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith. The
-4-
<PAGE>
Corporation shall then cause to be issued and delivered to such holders,
promptly at such office and in their names as shown on such surrendered
certificates, certificates for the number of shares of Common Stock into which
the shares of such series of Preferred Stock, so surrendered were convertible on
the date on which automatic conversion occurred.
5.2 RIGHT TO CONVERT. Each share of each series of Preferred
----------------
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for such series or for Common Stock, into fully paid and
nonassessable shares of Common Stock, at the Conversion Price for such series
(as defined below) in effect at the time of the conversion determined as
provided below.
5.3 MECHANICS OF VOLUNTARY CONVERSION.
---------------------------------
5.3.1 A holder of shares of a series of Preferred Stock may only
convert such shares into shares of Common Stock by: (i) surrendering the
certificate or certificates representing the shares of such series to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for such series or Common Stock, and (ii) giving written notice to the
Corporation at such office stating that such holder elects to convert all or
part of the shares of such series held by such holder. The Corporation shall
promptly issue and deliver at such office to such holder of such series a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled and a certificate or certificates for the number
of shares of such series not converted, if any.
5.3.2 Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of the surrender of the
shares of such series of Preferred Stock to be converted as provided in Section
5.3.1 above, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
5.4 NUMBER OF SHARES; CONVERSION PRICE.
----------------------------------
5.4.1 Each share of Series A shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Eighty Cents
($0.80) for each share of Series A being converted. The Conversion Price for
Series A shall be Eighty Cents ($0.80) unless adjusted as provided herein.
5.4.2 Each share of Series B shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into One Dollar and
Thirty Cents ($1.30) for each share of Series B being converted. The Conversion
Price for Series B shall be One Dollar and Thirty Cents ($1.30) unless adjusted
as provided herein.
5.4.3 Each share of Series C shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into One Dollar and
Fifty-Nine Cents ($1.59) for each share of Series C being converted. The
-5-
<PAGE>
Conversion Price for Series C shall be One Dollar and Fifty-Nine Cents ($1.59)
unless adjusted as provided herein.
5.4.4 Each share of Series D shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into One Dollar and
Eighty Cents ($1.80) for each share of Series D being converted. The Conversion
Price for Series D shall be One Dollar and Eighty Cents ($1.80) unless adjusted
as provided herein.
5.4.5 Each share of Series E shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Three Dollars and
Thirty Cents ($3.30) for each share of Series E being converted. The Conversion
Price for Series E shall be Three Dollars and Thirty Cents ($3.30) unless
adjusted as provided herein.
5.4.6 Each share of Series F shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Three Dollars and
Forty Cents ($3.40) for each share of Series F being converted. The Conversion
Price for Series F shall be Three Dollars and Forty Cents ($3.40) unless
adjusted as provided herein.
5.4.7 Each share of Series G shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Four Dollars
($4.00) for each share of Series G being converted. The Conversion Price for
Series G shall be Four Dollars ($4.00) unless adjusted as provided herein.
5.4.8 Each share of Series H shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Four Dollars
($4.00) for each share of Series H being converted. The Conversion Price for
Series H shall be Four Dollars ($4.00) unless adjusted as provided herein.
5.4.9 Each share of Series I shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Five Dollars and
Twenty-Five Cents ($5.25) for each share of Series I being converted. The
Conversion Price for Series I shall be Five Dollars and Twenty-Five Cents
($5.25) unless adjusted as provided herein.
5.4.10 Each share of Series J shall be convertible into the number
of shares of Common Stock which result from dividing the Conversion Price per
share for such series in effect at the time of conversion into Four Dollars and
Twenty-Five Cents ($4.25) for each share of Series J being converted. The
Conversion Price for Series J shall be Four Dollars and Twenty-Five Cents
($4.25) unless adjusted as provided herein.
5.5 ADJUSTMENT FOR STOCK ISSUANCES BELOW CONVERSION PRICE. If
-----------------------------------------------------
the Corporation shall at any time or from time to time after the issuance of any
shares of Series H, Series I or Series J issue (or, pursuant to this Section 5.5
hereof, shall be deemed to have issued) any Common Stock other than "Excluded
Stock" (as defined below) for a consideration per share less than the Conversion
Price for Series H, Series I or
-6-
<PAGE>
Series J in effect immediately prior to the issuance of such Common Stock
(excluding stock dividends, subdivisions, split-ups, combinations, dividends or
recapitalizations which are covered by Sections 5.6, 5.7, 5.8, 5.9, and 5.10),
the Conversion Price for Series H, Series I or Series J (but not any other
series of Preferred Stock) in effect immediately after each such issuance shall
forthwith be adjusted to a price equal to the quotient obtained by dividing:
(i) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding
(including any shares of Common Stock issuable upon conversion of such series of
Preferred Stock, or deemed to have been issued pursuant to subdivision (3) of
this clause (i) and to clause (ii) below) immediately prior to such issuance
multiplied by the Conversion Price for such series of Preferred Stock in effect
immediately prior to such issuance, plus
(y) the consideration received by the corporation upon such
issuance, by
(ii) the total number of shares of Common Stock outstanding
immediately prior to such issuance of Common Stock (including any shares of
Common Stock issuable upon conversion of Series H, Series I or Series J
Preferred Stock or deemed to have been issued pursuant to subdivision (3) of
this clause (i) and to clause (ii) below) plus the number of shares of Common
Stock actually issued in the transaction which resulted in the adjustment
pursuant to this Section 5.5.
For the purposes of any adjustment of the Conversion Price for Series
H, Series I or Series J Preferred Stock pursuant to clauses (i) and (ii), the
following provisions shall apply:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor after
deducting any discounts or commis sions paid or incurred by the corporation in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as reasonably determined by the board of
directors of the corporation, in accordance with generally accepted accounting
treatment.
(3) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock (other than Excluded Stock), (ii) securities by
their terms convertible into or exchangeable for Common Stock (other than
Excluded Stock), or (iii) options to purchase or rights to subscribe for such
convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and (2) above), if any,
received by the corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby;
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<PAGE>
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the corporation for any
such securities and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the additional minimum
consideration, if any, to be received by the corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock deliverable
upon exercise of any such options or rights or conversion of or exchange for
such convertible or exchangeable securities, or on any change in the minimum
purchase price of such options, rights or securities, other than a change
resulting from the antidilution provisions of such options, rights or
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon (x) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change or (y) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change; and
(D) on the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Conversion
Price shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment made upon the issuance of such options, rights,
convertible or exchangeable securities or options or rights relate to such
convertible or exchangeable securities, as the case may be, been made upon the
basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such convertible or exchangeable securities or upon the exercise of
the options or rights related to such convertible or exchangeable securities, as
the case may be.
(4) If the Corporation shall issue (or pursuant to Section 5.5
hereof, shall be deemed to have issued) in the same transaction (or a series of
related transactions) any Common Stock other than Excluded Stock at different
prices, the shares of Common Stock issued in such transaction (or series of
related transactions) shall be deemed to have been issued simultaneously for
purposes of the computations in this Section 5.5.
5.5.1 "Excluded Stock" shall mean:
(i) all shares of Common Stock issued and outstanding on the date this
certificate is filed with the California Secretary of State and all shares of
Common Stock issuable upon exercise of options and warrants outstanding on the
date this certificate is filed with the California Secretary of State;
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<PAGE>
(ii) all shares of Preferred Stock outstanding on the date this
certificate is filed with the California Secretary of State and the Common Stock
into which such shares of Preferred Stock are convertible;
(iii) all shares of Common Stock or other securities hereafter issued
to officers, directors, consultants or employees of or scientific advisors to
the corporation which issuances are approved by of the board of directors of the
corporation;
(iv) all shares of Series J Preferred Stock and the Common Stock into
which such shares of Series J Preferred Stock are convertible; and
(v) all shares of Common Stock issuable upon exercise or conversion of
a warrant hereafter issued to Allen & Company Incorporated.
All outstanding shares of Excluded Stock (including shares issuable upon
conversion of the Preferred Stock) shall be deemed to be outstanding for all
purposes of the computations of Section 5.5 above.
5.6 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
--------------------------------------------
Corporation shall at any time or from time to time after the issuance of any
shares of a series of Preferred Stock effect a subdivision of any outstanding
Common Stock, the Conversion Price then in effect for such series immediately
before that subdivision shall be proportionately decreased. Conversely, if the
Corporation shall at any time or from time to time after the issuance of any
shares of a series of Preferred Stock combine the outstanding shares of Common
Stock, the Conversion Price then in effect for such series immediately before
the combination shall be propor tionately increased. Any adjustment under this
Section 5.6 shall become effective at the close of business on the date the
subdivision or combination becomes effective.
5.7 ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the
--------------------------------------------------
Corporation at any time or from time to time shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Conversion Prices then in effect for each series
of Preferred Stock shall be decreased as of the time of such issuance or, if
such record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price of each series then in effect
by a fraction:
5.7.1 The numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance, or the close of business on such record date, and
5.7.2 The denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance, or the close of business on such record date, plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Prices of each series shall be recomputed accordingly
as of the close of business on such record date, and thereafter the Conversion
Price of each series shall be adjusted pursuant to this Section 5.7 as of the
time of actual payment of such dividend or distribution.
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<PAGE>
5.8 ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
------------------------------------------------
Corporation at any time or from time to time shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation, other than shares of Common Stock, then and in each such event
provisions shall be made so that the holders of each series of Preferred Stock
shall receive upon conversion of their shares, in addition to the number of
shares of Common Stock receivable upon such conversion, the amount of securities
of the Corporation which they would have received had their shares of such
series been converted into Common Stock on the date of such dividend or
distribution and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as provided above during such period, giving application to all
applicable adjustments called for during such periods under this Section 5 with
respect to the rights of the holders of each series of Preferred Stock.
5.9 ADJUSTMENT FOR RECAPITALIZATIONS, RECLASSIFICATIONS, OR
-------------------------------------------------------
OTHER CHANGES TO COMMON STOCK. If the Common Stock shall be changed into the
- -----------------------------
same or a different number of shares of any class or classes of stock, whether
by a recapitalization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for above, or a capital
reorganization, merger, consolidation or sale of assets provided for below),
then and in each such event the holders of shares of each series of Preferred
Stock shall have the right thereafter to convert such shares into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of the number of
shares of Common Stock into which such shares of such series might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided in this Certificate.
5.10 ADJUSTMENT FOR CAPITAL REORGANIZATIONS, MERGERS,
------------------------------------------------
CONSOLIDATIONS, OR SALES OF ASSETS. If at any time or from time to time there
- ----------------------------------
shall be a capital reorganization of the capital stock of the Corporation (other
than a subdivision, combination, stock dividend, recapitalization,
reclassification or other change to Common Stock provided for above in this
Section 5), or a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties and assets to any other person, then, as a part of such capital
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of each series of Preferred Stock shall thereafter be entitled to
receive upon conversion of the shares of such series the number of shares of
stock or other securities or property of the Corporation, or of the successor
corporation resulting from such merger, consolidation or sale, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of each series of
Preferred Stock after such capital reorganization, merger, consolidation or sale
so that the provisions of this Section 5 (including adjustment of the Conversion
Prices then in effect for each series of Preferred Stock and the number of
shares issuable upon conversion of each series of Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
5.11 CERTIFICATE OF ADJUSTMENT BY CHIEF FINANCIAL OFFICER. In
----------------------------------------------------
each case of an adjustment or readjustment of the Conversion Price, or the
number of shares of Common Stock or other securities issuable upon conversion,
of a series of Preferred Stock, the Corporation shall cause its Chief Financial
Officer to compute such adjustment or readjustment in accordance with the
Corporation's Articles of Incorporation and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate,
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<PAGE>
by first class mail, post prepaid, to each registered holder of shares of such
series, at the holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based including a
statement of (i) the Conversion Price for such series immediately before and
immediately after such adjustment, and (ii) the number of shares of Common Stock
and the type and amount, if any, of other securities and property which,
immediately before and immediately after such adjustment would be receivable
upon conversion of such series.
5.12 NOTICE OF RECORD DATE. In the event of any
---------------------
recapitalization, reclassification or other change to the Common Stock, any
capital reorganization, any merger or consolidation of the Corporation, any sale
of all or substantially all of the Corporation's properties and assets to
another person, or any voluntary or involuntary liquidation of the Corporation,
the Corporation shall mail to each holder of shares of Preferred Stock at least
thirty (30) days prior to any record date with respect thereto, a notice
specifying the date on which such recapitalization, reclassification or other
change, capital reorganization, merger, consolidation, or liquidation is
expected to be effective, and the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such recapitalization, reclassification or other
change, capital reorganization, merger, consolidation, or liquidation.
5.13 FRACTIONAL SHARES. No fractional shares of Common Stock
-----------------
shall be issued upon conversion of shares of Preferred Stock. The number of
shares of Common Stock to which a holder of shares of a series of Preferred
Stock is entitled shall be based on the aggregate number of shares of such
series being converted at any one time. In lieu of any fractional share to
which such holder would otherwise be entitled, the Corporation shall pay cash
equal to the product of such fraction multiplied by the fair market value of one
share of the Corporation's Common Stock on the date of conversion, as determined
in good faith by the Board of Directors and calculated to the nearest whole
cent.
5.14 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such a number of shares as shall be sufficient for such purpose.
5.15 NOTICES. Any notice required by the provisions of this
-------
Section 5 to be given to a holder of record of shares of a series of Preferred
Stock shall be deemed given two (2) business days after the same has been
deposited in the United States mail, certified mail, return receipt requested
(or insured if mailed to an address outside of the United States), postage and
charges prepaid, and addressed to such holder at his address appearing on the
books of the Corporation, or upon delivery if personally delivered, sent by
messenger or private delivery service.
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<PAGE>
5.16 PAYMENT OF TAXES. The Corporation will pay all taxes and other
----------------
governmental charges (other than taxes based on income) that may be imposed in
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Preferred Stock to the record holder of such shares.
5.17 RETIREMENT OF SERIES A, SERIES B, SERIES C, SERIES D, SERIES E,
---------------------------------------------------------------
SERIES F, SERIES G, SERIES H, SERIES I AND SERIES J. Upon conversion of any
- ----------------------------------------------------
shares of Preferred Stock, such shares shall be restored to the status of
undesignated, and authorized but unissued, shares of Preferred Stock.
6. COVENANTS OF THE CORPORATION. In addition to any vote or
----------------------------
approval of the shareholders required by law, so long as at least 200,000 shares
of Preferred Stock are outstanding, the Corporation shall not take any of the
following actions set forth below without obtaining the approval (by vote or
written consent, as provided by law) of the holders of more than 50% of the
outstanding shares of Preferred Stock.
6.1 Amendment or repeal of any provision of, or addition of any
provision to, the Corporation's Articles of Incorporation if such action would
(i) alter or change the rights, preferences, privileges or restrictions granted
to or imposed upon any outstanding series of Preferred Stock, or (ii) reclassify
any shares of capital stock which are subordinate to any outstanding series of
Preferred Stock as to dividends or as to distri bution of assets on liquidation,
dissolution or winding up of the Corporation into shares having parity with, or
any preference or priority over, any outstanding series of Preferred Stock as to
dividends or as to distribution of assets on liquidation, dissolution or winding
up of the Corporation.
6.2 Disposition of all or a substantial part of all of the
Corporation's business and assets as an entirety in a single transaction or
series of related transactions not in the ordinary course of business, or
disposition of a controlling interest in any subsidiary corporation which
represents a substantial part of the business and assets of the Corporation (a
"Disposition"), unless the Corporation shall immediately after the Disposition,
have sufficient cash legally available for distribution to the holders of the
outstanding shares of Series A, Series B, Series C, Series D, Series E, Series
F, Series G, Series H, Series I and Series J at least equal to the full
preferential amounts to which such holders are entitled pursuant to Section 3.1.
6.3 Voluntary liquidation, dissolution or winding up of the
Corporation.
6.4 Creation of any new class or series of shares having preferences
over or being on a parity with any outstanding shares of Preferred Stock as to
dividends or assets, or authorization or issuance of shares of stock of any
class or series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having option rights to purchase, any shares of
stock of this corporation having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of any
outstanding shares of Preferred Stock.
6.5 Acquisition of another business entity, whether by merger or
consolidation, purchase of assets, purchase of stock, or otherwise, if, based
upon the most recent financial information available to the Corporation prior to
the acquisition either:
(i) the net worth of the business to be acquired by the Corporation
(i.e., the fair market value of the assets acquired less the amount of
liabilities assumed by the Corporation in the
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<PAGE>
acquisition or to which the assets acquired are subject) exceeds one third
(1/3rd) of the net worth of the Corporation prior to the acquisition, or
(ii) the amount of liabilities assumed by the Corporation in the
acquisition or to which the assets acquired are subject, other than liabilities
secured by assets acquired by the Corporation which have a market value of at
least 125% of the amount of such liabilities, exceeds one third (1/3rd) of the
net worth of the Corporation prior to the acquisition.
7. CERTAIN REPURCHASES OF COMMON SHARES. Notwithstanding any other
------------------------------------
provision of this Article Six, insofar as the rights, preferences, privileges,
and restrictions granted to or imposed upon the Preferred Stock are concerned,
neither Section 502 nor Section 503 of the California Corporations Code shall
apply in whole or in part with respect to purchases by the Corporation of
outstanding shares of Common Stock in connection with the termination of
employment or other cessation of services to or for the benefit of the
Corporation by a holder of such shares or a predecessor in interest of such a
holder.
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<PAGE>
C. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the board of directors of this
corporation.
D. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of the shareholders of
this corporation in accordance with Sections 902 and 903 of the California
Corporations Code. The corporation has two classes of stock outstanding,
designated Common Stock and Preferred Stock. The total number of outstanding
shares of Common Stock and Preferred Stock entitled to vote is 1,022,060 and
2,812,962, respectively. The number of shares voting in favor of the amendment
and restatement equaled or exceeded the vote required. The percentage vote
required was a majority of the outstanding shares of Common Stock and a majority
of the outstanding shares of Preferred Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge. Executed at Santa Clara, California on July 18, 1995.
/s/ Abraham I. Coriat
---------------------------------------------------
Abraham I. Coriat,
Chairman and Chief Executive
Officer
/s/ Neil Woodruff
---------------------------------------------------
Neil Woodruff,
Secretary
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<PAGE>
EXHIBIT 3.2
[THESE RESTATED ARTICLES OF INCORPORATION WILL BE FILED
AFTER THE CLOSING OF THE APPLIED IMAGING CORP. INITIAL PUBLIC OFFERING]
RESTATED ARTICLES OF INCORPORATION
OF
APPLIED IMAGING CORP.
I
The name of this corporation is Applied Imaging Corp.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the corporation is authorized
to issue is 25,000,000 shares. The number of shares of Common Stock authorized
is 20,000,000. The number of shares of Preferred Stock authorized is 5,000,000.
IV
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Bylaws of
the corporation. The directors shall be divided into three classes with the
term of office of the first class (Class I) to expire at the annual meeting of
stockholders held in 1997; the term of office of the second class (Class II) to
expire at the annual meeting of stockholders held in 1998; the term of office of
the third class (Class III) to expire at the annual meeting of stockholders held
in 1999; and thereafter for each such term to expire at each third succeeding
annual meeting of stockholders after such election.
V
1. Limitation of Directors' Liability. The liability of the directors of
----------------------------------
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Corporate Agents. This corporation is authorized to
-----------------------------------
indemnify the directors and officers of the corporation to the fullest extent
permissible under California law.
<PAGE>
3. Repeal or Modification. Any repeal or modification of the foregoing
----------------------
provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification.
Dated: _____________, 1996
-------------------------------------
Neil E. Woodruff,
Chief Financial Officer
<PAGE>
EXHIBIT 3.3
BYLAWS
of
APPLIED IMAGING CORP.
A California Corporation
1. OFFICES
1.1 Principal Office. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
1.2 Other Offices. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
2. MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings. All meetings of shareholders shall be held either
at the principal executive office of the corporation or at any other place
within or without the State of California designated by the Board of Directors
or, subject to the power of the Board of Directors to designate the place of the
meeting, the person or persons calling the meeting. In absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the corporation.
2.2 Annual Meetings. The annual meeting of shareholders shall be held on
a date designated by the Board of Directors each year. At such meeting,
directors shall be elected, reports of the affairs of the corporation shall be
considered, and any other proper business may be transacted.
2.3 Special Meetings. Special meetings of the shareholders (including
meetings of the holders of any class or series of shares) may be called at any
time by the Board of Directors, the Chairman of the Board, the President, or by
the holders of shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at the meeting.
If a special meeting is desired to be called by any person or persons
other than the Board of Directors, their request shall be made in writing,
specifying the time of such meeting and the general nature of the business
proposed to be transacted. The written request shall then be delivered
personally or by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board, President, any Vice President, or
Secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these Bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, not
less than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the Board of Directors may be held.
<PAGE>
2.4 Notice of Shareholders' Meetings. All notices of meetings of
shareholders (including meetings of the holders of any class or series of
shares) shall be sent or otherwise given to each shareholder entitled to vote
thereat in accordance with Section 2.5 of these Bylaws not less than ten (10)
days (or, if .sent by third-class mail, thirty (30) days), nor more than sixty
(60) days, before the date of the meeting. The notice shall specify the place,
date and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, and no other business may be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board of Directors, at the time of giving the notice, intends to present for
action by the shareholders. The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees whom, at the time
of the notice, management intends to present for election.
If shareholder action, other than unanimous approval of those entitled
to vote, is proposed to be taken at any meeting for approval of (i) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the California General Corporation Law, (ii) an
amendment of the Articles of Incorporation, pursuant to Section 902 of that Law,
(iii) a reorganization of the corporation, pursuant to Section 1201 of that Law,
(iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of
that Law, or (v) a plan of distribution other than in accordance with the rights
of outstanding preferred shares, pursuant to Section 2007 of that Law, then the
notice shall .also state the general nature of that proposal.
2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of any
meeting of shareholders (including any meeting of the holders of any class or
series of shares) shall be given to each shareholder entitled to vote thereat
either personally or by first class mail or other means of written communication
permitted by Section 601(b) of the California General Corporation Law, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
(i) sent to that shareholder by first class mail (or other means of written
communication permitted by Section 601(b) of the California General Corporation
Law) addressed to the shareholder at the corporation's principal executive
office, or (ii) published at least once in a newspaper of general circulation in
the county where that office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the share holder at the principal executive office of the
corporation for a period of one year from the date of the giving of notice.
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<PAGE>
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant Secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
2.6 Quorum. The presence in person or by proxy of shareholders entitled
to vote shares having a majority of the voting power of the shares of the
corporation entitled to vote at any meeting of shareholders (including any
meeting of the holders of any class or series of shares) or on any matter shall
constitute a quorum for the transaction of business at such meeting or on such
matter. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) at such meeting or with respect to any matter is
approved as required in Section 2.8.
2.7 Adjourned Meetings and Notice Thereof. Whether or not a quorum is
present, any shareholders' meeting (including any meeting of the holders of any
class or series of shares) may be adjourned from time to time by the vote of the
shareholders having a majority of the voting power of the shares represented at
that meeting, either in person or by proxy, but in the absence of a quorum no
other business may be transacted at that meeting, except as provided in Section
2.6 of these Bylaws.
When any meeting of shareholders is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
are announced at the meeting at which the adjournment is taken, unless a new
record date for the adjourned meeting is fixed, or unless the adjournment is for
more than forty-five (45) days from the date set for the original meeting, in
which case the Board of Directors shall set a new record date. When required,
notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meetings.
2.8 Voting. Except as provided in the Articles of Incorporation, each
outstanding share of this corporation, regardless of class or series, shall be
entitled to one vote on each matter submitted to a vote of shareholders (subject
to the cumulative voting provisions of the last paragraph of this Section 2.8
and Section 708 of the California General Corporation Law). The shareholders
entitled to vote at any meeting of shareholders (including any meeting of the
holders of any class or series of shares) shall be determined in accordance with
the provisions of Section 2.11 of these Bylaws, subject to the provisions of
Sections 702, 703 and 704 of the California General Corporation Law (relating to
voting of shares held by fiduciaries, in the name of a corporation, or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun. Any shareholder
entitled to vote on a proposal may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but, if the shareholder fails to specify the number of shares which
the shareholder is voting affirmatively, it
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will be conclusively presumed that the shareholder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
Subject to the provisions of the last paragraph of this Section 2.8
and Section 708 of the California General Corporation Law with respect to
election of directors, if a quorum is present, the affirmative vote of the
holders of shares having a majority of the voting power of the shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders (or, in the case of a vote of a particular class or series
of shares, the act of such class or series), unless the vote of a greater number
is required by the California General Corporation Law or by the Articles of
Incorporation; provided that if, pursuant to the last sentence of Section 2.6 of
these Bylaws, action may be taken when less than a quorum is present, the
affirmative vote of the holders of a majority of the voting power of shares
constituting a quorum of the shares entitled to vote on any matter shall be the
act of the shareholders (or of the class or series of shares, as the case may
be) on such matter, unless the vote of a greater number is required by the
California General Corporation Law or the Articles of Incorporation.
In any election of directors, the candidates receiving the highest
number of affirmative votes, up to the number of directors to be elected, shall
be elected; votes against the candidate and votes withheld shall have no legal
effect. At a shareholders' meeting at which directors are to be elected, no
shareholders shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the voting power of the shareholder's
shares) unless such candidate's or candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of that shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination
prior to the commencement of the voting and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which that shareholder's shares 'are entitled, or distribute the
shareholder's shares on the same principle among any or all of the candidates,
as the shareholder desires.
2.9 Validation of Meetings; Waiver of Notice or Consent by Absent
Shareholders. The transactions of any shareholder meeting, however called and
noticed and wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 2.4 of these Bylaws,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a
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meeting is not a waiver of any right to object to the consideration of matters
not included in the notice of the meeting if that objection is expressly made at
the meeting.
2.10 Shareholder Action by Written Consent Without a Meeting. Any action
which may be taken at any annual or special meeting of shareholders, including
the approval of any Incentive Stock Option Plan as provided in Section 422A of
the Internal Revenue Code of 1954, as amended, may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action so
taken, i's signed by the holders of outstanding shares having not less than the
minimum voting power that would be necessary to authorize or take that action at
a meeting at which all shares entitled to vote on that action were present and
voted.
In the case of the election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided however, that a director may be elected at any
time to fill a vacancy on the Board of Directors that has not been filled by the
directors, by the written consent of the holders of a majority of the voting
power of the outstanding shares entitled to vote for the election of directors.
All such consents shall be filed with the Secretary of the corporation and
shall be maintained in the corporate records. Any shareholder giving a written
consent, or the shareholder's proxy holders, or a transferee of the shares or a
personal representative of the shareholder or their respective proxy holders,
may revoke the consent by a writing received by the Secretary of the corporation
before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary, but may not do so
thereafter. Such revocation is effective upon its receipt by the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 2.5 of these
Bylaws. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the California General Corporation Law, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Law, (iii) reorganization of the
corporation, pursuant to Section 1201 of that Law, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Law, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that approval.
2.11 Record Date for Shareholder Notice, Voting, and Giving Consents. For
purposes of determining the shareholders entitled to notice of any meeting or to
vote or entitled to give consent to corporate action without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting nor more than sixty (60) days before any such action without a meeting;
and in such event only shareholders of record on the date so fixed are entitled
to notice and to vote or to give consents, as the case may be, notwithstanding
any transfer of any shares on the books of the corporation after the record
date, except as otherwise provided in the California General Corporation Law.
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If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to the corporate action in writing without a meeting, (i) when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action of the Board has been
taken, shall be at the close of business on the date on which the Board adopts
the resolution relating to that action, or the sixtieth (60th) day before the
date of such action, whichever is later.
The record date for any other purposes shall be as provided in Section 8.1
of these Bylaws.
2.12 Proxies. Every person entitled to vote shares shall have the right
to do so either in person or by one or more agents authorized by a written proxy
signed by the person and filed with the Secretary of the corporation. A proxy
shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission, or
otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall continue in
full force and effect unless and until (i) the person who executed the proxy
revokes it prior to the time of voting by delivering to the corporation a
writing stating that the proxy is revoked, or by executing a subsequent proxy
and presenting it to the meeting, or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its 'face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the California
General Corporation Law.
2.13 Inspectors of Election. Before any meeting of shareholders
(including any meeting of the holders of any class or series of shares), the
Board of Directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors
of election are appointed, the Chairman of the meeting may, and on the request
of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the Chairman of the meeting may, and upon the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill that vacancy.
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3. DIRECTORS
3.1 Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
The Board of Directors may delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
person provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board of Directors.
Without prejudice to the general powers of the Board of Directors set
forth above, and subject to the same limitations, the directors shall have the
power to:
(a) Select and remove all officers, agents and employees of the
corporation; prescribe such powers and duties for them that are consistent with
law, the Articles of Incorporation, and these Bylaws; fix their compensation;
and require from them security for faithful service.
(b) Conduct, manage, and control the affairs and business of the
corporation, and make such rules and regulations therefor not inconsistent with
law, or with the Articles of Incorporation, or these Bylaws, as they may deem to
be in the best interests of the corporation.
(c) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country; and conduct business within or without the State of
California.
(d) Adopt, make, and use a corporate seal; prescribe the form(s) for
certificates of stock; and alter the forms of the seal and certificates.
(e) Authorize the issuance of shares of stock
of the corporation on any lawful terms.
(f) Borrow money and incur indebtedness for the corporation's
purposes, and cause to be executed and delivered on behalf of the corporation
and in its name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and security here
therefor.
3.2 Number of Directors. Unless the number of directors is specified
in the Articles of Incorporation, the authorized number of directors of t he
corporation shall be not less than five (5)* nor more than nine (9)**. The
exact authorized number of directors shall be a number within the limits set
forth in the preceding sentence and shall be the number fixed in the last
sentence &f this
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Section 3.2, as such sentence may be duly amended from time to time, in
accordance with Section 10 of these Bylaws, by the Board of Directors or
"approval of the outstanding shares". The exact authorized number of directors
is eight (8).
No amendment to these Bylaws shall provide for a variable authorized
number of directors in which the stated maximum authorized number of directors
exceeds two times the stated minimum authorized number minus one.
3.3 Election and Term of Office. The directors shall be elected at
each annual meeting of shareholders, but if any such annual meeting is not held,
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. Each director, including
a director elected to fill a vacancy, shall hold office until the next annual or
special meeting of shareholders at which directors are elected and until his
successor is elected and qualified.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Any director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
3.4 Vacancies. A vacancy or vacancies in the Board of Directors
shall be deemed to exist in the event of the death, resignation, or removal of
any director, or if the Board of Directors by resolution declares vacant the
office of the director who has been declared of unsound mind by an order of
court or convicted of a felony, or if the authorized number of directors is
increased, or if the shareholders fail, at any meeting of shareholders at which
any director or directors are elected, to elect the number of directors to be
voted for at that meeting.
Unless otherwise provided in the Articles of Incorporation, vacancies
in - the Board of Directors (other than a vacancy created by the removal of a
director) may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but (i) any such election
by written consent to fill a vacancy created other than by removal of a director
shall require the consent of holders of a majority of voting power of the
outstanding shares entitled to vote for the election of directors, and (ii) any
such election by written consent to fill a vacancy created by removal of a
director shall require the unanimous consent of all outstanding shares entitled
to vote for the election of directors.
3.5 Place of Meetings and Meetings by Telephone. Regular meetings of
the Board of Directors may be held at any place within or outside the State of
California that has been designated from time to time by the Board of Directors.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the Board of
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Directors shall be held at any place within or outside the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another, and all such directors shall be deemed to be
present in person at the meeting.
3.6 Annual Meeting. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
3.7 Other Regular Meetings. Other regular meetings of the Board of
Directors shall be held without call at such dates and times as shall be fixed
by the Board of Directors. Such regular meetings may be held without notice.
3.8 Special Meetings. Special meetings of the Board of Directors for
any purpose or purposes may be called at any time by the Chairman of the Board,
the President, any Vice President, the Secretary or any two directors.
Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting or, if the meeting is to be held at the principal
executive office of the corporation, the place of the meeting.
3.9 Quorum. A majority of the directors then in office, but not less
than one-third of the authorized number of directors, shall constitute a quorum
for the transaction of business, provided that a quorum shall require at least
two directors unless the authorized number of directors is one, in which case
one director constitutes a quorum. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, subject to the
provisions of the Articles of Incorporation and applicable laws, including
Section 310 of the California General Corporation Law (as to approval of
contracts or transactions in which a director has a direct or indirect material
financial interest) , Section 311 of that Law and Section 4 of these Bylaws (as
to appointment of committees), and Section 317(e) of that Law (as to
indemnification of directors).
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A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.10 Waiver of Notice. The transactions of any meeting of the Board
of Directors, however called and noticed, shall be as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding the meeting or an approval of the
minutes. The waiver of notice or consent need not specify the purpose of the
meeting. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Notice of a
meeting need not be given to any director who attends the meeting without
protesting, before or at its commencement, the lack of notice to that director.
3.10 Adjournment. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting of the Board to another date,
time and place.
3.12 Notice of Adjournment. Notice of the date, time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the date, time and
place shall be given before the time of the adjourned meeting, in the manner
specified in Section 3.8 of these Bylaws, to the directors who were not present
at the time of the adjournment.
3.11 Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board.
3.12 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. This shall not be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee, or
otherwise, and receiving compensation for those services.
4. COMMITTEES
4.1 Appointment of Committees of the Board. The Board of Directors
may, by resolution adopted by a majority of the authorized number of directors,
designate one or more committees of the Board (including an Executive
Committee), each consisting of two or more directors, to serve at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors.
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4.2 Delegation of Authority to Committees of the Board. The Board of
Directors, by resolution adopted by a majority of the authorized number of
directors, may delegate to any duly appointed committee of the Board any or all
of the authority of the full Board of Directors, except with respect to:
(a) the approval of any action which, under the California
General Corporation Law of California, also requires the vote or consent of the
shareholders;
(b) the filling of vacancies on the Board of Directors or on any
committee;
(c) the fixing of compensation of the directors for serving on
the Board or on any committee;
(d) the amendment or repeal of these Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) the authorization of any "distribution to its [the
corporation's] shareholders" (as defined in Section 166 of the California
General Corporation Law), except at a rate or in a periodic amount or within a
price range determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or the members of such committees.
4.3 Proceedings of Committees of the Board. The Board of Directors
shall have the power to prescribe the manner in which the proceedings of any
committee of the Board shall be conducted. In the absence of any such
prescription, such committee shall have the power to prescribe the manner in
which its proceedings shall be conducted. Unless the Board of Directors or such
committee shall otherwise prescribe, the regular and special meetings and other
actions of any such committee shall be governed by the provisions of Section 3
of these Bylaws applicable to meetings and actions of the full Board of
Directors. Minutes shall be kept of each meeting of each committee.
4.4 Actions by Committees. Every act or decision duly done or made
by a committee of the Board shall be regarded as the act of the Board of
Directors, subject to the provisions of Sections 310 and 317(e) of the
California General Corporation Law.
5. OFFICERS
5.1 Officers. The officers of the corporation shall be a President,
a Secretary, and a Chief Financial Officer (who may be designated as Treasurer).
The corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Financial Officers (who may be designated
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Assistant Treasurers), and such other officers as may be appointed in accordance
with Section 5.3 of these Bylaws. Any number of off ices may be held by the same
person.
5.2 Election of Officers. The officers of the corporation shall be
appointed by the Board of Directors, except such officers as may be appointed by
the Chief Executive Officer in accordance with the provisions of Section 5.3 or
Section 5.5 of these Bylaws.
5.3 Subordinate Officers. The Board of Directors may appoint, and may
empower the Chief Executive Officer to appoint, such officers other than the
Chairman of the Board, the President, the Chief Financial Officer and the
Secretary as the business of the corporation may require, each of whom shall
hold office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors or the Chief Executive
Officer (in the case of officers appointed by the Chief Executive Officer) may
from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors at any time, or, except
in the case of an officer chosen by the Board of Directors, by the Chief
Executive Officer or any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to that office.
5.6 Chief Executive Officer. Subject to the control of the Board of
Directors and such supervisory powers, if any, as may be given by the Board of
Directors, the Chief Executive Officer of the corporation shall have general
supervision, direction and control of the business and officers of the
corporation and be primarily responsible for carrying out all orders and
resolutions of the Board of Directors. He shall preside at all meetings of the
shareholders and all meetings of the Board of Directors not presided over by the
Chairman of the Board, and he shall have such other powers and duties as may be
prescribed by the Board of Directors.
The President shall be the Chief Executive Officer of the corporation
unless the Board of Directors shall designate the Chairman of the Board or
another officer to be the Chief Executive Officer. If there is no President,
then the Chairman of the Board shall be the Chief Executive Officer.
5.7 Chairman of the Board. The Board of Directors may, in its discretion,
elect a Chairman of the Board from among its members. He shall preside at all
meetings of the Board of
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Directors at which he is present and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the Board of
Directors or prescribed by these Bylaws.
5.8 President. Subject to the supervisory powers of the Chief Executive
Officer (if not the President) and to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board (if one is elected)
or another officer, the President shall have the general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these Bylaws.
5.9 Vice President. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors, or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all 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 have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, or the Chief Executive Officer.
5.10 Secretary. The Secretary shall keep or cause to be kept, at the
corporation's principal office, at the office of the corporation's legal counsel
or at such other place as the Board of Directors may direct, a book of minutes
of all meetings and actions of directors, committees of directors, and
shareholders, with the date, time and place of holding, whether regular or
special (and, if special, how authorized and the notice given), the names of
those present at directors' meetings or committee meetings, the number and class
or series of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the corporation's
principal office or at the office of the corporation's transfer agent or
registrar, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and dates of certificates evidencing the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by these Bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors, these Bylaws, or
the Chief Executive Officer.
5.11 Chief Financial Officer (Treasurer). The Chief Financial Officer
(who may be designated as Treasurer) shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
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The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation under the supervision of the Chief Executive
Officer in accordance with the resolutions of the Board of Directors, shall
render to the Chief Executive Officer and directors, whenever they request it,
an account of all of his transactions as Chief Financial Officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors, these
Bylaws, or the Chief Executive Officer.
6. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 Indemnification. The corporation. shall, to the maximum extent
permitted by Section 317 and other pertinent parts of the California General
Corporation Law, indemnify each of its "agents" (as defined in Section 317(a) of
the California General Corporation Law) against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact any such person is or was an
agent of the corporation.
6.2 Required Approval. Except as provided in Section 317(d) of the
California General Corporation Law, any indemnification under these Bylaws shall
be made by this corporation only if authorized in the specific case (on a
determination that indemnification of the agent is proper under the
circumstances because the agent has met the applicable standard of conduct set
forth in Sections 317(b) or (c) of the California General Corporation Law) by:
(a) a majority vote of a quorum of the Board consisting of directors
who are not parties to the proceeding;
(b) of approval of the shareholders" (as def ined in Section 153 of
the California General Corporation Law) , with the shares owned by the person to
be indemnified not being considered outstanding or entitled to vote thereon; or
(c) the court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
6.3 Advance of Expenses. Expenses incurred in defending any proceeding
may be advanced by this corporation before the final disposition of the
proceeding on receipt of an under taking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in these Bylaws.
6.4 Insurance. This corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any liability
asserted against or incurred by the agent in
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such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against that liability
under other provisions of these Bylaws.
6.5 No Limitation of Other Rights. Nothing contained in this Section 6
shall be construed to limit or otherwise affect any right to indemnification to
which persons other than directors and officers of the corporation and its
subsidiaries may be entitled by contract or otherwise.
7. RECORDS AND REPORTS
7.1 Maintenance, Inspection and Location of Share Register. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed, a record in written
form of its shareholders, giving the names and addresses of all shareholders and
the number and class or series of shares held by each shareholder.
7.2 Maintenance, Inspection and Location of Bylaws. The corporation shall
keep at its principal executive office, located in the State of California, or,
if its principal executive office is not located in the State of California, at
its principal business office in the State of California, the original or a copy
of these Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
If the principal executive office of the corporation is located
outside of the State of California and the corporation does not have a principal
business office located in the State of California, then it shall upon the
written request of any shareholder furnish to such shareholder a copy of these
Bylaws as amended to date.
7.3 Maintenance, Inspection and Location of Other Corporate Records. The
accounting books and records and minutes of proceedings of the shareholders and
the Board of Directors and any committee or committees of the Board, shall be
kept at such place or places designated by the Board of Directors or, in the
absence of such designation, at the principal executive office of the
corporation or the offices of the corporation's legal counsel. The minutes
shall be kept in written form and the accounting books and records shall be kept
either in written form or in any other form capable of being converted into
written form.
The minutes and the accounting books and records shall be open to
inspection in written form upon the written demand of any shareholder or bolder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
7.4 Inspection by Directors. Every director shall have the absolute right
at any reasonable time to inspect in written form, and copy, all books, records,
and documents of the corporation of every kind and to inspect the physical
properties of the corporation and each of its subsidiary
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corporations. This inspection by a director may be made in person or by an
agent or attorney, and the right of inspection includes the right to copy and
make extracts of documents.
7.5 Annual Report to Shareholders; Waiver. The requirements of an annual
report, and the annual report to shareholders required by Section 1501 of the
California General Corporation Law, are expressly waived so long as the shares
of the corporation are held by fewer than one hundred (100) holders of record
(determined as provided in Section 605 of the California General Corporation
Law); provided that nothing contained in this sentence shall be construed as
prohibiting the corporation from issuing annual, periodic or other reports to
the shareholders.
7.6 Financial Statements. If no annual report containing financial
statements for the most recent fiscal year of the Imaging Corp., a California
corporation has been sent to shareholders, then the corporation shall, upon the
written request of any shareholder made more than one hundred twenty (120) days
after the close of such fiscal year, cause to be prepared (if not already
prepared) and deliver or mail to the shareholder making the request within
thirty (30) days thereafter financial statements in written form for such fiscal
year containing a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the corporation shall
cause such statements to be prepared, if not already prepared, and shall deliver
personally or mail such statements in written form to the person making the
request within thirty (30) days after the receipt of the request.
A copy of any annual or other financial statements that have been prepared
by the corporation shall be kept on file in the principal executive office of
the corporation for twelve (12) months and each such statement shall be
exhibited at all reasonable times to any shareholder demanding an examination of
such statement or a copy shall be mailed to any such shareholder.
7.7 Annual Statement of General Information. The corporation shall,
during the period in each year as provided for in Section 1502 of the California
General Corporation Law, file with the Secretary of State of the State of
California, on the prescribed form, a statement setting forth the information
required by such Section regarding the corporation's offices, officers,
directors, business and agent for service of process.
B. GENERAL CORPORATE MATTERS
8.1 Record Date For Purposes Other Than Notice And Voting. For purposes
of determining the shareholders 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 other lawful action (other than as provided in Section 2.11 of
these Bylaws), the Board of Directors may fix, in advance, a
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record date, which shall not be more than sixty (60) days before any such
action, and in that case only shareholders of record at the close of business on
the date so f ixed are entitled to receive the dividend, distribution, or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date so fixed, except as otherwise provided in the California General
Corporation Law.
If the Board of Directors does not so f ix a record date, the record
date for determining shareholders for any such purpose shall be at the close
of business on the day on which the Board adopts the applicable resolution
or the sixtieth (60th) day before the date of such action, whichever is later.
8.2 Checks, Drafts, Evidences Of Indebtedness. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall only be signed or
endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors, or in the absence
of such determination, by the Chief Executive Officer and the Secretary or Chief
Financial Officer.
8.3 Corporate Contracts And Instruments; How Executed. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize one or
more officers, employees, or agents to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board of Directors or within the agency power of any officer,
only the Chief Executive Officer shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 Certificates For Shares. A certificate or certificates for shares of
the capital stock of the corporation shall be issued to each shareholder when
any of these shares are fully paid, and the Board of Directors may authorize the
issuance of certificates or shares as partly paid provided that these
certificates shall state the amount of the consideration to be paid for them and
the amount paid. All certificates shall be signed in the name of the
corporation by the Chairman of the Board or Vice Chairman of the Board or the
President or Vice President and by the Chief Financial Officer or any Assistant
Financial Officer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed on a certificate shall have ceased to
be that officer, transfer agent, or registrar before that certificate is issued,
it may be issued by the corporation with the same effect as if that person were
an officer, transfer agent, or registrar at the gate of issue.
8.5 Lost Certificates. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and canceled at the same time. In case
any share certificate or certificate for any other security is lost, stolen or
destroyed, the officers of the corporation with authority to sign certificates
for shares may
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<PAGE>
authorize the issuance of a replacement certificate on such terms and conditions
as such officers, in their discretion, may require, including provision for
indemnification of the corporation (which may be secured by a bond or other
adequate security) sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 Representation of Shares of Other Corporations. The Chairman of the
Board, the President or any Vice President, or any other person authorized by
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote, represent and exercise on behalf of the
corporation any and all rights incident to any and all shares of any other
corporation or corporations, foreign or domestic, standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
8.7 Construction And Definitions. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the California
General Corporation Law, as it may be amended from time to time, shall govern
the construction of these Bylaws notwithstanding the absence of specific
reference to such Law or applicable provisions thereof. (Specific references to
certain definitions of such Law are included in these Bylaws for purposes of
emphasis, and the absence of such references with respect to other terms used in
these Bylaws and defined in such Law shall not be construed as an intention not
to apply the definitions set forth in such Law.) Without limiting- the
generality of the foregoing, the singular number includes the plural, the plural
number includes the singular, the masculine includes the feminine and the
neuter, and the term "person" refers to corporations and other entities as well
as to natural persons.
9. EMERGENCY PROVISIONS
9.1 General. The provisions of this Section 9 shall become operative only
in the event of (i) a national emergency declared by the President of the United
States or the person performing the President's functions ("Emergency"), or (ii)
war, riot, civil disorder, flood, earthquake or other disaster ("Disaster"), if
such Emergency or Disaster make it impossible or impracticable for the
corporation to conduct its business without recourse to the provisions of this
Section 9. While operative, this Section 9 shall override all other provisions
of these Bylaws in conflict with this Section 9. This Section 9 shall remain
operative so long as it remains impossible or impracticable to continue the
business of the corporation otherwise, but thereafter shall be inoperative. All
actions taken in good faith pursuant to this Section 9 shall thereafter remain
in full force and effect unless and until duly revoked, modified or superseded
by action subsequently taken (whether pursuant to the provisions of this Section
9 or otherwise).
9.2 Unavailable Directors. All directors of the corporation who are not
available to perform their duties as directors by reason of physical or mental
incapacity or for any other reason or who are unwilling to perform their duties
or whose whereabouts are unknown shall automatically
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cease to be directors, with like effect as if such persons had resigned as
directors, so long as such unavailability continues.
9.3 Authorized Number of Directors. The authorized number of directors
shall be the greater of (i) three (two, if there were only two shareholders of
record as of the date of the last record date (whether pursuant to Section 2.11
or Section 8.1); one, if there was only one shareholder of record as of the date
of such last record date), or (ii) the number of directors remaining after
eliminating those who have died, resigned or ceased to be directors pursuant to
Section 9.2.
9.4 Quorum. Except to adjourn as provided in Section 3.11 of these
Bylaws, one-third of the authorized number of directors, but not less than two,
shall constitute a quorum for the transaction of business, provided that if the
authorized number of directors is one, a quorum shall be one.
9.5 Creation of Emergency Committee. In the event the number of directors
remaining after eliminating those who have died, resigned or ceased to be
directors pursuant to Section 9.2 is less than a quorum pursuant to Section 9.4,
then, until the appointment of additional directors to make up a quorum, all the
powers and authorities which the Board of Directors could by law delegate,
including all powers and authorities which the Board could delegate to a
committee shall be automatically vested in an Emergency Committee, and the
Emergency Committee shall thereafter manage the affairs of the corporation
pursuant to such powers and authorities and shall have all such other powers and
authorities as may by law or lawful decree be conferred on any person or body of
persons during a period of emergency, subject to the provisions of Sections 9.9
and 9.10.
9.6 Constitution of Emergency Committee. The Emergency Committee shall
consist of three persons, who shall be the remaining director or directors, if
any, and either one or two officers or employees of the corporation, as the
remaining director or directors may in writing designate. If there is no
remaining director, the Emergency Committee shall consist of the three most
senior officers of the corporation who are available to serve, and, if and to
the extent that officers are not available, the most senior employees of the
corporation. Seniority shall be determined in accordance with any designation
of seniority in the minutes of the proceedings of the Board of Directors, and in
the absence of such designation, shall be determined by rate of remuneration.
In the event that there are no remaining directors and no officers or employees
of the corporation available, the emergency committee shall consist of three
persons designated in writing by the shareholder owning the largest number of
shares of record as of the date of the last record date (whether pursuant to
Section 2.11 or Section 8.1), or, in the absence of action by such shareholder,
other shareholders collectively owning of record as of the date of such last
record date a majority of the shares held by shareholders of record who can be
located.
9.7 Powers of Emergency Committee. The Emergency Committee, once
appointed, shall govern its own procedures and shall have the power to increase
the number of members thereof beyond the original number, and, in the event of a
vacancy or vacancies therein arising at any time, the remaining member or
members of the Emergency Committee shall have the power to fill such vacancy or
vacancies. In the event that, at any time after its appointment, all members of
the
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Emergency Committee shall die or resign or become unavailable to act for any
reason whatsoever, a new Emergency Committee shall be appointed in accordance
with Section 9.6.
9.8 Directors Becoming Available. Subject to Section 9.9, any person who
has ceased to be a director pursuant to the provisions of' Section 9.2 and who
thereafter becomes available to serve as a director shall automatically become a
member of the Emergency Committee, increasing the size of the Emergency
Committee.
9.9 Termination of Emergency Committee. In the even that, after the
appointment of an Emergency Committee, a sufficient number of persons who ceased
to be directors pursuant to Section 9.2 become available to serve as directors,
so that, if they had not ceased to be directors as aforesaid, there would be
enough directors to constitute the minimum number of directors required to
constitute a quorum pursuant to Section 9.4, then all such persons shall
automatically be deemed to be reappointed as directors and the powers and
authorities of the Emergency Committee shall cease.
9.10 Election of Board of Directors. As soon as practicable after this
Section 9 becomes operative, the Board of Directors or the Emergency Committee,
as the case may be, shall diligently take all requisite action to secure the
election of a Board of Directors pursuant to the provisions of these Bylaws
other than this Section 9, and, for this purpose, during any period in which the
Emergency Committee is operative, the Emergency Committee shall have the power
and authority of the Board of Directors to call meetings and seek written
consents of the shareholders, set record dates, appoint inspectors of election,
and appoint persons to exercise the powers of the President and Secretary of the
corporation with respect to any shareholders meeting or vote or the giving of
notice thereof. Upon the election of a Board of Directors pursuant to this
Section 9.10, this Section 9 shall become inoperative.
10. AMENDMENTS
10.1 Amendment By Shareholders or Directors. Subject to the provisions of
the Articles of Incorporation and Sections 10.2, 10.3 and 10.4 below, these
Bylaws may be amended within the limits allowed by law, or repealed, either by:
(a) "approval of the outstanding shares" (as defined in Section 152
of the California General Corporation Law); or
(b) the Board of Directors.
10.2 Amendments Changing Authorized Number of Directors. After the
issuance of shares, and subject to the provisions of Sections 10.3 and 10.4
below, an amendment to these Bylaws:
(a) changing from a variable authorized number of directors to a non-
variable number, or vice versa, or changing the maximum or minimum authorized
number of directors (if there is a variable authorized number of directors), or
changing the authorized number of directors (if there
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is not a variable authorized number of directors), may be adopted only by 11
approval of the outstanding shares" (as defined in Section 152 of the California
General Corporation Law); and
(b) reducing the minimum authorized number of directors (if there is a
variable authorized number of directors), or reducing the authorized number of
directors (if there is not a variable authorized number of directors), to a
number less than five cannot be adopted if the votes cast against its adoption
(at a meeting of the shareholders), or the shares not consenting (in the case of
action by written consent), are equal to more than 16 2/3% of the outstanding
shares entitled to vote.
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ADOPTION BY INCORPORATOR
The undersigned, Incorporator or Applied Imaging Corp., a California
corporation, hereby adopts the foregoing Bylaws, comprising twenty-five (25)
pages, as the Bylaws of said corporation.
Executed this 10th day of July, 1986.
/s/ Abraham Israel Coriat
------------------------------
______________________________
Abraham Israel Coriat
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CERTIFICATION
I, the undersigned, do hereby certify:
(1) That I am the Assistant Secretary of Applied Imaging Corp., a
California corporation;
and
(2) That the foregoing Bylaws comprising twenty-five (25) pages, were duly
adopted as the Bylaws of said corporation July 10, 1986 by the person
appointed in the Articles of Incorporation to act as the Incorporator
of the corporation.
IN WITNESS WHEREOF, I have hereunto signed my name this 10th day of July,
1986.
/s/ Robert L. Bouchier
----------------------------
Robert L. Bouchier
Assistant Secretary
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APPLIED IMAGING CORP.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
-----------------------------------------
The following action is taken by written consent of the shareholders of
Applied Imaging Corp., a California corporation (the "Corporation"):
Approval of
Amended and Restated Articles of Incorporation
Resolved: That the provisions of the Applied Imaging Corp. Amended and
Restated Articles of Incorporation attached to this Action by Written
Consent of Shareholders as Exhibit A and incorporated herein by this
reference. and the amendments made therein, are hereby approved and,
subject to any required approval by the Board of Directors of this
Corporation. the proper officers of this Corporation are hereby authorized
to prepare, execute and file a certificate of amendment and restatements of
this Corporation's Articles of Incorporation in substantially the form of
Exhibit A attached hereto with such changes therein as may be required by
the California Secretary of State.
The undersigned, Holder(S) of shares of Common Stock. Series A Preferred Stock
and/or Series B Preferred Stock, hereby consent(s) to the foregoing action. This
Action may be signed in any number of counterparts, each of which constitutes
the vote and consent of the signing shareholder(s) and all of which, taken
together, constitute one and the same Action.
__________________________________ ____________________________________
(Signature) (Signature)
Date: April __, 1989 Date: April __, 1988
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EXHIBIT 10.2
APPLIED IMAGING CORP.
AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Applied Imaging Corp., a California corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall also include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Company, including sick leave,
<PAGE>
military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; provided, further, that on the
ninety-first (91st) day of any such leave (where reemployment is not guaranteed
by contract or statute) the Optionee's Incentive Stock Option shall cease to be
treated as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option; or (ii) transfers between locations of the Company or
between the Company, its Parent, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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<PAGE>
(p) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain terms
---------------
and conditions of an individual Option or Stock Purchase Right grant. The Notice
of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who holds an
--------
outstanding Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this Amended and Restated Incentive Stock Option
----
Plan.
(z) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
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<PAGE>
(dd) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 950,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock. If an Option or Stock Purchase Right expires or
becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated). Should the Company reacquire Shares which were
issued pursuant to the exercise of an Option or Stock Purchase Right, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option or Stock Purchase Right
- ------------------------
grants made to Officers or Directors subject to Section 16(b) of the Exchange
Act, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3, or (B) a committee designated
by the Board to administer the Plan, which committee shall be constituted to
comply with the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3. Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3.
(iii) Administration With Respect to Other Persons. With respect
--------------------------------------------
to Option or Stock Purchase Right grants made to Employees and Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted to satisfy Applicable Laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and
-4-
<PAGE>
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be based
on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
-5-
<PAGE>
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan);
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to
Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has
been granted an Option or Stock Purchase Right may be granted additional Options
or Stock Purchase Rights.
6. Limitations.
-----------
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted. If
an Option is granted hereunder that is part Incentive Stock Option and part
Nonstatutory Stock Option due to becoming first exercisable in any calendar year
in excess of $100,000, the Incentive Stock Option portion of such Option shall
become exercisable first in such calendar year, and the Nonstatutory Stock
Option portion shall commence becoming exercisable once the $100,000 limit has
been reached.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
-6-
<PAGE>
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13(a).
(iii) If an Option is canceled (other than in connection with
a transaction described in Section 13), the canceled Option will be counted
against the limit set forth in Section 6(c)(i). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
-7-
<PAGE>
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
-8-
<PAGE>
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for 90 days following the Optionee's termination of Continuous
Status as an Employee or Consultant. In the case of an Incentive Stock Option,
such period of time shall not exceed ninety (90) days from the date of
termination. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later
-9-
<PAGE>
than the expiration of the term of such Option as set forth in the Notice of
Grant), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Optionee was entitled to exercise the Option at the date of death. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
immediately revert to the Plan. If, after death, the Optionee's estate or a
person who acquired the right to exercise the Option by bequest or inheritance
does not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to individuals subject to Section
----------
16 of the Exchange Act ("Insiders") must comply with the applicable provisions
of Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time within
which the offeree must accept such offer, which shall in no event exceed six (6)
months from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
----------
purchased by Insiders in connection with Stock Purchase Rights, shall be subject
to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
-10-
<PAGE>
(e) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option
--------------------------------------------------------
or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
-11-
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option or Stock Purchase Right
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
-12-
<PAGE>
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, Applicable Laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Liability of Company.
--------------------
(a) Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option or Stock Purchase Right exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without additional
shareholder approval, such Option or Stock Purchase Right shall be void with
respect to such excess Optioned Stock, unless shareholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-13-
<PAGE>
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
-14-
<PAGE>
APPLIED IMAGING CORP.
AMENDED AND RESTATED 1988
INCENTIVE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ________________________
Date of Grant ________________________
Vesting Commencement Date ________________________
Exercise Price per Share ________________________
Total Number of Shares Granted ________________________
Total Exercise Price ________________________
Type of Option: ____ Incentive Stock Option
____ Nonstatutory Stock Option
Term/Expiration Date: ________________________
Vesting Schedule:
- ----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 25% of the Shares shall vest at the end of each
one-year period thereafter].
<PAGE>
Termination Period:
------------------
This Option may be exercised for _____[days/months] after termination of
the Optionee's Continuous Status as an Employee or Consultant. Upon the death or
Disability of the Optionee, this Option may be exercised for such longer period
as provided in the Plan. In the event of the Optionee's change in status from
Employee to Consultant or Consultant to Employee, this Option Agreement shall
remain in effect. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
-2-
<PAGE>
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check[; or
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price][; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares][; or
(e) delivery of Optionee's promissory note (the "Note") in the
form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price
of the Exercised Shares together with the execution and delivery by the Optionee
of the Security Agreement attached hereto as Exhibit B. The Note shall bear
interest at a rate no less than the "applicable federal rate" prescribed under
the Code and its regulations at time of purchase, and shall be secured by a
pledge of the Shares purchased by the Note pursuant to the Security Agreement].
4. Non-Transferability of Option: This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and [state] tax consequences
----------------
relating to this Option, as the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.
-3-
<PAGE>
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax and [state] income tax liability upon exercise of a NSO. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price. If the Optionee is an Employee or a former Employee, the Company
will be required to withhold from his or her compensation or collect from
Optionee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
----------------------
the Optionee will have no regular federal income tax or [state] income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one year,
---
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
-4-
<PAGE>
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
-------------------------------------------------
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporatred herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by [state] law except for that body of law
pertaining to conflict of laws.
8. NO GUARANTEE OF EMPLOYMENT. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
--------------------------
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT
CAUSE.
By you signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE>
OPTIONEE: APPLIED IMAGING CORP.
By:
- -------------------------------- ---------------------------------
Signature
Title:
- -------------------------------- ------------------------------
Print Name
- --------------------------------
Residence Address
- --------------------------------
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
------------------------------------
Spouse of Optionee
-7-
<PAGE>
EXHIBIT A
---------
APPLIED IMAGING CORP.
AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION PLAN
EXERCISE NOTICE
Applied Imaging Corp.
2380 Walsh Avenue, Building B
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. effective as of today, __________, 199___, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
Shares") of the Common Stock of Applied Imaging Corp. (the "Company") under and
pursuant to the Amended and Restated 1988 Incentive Stock Option Plan (the
"Plan") and the Stock Option Agreement dated ______, 19___ (the "Option
Agreement"). The purchase price for the Shares shall be $_____, as required by
the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement: Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by California law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: APPLIED IMAGING CORP.
By:
- ---------------------------------- -------------------------------------
Signature
Its:
- ---------------------------------- ------------------------------------
Print Name
Address: Address:
- -------- --------
2380 Walsh Avenue, Building B
- ---------------------------- Santa Clara, CA 95051
- ----------------------------
-2-
<PAGE>
EXHIBIT 10.3
APPLIED IMAGING CORP.
1994 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1994 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be "non-statutory stock options."
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Applied Imaging Corp., a California corporation.
-------
(e) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
--------
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the date of grant, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
<PAGE>
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means an Outside Director who receives an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1994 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 120,000 Shares (the "Pool") of Common Stock. The Shares may
be authorized but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Procedure for Grants. The provisions set forth in this Section
--------------------
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants
-2-
<PAGE>
of Options to Outside Directors under this Plan shall be automatic and non-
discretionary and shall be made strictly in accordance with the following
provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase up to 5,000 Shares (the "First Option") on the date on which
such person first becomes a Director or in the case of a current Outside
Director, such automatic grant shall be made at the time the current Outside
Director is re-elected to the Board of Directors at the annual meeting of the
Shareholders to be held in 1997, whether through election by the shareholders of
the Company or appointment by the Board to fill a vacancy.
(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase up to 5,000 Shares (a "Subsequent Option") on June 1 of each
year if on such date, such person shall have served on the Board for at least
six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.
(C) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option.
(D) the First Option shall become exercisable in
installments cumulatively as to twenty-five percent of the Shares subject to the
First Option on each anniversary of its date of grant.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.
-3-
<PAGE>
(C) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Subsequent Option.
(D) the Subsequent Option shall become exercisable in
installments cumulatively as to twenty-five percent of the Shares subject to the
Subsequent Option on each anniversary of its date of grant.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. An Outside Director who has been granted an Option may, if he
is otherwise eligible, be granted an additional Option or Options in accordance
with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however,
-4-
<PAGE>
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant' s account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant who requests in writing, as reasonable and appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit C to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a
participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
-5-
<PAGE>
she does not exercise such Option (to the extent otherwise so entitled) within
the time specified herein, the Option shall terminate.
(e) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it at the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option at the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the number of Shares covered by each
outstanding Option and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, to the extent that an Option has not been
previously exercised, it will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
--------------------
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option shall
be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, each
outstanding Option shall become fully vested and exercisable, including as to
Shares as to which it would not otherwise be exercisable, unless the Board, in
its discretion, determines otherwise. If an Option becomes fully
-6-
<PAGE>
vested and exercisable in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 4, the
-------------------------
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-7-
<PAGE>
18. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the option to be
solely common stock
-8-
<PAGE>
of the successor corporation or its parent equal in fair market value to the per
share consideration received by holders of Common Stock and the sale of assets
or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each out standing option, in the event the Company
effects one or more reorganizations, recapitalization, rights offerings or other
increases or reductions of shares of its outstanding Common Stock, and in the
event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock
-9-
<PAGE>
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being pur chased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
-10-
<PAGE>
EXHIBIT A
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Applied Imaging Corp. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company' s Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that the grant
of the option by the Company under this Subscription Agreement is subject
to obtaining shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):
__________________________________________
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the
<PAGE>
shares at the time such shares were purchased by me over the price which I
paid for the shares. I hereby agree to notify the Company in writing
-----------------------------------------------
within 30 days after the date of any disposition of shares and I will make
--------------------------------------------------------------------------
adequate provision for Federal, state or other tax withholding obligations,
---------------------------------------------------------------------------
if any, which arise upon the disposition of the Common Stock. The Company
------------------------------------------------------------
may, but will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _____________________________________________
(First) (Middle) (Last)
_________________________ _____________________________________
Relationship
_____________________________________
(Address)
EMPLOYEE NAME: (Please print) ___________________________________________
(First) (Middle) (Last)
_____________________________________
_____________________________________
-2-
<PAGE>
(Address)
Employee's Social
Security Number: -------------------------------------------
Employee's Address: -------------------------------------------
-------------------------------------------
-------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:____________________ ________________________________
Signature of Employee
________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 16 INSIDER IRREVOCABLE ELECTION AND WAIVER
To: Plan Administrator
With respect to the purchase period ending ___________________________________,
19______ (the "Next Period") under the Company's Employee Stock Purchase Plan
(the "Plan") and for all future periods, I hereby irrevocably elect:
(i) to have amounts withheld from each of my paychecks during such period
at the rate of _____% of my compensation (as defined in the Plan)
per pay period (minimum _____% and maximum _____%); AND
(ii) to purchase shares at the end of the period designated above with all
amounts deducted from my pay and held in my account under the Plan at
the end of such period.
I hereby waive any rights that I would otherwise have under the Plan to withdraw
from, or to change my rate or amount of payroll deductions, during such period.
I understand that this election and waiver must be made prior to the
-----
commencement of the Next Period. I further understand that this irrevocable
election may only be terminated by an irrevocable notice of termination which
takes effect at least six months after it has been made.
Signed:________________________________
Name: ________________________________
Date: ________________________________
<PAGE>
EXHIBIT C
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Applied Imaging
Corp. Employee Stock Purchase Plan which began on ___________ 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
----------------------------------------
----------------------------------------
----------------------------------------
Signature:
----------------------------------------
Date:
-----------------------------------
<PAGE>
EXHIBIT 10.4
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of Applied Imaging Corp. (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Director of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Applied Imaging Corp. and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all compensation reportable on Form W-2,
------------
including without limitation base straight time gross earnings, sales
commissions, payments for overtime, shift premiums, incentive compensation,
incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which
-----------------------
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale
price for the Common Stock (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ system (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date under the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final Prospectus included within the
Registration Statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock.
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months, commencing on the first Trading Day on or after May 1 and terminating on
the last Trading Day in the period ending the following October 31 or commencing
on the first Trading Day on or after November 1 and terminating on the last
Trading Day in the period ending the following April 30 during which an option
granted pursuant to the Plan may be exercised. The first Offering Period shall
begin on the effective date of the Company's initial public offering of its
Common Stock that is registered with the Securities and Exchange Commission and
shall end on the last Trading Day on or before April 30, 1997. The duration of
Offering Periods may be changed pursuant to Section 4 of this Plan. The initial
Offering Period shall be determined by the Board of Directors.
(l) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
----
(n) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1 and November 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The first Offering Period shall begin on the effective date
of the Company's initial public offering of its Common Stock that is registered
with the Securities and Exchange Commission. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date. An eligible Officer may become a participant
in the Plan by completing a subscription agreement authorizing
-3-
<PAGE>
payroll deductions and an irrevocable election in the form of Exhibit B to this
Plan and filing it with the Company's payroll office prior to the applicable
Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant other than Officers may discontinue his or her
participation in the Plan as provided in Section 10 hereof, or may increase or
decrease the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change in
rate shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant' s subscription
agreement at the beginning of the first Offering Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
-4-
<PAGE>
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant' s account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant who requests in writing, as reasonable and appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit C to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a
participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
-5-
<PAGE>
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof ), for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period will not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of
--------
a participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 200,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18 hereof. If on a given Exercise Date the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will
be issued in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
-6-
<PAGE>
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such parti cipant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
-7-
<PAGE>
18. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the option to be
solely common stock
-8-
<PAGE>
of the successor corporation or its parent equal in fair market value to the per
share consideration received by holders of Common Stock and the sale of assets
or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each out standing option, in the event the Company
effects one or more reorganizations, recapitalization, rights offerings or other
increases or reductions of shares of its outstanding Common Stock, and in the
event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock
-9-
<PAGE>
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being pur chased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
-10-
<PAGE>
EXHIBIT A
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Applied Imaging Corp. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company' s Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that the grant
of the option by the Company under this Subscription Agreement is subject
to obtaining shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):
__________________________________________
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the
<PAGE>
shares at the time such shares were purchased by me over the price which I
paid for the shares. I hereby agree to notify the Company in writing
-----------------------------------------------
within 30 days after the date of any disposition of shares and I will make
--------------------------------------------------------------------------
adequate provision for Federal, state or other tax withholding obligations,
---------------------------------------------------------------------------
if any, which arise upon the disposition of the Common Stock. The Company
------------------------------------------------------------
may, but will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _____________________________________________
(First) (Middle) (Last)
_________________________ _____________________________________
Relationship
_____________________________________
(Address)
EMPLOYEE NAME: (Please print) ___________________________________________
(First) (Middle) (Last)
_____________________________________
_____________________________________
-2-
<PAGE>
(Address)
Employee's Social
Security Number: -------------------------------------------
Employee's Address: -------------------------------------------
-------------------------------------------
-------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:____________________ ________________________________
Signature of Employee
________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 16 INSIDER IRREVOCABLE ELECTION AND WAIVER
To: Plan Administrator
With respect to the purchase period ending ___________________________________,
19______ (the "Next Period") under the Company's Employee Stock Purchase Plan
(the "Plan") and for all future periods, I hereby irrevocably elect:
(i) to have amounts withheld from each of my paychecks during such period
at the rate of _____% of my compensation (as defined in the Plan)
per pay period (minimum _____% and maximum _____%); AND
(ii) to purchase shares at the end of the period designated above with all
amounts deducted from my pay and held in my account under the Plan at
the end of such period.
I hereby waive any rights that I would otherwise have under the Plan to withdraw
from, or to change my rate or amount of payroll deductions, during such period.
I understand that this election and waiver must be made prior to the
-----
commencement of the Next Period. I further understand that this irrevocable
election may only be terminated by an irrevocable notice of termination which
takes effect at least six months after it has been made.
Signed:________________________________
Name: ________________________________
Date: ________________________________
<PAGE>
EXHIBIT C
---------
APPLIED IMAGING CORP.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Applied Imaging
Corp. Employee Stock Purchase Plan which began on ___________ 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
----------------------------------------
----------------------------------------
----------------------------------------
Signature:
----------------------------------------
Date:
-----------------------------------
<PAGE>
EXHIBIT 10.6
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of
December 1, 1993 (the "Effective Date") between Applied Imaging Corporation, a
California corporation with an address at 2340A Walsh Avenue, Bldg. F, Santa
Clara, California 95051 ("AIC") and Chronomed, Inc., a Delaware corporation with
an address at 1755 E. Bayshore Road, Suite 23A, Redwood City, California 94063
("Chronomed").
RECITALS
A. Chronomed owns all right, title and interest in the Patent Rights and
Related Technology Information (as defined below) and desires to license such
Patent Rights to AIC.
B. AIC desires to obtain such a license on an exclusive basis in the
Field (as defined below), under the terms and condi tions set forth below.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 "Field" means evaluation of genetic materials, or nucleic acids within
-----
cells, by any means.
1.2 "Patent Rights" means U.S. Patent Application S.N. 08/940,840,
-------------
entitled "Methods and Procedures for Preparing Red Blood Cell Fractions", and
any continuations, continuations-in-part, substitutions and divisionals, any
foreign counterpart applications of the preceding filed in any country or under
any treaty, and any patents issuing on any of the preceding applications,
including reissues and re-examinations.
1.3 "Related Technical Information" means any unpublished research and
-----------------------------
development information, unpatented inventions, trade secrets, know-how, and all
preclinical, clinical and other techni cal data relating to the Field owned by
Chronomed or which Chronomed has the right to license or sublicense.
<PAGE>
1.4 "Licensed Products" means any product or part thereof whose
-----------------
manufacture, use, or sale would infringe a claim of a patent or patent
application within the Patent Rights in the Field, but for the license granted
herein.
ARTICLE 2
GRANT OF RIGHTS
---------------
2.1 License. Chronomed hereby grants to AIC an irrevocable, exclusive,
-------
worldwide license under the Patent Rights and Related Technical Information,
with the right to grant and authorize sublicenses, to make, use and sell
products, to practice any process, method or procedure, and to otherwise exploit
the Patent Rights and Related Technical Information within the Field.
2.2 Disclosure of Technology. Promptly after execution of this Agreement
------------------------
and during the term of this Agreement, Chronomed shall provide AIC copies of all
patent applications within the Patent Rights, all correspondence and written
materials related thereto, and all Related Technical Information, together with
any physical embodiments of the Patent Rights and/or Related Technical
Information, all as reasonably requested by AIC. Subject to Article 5 below,
AIC may use and disclose such information and embodiments as it deems
appropriate.
ARTICLE 3
CONSIDERATION
-------------
In consideration for the license and rights granted herein, on the
Effective Date, AIC agrees to pay to Chronomed the sum of one thousand U.S.
dollars ($1,000).
ARTICLE 4
PATENTS
-------
4.1 Prosecution. Chronomed shall have the initial right, at its option
-----------
and expense, to control the filing for, prosecution and maintenance of the
Patent Rights; provided, however, Chronomed shall consult with AIC regarding the
prosecution of the patent applications within the Patent Rights, including
without limita tion, by providing AIC a reasonable opportunity to review and
comment on all proposed submissions to any patent office before submittal, and
keep AIC reasonably informed as to the status of the
-2-
<PAGE>
Patent Rights by promptly providing AIC copies of all communica tions relating
to the Patent Rights received from any patent office or foreign associate.
Chronomed shall not delegate its responsibilities under this Section 4.1 to any
person except pursuant to Section 4.2 below.
4.2 Prosecution by Chronomed. If Chronomed fails or declines to file or
------------------------
diligently prosecute any patent application within the Patent Rights relating to
the Field or maintain any patent within the Patent Rights relating to the Field
in any country within thirty (30) days of a written request by AIC to do so, or
Chronomed notifies AIC that it will not prepare, prosecute or maintain any such
patent application or patent within the Patent Rights, AIC shall have the right
to file and prosecute any such application, and/or maintain any such patent, at
its own expense, using patent counsel of its choice, and Chronomed shall
cooperate fully with AIC in connection with such activities, at AIC's request
and expense. AIC's rights under this Section 4.2 shall not alter Chronomed's
worldwide ownership of the Patent Rights and Related Technical Information.
4.3 Infringement Claims. If the production, sale or use of Licensed
-------------------
Products results in any claim for patent infringement against AIC, each party
shall promptly notify the other party hereto in writing. As between the parties
to this Agreement, AIC shall have the right to defend and control the defense of
any such claim against AIC, at its own expense by counsel of its own choice.
4.4 Enforcement of Patent Rights. If either party hereto becomes aware
----------------------------
that any Patent Rights are infringed by any third party, such party shall
promptly notify the other party hereto in writing describing the facts relating
thereto in reasonable detail. In the event that any Patent Rights in the Field
are infringed by such third party, AIC shall have the exclusive right, but not
the obligation, to institute, prosecute and control any action or proceeding
with respect to such infringement, including any declaratory judgment action, at
its expense using counsel of its choice. Any amounts recovered from third
parties in so enforcing the Patent Rights in the Field shall be retained by AIC.
In the event that any Patent Rights with application both in and outside
of the Field are infringed by a third party, the parties hereto shall promptly
confer regarding what steps will be taken to cease such infringement; provided,
however, in the event that Chronomed and AIC are unable to agree on such steps
within sixty (60) days of notice of such infringement AIC shall have the right
to institute, prosecute and control any action or proceeding with respect to
such infringement, at its expense using counsel of
-3-
<PAGE>
its choice. In the event that Chronomed or any other licensee of the Chronomed
Patent Rights initiates or becomes involved in any action, suit or proceeding
with respect to the Chronomed Patent Rights with application both in and outside
the Field, AIC shall have the right to participate in any such action, at its
own expense, using counsel of its choice. AIC shall cooperate reasonably with
Chronomed and any other licensee of such Patent Rights in any such action, suit
or proceeding. Any amounts recovered from third parties in so enforcing the
Patent Rights shall be used first to reimburse the parties for their costs
associated with such action suit or proceeding (including attorneys' and expert
fees) and any remainder divided equally between Chronomed and the parties
participating in such suit.
4.5 Chronomed Participation. In Chronomed's sole discretion, Chronomed
-----------------------
shall be entitled to participate at its expense through counsel of its choosing
in any legal action by or against AIC involving the Patent Rights; provided that
control of such action shall, at AIC's option, remain with AIC. Chronomed shall
cooperate with AIC, at AIC's expense, in pursuing or defending any action with
respect to the Patent Rights, including without limitation joining as a party
plaintiff and executing such documents as AIC deems may reasonably be necessary.
ARTICLE 5
CONFIDENTIALITY
---------------
5.1 Nondisclosure. Except as otherwise provided in this Agreement, each
-------------
party (the "Receiving Party") shall hold in confi dence and not disclose to any
third party any business or technical information that is disclosed to it by the
other party in a tangi ble form marked "Confidential" or that is disclosed to it
orally contemporaneously with a statement of such confidentiality and confirmed
in writing as confidential within thirty (30) days after its initial disclosure
("Confidential Information"). Unless otherwise agreed by the parties,
Confidential Information shall also include all oral or written disclosures
relating to the Patent Rights or Related Technical Information regardless of
whether such materials have been marked "Confidential" or otherwise designated
confidential at the time of disclosure. Each party shall limit access to
Confidential Information disclosed to it to those of its employees and
sublicensees who need to have access to such informa tion and shall cause each
such employee or sublicensee to enter into an agreement whereby such employee
agrees not to use the Confidential Information other than in accordance with
this Agreement and agrees to maintain the confidential proprietary
-4-
<PAGE>
nature of the Confidential Information. Notwithstanding the foregoing, AIC may
disclose any Related Technical Information that it receives from Chronomed to
actual or prospective sublicensees or to other third parties with whom AIC is
considering or has entered into a business relationship, which are similarly
bound in writing under a reasonable confidentiality agreement.
5.2 Exceptions. Notwithstanding the above, neither party shall have any
----------
obligations to the other party hereto with regard to any Confidential
Information which:
(i) was generally known and available in the public domain at the
time it was disclosed, or becomes generally known and available in the public
domain through no fault of the Receiving Party;
(ii) was known to the Receiving Party at the time of disclosure as
shown by the files of the Receiving Party in existence at the time of
disclosure;
(iii) is disclosed in accordance with the prior written approval of
the disclosing party, but only to the extent of such approval;
(iv) was independently developed by the Receiving Party without any
use of the Confidential Information and by employees or other agents of the
Receiving Party who have not been exposed to the Confidential Information;
(v) becomes known to the Receiving Party from a source other than
the discloser without breach of this Agreement by the Receiving Party and in a
manner which is otherwise not in violation of the discloser's rights;
(vi) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, pro vided, that the Receiving
Party shall provide reasonable advance notice thereof to enable the owner to
seek a protective order or otherwise prevent such disclosure; or
(vii) is disclosed to banks or another financing source (or their
advisors) or in connection with a merger, acquisition or securities offering,
subject to a non-disclosure agreement.
-5-
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Chronomed. Chronomed represents and warrants that: (i) it has the full
---------
right and authority to enter into this Agree ment and grant the rights and
licenses granted herein; (ii) to the best of its knowledge, as of the Effective
Date it owns all right, title and interest in the Patent Rights and Related
Technical Information; (iii) it has not previously granted and will not grant
any rights in the Patent Rights in the Field and Related Technical Information,
or any portion thereof, that are inconsistent with the rights and licenses
granted to AIC herein; (iv) to the best of its knowledge, as of the Effective
Date there are no existing or threatened actions, suits or claims pending
against Chronomed with respect to the Patent Rights in the Field or the Related
Technical Information; (v) to the best of its knowledge, as of the Effective
Date AIC can commercialize the Licensed Products in the Field without infringing
any intellectual property right owned by or licensed to Chronomed; (vi) to the
best of its knowledge, as of the Effective Date the Patent Rights in the Field
and Related Technical Information are free and clear of all liens, encumbrances,
security interests and restrictions on license and (vii) Chronomed shall retain
control of the prosecution of the Patent Rights and not delegate its
responsibilities in such regard to any person other than AIC.
6.2 Effect of Representations and Warranties. It is understood that if the
----------------------------------------
representations and warranties under this Article 6 are not materially true and
accurate and AIC incurs liabilities, costs or other expenses as a result of such
falsity, Chronomed shall indemnify and hold AIC harmless from and against any
such liabilities, costs or expenses incurred, provided that Chronomed receives
prompt notice of any claim against AIC resulting from or related to such falsity
and the sole right to control the defense or settlement thereof.
6.3 Limitation. AIC acknowledges that the Patent Rights have applications
----------
which extend outside the Field. AIC and Chronomed understand that Chronomed
cannot assure AIC that any of the Licensed Products can be successfully
developed to completion or that third parties have not independently developed
the technology disclosed in Patent Rights or the Related Technical Information
and obtained rights to such intellectual property. AIC also under stands that
this license is not an assignment of Chronomed's ownership of the Patent Rights
or its rights in the Related Technical Information. AIC acknowledges that no
patents have been
-6-
<PAGE>
issued under the Patent Rights and no search for infringement has been
conducted.
ARTICLE 7
TERM AND TERMINATION
--------------------
7.1 Term. This Agreement shall become effective as of the Effective Date
----
and, unless earlier terminated pursuant to the other provisions of this Article
7, shall continue in full force and effect until the earlier of (i) the
expiration of the last-to-expire patent within the Patent Rights; or (ii) twenty
years from the Effective Date. AIC's rights to use and exploit the Patent
Rights and Related Technical Information granted by Chronomed under Article 2
above shall survive the expiration of this Agreement.
7.2 Termination for Breach. In the event of a material breach of this
----------------------
Agreement, the nonbreaching party shall be entitled to terminate this Agreement
by written notice to the breaching party, if such breach is not cured within
ninety (90) days after written notice is given by the nonbreaching party to the
breaching party specifying the breach. However, if the party alleged to be in
breach of this Agreement disputes such breach within such ninety (90) day
period, the nonbreaching party shall not have the right to terminate this
Agreement unless it has been determined by an arbitration proceeding in
accordance with Section 8.8 below that this Agreement was materially breached,
and the breaching party fails to cure such breach within ninety (90) days after
the conclusion of such arbitration proceeding.
7.3 Termination by AIC. Any provision herein notwithstanding, AIC may
------------------
terminate this Agreement, in its entirety or as to any particular country, at
any time by giving Chronomed at least thirty (30) days prior written notice.
7.4 Survival.
--------
(a) Termination of this Agreement for any reason shall not release either
party hereto from any liability which at the time of such termination has
already accrued to the other party.
(b) Articles 5, 6 and 8 shall survive the expiration and any termination of
this Agreement.
ARTICLE 8
-7-
<PAGE>
MISCELLANEOUS
-------------
8.1 Governing Law. This Agreement shall be interpreted and construed in
-------------
accordance with the laws of the State of California, without regard to conflicts
of law principles.
8.2 Waiver. It is agreed that no waiver by either party hereto of any
------
breach or default of any of the covenants or agree ments herein set forth shall
be deemed a waiver as to any subsequent and/or similar breach or default.
8.3 Assignment. This Agreement shall not be assignable by either party
----------
without the written consent of the other party, which consent shall not be
withheld unreasonably. Notwithstanding the foregoing, AIC may transfer and
assign this Agreement, without the other party's consent, to an entity that
succeeds to substantially all of the business or assets to which this Agreement
pertains whether by merger, acquisition or sale.
8.4 Independent Contractors. The relationship of the parties hereto is that
-----------------------
of independent contractors. Neither party hereto is an agent, partner or joint
venturer of the other for any purpose.
8.5 Notices. Any notice required or permitted to be given to the parties
-------
hereto shall be deemed to have been properly given if delivered in person or
when received if mailed by first-class certified mail to the other party at the
appropriate address as set forth above or to such other addresses as may be
designated in writing by the parties from time to time during the term of this
Agreement.
8.6 Severability. In the event that any provision of this Agreement becomes
------------
or is declared by a court of competent jurisdic tion to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
8.7 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
------------------------
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR
THE EXERCISE OF RIGHTS HEREUNDER.
8.8 Arbitration. Any dispute under this Agreement which is not settled by
-----------
mutual consent, shall be finally settled by binding arbitration, conducted in
accordance with the Licensing Agreement Rules of the American Arbitration
Association, with a single arbitrator selected in accordance with such rules, in
Santa Clara County, California. Judgment upon any award rendered by the
arbitrator shall be non-appealable and may be entered in any court of competent
jurisdiction.
-8-
<PAGE>
8.9 Complete Agreement. It is understood and agreed between Chronomed and
------------------
AIC that this Agreement constitutes the entire agree ment, both written and
oral, between the parties, and that all prior agreements respecting the subject
matter hereof, either written or oral, expressed or implied, shall be abrogated,
canceled, and are null and void and of no effect. No amendment or change hereof
or addition hereto shall be effective or binding on either of the parties hereto
unless reduced to writing and executed by the respective duly authorized
representatives of each of the parties hereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
8.10 Counterparts and Headings. This Agreement may be executed in
-------------------------
counterparts, each of which shall be deemed to be an original and both together
shall be deemed to be one and the same agreement. All headings, the cover page
and the table of contents in the Agreement are inserted for convenience of
reference only and shall not affect its meaning or interpretation.
IN WITNESS WHEREOF, both Chronomed and AIC have executed this Agreement, in
duplicate originals, by their respective officers hereunto duly authorized, the
day and year first above written.
APPLIED IMAGING CORPORATION CHRONOMED, INC.
By: /s/ Abraham I. Coriat By: /s/ Alex M. Saunders
-------------------------- --------------------------
Name: Abraham I. Coriat Name: Alex M. Saunders
------------------------ -----------------------
Title: CEO & Chairman Title: President
------------------------ ------------------------
-10-
<PAGE>
EXHIBIT 10.7
ASSIGNMENT
THIS ASSIGNMENT (the "Assignment") is made this first day of December,
1993, (the "Effective Date") by and between Applied Imaging Corporation, with
principal offices at 2340A Walsh Avenue, Bldg. F, Santa Clara, California 95051
("AIC"), and Alex M. Saunders M.D., with an address at 8 Trillivan Lane, San
Carlos, California 94070.
WHEREAS, Alex M. Saunders M.D. is the inventor and sole and exclusive owner
of an invention relating to Time Series Analysis by Density Gradient Separation
of Red Cells (the "Gel Technology") and wishes to assign to AIC his entire
right, title and interest in and to such Gel Technology; and
WHEREAS, AIC wishes to acquire the entire right, title and interest of Alex
M. Saunders M.D. in and to the Gel Technology.
NOW, THEREFORE, the parties agree as follows:
1. Alex M. Saunders M.D., intending to be legally bound hereby irrevocably
assigns, sells, transfers, and conveys to AIC, its successors and assigns, his
entire right, title and interest throughout the world in and to the invention
relating to Time Series Analysis by Density Gradient Separation of Red Cells
(the "Gel Technology") as described in attached Exhibit A, including the right
to file patent applications worldwide thereon in the name of Alex M. Saunders
and/or AIC, and all other intellectual property rights relating to the use and
practice of such Gel Technology, including without limitation, trade secrets,
know-how and other proprietary information, for the full duration of such rights
and any renewals or extensions thereof.
2. In consideration for the assignment to AIC granted in Section 1 above,
on the Effective Date AIC shall issue and transfer to Alex M. Saunders M.D.,
15,000 shares of Applied Imaging, Inc. Common Stock, subject to the terms and
conditions of the Stock Transfer Agreement attached as Exhibit B.
3. Alex M. Saunders M.D. hereby represents and warrants to AIC that:
(a) He is the sole owner of the Gel Technology, and the Gel Technology
is free and clear of all known liens, claims or encumbrances, and may and
hereby does assign the Gel Technology to AIC free and clear of any known
liens, claims or encumbrances;
(b) To the best of his knowledge as of the Effective Date, he is the
sole inventor of the Gel Technology and there
<PAGE>
are no proceedings pending or threatened which challenge his sole ownership
of the Gel Technology and to the best of his knowledge, there is no basis
for any such proceeding;
(c) No further consents or approvals to the sale, transfer and
assignment of the Gel Technology are required beyond that provided herein;
and
(d) The execution, delivery and performance of this Assignment does
not and will not conflict with or result in a breach of any term, condition
or provision of or constitute a default under any other agreement by which
Alex M. Saunders, M.D. is bound.
4. AIC acknowledge that the Gel Technology is not currently patented and
that Alex M. Saunders, M.D. has not conducted a patent infringement search with
respect to the Gel Technology
5. Alex M. Saunders M.D. agrees, upon the request and at the expense of
AIC, to take, or cause to be taken, such further action, including execution and
delivery of further instruments of sale, transfer or assignment, as AIC may
request to confirm or complete the Assignment of the Gel Technology to AIC or
its successors or assigns, and to make available to AIC any and all relevant
records, documents or data in their possession or control. Alex M. Saunders
M.D. further agrees, without further charge to AIC, but at AIC's expense, to (a)
cooperate with AIC in the preparation, filing and prosecution of any United
States and foreign patent applications filed by AIC with respect to the Gel
Technology, and (b) perform such acts, including without limitation, the
execution, verification, acknowledgement and delivery of any documents, as AIC
may lawfully request to obtain or maintain patent applications and patents for
the Gel Technology in any country.
6. This instrument shall be binding upon the successors, assigns and heirs
of Alex M. Saunders M.D. and shall inure to the benefit of AIC and its
successors and assigns of AIC.
7. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles of
conflicts of laws.
8. This Agreement, together with its Exhibits, constitutes the entire
agreement between the parties with respect to the subject matter here of, and
supersedes all prior discussions, negotiations or agreements. No amendment to
this Agreement shall be effective or binding unless in a writing signed by both
parties.
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<PAGE>
Alex M. Saunders M.D. APPLIED IMAGING CORPORATION
By: /s/ Alex M. Saunders M.D. By: /s/ Abraham I. Coriat
-------------------------- --------------------------
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<PAGE>
EXHIBIT A
GEL TECHNOLOGY
<PAGE>
EXHIBIT B
STOCK TRANSFER AGREEMENT
<PAGE>
EXHIBIT 10.8
STANDARD INDUSTRIAL LEASE
THIS LEASE, made this 8th day of December 1993, between
1. PARTIES.
SUN LIFE ASSURANCE CO. OF CANADA
c/o Commerce Communities Corp. (herein called "Lessor") and
APPLIED IMAGING CORP., a California Corporation (herein called "Lessee")
2. PREMISES.
2.1 Lessor hereby leases to Lessee and Lessee hires from Lessor on the
terms, covenants and conditions hereinafter set forth, those certain premises
outlined in red on Exhibit "A" attached hereto and made a part of this Lease and
located at 2380 Walsh Avenue, Building "B" in the city of Santa Clara, County of
Santa Clara, State of California. Said premises are hereinafter referred to as
the "Leased Premises."
2.2 Lessee shall have, as appurtenant to the Leased Premises, rights to
use in common, subject to reasonable rules from time to time made by Lessor of
which Lessee is given notice, common access ways, landscaped area, parking area
and waste collection area thereinafter referred to as "Common Area."
3. LEASE TERM.
3.1 The term of this lease shall be THIRTY-EIGHT AND ONE-HALF (38 1/2)
MONTHS commencing on the 15th day of February 1994, and ending on the 30th day
of April 1997, unless sooner terminated pursuant to any provision hereof.
4. POSSESSION.
4.1 If Lessor, for any reason whatsoever, cannot deliver possession of the
Leased premises to Lessee at the commencement of the lease term, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss
or damage resulting therefrom, but in that event there shall be a proportionate
reduction of rent covering the period between the commencement of this lease
term and the time when Lessor can deliver possession.
4.2 If permission is given to Lessee to occupy the Leased Premises prior
to the commencement date, such occupancy shall be subject to all of the
provisions of this Lease and, if the term hereof commences on a date later than
the commencement date pursuant to the provisions set forth above, the parties
hereto agree to execute and acknowledge a written statement setting forth the
-1-
<PAGE>
date of commencement and the date of expiration of this Lease, but this Lease
shall not be affected in any manner should either party fall or refuse to
execute such statement.
5. RENT.
5.1 Lessee agrees to pay Lessor at such place as Lessor may designate
without deduction, offset, prior notice or demand, as rent for the Leased
Premises in lawful money of the United States, payable in advance on the first
day of each month in installments of:
<TABLE>
<S> <C> <C>
$2,000.00- - - - - - - - - - - - - per month from 2/15/94 to 4/30/94
$7,432.00- - - - - - - - - - - - - per month from 5/1/94 to 4/30/95
$ 10,415.00- - - - - - - - - - - - per month from 5/1/95 to 4/30/97
</TABLE>
5.2 If any Installment of rent is past due, Lessor has the right to
collect a charge equal to ten percent (10%) of all monthly rental then due.
This charge is the result of a reasonable endeavor by the undersigned Lessee and
Lessor to estimate the Lessor's added costs and damages resulting from the
Lessee's failure to make timely payments of rent under this Lease. Hence, the
undersigned Lessee agrees that the charge shall be presumed to be the amount
necessary to reimburse the Lessor for such damages. Lessor, by so agreeing,
does not waive any additional right or remedy as Lessor, under this Lease, or
applicable law.
5.3 All sums of money or charges required to be paid by Lessee hereunder
shall be deemed additional rental for the premises and may be designated as such
in any statutory notice to pay rent or quit the premises.
5.4 Lessee shall pay Lessor upon the execution hereof Twelve Thousand,
Eight Hundred, and No/100 Dollars ($12,800.00), which includes the $2,000.00
First Month's Rent plus $10,800.00 Security Deposit.
5.5 If Lessee shall fail to pay any rent or additional rent when due, the
amount of such ret or additional rent shall bear interest at the rate of 10% per
annum or the maximum rate permitted by law, whichever is less, from the due date
until paid.
6. SECURITY DEPOSIT.
6.1 Upon the execution of this Lease, Lessee will deposit with Lessor the
sum of Ten Thousand, Eight Hundred and No/100 Dollars ($10,800.00). Said
deposit shall be held by Lessor, without interest, as security for the faithful
performance by Lessee of all the terms, covenants, and conditions of this Lease,
and Lessor's obligation respecting the deposit is that of a debtor, not a
trustee, and the funds may be commingled.
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<PAGE>
6.2 Use and Return of Deposit. If Lessee fails to keep and perform and of
such terms, covenants and conditions, then the Lessor at its option may apply
said entire deposit, or so much thereof as necessary, to compensate the Lessor
for all loss or damage sustained by Lessor due to such breach. Lessee shall,
upon written demand of Lessor, within five (5) days remit to Lessor sufficient
cash to restore said security to the original sum deposited. Should Lessee
comply with all of said terms, covenants and conditions, and promptly pay all of
the rental herein provided for as it falls due, all of said deposit, with
exception of the sum of Three Hundred and No/100 Dollars ($300.00) which shall
be retained by Lessor as a non-refundable cleaning deposit, shall be returned to
Lessee within ten (10) days following the termination of this lease and vacancy
of the Leased Premises by Lessee.
7. USE.
7.1 The Leased Premises shall be used and occupied only for: GENERAL
OFFICE, SALES & INTEGRATING OF COMPUTER IMAGING EQUIPMENT.
8. ACCEPTANCE OF PREMISES.
8.1 Lessee hereby accepts the Leased Premises existing condition and by
such acceptance agrees that the Leased Premises are in good order and repair as
of the date of the execution hereof, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations governing and
regulating the use of the Leased Premises, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the suitability of the Leased Premises for the
conduct of Lessee's business. Lessor further reserves the exclusive right to
the roof and exterior surface of sidewalls and appurtenances, except as provided
in this Lease. Lessor warrants the mechanical, electrical, and plumbing systems
of the Leased Premises for ninety (90) days.
9. SITE ALTERATIONS.
9.1 The purpose of the site plan attached hereto as Exhibit "B" is to show
the approximate location of the Leased Premises. Lessor reserves the right at
any time to relocate, vary and adjust the size of the various buildings,
automobile parking areas and other common areas as shown on said site plan:
provided however, that said parking area (including landscaped and common areas)
shall at all times provide for not less than 3.8 parking spaces per one thousand
(1,000) square feet of building area within the project.
10. UTILITIES.
10.1 Lessee shall pay/*/ for all water, gas, heat, light, power, telephone
service and all other services and materials supplied to the Leased Premises.
Lessor further reserves the right to install
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/*/ their pro rata share of the utility bill
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<PAGE>
separate meters for any public utility servicing the Leased Premises for which a
meter is not presently installed, in which event Lessee shall make payment when
due directly to the public utility involved. When water service is not
separately metered, Lessee shall pay to Lessor, for restroom water service the
sum of One Hundred Forty and No/100 Dollars ($140.00) per month as additional
rent. If Lessee uses the water service for other than restroom purposes, the
monthly water charge shall, at option of Lessor, be increased accordingly.
10.2 When trash containers are not separately contracted for by lessee,
with Lessor's permission, Lessee shall pay to Lessor for trash collection
service the sum of One Hundred Forty-Five and No/100 Dollars ($145.00) per month
as additional rent.
10.3 Lessor shall not be liable in damages, consequential or otherwise, nor
shall there be any rent abatement, arising out of any interruption whatsoever in
utility services which is due to fire, accident, strike, governmental authority,
acts of God, or other causes beyond the reasonable control of Lessor or any
temporary interruption in such service which is necessary to the making of
alterations, repairs, or improvements to the Building or the Project or any part
of it.
11. INDEMNITY.
11.1 This lease is made on the express condition that Lessor shall not be
liable, or suffer loss by reason of injury to person or property, from whatever
cause, all or in any way connected with the condition or use of the Leased
Premises, Common Area, or the Improvements or personal property therein or
thereon, including without limitation any liability for injury to the person or
property of Lessee, its agents, officers, employees or invitees. Lessee agrees
to indemnify Lessor and hold Lessor harmless from and defend Lessor against any
and all liability, loss, cost or obligation on account of, or arising out of,
any such injury or loss however occurring./*/ The obligation of Lessee under
this section arising by reason of any occurrence taking place during the Lease
Term shall survive any termination of this Lease.
12. LIABILITY INSURANCE.
12.1 Lessee shall secure and keep in force with companies acceptable to
Lessor, a public liability insurance and property damage policy for the benefit
of Lessor and Lessee, covering the Leased Premises, including Common Area,
insuring the Lessee and naming Lessor as an additional insured. A copy of
certification of said policy shall be delivered to Lessor within thirty (30)
days of the commencement of this lease, and the minimum limits of coverage
thereof shall be not less than One Million Dollars ($1,000,000) per occurrence
for personal injury and for damage to property, and Lessee shall obtain a
written obligation on the part of the insurer to notify Lessor in writing twenty
(20) days before any cancellation or alteration thereof.
- ---------------
/*/ Excepting damages or destruction caused by the negligence of Lessor,
Lessor's employees or Lessor's agents.
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<PAGE>
Lessee shall also maintain employer's liability and worker's compensation
insurance as required by law. Lessee's liability insurance policy shall also
specifically cover Lessee's indemnity obligations set forth in paragraph 11.1
Lessee's comprehensive general liability insurance policy shall (1) provide that
(i) Lessor is named as additional insured, (ii) such insurance is primary with
respect to Lessor and any entity managing the property and that any other
insurance maintained by Lessor or such management company is excess and
noncontributing with such insurance; (2) contain a cross-liability endorsement
or a severability of interest clause; (3) contain a waiver of subrogation as
provided in paragraph 12.2; (4) provide for blanket contractual coverage, broad
form property damage coverage and products completed operations coverage (where
applicable); (5) provide for employee's automobile non-ownership liability; and
(6) afford coverage for all claims based on acts, omissions, injury or damage
which occurred or arose (or the onset of which occurred or arose) in whole or in
part during the policy period. Lessee shall insure the full replacement cost of
all personal property and fixtures of Lessee and all improvements made by or for
Lessee to the Leased Premises. All insurance to be provided by Lessee shall be
provided by a carrier or carriers rated A+:XV in Best's Insurance Guide or shall
otherwise be satisfactory to Lessor. If, in the opinion of Lessor's insurance
advisor, based on a substantial increase in recovered liability claims
generally, the specified amounts or coverage are no longer adequate, such
coverage shall be appropriately increased. If Lessee fails to obtain such
insurance or to furnish Lessor any such duplicate policy or certificate as
herein required, Lessor may, at its election, without notice to Lessee and
without any obligation so to do, procure and maintain such coverage and Lessee
shall reimburse Lessor on demand as additional rent for any premium so paid by
Lessor.
12.2 To the extent of insurance proceeds received with respect to the loss,
Lessor and Lessee each hereby waive any right of recovery against the other
party for any loss or damage maintained by such other party with respect to the
property or the Leased Premises or any portion thereof or any contents thereof
or any operation therein whether or not such loss is caused by the fault or
negligence of such other party. Lessee and Lessor shall obtain from their
respective insurers under all policies of insurance maintained by either of them
at any time during the term hereof in connection with the Leased Premises, the
contents of operations therein, a waiver of all rights of subrogation which such
insurer might have against the other.
13. FIRE INSURANCE HAZARDS.
13.1 No use shall be made, or permitted to be made, of the Leased Premises,
nor acts done, which will increase the existing rate of insurance upon the
building or buildings of which the Leased Premises are a part, or cause the
cancellation of any insurance policy covering same, or any part thereof, nor
shall Lessee sell, or permit to be kept, used or sold, in or about the Leased
Premises, any article which may be prohibited by the standard form of fire
insurance policies. Lessee shall, at its sole cost and expense, comply with any
and all requirements pertaining to the Leased Premises, or any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Leased Premises, buildings or
appurtenances. Lessee agrees to pay to Lessor as additional rent, on demand,
any increase in premiums, due to Lessee's uses, for fire and perils normally
included in extended coverage above the rates for the least hazardous type of
occupancy for industrial buildings.
-5-
<PAGE>
14. ALTERATIONS.
14.1 Lessee shall not make or suffer to be made any alterations, additions
or improvements to or of the Leased Premises or any part thereof or attach any
fixtures to the premises without first obtaining the written consent of
Lessor./*/ Any alterations, additions or improvements to the Leased Premises,
including, but not limited to, wall covering, paneling and built-in cabinet
work, (but excepting movable furniture and trade fixtures, which may be removed
at the end of the lease term provided their removal will not cause material
damage to the premises and the Lessee posts reasonable security with Lessor to
pay for any repair costs caused by such removal) shall, at Lessor's option, on
the expiration of the term, become a part of the realty and belong to Lessor and
shall be surrendered with the premises. Lessee shall submit detailed
specifications and floor plans and necessary permits (if applicable) with
respect to any requested alterations or improvements to Lessor for review.
Lessor may require reasonable changes to such specifications or plans as a
condition to giving its consent. In no event shall any alterations or
improvements affect the structure of the building or its facade. Any work
consented to by Lessor hereunder shall be done at Lessee's expense and shall be
performed either by Lessor's contractor or by contractors approved by Lessor, as
Lessor may elect. In addition, as a condition to its consent, Lessor shall be
entitled to request adequate assurance that all contractors who will perform
such work have in force workers' compensation and such other employee and public
liability insurance as Lessor deems necessary to supplement the insurance
coverage provided above. In case of material alterations, additions,
improvements, Lessor may require Lessee or its contractors to post adequate
completion and performance bonds, additional security deposit, and provide
Lessor "as built" plans and specifications therefor.
14.2 Lessee shall keep the building of which the Leased Premises are a
part, free from any liens arising out of any work performed, materials furnished
or obligations incurred by Lessee. Lessor shall have the right to post and keep
posted on the Leased Premises any notices that may be provided by law or which
Lessor may deem to be proper for the protection of Lessor, the Leased Premises
and the property from such liens.
15. MAINTENANCE OF LEASED PREMISES.
15.1 Lessee shall, at its sole cost, keep and maintain the Leased Premises
and appurtenances and every part thereof (exception exterior surface of walls
and roof which Lessor agrees to repair) including windows, doors and all door
hardware, any store front and the interior of the Leased premises, including
clerical, plumbing, lighting, heating and air conditioning systems, in good and
sanitary order, condition and repair. Lessee shall, at its sole cost, keep and
maintain all utilities, fixtures and mechanical equipment used by Lessee in good
order, condition, and repair. In the case of equipment installed by Lessor for
Lessee where Lessee is responsible for maintenance of the equipment, such
maintenance will be provided by a reputable maintenance service company
- ---------------
/*/ excepting non-electrical alterations costing not more than One Thousand and
No/100 Dollars ($1,000.00)
-6-
<PAGE>
acceptable to Lessor at Lessee's expense. Evidence of the execution and
continuance of such service contract will be provided to Lessor within thirty
(30) days after commencement of lease.
15.2 If Lessee refuses or neglects to repair properly as required hereunder
and to the reasonable satisfaction of Lessor, as soon as reasonably possible
after written demand, Lessor may make such repairs without liability to Lessee
for any loss or damage that may accrue to Lessee's merchandise, fixtures, or
other property, or to Lessee's business by reason thereof, and upon completion
thereof, Lessee shall pay Lessor's costs for making such repairs plus twenty
percent (20%) for overhead, upon presentation of a bill thereof, as additional
rent. Said bill shall include interest at ten percent (10%) per annum on said
cost from the date of completion of repairs by Lessor.
15.3 Lessee shall conduct his business in such a manner as to abide by the
rules and regulations recited in Exhibit "C" attached hereto.
16. SURRENDER OF PREMISES.
16.1 At the expiration of the tenancy hereby created, Lessee shall
surrender the Leased Premises in the same condition as the Leased Premises were
in upon delivery of possession thereto under this Lease, reasonable wear and
tear excepted, and shall surrender all keys for the Leased Premises to Lessor at
the place then fixed for the payment of rent and shall inform Lessor of all
combinations on locks, safes and vaults, if any, in the Leased Premises. Lessee
shall remove all its trade fixtures, and at Lessor's sole option, any
alterations or improvements made by Lessee before surrendering the Leased
Premises as aforesaid and shall repair any damage to the Leased Premises caused
thereby. Lessee's obligations to observe or perform this covenant shall survive
the expiration or other termination of the term of this lease.
17. AUCTIONS.
17.1 Lessee shall not conduct, or permit to be conducted, any sale by
auction on said Leased Premises.
18. SIGNS.
18.1 Lessee shall not place or suffer to be placed or maintained, on any
exterior door, wall or window of the Leased Premises, on any part of the real
property upon which the Leased Premises are located, any sign, awning or canopy,
or advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the Leased Premises without first obtaining Lessor's written approval
and consent. Lessee further agrees to maintain such sign, awning, canopy,
decoration, lettering, advertising matter or things as may be approved, in good
condition and repair at all times. Lessee agrees, at Lessee's sole cost, to
obtain a sign in strict conformance with Lessor's sign criteria as to design,
material, color, location, size, letter style, and method of installation as
provided in Exhibit "E" hereof.
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<PAGE>
19. ENTRY BY LESSOR.
19.1 Lessee shall permit Lessor and Lessor's agents to enter the Leased
Premises at all reasonable times for the purpose of inspecting the same, or for
the purpose of maintaining the building of which the Leased Premises are a part,
or for the purpose of showing the Leased Premises to prospective tenants,
insurance agents and investors, or for the purpose of making repairs,
alterations, or additions to any portion of same, including the erection and
maintenance of such scaffolding, canopies, fences, and props as may be required,
or for the purpose of posting notices of nonresponsibility for alterations,
additions, or repairs without any rebate of rent and without any liability to
Lessee for any loss of occupation or quiet enjoyment of the Leased Premises
thereby occasioned and shall permit Lessor, at any time within ninety (90) days
prior to the expiration of this Lease, to place upon the Leased Premises any
usual or ordinary "to let" or "to lease" signs.
20. TAXES.
20.1 Lessee shall pay before delinquency any and all taxes, assessments,
license fees, and public charges levied, assessed, or imposed, and which become
payable during the Lease Term upon Lessee's fixtures, improvements, alterations,
or additions, appliances and personal property installed or located in the
Leased Premises.
20.2 Lessee shall pay to Lessor upon demand during the Lease Term hereof
such equitable portion, as may reasonably and solely be determined by Lessor (if
not by the County Assessor), of all real property taxes, gross rental receipts
taxes and general or special assessments assessed against the same for the tax
year in which the lease term commences, as they are billed against Lessor or the
entire parcel of real property set forth in Exhibit "B", or separately assessed
against any small portion thereof including the Leased Premises and appurtenant
Common Area. Lessor and Lessee hereby agree said apportionment shall be 15.2%
of said tax assessment. Lessee's share of any tax for the tax year during which
the Lease begins and ends shall be prorated.
20.3 The term "Real Property Taxes" shall mean all real property taxes and
personal property taxes, licenses, charges and assessments which are levied,
assessed or imposed by any governmental or quasi-governmental authority,
improvement or assessment district with respect to the project or any other
fixtures, improvements, equipment or other property of Lessor, real or personal,
located in the project and used in connection with the operation thereof,
whether or not now customary or within the contemplation of the parties hereto,
including, without limitation, any taxes, charges or assessments for public
improvements, services or benefits, irrespective of when commenced or completed,
transit fees, housing funds, education funds, street, highway or traffic fees,
as well as any tax which shall be levied or assessed in addition to or in lieu
of such taxes, any charge upon Lessor's business of leasing of the project and
any costs or expenses of contesting any such taxes, licenses, charges or
assessments, but excluding any federal or state income or gift tax or any
franchise, capital stock, estate or inheritance taxes. In the event that it
shall not be lawful for Lessee to reimburse Lessor for Lessee's percentage share
of any property tax, as defined herein, the rent payable to Lessor under this
Lease shall be revised to yield to Lessor the same net rent from the
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<PAGE>
premises after imposition of any such tax upon Lessor as would have been
received by Lessor hereunder prior to the imposition of any such tax.
21. ABANDONMENT.
21.1 Lessee shall not permit said Leased Premises to remain unoccupied for
a period longer than ten (10) consecutive days during the term of this Lease.
22. WASTE, QUIET CONDUCT AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS.
22.1 Lessee shall not commit, or suffer to be committed, any waste upon the
Leased Premises, or any nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in the building in which the Leased Premises
may be located.
22.2 Lessee shall, at Lessee's sole cost and expense, comply with all of
the requirements of all city, county, municipal, state, federal and other
applicable governmental authorities, now in force, or which may hereafter be in
force, pertaining to the said Leased Premises, including the installation of
additional facilities as required for the conduct and continuance of Lessee's
business, and shall faithfully observe in the use of the Leased Premises all
municipal and county ordinances and state and federal statutes now in force or
which may hereafter be in force.
23. ASSIGNMENT AND SUBLETTING.
23.1 Lessee shall not, without the prior written consent of Lessor, assign
this Lease or any interest herein, sublet the Leased Premises or any part
thereof, permit the use or occupancy of the Leased Premises by any person other
than Lessee, or hypothecate this Lease or any interest herein. Any of the
foregoing acts without such consent shall be void and shall, at the option of
Lessor, constitute a default that shall entitle Lessor to terminate this Lease.
This Lease shall not, not shall any interest herein, be assignable as to the
interest of Lessee involuntarily or by operation of law without the prior
written consent of Lessor. Any transfer of more than 50% of Lessee's stock or
of a majority of general partnership interests in Lessee shall constitute a
prohibited assignment under this Section 23.
23.2 Before entering into any assignment of this Lease or into a sublease
of all or part of the Leased Premises, Lessee shall give written notice to
Lessor identifying the intended assignee or subtenant by name and address and
specifying the terms of the intended assignment or sublease. In case of a
proposed assignment or a subletting for all or substantially all of the
remaining term of this Lease, for a period of thirty (30) days after such notice
is given, Lessor shall have the right by giving written notice to Lessee to
terminate this Lease, or, in case of a partial sublease, terminate this Lease as
it pertains to the portion of the Leased Premises so proposed by Lessee to be
sublet. If Lessor so terminates this Lease, such termination shall be as of the
date specified in such notice. If Lessor so terminates this Lease, Lessor may,
if it elects, enter into a new lease covering the Leased Premises or a portion
thereof with the intended assignee or subtenant on such terms as Lessor and such
person
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may agree, or enter into a new lease covering the Leased Premises or a portion
thereof with any other person; in such event, Lessee shall not be entitled to
any portion of the profit, if any, which Lessor may realize on account of such
termination and reletting. Lessor's exercise of its aforesaid option shall not
be construed to impose any liability upon Lessor with respect to any real estate
brokerage commission(s) or any other costs or expenses incurred by Lessee in
connection with its proposed subletting or assignment.
23.3 If Lessee complies with the provisions of this section and Lessor does
not exercise an option to terminate, as provided above, Lessor's consent to a
proposed assignment or sublet shall not be unreasonably withheld. Without
limiting the other instances in which it may be reasonable for Lessor to
withhold its consent to an assignment or subletting, Lessor and Lessee
acknowledge that it shall be reasonable for Lessor to withhold its consent in
the following instances:
A. the proposed assignee or sublessee is a governmental agency;
B. in Lessor's reasonable judgment, the use of the Leased Premises by
the proposed assignee or sublessee would entail any alterations which would
lessen the value of the leasehold improvements in the Leased Premises or would
require increased services by Lessor;
C. in Lessor's reasonable judgment, (i) the financial worth of the
proposed assignee or sublessee does not meet the credit standards applied by
Lessor for other tenants under leases with comparable terms, or (ii) the
proposed assignee or sublessee does not have a good reputation as a tenant of
property;
D. Lessor has experienced previous defaults by or is in litigation
with the proposed assignee or subtenant;
E. the proposed assignment or sublease will create a vacancy
elsewhere in the building or the project of which the Leased Premises are a
part, or the proposed assignee or subtenant is a person with whom Lessor is
negotiating to lease space in the building or the project of which the Leased
Premises are a part;
F. Lessee is in default of any obligation of Lessee under this lease,
or Lessee has defaulted under this Lease on three (3) or more occasions during
the twelve (12) months preceding the date that Lessee shall request consent;
G. in the case of a subletting of less than the entire Leased
Premises, if the subletting would result in the division of the Leased Premises
into more than two subparcels or would require access to be provided through
space leased or held for lease to another tenant or improvements to be made
outside of the Leased Premises;
H. the proposed assignment or subletting contemplates the use or
storage of hazardous substances in the Leased Premises.
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23.4 In the case of an assignment, any sums or other economic
consideration received by Lessee as a result of such assignment shall be paid to
Lessor. In the case of a subletting, any sum or economic consideration received
by Lessee as a result of such subletting, shall be paid to Lessor after first
deducting the rental due hereunder, prorated to reflect only rental allocable to
the sublet portion of the Leased Premises. Upon Lessor's request, Lessee shall
assign to Lessor all amounts to be paid to Lessee by any such subtenant or
assignee and shall direct such subtenant or assignee to pay the same directly to
Lessor.
23.5 Lessee agrees that the instrument by which any assignment or
subletting consented to by Lessor is accomplished shall expressly provide that
the assignee or subtenant will perform and observe all the agreements,
covenants, conditions and provisions to be performed and observed by Lessee
under this Lease as and when performance and observance is due, that no assignee
or subtenant shall have the further right to assign or sublet, and that Lessor
shall have the right to enforce such agreements, covenants, conditions and
provisions directly against such assignee or subtenant. Consent by Lessor to an
assignment or subletting shall not release Lessee from any of Lessee's
obligations hereunder and shall not be deemed to be a consent to any subsequent
transfer, assignment or subletting. Any assignment or subletting without an
instrument containing the foregoing provision shall be void and shall, at the
option of Lessor, constitute a default that entitles Lessor to terminate this
Lease.
23.6 In the event Lessee shall assign or sublet the premises or request the
consent of Lessor to any assignment or subletting, then Lessee shall pay
Lessor's reasonable attorneys' fees incurred in connection therewith.
24. DEFAULT OF THE LESSEE.
24.1 Right to Re-enter. In the event of any failure of Lessee to pay any
rental due hereunder within ten (10) days after the same shall be due, or any
failure to perform any other of the terms, conditions or covenants of this Lease
to be observed or performed by Lessee for more than fifteen (15) days after
written notice of such default shall have been mailed to Lessee, or if Lessee
shall become bankrupt or insolvent, or file any debtor proceedings, or take or
have taken against Lessee in any court pursuant to any statute, either of the
United States or of any State, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Lessee's property, or if Lessee makes an assignment for the benefit
of creditors, or petitions for or enters into an arrangement, or if Lessee shall
abandon said Leased Premises, or suffer this Lease to be taken under any writ or
execution, then Lessor besides other rights to remedies it may have, shall have
the immediate option to terminate this Lease, shall have the immediate right of
re-entry and may remove all persons and property from the Leased Premises, and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Lessee, all without service of notice or
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby.
24.2 In the event of such termination of this Lease, Lessor may recover
from Lessee: (a) the worth at the time of award of the unpaid rent which had
been earned at the time of terminating
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including interest at 10% per annum; (b) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of ward exceeds the amount of such rental loss that Lessee proves
could have been reasonably avoided including interest at 10% per annum; (c) the
worth at the time of award of the amount by which the unpaid rent for any other
amount necessary to compensate Lessor for all the detriment proximately caused
by Lessee's failure to perform his obligations under this Lease, or which in the
ordinary course of things would be likely to result therefrom.
24.3 Lessee hereby waives all right, now or hereafter existing, to redeem
the Leased Premises after termination pursuant to this Paragraph 24 or by order
or judgment of any court or by any legal process.
24.4 Even though Lessee has breached this Lease and abandoned the Leased
Premises, this Lease shall continue in effect for so long as Lessor does not
terminate Lessee's rights and remedies under this Lease, including the right to
recover the rental as it becomes due under this Lease. Acts of maintenance or
preservation or efforts to relet the Leased Premises or the appointment of a
receiver upon initiative of Lessor to protect Lessor's interest under this Lease
shall not constitute a termination of Lessee's right to possession.
24.5 The remedies provided for in this Lease shall be cumulative and are in
addition to any other remedies available to Lessor at law or in equity by
statute or otherwise.
25. RIGHT TO CURE DEFAULT.
25.1 If Lessee at any time fails to make any payment or perform any acts on
its part to be made or performed as in this Lease provided, Lessor may, but
shall not be obligated to do so, and without waiving or releasing Lessee from
any obligations hereunder, make such payment or perform such act on the part of
Lessee to be made and performed. All sums so paid by Lessor and all necessary
and incidental cost and expenses shall be deemed additional rent hereunder, and
shall be payable to Lessor on demand.
26. LEGAL EXPENSES.
26.1 In case suit shall be brought for recovery of possession of the Leased
Premises, for the recovery of rent or any other amount due under the provisions
of this Lease, or because of the breach of any other covenant herein contained
on the part of Lessee to be kept or performed, and a breach shall be
established, Lessee shall pay to Lessor all expenses incurred therefor,
including attorneys' fees.
27. DESTRUCTION.
27.1 In the event the Leased Premises or the portion of the building
necessary for Lessee's occupancy are damaged by fire, earthquake, act of God,
the elements or other casualty, Lessor shall forthwith repair the same, subject
to the provisions of this section hereinafter set forth, if such repairs
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can, in Lessor's opinion, be made within 60 days and if insurance proceeds are
available to pay the cost thereof. This Lease shall remain in full force and
effect except that, if such damage is not the result of the negligence or
willful misconduct of Lessee or Lessee's employees or invitees, an abatement of
rental shall be allowed Lessee for such part of the Leased Premises as shall be
rendered unusable by Lessee in the conduct of this business during the time such
part is so unusable.
27.2 If such repairs cannot, in Lessor's opinion, be made within 60 days,
or if sufficient insurance proceeds are unavailable, Lessor may elect, upon
notice to Lessee within 30 days after the date of such fire or other casualty,
to repair or restore such damage, in which event this Lease shall continue in
full force and effect, but the rent shall be partially abated as hereinabove in
this section provided. If Lessor does not so elect to make such repairs, this
Lease shall terminate as of the date of such fire or other casualty.
27.3 A total destruction of the building of which the Leased Premises are a
part shall automatically terminate this Lease. Lessee waives California Civil
Code Sections 1932(2) and 1933(4) providing for termination of hiring upon
destruction of the thing hired.
27.4 If the Leased Premises are to be repaired under this section, Lessor
shall repair at its cost any injury or damage to the building itself and all
leasehold improvements in the Leased Premises other than tenant improvements
made by or for Lessee. Lessee shall pay the cost of repairing any tenant
improvements made by or for Lessee and the cost of repairs or replacing Lessee's
fixtures and personal property in the Leased Premises.
28. CONDEMNATION.
28.1 If any part of the Leased Premises shall be taken or condemned for a
public or quasi-public use, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date title shall vest in the condemnor and the rent payable hereunder shall
be adjusted so that Lessee shall be required to pay for the remainder of the
Lease Term only such portion of such rent as the number of square feet in the
part remaining after the condemnation bears to the number of square feet in the
entire Leased Premises at the date of condemnation; but in such event Lessor
shall have the option to terminate this Lease as of the date when title to the
part so condemned so vests in the condemnor. If all the Leased Premises be
taken or condemned, or such part thereof be taken or condemned so that there
does not remain a portion susceptible for occupation hereunder, this lease shall
thereupon terminate. If a part or all of the Leased Premises be taken or
condemned, all compensation awarded upon such condemnation or taking shall go to
the Lessor and the Lessee shall have no claim thereto, and the Lessee hereby
irrevocably assigns and transfers to the Lessor any right to compensation or
damages to which the Lessee may be entitled during the term hereof by reason of
the condemnation of all, or a part of the Leased Premises.
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29. SURRENDER OF LEASE NOT A MERGER.
29.1 The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases, and/or subtenancies, or may, at
the option of Lessor, operate as an assignment to it of any or all of such
subleases or subtenancies.
30. ESTOPPEL CERTIFICATE.
30.1 Lessee shall at any time during the term of this Lease upon not less
than five (5) days written notice from the Lessor, or upon sale, assignment, or
hypothecation of the Leased Premises and/or the land thereunder by Lessor,
execute and deliver to Lessor a statement in writing executed in recordable
form, similar to the form attached hereto as Exhibit "D", certifying that this
Lease has not been modified, amended, or superseded and is in full force and
effect (or if modified, amended, or superseded, stating the nature of same) and
the date on which rent commenced and to which the rent and other charges are
paid in advance, if any, and acknowledging that there are not to Lessee's
knowledge any uncured defaults on the part of Lessor hereunder or specifying
such defaults if they are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Leased Premises.
Lessee's failure to deliver such statement within such time shall be conclusive
upon the Lessee that (a) this Lease is in full force and effect, without
modification except as may be represented by Lessor; (b) there are no uncured
defaults in Lessor's performance; (c) not more than one month's rent has been
paid in advance; (d) all work has been completed by Lessor and the work ad
Leased Premises are accepted as satisfactory; (e) Lessee is in full and complete
possession; (f) Lessee has received no notice of any sale, transfer, pledge or
assignment of the Lease or of rentals except as may be represented by Lessor;
(g) Lessee has not advanced any amounts to or on behalf of Lessor under the
Lease for which advance Lessee has not been reimbursed; (h) Lessee holds no
claim against Lessor which might be set off against accruing rentals.
31. GENERAL PROVISIONS.
31.1 Lessor's Liability. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or interest in a
ground lease of the Leased Premises, and except as expressly herein provided, in
the event of any transfer of such title or interest, Lessor herein named (and in
case of any subsequent transfers the then grantor) shall be relieved from and
after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
31.2 Any provision of this Lease determined to be invalid by a court of
competent jurisdiction shall in no way affect any other provision hereof.
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31.3 Except as expressly herein provided, any amount due from Lessee not
paid when due or any past due obligation of Lessee paid by Lessor, shall bear
interest at ten percent (10%) per annum from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease.
31.4 Time is of the essence.
31.5 Article and paragraph captions are not a part hereof.
31.6 This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. It may be modified in writing only, signed by
the parties in interest at the time of the modification.
31.7 Notices. Any notice required or permitted to be given hereunder shall
be in writing and may be served personally or by regular mail, addressed to
Lessor and Lessee, respectively, at the addresses set forth adjacent to their
signatures at the end of this Lease. Mailed notices shall date from the date of
mailing.
31.8 Waiver. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee.
31.9 Holding Over. If Lessee remains in possession of the Leased Premises
or any part thereof after the expiration of the term hereof without the express
written consent of Lessor, such occupancy shall be a tenancy on a month to month
basis at a rental equal to one hundred and fifty percent (150%) of all monthly
sums charged and owing during the previous thirty (30) day period.
31.10 Binding Effect. Subject to any provisions hereof restricting
assignment or subletting by Lessee, this Lease shall bind the parties, their
personal representatives, successors and assigns; it shall be governed by the
laws of the State of California.
31.11 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies in law or equity.
31.12 Covenants and Conditions. Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.
31.13 Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Leased Premises are a part
and to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
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Notwithstanding the foregoing, Lessee's obligation to subordinate its interest
in the Lease to any future ground lease or security shall be conditional upon
the agreement of the holder of such senior instrument that Lessee's right to
quiet possession of the Leased Premises shall not be disturbed if Lessee is not
in default and so long as Lessee shall pay the rent and observe and perform all
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor, shall elect to have this
Lease prior to the lien of its mortgage, deed of trust, or ground lease, and
shall give written notice thereof to Lessee, this Lease shall be deemed prior to
such mortgage, deed of trust or ground lease, whether this Lease is dated prior
or subsequent to the date of said mortgage, deed of trust or ground lease, or
the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate such
subordination or to make this Lease prior to the lien of any ground lease,
mortgage or deed of trust, as the case may be, and failing to do so within ten
(10) days after written demand, does hereby make, constitute and irrevocably
appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and
stead, to do so.
31.14 Miscellaneous. The words "Lessor" and "Lessee" as used herein shall
include the plural as well as the singular. If there be more than one Lessee,
the obligations hereunder imposed upon Lessee shall be joint and several.
32. RULES AND REGULATIONS.
32.1 The Rules and Regulations set forth in Exhibit "C" attached hereto are
hereby incorporated herein. Lessee agrees to conform to such Rules and
Regulations as well as to any amendments or additions thereto from time to time
made by Lessor and of which Lessee is given not less than ten (10) days' written
notice.
33. DRAPERIES.
33.1 Lessor shall select a standard window covering and color for use
throughout the building(s) and Lessee shall use this standard materials for any
windows which shall be covered.
34. NO OPTION.
34.1 The submission of this Lease for examination does not constitute a
reservation of or option for the Leased Premises and this Lease becomes
effective as a Lease only upon execution and delivery thereof by lessor and
Lessee.
35. CORPORATE AUTHORITY.
35.1 If Lessee is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that the is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of
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said corporation, or in accordance with the Bylaws of said corporation, and that
this Lease is binding upon said corporation in accordance with its terms. If
Lessee is a corporation, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor a certified copy of the resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.
36. SPECIAL PROVISIONS.
36.1 Special provisions of this Lease numbered -46- through -47- are
attached hereto and made a part hereof.
37. OPERATING EXPENSES.
37.1 Lessee agrees to pay Lessor upon demand during the term of this Lease
and subject to the limitations as hereinafter set forth, in addition to the
rentals specified in Section 5 and 38 hereof, as further additional rent, a
proportion of all operating expenses, hereinafter defined, and occurring within
the area as shown on the attached Exhibit "B". Said proportion under this
Lease, Lessor and Lessee hereby agree shall be 15.2% of all operating costs.
37.2 Said proportionate share of operating expenses shall be paid to
lessor, or Lessor's agent (a) upon presentation of invoice from Lessor or
Lessor's agent setting forth such pro rata share of said operating expenses
and/or (b) at the option of Lessor, paid to Lessor monthly, in advance, Lessee's
pro rata share of an amount estimated by Lessor to be Lessor's approximate
monthly expenditure for such operating expenses, which estimated amount shall be
reconciled at the end of each calendar year as compared with Lessor's actual
expenditure for said operating expenses, with Lessee paying to Lessor, upon
demand, any amount of actual expenses expended by Lessor in excess of said
estimated amount, or Lessor refunding to Lessee any amount of estimated payments
made by Lessee in excess of Lessor's actual expenditures for said operating
expenses. It is understood and agreed that Lessee's obligation under this
paragraph will be prorated to reflect the commencement and termination dates of
this Lease.
37.3 For purposes of this Section 37, "operating expenses" shall mean the
total cost and expense incurred in operating and maintaining the building(s) of
which the Leased Premises are a part, and adjacent Common Area actually used, or
available for use, by Lessee and employees, agents, servants, customers and
other invitees of Lessee, specifically including without limitation: (a)
gardening and landscaping; (b) costs of public liability and property damage
insurance including extended coverage, earthquake and flood insurance, and such
other endorsements covering hazards normally insured by commercial property
owners; (c) repairs; (d) line painting; (e) lighting; (f) signing; (g) sanitary
control; (h) supplies; (i) removal of trash, rubbish, garbage and other refuse;
(j) security structures or added to the common areas due to governmental
requirements amortized over a reasonable period with interest at ten percent
(10%) per annum on the unamortized cost; (m) management; (n) bookkeeping; (o)
the costs of personnel to implement such services and to direct parking and
otherwise regulate, maintain and repair the building(s) and the common
facilities; (p) utilities; (q) janitorial, heating, ventilating and air
conditioning services; (r) increased interest expense caused by rate increases
on Lessor's debt service; (s) wages, salaries, fringe benefits and
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payroll burden of employees; (t) project office rent or rental value; (u)
depreciation on personal property; and (v) the cost of capital improvements to
the building or common areas anticipated to reduce other operating costs.
"Common facilities" shall mean all areas, spaces, equipment and special services
provided by Lessor for the common or joint use or benefit of the occupants of
the buildings, their employees, agents and customers, including without
limitation, parking areas, driveways, landscaped areas, sidewalks, restrooms,
retaining walls, etc.
38. COST OF LIVING RENTAL ADJUSTMENT.
38.1 Fixed minimum annual rent under Section 5 of this Lease shall be
subject to adjustment upwards only at the end of each one-year period of the
lease term hereof following the 1st lease year including option periods, if any.
For the first month of the 2nd year, as determined by Section 3.1 of this Lease,
and the first month of every year thereafter for the duration of this Lease, the
monthly rental for the ensuing twelve (12) months shall be adjusted upward only
in the same percentage proportion that the revised Consumers Price Index for
Pacific Cities and U.S. City Average All Items (1982-84 - 100) for the San
Francisco-Oakland-San Jose metropolitan area, as published by the U.S.
Department of Labor, Bureau of Labor Statistics, shall increase over the price
index for the month nearest to the month in which this Lease is dated. The rent
so adjusted shall be the base rent for the one-year period commencing with the
date on which said rent is to be adjusted as herein provided.
38.2 If for any reason there is a change of any kind in the method of
calculation or formulation of such Consumers Price Index then the Lessor and
Lessee shall mutually select such other Commodity Index which is satisfactory to
both.
39. LESSOR'S SCOPE OF WORK.
39.1 Attached hereto as Exhibit "F" and by this reference made a part
hereof, is a shop drawing of the Leased Premises with notations indicating the
finishing work to be performed by Lessor to render the space suitable for
Lessee's occupancy. Said drawing is to be approved, signed, and returned to
Lessor by Lessee on or before December 15, 1993, whereupon said work shall
commence and be completed in substantial compliance with the requirements of
said Exhibit and in a good and workmanlike manner on or before January 1, 1994
subject only to delays occasioned by fire, earthquake, or other acts of God,
strike lockout, permits, insurrection, war and other causes beyond the control
of Lessor, in which event the provisions of Section 4 herein shall apply.
40. POSSESSION DEFINED.
40.1 In the event that at the date of execution of this Lease, construction
of the Leased Premises, or of leasehold improvements to be made therein by
Lessor, has not been completed, then the phrase "delivery of possession of the
Leased Premises," as used in paragraph 4.1 hereof, means upon written
certification by Lessor's agent that all such construction to be undertaken by
Lessor has been substantially completed, subject to punch list items, which
certification shall be binding upon and shall not be impeached by either Lessor
or Lessee.
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41. PARKING AND UTILITY CHARGES.
41.1 Lessee agrees to pay as additional rent to Lessor, upon demand, its
pro rata share, as may be reasonably established by Lessor, of any parking
charges, surcharges or any other costs levied or assessed by local, state or
federal governmental agencies, or public utility, in connection with the use of
the parking facilities or utilities serving the Leased Premises.
42. NO LIGHT, AIR OR VIEW EASEMENT.
42.1 Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Leased Premises shall in no way
affect this Lease or impose any liability on Lessor.
43. LIMITATIONS OF LESSOR'S LIABILITY
43.1 Lessor shall not be responsible for or liable to Lessee and Lessee
hereby waives all claims against Lessor for any injury, loss or damage to any
person or property in or about the Leased Premises by or from any cause
whatsoever (other than Lessor's gross negligence or willful misconduct)
including, without limitation, acts or omissions of persons occupying adjoining
premises or any part of the building adjacent to or connected with the Leased
Premises; theft; burst, stopped or leaking water, gas, sewer or steam pipes; or
gas, fire, oil or electricity in, on or about the Leased Premises or the
building of which they are a part. The liability of Lessor under this Lease
shall be and is hereby limited to Lessor's interest in the building, and no
other assets of Lessor shall be affected by reason of any liability which Lessor
may have to Lessee or to any other person by reason of this Lease.
44. BROKERAGE COMMISSIONS.
Lessee represents and warrants that it has dealt with no broker, agent or
other person in connection with this transaction other than Commerce Communities
Corp. and Lessee agrees to indemnify and hold Lessor harmless from and against
any claims by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Lessee with regard to
this leasing transaction. The provisions of this paragraph shall service the
termination of this lease.
45. HAZARDOUS SUBSTANCES.
Without Lessor's advance written consent, Lessee shall not bring, use or
permit upon the Leased Premises, temporarily or otherwise, or generate at, or
emit any toxic or hazardous substances, including, without limitation,
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or identified in any statute or regulation of
the state of California dealing with hazardous wastes as the same may be amended
from time to time. Notwithstanding Lessor's consent, Lessee shall comply, at its
sole cost, with all laws pertaining to, and shall indemnify and hold Lessor
harmless from any claims, liabilities, costs or expenses incurred
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or suffered by lessor arising from such bringing, using, permitting, generating,
or emitting or disposing. Lessee's indemnification and hold harmless
obligations include, without limitation, (i) claims, liability, costs or expense
resulting from or based upon administrative, judicial (civil or criminal) action
brought by any private or public person under common law or under any Federal,
State, County or Municipal law, ordinance or regulation, (ii) claims,
liabilities, costs or expenses pertaining to the cleanup or containment of
wastes, the identification of the pollutants or the waste, the identification of
scope of any environmental contamination, the removal of pollutants from soils,
riverbeds or aquifers, the provision of an alternative public drinking water
source, or the long-term monitoring of ground water and surface water, and (iii)
all costs of defending such claims.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission to
your attorney for approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal
sufficiency, legal effect or tax consequences of this Lease or the
transaction relating thereto.
SUN LIFE ASSURANCE CO. OF CANADA
Date Company
Lessor's Address By
c/o Commerce Communities Corp.
2316 Walsh Avenue By
Santa Clara, CA 95051
"Lessor"
APPLIED IMAGING CORP.
Company
Date 1/26/94
Lessee's Address By /s/ Neil E. Woodruff
2380 Walsh Avenue
Santa Clara, CA 95051 By
"Lessee"
46. Anything contained in the Lease paragraph 39.1 or shown on Exhibit "F" to
the contrary notwithstanding, Lessor and Lessee hereby agree that the total cost
of interior work, for the benefit of Lessee, to be borne by Lessor within the
Leased Premises including, without limitation, all drawings, permits and fees,
shall not exceed the sum of Sixteen Thousand and No/100 Dollars ($16,000). Any
and all costs in excess of this sum necessary for the completion of work within
the Leased Premises
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shall be borne solely at the expense of Lessee and shall be paid promptly on
demand, evidenced by appropriate invoices, to Lessor.
47. Lessor hereby grants to Lessee at any time following the completion of the
second lease year of the Lease, and upon ninety (90) days advance written notice
or same having been provided to Lessor by Lessee, the right to terminate this
Lease under the following condition: (1) Lessee shall remit to Lessor all
unamortized tenant improvement costs, brokerage commission and discounted rent.
The discounted rent is valued at Forty-One Thousand, Four and No/100 Dollars
($41,004.00).
EXHIBIT "A"
[Floor plan of building space at 2380 Walsh Avenue, Santa Clara, CA]
EXHIBIT "B"
[Floor plan of building space at 2380 Walsh Avenue, Santa Clara, CA]
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EXHIBIT "C"
Rules and Regulations
A. LESSEE AGREES AS FOLLOWS:
1. All garbage and refuse shall be kept in the kind of container
specified by Lessor, and shall be placed under compaction with all boxes broken
open outside of the premises, in those areas prepared for collection, in the
manner and at the times and places specified by Lessor.
2. No aerial shall be erected on the roof or exterior walls of the
premises, or on the ground without, in each instance, the written consent of the
Lessor. Any aerial so installed without such written consent shall be subject
removal without notice.
3. No loudspeakers, televisions, phonographs, radios or other devices
shall be used in such a manner as to be heard or seen outside of the premises
without the prior written consent of the Lessor.
4. The outside areas immediately adjoining the premises shall be kept
clean and free from dirt and rubbish by the lessee to the satisfaction of the
Lessor, and the Lessee shall not place or permit any obstruction or material in
such area. If outside areas are not so maintained within 12 hours verbal notice
of same, Lessee agrees to pay a fee of $25.00 for each such infraction to cover
this cost.
5. Lessee and Lessee's employees shall park only the number of cars
approved and only in those portions of the parking area designed for that
purpose by Lessor, and shall not block access ways and shall not cause the
Leased Premises to be occupied by employees or agents in excess of one person
per 125 sq. ft. of leased area.
6. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substances of any kind shall
be thrown therein. The expense of any breakage, stoppage, or damage resulting
from a violation of this provision shall be borne by Lessee, who shall, or whose
employees, agents or invitees shall have caused it.
7. Lessee shall use at Lessee's cost such pest extermination contractor
as Lessor may direct and at such intervals as Lessor may require.
8. Lessee shall not burn any trash or garbage of any kind in or about the
Leased Premises.
9. The Lessee will protect carpeting from undue wear by providing carpet
protectors under chairs with casters, and provide protective covering in
carpeted areas where spillage or excessive wear may occur.
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<PAGE>
10. Tenants in air conditioned office space shall keep entry doors opening
into corridors, lobby or courtyard closed at all times.
11. Lessee shall be responsible for repair of any damage occasioned by the
moving of freight, furniture, or other objects into, within, or out of the
building. No heavy objects of any nature shall be placed upon any floor without
Lessor's prior written approval as to the adequacy of the allowable floor
loading at the point where the objects are intended to be moved or stored.
Lessor may specify the time of moving to minimize inconvenience to other
lessees, if any.
12. No drapes or sunscreens of any nature shall be installed without
Lessor's prior written approval. The sash doors, sashes, windows, glass doors,
lights and skylights that reflect or admit light into the building shall not be
covered or obstructed. Waste and excessive or unusual use of water shall not be
allowed. Lessee shall not mark, drive nails, screw or drill into, paint, or in
any way deface any surface or part of the building except that Lessee may hang
pictures, blackboards, or similar objects, providing that prior to end of the
term, Lessee shall restore the premises to its condition at the commencement of
the term, less reasonable wear and tear. The expense of repairing any breakage,
stoppage, or damage resulting from a violation of this rule shall be borne by
the Lessee who has caused such breakage, stoppage or damage.
13. No additional lock or locks shall be placed or changed by Lessee on
any door unless written consent of Lessor shall first have been obtained. Two
keys will be furnished by Lessor. All keys shall be surrendered to Lessor upon
termination or expiration of the lease term.
14. If Lessor supplies janitorial services, Lessee shall not, without
Lessor's prior consent, employ any person or persons, other than the janitor of
Lessor, for the purposes of cleaning the Leased Premises. Lessor shall not be
responsible for the loss of property from the Leased Premises, however
occurring, or for any damage to any Lessee occasioned by any of Lessor's
employees or subcontractors or by any other person.
15. No materials, supplies, equipment, finished products, or semi-finished
products, raw materials, or articles of any nature shall be stored or permitted
to remain on any portion of the Leased Premises outside of the building
constructed thereon, except with the prior written consent of the Lessor.
B. Lessor reserves the right from time to time to amend or supplement the
foregoing rules and regulations applicable to the Leased Premises. Notice of
such rules and regulations and amendments and supplements thereto, if any, shall
be given to the Lessee.
C. Lessee agrees to comply with all such rules and regulations upon notice to
Lessee from Lessor, provided that such rules and regulations shall apply
uniformly to all Lessees of the business center.
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<PAGE>
EXHIBIT "D"
TO:
_____ Mortgagee _____ Purchaser _____ Landlord _____ Other (Check one)
RE: LESSOR:
LESSEE:
Lease dated
premises known as
and/or as shown in Exhibit A.
Gentlemen:
I/we do hereby certify to you or your nominee that the leased premises and
my/our obligations with respect to same are as follows:
and has been paid to
Rental commenced on
(day) (month) (year)
(day) (month) (year)
Security deposit amounts to $
The current stated monthly rental amounts to $
Conditional rent obligations consist of:
_____ 1. Increase and/or pro rata of all taxes.
_____ 2. Increase and/or pro rata of all common area costs.
_____ 3. Increase and/or pro rata of utility expenses.
_____ 4. Cost of living index rental adjustment.
_____ 5. Other
This lease has not been modified, amended, or superseded (except as provided
below); is in full force and effect and I/we are in full and complete possession
of the premises.
All work required by Lessor has been completed and such work together with the
premises has been accepted as satisfactory.
There are not to my/our knowledge any uncured defaults on the part of Lessor.
I/we have received no notice of any sale, transfer, pledge or assignment of this
lease or rental by Lessor (except as provided below).
I/we have not advanced any amounts to or on behalf of Lessor under this lease
for which advance I/we have not been reimbursed and I/we hold no claim against
Lessor which might be set off against accruing rentals.
This certificate remains effective for a period of thirty (30) days from the
date hereof.
Date:__________________ __________________ Lessee
By (Seal)
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<PAGE>
EXHIBIT "E"
I. SIGN CRITERIA
These criteria have been established for the purpose of assuring an
outstanding industrial complex and for the mutual benefits of all tenants.
Conformance will be strictly enforced, and any installed non-conforming or
unapproved signs must be brought into conformance at the expense of Lessee.
A. GENERAL REQUIREMENTS
1. The Lessee shall submit a sketch of his proposed sign to the
Lessor for approval.
2. All signs shall be constructed and installed at Lessee's expense.
3. Lessee shall be responsible for the fulfillment of all
requirements of these criteria.
B. GENERAL SPECIFICATIONS
1. No electrical or audible signs will be permitted.
2. Sign dimensions will approximate the dimensions indicated on the
drawing attached.
3. Sign copy will be restricted to company name and logo only.
4. The style, color and size of the individual company name may
vary.
5. The sign must have a size, shape, composition, design and color
specified by city ordinance and by Lessor, generally in keeping
with the approved sign drawing attached.
6. Placement of the sign and method of attachment to the building
will be directed by the Lessor.
7. Upon the removal of any sign, any damage to the building must be
repaired by the Lessee.
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<PAGE>
EXHIBIT "F"
APPLIED IMAGING CORP.
2380 WALSH AVENUE
SANTA CLARA CA 95051
Lessor agrees to make the following improvements
at Lessor's expense:
INITIALS:
---------
1. Remove wall shown on Exhibit "F", highlighted in blue.
2. Install four (4) new windows shown on Exhibit "F", at
Points "A". LESSOR:____
3. Install new walls and one (1) door shown on Exhibit "F"
in red ink. LESSEE:____
4. Remove carpet and refurnish tile in room labelled "Lab".
5. Install carpet in two (2) new offices shown on Exhibit "F"
hatchmarked in blue. DATE:______
6. Walk thru. Paint rear wall manufacturing area.
[no address]
[Floor plan of building space]
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<PAGE>
EXHIBIT 10.9(a)
DATED 12th June 1992
---------------------
ENGLISH INDUSTRIAL ESTATES CORPORATION
--------------------------------------
- to -
APPLIED IMAGING INTERNATIONAL LIMITED
--------------------------------------
L E A S E
----------
of the Hi-tech/office Unit Number BT.2003/1A at
Hylton Park Sunderland Tyne and Wear
TERM: Twelve years
FROM: 12/6/92
RACK RENT: 39,958 Pounds
(Subject to Revision)
Wilkinson Maughan,
Solicitors
Newcastle upon Tyne NEI 1XX
2093H
<PAGE>
English Industrial Estates Corporation
Table of Contents
Clause 1. Interpretation
--------------
2. Demise
------
2.1 The demised premises
2.2 Exceptions and reservations
2.3 Term
2.4 Rents
3. Tenant's covenants
------------------
3.1 Payment of rent
3.2 Value Added Tax
3.3 Payment of taxes etc.
3.4 Compliance with statute
3.5 Repair of the demised premises
3.6 Repair of fixtures
3.7 Landlord's inspection
3.8 Interior painting
3.9 Landlord's right to repair etc.
3.10 Parking of vehicles
3.11 Disposal of rubbish
3.12 Making and restoration of alterations
3.13 Planning
3.14 Loading of premises
3.15 Drainage and effluents
3.16 Entry by neighbours
3.17 Clean air provisions
3.18 Advertising
3.19 user
3.20 Loading etc. of vehicles on the Common Parts
3.21 Avoidance of insurance
3.22 Auctions etc.
3.23 Assignment, underletting etc.
3.24 Appointment of receiver or administrative receiver
3.25 Re-letting
3.26 Payment of Landlord's costs
3.27 Registration of dispositions etc.
3.28 Notice of destruction or damage
3.29 Indemnities
3.30 New easements
3.31 Access of light
3.32 Installation of duct
4. Landlord's covenants
--------------------
4.l Quiet enjoyment
4.2 Insurance
4.3 Reinstatement on destruction or damage
4.4 Repair of the Building
4.5 Exterior painting
4.6 Maintenance of the Common Parts
4.7 Provision of the Part A Services
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<PAGE>
5. Provisos and declarations
-------------------------
5.l Power of re-entry
5.2 Cesser of rent
5.3 Disputes as to rent cesser
5.4 Termination if premises substantially unfit
5.5 Obstruction of light or air
5.6 No warranty as to planning consent
5.7 Limit on waiver by acceptance of rent
5.8 Part B Services
5.9 Limitation of liability under clause 4.6 and for
services
5.10 Landlord's liability excluded
5.11 Service of notices
5.12 Exclusion of statutory compensation
5.13 Tenant's goods left in demised premises
5.14 Disputes between tenants
6. Break Clause
------------
7. Rack Rent review
----------------
7.1 Amount of revised Rack Rent
7.2 Current annual market value
7.3 Determination by expert
7.4 Existing Rack Rent payable until revised Rack Rent
determined
7.5 Memorandum of rent review
8. Guarantor's covenants
---------------------
8.1 Tenant to pay rent and observe covenants -
Guarantor to make good loss
8.2 Guarantor to take new lease upon disclaimer of
this lease
8.3 Provisos
8.4 Rent review memorandum
First Schedule
--------------
Review of Maintenance Rent
Second Schedule
---------------
Review of Service Rent
Third Schedule
--------------
Part A Services
Part B Services
Fourth Schedule
---------------
Fixtures and Fittings
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<PAGE>
THIS LEASE made the [Twelfth] day of [June]
One thousand nine hundred and ninety two
B E T W E E N
- -------------
(1) ENGLISH INDUSTRIAL ESTATES CORPORATION whose principal office is
---------------------------------------
situate at Team Valley Gateshead in the County of Tyne and Wear (hereinafter
called "the Landlord") and
(2) APPLIED IMAGING INTERNATIONAL LIMITED whose registered office is 720
-------------------------------------
Birchwood Boulevard Birchwood Warrington in the County of Cheshire WA3 7PX
(hereinafter called "the Tenant")
WITNESSETH in consideration of the rents hereinafter reserved and of the
- ----------
covenants by the Tenant herein contained
AND IT IS HEREBY DECLARED as follows:
- ------------------------
1. Interpretation
- ------------------------
1.l IN this Lease unless there be something in the context inconsistent
therewith
"the Development" means the Landlord's hi-tech office development known as
BT.2003 Hylton Park Sunderland Tyne and Wear
"the Building" means the Landlord's hi-tech office building known as Unit
BT.2003/1 at the Development and includes all variations
and additions thereto made during the term hereby created
and the curtilage thereof
"the Building means the insurance of the Building with an insurer of good
Insurance" repute with all variations and additions thereto made
during the term hereby created and the Landlord's
fixtures and fittings
-3-
<PAGE>
therein against loss or damage by fire and by storm and
tempest and such other insurable risks as the Landlord
shall from time to time consider necessary and have
notified to the Tenant so far as covered by the special
conditions of the relevant extension to the Landlord's
standard fire insurance policy in such a sum as the
Landlord (whose decision shall be final) shall
determine as being the full reinstatement cost
(including site clearance and demolition costs) for the
time being of the Building and fixtures and fittings
(including provision for professional fees)
"the Common Parts" mean all parts of the Development which are used or
enjoyed in common by the Landlord its tenants or other
the occupiers of the Development or persons authorised
by it or are subject to party rights in favour of an
owner or owners of land forming part of the Development
and includes all roads footpaths passageways car parks
street lamps road signs walls gates fences drains
sewers watercourses conduits channels pipes wires
cables pedestrian
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<PAGE>
ways concourses circulation areas entrance halls
passages landings staircases lifts lavatories toilets
washing facilities gardens planted areas forecourts and
other ways or accesses in or about the Development
which are so used enjoyed or subject
"the Demised means all that part of the Building known as Unit
Premises" No.BT.2003/1A together with the Landlord's fixtures and
fittings therein as the same is more particularly
delineated on the Plan and thereon coloured red and
includes:
(A) The doors and windows thereof the frames
thereof and the glass therein
(B) The internal finishes of the walls but not
main structure thereof
(C) The floor above the level of the screed or
main joists as the case may be
(D) The surface finish of solid ceilings and all
parts of the ceiling below the main joists
as the case may be
"the Inventory of means the inventory of the Landlord's fixtures and fittings
Fixtures and in the Demised
Fittings"
-5-
<PAGE>
Premises as set out in the Fourth Schedule hereto
"the Landlord" shall include the reversioner and others for the time
being entitled to receive the rents hereby reserved
"the Maintenance Rent" means the yearly rent ascertained under the provisions
of the First Schedule and payable in consideration of
the obligations undertaken by the Landlord in clauses
4.4 4.5 and 4.6
"the Parking Space" the space coloured blue on the Plan
"the Part A Services" means the services specified in Part A of the Third
Schedule which the Landlord covenants to provide under
clause 4.7
"the Part B Services" means the services specified in Part B
of the Third Schedule to which the provisions of clause
5.8 apply
"the Plan" means the plan annexed hereto
"the Planning Laws" means every law for the time being in force in England
and Wales and (in the case of any law applied to
particular localities) having application to the
locality of the premises hereby demised in relation to
town and country planning and development control
including the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act
1990 the
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<PAGE>
Planning (Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 and the Planning
and Compensation Act 1991
"the Quarter Days" means the 31st March 30th June 30th September and 31st
December in each year
"the Rack Rent" means the clear yearly rent for the time being payable
under clauses 2.4.1.1 and 2.4.1.2
"the Rental Insurance" means the insurance against the loss to the Landlord
resulting from loss of rent for the Building arising
out of damage covered by the Building Insurance limited
in the aggregate amount of two years Rack Rent two
years Maintenance Rent and two years Service Rent (the
Landlord's estimate of which shall be such reasonable
sum having regard to the likely period required for
reinstatement)
"the Revision Date" means successively
(a) the third anniversary of the Term Commencement
Date and every third anniversary thereof occurring
prior to the Term Penultimate Date and
(b) The Term Penultimate Date
"the First Revision" means the third anniversary of the Term Commencement
Date" Date
-7-
<PAGE>
"the Said Term" means the term hereby created and includes (if such
occurs) the period of any extension thereof by statute
or at common law or of any holding over
"the Service Rent" means the yearly rent reserved under clause 2,4,3
payable in consideration of
(A) the obligations undertaken by the Landlord in
Clauses 4.2 and 4.7 and
(B) the provision by the Landlord of any of the
Part B Services which is subject to review
under the provisions of the Second Schedule
"the Tenant" shall include those deriving title under the Tenant
"Term Commencement means the date specified in Clause 2.3 from and
Date" including the date on which the Said Term commences
"Term Penultimate means the day preceding that on which the Said Term
Date" would expire by effluxion of time if not extended or
continued by contract or statute
1.2 Unless otherwise specifically stated a reference in this Lease to a
Schedule or to any clause or paragraph therein means that Schedule to
or clause of this Lease or paragraph in such Schedule
1.3 Headnotes and sidenotes in this Lease appear for ease of reference
only and shall not affect its construction
-8-
<PAGE>
1.4 Words importing the singular number only shall include the plural
number and vice versa and where there are two or more persons included
in the expressions "the Tenant" or (if applicable) "the Guarantor"
covenants contained in this Lease which are expressed to be made by
the Tenant or the Guarantor respectively shall be deemed to be made by
such persons jointly and severally
1.5 Words importing the masculine gender only shall include the feminine
and neuter genders and vice versa
1.6 Words importing persons shall include corporations and vice versa
1.7 References to any Act of Parliament include references to any
statutory modification or re-enactment thereof for the time being in
force and any order instrument regulation or bye-law made or issued
thereunder
1.8 This lease is a deed
2. Demise
- ------------------------
2.l THE Landlord hereby demises unto the Tenant:-
2.1.1 FIRST ALL the Demised Premises and
2.1.2 SECONDLY the right for the Tenant his servants and
agents and persons authorised by him to the exclusive use of
the Parking Space for the purpose of parking private motor
vehicles in connection only with the use of the Demises
Premises TOGETHER WITH full and free right and liberty for
the Tenant in common with the Landlord and all other persons
authorised by it:
2.l.3 To pass and repass over and along the Common Parts on
foot to the Demised Premises and on
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<PAGE>
foot and with or without motor vehicles to the Parking Space
and to the car park generally and to use any lifts included
in the Building during the Working Hours for all purposes
connected with the use and enjoyment of the Demised Premises
and the Parking Space
2.1.4 To park not more than twenty six private motor vehicles
(or such increased number as the Landlord may from time to
time by written notice to the Tenant stipulate) on the
Parking Space and in connection only with the Tenant's user
of the Demised Premises
2.1.5 to the free and uninterrupted passage and running of
water soil gas air electricity and telephone and any other
service or supply (subject to any necessary temporary
interruption for repair maintenance alteration or
replacement) from and to the Demised Premises through the
sewers drains watercourses cables pipes ducts and wires
which now are or may at any time hereafter be in under or
passing through the Building or any part or parts thereof so
far as the same may be necessary for the proper use and
enjoyment of the Demised Premises
2.l.6 to subjacent and lateral support and to shelter and
protection of the Demised Premises from the other parts of
the Building
-10-
<PAGE>
2.1.7 to instal and maintain a duct for communication cables
under the ground in the position marked by a green line on
the plan together with a right of access to and egress from
the said duct for the purposes of installing maintaining and
repairing the same
2.1.8 a right of way at all times for all purposes over and
across the area of land coloured brown on the plan for the
purpose of access to and egress from the building edged red
on the plan
2.2 EXCEPTING AND RESERVING
2.2.1 Unto the Landlord free and uninterrupted passage and
running of water soil gas air electricity and telephone or
any other service or supply from the other parts of the
Building through the sewers drains watercourses conduits
cables pipes ducts and wires which are now or may hereafter
during the Said Term be in or over or under the Demised
Premises and
2.2.2 Unto the Landlord the support and protection from the
Demised Premises enjoyed by the remainder of the Building
2.2.3 Unto the owner or owners thereof the mines and minerals
within and under the Building with such powers of winning
working and carrying away the same as have heretofore been
excepted and reserved
2.3 TO HOLD (except and reserved as aforesaid) unto the Tenant for the
-------
term of
twelve years from and including
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<PAGE>
the [Twelfth] day of [June] One thousand nine hundred and ninety two
2.4 YIELDING AND PAYING during the Said Term the following rents viz:
-------------------
2.4.1 The Rack Rent as follows:-
2.4.1.1 From and including the Term Commencement Date
until the First Revision Date the clear yearly
rent of thirty nine thousand nine hundred and
fifty eight pounds (39,958 pounds) exclusive of
Value Added Tax
2.4.1.2 Thereafter during each successive period of the
Said Term commencing on the First Revision Date
and each subsequent Revision Date and ending on
the Revision Date which respectively next occurs
such revised clear yearly rent as may be
determined under clause 6
2.4.2 As a further rent the Maintenance Rent of an amount
ascertained under the First Schedule hereto to be paid by
equal quarterly payments in advance on the Quarter Days the
first payment (for the period from the Term Commencement
Date to the Quarter Day next falling due after the date
hereof and calculated by multiplying the basic rate
specified in the First Schedule hereto by the fraction of
which the numerator is the number of days between the Term
Commencement Date and the said Quarter Day both included and
the
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<PAGE>
denominator is 365) to be made on the completion of this
Lease
2.4.3 As a further rent the Service Rent being a sum equal to the
Tenant's Proportionate Charge as ascertained under the
provisions of the Second Schedule or such other annual sum
as pending the ascertainment of the Tenant's Proportionate
Charge the Landlord may specify under paragraph two of the
Second Schedule
2.4.4 The Rack Rent and the Service Rent shall be paid by equal
quarterly payments in advance on the Quarter Days the first
payment (for the period from the Term Commencement Date to
the Quarter Day next falling due after the date hereof and
calculated by multiplying (in the case of the Rack Rent) the
rent reserved under clause 2.4.1.1 and (in the case of the
Service Rent) the rent reserved under clause 2.4.3 by the
fraction of which the numerator is the number of days
between the Term Commencement Date and the said Quarter Day
both included and the denominator is 365) to be made on the
completion of this Lease
2.4.5 As a further rent (but without prejudice to any other right
remedy or power herein contained or otherwise available to
the Landlord) such sum or sums as shall represent interest
payable in accordance with clause 3.1.2 (as well after as
before judgment) or Value Added Tax (or any
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<PAGE>
tax of a similar nature that may be substituted for it or
levied in addition to it) and in either case payable on any
unpaid rents or other sum(s) payable by the Tenant hereunder
such additional rent to be paid without any deduction on
demand
each of such further rents to be recoverable by distress in the same
manner as rent in arrear
3. Tenant's covenants
- ----------------------------
THE Tenant hereby covenants with the Landlord in manner following
viz:-
3.1 Payment of rent
- -------------------------
3.1.1 To pay the rents hereby reserved at the times and in
manner aforesaid without any deductions except as required
by law to observe and perform the provisions herein
contained which are or ought on the part of the Tenant to be
observed and performed
3.1.2 If any rent further rent or other sum payable by the
Tenant hereunder shall be due but unpaid for fourteen days
to pay to the Landlord on demand interest at 3% above the
base lending rate from time to time of Barclays Bank PLC on
such outstanding amount from the due date until payment and
this covenant shall not prejudice any other right or remedy
of the Landlord for the recovery of the said rents or other
sums
3.1.3 If so required in writing by the Landlord to pay the
Rack Rent the Maintenance Rent and the
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<PAGE>
Service Rent by bankers order or credit transfer to any
bank and account in the United Kingdom that the Landlord may
from time to time nominate
3.2 Value Added Tax
- ---------------------------
To pay and indemnify the Landlord against Value Added Tax (or any tax
of a similar nature that may be substituted for it or levied in
addition to it) chargeable in respect of any of the rents or other
payments made paid or payable by the Tenant under any of the terms of
or in connection with this lease or in respect of any payment made by
the Landlord where the Tenant agrees in this lease to reimburse the
Landlord for such payment
3.3 Payment of taxes etc.
- ---------------------------------
To pay and discharge (or in the absence of direct assessment on the
Demised Premises to pay to the Landlord on demand a fair proportion to
be determined by the Surveyor for the time being of the Landlord whose
decision shall be binding upon the Tenant) all taxes rates assessments
duties charges levies outgoings and impositions whatsoever which now
are or during the Said Term shall be charged or imposed upon the
Demised Premises or any part thereof or upon the owner or occupiers
thereof by authority of Parliament or otherwise except
3.3.1 Any tax in respect of rents and other payments
hereunder other than Value Added Tax or other tax thereon
intended to be paid by the Tenant
-15-
<PAGE>
3.3.2 Any tax or levy in respect of the grant of and arising
solely by reason of the grant of this Lease (and not by
reason of the combined effect of the grant of this Lease and
of some act or omission of the Tenant)
3.3.3 Any tax or levy in respect of any dealing with the
reversion expectant on the Said Term not arising by reason
of some act or omission on the part of the Tenant
3.4 Compliance with statute
- -----------------------------------
3.4.l In all respects to comply with the provisions of any Act of Parliament
now or hereafter in force and the requirements of any competent
authority in respect of the Demised Premises or the occupation and
user thereof (including without prejudice to the generality of this
covenant any provision or requirement of or arising under the
Factories Act 1961 the Offices Shops and Railway Premises Act 1963 the
Fire Precautions Act 1971 and the Health and Safety at Work etc., Act
1974) and to indemnify the Landlord against all claims demands
expenses and liability in respect thereof and to pay all costs charges
and expenses incurred by the Landlord under or arising out of any such
provision or requirement
3.4.2 To provide to the Landlord on request all such information as to the
Tenant's use and
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<PAGE>
occupation of the Demised Premises as the Landlord may reasonably
require to enable the Landlord to comply with statutory requirements
affecting it or to enforce statutory rights against third parties
3.5 Repair of the demised premises
- ------------------------------------------
At all times during the Said Term to keep the Demised Premises in good
and substantial repair and condition (except damage covered by the
Building Insurance unless the whole or any part of the insurance
monies is irrecoverable by reason of any act or default of the Tenant
or his tenants or their respective employees agents or licensees) and
the same in such good and substantial repair (except as aforesaid) at
the expiration or sooner determination of the Said Term quietly to
yield up to the Landlord
3.6 Repair of fixtures
- ------------------------------
At all times during the Said Term,
3.6.1 To keep in good working order repair and condition all
machinery plant apparatus and fixtures including those
particulars whereof are set forth in the Inventory of
Fixtures and Fittings the property of the Landlord now or at
any time during the Said Term in or on the Demised Premises
(including installations fittings pipes and wires for the
supply of light heat or power but except tenants fixtures)
3.6.2 To replace or renew to the satisfaction of the Landlord
such of the same as may be or become
-17-
<PAGE>
broken lost worn out or cannot be so repaired as to
comply with the foregoing covenant and
3.6.3 At the expiration or sooner determination of the Said
Term to yield up to the Landlord the said machinery plant
apparatus and fixtures (including and except as aforesaid)
with any replacements or renewals as aforesaid in good
working order repair and condition
3.7 Landlord's inspection
- ---------------------------------
3.7.1 To permit the Landlord or its agents with or without
workmen and others at any time during the Said Term to enter
into and upon the Demised Premises or any part thereof for
the purposes of taking inventories of the Landlord's
fixtures therein and of viewing and examining the state and
condition of the Demised Premises
3.7.2 To repair and make good all defects or wants of repair
renewal or painting which shall be found upon such view and
for which the Tenant may be liable hereunder within one
month after a notice in writing to that effect shall be
given to the Tenant or left for him on the Demised Premises
3.8 Interior painting
- -----------------------------
In the sixth year of the Said Term and if so required by the Landlord
at the end or sooner determination thereof to paint all the inside
wood and metalwork of
-18-
<PAGE>
the Demised Premises and additions thereto so painted with at least
two coats of paint in a proper and workmanlike manner and (in the case
of painting carried out at the end or sooner determination of the Said
Term) to the approval of the Landlord as respects colour and quality
of materials and workmanship and to paper colourwash paint or apply
such other preservatives as the Landlord may approve to all other
parts of the Demised Premises and additions thereto
3.9 Landlord's right to repair etc.
- -------------------------------------------
3.9.1 That if the Tenant shall at any time make default in
the performance of any of the covenants herein contained for
or relating to the repair and painting of the Demised
Premises it shall be lawful for the Landlord (but without
prejudice to the right of re-entry under the clause
hereinafter contained) to enter upon the Demised Premises
and repair and paint the Demised Premises at the expense of
the Tenant in accordance with the said covenants and the
expenses of such repairs and painting shall be repaid by the
Tenant to the Landlord on demand
3.9.2 To pay to the Landlord on demand all expenditure
reasonably incurred by the Landlord in making good to those
parts of the Building which the Landlord hereinafter
covenants to repair or decorate any damage caused by the
-19-
<PAGE>
willful or negligent act or omission of the Tenant or his servants
3.10 Parking of vehicles
- --------------------------------
Not to use the Parking Space or any other part of the Car Park except
as a park for the stipulated number of motor vehicles of the Tenant or
his employees or of persons transacting business at the Demised
Premises
3.11 Disposal of rubbish
- -------------------------------
3.11.1 Not to form any refuse dump or rubbish or scrap heap in
or about the Building
3.11.2 Not less frequently than once a month to cause all
refuse rubbish and scrap which may have accumulated on the
Demised Premises to be removed therefrom
3.12 Making and restoration of alterations
- -------------------------------------------------
3.12.1 Not to make or to permit or suffer to be made any
structural addition or structural alteration to the Demised
Premises
3.12.2 Not to make or permit or suffer to be made any other
alteration or addition to the Demised Premises unless in
accordance with plans and specifications previously approved
in writing by the Landlord (such approval not to be
unreasonably withheld) save that the Tenant may install
alter and remove demountable partitioning in the Demised
Premises
3.12.3 Not to interfere with or by building or otherwise cause
access to any sewers drains
-20-
<PAGE>
watercourses conduits subways wires cables apparatus and
other works which now are or at any time hereafter may be in
through under or over the Demised Premises or any adjoining
or neighbouring premises to be or become more difficult than
the same now is
3.12.4 If the Tenant shall have made any addition or
alteration to the Demised Premises if so required by the
Landlord at the cost of the Tenant to restore reinstate and
make good the Demised Premises to the Landlord's reasonable
satisfaction during the six months preceding the expiration
of the Said Term or on its sooner determination to the
condition in which the same were prior to the making of such
addition or alteration and to pay to the Landlord any
reasonable expense incurred by it of and incidental to the
superintendence of such works
3.13 Planning
- --------------------
3.13.1 Not to carry out on the Demised Premises development of
any kind within the meaning of the Planning Laws nor to make
any change of use of the same for which planning permission
is required nor to make any application for planning
permission affecting the Demised Premises nor to implement
any such permission
3.13.2 To supply the Landlord with a copy of any notice or
order or proposal for a notice or
-21-
<PAGE>
order affecting the Demised Premises served on the
Tenant by any competent authority immediately it is received
by the Tenant and if the Landlord so requires to make or
join in making such objections or representations against or
in respect of such notice or order as the Landlord may
reasonably require
3.14 Loading of Premises
- -------------------------------
Not to place any load or weight upon the floor or wall of the Demised
Premises in excess of the loading which such floor or wall is designed
to bear
3.15 Drainage and effluents
- ----------------------------------
Not to permit oil grease or other deleterious matter to enter the
drains and sewers of the Building
3.16 Entry by neighbours
- -------------------------------
To permit the Landlord or the occupiers of adjoining premises with
their Surveyors Agents and workmen at all reasonable times upon prior
notice except in the case of emergency to enter upon the Demised
Premises or any part thereof for the purpose of repairing extending or
altering any adjoining premises as occasion shall require or for the
purpose of making repairing maintaining rebuilding cleansing or
lighting and keeping in good order and condition the Common Parts and
for the purposes of laying down maintaining repairing and testing
sewers drains gas or water pipes and electric wires or cables or for
other similar purposes the Landlord or such persons as aforesaid
-22-
<PAGE>
making good any damage occasioned thereby to the Demised Premises and
causing as little inconvenience as may be possible
3.17 Clean air provisions
- --------------------------------
To comply with the provisions of the Clean Air Act 1956 with regard to
the use and installation of any plant or apparatus upon the Demised
Premises in which a smoke producing fuel is to be consumed
3.18 Advertising
- -----------------------
Not without the previous consent in writing of the Landlord to use the
Demised Premises for the purpose of advertising nor to display or
permit to be displayed thereon any advertisement poster notice or
nameplate and to remove and discontinue the use of any advertisement
poster or notice to which the Landlord may take objection
notwithstanding any previous consent thereto PROVIDED nevertheless
that the Tenant shall be entitled to affix at such points in the
Building as the Landlord stipulates boards plates or signs indicative
of the Tenant's name such boards plates or signs and the lettering
thereon to be of a size and type approved of in writing by the
Landlord
3.19 User
- ----------------
Not to use the Demised Premises or permit or suffer the same to be
used otherwise than for the purposes authorised by Class B1 of the
Town and Country Planning (Use Classes) Order 1987 but nothing herein
shall be deemed to authorise the Demised Premises to be used for
-23-
<PAGE>
a noxious or offensive trade or use and diligently and regularly to
carry on any authorised trade or use in a normal and proper manner so
as to prevent such authorised trade or use causing in the opinion of
the Landlord any nuisance annoyance or inconvenience to the Landlord
or any of its tenants or the owners or occupiers of adjoining or
adjacent premises or the neighbourhood
3.20 Loading etc. of vehicles on the Common Parts
- --------------------------------------------------------
To observe and to use all endeavours to ensure that persons doing
business with the Tenant and the servants and workman of the Tenant
shall observe any regulations and instructions made or given by the
Landlord with regard to the loading parking or movement of vehicles
waste disposal containers and other similar equipment about the Common
Parts
3.21 Avoidance of insurance
- ----------------------------------
Not either in the course of the business hereby authorised nor
otherwise to do or permit anything to be done on the Demised Premises
whereby any policy of insurance effected to provide the Building
Insurance or the Rental Insurance for the time being subsisting may be
invalidated or whereby the rate of premium for insurance against
damage by any of the risks for which the Building Insurance is for the
time being effected of the Building or any part of the Building or the
contents thereof shall be higher than the rate usually charged for the
activity or trade carried on in the Building or the relevant part
thereof
-24-
<PAGE>
3.22 Auctions etc.
- -------------------------
Not to permit any sale by auction public exhibition or political
meeting to be held upon the Demised Premises nor to use the Demised
Premises for any illegal or immoral purpose nor to allow any person to
sleep on the Demised Premises
3.23 Assignment underletting etc.
- ----------------------------------------
3.23.1 Not to assign charge or underlet any part or parts (as
opposed to the whole) of the Demised Premises
3.23.2 Not to part with the possession of or share the
occupation of the Demised Premises or any part or parts
thereof or grant any license in respect thereof Provided
that a sharing of occupation of the Demised Premises with a
company which is a member of the same group (as defined in
the Landlord and Tenant Act 1954 s.42) as the Tenant where
no tenancy is created shall not be a breach of this covenant
3.23.3 Not to assign the Demised Premises as a whole without
the previous consent in writing of the Landlord but such
consent shall not be unreasonably withheld or delayed
3.23.4 Upon every assignment to procure
3.23.4.1 that the assignee enters into a direct covenant
with the Landlord to pay the rents and observe and
perform the
-25-
<PAGE>
covenants and conditions on the lessees
part herein contained and
3.23.4.2 where the assignee is a limited liability company
that if the Landlord so reasonably requires a
guarantor enter into direct covenants with the
Landlord in a form similar to clause 8
3.23.5 Not to underlet the whole of the Demised Premises
without the previous consent in writing of the Landlord
which shall not be unreasonably withheld Provided that
3.23.5.1 The Underlease shall reserve rents equivalent to
the Rack Rent and the Service Rent and the rack
rent to be reserved by the underlease shall not be
less than the Rack Rent and shall be the best rent
obtainable without taking a fine or premium and
the service rent to be reserved by the Underlease
shall not be less than the Service Rent
3.23.5.2 The Underlease shall contain such provisions as
are
-26-
<PAGE>
necessary to secure that it is in all
respects consistent with the provisions hereof
including in particular a provision for the review
of the rack rent and maintenance rent thereby
reserved at the same time as the reviews of the
Rack Rent and the Maintenance Rent hereunder a
provision that the Landlord shall approve the
amount of any reviewed rack rent and an absolute
prohibition against any further underletting
3.23.6 To use his best endeavours to enforce the performance
and observance of all the covenants and conditions on the
part of the undertenant contained in such underlease
3.24 Appointment of receiver or administrative receiver
- --------------------------------------------------------------
To notify the Landlord in writing immediately of any appointment of a
receiver or administrative receiver of the Tenant's undertaking
3.25 Re-letting
- ----------------------
To permit the Landlord at any time within six months before the
expiration or sooner determination of the Said Term to enter into and
upon the Demised Premises for the purpose of fixing upon a suitable
part thereof
-27-
<PAGE>
a notice board for letting or selling the same and not to remove or
interfere with such notice board and to permit all persons by the
order of the Landlord to view the Demised Premises at all reasonable
times of the day
3.26 Payment of Landlord's costs
- ---------------------------------------
To pay to the Landlord on demand all costs damages and expenses
including Solicitors' costs and Surveyors' and other professional fees
and bailiffs costs incurred by the Landlord for the purpose of or
incidental to:
3.26.1 The preparation and service of a notice under Section
146 of the Law of Property Act 1925 requiring the Tenant to
remedy a breach of any of the covenants herein contained
notwithstanding forfeiture for such breach shall be avoided
otherwise than by relief granted by the Court
3.26.2 Any schedule relating to wants of repair or decoration
to the Demised Premises whether served during or after the
termination of the Said Term
3.26.3 Any application made by the Tenant for the consent of
the Landlord whether the same be granted refused or
proffered subject to any lawful qualifications or condition
or whether the application be withdrawn
3.26.4 The levying of a distress for the rents payable
hereunder or any part thereof or as a result of the bailiff
or the Landlord (after the bailiff
-28-
<PAGE>
has been instructed) being paid such rent whether or
not any actual distress is levied
3.26.5 The preparing settling and completing of this Lease and
a counterpart thereof in accordance with the Solicitors
Remuneration Order as amended and the stamp duty on such
counterpart
3.27 Registration of dispositions etc.
- ---------------------------------------------
Within one month after any assignment underlease or assignment of
underlease surrender mortgage charge transfer disposition or
devolution of the Demised Premises or of any part thereof or of any
estate or interest therein to give notice thereof in duplicate to the
Landlord and to produce to it the original or a certified copy
(together with a copy for retention) of any instrument (including any
grant of probate or letters of administration) effecting the same and
to pay to the Landlord a reasonable fee for the registration thereof
3.28 Notice of destruction or damage
- -------------------------------------------
In the event of the Demised Premises being destroyed or damaged to
give notice thereof immediately to the Landlord stating (if possible)
the cause of such destruction or damage
3.29 Indemnities
- -----------------------
3.29.1 To indemnify the Landlord against all costs and
expenses including professional fees properly incurred by
the Landlord in connection with all and every loss and
damage whatsoever incurred
-29-
<PAGE>
or sustained by the Landlord as a consequence of every
breach of the covenants by the Tenant set out herein or
implied PROVIDED that such indemnity shall extend to and
cover all costs and expenses incurred by the Landlord in
connection with any steps which the Landlord may at its
absolute discretion (but without being in any way obliged so
to do) take to remedy any such breach and be without
prejudice to any rights or remedies of the Landlord in
respect of any such breach
3.29.2 Without prejudice to the generality of the foregoing to
indemnify the Landlord against any tax or imposition which
becomes payable by the Landlord in respect of the Demised
Premises or any part thereof by reason of any act or
omission of the Tenant (whether or not authorised by this
Lease or by the Landlord and whether or not the same is in
breach of any of the Tenant's covenants)
3.29.3 To indemnify the Landlord against all actions claims
liabilities costs and expenses alleged or demanded by the
owners or occupiers of any adjoining or neighbouring
property or other parties arising through the use or
occupation of the Demised Premises the existence of any
article in or about the Demised Premises or the execution or
omission of any works upon the
<PAGE>
Demised Premises except insofar as the same may be due
solely to the Landlord's own act or default or the act or
default of the Landlord's employees or agents
3.30 New easements
- -------------------------
Not to permit any new window light opening doorway path passage drain
or other encroachment right or easement to be made or acquired in to
against or upon the Demised Premises and in case any such window light
opening doorway path passage drain or other encroachment shall be made
or attempted to be made or any such right or easement attempted to be
acquired to give immediate notice thereof to the Landlord and to
permit the Landlord and its Surveyors servants and agents to enter the
Demised Premises at reasonable times to ascertain the nature of such
encroachment or easement and at the request and cost of the Landlord
to adopt such means as may be reasonably required or deemed proper for
preventing any such encroachment or the acquisition of any such
easement
3.31 Access of light
- ---------------------------
Not to give to any third party any acknowledgment that the Tenant
enjoys the access of light to any of the windows or openings in the
Demised Premises by the consent of such third party nor to pay to such
third party any sum of money nor to enter into any agreement with such
third party for the purpose of inducing or binding such third party to
abstain from obstructing
-31-
<PAGE>
the access of light to any of such windows or openings and in the
event of any of the owners of adjacent or neighbouring land or
buildings doing or threatening to do anything which obstructs the
access of light to any of the windows or openings in the Demised
Premises to notify the same forthwith to the Landlord and to permit
the Landlord if necessary to bring all such actions as it may think
fit in the name of the Tenant against any of the owners of the
adjacent or neighbouring land or buildings in respect of the
obstruction of the access of light to any of the windows or openings
in the Demised Premises PROVIDED ALWAYS that the Landlord shall
indemnify the Tenant against all actions losses or damages which the
Tenant may suffer by reason of any act or actions which the Landlord
may do or bring under this sub-clause
3.32 Installation of duct
- --------------------------------
To instal a duct for a communication cable in the position marked by a
green line on the plan in a good and workmanlike manner previously
approved by the Corporation and to repair any damage caused to the
ground in the installation maintenance and repairing of the said duct
and at the end of the term hereby granted to remove the said duct
making good all damage caused by such removal
4. Landlord's covenants
- ------------------------
THE Landlord hereby covenants with the Tenant as follows:-
-32-
<PAGE>
4.1 Quiet enjoyment
- ---------------------------
That the Tenant paying the several rents hereby reserved and
performing and observing the several covenants conditions and
agreements herein contained and on his part to be performed and
observed shall and may peaceably and quietly hold and enjoy the
Demised Premises during the Said Term without interruption or
disturbance by the Landlord or by any persons lawfully claiming
through or under it
4.2 Insurance
- ---------------------
To effect and keep in force the Building Insurance and the Rental
Insurance with some reputable insurance office or with Lloyds
Underwriters and if required by the Tenant produce to the Tenant
evidence from the insurers of the terms of the policy of such
insurance and the fact that the policy is subsisting and in effect
4.3 Reinstatement on destruction or damage
- --------------------------------------------------
As often as the Demised Premises shall be destroyed or damaged by the
risks covered by the Building Insurance subject to the Tenant duly
giving notice of such destruction or damage under clause 3.28 and
provided that the Building Insurance shall not have been rendered void
by the act or default of the Tenant or his tenants or their respective
employees agents or licensees to expend all monies received by it
under the Building Insurance in rebuilding or reinstating the Demised
Premises in their former state with all convenient speed save to the
extent delayed by labour
-33-
<PAGE>
disputes shortage of materials the withholding or delay in issue of
licences certificates approvals or permissions by any competent
authority or any other matter outside the control of the Landlord
Provided that the Landlord's liability under this covenant shall be
limited to the expenditure of the whole of the insurance monies
received by it under the Building Insurance in respect of the
destruction or damage in question
4.4 Repair of the Building
- ----------------------------------
At all times during the Said Term to keep in good and substantial
repair and condition (except damage by the risks covered by the
Building Insurance) the main structure and exterior of the Building
and the Common Parts (the Demised Premises always excluded)
4.5 Exterior painting
- -----------------------------
To keep properly painted all the outside wood and iron work of the
Building and all parts of the Common Parts which are usually or ought
to be painted and all additions thereto and to apply such other
preservatives as the Landlord may consider necessary to all other
parts of the exterior of the Building and of the Common Parts
requiring such treatment
4.6 Maintenance of the Common Parts
- -------------------------------------------
Unless and until the same shall be adopted by a local authority or
statutory undertaker as maintainable at the public expense to clean
renew repair paint and maintain the Common Parts to keep (where
applicable)
-34-
<PAGE>
the Common Parts in good working order and to insure any part thereof
which the Landlord considers it prudent to insure against damage by
such risks as the Landlord in its discretion decides and to pay any
rates charges impositions or other outgoings assessed thereon and to
comply with all obligations (including the execution of any works)
imposed on the Landlord by virtue of any statutory regulations or bye
laws with regard to the use and operation of any of the Common Parts
4.7 Provision of Part A Services
- ----------------------------------------
To provide throughout the Said Term the Part A services
5. Provisos and declarations
PROVIDED ALWAYS and it is hereby agreed and declared as follows:-
5.1 Power of re-entry
- -----------------------------
If the rents hereby reserved or any part thereof shall be in arrears
for twenty one days next after any of the days fixed for payment
thereof whether or not the same shall have been legally demanded or if
there shall be any breach of any of the covenants by the Tenant herein
contained or if the Tenant shall become bankrupt or make any
arrangement or composition with his creditors or being a limited
company shall have a receiver or an administrative receiver of its
undertaking appointed or shall pass an effective resolution for
winding up (except for the purposes of reconstruction or amalgamation)
or shall have a winding up order or an
-35-
<PAGE>
administration order under the Insolvency Act 1986 made against it
then and in any such case the Landlord or any persons duly authorised
by it may at any time thereafter into and upon the Demised Premises or
any part thereof in the name of the whole re-enter and the same have
repossess and enjoy as in their former state
5.2 Cesser of rent
- --------------------------
If the Demised Promises or any part thereof or the Common Parts shall
be destroyed or rendered unfit for occupation or use during the Said
Term by damage covered by the Building Insurance then (unless the
Building Insurance or the Rental Insurance shall have been rendered
void by the act or default of the Tenant or his tenants or their
respective employees agents or licensees) a just proportion of the
Rack Rent the Maintenance Rent and the Service Rent according to the
nature and extent of the injury sustained shall cease and be suspended
until the Demised Premises and/or the Common Parts have been made fit
for occupation and use or until the second anniversary of the
occurrence of such damage (whichever event shall first occur)
5.3 Disputes as to rent cesser
--------------------------
If any dispute shall arise between the Landlord and the Tenant with
regard to the amount of the abatement in the said rent or the period
for which the said rent or any part thereof shall be suspended the
same shall be referred to a single arbitrator to be agreed between the
parties and failing agreement to a single
-36-
<PAGE>
arbitrator to be appointed by the President for the time being of the
Law Society
5.4 Termination if Premises substantially unfit
- -------------------------------------------------------
5.4.1 If during the last three years of the term hereby
created or the period of any extension thereof by statute or
at common law or of any holding over the Demised Premises
shall be destroyed or so damaged by any of the risks covered
by the Building Insurance as to be substantially unfit for
occupation or use the Landlord may by not less than six
months notice expiring at any time determine the Said Term
and upon the expiry of such notice the Said Term shall
determine without prejudice to any remedy of the Landlord in
respect of any breach of the Tenant's covenants
5.4.2 If the Landlord gives notice under clause 5.4.1 clause
4.3 shall be of no effect and the Landlord shall be entitled
to retain any insurance monies received by it
5.5 Obstruction of light or air
- ---------------------------------------
That it shall be lawful for the Landlord at any time during the Said
Term to erect rebuild or alter any buildings or erections facing
adjoining or near to the Demised Premises or the Building in any
manner and to any extent it may think fit notwithstanding that any
buildings or erections so erected rebuilt or altered obstruct or
interfere with any right of light or air
-37-
<PAGE>
for the time being appertaining to or enjoyed with the Demised
Premises or the Common Parts or any part thereof
5.6 No warranty as to planning consent
- ----------------------------------------------
Nothing herein shall be deemed to constitute any warranty by the
Landlord that the Demised Premises or any part thereof are authorised
for use for any specific purpose under the Planning Laws
5.7 Limit on waiver by acceptance of rent
- -------------------------------------------------
No demand for or receipt or acceptance of any part of the rents hereby
reserved or any payment on account thereof shall operate as a waiver
by the Landlord of any right which the Landlord may have to forfeit
this Lease by reason of any breach of covenant by the Tenant and the
Tenant shall not in any proceedings for forfeiture be entitled to rely
on any such demand receipt or acceptance as aforesaid as a defence
PROVIDED that this proviso shall have effect in relation only to a
demand receipt or acceptance made during such period as may in all the
circumstances be reasonable for enabling the Landlord to conduct any
negotiations with the Tenant for remedying the breach
5.8 Part B Services
---------------
The Landlord shall have no obligation to provide any of the Part B
Services which it may commence vary and discontinue from time to time
at its absolute discretion
5.9 Limitations on liability under clause 4.6 and for services
----------------------------------------------------------
The Landlord shall be under no liability to the Tenant his tenants or
their respective employees licensees or visitors in respect of:
-38-
<PAGE>
5.9.1 Any interruption in the performance of the covenants
contained in clauses 4.6 and 4.7 or in the provision of any
of the Part B services caused by the repair or maintenance
of any installations or apparatus by their damage or
destruction by fire or water by mechanical or other default
or breakdown by adverse weather conditions by shortage of
fuel materials or labour by strikes lockouts or sit-ins or
by any other cause beyond the Landlord's control or
5.9.2 Any act omission or negligence of the Landlord or its
employees (not resulting in death or personal injury) in or
about the performance or purported performance of the
covenants contained in clauses 4.6 and 4.7 or the provision
of any of the Part B Services
5.10 Landlord's liability excluded
- -----------------------------------------
The Landlord shall not be responsible to the Tenant (save as and to
the extent hereinbefore expressly provided) his tenants or their
respective employees licensees or visitors for any injury death damage
destruction or financial or consequential loss whether to person
property or goods sustained on or by reason of the condition of the
Demised Premises
5.11 Service of notices
- ------------------------------
Section 196 of the Law of Property Act 1925 as amended by the Recorded
Delivery Service Act 1962 shall apply to the service of any notice
required to be served under this Lease
-39-
<PAGE>
5.12 Exclusion of statutory compensation
- -----------------------------------------------
Subject to section 38 (2) of the Landlord and Tenant Act 1954 neither
the Tenant nor any assignee or underlessee of the Said Term or of the
Demised Premises or any part thereof shall be entitled to on quitting
the Demised Premises or that part to any compensation under the said
Act
5.13 Tenant's goods left in Demised Premises
- ---------------------------------------------------
If at any time after the Said Term has been determined whether by
effluxion of time or otherwise and the Tenant has vacated the Demised
Premises any property of the Tenant remains in or on the Demised
Premises and the Tenant shall fail to remove the same within fourteen
days after being requested so to do by a written notice from the
Landlord in that behalf then and in any such case the Landlord may as
the agent of the Tenant (and the Landlord is hereby appointed by the
Tenant to act in that behalf) remove and dispose of (by sale if
reasonably practicable) such property and shall hold the proceeds of
sale (if any) after deducting the costs and expenses of removal
storage and sale reasonably and properly incurred by it to the order
of the Tenant PROVIDED THAT the Tenant shall indemnify the Landlord
against any liability incurred by the Landlord to any third party
whose property shall have been removed and disposed of (whether by
sale or otherwise) by the Landlord in the bona fide belief (which
shall be presumed unless the contrary be proved) that such
-40-
<PAGE>
property belonged to the Tenant and was liable to be dealt with as
such pursuant to this clause
5.14 Disputes between tenants
- ------------------------------------
In case any dispute shall arise between the Tenant and other tenants
or occupiers or users of the Building or any other neighbouring
premises in connection with any easement right or privilege affecting
the Demised Premises the Landlord may (if it shall think fit)
determine every such dispute in such manner as the Landlord shall
think reasonable and the Tenant shall submit to and abide by every
such determination
6. Break clause
- ------------------------
If the Tenant shall desire to determine the Said Term at the end of
the sisth year thereof and shall give to the Landlord not less than
three calendar months' previous notice in writing of such its desire
then and in such cause this Lease and everything herein contained
shall cease and determine but without prejudice to any claim by either
party against the other in respect of any antecedent breach of any
covenant or condition herein contained
7. Rack Rent review
- ----------------------------
7.1 Amount of revised Rack Rent
As from each Revision Date the Rack Rent shall be revised to such a
sum as shall be
7.1.1 The amount agreed in writing between the Landlord and
the Tenant at any time before the current annual market
value of the Demised
-41-
<PAGE>
Premises shall have been determined under sub-clause
6.3 or
7.1.2 If no such agreement shall have been reached within
such time the amount which equals the greater of:-
7.1.2.1 the Rack Rent payable hereunder immediately before
the Revision Date in question and
7.1.2.2 the current annual market value of the Demised
Premises as defined in sub-clause 7.2
7.2 Current annual market value
- ---------------------------------------
The current annual market value of the Demised Premises shall be the
sum determined under sub-clause 7.3 as being the yearly rent of the
Demised Premises on the Revision Date in question on the assumptions
set out in sub-clause 7.2.1 and disregarding the matters set out in
sub-clause 7.2.2 viz:
7.2.1 Assumptions
7.2.1.1 That the Demised Premises are to be let as a whole
and are fit for immediate occupation and use for
any purpose permitted by this Lease
7.2.1.2 That no works have been carried out on the Demised
Premises by the Tenant or his predecessors in
title during the Said Term which have diminished
the rental value of the Demised Premises
-42-
<PAGE>
7.2.1.3 That where the Demised Premises have been
destroyed or damaged they have been fully restored
7.2.1.4 That the Landlord and the Tenant have duly
performed and observed all the covenants on their
respective parts in this Lease contained up to and
including the Revision Date
7.2.1.5 That the Demised Premises are to be let on the
same terms (other than the amount of the Rack Rent
and of the Maintenance Rent) as those contained in
this Lease for a term of years equivalent to the
original term hereof by a willing landlord to a
willing tenant at a rack rent and maintenance rent
which are subject to review at the same intervals
as the Rack Rent and Maintenance Rent are
respectively revisable and in the same manner as
is specified in this clause and the First Schedule
7.2.2 Matters to be disregarded
-------------------------------------
7.2.2.1 Any effect on the current annual market value of
the Demised Premises of the considerations
specified in paragraphs (a) (b) and (c) of Section
34 (1) of the Landlord and Tenant Act 1954 as
amended by the Law of Property Act 1969
-43-
<PAGE>
7.2.2.2 For the purpose only of establishing the current
annual market value any statutory provision
prohibiting or restricting any increase in the
rent hereby reserved
7.3 Determination by expert
- -----------------------------------
Either the Landlord or the Tenant may by written notice to the other
given not more than three months before the Revision Date or at any
time thereafter require the current annual market value of the Demised
Premises to be determined by a surveyor familiar with the valuation of
properties similar to the Demised Premises (such surveyor to be agreed
between them or failing agreement within one month after the giving of
such notice to be appointed upon the application of either party by
the President for the time being of the Royal Institution of Chartered
Surveyors or his duly appointed deputy) acting as an expert and the
certificate of such surveyor (or of any surveyor appointed in his
stead should he refuse to act or become incapable of acting) as to the
current annual market value of the Demised Premises shall be final and
binding upon the parties Provided that the fees of such surveyor shall
(unless such surveyor shall otherwise determine) be borne and paid by
the parties hereto in equal shares PROVIDED ALWAYS that if one party
pays the whole of such surveyors' fees it shall be entitled to recover
one half (or such other proportion as such surveyor may
-44-
<PAGE>
have determined) of such surveyor's fee from the other party on demand
7.4 Existing Rack Rent payable until revised Rack Rent determined
- -------------------------------------------------------------------------
Until the amount of the revised Rack Rent has been determined in
accordance with sub-clause 7.1 the Rack Rent reserved at the Revision
Date in question (in this sub-clause called "current Rack rent") shall
continue to be payable but on the Quarter Day next following the
determination of the revised Rack Rent (in this sub-clause called "the
adjustment Quarter Day") there shall be due from the Tenant in
addition to the instalment of revised Rack Rent falling due on the
adjustment Quarter Day
7.4.l The amount if any by which the aggregate of the
instalments of revised Rack Rent ascertained to have fallen
due on the Quarter Days occurring on or after the Revision
Date in question and before the adjustment Quarter Day
exceeds the aggregate of the instalments of current Rack
Rent which have actually been so paid and
7.4.2 Interest at 3% above the base lending rate from time to
time of Barclays Bank PLC on the amount by which each of the
instalments of revised Rack Rent the subject of adjustment
under clause 7.4.1 exceeds the respective instalment of
current Rack Rent calculated for each instalment from the
Quarter Day on which it fell due to the adjustment Quarter
Day
-45-
<PAGE>
7.5 Memorandum of Rent Review
- -------------------------------------
If the Landlord so requires a memorandum of any such revised Rack Rent
ascertained and payable as provided herein shall as soon as may be
after such revised Rack Rent has been agreed or determined be endorsed
or annexed at the Tenant's expense on this Lease and the Counterpart
hereof and signed by or on behalf of the Landlord and the Tenant
respectively
8. Guarantor's covenants
- ---------------------------------
THE Guarantor (if any) hereby covenants and guarantees with and to the
Landlord that:
8.1 Tenant to pay rent and observe covenants - Guarantor to make good
losses
- --------------------------------------------------------------------------------
That the Tenant shall at all times pay the rents hereby reserved on
the days and in manner aforesaid and shall duly observe and perform
all the covenants and conditions on the Tenant's part hereinbefore
contained to be observed and performed and that in the case of default
by the Tenant in the making of any such payment of rent or in the
performance or observance of such covenants or conditions the
Guarantor will pay and make good to the Landlord on demand all losses
costs damages and expenses thereby arising or incurred by the Landlord
with interest thereon from the date of demand to the date of payment
at 3% above the base lending rate from time to time of Barclays Bank
PLC
8.2 Guarantor to take new lease upon disclaimer of this Lease
- ---------------------------------------------------------------------
In the event of the Tenant during the Said Term
-46-
<PAGE>
becoming bankrupt or entering into liquidation and the trustee(s) in
such bankruptcy or the liquidators) in such liquidation (as
appropriate) disclaiming this lease that the Guarantor will if the
Landlord so requires in writing within three months of such disclaimer
accept from the Landlord a lease of the Demised Premises for a term
equal in duration to the residue remaining unexpired of the Said Term
at the time of such disclaimer such lease to be at the same rents and
to contain the like tenants and landlords covenants respectively and
the like provisos and conditions in all respects (including the
proviso for re-entry and including the same Revision Dates) as are
herein contained and will pay the legal costs of the Landlord
(including disbursements) in connection with such new lease and
execute and deliver to the Landlord a counterpart of it
8.3 Provisos
- --------------------
PROVIDED ALWAYS that:
--------------------
8.3.l any neglect or forbearance of the Landlord in
endeavouring to obtain payment of the rents hereby reserved
when the same become payable or in enforcing the performance
or observance of the said covenants or obligations of the
Tenant or any time which may be given by the Landlord to the
Tenant or any variation of the terms of this lease which may
be agreed between the Landlord and the Tenant or any consent
-47-
<PAGE>
licence or approval which may be given by the Landlord
to the Tenant shall not release or exonerate or in any way
affect the liability of the Guarantor under the covenants or
guarantee on his part hereinbefore contained
8.3.2 where there are two or more persons included in the
expression "the Guarantor" any neglect or forebearance on
the part of the Landlord in enforcing this covenant as
against one Guarantor or any agreement made by the Landlord
limiting the liability of one Guarantor under this covenant
shall in no way relieve the other Guarantor or Guarantors
(as appropriate) from it/their liability hereunder
8.4 Memorandum of Rent Review
- -------------------------------------
That the Guarantor shall (if requested by the Landlord in writing) on
each occasion that the Rack Rent is reviewed sign the memorandum
specifying the amount of the revised rent prepared by the Landlord
IN WITNESS whereof Vincent Austin Lamb as Attorney of the Landlord has hereunto
- ----------
set the name of the Landlord and affixed his own seal and the Tenant has
hereunto caused its Common Seal to be affixed the day and year first before
written
THE FIRST SCHEDULE
------------------
1. In this Schedule
"The Index" means the Index of the output price for "All new
construction" contained in Housing and Construction Statistics
published by HM Stationery
-48-
<PAGE>
0ffice for the Government Statistical Service or any index stated to
be in substitution therefor and to be related to the original index in
a specified manner
"the Maintenance Rent Year" means the year commencing on First April
"the basic rate" means two thousand five hundred and forty two pounds
per annum
"the Base Figure" is three hundred and twenty two
2. The Maintenance Rent for the period from and including the Term
Commencement Date to First April next following shall be at the basic
rate
3. Thereafter the Maintenance Rent payable in each Maintenance Rent Year
shall be the greatest of
3.1 The basic rate and
3.2 The Maintenance Rent payable in the previous
Maintenance Rent Year and
3.3 The basic rate multiplied by X and divided by the Base
Figure where "X" is the figure which would have been shown
as the latest Index figure published before the commencement
of the relevant Maintenance Rent Year if there had been no
changes in the Reference Base used to compile the Index
since the Reference Base was set at one hundred for the year
1975
4. The Maintenance Rent payable for each Maintenance Rent Year of the
Said Term shall be calculated by the Landlord who shall give written
notice to the Tenant of the Maintenance Rent becoming payable as
aforesaid and
-49-
<PAGE>
the amount stated in such notice shall (in the absence of any clerical
or arithmetical error) be final and binding on the parties
5. Where any Index figure is stated in the Index to be provisional or is
amended after first publication the Maintenance Rent shall if
necessary be recalculated upon the ultimate confirmation or amendment
of the index figure in question
6. If the Index is discontinued and no index is substituted therefor by
the Government Statistical Service the General Index of Retail Prices
- All items ("the Retail Prices Index") published by HM Stationery
Office for the Government Statistical Service shall be substituted
therefor in the calculation of the Maintenance Rent at the
commencement of the Maintenance Rent Year next following the
discontinuance of the Index and thereafter this Schedule shall be read
as if "the Index" meant the Retail Prices Index "the Base Figure" was
the figure which would have been shown as the index figure in the
Retail Prices Index applicable at the commencement of the Said Term if
there had been no change in the Reference Base used to compile the
Retail Prices Index since the Reference Base was set at one hundred
for the year 1974 and "the year 1974" was substituted for "the year
1975" in paragraph 3.3 hereof
7. If the Index is discontinued and the Retail Prices Index does not then
exist or if after use in substitution under paragraph 6 the Retail
Prices Index
-50-
<PAGE>
is discontinued the Landlord shall at its own discretion select a
suitable alternative index compiled by Government or by a public body
or by a trade association and such selection shall be final and
binding on the parties and thereafter this Schedule shall be read as
if "the Index" meant the index so selected and "the Base Figure" was
the index figure in the index so selected applicable at the
commencement of the Said Term or if the Reference Base for the index
so selected has changed since its commencement the figure which would
have been shown as the index figure applicable at the commencement of
the Said Term if there had been no changes in such Reference Base and
the year in which the index so selected was commenced was substituted
for "the year 1975" in paragraph 3.3 hereof
THE SECOND SCHEDULE
Review of the Service Rent
- --------------------------
l. In this Schedule unless there be something in the context inconsistent
therewith
"the Accounting Year" means the year commencing on the First day of April
"the Building Services means the aggregate of all costs and expenses incurred
Charge" or payable or prospectively payable by the Landlord in
performing the covenants on its behalf contained in
clauses 4.2 and 4.7 or in providing any of the Part B
-51-
<PAGE>
services excluding any expenditure necessitated by the
negligent act or neglect of the Landlord or its
servants or contractors but with the addition of 10% of
such total in respect of the Landlord's management
expenses
"the Landlord's means the certificate to be given pursuant to paragraph
Certificate" 3 of this Schedule
"the Tenant's means 13.89% of the Building Services Charge
Proportionate Charge"
2. Interim payment
- ---------------------------
Pending ascertainment of the Tenant's Proportionate Charge for each
Accounting Year the Tenant shall pay to the Landlord an annual sum of such an
amount as the Landlord by written notice to the Tenant shall specify at its
discretion to be a fair and reasonable interim payment such sum to be paid by
equal quarterly payments in advance on the Quarter Days the first payment or an
apportioned part thereof for the period ending on the Quarter Day next following
the Term Commencement Date falling due on the completion of this Lease
3. Determination of Tenant's Proportionate Charge
- ----------------------------------------------------------
The Tenant's Proportionate Charge shall be determined by a surveyor
(acting as an expert and not as an arbitrator) in the employ of the Landlord as
soon as practicable after the expiration of each Accounting Year and shall be
certified by a Certificate signed by such surveyor on behalf of the Landlord and
a copy of the Landlords Certificate shall be supplied by the Landlord to the
Tenant without charge to the Tenant
-52-
<PAGE>
4. Landlord's Certificate
- ----------------------------------
The Landlord's Certificate shall contain a summary of the items
constituting the Building Services Charge and details of the calculation of the
Tenant's Proportionate Charge and the Landlord's Certificate (or a copy thereof
duly certified by the surveyor for the Landlord) shall save in the case of any
manifest error be conclusive evidence for the purposes hereof of the matters
which it purports to certify
5. Recovery of Tenant's Proportionate Charge
- -----------------------------------------------------
As soon as practicable after the issue of the Landlord's Certificate
the Landlord shall furnish to the Tenant an account of the Tenant's
Proportionate Charge for the Accounting Year in question due credit being given
therein for all payments under paragraph 2 made by the Tenant during the
Accounting Year and within fourteen days of the delivery of such account the
Tenant shall pay to the Landlord or the Landlord shall pay to the Tenant (as the
case may be) the balance (if any) shown in the account as due from one party to
the other
6. Apportionment of Tenant's Proportionate Charge
- ----------------------------------------------------------
The Tenant's Proportionate Charge shall be duly apportioned in respect
of any broken periods during which the Said Term has existed in an Accounting
Year
THE THIRD SCHEDULE
------------------
PART A - Services covenanted to be provided under clase 4.7
- -----------------------------------------------------------
1. The provision of adequate lighting of the Common Parts during the
hours of darkness
2. The cleaning of the windows and frames of the Building
-53-
<PAGE>
PART B - Services which the Landlord may provide
- ------------------------------------------------
1. Maintenance repair and replacement of fire prevention or warning
equipment and of security systems in the Common Parts
2. Provision of such staff for the servicing maintenance and cleaning of
the Common Parts as the Landlord may reasonably consider necessary including the
provision of a manager
3. Maintaining cleansing heating lighting and furnishing a staff room and
office accommodation for staff provided under paragraph 2 and a flat for any
resident staff
4. The provision and maintenance of furniture in the Common Parts
5. The provision and maintenance of plants shrubs trees grassed areas and
grown or cut flowers in the Common Parts
THE FOURTH SCHEDULE
-------------------
Fixtures and Fittings
PRODUCTION AREA
---------------
1 1 No 8 gang plastic flush mounted light switches
2 1 No plastic flush mounted indicator switch
3 90 No ceiling recessed fluorescent light fittings
4 44 No plastic flush mounted switched twin socket outlets
5 18 No single panel steel wall mounted radiators each with thermostatic
valve
6 1 No twin panel steel wall mounted radiator with thermostatic valve
7 3 No Maylectro ceiling mounted emergency light fittings each with
plastic surface mounted fused spur outlet
8 1 No "Maylectro Fireguard 100" fire alarm system
9 1 No plastic flush mounted fused spur associated with Item 8
10 1 No "Redring Sun Screen" heater wall mounted above entrance door
11 1 No plastic flush mounted fused spur associated with Item 10
12 1 No electrically controlled security grille to inside of entrance
door complete with external keyed control unit
TEA ROOM
--------
13 1 No plastic flush mounted single gang light switch
14 1 No ceiling fluorescent light fitting
15 2 No plastic flush mounted switched twin socket outlets
16 1 No "Aidelle" ceiling mounted ventilator
17 1 No single panel steel wall mounted radiator
-54-
<PAGE>
DISABLED TOILET LOBBY
---------------------
18 1 No plastic flush mounted single gang light switch
19 1 No ceiling light fitting
WC COMPARTMENT
--------------
20 1 No ceiling light fitting
21 1 No plastic fused indicator switch
22 1 No "Aidelle" ceiling mounted ventilator
23 1 No single panel steel wall mounted radiator
FEMALE TOILET TOILET NO 1 LOBBY
-------------------------------
24 1 No plastic flush mounted single gang light switch
25 1 No ceiling light fitting
26 1 No plastic flush mounted fused indicator switch
27 1 No wall mounted "TLM Sunvic" thermostat
WC COMPARTMENT
--------------
28 1 No ceiling light fitting
29 1 No ceiling mounted "Aidelle" ventilator
30 1 No steel single panel wall mounted radiator
FEMALE TOILET NO. 2 LOBBY
-------------------------
31 1 No plastic flush mounted single gang light switch
32 1 No ceiling mounted "Aidelle" ventilator
33 1 No plastic flush mounted flushed indicator switch
WC COMPARTMENT
--------------
34 1 No ceiling light fitting
35 1 No ceiling mounted "Aidelle" ventilator
36 1 No steel single panel wall mounted radiator
MALE TOILET LOBBY
-----------------
37 1 No plastic flush mounted single gang light switch
38 1 No ceiling light fitting
WC COMPARTMENT
--------------
39 1 No ceiling light fitting
40 1 No ceiling mounted "Aidelle" ventilator
LAVATORY AREA
-------------
41 1 No ceiling light fitting
42 1 No plastic flush mounted fused indicator switch
43 1 No plastic flush mounted single gang switch
44 1 No single panel steel wall mounted radiator
[Page break altered from original]
<PAGE>
STORE
-----
45 1 No plastic flush mounted single gang light switch
46 1 No ceiling fluorescent light fitting
47 1 No plastic flush mounted twin switched socket outlet
48 1 No "Strelrad/Ideal - Ideal Concord CX" boiler complete with all
pipework flue circulatig pump timer thermometer and "Flue Boost Plus"
and controller
49 1 No plastic surface mounted fused indicator switch
50 1 No "Elsan Pearl 90" tank, wall mounted complete with all pipework
and associated plastic flush mounted indicator spur
51 1 No "Roof Units Group Turbo" fan and wall mounted control box
52 1 No "Square D Load Centre" distribution board wall mounted
EMERGENCY STAIRCASE
-------------------
53 1 No plastic flush mounted single gang light switch
54 2 No ceiling mounted fluorescent light fittings
55 1 No wall mounted fluorescent light fitting
56 2 No plastic flush mounted fused switches
57 1 No ceiling mounted emergency lights
-55-
<PAGE>
58 1 No wall mounted emergency light
59 1 No electrically controlled security grille with wall mounted
controller and associated plastic surface mounted fused switch
60 1 No wall mounted 100A isolator in cupboard under stairs
SIGNED SEALED AND DELIVERED )
- ---------------------------
by the above named VINCENT )
AUSTIN LAMB as the Attorney ) /s/ [Unreadable Signature]
and in the name of English )
Industrial Estates Corporation )
in the presence of:- )
/s/ J Heal (Secretary)
28 Birkdale [continued unreadable]
<PAGE>
EXHIBIT 10.9(b)
DATED 1992
--------------------------------------------
ENGLISH INDUSTRIAL ESTATES CORPORATION
--------------------------------------
- to -
APPLIED IMAGING INTERNATIONAL LIMITED
--------------------------------------
COUNTERPART/
L E A S E
----------
of the Hi-tech/office Unit Number BT.2003/3A at
Hylton Park Sunderland Tyne and Wear
TERM: Twelve years
FROM:
RENT: 60,385 Pounds
(Subject to Revision)
Wilkinson Maughan,
Solicitors
Newcastle upon Tyne NE1 1XX
2093H
<PAGE>
English Industrial Estates Corporation
Table of Contents
Clause 1. Interpretation
--------------
2. Demise
------
2.l The demised premises
2.2 Exceptions and reservations
2.3 Term
2.4 Rents
3. Tenant's covenants
------------------
3.l Payment of rent
3.2 Value Added Tax
3.3 Payment of taxes etc.
3.4 Compliance with statute
3.5 Repair of the demised premises
3.6 Repair of fixtures
3.7 Landlord's inspection
3.8 Interior painting
3.9 Landlord's right to repair etc.
3.10 Parking of vehicles
3.11 Disposal of rubbish
3.12 Making and restoration of alterations
3.13 Planning
3.14 Loading of premises
3.15 Drainage and effluents
3.16 Entry by neighbours
3.17 Clean air provisions
3.18 Advertising
3.19 user
3.20 Loading etc. of vehicles on the Common Parts
3.21 Avoidance of insurance
3.22 Auctions etc.
3.23 Assignment, underletting etc.
3.24 Appointment of receiver or administrative receiver
3.25 Re-letting
3.26 Payment of Landlord's costs
3.27 Registration of dispositions etc.
3.28 Notice of destruction or damage
3.29 Indemnities
3.30 New easements
3.31 Access of light
3.32 Installation of duct
4. Landlord's covenants
--------------------
4.l Quiet enjoyment
4.2 Insurance
4.3 Reinstatement on destruction or damage
4.4 Repair of the Building
4.5 Exterior painting
4.6 Maintenance of the Common Parts
4.7 Provision of the Part A Services
-1-
<PAGE>
5. Provisos and declarations
-------------------------
5.l Power of re-entry
5.2 Cesser of rent
5.3 Disputes as to rent cesser
5.4 Termination if premises substantially unfit
5.5 Obstruction of light or air
5.6 No warranty as to planning consent
5.7 Limit on waiver by acceptance of rent
5.8 Part B Services
5.9 Limitation of liability under clause 4.6 and for
services
5.10 Landlord's liability excluded
5.11 Service of notices
5.12 Exclusion of statutory compensation
5.13 Tenant's goods left in demise premises
5.14 Disputes between tenants
6. Break Clause
------------
7. Rack Rent review
----------------
7.1 Amount of revised Rack Rent
7.2 Current annual market value
7.3 Determination by expert
7.4 Existing Rack Rent payable until revised Rack Rent
determined
7.5 Memorandum of rent review
8. Guarantor's covenants
---------------------
8.1 Tenant to pay rent and observe covenants - Guarantor to
make good loss
8.2 Guarantor to take new lease upon disclaimer of this
lease
8.3 Provisos
8.4 Rent review memorandum
First Schedule
--------------
Review of Maintenance Rent
Second Schedule
---------------
Review of Service Rent
Third Schedule
--------------
Part A Services
Part B Services
Fourth Schedule
---------------
Fixtures and Fittings
-2-
<PAGE>
THIS LEASE made the day of
- ----------
One thousand nine hundred and ninety two
B E T W E E N
- -------------
(1) ENGLISH INDUSTRIAL ESTATES CORPORATION whose principal office is
situate at
---------------------------------------------------------
Team Valley Gateshead in the County of Tyne and Wear (hereinafter called "the
Landlord") and
(2) APPLIED IMAGING INTERNATIONAL LIMITED whose registered office is 720
Birchwood
----------------------------------------------------------------
Boulevard Birchwood Warrington in the County of Cheshire WA3 7PX (hereinafter
called "the Tenant")
WITNESSETH in consideration of the rents hereinafter reserved and of the
- ----------
covenants by the
Tenant herein contained AND IT IS HEREBY DECLARED as follows:-
-------------------------
1. Interpretation
- --------------------------
1.l IN this Lease unless there be something in the context
inconsistent therewith
"the Development" means the Landlord's hi-tech office development known as
BT,2003 Hylton Park Sunderland Tyne and Wear
"the Building" means the Landlord's hi-tech office building known as Unit
BT.2003/3 at the Development and includes all variations and
additions thereto made during the term hereby created and
the curtilage thereof
"the Building means the insurance of the Building Insurance" with an
insurer of
Insurance" good repute with all variations and additions thereto made
during the term hereby created and the Landlord's fixtures
and fittings
-3-
<PAGE>
therein against loss or damage by fire and by storm and
tempest and such other insurable risks as the Landlord shall
from time to time consider necessary and have notified to
the Tenant so far as covered by the special conditions the
relevant extension to the Landlord's standard fire insurance
policy in such a sum as the Landlord (whose decision shall
be final) shall determine as being the full reinstatement
cost (including site clearance and demolition costs) for the
time being of the Building and fixture and fittings
(including provision for professional fees)
"the Common Parts" mean all parts of the Development which are used or enjoyed
in common by the Landlord its tenants or other the occupiers
of the Development or person authorized by it or are subject
to party rights in favour of an owner or owners of land
forming part of the Development and includes all roads
footpaths passageways car parks street lamps road signs
walls gates fences drains sewers watercourses conduits
channels pipes wires cables pedestrian
-4-
<PAGE>
ways concourses circulation areas entrance halls passages
landings staircases lifts lavatories toilets washing
facilities gardens planted areas forecourts and other ways
or accesses in or about the Development which are so used
enjoyed or subject
"the Demised means all that part of the Building known as Unit
Premises" No.BT.2003/3A together with the Landlord's fixtures and
fittings therein as the same is more particularly delineated
on the Plan and thereon coloured red and includes:
(A) The doors and windows thereof the frames thereof
and the glass therein
(B) The internal finishes of the walls but not the main
structure thereof
(C) The floor above the level of the screed or the main
joists as the case may be
(D) The surface finish of solid ceilings and all parts
of the ceiling below the main joists as the case may be
"the Inventory of means the inventory of the Landlord's fixtures and fittings
Fixtures and in the Demised
Fittings"
-5-
<PAGE>
Premises as set out in the Fourth Schedule hereto
"the Landlord" shall include the reversioner and others for the time being
entitled to receive the rents hereby reserved
"the Maintenance means the yearly rent ascertained under the provisions
Rent" of the First Schedule and payable in consideration of the
obligations undertaken by the Landlord in clauses 4.4 4.5
and 4.6
"the Parking Space" the space coloured blue on the Plan
"the Part A means the services specified in Part A of the Third
Services" Schedule which the Landlord covenants to provide under
clause 4.7
"the Part B means the services specified in Part B of the Third
Services" Schedule to which the provisions of clause 5.8 apply
"the Plan" means the plan annexed hereto
"the Planning Laws" means every law for the time being in force in England and
Wales and (in the case of any law applied to particular
localities) having application to the locality of the
premises hereby demise, in relation to town and country
planning and development control including the Town and
Country Planning Act 1990 the Planning (Listed Building and
Conservation Areas) Act 1990 the
-6-
<PAGE>
Planning (Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 and the Planning and
Compensation Act 1991
"the Quarter Days" means the 31st March 30th June 30th September and 31st
December in each year
"the Rack Rent" means the clear yearly rent for the time being payable under
clauses 2.4.1.1 and 2.4.1.2
"the Rental means the insurance against the loss to the Landlord
Insurance" resulting from loss of rent for the Building arising out of
damage covered by the Building Insurance limited in the
aggregate amount of two years Rack Rent two years
Maintenance Rent and two years Service Rent (the Landlord's
estimate of which shall be such reasonable sum having regard
to the likely period required for reinstatement)
"the Revision Date" means successively
(a) the third anniversary of the Term Commencement
Date and every third anniversary thereof occurring
prior to the Term Penultimate Date and
(b) The Term Penultimate Date
"the First means the third anniversary of the Term Commencement Date
Revision Date"
-7-
<PAGE>
"the Said Term" means the term hereby created and includes (if such occurs)
the period C any extension thereof by statute or at common
law or of any holding over
"the Service Rent" means the yearly rent reserved under clause 2.4.3 payable in
consideration
(A) the obligations undertaken by the Landlord in
Clauses 4.2 and 4.7 and
(B) the provision by the Landlord of any of the Part B
Services which is subject to review under the
provisions of the Second Schedule
"the Tenant" shall include those deriving title under the Tenant
"Term Commencement means the date specified in Clause 2.3 from and including
Date" the date on which the Said Term commences
"Term Penultimate means the day preceding that on which the Said Term would
expire
Date" by effluxion of time if not extended or continued by
contract or statute
1.2 Unless otherwise specifically stated a reference in this
Lease to a Schedule or to any clause or paragraph therein means that
Schedule to or clause of this Lease or paragraph in such Schedule
1.3 Headnotes and sidenotes in this Lease appear for ease of
reference only and shall not affect its construction
-8-
<PAGE>
1.4 Words importing the singular number only shall include the
plural number and vice versa and where there are two or more persons
included in the expressions "the Tenant" or (if applicable) "the
Guarantor" covenants contained in this Lease which are expressed to be
made by the Tenant or the Guarantor respectively shall be deemed to be
made by such persons jointly and severally
1.5 Words importing the masculine gender only shall include the
feminine and neuter genders and vice versa
1.6 Words importing persons shall include corporations and vice
versa
l.7 References to any Act of Parliament include references to
any statutory modification or re-enactment thereof for the time being
in force and any order instrument regulation or bye-law made or issued
thereunder
1.8 This lease is a deed
2. Demise
------
2.1 THE Landlord hereby demises unto the Tenant:-
2.1.1 FIRST ALL the Demised Premises and
2.1.2 SECONDLY the right for the Tenant his servants and agents
and persons authorized by him to the exclusive use of the
Parking Space for the purpose of parking private motor
vehicles in connection only with the use of the Demises
Premises TOGETHER WITH full and free right and liberty for
the Tenant in common with the Landlord and all other persons
authorized by it:
2.1.3 To pass and repass over and along the Common Parts on foot
to the Demised Premises and on
-9-
<PAGE>
foot and with or without motor vehicles to the Parking Space
and to the car park generally and to use any lifts included
in the Building during the Working Hours for all purposes
connected with the use and enjoyment of the Demised Premises
and the Parking Space
2.1.4 To park not more than forty private motor vehicles (or such
increased number as the Landlord may from time to time by
written notice to the Tenant stipulate) on the Parking Space
and in connection only with the Tenant's user of the Demised
Premises
2.1.5 to the free and uninterrupted passage and running of water
soil gas air electricity and telephone and any other service
or supply (subject to any necessary temporary interruption
for repair maintenance alteration or replacement) from and
to the Demised Premises through the sewers drains
watercourses cables pipes ducts and wires which now are or
may at any time hereafter be in under or passing through the
Building or any part or parts thereof so far as the same may
be necessary for the proper use and enjoyment of the Demised
Premises
2.1.6 to subjacent and lateral support and to shelter and
protection of the Demised Premises from the other parts of
the Building
-10-
<PAGE>
2.l.7 to install and maintain a duct for communication cables
under the ground in the position marked by a green line on
the plan together with a right of access to and egress from
the said duct for the purposes of installing maintaining and
repairing the same
2.1.8 a right of way at all times for all purposes over and across
the area of land coloured brown on the plan for the purpose
of access to and egress from the building edged red on the
plan
2.2 EXCEPTING AND RESERVING
-----------------------
2.2.1 Unto the Landlord free and uninterrupted passage and running
of water soil gas air electricity and telephone or any other
service or supply from the other parts of the Building
through the sewers drains watercourses conduits cables pipes
ducts and wires which are now or may hereafter during the
Said Term be in or over or under the Demised Premises and
2.2.2 Unto the Landlord the support and protection from the
Demised Premises enjoyed by the remainder of the Building
2.3.3 Unto the owner or owners thereof the mines and minerals
within and under the Building with such powers of winning
working and carrying away the same as have heretofore been
excepted and reserved
2.3 TO HOLD (except and reserved as aforesaid) unto the Tenant
-------
for the term of twelve years from and including
-11-
<PAGE>
the day of One thousand nine
hundred and ninety two
2.4 YIELDING AND PAYING during the Said Term the following rents
-------------------
viz:
2.4.1 The Rack Rent as follows:-
2.4.1.1 From and including the Term Commencement Date
until the First Revision Date the clear yearly
rent sixty thousand three hundred and eight five
pounds (60,385 pounds) exclusive of Value Added
Tax
2.4.1.2 Thereafter during each successive period of the
Said Term commencing or the First Revision Date
and each subsequent Revision Date and ending on
the Revision Date which respectively next occurs
such revised clear yearly rent as may be
determined under clause
2.4.2 As a further rent the Maintenance Rent of an amount
ascertained under the First Schedule hereto to be paid by
equal quarterly payments in advance on the Quarter Days the
first payment (for the period from the Term Commencement
Date to the Quarter Day next falling due after the date
hereof and calculated by multiplying the basic rate
specified in the First Schedule hereto by the fraction of
which the numerator is the number of days between the Term
Commencement Date and the said Quarter Day both included and
the
-12-
<PAGE>
denominator is 365) to be made on the completion of this
Lease
2.4.3 As a further rent the Service Rent being a sum equal to the
Tenant's Proportionate Charge as ascertained under the
provisions of the Second Schedule or such other annual sum
as pending the ascertainment of the Tenant's Proportionate
Charge the Landlord may specify under paragraph two of the
Second Schedule
2.4.4 The Rack Rent and the Service Rent shall be paid by equal
quarterly payments in advance on the Quarter Days the first
payment (for the period from the Term Commencement Date to
the Quarter Day next falling due after the date hereof and
calculated by multiplying (in the case of the Rack Rent) the
rent reserved under clause 2.4.1.1 and (in the case of the
Service Rent) the rent reserved under clause 2.4.3 by the
fraction of which the numerator is the number of days
between the Term Commencement Date and the said Quarter Day
both included and the denominator is 365) to be made on the
completion of this Lease
2.4.5 As a further rent (but without prejudice to any other right
remedy or power herein contained or otherwise available to
the Landlord) such sum or sums as shall represent interest
payable in accordance with clause 3.1.2 (as well after as
before judgment) or Value Added Tax (or any
-13-
<PAGE>
tax of a similar nature that may be substitute for it or
levied in addition to it) and in either case payable on any
unpaid rents or other sum(s) payable by the Tenant hereunder
such additional rent to be paid without any deduction on
demand
each of such further rents to be recoverable by distress in the same
manner as rent in arrear
3. Tenant's covenants
- ------------------------------
THE Tenant hereby covenants with the Landlord in manner following
viz:-
3.1 Payment of rent
- ---------------------------
3.1.1 To pay the rents hereby reserved at the times and in manner
aforesaid without any deductions except as required by law
and to observe and perform the provisions herein contained
which are or ought on the part of the Tenant to be observed
and performed
3.l.2 If any rent further rent or other sum payable by the Tenant
hereunder shall be due but unpaid for fourteen days to pay
to the Landlord on demand interest at 3% above the base
lending rate from time to time of Barclays Bank PLC on such
outstanding amount from the due date until payment and this
covenant shall not prejudice any other right or remedy of
the Landlord for the recovery of the said rents or other
sums
3.1.3 If so required in writing by the Landlord to pay the Rack
Rent the Maintenance Rent and the
-14-
<PAGE>
Service Rent by bankers order or credit transfer to any bank
and account in the United Kingdom that the Landlord may from
time to time nominate
3.2 Value Added Tax
- ---------------------------
To pay and indemnify the Landlord against Value Added Tax
(or any tax of a similar nature that may be substituted for it or
levied in addition to it) chargeable in respect of any of the rents or
other payments made paid or payable by the Tenant under any of the
terms of or in connection with this lease or in respect of any payment
made by the Landlord where the Tenant agrees in this lease to
reimburse the Landlord for such payment
3.3 Payment of taxes etc.
- ---------------------------------
To pay and discharge (or in the absence of direct assessment
on the Demised Premises to pay to the Landlord on demand a fair
proportion to be determined by the Surveyor for the time being of the
Landlord whose decision shall be binding upon the Tenant) all taxes
rates assessments duties charges levies outgoings and impositions
whatsoever which now are or during the Said Term shall be charged or
imposed upon the Demised Premises or any part thereof or upon the
owner or occupiers thereof by authority of Parliament or otherwise
except
3.3.1 Any tax in respect of rents and other payments hereunder
other than Value Added Tax or other tax thereon intended to
be paid by the Tenant
-15-
<PAGE>
3.3.2 Any tax or levy in respect of the grant of and arising
solely by reason of the grant of this Lease (and not by
reason of the combined effect of the grant of this Lease and
of some act or omission of the Tenant)
3.3.3 Any tax or levy in respect of any dealing with the reversion
expectant on the Said Term not arising by reason of some act
or omission on the part of the Tenant
3.4 Compliance with statute
- -----------------------------------
3.4.1 In all respects to comply with the provisions of any Act of
Parliament now or hereafter in force and the requirements of
any competent authority in respect of the Demised Premises
or the occupation and user thereof (including without
prejudice to the generality of this covenant any provision
or requirement of or arising under the Factories Act 1961
the Offices Shops and Railway Premises Act 1963 the Fire
Precautions Act 1971 and the Health and Safety at Work etc.
Act 1974) and to indemnify the Landlord against all claims
demands expenses and liability in respect thereof and to pay
all costs charges and expenses incurred by the Landlord
under or arising out of any such provision or requirement
3.4.2 To provide to the Landlord on request all such information
as to the Tenant's use and
-16-
<PAGE>
occupation of the Demised Premises as the Landlord may
reasonably require to enable the Landlord to comply with
statutory requirements affecting it or to enforce statutory
rights against third parties
3.5 Repair of the demised premises
- ------------------------------------------
At all times during the Said Term to keep the Demised
Premises in good and substantial repair and condition (except damage
covered by the Building Insurance unless the whole or any part of the
insurance monies is irrecoverable by reason of any act or default of
the Tenant or his tenants or their respective employees agents or
licensees) and the same in such good and substantial repair (except as
aforesaid) at the expiration or sooner determination of the Said Term
quietly to yield up to the Landlord
3.6 Repair of fixtures
- ------------------------------
At all times during the Said Term,
3.6.1 To place and keep in good working order repair and condition
all machinery plant apparatus and fixtures including those
particulars whereof are set forth in the Inventory of
Fixtures and Fittings the property of the Landlord now or at
any time during the Said Term in or on the Demised Premises
(including installations fittings pipes and wires for the
supply of light heat or power but except tenants fixtures)
3.6.2 To replace or renew to the satisfaction of the Landlord such
of the same as may be or become
-17-
<PAGE>
broken lost worn out or cannot be so repaired as to comply
with the foregoing covenant and
3.6.3 At the expiration or sooner determination of the Said Term
to yield up to the Landlord the said machinery plant
apparatus and fixtures (including and except as aforesaid)
with any replacements or renewals as aforesaid in good
working order repair and condition
3.7 Landlord's inspection
- ---------------------------------
3.7.1 To permit the Landlord or its agents with or without workmen
and others at any time during the Said Term to enter into
and upon the Demised Premises or any part thereof for the
purposes of taking inventories of the Landlord's fixtures
therein and of viewing and examining the state and condition
of the Demised Premises
3.7.2 To repair and make good all defects or wants or repair
renewal or painting which shall be found upon such view and
for which the Tenant may be liable hereunder within one
month after a notice in writing to that effect shall be
given to the Tenant or left for him on the Demised Premises
3.8 Interior Painting
- -----------------------------
In the sixth year of the Said Term and if so required by the
Landlord at the end or sooner determination thereof to paint all the
inside wood and metalwork of
-18-
<PAGE>
the Demised Premises and additions thereto so painted with
at least two coats of paint in a proper and workmanlike manner and (in
the case of painting carried out at the end or sooner determination of
the Said Term) to the approval of the Landlord as respects colour and
quality of materials and workmanship and to paper colourwash paint or
apply such other preservatives as the Landlord may approve to all
other parts of the Demised Premises and additions thereto
3.9 Landlord's right to repair etc.
- -------------------------------------------
3.9.1 That if the Tenant shall at any time make default in the
performance of any of the covenants herein contained for or
relating to the repair and painting of the Demised Premises
it shall be lawful for the Landlord (but without prejudice
to the right of re-entry under the clause hereinafter
contained) to enter upon the Demised Premises and repair and
paint the Demised Premises at the expense of the Tenant in
accordance with the said covenants and the expenses of such
repairs and painting shall be repaid by the Tenant to the
Landlord on demand
3.9.2 To pay to the Landlord on demand all expenditure reasonably
incurred by the Landlord in making good to those parts of
the Building which the Landlord hereinafter covenants to
repair or decorate any damage caused by the
-19-
<PAGE>
willful or negligent act or omission of the Tenant or his
servants
3.10 Parking of vehicles
- -------------------------------
Not to use the Parking Space or any other part of the Car
Park except as a park for the stipulated number motor vehicles of the
Tenant or his employees or of persons transacting business at the
Demised Premises
3.11 Disposal of rubbish
- -------------------------------
3.11.1 Not to form any refuse dump or rubbish or scrap,
heap in or about the Building
3.11.2 Not less frequently than once a month to cause all refuse
rubbish and scrap which may have accumulated on the Demised
Premises to be removed therefrom
3.12 Making and restoration of alterations
- -------------------------------------------------
3.12.1 Not to make or to permit or suffer to be made any structural
addition or structural alteration to the Demised Premises
3.12.2 Not to make or permit or suffer to be made any other
alteration or addition to the Demised Premises unless in
accordance with plans and specifications previously approved
in writing by the Landlord (such approval not to be
unreasonably withheld) save that the Tenant may install
alter and remove demountable partitioning in the Demised
Premises
3.12.3 Not to interfere with or by building or otherwise cause
access to any sewers drains
-20-
<PAGE>
watercourses conduits subways wires cables apparatus and
other works which now are or at: any time hereafter may be
in through under or over the Demised Premises or any
adjoining or neighbouring premises to be or become more
difficult than the same now is
3.12.4 If the Tenant shall have made any addition or alteration to
the Demised Premises if so required by the Landlord at the
cost of the Tenant to restore reinstate and make good the
Demised Premises to the Landlord's reasonable satisfaction
during the six months preceding the expiration of the Said
Term or on its sooner determination to the condition in
which the same were prior to the making of such addition or
alteration and to pay to the Landlord any reasonable expense
incurred by it of and incidental to the superintendence of
such works
3.13 Planning
- --------------------
3.13.1 Not to carry out on the Demised Premises development of any
kind within the meaning of the Planning Laws nor to make any
change of use of the same for which planning permission is
required nor to make any application for planning permission
affecting the Demised Premises nor to implement any such
permission
3.13.2 To supply the Landlord with a copy of any notice or order
or proposal for a notice or
-21-
<PAGE>
order affecting the Demised Premises served the Tenant by
any competent authority immediately it is received by the
Tenant and the Landlord so requires to make or join in
making such objections or representations against or in
respect of such notice or order as the Landlord may
reasonably require
3.14 Loading of premises
- -------------------------------
Not to place any load or weight upon the floor or wall of
the Demised Premises in excess of the loading which such floor or wall
is designed to bear
3.15 Drainage and effluents
- ----------------------------------
Not to permit oil grease or other deleterious matter enter
the drains and sewers of the Building
3.16 Entry by neighbours
- -------------------------------
To permit the Landlord or the occupiers of adjoining
premises with their Surveyors Agents and workmen at reasonable times
upon prior notice except in the case of emergency to enter upon the
Demised Premises or a part thereof for the purpose of repairing
extending or altering any adjoining premises as occasion shall require
or for the purpose of making repairing maintaining rebuilding
cleansing or lighting and keeping in good order and condition the
Common Parts and for the purposes of laying down maintaining repairing
and testing sewers drains gas or water pipe and electric wires or
cables or for other similar purposes the Landlord or such persons as
aforesaid
-22-
<PAGE>
making good any damage occasioned thereby to the Demised
Premises and causing as little inconvenience as may be possible
3.17 Clean air provisions
- --------------------------------
To comply with the provisions of the Clean Air Act 1956 with
regard to the use and installation of any plant or apparatus upon the
Demised Premises in which a smoke producing fuel is to be consumed
3.18 Advertising
- -----------------------
Not without the previous consent in writing of the Landlord
to use the Demised Premises for the purpose of advertising nor to
display or permit to be displayed thereon any advertisement poster
notice or nameplate and to remove and discontinue the use of any
advertisement poster or notice to which the Landlord may take
objection notwithstanding any previous consent thereto PROVIDED
nevertheless that the Tenant shall be entitled to affix at such points
in the Building as the Landlord stipulates boards plates or signs
indicative of the Tenant's name such boards plates or signs and the
lettering thereon to be of a size and type approved of in writing by
the Landlord
3.19 User
- ----------------
Not to use the Demised Premises or permit or suffer the same
to be used otherwise than for the purposes authorized by Class B1 of
the Town and Country Planning (Use Classes) Order 1987 but nothing
herein shall be deemed to authorize the Demised Premises to be used
for
-23-
<PAGE>
a noxious or offensive trade or use and diligently and,
regularly to carry on any authorized trade or use in normal and proper
manner so as to prevent such authorized trade or use causing in the
opinion of the Landlord any nuisance annoyance or inconvenience to the
Landlord or any of its tenants or the owners or occupiers of adjoining
or adjacent premises or the neighbourhood
3.20 Loading etc. of vehicles on the Common Parts
- --------------------------------------------------------
To observe and to use all endeavours to ensure that persons
doing business with the Tenant and the servant and workmen of the
Tenant shall observe any regulations and instructions made or given by
the Landlord with regard to the loading parking or movement of
vehicles waste disposal containers and other similar equipment about
the Common Parts
3.21 Avoidance of Insurance
- ----------------------------------
Not either in the course of the business hereby authorized
nor otherwise to do or permit anything to be done on the Demised
Premises whereby any policy of insurance effected to provide the
Building Insurance or the Rental Insurance for the time being
subsisting may be invalidated or whereby the rate of premium for
insurance against damage by any of the risks for which the Building
Insurance is for the time being effected of the Building or any part
of the Building or the contents thereof shall be higher than the rate
usually charged for the activity or trade carried on in the Building
or the relevant part thereof
-24-
<PAGE>
3.22 Auctions etc.
- -------------------------
Not to permit any sale by auction public exhibition or
political meeting to be held upon the Demised Premises nor to use the
Demised Premises for any illegal or immoral purpose nor to allow any
person to sleep on the Demised Premises
3.23 Assignment underletting etc.
- ----------------------------------------
3.23.1 Not to assign charge or underlet any part or parts (as
opposed to the whole) of the Demised Premises
3.23.2 Not to part with the possession of or share the occupation
of the Demised Premises or any part or parts thereof or
grant any license in respect thereof Provided that a sharing
of occupation of the Demised Premises with a company which
is a member of the same group (as defined in the Landlord
and Tenant Act 1954 s.42) as the Tenant where no tenancy is
created shall not be a breach of this covenant
3.23.3 Not to assign the Demised Premises as a whole without the
previous consent in writing of the Landlord but such consent
shall not be unreasonably withheld or delayed
3.23.4 Upon every assignment to procure
3.23.4.1 that the assignee enters into a direct covenant
with the Landlord to pay the rents and observe and
perform the
-25-
<PAGE>
covenants and conditions on the lessees part
herein contained and
3.23.4.2 where the assignee is a limited liability company
then if the Landlord so reasonably requires a
guarantor enter into direct covenants with the
Landlord in a form similar to clause 8
3.23.5 Not to underlet the whole of the Demised Premises without
the previous consent in writing of the Landlord which shall
not be unreasonably withheld Provided that
3.23.5.1 The Underlease shall reserve rents equivalent to
the Rack Rent and the Service Rent and! the rack
rent to be reserved by the underlease shall not be
less than the Rack Rent and shall be the best rent
obtainable without taking a fine or premium and
the service rent to be reserved by the Underlease
shall not be less than the Service Rent
3.23.5.2 The Underlease shall contain such provisions as
are
-26-
<PAGE>
necessary to secure that it is in all respects
consistent with the provisions hereof including in
particular a provision for the review of the rack
rent and maintenance rent thereby reserved at the
same time as the reviews of the Rack Rent and the
Maintenance Rent hereunder a provision that the
Landlord shall approve the amount of any reviewed
rack rent and an absolute prohibition against any
further underletting
3.23.6 To use his best endeavours to enforce the performance and
observance of all the covenants and conditions on the part
of the undertenant contained in such underlease
3.24 Appointment of receiver or administrative receiver
- --------------------------------------------------------------
To notify the Landlord in writing immediately of any
appointment of a receiver or administrative receiver of the Tenant's
undertaking
3.25 Re-letting
- ----------------------
To permit the Landlord at any time within six months before
the expiration or sooner determination of the Said Term to enter into
and upon the Demised Premises for the purpose of fixing upon a
suitable part thereof
-27-
<PAGE>
a notice board for letting or selling the same and to remove
or interfere with such notice board and the permit all persons by the
order of the Landlord to the Demised Premises at all reasonable times
of the
3.26 Payment of Landlord's costs
- ---------------------------------------
To pay to the Landlord on demand all costs damages and
expenses including Solicitors' costs and Surveyors' other professional
fees and bailiffs costs incurred the Landlord for the purpose of or
incidental to:
3.26.1 The preparation and service of a notice under Section 146 of
the Law of Property Act 1925 requiring the Tenant to remedy
a breach of any of the covenants herein contained
notwithstanding forfeiture for such breach shall be avoided
otherwise than by relief granted by the Court
3.26.2 Any schedule relating to wants of repair or decoration to
the Demised Premises whether served during or after the
termination of the Said Term
3.26.3 Any application made by the Tenant for the consent of the
Landlord whether the same be granted refused or proffered
subject to any lawful qualifications or condition or whether
the application be withdrawn
3.26.4 The levying of a distress for the rents payable hereunder or
any part thereof or as a result of the bailiff or the
Landlord (after the bailiff
-28-
<PAGE>
has been instructed) being paid such rent whether or not any
actual distress is levied
3.26.5 The preparing settling and completing of this Lease and a
counterpart thereof in accordance with the Solicitors
Remuneration Order as amended and the stamp duty on such
counterpart
3.27 Registration of dispositions etc.
- ---------------------------------------------
Within one month after any assignment underlease or
assignment of underlease surrender mortgage charge transfer
disposition or devolution of the Demised Premises or of any part
thereof or of any estate or interest therein to give notice thereof in
duplicate to the Landlord and to produce to it the original or a
certified copy (together with a copy for retention) of any instrument
(including any grant of probate or letters of administration)
effecting the same and to pay to the Landlord a reasonable fee for the
registration thereof
3.28 Notice of destruction or damage
- -------------------------------------------
In the event of the Demised Premises being destroyed or
damaged to give notice thereof immediately to the Landlord stating (if
possible) the cause of such destruction or damage
3.29 Indemnities
- -------------------------
3.29.l To indemnify the Landlord against all costs and expenses
including professional fees properly incurred by the
Landlord in connection with all and every loss and damage
whatsoever incurred
-29-
<PAGE>
or sustained by the Landlord as a consequence of every
breach of the covenants by the Tenant set out herein or
implied PROVIDED that such indemnity shall extend to and
cover all costs and expenses incurred by the Landlord in
connection with any steps which the Landlord may at its
absolute discretion (but without being in any way obliged so
to do) take to remedy any such breach and be without
prejudice to any rights or remedies of the Landlord in
respect of any such breach
3.29.2 Without prejudice to the generality of the foregoing to
indemnify the Landlord against any tax or imposition which
becomes payable by the Landlord in respect of the Demised
Premises or any part thereof by reason of any act or
omission of the Tenant (whether or not authorized by this
Lease or by the Landlord and whether or not the same is in
breach of any of the Tenant's covenants)
3.29.3 To indemnify the Landlord against all actions claims
liabilities costs and expenses alleged or demanded by the
owners or occupiers of any adjoining or neighbouring
property or other parties arising through the use or
occupation of the Demised Premises the existence of any
article in or about the Demised Premises or the execution or
omission of any works upon the
-30-
<PAGE>
Demised Premises except insofar as the same may be due
solely to the Landlord's own act or default or the act or
default of the Landlord's employees or agents
3.30 New easements
- -------------------------
Not to permit any new window light opening doorway path
passage drain or other encroachment right or easement to be made or
acquired in to against or upon the Demised Premises and in case any
such window light opening doorway path passage drain or other
encroachment shall be made or attempted to be made or any such right
or easement attempted to be acquired to give immediate notice thereof
to the Landlord and to permit the Landlord and its Surveyors servants
and agents to enter the Demised Premises at reasonable times to
ascertain the nature of such encroachment or easement and at the
request and cost of the Landlord to adopt such means as may be
reasonably required or deemed proper for preventing any such
encroachment or the acquisition of any such easement
3.31 Access of light
- ---------------------------
Not to give to any third party any acknowledgment that the
Tenant enjoys the access of light to any of the windows or openings in
the Demised Premises by the consent of such third party nor to pay to
such third party any sum of money nor to enter into any agreement with
such third party for the purpose of inducing or binding such third
party to abstain from obstructing
-31-
<PAGE>
the access of light to any of such windows or openings and
in the event of any of the owners of adjacent or neighbouring land or
buildings doing or threatening to do anything which obstructs the
access of light to any of the windows or openings in the Demised
Premises to notify the same forthwith to the Landlord and to permit
the Landlord if necessary to bring all such actions as it may think
fit in the name of the Tenant against any of the owners of the
adjacent or neighbouring land or buildings in respect of the
obstruction of the access of light to any of the windows or openings
in the Demised Premises PROVIDED ALWAYS that the Landlord shall
indemnify the Tenant against all actions losses or damages which the
Tenant may suffer by reason of any act or actions which the Landlord
may do or bring under this sub-clause
3.32 Installation of duct
- --------------------------------
To install a duct for a communication cable in the position
marked by a green line on the plan in a good and workmanlike manner
previously approved by the Corporation and to repair any damage caused
to the ground in the installation maintenance and repairing of the
said duct and at the end of the term hereby granted to remove the said
duct making good all damage caused by such removal
4. Landlord's covenants
- --------------------------------
THE Landlord hereby covenants with the Tenant as follows:-
-32-
<PAGE>
4.1 Quiet enjoyment
- ---------------------------
That the Tenant paying the several rents hereby reserved and
performing and observing the several covenants conditions and
agreements herein contained and on his part to be performed and
observed shall and may peaceably and quietly hold and enjoy the
Demised Premises during the Said Term without interruption or
disturbance by the Landlord or by any persons lawfully claiming
through or under it
4.2 Insurance
- ---------------------
To effect and keep in force the Building Insurance and the
Rental Insurance with some reputable insurance office or with Lloyds
Underwriters and if required by the Tenant produce to the Tenant
evidence from the insurers of the terms of the policy of such
insurance and the fact that the policy is subsisting and in effect
4.3 Reinstatement on destruction or damage
- --------------------------------------------------
As often as the Demised Premises shall be destroyed or
damaged by the risks covered by the Building Insurance subject to the
Tenant duly giving notice of such destruction or damage under clause
3.28 and provided that the Building Insurance shall not have been
rendered void by the act or default of the Tenant or his tenants or
their respective employees agents or licensees to expend all monies
received by it under the Building Insurance in rebuilding or
reinstating the Demised Premises in their former state with all
convenient speed save to the extent delayed by labour
-33-
<PAGE>
disputes shortage of materials the withholding or delay in
issue of licenses certificates approvals or permissions by any
competent authority or any other matter outside the control of the
Landlord Provided that the Landlord's liability under this covenant
shall be limited to the expenditure of the whole of the insurance
monies received by it under the Building Insurance in respect of the
destruction or damage in question
4.4 Repair of the Building
- ----------------------------------
At all times during the Said Term to keep in good and
substantial repair and condition (except damage by the risks covered
by the Building Insurance) the main structure and exterior of the
Building and the Common Parts (the Demised Premises always excluded)
4.5 Exterior painting
- -----------------------------
To keep properly painted all the outside wood and iron work
of the Building and all parts of the Common Parts which are usually or
ought to be painted and all additions thereto and to apply such other
preservatives as the Landlord may consider necessary to all other
parts of the exterior of the Building and of the Common Parts
requiring such treatment
4.6 Maintenance of the Common Parts
- -------------------------------------------
Unless and until the same shall be adopted by a local
authority or statutory undertaker as maintainable at the public
expense to clean renew repair paint and maintain the Common Parts to
keep (where applicable)
-34-
<PAGE>
the Common Parts in good working order and to insure any
part thereof which the Landlord considers it prudent to insure against
damage by such risks as the Landlord in its discretion decides and to
pay any rates charges impositions or other outgoings assessed thereon
and to comply with all obligations (including the execution of any
works) imposed on the Landlord by virtue of any statutory regulations
or bye laws with regard to the use and operation of any of the Common
Parts
4.7 Provision of Part A Services
- ----------------------------------------
To provide throughout the Said Term the Part A services
5. Provisos and declarations
- -------------------------------------
PROVIDED ALWAYS and it is hereby agreed and declared as follows:-
5.1 Power of re-entry
- -----------------------------
If the rents hereby reserved or any part thereof shall be in
arrears for twenty one days next after any of the days fixed for
payment thereof whether or not the same shall have been legally
demanded or if there shall be any breach of any of the covenants by
the Tenant herein contained or if the Tenant shall become bankrupt or
make any arrangement or composition with his creditors or being a
limited company shall have a receiver or an administrative receiver of
its undertaking appointed or shall pass an effective resolution for
winding up (except for the purposes of reconstruction or amalgamation)
or shall have a winding up order or an
-35-
<PAGE>
administration order under the Insolvency Act 1986 made
against it then and in any such case the Landlord or any persons duly
authorized by it may at any time thereafter into and upon the Demised
Premises or any part thereof in the name of the whole re-enter and the
same have repossess and enjoy as in their former state
5.2 Cesser of rent
- --------------------------
If the Demised Premises or any part thereof or the Common
Parts shall be destroyed or rendered unfit for occupation or use
during the Said Term by damage covered by the Building Insurance then
(unless the Building Insurance or the Rental Insurance shall have been
rendered void by the act or default of the Tenant or his tenants or
their respective employees agents or licensees) a just proportion of
the Rack Rent the Maintenance Rent and the Service Rent according to
the nature and extent of the injury sustained shall cease and be
suspended until the Demised Premises and/or the Common Parts have been
made fit for occupation and use or until the second anniversary of the
occurrence of such damage (whichever event shall first occur)
5.3 Disputes as to rent cesser
- --------------------------------------
If any dispute shall arise between the Landlord and the
Tenant with regard to the amount of the abatement in the said rent or
the period for which the said rent or any part thereof shall be
suspended the same shall be referred to a single arbitrator to be
agreed between the parties and failing agreement to a single
-36-
<PAGE>
arbitrator to be appointed by the President for the time
being of the Law Society
5.4 Termination if premises substantially unfit
- -------------------------------------------------------
5.4.1 If during the last three years of the term hereby created or
the period of any extension thereof by statute or at common
law or of any holding over the Demised Premises shall be
destroyed or so damaged by any of the risks covered by the
Building Insurance as to be substantially unfit for
occupation or use the Landlord may by not less than six
months notice expiring at any time determine the Said Term
and upon the expiry of such notice the Said Term shall
determine without prejudice to any remedy of the Landlord in
respect of any breach of the Tenant's covenants
5.4.2 If the Landlord gives notice under clause 5.4.1. clause 4.3.
shall be of no effect and the Landlord shall be entitled to
retain any insurance monies received by it
5.5 Obstruction of light or air
- ---------------------------------------
That it shall be lawful for the Landlord at any time during
the Said Term to erect rebuild or alter any buildings or erections
facing adjoining or near to the Demised Premises or the Building in
any manner and to any extent it may think fit notwithstanding that any
buildings or erections so erected rebuilt or altered obstruct or
interfere with any right of light or air
-37-
<PAGE>
for the time being appertaining to or enjoyed with the
Demised Premises or the Common Parts or any part thereof
5.6 No warranty as to planning consent
- -------------------------------------------
Nothing herein shall be deemed to constitute any warranty by
the Landlord that the Demised Premises or any part thereof are
authorized for use for any specific purpose under the Planning Laws
5.7 Limit on waiver by acceptance of rent
- -------------------------------------------------
No demand for or receipt or acceptance of any part of the
rents hereby reserved or any payment on account thereof shall operate
as a waiver by the Landlord of any right which the Landlord may have
to forfeit this Lease by reason of any breach of covenant by the
Tenant and the Tenant shall not in any proceedings for forfeiture be
entitled to rely on any such demand receipt or acceptance as aforesaid
as a defense PROVIDED that this proviso shall have effect in relation
only to a demand receipt or acceptance made during such period as may
in all the circumstances be reasonable for enabling the Landlord to
conduct any negotiations with the Tenant for remedying the breach
5.8 Part B Services
- ---------------------------
The Landlord shall have no obligation to provide any of the
Part B Services which it may commence vary and discontinue from time
to time at its absolute discretion
5.9 Limitations on liability under clause 4.6 and for services
- ----------------------------------------------------------------------
The Landlord shall be under no liability to the Tenant his
tenants or their respective employees licensees or visitors in respect
of:
-38-
<PAGE>
5.9.1 Any interruption in the performance of the covenants
contained in clauses 4.6 and 4.7 or in the provision of any
of the Part B services caused by the repair or maintenance
of any installations or apparatus by their damage or
destruction by fire or water by mechanical or other default
or breakdown by adverse weather conditions by shortage of
fuel materials or labour by strikes lockouts or sit-ins or
by any other cause beyond the Landlord's control or
5.9.2 Any act omission or negligence of the Landlord or its
employees (not resulting in death or personal injury) in or
about the performance or purported performance of the
covenants contained in clauses 4.6 and 4.7 or the provision
of any of the Part B Services
5.10 Landlord's liability excluded
- -----------------------------------------
The Landlord shall not be responsible to the Tenant (save as
and to the extent hereinbefore expressly provided) his tenants or
their respective employees licensees or visitors for any injury death
damage destruction or financial or consequential loss whether to
person property or goods sustained on or by reason of the condition of
the Demised Premises
5.11 Service of notices
- ------------------------------
Section 196 of the Law of Property Act 1925 as amended by
the Recorded Delivery Service Act 1962 shall apply to the service of
any notice required to be served under this Lease
-39-
<PAGE>
5.12 Exclusion of statutory compensation
- -----------------------------------------------
Subject to section 38 (2) of the Landlord and Tenant Act
1954 neither the Tenant nor any assignee or underlessee of the Said
Term or of the Demised Premises or any part thereof shall be entitled
to on quitting the Demised Premises or that part to any compensation
under the said Act
5.13 Tenant's goods left in Demised Premises
- ---------------------------------------------------
If at any time after the Said Term has been determined
whether by effluxion of time or otherwise and the Tenant has vacated
the Demised Premises any property of the Tenant remains in or on the
Demised Premises and the Tenant shall fail to remove the same within
fourteen days after being requested so to do by a written notice from
the Landlord in that behalf then and in any such case the Landlord may
as the agent of the Tenant (and the Landlord is hereby appointed by
the Tenant to act in that behalf) remove and dispose of (by sale if
reasonably practicable) such property and shall hold the proceeds of
sale (if any) after deducting the costs and expenses of removal
storage and sale reasonably and properly incurred by it to the order
of the Tenant PROVIDED THAT the Tenant shall indemnify the Landlord
against any liability incurred by the Landlord to any third party
whose property shall have been removed and disposed of (whether by
sale or otherwise) by the Landlord in the bona fide belief (which
shall be presumed unless the contrary be proved) that such
-40-
<PAGE>
property belonged to the Tenant and was liable to be dealt
with as such pursuant to this clause
5.14 Disputes between tenants
- ------------------------------------
In case any dispute shall arise between the Tenant and other
tenants or occupiers or users of the Building or any other
neighbouring premises in connection with any easement right or
privilege affecting the Demised Premises the Landlord may (if it shall
think fit) determine every such dispute in such manner as the Landlord
shall think reasonable and the Tenant shall submit to-and abide by
every such determination
6. Break clause
- ------------------------
If the Tenant shall desire to determine the Said Term at the
end of the sisth year thereof and shall give to the Landlord not less
than three calendar months' previous notice in writing of such its
desire then and in such cause this Lease and everything herein
contained shall cease and determine but without prejudice to any claim
by either party against the other in respect of any antecedent breach
of any covenant or condition herein contained
7. Rack Rent review
- ----------------------------
7.1 Amount of revised Rack Rent
- ---------------------------------------
As from each Revision Date the Rack Rent shall be revised to
such a sum as shall be
7.1.1 The amount agreed in writing between the Landlord and the
Tenant at any time before the current annual market value of
the Demised
-41-
<PAGE>
Premises shall have been determined under sub-clause 6.3 or
7.1.2 If no such agreement shall have been reached within such
time the amount which equals the greater of:-
7.1.2.1 the Rack Rent payable hereunder immediately before
the Revision Date in question and
7.1.2.2 the current annual market value of the Demised
Premises as defined in sub-clause 7.2
7.2 Current annual market value
- ---------------------------------------
The current annual market value of the Demised Premise shall
be the sum determined under sub-clause 7.3 as being the yearly rent of
the Demised Premises on the Revision Date in question on the
assumptions set out in sub-clause 7.2.1 and disregarding the matters
set out in sub-clause 7.2.2 viz:
7.2.1 Assumptions
-----------------------
7.2.1.1 That the Demised Premises are to be let as a whole
and are fit for immediate occupation and use for
any purpose permitted by this Lease
7.2.l.2 That no works have been carried out on the Demised
Premises by the Tenant or his predecessors in
title during the Said Term which have diminished
the rental value of the Demised Premises
-42-
<PAGE>
7.2.1.3 That where the Demised Premises have been
destroyed or damaged they have been fully restored
7.2.1.4 That the Landlord and the Tenant have duly
performed and observed all the covenants on their
respective parts in this Lease contained up to and
including the Revision Date
7.2.1.5 That the Demised Premises are to be let on the
same terms (other than the amount of the Rack Rent
and of the Maintenance Rent) as those contained in
this Lease for a term of years equivalent to the
original term hereof by a willing landlord to a
willing tenant at a rack rent and maintenance rent
which are subject to review at the same intervals
as the Rack Rent and Maintenance Rent are
respectively revisable and in the same manner as
is specified in this clause and the First Schedule
7.2.2 Matters to be disregarded
-------------------------------------
7.2.2.1 Any effect on the current annual market value of
the Demised Premises of the considerations
specified in paragraphs (a) (b) and (c) of Section
34 (1) of the Landlord and Tenant Act 1954 as
amended by the Law of Property Act 1969
-43-
<PAGE>
7.2.2.2 For the purpose only of establishing the current
annual market value any statutory provision
prohibiting or restricting any increase in the
rent hereby reserved
7.3. Determination by expert
- -----------------------------------
Either the Landlord or the Tenant may by written notice to
the other given not more than three months before the Revision Date or
at any time thereafter require the current annual market value of the
Demised Premises to be determined by a surveyor familiar with the
valuation of properties similar to the Demised Premises (such surveyor
to be agreed between them or failing agreements within one month after
the giving of such notice to be appointed upon the application of
either party by the President for the time being of the Royal
institution of Chartered Surveyors or his duly appointed deputy)
acting as an expert and the certificate of such surveyor (or of any
surveyor appointed in his stead should he refuse to act or become
incapable of acting) as to the current annual market value of the
Demised Premises shall be final and binding upon the parties Provided
that the fees of such surveyor shall (unless such surveyor shall
otherwise determine) be borne and paid by the parties hereto in equal
shares PROVIDED ALWAYS that if one party pays the whole of such
surveyors' fees it shall be entitled to recover one half (or such
other proportion as such surveyor may
-44-
<PAGE>
have determined) of such surveyor's fee from the other party
on demand
7.4 Existing Rack Rent payable until revised Rack Rent determined
- -----------------------------------------------------------------------
Until the amount of the revised Rack Rent has been
determined in accordance with sub-clause 7.1 the Rack Rent reserved at
the Revision Date in question (in this sub-clause called "current Rack
rent") shall continue to be payable but on the Quarter Day next
following the determination of the revised Rack Rent (in this sub-
clause called "the adjustment Quarter Day") there shall be due from
the Tenant in addition to the instalment of revised Rack Rent falling
due on the adjustment Quarter Day
7.4.1 The amount if any by which the aggregate of the installments
of revised Rack Rent ascertained to have fallen due on the
Quarter Days occurring on or after the Revision Date in
question and before the adjustment Quarter Day exceeds the
aggregate of the installments of current Rack Rent which
have actually been so paid and
7.4.2 Interest at 3% above the base lending rate from time to time
of Barclays Bank PLC on the amount by which each of the
installments of revised Rack Rent the subject of adjustment
under clause 7.4.1 exceeds the respective instalment of
current Rack Rent calculated for each instalment from the
Quarter Day on which it fell due to the adjustment Quarter
Day
-45-
<PAGE>
7.5 Memorandum of Rent Review
- -------------------------------------
If the Landlord so requires a memorandum of any such revised
Rack Rent ascertained and payable as provided herein shall as soon as
may be after such revised Rack Rent has been agreed or determined be
endorsed or annexed at the Tenant's expense on this Lease and the
Counterpart hereof and signed by or on behalf of the Landlord and the
Tenant respectively
8. Guarantor's covenants
- ---------------------------------
THE Guarantor (if any) hereby covenants and guarantees with and to the
Landlord that:
8.1 Tenant to pay rent and observe covenants - Guarantor to make
good losses
- --------------------------------------------------------------------------------
That the Tenant shall at all times pay the rents hereby
reserved on the days and in manner aforesaid and shall duly observe
and perform all the covenants and conditions on the Tenant's part
hereinbefore contained to be observed and performed and that in the
case of default by the Tenant in the making of any such payment of
rent or in the performance or observance of such covenants or
conditions the Guarantor will pay and make good to the Landlord on
demand all losses costs damages and expenses thereby arising or
incurred by the Landlord with interest thereon from the date of demand
to the date of payment at 3% above the base lending rate from time to
time of Barclays Bank PLC
8.2 Guarantor to take new lease upon disclaimer of this Lease
- ---------------------------------------------------------------------
In the event of the Tenant during the Said Term
-46-
<PAGE>
becoming bankrupt or entering into liquidation and the
trustee(s) in such bankruptcy or the liquidators) in such liquidation
(as appropriate) disclaiming this lease that the Guarantor will if the
Landlord so requires in writing within three months of such disclaimer
accept from the Landlord a lease of the Demised Premises for a term
equal in duration to the residue remaining unexpired of the Said Term
at the time of such disclaimer such lease to be at the same rents and
to contain the like tenants and landlords covenants respectively and
the like provisos and conditions in all respects (including the
proviso for re-entry and including the same Revision Dates) as are
herein contained and will pay the legal costs of the Landlord
(including disbursements) in connection with such new lease and
execute and deliver to the Landlord a counterpart of it
8.3 Provisions
- ----------------------
PROVIDED ALWAYS that :
---------------
8.3.1 any neglect or forebearance of the Landlord in
endeavouring to obtain payment of the rents hereby reserved when the
same become payable or in enforcing the performance or observance of
the said covenants or obligations of the Tenant or any time which may
be given by the Landlord to the Tenant or any variation of the terms
of this lease which may be agreed between the Landlord and the Tenant
or any consent
-47-
<PAGE>
license or approval which may be given by the Landlord to
the Tenant shall not release or exonerate or in any way affect the
liability of the Guarantor under the covenants or guarantee on his
part hereinbefore contained 8.3.2 where there are two or more persons
included in the expression "the Guarantor" any neglect or forebearance
on the part of the Landlord in enforcing this covenant as against one
Guarantor or any agreement made by the Landlord limiting the liability
of one Guarantor under this covenant shall in no way relieve the other
Guarantor or Guarantors (as appropriate) from it/their liability
hereunder
8.4 Memorandum of Rent Review
- -------------------------------------
That the Guarantor shall (if requested by the Landlord in
writing) on each occasion that the Rack Rent is reviewed sign the
memorandum specifying the amount of the revised rent prepared by the
Landlord
IN WITNESS whereof Vincent Austin Lamb as Attorney of the Landlord has hereunto
- ----------
set the name of the Landlord and affixed his own seal and the Tenant has
hereunto caused its Common Seal to be affixed the day and year first before
written
THE FIRST SCHEDULE
------------------
1. In this Schedule
"The Index" means the Index of the output price for "All new
construction" contained in Housing and Construction Statistics
published by HM Stationery
-48-
<PAGE>
Office for the Government Statistical Service or any index
stated to be in substitution therefor and to be related to the
original index in a specified manner "the Maintenance Rent Year" means
the year commencing on First April
"the basic rate" means four thousand and sixty five pounds
per annum
"the Base Figure" is three hundred and twenty two
2. The Maintenance Rent for the period from and including the Term
Commencement Date to First April next following shall be at the basic
rate
3. Thereafter the Maintenance Rent payable in each Maintenance Rent Year
shall be the greatest of
3.l The basic rate and
3.2 The Maintenance Rent payable in the previous Maintenance
Rent Year and
3.3 The basic rate multiplied by X and divided by the Base
Figure where "X" is the figure which would have been shown
as the latest Index figure published before the commencement
of the relevant Maintenance Rent Year if there had been no
changes in the Reference Base used to compile the Index
since the Reference Base was set at one hundred for the year
1975
4. The Maintenance Rent payable for each Maintenance Rent Year of the
Said Term shall be calculated by the Landlord who shall give written
notice to the Tenant Of the Maintenance Rent becoming payable as
aforesaid and
-49-
<PAGE>
the amount stated in such notice shall (in the absence of
any clerical or arithmetical error) be final and binding on the
parties
5. Where any Index figure is stated in the Index to be provisional or is
amended after first publication the Maintenance Rent shall if
necessary be recalculated upon the ultimate confirmation or amendment
of the index figure in question
6. If the Index is discontinued and no index is substituted therefor by
the Government Statistical Service the General Index of Retail Prices
- All items ("the Retail Prices Index") published by HM Stationery
Office for the Government Statistical Service shall be substituted
therefor in the calculation of the Maintenance Rent at the
commencement of the Maintenance Rent Year next following the
discontinuance of the Index and thereafter this Schedule shall be read
as if "the Index" meant the Retail Prices Index "the Base Figure" was
the figure which would have been shown as the index figure in the
Retail Prices Index applicable at the commencement of the Said Term if
there had been no change in the Reference Base used to compile the
Retail Prices Index since the Reference Base was set a one hundred for
the year 1974 and "the year 1974" was substituted for "the year 1975"
in paragraph 3.3 hereof
7. If the Index is discontinued and the Retail Prices Index does not then
exist or if after use in substitution under paragraph 6 the Retail
Prices Index
-50-
<PAGE>
is discontinued the Landlord shall at its own discretion
select a suitable alternative index compiled by Government or by a
public body or by a trade association and such selection shall be
final and binding on the parties and thereafter this Schedule shall be
read as if "the Index" meant the index so selected and "the Base
Figure" was the index figure in the index so selected applicable at
the commencement of the Said Term or if the Reference Base for the
index so selected has changed since its commencement the figure which
would have been shown as the index figure applicable at the
commencement of the Said Term if there had been no changes in such
Reference Base and the year in which the index so selected was
commenced was substituted for "the year 1975" in paragraph 3.3 hereof
THE SECOND SCHEDULE
-------------------
Review of the Service Rent
- --------------------------
l. In this Schedule unless there be something in the context inconsistent
therewith
"the Accounting Year" means the year commencing on the First day of April
"the Building means the aggregate of all costs and expenses incurred
Services Charge" or payable or prospectively payable by the Landlord in
performing the covenants on its behalf contained in
clauses 4.2 and 4.7 or in providing any of the Part B
-51-
<PAGE>
services excluding any expenditure necessitated by the
negligent act or neglect of the Landlord or its servants or
contractors but with the addition of 10% of such total in
respect of the Landlord's management expenses
"the Landlord's means the certificate to be given pursuant to paragraph 3 of
Certificate" this Schedule
"the Tenant's means 22.22% of the Building Services Charge
Proportionate
Charge"
2. Interim payment
- ---------------------------
Pending ascertainment of the Tenant's Proportionate Charge for each
Accounting Year the Tenant shall pay to the Landlord an annual sum of such an
amount as the Landlord by written notice to the Tenant shall specify at its
discretion to be a fair and reasonable interim payment such sum to be paid by
equal quarterly payments in advance on the Quarter Days the first payment or an
apportioned part thereof for the period ending on the Quarter Day next following
the Term Commencement Date failing due on the completion of this Lease
3. Determination of Tenant's Proportionate Charge
- ----------------------------------------------------------
The Tenant's Proportionate Charge shah be determined by a surveyor
(acting as an expert and not as an arbitrator) in the employ of the Landlord as
soon as practicable after the expiration of each Accounting Year and shall be
certified by a Certificate signed by such surveyor on behalf of the Landlord and
a copy of the Landlords Certificate shall be supplied by the Landlord to the
Tenant without charge to the Tenant
-52-
<PAGE>
4. Landlord's Certificate
- ----------------------------------
The Landlord's Certificate shall contain a summary of the items
constituting the Building Services Charge and details of the calculation of the
Tenant's Proportionate Charge and the Landlord's Certificate (or a copy thereof
duly certified by the surveyor for the Landlord) shall save in the case of any
manifest error be conclusive evidence for the purposes hereof of the matters
which it purports to certify
5. Recovery of Tenant's Proportionate Charge
- -----------------------------------------------------
As soon as practicable after the issue of the Landlord's Certificate
the Landlord shall furnish to the Tenant an account of the Tenant's
Proportionate Charge for the Accounting Year in question due credit being given
therein for all payments under paragraph 2 made by the Tenant during the
Accounting Year and within fourteen days of the delivery of such account the
Tenant shall pay to the Landlord or the Landlord shall pay to the Tenant (as the
case may be) the balance (if any) shown in the account as due from one party to
the other
6. Apportionment of Tenant's Proportionate Charge
- ----------------------------------------------------------
The Tenant's Proportionate Charge shall be duly apportioned in respect
of any broken periods during which the Said Term has existed in an Accounting
Year
THE THIRD SCHEDULE
------------------
PART A - Services covenanted to be provided under clase 4.7
------------------------------------------------------------
1. The provision of adequate lighting of the Common Parts during the hours of
darkness
2. The cleaning of the windows and frames of the Building
-53-
<PAGE>
PART B - Services which the Landlord may provide
1. Maintenance repair and replacement of fire prevention or warning equipment
and of security systems in the Common Parts
2. Provision of such staff for the servicing maintenance and cleaning of the
Common Parts as the Landlord may reasonably consider necessary including the
provision of a manager
3. maintaining cleansing heating lighting and furnishing a staff room and
office accommodation for staff provided under paragraph 2 and a flat for any
resident staff
4. The provision and maintenance of furniture in the Common 1
5. The provision and maintenance of plants shrubs trees grassed areas and
grown or cut flowers in the Common Parts
THE FOURTH SCHEDULE
-------------------
Fixtures and Fittings
PRODUCTION AREA
- ---------------
1 2 No 8 gang plastic flush mounted light switches
2 1 No plastic flush mounted indicator switch
3 148 No ceiling recessed fluorescent light fittings
4 64 No plastic flush mounted switched twin socket outlets
5 24 No twin panel steel wall mounted radiators each with
thermostatic valve
6 3 No Maylectro ceiling mounted emergency light fittings each
with plastic surface mounted fused spur outlet
7 1 No "Maylectro Fireguard 100" fire alarm system
8 1 No plastic flush mounted fused spur associated with Item 7
9 1 No "Redring Sun Screen" heater wall mounted above entrance
door
10 1 No plastic flush mounted fused spur associated with Item 9
11 1 No electrically controlled security grille to inside of
entrance door complete with external keyed control unit
TEA ROOM
--------
12 1 No plastic flush mounted single gang light switch
13 2 No ceiling fluorescent light fitting
14 3 No plastic flush mounted switched twin socket outlets
15 1 No "Aidelle" ceiling mounted ventilator
16 1 No single panel steel wall mounted radiator
-54-
<PAGE>
DISABLED TOILET-LOBBY
---------------------
17 1 No plastic flush mounted single gang light switch
18 1 No ceiling light fitting
WC COMPARTMENT
--------------
19 1 No ceiling light fitting
20 1 No plastic fused indicator switch
21 1 No "Aidelle" ceiling mounted ventilator
22 1 No single panel steel wall mounted radiator
FEMALE TOILET LOBBY
-------------------
23 1 No plastic flush mounted single gang light switch
24 1 No ceiling light fitting
WC COMPARTMENT
--------------
25 2 No ceiling fluorescent light fittings
26 1 No ceiling light fitting
27 1 No ceiling mounted "Aidelle" ventilator
28 1 No steel single panel wall mounted radiator
29 1 No plastic flush mounted fused indicator switch
30 1 No wall mounted "TLM Sunvic" thermostat
MALE TOILET LOBBY
------------------
31 1 No plastic flush mounted single gang light switch
32 1 No ceiling light fitting
WC COMPARTMENT
--------------
33 2 No ceiling fluorescent light fittings
34 1 No wall mounted steel single panel radiator
35 1 No ceiling mounted "Aidelle" ventilator
36 1 No plastic flush mounted fused indicator switch
LAVATORY AREA
-------------
37 1 No ceiling light fitting
38 1 No plastic flush mounted fused indicator switch
39 1 No plastic flush mounted single gang switch
40 1 No single panel steel wall mounted radiator
STORE
-----
41 1 No plastic flush mounted single gang light switch
42 1 No ceiling light fitting
43 1 No plastic flush mounted twin switched socket outlet
44 1 No "Strelrad/Ideal - Ideal Concord CX" boiler complete
with all pipework flue circulating pump timer thermometer
and "Flue Boost Plus" and controller
45 1 No plastic surface mounted fused indicator switch
46 1 No "Elsan Pearl 90" tank, wall mounted complete with all
pipework and associated plastic flush mounted indicator spur
47 1 No "Roof Units Group Turbo" fan and wall mounted control
box
48 1 No "Square D Load Centre" distribution board wall mounted
49 1 No plastic surface mounted fused switch
EMERGENCY STAIRCASE
-------------------
50 1 No plastic flush mounted single gang light Switch
51 2 No ceiling mounted fluorescent light fittings
52 1 No wall mounted fluorescent light fitting
53 2 No plastic flush mounted fused switches
54 2 No ceiling mounted emergency lights
-55-
<PAGE>
)THE COMMON SEAL of APPLIED
---------------
)IMAGING INTERNATIONAL LIMITED
)was hereunto affixed in the
)presence of:-
Director /s/ [unreadable signature]
Secretary /s/ [unreadable signature]
-56-
<PAGE>
EXHIBIT 10.9(c)
DATED [14th February] 1996
----------------------------
APPLIED IMAGING INTERNATIONAL LIMITED (1)
-------------------------------------
and
RTC NORTH LIMITED (2)
-----------------
COUNTERPART UNDERLEASE
----------------------
Relating to
Unit 1A Hylton Park Wessington Way
Sunderland Tyne and Wear
DICKINSON DEES SOLICITORS
----------
Cross House, Westgate Road, Newcastle upon Tyne NE99 1SB.
Telephone (O191) 261 1911. Fax (O191) 261 5855/232 0586.
Ref : GH
<PAGE>
UNDERLEASE
<TABLE>
<S> <C> <C>
1. PARTICULARS AND INTERPRETATION
------------------------------
1.1 Date: [14th February 1996]
1.2 The Landlord: A P P L I E D I M A G I N G
---------------------------------------------
INTERNATIONAL LIMITED (Company
---------------------
Registration Number 1984637) whose
registered office is at Hylton Park
Wessington Way Sunderland Tyne and
Wear SR5 3HD
1.3 The Tenant: REGIONAL TECHNOLOGY CENTRE
--------------------------
NORTH LIMITED (Company
-------------
Registration Number 2373630) whose
registered office is at Unit 3D Hylton Park
Wessington Way Sunderland Tyne and
Wear
1.4 The Superior Landlord: The party for the time being entitled to
the reversion expectant on the expiry of
the Headlease
1.5 The Headlease: The Superior Lease under which the
Landlord holds the premises dated 12 June
1992 made between English Industrial
Estates Corporation (1) and the Landlord (2)
1.6 The Demised Premises: ALL that land and buildings known as
Unit No. BT.2003/lA Hylton Park
Wessington Way Sunderland Tyne and
Wear which is more particularly described
in the Headlease
1.7 The Term: From and including the date hereof
expiring on 10th June 1988
1.8 The Yearly Rent: 39,958 pounds or such sum as is the Rack Rent
from time to time under the Headlease
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
for the time being in force
1.10 Consents: Where under the terms of this Underlease
the consent of the Landlord is required
for any act or matter the consent of
the Superior Landlord under the terms
of the Headlease shall also be required
wherever requisite PROVIDED that
nothing in this Underlease shall be
construed as imposing on the Superior
Landlord any obligation (or indicating
that such obligation is imposed on the
Superior Landlord by virtue of the
terms of the Headlease) not
unreasonably to refuse any such consent
1.11 Rights: Reference to any right exercisable by
the Landlord or any
right exercisable by the Tenant in
common with the Landlord shall be
construed as including (where
appropriate) the exercise of such
right:-
(a) by the Superior Landlord
and all persons authorized
by the Superior Landlord; and
(b) in common with all other persons
having a like right
1.12 Terms and Definitions: Terms and definitions referred to in
this Underlease shall have the same
meaning and effect as they have in the
Headlease unless specifically defined
in this Underlease in which case this
Underlease shall prevail
</TABLE>
2. THE DEMISE
----------
In consideration of the rents and covenants on the part of the Tenant
hereinafter reserved and contained the Landlord HEREBY DEMISES unto the Tenant
ALL THAT the Demised Premises
2
<PAGE>
TOGETHER WITH the rights granted by the Headlease insofar as the Landlord is
able to grant the same EXCEPTING AND RESERVING the rights reserved by the
Headlease TO HOLD the same unto the Tenant for the Term yielding and paying
thereof during the Term and proportionately for any fraction of a year:
2.1 The Yearly Rent; and
2.2 By way of further rent on demand such sums equal to the amounts paid
from time to time by the Landlord to the Superior Landlord in respect
of the further rents reserved by and as set out in clause 2 of the
Headlease
2.3 The Yearly Rent and the further rent referred to in sub-clauses 2.1
and 2.2 above are collectively hereinafter referred to as "the
reserved rents"
3. TENANT'S COVENANTS
------------------
The Tenant covenant with the Landlord and in respect of clause 3.2 below with
the Superior Landlord:-
3.1 To pay the reserved rents on the days and in the manner aforesaid
3.2 To observe and perform the covenants and conditions on the part of the
Tenant contained in the Headlease but except insofar as the Landlord
expressly covenants in this Underlease to observe and perform the same
and to indemnify the Landlord from and against any actions proceedings
claims damages costs expenses or losses arising from any breach non-
observance or non-performance of such covenants and conditions by the
Tenant
3.3 Not to do omit or permit in relation to the Demised Premises any act
or thing which would or might cause the Landlord to be in breach of
the Headlease or which if done omitted or suffered or permitted by the
Landlord would or might constitute a breach of the covenants on the
part of the Tenant and the conditions contained in the Headlease and
to indemnify the Landlord from and against any actions proceedings
claims damages costs expenses or losses arising from any doing
omission or permission of such act or thing both during and at the
determination of the Term by the Tenant
3.4 To permit the Landlord and all persons authorized by the Landlord
(including agents professional advisers contractors workmen and
others) at reasonable hours upon giving reasonable written notice
(except in the case of emergency) to enter upon the Demised Premises
for any purpose that is in the reasonable opinion of
3
<PAGE>
the Landlord necessary to enable it to comply with the covenants on
its part and the conditions contained in the Headlease (so far as the
Tenant does not expressly covenant to observe and perform the same)
3.5 Not to underlet hold on trust or otherwise part with possession or
share occupation or grant any License in respect of the whole or any
part or parts of the Demised Premises
3.6 Not to assign the demised premises as a whole without the previous
consent in writing of the Landlord but such consent shall not be
unreasonably withheld or delayed
3.7 To pay to the Landlord on demand all reasonable and proper costs
charges and expenses including Solicitors costs Bailiffs costs and
Surveyors and other professional fees incurred by the Landlord and/or
the Superior Landlord for the purposes of or incidental to any of the
matters set out in sub-clause 3.26 of the Headlease save for the costs
incurred in approving the underlease which shall be paid by the
Landlord and the Tenant equally
4. LANDLORD'S COVENANTS
--------------------
The Landlord hereby covenants with the Tenant:-
4.1 That the Tenant paying the reserved rents and observing and performing
the covenants and stipulations herein on the Tenant's part contained
shall peaceably hold and enjoy the Demised Premises during the term
without any interruption by the Landlord or any persons rightfully
claiming under or in trust for the Landlord
4.2 To pay the rents reserved by and to observe and perform the covenants
agreements and conditions on the part of the tenant contained in the
Headlease so far as the Tenant is not liable for such performance
under the covenants on its part contained in this Underlease and to
indemnify and keep indemnified the Tenant against all actions claims
proceedings costs and expenses and demands relating to the Headlease
4.3 Upon receiving notice from and at the entire expense of the Tenant to
take all reasonable steps to enforce the covenants on the part of the
Superior Landlord contained in the Headlease
4.4 To take all reasonable steps at the Tenant's expense to obtain the
consent of the Superior Landlord wherever the consent of both the
Superior Landlord and the
4
<PAGE>
Landlord is required by virtue of this Headlease
4.5 Not to agree a revision of the Rack Rent reserved by the Headlease
without the written consent of the Tenant such consent not to be
unreasonably withheld or delayed and if such consent is not
forthcoming to serve notice in accordance with the terms of the
Headlease requiring determination of any revision to the Rack Rent
reserved by the Headlease by an expert
5. PROVISOS
--------
Provided always and it is hereby agreed:-
5.1 Where any issue question or matter arising out of or under or relating
to the Headlease which also affects or relates to the provisions of
this Underlease is to be determined as provided in the Headlease the
determination of such issue question or matter pursuant to the
provisions of the Headlease shall be binding on the Tenant as well as
the Landlord for the purposes both of the Headlease and this
Underlease PROVIDED THAT the
-------------
Tenant shall have the right to be consulted about any such issue
question or matter arising
5.2 This Underlease shall be subject to the provisos and declarations set
out in clause 5 of the Headlease
5.3 If the Demised Premises or any part of them shall at any time during
the Term be destroyed or damaged by a risk against which insurance
shall have been effected under the terms of the Headlease so that the
Demised Premises or any part of them shall be unfit for occupation or
use then (unless the insurance of the Demised Premises shall have been
vitiated by the act neglect or omission of the Tenant or anyone at the
Demised Premises expressly or by implication with the Tenant's
authority) the Rent or a fair proportion of the Rent according to the
nature and extent of the damage sustained shall be suspended and cease
to be payable until the Demised Premises or the damaged portion of
them shall have been reinstated or made fit for occupation or until
the expiration of the period of such suspension provided under the
terms of the Headlease whichever is the shorter
6. BREAK CLAUSE
------------
If the Tenant shall desire to determine the Term at the end of the sixth year of
the Headlease and
5
<PAGE>
shall give to the Landlord not less than three calendar months previous notice
in writing of such its desire then and in such case this Underlease and
everything herein contained shall cease and determine but without prejudice to
any claim by either party against the other in respect of any antecedent breach
of any covenant or condition herein contained
7. STAMP DUTY CERTIFICATE
----------------------
The parties hereby certify that there is no Agreement for Lease to which this
Underlease gives effect
IN WITNESS whereof this Underlease has been executed by the parties hereto the
day and
- ----------
year first before written
8. Court Order
-----------
Having been authorized to do by an Order of the Sunderland County Court made on
the Ninth day of February One thousand nine hundred and ninety six under the
provisions of S30(4) of the Landlord & Tenant Act 1954 as amended by S5 of the
Law of Property Act 1969 the parties hereto agree that the provision of Sections
24 to 28 of the Landlord & Tenant Act 1954 shall be excluded in relation to the
tenancy hereby created.
6
<PAGE>
SIGNED as a Deed by )
- ------
RTC NORTH )
- ---------
LIMITED acting by a Director )
- ------
and its Secretary Director [signature unreadable]
Secretary [signature unreadable]
7
<PAGE>
EXHIBIT 10.9(d)
DATED [14th February] 1996
------------------------------------------------
APPLIED IMAGING INTERNATIONAL LIMITED (1)
-------------------------------------
and
RTC NORTH LIMITED (2)
-----------------
COUNTERPART DEED
-----------------
Relating to
Unit 1A Hylton Park Wessington Way
Sunderland Tyne and Wear
DICKINSON DEES
S 0 L I C I T 0 R S
Cross House, Westgate Road, Newcastle upon Tyne NE99 1SB.
Telephone (O191) 261 1911. Fax(O191) 261 5855/232 0586.
Ref : GH
<PAGE>
THIS DEED is made the [Fourteenth] day of [February] 1996
- ---------
BETWEEN:-
- -------
(1) APPLIED IMAGING INTERNATIONAL LIMITED (Company Registration Number 1984637)
-------------------------------------
whose registered office is at Hylton Park Wessington Way Sunderland Tyne
and Wear SR5 3HD ("Applied") and
(2) RTC NORTH LIMITED whose registered office is at Unit 3D Hylton Park
-----------------
Wessington Way Sunderland (Company Registration Number 2373630) ("RTC")
AND IS SUPPLEMENTAL to a lease ("the Underlease") of even date made between the
- -------------------
same parties hereto
WHEREAS:-
- -------
(1) By a Head Lease ("the Head Lease") dated 12 June 1992 made between English
Industrial Estates Corporation ("the Superior Landlord") of the one part
and Applied of the other Part ALL THAT Unit No. BT.2003/1A Hylton Park
--------
Wessington Way Sunderland Tyne and Wear as more particularly described
therein was demised to Applied for a term of 12 years from 12 June 1992
upon the terms therein mentioned at the initial rent of 39,958 pounds
subject to review
(2) Clause 3.23.5.1 of the Head Lease prevents Applied from granting an
underlease of the Property except at a rent not less than the rent reserved
by the Head Lease
(3) The Superior Landlord has consented to Applied granting the Underlease to
RTC but the Superior Landlord has proposed a rent of 48,250 pounds per
annum exclusive to be effective from 12 June 1995
(4) Applied has agreed with RTC to discount the proposed yearly rent of 48,250
pounds payable pursuant to the terms of the Underlease and the parties
hereto agreed to enter into this Deed to record this Agreement
NOW THIS DEED WITNESSETH as follows:-
- ------------------------
1. In consideration of RTC today completing the Underlease and notwithstanding
the terms
1
<PAGE>
of the Underlease Applied hereby covenants with RTC as follows:-
1.1 The Yearly Rent (as defined in the Underlease) shall be 45,952 pounds
per annum which discounted rent shall be payable in accordance with
the terms of the Underlease from the date of this Deed up to 12 June
1998 and thereafter subject to review as mentioned in the Head Lease
1.2 The Maintenance Rent (as defined in the Head Lease) shall be 2,068
pounds per annum subject to review as referred to in the Head Lease
2. For the avoidance of doubt the benefit of this Deed shall not be assignable
by RTC under any circumstances
3. If as a result of the, rent review the Rent reserved by the Headlease is
agreed or determined at less than 45,952 pounds per annum then the
discounted rent hereunder shall equate to the rent reserved by the
Headlease and Applied shall refund any overpayments made by RTC
4. This Deed is private and confidential between RTC and Applied and its terms
may not be disclosed to a third party without the prior written consent of
the other parties such consent not to be unreasonably withheld or delayed
provided that RTC shall be entitled to disclose the terms of this Deed to
any proposed assignee of the Underlease without Applied's consent
EXECUTED AS A DEED the day and year first hereinbefore written
- ------------------
2
<PAGE>
SIGNED as a Deed by )
- ------
RTC NORTH LTD )
- -------------
acting by a Director and its )
Secretary Director [SIGNATURE UNREADABLE]
Secretary [SIGNATURE UNREADABLE]
3
<PAGE>
EXHIBIT 10.10
LEASE
-----
This lease Agreement is entered into as of the 31 day of October, 1995.
Between
ASAF HAROFE HOSPITAL
with its principal place of business
located at TZRIFIN 70300
(hereafter: the "Hospital")
of the first part
and
APPLIED IMAGING LTD.
an Israeli corporation with its principal
place of business located at 22 Maskit St.
Herzlia Pituach 46733
(hereinafter: "AIL")
of the second part
WHEREAS AIL is engaged in Certain medical Research & Development activities
(hereinafter: the "R&D Activities"): and
WHEREAS The Hospital wishes to enable AIL to conduct its R&D Activities on
Hospital's premises; and
WHEREAS The Hospital has agreed to build a modular building on its premises in
accordance with AIL's needs and requirements (hereinafter: the "Building"); and
WHEREAS AIL wishes to rent the building under the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Preamble and Captions
---------------------
The Preamble to this Agreement constitutes an integral part hereof. The
Agreement's captions are provided for the sake of convenience only and
shall not be used to construe the provisions hereof.
<PAGE>
2. The Building
------------
2.1 The Hospital will build a modular Building, to be rented to AIL, in
accordance with AIL's design and specifications, including AIL's
specifications for the required electrical, water, plumbing, air-
conditioning and alarm systems, as approved by the hospital.
2.2 The Building will be constructed by a construction company to be
selected by the Hospital in accordance with its procedures.
2.3 The Building will be delivered to AIL in a finished condition and in
full conformity with AIL's design plans, drawings and specifications
as approved by the Hospital.
2.4 Any and all expenses incurred in connections with the construction of
the Building will be solely and exclusively borne by the Hospital. The
Building as well as its electrical, water, plumbing, air-conditioning
and alarm systems will be owned by the Hospital.
2.5 AIL will furnish and equip the Building in accordance with its needs
and any and all furnishings, appliances, and equipment, including
office and laboratory equipment and furnishings, will be solely and
exclusively owned by AIL and will not be considered as an integral
part of the building.
3. Term
----
The lease shall commence on the 1st day of October, 1995 and shall continue for
a period of one (1) year thereafter.
AIL is hereby granted the option (hereinafter: the "Option") to extend the term
of this Lease Agreement for the additional one (1) to four (4) year terms by
giving the Hospital a written notice, 30 days prior to the anniversary day of
the Agreement of its intention to exercise the Option.
4. Rent
----
AIL shall pay the Hospital an annual rent of U.S. $16,000 (sixteen thousand US
dollars), in New Israeli Shekels according to the representative rate of
exchange known at the date of payment (hereinafter: the "Rent"). This includes
hot and cold water supply, but not electricity and phone expenses. Payment of
the first year's rent will be made on November 1, 1995. It is agreed that
optional years rent will also be $16,000 to be paid in whole at the beginning of
the rental period.
In the event the payment date will fall on a weekend or a national holiday,
payment will be made on the immediate following business day.
-2-
<PAGE>
5. Access to the Building
----------------------
5.1 No person other than AIL's employees and/or such other persons who
shall be authorized by AIL to enter the Building from time to time
will be allowed access to the Building.
5.2 Visits of the Building by the Hospital's representatives will be
coordinated with AIL in advance and will be subject to AIL's approval
on a case by case basis.
6. AIL's Use of the Hospital Facilities
------------------------------------
6.1 AIL's employees (up to 10 people) will be permitted to enter
Hospital's premises with their vehicles and use the Hospital's parking
lot free of charge. AIL's guests may also use the Hospital's parking
lot free of charge.
6.2 AIL's employees will be permitted to use the Hospital's facilities
such the Hospital's restaurants, coffee shops, etc.
7. Nature of Agreement
-------------------
For the avoidance of any doubt it is hereby specifically acknowledged by
the Hospital that this is the Lease Agreement only and that nothing herein
stated may be in any way or manner whatsoever construed to create or give
the Hospital any rights whatsoever in the scientific, commercial or any
other results of AIL's R&D Activities conducted during the term of this
Lease Agreement or at any other time thereafter. The Hospital hereby
specifically acknowledges that all the results of AIL's R&D Activities of
any kind and nature whatsoever are and shall be the property of AIL.
8. Severability
------------
If any provision of this Lease Agreement is declared void, the validity of
any other provision and of the entire Agreement shall not be affected
hereby.
9. Governing Language
------------------
This Lease Agreement is in the English language only, which language shall
control in all respects. No translation, if any, of this Agreement into any
other language shall be of any force or effect in the interpretation of
this Agreement or in a determination of the intent of either party hereto.
10. Waiver
------
The failure at any time of either party to enforce any of the provisions of
the Agreement, or any right with respect thereto or to exercise any option
herein provided, will in no way be
-3-
<PAGE>
construed to be a waiver of such provisions, rights or options, or in any
way to affect the validity of this Agreement.
11. Complete Agreement
------------------
The provisions herein contained set forth the entire Agreement of the
parties with respect to the subject matter hereof, and supersede all
previous communications, representations or agreements, whether oral or
written, with respect to the subject matter hereof, and no addition to or
modification of this Agreement shall be binding upon either party unless
reduced to writing and duly executed by the parties hereto in the same
manner as the execution of this Agreement.
12. Notices
-------
Any notice required or authorized to be given thereunder shall be served by
hand delivery or by certified letter return receipt requested or by fax
addressed to the Hospital or AIL (as the case may be), at the addresses
specified in this Lease Agreement above. Any notice delivered by hand shall
be deemed to have been served upon delivery.
Any notice given by letter shall be deemed to have been served five (5)
days after the same shall have been posted, not including the day of
posting, and any notice given by fax shall be deemed to have been served on
the day of sending the message. Proof that such letter was properly
addressed and put into the post, and in case of fax that the message was
sent to the correct fax number, shall be conclusive evidence of service.
Notices required by this Agreement shall be addressed to any other address
as may from time to time be specified by either party by written notice to
the other.
IN WITNESS WHEREOF, the parties have executed this Agreement.
ASAF HAROFE HOSPITAL APPLIED IMAGING LTD.
By: Illegible By: Illegible
------------------------ ------------------------
-4-
<PAGE>
EXHIBIT 10.11
[Joyce-Loebl Ltd Letterhead]
12 August 1991
Dr L G Grant
6 Linn Kill
South Queensferry
West Lothian
Scotland EH30 9ST
Dear Les,
Following our various discussions, I am pleased to formally offer you the
position of Managing Director, Applied Imaging U.K. operations. This will
include Image Recognition Systems Ltd, Warrington and Joyce-Loebl (Instruments),
Team Valley, Gateshead.
You will be appointed to the Group's Executive Board and will report
directly to me as Chairman of the Holdings Board. The terms and conditions of
your appointment will be as follows:
1. Your salary will be (Pounds)60,000 p.a. and will be subject to annual
revue.
2. You will receive a bonus which will be (Pounds)20,000 in the first year
if mutually agreed targets are met. A formula will be agreed to increase your
bonus beyond this point if these targets are exceeded. This is not the actual
limit but at least a further (Pounds)10,000 bonus can expect to be attained.
3. The company will provide B.U.P.A. medical insurance for you and your
family.
4. The company will provide you with a fully expensed car up to the value
of (Pounds)25,000.
5. Your holiday entitlement will be 4 weeks, plus statutory holidays.
6. Your contract period will be 12 months on a revolving basis.
7. The company will either pay for or reimburse you for directly incurred
out-of-pocket expenses related to your house move from Scotland to the Newcastle
area. During the period between joining the company and completing your house
move, you will be entitled to claim back the cost of either hotel or temporary
living accommodation.
<PAGE>
8. Share options: Upon your appointment as Managing Director of Applied
Imaging U.K. operations you will be allocated an option on 45,000 shares in the
Holding Company. For a period of 4 years so long as you continue to be employed
by the Group, you will be entitled to receive 25% of the 45,000 shares at the
same striking price, of $1.80 per share, at the and of each 12 month period. If
the Group is acquired after 12 months into the agreement period and this results
in you being asked to leave, then all the outstanding share options will
immediately be vested on the agreed terms. If, as a result, the acquisition
circumstances develop such that it is determined that you have been
constructively dismissed then your outstanding share options would also be fully
vested.
You stated that you are likely to be available to take up your new
appointment within 4 - 6 weeks of resigning from GEC-Marconi. However, we do
recognize that you are currently on 3 months notice.
You also understand that this offer is subject to a satisfactory reference.
To that end you agreed to put me in touch with Saul Langardo, for whom you
worked in Marconi for two years until recently. He now works for STC and is
Managing Director, Underwater Cables Division. I look forward to receiving his
address and telephone number.
If possible I would like you to have the chance to meet our U.K. Management
Team once you have accepted this offer. We plan to be in the Lake District
together for an important strategic meeting this Wednesday and Thursday, 14/15
August. I do hope you can join us.
Les, I am looking forward to you accepting this offer and taking advantage
of this hands on entrepreneurial opportunity.
Kindly sign this letter signifying your acceptance.
Yours sincerely,
/s/ Abe Coriat
Abe Coriat
President & CEO
/s/ L. G. Grant, 08/14/91
-2-
<PAGE>
EXHIBIT 10.12
[Applied Imaging Logo]
CONTRACT AMENDMENTS
"The Company" Applied Imaging International Limited.
"Parent Company" Applied Imaging Corporation
"Employee" Dr. L. G. Grant
You hereby recognize that because of the nature of your employment with the
Company you will during the course of that employment, have access to and the
benefit of confidential information and trade secrets belonging to the Company
and the Parent Company. In addition you hereby recognize that during the course
of your employment with the Company, you will have contact with and influence
over customers of the Company and the Parent Company. You accordingly agree to
be bound by the following clauses and agree that they are reasonable in their
application to you and necessary, but no more than sufficient, to protect the
Company and its Parent Company.
CONFIDENTIAL INFORMATION
1. You shall not, during the continuance of your employment with the
Company or at anytime thereafter, disclose or make accessible to any other
person, firm or company or use (other than as is required of you in the normal
course of your duties under your contract of employment) any confidential
information or trade secrets belonging to the Company or the Parent Company
relating to the business or affairs of the Company or the Parent Company to
which you have had access or which may have come to your knowledge during the
course of your employment with the Company. The aforementioned category of
trade secrets and confidential information includes, but is not limited to:
customer names, customer addresses, customer contact names, methods of
carrying out the business of the Company, Company price lists, product
specifications, marketing and strategy plans, and development plans.
This restriction shall cease to apply in relation to any confidential
information or trade secrets which come into the public domain, other than by an
unlawful breach of this clause.
NON-COMPETITION CLAUSE
2. For the period of 6 months following the termination of your
employment with the Company, you shall not, without the prior written consent of
the Company, (whether alone or with any other person and whether as principal
partner, director, employee, agent, consultant or otherwise howsoever and
whether directly or indirectly), be engaged in, work in, be interested in, or
carry on any business which materially competes with or is liable to materially
compete with the business of the Company or the Parent Company, provided such
business of the Company or the Parent Company was carried on by the Company or
the Parent Company at the time of the termination of your
<PAGE>
employment or was intended to be carried on at the time of the termination of
your employment and in which you were personally involved at anytime during the
12 months prior to the said termination.
This restriction does not prevent the employee from owning or holding
(for investment purposes only) stocks, shares or debentures in any
public company whose stocks, shares or debentures are fisted or quoted
on the Stock Exchange or any other recognized stock exchange.
Due to the fact that the Company's and the Parent Company's business
is of an international nature, there is no geographical restriction on
this clause.
Accepted /s/ Leslie G. Grant Date 2/12/96
--------------------- ---------------------
Dr. L.G. Grant
-2-
<PAGE>
Exhibit 10.13
[LETTERHEAD OF APPLIED IMAGING APPEARS HERE]
January 12, 1996
Michael W. Burgett, Ph.D.
10 Wedgewood Drive
Annandale, New Jersey 08801
Dear Michael:
Applied Imaging is pleased to offer you the position of President, Genetic
Diagnostic business, reporting to me.
Your annual salary will be $155,000. In addition, subject to Board approval, you
will be awarded 70,000 shares of common stock under the Company's Incentive
Stock Option Plan. The current common stock share price is $1.80. Stock options
vest annually over a four-year period.
In addition to your salary, you will be eligible to receive a bonus of up to 20%
of your salary, based on your achievement of mutually agreed upon objectives.
The Company will also reimburse you up to $30,000 for actual relocation
expenses.
This offer is valid until Friday, January 19, 1996. Kindly sign below to signify
acceptance of this offer.
Michael, this is an exciting and challenging opportunity in which you can make a
significant contribution. We all look forward to welcoming you aboard.
Regards,
/s/ Abe Coriat
Abe Coriat
Chairman & CEO
Offer accepted on ___________, 1996
Start date will be __________, 1996
-------------------------
Michael W. Burgett, Ph.D.
<PAGE>
[LOGO OF APPLIED IMAGING]
January 20, 1996
Michael W. Burgett, Ph.D.
10 Wedgewood Drive
Annandale, New Jersey 08801
Dear Michael:
On behalf of all the board and executive staff of Applied Imaging Corporation, I
am pleased to welcome you to the company as President of the Diagnostics
Division.
Applied Imaging directors and senior staff have all enjoyed getting to know you,
and we are unanimous in our enthusiastic support of your candidacy. We all look
forward very much to welcoming you to Applied Imaging - and back home to
California. We are convinced that you are very well qualified to lead the
Diagnostics Division to major growth and success, and to make a crucial
contribution to the success of Applied Imaging as a public company. We also
believe that this represents an excellent opportunity for you to attain your
personal career and financial goals.
This letter incorporates by reference my original letter to you, dated January
12, 1996, as well as the letter you received from our Chief Financial Officer,
Neil Woodruff, dated January 15, 1996. In addition to the salary, bonus, equity
participation and benefits detailed in those two letters, I am pleased to
confirm the following additional terms:
1. Should applied Imaging be sold within the first eighteen months of your
employment, one-half (or 35,000 shares) of your option award of 70,000
shares will become immediately vested. Should Applied Imaging be sold
after that eighteen-month period, but prior to the end of your fourth year
of employment, all of the then-unvested portion of your initial option
award of 70,000 shares will become immediately vested.
2. To assist in your permanent relocation, including the sales of your New
Jersey residence and purchase of a new home in California, Applied Imaging
will reimburse your documented expenses up to maximum of $70,000 - of
which up to $30,000 may be applied to reimburse costs related to selling
your current home.
3. It is mutually understood and agreed that, should your employment be
terminated by Applied Imaging, other than for "cause," you shall be
entitled to receive a severance payment equal to six times your monthly
base salary then in effect.
<PAGE>
Michael, we look forward to your joining Applied Imaging full-time during the
course of February. To confirm your acceptance of this offer, please sign and
return to me by fax one copy of this letter.
May I say again how much we all welcome you to Applied Imaging - and we look
forward to seeing you and your wife when you travel to Santa Clara within the
next two weeks.
Sincerely,
Abe I. Coriat
Chairman and Chief Executive Officer
Applied Imaging Corp.
AGREED AND ACCEPTED
/s/ Michael W. Burgett
- -----------------------------
Michael W. Burgett, Ph.D.
1/20/96
- -----------------------------
Date
ANTICIPATED ON-BOARD DATE: 2/19/96
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EXHIBIT 10.14
DATED November 1989
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(1) MEDICAL RESEARCH COUNCIL
(2) SHANDON SCIENTIFIC LIMITED
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KNOW-HOW LICENSE AGREEMENT
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ASHURST MORRIS CRISP
Broadgate House
7 Eldon Street
London EC2M 7HD
Tel: 01 247 7666
[*Confidential Treatment Requested]
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THIS AGREEMENT is made the_________ day of November 1989
BETWEEN
MEDICAL RESEARCH COUNCIL of 20, Park Crescent, London W1N 4AL (hereinafter
called "MRC" which expression includes its successors and assigns) of the one
part and SHANDON SCIENTIFIC LIMITED of Chadwick Road, Astmoor, Runcorn, Cheshire
WA7 1PR (hereinafter called "the Licensee" which expression includes its
successors and permitted assigns) of the other part.
WHEREAS:
(A) Since 1982 the Licensee has manufactured and developed in conjunction with
in certain prototype machines for the purpose of identifying genetic damage
on chromosomes and detecting cancerous and pre-cancerous conditions in the
female cervix and has manufactured and sold machines for the purpose of
identifying genetic damage on chromosomes based on the said prototype
machines.
(B) The Licensee is entitled to the benefit of the Applications for Patents
specified in the First Schedule hereto as evidenced by a Deed of Assignment
dated 15th April, 1985 between MRC and the Licensee and a Deed of
Assignment dated 16th April, 1985 between G. Shippey and the Licensee, and
any Patents which may be granted pursuant to such applications.
(C) MRC is the beneficial owner of certain know-how technical information and
data (as hereinafter defined as "the MRC Know-how").
(D) The Licensee is the beneficial owner of certain know-how technical
information and data (as hereinafter defined as "the Licensee Know-how")
relating (inter alia) to the Invention (as hereinafter defined) the subject
of the said Patents and Applications for Patents.
<PAGE>
NOW IT IS AGREED as follows:
1. DEFINITIONS
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1.1 IN this Agreement the following words and expressions shall be
construed as follows:
1.1.1 "the Effective Date" shall mean the lst day of September One
thousand nine hundred and eighty five;
1.1.2 "the said Patents" shall mean the Patents and Applications for
Patents specified in the First Schedule hereto as they pertain
to technology used in the device known as the fast interval
processor and its use in signal and image processing
technology and any Patents which may be granted pursuant to
such Applications and any corresponding Patents and
Applications which may be granted to or made by the Licensee
in any other territories pursuant to this Agreement and
reissues of Patents and divisions and continuations of
Applications;
1.1.3 "the MRC Know-how" shall mean all information and know-how
relating to the Licensed Products including but not limited to
all technical and statistical information, unpatented
techniques, designs, computer software (including the
application software for the CCU known as "Application
Software for Karyotyping" being that application-software
required to perform chromosome segmentation, analysis,
identification, enhancement and display in a Karyotype format
and necessary test and support utilities for such software,
being hereinafter referred to as "Application Software")
source code and data pertaining to the "Fast Interval
Processor" (as defined below) and its use in signal and image
processing technology in connection with cytogenetic analysis
and the screening of cervical smears and such other
applications as are approved by MRC (such approval not to be
unreasonably withheld) but excluding the Licensee Know-how (as
defined below);
1.1.4 "the Licensee Know-how" shall mean technical information data
knowledge inventions techniques processes systems formulae
results of experimentation designs statistics records computer
programs (including all source code and relevant material) and
information relating to the Invention and the product known as
the CCU as the same is more particularly describe in Schedule
3 hereto (but excepting therefrom the Application Software for
the CCU which is the property of MRC) and which may be
necessary for the commercial exploitation of the Invention and
the Licensee Know-how;
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1.1.5 "the Invention" shall mean the Automatic Focusing Device which
was invented by Mr. G. Shippey an employee of MRC and
particulars of which are given in the Applications for Patents
and/or Patents referred to in Schedule 1 hereto and the
abstract in relation to which is described in Schedule 2;
1.1.6 "Licensed Products" shall mean any product that (i)
incorporates a Fast Interval Processor (as defined below)
and/or (ii) incorporates the Application Software for the CCU
and/or any subsequent versions or developments of the
Application Software which may embody or utilise any of the
MRC Know-how;
1.1.7 "Fast Interval Processor' shall mean the hardware-products
(together with their associated software) known as the PPU and
the Miproc as the same are more particularly identified in
Schedule 3 hereto, and any subsequent versions or developments
thereof which may embody or utilise the MRC Know-how;
1.1.8 "Holding Company" and Subsidiary" shall have the meanings
ascribed to them by Section 736 of the Companies Act 1985 (as
if the Licensee was a company incorporated in England);
1.1.9 "Person" shall include a firm and a corporation and any
other body or organisation of any kind howsoever constituted.
1.2 IN this Agreement the singular shall where the context so permits
include the plural and vice versa.
2. EFFECTIVE DATE
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THIS Agreement shall be deemed to have come into force on the Effective
Date and shall be read and construed accordingly.
3. LICENSE
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3.1 MRC hereby grants to the Licensee a licence under the MRC Know-how to
make, have made, use, sell and otherwise dispose of Licensed Products
and to make use of the MRC Know-how for such purposes ("the Licence").
Such Licence shall be worldwide ("the Territories").
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3.2 The Licence shall
3.2.1 be non-exclusive in the field of cervical smear screening;
3.2.2 be exclusive in the fields of interactive karyotyping and
metaphase finding; and;
3.2.3 be non-exclusive for all other applications in the field of
cytogenetic testing (including, without limitation, aberration
scoring).
3.3 The Licensee shall use reasonable endeavors to promote the sale of
Licensed Products of good marketable quality and to meet the market
demand therefor.
3.4 MRC agrees that any improvements, modifications, inventions or
discoveries which any employees, agents or consultants of MRC or the
MRC Clinical and Population Cytogenetics Unit ("the Unit") or any
successor thereof may make, invent, discover or otherwise acquire
(except from third parties against an undertaking not to disclose)
before the fifth anniversary of the Effective Date with reference or
appertaining to the Licensed Products shall be disclosed to the
Licensee, and become subject to the terms of this Agreement (mutatis
mutandis), without any additional cost to the Licensee, and MRC hereby
grants and agrees to grant to the Licensee for the term of this
Agreement all such exclusive or non-exclusive (as the case may be)
licences and rights to such improvements, modifications, inventions or
discoveries as are for the time being in force hereunder with respect
to the inventions and discoveries and know-how originally covered by
this Agreement and it is hereby agreed between MRC and the Licensee
that no additional royalties shall be payable by the Licensee under
such Licences and rights other than those due under this Agreement.
3.5 MRC agrees that in the event that any employees agents or consultants
of MRC or the Unit or any successor thereof shall make, invent,
discover or otherwise acquire (except from third parties against an
undertaking not to disclose) any improvements, modifications,
inventions or discoveries:
3.5.1 within the ambit of sub-clause (4) of this Clause 3 but after
the fifth anniversary of the Effective Date; or
3.5.2 with reference to or appertaining to Licensed Products in the
fields of interactive karyotyping and metaphase finding ("the
Exclusive Fields") or fields for all other applications of
cytogenetic testing ("the Non-Exclusive Fields")
then MRC shall not grant or offer to grant any rights to any third
party in respect thereof without first offering to the Licensee a
licence in respect thereof (on terms to be agreed) exclusively in the
case of those falling within the Exclusive Fields and non-
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exclusively in the case of those falling within the Non-Exclusive
Fields provided that in the event that either the Licensee declines
such offer in writing, or the parties shall not have agreed the terms
of such licence, in either case within nine (9) months of MRC's offer,
then MRC shall be entitled without obligation to the Licensee to offer
the same freely to any third party. MRC undertakes that it will
negotiate in good faith with the Licensee during such nine month
period with a view to agreeing the terms of a licence which terms
shall include up front payments, minimum royalties and royalty levels
commensurate with the cost of development and HRC's reasonable
expectations of return.
3.6 MRC shall be entitled in respect of any improvements, modifications,
inventions or discoveries to Licensed Products in the Non-Exclusive
Fields to make arrangements for the development manufacture
experimental placement and sale of up to five instruments prior to or
concurrent with or after the negotiations provided for in Clause 3.5.
3.7 MRC hereby agrees that in the event that the Licensee makes any
improvement, modification, invention or discovery during the term of
this Agreement in connection with the Licensed Products, and any such
improvement, modification, invention or discovery is capable of being
the subject of a patent or other protection by way of registration or
otherwise then the Licensee shall be entitled to make an application
for patents or other protection in respect of such improvement,
modification, invention or discovery in its own right and the
provisions of this Agreement shall not apply to the subject matter of
any such application.
3.8 The obligations of MRC to make disclosure and/or offers to the
Licensee pursuant to sub-clauses 3.4 and 3.5 above shall not apply to
any improvement, modification, invention or discovery which relates to
the application of Licensed Products in any field outside cytogenetic
testing.
3.9 Nothing in this Agreement or in any Licences to be granted pursuant
thereto shall be construed as a representation or warranty that any
manufacture use sale or other disposal of Licensed Products is not an
infringement of any other rights not vested in the MRC.
4. FORMAL DOCUMENTS
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MRC shall at the request (and expense if any) of the Licensee execute any
further formal document which may be necessary to give effect to this Agreement
in any territory to which this Agreement applies.
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5. ASSIGNMENT AND SUB-LICENSING
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5.1 THE Licensee shall not assign or transfer nor part with any of its
rights duties or obligations under this Agreement without the consent
of MRC EXCEPT THAT the Licensee may (without obtaining the consent of
the MRC) (i) grant sub-licences under the Licences granted hereunder
to any Person (ii) assign or transfer any part of its said rights
duties or obligations to a subsidiary or holding company of the
Licensee or a subsidiary company of such holding company (hereafter
called a "Group Company") or to an affiliated or associated company of
any such Group Company.
5.2 IN this Agreement references to the grant of sub-licences shall
include the entering into of agreements or commitments for the grant
of sub-licences and the expression "sub-licence" shall include any
such agreement or commitment.
5.3 WITH regard to any sub-licence hereunder:
5.3.1 each sub-licence shall be personal to the sublicensee and shall
not be assignable;
5.3.2 each sub-licence shall contain undertakings by the sub-licensee
to observe and perform terms and conditions similar to those
contained herein so far as the same are applicable to and are
capable of observance and performance by such sub-licensee;
5.3.3 each sub-licence shall also contain provisions for termination
similar to those hereinafter contained and for ipso facto
termination in the event of and contemporaneously with the
termination of this Agreement and the Licences granted
hereunder;
5.3.4 the Licensee shall within twenty-eight days of the grant of any
sub-licence as aforesaid furnish to MRC a true copy thereof;
5.3.5 the Licensee shall at all times during the continuance of this
Agreement be responsible for the observance and performance by
every sub- licensee of the terms and conditions of the sub-
licence and shall be directly liable to MRC for any breach non-
observance or non-performance by any sub-licensee of any terms
and conditions imposed pursuant to this Agreement as if such
breach non-observance or non-performance had been that of the
Licensee.
5.4 FOR the avoidance of doubt it is hereby declared that the appointment
by the Licensee of any person as distributor to market, sell, use or
otherwise dispose of Licensed Products in any part of the world shall
not constitute the grant of a sub-licence or require the consent of
MRC.
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6. SUPPLY AND CONFIDENTIALITY OF KNOW-HOW
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6.1 MRC shall use its best endeavours to procure that the Licensee is
furnished with the existing MRC Know-how within the control of MRC
forthwith upon and following execution of this Agreement and with
any further MRC Know-how relevant or appertaining to the Licensed
Products in accordance with Clause 3 above.
6.2 THE Licensee shall keep the MRC Know-how (other than the Licensee's
Know-how and its own know-how as referred to in Clause 3.7 above,
being together referred to as "the Licensees Know-how") confidential
to the Licensee and such of its employees and such persons engaged
by the Licensee to manufacture Licensed Products as are bound by
obligations of confidence which extend to the KRC Knowhow and shall
not disclose the same to others without the previous consent of MRC
save to the extent that the MRC Know-how:
6.2.1 was known to the Licensee prior to its communication by or
through MRC; or
6.2.2 is necessarily disclosed for the purposes of manufacture use
or sale of Licensed Products; or
6.2.3 is already in the public domain or becomes in the public
domain otherwise than by any default of the Licensee or
persons acquiring the same from the Licensee.
6.3 MRC shall keep secret and confidential all the MRC Know-how how
which applies exclusively to the Exclusive Fields, the Licensees
Know-how, and any other know-how which is disclosed to it or of
which it becomes aware under this Agreement and any confidential
information relating to a Group Company (and MRC shall use its best
endeavours to procure that its employees, officers, agents,
consultants and contractors are similarly bound and MRC shall if
requested by the Licensee take all reasonable steps to enforce such
contracts under which the aforesaid are bound) and shall not
disclose the same to any third party or person without the prior
written consent of the Licensee save to the extent that any such
information comprised is already in the public domain or therein
becomes otherwise than by default of MRC its employees officers
agents consultants or contractors.
6.4
6.4.1 THE obligation of confidence placed upon the Licensee under
sub-clause 6.2 above shall continue until the expiry of
twenty years from the Effective Date notwithstanding any
termination of this Agreement
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6.4.2 THE obligation of confidence placed upon the MRC under sub-
clause 6.3 above shall continue indefinitely in the case of
confidential information concerning a Group Company and in the
case of HRC Know-how licensed hereunder until the termination
of this Agreement.
6.5 THE MRC Know-how may be used by the Licensee anywhere during the
subsistence of this Agreement and also after the cessation of the
Licensees obligations under sub-clause 6.4.1 above PROVIDED THAT this
shall not prevent the Licensee from using any of the Licensees Know-
how in such manner as it thinks fit both during and after termination
of this Agreement.
7. ROYALTY
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7.1 IN the event of Licensed Products being manufactured by the Licensee
or any sub-licensee (excluding any person whose sub-licence extends to
manufacture only) a royalty at the rate of [*] shall be due from the
Licensee to the MRC and (subject as hereinafter provided) shall be
payable in the manner hereinafter provided on the Net Selling Price of
all such Licensed Products made used and sold or otherwise disposed of
by the Licensee or any sub-licensee hereunder in such manner that
royalty shall become payable in respect of such manufacture use and
sale and other disposal in the Territories but so that royalty shall
not be paid more than once in respect of the same Licensed Product and
that royalty in respect of manufacture shall save in respect of stocks
held at termination become payable only upon such use sale or
disposal.
7.2 "Net Selling Price" shall mean the price as charged or invoiced to
customers after deduction of trade discounts (but not commission or
cash discounts) and excluding Purchase, Sales, Import, Value Added and
all other sales and excise Taxes finance charges and the costs of
delivery and insurance.
PROVIDED NEVERTHELESS THAT:
7.2.1 save for the exception contained in sub-clause 7.2.4 below if
the Licensee or any sub-licensee hereunder disposes of Licensed
Products by sale, loan, hire, transfer or otherwise at less
than the open market price in the territory where that
transaction was effected the above price shall not be the price
as charged or invoiced but shall be deemed to be the said open
market price;
7.2.2 if the Licensee or any sub-licensee hereunder disposes of
Licensed Products by sale, loan, hire, transfer or otherwise to
a person firm or company whose commercial policy is controlled
by the Licensee or sub-licensee or by any member of a group of
companies of which the Licensee or sub-licensee is a member or
in any transaction which is not at arm's length the above price
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shall not be the price as charged or invoiced but shall be
deemed to be the open market price obtained by the Licensee or
sublicensee in the territory where that transaction was
effected;
7.2.3 in regard to the use (otherwise than for experimental use or
subject to sub-clause 7.2.4 below for demonstration use) of
Licensed Products the above price shall not be the price as
charged or invoiced but shall be deemed to be the open market
price in the territory where such use takes place;
7.2.4 up to [*] may at the sole discretion of the Licensee be sold [*]
7.2.5
7.2.5.1 in the case of any Licensed Product which does not
contain or comprise the Fast Interval Processor or the
Invention but which nevertheless contains or comprises
the Application Software and the CCU as part of a
rapid karyotyping system product (such Licensed
Product being hereinafter referred to as the "RK"),
for the purposes of determining any royalty payments
that may be due to MRC hereunder in respect of the RK,
the RK shall be deemed to comprise the following items
only
- a computer system including mass storage
devices;
- a frame store for the manipulation and storage
of image data;
- a monitor for the display of chromosomes and
graphic overlays;
- operator input, for example visual display
unit and mouse;
- a camera for capturing images from
conventional microscopes;
- image printer for display of karyotyping or
other image data;
- software for the collection, identification,
analysis and display of chromosomes data; and
to have a Net Selling Price of [*]
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7.2.5.2 in the event that any RK shall be sold or otherwise
disposed of for an invoice price higher or lower than
the said deemed Net Selling Price of [*] or shall
include any items in addition to (or less than) the
items stated in (i) above (but not so as to include
any Fast Interval Processor or the Invention) then for
the avoidance of doubt the Net Selling Price of such
RK for royalty purposes hereunder shall be deemed to
be [*]
7.2.5.3 sub-clauses 7.2.5.1 and 7.2.5.2 above shall also apply
to sales or other disposals of the "RK II" variant of
the RK, with the proviso that in the case of the RK II
the deemed Net Selling Price for the purposes of this
Clause 7.2.5 shall be [*] and not [*]
7.2.5.4 The above deemed Net Selling Prices shall be subject
to an increase at the beginning of each calendar year
of this Agreement calculated using the formula set out
in sub-clauses 12.2 and 12.3 below, the first such
increase to be on lst January 1991 and for such
purpose the Base Index being that published on lst
January 1990.
8. RECORDS
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8.1 THE Licensee shall keep true and detailed accounts and records of
all royalties and other sums due and payable under this Agreement
and shall deliver to MRC a statement thereof (or of the reasons
why no such sums are due) within sixty days after the last day of
each of the Licensee's trading years (or any part thereof in the
first or final year of this Agreement) shoving separately (inter
alia) the royalties arising in the United Kingdom and (where
relevant) in each of the other territories to which this Agreement
applies and (where relevant) the rate of exchange used by the
Licensee for the purposes of sub-clause 8.7 hereof and shall at
the same time pay such royalties and other sums to MRC.
8.2 THE final statement and payment shall include the appropriate
royalties on all current usable stocks of Licensed Products (on
which royalties have not already been paid) held at the date of
termination by the Licensee or any sub-licensee hereunder or any
person engaged by the same to manufacture Licensed Products.
8.3 IF this Agreement shall terminate otherwise than at the end of an
annual period as aforesaid the final statement shall be delivered
and payment shall be made within sixty days after such
termination.
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8.4 SHOULD the Licensee make default in payment of the royalties and
other sums due hereunder within the period specified in sub-clause
8.1 of this Clause the amount due shall bear interest compounded
at the rate of Ten per centum (10%) per annum from the last day of
the said period until payment of such amount is made to MRC.
8.5 THE Licensee shall further pay to MRC with the royalties and other
sums payable under this Agreement the amount of any Value Added
Tax payable in respect of such royalties and other sums.
8.6 THE Licensee shall in addition keep separate accounts of all
transactions effected pursuant to any order or contract containing
an authorisation to the Licensee by any Department of Her
Majesty's Government to use any invention or MRC Know-how the
subject of this Agreement for the Purpose of any such order or
contract under Section 55 of the Patents Act 1977 or under Section
2 of the Defence Contracts Act 1958 or any re-enactment or
modification thereof for the time being in force (being
transactions on which royalty is not payable).
THE Licensee shall render to MRC separate statements of such
transactions and of transactions effected pursuant to Clause 7.2.4
hereof with the accounts to be rendered under sub-clause 8.1 of
this Clause.
8.7 ALL payments by the Licensee hereunder shall be made in Sterling
in London.
8.8 PAYMENTS hereunder shall be made without deduction other than such
amount (if any) as the Licensee is required to deduct or withhold
by law. In regard to any such deduction borne by MRC the Licensee
shall at MRC's reasonable request do all things in its power which
may be necessary to enable or assist MRC to claim exemption
therefrom under any double taxation or similar agreement from time
to time in force. Proper evidence as to the payment over of the
tax or sum withheld shall from time to time be given by the
Licensee to MRC at MRC's reasonable request.
8.9 THE Licensee shall permit any duly authorised representative of
MRC upon reasonable notice such access to the accounts records and
vouchers of the Licensee relating to the Licensed Products and
shall provide such information and explanations as such
representative shall reasonably require to verify the statements
rendered under the terms of this Agreement.
8.10 THE Licensee shall at its own expense obtain and render to MRC
annually a certificate by the Licensee's external auditors
certifying that the statements produced to MRC are a true account
of the Licensee's sales of all
Licensed Products and of the royalties and other sums (if any)
payable to MRC.
8.11 NOTHING hereinbefore contained shall preclude MRC f rom employing
its own external auditors to verify the said accounts and
statements if it so requires at MRC's
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expense and the Licensee shall in such event make available all
records and vouchers necessary for the proper verification of the
said accounts and statements relating to the Licensed Products
upon reasonable notice.
8.12 THE provisions of this Clause and Clause 9 hereof shall remain in
full force and effect notwithstanding the expiry or sooner
determination of this Agreement until the settlement of all
subsisting claims thereunder of MRC.
9. INSPECTION
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9.1 THE Licensee shall subject to the observance by MRC of its
obligations under Clause 6.3 above permit any duly authorised
representative of MRC upon reasonable prior notice to enter any
premises of the Licensee where any of the Licensed Products are
manufactured or stored by the Licensee for the purposes of
inspecting the same and the manner of manufacture thereof and
generally of ascertaining that the provisions of this Agreement
are being complied with by the Licensee and further the Licensee
shall use reasonable endeavours to procure that the same facility
be extended by persons manufacturing Licensed Products to the
order of the Licensee or any sub-licensee hereunder at such of
their premises as are used for the manufacture or storage of
Licensed Products.
10. MARKING
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10.1 THE Licensee shall at its discretion suitably mark each of the
Licensed Products or any package associated therewith or any
accompanying literature with the relevant patent or application
number and such marking shall in all respects conform with the law
of the relevant territory.
10.2 THE Licensee shall at its discretion be permitted to use its own
trademarks and/or logos in connection with the marketing of the
Licensed Products in the Territories in whatever way it deems fit
or appropriate.
11. TERM AND TERMINATION
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11.1 SUBJECT as hereinafter provided this Agreement and the Licences
granted pursuant thereto shall continue in force in each territory
during the period of twenty years from the Effective Date.
11.2 THE Licensee may at any time terminate this Agreement and the said
Licences by giving to MRC six months notice to that effect.
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11.3 MRC may terminate this Agreement and the said Licences forthwith
by notice to the Licensee to that effect upon the happening of any
of the following events:
11.3.1 if any royalties or other sums payable hereunder are in
arrears for twenty-eight days;
11.3.2 if the Licensee fails to perform or observe any other of
the obligations on its part to be performed or observed;
PROVIDED ALWAYS THAT if the breach is one capable of remedy and is so
remedied within twenty-eight days of the receipt of the said notice such
notice shall be void
11.3.3 if the Licensee files a voluntary petition in bankruptcy
or applies to any Tribunal for a Receiver Trustee or
similar officer to be appointed by any Court or Executive
Department to liquidate or conserve the Licensee or any
substantial part of its property or assets due to
insolvency or to the threat thereof or if the Licensee
suffers any trusteeship or receivership to continue
undischarged for a period of sixty days or suffers any
similar procedure for the relief of distressed debtors
entered into by the Licensee voluntarily or involuntarily
or if the Licensee is otherwise divested of its assets by
reason of an action taken by a third party litigant for a
period of sixty days or makes a general assignment for the
benefit of its creditors except that the provisions of
this clause shall not apply in the event of any
amalgamation or reconstruction of the Licensee;
11.3.4 if the Licensee ceases to promote actively the sale of
Licensed Products.
11.4 TERMINATION of this Agreement or of the said Licences shall be
without prejudice to any rights of either party against the other
which may have accrued up to the date of such termination and the
Licensee shall pay to MRC the appropriate royalties hereunder on
all usable stocks of Licensed Products (on which royalties have
not already been paid) held at the date of termination by the
Licensee or any sub-licensee hereunder or any person engaged by
the same to manufacture Licensed Products and shall thereafter be
free to sell such Licensed Products on which royalty has been
paid.
12. MINIMUM ROYALTIES
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12.1 IF the level of royalties payable by the Licensee under Clause 7
above does not amount in any relevant calendar year to the minimum
sums relevant to that year set out below then the Licensee shall
pay to MRC in respect of such year such further sums as shall
represent the difference between the level of royalties and the
relevant minimum sum applying for that year; the said minimum sums
are as follows:
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<TABLE>
<CAPTION>
Year ending Minimum Sum
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<S> <C>
31st December 1986 [*]
31st December 1987 [*]
and each such subsequent year [*]
</TABLE>
12.2 THE said minimum sum shall be increased or decreased (as the case
may be) at the beginning of each subsequent calendar Year of this
Agreement in proportion to any increase or decrease in the Current
Index as compared with the Base Index the first such increase or
decrease to be made on lst January 1986.
12.3 THE index referred to is the General Index of Retail Prices (All
Items) of the Central Statistical Office of Great Britain and Base
Index being that published in January One thousand nine hundred
and eighty five and the Current Index being that published on or
immediately before the first of January in each subsequent year.
If the Current Index ceases to be published or the Base Index is
altered then the nearest equivalent Index having like effect shall
be substituted.
13. USE OF APPLICATION SOFTWARE
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13.1 THE Licensed Products include certain Applications Software as
follows:
13.1.1 Proprietary Software of MRC to which certain
modifications, amendments and extensions may have been
made by Licensee (including certain Group companies as
defined above) but in which the totality of contributions
by the Licensee do not constitute a major or substantial
contribution;
13.1.2 Proprietary Software of Licensee to which certain
modifications, amendments and extensions may have been
made by MRC but in which the totality of contributions by
MRC do not constitute a major or substantial contribution;
13.1.3 Software where both parties have made significant
contributions.
13.2 Much of the Application Software will be common to the preliminary
stages of the operation of products both within and outside the
exclusive fields of use granted to the Licensee under Clause 3.2.2
above.
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13.3 In relation to the said Application Software:
13.3.1 That described in Clause 13.1.1 is included in the MRC
Know-how. It may be used:
13.3.1.1 by the Licensee in accordance with the terms of
this Agreement only;
13.3.1.2 by MRC except for licence o r manufacture in the
fields reserved exclusively to the Licensee
under this Agreement;
13.3.2 The Software described in Clause 13.1.2 is included in
the Licensee Know-how. It may be used:
13.3.2.1 by Licensee in Products whether covered by this
Agreement or not;
13.3.2.2 by MRC for internal purposes;
13.3.2.3 by MRC for license or manufacture in fields not
reserved exclusively to the Licensee under this
Agreement only under a sub-Licence Agreement
from Licensee, such Agreement not to be
unreasonably refused nor unreasonably priced;
13.3.3 The Software referred to in Clause 13.1.3 may be used:
13.3.3.1 by Licensee in accordance with the terms of this
Agreement;
13.3.3.2 by Licensee for license or manufacture outside
this Agreement subject to payment to MRC pro
rata to MRC's contribution;
13.3.3.3 by MRC in fields not reserved exclusively to the
Licensee under this Agreement subject to a
payment to Licensee pro rata to Licensee's
contribution ;
13.4 Forthwith upon execution of this Agreement MRC and the Licensee
shall use all reasonable endeavours to agree, to the extent not
agreed already, the classification of the Application Software and
pro rata apportionment for all major program modules agreed to
fall within Clause 13.1.3. MRC and the Licensee shall at all times
act in good faith towards each other and use their respective
reasonable endeavours to reach such agreement within Sixty (60)
days of the date of this Agreement and on all new classifications
of Application Software and relevant pro rata apportionments
within sixty (60) days following the date of service of written
notice by either party on the other requiring such agreement to be
reached.
-15-
<PAGE>
13.5 In the event that any dispute shall arise between the parties as
to the application of this Clause 13 or agreement cannot be
reached within the sixty (60) day period referred to in sub-clause
13.4 above then the matter in dispute shall be referred to
arbitration on the application of either party to the President
for the time being of the British Computer Society who shall act
as expert and not as arbitrator and whose decision shall be final
and binding on the parties and whose costs shall be apportioned as
he shall determine.
14. NO WAIVER
---------
THE waiver by MRC of any breach default or omission in the performance or
observance of any of the terms of this Agreement by the Licensee shall not be
deemed to be a waiver of any other such breach, default or omission.
15. NOTICES
-------
ANY notice consent or other communication authorised or required to be
given hereunder or for the purposes hereof shall be in writing and be deemed to
be duly given to MRC if left at or sent by recorded delivery or registered post
addressed to its registered office and to the Licensee if left at or sent by
recorded delivery or registered post to its principal registered office. Any
such notice consent or other communication if served by post shall be deemed to
have been given at the time when it would have been received in due course of
the post.
16. INFRINGEMENT
------------
MRC shall inform the Licensee of any infringement of any of the said
Patents upon such infringement coming to its notice and if the Licensee shall in
its discretion decide to take any action or proceedings in respect of any such
infringement MRC will at the expense of the Licensee give all such assistance
and co-operation to the Licensee as may be required. Any damages profits or
other compensation recovered by such proceedings shall belong solely to the
Licensee.
17. MISCELLANEOUS
-------------
17.1 THE rights and obligations of the parties hereto under this
Agreement shall be subject to all applicable laws orders
regulations directions restrictions and limitations of governments
or other bodies having jurisdiction over the parties hereto.
17.2 IF any such law order regulation direction restriction or
limitation as aforesaid or any treaty or other international
agreement or the final judicial construction of any of them shall
after the date of the execution hereof substantially alter the
relationship between
-16-
<PAGE>
the parties hereto or the advantages derived from such
relationship then the parties shall on request from the adversely
affected party modify this Agreement to restore the situation if
practicable or to compensate for such alteration if not.
17.3 IF either party to this Agreement is totally or partially
prevented or delayed in the performance of any of its obligations
under this Agreement by force majeure and if such party gives
written notice thereof to the other party specifying the matters
constituting force majeure together with such evidence as it
reasonably can give and specifying the period for which it is
estimated that such prevention or delay will continue then the
party so prevented or delayed shall be excused the performance as
from the date of such notice for so long as such cause or delay
shall continue.
17.4 FOR the purpose of this Agreement the term "force majeure" shall
be deemed to include any cause affecting the performance of this
Agreement arising from or attributable to acts events non-
happenings omissions or accidents beyond the reasonable control of
the party to perform and in particular but without limiting the
generality thereof shall include: strikes, lock-outs or other
industrial action; civil commotion, riot, invasion, war, threat of
or preparation for war; fire, explosion, storm, flood, earthquake,
subsidence, epidemic or other natural physical disaster;
impossibility of the use of railways, shipping, aircraft, motor
transport or other means of public or private transport.
17.5 AS soon as practicable after such notification the parties shall
consult together to decide how if at all the effects of the force
majeure can be mitigated.
17.6 IF and in so far as any part or provision of this Agreement is or
becomes void or unenforceable it shall be deemed not to be or
never to have been or formed a part of this Agreement and the
remaining provisions of this Agreement shall continue in full
force and effect. The parties shall meet to discuss the void and
unenforceable provision and shall substitute therefore a lawful
and enforceable position which so far as possible results in the
same economic effects.
17.7 THIS Agreement represents the entire understanding between the
parties and supersedes any and all previous agreements both
written and oral with respect to the subject matter hereof
including for the avoidance of doubt the Agreement dated 31st
December, 1985 entered into between MRC and the Licensee. However
the payment of any royalties under that Agreement by the Licensee
shall also be deemed to have been paid by the licensee for the
Purposes of this Agreement. MRC hereby acknowledges that prior to
its being superseded by this Agreement the Agreement dated 31st
December 1985 was in full force and effect and that the letter of
termination dated 22nd June 1989 given by MRC's solicitors
(Messrs. Herbert Smith) is hereby withdrawn in all respects.
17
<PAGE>
17.8 THIS Agreement may not be amended supplemented or otherwise
modified except by an instrument in writing signed by both
parties.
17.9 THIS Agreement is to be read and construed in accordance with and
governed by the Laws of England so far as the subject matter
allows.
IN WITNESS whereof the parties hereto have caused this Agreement to be executed
in the manner legally binding upon them by causing their authorised
representatives to sign this Agreement.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF
MEDICAL RESEARCH COUNCIL SHANDON SCIENTIFIC LIMITED
/s/ Anthony Landell
- ---------------------------------- ---------------------------------
-18-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Territory Application No. Patent No. Date
--------- --------------- --------- ----
<S> <C> <C> <C>
Austria, Belgium, France, Part I
Germany, Italy, Luxembourg, ------
Netherlands, Sweden,
Switzerland/Liechtenstein
and United Kingdom EPA 83902502.1 Filed 9th April,
1985 Published
under No. 0163394
on 4th December,
1985.
<CAPTION>
Territory Application No. Patent No. Date
- --------- --------------- ---------- ----
<S> <C> <C> <C>
Part II
-------
U.S.A. No. 723611 U.S. Patent 13th January, 1987
No. 4,636,051
Japan No. 81215/1985 Filed 16th April,
1985 Published
under No.
238805/1985 on
27th November,
1985.
</TABLE>
-19-
<PAGE>
SCHEDULE 2
----------
THE INVENTION
-------------
THE AUTOMATIC FOCUSING DEVICE
ABSTRACT
--------
An automatic focussing arrangement, incorporated in a system in which an
optical image is focussed onto a plane, comprises a sensor assembly located in
the region of the plane to sense the image. The sensor assembly comprises at
least two arrays of sensor devices, one array of sensor devices being in front
of the plane, and the second array of sensor devices being behind the plane.
Means are provided for moving the image relative to the sensor assembly or for
moving the sensor assembly relative to the image. From the first and second
arrays signals are derived representative of the image received by the said
sensor devices. A focus drive signal to maintain the focus of the arrangement
as desired is derived from the signals.
-20-
<PAGE>
SCHEDULE 3
----------
"FAST INTERVAL PROCESSOR" AND "CCU"
-----------------------------------
See attached diagram for explanation and meaning of the definitions "Fast
Interval Processor" and "CCU".
-21-
<PAGE>
SCHEDULE 3
----------
CYTOSCAN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INVENTION FAST INTERVAL PROCESSOR C.C.U. OPERATOR STATION
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
FRONT FAST CENTRAL OPERATOR
MICROSCOPE
END SIGNAL COMPUTING STATION
STAGE
PRE-PROCESSOR PROCESSOR UNIT PERIPHERALS
---------
PRINTER
(P.P.U.) (MPROC) (C.C.U.)
- -------------------------------------------------------------------------------------------------------------------------
LINEAR ARRAY IMAGING ANALOGUE SCAN CONTROL SYSTEM MONITOR
INTERFACE CONTROL
MECHANICAL SCANNING STAGE DATA REDUCTION AUTOFOCUS DIGITISATION CAMERA
LINEAR ARRAY AUTOFOCUS DATA FORMATTING DMA ANALYSIS TERMINAL
AUTOFOCUS CLUSTERING ENHANCEMENT LASER
INTERFACE PRINTER
THRESHOLDING ARCHIVING MOUSE
(DIGITISATION)
</TABLE>
<PAGE>
MEDICAL RESEARCH COUNCIL
TECHNOLOGY TRANSFER GROUP
20 PARK CRESCENT
LONDON W1N 4AL
Your reference: telephone 071 636 5422
telex 24897 (Medreco London)
Our reference: fax 071 323 1331
FAX INFORMATION SHEET
---------------------
TO: Applied Imaging
DATE: 4 June 1993
FAX NUMBER: 091-516-0512
FOR THE ATTENTION OF: Dr Les GRANT
RE: License to Cytoscan
FROM: Alan DRIVER
NUMBER OF PAGES TO FOLLOW: None
Dear Les,
It seems that the agreements were signed via our respective lawyers; Herbert
Smith for MRC and Ashurst Morris and Crisp for Shandon.
I can assure you that the agreement I faxed yesterday represents the final
agreement. We suggest that you contact your lawyers to get hold of the original
copy MRC signed;
Ashurst Morris and Crisp
Broadgate House
7 Eldon Street,
London EC2M /HD
Tel: 071-247-7666
Alternatively we can sign our copy and send that to you but it would appear odd
to have a 1989 document signed in 1993.
Best wishes,
Alan Driver
Technology Transfer Manager
<PAGE>
TERMS AND CONDITIONS OF SALE
APPLIED IMAGING CORPORATION
1. CONDITION OF SALE: All orders originating in customer or representative
offices, located inside or outside the United States are subject to these
Terms and Conditions. These Terms and Conditions shall prevail
notwithstanding a variation from the Terms and Conditions submitted by the
Buyer for equipment or software sold hereunder, unless expressly agreed to
in writing by a duly authorized officer on behalf of the company. Unless
variations from these Terms and Conditions are agreed to in writing, in the
absence of written acceptance of these Terms and Conditions by Buyer,
acceptance of or payment for any equipment or software sold hereunder shall
constitute acceptance of these Terms and Conditions. In these conditions
"Purchaser" means the person, company, organization. or institution who
buys or agrees to buy the Goods; "Company" refers to Applied Imaging
Corporation and its divisions, Applied Imaging and Image Recognition
Systems; "Goods" shall mean the Company's products which are the subject of
the Purchaser's order; and "Sub-Contractor" includes all persons instructed
by the Company to do work, render services, and afford the accommodation or
supply of goods.
2. QUOTATIONS AND ORDERS: Quotations shall remain valid for a period of 60
days unless a further period is expressly agreed in writing between the
parties. The Purchaser's official order shall be communicated in writing to
the Company. No Goods will be reserved until an official order is received.
The placing of an order following a quotation given by the Company shall
not be binding on the Company unless and until accepted by the Company in
writing. If the Purchaser requests any variation or suspension of work, the
Company may adjust the price accordingly and any such adjustment must be
acknowledged by a duly authorized officer of the Company in writing. All
weights, illustrations, descriptions, drawings, sketches, performance
figures and dimensions given in or referred to in quotation, catalogs,
price lists, etc., are approximate only and not binding, and the Company
reserves the right to alter specifications or design at any time. No
warranty, statement, or promise of any kind not confirmed in writing by a
duly authorized officer of the Company shall be binding. All dates quoted
for delivery are estimates only and are not guaranteed. The Company will
endeavor to meet these dates but shall not be liable for any delay in
dispatch or delivery or any damage or loss occasioned thereby. The
Purchaser shall not be entitled to refuse to accept the Goods because of
late delivery.
3. PRICE AND PAYMENT: All prices, unless stated otherwise herein, are F.O.B.
shipping point (net ex works) and are exclusive of any packing and present
or future federal state, local or other taxes applicable to the sale of
products listed herein. Any such taxes shall be added to the price and paid
by Purchaser unless Purchaser provides the Company with a valid exemption
certificate acceptable to the Company and the appropriate taxing
authorities. All prices are subject to change without prior notice. If
items are to be delivered to a point outside the country of manufacture,
all export and import duties, customs brokerage, licenses and fees will be
on the account of buyer. All prices exclude applicable state and local
sales tax unless otherwise stated. Please note that duty is charged to the
institution for imported goods. The Cytoscan product line is manufactured
in England and is dutiable in the United States. However, in most instances
where the end user is either a nonprofit research institute or an
educational establishment, it may qualify for exemption from import duties.
As procedures may differ from state to state we recommend you seek
professional advice in the duty process. Applied Imaging Corporation is
forbidden to act as an agent for the institution in this matter.
4. PAYMENT TERMS: Unless specified otherwise in attached quotation, the net
amount of invoice shall be payable 25% upon making the order or 90 days
prior to delivery, whichever is the later, and 75% upon delivery. In the
case of International orders, unless otherwise agreed in writing prior to
shipment, payment shall be by confirmed irrevocable letter of credit for
the full invoice of the order, transferable abroad, providing for the
drawing of drafts on a U.S. bank satisfactory to the Company, and providing
for payment on partial shipments. If in the Company's opinion Purchaser's
financial condition does not justify continuance of production or shipment
on the terms of payment specified, Company may require payments in advance.
In the event the Purchaser requests a delay in the delivery or installation
of the Goods, the Company retains the right to collect payment due as of
the original delivery date. A service charge of 1.5% per month will be
levied on all payments not received by 30th day after invoice. The Company
may withhold subsequent delivery until full account is settled and/or to
treat the contract as repudiated in the case of delay or default in any
payment. The Company shall be entitled to bring an action for the price
whether or not the property in the Goods has passed.
5. ACCEPTANCE: An order once placed with and accepted by Company (all orders
are subject to acceptance by Company's home office) may be canceled only
with Company's consent and upon terms that will indemnify the Company
against loss. No order originating outside the United States shall be
deemed to be a contract binding upon Company until it is consummated by the
Company's receipt of an irrevocable letter of credit (unless the Company
agrees in writing in advance of shipment to payment arrangements other than
a letter of credit) and a valid export license.
6. TITLE AND RISK OF LOSS: Title and risk of loss to all products purchased
shall pass to Purchaser upon delivery by the Company to a common carrier,
regardless of the freight terms stated or method of payment of
transportation charges.
7. SHIPMENT AND TRANSPORTATION CHARGES: The Company reserves the right to
specify routing of shipments. The Company shall attempt to ship within the
time specified in Company's Sales Order, if indicated, and if not then
within a reasonable time; and Purchaser acknowledges that no claim may be
made for delays in shipment where Purchaser accepts the products. Unless
specified in Company's Sales Order, freight charges shall be prepaid and
billed.
8. INSTALLATION: All prices include installation by the Company and initial
Purchaser training. The Purchaser will be required to provide access to
their premises to all authorized Company personnel at all reasonable times,
even outside normal working hours, to complete all necessary pre-
installation inspections, installation, and service requirements. This
access will include all necessary services and facilities. The Purchaser
shall comply with all instructions of the Company in relation to the
fitting, installation, and use
<PAGE>
of the Goods. The Purchaser hereby assumes responsibility to provide
appropriate power supply and environmental conditions at the point of
installation.
9. RETURNS: Products sold by the Company are returnable only in accordance
with the warranty provisions hereof. Before returning any product,
Purchaser must obtain the Company's material return authorization and
instructions.
10. EXPORTS OR RE-EXPORTS: Buyer acknowledges that the Company's hardware,
software and technical data are subject to compliance with all the terms of
the United States Export Administration Act of 1969, as amended, and any
and all rules or regulations promulgated thereunder, which Act restricts
exports or re-export of hardware, software or technical data, any part
thereof, or any direct product thereof. Buyer agrees to refrain from
directly or indirectly exporting or re-exporting any such Company technical
data, hardware, software or any direct product thereof, unless (1) the
Buyer first obtains permission to do so from the United States Office of
Export Administration and other appropriate United States governmental
agencies; or (2) a general license exempting said export or re-export from
such permission is in effect at the time of export or re-export and Buyer
complies fully with the requirements of such general license.
11. LIMITED WARRANTY: All statements, technical information and recommendations
concerning products sold or samples provided are based upon tests believed
to be reliable but do not constitute a guarantee or warranty. All products
are sold and samples of products provided with the understanding that
Purchaser has independently determined the suitability of such products for
its purposes. This warranty does not cover damage caused by improper use or
neglect, modification by persons not authorized by the Company, normal wear
and tear, and/or unpacking and installation in whole or part by any person
not authorized by the Company. The entire risk of the results and
performance of the software is assumed by the purchaser. The Company
warrants the products to be free from defects in material and workmanship.
Should any failure to conform to this warranty appear within one year after
the initial date of shipment, the Company shall, upon notification thereof
and substantiation that the products have been stored and applied in
accordance with Company's standards, correct such defects by suitable
repair or replacement without charge at Company's plant or at the location
of the products (at Company's election); provided, however, if the Company
determines that repair or replacement is not commercially practical,
Company shall issue a credit in favor of Purchaser in an amount not to
exceed the purchase price of the products.
THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHER WARRANTY OF
QUALITY, WHETHER EXPRESSED OR IMPLIED, EXCEPT THE WARRANTY OF TITLE
AND AGAINST PATENT INFRINGEMENTS. NO WAIVER, ALTERATION, ADDITIONS OR
MODIFICATIONS OF THE FOREGOING CONDITIONS SHALL BE VALID UNLESS MADE
IN WRITING AND MANUALLY SIGNED BY AN OFFICER OF COMPANY.
12. LIMITATION OF LIABILITY: In no event shall Company be liable for any
incidental or consequential damages, including but not limited to, loss of
profit, loss of use of production or loss of capital, even if we have
knowledge of the potential loss or damage. The remedies of Purchaser set
forth herein are exclusive and the total liability of Company with respect
to any contract or anything done in connection therewith such as the
performance or breach hereof, or from the manufacture, sale, delivery,
resale, installation or use of any products whether arising out of
contract, negligence, strict tort, or under any warranty, or otherwise,
shall not exceed the purchaser price of the products upon which liability
is based.
13. ASSIGNMENT: Any assignment of this agreement or of any rights hereunder or
hypothecation hereof in any manner, in whole or in part, without the prior
written consent of Company shall be void.
14. FOREIGN SHIPMENT LIABILITY: Purchaser will not, directly or indirectly,
export the Products or any information about the Products to any other
country for which the government of the United States of America or any
agency thereof that requires an export license or other governmental
approval without first obtaining the same.
15. NON-WAIVER: Failure by the Company to insist upon strict performance of any
of the terms or conditions hereof, failure or delay to exercise any right
or remedies provided herein or by law or to properly notify Purchaser in
the event of breach, or the acceptance of payment for any products
hereunder, shall not be deemed a waiver of any right of Company to insist
upon strict performance hereof or any of its rights or remedies, or as to
any prior or subsequent default hereunder, nor shall termination of this
agreement operate as a waiver of the terms hereof.
16. FORCE MAJEURE: The Company shall not be liable for any loss, damage,
delays, changes in shipment schedules or failure to deliver caused by
accident, fire, strike, riot, civil commotion, insurrection, war, the
elements, embargo, failure of carrier, inability to obtain transportation
facilities, government requirements, acts of God or public enemy, prior
orders from others or limitations on Company's or its suppliers' products
or marketing activities or any other cause of contingency beyond the
Company's control.
17. CHOICE OF LAW: This agreement shall be governed by and construed in
accordance with the laws of the State of California.
18. ENTIRE AGREEMENT: These terms and conditions embody the entire agreement
and understanding between the parties, are intended as a complete and
exclusive statement of the terms of agreement regarding the products set
forth on the Company's Sales Order between the parties, and supersede any
prior or collateral agreement or understanding between the parties relating
to the subject matter hereof, Purchaser acknowledges that the Company has
not made any representation to Purchaser other than those which are
specifically referred to or contained herein. Each paragraph and provision
hereof is severable and if any provision is held invalid or unenforceable,
the remaining provisions shall nevertheless remain in full force and
effect.
APPLIED IMAGING, CORPORATION
<PAGE>
MEDICAL RESEARCH COUNCIL
TECHNOLOGY TRANSFER GROUP
20 PARK CRESCENT
LONDON W1N 4AL
Tel: +71-636-5422
Fax: +71-323-1331
FAX INFORMATION SHEET
---------------------
TO: Applied Imaging
DATE: 11 June 1993
FAX NUMBER: 0101-408-562-0264
FOR THE ATTENTION OF: Dr. Les GRANT
RE: Final Agreement
FROM: Alan DRIVER
NUMBER OF PAGES TO FOLLOW: 15 (Fifteen)
Dear Les,
Please find following the final MRC signed copy of the agreement with
yesterday's changes incorporated.
Schedule III (the assignment form) will be in the hard copy which we will send
to Sunderland next week. We are short staffed for typing at the moment but this
will done next week.
I will send the hard copy to MRC HGU for their signatures before asking them to
send on this document (in triplicate) to you for signature.
With respect to publicity, I would ask you to let us see any draft press release
which references the MRC in any way BEFORE it to submitted verbally or in print.
We do support your wish to make the best from our collaboration and I understand
that this will have an important bearing on your investors, however it is
important for us to see drafts BEFORE publicity is made.
I will contact Veronica to up-date her.
Yours sincerely,
Al Driver
Technology Transfer Manager
<PAGE>
- -------------------------------------------------------------------------------
COLLABORATION AGREEMENT
- -------------------------------------------------------------------------------
This Agreement is made the Eleventh (11) day of June 1993.
BETWEEN
(1) APPLIED IMAGING CORPORATION, whose principal place of business is situated
at 2340A Walsh Ave, Santa Clara, CA 95051 and whose UK Subsidiary Applied
Imaging International Ltd. is based at Unit 3A, Hylton Park, Wessington
Way, Sunderland, Tyne & Wear, SR5 3HD (hereinafter called "APPLIED
IMAGING").
and
(2) MEDICAL RESEARCH COUNCIL whose principal office is situated at 20 Park
Crescent, London W1N 4AL (hereinafter called "MRC").
WHEREAS
(A) MRC includes within its establishment the MRC Human Genetics Unit (MRC HGU)
based at the western General Hospital in Edinburgh and is the owner of all
intellectual property rights subsisting in and relating to the Research
Programme as hereinafter defined.
(B) MRC and APPLIED IMAGING have agreed to collaborate in the carrying out of
the Research Programme as hereinafter defined upon the terms and Conditions
set out in this Agreement.
(C) APPLIED IMAGING wishes to support work at the MRC HGU as defined in the
Research Programme.
NOW IT IS HEREBY AGREED AS FOLLOWS
1. DEFINITIONS AND INTERPRETATION
------------------------------
(a) Affiliate shall mean any company or other entity which from time to
time directly or indirectly controls, is controlled by or is under
common control with APPLIED IMAGING or other partner of APPLIED IMAGING
from time to time in the sale or manufacture or products falling under
Intellectual Property Rights (as hereinafter defined) which are either
assigned to APPLIED IMAGING pursuant to Clause 3.4 or licensed to
APPLIED IMAGING pursuant to Clause 3.2 hereof such partner shall
include any licensee or sub-licensee of APPLIED IMAGING under the said
Intellectual Property Rights as hereinafter defined.
(b) "The Commencement Date" shall mean the day of 1993.
<PAGE>
(c) "The Research Programme" shall mean the programme of research as
defined in Schedule 1 attached hereto or as amended from time to time
by agreement of the parties:
(d) "Invention" shall mean any invention or discovery made or originated
by MRC personnel during the course of the Research Programme.
(e) "Field" shall mean the Field of the enrichment, isolation, and
identification of Foetal cells present in Maternal Peripheral Blood.
(f) "The Know-How" shall mean all technical and other information and
organisms arising from the Research Programme conducted by MRC
personnel and in particular but without limitation all data, formulae,
specifications, procedures, cell-lines, tests, techniques arising
therefrom which are specific to the Field.
(g) "Patent Applications" shall mean any patent applications in respect of
an Invention.
(h) "Patents" shall mean any patents granted on or pursuant to the Patent
Applications including any continuations-in-part, extensions, re-
examinations, re-issues, confirmations, registrations and
revalidations or any division thereof.
(i) "Products" shall mean any products (excluding Foetal cells slide
search instrumentation and related software) the manufacture or sale
of which by anyone other than APPLIED IMAGING as assignee pursuant to
Clause 3.2 would infringe one or more valid claims of issued patents
included in MRC IPR or other MRC IPR which affords the owner thereof
effective exclusivity in the country of manufacture or sale.
(j) "Intellectual Property Rights" (hereinafter called "IPR") shall mean
any copyrights, design rights, patents and trade marks and all similar
or other monopoly or property rights (whether or not registerable)
relating to Inventions and Know-How including applications of
registration and rights to apply therefor.
(k) "Applied Imaging IPR" shall mean any proprietary information or other
IPR owned by APPLIED IMAGING at the start of this Agreement or
therefore acquired by APPLIED IMAGING otherwise than from MRC.
(l) "MRC IPR" shall mean IPR relating to Inventions and Know-How that are
made, created or conceived by employees of MRC during the Research
Programme, which do not use or incorporate APPLIED IMAGING IPR.
(m) "Field-specific IPR" shall be all those MRC IPR with one or more
applications each or all of which fall wholly or predominately within
the Field.
(n) "Enabling IPR" shall be all those MRC IPR with one or more
applications that are otherwise than wholly or predominately within
the Field.
-2-
<PAGE>
(o) "Net Receipts" shall mean all amounts received by APPLIED IMAGING or
its Affiliates for sales of Products to independent third parties less
the following items to the extent that they are included in the
amounts received;
(i) Normal discounts actually granted in amounts customary to
the trade;
(ii) Credits allowed for Products returned or not accepted by
customers;
(iii) Outbound packaging transportation and prepaid insurance
charges on shipments or deliveries to customers;
(iv) Sales and/or other taxes and/or tariff duties directly
imposed on the purchaser of Products in connection with sale or
delivery of Products to the purchaser.
(p) "The Principal Investigators" shall mean Dr. Veronica van Heyningen
and Dr. Denis Rutovitz employees of MRC.
2. COLLABORATION
-------------
2.1 MRC hereby undertakes and agrees to collaborate with APPLIED IMAGING
in the carrying out of the Research Programme as defined in Schedule 1
attached hereto and as amended from time to time by agreement of this
parties.
2.2 MRC hereby agrees to ensure all MRC personnel on the Research
programme will, if required, execute agreements arising to MRC all
their right and interest in MRC IPR or Enabling IPR and obligating
themselves to comply with the provisions of Article 6. MRC further
agrees to assure that such personnel will keep written records and
reports of progress of the Research Programme and they shall liaise
regularly with authorised representatives of APPLIED IMAGING in order
to discuss such progress quarterly or upon such occasions as APPLIED
IMAGING may reasonably require. MRC hereby agrees to supply an annual
report to APPLIED IMAGING on the progress of the Research Programme.
Further, each party hereby agrees to allow authorised representatives
of the other to visit the premises at which the Research Programme is
being carried out and to be granted access to laboratories, facilities
and relevant unedited records as may be necessary for the furtherance
of the Research Programme.
2.3 Forthwith following the conception of an Invention by any person or
persons engaged in the course of work with them on the Research
Programme, the Principal Investigators shall disclose in writing full
details of such Invention to APPLIED IMAGING and shall make available
in writing to APPLIED IMAGING all Know-How relating thereto.
2.4 Where an Invention relates to Field-specific IPR, APPLIED IMAGING
shall be responsible for the filing and prosecution of Patent
Applications in its own name and shall be responsible for the
maintenance and/or renewal of any Patents so far as it is reasonable
to do so with regard to APPLIED IMAGING's then current commercial
considerations. Upon filing a Patent Application hereunder, APPLIED
IMAGING will forward a copy of the Patent Application to MRC Head
Office at the address given in Clause 10.1.
-3-
<PAGE>
2.5 Where an Invention relates to MRC IPR other than Field-specific IPR,
MRC shall be responsible for the filing and prosecution of Patent
Applications, and also for the maintenance and/or renewal of such
Patents.
2.6 APPLIED IMAGING and MRC hereby expressly acknowledge that neither
party is under any duty or obligations under this Agreement to file,
maintain or prosecute any Patent Application or maintain any Patent.
However, should either party decide not to file, maintain or prosecute
any Patent Application, or that it no longer wishes to maintain any
Patent, not less that 60 days before any critical time point it shall
notify the other party in writing of such decision and afford the
other party the opportunity of assuming responsibility for, and the
expense of, filing, maintaining and prosecuting such Patent
Applications, or Maintaining such Patents on its behalf. In the event
that MRC assumes responsibility from APPLIED IMAGING for a Patent
Application or Patent which is relevant to the Field, then APPLIED
IMAGING shall be granted exclusive rights to commercially exploit such
a patent within the Field on identical terms to those which would
prevail had APPLIED IMAGING filed a patent on assigned Field specific
IPR.
3. GRANT OF RIGHTS
---------------
3.1 All Field-specific IPR shall belong to APPLIED IMAGING which shall be
exclusively entitled to all title, rights and interest which MRC or
its employees may have from time to time in such Property including
Inventions and Know-How. The Principal Investigator and MRC expressly
acknowledge that APPLIED IMAGING shall be exclusively entitled to
exploit commercially and use otherwise in any manner whatsoever such
Inventions, Know-How and other Intellectual Property Rights without
restriction.
3.2 MRC hereby agrees as beneficial owner to assign to APPLIED IMAGING by
execution and delivery of written instruments of assignment,
substantially in the form of Schedule 3, all Field-specific MRC IPR
which arises from this collaboration. Subject to Clause 3.3, MRC
expressly acknowledges that APPLIED IMAGING shall be exclusively
entitled to exploit commercially and use otherwise in any manner
whatsoever such MRC IPR together with the Inventions and Know-How
relating thereto without restriction.
3.3 Forthwith following the making of any assignment to APPLIED IMAGING
pursuant to the provisions of Clause 3.2 above, APPLIED IMAGING shall
grant to MRC the royalty-free non-exclusive right to use the
Invention, the Know-How or other intellectual property rights that are
the subject of the assignment for the sole purpose of academic
research.
3.4 If MRC wishes to exploit commercially any MRC IPR, Inventions or Know-
How which have been assigned to APPLIED IMAGING pursuant to Clause 3.2
above, MRC will make a formal written request to APPLIED IMAGING.
APPLIED IMAGING shall respond to such a request within sixty (60)
days, and will consider the grant to MRC of
-4-
<PAGE>
a license on a case-by-case basis within defined fields where such
commercial exploitation does not conflict with APPLIED IMAGING's then
commercial objectives.
3.5 APPLIED IMAGING shall be entitled to an exclusive license, with rights
to sublicense to use Enabling IPR for applications falling within the
Field on identical royalty terms to those which would prevail had
Field-specific IPR been assigned to APPLIED IMAGING.
3.6 MRC will not assign or otherwise transfer Enabling IPR to any third
party without first obtaining an undertaking in identical terms to
preserve the entitlements of APPLIED IMAGING as set out in 3.5 above
without diminution or restriction.
3.7 Where an Invention relates to IPR other than Field-specific IPR, and
is made either jointly by employees of APPLIED IMAGING and MRC or
solely by employees of APPLIED IMAGING, this Agreement shall be
without prejudice to the rights of MRC or APPLIED IMAGING in respect
of the ownership of such IPR which shall be determined in accordance
with the laws of inventorship.
4. WARRANTIES AND RESTRICTIONS
---------------------------
4.1 APPLIED IMAGING shall use all reasonable endeavours to exploit
commercially any Invention, Know-How or other MRC IPR that are
assigned to APPLIED IMAGING by MRC pursuant to 3.2 hereof. APPLIED
IMAGING shall provide MRC with an annual report on progress.
4.2 MRC hereby agrees to do all such acts and things and to sign all such
deeds and documents as APPLIED IMAGING may in its sole discretion
require from time to time in connection with the filing and
prosecution of Patent Applications and the maintenance and renewal of
Patents pursuant to Clause 2.4 hereof and the making of assignments
pursuant to Clause 3.2 hereof.
4.3 MRC hereby represents that it and/or any employee of MRC employed on
the Research Programme, are and will be the sole owners of the entire
title right and interest in and to any Field-specific IPR as defined
herein and that they are and will be free to assign such MRC IPR to
APPLIED IMAGING without any third party claims, liens, charges or
encumbrances of any kind.
4.4 MRC gives no representation or warranty that a filed Patent
Application will be granted, or if granted will be valid nor does MRC
give any warranty to APPLIED IMAGING that the exploitation by APPLIED
IMAGING of the Patent will not result in the infringement of
intellectual property rights vested in any third party.
4.5 Any agreement or arrangement relating to IPR as defined herein between
APPLIED IMAGING and any third party shall be made expressly subject to
the terms and conditions of this Agreement and APPLIED IMAGING shall
require such other party to comply
-5-
<PAGE>
therewith to the same extent that APPLIED IMAGING is required to
comply. In the event of an assignment to a third party of IPR assigned
to APPLIED IMAGING pursuant to Clause 3.2 hereof APPLIED IMAGING
guarantees the fulfilment by such third party of the obligations
expressed here including inter alia the undertakings of this Agreement
in respect of Royalty payments arising under Clause 5.3 hereof.
4.6 The rights and obligations of MRC and APPLIED IMAGING under this
Clause 4 shall and are expressed to survive the termination of the
Agreement as provided for under Clause 7.5 below.
5. CONSIDERATION
-------------
5.1 In consideration of the carrying out of the Research Programme
pursuant to this Agreement, APPLIED IMAGING shall make payments to MRC
to support the necessary staff and materials involved, which will be
invoiced as detailed in and subject to the conditions set out in
Schedule 2 of this Agreement. Payments will be made by telegraphic
transfer to the account of the Medical Research Council at the Bank of
England, Threadneedle Street, London EC2R 8AH, England (Bank Sort Code
10-00-00) MRC No. 1 Account (Account Number 24070009), or such other
account as shall be nominated by MRC from time to time, and the
transaction identified as "No. _______ payment under Collaboration
Agreement dated 11 June 1993 with APPLIED IMAGING." Payment details to
be sent simultaneously to "The Technology Transfer Group, MRC, 20 Park
Crescent, London W1N 4AL."
5.2 Payments hereunder shall be made without deduction other than in
respect of such amount (if any) as APPLIED IMAGING is required to
deduct or withhold by law. In regard to any such deduction borne by
MRC, APPLIED IMAGING shall reasonably cooperate to enable or assist
MRC to claim exemption therefrom under any double taxation or similar
treaty. Proper evidence as to the payment over of the tax or sum
withheld shall from time to time be given by APPLIED IMAGING to MRC.
5.3 In consideration of the assignment of Field-specific IPR to APPLIED
IMAGING pursuant to Clause 3.2, APPLIED IMAGING hereby agrees to pay
to MRC, if and when any pharmaceutical or other commercially valuable
Product is in due course marketed or sold, a Royalty of [*] on all
sales of Products by APPLIED IMAGING or any Affiliate to an
independent third party. No more than one royalty payment shall be due
with respect to a sale. Further, when Field-specific IPR is first
assigned to APPLIED IMAGING pursuant to Clause 3.2, APPLIED IMAGING
shall make a one time payment to MRC not exceeding [*] such payment to
be allocated under MRC's Awards to Inventors Scheme.
5.4 For the avoidance of doubt royalty payments as referred to in 5.3 will
only accrue on Products which embody assigned Field IPR covered by a
valid claim of an issued patent for which some other legally
enforceable form of commercial protection to exclusivity has
-6-
[*Confidential Treatment Requested]
<PAGE>
been obtained. Royalties will be placed in escrow whilst the patent
application is pending and paid to MRC when the patent issues or
returned to Applied Imaging if no patent issues within 36 months after
the date the royalty was placed in escrow.
5.5 In the event that APPLIED IMAGING issues instrumentation designs or
instrument IPR belonging to MRC in its instrumentation product design,
it will negotiate a royalty payable to MRC on a reasonable basis,
taking into due consideration the relative contribution of both
parties.
6. CONFIDENTIALITY
---------------
6.1 MRC hereby undertakes and agrees to keep the Inventions and Know-How
relating to Field-specific IPR secret and confidential and not to
disclose these Inventions and Know-How to any third party subject to
the provisions of 6.3 below.
6.2 MRC hereby further undertakes and agrees not to disclose to any third
party whatsoever any trade secrets or other confidential information
relating to the technology, business affairs or finances of APPLIED
IMAGING.
6.3 Each party recognises the desire of the other to publish details of
scientific research. Each party undertakes and agrees not to engage in
any dissemination of results relating to the Research Programme
without first obtaining the consent of the other party which consent
of the other party shall not be unreasonably withheld or delayed but
shall normally be given within a period of thirty (30) working days
from the receipt of the other party's written request for consent
unless a further period is required in order not to prejudice the
obtaining or validity of industrial property rights in any country of
the world.
6.4 The obligations of confidence provided for in this Agreement shall
begin from the receipt or generation of the confidential information
referred to in Clause 5.1 and 6.2 but shall not extend to any
information which:
(a) is or shall become generally available to the public otherwise
than by reason of a breach by MRC of the provisions of this
Clause;
(b) in the case of Clause 6.2 is known to MRC and is at its free
disposal prior to its receipt from APPLIED IMAGING;
(c) in the case of Clause 6.2 is subsequently disclosed to MRC
without obligation of confidence by a third party owing no such
obligations to APPLIED IMAGING in respect thereof.
6.5 The obligations of MRC under this Clause 6 shall for a period of at
least five (5) years survive the expiration or termination of this
Agreement for whatever reason.
-7-
<PAGE>
6.6 The parties will agree the wording to be used to describe the
collaboration in the MRC handbook .
7. TERM AND TERMINATION
--------------------
7.1 TERM. This collaboration will commence on the Commencement Date and
will continue until the work specified in Schedule 1 is completed or
otherwise determined by mutual agreement with APPLIED IMAGING.
7.2 It is the intention of the parties to carry out the work programme
described in Schedule 1 attached hereto. Should this work programme be
completed in a shorter time than anticipated, or should the completion
of this work programme prove not to be feasible technically, or for
any other reasons, the parties will use their best endeavours to
substitute another research programme for that in Schedule 1.
7.3 Either APPLIED IMAGING or MRC may terminate this Agreement forthwith
by notice in writing to the other if the other commits a substantial
breach of this Agreement which in the case of a breach capable of
remedy shall not have been remedied within sixty (60) days of the
receipt by the party in default of the notice identifying the breach
and requiring the remedy.
7.4 MRC may terminate this Agreement forthwith by notice in writing to
APPLIED IMAGING if APPLIED IMAGING enters into liquidation whether
compulsory or voluntarily (except for the purposes of reconstruction
or amalgamation) or compounds with or convenes a meeting of its
creditors or has a receiver appointed over all or part of its assets
or takes or suffers any similar actions in consequence of a debt or
ceases for any reason to carry on business and any such condition not
voluntarily entered by APPLIED IMAGING continues for 60 days.
7.5 The expiration of this Agreement or the termination thereof for
whatever reason shall not affect the respective rights and obligations
of the parties under Clauses 3, 4, 5 and 6 or any other accrued rights
of the parties arising in any way out of this Agreement as at the date
of expiration or termination and all provisions which are expressed to
survive this Agreement shall remain in full force and effect.
8. GOVERNING LAW AND JURISDICTION
------------------------------
8.1 The validity, construction and performance of this Agreement shall be
governed by English law.
9. ARBITRATION
-----------
9.1 In the event that any dispute or difference arising under this
Agreement cannot be settled amicably by the parties hereto shall be
referred to a single arbitrator to be appointed by
-8-
<PAGE>
both parties having equal representation in the appointment and his
decision shall be accepted as binding on both parties. The costs of
such arbitration shall be borne equally by the two parties to this
Agreement. If the parties fail to agree within 45 days from receipt by
either party or a request from the other party to make such an
appointment, then any such dispute arising in connection with this
Agreement shall be finally settled by arbitration conducted in
England, by and in accordance with the rules then obtaining of the
London Court of Arbitration and judgment upon the award rendered may
be entered in the highest court of the forum having jurisdiction.
10. NOTICES
-------
10.1 Any notice or other document to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if left at or
sent by:
(a) first class post or express or air mail or other fast postal
service; or
(b) registered post; or
(c) facsimile or other electronic media provided it is acknowledged,
to a party at the address set out below for such party or such other
address as the party may from time to time designate by written notice
to the other.
Address of APPLIED IMAGING:
--------------------------
APPLIED IMAGING INTERNATIONAL LTD.
Hylton Park
Wessington Way
Sunderland
Tyne & Wear SR5 3HD
Contact Name: Dr. L. Grant, President and C.O.O.
Telephone No. 091-516-505
Facsimile No. 091-516-0512
Address of MRC/Head Office:
--------------------------
MEDICAL RESEARCH COUNCIL
20 Park Crescent
London WIN 4AL
U.K.
-9-
<PAGE>
Contact Name:
Dr. D.A.A. Owen, Director, Industrial Collaboration and Licensing
Telephone No. +44 (71) 636 5422
Facsimile No. +44 (71) 323 1331
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
----------------
the parties hereto and supersedes all prior communications, understandings
and agreements with respect to all subject matters covered by the
agreement.
12. MODIFICATION/WAIVER. This Agreement may not be altered, amended or
-------------------
modified in any way except by in writing signed by both parties. The
failure of a party to enforce any provision of the Agreement shall not be
construed to be a waiver of the right of such party to therefore enforce
that provision or any other provision or right.
13. SEVERABILITY. If any provision of this Agreement shall be held to be
------------
invalid, illegal or unenforceable by a court of competent jurisdiction,
this Agreement shall continue in full force and effect without said
provision.
-10-
<PAGE>
IN WITNESS whereof this Agreement has been executed by duly authorised officers
of the parties hereto the date first above written.
Signed by:
/s/ L. G. Grant
--------------------------
For and on behalf of the APPLIED IMAGING INTERNATIONAL
Signed by:
/s/ Martin R. Wood
--------------------------
For and on behalf of the MEDICAL RESEARCH COUNCIL
Dr. Martin R. Wood
Head of Technology Transfer Group
Attested by:
--------------------------
Principal Investigator
Dr. V van Heyningen
Attested by:
--------------------------
Principal Investigator
Dr. D. Rutovitz
-11-
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE ONE
- -------------------------------------------------------------------------------
(A) SCIENTIFIC PROGRAMME OF WORK
The objectives of the programme are:
1. the development of methods of commercially useful recovering foetal cells
from maternal blood samples;
(a) by physical separation techniques using graphics and immunomagnetic
sortings,
(b) by development of marker systems suitable for use with high speed
slide-based cell search devices,
(c) by development of suitable methods of deposition of enriched specimens
onto slides.
2. the determination, by experimental study of maternal blood samples taken at
appropriate gestational age, of
(a) the constraints on specimen transport and storage conditions and
times, applying to the original samples and to slides made from them,
(b) the percentage of patients from whose blood numbers of foetal cells
adequate for screening can be recovered, at the gestational ages from
which samples are available,
(c) the expected efficiency of DNA probe hybridisation on samples
developed using the methods of 1 above.
The development of slide search hardware and software is not covered by this
agreement. However as results can only be properly evaluated with reference to
a search system, evaluations at MRC HGU will be carried out using MRC HGU
systems, and in parallel on an APPLIED IMAGING system, should one be supplied to
MRC HGU. In the absence of suitable automated slide search hardware and
software, evaluations will be carried out manually.
(B) PLAN OF WORK
Months 1-3
- ----------
1. Transfer of Know-How concerning MRC HGU negative-selection gradient and
immunomagnetic enrichment procedures and slide-search markers to APPLIED
IMAGING Santa Clara Laboratories, will send to MRC HGU for training.
2. Transfer of APPLIED IMAGING gradient and other enrichment techniques to MRC
HGU. APPLIED IMAGING staff will visit MRC HGU for appropriate periods, and
MRC HGU staff will attend the Santa Clara Laboratories.
3. Establish specimen and slide stability.
<PAGE>
Months 1-9
- ----------
1. Joint programme of experiments at both sites on alternative approaches to
cell sorting aimed at improving yield, purity ease of operation
(preparation) and response to probes and which considers the implications
of subsequent automated cell finding. This programme will be carried out on
both cord/adult blood mixtures and maternal blood samples.
Months 3-12
- -----------
1. Systematic experiment using a selected "frozen" technique to determine the
proportion of cases in which adequate numbers of foetal cells showing
adequate response to probes can be found, in the ranges of gestational age
for which samples are available.
Months 1-2
- ----------
1. All evaluations will be based on machine slide search, done in the first
instance on MRC HGU equipment, and using MRC HGU programmes. MRC HGU will
make slide samples available for development and evaluation of APPLIED
IMAGING search systems.
-13-
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE TWO
- -------------------------------------------------------------------------------
Financial details of support;
Year 1
1. One Post doctoral or equivalent scientist starting on the
appropriate point on the MRC scientific scale
[*]
2. National Insurance and employer's Superannuation
contributions
[*]
3. One Technician or equivalent scientist starting on the
appropriate point on the MRC scientific scale
[*]
4. National Insurance and employer's Superannuation
contributions
[*]
SUB TOTAL: [*]
5 Overheads due for the provision of facilities and
administration @ 42%
[*]
6. Consumables [*] for Post Doc, [*] for the Technician)
[*]
TOTAL: [*]
APPLIED IMAGING will meet the costs of increments to 1-4 above arising from the
nationally agreed pay awards.
Plus reasonable travel expenses wherever applicable in agreement with APPLIED
IMAGING.
These expenditures will be paid quarterly in arrears by APPLIED IMAGING.
[*] will also be provided by APPLIED IMAGING for the purchase of a Fluorescent
microscope which will remain the property of MRC. In the first instance this
will be purchased, if possible, through APPLIED IMAGING.
[*Confidential Treatment Requested]
<PAGE>
[Medical Research Counsil, Technology Transfer Group Letterhead]
5 July 1994
Dr. L. Grant
Applied Imaging International Ltd
Hylton Park
Wessington Way
Sunderland
Tyne & Wear SR5 5HD
Dear Les,
RE: CYTOVISION ROYALTIES
Following our discussions regarding the diminishing royalties of Cytoscan
we agreed a new royalty rate of [*] on sales of Cytovision Karyotypes, and
Cytovision Products embodying the Karyotyper. This royalty to commence on 5th
April 1994. It was agreed that some of the MRC Know-How present in Cytoscan has
been utilized in Cytovision. Royalties will still be due on any
further sales of Cytoscan but we can expect this to be reduced.
In accepting the [*] royalty rate on sale of Cytovision please countersign
this letter and return it to me.
Many thanks,
With Best Wishes,
/s/ Alan Driver
Alan Driver
Technology Transfer Manager
Accepted on Behalf of Applied Imaging
Signed: /s/ L. G. Grant
-----------------------------
Name/Title: L. G. Grant, President
-------------------------
Date: 07/25/94
----------------------------------
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.15
NIH/ADAMHA CRADA Clearance
(Cooperative Research & Development Agreement)
After the provisions of a Cooperative Research and Development Agreement (CRADA)
have been negotiated, the CRADA must go through clearance procedures. This form
documents the approval process.
Title of CRADA (if untitled, create one based on the purpose of the CRADA)
Development of a fully automated karyotyping system based on co-hybridization of
Cy-5labeled chromosome specific repeat probes.
Was the CRADA initiated as a result of an NIH/ADAMHA-Industry Collaboration
Forum?
No
CRADA No. (Assigned by the BID Technology Development Coordinator
9511-7
Date CRADA goes into effect
2/15/96
Term (years)
1
Intramural Research Project No.
Z01-
NIH/ADAMHA Principal Investigator(s) (if more than one is listed, the first is
the lead PI)
Name
Dr. Thomas Ried
BID (Institute/Division)
NCHGR/DIR/
Lab or Branch
DDB
Phone No.
594-3118
Collaborating Principal Investigator(s)
Name
Dr. Padrig S. O'Kelly
Organization (name and address)
Applied Imaging
2380 Walsh Ave., Bldg. B, Santa Clara, CA 95051
Phone No.
(408) 562-0250
Are any of the collaborating organizations:
YES Small Business?
NO Foreign Institution?
NO Participant in any other CRADAs with NIH/ADAMHA?
<PAGE>
CRISP Keywords (At least three from the Intramural Research Index or CRISP
Thesaurus)
FISH
CGH
Imaging
Does this CRADA address:
YES Patent rights?
YES Exclusive license?
YES Non-exclusive?
YES Rights of first negotiation?
YES Sharing NIH/ADAMHA materials?
YES Sharing collaborator materials?
NO AIDS research?
NO Animals?
NO Human Subjects?
YES Human tissue?
Resources (If not specified in the CRADA, give best estimate).
NIH/ADAMHA (Person - Years) 0.85
Collaborator (Person - Years)
1.1
Amount of money transferred by collaborators to NIH/ADAMHA
Average dollars per year
$20,000
Total dollars per term of the CRADA
$20,000
Routing and Approval Signatures
1. NIH/ADAMHA Principal Investigator Date
/s/ signature unreadable 1-31-96
2. NIH/ADAMHA Laboratory Chief Date
/s/ signature unreadable
3. BID Technology Development Coordinator Date
/s/ signature unreadable 2/2/96
4. Scientific Director Date
/s/ signature unreadable 4/23/96
5. OID Director (Bld, 31/BIC38) Date
/s/ signature unreadable 4/25/96
<PAGE>
Next, the BID Technology Development Coordinator sends this form with 12
photocopies of the CRADA to the NIH Crada Subcommittee Chairman. (Call 496-0750
for address). Review Signature (CRADA Subcommittee does not have approval
authority, but reviews and comments on the proposal and may recommend approval
or disapproval.
6. CRADA Subcommittee Review Date
/s/ signature unreadable 4/26/96
Final Signature: Non-disapproval
NIH/ADAMHA Administrator Date
/s/ signature unreadable DDIR 4/26/96
Finally, send this form and a copy of the final CRADA (signed by each
collaborating party) to: NIH Office of Invention Development, Bldg. 31, Room
B1C38 (496-0750)
[REFORMATTED FROM ORIGINAL]
<PAGE>
PUBLIC HEALTH SERVICE
POLICY STATEMENT ON
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
AND INTELLECTUAL PROPERTY LICENSING
This Statement sets forth the policies of the National Institutes of Health
(NIH) on various aspects of cooperative research and intellectual property
licensing. These policies apply to the negotiation of NIH Cooperative Research
and Development Agreements (CRADAs). License agreements for Intellectual
property rights to inventions developed under a CRADA or through the NIH
intramural research programs, whether negotiated by NIH or the National
Technical Information Service on its behalf, will also incorporate these
policies. This Statement may be revised from time to time as NIH considers
appropriate.*
To implement the Federal Technology Transfer Act of 1986, (FTTA, 15 U.S.C. at
(S) 3710), Executive Order 12591 of April 10, 1987 orders Federal laboratories
to assist universities and the private sector in broadening our national
technology base by moving new knowledge from the research laboratory into the
development of new products and processes. While Federal patent law (35 U.S.C.
at (S)(S) 200-212) authorizes the licensing of Government-owned patent rights,
the FTTA seeks to facilitate technological collaboration at an earlier stage.
Thus, the FTTA authorizes Federal laboratories to enter into CRADAs and to agree
to grant intellectual property rights in advance to collaborators for inventions
made in whole or part by Federal employees under the CRADA. Besides assisting
in the transfer of commercially useful technologies from Federal laboratories to
the marketplace, CRADAs make outside resources more accessible to Federal
laboratories.
NIH, on agency of the Public Health Service (PHS) within the Department of
Health and Human Services (DHHS), is among the world's preeminent biomedical
research organizations. Its general mission is to conduct biomedical and
behavioral research that will lead to the better health of the American people.
For the NIH investigator, this agency mission prescribes the exploration of
ideas, the communication of ideas and information to colleagues, and a
responsibility for the prompt and accurate publication of findings. Under the
FTTA, 15 U.S.C. at Sec. 3710a(a)(2), technology transfer, consistent with
mission responsibilities, is also a responsibility of each laboratory science
and engineering professional. To support its mission, NIH has developed an
interdisciplinary and synergistic research environment that promotes the free
exchange of ideas and information. In order to safeguard the collegiality and
integrity of, as well as public confidence in, the NIH research programs, the
following cooperative research and technology transfer policies have been
adopted.
1. RESEARCH FREEDOM
NIH Investigators generally are free to choose the subject matter of their
research, consistent with the mission of their Institute and the research
programs of their Laboratories. No CRADA or license agreement may contravene
this freedom.
2. RESEARCH POLICY
NIH research results generally are disseminated freely through publication in
the scientific literature and presentations at public fora. Brief delays in
this dissemination of research results may be permitted under a CRADA as
necessary in order to file corresponding patent or other intellectual property
applications. NIH considers the filing of such applications to be an important
component of its research efforts.
[Page Break Altered form Original]
<PAGE>
*Questions or comments about this Statement and requests for updated
versions should be directed to the NIH Office of Technology Transfer at (301)
496-7057. This Statement is effective on an Interim basis.
NIH Office of Technology Transfer
POLICY STATEMENT ON CRADAs &
INTELLECTUAL PROPERTY LICENSING
940329 - Page 1 of 5
<PAGE>
3. COOPERATIVE RESEARCH AND DEVELOPMENT UNDER A CRADA
As defined by the FTTA, 15 U.S.C. (S) at 3710a(d)(1), a CRADA means any
agreement between one or more Federal laboratories and one or more non-Federal
parties, under which the Government provides personnel, services, facilities,
equipment, or other resources (but not funds), and the non-Federal parties
provide funds, personnel, services, facilities, equipment, or other resources
toward the conduct of specified research or development efforts. Cooperative
research and development activities are intended to facilitate the transfer of
Federally funded research and development for use by State and local
governments, universities, and the private sector, particularly small business.
4. NIH CRADAs
As adopted by NIH, a CRADA is a standardized agreement intended to provide an
appropriate legal framework for, and to expedite the approval of, cooperative
research and development projects. The use of CRADAs is encouraged for
cooperative efforts because they permit NIH to accept, retain, and use funds,
personnel, services, and property from collaborating parties and to provide
personnel, services, and property to collaborating parties. NIH may permit
investigators to enter into CRADAs with collaborators who will make a
significant intellectual contribution to the research project undertaken or who
will contribute essential research materials or technical resources not
otherwise reasonably available. While NIH welcomes contributions to its gift
funds for research purposes, it does not view CRADAs as a general funding source
or a mechanism for sponsored research. This approach to implementing the FTTA
has been chosen in order to maintain the public's confidence in NIH through
maintaining an independence from reliance on industry funding.
5. SELECTION OF COLLABORATORS UNDER A CRADA
Collaborations under a CRADA may be suggested by potential collaborators or by
NIH investigators. Generally, The decision to initiate the approval process for
a CRADA is made by the involved NIH investigator and Laboratory Chief based on
scientific considerations and the desire for the public to benefit from the
commercialization of particular NIH research. For some cooperative projects,
where the development and commercialization potential is more immediate relative
to the basic research aspects, NIH may seek a collaborator(s) which has both
scientific expertise and commercialization capabilities. In certain areas of
research, e.g., where the Government has the intellectual lead or where both
scientific and commercialization capabilities are deemed essential at the
outset, NIH may competitively seek a collaborator through Federal Register
notification. The PHS has also developed policy guidelines for ensuring
fairness of access to PHS laboratories such as NIH in the process of initiating
and developing CRADAs.
6. PROPRIETARY OR CONFIDENTIAL INFORMATION AND MATERIALS
NIH recognizes that on effective collaborative research program may require the
disclosure of proprietary information to NIH investigators. Although agreements
to maintain confidentiality are permitted under a CRADA, collaborators should
limit their disclosure of proprietary information to the amount necessary to
carry out the research plan of the CRADA. The mutual exchange of confidential
information, e.g., patient data, should be similarly limited. NIH also
recognizes that cooperative research may require the exchange of proprietary
research materials. Such materials may be used only for the purposes specified
in the research plan set forth in the CRADA. All parties to the CRADA will
agree to keep CRADA research results confidential to the extent permitted by law
until they are published in the scientific literature or presented at a public
forum.
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7. TREATMENT OF DATA AND RESEARCH
Products Produced under a CRADA: The NIH investigator and the collaborator
will agree to exchange all data and research products developed in the
course of research under a CRADA whether developed solely by NIH, jointly
with the collaborator, or solely by the collaborator. In general, tangible
research products developed under a CRADA will be shared equally by the
parties to the CRADA. All parties to a CRADA will be free to utilize
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such data and research products for their own purposes. Data and research
products developed solely by the collaborator may be designated as
proprietary by the collaborator when they are wholly separable from the
data and research products developed jointly with NIH investigators;
however, except as may be afforded through intellectual property rights
that require public disclosure of the protected subject matter (e.g.,
patents), NIH will not agree to exclude others from utilizing or
commercializing the data or research products developed solely by NIH
investigators or jointly with the collaborator under a CRADA.
8. OWNERSHIP AND LICENSING OF NIH INTELLECTUAL PROPERTY RIGHTS
Pursuant to the FTTA, 15 U.S.C. at (S) 3710a(b)(2), a Federal laboratory is
authorized to own and license patent rights to inventions made in whole or part
by its employees under a CRADA. The term "invention" is defined at (S) 3703(9)
to mean any invention or discovery which is or may be patentable or otherwise
protected under Title 35 or any novel variety of plant which is or may be
protectable under the Plant Variety Protection Act (PVPA), 7 U.S.C. (S) 2321 et
seq. The patent law, 35 U.S.C, at (S) 207, authorizes the ownership and
licensing of intramural inventions. Executive Order 12591 at (S) 1(b)(1)(B)
further authorizes the transfer of Government intellectual property rights.
Although the FTTA speaks broadly of the transfer. of "technology," NIH does not
have statutory authority to license (or to agree to limit dissemination of)
technology developed in whole or part by its investigators under a CRADA unless
a patent, PVPA certificate or other intellectual property application has been
filed for that technology. NIH will retain the Government ownership interest
in, but not license rights to, all intellectual property rights to inventions
developed solely through intramural research or developed in whole or in part by
its investigators under a CRADA.
9. GENERAL LICENSING POLICY
NIH recognizes that under the FTTA and the patent licensing low to which it
refers, Congress and the President have chosen to utilize the patent system as
the primary mechanism for transferring Government inventions to the private
sector. The importance of patents to commercialization in the biomedical field
is further reflected by the Drug Price Competition and Patent Term Restoration
Act of 1984 (Pub. L. 98-417). A fundamental principle of the patent system is
that the owner of a patent have a time-limited "right to exclude others from
making, using, or selling the [patented] invention." The reason for such a
period of exclusivity is to encourage industry to invest the resources necessary
to bring an invention from the discovery stage through subsequent development,
clinical trials, regulatory approvals, and ultimately into commercial
production. NIH accordingly is willing to grant exclusive commercialization
licenses under its patent or other intellectual property rights in cases where
substantial additional risks, time and costs must be undertaken by a licensee
prior to commercialization. Under a CRADA, NIH is also willing to agree to
grant exclusive commercialization licenses in advance to collaborators. NIH
will attempt, however, to license its intramural inventions nonexclusively in
cases where an invention reflects a relatively more advanced stage in
commercial development, e.g., when an NIH investigator invents a patentable new
therapeutic use for a known and FDA-approved compound.
Federal laboratories are authorized to negotiate license agreements for
Government-owned patent rights in intramural inventions pursuant to 35 U.S.C.
(S) 207. Although (S) 207 does not apply to intellectual property license
agreements authorized by the FTTA for inventions mode under a CRADA, NIH has
adopted the following approach of Sec. 207 for all license agreements:
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Each Federal Agency [may] .. grant nonexclusive, exclusive, a partially
exclusive licenses under Federally owned patent applications, patents, or
other forms of protection ... on such terms and conditions ... as
determined appropriate in the public interest.
NIH has determined it to be appropriate in the public interest to grant
nonexclusive research licenses and either exclusive or nonexclusive
commercialization licenses to DHHS-owned intellectual property rights according
to the plan discussed below.
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10. GOVERNMENT INTELLECTUAL PROPERTY RIGHTS
For inventions developed wholly by NIH investigators or jointly with a
collaborator under a CRADA, NIH is required by the FTTA at 15 U.S.C. Sec.
3710a(b)(2) to retain at least a nonexclusive, irrevocable, paid-up license to
practice the invention or to have the invention practiced throughout the world
by or on behalf of the U. S. Government. When granting exclusive or partially
exclusive licenses to NIH intramural inventions, 35 U.S.C. Sec. 208, as
implemented by 37 C.F.R. Sec. 404.7(2)(i), requires the reservation of similar
Government rights. NIH will not assert an ownership right in inventions made
solely by a collaborator under a CRADA, but will require the grant of a research
license, as described below, to the Government for inventions made wholly by a
collaborator under a CRADA.
11. RESEARCH LICENSES
NIH will reserve the right under any CRADA and intellectual property license to
grant nonexclusive licenses to make and to use the invention for purposes of
research involving the invention itself, and not for purposes of commercial
manufacture or in lieu of purchase as a commercial product for use in other
research. The purpose of the research license is to facilitate basic academic
research. NIH intends to consult with any involved commercialization
licensee(s) before granting research licenses to commercial entities.
12. COMMERCIALIZATION LICENSES
NIH is willing to consider requests for nonexclusive or exclusive
commercialization licenses to intellectual property rights to inventions
developed under a CRADA or in the course of intramural research, pursuant to
applicable statutes and regulations. Under a CRADA, NIH generally will grant a
time-limited option to negotiate, in good faith, the terms of a license that
fairly reflect the relative contributions of the parties, the risks incurred by
the collaborator, and the costs of subsequent research and development needed to
bring the results of CRADA research to the marketplace. NIH contemplates the
drafting of a model invention license to serve as the starting point for license
negotiations. It is contemplated further that such a model will reduce
negotiations essentially to matters of execution fees, royalty rates, and
minimum annual royalties. Royalty rates will be based on product sales and the
rates conventionally granted in the field identified in the CRADA's research
plan for inventions with reasonably similar commercial potential. Royalty rates
generally will not exceed a rate within the range of 5 - 8 % for exclusive
commercialization licenses. Contingent royalty schemes based on, e.g., patent
issuance or nonissuance, and clauses treating the stacking of royalties or
packaging of other inventions developed under the CRADA may be provided.
Exclusive licensees will be expected to reimburse NIH for intellectual property
related expenses, and may be permitted to offset such reimbursement against
future product royalties,
13. NONEXCLUSIVE COMMERCIALIZATION LICENSES
Unless a request for exclusive commercialization license is made under a CRADA
or submitted for an intramural invention, NIH will attempt to license its
inventions nonexclusively. Such nonexclusive licenses generally will follow the
guidelines of 37 C.F.R. Part 404.
14. EXCLUSIVE COMMERCIALIZATION LICENSES
All NIH exclusive commercialization licenses will require the submission by a
prospective licensee of an acceptable development and commercialization plan as
described by 35 U.S.C. Sec. 209(a) and subsequent periodic reports on
utilization of the invention as described by Sec. 209(f)(1), All such plans and
reports will be treated in confidence and as privileged from disclosure under
the Freedom of
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Information Act. Modification provisions as described by Sec. 209(f)(2)-(4) may
apply. In appropriate cases, NIH may also reserve the right to grant separate
exclusive commercialization licenses in various fields of use. The remaining
provisions of 35 U.S.C. Sec. 200-212 will also apply to licenses to NIH
intramural inventions.
NIH also considers the following provisions for exclusive commercialization
licenses to be necessary and appropriate in the public Interest:
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(i) the exclusive licensee must pledge its reasonable best efforts to
commercialize a licensed invention and the development and
commercialization plan mentioned above may serve as the measure of such
efforts;
(ii) NIH shall have the right, after notice and opportunity to cure, to
terminate or render nonexclusive any license granted: 1) If the licensee is
not reasonably engaged in research, development, clinical trials,
manufacturing, marketing, sublicensing, or other activities reasonably
necessary to the expeditious commercial dissemination of the licensed
invention; or 2) when the licensee cannot reasonably satisfy unmet health
and safety needs;
(iii) in order to maximize the commercialization of the licensed invention
in other fields of use not utilized by the exclusive licensee through
ongoing development, manufacturing or sublicensing, NIH reserves the right
to require the licensee to grant sublicenses to responsible applicants, on
reasonable terms, in such other fields of use, unless the licensee can
reasonably demonstrate that such a sublicense would be contrary to sound
and reasonable business practice and the granting of the sublicense would
not materially increase the availability to the public of the licensed
invention; and
(iv) exclusive licensees to DHHS inventions, whether developed under a
CRADA or through intramural research, must agree to not unreasonably deny
requests for sublicense or cross license rights from future CRADA
collaborators when the possibility of acquiring such derivative rights is
necessary in order to permit a proposed cooperative research project with
NIH to go forward, and the exclusive licensee has been given a reasonable
opportunity to join as a party to the proposed CRADA
15. COMPLIANCE UNDER A CRADA WITH OTHER POLICIES
For research conducted pursuant to a CRADA, collaborators must agree to comply
with PHS and NIH policies and guidelines concerning, e.g., human subjects
research, the use of research animals including nonwild chimpanzees, recombinant
DNA and other policy statements as may be promulgated from time to time.
16. PRICING
DHHS has responsibility for funding basic biomedical research, for funding
medical treatment through programs such as Medicare and Medicaid, for providing
direct medical care and, more generally, for protecting the health and safety of
the public. Because of these responsibilities, and the public investment in the
research that contributes to a product licensed under a CRADA, DHHS has a
concern that there be a reasonable relationship between the pricing of a
licensed product, the public investment in that product and the health and
safety needs of the public. Accordingly, exclusive commercialization licenses
granted for NIH intellectual property rights may require that this relationship
be supported by reasonable evidence.
17. WAIVERS
NIH will consider requests to modify any of the foregoing policies in special
cases where public health exigencies or commercial situations warrant such a
modification. Modifications dealing with business terms such as royalties are
not decided by the NIH investigators and should be discussed with the
appropriate NIH technology management personnel.
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18. SPECIAL CONSIDERATION AND PREFERENCE UNDER A CRADA
NIH will give special consideration to entering into CRADAs with small business
firms and consortia involving small business firms, and will give preference to
business units located in the United States which agree to manufacture
substantially in the United States products which embody inventions developed in
the course of research under CRADAs.
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PUBLIC HEALTH SERVICE
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT*
This Cooperative Research and Development Agreement, hereinafter referred to as
the "CRADA," consists of this Cover Page, an attached Agreement, a Signature
Page and various Appendices referenced in the Agreement. This Cover Page serves
to identify the Parties to this CRADA:
(1) the following Bureau(s), Institute(s) or Division(s) of the
National Institutes of Health: National Center for Human Genome Research,
hereinafter singly or collectively referred to as the "NIH;" and
(2) Applied Imaging, which has offices at 2380 Walsh Ave., Bldg. B,
Santa Clara, CA 95051, hereinafter referred to as the "Collaborator."
Although drafted for two Parties, the attached CRADA may also be used for any
number. This Cover Page, however, should be modified by repeating block (2) to
identify other Parties to the CRADA. All non-NIH Parties are hereinafter
collectively referred to as the "Collaborator." Use of the terms "Collaborator,"
"Party" and "Parties" should be construed as appropriate for the actual number
of CRADA participants.
*This Cooperative Research and Development Agreement form is effective on an
interim basis. Questions or comments about this CRADA and requests for updated
versions should be directed to the NIH Office of Technology Transfer at 301-496-
7057.
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COOPERATIVE RESEARCH AND DEVELOPMENT
AGREEMENT
ARTICLE 1. INTRODUCTION
This Cooperative Research and Development Agreement (CRADA) between NIH and the
Collaborator will be effective when signed by all parties. By signing this
CRADA, the Collaborator acknowledges that it has received and read a copy of the
Policy Statement on Cooperative Research and Development Agreements and
Intellectual Property Licensing which is attached as Appendix A. The research
and development project(s) which will be undertaken by each of the Parties in
the course of this CRADA are detailed in the Research Plan (RP) which is
attached as Appendix B The funding and staffing commitments of the Parties are
set forth in Appendix C. Any exceptions or changes to the CRADA are set forth in
Appendix D.
ARTICLE 2. DEFINITIONS
As used in this CRADA, the following terms shall have the indicated meanings:
2.1 "Cooperative Research and Development Agreement" or "CRADA" means this
Agreement, entered into by NIH pursuant to the Federal Technology Transfer
Act of 1986, as amended, 15 U.S.C. 3710a et. seq. and Executive Order 12591
of October 10, 1987.
2.2 "PROPRIETARY/CONFIDENTIAL INFORMATION" means confidential scientific,
business or financial information provided that such information does not
include:
2.2.1 information that is publicly known or available from other sources
who are not under a confidentiality obligation to the source of the
information;
2.2.2 information which has not been made available by its owners to
others without a confidentiality obligation;
2.2.3 information which is already known by or available to the receiving
Party without a confidentiality obligation; or
2.2.4 information which relates to potential hazards or cautionary
warnings associated with the production, handling or use of the
subject matter of the Research Plan of this CRADA.
2.3 "SUBJECT DATA" means all recorded information first produced in the
performance of this CRADA.
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2.4 "RESEARCH MATERIALS" means all tangible materials other than Subject Date
first produced in the performance of this CRADA.
2.5 "SUBJECT INVENTION" means any invention, conceived or first actually
reduced to practice in the performance of research under this CRADA, that
is or may be patentable under 35 U.S.C. (S) 101 or (S) 161, protectable
under 7 U.S.C. 2321, or otherwise protectable by other types of U.S. or
foreign "Intellectual Property" ("Ip") rights.
2.6 "GOVERNMENT" means the U.S. Government and any of its agencies.
2.7 "RESEARCH PLAN" or "RP" means the statement in Appendix B of the respective
research and development commitments of the Parties to this CRADA.
2.8 "PRINCIPAL INVESTIGATOR(S)" or "PIs" means the persons designated
respectively by the Parties to this CRADA who will be responsible for the
scientific and technical conduct of the RP.
2.9 "RESEARCH LICENSE" shall mean a nontransferable, nonexclusive license under
any IP license to make and use a licensed invention for purposes of
research including human clinical trials and not for purposes of commercial
manufacture or distribution or in lieu of purchase if licensed products or
licensed processes are marketed lay licensee as research tools.
2.10 "SMALL BUSINESS" means a small business concern as described in 15
U.S.C. 631 et. seq. and implementing regulations of the Small Business
Administration at 13 C.F.R. (S) 121.404-407. Generally, a small business
concern"... shall be deemed to be one which is independently owned and
operated and which is not dominant in its field of operation, Generally,
companies having 500 employees or fewer would seem to meet the size
requirements for a small business concern. Generally, companies with annual
receipts not in excess of 3.5 million dollars per year would seem to meet
the dollar volume requirements for a small business concern. However, in
addition to all of the foregoing, it is possible that other factors may be
considered in a final determination by the Administrator of the Small
Business Administration as to whether a business concern is a small
business concern.
ARTICLE 3. COOPERATIVE RESEARCH
3.1 RESEARCH TEAM. The Parties agree to establish a joint research and
development team (hereinafter referred to as the "Team") comprising at
least the Principal Investigators designated pursuant to Article 3.3 to
conduct and monitor the research in accordance with the RP Although the
members of the Team
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shall be considered as having been delegated to the Team, they shall
continue to remain employed by their respective employers under their
respective terms of employment.
3.2 REVIEW OF WORK. Periodic conferences shall be held by the Team to review
work progress. It is understood that the nature of this cooperative
research precludes a guarantee of its completion within the specified
period of performance or limits of allocated financial or staffing support.
Accordingly, research under this CRADA is to be performed on a best efforts
basis.
3.3 PRINCIPAL INVESTIGATORS. NIH research work under this CRADA will be
performed by the NIH laboratory identified in the RP, and the NIH Principal
investigator (PI) designated in the RP will be responsible for the
scientific and technical conduct of this project on behalf of NIH. Also
designated in the RP is the Collaborator PI who will be responsible for the
scientific and technical conduct of this project on behalf of the
Collaborator.
3.4 RESEARCH PLAN CHANGE. The RP may be modified by mutual written
consent of the Principal Investigators. Substantial changes in the scope
of the RP will be treated as amendments under Article 14.6.
ARTICLE 4. REPORTS
4.1 INTERIM REPORTS. The Parties shall exchange formal written interim
progress reports on a schedule agreed to by the PIs, but at least within
six (6) months after this CRADA becomes effective and at least within every
six (6) months thereafter. Such reports shall set forth the technical
progress made, identifying such problems as may have been encountered and
establishing goals and objectives requiring further effort.
4.2 FINAL REPORTS. The Parties shall exchange final reports of their
results within four (4) months after completing the projects described in
the RP or after the termination of this CRADA.
ARTICLE 5. FINANCIAL AND STAFFING OBLIGATIONS
5.1 NIH AND COLLABORATOR CONTRIBUTIONS. The NIH contribution to the RP in
the form of personnel, services and property only is designated in Appendix
C. The Collaborator contribution to the RP in the form of personnel,
services, property, support for staffing and/or funding is designated in
Appendix C. Payment schedules, if applicable, are also indicated in
Appendix C.
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5.2 INSUFFICIENT AND EXCESS FUNDS. NIH shall not be obligated to perform any
of the research specified herein or to take any other action required by
this CRADA if the funding is not provided as set forth in Appendix C. NIH
shall return excess funds to the Collaborator when it sends its final
fiscal report pursuant to Article 5.3, except for staffing support pursuant
to Article 11.3. Collaborator acknowledges that the U.S. Government will
have the authority to retain any excess funds for up to one (1) year
subsequent to the expiration or termination of the CRADA to cover any costs
incurred during the term of the CRADA in undertaking the work set forth in
the RP.
5.3 ACCOUNTING RECORDS. NIH shall maintain separate and distinct current
accounts, records, and other evidence supporting all its obligations under
this CRADA, and shall provide the Collaborator an annual report reflecting
the use of the Collaborator's funds and a final such fiscal report at the
time that final reports are exchanged pursuant to Article 4.2.
ARTICLE 6. TITLE TO PROPERTY
6.1 CAPITAL EQUIPMENT. The purchase or use of capital equipment to carry out
this CRADA does not affect the ownership rights that would otherwise apply.
Equipment purchased by NIH with funds provided by the Collaborator shall be
the property of NIH. All capital equipment provided under this CRADA by
one party for the use of another Party remains the property of the
providing Party unless other disposition is mutually agreed upon by in
writing by the PIs. If title to this equipment remains with the providing
Party, that Party is responsible for maintenance of the equipment and the
costs of its transportation to and from the site where it will be used.
ARTICLE 7. INTELLECTUAL PROPERTY RIGHTS AND PATENT APPLICATIONS
7.1 REPORTING. The Parties shall promptly report to each other in
writing each Subject Invention resulting from the research conducted under
this CRADA that is reported to them by their respective employees. Such
reports shall be treated in confidence by the receiving Party subject to
Article 9. Because of the royalty sharing provisions for Government
inventors in the Federal Technology Transfer Act of 1986, and in view of
Article 8.4 of this CRADA which grants the Government only a research
license on inventions made solely by the Collaborator, the Collaborator
acknowledges a special duty to report all Subject Inventions to NIH so that
NIH may determine whether or not inventorship properly includes NIH
investigators.
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7.2 COLLABORATOR EMPLOYEE INVENTIONS. The Collaborator may elect to
retain IP rights to any Subject Invention made solely by a Collaborator
employee. The Collaborator shall notify NIH promptly upon making this
election. If the Collaborator does not elect to retain its IP rights, the
Collaborator shall offer to assign these IP rights to the Subject Invention
to NIH pursuant to Article 7.5. If NIH declines such assignment, the
Collaborator may release its IP rights to employee inventors pursuant to
Article 7.6.
7.3 NIH EMPLOYEE INVENTIONS. NIH on behalf of the U.S. Government may
elect to retain IP rights to each Subject Invention made solely by NIH
employees. If NIH does not elect to retain IP rights, NIH shall offer to
assign these IP rights to such Subject Invention to the Collaborator
pursuant to Article 7.5. If the Collaborator declines such assignment, NIH
may release IP rights in such Subject Invention to its employee inventors
pursuant to Article 7.6.
7.4 JOINT INVENTIONS. Each Subject Invention made jointly by NIH and
Collaborator employees shall be jointly owned by NIH and the Collaborator.
The Collaborator may elect to file the joint patent or other IP
application(s) thereon and shall notify NIH promptly upon making this
election. If the Collaborator decides to file such applications, it shall
do so in a timely manner and at its own expense. If the Collaborator does
not elect to file such application(s), NIH on behalf of the U.S. Government
shall have the right to file the joint application(s) in a timely manner
and at its own expense. If either Party decides not to retain its IP
rights to a jointly owned Subject Invention, it shall offer to assign such
rights to the other Party pursuant to Article 7.5. If the other Party
declines such assignment, the offering Party may release its IP rights to
employee inventors pursuant to Article 7.6.
7.5 FILING OF PATENT APPLICATIONS. With respect to Subject Inventions
made by the Collaborator as described in Article 7.2, or by NIH as
described in Article 7.3, a Party exercising its right to elect to retain
IP rights to a Subject Invention agrees to file patent or other IP
applications in a timely manner and at its own expense. The Party may
elect not to file a patent or other IP application thereon in any
particular country or countries provided it so advises the other Party
ninety (90) days prior to the expiration of any applicable filing deadline,
priority period or statutory bar date, and hereby agrees to assign its IP
right, title and interest in such country or countries to the Subject
Invention to the other Party and to cooperate in the preparation and filing
of a patent or other IP applications. In any countries in which title to
patent or other IP rights is transferred to the Collaborator, the
Collaborator agrees that NIH inventors will share in any royalty
distribution that the Collaborator pays to its own inventors.
7.6 RELEASE TO INVENTORS. In the event neither of the Parties to this
CRADA elects to file a patent or other IP application on a Subject
Invention, either or both (if a
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joint invention) may release their IP rights to their respective employee
inventor(s) with a nonexclusive, non-transferable, royalty-free license
being retained by each Party.
7.7 PATENT EXPENSES. The expenses attendant to the filing of patent or
other IP applications generally shall be paid by the Party filing such
application. If an exclusive license to any Subject Invention is granted to
the Collaborator, the Collaborator shall reimburse NIH for the reasonable
past and Collaboratorapproved ongoing funds expended worldwide for filing,
prosecuting and maintaining any applications claiming such exclusively-
licensed inventions and any patents or other IP grants that may issue on
such applications. The Collaborator may waive its exclusive license rights
on any application, patent or other IP grant at any time, and incur no
subsequent compensation obligation for that application, patent or IP
grant.
7.8 PROSECUTION OF INTELLECTUAL PROPERTY APPLICATIONS. Each Party shall
provide the other Party with copies of the applications it files on any
Subject Invention along with the power to inspect and make copies of all
documents retained in the patent or other IP application files by the
applicable patent or other IP office. The Parties agree to consult with
each other with respect to the prosecution of NIH Subject Inventions
described in Article 7.3 and joint Subject Inventions described in Article
7.4. If the Collaborator elects to file and prosecute IP applications on
joint Subject Inventions pursuant to Article 7.4, NIH will be granted an
associate power of attorney (or its equivalent) on such IP applications.
ARTICLE B. LICENSING
8.1 OPTION FOR EXCLUSIVE COMMERCIALIZATION LICENSE. With respect to Government
IP rights to any Subject Invention not made solely by the Collaborator's
employees for which a patent or other IP application is filed, NIH hereby
grants to the Collaborator an option to negotiate, in good faith, the terms
of an exclusive or nonexclusive commercialization license that fairly
reflects the relative contributions of the Parties to the invention and the
CRADA, the risks incurred by the Collaborator and the costs of subsequent
research and development needed to bring the invention to the marketplace.
The license will specify the licensed fields of use, breadth of exclusivity
and royalties. Royalty rates Will be based on product sales and the rates
conventionally granted in the field identified in the RP for inventions
with reasonably similar commercial potential. Royalty rates generally will
not exceed a rate within the range of 5-8 percent for exclusive
commercialization licenses. Contingent royalty schemes based on, e.g.,
patent issuance or nonissuance, and provisions treating the stacking of,
royalties or packaging of other licensed inventions developed under
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this CRADA may be provided. Exclusive licensees will be expected to
reimburse NIH for IP expenses related to each licensed intellectual
property, and may be permitted to offset such reimbursement against future
product royalties.
8.2 EXERCISE OF LICENSE OPTION. The option of Article 8.1 must be exercised by
written notice mailed within three (3) months after the patent or other IP
application is filed by the NIH Office of Technology Transfer, National
Institutes of Health, Box OTT, Bethesda, MD 20892. Exercise of this option
by the Collaborator initiates a negotiation period that expires nine (9)
months after the patent or other IP application filing date. If the last
proposal by the Collaborator has not been responded to in writing by NIH
within this nine (9) month period, the negotiation period shall be extended
to expire one (1) month after NIH so responds, during which month the
Collaborator may accept in writing the final license proposal of NIH.
After that time, NIH will be free to license such IP rights to others.
8.3 PRICING. NIH has a concern that there be a reasonable relationship between
the pricing of a licensed product, the public investment in that product,
and the health and safety needs of the public. Accordingly, exclusive
commercialization licenses granted for NIH IP rights may require that this
relationship be supported by reasonable evidence.
8.4 GOVERNMENT INTELLECTUAL PROPERTY RIGHTS. For inventions developed wholly
by NIH investigators or jointly with a Collaborator, under this CRADA,
pursuant to Articles 7.3 and 7.4. NIH is required by the Federal Technology
Transfer Act of 1986, as amended, 15 U.S.C. at (S) 3710a(b)(2), to retain
at least a nonexclusive, irrevocable, paid-up license to practice the
invention or to have the invention practiced throughout the world by or on
behalf of the U.S. Government. The NIH also reserves the right to grant
Research Licenses to third parties under any IP rights granted to
Collaborator under this CRADA.
8.5 RESEARCH LICENSES. For inventions developed wholly by Collaborator under
this CRADA, pursuant to Article 7.2. the Collaborator agrees to grant the
Government a Research License.
8.6 Joint Inventions not Exclusively Licensed. In the event that the
Collaborator does not acquire an exclusive commercialization license to IP
rights in joint Subject inventions described in Article 7.4, then each
Party shall have the right to use the joint Subject Invention and to
license its use to others. The Parties may agree to a joint licensing
approach for such IP rights.
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ARTICLE 9. PROPRIETARY RIGHTS AND PUBLICATION
9.1 RIGHT OF ACCESS. NIH and the Collaborator agree to exchange all Subject
Data produced in the course of research under this CRADA, whether developed
solely by NIH, jointly with the Collaborator. Research Materials will be
shared equally by the Parties to the CRADA unless other disposition is
agreed to by the Parties, All Parties to this CRADA will be free to utilize
Subject Data and Research Materials for their own purposes, consistent with
their obligations under this CRADA.
9.2 OWNERSHIP OF SUBJECT DATA AND RESEARCH MATERIALS. Subject to the sharing
requirements of Paragraph 9.1, the producing Party will retain ownership of
and title to all Subject Inventions, all Subject Data and all Research
Materials produced solely by their investigators. Jointly developed
Subject Inventions, Subject Data and Research Materials will be jointly
owned.
9.3 DISSEMINATION OF SUBJECT DATA AND RESEARCH MATERIALS, To the extent allowed
under law, the NIH agrees to use reasonable efforts to keep Subject Data
and Research Materials confidential, until published or until corresponding
patent applications are filed. Pursuant to 35 U.S.C. (S) 205, Federal
Agencies may delay disclosure of Government-owned Subject Data for a
reasonable time in order for patent applications to be filed. Generally,
the NIH will not further limit disclosure of Government-owned Subject Data
or Research Materials.
9.4 PROPRIETARY/CONFIDENTIAL INFORMATION. Each Party agrees to limit its
disclosure of Proprietary/Confidential Information to the amount necessary
to carry out the Research Plan of this CRADA, and shall place a
confidentiality notice on all such information. Each Party receiving
Proprietary/Confidential Information agrees that any information so
designated shall be used by it only for the purposes described in the
attached Research Plan. Any Party may object to the designation of
information as Proprietary/Confidential Information by another Party and
may decline to accept such information. Data and research materials
developed solely by the Collaborator may be designated as Proprietary/
Confidential Information when they are wholly separable from the Subject
Data and Research Materials developed jointly with NIH investigators, and
advance designation of such data and material categories is set forth in
the RP. The exchange of other confidential information, e.g., patient
data, should be similarly limited and treated.
9.5 PROTECTION OF PROPRIETARY/CONFIDENTIAL INFORMATION.
Proprietary/Confidential Information shall not be disclosed, copied,
reproduced or otherwise made available to any other person or entity
without the consent of the owning Party except as required under court
order or the Freedom of Information Act (5 U.S.C. sec. 552). Each Party
agrees to use its best efforts to maintain the confidentiality of
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Proprietary/Confidential Information. Each Party agrees that another
Party is not liable for the disclosure of Proprietary/Confidential
Information which, after notice to and consultation with the concerned
Party, another Party in possession of the Proprietary/Confidential
Information determines may not lawfully be withheld, provided the concerned
Party has been given an opportunity to obtain a court order to enjoin
disclosure.
9.6 DURATION OF CONFIDENTIALITY OBLIGATION. The obligation to maintain the
confidentiality of Proprietary/Confidential Information shall expire at the
earlier of the date when the information is no longer Proprietary
Information as defined in Article 2.2 or three (3) years after the
expiration or termination date of this CRADA. The Collaborator may request
an extension to this term when necessary to protect
Proprietary/Confidential Information relating to products not yet
commercialized.
9.7 PUBLICATION. The Parties are encouraged to make publicly available the
results of their research. Before either Party submits a paper or abstract
for publication or otherwise intends to publicly disclose information about
a Subject Invention, Subject Data or Research Materials, the other Party
shall be provided thirty (30)days to review the proposed publication or
disclosure to assure that Proprietary/Confidential Information is
protected. The publication or other disclosure shall be delayed for up to
(thirty) 30 additional days upon written request by any Party as necessary
to preserve U.S. or foreign patent or other IP rights.
ARTICLE 10. REPRESENTATIONS AND WARRANTIES
10.1 REPRESENTATIONS AND WARRANTIES OF NIH. NIH hereby represents and warrants
to the Collaborator that the official signing this CRADA has authority to
do so.
10.2 REPRESENTATIONS AND WARRANTIES OF THE COLLABORATOR. The Collaborator
hereby represents and warrants to NIH that the Collaborator has the
requisite power and authority to enter into this CRADA and to perform
according to its terms, and that the Collaborator's official signing this
CRADA has authority to do so. The Collaborator further represents that it
is financially able to satisfy any funding commitments made in Appendix C.
ARTICLE 11. TERMINATION
11.1 TERMINATION BY MUTUAL CONSENT. NIH and the Collaborator may terminate
this CRADA, or portions thereof, at any time by mutual written consent. In
such event the Parties shall specify the disposition of all property,
inventions, patent
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or other IP applications and other results of work accomplished or in
progress, arising from or performed under this CRADA.
11.2 UNILATERAL TERMINATION. Either NIH or the Collaborator may unilaterally
terminate this entire CRADA at any time by giving written notice at least
thirty (30) days prior to the desired termination date, and any rights
accrued in property, patents or other IP rights shall be disposed of as
provided in paragraph 11.1.
11.3 STAFFING. If this CRADA is mutually or unilaterally terminated prior to
its expiration, funds will nevertheless remain available to NIH for
continuing any staffing commitment made by the Collaborator pursuant to
Article 5.1 above and Appendix C, if applicable, for a period of six (6)
months after such termination. If there are insufficient funds to cover
this expense, the Collaborator agrees to pay the difference.
11.4 NEW COMMITMENTS. No Party shall make new commitments related to this
CRADA after a mutual or unilateral termination and shall, to the extent
feasible, cancel all outstanding commitments and contracts by the
termination date.
11.5 TERMINATION COSTS. Concurrently with the exchange of final reports
pursuant to Articles 4.2 and 5.3, NIH shall submit to the Collaborator for
payment a statement of all costs incurred prior to the date of termination
and for all reasonable termination costs including the cost of returning
Collaborator property or removal of abandoned property.
ARTICLE 12. DISPUTES
12.1 SETTLEMENT. Any dispute arising under this CRADA which is not disposed of
by agreement of the Principal Investigators shall be submitted jointly to
the signatories of this CRADA. If the signatories are unable to jointly
resolve the dispute within thirty (30) days after notification thereof,
the Assistant Secretary of Health (or his/her designee) shall propose a
resolution. Nothing in this article shall prevent any Party from pursuing
any and all administrative and/or judicial remedies which may be
available.
12.2 CONTINUATION OF WORK. Pending the resolution of any dispute or claim
pursuant to this Article, the Parties agree that performance of all
obligations shall be pursued diligently in accordance with the direction
of the NIH signatory.
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ARTICLE 13. LIABILITY
13.1 PROPERTY. The U.S. Government shall not be responsible for damages to any
property of the Collaborator provided to it or acquired by it pursuant to
this CRADA.
13.2 NO WARRANTIES. EXCEPT AS SPECIFICALLY STATED IN ARTICLE 10, THE PARTIES
MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO ANY MATTER WHATSOEVER, INCLUDING
THE CONDITIONS OF THE RESEARCH OR ANY INVENTION OR PRODUCT, WHETHER
TANGIBLE OR INTANGIBLE, MADE, OR DEVELOPED UNDER THIS CRADA, OR THE
OWNERSHIP, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE
RESEARCH OR ANY INVENTION OR PRODUCT
13.3 INDEMNIFICATION. The Collaborator agrees to hold the U. S. Government
harmless and to indemnify the Government for all liabilities, demands,
damages, expenses and losses arising out of the use by the Collaborator
for any purpose of the Subject Data, Research Materials and/or Subject
Inventions produced in whole or part by NIH employees under this CRADA,
unless due to the negligence of NIH its employees, or agents. The
Collaborator shall be liable for any claims or damages it incurs in
connection with this CRADA. NIH has no authority to indemnify the
Collaborator.
13.4 FORCE MAJEURE. Neither Party shall be liable for any unforeseeable event
beyond its reasonable control not caused by the fault or negligence of
such Party, which causes such Party to be unable to perform its
obligations under this CRADA, and which it has been unable to overcome by
the exercise of due diligence. In the event of the occurrence of such a
force majeure event, the Party unable to perform shall promptly notify the
other Party. It shall further use its best efforts to resume performance
as quickly as possible and shall suspend performance only for such period
of time as is necessary as a result of the force majeure event.
ARTICLE 14. MISCELLANEOUS
14.1 GOVERNING LAW. The construction, validity, performance and effect of this
CRADA shall be governed by Federal law, as applied by the Federal Courts
in the District of Columbia. Federal law and regulations will preempt any
conflicting or inconsistent provisions in this CRADA.
14.2 ENTIRE AGREEMENT. This CRADA constitutes the entire agreement between the
Parties concerning the subject matter of this CRADA and supersedes any
prior understanding or written or oral agreement.
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14.3 HEADINGS. Titles and headings of the articles and subarticles of this
CRADA are for the convenience of reference only, do not form a part of
this CRADA and shall in no way affect its interpretation.
14.4 WAIVERS. None of the provisions of this CRADA shall be considered waived
by any Party unless such waiver is given in writing to the other Party.
The failure of a Party to insist upon strict performance of any of the
terms and conditions hereof, or failure or delay to exercise any rights
provided herein or by law, shall not be deemed a waiver of any rights of
any Party.
14.5 SEVERABILITY. The illegality or invalidity of any provisions of this
CRADA shall not impair, affect or invalidate the other provisions of this
CRADA.
14.6 AMENDMENTS If either Party desires a modification to this CRADA, the
Parties shall, upon reasonable notice of the proposed modification or
extension by the Party desiring the change, confer in good faith to
determine the desirability of such modification or extension. Such
modification shall not be effective until a written amendment is signed by
the signatories to this CRADA or by their representatives duly authorized
to execute such amendment.
14.7 ASSIGNMENT. Neither this CRADA nor any rights or obligations of any Party
hereunder shall be assigned or otherwise transferred by either Party
without the prior written consent of the other Party.
14.8 NOTICES. All notices pertaining to or required by this CRADA shall be in
writing and shall be signed by an authorized representative and shall be
delivered by hand or sent by certified mail, return receipt requested,
with postage prepaid, to the addresses indicated on the signature page for
each Party. Notices regarding the exercise of license options shall be
made pursuant to Article 8.2. Any Party may change such address by notice
given to the other Party in the manner set forth above.
14.9 INDEPENDENT CONTRACTORS. The relationship of the Parties to this CRADA is
that of independent contractors and not as agents of each other or as
joint venturers or partners. Each Party shall maintain sole and exclusive
control over its personnel and operations. Collaborator employees who will
be working at NIH facilities may be asked to sign a Guest Researcher or
Special Volunteer Agreement appropriately modified in view of the terms of
this CRADA.
14.10 USE OF NAME OR ENDORSEMENTS. By entering into this CRADA, NIH does not
directly or indirectly endorse any product or service provided, or to be
provided, whether directly or indirectly related to either this CRADA or
to any patent or other IP license or agreement which implements this
CRADA by its successors, assignee, or licensees The Collaborator shall
not in any way state or imply
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that this CRADA is an endorsement of any such product or service by the
U.S. Government or any of its organizational units or employees.
14.11 EXCEPTIONS TO THIS CRADA. Any exceptions or modifications to this CRADA
that are agreed to by the Parties prior to their execution of this CRADA
are set forth in Appendix D.
14.12 REASONABLE CONSENT. Whenever a Party's consent or permission is required
under this CRADA, such consent or permission shall not be unreasonably
withheld.
ARTICLE 15. DURATION OF AGREEMENT
15.1 DURATION. It is mutually recognized that the duration of this project
cannot be rigidly defined in advance, and that the contemplated time
periods for various phases of the RP are only good faith guidelines
subject to adjustment by mutual agreement to fit circumstances as the RP
proceeds. In no case will the term of this CRADA extend beyond the term
indicated in the RP unless it is revised in accordance with Article 14.6.
15.2 SURVIVABILITY. The provisions of Articles 4.2, 5.2, 5.3, 6.1, Articles 7-
9, 11.3-11.5, 11.5, 12.1, 13.2-13.4, 14.1, 14.10 and 15.2 shall survive
the termination of this CRADA.
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CRADA SIGNATURE PAGE
FOR NIH:
[Signature]
Francis Collins, M.D. 4/30/96
Name/Signature Date
Director, NCHGR
Title
Mailing Address for Notices:
NCHGR, Technology Transfer Office
Bldg. 314 Rm. 3B13
9000 Rockville Pike
Bethesda, MD 20892
FOR THE COLLABORATOR
[Signature]
Les Grant, Ph.D. 6/10/96
Name/Signature Date
President, Applied Imaging
Title
Mailing Address for Notices:
2380 Walsh Avenue, Bldg. B
Santa Clara, CA 95O51
[Include additional signature and address blocks as necessary for all Parties to
this CRADA]
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1-30-95
APPENDIX B
PARTNERS: APPLIED IMAGING AND NCHGR (THOMAS RIED)
RESEARCH PLAN
Title of CRADA: Development of a fully automated karyotyping system based on co-
hybridization of Cy5-labeled chromosome specific repeat probes.
The primary objective of this collaboration is to produce a fully automated
karyotyping system for the identification of DAPI-stained metaphase chromosomes
after fluorescence in situ hybridization (FISH) experiments, in particular
comparative genomic hybridization (CGH).
Background:
- ----------
Comparative genomic hybridization (CGH) is a new molecular cytogenetic technique
that serves as a screening test for DNA-copy number changes in tumor genomes.
CGH is based on a two color fluorescence in situ hybridization, in which a
normal reference genome is labeled with a first fluorochrome (e.g. rhodamine)
and genomic tumor DNA with a second fluorochrome, (e.g. fluorescein). After the
hybridization of the differentially labeled genomes to normal reference
metaphase chromosomes the changes in the ratio of the fluorescein/rhodamine
intensities reflect DNA-copy number alterations in the tumor (Kallioniemi et
al., 1992; Du Manoir et al. 1993]. Genomic DNA is the only source that is
required from the tumor. Therefore, DNA extracted from archived, formalin fixed
and paraffin embedded specimens can be analyzed as well (Speicher et al.,
1993;). This feature of CGH could establish a histological phenotype/genotype
correlation in solid tumors and allow for the correlation of specific DNA copy
number changes with the clinical course of the disease (Ried et al., 1995), or
with specific stages of disease progression (Heselmeyer et al., 1995).
The analysis of more than 250 tumors at the NCHGR laboratory has shown that
several parameters are crucial for the precise evaluation of a CGH experiment.
1
<PAGE>
One severe restriction in attempts to increase the throughput of tumor analysis
is the need for interactive chromosome identification. Normal human metaphase
chromosomes serve as the genetic target onto which copy number changes in the
test (tumor)-genome are mapped. The chemistry of the in situ hybridization
technique precludes the use of routinely applied chromosome staining techniques,
such as Giemsa-banding. Instead, it has become standard laboratory routine that
DAPI is used to counterstain the chromosome and to introduce a G-like banding
pattern. Provided that a CGH experiment is conducted on normal metaphase
chromosome, and the digitized images of the DAPI-fluorescence can be inverted
and contrast enhanced, an almost entirely accurate chromosome identification can
be achieved by an investigator experienced in the field of chromosome
-----------
identification (cytogeneticist). It is obvious, that the correct chromosome
identification is quintessential for the correct assignment of copy number
changes in the tumor genome. Therefore, the interactive identification of DAPI-
stained metaphase chromosomes is the limiting factor towards an automated CGH
evaluation and hence prevents the analysis of large numbers of tumor cases which
are necessary to define CGH-based prognostic parameters that are still
desperately required in solid tumors.
Automated karyotyping has become an area of active research in the
field of clinical and tumor cytogenetics. Considerable progress has been made
over the past years to improve Giemsa-stained chromosome identification.
However, the performance of automated karyotyping systems of DAPI-stained
metaphase chromosome is rather disappointing and requires considerable user
interaction for the correction of errors. We therefore propose to develop a
fully automated karyotyping system that takes advantage of a unique feature of
FISH experiments, i.e. the ability to simultaneously label multiple target
chromosomes in different colors. More specifically we propose to complement the
presently available DAPI chromosome identification system of Applied Imaging
with probes that label the centromeres of individual chromosomes using a fourth
fluorochrome (Cy5). A fully automated karyotyping system would broaden the
field of possible users of CGH beyond laboratories experienced in chromosome
identification. This is particularly important because potential uses of this
new genomic screening technique are pathology laboratories that have access to
valuable collections of archived tumors, including information regarding the
clinical course, but only rarely cover expertise in the field of chromosome
banding analysis. It should be emphasized that the presented approach for a
fully automated karyotyping system will become useful not only for the
delineation of chromosomal aberrations in human tumors, it is likely that this
tool will become an
2
<PAGE>
indispensable technique for the CGH-based identification of chromosomal
aberrations that define tumor progression in animal models of carcinogenesis,
e.g. mouse models.
Workplan:
- --------
The workplan comprises a set of experiments that need to combine the respective
experience of the NCHGR laboratory and Applied Imaging. The steps include:
1) The generation of chromosome specific centromere repeat clones. This will
be achieved using PCR-amplification of the DNA of monochromosomal cell hybrids
with alpha-satellite primers. Probes will be generated for the labeling of
chromosomes 4, 8, 14, 17, 19, and X .
2) The direct labeling of the centromere specific sequences using PCR with Cy5-
labeled nucleotides as a substrate.
3) The preparation of composite probe pools that can be used in a co-
hybridization format with routine FISH and CGH-experiments.
4) The acquisition of digitized gray level images (which is still being
performed manually) using filter sets that are strictly specific for the
employed fluorochromes (DAPI, FITC, TRITC, and Cy5). The automated image
acquisition will be covered under a separate CRADA with the NCHGR-laboratory and
Leica Imaging Systems Ltd., which would complement the goals of an integrated
imaging system. The Leica/NCHGR CRADA entails the utilization of the Leica DM
RXA microscope and QFISH image analysis system to create an integrated solution
for the automatic acquistion of CGH images. It is understood by Leica that
these images may be used for subsequent analysis investigations as part of this
CRADA. The cooperation between Leica and Applied Imaging entails only
compatibility and efficiency of transfer of image data produced by the Leica
system to the Applied Imaging system. It is further understood that all other
aspects of these CRADAs shall remain separate.
5) The development of algorithms that are aimed at the integration of the
presently available karyotyping software (Cytovision, Applied Imaging) with co-
hybridization based information.
3
<PAGE>
6) The development of learning functions that allow for a fully automated
karyotyping of DAPI-stained metaphase chromosomes.
7) The quality control of automatically identified karyotypes by a board
certified cytogeneticist (Timothy Veldman).
8) The integration of the fully automated karyotyping in existing software
packages from Applied Imaging.
The development of a fully automated karyotyping system and its integration in a
software package for the quantitative evaluation of CGH experiments will be
accomplished through a collaboration with the laboratory of Dr. Thomas Ried at
the National Center for Human Genome Research at the National Institutes of
Health in Bethesda, Maryland, USA, and Applied Imaging, UK, as part of a
Cooperative Research and Development Agreement (CRADA). Thomas Ried's
laboratory focuses on the delineation of chromosomal aberrations that define
specific stages during solid tumor progression. The laboratory has developed
approaches to screen stained, histologically defined tissue sections for DNA
copy number changes (Heselmeyer et al., 1996). Dr. Ried's laboratory has a
long-standing interest and documented experience in the application of FISH to
diagnostically relevant problems in genetic disorders (Ried et al., 1990;
1992a,b; 1993). Applied Imaging is one of the leaders in the field of image
analysis of fluorescent specimens. A unique advantage of Applied Imaging is its
long standing expertise in the field of chromosome banding analysis. The
combination of the experience in both field recommends Applied Imaging as an
ideal partner to pursue the goal of this CRADA.
4
<PAGE>
RESPECTIVE CONTRIBUTION OF THE PARTIES:
The collaborator will:
1) Provide its proprietary technologies that include digital image analysis and
chromosome identification.
2) Provide an on-site image analysis system.
3) Dedicate a software engineer to guarantee the immediate implementation of
newly developed results.
4) Provide equipment for the continuation of the project.
The NCHGR will:
1) Provide expertise in the generation of chromosome specific centromere repeat
clones.
2) Provide expertise in the labeling, hybridization and visualization of Cy5-
labeled DNA probes.
3) Perform CGH-experiments and in situ hybridizations on cytological
preparations.
4) Dedicate experienced personnel for immediate testing of implemented
algorithm.
5) Provide tumor samples and cytological specimens for analysis.
5
<PAGE>
APPENDIX C
FINANCIAL AND STAFFING CONTRIBUTION OF THE PARTIES
NCHGR staffing contribution %time/yr.
- --------------------------- ---------
Thomas Ried, M.D. 10
Evelin Schrock, M.D. 25
Stanislas du Manoir, Ph.D. 25
Marek Liyanage, Ph.D.
Timothy Veldman, CISp (CG). 25
Company staffing contributions:
- -------------------------------
Padraig S. O'Kelly (Project manager) 10
Mark Gregson (Software engineer) 100
Equipment provided by the collaborator:
- ---------------------------------------
Image analysis system (Cytovision, including CCD-camera).
Support provided by the collaborator:
- -------------------------------------
$5,000.- CRADA related travel.
$15,000.- CRADA related reagents (including reagents for PCR-generation and
labeling of chromosome specific repeat clones).
6
<PAGE>
References:
- -----------
Du Manoir S, Speicher MR, Joos S, Schrock E, Popp S, Dohner H, Kovacs G, Robert-
Nicoud M, Lichter P, Cremer T (1993) Detection of complete and partial
chromosome gains and losses by comparative genomic in situ hybridization.
Hum Genet 90:590-610.
Du Manoir S, Schrock E, Bentz M, Speicher MR, Joos S, Ried T, Lichter P, Cremer
T. (1995) Quantification of comparative genomic hybridization. Cytometry
19:27-41.
Heselmeyer K, Schrock E, du Manoir S, Blegen H, Shah K, Steinbeck R, Auer G,
Ried T. (1996) Gain of chromosome 3q defines the transition from severe
dysplasia to invasive carcinoma of the uterine cervix. Proc. Natl. Acad.
Sci. USA (in press).
Kallioniemi A, Kallioniemi O-P, Sudar D, Rutovitz D, Gray JW, Waldman F, Pinkel
D (1992) Comparative genomic hybridization for molecular cytogenetic
analysis of solid tumors. Science 258:818-821.
Ried T, Mahler V, Vogt P, Blonden L, van Ommen GJB, Cremer T. Cremer M (1990)
Direct carrier detection by in situ suppression hybridization with cosmid
clones for the Duchenne/Becker muscular dystrophy locus. Hum Genet 85:581-
586.
Ried T, Lengauer C, Cremer T, Wiegant J, Raap AK, van der Ploeg M, Groitl P,
Lipp M (1992a). Specific metaphase and interphase detection of the
breakpoint region in 8q24 of Burkitt lymphoma cells by triple color
fluorescence in situ hybridization. Genes Chrom. Cancer 4:69-74.
Ried T, Landes G, Dackowski W, Klinger K, Ward DC (1992b) Multicolor
fluorescence in situ hybridization for the simultaneous detection of probe
sets for chromosomes 13, 18, 21, X and Y in uncultured amniotic fluid
cells. Hum Mol Genet 1:307-313.
Ried T, Lengauer C, Lipp M, Fischer C, Cremer T, Ward DC. (1993). Evaluation of
the utility of interphase cytogenetics to detect residual cells with a
malignant genotype in mixed cell populations: a Burkitt lymphoma model. DNA
Cell Biol. 12:637-643.
Ried T, Just KE, Holtgreve-Grez H, du Manoir S, Speicher MR, Schrock E, Latham
C, Blegen H, Zetterberg A, Cremer T, Auer G (1995). Comparative genomic
hybridization of formalin fixed, paraffin embedded breast carcinomas
reveals different patterns of chromosomal gains and losses in diploid and
aneuploid tumors. Cancer Res. 55:5415-5423.
Speicher MR, du Manoir S, Schrock E, Holtgreve-Grez H, Schoell B, Lengauer C,
Cremer T, Ried T. (1993). Molecular cytogenetic analysis of formalin
fixed, paraffin embedded solid tumors by comparative hybridization after
universal DNA-amplification. Hum. Mol. Genet. 2:1907-1914.
<PAGE>
APPENDIX D
Exceptions or Modifications to this CRADA
Delete Article 8.3 "Pricing.
<PAGE>
NIH Office of Technology Transfer (Revised 9/10/93)
- ---------------------------------------------------
CONFLICT OF INTEREST AND FAIR ACCESS SURVEY
To be completed by the NIH Principal Investigator ONLY
---
I. GENERAL INFORMATION (USE ATTACHMENTS IF NEEDED)
CRADA Title: Development of a fully automated karyotyping system based on co-
hybridization of CY-5 labeled chromosome specific repeat probes.
CRADA ID Number: NIH/ICD: NCHGR
NIH/PI: Dr. Thomas K. Ried
Collaborating Organization(s): Applied Imaging
II. FINANCIAL INTEREST STATEMENT
A "financial interest" is any interest of monetary value. A "financial CONFLICT
of interest" is any financial interest which may be directly or predictably
affected by the official action of an employee. There is no minimum amount of
value or control that constitutes a financial interest. Normally, "financial
interest" includes salaries, stocks, or consulting agreements, but not royalties
from inventions licensed by the Government.
To the best of your knowledge, do any of the following persons or institutions
have a financial interest in the collaborating organization(s)?
(1) NO You, Your Spouse or Your Minor Child(ren)
(2) NO An organization which you serve as an officer, director, trustee,
partner or employee
(3) NO A person or organization with which you are negotiating for
prospective employment or have an arrangement for prospective
employment.
If you answered "YES" to any of the above: Has a waiver of the financial
interest been approved by your Institute and ICD Ethics Officer after
consultation with the Office of General Counsel? (Please attach an approved
waiver before submitted your CRADA to the CRADA Subcommittee.)
III. Appearance of Conflict of Interest Statement (Please attach a statement if
necessary)
NO Have you worked with the proposed collaborator(s) before?
NO Do your duties within your ICD involve management responsibilities such as
oversight, approval, advising or initiating actions on ICD funded grants or
contracts?
IV. Collaborator Selection (Use attachments if needed.)
Approximately when did you begin negotiating a CRADA with the proposed
Collaborator(s)? 8/95
NO Have you or anyone else in your laboratory had any past or present CRADAs
with the proposed Collaborator(s)?
Why was the proposed Collaborator(s) selected? Please provide a brief statement
as to why this is the Collaborator of choice.
Best software for quantitative comp [unreadable] hybridization evaluation
combined with top of the line karotyping system.
Also, select all reasons that apply as to why you have chosen the proposed
Collaborator:
YES Previous or ongoing informal collaboration since (date) 11/95
YES Unique expertise (DESCRIBE) Strong background in Karotyping and
right software
YES Unique materials/equipment (DESCRIBE) [unreadable]
If it was announced publicly, was the proposed CRADA project advertised in:
YES A formal PHS forum? YES PHS Technology Transfer Directory?
YES The Federal Register YES The Commerce Business Daily?
YES Other? (specify)
V. PRINCIPAL INVESTIGATOR'S CERTIFICATION
NOTE: BECAUSE THE PATENT RIGHTS TO CRADA INVENTIONS WILL BE LICENSED UNDER THE
CRADA RATHER THAN AS INTRAMURAL INVENTIONS, I ACKNOWLEDGE MY OBLIGATION TO LET
COLLABORATORS IN OTHER NIH LABORATORIES KNOW ABOUT THE EXISTENCE OF MY CRADA
BECAUSE IT MAY HAVE AN IMPACT ON HOW JOINT INVENTIONS MADE WITH ME WILL BE
LICENSED.
I certify that, to the best of my knowledge, all of the above information is
true and accurate.
NIH Principal Investigator's Signature:
/s/ signature unreadable Date 12-14-95
VI. Ethics Officer's Certification
Based on my review of the information presented in Sections II and III above,
there are no real or apparent conflict of interest issues for this CRADA.
/s/ [Signature unreadable] Date 2/7/96
[reformatted from original form]
<PAGE>
EXHIBIT 10.16
SUPPLY & DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") effective as of 3rd March 1994,
(The "Effective Date") made between Cytocell Ltd a company registered in the
United Kingdom and having its head office at Unit 6 Somerville Court, Trinity
Way, Adderbury, Banbury, Oxon, OX17 3SN (hereinafter referred to as CC) and
Applied Imaging Corporation, and having its subsidiary Applied Imaging
International Ltd registered in the United Kingdom at Hylton Park, Wessington
Way, Sunderland, Tyne & Wear SR5 3HD UK (hereinafter referred to as AIC).
WITNESSETH THAT:
WHEREAS, CC has patent applications and technical information relating to the
manufacture, use and sale of the said products.
WHEREAS, AIC has developed instrumentation for the Cytogenetic community that
would complement these Product(s) and also AIC has an established worldwide
distribution network addressing Cytogenetic laboratories.
WHEREAS, AIC is developing a system comprising a component to separate fetal red
cells from maternal blood (hereinafter referred to as FCMB) and appropriate
instrumentation to automate the detection and analysis of signals produced by
Cytocell's Product(s) in question in the fetal red cells isolated from maternal
blood.
WHEREAS, AIC and CC see mutual benefit from establishing a relationship whereby
AIC will be granted the rights to market said product(s) on a worldwide basis
for use in their FCMB system.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained as follows:
1. DEFINITIONS
-----------
In this agreement the following terms have the following meanings respectively:
(a) "Product(s)" means the DNA probe kits listed in Appendix A, for the
detection of chromosomes and genetic defects using the Fluorescence In-Situ
Hybridization (FISH) principle and embodying the Chromoprobe principle
[*Confidential Treatment Requested]
<PAGE>
Page 2
of applying DNA probes to special glass coverslips, a process for which
patent application PCT/GB93/0012 dated 18th January 1993 has been filed
under PCT.
(b) "Technical Information" means technical and scientific information and
know-how relating to the Product(s) useful for AIC'S commercial development
of the Product(s) in the Territory, which is owned or licensed by CC at the
Effective Date of the Agreement or during the term of the Agreement.
(c) "Territory" means all countries of the world.
(d) "Fetal Cell Isolation from Maternal Blood" (FCMB) means a system
comprising, without limitation, components, reagents and procedures for the
isolation of nucleated fetal cells from maternal blood, and optionally an
instrumentation system for the detection and analysis of signals produced
by the use of the Product(s) in such nucleated fetal cells isolated from
maternal blood.
2. GRANT
-----
(a) CC hereby grants to AIC exclusive rights to market the Products for use
with FCMB in the Territory. AIC may market and distribute the Products
itself or through subdistributors.
(b) CC agrees that it will not promote the Product(s) or sell the Product(s)
for use in any other FCMB assay or system for, or any assay or system
performing equivalent or similar functions, save for sales to research
groups in the UK and Japan for their own in-house non-commercial purposes.
(c) CC hereby grants to AIC an exclusive, worldwide, royalty free license under
patent application PCT/GB93/0012 and any foreign counterparts and the
Technical Information to conduct research and development with respect to
AIC FCMB product development.
(d) CC will deliver the existing Technical Information to AIC within thirty
(30) days following the Effective Date wad promptly as obtained thereafter
during the Agreement.
(e) CC hereby grants as an exclusive option to purchase from CC and distribute
as a Product hereunder any other FISH probe kit, embodying the
<PAGE>
Page 3
principle and scope of the product, developed by CC for use with FCMB. CC
shall promptly notify AIC upon the development of any such DNA probe.
3. ASSISTANCE WITH DEVELOPMENT
---------------------------
In consideration of establishing this Agreement, AIC agrees to the following:
(a) As part of this Agreement AIC agrees to assist in the funding of work
relating to the development of a Chromoprobe 21 kit and other kits in the
FCMB program. This funding will take the form of a total for four (4)
quarterly payments of [*] payable against invoice, the first payment being
due on the Effective Date of the Agreement and the remaining payments
payable respectively on the first business day of the following 3 calendar
quarters.
(b) Within six weeks of the Effective Date of this Agreement, AIC agrees to
provide to CC a Probe ("CytoVision") with multi-filter assembly and colour
printer on loan for a minimum period of one year. CC agrees to use the
CytoVision for the sole purpose of developing FCMB products and only in
accordance with instructions prescribed by AIC. CC shall not without AIC's
written consent make any alterations, additions or improvements to the
CytoVision. AIC shall retain sole title to the loaned CytoVision, and CC
shall keep such CytoVision free of all security interests, liens and other
encumbrances. CC shall affix to and maintain on the CytoVision, in a
conspicuous location, a notice stating that such CytoVision is owned by AIC
and subject to loan and shall not to move the CytoVision from the CC
facility without the express written consent of AIC. CC assumes the entire
risk of loss, damage, theft, or destruction of the CytoVision while it is
in the possession of CC and during transportation to and from CC's
premises. CC shall, at its expense, insure the CytoVision for its full
replacement value against all risks of loss or damage. The policy shall
(a) name AIC as the payee in the event of loss or damage to the CytoVision,
(b) require thirty (30) days prior written notice to AIC of cancellation or
material change in coverage, and (c) provide that such insurance is primary
without right of contribution from any other insurance which might
otherwise be available to AIC or CC. Upon expiration or termination of
this Agreement or at AIC'S earlier request after the first anniversary of
the Effective Date, CC shall return the CytoVision to AIC, freight prepaid
and properly insured, in its original condition, reasonable wear and tear
excepted. In the event the CytoVision is not returned in such condition,
CC shall reimburse AIC for any damage or refurbishment costs, upon receipt
of ACI's invoice therefore describing any repairs or damage. THE
CYTOVISION IS PROVIDED "AS
[*Confidential Treatment Requested]
<PAGE>
Page 4
IS". AIC MAKES NO WARRANTIES, EXPRESS IMPLIED OR STATUTORY, WITH RESPECT
TO THE CYTOVISION LOANED HEREUNDER, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MERCHANTABLILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CC agrees to and shall indemnify, defend and hold a AIC harmless from and
against any claim. liability or expense (including attorneys' fees) arising
out of or in connection with any alleging injury (including death) or
damage arising out of CC's possession or use of the CytoVision.
(c) CC shall at AIC'S request provide CC reasonable technical assistance and
advice regarding the use of the Products, at no additional cost.
(d) CC shall, at AIC'S, request, provide AIC with reasonable quantities of
Products in various configurations and geometries, in reasonable
timescales, specified by AIC for use in the development of FCMB products.
4. FORM OF PRODUCT(S)
------------------
(a) The Specifications of the Product(s) to be sold by CC to AIC are set forth
on Exhibit B, the Product package insert, to be updated by mutual
agreement.
(b) CC shall sell the Product(s) to AIC in the form of stable bulk packaging or
customer ready packaging, as specified by AIC. AIC shall be solely
responsible for determining the final packaging of the products; provided,
however, CC shall have the right to approve the instructions regarding the
use of the Products in such package inserts. The Product(s) shall be
labeled to indicate that CC is the manufacturer of the Products and that
AIC and its distributors are marketing the Product(s). If AIC chooses to
have the Product supplied in bulk then the final packaging will be at AIC's
cost.
(c) Subject to applicable law, the registered Chromoprobe and AIC trademarks
designated by the parties shall be used on packaging materials for the
Product( s).
(d) CC agrees to initiate the process of meeting GMP compliance on a schedule
that matches AIC's regulatory efforts. CC will use its best efforts to
maintain manufacturing records satisfactory for GMP while supplying Product
for regulatory evaluations and will use best efforts to pass GMP and
similar inspections in a timeframe that matches AIC plans for clearance.
AIC will assist CC in understanding their obligations under GMP.
<PAGE>
Page 5
(e) AIC may, from time to time, upon prior written notice to CC inspect the CC
facilities where the Products are being manufactured and/or stored. During
such inspections, AIC may review all records relating to the manufacture
and storage of the Products. AIC may retain and use such information in
connection with regulatory approvals, reports and filings. CC shall inform
AIC of any inspections of its facilities and/or the Product manufacturing
facilities by any governmental authority and promptly inform AIC of the
results of any such inspection.
(f) CC shall promptly communicate to AIC all information which comes to its
attention pertaining to adverse reactions, product anomalies, or stability
problems relative to or having a bearing on the Products. AIC shall
promptly inform CC of similar problems which come to its attention. CC
shall promptly investigate and regularly report back to AIC on its actions
contemplated and taken to resolve all such problems.
5. SUPPLY PRICE
------------
(a) The supply price of the Product(s) from CC to AIC shall be as set forth in
Exhibit A attached hereto.
(b) The supply price for Product(s) shall be F.O.B. CC's address set forth
above. AIC shall be responsible for freight, shipping and insurance
expenses.
(c) The parties hereto shall annually review and agree on the price and volume
discounts applicable to the price that AIC shall pay CC for the Product(s)
or other Product configurations.
6. PAYMENT
-------
(a) The payment for the Product(s) shall be by cheque within 45 days after date
of invoice.
(b) If AIC makes payments to CC more than fifty days after the date of invoice
more often than three times in any six month period, then CC shall have the
right to refuse shipment of additional Products until all outstanding bills
are settled. If AIC continues to make such late payments after notice from
CC, then AIC will be regarded as being in breach of this contract.
<PAGE>
Page 6
7. TRANSACTION
-----------
(a) All transactions hereunder shall be effective hi accordance with sales
contracts made between the parties hereto subject to all applicable terms
and conditions of this Agreement each time an order is given by AIC. In
the event of any conflict between such sales contracts and this Agreement,
the terms of this Agreement shall govern.
(b) AIC shall notify CC of AIC'S annual purchasing plan on a 6 months rolling
non-binding forecast basis. CC will endeavour to produce and ship the
Products set forth in this forecast with an eight week lead time.
(c) CC shall use its best efforts to supply Products(s) and fill orders within
two weeks of receiving the written order, and will fill such orders to
within 20% of the production forecast mentioned in clause 7(b).
(d) AIC will hold a minimum of one week's worldwide sales (as determined by
calculation, on an average of the previous 3 months sales) of stock of
Product(s) to enable it is provide a satisfactory level of service to its
distributors and to insist that their distributors hold at least one
month's sales of stock.
8. WARRANTY
--------
(a) CC warrants that all Products are, upon receipt by AIC, free from defects
in materials and workmanship, manufactured in compliance with the terms of
clause 4(d) herein and all other applicable manufacturing standards and
shall conform to each and all of the Specifications therefore in attached
Exhibit B, and are fit for the screening of nucleated cells. CC shall
promptly replace any Products which fail to comply with the foregoing
warranty without cost or expense therefore to AIC.
(b) The CC invoice for each shipment of products shall be attached thereto a
certificate signed by an authorized representative of CC attesting to the
performance of such testing and giving the results for the referenced
products.
<PAGE>
Page 7
9. ACCEPTANCE OF DELIVERY
----------------------
(a) All of the Product(s) sold to AIC hereunder shall meet the Specifications
set forth in article 4(a) hereof.
(b) AIC shall notify CC of any non-conformance of any consignment with respect
to the quality, quantity of packaging and contents of the kits in the
specification, within one month of receipt of a shipment and CC and AIC
shall confer in good faith to settle such non-conformance. With regard to
the performance of the Product(s), CC must be informed in writing within
one month of receipt of the Product(s) in a customer's laboratory. The
failure to give notice of rejection within such period shall constitute an
acceptance of such consignment by AIC and their customers. If any
consignment is found finally not to comply with the said Specifications due
to CC's default, CC shall, at AIC's option and at CC's expense: (i) replace
such non-conforming goods within one month after CC receipt of AIC's
written request of such replacement, (ii) credit AIC for such non
conforming goods, or (iii) refund to AIC all amounts paid for such non-
conforming goods.
(c) AIC agrees that it will not enter into any other agreement for purchasing
DNA FISH probes equivalent to those listed in Appendix A with any other
supplier unless one of the following conditions hold:
(i) CC is unable to supply the Product(s) in line with AIC's Product
forecast after being given 2 month's notice of their failure under this
clause.
(ii) The Product(s) is deemed by two mutually agreed parties to be
uncompetitive in terms of technology or regulatory approval.
From time to time AIC will provide CC with its requirements to extend the
list of Product(s) covered by this Agreement. Subject to mutual agreement
on development time scales, including contingencies, these new Product(s)
may by added to the Agreement by appending to the Agreement a note to that
effect endorsed by both parties,
<PAGE>
Page 8
10. SALES PROMOTION
---------------
(a) AIC will at its own expense be responsible for sales promotion of the
Product(s) in connection with FCMB in the Territory by ensuring that its
sales people visit potential customers and its distributors' at regular
intervals.
(b) CC shall furnish AIC, at AIC's request, with information necessary for the
sale of the Product(s), as agreed by the parties.
11. SALES REPORT
------------
(a) AIC shall furnish CC with a report at the end of each calendar quarter,
including quantity of Product(s) sold during the quarter concerned by
country in the Territory and by individual Product or kit, within two
months after the end of each quarter.
(b) At CC's requires, AIC shall report quarterly on market conditions,
competitor activity and market acceptance of the Product((s) and other
sales information besides the said report.
12 ESTABLISHMENT OF MINIMUM PURCHASE AMOUNTS
-----------------------------------------
(a) Commencing when AIC formally launches its FCMB products, every 6 months CC
and AIC will meet to review sales of Products and will agree on a minimum
yearly purchase amount of Product(s) from CC for the next 12 months, and
that this will be done on a rolling 6 monthly basis.
(b) Pursuant to the meetings of clause 12(a), AIC and CC will review sales in
individual countries and in each country will agree on a sales target for
the distributor of the Products in such country. If after a year a
distributor has not reached its sales target, this distributor would be put
under review and if after a further 6 months after the review the
distributor was still under performing, then AIC agrees that it will look
for a replacement distributor with the assistance of CC; provided, however,
AIC will be solely responsible for the appointment of distributors.
(c) Pursuant to clause 12(a), if AIC fails to purchase the minimum amount of
Product(s) from CC within 3 months after notification of the failure to
purchase the required minimum, then this will constitute a breach of the
<PAGE>
Page 9
Agreement provided, however, all minimum purchase requirements shall be
subject to timely delivery of Products meeting the Specifications, and
compliance with all applicable regulations and laws.
13. REPRESENTATIONS AND WARRANTIES
------------------------------
(a) CC represents and warrants that to the best, of CC's knowledge: (i) the
execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of CC; (ii) CC has all such
right, title and interest in the Products as is necessary for it to enter
into and perform this Agreement, and to grant to AIC the rights granted
herein; (iii) CC has not previously granted, and will not grant during the
term of this Agreement, any right, license or interest in and to the
Products, in conflict with the rights granted to AIC herein; and (iv) there
are no actions, suits, investigations, claims or proceedings pending or
threatened against CC in any way relating to the Products.
(b) AIC warrants that the execution, delivery and performance of this Agreement
have been authorized by all necessary action on the part of AIC.
14. TRADEMARKS AND PATENTS.
-----------------------
(a) CC hereby grants AIC and its distributors an exclusive, worldwide,
royaltyfree license under CC's "Chromoprobe" trademark for use in
connection with the marketing and sale of the Product(s) for FCMB. AIC
agrees to respect this trademark and not to knowingly allow its
distributors to misuse the trademark in arty of die countries in the
Territory.
(b) If CC obtains any patent covering the Product(s), then CC shall grant to
AIC a license under such patents in connection with the use and sale of the
Product(s), and subject to Section 14(c) herein will endeavour to protect
AIC from any infringement of its trademarks or patents.
(c) In the event that either party learns that a third party infringes or has
infringed upon any patent or trademark owned by CC in Territory pertaining
to the Product(s), such party shall promptly notify the other of such
infringement, describing the facts relating thereto in reasonable detail,
CC shall have the initial right, but not the obligation, to institute,
prosecute and control any action, suit or proceeding (an "Action") with
respect to such
<PAGE>
Page 10
infringement, including and declaratory judgment action, at its expense,
using counsel of its choice. AIC shall have the right to participate in
any such Action, at its own expense, using counsel of its choice. Any
amounts recovered from third parties in any Action shall be used first to
reimburse the parties and other litigants, if any, for their costs
associated with such Action (including attorneys' and expert fees) and any
remainder divided between AIC and CC in proportion to their expenditures in
connection with pursuing such Action. In the event CC fails to initiate or
defend any Action relating to the Products within ninety (90) days of
receiving notice of any alleged infringement, AIC shall have the right but
not the obligation to initiate an Action in the name of CC, and CC shall
cooperate reasonably with AIC, at AIC's request, in connection with any
such Action. AIC shall have the right to retain the proceeds from such
Action, without accounting to CC or any other person.
(d) Upon the Effective Date, CC will provide AIC a copy of all pending patent
applications relating to the Products subject to a reasonable
confidentiality agreement, and shall provide AIC with any further patent
applications as they are filed. CC shall keep AIC reasonably informed of
the progress of all such patent applications.
15. PRODUCT LIABILITY
-----------------
CC shall indemnify and hold harmless AIC and its officers and employees
from any and all liabilities, damages and expenses (including attorneys
fees) arising out of or in connection with any claim, actions or proceeding
brought by third parties in respect of any damage or injury resulting
directly from or arising directly out of the use of the Product(s) supplied
by CC and according to direction fro use of the Products and distributed
pursuant to this Agreement, except to the extend that such damage or injury
is caused by negligent acts or omissions on the part of AIC or its
employees and provided that:
(a) AIC shall immediately upon receipt of any such claim notify CC thereof
and at the cost and discretion of CC shall permit CC to join in the
proceedings with AIC or to replace AIC in any such proceedings.
(b) AIC shall not compromise nor offer any settlement with regard to such
a claim or proceedings without CC's prior written approval.
(c) AIC shall give CC such reasonable assistance as it shall require in
respect of such proceedings.
<PAGE>
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(d) CC's insurers require AIC to have product liability coverage in the USA.
AIC needs to confirm in writing that this is in place in order for CC's
product liability coverage to be effected in the USA.
16. EARLIER TERMINATION
-------------------
(a) In case either party hereto breaches any provision of this Agreement, the
other party shall, by giving to such breaching party a written notice of
such breach, have the right to terminate this Agreement, if the breach is
not rectified within two months after receipt of such notice. The right to
terminate this Agreement as hereinabove provided, shall not be affected in
any way by its waiver of, or failure to take action with respect to any
previous breach.
(b) If AIC does not use reasonable business efforts consistent with its
business judgment to market the Product(s) in conjunction with FCMB
products within the Territory, then CC may terminate this Agreement after
consultation with AIC.
(c) If this Agreement should be terminated on account of a breach of AIC, then
AIC shall not sell the Product(s).
(d) Either party hereto has the right to terminate this Agreement without any
notice to the other party in the event of such other party's bankruptcy,
insolvency, dissolution, receivership, legal proceedings which are
adversely affecting the operation of the business or continuation of
business for any reason.
(e) If AIC fails to have a FCMB product on the market in one of the major
markets in the world within 2.5 years of the signing of this Agreement that
can effectively isolate fetal cells from the maternal blood with sufficient
selectivity such that at least one of the chromosome abnormalities of the
fetus can be accurately detected by the use of the Product(s), then this
Agreement shall become non-exclusive and in relation to clause 2(a), CC
shall be free to enter into an agreement for supply of the Product(s) for
detection of the chromosomes in fetal cells isolated from maternal blood
with another commercial party.
(f) AIC shall have the right to terminate the Agreement in the event that the
Product(s) are deemed by two mutually chosen independent third parties to
be non-competitive in terms of technology in the context of AIC's FCMB
methodology, commercial practicability, or regulatory approval.
<PAGE>
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(g) Post FCMB product launch, in the event that the AIC FCMB product is deemed
by two mutually chosen independent third parties to be noncompetitive in
terms of technology, commercial practicability or regulatory approval, then
this Agreement shall become non-exclusive.
17. EXPIRATION AND TERMINATION
--------------------------
(a) Expiration or termination of this Agreement for any reason shall be without
prejudice to CC's right to receive all payments accrued to CC and unpaid on
or before the effective date of such expiration and termination.
(b) After the expiration or termination of this Agreement, AIC shall return to
CC all originals of copies of documents of Technical Information.
(c) After the expiration of this Agreement, AIC shall not use Technical
Information and not sell Product(s).
(d) With respect to outstanding orders for Product(s) placed by AIC before such
expiration or termination and AIC's inventory stock of Product(s) at the
time of expiration or termination, the fulfillment and return of the above
shall be decided by discussion between the parties, although it should be
noted that CC will not take back any stock which has expired.
(e) In the event of termination for any reason, the following clause 18 shall
continue to have effect.
18. CONFIDENTIALITY
---------------
It is acknowledged that both parties have exchanged and signed
Confidentiality Agreements which shall be regarded as part of this
Agreement. All sales reports provided by AIC to CC under this Agreement
shall be maintained in confidence by CC.
19. REGULATORY APPROVALS
--------------------
(a) AIC agrees that it will review the registration requirements for its FCMB
products and the Product(s) in Europe, Japan and the USA. If AIC elects to
register or obtain regulatory approval for the FCMB products and Product(s)
at its own cost in these territories then the provisions of clause 2(a)
shall hold, otherwise this Agreement shall become non-exclusive in relation
to clause 2(a) for such country or countries in the Territory in which AIC
elects not to register or obtain regulatory approval. AIC shall be the
owner of any regulatory approvals it obtains.
<PAGE>
Page 13
(b) CC agrees that it will cooperate fully with AIC and support the regulatory
process by supplying AIC with the necessary information required on the
Product(s) upon the request of AIC.
(c) In the event that AIC obtains regulatory approval for the use of the
Products for other applications in addition to FCMB, AIC shall have the
exclusive right to sell the Products for such uses at prices to be
negotiated in good faith by the parties except in the UK and in the event
that this conflicts with an existing agreement in Japan and a proposed
agreement in India.
20. FORCE MAJEURE
-------------
Subject to Article 21, if the performance of this Agreement of any
obligation hereunder, except the making of payments, is prevented,
restricted or interfered with by reason of fire, earthquake or other
casualty or accident, strikes or labour disputes, inability to procure raw
materials, power or supplies, war, invasion, civil commotion or other
violence, compliance with any order of any governmental authorities or any
other act or conditions whatsoever beyond reasonable control of either
party hereto, the party so affected upon giving a prompt notice to the
other party shall be excused from such performance to the extent of such
prevention, restriction or interference; provided, however, that the party
so affected shall use its best efforts to avoid or remove such causes of
nonperformance and shall continue performance hereunder with the utmost
despatch whenever such causes are removed.
21. SECOND SOURCE
-------------
(a) CC recognizes and accepts the fundamental role it plays in AIC's ability to
consistently supply AIC customers with Products which meet the
Specifications. Accordingly, CC agrees that they will establish an
agreement with a secondary supplier of the Product and provide a copy of
this Agreement and Product samples manufactured by the second source to
AIC. CC will maintain such a second source during the term of this
Agreement.
22. ASSIGNMENT
----------
(a) Either party may assign this Agreement in connection with the sale or
transfer of substantially all its assets relating to the subject matter of
this Agreement, whether by merger, sale, acquisition or otherwise.
(b) In the event of CC becoming insolvent, is put into financial receivership,
files for bankruptcy or otherwise discontinues its business with respect to
the Products, AIC shall have an exclusive first right of refusal to
purchase the
<PAGE>
Page 14
intellectual property, including the technical Information any patent
applications and patents relating to the Product(s) at a reasonable price
to be agreed.
23. TERM
----
This Agreement shall take effect on the day first above written in this
Agreement and shall remain in force for a period of 10 years. Both parties
shall have the right to extend this Agreement by giving notice of that intention
at least 2 months before expiry of the Agreement.
24. NO LICENSE
----------
CC agrees it will not sell or license the Technical Information and/or patent
applications and patents relating to the Products to any third party for uses in
connection with FCMB or any assay or system performing equivalent functions
during the term of this Agreement.
25. GOVERNING LAW
-------------
This Agreement shall be governed and interpreted in accordance with the laws of
the United Kingdom.
26. ARBITRATION
-----------
All disputes, controversies or differences which may arise between the two
parties hereto out of or in relation to this Agreement shall be amicable settled
between the parties hereto. In case of failure of amicable settlement between
the parties hereto, it shall be finally settled in binding arbitration by three
arbitrators mutually agreed upon by AIC and CC in accordance with the Rules of
Commercial Arbitration of the International Chamber of Commerce. Such
arbitration shall be conducted in London, England if initiated by AIC, and in
San Francisco, California if initiated by CC. The parties shall bear the costs
of the arbitration equally and shall bear their own expenses including
professional fees.
27. NOTICES
-------
(a) All notices and statements required to be given to either party despatched
by recorded delivery, or telex or telefax with confirmation by recorded
delivery addressed to such party at the following address:
<PAGE>
Page 15
To CC:
Managing Director
Cytocell Limited
Unit 6
Somerville Court
Trinity Way
Adderbury
Banbury
Oxon OX17 3SN
To AIC
Managing Director
Applied Imaging International Ltd.
Hylton Park
Wessington Way
Sunderland
Tyne & Wear
SRS 3HD
(b) All notices and statements shall be deemed to be given seven days after
mailing or at the time of delivery of a telex or telefax to the addresses
above.
(c) Each party hereto may change its address set forth above for the purpose of
this Agreement by giving a written notice to the other party from time to
time.
28. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein, There are no restrictions,
promises, covenants or understandings other than those expressly set forth
herein, and no rights or duties on the part of either party hereto are to be
implied or inferred beyond those expressly herein provided for. The parties
hereto may, from time to time during the continuance of this Agreement, modify,
vary or alter any of the provisions of this Agreement but only by an instrument
duly executed by the parties hereto.
<PAGE>
Page 16
29. COUNTERPARTS
------------
This Agreement may be executed in counterparts, each of which shall be deemed to
be an original and both together shall be deemed to be one and the same
instrument.
30. CONFIDENTIAL TERMS
------------------
Except as expressly provided herein, each party agrees not to disclose any terms
of this Agreement to any third party without the consent of the other party,
except as required by securities or other applicable laws, to prospective
investors and to such party's accountants, attorneys and other professional
advisors.
31. COMPLIANCE WITH LAWS
--------------------
Each party shall perform this Agreement in compliance with all applicable
federal, state and local laws, rules and regulations and shall indemnify the
other party and its customers for loss or damage sustained because of such
party's non-compliance with any such law, rule or regulation. Each party shall
furnish to the other party any information requested or required by that party
during the term of this Agreement or any extensions during the term of this
Agreement or any extensions hereof to enable that party to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
32. RELATIONSHIP OF THE PARTIES
---------------------------
The relationship of the parties is that of independent contractors, and nothing
contained herein will constitute the parties to be partners, joint ventures, or
agents of the other, or to create the relationship of employer or employee.
33. MISCELLANEOUS PROVISION
-----------------------
(a) Each party acknowledged that it has negotiated and entered into this
Agreement in good faith.
(b) In the event any one of the provisions of this Agreement is held to be
invalid, this shall not invalid the entire Agreement.
<PAGE>
Page 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in duplicate originals by their respective officers hereunto 1, of which
original to be held by each party.
Cytocell Ltd. Applied Imaging International Ltd.
By /s/ [Signature] By /s/ [Signature]
Mr. Bruce Savage Dr. LesGrant
By /s/ [Signature]
Dr. Frank Carr
Date 3 March 1994 Date 3 March 94
<PAGE>
Page 18
Appendix A
List of Prices (ex-Works and ex-VAT)
1(10 tests per kit)
CI 001 Chromoprobe-I 13/21 [*]
CI 002 Chromophobe-I 18 [*]
CI 003 Chromoprobe-I X [*]
CI 004 Chromoprobe-I Y Centromeric [*]
CI 005 Chromoprobe-I Yq Heterochromatin [*]
CI 006 Chromoprobe-I 1 [*]
CI 007 Chromoprobe-I 8 [*]
CI 009 Chromoprobe-1 12 [*]
CI 008 Chromoprobe-1 X&Y Dual label [*]
CI... Chromoprobe-1 21 [*]
Note: (1) [*] for bulk kit of any of the above for clinical trials and Santa
Clara laboratory containing 24 coverslips, extra P1 Antifade and
Hybridization Fluid and no pack insert.
[*] for all probes except [*] for X&Y Dual label kits.
(2) All multiprobe combinations of the above.
Ancillary Reagents:
CA 001 PN Buffer (x1O) [*]
CA 002 Treated Slides [*]
Instruments
CN 001 Cytocell Heating Block [*]
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.17
RESEARCH PURCHASE AGREEMENT
Effective as of March 26, 1996, by and between PHARMACIA BIOTECH AB, a company
organized and existing under the laws of Sweden, and having its address at
Bjorkgatan 30, S-751 82 Uppsala, Sweden (hereinafter referred to as "PHARMACIA")
and APPLIED IMAGING CORP., a company organized and existing under the laws of
California, and having its address at 2380 Walsh Avenue, Building B, Santa
Clara, CA 95051, USA (hereinafter referred to as "IMAGING").
In consideration of the mutual promises herein, the parties have agreed as
follows;
1. DEFINITIONS
1.1 "Product" shall mean RediGrad(TM) with the specifications given in Schedule
A.
-----------
1.2 "Results" shall mean any and all results, including intellectual property,
achieved, developed, invented or discovered by Imaging based upon or
involving the Product in anyway.
2. MANUFACTURE AND SALE
2.1 During the term of this Agreement, Pharmacia agrees to manufacture for and
sell to Imaging, and Imaging agrees to purchase from Pharmacia the Product
in such quantities as Imaging may order from time to time in accordance
with the terms and conditions of this Agreement.
2.2 Pharmacia hereby gives Imaging the right to use the Product in the area of
research described in Schedule B.
----------
2.3 Imaging shall not use the Product in any way nor market, distribute or sell
the Product to any third party deviating from the provisions of this
Agreement without prior written approval from Pharmacia.
2.4 Imaging may assign development and evaluation tasks to subsidiaries and
evaluators bound by applicable confidentiality agreements, such
subsidiaries and evaluators to then be bound by the terms of this
Agreement.
2.5 Imaging shall have the option during the term of this Agreement to enter
into a resale purchase agreement with Pharmacia, the terms of which shall
be negotiated in good faith.
1(6)
[*Confidential Treatment Requested]
<PAGE>
3. GENERAL TERMS
3.1 Pharmacia's General Conditions of Sale as given in Schedule C shall apply
----------
with the modifications presented in this Agreement.
3.2 Orders from Imaging to Pharmacia shall be made through the OEM business
unit via facsimile or mail. Applicable addresses as well as the
requirements relating to such orders are given in Schedule D.
-----------
4. PRICES, DELIVERIES AND PAYMENTS
4.1 The terms of payment specified in Schedule E shall apply to any purchase of
----------
the Product made by Imaging.
5. HANDLING OF RESULTS
5.1 The Results shall be owned solely by Imaging. Pharmacia waives all rights
and/or obligations connected to such Results.
5.2 Any and all patent applications based on the Results will be handled and
paid by Imaging.
6. WARRANTY AND DISCLAIMER
6.1 Pharmacia warrants good and marketable title to the Product covered by this
Agreement, and that the Product will meet the specifications given in
Schedule A.
PHARMACIA MAKES NO WARRANTY THAT THE PRODUCT UNDER THIS AGREEMENT IS
MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE, NOR LEAVES ANY OTHER
WARRANTIES EITHER EXPRESSED OR IMPLIED BY OPERATION OF LAW OR OTHERWISE.
THE ONLY LIABILITY ACCEPTED IN THE CASE THAT THE PRODUCT IS NOT CONFORMING
TO THE SPECIFICATIONS GIVEN SHALL BE EITHER REPAIR OR REPLACEMENT AT NO
COST TO IMAGING. IN NO EVENT SHALL PHARMACIA BE LIABLE FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
7. INDEMNIFICATION
7.1 Pharmacia agrees to indemnify and, at its option, defend Imaging from and
against any and all claims, losses or damages arising from or related to
the manufacture, storage, handling, use or application of the Product so
long as such claims, losses or
2(6)
<PAGE>
damages are due to the negligent acts or omissions of Pharmacia, its agents
or employees.
7.2 Imaging agrees to indemnify and, at its option, defend Pharmacia from and
against any and all claims, losses or damages arising from or related to
the use or application of the Product so long as such claims, losses or
damages are due to the negligent acts or omissions of Imaging or its
employees.
8. TERM AND TERMINATION
8.1 Unless terminated in accordance with this Agreement, the primary term of
this Agreement comes into effect on the first date above written and shall
remain in effect until, June 30th 1997.
8.2 This Agreement may be terminated prior to the expiration of the
aformentioned primary term or any extension thereof under any of the
following conditions and in the manner below described:
(a) If any proceeding is filed or commenced against either party under
bankruptcy, insolvency or debtor relief, the other party may do so by
giving written notice to the breaching party that the Agreement will
terminate on the 30th day from the date of the notice unless cure is
sooner effected. If, however, either party is dissolved, liquidated,
discontinued, or becomes insolvent, the Agreement may be terminated on
the 15th day from the date of the notice.
(b) By either party, if by reason of force majeure, as defined in Section 9
below, the obligations imposed on either party hereunder cannot and in
the forseeable future will not be discharged.
8.3 In the event that this Agreement is terminated for the breach of either
party, the duties and obligations of the breaching party which have accrued
prior to termination, including (without limitation by enumeration) the
obligation to produce and ship ordered quantities of the Product and the
correlative obligation to pay for such quantity, shall not be released or
discharged by such a termination.
9. TRADEMARKS
9.1 Imaging is not authorized to use and shall not use the name of Pharmacia in
its corporate name or in any trade name or business. Imaging shall not
register or use any trademark or name of Pharmacia, its affiliates or
subsidiaries, for the Product or for any Results without Pharmacia's prior
written consent.
3(6)
<PAGE>
10. FORCE MAJEURE
10.1 The obligations of either party hereunder shall be excused or suspended to
the extent performance is prevented or delayed by any future condition,
which
(i) is beyond the reasonable control, and without the fault or
negligence, of the party affected thereby,
(ii) was not foreseeable by such party at the time this Agreement was
entered into, and
(iii) could not have been prevented by such party taking reasonable steps.
Such conditions shall include, but not be limited to, war
mobilization, riots, fire, explosion, flood, insurrection, embargo,
currency restriction, shortage of transport, general shortage of
material and acts or omissions or governments in their sovereign
capacity.
10.2 The party invoking relief hereunder, shall, within seven (7) days after
commencement of the condition there mentioned, give written notice thereof
and of the anticipated consequences thereof, to the other party. Within
seven (7) days after termination or cessation of such conditions, the
affected party shall give further written notice to the other party
detailing the actual results of such condition.
10.3 In the event of any such condition, the party affected thereby shall take
all reasonable measures to mitigate and minimize the effect of the
condition, and to resume as promptly as possible the diligent performance
of its obligations under this Agreement. Nothing herein shall, however,
obligate either Party to settle strikes or other labor disputes except on
terms and conditions which it, in the exercise of its sole discretion,
deems appropriate.
11. CONFIDENTIALITY
11.1 The parties shall act fully in accordance with the terms of the Secrecy
Agreement between the parties hereto dated November 8, 1995. Such terms
shall apply to, the disclosure of confidential information by both parties
and the obligation to secrecy shall remain in effect for the term of said
Secrecy Agreement or until two years after the termination of this
Agreement, whichever the latest.
12. PUBLICATION
12.1 Imaging shall be entitled to publish Results. Any publication disclosing
the Product name or a description of the Product is subject to review and
prior written approval by Pharmacia. If Pharmacia has failed to respond to
such a request for permission for a period of more than 3 months, Imaging
shall be entitled to go ahead and publicize the Results in question.
4(6)
<PAGE>
13. ASSIGNMENT
13.1 This Agreement may be assigned by Pharmacia to any party at any time;
provided, however, that in case of such assignment, the rights granted to
Imaging herein shall remain in effect without change.
14. DISPUTES AND APPLICABLE LAW
14.1 This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
14.2 Any and all disputes shall be settled by arbitration in accordance with the
rules of the London Court of International Arbitration. The place of
arbitration shall be in London, England.
14.3 In and so far as English law applies to the arbitration hereby agreed, the
parties agree to exclude any right of application or appeal to the English
courts in connection with any question of law arising in the course of the
reference or out of the award.
15. SEVERABILITY
15.1 In the event that any provision of this Agreement shall be found to be void
or unenforceable, such a finding shall not be construed as to render any
other provision of this Agreement neither void nor unenforceable, and all
other provisions shall remain in full force and effect unless the
provisions which are invalid or unenforceable shall substantially affect
the rights or obligations granted to or undertaken by either party.
16. NOTICES
16.1 All notices given hereunder shall be in writing and delivered in person or
sent by first-class mail to the other party at its address as may be
specified to the other party in the manner provided. Unless specified
otherwise, any notice so given shall be deemed to have been given when so
personally delivered or mailed.
To Pharmacia:
Att. Bob Penney
Pharmacia Biotech AB
Bjorkgatan 30
S-751 82 Uppsala
Sweden
5(6)
<PAGE>
To Imaging:
Att. Dr. Michael Burgett
Applied Imaging Corp.
2380 Walsh Avenue, Building B,
Santa Clara, CA 95051
USA
17. AGREEMENT MODIFICATION
17.1 Modification shall only be taken by the parties in writing and expressly
designated as a modification of this Agreement.
18. AUTHORITY
18.1 The parties hereby represent that they have full power and authority to
enter into and perform this Agreement and the parties know of no
agreements, contracts, promises or undertakings which would prevent the
fall execution and performance of this Agreement.
19. ENTIRE AGREEMENT
19.1 This agreement shall constitute the entire agreement between the parties on
this subject matter, and it supersedes all previous negotiations,
agreements and commitments relating to this subject matter.
IN WITNESS WHEREOF the authorized representatives of the parties hereto have
signed this Agreement.
PHARMACIA BIOTECH AB APPLIED IMAGING INC
/s/ [Signature Unreadable] /s/ [Signature Unreadable]
/s/ [Signature Unreadable] /s/ [Signature Unreadable]
6(6)
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE A
REDIGRAD(TM) SPECIFICATIONS
Product Code Number: 17-1270-01
Product Pack Size: 1 Litre
Product Description:
RediGrad TM is a colloidal solution of silica coated with silane. Its main
application is in the separation of cells and cell components by density
centrifugation. The product is colourless to slightly yellow and supplied
sterile in plastic bottles.
Test/Characteristic Test Method Limits
1. [*] [*] [*]
2. [*] [*] [*]
3. [*] [*] [*]
4. [*] [*] [*]
5. [*] [*] [*]
6. [*] [*] [*]
[*Confidential Treatment Requested]
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE B
RESEARCH AREA FOR USE OF REDIGRAD(TM)
The following describes the sole agreed area of research in which RediGrad will
be used by the parties named in the Research Purchase Agreement. RediGrad must
not be used outside the specified areas of research and it's use is covered by
the terms contained in the Research Purchase Agreement.
DESCRIPTION OF RESEARCH AREA FOR USE OF REDIGRAD BY APPLIED IMAGING CORP.
1) The development of methods and applications incorporating RediGrad into a
water-soluble, meltable gel by which one or more layers are stabilized as a
density controlled product for the separation & isolation of mononuclear
cells, granulocytes, red blood cells and platelets from blood samples.
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE C (1 Of 3)
PHARMACIA BIOTECH ("Pharmacia")
GENERAL CONDITIONS OF SALE
(1994-07-04)
PREAMBLE
1. These General Conditions shall apply to all sales of products by Pharmacia.
Any modification or deviation must be agreed in writing.
PRODUCT INFORMATION
2. All information and data contained in product brochures and price lists are
binding only if expressly included in the contract.
DRAWINGS AND DESCRIPTIONS
3. All information regarding price, technical and other data in catalogues,
advertisements, price lists and other marketing material are approximate.
Such information shall not be binding unless expressly referred to in the
contract.
4. All drawings and technical specifications for the design of the Product or
part thereof shall remain Pharmacia's not be used, copied, or else be
disclosed to any third party.
TERMS OF DELIVERY. PASSING OF RISK
5. Any term of delivery shall be construed according to the INCOTERMS in force
at the signing of the contract. If no term of delivery is agreed the
delivery shall be Delivered Duty Paid (DDP).
Partial shipments shall be permitted.
TIME FOR DELIVERY. DELAY
6. If the parties, have specified a period of time during which delivery shall
take place, such period shall start on the date when Pharmacia receives the
Purchaser's order.
7. If Pharmacia anticipates that he will not be able to deliver the Product in
time, he shall notify the Purchaser in writing, stating the reason, and, if
possible, the time when delivery can be expected.
8. If delay in delivery is caused by any of the circumstances mentioned in
Clause 27 (Force Majeure) or by an act or omission on the part of the
Purchaser, the time delivery shall be extended by a period which is
reasonable having regard to all the circumstances in the case. This
provision applies even if the reason for the delay occurs after the agreed
tine for delivery.
[Page break altered from original]
<PAGE>
9. If the Product is not delivered in time, the Purchaser is entitled to
liquidated damages from the agreed delivery date.
The liquidated damages shall be payable at a rate of 0.5 per cent of the
purchase price for the delayed part for each completed week of delay. The
liquidated damages shall not exceed 7.5 per cent of the purchase price.
The liquidated damages become due at the Purchaser's written demand but not
before delivery has been completed or the contract is terminated under
Clause 11.
The Purchaser shall waive his right to liquidated damages if he has not
filed a claim for such damages within six months after the agreed delivery
time.
10. If the Purchaser is entitled to maximum liquidated damages and if the
Product is still not delivered, the Purchaser may demand in writing
delivery within a final reasonable period which shall not be less than one
week. If Pharmacia does not deliver within such final period and if the
Purchaser is not responsible therefore, then the Purchaser may by notice in
writing to Pharmacia terminate the contract. Such termination shall only be
in respect of such part of the product as cannot be used as intended by the
parties as a consequence of Pharmacia's failure to deliver.
If the Purchaser terminates the contract he shall be entitled to
compensation for the loss he has suffered as a result of Pharmacia's delay
The total compensation, including the liquidated damages payable under
Clause 10, shall not exceed 15 per cent of that part of the purchase price
which is attributable to the part of the product in respect of which the
contract is terminated.
11. Liquidated damages under Clause 10 and termination of the contract with
limited compensation under Clause 11 are the only remedies available to the
Purchaser in case of Pharmacia's delay. All other claims against Pharmacia
based on such delay shall be excluded, except where Pharmacia has been
guilty of gross negligence.
12. If the Purchaser anticipates that he will be unable to accept delivery of
the product at the delivery time, he shall notify Pharmacia stating the
reason, and, the time when he will be able to accept delivery.
If the Purchaser fails to accept delivery at the delivery time he shall
pay the purchase price which becomes due on delivery. Pharmacia shall
arrange for storage of the Product at the risk and expense of the
Purchaser. Pharmacia shall also, if the Purchaser so requires, insure the
Product at the Purchaser's expense.
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE C (2 of 3)
13. Unless the Purchaser's failure to accept delivery is due to any such
circumstance as mentioned in Clause 36 (Force Majeure), Pharmacia may by
notice in writing require the Purchaser to accept delivery within a final
reasonable period.
If, the Purchaser fails to accept delivery within such period, Pharmacia
may by notice in writing terminate the contract in whole or in part.
Pharmacia shall then be entitled to compensation for the loss it has
suffered by reason of the Purchaser's default. The compensation shall not
exceed that part of the purchase price which is attributable to that part
of the Product in respect of which the contract is terminated.
PRICE AND PAYMENT
14. Unless otherwise stated in the contract, Pharmacia may charge an
administrative fee of ECU 15 for orders for less than ECU 100.
In addition to the price, Pharmacia may charge the VAT applicable at any
time.
15. Payment shall be made without any deduction or set-off within 30 days of
the date of invoice, unless otherwise agreed in writing.
16. Payment shall not be deemed to have been effected before Pharmacia's
account has been fully and irrevocably credited.
17. If the Purchaser fails to pay all the stipulated date, Pharmacia shall be
entitled to interest from the day on which payment was due. The rate of
interest shall be as agreed between the parties. The rate of interest
shall be 12 per cent per annum unless otherwise agreed by the parties.
In case of late payment Pharmacia may, after having notified the Purchaser
in Writing, suspend his performance of me contact until he receives
payment.
If the Purchaser has not paid the amount due within three months Pharmacia
may terminate the contract by notice in writing to the Purchaser and claim
compensation for the loss incurred. The compensation shall not exceed the
agreed purchase price.
RETENTION OF TITLE
18. The Product shall remain the property of Pharmacia until paid for in full
to the extent that such retention of property is valid under the applicable
law. The Purchaser shall at the request of Pharmacia assist him in taking
any measures necessary to protect Pharmacia's title to the Product in the
country concerned. The retention of title shall not affect the passing of
risk under Clause 5.
[Page break altered from original]
<PAGE>
LIABILITY FOR DEFECTS
19. Pursuant to the provisions of Clauses 19-24, Pharmacia shall remedy or
replace any defect resulting from faulty design, materials or workmanship
which appear within one year from delivery or such shorter period or expiry
date as may be indicated on any package insert or other material
accompanying consumable products.
When a defect in a part of the Product has been remedied, Pharmacia shall
be liable for defects in the repaired or replaced part according to this
Clause 18. For the remaining parts of the Product the period shall be
extended only by a period of time during which the Product has been out of
operation as a result of the defect.
20. The Purchaser shall without undue delay notify Pharmacia of any defect
which appears. Such notice shall under no circumstances be given later
than two weeks after discovery of the defect. The notice shall contain a
description of the defect.
If the Purchaser does not notify Pharmacia of a defect within such time
limit, he shall lose his right to have the defect remedied.
21. Necessary transport of the Product and/or parts in connection with the
remedying of defects for which Pharmacia is liable shall be at the risk and
expense of Pharmacia.
22. Defective parts which have been replaced shall be made available to
Pharmacia.
23. Pharmacia is not liable for defects arising out of materials provided by or
a design stipulated or specified by the Purchaser.
Pharmacia is liable only for defects which appear under the conditions of
operation provided for in the contract and under proper use of the Product
and Pharmacia's liability does not cover defects which are caused by faulty
maintenance, incorrect erection or faulty repair by the Purchaser, or by
alterations carried out without Pharmacia's consent in writing. Finally
Pharmacia's liability does not cover normal wear and tear or deterioration.
24. Notwithstanding the provisions of Clauses 19-24 Pharmacia shall not be
liable for defects in any part of the Product for more than two years from
the beginning of the period given in Clause 19.
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE C (3 OF 3)
25. Save as stipulated in Clauses 19-24, Pharmacia shall not be liable for
defects. This applies to any loss the defect may cause including loss of
production, loss of profit and other indirect loss. This limitation of
Pharmacia's liability shall not apply if he has been guilty of gross
negligence.
LIABILITY FOR DAMAGE CAUSED BY THE PRODUCT
26. Pharmacia shall not be liable for any damage to property caused by the
property after it has been delivered and product after it is in the
possession of the Purchaser. Nor shall Pharmacia be liable for any damage
to products manufactured by the Purchaser, or to products of which the
Purchaser's products form a part.
If Pharmacia incurs liability towards any third party for such damage to he
Purchaser shall indemnify, defend and hold Pharmacia harmless.
If a claim for damage as described in this Clause is lodged by a third
party against one of the parties, the latter shall immediately inform the
other party thereof in writing.
Pharmacia and the Purchaser shall be mutually obliged to let themselves be
summoned to the court or arbitral tribunal examining claims for damages
lodged against one of them on the basis of damage allegedly caused by the
Product.
The limitation of Pharmacia's liability in the first paragraph of this
Clause shall not apply where Pharmacia has been guilty of gross negligence.
FORCE MAJEURE
27. Either party shall be entitled to suspend performance of his obligations
under the contract to the extent that such performance is impeded or made
unreasonably onerous by any of the following circumstances: industrial
disputes and other circumstance beyond the control of the parties such as
fire, war (whether declared or not), extensive military mobilization,
insurrection, requisition, seizure, embargo, restrictions in the use of
power and defects or delays in deliveries by sub-contractors caused by an
such circumstances referred to in this Clause. A circumstance referred to
in this Clause which had occurred prior to the formation of the contract
shall give a right to suspension only if its effect on the performance of
the contract could not be foreseen at the time of the formation of the
contract.
28. The Party claiming to be affected by Force Majeure shall notify the other
party in writing without delay on the intervention and on the cessation of
such circumstance.
If Force Majeure prevents the Purchaser from fulfilling his obligations, he
shall compensate Pharmacia for expenses incurred in securing and protecting
the Product
29. Regardless of what might otherwise follow from these General Conditions,
either party shall be entitled to terminate the contract by notice in
writing to the other party if performance of the contract is suspended
under Clause 26 for more than six months.
[Page break altered from original]
<PAGE>
EXPORT CONTROL
30. Pharmacia's delivery of an Product is contingent upon the obtaining export
license required by any country.
ANTICIPATED NON-PERFORMANCE
31. Each party shall be entitled to suspend the performance of his obligations
under the contract, where the other party will not be able to perform his
obligations. A party suspending his performance of the contract shall
immediately notify the other party thereof in writing.
CONSEQUENTIAL LOSSES
32. Save as elsewhere stated in these conditions there shall be no liability
for either party towards the other party for loss of production, loss of
profit, loss of use, loss of contracts or for any consequential, economic
or indirect loss whatsoever.
APPLICABLE LAW AND DISPUTES
33. The contract shall be governed by the substantive law of the country of the
Purchaser.
34. All disputes arising in connection with the contract shall be finally
settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules. The arbitration proceedings shall be
conducted in the English language. However, Pharmacia may bring action in
court for the collection of money.
Judgment upon any award rendered may be entered in any Court having
jurisdiction or application may be made to such Court for a judicial
acceptance of the award or an order of enforcement as the case may be.
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE D
ORDERING TERMS
All orders should be sent to the OEM business unit by facsimile or mail to the
following:
Bob Penney
OEM Business Unit
Pharmacia Biotech
Science Park
Milton Road
Cambridge CB4 4FJ
England
Fax: ++44 1223 420 164
Tel: ++44 1223 427 803
Subject to acceptable credit references the product will be delivered and
invoiced on account. In the event of payment failure or unacceptable credit
references payment by certified bankers cheque with order or wire transfer prior
to delivery is required.
<PAGE>
PHARMACIA
BIOTECH
SCHEDULE E
PRICES, DELIVERY AND PAYMENT TERMS
PRICES
The price [*].
This price is calculated using an exchange rate of 7.25 SEK = $1. Should, on the
day of invoicing, the actual exchange rate, as given by a accredited leading
bank, vary by more than (plus/minus) 10% then both parties shall equally share
the difference of the actual exchange rate minus the above contract exchange
rate. The difference to be added or deducted to the invoice.
DELIVERY
Subject to acceptable credit references the product will be delivered and
invoiced on account. In the event of payment failure or unacceptable credit
references payment by certified bankers cheque with order or wire transfer prior
to delivery is required before delivery can take place.
Delivery is FOB Arlanda Airport according to INCOTERMS 1990. Pharmacia Biotech
will endeavor to deliver within 1 week of order placement.
INVOICING & PAYMENT
Invoicing will be on the day of delivery to Arlanda Airport.
General Conditions of payment are covered in SCHEDULE C with the exception of
the following specific instructions.
Payment should be made by cheque to:-
Attn: Ewa Allard-Tornelund
Pharmacia Biotech AB
Bjorkgatan 30
S-751 82 Uppsala
Sweden
or wire transfer to:-
Svenska Handelsbanken in Uppsala Sweden
Pharmacia Biotech Account
Account Number: 6514-260603708
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.18
DEVELOPMENT AGREEMENT
This Development Agreement (the "Agreement") is made effective this 5th day
of 1996. (the "Effective Date") by and between EM Science, a division of EM
Industries, a New York corporation, having a place of business at 480 Democrat
Road, Gibbstown, New Jersey ("EMS"), and Applied Imaging Corporation, a
California corporation having a place of business at 2380 Walsh Avenue, Building
B, Santa Clara, California ("Applied Imaging").
ARTICLE 1. DEFINITION'S
In this Agreement the following terms, whether used in singular or plural,
shall have the meaning respectively indicated in this Article 1.
1.1 "Block" shall mean the stages of a Phase, as set forth in the Development
-------
Program.
1.2 "Development Program" shall mean the Applied Imaging Development Proposal
---------------------
as set forth in Exhibit 1 hereto, as may be modified from time to time by
mutual written agreement of the parties.
1.3 "Development Schedule" shall mean the schedule for completion of the
----------------------
Development Program, as set forth in Exhibit 1 hereto as may be modified
from time to time by mutual written agreement of the parties.
1.4 "EMS Deliverables" shall mean the items to be delivered by EMS to Applied
------------------
Imaging in connection with the Development Program, as set forth in
Exhibit 1 hereto.
1.5 "Phase" shall mean the divisions of the development as identified in the
-------
Development Program. Each Phase shall include one or more Blocks, as set
forth in the Development Program.
1.6 "Pilot Lots" shall mean the product manufactured in connection with Phase
------------
II of the Development Program as such term is used in Exhibit 1 hereto.
1.7 "Scale-Up Lots" shall mean the product manufactured in connection with
---------------
Phase III of the Development Program as such term is used in Exhibit 1
hereto.
1.8 "Specifications" shall mean the technical and other specifications for the
----------------
EMS Deliverables, as set forth in the Development Program.
ARTICLE 2. RESEARCH PROJECT
2.1 Development. EMS shall use commercially reasonable efforts to complete
------------
the Development Program, and each Phase and Block thereof and to deliver
to the Applied Imaging all applicable EMS Deliverables, in accordance with
the Development Schedule. EMS shall
[*Confidential Treatment Requested]
<PAGE>
commence Phase 1, Block 1 promptly upon the execution of this Agreement,
but in no case longer than fifteen (15) days from the Effective Date.
Other Blocks of the Development Program shall be commenced upon EMS's
receipt of a purchase order from Applied Imaging for the agreed upon cost
for such Block.
2.2 Reports. EMS shall provide Applied Imaging periodic reports, information
--------
and data as may reasonably be required by Applied Imaging or required by
the Development Program. Accordingly, EMS shall provide to Applied Imaging
a written report (the "Performance Report") upon the completion of each
Block of the Development Program. The Performance Reports shall include
data, interpretation, opinions and recommendations based on the results of
the completed Block. Without limiting the foregoing, EMS shall promptly
report to Applied Imaging any research development arising out of the
Development Program which EMS deems significant.
2.3 Site Visits. During the term of the Development Program Applied Imaging
------------
personnel may visit EMS facilities to review the progress of the
Development Program, with reasonable advance notice.
2.4 Conferences. The parties shall meet within two (2) weeks of EMS's
------------
completion of each Block of the Development Program, or as otherwise
agreed by the parties, at such location as the parties agree or A
telephone (the "Review Conference"). At such Review Conference, EMS shall
present the Performance Report and deliver to Applied Imaging all
applicable EMS Deliverables for the completed Block, including
documentation, for evaluation by the Applied Imaging pursuant to Section
2.5 below.
2.5 Acceptance. Upon delivery to Applied Imaging of the materials comprising
-----------
the completion of each Block, including related documentation and reports,
Applied Imaging shall evaluate such EMS Deliverables for conformity to the
Development Program and Specifications. Applied Imaging shall provide EMS
within thirty (30) days after delivery of such materials with written
acceptance thereof, or a statement of nonconformities to be corrected. EMS
shall promptly correct such nonconformities and return the corrected EMS
Deliverables for retesting and reevaluation, and Applied Imaging shall
within thirty (30) days after such redelivery provide EMS with written
acceptance or a statement of nonconformity. Subject to Sections 10.5 and
10.6 below, if Applied Imaging has not accepted any EMS Deliverable by
thirty (30) days after the applicable Completion Date set forth in the
Development Schedule, then Applied Imaging may, upon written notice to
EMS, elect to terminate this Agreement immediately, without further
opportunity for EMS to cure. Until such election to terminate by the
Applied Imaging. EMS shall continue to attempt to correct the defects and
provide conforming EMS Deliverables. For removal of doubt, an EMS
Deliverable will conform to the Development Program and Specifications
when EMS has performed all the appropriate steps, methods and procedures
set forth in the Development Program for such EMS Deliverable, even if the
outcome of such steps, methods and procedures is not successful (i.e.,
work related to preservation selection does not result in a viable
microbial inhibitor for a particular reagent), in which case the EMS
Deliverable will consist of the Performance Report and supporting data.
2
<PAGE>
2.6 Changes. Applied Imaging shall have the right to request reasonable
--------
changes in or modifications to ("Changes") the Development Program. All
such Changes shall be mutually agreed upon in writing and shall be signed
by authorized representatives of Applied Imaging and EMS. If Changes
result in an increase in the cost of the Development Program, the parties
shall agree upon an additional reasonable fee to be paid to EMS by Applied
Imaging. If Changes affect the projected completion date of the
Development Program, EMS shall notify Applied Imaging of the effect that
such changes would have on the completion of the Development Program and
the Development Schedule shall be adjusted accordingly.
ARTICLE 3. COMPENSATION AND PAYMENTS
3.1 Compensation. In consideration of the duties and obligations of EMS and
-------------
the rights granted with respect to the Development Program hereunder, and
subject to any applicable withholdings, Applied Imaging shall pay to EMS
the amounts so forth on Exhibit 2 hereto.
3.2 Payments. Unless otherwise specified in Exhibit 2 hereto, each payment
---------
shall be due and payable thirty (30) days after Applied Imaging's
acceptance of the corresponding EMS Deliverables pursuant to Section 2.5
above.
ARTICLE 4. CONFIDENTIALITY
4.1 Confidential Information. "Confidential Information" shall mean any
-------------------------
information furnished to one party (the "Receiving Party") by the other
party hereto (the "Disclosing Party") pursuant to this Agreement which if
disclosed in tangible form is marked "Confidential" or with other similar
designation to indicate its confidential or proprietary nature or if
disclosed orally is indicated orally to be confidential or proprietary by
the Disclosing Party at the time of such disclosure and is reduced to
written summary within forty-five (45) days after initial disclosure,
which summary is marked "Confidential" or with similar designation to
indicate its confidential or proprietary nature. For purposes of this
Agreement, all reports, documents. data and other information generated by
EMS in connection with the Development Program (the "Development Program
Data") shall be deemed to be Confidential Information of Applied Imaging
whether or not marked "Confidential". Notwithstanding the foregoing,
Confidential Information shall not include information that:
4.1.1 was already in the Receiving Party's possession at the time of
disclosure thereof. as demonstrated by competent documentary
evidence:
4.1.2 was generally known and available in the public domain at the
time it was disclosed, or becomes generally known and available in
the public domain through no fault of the Receiving Party
(notwithstanding, breach of this Article 4 prior to Confidential
Information becoming generally known or available in the public
domain shall not be excused);
3
<PAGE>
4.1.3 is received from a third party having no obligation of
confidentiality to the Disclosing Party;
4.1.4 is approved for release by written authorization of the Disclosing
Party; or
4.1.5 is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided that
the Receiving Party shall provide reasonable advance notice thereof
to enable the Disclosing Party to seek protective order or
otherwise prevent such disclosure.
4.2 Nondisclosure/Nonuse. Except as otherwise expressly provided herein, the
---------------------
parties agree that, for the term of this Agreement and for five (5) years
thereafter, the Receiving Party shall hold in strict confidence and not
disclose to any third party Confidential Information of the Disclosing
Party and shall not use for any purpose other than provided herein any
Confidential Information of the Disclosing Party, without the express
written consent of the Disclosing Party. The parties further agree that
the Receiving Party shall not disclose any, Confidential Information of
the Disclosing Party to its officers, employees, or consultants except
those who require such access to accomplish the purpose of this Agreement,
and all such disclosures shall be subject to written contractual
obligations of confidentiality at least as restrictive as those in this
Agreement.
4.3 Protection. The Receiving Party shall secure and safeguard any and all
-----------
information, documents, work in process, work product, or other that
embodies Confidential Information of the Disclosing Party in locked files
or areas reasonably restricting access and preventing unauthorized use
and/or disclosure. Without limiting the foregoing, the Receiving Party
shall maintain reasonable procedures to prevent accidental or other loss
of any Confidential Information of the Disclosing Party, and shall used at
least the same procedures and degree of care which it uses to protect its
own proprietary information, but in no case less than reasonable care. In
the event of loss. disclosure or use of any Confidential Information in
violation of this Agreement, the Receiving Party shall immediately notify
the Disclosing Party.
4.4 Ownership. Any and all Confidential Information disclosed hereunder shall
----------
remain the property of the Disclosing Party. Disclosure of Confidential
Information shall not constitute any grant option or license to the
Receiving Party under any patent, trade secret or other rights now or
hereafter held by the Disclosing Party, and shall not create any
commitment by implication or otherwise, of the Disclosing Party to enter
into any, further agreement with the Receiving Party.
4.5 Return of Confidential Information. Upon termination, cancellation or
-----------------------------------
expiration of this Agreement for any reason, or upon written request of
the Disclosing Party, all documents and other tangible things reflecting
(Confidential Information of the Disclosing Party, together with all
copies, extracts, summaries and other material derived therefrom in what
ever form or medium shall be promptly returned to the Disclosing Party. If
the Disclosing Party requests, the Receiving Party shall provide written
confirmation that it has returned all such materials.
4
<PAGE>
ARTICLE 5. INVENTION RIGHTS
5.1 Ownership. EMS agrees that all right, title and interest in and to
----------
inventions, discoveries, devices, ideas, methods, processes, developments,
or other intellectual property (whether or not patentable) conceived,
reduced to practice or otherwise developed or made in whole or part by EMS
in connection with the Development Program shall be the sole property of
Applied Imaging (collectively, "Inventions"). Accordingly, EMS hereby
assigns to Applied Imaging the entire right, title and interest, both in
the United States and abroad, in the Inventions. EMS further agrees to
execute any and all papers and documents which are necessary or convenient
to perfect the foregoing assignment and fully implement Applied Imaging's
proprietary rights in the Inventions, such as obtaining patents, and to
fully cooperate in the prosecution, enforcement and defense of such
proprietary rights.
5.2 License to EMS. Notwithstanding the foregoing, to the extent that any
---------------
Invention is solely useful to improved methods of production, EMS shall
have a non-exclusive, royalty-free, paid-up, nontransferable license
(without the right to authorize or grant sublicenses) to use such
Invention solely for its own internal purposes. It is understood that EMS
shall not use such Invention to provide services or products to third
parties.
ARTICLE 6. VISITING PERSONNEL
6.1 Visiting Personnel. It is understood that in the course of this Agreement
-------------------
that there may be occasions where one party's personnel may visit or be
stationed at the facilities of the other ("Visiting Personnel"). Such
Visiting Personnel shall agree to be bound by all orders, rules and
regulations pertaining to the other party's facilities during entire time
at such facilities.
6.2 Responsibility. Each party shall be responsible for and assume all
---------------
risk of any injury or damage done or suffered by itsown Visiting Personnel
or to the other party's property while such Visiting Personnel is at the
facilities of the other, except for injury or damage caused solely by the
gross negligence of the other party.
ARTICLE 7. QUALITY ASSURANCE AND REGULATORY APPROVAL
7.1 Development. EMS acknowledges that the products developed under the
------------
Development Program may be subject to regulation by United States Food and
Drug Administration ("FDA"). Accordingly, EMS shall complete all
development under the Development Program in compliance with all
applicable laws and regulations, including GMP Final Rule, July 1995,
Subpart C Deign Control (S) 820.30 or current version thereof
7.2 Good Manufacturing Practices. EMS acknowledges that the Pilot Lots and
-----------------------------
Scale-Up Lots produced in connection with the Development Program may be
used in clinical trials. Accordingly, EMS shall manufacture the Pilot Lots
and Scale-Up Lots in accordance with Good Manufacturing Practices ("GMPs")
(as defined in 21 C.F.R. Part 820).
5
<PAGE>
7.3 GMP Audit. EMS agrees that Applied Imaging or a duly appointed
----------
representative of Applied Imaging shall, upon reasonable notice, have the
right to visit EMS's manufacturing facilities during normal business
hours, and to conduct an audit of EMS's manufacturing records, incoming
inspection records, quality assurance procedures, and the like for the
purposes of verifying that EMS is in compliance with the FDA GMPs. EMS
shall maintain a lot numbering system for all EMS Deliverables supplied to
Applied Imaging, which permits traceability and tracking of manufacturing
periods, internal quality control records, and raw materials.
7.4 FDA Audit Reports. EMS agrees to make available to Applied Imaging
------------------
all FDA audit reports from (i) the most recent past FDA audit and (ii) all
audits conducted during the term of this agreement.
ARTICLE 8 REPRESENTATIONS AND WARRANTIES
8.1 Applied Imaging Representations and Warranties. Applied Imaging
-----------------------------------------------
represents, warrants and covenants that it has the right to enter this
Agreement, is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of California, has the power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder, has taken all necessary corporate action to duly
and validly authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder.
8.2 EMS Representations and Warranties. EMS represents, warrants and
-----------------------------------
covenants that:
8.2.1 Authority. EMS has the right to enter this Agreement, is a
----------
corporation duly organized, validly existing and in good standing
under the laws of the state of New York. has the power and
authority, to execute and deliver this Agreement and to perform its
obligations hereunder, has taken all necessary corporate action to
duly and valid1y authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder, and has
not and will not during the term of this Agreement enter into any
agreement which conflicts with or which will result in any breach
of, or constitute a default under, any note, security agreement,
commitment, contract or other agreement, instrument or undertaking
to which the EMS is a party or by which any of its property is
bound;
8.2.2 GMP. During the term of this Agreement, EMS will maintain it
----
manufacturing facilities in compliance with the FDA GMPs.
8.2.3 Conflicts of Interest. EMS has informed and will inform during the
----------------------
term of this Agreement Applied Imaging in writing of any
relationship with third parties involved in fetal cell diagnosis,
including but not limited to competitors (such as Aprogenex, Vysis,
Oncor, IG Laboratories/Genzyme, Bioseparations, Immunicon) of
Applied Imaging, and during the term of this Agreement will not
enter into any agreement which would cause a conflict with or
jeopardize any of its obligations hereunder,
6
<PAGE>
8.2.4 Independent Work. Except for technology that is in the public
-----------------
domain, all Inventions, copyrightable material or otherwise
conceived, reduced to practice or made by EMS pursuant to this
Agreement will be independently created by EMS, and use of such
Inventions by Applied Imaging will not depend on or require the
acquisition of rights from any third party or any additional rights
from EMS. Notwithstanding the foregoing, authorized representatives
of Applied Imaging and EMS may agree in writing that EMS may
incorporate material or other which require the acquisition of
rights from a third party or additional rights from EMS.
ARTICLE 9 INDEMNIFICATION
9.1 Applied Imaging Indemnity. Applied Imaging shall defend, indemnify and
--------------------------
hold EMS harmless from any and all damages, liabilities, costs and
expenses (including but not limited to reasonable attorney's fees)
incurred by EMS or any of its directors, officers or employees as a result
of any breach or alleged breach of any of Applied Imaging's
representations and warranties in Section 8.1 above, except to the extent
it is caused by any negligent or willful act or omission of EMS.
9.2 EMS Indemnity. EMS shall defend, indemnify and hold Applied Imaging
--------------
harmless from any and all damages, liabilities, costs and expenses
(including but not limited to attorney's fees) incurred by Applied Imaging
or any of its directors, officers or employees as a result of any breach
or alleged breach of any of the EMS's representations and warranties in
Section 8.2 above, except to the extent it is caused by any negligent or
willful act or omission of Applied Imaging.
9.3 Indemnity Restrictions. Neither party shall have any obligations for any
-----------------------
claim under this Article 9 unless the party seeking indemnification: (a)
notifies the indemnifying party of such claim as soon as practicable but
in no event less than fifteen (15) calendar days after knowledge thereof,
(b) tenders control of the defense of such claim to the indemnifying
party; and (c) provides the indemnifying party with all reasonable
cooperation in such defense of such claim. Further, the indemnifying party
shall have no obligations for any claim under this Article if the other
party makes any admission, settlement or other communication regarding
such claim without the prior written consent of the indemnifying party,
which consent shall not be unreasonably withheld.
ARTICLE 10. TERM; TERMINATION
10.1 Term. This Agreement shall commence as of the Effective Date remain in
-----
full force and effect until EMS completes the Development Program, unless
earlier terminated in accordance with this Article 10
10.2 Termination for Cause. If either Party materially breaches this
----------------------
Agreement, the other Party
7
<PAGE>
may elect to give the breaching party written notice describing the
alleged breach. If the breaching Party has not cured such breach within
thirty (30) days (or such longer period in mutually agreed upon in
writing) after the receipt of such notice, the notifying Party will be
entitled, in addition to any other rights it may have under this
Agreement, to terminate this Agreement by written notice effective
immediately.
10.3 Termination for Insolvency. Either party may terminate this Agreement if
---------------------------
the other becomes the subject of voluntary or involuntary petition in
bankruptcy or any proceeding relating to insolvency, receivership,
liquidation. or composition or the benefit of creditors, if that petition
or proceeding is not dismissed with prejudice within sixty (60) days after
filing.
10.4 Termination for Convenience. Applied Imaging may terminate this Agreement
----------------------------
upon thirty (30) days prior written notice to EMS.
10.5 Effect of Termination.
----------------------
10.5.1 In the event Applied Imaging terminates for convenience
pursuant to Section 10.4 above, EMS shall complete all work to be
completed pursuant to any and all outstanding purchase orders
received from Applied Imaging hereunder.
10.5.2 Except as provided in Section 10.5.1 above, upon the earlier of
termination or receipt from Applied Imaging of notice of
termination, EMS shall immediately cease making expenditures,
notify its subcontractors, if applicable, to stop any work
attributable to the Development Program.
10.5.3 Within thirty (30) days of the later of (i) EMS's completion
of all work pursuant to Section 10.5.1 above or (ii) the effective
date of termination, EMS shall provide Applied Imaging a final
written report of all costs incurred and shall reimburse Applied
Imaging for any funds advanced in excess of total cost incurred.
10.5.4 Applied Imaging shall pay to EMS a sum equal to all unreimbursed,
documented expenses associated with work performed and
noncancellable obligations with third parties for future expenses
incurred by EMS pursuant to this Agreement. The sum, if any, due
EMS from Applied Imaging under this Section 10.5.4 shall not
exceed the amount payable for the then in-progress Block of the
Development Program (as set forth in Section 3.1 above) plus any
sums unpaid for EMS Deliverables previously accepted by Applied
Imaging pursuant to Section 2.5 above.
10.5.5 Termination of this Agreement for any reason shall not release
either Party from any obligation theretofore accrued.
10.6 Survival. The rights and obligations of the Parties set forth in Articles
---------
4.11 and Section 10.5 hereof, will survive expiration or any termination
of this Agreement.
8
<PAGE>
ARTICLE II. MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of California, without reference to principles of
conflicts of law.
11.2 Notices. All notices or reports permitted or required under this
--------
Agreement shall be in writing and shall be delivered in person, by
certified mail, overnight express delivery service (such as DHL), or other
equivalent means at the address of each party below, or such other address
as either party may substitute by written notice.
If to Applied Imaging: Applied Imaging Corp.
2380 Walsh Avenue, Building B
Santa Clara, CA 95051
Attn: Julia Miyaoka
If to EMS: E M Science
Research & Development
480 S. Democrat Road
Gibbstown, NJ 08027
Attn: M. Silver
11.3 Dispute Resolution. Applied Imaging and EMS agree that any dispute or
-------------------
controversy arising out of in relation to, or in connection with this
Agreement, or the validity, enforceability, construction, performance or
breach thereof, shall be finally settled by binding arbitration under the
then-current Commercial Arbitration Rules of the American Arbitration
Association by one (1) arbitrator appointed in accordance with such Rules.
The rules of discovery determined by the arbitrator shall apply thereto.
The parties agree that judgment upon the decision and/or award rendered by
the decision may be entered in any court of competent jurisdiction. The
parties agree that, any provision of applicable law notwithstanding, they
will not request, and the arbitrator shall have no authority to award,
punitive or exemplary damages against any party. The costs of the
arbitration, including administrative fees and fees of the arbitrator,
shall be shared equally by the parties. Each party shall bear the cost of
its own attorneys' fees and expert fees.
11.4 Independent Contractors. The relationship of Applied Imaging to EMS
------------------------
established by this Agreement is that of independent contractors. Neither
Applied Imaging nor EMS shall have any right, power or authority to
assume, create or incur any expense, liability or obligation. express or
implied, on behalf of the other or otherwise act as an agent for the other
Party for any purpose.
11.5 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY
------------------------
OR ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL
DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR
9
<PAGE>
PROFIT RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS
AGREEMENT, WHETHER SUCH CLAIM IS BASED ON WARRANTY, CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE,
OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.
11.6 Subcontracting; Consultants. EMS may not subcontract any portion of the
----------------------------
Development Program or disclose any of Applied Imaging's Confidential
Information to any third party without the prior written consent of
Applied Imaging. Each subcontractor or consultant shall enter into a
written confidentiality agreement reasonably acceptable to Applied Imaging
prior to EMS disclosing any of Applied Imaging's Confidential Information
to such person.
11.7 Assignment. The Parties agree that their rights and obligations under
-----------
this Agreement may not be delegated, transferred or assigned to a third
party without prior written consent of the other party hereto.
Notwithstanding the foregoing, Applied Imaging may transfer or assign its
rights and obligations under this Agreement to a successor to all or
substantially all of its business or assets pertaining to the subject
matter of this Agreement whether by sale, merger, operation of law or
otherwise. This Agreement shall be binding upon and accrue to the benefit
of the successors and permitted assigns of the parties hereto.
11.8 Confidential Terms. Except as expressly provided herein, each Party
-------------------
agrees not to disclose any financial terms of this Agreement to any third
party without the consent of the other Party, except as required by
securities or other applicable laws, to prospective investors and to such
party's accountants, attorneys and other professional advisors.
11.9 Severability. In the event that any provisions of this Agreement are
-------------
determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force
and effect without said provision.
11.10 Further Assurances. At any time after the Effective Date, both parties
-------------------
shall, at the request of the other party (i) deliver to the other party
such documents consistent with the provisions of this Agreement, and (ii)
execute, and deliver or cause to be delivered, all such assignments,
consents, documents or further instruments, and (iii) take or cause to be
taken all such other actions as the other party may reasonably deem
necessary or desirable in order for such party to obtain the full benefit
of this Agreement.
11.11 Modification; Waiver. This Agreement may not be altered, amended or
---------------------
modified in any way except by a writing signed by both parties. The
failure of a party to enforce any provision of this Agreement shall not be
construed to be a waiver of the right of such party to thereafter enforce
that provision or any other provision or right.
11.12 Headings. All section headings are included solely for convenience and
---------
shall not be considered in construing this Agreement.
10
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11.13 Entire Agreement. The parties hereto acknowledge that this Agreement and
-----------------
Exhibits attached hereto set forth the entire agreement and understanding
of the parties hereto as to the subject matter hereof, and supersedes all
prior discussions, agreements and writings in respect hereto.
11.14 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original and which together
shall constitute one instrument.
In witness whereof, EMS and Applied Imaging by their duly-authorized
officers execute this Agreement.
For Applied Imaging For EMS
By: [Signature unreadable] By: /s/ Kathleen E. Lamb
Name: [Name unreadable] Name: Kathleen E. Lamb
Title: CEO Title: Vice President - Finance
11
<PAGE>
EXHIBIT 1
RESEARCH PROGRAM
12
<PAGE>
APPLIED IMAGING
DEVELOPMENT PROPOSAL
--------------------
E M SCIENCE
RESEARCH & DEVELOPMENT
480 S. DEMOCRAT ROAD
GIBBSTOWN, NJ 08027
September 15, 1995
prepared by: Mark R. Silver
9/15/95
SUMMARY:
The attached proposal is intended to address. in some detail, an approach
to the commercialization of the Applied Imaging Fetal Cell in Maternal Blood
reagents. The documents contain proposals for Microbial inhibitor selection,
packaging, stability studies and production scale-up.
E M Science would prefer to address certain aspects of this product
separate and apart from the items addressed herein. That is, it is preferable
to treat the production of the Gradient Tube as more of a mechanical engineering
project from a production standpoint. Furthermore, no information is provided
for the adhesive since this is still in development at Applied Imaging.
Additionally, E M Science R&D would prefer to address the potassium bicarbonate
bead as a separate item since this seems "out of the ordinary" by comparison to
the remaining reagents. However, it should be noted that conceptually,
packaging of this product could be handled on an existing system at E M Science.
This proposal does not attempt to provide price per kit estimations as it
is E M's practice to approach pricing in, several phases as more, detailed
information is gained as the project progresses.
The schedules, timeline and associated calculations show that the manpower
requirements for the Feasibility Trials would approach [*]. The requirements for
full scale Stability and Microbial Challenge Studies would approach [*] and
Scale-up would approach [*] plus materials.
It should be noted that this proposal is not intended to be all inclusive
nor is it intended to be inflexible. Changes are encouraged as discussions
between the parties lead to an exchange of ideas.
Mark R. Silver
Senior Manager Research & Development
[*Confidential Treatment Requested]
<PAGE>
APPLIED IMAGING
DEVELOPMENT PROPOSAL
--------------------
E M SCIENCE
RESEARCH & DEVELOPMENT
480 S. DEMOCRAT ROAD
GIBBSTOWN, NJ 08027
September 15, 1995
QUALITY STATEMENT:
It is the policy of E M Science to provide our customers with the highest
quality products attainable. This policy extends from the Product Development
Process to Manufacturing and is supported by an organization which is dedicated
to Total Quality Management.
In this regard, the management of E M Science strives to provide a complete
service to our clients that is based on accuracy and dependability in an effort
to develop long-standing profitable business relationships. In keeping with
this policy, E M Science will attempt to provide Quotations only after thorough
research of the available facts. Whenever there appears to be insufficient
information pertaining to a particular product or process it is preferable to
address the missing information rather than make assumptions.
INTRODUCTION:
In development projects of the type described herein, it is preferred to
divide the effort into a series of sequential phases such that the
results/deliverables from one phase can be utilized as tools in the next step of
me process. Each phase is characterized by a specific set of goals,
deliverables, costs and schedules. Thus the phase approach provides for maximal
control over costs and time/manpower based schedules. For the Applied Imaging
Fetal Cell in Maternal Blood (FCMB) Project the ultimate goal is threefold; (1)
select appropriate non-interfering anti-microbial additives and conclusively
demonstrate the effectiveness of said additives over a projected shelf life of
18 months real time, (2) select primary packaging components (container and
closure systems) which will afford the liquid formulations a minimum of 18
months shelf life and (3) scale-up of formulation production and filling
processes to meet the projected market requirements for the product. For this
effort the following phases are recommended.
PHASE I FEASIBILITY TRIALS
PHASE II STABILITY EVALUATIONS
PHASE III SCALE-UP
PHASE IV TECHNOLOGY TRANSFER (MANUFACTURING)
<PAGE>
Development Proposal:
Ia. Block 1: Reagents (See attachment E)
I. PHASE I: R&D FEASIBILITY TRIALS.
This phase of the project is designed to accomplish thee primary tasks; evaluate
the performance of alternate sources for raw materials, complete the design of
the primary packaging (containers and closures) and begin the selection process
for appropriate microbial inhibitors. This initial phase of the project is
outlined in the "Project Overview Flowchart" (Attachment A). The following is a
summary of the activities and anticipated outcome associated with this Phase of
the project.
A. R&D Feasibility Pilot Lots:
- --------------------------------
1. Raw Materials:
--------------------
a)This step of the process is designed to compare the costs and performance
of raw materials from alternate sources. Documentation received from
Applied Imaging indicates that the primary vendor for all raw material
chemicals is Sigma excluding the Astrazon Blue dye (Miles). Based on the
anticipated quantities and batch sizes projected for Phase IV and market
release it is a worthwhile exercise to have E M Science (EMS) Purchasing
perform a cost analysis on all raw materials to locate the least
expensive source at an equivalent quality level. The only exceptions
being those cases where it is known from previous experience (i.e.
Applied Imaging data) that a material can not be substituted.
b)Raw material selection sign-off by Applied Imaging
c)Once raw materials have been sourced, EMS R&D will prepare small pilot
lots of approximately one (1) liter each following the Applied Imaging
formulation documentation.
d)These pilots will be packaged in. either the original type container as
is currently employed or a suitable substitute in cases where a dry
powder is changed to a liquid format. The pilots will then be shipped
(Express) under refrigeration to Applied Imaging for performance
evaluations in order to demonstrate a performance correlation.
2. Preservative Screening:
-----------------------------
a) Once a correlation has been established EMS R&D will initiate a second
round of small pilot lots (approximately 5 liters each) which will be
subdivided into smaller aliquots. The aliquots will be further
subdivided into sets and to each separate set of aliquots a different
candidate microbial inhibitor or combination of inhibitors will be added
in an increasing concentration series.
b) Each set of aliquots will be tested for effectiveness against cultures
of Pseudomonas fluorescens, a common environmental contaminant. This
matrix testing will allow for an estimation of the minimal effective
concentration requirements for each of the products with each of the
candidate inhibitors.
2
<PAGE>
c)Once in effective concentration range has been established, a third round
of R&D Pilot Lots will be prepared and filled into the selected primary
packaging systems (see below)
B. Primary Packaging:
- ------------------------
1. Primary Package Design:
-----------------------------
a)Concurrent with the R&D pilot lot evaluations described above EMS Package
Engineering will proceed with the initial design and specification
documentation for the primary packaging (container and closure systems)
for the N-Rich and Probe materials. This initial design process will be
focused towards a final kit configuration similar to the "design concept"
drawings contained in Attachment B.
b)As demonstrated in Attachment B EMS Package Engineering will select
several options from familiar vendors on the basis of performance
requirements and costs. These will be reviewed with Applied Imaging for
technical and marketing appropriateness and candidate systems selected.
c)Primary packaging selection sign-off by Applied Imaging.
2. Primary Package Evaluations
---------------------------------
a)In conjunction with the pilot lot preservative screening/concentration
variation studies materials containing the appropriately effective
inhibitor concentrations will be filled in the candidate primary
packaging and samples will be sent to Applied Imaging for performance
evaluations.
C. Phase I Review Conference:
- --------------------------------
At the completion of the activities described above it recommended that a
review conference should be scheduled in order to compare the results with the
project plan and expectations. At the time of the conference each party will
provide documentation and/or other deliverables for final discussion.
Additionally, the conference should review the project plan and agree to any
modifications prior to proceeding.
D. Deliverables For Phase I:
- ------------------------------
As with any project of this nature, the different participants have various
areas of expertise which are combined to execute the overall plan. During the
course of such an effort the participants are required to provide information
pertaining to a specific area which are designated as deliverables. For Phase
I the deliverables would be as follows:
3
<PAGE>
1. Deliverables from E M Science.
-----------------------------------
A performance report to include the following:
* All documentation pertaining to raw material part numbers and vendors.
* All documentation pertaining to the preparation of R&D Pilot Lots,
i.e. Batch Formulation Sheets (BFS), Standard Production Methods (SPM)
and Quality Control test methods and data.
* All documentation pertaining to Microbial Inhibitor screening
including protocols and data.
* All documentation packaging documentation and proposals.
Note: Documentation includes laboratory notebooks.
2. Deliverables from Applied Imaging.
---------------------------------------
* Technical assistance in the selection of raw material vendors and
Microbial inhibitor selection.
* Sign-offs: Raw material and primary packaging selection.
* All testing results from the raw material evaluations.
* All testing results from the Microbial inhibitor interference
evaluations.
E. Timing and Cost for Phase 1:
- ----------------------------------
It is anticipated that the completion of Phase I can be accomplished within
the first calendar month from initiation. Assuming a start date of October
first Phase I would be complete by the first week of November. The
calculated manpower requirements for the completion of this Phase is
approximately 34 manshifts at a cost of [*] (Attachment C).
Ib. Phase I, Block 2, Reagents (See Attachment E)
Proposal and estimated cost to be defined.
II. PHASE II: STABILITY EVALUATIONS
Phase II may not include real time stability and microbial challenge studies.
Revised cost estimate is in Attachment F in the event that Phase II does not
include real time stability and microbial studies.
It is anticipated that by the completion of Phase I all raw material sources
will have been selected, the appropriate Microbial Inhibitors will have been
identified for all formulations, and the primary packaging systems will have
been documented. Phase II of the project is designed to accomplish four primary
tasks; (1) initiate a more extensive Microbial Challenge program, (2) initiate
an accelerated and real time stability testing program, (3) finalize all
secondary packaging and all labeling specifications, primary and secondary and
(4) finalize all chemical raw material and final Quality Control procedures in
preparation for scale-up.
[*Confidential Treatment Requested]
<PAGE>
A. Microbial Challenge Program;
- ----------------------------------
1. R&D Pilot Lots & Primary Package Implementation;
---------------------------------------------------
a)The data obtained from the final performance evaluations in Phase I
should be sufficient to predict to what degree, if any, a particular
Microbial Inhibitor interferes with the "Chemistry" of the "Process".
Once this is satisfactorily determined EMS R&D will prepare and Quality
Control intermediate sized Pilot Lots (20 liters or greater) of each
solution containing the appropriate inhibitors.
b)Each Pilot Lot will be filled in the appropriate packaging system and
samples will be forwarded to Applied Imaging for evaluation. Sufficient
quantities of each product will be filled to meet the requirements of the
Microbial Challenge Protocol, Accelerated and Real Time Stability
programs described briefly below.
c)Pilot lots to be produced under GMP conditions.
2. Microbial Challenge Protocol - Summary:
------------------------------------------
a)Accelerated Microbial Challenge Study.
-----------------------------------------
In an attempt to project the probability of failure of any combination of
Microbial inhibitor with a chemical formulation certain manufacturers of
Inhibitors recommend an accelerated challenge study. The most common of
these types of studies involves storing the formulation in question at
elevated temperatures for a period of time followed by testing with a
challenge panel.
This type of testing can only provide information relative to potential
failures and can not be used to predict when such a failure might occur.
Given the accelerated schedule for production of the Applied Imaging
formulations it is strongly recommended that a testing program of this
type be included in the project plan in order to get advanced information
regarding potential problems as early as possible.
b)Real Time Microbial Challenge Program.
-----------------------------------------
1) E M Science has utilized various versions of Microbial Challenge
Protocols and Procedures which are tailored to the specific requirements
of a given project It is anticipated that both Applied Imaging and E M
Science will work together to reach a suitable protocol which satisfies
AI's needs. However, all protocols employed by EMS have the common
element of a multi-organism challenge panel. The typical challenge panel
employed by EMS includes, but is not limited to, Group I = Spore, i.e.
Bacillus subtilis, Candida albicans, Group II = Mold, i.e. Aspergillus
------------------------------------ -----------
niger, Group III = Vegetative, i.e. Escherichia coli, Pseudomonas
----- -----------------------------
aeruginosa, Staphylococcus aureus and Group IV = Environmental isolate
---------- ---------------------
i.e. Pseudomonas flourescens.
-----------------------
2) The various modifications of the standard EM Science Challenge
Protocol may differ by the number of organisms utilized in a particular
Group or by combination of Groups included in a single inoculum.
5
<PAGE>
3) Additionally test procedures vary by the number of inoculum
dilutions, test points and duration. For purposes of this proposal, cost
calculations will be based on four separate group inoculations plus
Sterile Normal Saline as negative control. Each inoculation (Groups I -
IV) will employ 5 serial dilutions. Furthermore, for calculation
purposes, the protocol will employ four test points. T = 0, T = 6 months,
T = 12 months, T = 18 months and T = 24 months.
4) At one month prior to each test point samples will be inoculated
(day 0) and plated at the test point (day 30) in order to simulate "open
vial stability".
5) Product formulations will be divided into four groups based on
similarity of components as well as by inhibitor employed. Attachment D
contains a matrix spreadsheet of formulation components which will be
utilized in the creation of the four test groups once the inhibitors have
been established. A tentative grouping for all testing is outlined in
Attachment E.
B. Shelf Life Stability Program:
- ----------------------------------
1. Accelerated Stability:
------------------------
a) In order to obtain information as early in the process as possible, EMS
R&D routinely performs "accelerated" stability testing on all products in
development. This type of testing is design to put maximum stress on the
formulations in an effort to gain insight regarding potential failures
under "real time" evaluation. This testing is not designed to predict when
a failure will occur in real time, only that there is a probability that a
failure may occur
b) Routinely, EMS R&D routinely employs a "reverse" stability protocol in
which reagents are placed at 25 and 37 degrees at 16, 8 and 4 days prior to
testing. Additionally, four days prior to testing reagents are placed at -
20 degrees and 50 degrees. All stressed reagents are then tested on day
"zero" using the established final Quality Control procedures.
2. "Real Time" Stability:
-------------------------
a) In order to validate the proposed shelf life of each product, EMS R&D
routinely performs real time shelf life studies to a point at least 6
months beyond the claim.
b) These studies require the final product Quality Control release
specifications be met at every test point (6 month intervals) throughout
the program when the product is stored under the prescribed storage
conditions.
c) An outline of the testing program is contained in the timeline in
Attachment C.
C. Phase II Review Conference,
At the completion of me Phase II it is recommended that a second Phase Review
conference should be scheduled a) finalize all activities relating to Microbial
Challenge studies and Stability Testing.
6
<PAGE>
D. Phase II Deliverables.
- ----------------------------
Since Phase II involves longer term investigative programs, completed
documentation for all Phase activities will not be available. However,
certain documentation will be available as part of this review.
1. Deliverables from E M Science.
------------------------------------
A performance report to include the following:
* All protocols and test documentation from the Accelerated Microcbial
Challenge study.
* All Protocols and testing documentation from the Accelerated Shelf
Life testing.
* The agreed upon protocol for conducting the real time Microbial
Challenge Program
* The agreed upon protocol for conducting the real time Stability
Testing Program
* All raw material testing protocols and data.
* All final Quality Control testing protocols and testing results.
* Secondary Packaging (Kit Package) Design Documentation.
NOTE: Documentation includes laboratory notebooks.
2. Deliverables from Applied Imaging.
----------------------------------
* Performance evaluation data from the Pilot lot materials to be
employed in the Microbial and Stability programs.
* Signed Label approval and artwork for Primary packaging
* Signed Label approval and artwork for Secondary packaging
* Draft artwork for package insert sheets to be included in final kits.
E. Timing and Costs of Phase II:
- ----------------------------------
It is anticipated that the completion of Phase II can be accomplished by
the end of Month three from initiation, excluding long term testing
programs. Assuming a starting date of October 1, 1995, Phase II could be
completed by the end of December.
To complete Phase II and the associated long term testing programs, the
calculated manpower requirements are 118 manshifts for the complete 24
month Microbial Challenge or [*] and 72 manshifts for the complete 24 month
Stability Program or [*].
7
[*Confidential Treatment Requested]
<PAGE>
III. PHASE III: SCALE-UP:
- --------------------------
Block I, Fuse solution and stop solution.
Once it is agreed between the parties that there is minimal or no risk to
proceed with scale-up, E M Science R&D will initiate the required activities for
preparation of a single one thousand unit pilot lot of each formulation.
A. Activities associated with these "Scale Up" pilots include, but are not
limited to;
1. Identification of the appropriate environmental room(s) for preparation
(compounding) and filling.
2. Identification of appropriate compounding equipment, i.e. tanks, stirring
devices etc.
3. Identification of appropriate automated filling, capping and labeling
equipment
4. Generation of all "Scale Up" Documentation.
5. Generation of all "Packaging Component Sheets" (PCS)
6. Finalize all fill tolerances, torque specifications and label placement
specification.
7. Production under GMP conditions.
B. Timing and Costs:
- --------------------
The schedules contained in the Timeline (Attachment X) provide a general idea of
timing required to produce these pilots. This schedule will be impacted by
equipment availability since the pilots will involve the use of Manufacturing
Scale equipment.
The costs contained in the Timeline associated with the production of these
pilots is an estimation only of the Labor required as applied by R&D, 43.5
manshifts or [*]. These costs do not include packaging materials, raw materials,
labels, etc. These costs can only be determined as the steps in Phases I and II
are completed and pricing for materials is refined.
Similarly, the "cost per kit" (transfer pricing) can only be appropriately
quoted as information is obtained in the early Phases of the project. It has
been the practice with other projects of this type to provide an initial kit
price at the completion of Phase I This pricing is further refined as the
project progresses. By monitoring final product pricing throughout the project
the parties can set their goals and attempt to adjust processes to meet that
goal.
IV. PHASE IV: TECHNOLOGY TRANSFER (MANUFACTURING)
- --------------------------------------------------
It is a matter of routine practice at E M Science to implement a Technology
Transfer Phase at the end of each Development Project. During this Phase,
R&D works in conjunction with Manufacturing and Regulatory Affairs in the
preparation of all "Validation" lots of product.
8
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<PAGE>
Attachment A Project Flow Chart
Attachment B Package Design Concepts
Attachment C Project Plan & Timeline
Attachment D Reagent Component Matrix
Attachment E Tentative Reagent Grouping
Attachment F Phase II Cost Estimate w/o Real Time Studies
Attachment G Development Schedule
<PAGE>
ATTACHMENT A
PROJECT FLOW CHART
<PAGE>
APPLIED IMAGING
PROJECT FLOW CHART
PHASE I
[Graphic Flowchart omitted]
<PAGE>
APPLIED IMAGING
PROJECT FLOW CHART
PHASE II
[Graphic Flowchart omitted]
<PAGE>
APPLIED IMAGING
PROJECT FLOW CHART
PHASE III
[Graphic Flowchart omitted]
<PAGE>
ATTACHMENT B
PACKAGE DESIGN CONCEPT
<PAGE>
APPLIED IMAGING
Refrig. Storage
Page 1 of 3
[Graphic Drawing Omitted]
<PAGE>
APPLIED IMAGING
Refrig. Storage
Page 2 of 3
[Graphic Drawing Omitted]
<PAGE>
APPLIED IMAGING
Refrig. Storage
Page 3 of 3
[Graphic Drawing Omitted]
<PAGE>
EM SCIENCE
PROPOSED PACKAGING
[Graphic Information Omitted]
<PAGE>
EM SCIENCE
PROPOSED PACKAGING
[Graphic Information Omitted]
<PAGE>
EM SCIENCE
PROPOSED PACKAGING
[Graphic Information Omitted]
<PAGE>
ATTACHMENT C
PROJECT PLAN & TIMELINE
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Tasks and Resources
Page 1
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Tasks and Resources
Page 2
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Responsibilities Chart
Page 1
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Responsibilities Chart
Page 2
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Responsibilities Chart
Page 3
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Responsibilities Chart
Page 4
[Graphic Information Omitted]
<PAGE>
APPLIED IMAGING PROJECT PLAN, DRAFT 1.0 9/15/95
Responsibilities Chart
Page 5
[Graphic Information Omitted]
<PAGE>
ATTACHMENT D
REAGENT COMPONENT MATRIX
<PAGE>
VERT
APPLIED IMAGING REAGENT SUMMARY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CHEMICAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
PERCOLL X X
STOCK HEPARIN X
STOCK CPZ SOLUTION X
LITHIUM CHLORIDE X X X
POTASSIUM CHLORIDE X X X
SODIUM CHLORIDE X X X X X X
POT PHOS MONO X X X
POT PHOS DI X X X
BSA fract V X X
AMMONIUM CHLORIDE X
EDTA 4Na X
DIETHYLENE GLYC X
STOCK ETHOXYZOLAMIDE X
STOCK ACETAZOLAMIDE X
ASTRAZON BLUE X
CITRIC ACID X X
SODIUM PHOS MONO X X X
SODIUM PHOS DI X X X X X
PBS STOCK X
NONIDET-40 X
NaOH X
SODIUM CITRATE X X
HCI X
SALT MIX CONC X
20% GELATIN X
SODIUM AZIDE X
TWEEN 20 X
</TABLE>
KEY TO COLUMNS:
1 ADDITION SOLUTION
2 ISOTONIC SALT MIX
3 6% BSA IN ISOTONIC*
4 0.5% BSA IN HYPERTONIC
5 LYSE SOLUTION
6 STOP SOLUTION
7 STAIN
8 KB BUFFER pH 3.2**
9 KB BUFFER pH 3.4**
10 SOD PHOS BUFF 10mM
11 PBS 10mM
12 PN BUFFER 5X
13 SSC 20 X CONC
14 GRADIENT TUBE
15 ST 5X CONCENTRATE
Page 1
<PAGE>
HORIZ
APPLIED IMAGING REAGENT SUMMARY
<TABLE>
<CAPTION>
ITEM CHEMICAL IN-HOUSE SIGMA
<S> <C> <C> <C>
ADDITION SOLUTION PERCOLL P1644
STOCK HEPARIN H3393
STOCK CPZ SOLUTION C18138
ISOTONIC SALT MIX LITHIUM CHLORIDE 14855P L8895
POTASSIUM CHLORIDE 21376P P3911
SODIUM CHLORIDE 24411P S9888
POT PHOS MONO 222551P S9638
POT PHOS DI 22526P S9763
6% BSA IN ISOTONIC* LITHIUM CHLORIDE 14855P L8895
POTASSIUM CHLORIDE 21376P P3911
SODIUM CHLORIDE 24411P S9888
POT PHOS MONO 22551P S9638
POT PHOS DI 22526P S9763
BSA fract V 44510P A3350
0.5% BSA IN HYPERTON same
LYSE SOLUTION AMMONIUM CHLORIDE 1800P A5666
EDTA 4Na 10078P ED4SS
DIETHYLENE GLYC D3381
STOCK ETHOXYZOLAMIDE E6254
STOCK ACETAZOLAMIDE A6011
STOP SOLUTION SODIUM CHLORIDE 24411P S9888
STAIN ASTRAZON BLUE MILES 9GL
SODIUM PHOS MONO 25751P P5655
KB BUFFER pH 3.2 ** CITRIC ACID 7201P C0759
SODIUM PHOS DI 25701P S9638
KB BUFFER pH 3.4 ** same
SOD PHOS BUFF 10mM SODIUM PHOS MONO 25751P S9638
SODIUM PHOS DI 25701P S6763
PBS 10mM PBS STOCK
PN BUFFER 5X NONIDET-40 RM1408 N0896
SODIUM PHOS MONO 25751P S9638
SODIUM PHOS DI 25701P S9763
NaOH
</TABLE>
Page 1
<PAGE>
HORIZ
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SSC 20X CONC SODIUM CHLORIDE 24411P S9888
SODIUM CITRATE 24751P S4641
SODIUM PHOS DI 25701P S9763
HCI
ST BUFFER 5X CONC. SODIUM CHLORIDE 24411P S9888
SODIUM CITRATE 24751P S4641
TWEEN 20 28749P P9416 or P1379
GRADIENT TUBE PERCOLL P1644
SALT MIX CONC
20% GELATIN G2625
SODIUM AZIDE 23926P S2002
</TABLE>
Page 2
<PAGE>
ATTACHMENT E
TENTATIVE REAGENT GROUPING
<PAGE>
BLOCK 1
Group 1: Isotonic Salt Mix
6% BSA in Isotonic Salt Mix
0.5% BSA in Hypertonic Salt Mix
Group 2: KB Buffer A pH 3.2
KB Buffer B pH 3.4
Sodium Phosphate Buffer, 10 mM
PBS, 10 mM
Group 3: Addition Solution
Stain
Group 4: PT Buffer 5X concentrate
SSC 2OX concentrate
ST 5X concentrate
BLOCK 2
Group 5: Gradient Tube *
Potassium Bicarbonate Bead *
Adhesive *
( * not included)
Lyse Solution
Stop Solution
<PAGE>
Development Proposal
---------------------
ADENDUM
E M Science
Research & Development
480 S. Democrat Road
Gibbstown, NJ 08027
EM SCIENCE
A Division of EM Industries, Inc.
480 S. Democrat Road
Gibbstown, New Jersey 08027
(609) 354-9200
Julia Miyaoka
Applied Imaging
2380 Walsh Ave. Bldg. B
Santa Clara, CA 95051
Mark R. Silver
EM Science
Research & Development
480 S. Democrat Rd.
Gibbstown. NJ 08027
October 9, 1995
Dear Julia,
In response to your telefax (dd. 10/05/95) I would like to address each of your
questions in as much detail as possible.
1. With regard to the Potassium Bicarbonate tablet, it is difficult to provide
you with a "quote for this work" without outlining some of the areas where there
may be potential difficulties.
The first area is the size and weight of the desired tablet. The best of
all cases would be to press a 4 mg tablet of pure Potassium Bicarbonate.
However, the compressibility of Potassium Bicarbonate is less than optimal
and would require extremely high compression forces (greater than 15
Newtons) to form a tablet that could be manipulated for packaging and by
the end user. Tablets of this hardness would be extremely difficult to
dissolve. Additionally, a 4 mg tablet would require tabletting dyes that
are 3/32" in diameter. Given the small size of these dyes, they are
extremely brittle and under the required compression forces they would very
likely break quite frequently. At approximately [*] (28 sets required) this
is not an advisable path forward. These small dyes are intended to be
utilized in pressing "soft" tablets, i.e. 2-4 Newtons.
The next best option would be to "bulk up" the potassium bicarbonate with a
material which would facilitate compression and press a larger tablet with
less force. E M Science routinely presses 8 mg tablets with a hardness of
2.5 Newtons using 1/8" dyes. It is not immediately apparent whether
ammonium chloride would be suitable for this purpose, especially in light
of
Attachment F Page 1 of 3
[*Confidential Treatment Requested]
<PAGE>
the fact that this material is hygroscopic. The issue is further
complicated by an additional requirement that in order to maintain the
integrity of the tablet during pressing a "lubricant" is usually required.
That is, during the pressing the dyes are mechanically rotated to release
the tabletted material from the dyes. With soft tablets this rotation has
a tendency to "pit" either the top or bottom surface (or both) of the
tablet. A lubricant compound, such as PEG, included in the formulation
reduces the surface friction between the tablet and the dye allowing the
tablet to be removed freely and intact. Again it is not known whether PEG
at a level of 0.5 to 1% would interfere with the "chemistry"
As is apparent from the above, there are too many unknowns to provide even
an estimated cost for tabletting. What can be provided is that the R&D
cost is [*] and that the best place to start would be attempting an 8 mg
tablet that is a 50/50 w/w mixture of potassium bicarbonate and ammonium
chloride. To examine this option the required manpower would be one person
four shifts [*]... we may get lucky! If this option is not successful,
other options will have to be examined, any one of which will require input
from Applied Imaging from a function standpoint. It is suggested that costs
be evaluated when the options are examined in detail.
2. With regard to your request for a cost figure for a third lot of product
beyond the "scale-up" lot, it is assumed that the lot size will be 1000 units
each, therefore I would recommend that the quotation provided for scale-up lot
be utilized as a guideline.
As has been discussed elsewhere, it is premature to attempt to put pricing
together which is all inclusive. The rationale for this is based on the
fact that packaging component costs are unknown filling costs are unknown,
labor standards are unknown and the associated overhead is unknown.
In order to clarify the latter, it might be beneficial to the understanding
of our reluctance to provide final product transfer price estimates at this
point, by stating that the Gibbstown production facility does not carry a
single averaged overhead figure which might be commonly utilized in a
facility where the production is focused for a single product type. That
is, the Gibbstown plant is a highly diversified facility capable of
producing a wide variety of product types. This diversity includes, clean
room production facilities, dry room production facilities, granulation
production facilities, lyophilization facilities, tabletting facilities,
several bulk liquid compounding facilities, multiple liquid filling clean
rooms for less than 1 liter volumes, multiple liquid filling clean rooms
greater than 1 liter volumes, dry powder filling rooms, ambient liquid
filling areas, dyes & stains production, flammable production and filling.
Each of these areas is designated as a cost center and carries its own
distinct overhead based on the requirements for that particular area.
Until such time as these unknowns become more defined, any price estimates
could be in error by several hundred percent.
3. With regard to the cost impact on stock culture preparation and CFU/ml
standard curves by delaying the real time studies; the CFU/mI standard curves
could be delayed but would need to be generated prior to real time testing. The
preparation of the stock cultures would still have to be performed in order to
complete the accelerated studies. Additionally, the analysis of the four groups
of reagents at the completion of the accelerated studies would be more
complicated, requiring an additional day per group. The net result would be as
follows:
Attachment F Page 2 of 3
[*Confidential Treatment Requested]
<PAGE>
<TABLE>
<CAPTION>
Revised Original
<S> <C> <C>
Preparation of stock cultures $ [*] $ [*]
Preparation of CFU/ml curves $ [*] $ [*]
Accelerated Evaluation $ [*] $ [*]
Accelerated studies (4 additional days) $ [*] $ [*]
------- -------
$ [*] $ [*]
</TABLE>
Regards,
Mark R. Silver
Attachment F Page 3 of 3
[*Confidential Treatment Requested]
<PAGE>
Development Schedule Summary
Completion Date
----------------
Phase 1, Block 1 5 weeks after start date
Phase 1, Block 2 To be determined
Phase 2, Block 1 3 months after start date (excluding real-time
stability and microbial challenge studies)
Phase 2, Block 2 To be determined
Phase 3, Block 1 & 2 To be determined
Attachment G, Page 1 of 1
<PAGE>
EXHIBIT 2
COMPENSATION SCHEDULE
PHASE I
* BLOCK 1--[*], such sum to be payable (i) [*] within thirty (30) days of the
Effective Date and (ii) [*] within thirty (30) days of Applied Imaging's
acceptance of the EMS Deliverables for Phase 1, Block 1.
* BLOCK 2--To be determined
PHASE II
* BLOCK 1--[*]
* BLOCK 2--To be determined
PHASE III
* BLOCK 1 (including lyse solution and stop solution)--[*]
* BLOCK 2 (excluding lyse solution and stop solution)--To be determined
REAL-TIME MICROBIAL CHALLENGE AND STABILITY
* BLOCK 1 (including lyse solution and stop solution)--[*]
* BLOCK 2 (excluding lyse solution and stop solution)--To be determined
13
[*Confidential Treatment Requested]
<PAGE>
EXHIBIT 11.1
CALCULATION OF PRO FORMA NET LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1995 1996
----------------------- ----------------------------
<S> <C> <C>
Net loss................. $(2,546,000) $ (660,000)
=========== ==========
Weighted average common
shares outstanding...... 1,033,020 1,078,688
Common stock
equivalents(1).......... 2,939,006 2,939,006
Common stock equivalents
accounted for under
staff accounting
bulletin no. 83:
Preferred stock........ 1,106,217 1,106,217
Employee stock options. 217,140 217,140
Common stock warrants.. 340,010 340,010
----------- ----------
Total weighted average
common shares
outstanding............. 5,635,393 5,681,061
=========== ==========
Pro forma net loss per
common share............ $ (0.45) $ (0.12)
=========== ==========
</TABLE>
- --------
(1) Includes convertible preferred stock and 110,416 preferred stock warrants
using the treasury -- stock method.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF APPLIED IMAGING CORP.
1. Applied Imaging International, Limited (United Kingdom).
2. Applied Imaging, Limited (Israel).
<PAGE>
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Board of Directors
Applied Imaging Corp.
The audits referred to in our report dated February 26, 1996, except as to
Note 13, which is as of June 19, 1996, included the related financial
statement schedule as of December 31, 1995, and for each of the years in the
three-year period ended December 31, 1995, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Information" and
"Experts" in the Prospectus.
KPMG Peat Marwick LLP
San Jose, California
June 24, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF COUNSEL
We consent to the use of our name in the second paragraph under the caption
"Experts" in the prospectus, which constitutes a part of the Registration
Statement for the Common Stock of Applied Imaging Corp. on form S-1. We further
consent to the aforementioned use of our name in any amendments to the
aforementioned Registration Statement.
By: /s/ Karen Dow
------------------------------
Karen Dow
Townsend and Townsend and Crew
Palo Alto, California
June 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 2,159,000 1,863,000
<SECURITIES> 2,997,000 2,029,000
<RECEIVABLES> 1,501,000 1,843,000
<ALLOWANCES> 166,000 160,000
<INVENTORY> 880,000 927,000
<CURRENT-ASSETS> 7,677,000 6,943,000
<PP&E> 1,319,000 1,237,000
<DEPRECIATION> 1,487,000 1,681,000
<TOTAL-ASSETS> 9,373,000 8,542,000
<CURRENT-LIABILITIES> 4,428,000 4,228,000
<BONDS> 231,000 223,000
0 0
14,041,000 14,041,000
<COMMON> 180,000 1,690,000
<OTHER-SE> (9,507,000) (11,640,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,373,000 8,542,000
<SALES> 8,106,000 2,261,000
<TOTAL-REVENUES> 10,798,000 2,957,000
<CGS> 4,171,000 1,170,000
<TOTAL-COSTS> 5,484,000 1,556,000
<OTHER-EXPENSES> 7,931,000 2,082,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,546,000) (660,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,546,000) (660,000)
<EPS-PRIMARY> (0.45) (0.12)
<EPS-DILUTED> (0.45) (0.12)
</TABLE>
