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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________
COMMISSION FILE NUMBER: 0-22146
APPLIED BIOMETRICS, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1508112
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
501 EAST HIGHWAY 13, SUITE 108
BURNSVILLE, MN 55337
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (612) 890-1123
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES _X_ NO ___
[X] Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
The issuer had total revenues of $64,940 for its fiscal year ended December 31,
1997.
As of March 18, 1998, assuming as market value the price of 7 3/4 per share (the
last sales price of the Company's Common Stock on the Nasdaq SmallCap Market),
the aggregate market value of shares held by non-affiliates was approximately $
32,600,000 .
As of March 18, 1998, the Company had outstanding 4,296,117 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Company's Proxy Statement
for its Annual Meeting of Shareholders to be conducted on June 12, 1998 (the
"1998 Proxy Statement") are incorporated by reference into Part III of this Form
10-KSB, to the extent described in Part III. The 1998 Proxy Statement will be
filed within 120 days after the end of the fiscal year ended December 31, 1997.
Transitional Small Business Disclosure Format (Check One) Yes _____ No __x__
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TABLE OF CONTENTS
PART I
PAGE NO.
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Item 1. Description of Business.................................... 3
Item 2. Description of Property.................................... 13
Item 3. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of
Security Holders........................................... 13
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters............................ 13
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations........... 14
Item 7. Financial Statements....................................... 16
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 16
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act.......................... 16
Item 10.Executive Compensation..................................... 16
Item 11.Security Ownership of Certain
Beneficial Owners and Management........................... 16
Item 12 Certain Relationships and Related Transactions............. 16
Item 13 Exhibits and Reports on
Form 8-K................................................... 16
SIGNATURES.............................................................. 17
FINANCIAL STATEMENTS.................................................... F-1
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STATEMENTS INCLUDED IN THIS FORM 10-KSB THAT ARE NOT HISTORICAL OR CURRENT FACTS
ARE "FORWARD-LOOKING STATEMENTS" MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY.
AMONG THESE RISKS AND UNCERTAINTIES ARE (i) THE COMPANY'S LIMITED REVENUES,
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS; (ii) THE UNCERTAINTY OF
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; (iii) THE FACT THAT THE COMPANY IS
INEXPERIENCED IN MANUFACTURING ITS PRODUCTS IN COMMERCIAL QUANTITIES, AND (iv)
THE FACT THAT THE COMPANY HAS NOT YET DEVELOPED ITS TRANSTRACHEAL DOPPLER
("TTD") PROBE AND THERE IS NO ASSURANCE THAT IT WILL BE FULLY DEVELOPED OR THAT
IT OR ITS OTHER PRODUCTS WILL BE COMMERCIALLY ACCEPTED IN THE FUTURE.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Applied Biometrics, Inc. develops, manufactures and intends to market its
cardiac output monitoring devices for use in hospital operating rooms and
intensive care units. These devices aid medical personnel in monitoring the
condition of patients during actual operations and throughout the patient's
recovery by providing immediate and continious information concerning cardiac
output and overall efficiency of the operation of the patient's entire
circulatory system, which carries oxygen and nutrients to cells of the body.
Abnormally low or high cardiac output is an early sign that trouble has or could
occur to a patient under anesthesia during or after surgery or to a patient in
the intensive care unit.
Medical practitioners recognize the importance of measuring cardiac output (the
amount of blood pumped throughout the body) in many clinical settings, which is
illustrated by the fact that approximately 1.9 million cardiac output
catheterizations are performed each year worldwide. The knowledge of cardiac
output is important in the care of patients who are experiencing major, sudden
changes in the cardiovascular system, compromise of one or more major organ
systems, in the identification of patients who are at high risk for surgery and
in the management of patient fluid and drug levels during surgery. Because a
patient's condition and progress can change rapidly and unpredictably in the
critical care environment, there is a need for an early warning signal that can
alert the physician to a potentially dangerous situation and/or that measures
patient response to subsequent intervention. The products developed and
manufactured by the Company are designed to meet these complex needs of the
critical care environment which dictates not only that information be of high
quality and reliably delivered, but also be instantaneously received at
relatively low cost with minimum difficulty of access and interpretation.
On November 2, 1997, the Company acquired certain assets and intellectual
property rights relating to Transcatheter Closure Device products ("TCDs").
Transcatheter Closure Devices are a new generation of small, implantable
devices, which are delivered through a catheter and designed to permanently
repair certain cardiac defects in children and adults. The implantation of TCDs
often eliminates the need for open heart surgery which has traditionally been
required. The purchase provides the Company with the ability to pursue a new
cardiac product line, which complements its existing technology, products and
cardiovascular customer base.
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COMPANY PRODUCTS
The Company has two product families. (i.) The Cardiac Output Monitoring System
consisting of the ABCOM 2000 monitor, and Extravascular Doppler Probe and the to
be developed, Transtracheal Doppler and (ii) the Transcatheter Closure Device
product line.
CARDIAC OUTPUT MONITORING SYSTEM
ABCOM 2000 CARDIAC OUTPUT MONITOR
Cardiac output, as determined by both the Company's EVD probe and TTD device, is
displayed on the Company's ABCOM 2000 Monitor. The ABCOM 2000 Monitor utilizes
proprietary software developed by the Company to indicate cardiac output and
show, in wave form, the velocity of blood and blood flow direction. It can also
index cardiac output by dividing cardiac output by body surface area, has a menu
instruction or prompt sequence to lead the physician through proper operation
and it displays instructions concerning entry of data for the monitor. During
the post-operative period, the monitor provides attending physicians and other
medical personnel continuous, real-time monitoring of cardiac output. The
monitor also provides trending information and feedback for the purpose of
setting heart pacemakers and assessing the effect of drug therapies on cardiac
output.
The Company is completing the development of the next generation of the ABCOM
2000 Cardiac Output Monitor. This new monitor will be used on adult patients as
well as pediatric patients and is expected also to increase the functionality of
the TTD device.
THE EXTRAVASCULAR DOPPLER PROBE
The EVD probe, which is placed into the body during open-chest operations to
monitor cardiac output during surgery and the post-operative recovery period, is
a single-use disposable product that is attached by the surgeon directly to the
ascending aorta. Two transducers mounted on the distal end of the EVD probe
transmit an ultrasound signal through the blood vessel. The cardiac output is
then computed by measuring the diameter of the blood vessel and the velocity of
the blood. This provides accurate blood flow measurement during open-chest
surgery and the post-operative period of intensive care. Because the EVD probe
is sutured to the blood vessel, it is stationary and will not move or misdirect
the ultrasound signal during use, which prevents distortion of the EVD's
accuracy.
Following placement of the EVD probe, the surgical wound is closed with the EVD
probe exiting through the abdomen. Cardiac output may be continuously measured
for several days during the patient's stay in the intensive care unit. When
monitoring is complete, the EVD probe is non-surgically removed using a patented
integrated release mechanism.
The Company has experienced several problems in the development of the EVD
Cardiac Output Monitoring System (EVD) that have resulted in delays in the
marketing and sale of this product. These problems with the EVD have generally
involved engineering, development and manufacturing issues. The Company believes
that it
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has addressed all the problems associated with the development of the EVD.
However, there can be no assurances that all problems have been corrected or
that further problems will not develop as the Company commences the marketing of
the EVD Cardiac Output Monitoring System.
Future applications of the EVD probe may involve placement of the ultrasound
probe on other vessels during surgical procedures such as vascular grafts and
organ transplants. Although these and other similar applications have been
considered, the method and extent of use of the EVD probe for such secondary
purposes, or the materiality of revenues from such uses, have not been
determined. The Company has focused its efforts on improving and refining the
EVD probe so that it can meet the quality, reliability and cost-effective
demands of the critical care environment. See "Research and Development".
THE TRANSTRACHEAL DOPPLER
The Company believes that its TTD system will represent a breakthrough in
cardiac output monitoring technology. The first TTD device, however, was
difficult to use so the Company discontinued active marketing of the first TTD
device in 1991. The Company plans to begin a research and development project
intended to bring the TTD device back to market, but no assurance can be given
that that project will result in the re-introduction of the TTD device or that
the TTD device will be successful if it is re-introduced. If the Company is able
to successfully redevelop the TTD device, it is expected to become a significant
contributor to Company sales and earnings because of the widespread interest,
need and desire for such a non-invasive means of monitoring cardiac output in
the critical care environment.
The TTD device is a single-use disposable endotracheal tube used during normal
surgery with integrated transducers, which, when inserted into the trachea,
transmit an ultrasound signal through the ascending aorta to determine cardiac
output. The TTD device provide a minimally invasive means of measuring cardiac
output and is a clear and significant improvement over other methods such as
thermodilution in which cold saline injections into the heart are typically
performed every one or two hours. The TTD device can be produced in a variety of
sizes for use on a wide range of patients from small children to large adults.
Among the expected benefits that the TTD procedure will provide over other
commonly used methods of measurement of cardiac output are the following: (i) no
invasion of the vascular system or the heart (eliminates potential
complications); (ii) no surgical procedure is required; (iii) no indwelling
foreign body in the vascular system, major body cavity or major organ is
necessary; and (iv) no saline, dye or radioactive substance is necessary for
measurement.
USE OF ULTRASOUND TECHNOLOGY
A unique feature of both the EVD probe and the TTD device is that they use two
modes of ultrasound technology to continuously monitor cardiac output. In one
mode of operation, the diameter of the blood vessel can be measured. The
ultrasound pulse is transmitted from a transducer and the ABCOM 2000 monitor
measures the time between the sending of the pulse and its reflection from the
near and far wall of the vessel.
In the second mode, Doppler ultrasound is used to measure the velocity of blood.
This method of operation is similar to the technology underlying speed radar
used by police. In this mode, the velocity of an object is determined by
measuring "Doppler shift." Doppler shift is the amount by which the frequency of
a sound wave is changed by the velocity of the object from which it is
reflected. A common example of Doppler shift is the
<PAGE>
change in the sound of the whistle of a passing train (i.e., the sound frequency
is higher when the train is approaching and lower when the train is departing).
Thus, the ultrasound technology employed by the Company's products is used to
monitor the cardiac output by measuring both the diameter of a blood vessel and
the velocity of the blood moving throughout it.
TRANSCATHETER CLOSURE DEVICE PRODUCT LINE
Transcatheter closure devices are a new generation of small, implantable devices
which are delivered through a catheter to permanently repair certain cardiac
defects in children and adults. The procedure is performed in a cardiac cathlab
and often eliminates the need for open heart surgery, which was formerly
required to repair these defects. The Company is in the initial stages of
developing TCDs. The Company hopes to develop a product family that will be
capable of providing an effective, nonsurgical method of correcting a variety of
heart defects which may include patent ductus arteriosis (PDA), arterial septal
defect (ASD), ventricular septal defect (VSD) and patent foramen ovale (PFO).
One product variant has already been sold in Germany for PDA closures. That
product has been implanted successfully in over 100 human cases without
incidents known to the Company. The Company expects to complete product
development of its PDA device in the near future and intends to begin marketing
and distributing the product in Europe and in the United States after approval
to market the product is obtained from the Food and Drug Administration. The
Company anticipates beginning to develop and test product variants for ASD, VSD
and/or PFO sometime in 1998.
MARKET
Generally, potential markets for the Company's products exist in all large and
critical care hospitals. The products have application in the operating room,
post-anesthesia recovery room and in intensive/critical care units.
The anticipated market for the EVD probe is significant primarily due to the
700,000 open chest procedures performed worldwide annually. This figure
represents coronary artery bypass grafting (CABG), heart valve replacement,
repairs of congenital heart defects as well as other procedures including heart
transplants. The Company believes the primary long-term market for its EVD probe
will be in placement of the probe on the ascending aorta for measurement of
blood flow during open-chest surgery and the post-operative recovery period.
The Company believes many other applications that could open up new potential
markets exist for the EVD probe where blood flow measurements are deemed
necessary but are otherwise unavailable or cost prohibitive. Among the other
potential applications are carotid endarterectomies, liver transplants, kidney
transplants, femoral bypass, as well as many other vascular procedures. It is
impossible to predict whether and to what extent such markets will develop.
The Company believes that the TTD device will have a larger potential market
than the EVD probe because it could be used in almost every procedure where an
endotracheal tube is inserted. Intubation, as such insertion is called, is
routinely used in critical care situations, surgeries, post-operative recovery
and intensive care. The anticipated potential market for the TTD device is the
16 million U.S. and 30 million worldwide procedures that
<PAGE>
include a potential endotracheal tube. The percentage of this potential market
that can be captured by the Company is unknown. If the Company can successfully
develop the TTD device, it believes that the less invasive nature of the TTD
device may result in an increase in the number of procedures during which
cardiac output is monitored.
The TCD line of devices has a broad range of applications for the closure of
congenital and acquired anomalous communications. The PDA closure device has the
potential to replace open heart surgery as the "gold standard" for closure in
nearly 14,000 annual US and Europe cases. Patent foramen ovale (PFO) resulting
in suspected stoke patients represents an even larger market for the prevention
of recurring embolic events (approximately 60,000 cases annually in the US and
Europe). Ventricular septal defect (VSD) closure via transvascular
catheterization has significant potential in muscular VSDs in both congenial and
acquired form. VSDs comprise the largest subset of congenital anomalies
(approximately 24,000 cases annually in the US and Europe) and are also
represented in a significant population of patients following heart attack and
ventricular septal infarct (approximately 5,000 annually in the US and Europe).
SALES AND MARKETING
The Company has a Vice President of Sales and Marketing who is responsible for
developing independent sales representatives and direct Company salespersons.
The Company presently has two independent sales representatives and two direct
sales persons that assist in seeking sales in the U.S. market. They are located
in major metropolitan areas, including New York City, Dallas, and Chicago. The
Company intends to engage direct sales persons and additional independent
representatives for the remaining market for its products in the United States.
In addition, the Company presently has relationships with sales distribution
organizations in Europe.
The Company believes that the Transcatheter Closure device (TCDs) and TTD device
can be effectively sold through the distribution network that it intends to
further develop to sell the EVD probe. The TTD device is expected to be
reintroduced to the marketplace after it has been redeveloped.
Several professional papers have been written and presented on the subject of
the efficacy of continuous cardiac output monitoring using a Doppler ultrasound
probe. Those papers have generally indicated ultrasound technology is an
efficacious and promising method for monitoring continuous cardiac output. The
Company believes that such papers are beneficial and it intends to continue to
encourage the publication of such papers on the Company's products by
individuals believed to be influential in their areas of specialty.
INDUSTRY ECONOMICS
Government imposed payment rates for related treatment groups and prospective
reimbursement programs provide economic incentives for health care institutions
to reduce operating costs, a major departure from the former cost-plus system.
In essence, the health care industry is now faced with a fixed reimbursement for
the treatment of a specific illness or procedure performed, which encourages
health care institutions to be more efficient and productive. Therefore, the
more cases that can be treated below the designated rate with less costly
procedures and shorter hospital stays, the higher the level of profitability
that can be attained.
<PAGE>
As a result of these reimbursement programs, some hospitals and other health
care institutions tend to avoid expensive technology in ancillary services and
have adopted a slower, more cost conscious approach to the utilization of new
techniques and equipment. While the present health case economic environment may
make it more difficult to introduce new products such as those that the Company
intends to market, it should increase the level of acceptance of new products
that are relatively inexpensive and increase efficiency and productivity. The
Company believes, but cannot assure, that clinical studies will prove that both
the EVD probe and the TTD device will provide cost advantages over the most
frequently used method of determining cardiac output, the thermodilution method.
Those cost advantages should result from the decreased cost of actually
performing the monitoring procedure, as well as the possible benefit of
decreased patient complications and shorter time required to recover as a result
of continuous cardiac output monitoring using a less invasive device. While the
Company is not aware of any significant reluctance on the part of the government
or other health care insurers to provide reimbursement for the procedures
performed with its products, future regulation and uncertainty among health care
institutions about the direction of reimbursement rates could adversely effect
the marketing efforts of the Company. See "Competition."
The federal and state governments are presently considering comprehensive
reforms of the system of delivering medical services in the United States and
the costs involved. The Company cannot predict what the effect will be of any
particular policy which is proposed or adopted. Nonetheless, management believes
that, since its products are more cost effective in monitoring cardiac output
than competitive technologies, it may be able to benefit from a policy which
encourages lower costs.
COMPETITION
There are several companies and institutions that are larger and have more
resources than those of the Company which have developed and are developing
technologies to measure cardiac output that compete with the Company's products.
These include most prominently Edwards Critical-Care, a division of Baxter
Healthcare Corporation, the chief manufacturer of thermodilution devices;
Spectramed Inc., a division of British Oxygen Company; and Abbott Critical Care.
All of these companies make and sell catheters, thermodilution cardiac monitors
and peripheral products used to measure cardiac output by the thermodilution
method, the method used in the vast majority of cases to measure cardiac output.
Each of them has more financial resources and is better able than the Company to
distribute its products.
The Company knows of no products in the cardiac output measurement area that
have been commercially offered to the medical community that are similar to the
Company's products in their underlying technology and application. The Company's
TTD device and EVD probe are proprietary and the subject of patents. For this
reason, and the fact that development of such products is costly and
time-consuming, the Company believes that it will have few direct competitors in
the near future.
The lack of invasion of the vascular system by the EVD probe and its ability to
provide continuous cardiac output measurements on a real-time basis provide
additional potential cost benefits. Patients may require less time in the
hospital and/or the intensive care unit if their condition is not adversely
affected by the introduction of a catheter to their vascular system and if
physicians are able to use the continuous cardiac output information to make
more timely diagnoses and apply more effective therapies. Those potential cost
advantages could lead to higher profits for health care providers whose
reimbursement is limited by government or private reimbursement
<PAGE>
rates. However, no assurance can be given that the perceived cost advantages of
the EVD probe over the thermodilution method, or any other method, will be
realized. See "Industry Economics."
The competitors of the Company in the cardiac closure field are believed to be
medium sized companies, the most prominent of which are Nitinol Medical
Technologies, Inc. located in Boston, Massachusetts and AGA and Microvena, Corp.
both located in Minneapolis, Minnesota. The Company believes all these companies
are in clinical trials with TCDs that are designed for applications other than
the PDA closure devices that the Company intends to initially develop and
market. The competitors of the Company in the cardiac closure field may have
greater resources and be able to penetrate the TCD market sooner than the
Company.
There can be no assurance that the Company's present products will be able to
complete successfully with existing or future competitive products or that the
Company will be able to develop or acquire additional products or otherwise
effectively respond to new products or technological advances developed by
competitors.
RESEARCH AND DEVELOPMENT
The Company's research and development expenditures were $1,409,280 and $894,517
in 1997 and 1996, respectively. These funds were used primarily to develop the
EVD probe. The Company expects its research and development expenditures to
remain at similar levels in 1998. Although the Company believes the development
of the EVD probe is substantially complete, the Company believes that further
refinements will be made to the probe as the Company receives feedback from the
users of this product.
A significant part of the Company's current and planned research and development
expenditures relate to the refinement of the EVD probe and development of the
TTD device. The Company is also currently upgrading the electronics and software
used in the ABCOM 2000 Monitor. Those upgrades are intended to initially benefit
the EVD probe, but they are also expected to increase the functionality of the
TTD device.
The Company's immediate goal for the EVD probe is to continue to refine this
device until it is viewed by the industry as a consistently accurate and
reliable device for monitoring cardiac output. After this goal is achieved, the
Company will begin to identify other applications and potential modifications
for the EVD probe that address the needs of the critical care environment. To
bring these other applications to market, if it can be done, additional research
and development will be necessary.
The Company anticipates that the redevelopment of the TTD device will require
approximately 12 months of actual development time, during which time
approximately $l,000,000 is expected to be spent on the project. There can be no
assurance that the Company can successfully redevelop the TTD device. The TTD
device has already been cleared by the FDA for commercial sale. See --
"Government Regulation."
The Company's ongoing plans for research and development for the TCD devices
includes further improvements of the acquired technology and investigation into
modified devices for new applications. The Company is currently developing
prototypes for several novel devices for closure of congenital defects which
include VSDs, PFOs and ASDs. Prototyped devices which appear to be the most
promising will then be assessed for clinical continuation via invitro and invivo
animal pilot trials before official development responsibilities are assigned.
The Company expects to spend approximately $300,000 to $500,000 on the further
development of the TCD devices in the next twelve to eighteen months.
<PAGE>
Immediate development plans call for a first generation PFO and VSD device to be
tried in animal studies during 1998.
GOVERNMENT REGULATION
All new medical devices, including the Company's products, are subject to a
premarket notification process pursuant to Section 510(k) of the Federal Food,
Drug and Cosmetic Act. The 510(k) notification filing must contain information
that establishes that the new product is substantially equivalent to an existing
device that has been continuously marketed since May 28, 1976. The United States
Food and Drug Administration ("FDA") must either deny the 510(k) submission,
request further information or approve the submission. Products that are not
eligible to receive approval through the FDA's premarket notification process
are subject to the FDA's much lengthier and more complex premarket approval
procedures.
FDA regulations classify medical devices into three classes that determine the
degree of regulatory control to which the manufacturer of the device is subject.
In general, Class I devices involve compliance with labeling and record-keeping
requirements and are subject to other general controls. Class II devices are
subject to performance standards in addition to general controls. Class III
devices are those devices for which premarket approval (as distinct from
premarket notification) is required to assure the devices' safety and
effectiveness prior to commercial distribution. All companies subject to FDA
regulation must comply with a variety of rules, including the FDA's Good
Manufacturing Practice regulations, and are subject to periodic inspections by
the FDA and other applicable agencies. If the FDA believes that its regulations
have not been fulfilled, it may implement extensive enforcement powers which
were strengthened by the enactment of the Safe Medical Devices Act of 1990. The
FDA's powers include, but are not limited to, the ability to ban products from
the market, prohibit the operation of manufacturing facilities and effect
recalls of products from customer locations.
The Company has received 510(k) clearance to market the EVD probe and the TTD
device. The Company does not presently believe it will be required to submit new
510(k) notifications covering the redesigned TTD device.
For the TCD devices, the Company intends to obtain Class III market clearance
through the FDA's IDE/PMA process. It intends to file the first IDE application
(PDA) for US clinical trials during 1998. PFO trials should begin sometime in
the first half of 1999. In the meantime, it has begun selling PDA devices in
Europe.
In addition to requiring clearance for new products, the FDA's rules may require
a filing and waiting period prior to marketing modifications of existing
products. After clearance is given, the Company is required to advise the FDA
and other regulatory agencies of significant modifications to its products, and
those agencies have the power to withdraw the clearance and require the Company
to change the device or its manufacturing process or labeling, to supply
additional proof of its safety and effectiveness or recall, repair, replace or
refund the cost of the medical device if it is shown to be hazardous or
defective or otherwise misbranded or adulterated.
No assurance can be given that the FDA or other regulatory authorities will
give, on a timely basis, if at all, the requisite approvals for medical products
developed by the Company in the future. Even if approvals are received, the
process of obtaining clearance to market medical products is costly and time
consuming and can delay the marketing and sale of the Company's products.
Further, federal, state, foreign and other regulations
<PAGE>
regarding the manufacture and sale of medical devices are subject to change. The
Company cannot predict what impact such changes, if any, might have on its
business.
MANUFACTURING AND OPERATIONS
The Company's EVD Probe consists of two ultrasound transducers which are
positioned at the end of an electrical connector that is attached to the
Company's ABCOM 2000 Monitor. The TTD device consists of an ultrasound
transducer which is inserted into the trachea through a single-use disposable
endotracheal tube. The Company manufactures and assembles the EVD Probe, TTD
device, ABCOM 2000 Monitor and the TCD device at its facilities in Burnsville,
Minnesota. Certain of the components of the Company's products are manufactured
by a third party vendor or are assembled from off-the-shelf components.
The Company intends to seek ISO 9001 certification, which certification shows
compliance of the Company's manufacturing facilities with European standards for
quality assurance and manufacturing process control. The Company also intends to
establish compliance with the applicable requirements that will allow it to
affix the CE Mark to its product.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company has received five U.S. patents, two Canadian patents and one
European patent which relate primarily to devices and methods used to measure
blood flow through a major mammalian artery using ultrasound technology. A
patent application has been allowed in Japan and a patent has been granted in
six European countries through the European Patent Convention (the "EPC")
relating to certain of the U.S. patents issued on the TTD device. Another TTD
device patent application is currently pending in Japan and Europe.
The Company has also received a U.S. patent relating primarily to the release
mechanism employed by the EVD probe. An international patent application related
to the issued EVD probe patent is currently pending in various countries. There
can be no assurance that patents will issue on products developed by the Company
in the future, that the patents issued to the Company in the past or in the
future will be of material benefit, or that the Company will have sufficient
resources to enforce its patent rights. Nor can there be any assurance that the
Company's products do not infringe on patents, copyrights or other proprietary
information known or claimed by others, or that others will not successfully
utilize part of or all of the Company's technologies without compensation to the
Company. If the Company is found to have infringed on the rights of a third
party, the Company may be unable to market its products without a license from
such third party. There is no assurance that the Company would be able to obtain
such a license on satisfactory terms, or at all.
Additionally, there are several other patents relating to the Company's
transcatheter closure devices. European as well as US patents exist for its PDA
device. A German patent has been issued for the Company's PFO device. It is the
intention of the Company to file for European as well as US patents for its PFO
as well as its other closure devices.
The Company also relies for protection of trade secrets and proprietary know-how
on its internal security and secrecy measures and on the employment agreements
requiring employees and agents of the Company to observe the confidentiality of
Company information and to assign to the Company inventions developed in the
course of work for the Company.
<PAGE>
EMPLOYEES
The Company currently has twenty-two full-time employees, of whom ten are
engaged in research and development, four in sales and marketing, four in
general administration and four in manufacturing. The employees are not
represented by any unions and the Company believes that relations with its
employees are satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's executive
officers together with all positions and offices held with the Company by such
executive officers. Officers are appointed to serve until the meeting of the
Board of Directors following the next Annual Meeting of Shareholders and until
their successors have been elected and have qualified.
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Joseph A. Marino 46 Chairman of the Board of Directors,
Chief Executive Officer, and President
Peter Buonomo 37 Vice President of Sales and Marketing
Gerald J. Prescott 57 Vice President and Chief Financial Officer
Joseph A. Marino has served as Chairman of the Board of Directors of the Company
since April 1993 and as Chief Executive Officer and President of the Company
since January 1994. Mr. Marino served as President and Chief Executive Officer
of Biomedical Dynamics Corporation, a manufacturer of disposable medical
products, from 1980 to December 1994. From 1977 to 1983, he was Director of the
Patient Monitoring Department at the University of Minnesota Hospitals, a
clinical department that provided invasive pressure monitoring and critical care
support services. He has been a director of the Company since July 1992.
Peter Buonomo has served as the Company's Vice President of Sales and Marketing
since July 1996, Vice President of Marketing since December 1995, and Director
of Marketing from May 1994 to December 1995. For the past ten years Mr. Buonomo
has held various positions in the medical field as a National Sales Trainer,
Regional Sales Manager, Product Manager, and Director of Marketing. He has been
employed by American Management Association and Vital Signs/Biomedical Dynamics.
Gerald J. Prescott has served as Vice President and Chief Financial Officer of
the Company since March 1996 and as a consultant to the Company from December
1994 to March 1996. Prior to joining the Company, Mr. Prescott served as Vice
President, Chief Financial Officer of Biomedical Dynamics Corporation, a
manufacturer of disposable medical products, from May 1986 to December 1994. Mr.
Prescott is a CPA and has a master's degree in accounting from the Wharton
School at the University of Pennsylvania.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices and manufacturing facilities are located at 501
East Highway 13, Suite 108, Burnsville, Minnesota 55337, a suburb of
Minneapolis. The Company leases approximately 11,900 square feet of office,
manufacturing and warehouse space at such address for $4,793 per month plus
common area maintenance and real estate taxes. The lease extends through March
31, 1999. The Company believes that its present facilities will be adequate to
serve its needs for the next several years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over-the-counter market and
quoted on the Nasdaq SmallCap Market under the Symbol "ABIO." The following
table sets forth the high and low bid prices of the Company's Common Stock for
the periods indicated. The bid quotations represent interdealer prices, without
retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.
1997 1996
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First Quarter 15 8 1/2 13 7 1/2
Second Quarter 9 1/2 5 23 1/4 11 1/4
Third Quarter 8 1/2 5 1/2 17 1/2 9 3/4
Fourth Quarter 9 5 3/4 15 1/8 11 1/2
On March 18, 1998, the last sales price of the Common Stock was $ 7 3/4 per
share. At March 18, 1998, there were approximately 98 record holders and an
additional 1,200 beneficial holders of the Company's Common Stock.
The Company has never paid or declared any cash dividends on its Common Stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of
dividends, if any, on
<PAGE>
its Common Stock in the future is subject to the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS.
1997 compared to 1996
NET SALES. For the year ended December 31, 1997, the Company had net sales of
$64,940 compared to $125,120 in the year ended December 31, 1996. The decrease
in net sales in 1997 is the result of the Company making a strategic decision in
the third quarter of 1997 not to continue to market its present cardiac output
monitoring system until the completion of the development of the next generation
system. The new system is presently undergoing lab and clinical testing and is
expected to be available to the market upon successful completion of the testing
sometime during 1998. The Company believes that, because of the early stage of
its product roll-out, that its net sales will continue to fluctuate in future
periods.
GROSS PROFIT. The Company's gross profit margin was 50.5% for the year ended
December 31, 1997 and 1996. The Company believes that because of the early stage
of its product sales, its gross margins are not necessarily representative of
the margins it will realize in the future.
RESEARCH AND DEVELOPMENT. Research and Development expenses increased $514,763
or 57.5% in 1997 as compared to 1996. This increase is the result of the
continued and expanded development of the next generation Cardiac Output
Monitoring System that is expected to be completed in 1998. In future periods,
the Company expects Research and Development expenses to continue at
approximately the same level as the Company commences redevelopment of the TTD
device upon completion of the next generation Cardiac Output Monitoring System.
SALES AND MARKETING. Sales and Marketing expenses increased $155,129 or 62.3% in
1997 as compared to 1996. This increase is the result of increased sales
personnel and other costs associated with the roll-out of the Company's Cardiac
Output Monitoring System in the first half of 1997.
GENERAL AND ADMINISTRATIVE. General and Administrative expenses increased
$60,638 or 9.9% in 1997 as compared to 1996. The increase in expenses in 1997 is
a result of increased personnel and salary expenses and other administrative
expenses associated with a higher level of activity.
ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT. In November 1997, the
Company purchased a transcatheter closure product line used by Schneidt
Implantate GmbH of Frankfort, Germany. Included in the purchase was in-process
research and development costs of $441,457. This amount was charged against
income in the fourth quarter of 1997 as the underlying research and development
projects had not reached technological feasibility.
<PAGE>
INTEREST INCOME. Interest Income decreased $21,142 in 1997 compared to 1996
because of fewer funds available for investment.
1996 Compared to 1995
NET SALES. The Company had net sales of $125,120 for 1996 compared to no sales
in 1995. The Company completed the development of the EVD Probe and the ABCOM
2000 monitor in the late 1996 and began limited shipments of these products.
These shipments were made to a small group of pediatric hospitals and foreign
distributors.
GROSS PROFIT. The Company's gross profit margin as a percentage of net sales was
50.5% in 1996. The Company believes that these margins are not necessarily
representative of the margins that it will realize in the future.
RESEARCH AND DEVELOPMENT. Research and Development expenses increased 29.8% to
$894,517 in 1996 from $689,354 in 1995. This increase resulted from the addition
of several new engineering personnel as it commenced development of a new
generation ABCOM monitor and the redevelopment of the TTD device.
SALES AND MARKETING. Sales and Marketing expenses decreased 15.4% to $249,180 in
1996 from $294,571 in 1995. This decrease was the result of the resignation of
its Vice President of Sales in mid-1996.
GENERAL AND ADMINISTRATIVE. General and Administrative expenses increased 38.7%
to $613,041 in 1996 from $441,960 in 1995. This increase was the result of
increased personnel, including a Chief Financial Officer, and other
administrative expenses associated with a higher level of activity.
INTEREST INCOME. Interest Income increased to $324,632 in 1996 from $137,827 in
1995, primarily as a result of more funds available for investment. The
additional funds came from a private placement of common stock in February 1996
and from the exercise of stock options and warrant throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents and short-term
investments of $4,420,180 and working capital of $4,490,118.
The Company used cash of $1,766,931 in 1997 operating activities. The Company's
net loss of $2,592,470 included a non-cash expense of $441,457, which
represented the issuance of 85,000 shares of common stock in connection with the
acquisition of in-process research and development.
The Company generated $1,780,381 in cash from investing activities primarily
through net sales and maturities of $2,034,284 of short-term investments, which
were partially offset by purchases of property and equipment of $222,446. The
Company also generated $66,562 of cash from financing activities pursuant to
funds received from the issuance of stock options.
<PAGE>
The Company believes that its existing cash, cash equivalents and short-term
investments together with funds generated from operations will enable it to meet
its liquidity and capital resource needs for the next 12 months.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are included herein following the
signatures, beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required under this Item with respect to directors is contained in
the Section "Election of Directors" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held in June 1998 ("1998 Proxy Statement"),
a definitive copy of which will be filed with the Commission within 120 days of
the close of the past fiscal year, and is incorporated herein by reference.
Information concerning executive officers is set forth in the Section entitled
"Executive Officers of the Company" in Part I of this Form 10-KSB pursuant to
Instruction 3 to paragraph (b) of Item 401 of Regulation S-B.
ITEM 10 EXECUTIVE COMPENSATION
Information required under this item is contained in the section entitled
"Executive Compensation" in the 1998 Proxy Statement and is incorporated herein
by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the section entitled
"Security Ownership of Principal Shareholders and Management" in the Company's
1998 Proxy Statement and is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on the page following the Financial
Statements.
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Applied Biometrics, Inc.
("Registrant")
Dated: March 25, 1998 By: /s/ Joseph A. Marino
--------------------
Joseph A. Marino
Chairman, Chief Executive Officer, and
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed on March 25, 1997 by the following persons on behalf of the
Registrant, in the capacities indicated.
Each person whose signature appears below constitutes and appoints JOSEPH A.
MARINO and PATRICK DELANEY as his true and lawful attorneys-in-fact and agents,
each acting alone, with the full power of substitution and resubstitution , for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments to this Annual Report on Form 10-KSB and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, 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 and he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title
- --------- -----
/s/ Joseph A. Marino Chairman, Chief Executive Officer, and
- ----------------------------- President
Joseph A. Marino
/s/ Patrick Delaney Director
- -----------------------------
Patrick Delaney
/s/ George Kline Director
- -----------------------------
George Kline
/s/ Demetre Nicoloff Director
- -----------------------------
Demetre Nicoloff, M.D., Ph.D.
/s/ Gerald J. Prescott Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial and Accounting Officer)
Gerald J. Prescott
<PAGE>
To the Board of Directors
and Shareholders of
Applied Biometrics, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Applied Biometrics, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Minneapolis, MN
February 19, 1998
<PAGE>
APPLIED BIOMETRICS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 821,673 $ 741,661
Short-term investments 3,598,507 5,632,791
Accounts receivable -- 19,417
Inventory 150,493 222,476
Prepaid expenses and other current assets 86,166 226,665
------------ ------------
Total current assets 4,656,839 6,843,010
Property and equipment, net 571,374 528,398
Patents, net 200,125 109,307
Other assets 9,585 9,585
------------ ------------
Total assets $ 5,437,923 $ 7,490,300
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 76,042 $ 126,257
Accrued expenses and other liabilities 90,679 76,933
------------ ------------
Total current liabilities 166,721 203,190
Commitments (Note8)
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,276,117 and 4,168,987 shares issued
and outstanding, respectively 42,761 41,690
Additional paid-in capital 20,278,959 19,703,468
Accumulated deficit (15,050,518) (12,458,048)
------------ ------------
Total shareholders' equity 5,271,202 7,287,110
------------ ------------
Total liabilities and shareholders' equity $ 5,437,923 $ 7,490,300
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
APPLIED BIOMETRICS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 64,940 $ 125,120
Cost of goods sold 32,175 61,975
----------- -----------
Gross profit 32,765 63,145
Operating expenses
Research and development 1,409,280 894,517
Sales and marketing 404,309 249,180
General and administrative 673,679 613,041
Acquisition of in-process research and development(Note5) 441,457 --
----------- -----------
Total operating expenses 2,928,725 1,756,738
Loss from operations (2,895,960) (1,693,593)
Interest income 303,490 324,632
----------- -----------
Net loss (2,592,470) (1,368,961)
=========== ===========
Loss per common share
Basic $ (.62) $ (.35)
=========== ===========
Diluted $ (.62) $ (.35)
=========== ===========
Weighted average common shares outstanding 4,186,896 3,917,268
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
APPLIED BIOMETRICS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Paid-In Accumulated
Shares Amount Capital Deficit
------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1995 2,943,410 $ 29,434 $ 13,507,155 $(11,089,087)
Private placement of
common stock, net of
offering expenses of
$587,133 860,000 8,600 4,564,267 --
Exercised of stock
options and warrants 365,577 3,656 1,632,046 --
1996 Net Loss -- -- -- (1,368,961)
------------ -------- ------------ ------------
December 31, 1996 4,168,987 41,690 19,703,468 (12,458,048)
Shares issued for purchase of
transcatheter closure product
line 85,000 850 509,150 --
Exercise of stock options 22,130 221 66,341 --
1997 Net loss -- -- -- (2,592,470)
------------ -------- ------------ ------------
December 31, 1997 4,276,117 $ 42,761 $ 20,278,959 $(15,050,518)
============ ======== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
APPLIED BIOMETRICS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,592,470) $(1,368,961)
Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation and amortization 188,652 120,567
Non cash acquisition of in-process
Research and Development 441,457 --
Cash flows provided by (used for)changes in:
Accounts receivable 19,417 (19,417)
Inventory 71,983 (222,476)
Prepaid expenses and other current assets 140,499 (180,082)
Trade accounts payable (50,215) 460
Accrued expenses and other liabilities 13,746 17,741
----------- -----------
Net cash used by operating activities (1,766,931) (1,652,168)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments 4,734,808 3,874,633
Purchases of short-term investments (2,700,524) (7,754,159)
Cash expended for purchase of product line (31,457) --
Purchase of Property and equipment (222,446) (392,536)
----------- -----------
Net cash provided (used) by investing activities 1,780,381 (4,272,062)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement of
common stock -- 4,572,867
Proceeds from exercise of stock options
and warrants 66,562 1,635,702
----------- -----------
Net cash provided by financing activities 66,562 6,208,569
----------- -----------
Net increase in cash and cash equivalent 80,012 284,339
Cash and cash equivalents at beginning of year 741,661 457,322
----------- -----------
Cash and cash equivalents at end of year $ 821,673 $ 741,661
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIGICANT ACCOUNTING POLICIES
ORGANIZATION - Applied Biometrics, Inc. (the "Company") is engaged in the
development, manufacturing and marketing of interventional cardiology products
and medical diagnostic equipment for hospital operating rooms and intensive care
units. The Company has developed and obtained patents on a transcatheter closure
product line and two continuous cardiac output monitoring devices which use
Doppler ultrasound to measure cardiac output.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash equivalents are highly liquid marketable
securities with original maturities of three months or less.
SHORT-TERM INVESTMENTS - Management determines the appropriate classification of
its investments in debt and equity securities at the time of purchase. At
December 31, 1997 and 1996, all short-term investments are considered available
for sale as the Company does not have the intent or ability to hold these
securities to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. The cost of
securities sold is based on the specific identification method.
INVENTORY - Inventory is stated at the lower of cost (first-in-first-out basis)
or market.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost with
depreciation computed using the straight line method over the estimated useful
lives of the assets. Expenditures for additions and improvements are capitalized
while repairs and maintenance are expensed as incurred.
PATENTS - The costs of patents are capitalized and amortized on a straight-line
basis over their estimated useful lives. The recoverability of unamortized
patents costs is assessed on an ongoing basis by comparing anticipated
undiscounted future cash flows from the related products to net book value.
RESEARCH AND DEVELOPMENT - The costs of Research and Development are expensed as
incurred.
INCOME TAXES - Income taxes are accounted for using the liability method. The
liability method requires the recognition of deferred tax assets and liabilities
for differences between the financial reporting and income tax bases of the
Company's assets and liabilities.
LOSS PER COMMON SHARE - Basic earnings (loss) per share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding
during the year. Common stock equivalents, consisting of shares which might be
issued upon exercise of stock options and warrants, are not included in weighted
average common shares for purposes of determining diluted earnings per share in
years where losses are reported since their inclusion would be anti-dilutive.
<PAGE>
NOTE 2 - SHORT TERM INVESTMENTS
The following is a summary of short-term investments:
December 31,
----------------------------------
1997 1996
---- ----
Debt Securities:
U.S. Treasury obligations $ 1,258,750 $ 3,315,615
Certificates of Deposit 370,000 650,000
U.S. Government Agency 1,969,757 1,165,120
Corporate Debt Securities -- 502,056
------------ ------------
$ 3,598,507 $ 5,632,791
============ ============
The estimated fair value of investments approximates cost (amortized cost for
debt securities) and, accordingly, there are no unrealized gains or losses as of
December 31, 1997 or 1996.
The estimated fair value of debt securities available for sale by contractual
maturity as of December 31, 1997 is as follows:
Due within one year $3,598,507
==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows at December 31,
1997 1996
---- ----
Machinery and Equipment $ 839,960 $ 630,332
Furniture and fixtures 83,984 72,051
Leasehold improvements 70,773 69,888
--------- ---------
994,717 772,271
Less: Accumulated depreciation (423,343) (243,873)
--------- --------
$ 571,374 $ 528,398
========= =========
NOTE 4 - PATENTS
Patents are comprised as follows at December 31,
1997 1996
---- ----
Patents $ 256,564 $ 156,564
Less: Accumulated amortization (56,439) (47,257)
--------- ----------
$ 200,125 $ 109,307
========= =========
NOTE: 5 - PURCHASE OF PRODUCT LINE
In November 1997, the Company acquired the technology and assets (including the
in-process research and development) of the transcatheter closure product line
of Schneidt Implantate, GmbH of Frankfurt, Germany. The total purchase price was
$541,457, which included 85,000 shares of common stock, and $31,457 of
acquisition related costs. The assets acquired consisted exclusively of patents
and other intangibles. The acquisition cost was allocated to the assets acquired
based on their respective fair values. The in-process research and development
costs of $441,457 were charged against income in 1997, as the underling research
and development projects had not yet reached technological feasibility.
<PAGE>
NOTE 6 - COMMON STOCK OPTIONS AND STOCK WARRANTS
The Company has stock option plans (Plans) which permit granting of both
qualified and non-qualified stock options to employees, directors, officers and
others. At December 31, 1997, a total of 628,667 stock options were outstanding
under the Plans. The Board of Directors is authorized to grant an additional
89,870 shares of common stock under the Plans. Options have been granted at an
option price per share equal to or greater than the fair value at the date of
the grant. The options generally vest over a three to five year period and
expire after seven to ten years.
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 123,
"Accounting for Stock-Based Compensation" in 1996. As allowed by FAS No. 123,
the Company applied APB Option No. 25 and related interpretations in accounting
for its stock option plans and accordingly, does not recognize compensation
expense related thereto. If the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date as
prescribed by FAS 123, net loss and not loss per share would have been increased
to the pro forma amounts indicated in the following table:
1997 1996
---- ----
Net loss - as reported $(2,592,470 $(1,368,961)
Net loss - pro forma $(3,236,790) $(1,999,059
Net loss per share - as reported $ (.62) $ (0.35)
Net loss per share - pro forma $ (.77) $ (0.51)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1997 1996
---- ----
Expected dividend level 0.0% 0.0%
Expected stock price volatility 48.9% 55.0%
Risk-free interest rate 5.7% 6.2%
Expected life of options 4-6 years 4-6 years
The table below summarizes all stock option activity:
<TABLE>
<CAPTION>
Exercise Price Weighted Average
Number of shares Per Share Exercise Price
---------------- --------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 548,134 $3.00 - $60.00 $5.27
Granted 220,000 $11.75 - $12.625 $12.11
Canceled (5,400) $6.56 - $60.00 $10.52
Exercised (70,767) $3.00 - $9.00 5.17
-------
Outstanding at December 31, 1996 691,967 $3.00 - $12.625 7.41
Granted 69,000 $8.50 - $9.875 $9.82
Canceled (110,170) $4.625 - $60.00 $10.97
Exercised (22,130) $4.625 - $5.00 $4.50
-------
Outstanding December 31, 1997 628,667 $3.00 - $12.675 $7.15
=======
Exercisable at December 31, 1996 505,166
=======
</TABLE>
<PAGE>
The following table summarizes additional information related to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
------------------- -------------------
Number Weighted Average Number
Range of Exercise Outstanding at Remaining Weighted Average Exercisable at Weighted Average
Prices 12/31/97 Contractual Life Exercise Price 12/31/97 Exercise Price
------ -------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 - $8.50 375,667 4.93 years $ 4.59 373,667 $ 4.57
$9.00 - $12.625 253,000 5.94 years $10.85 131,499 $10.96
</TABLE>
NOTE 7 - INCOME TAXES
The Company has available net operating loss carryforwards which begin to expire
in 2005. As a result of limitation imposed under Section 382 of the Internal
Revenue Code (IRC), both the annual amount and timing of utilization of these
carryforwards are limited. Therefore, the Company effectively has a total net
operating loss carryforward of approximately $8,880,000. Of this amount,
approximately $835,000 is subject to limitation and may be utilized at a rate of
approximately $57,000 per annum. In the event of additional common stock
issuance's, the Company's net operating loss carryforwards may be subject to
further limitations pursuant to Section 382 of the IRC.
At December 31, 1997, the Company has approximately $8,750,000 of available loss
carryforwards and net temporary differences available to offset taxable income
in future periods. At existing tax rates, the future benefits are approximately
$3,495,000. A valuation allowance has been established for the entire net tax
benefit associated with all carryforwards and temporary differences at December
31, 1997 as their realization is not "more likely than not." The composition of
expected future tax benefits is as follows:
December 31,
-------------------------------
1997 1996
---- ----
Loss carryforward $3,520,000 $2,500,000
Temporary differences:
Patent amortization (65,000) (65,000)
Other 40,000 30,000
--------- ---------
3,495,000 2,465,000
Less: Valuation allowance 3,495,000 2,465,000
--------- ---------
-- --
========= =========
NOTE 8 - LEASE COMMITMENTS
In February 1994, the Company entered into a five year lease arrangement for a
facility in Burnsville, Minnesota. The future minimum payments under this lease
are as follows:
Year Ending December 31, Operating Leases
1998 $57,516
1999 $14,379
-------
Minimum lease payment $71,895
=======
Rental expense under operating leases including common area maintenance and real
estate tax, was $97,780 and $95,375 during the years ended December 31, 1997 and
1996, respectively.
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Restated Articles of Incorporation, as amended, of the Company
(incorporated by reference to Exhibit 3.1 to the Company's annual
report on Form 10 K for the fiscal year ended December 31, 1994).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form SB-2, Commission
File No. 33-63754C (the "Form SB-2")).
10.1 Lease dated February 8, 1994 by and between the Company and
American Industrial Properties REIT (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
10.2 Employment Agreement between the Company and Joseph A. Marino
dated as of May 7, 1993, as amended by Amendment No. 1 to
Employment Agreement dated July 1, 1994 (incorporated by
reference to Exhibit 10.11 to the Company's Form SB-2 and Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 (the "September 1994 Form
10-Q"), respectively).
10.3 Applied Biometrics, Inc. 1987 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Form SB-2).
10.4 Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.4 to the Company's Form SB-2).
10.5 Form of Non-Qualified Stock Option Agreement (incorporated by
reference to Exhibit 10.5 to the Company's Form SB-2).
10.6 Amendment No. 2 to Agreement Regarding Confidential Information
and Intellectual Property between the Registrant and Claire T.
Hovland dated June 15, 1993 (incorporated by reference to Exhibit
10.10 to the Company's Form SB-2).
10.7 Applied Biometrics, Inc. 1994 Stock Plan (incorporated by
reference to Exhibit 10.1 to the September 1994 Form 10-Q).
10.8 Purchase Agreement dated October 23, 1997 regarding purchase of
assets from Bernhardt Schneidt and Dr. Rainer Schrader.
10.9 Non Competition, confidentiality and assignment of Inventions
Agreement dated November 2, 1997 between Registrand and Dr.
Rainer Schrader.
23.1 Consent of Price Waterhouse
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule
EXHIBIT 10.8
PURCHASE AGREEMENT
THIS AGREEMENT, dated as of the 23rd day of October, 1997 by and
between Bernhard Schneidt ("Schneidt") and Dr. Rainer Schrader ("Schrader")
(Schneidt and Schrader collectively hereinafter "Sellers") and Applied
Biometrics, Inc., a Minnesota corporation (hereinafter "Purchaser").
W I T N E S S E T H
WHEREAS, Sellers desire to sell and Purchaser desires to purchase the
technology, know-how and personal property comprising the "Intellectual
Property" (United States and foreign patents, utility models, patent
applications, as well as any divisions, continuations and continuations in part
thereof, copyrights, trademarks, trade secrets, know-how and all other assets
and intellectual property rights relating thereto), inventory, raw materials,
work-in-process and supporting assets relating to the "Vessel/Septal Occluder
Devices" invented by Sellers, all as described in Exhibit A attached hereto and
made a part hereof (collectively the "Assets"), in which Sellers own all right,
title and interest.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained and other good consideration, the
receipt and sufficiency which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Subject to the terms and conditions hereof, Purchaser will purchase
and Sellers will sell, transfer, assign and convey to Purchaser all right, title
and interest in the Assets on the closing date (as specified in Article 11 of
this Agreement and hereinafter called the "Closing").
ARTICLE 2
OBLIGATIONS AND LIABILITIES
NOT TO BE ASSUMED
2.1 It is understood and agreed that Purchaser is not assuming,
undertaking or responsible for any debts, liabilities, undertakings, contracts
or obligations of Sellers of any nature or kind.
2.2 Sellers covenant and agree to indemnify, hold harmless and defend
Purchaser, its directors, officers, employees and agents, from any and all
claims, suits, losses, obligations, fines, fees, liabilities and expenses
(including reasonable attorneys' fees) incurred by Purchaser arising from the
development, manufacture, sale, ownership or use of the Assets or the operation
of the business of Implantate on or prior to the Closing.
<PAGE>
ARTICLE 3
PURCHASE PRICE
The purchase price for the Assets shall be as described below, subject
to adjustment as provided in Article 3.3 hereof, and shall be payable as
follows:
3.1 A total "Base" of 80,000 shares of "Common Stock" of Purchaser will
be issued to Sellers at the Closing and apportioned according to their
instructions. To the extent that the market value of the Common Stock is less
than $480,000 U.S. as of the effective date of the registration statement filed
by Purchaser with the Securities and Exchange Commission ("SEC") covering the
Common Stock and further described in Article 7 of this Agreement, Purchaser
will issue to Sellers either cash or that number of additional shares of Common
Stock having an aggregate market value sufficient to total $480,000 U.S. when
added to the aggregate market value on the effective date of the Base number of
shares.
3.2 Additional cash consideration equal to 3% of the net sales price of
the individual and actual sales of Vessel/Septal Occluder Devices (or the actual
value thereof if sold in conjunction with other products, instruments or
devices), payable on a quarterly basis commencing on December 31, 1997 and
continuing for a period of six (6) years thereafter and payable one-half to
Schneidt and one-half to Schrader.
3.3 Sellers shall pay all income, capital gains, sales, use, value
added, registration and/or transfer taxes incurred or assessed against Sellers
as a result of the transactions contemplated by this Agreement. Any such taxes
not paid by Sellers and asserted against Purchaser, or any liabilities visited
on Purchaser for products liability, environmental, governmental regulatory
claims or other claims arising out of the Assets or the business of Implantate
concerning facts or circumstances arising before the Closing, may be recovered
directly by Purchaser from Sellers or, at the option of Purchaser, set off
against the deferred consideration payable by Purchaser to Sellers under Article
3.2 of this Agreement.
ARTICLE 4
CONVEYANCE
4.1 The Assets will be conveyed to Purchaser by delivery by Sellers at
the Closing of an instrument of transfer. Sellers agree to provide to Purchaser
any additional evidence of conveyance which Purchaser reasonably requests.
ARTICLE 5
AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF SELLERS
5.1 Sellers hereby jointly and severally specifically represent,
warrant and agree as follows:
a. Sellers are the sole and exclusive owners of the Assets and
have full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions
contemplated hereby.
<PAGE>
b. Sellers have good and marketable title to the Assets, free
and clear of all liens, pledges, claims, conditional sales
contracts, agreements or encumbrances of whatever kind,
except as specifically described in Exhibit B as attached
hereto and made a part hereof.
c. No statute, rule or regulation or order of any court,
tribunal or governmental unit prohibits Sellers from
consummating the transactions contemplated hereby and no
consent, authorization, order or approval of or filing or
registration with any governmental body, agency, official
or authority, and no material consent or authorization from
any other entity or person, is required for the execution
and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement.
d. As applicable, the Assets shall be in working condition at
the Closing, ordinary wear and tear expected.
e. This Agreement has been duly and validly executed and
delivered by Sellers and constitutes their legal, valid and
binding obligation, enforceable against them jointly and
severally in accordance with its terms.
f. The execution, delivery and performance by Sellers of this
Agreement do not and will not constitute a material default
under any provision of applicable law or regulation; the
constitutional documents of Implantate; or any agreement or
court or government order affecting Sellers or any Seller.
g. Sellers own all right, title and interest in the
Intellectual Property comprising part of the Assets set
forth in Exhibit A.
h. Sellers have disclosed to Purchaser all material facts of
which they have knowledge which bear on the validity or
enforceability of any trademarks, copyrights, patents, and
patent applications included as Intellectual Property in
the Assets. Sellers shall have furnished to Purchaser and
permitted Purchaser and its patent counsel to review all
the materials regarding the prosecution of patent
applications and correspondence and materials related to
any past, pending or threatened interference actions or
other similar actions.
i. Sellers have taken all reasonable steps to maintain their
interest in the Intellectual Property and to protect their
interest from infringements by third parties.
j. None of the features, components or configurations (whether
developed or under development) of the Intellectual
Property infringe, nor has any claim been made that they
may infringe, the intellectual property rights of any other
party.
<PAGE>
k. There is no action, suit or proceeding in any court or
before any arbitrator or governmental body, agency or
official pending or, to Sellers' knowledge, threatened
against Sellers in connection with the conduct of the
business of Implantate or Sellers' development,
manufacture, sale, ownership or use of the Assets.
l. The execution, delivery and performance by Sellers of this
Agreement and the consummation by Sellers of the
transactions contemplated by this Agreement require no
amendment of any agreement to which Sellers are party.
m. The inventory (finished goods, work-in-process, raw
materials, parts and supplies) are in good and merchantable
condition, and suitable and usable for the purposes for
which intended or salable in the ordinary course of
business within eighteen (18) months from the date of this
Agreement.
n. Sellers are acquiring the Purchaser's shares of Common
Stock for investment for their own account and not with a
view to, or for resale in connection with, any distribution
thereof. Each of the Sellers understands that the shares to
be acquired have not been registered under the Securities
Act of 1933, as amended, (the "Act") by reason of a
specific exemption from the registration provisions of the
Act which depends upon, among other things, the bona fide
nature of the investment intent expressed herein.
o. Each of the Sellers acknowledges that the shares of Common
Stock must be held indefinitely unless subsequently
registered under the Act as provided in Article 7 below or
an exemption from such registration is available. Each of
the Sellers is aware of the provisions of Rule 144
promulgated under the Act which permit limited resale of
securities purchased in a private placement subject to the
satisfaction of certain conditions.
p. All negotiations on the part of Sellers and Purchaser
relative to this Agreement and the transactions
contemplated hereby have been carried on by Sellers
directly with Purchaser and there are no brokers or agents
representing Sellers or Purchaser with regard to the sale
and purchase herein contemplated; and any fees for services
-- legal, accounting, or otherwise -- incurred by Sellers
in connection with, shall be their sole obligation.
ARTICLE 6
AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 Purchaser hereby represents and warrants as follows:
a. Purchaser is a corporation duly organized and existing in
good standing under the laws of the State of Minnesota.
<PAGE>
b. The execution and performance of this Agreement by
Purchaser has been duly authorized by the board of
directors of Purchaser. Neither the execution nor delivery
of this Agreement by Purchaser nor its performance by
Purchaser will result in the breach of any term or
provision of, or constitute a default under, any note,
indenture, mortgage, deed or trust or other agreement to
which Purchaser is a party.
c. All negotiations on the part of Purchaser relative to this
Agreement and the transactions contemplated hereby have
been carried on by Purchaser directly with Sellers and
there are no brokers or agents representing Purchaser with
regard to the sale and purchase herein contemplated; and
any fees for services -- legal, accounting, or otherwise --
incurred by Purchaser in connection herewith, shall be the
sole obligation of Purchaser.
ARTICLE 7
REGISTRATION
7.1 Purchaser agrees to file, as soon as possible following the date of
the Closing, a registration statement with the Securities and Exchange
Commission ("SEC") covering the shares issued to Sellers pursuant to this
Agreement and to use its reasonable best efforts to file all documents and to
take all other reasonable steps in order to have such registration declared
effective within approximately sixty (60) days of the Closing. Purchaser further
agrees that once the registration statement has been declared effective it will
file post-effective amendments to such registration statement as are necessary
to cause such registration statement to remain effective for a period of
twenty-four (24) months, commencing on the effective date of the registration
statement.
7.2 Any registration statement filed by Purchaser shall be required to
cover only the sale by Sellers in varying amounts, at prices then prevailing on
Nasdaq.
7.3 Purchaser shall not be obligated to file any registration statement
if it shall have delivered to Sellers proposing to sell shares delivered
pursuant to this Agreement an opinion of its counsel to the effect that the
shares delivered pursuant to this Agreement may lawfully be sold to the public
without registration under the Act and has delivered to its transfer agent
instructions to register the transfer of any of the Purchaser's shares sold in
reliance on such opinion.
ARTICLE 8
CONDUCT OF BUSINESS PENDING CLOSING
8.1 Sellers and Purchaser agree that during the period (hereinafter the
"Interim Period") from and after the date hereof to the Closing date (except as
otherwise consented or approved by Purchaser in writing), the current business
of sales of Vessel/Septal Occluder Devices shall continue to be conducted by the
Sellers, and during the Interim Period, Sellers covenant and agree that Sellers
will continue to conduct the business diligently and only in the ordinary
course, and will not take any action which will cause any change in the Assets,
other than changes in the ordinary course of
<PAGE>
business. Without limitation of the foregoing, Sellers hereby specifically agree
that without prior written consent of Purchaser:
a. No mortgage or pledge or assignment of any of the Assets,
or any other disposition of any such Assets, otherwise that
in the ordinary course of business, shall be made.
b. No capital expenditures, other than ordinary repairs or
maintenance, will be initiated by Sellers with respect to
the Assets.
ARTICLE 9
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the purchase of the Assets
under and transactions contemplated by this Agreement shall be subject to and
conditioned upon the satisfaction (or waiver by Purchaser in writing) of all of
the following conditions on or prior to the Closing, and Sellers shall in good
faith exert their best efforts to ensure that each and every such condition is
fulfilled:
9.1 Sellers shall have performed and complied with all of its
agreements and covenants contained herein to be performed at or prior to the
Closing and the representations and warranties of Sellers contained herein shall
be true on and as of the Closing.
9.2 No statute, rule or regulation or order of any court or
governmental body shall be in effect which prohibits Sellers or Purchaser from
consummating all of the material transactions contemplated hereby.
9.3 Purchaser shall be satisfied with the results of its due diligence
investigation conducted between the date of this Agreement and the Closing.
9.4 There will have been no material adverse change in the Assets, and
there will have been no material casualty or other loss or damage to the Assets
whether or not covered by insurance and there shall not have come to the
attention of Sellers or any officer of Implantate any event which may materially
adversely affect the Assets or Purchaser's rights with respect thereto.
9.5 Sellers shall have each entered into legally enforceable consulting
and non-compete agreements with Purchaser as described in Exhibit C attached
hereto and made a part hereof.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND RELATED MATTERS
10.1 All representations, warranties, agreements, covenants and
obligations herein shall survive the execution and delivery of this Agreement
and the Closing and the consummation of the transactions contemplated hereby.
<PAGE>
10.2 Sellers jointly and severally, agree to indemnify and hold
Purchaser harmless from and against any and all liabilities, claims, causes of
action, losses, suits, fines, damages, deficiencies, or expenses (including
reasonable attorneys' fees) (collectively "Damages") which Purchaser or its
affiliates may suffer or incur arising from or related to:
a. Any misrepresentation, breach or material inaccuracy of any
representations, warranties, covenants or agreements of
Sellers contained in this Agreement.
b. The liabilities of Implantate Gmbh.
c. The operation of Implantate Gmbh or the development,
manufacture, sale, ownership and use of the Assets by
Sellers on or prior to the Closing.
d. Any and all claims incurred by Purchaser which undermine or
frustrate its ability to own or use the Intellectual
Property, including claims of invalidity, prior use or
infringement whether now existing or hereafter arising.
ARTICLE 11
CLOSING
11.1 Unless the Closing date is changed as provided herein, the Closing
shall take place in November, 1997 (the "Closing") at Gent, Belgium at such
other hour or at such other place as the parties may agree; and possession or
assumption of the Assets, as appropriate, shall be deemed to take place at the
conclusion of the Closing. Sellers and Purchaser agree that the date of the
Closing set forth above may be changed by mutual agreement between the parties.
11.2 At the Closing, Sellers shall deliver such assignments,
instruments of transfer, and other documents and instruments as may be necessary
or convenient to transfer, assign and convey the Assets to the Purchaser. At the
Closing, Purchaser shall pay and agree to pay to Sellers the purchase price as
outlined in Article 3 above and shall execute such other instruments as may be
reasonably requested by Sellers to evidence Purchaser's covenants and agreements
as set forth in this Agreement.
11.3 Risk of loss, destruction or damage of any of the Assets sold,
transferred, assigned and conveyed hereunder shall pass to Purchaser as of the
later of Closing or the date Purchaser acquires possession of the Assets.
ARTICLE 12
ACCESS
12.1 Sellers covenant and agree that during the Interim Period,
Purchaser and its representatives shall have full access during normal business
hours to the records of Sellers pertaining to the Assets, and Sellers will
furnish to Purchaser all information, documents and records reasonably requested
by Purchaser pertaining to such Assets.
<PAGE>
ARTICLE 13
ADDITIONAL INSTRUMENTS AND FURTHER ASSURANCES
13.1 Sellers agree, from time to time, upon the request of Purchaser,
to execute and deliver to Purchaser such instruments of sale, transfer,
assignment and conveyance, and to take such other action as Purchaser may
reasonably require, to more effectively vest ownership in Purchaser and to put
Purchaser in possession of the Assets.
13.2 Purchaser agrees, from time to time, to execute and deliver to
Sellers such additional instruments and to take such additional actions as
Sellers may reasonably request to evidence the covenants and agreements of
Purchaser under this Agreement.
13.3 Sellers agree to cooperate in the prosecution of any and all
existing and future U.S. and foreign patent applications to insure that the
applications reflect, to the best of their knowledge, all items of commercial
and technical interest and importance.
ARTICLE 14
PATENT INFRINGEMENT
14.1 Upon learning of the infringement of the Intellectual Property by
a third party, Purchaser may at its own expense and sole discretion take
whatever steps, if any, it determines to be necessary to stop the infringement
and recover damages. Sellers agree to provide all reasonable assistance
necessary to prosecute and/or settle any such lawsuit or claim including, if
requested by Purchaser, joining with Purchaser as a party to any action brought
by Purchaser for such purpose and/or executing all pleadings, documents and
other papers necessary or appropriate in conjunction therewith. Purchaser shall
have full control over any action taken including, without limitation, the right
to settle on any terms it deems advisable in its discretion, to appeal any
adverse decision rendered in any court, to discontinue any action taken by it,
and to otherwise make any decision in respect thereto that Purchaser in its
discretion deems advisable. Purchaser shall receive the full benefits of any
action it takes pursuant to this Article 14, including retaining all sums
recovered in any such suit or in settlement thereof after paying Sellers any
additional consideration to the extent required under Article 3.2 of this
Agreement which shall be calculated from the amount of net sales, if any,
asserted by Purchaser to support any award of compensatory damages (as opposed
to punitive or other damages) and adjusted to reflect the actual amount of
compensatory damages recovered.
14.2 Purchaser shall give Sellers prompt notice of each claim or
allegation received by it that the use or sale of the Intellectual Property
constitutes a significant infringement of a third-party patent or patents.
Purchaser shall have full control over any action taken including, without
limitation, the right to settle on any terms it deems advisable in its
discretion, to appeal any adverse decision rendered in any court and to
otherwise make any decision in respect thereto that in its discretion Purchaser
deems advisable. Sellers agree to cooperate with Purchaser in any reasonable
manner deemed by Purchaser to be necessary in defending any such claim or
allegation. Upon receiving written notice by any third party that Purchaser's
use or sale of the Intellectual Property constitutes a significant infringement
of a third-party patent or patents, Purchaser may hold any additional
consideration owed Sellers from net sales under Article 3.2 of this Agreement,
if any, in escrow
<PAGE>
pending the resolution of any such action, claim or allegation. Purchaser shall
have the right to reduce or set off any amounts owing Sellers under Article 3.2
of this Agreement against any amounts Purchaser is obligated to pay any third
party.
ARTICLE 15
TERMINATION
15.1 This Agreement may be terminated and the transactions contemplated
herein abandoned by either party on or at any time prior to the Closing by
notice to the other party given in a manner provided in this Agreement only upon
the happening of one or more of the following events:
a. If any party fails to observe or perform in a timely
manner any of the covenants and agreements contained
herein and fails to cure the same within a period of ten
(10) days after notice and the other party declares a
default;
b. If any actual investigation, action or proceeding, or
notice of probable investigation, action or proceeding, by
or before any court or any other governmental body,
seeking to restrain, prohibit, or invalidate the
transactions contemplated by this Agreement or which might
affect the right of Purchaser to develop, manufacture,
sell, own, use, market or control the Assets, shall have
been commenced against either party;
c. If Purchaser's due diligence uncovers material problems
with the title to or condition of the Assets or
Purchaser's ability to own and operate the Assets; or
d. By mutual written consent of the Purchaser and Sellers;
PROVIDED, HOWEVER, the option to declare a default and to
terminate as set forth in Subparagraph (a) above shall be
deemed to be an additional right of the party having the
power to exercise it and shall not relieve the other party
from the obligation to perform the provisions of this
Agreement or preclude an action for specific performance
of the provisions of this Agreement by the party having
the power to exercise the option.
ARTICLE 16
ASSIGNMENT
16.1 This Agreement may not be assigned by any party hereto without the
written consent of the other parties.
<PAGE>
ARTICLE 17
ENTIRE AGREEMENT
17.1 This Agreement embodies the entire understanding between Sellers
and Purchaser and shall supersede all prior understandings relating to the
subject matter hereof; and it cannot be amended, altered, enlarged,
supplemented, abridged, modified, or any provisions waived except by a writing
duly signed by the party affected.
ARTICLE 18
NOTICES
18.1 All notices, requests, demands, replies and other communications
hereunder shall be in writing, signed by the party giving notice and shall be
deemed to have been duly given if mailed by certified or registered mail with
postage prepaid:
(a) If to Purchaser, to: Joseph A. Marino, President
Applied Biometrics, Inc.
501 East Highway 13
Burnsville, MN 55337
with a copy to: Patrick Delaney, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South 8th Street
Minneapolis, MN 55402
(b) If to Sellers, to Mr. Bernhard Schneidt
and Dr. Rainer Schrader
Schneidt Implantate Gmbh
Alter Graben 7
D-63571 Gelnhausen
Germany
(c) To such other person and place as Sellers or Purchaser shall
respectively designate in the foregoing manner to the other
party.
ARTICLE 19
COUNTERPARTS
19.1 This Agreement may be executed in several counterparts, in both
German and English each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument. The English language version
of the Agreement shall govern.
<PAGE>
ARTICLE 20
SEVERABILITY
20.1 If any one or more covenants or agreements provided in this
Agreement should be held contrary to law or declared unenforceable by a tribunal
of competent jurisdiction, then such covenant or covenants, agreement or
agreements shall be null and void and shall in no way affect the validity of the
other provisions of this Agreement, which shall otherwise remain fully effective
and enforceable.
ARTICLE 21
AMENDMENTS AND WAIVERS
21.1 No amendment or waiver of any provision of this document or any
related document shall be effective unless such amendment or waiver is in
writing and signed by Purchaser, and such amendment or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given.
ARTICLE 22
REMEDIES
22.1 The election by any party of any particular right or remedy shall
not be deemed to exclude any other right or remedy and all rights and remedies
of the parties shall be cumulative. The parties agree that, in addition to any
other relief afforded under the terms of this Agreement or by law, Sellers and
Purchaser shall have the right to enforce this Agreement by injunctive or
mandatory relief to be issued by against the other parties, it being understood
that both damages and specific performance shall be proper modes of relief and
are not to be considered as alternative remedies.
ARTICLE 23
GOVERNING LAW
23.1 This Agreement shall be governed by, construed and enforced in
accordance with the internal (and not the conflicts of laws) of the State of
Minnesota, U.S.A. The United Nations Convention on the International Sale of
Goods shall not apply to this Agreement.
ARTICLE 24
VENUE
24.1 In the event that Purchaser shall bring any action for any relief,
declaratory or otherwise, or seeks to enforce the terms of this Agreement by any
judicial proceeding, Purchaser hereby irrevocably submits and consents to the
jurisdiction of the courts sitting in Germany, over any action or proceeding
arising out of or relating to this Agreement or any of the other transaction
documents and further agrees that all claims in respect of such action or
proceeding shall be heard and determined in any such court.
<PAGE>
24.2 In the event that Sellers or any Seller shall bring any action for
any relief, declaratory or otherwise, or seeks to enforce the terms of this
Agreement by any judicial proceeding, Sellers jointly and severally hereby
irrevocably submit and consent to the jurisdiction of the courts sitting in the
State of Minnesota, U.S.A., over any action or proceeding arising out of or
relating to this Agreement or any other transaction documents and further agree
that all claims in respect of such action or proceeding shall be heard and
determined in any such court.
24.3 Nothing in this Article 24 shall be construed to displace the
governing law as set forth in Article 23 of this Agreement.
ARTICLE 25
HEADINGS AND CAPTIONS
25.1 The headings and captions in this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
SELLERS:
BERNHARD SCHNEIDT
/s/ Bernhard Schneidt
DR. RAINER SCHRADER
/s/ Rainer Schrader
PURCHASER:
APPLIED BIOMETRICS, INC.
By: /s/ Joseph A. Marino
Joseph A. Marino
Its: President
WITNESS:
/s/ Eric Cockheyt
Eric Cockheyt
<PAGE>
EXHIBIT A
DESCRIPTION OF THE ASSETS
1. Tangible/Intangible
a. Any and all literature, marketing materials, hand tools,
customer lists, vendor lists, platinum struts, titanium balls
and miscellaneous inventory and supplies related to the
Vessel/Septal Occluder Devices.
b. Any and all trade secrets relating to the Intellectual
Property, Vessel/Septal Occluder Devices and Assets including,
but not limited to, formulas, patterns, compilations, programs,
devices, methods, techniques or processes, or bodies of
information used by Sellers in connection with the
Vessel/Septal Occluder Devices that derives independent
economic value, actual or potential, from not being generally
known to, and being readily ascertainable by proper means, by
third parties who can obtain economic value from its disclosure
or use.
c. Any and all know how relating to the Intellectual Property,
Vessel/Septal Occluder Devices and Assets including, but not
limited to, any (i) design drawings, (ii) specifications, test
materials, data and performance criteria, (iii) operating
instructions and manuals, (iv) manufacturing information,
including production documentation, (v) computer software and
related documentation, including, without limitation, source
and object code listings, (vi) prototypes, models or samples,
(vii) files relating to the registration of, and disclosures
and applications to register, patents, copyrights, trademarks,
and trade secrets relating to the Vessel/Septal Occluder
Devices.
d. Any and all United States or foreign copyrights, trademarks and
any other intellectual property rights relating to any of the
above.
2. Intellectual Property
a. German Utility Model 29500381.2 registered August 21, 1995
entitled Vorrichtung zum Verschlie en eines Ductus,
insbesondere des Ductus arteriosus
b. German Utility Model 9413645 registered October 27, 1994
entitled Vorrichtung zum Verschlie en eines Ductus,
insbesondere des Ductus arteriosus
c. European patent application 951133441.2 filed August 24, 1995
entitled Occlusion Device For Closing An Opening In A Vessel
d. German Utility Model Application 29714242.9 filed August 8,
1997 entitled Verschlusseinrichtung zum Verschlie en einer
korperlichen Anomalie wie Gefa offnung oder Offnung in einder
Scheidewand
e. United States Application Serial No. 08/585114 filed January
11, 1996 entitled Closure Device For Closing A Vascular
Opening, Such As Patent Ductus Arteriosus
f. Any divisionals, continuations, continuations-in-part, or
reissues filed from a-e.
<PAGE>
EXHIBIT B
ENCUMBRANCES ON ASSETS
NONE.
<PAGE>
EXHIBIT C
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") dated as of October 23, 1997 is
made and entered into by and between Applied Biometrics, Inc., a Minnesota
corporation (the "Company") and Bernhard Schneidt (the "Consultant").
BACKGROUND
The Company and Consultant are parties to a certain Purchase Agreement
(the "Purchase Agreement") dated October 23, 1997, whereby the Company acquired
all right, title and interest in specified assets (the "Assets", as that term is
defined in the Purchase Agreement). As a material inducement to the Company's
agreement to enter into and consummate the Purchase Agreement, the parties have
agreed to enter into this Agreement and hereby acknowledge the importance of the
Company's ability to (i) utilize the knowledge, experience, skill and services
of Consultant; and (ii) protect the Company's significant interest the Assets
and in its worldwide business of developing, marketing, distributing and selling
Vessel/Septal Occluder Devices and related products, instruments or devices.
ARTICLE 1
SCOPE OF WORK
1.1 Consultant is engaged to provide the Company with such services as
may be requested from time to time by the Company in connection with the
research, engineering, manufacturing, marketing and development of Vessel/Septal
Occluder Devices.
1.2 Consultant will devote such time for consulting services to the
Company as reasonably requested by the Company during the term of this
Agreement.
1.3 In order for Consultant to perform the services described in
Section 1.1 above, it may be necessary for Consultant to use Confidential
Information relating to the Assets possessed prior to the date of this Agreement
and for the Company to provide Consultant with Confidential Information (as
defined below) regarding the Company's business. The Company will rely heavily
upon Consultant's integrity and prudent judgment to use this information only in
the best interests of the Company.
1.4 In rendering services under this Agreement, Consultant shall
conform to high professional standards of work and business ethics. Consultant
shall not use time, materials, or equipment of the Company without the consent
of the Company. In no event shall Consultant take any action or accept any
assistance or engage in any activity that would result in any university,
governmental body, research institute or other person, entity or organization
acquiring any rights of any nature in the Inventions (as defined below) or to
the results of work performed by or for the Company. Consultant shall take all
reasonable steps to ensure that no funds are used in the performance of its
services under this Agreement, other than those provided or authorized by the
Company.
<PAGE>
1.5 Consultant shall not use the service of any person, entity or
organization in the performance of Consultant's duties without the prior written
consent of the President of the Company. Should the Company consent to the use
by Consultant of the services of any other person, entity or organization, no
information regarding the Inventions or the services to be performed under this
Agreement shall be disclosed to that person, entity or organization until such
person, entity or organization has executed an agreement satisfactory to the
Company to protect the confidentiality of the Company's Confidential Information
and the Company's absolute and complete ownership of all right, title and
interest in the Inventions and the results of work performed under this
Agreement.
1.6 Consultant shall provide the Company with such written, periodic
reports as the Company may reasonably require and, upon termination of this
Agreement, a final report. These reports shall contain such information as may
reasonably be requested by the Company.
ARTICLE 2
INDEPENDENT CONTRACTOR
2.1 Consultant is an independent contractor and not an employee,
partner or co-venturer of, or in any other service relationship with, the
Company, and the manner in which Consultant's services are rendered shall be
within Consultant's sole control and discretion. Consultant is not authorized to
speak for, represent, or obligate the Company in any manner without the prior
express written authorization from an officer of the Company. Consultant shall
be responsible for all payroll and other taxes arising from compensation and
other amounts paid under this Agreement.
ARTICLE 3
COMPENSATION
3.1 The Company agrees to compensate Consultant for services rendered
to the Company under this Agreement at the rate of One Hundred Dollars ($100.00)
U.S. per hour during the term of this Agreement.
3.2 The Company will only compensate Consultant for actual hours worked
following receipt of Consultant's written verification of those hours and only
for those hours that were authorized and approved by the Company.
3.3 Notwithstanding paragraphs 3.1 and 3.2 of this Agreement, the
Company agrees to compensate Consultant a minimum of Twenty Thousand Dollars
($20,000) U.S. for, and only for, the first year of this Agreement; subject,
however, to the condition that the Agreement remains in full force and effect
and has not been terminated in accordance with Article 4 below.
ARTICLE 4
TERM AND CANCELLATION
4.1 This Agreement shall be effective as of the date last signed and
shall continue in effect until October 23, 2000, unless earlier terminated as
provided for herein.
<PAGE>
4.2 Either the Company or the Consultant may terminate this Agreement
at any time on thirty (30) days prior written notice upon a material breach of
the provisions of this Agreement if such breach has not been cured during such
notice period. On termination of this Agreement under any part of this Article
4, Consultant shall deliver to the Company all Company property and information
in the possession of the Consultant or any of his employees, representatives or
agents relating to the services performed on the request of the Company.
4.5 The provisions of Articles 5, 6, 7, 8 and 9 of this Agreement shall
survive the termination of this Agreement and remain in full force and effect
thereafter. Termination of this Agreement shall not relieve the Company of its
obligations to pay to Consultant monies due and unpaid at the time of
termination.
ARTICLE 5
CONFIDENTIAL INFORMATION
5.1 In performing services under this Agreement, Consultant may be
required to use certain "Confidential Information" (as hereinafter defined) of
the Company. Consultant agrees that it will not, and his employees, agents or
representatives will not, use, directly or indirectly, such Confidential
Information for the benefit of any person (including without limitation,
Consultant's colleagues), entity or organization other than the Company, or
disclose such Confidential Information without the written authorization of the
President of the Company, either during or after the term of this Agreement, for
as long as such information retains the characteristics of Confidential
Information.
5.2 "Confidential Information" means information not generally known,
including trade secrets, about the Company's methods, processes, technology,
intellectual property and products, including but not limited to information
relating to such matters as research and development, (including without
limitation, information related to the Assets and Inventions) analysis,
manufacturing methods, patents, patent applications, Inventions, processes,
techniques, composition of materials, applications for particular technologies,
materials or designs, vendor names, customer lists, schematics, designs,
drawings, management systems and sales and marketing plans. All information
disclosed to Consultant or to which Consultant has access or which is generated
by Consultant on behalf of the Company during the term of this Agreement which
Consultant has a reasonable basis to believe is Confidential Information or
which is treated by the Company as Confidential Information shall be presumed to
be Confidential Information. Confidential Information includes all trade secrets
and know how relating to the Assets known by Consultant prior to the date of
this Agreement or trade secrets and know how that may in the future be
developed, acquired or made available to the Company.
5.3 Consultant agrees that all materials developed by the Consultant on
behalf of the Company or as a result of this Agreement, or provided by or on
behalf of the Company to Consultant, whether or not provided, conceived, or
developed during Consultant's affiliation therewith, are and shall remain the
exclusive property of the Company. Consultant shall not copy, summarize or
remove from the Company's premises such Confidential Information or material in
whole or in part at any time prior to or after termination except as permitted
in writing by the Company. Promptly upon the expiration or termination of this
Agreement, or upon the request of
<PAGE>
the Company, Consultant shall return to the Company all documents and tangible
items, including samples, provided to Consultant or created by Consultant for
use in connection with services to be rendered hereunder, including without
limitation all Confidential Information, together with all copies and abstracts
thereof.
5.4 The burden of establishing that any information possessed by
Consultant is not Confidential Information shall be that of Consultant. This
burden shall be met only if Consultant is able to establish by clear and
convincing evidence that the information, free of any obligations of
confidentiality does not relate to the Assets or Vessel/Septal Occluder Devices
and:
A. Was known to Consultant (as evidenced by written records of
Consultant in existence prior to a disclosure by the Company of the information
involved) and its value appreciated prior to Consultant's employment by the
Company; or
B. Was generally known to the general public at large or the Company's
competitors and its value appreciated prior to any use or disclosure of such
information by Consultant.
ARTICLE 6
RIGHTS AND DATA
6.1 All ideas, concepts, drawings, models, designs, formulas, methods,
information, works of authorship, documents and tangible items prepared for or
submitted to the Company by Consultant under this Agreement shall belong
exclusively to the Company and shall be deemed to be works made for hire (the
"Deliverable Items"). To the extent that any of the Deliverable Items may not,
by operation of law, be works made for hire, Consultant hereby assigns to the
Company the ownership of copyright or mask work in the Deliverable Items, and
the Company shall have the right to obtain and hold in its own name any
trademark, copyright, or mask work registration, and any other registrations and
similar protection which may be available in the Deliverable Items. Consultant
agrees to give the Company or its designees all assistance reasonably required
to perfect such rights.
6.2 To the extent that any preexisting materials are contained in the
Deliverable Items, Consultant grants to the Company an irrevocable,
nonexclusive, world-wide, royalty-free license to (a) use, execute, reproduce,
display, perform, distribute (internally or externally) copies of, and prepare
derivative works based upon, such preexisting materials and derivative works
thereof; and (b) authorize others to do any, some or all of the foregoing.
6.3 No license or right is granted to Consultant, either expressly or
by implication, estoppel or otherwise, to use, execute, publish, reproduce,
prepare derivative works based upon, distribute copies, publicly display, or
perform the Deliverable Items either during or after the term of this Agreement.
<PAGE>
ARTICLE 7
INVENTIONS
7.1 Consultant agrees that all "Inventions" (as hereinafter defined)
which Consultant (or any person, entity or organization hired by Consultant) may
conceive or reduce to practice in the performance of services for the Company
and all Inventions which Consultant (or any person, entity or organization hired
by Consultant) may conceive or reduce to practice which are based in whole or in
part upon Confidential Information possessed by Consultant or obtained from the
Company or conceived as a result of the performance of this Agreement shall be
the exclusive property of, and are hereby assigned without charge to, the
Company unless released to Consultant in writing by the President of the
Company. "Invention" shall mean any invention, discovery, work of authorship,
modification, improvement, concept or idea, whether patentable or not (including
those which may be subject to trademark, copyright or mask work registration)
including but not limited to products, technologies, machines, devices,
instruments, processes, methods, techniques, know-how and formulae.
7.2 Consultant shall (a) promptly and fully disclose and describe all
Inventions in writing to an officer of the Company or anyone else designated by
the Company (such disclosure shall include, if requested, a detailed report of
the procedure employed and the results achieved by Consultant); and (b) give the
Company all assistance the Company requires to perfect, protect and use its
rights to Inventions, including but not limited to signing all documents, doing
all things and supplying all information that the Company may deem necessary or
desirable to (i) transfer or record the transfer to the Company of the entire
right, title and interest of Consultant and/or Consultant's employees in
Inventions, and (ii) enable the Company to obtain patent, copyright, mask work
or trademark protection for the Inventions anywhere in the world. The
obligations of this paragraph shall continue beyond the expiration or
termination of this Agreement with respect to Inventions which Consultant and/or
Consultant's employees, agents or representatives conceive or make during the
term of this Agreement.
ARTICLE 8
NON-COMPETE--RESTRICTIONS ON CERTAIN ACTIVITIES
8.1 Consultant agrees that during the term of this Agreement and for a
period of three (3) years thereafter, he shall not, directly or indirectly:
A. Render any consulting, research, analytical, marketing,
developmental, or other services to any person, entity or organization with
respect to any product, device, instrument, process, technique, or project which
is substantially similar in function or purpose to those to which Consultant's
services under this Agreement relate, including the manufacture, marketing and
development of Vessel/Septal Occluder Devices or related technology, products,
instruments and devices;
B. Participate in the ownership, management, operation, control or
financing of, or be connected as an investor, partner, officer, director,
principal, agent, representative, consultant or otherwise be associated with, or
permit his name to be used in connection with any business enterprise, wherever
located, which is engaged in the development of any product, device,
<PAGE>
instrument, process, technique, or project which is substantially similar in
function or purpose to those to which Consultant's services under this Agreement
relate, including the development of Vessel/Septal Occluder Devices or related
technology, products, instruments and devices; or
C. Take any action which is designed, intended or might reasonably be
anticipated to compete with the Company's business or interfere with the
relationship of the Company and any of its customers or suppliers, whether
previously existing or acquired in connection with the Purchase Agreement.
8.2 If, in any judicial proceeding, a court shall refuse to enforce
this covenant not to compete because it is more extensive in scope than
necessary to effectuate the purposes of such proceeding, such limitations shall
be deemed reduced to the extent necessary to permit enforcement of this
covenant.
ARTICLE 9
RIGHT TO INJUNCTIVE RELIEF
Consultant acknowledges that a breach of any of the terms of Articles
5, 6, 7, or 8 of this Agreement will render irreparable harm to the Company, and
that a remedy at law for breach of the Agreement is inadequate, and that the
Company shall therefore be entitled to any and all equitable relief, including,
but not limited to, injunctive relief, and to any other remedy that may be
available under any applicable law or agreement between the parties, and to
recover from the Consultant all costs of litigation including, but not limited
to, attorneys' fees and court costs. Consultant acknowledges that the
constraints herein are reasonably necessary to protect the legitimate interests
of the Company, are reasonable in scope and duration and are not unduly
restricted.
ARTICLE 10
REPRESENTATION
Consultant represents and warrants that none of the Consultant's
undertakings or activities under this Agreement will (i) involve the wrongful
use or disclosure of any proprietary rights of any third party, or (ii) give
rise to any claim by any third party of ownership or rights in the Inventions,
New Inventions, or the results of Consultant's testing and evaluation under this
Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 Consultant and the Company's respective rights and obligations
under this Agreement are unconditional and shall survive and continue after any
expiration or termination of the Agreement, and shall bind the parties and their
respective legal representatives, heirs, successors and assigns.
11.2 In addition to other relief provided by law, Consultant agrees
that the Company may enforce the covenants contained in the Agreement by an
injunction issued against Consultant and any person concerned, it being
understood that both damages and injunction shall be proper modes of relief and
are not to be considered as alternative remedies.
<PAGE>
11.3 In the event any provision of this Agreement is held unenforceable
by a court of competent jurisdiction, such provision shall be severed and shall
not affect the validity or enforceability of the remaining provisions.
11.4 This Agreement shall in all respects and in all instances be
governed by, enforced and construed in accordance with the internal laws (and
not the laws of conflicts) of the State of Minnesota, U.S.A. Any dispute arising
out of or relating to this Agreement must be heard by a state or federal court
sitting in Minneapolis, Minnesota, U.S.A. and Consultant hereby submits and
consents to the personal jurisdiction of such courts.
11.5 This Agreement constitutes the complete agreement and sets forth
the entire understanding and Agreement of the parties as to the subject matter
of this Agreement and supersedes all prior discussions and understandings in
respect to the subject of this Agreement.
11.6 No modification, termination or attempted waiver of this
Agreement, or any provision thereof, shall be valid unless in writing signed by
the party against whom the same is sought to be enforced.
11.7 The waiver by the Company of a breach of any provision of this
Agreement by Consultant shall not operate or be construed as a waiver of any
other or subsequent breach by Consultant.
11.8 This Agreement may not be assigned by either party without the
prior written consent of the other party; provided, however, that the Agreement
shall be assignable by the Company without Consultant's consent in the event the
Company (i) is acquired by or merged into another corporation or (ii) sells its
assets related to its Vessel/Septal Occluder Device business. The benefits and
obligations of this Agreement shall be binding upon and inure to the parties
hereto, their successors and assigns.
11.9 Consultant warrants that Consultant has not previously assumed any
obligations inconsistent with those undertaken by Consultant under this
Agreement.
11.10 The rights of the Company under this Agreement are in addition to
any rights of the Company with respect to the protection of trade secrets and
confidential information arising out of the common or statutory law of the State
of Minnesota, or the law of any state or country where Consultant may from time
to time be employed or found.
11.11 Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by facsimile or by
certified/registered mail with return receipt requested to the addresses set
forth below. Notices shall be deemed given only upon receipt (proof of receipt
shall include the return receipt and the facsimile transmission confirmation):
<PAGE>
If to the Company:
Applied Biometrics, Inc.
501 E. Highway 13
Burnsville, MN 55337
Telephone: 612-890-1123
Fax No.: 612-890-1104
With a copy to:
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attn: Patrick Delaney
Telephone: 612-371-3211
Fax No.: 612-371-3207
If to Consultant:
Bernhard Schneidt
Alter Graben 7
D-63571 Gelnhausen
Germany
Telephone: 00 49 60 51 / 152 84
Fax No.: 00 49 60 51 / 149 79
If the foregoing accurately sets forth our understanding, please so
indicate by signing in the space provided below and returning one fully signed
copy of this letter to the Company.
APPLIED BIOMETRICS, INC.
By: /s/ Joseph A. Marino
Joseph A. Marino
Its: President
CONSULTANT
/s/ Bernhard Schneidt
Bernhard Schneidt
EXHIBIT 10.9
NON-COMPETITION, CONFIDENTIALITY
AND ASSIGNMENT OF INVENTIONS AGREEMENT
This Agreement ("Agreement") dated as of November 2, 1997 is made and
entered into by and between Applied Biometrics, Inc., a Minnesota corporation
(the "Company") and Dr. Rainer Schrader ("Schrader").
BACKGROUND
The Company and Schrader are parties to a certain Purchase Agreement
(the "Purchase Agreement") dated October 23, 1997, whereby the Company acquired
all right, title and interest in specified assets (the "Assets," as that term is
defined in the Purchase Agreement). As a material inducement to the Company's
agreement to enter into and consummate the transactions contemplated by the
Purchase Agreement, the parties have agreed to enter into this Agreement and
hereby acknowledge the importance of the Company's ability to protect its
significant interest in the Assets and in the Company's worldwide business of
developing, marketing, distributing and selling "Vessel/Septal Occluder Devices"
and related products, instruments or devices.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
CONSIDERATION
1.1 The Company and Schrader hereby acknowledge and agree that the
Company's execution of and continued performance under the Purchase Agreement
are conditioned upon Schrader's execution of and continued performance under
this Agreement.
1.2 The parties hereby acknowledge and agree that the consideration
furnished by the Company to Schrader as contemplated by Article 3 of the
Purchase Agreement shall serve as the consideration for this Agreement.
ARTICLE 2
TERM
2.1 This Agreement shall be effective as of the date last signed and
shall continue in effect until December 31, 2003.
2.2 The provisions of Articles 3, 4, 5 and 6 of this Agreement shall
survive the termination of this Agreement and remain in full force and effect
thereafter.
<PAGE>
ARTICLE 3
CONFIDENTIAL INFORMATION
3.1 Schrader acknowledges that he holds certain "Confidential
Information" (as hereinafter defined) and may come into the possession of
Confidential Information during the term of this Agreement.
3.2 Schrader agrees that he will not, and his employees, agents or
representatives will not, use, directly or indirectly, Confidential Information
for the benefit of any person (including without limitation, Schrader's
colleagues), entity or organization other than the Company, or disclose such
Confidential Information without the written authorization of the President of
the Company, either during or after the term of this Agreement, for as long as
such information retains the characteristics of Confidential Information.
3.3 "Confidential Information" means information not generally known,
including trade secrets, about the Company's methods, processes, technology,
intellectual property and products, including but not limited to information
relating to such matters as research and development, analysis, manufacturing
methods, patents, patent applications, Inventions, processes, techniques,
composition of materials, applications for particular technologies, materials or
designs, vendor names, customer lists, schematics, designs, drawings, management
systems and sales and marketing plans (including without limitation, information
related to the Assets acquired under the Purchase Agreement and Inventions (as
hereinafter defined)). All information disclosed to Schrader, by the Company or
other third parties, or to which Schrader possesses or has access or which is
generated by Schrader on behalf of the Company prior to or during the term of
this Agreement which Schrader has a reasonable basis to believe is Confidential
Information or which is treated by the Company as Confidential Information shall
be presumed to be Confidential Information. Confidential Information includes
all trade secrets and know-how relating to the Assets possessed by Schrader
prior to the date of this Agreement or trade secrets and know-how that may in
the future be developed, acquired or made available to the Company.
3.4 The Company will rely heavily upon Schrader's integrity and prudent
judgment to use the Confidential Information only in the best interests of the
Company.
ARTICLE 4
INVENTIONS
4.l Schrader agrees that all "Inventions" (as hereinafter defined)
which Schrader (or any person, entity or organization hired by Schrader) may
conceive or reduce to practice during the term of this Agreement and all
Inventions which Schrader (or any person, entity or organization hired by
Schrader) may conceive or reduce to practice which are based in whole or in part
upon Confidential Information possessed by Schrader or obtained from the Company
shall be the exclusive property of, and are hereby assigned without charge to,
the Company unless released to Schrader in writing by the President of the
Company. "Invention" shall mean any invention, discovery, work of authorship,
modification, improvement, enhancement, concept or idea, whether patentable or
not (including those which may be subject to trademark, copyright or mask work
registration) including
<PAGE>
but not limited to products, technologies, machines, devices, instruments,
processes, methods, techniques, know-how and formulae which relate to the Assets
or Vessel/Septal Occluder Devices.
4.2 Schrader shall (a) promptly and fully disclose and describe all
related Inventions in writing to an officer of the Company or anyone else
designated by the Company (such disclosure shall include, if requested, a
detailed report of the procedure employed and the results achieved by Schrader);
and (b) give the Company all assistance the Company requires to perfect, protect
and use its rights to related Inventions, including but not limited to signing
all documents, doing all things and supplying all information that the Company
may deem necessary or desirable to (i) transfer or record the transfer to the
Company of the entire right, title and interest of Schrader and/or Schrader's
employees in related Inventions, and (ii) enable the Company to obtain patent,
copyright, mask work or trademark protection for the Inventions anywhere in the
world. The obligations of this paragraph shall continue beyond the expiration or
termination of this Agreement with respect to related Inventions which Schrader
and/or Schrader's employees, agents or representatives conceive or make during
the term of this Agreement.
ARTICLE 5
NON-COMPETE--RESTRICTIONS ON CERTAIN ACTIVITIES
5.1 Schrader agrees that during the term of this Agreement, he shall
not, directly or indirectly:
A. Render any consulting, research, analytical, marketing,
developmental, or other services to any person, entity or organization with
respect to any product, device, instrument, process, technique, or project which
is substantially similar in function or purpose to the Assets acquired by the
Company under the Purchase Agreement relate, including the manufacture,
marketing and development of Vessel/Septal Occluder Devices or related
technology, products, instruments and devices;
B. Participate in the ownership, management, operation control or
financing of, or be connected as an investor, partner, officer, director,
principal, agent, representative, Schrader or otherwise be associated with, or
permit his name to be used in connection with any business enterprise, wherever
located, which is engaged in the development of any product, device, instrument,
process, technique, or project which is substantially similar in function or
purpose to the Assets acquired by the Company under the Purchase Agreement
relate, including the development of Vessel/Septal Occluder Devices or related
technology, products, instruments and devices; or
C. Take any action which is designed, intended or might reasonably be
anticipated to compete with the Company's business or interfere with the
relationship of the Company and any of its customers or suppliers, whether
previously existing or acquired in connection with the Purchase Agreement.
5.2 If, in any judicial proceeding, a court shall refuse to enforce the
covenant not to compete because it is more extensive in scope than necessary to
effectuate the purposes of such
<PAGE>
proceeding, such limitations shall be deemed reduced to the extent necessary to
permit enforcement of this covenant.
ARTICLE 6
GENERAL PROVISIONS
6.1 Schrader and the Company's respective rights and obligations under
this Agreement are unconditional and shall survive and continue after any
expiration or termination of the Agreement, and shall bind the parties and their
respective legal representatives, heirs, successors and assigns.
6.2 In the event any provision of this Agreement is held unenforceable
by a court of competent jurisdiction, such provision shall be severed and shall
not affect the validity or enforceability of the remaining provisions.
6.3 This Agreement, as supplemented by the applicable terms of the
Purchase Agreement, constitutes the complete agreement and sets forth the entire
understanding and agreement of the parties as to the subject matter of this
Agreement and supersedes all prior discussions and understandings in respect to
the subject of this Agreement.
6.4 No modification, termination or attempted waiver of this Agreement,
or any provision thereof, shall be valid unless in writing signed by the party
against whom the same is sought to be enforced.
6.5 The waiver by the Company of a breach of any provision of this
Agreement by Schrader shall not operate or be construed as a waiver of any other
or subsequent breach by Schrader.
6.6 This Agreement may not be assigned by either party without the
prior written consent of the other party; provided, however, that the Agreement
shall be assignable by the Company without Schrader's consent in the event the
Company (i) is acquired by or merged into another corporation or (ii) sells its
assets related to its Vessel/Septal Occluder Device business. The benefits and
obligations of this Agreement shall be binding upon and inure to the parties
hereto, their successors and assigns.
6.7 Schrader warrants that Schrader has not previously assumed any
obligations inconsistent with those undertaken by Schrader under this Agreement
6.8 The rights of the Company under this Agreement are in addition to
any rights of the Company with respect to the protection of trade secrets and
confidential information arising out of the common or statutory law of the State
of Minnesota, U.S.A. or the law of any state or country where Schrader may from
time to time be employed or found.
6.9 Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by facsimile or by
certified/registered mail with return receipt requested to
<PAGE>
the addresses set forth below. Notices shall be deemed given only upon receipt
(proof of receipt shall include the return receipt and the facsimile
transmission confirmation):
If to the Company: With a copy to:
Applied Biometrics, Inc. Lindquist & Vennum P.L.L.P.
501 E Highway 13 4200 IDS Center
Burnsville, MN 55337 80 South Eighth Street
Telephone: 612-890-1123 Minneapolis, MN 55402
Fax No.: 612-890-1104 Attn: Patrick Delaney
Telephone: 612-371-3213
Fax No.: 612-371-3207
If to Schrader:
Dr. Rainer Schrader
Hedderich Stra e 69a
D 60596
Frankfurt, Germany
Telephone: 011-49-69-615913
Fax No.: 011-49-6961-5913
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
APPLIED BIOMETRICS, INC.
By: /s/ Joseph A. Marino
Joseph A. Marino
Its: President
DR. RAINER SCHRADER
/s/ Rainer Schrader
Rainer Schrader
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-81486 and 333-04555) and Form S-3 (Nos.
333-42789) of Applied Biometrics, Inc. of our report dated February 19, 1998
which appears on page F-2 of this Form 10-KSB.
Price Waterhouse LLP
Minneapolis, Minnesota
March 25, 1998
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