<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 30, 1996.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- --- For the transition period from to .
----- -----
Commission file number 0-20652
ACCUMED INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-4054899
---------------------------- -------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
900 N. Franklin St., Suite 401, Chicago, IL 60610
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(Address of principal executive offices)
(312) 642-9200
--------------
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
The number of shares of Common Stock outstanding as of November 11, 1996:
21,934,710
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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ACCUMED INTERNATIONAL, INC.
INDEX
Page
Number
PART I Financial Information
1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1996 (unaudited) and December 31, 1995 ..... 1
Consolidated Statements of Operations-
Nine Months Ended September 30, 1996 and 1995 (unaudited)
Three Months Ended September 30, 1996 and 1995 (unaudited) 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) ....... 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 6
PART II. Other Information
6. Exhibits and Reports on Form 8-K ............................. 15
SIGNATURES .............................................................. 16
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCUMED INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (Unaudited) (Audited)
------ ------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 145,811 $ 180,508
Restricted cash 300,000 363,000
Accounts receivable 1,427,781 874,712
Prepaid expenses and deposits 238,381 124,836
Production inventory 1,566,539 1,143,120
----------- -----------
Total current assets 3,678,512 2,686,176
----------- -----------
Fixed assets, net 1,308,310 528,402
----------- -----------
Intangible assets 4,288,673 2,644,556
Other assets 731,491 115,069
----------- -----------
$10,006,986 $ 5,974,203
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 2,896,440 $ 2,005,861
Other current liabilities 896,369 870,313
Deferred revenue 45,644 1,454,450
Notes payable 1,312,497 726,514
Capital lease obligation due within one year 106,456 88,270
----------- -----------
Total current liabilities 5,257,406 5,145,408
----------- -----------
Long term portion of capital lease obligation 4,350 89,810
Deferred rent 14,025 10,278
Stockholders' equity
Common stock, $0.01 par value, 30,000,000 shares
authorized, 17,808,447 shares issued and
outstanding at September 30, 1996 and
15,571,184 at December 31, 1995. 178,084 155,712
Additional paid-in capital 33,351,069 23,334,495
Cumulative transaction adjustment (2,236) -
Accumulated deficit (28,635,755) (22,761,500)
----------- -----------
4,891,162 728,707
Less treasury stock, 26,270 shares at September 30, 1996 (159,957) -
and 0 shares at December 31, 1995.
----------- -----------
Total stockholders' equity 4,731,205 728,707
----------- -----------
$10,006,986 $ 5,974,203
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------ ----------------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 3,668,150 $ 414,162 $ 1,356,056 $ 93,657
Less cost of sales (2,054,122) (1,203,887) (588,665) (732,822)
----------- ----------- ------------ -----------
Gross profit (loss) 1,614,028 (789,725) 767,391 (639,165)
----------- ----------- ------------ -----------
Operating expenses:
General and administrative 2,874,079 1,710,709 1,082,545 850,458
Research and development 5,298,016 235,899 508,604 96,057
Sales and marketing 1,465,047 137,788 623,481 62,829
----------- ----------- ------------ -----------
Total operating expenses 9,637,142 2,084,396 2,214,630 1,009,344
Operating loss (8,023,114) (2,874,121) (1,447,239) (1,648,509)
Other income (expense):
Interest income 15,796 7,285 4,336 4,592
Interest expense (450,628) (33,390) (12,643) (7,417)
Other income 3,588,623 32,566 58,818 (67,484)
Other expense (1,004,082) (45,777) (18,790) (45,777)
----------- ----------- ------------ -----------
Total other income (expense) 2,149,709 (39,316) 31,721 (116,086)
----------- ----------- ------------ -----------
Loss before income taxes (5,873,405) (2,913,437) (1,415,518) (1,764,595)
Income tax expense 850 600 - 200
----------- ----------- ------------ -----------
Net loss $(5,874,255) $(2,914,037) $ (1,415,518) (1,764,795)
=========== =========== ============ ===========
Net loss per share $ (0.36) $ (0.46) $ (0.08) $ (0.28)
=========== =========== ============ ===========
Weighted average common shares outstanding 16,502,973 6,375,627 17,722,514 6,375,627
=========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,874,255) $(2,914,037)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 866,733 177,807
Write-off of in-process research and development 3,499,727 -
Expenses paid with issuance of warrants 1,184,390 142,500
Expenses paid with issuance of stock 257,094 166,000
Shares received for litigation settlement (159,957) -
Loss on disposal of assets 74,706 63,609
Changes in assets and liabilities: - -
Decrease (Increase) in restricted cash 63,000 (185,000)
Decrease (Increase) in accounts receivable (553,069) 195,724
Decrease (Increase) in prepaid expenses and deposits (113,545) 22,853
Decrease (Increase) in production inventory (423,419) 356,162
(Increase) in other assets (736,422) (1,525)
Increase in accounts payable 888,343 262,752
(Increase) in deferred merger cost - (299,650)
Increase in other current liabilities 26,056 62,726
Increase (Decrease) in deferred revenue (1,408,806) 470,238
------------ -----------
Total adjustments (1,479,841)
Net cash used in operating activities (2,409,424) (1,479,841)
------------ -----------
Cash used in investing activities:
Purchase of fixed assets (938,123) (48,403)
------------ -----------
Net cash used in investment activities (938,123) (48,403)
------------ -----------
Cash flows from financing activities:
Proceeds from issuances of common stock, net 2,841,885 2,954,486
Notes receivable issued - (700,000)
Payment of capital lease obligation (63,527) (52,204)
Proceeds from issuance of notes payable 1,000,000 -
Proceeds from Bank Loan 500,000 -
Payment of notes payable (964,017) -
------------ -----------
Net cash provided by financing activities 3,314,341 2,202,282
------------ -----------
Effect of exchange rate changes to cash (1,491) --
Net increase (decrease) in cash and cash equivalents (34,697) 674,038
Cash and cash equivalents at beginning of period 180,508 42,173
------------ -----------
Cash and cash equivalents at end of period $ 145,811 $ 716,211
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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ACCUMED INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Preparation of Interim Financial Statements: The accompanying
consolidated financial statements have been prepared in accordance with
the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a presentation of financial
position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management,
such consolidated financial statements reflect all normal and recurring
adjustments necessary for a fair presentation of the results of operations
and financial position for the interim periods presented. Operating
results for the nine month and the three month periods ended September 30,
1996 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1996.
These consolidated financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto for the three
months ended December 31, 1995, included in the Company's Transition Report
on Form 10-KSB for the period ended December 31, 1995.
2. Deferred Revenue: At December 31, 1995, the Company had deferred
revenue of $1,454,450 pending resolution of certain lawsuits. Upon
settlement of these lawsuits in February 1996, the Company received an
additional $2,000,000 from Becton Dickinson & Co., $1,000,000 each in
February and March 1996, per the terms of a worldwide license agreement
executed on October 10, 1995. Total income recognized for the nine month
period ended September 30, 1996 per the terms of this agreement was
$3,454,450 and has been reflected as other income in the consolidated
statement of operations.
3. Merger Transaction: On December 29, 1995, the Company acquired all of
the common stock of AccuMed, Inc. and its wholly-owned subsidiary.
Pursuant to the terms of the merger agreement, 1,881,910 shares of Common
Stock and 126,945 warrants were issued to AccuMed, Inc. stockholders and
warrantholders, respectively, which were contingent and subject to
forfeiture if specified performance goals were not achieved by the merged
entity. The contingency associated with 940,955 shares of Common Stock
and 63,473 warrants was resolved (performance goal achieved) in March 1996
resulting in contingent consideration of $5,430,326. Such amount has been
allocated to identifiable intangibles of acquired proprietary technology
($1,930,599) and in-process research and development ($3,499,727). The
acquired proprietary technology is being amortized over the expected
period to be benefited of ten years, with the in-process research and
development charged to operations during the nine months ended September
30, 1996.
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4. Warrants: In March 1996, the Company granted to an individual warrants
to purchase 100,000 shares of Common Stock at a price of $2.125 per share.
These warrants expire in January 2001. The fair market value of these
warrants of $230,000 has been recorded as issuance of Common Stock
warrants with an offsetting charge reflected as administration expense in
the consolidated statement of operations for the nine month period ended
September 30, 1996. In March 1996, the Company granted to certain
investors in a related party warrants to purchase 675,000 shares of Common
Stock at a price of $3.42 to $3.87 per share. These warrants expire in
March 1999. The fair market value of these warrants of $852,390 has been
recorded as issuance of Common Stock warrants with an offsetting charge
reflected as other expense in the consolidated statement of operations for
the nine month period ended September 30, 1996.
5. Issuance of Common Stock: During the quarter ended September 30, 1996,
the Company issued 94,308 shares of Common Stock of which 69,308 shares
were issued as consideration for the purchase of certain patents held by
Technostics, Inc., and which are subject to forfeiture if the Company is
unable through August 1997 to perfect and maintain rights free of liens on
the acquired patents.
6. Warrant exercise: During the quarter ended September 30, 1996, 95,200
warrants with exercise prices between $0.25 and $5.00 were exercised with
net proceeds to the Company of $298,125.
7. Shares issued to related party: In June 1996, 166,586 shares of Common
Stock were issued to a related party pursuant to an agreement requiring
that the outstanding principal and unpaid interest pursuant to a loan,
totaling $78,125, be converted into 68,500 shares of Common Stock of the
Company. The loan was an obligation of AccuMed, Inc. entered into prior to
its merger with and into the Company whereby the Company assumed the
obligations of AccuMed, Inc.
8. Stock Option Plan: For the three month period ended September 30, 1996,
the Company granted options to purchase 502,500 shares of Common Stock
with exercise prices of $5.38 to $6.38 per share, and options for 154,999
shares were exercised at prices ranging from $1.13 to $1.39 with net
proceeds to the Company of $ 205,049.
9. Note Payable: In January 1996, the Company received $250,000 cash in
exchange for a note payable bearing interest at 11% due in April 1996, and
warrants to purchase 160,000 shares of Common Stock at $1.25 per share.
The total proceeds received of $250,000 were allocated to the warrants
based on their estimated fair value of $352,000. The difference of
$102,000 has been reflected as other expense in the consolidated statement
of operations for the nine month period ended September 30, 1996. The
original issue discount of $250,000 relating to the notes payable will be
amortized over the term of the note.
10. Acquisitions: In July 1996, the Company signed a letter of intent to
acquire a two-thirds equity interest in Oncometrics Imaging Corp.
("Oncometrics") for a total purchase price of $4,000,000, of which
$2,000,000 was paid directly to Oncometrics and is intended to be used
5
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solely as working capital for Oncometrics. The acquisition was completed
on October 15, 1996.
In July 1996, the Company signed a letter of intent to acquire the 90% of
the common stock not then owned by the Company, and to repay certain notes
payable of RADCO Ventures, Inc. ("RADCO"), for an aggregate cost of
approximately $1,400,000 in cash. The acquisition of the common stock and
the note repayments were completed on October 15, 1996, at which time
RADCO became a wholly-owned subsidiary of the Company.
11. Subsequent Events: The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 with
respect to the underwritten public offering of 3,000,000 shares of the
Company's Common Stock.. The registration statement was declared effective
by the Commission on October 3, 1996, and net proceeds of the offering
approximating $11,700,000, were received by the Company on October 8, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effective December 29, 1995, AccuMed, Inc. was merged with and into the
Company (the "Merger"). The results of operations reflected in the Company's
consolidated statement of operations for the quarter and nine months ended
September 30, 1996 include the operations of the two merged businesses, whereas
results of operations from prior periods and years reflect the operations and
sales of the Alamar microbiology product line only. The historical results of
operations of the Company presented herein are not necessarily indicative of
future results of operations of the Company.
The Merger has been accounted for as a purchase, which resulted in certain
changes. The value of the securities not subject to contingencies issued by
the Company upon consummation of the Merger exceeded the value of the assets
acquired by $6,600,000. At December 31, 1995, $4,000,000 of such amount was
allocated to acquired in-process research and development and written off
immediately as a non-cash charge against operations. The remaining $2,600,000
was booked as purchased technology and is being amortized over ten years
beginning December 31, 1995. Certain of the securities issued by the Company
upon consummation of the Merger were subject to forfeiture if specified
earnings per share or stock price performance goals were not met following the
Merger. During the quarter ended March 31, 1996, the contingencies were
satisfied with respect to a portion of such securities having a then current
fair market value of $5,400,000. Of such amount, $3,500,000 was allocated to
acquired in-process research and development and written off immediately as a
non-cash charge against operations. The remaining $1,900,000 was booked as
purchased technology and is being amortized over ten years beginning March 31,
1996. If specified contingencies applicable to the remaining 940,955 shares of
Common Stock and warrants to purchase up to 63,472 shares of Common Stock
issued in the Merger are met during 1997, an amount equal to the fair market
value of such securities at the time such contingencies are satisfied will be
recorded as goodwill. It is anticipated that such
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goodwill will be amortized over ten years and that the Company will continue to
assess the recoverability of such asset as prescribed by the Company's current
accounting policies.
Pending consummation of the Merger, the Company took various actions to
streamline and relocate its operations. The Company's manufacturing facility
in Sacramento, California was closed in August 1995, and all obligations under
its lease were satisfied during the second quarter of 1996. During the summer
and fall of 1995, the Company terminated the employment of all its employees,
other than two officers. From July 1, 1995 until consummation of the Merger,
the Company's manufacturing, marketing, sales, distribution and research and
development functions were performed by AccuMed, Inc. under contracts. After
consummation of the Merger, the Company resumed research and development,
manufacturing and marketing and sales activities, and hired a significant
number of employees.
At September 30, 1996, the Company had an accumulated deficit of
$28,635,755. On December 31, 1995, the Company changed its fiscal year end from
September 30 to December 31.
Revenues from sales for the quarter ended September 30, 1996 increased to
$1,356,000 compared to $94,000 for the quarter ended September 30, 1995, and
revenue from sales increased to $3,668,000 in the nine months ended September
30, 1996 compared to $414,000 for the comparable 1995 period, in each case due
primarily to the inclusion of sales of the Sensititre product line as a result
of the acquisition of the Sensititre business at the end of 1995 and continued
increases in sales of the Company's recently introduced cytopathology products.
Cost of sales decreased from $733,000 in the third quarter of 1995 to
$589,000 in the third quarter of 1996, reflecting improved production
efficiencies and the elimination of costs related to discontinued California
manufacturing operations. Cost of sales increased $1,204,000 for the nine
months ended September 30, 1995 to $2,054,000 for the comparable 1996 period,
due to the additional cost resulting from a higher volume of sales in the
microbiology product line and increased cytopathology instrument sales.
General and administrative expenses increased from $850,000 in the third
quarter of 1995 to $1,083,000 in the comparable 1996 quarter primarily due to
increases in staffing and relocation expenses related to the new staff and
increased investor relations efforts. General and administrative expenses
increased from $1,711,000 for the nine months ended September 30, 1995 to
$2,874,000 for the comparable 1996 period, primarily due to the recognition of
a non-cash charge attributable to the issuance of warrants to purchase an
aggregate of 100,000 shares of Common Stock at an exercise price of $2.125 per
share as compensation for consulting services, as well as relocation of
corporate offices, increased staffing and related relocation expenses related
to the new staff, and increased investor relations efforts.
Research and development expenses increased from $96,000 in the third
quarter of 1995 to $509,000 in the third quarter of 1996 due primarily to
resumption of research and development activities after the Merger. Research
and development expenses increased from $236,000 for the nine months ended
September 30, 1995 to $5,298,000 for the comparable 1996 period, primarily
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due to such resumption of activities after the Merger and a non-cash charge
against operations of $3,500,000 representing the write-off of in-process
research and development acquired in connection with the Merger.
Sales and marketing expenses increased from $63,000 in the third quarter
of 1995 to $623,000 in the third quarter of 1996, and from $138,000 for the
nine months ended September 30, 1995 to $1,465,000 for the comparable 1996
period, in each case due to reinstatement of domestic sales and marketing
efforts which had been suspended during the 1995 periods.
For the nine month period in 1996, other income increased by $2,110,000
compared to the first nine months of 1995 principally due to payments of
$3,500,000 from Becton Dickinson and Company ("Becton") pursuant to a license
agreement. At December 31, 1996, $1,400,000 of such payments had been recorded
as deferred revenues pending resolution of subsequently resolved litigation.
Offsetting such income was $954,000 of expense during the first quarter of 1996
recorded as a non-cash charge representing the fair market value of warrants
issued. Of such amount, (i) $852,000 is attributable to warrants to purchase
an aggregate of 687,500 shares of Common Stock, with a weighted average
exercise price of $3.73 per share, issued to investors in connection with the
initial capitalization of RADCO Ventures, Inc. (initially a joint venture
formed by the Company and certain investors which has been subsequently
acquired by the Company as a wholly-owned subsidiary) ("RADCO"), and (ii)
$102,000 is attributable to warrants to purchase an aggregate of 100,000 shares
of Common Stock, at an exercise price of $1.25 per share, issued in
consideration of a loan to the Company of $250,000 from the warrant holder.
Net loss decreased from $1,765,000 for the third quarter of 1995 to
$1,416,000 for the third quarter of 1996, due to increased sales volume and
cost controls in manufacturing offset by increased operating expenses of the
Company after the Merger. Net loss per share for the quarter ended September
30, 1996 was $0.08 compared to $0.28 for the quarter ending September 30, 1995.
Weighted average shares outstanding increased to 17,723,000 at September 30,
1996, from 6,376,000 at September 30, 1995.
For the nine months ended September 30, 1996, net loss was $5,874,000 as
compared to $2,914,000 for the comparable 1995 period. The increase in the
latter period was primarily attributable to the non-cash charge against
operations relating to the write-off of in-process research and development
acquired in connection with the Merger and other changes in direct operations
as described above. The net loss per share for the first nine months of 1996
was $0.36 compared to $0.46 for the comparable 1995 period. The increased net
loss was diluted by an increase in the weighted average shares outstanding to
16,503,000 at September 30, 1996, from 6,376,000 at September 30, 1995.
The Company's accounts receivable were $1,428,000 as of September 30,
1996, an increase of $553,000 from December 31, 1995, due primarily to sales of
the Company's initial cytopathology products and varying payments terms of the
Company's international microbiology distributors.
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The Company's production inventory was $1,567,000 as of September 30,
1996, an increase of $423,000 from December 31, 1995, as a result of increased
levels of in raw materials and finished goods inventories required to support
sales of the Company's initial cytopathology products.
The Company's accounts payable were $2,896,000 as of September 30, 1996,
an increase of $890,000 from December 31, 1995, primarily as a result of the
increase in inventories and receivables described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been substantially dependent on the private placements of
its debt and equity securities and the proceeds of its initial public offering
of securities consummated in October 1992 and subsequent public offering
consummated in October 1996 to fund its cash requirements. From the initial
public offering through September 30, 1996, the Company has raised
approximately $22,800,000 in aggregate net proceeds from the initial public
offering and such private placements. The Company's underwritten public
offering consummated in October 1996 raised additional net proceeds to the
Company of approximately $11,700,000 in cash. The Company's most recent
private placements were closed in May and June 1996, resulting in the issuance
of an aggregate of 255,000 shares of Common Stock for net proceeds of
approximately $1,400,000. During the third quarter of 1996, the Company
received an aggregate of $205,049 upon the exercise of certain stock options
and an aggregate of $298,125 upon the exercise of certain warrants.
In connection with the Company's initial public offering and certain
private placements, the Company issued warrants to purchase an aggregate of
2,702,905 shares of Common Stock (the "Redeemable Warrants"). If the closing
price per share of Common Stock exceeds $7.50 (subject to adjustment) per share
for a minimum of 20 consecutive trading days, the Company would have the right
to redeem the Redeemable Warrants, upon notice of not less than 60 days given
to holders within three days following any such 20 day period, at a redemption
price of $0.25 per underlying share. The exercise price of the Redeemable
Warrants, which expire October 1, 1997, is $5.00 per share. If all Redeemable
Warrants were exercised, of which there can be no assurance, the Company would
receive approximately $13.5 million in gross proceeds. The Company has agreed
with the underwriters of the public offering consummated in October 1996 not to
redeem the Redeemable Warrants, without the underwriters' consent, prior to
October 3, 1997.
Pursuant to the License Agreement entered into between the Company and
Becton in October 1995 (the "License Agreement"), Becton has a semi-exclusive,
worldwide license to the Company's alamarBlue(TM) technology for a specific
field of use. Becton was obligated to pay $3,500,000 in cash for use of the
technology, of which $1,500,000 was received during 1995 and $2,000,000 was
received during the first quarter of 1996. Of such amount, $500,000 will be
creditable against future royalty payments, if any. Becton is obligated to pay
the Company royalties on net sales of products incorporating the technology
licensed under the License
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Agreement during its five-year term. As of the date of this report, there have
been no sales of products incorporating such technology.
At September 30, 1996, the Company had $2,896,000 of accounts payable, of
which approximately $1,800,000 was past the respective original due dates. In
late 1995 and early 1996, the Company reached agreements with certain vendors
providing for the extended repayment of amounts owed by the Company to such
vendors. Past due amounts owed to various vendors and suppliers may be subject
to late charges of up to 1.5% per month.
The Company intends to expend substantial funds for research and product
development, possible acquisitions, scale-up of manufacturing capacity,
reduction of accounts payable and other working capital and general corporate
purposes, utilizing proceeds from the recent public offering. Although the
Company believes that the net proceeds of the recent public offering, together
with interest thereon, existing cash balances and internally generated funds
will be sufficient to finance the Company's projected operations through at
least the next 12 months, there can be no assurance to that effect. The
Company's future liquidity and capital requirements will depend upon numerous
factors, including the costs and timing of expansion of manufacturing capacity,
the costs, timing and success of the Company's product development efforts, the
costs and timing of acceptance of the Company's products, competing
technological and market developments, the progress of commercialization
efforts of the Company and its distributors, the costs involved in preparing,
filing, prosecuting, maintaining, enforcing and defending patent claims and
other intellectual property rights, developments related to regulatory and
third-party reimbursement matters, and other factors. If additional financing
is needed, the Company may seek to raise additional funds through public or
private financings, collaborative relationships or other arrangements.
The Company currently has no commitments with respect to sources of
additional financing, and there can be no assurance that any such financing
sources, if needed, would be available to the Company or that adequate funds
for the Company's operations, whether form the Company's revenues, financial
markets, collaborative or other arrangements with corporate partners or from
other sources, will be available when needed or on terms satisfactory to the
Company. The failure of the Company to obtain adequate additional financing
may require the Company to delay, curtail or scale back some or all of its
studies and regulatory activities and, potentially, to cease its operations.
Any additional equity financing may involve substantial dilution to the
Company's then-existing stockholders.
IMPACT OF ACQUISITION OF INTEREST IN ONCOMETRICS
On October 15, 1996, the Company acquired a two-thirds equity interest, on
a fully-diluted basis, in Oncometrics Imaging Corp. ("Oncometrics") for
aggregate cash consideration of $4,000,000. Of such consideration, $2,000,000
was paid to Xillix Technologies Corp. (the parent company of Oncometrics) for
currently outstanding Oncometrics stock, and $2,000,000 was paid to Oncometrics
for newly issued Oncometrics stock. The transaction will be accounted for
under the purchase method of accounting, resulting in approximately $1,600,000
of acquired in-process research and development and approximately $1,100,000 of
purchased technology.
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Amounts recorded as acquired in-process research and development will be
written off as a charge to earnings in the Company's 1996 fourth quarter.
Amounts recorded as purchased technology will be amortized over the expected
useful life of such technology, currently anticipated to be ten years.
Furthermore, at September 30, 1996, Oncometrics had approximately $231,000 in
long-term, third-party debt, including the current portion of long-term debt,
which the Company has assumed.
IMPACT OF ACQUISITION OF RADCO
On October 15, 1996, the Company acquired the remainder of the common
stock of RADCO, not then held by the Company, and repaid RADCO's notes payable
for an aggregate cost to the Company of approximately $1,400,000 in cash. The
transaction will be accounted for under the purchase method of accounting,
resulting in approximately $630,000 of acquired in-process research and
development. Such amount will be written-off as a charge to earnings in the
Company's 1996 fourth quarter.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. A number of
uncertainties exist that could affect the Company's future operating results,
including, without limitation, the factors set forth below and in the Company's
most recent Annual Report on Form 10-KSB.
The Company has a limited relevant operating history upon which an
evaluation of its prospects can be made. Such prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in
establishing a new business in a continually evolving industry with an
increasing number of market entrants and intense competition as well as the
risks, expenses and difficulties encountered in the shift from development to
commercialization of new products based on innovative technology.
The Company has incurred significant net operating losses in each fiscal
quarter since its inception. As of September 30, 1996, the Company had an
accumulated deficit of approximately $28,636,000. Losses are expected to
continue for the foreseeable future until such time, if ever, as the Company is
able to attain sales levels sufficient to support its operations. There can be
no assurance that the Company will be able to implement successfully its
operating strategy, generate increased revenues or ever achieve profitable
operations.
The Company has generated limited revenues from the sale of its
cytopathology products to date. The Company's success, growth and
profitability will depend primarily on market acceptance of its cytopathology
products for use in connection with cervical cancer screening by cytopathology
laboratories. There can be no assurance that the Company can demonstrate that
the high initial cost of equipping existing laboratories with its products will
be offset by a reduction in costs associated with increased efficiency and
decreased malpractice liability risks
11
<PAGE> 14
resulting from more accurate diagnosis, better data management capability and
better documentation of slide review procedures.
Due in part to a recent trend toward consolidation of clinical
laboratories, the Company expects that the number of potential domestic
customers for its cytopathology products will decrease. The Company will need
to foster an awareness of and acceptance by its potential customers of the
benefits of the Company's systems over current methods. The Company's
dependence on sales to large laboratories may strengthen the purchasing
leverage of these potential customers. There can be no assurance that the
Company will be successful in selling its products, or that any such sales will
result in sufficient revenue to allow the Company to become profitable.
The Company's growth and profitability will depend, in part, upon its
ability to complete development of and successfully introduce new products.
The Company will likely be required to undertake time-consuming and costly
development activities and seek regulatory approval for new products. There
can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing
of new products, that regulatory clearance or approval of these or any new
products will be granted on a timely basis., if ever, or that the new products
will adequately meet the requirements of the applicable market or achieve
market acceptance.
The Company has only limited experience marketing and selling its
cytopathology products. The Company intends to distribute its cytopathology
products primarily through a limited number of distributors. The Company has
only recently entered into its only current cytopathology distribution
arrangement. The Company will be required to enter into additional
distribution arrangements in order to achieve broad distribution of its
cytopathology products. There can be no assurance that the Company will be
able to maintain its current distribution arrangement or that the company will
be able to enter into and maintain arrangements with additional distributors on
acceptable terms, or on a timely basis, if at all.
The Company's products face competition from companies that may be
developing competing systems. The Company believes that many of the Company's
existing and potential competitors possess substantially greater financial,
marketing, sales, distribution and technical resources than the Company, and
more experience in research and development, clinical trials, regulatory
matters, manufacturing and marketing. The medical diagnostics industry is
characterized by rapid product development and technological advances. There
can be no assurance that other technologies or products that are functionally
similar to those of the Company are not currently available or under
development, or that other companies with expertise and resources that would
encourage them to attempt to develop and market competitive products will not
develop new products directly competitive with the Company's products.
The Company expects that its operating results will fluctuate
significantly from quarter to quarter and will depend on various factors, many
of which are outside the Company's control. These factors include the success
of the marketing efforts for the Company's products, obtaining necessary
regulatory clearances or approvals for the Company's products, the timing and
level of expenditures associated
12
<PAGE> 15
with expansion of sales and marketing activities and overall operations, the
Company's ability to cost effectively expand manufacturing capacity and
maintain consistently acceptable yields, the timing of establishment of
strategic distribution arrangements and the success of the activities conducted
under such changes in government regulation and other factors, the timing of
significant orders from and shipments to customers, and general economic
conditions. These or other factors could have a material adverse effect
Company's business, financial condition and results of operations.
If specified earnings per share or stock price performance thresholds are
met during 1997, contingencies will be satisfied with respect to 940,955 shares
of Common Stock and warrants to purchase 63,472 shares of common Stock issued
in connection with the Merger and an amount equal to the fair market value of
such securities at the date on which such contingencies are satisfied is
expected to be recorded as goodwill. It is anticipated that such goodwill will
be amortized over ten years and that the Company will continue to assess the
recoverability of such asset as prescribed by the Company's current accounting
policies.
There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's future
operations. Any failure to implement and improve the Company's operational,
financial and management systems or to expand, train, motivate or manage
employees as required by future growth, if any, could have a material adverse
effect on the Company's business, financial condition and results of operations
Certain key components and raw materials used in the manufacturing of the
Company's products are currently obtained from single vendors. Although the
Company believes that alternative sources for such components and raw materials
are available, any supply interruption in a single-sourced component or raw
material would have a material adverse effect on the Company's ability to
manufacture products until a new source of supply were qualified. There can be
no assurance that the Company would be successful in qualifying additional
sources on a timely basis, if ever. Failure to do so would have a material
adverse effect on the Company's business, financial condition and results of
operations.
International sales and operations may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs or difficulties in staffing
and managing international operations. Foreign regulatory agencies often
establish product standards different from those in the United States and any
inability to obtain foreign regulatory approvals on a timely basis could have a
material adverse effect on the Company's international business operations.
Additionally, the Company's business, financial condition and results of
operations may be adversely affected by increases in duty rates and
difficulties in obtaining required licenses and permits. There can be no
assurance that the Company will be able to successfully commercialize its
products, or any future product, in any foreign market.
The market price of the shares of the Company's Common Stock has in the
past been and is likely in the future to continue to be, highly volatile.
Factors such as fluctuations in the Company's operating results, announcements
of technological innovations or new commercial products by the Company or
competitors, government regulation, changes in the current structure of the
health care financing and payment systems, developments in or disputes
regarding patent
13
<PAGE> 16
or other proprietary rights, economic and other external factors and general
market conditions may have a significant effect on the market price of the
Common Stock. Moreover, the stock market has from time to time experienced
extreme price fluctuations which have particularly affected the market prices
for medical products and high technology companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations, as well as general economic, political and market conditions, may
adversely affect the market price of the company's common stock. In the past,
following periods of volatility in the market price of a company's common
stock, securities class action litigations have occurred against the issuing
company. There can be no assurance that such litigation will not occur in the
future with respect to the Company.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed herewith:
10.1 Shareholder Agreement dated as of October 15, 1996 among
the Registrant, Xillix Technologies Corp. and Oncometrics
Imaging Corp.
10.2 Amendment No.2 dated as of October 10, 1996 to the
Collaboration Agreement and Worldwide Exclusive License dated
March 22, 1994 between the Registrant and G & G Dispensing, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. No Reports on Form 8-K were filed by the
Company with the Securities and Exchange Commission during the quarter ended
September 30, 1996.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
Undersigned thereunto authorized.
ACCUMED INTERNATIONAL, INC.
/s/ Leonard Prange
------------------------------
Leonard R. Prange
Chief Financial Officer and Corporate
Vice President
Date: November 14, 1996
16
<PAGE> 1
EXHIBIT 10.1
SHAREHOLDERS AGREEMENT AMONG
ACCUMED INTERNATIONAL , INC.,
XILLIX TECHNOLOGIES CORP.
AND
ONCOMETRICS IMAGING CORP.
MADE AS OF OCTOBER 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1 - INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Gender, Plural and Singular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Meaning of Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Share Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.9 Description of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Representations of AccuMed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Representations of Xillix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3 - FINANCE/DISTRIBUTION OF NET PROFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Initial Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Additional Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Limited Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Subordination of Shareholder's Loans . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Restriction on Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.9 Advances by Xillix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.10 Distribution of Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4 - ISSUANCE OF ADDITIONAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Pre-emptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Pro Rata Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Proportional Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Sale to Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Determination of Price of Additional Securities . . . . . . . . . . . . . . . . . . . 15
4.6 Exception for Public Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5 - MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Duties and Powers of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Failure to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
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5.7 Super Majority Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.9 Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.10 Handling of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.11 Preparation and Approval of Annual Budgets and Business Plan . . . . . . . . . . . . . 19
5.12 Directors and Officers Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6 - REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Limitation on Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Offering Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Information from Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Indemnification of Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Notification of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Retention of Other Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.11 Single Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.12 Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7 - RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Transfers Restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Transfer to Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.4 No Transfer by Defaulting Shareholder . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Further Restrictions of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 Subsequent Shareholders to be Bound . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7 Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.3 Buy-Sell Procedure on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4 Monies Held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9 - COMPLETION OF TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Parties to the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Payment for Transfer Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Closing Documents and Escrow by Company . . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Time to be of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Failure to Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Waiver and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.8 Multiple Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.9 Set-off if Vendor Indebted to the Company . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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9.10 Payment of Liens on Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.11 Assumption of Purchase Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.12 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 10 - CEASING TO BE A SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11 - SHARE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 Legend on Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12 - DETERMINATION OF FAIR MARKET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.1 Submission to Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.2 Review of FMV Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Submission to Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.4 No Premiums, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.5 Final and Conclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.6 Payment of Auditor's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 13 - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13.2 Qualifications of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.3 Final and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 14 - NON-COMPETITION AND CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.1 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 15 - AMENDMENTS TO AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 16 - TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
16.1 Method of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
16.2 Termination Shall Not Affect Certain Rights . . . . . . . . . . . . . . . . . . . . . 45
SECTION 17 - GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.1 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.4 Shareholders to Take Further Steps . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.5 Company to be Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.8 Continuance into the Yukon Territory . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.9 Conflict with Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.10 Whole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.11 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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17.12 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.13 Enurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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SHAREHOLDERS AGREEMENT
THIS AGREEMENT made as of the 15th day of October, 1996.
AMONG:
ACCUMED INTERNATIONAL, INC., a corporation duly incorporated
and existing under the laws of the State of Delaware, United
States of America, having its principal office at 900 N.
Franklin, Suite 401, Chicago, Illinois, U.S.A., 60610
("AccuMed")
AND:
XILLIX TECHNOLOGIES CORP., a corporation duly incorporated and
existing under the laws of the Province of British Columbia,
having its principal office at 300 - 13775 Commerce Parkway,
Richmond, British Columbia, V6V 2V4
("Xillix")
AND:
ONCOMETRICS IMAGING CORP., a corporation duly incorporated and
existing under the laws of the Province of British Columbia,
having its principal office at 505 - 601 West Broadway Street,
Vancouver, British Columbia, V5Z 4C2
(the "Company")
AND:
Each and every holder of shares in the capital of the Company
who agrees to be bound by this Agreement in accordance with
its terms
WHEREAS:
A. The Company is a corporation duly incorporated and organized
under the laws of the Province of British Columbia;
<PAGE> 7
B. The Company was formed for the purpose of acquiring from
Xillix, and completing the development of, a proprietary technology for the
screening of high risk individuals for cancer;
C. The Company has acquired and now owns or holds rights to the
technology referred to in Recital B hereof and certain related patents, patent
applications, trademarks, inventories, equipment and other assets;
D. The authorized share capital of the Company consists of
50,000,000 Common shares, of which 3,000,000 Common shares are issued and
outstanding;
E. As of the date of this Agreement the issued and outstanding
shares of the Company are owned as follows:
Shareholder Shareholding
----------- ------------
AccuMed 2,000,000 Common shares
Xillix 1,000,000 Common shares
F. The Shareholders wish to set out the terms and conditions
under which each will hold its Shares and their agreement upon certain other
matters of mutual interest.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the premises and the mutual covenants and promises herein contained, the
Parties hereby covenant and agree each with the others as follows:
SECTION 1 - INTERPRETATION
1.1 DEFINITIONS. For the purposes of this Agreement, the
following words shall, whenever used in this Agreement, unless there is
something in the subject or context inconsistent therewith, have the following
respective meanings:
(a) "Advancing Shareholders" has the meaning provided for in
section 3.2(e);
(b) "Affiliate" means, with respect to any Shareholder:
(i) any corporation which is directly or indirectly
controlled by such Shareholder, and if any
Shareholder shall be a corporation, means in addition
to the foregoing, any Person or Persons which owns or
controls more than 50% of the voting securities of
such
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<PAGE> 8
corporate Shareholder and any other corporation
directly or indirectly controlled by such Person or
Persons;
(ii) any Person which is not acting at Arm's Length to
such Shareholder;
(c) "Approved Budget" means an operating and capital budget of the
Company approved by a Super Majority Approval pursuant to
section 5.11(c), including, for greater certainty, the 1996-97
Budget;
(d) "Arbitrator" has the meaning provided for in section 13.1;
(e) "Arm's Length" has the meaning ascribed thereto in the Income
Tax Act in effect on the date of this Agreement;
(f) "Assumption Agreement" has the meaning provided for in
section 7.6;
(g) "Auditors" means:
(i) if the Company has appointed an auditor pursuant to
the provisions of section 202 of the Company Act, the
auditor of the Company most recently so appointed; or
(ii) if the Company has not so appointed an auditor, the
firm of chartered accountants most recently engaged
by the Company to advise upon, or assist in the
preparation of, review, or report on, its financial
statements; or
(iii) such nationally recognized firm of chartered
accountants as has been approved by a Super Majority
Approval;
and, where such term is used in section 12, means a member of
such Auditors who is an accredited member in good standing of
The Canadian Institute of Chartered Business Valuators or the
equivalent professional association in the United States of
America;
(h) "Bank" has the meaning provided for in section 5.9;
(i) "Board" means the board of directors of the Company;
(j) "Business" means the business carried on, or proposed to be
carried on, by the Company, which, for greater certainty,
consists of the activities described in the Business Plan;
(k) "Business Plan" means the revised business plan and executive
summary of the Company dated May, 1996, a copy of which has
been
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<PAGE> 9
delivered to each of AccuMed and Xillix, and which will be
made available to any other Person who becomes a Party, as
amended from time to time in accordance with section 5.11(c);
(l) "Capital West" has the meaning provided for in section 3.1(a);
(m) "Closing" means any closing of the purchase and sale of the
Shares or Interest of a Shareholder as provided herein;
(n) "Closing Date" has the meaning provided for in section 9.1;
(o) "Common shares" means the Common shares without par value in
the capital of the Company;
(p) "Company Act" means the Company Act of British Columbia, as
amended from time to time;
(q) "Contract" has the meaning provided for in section 9.2;
(r) "control", where used in connection with any corporation,
means:
(i) the right to exercise a majority of the votes which
may be voted at a general meeting of such
corporation; or
(ii) the right to elect or appoint, directly or
indirectly, a majority of the directors of such
corporation or other Persons who have the right to
manage or supervise the management of the affairs and
business of the corporation;
(s) "Convertible Securities" has the meaning provided for in
section 4.1;
(t) "Default" has the meaning provided for in section 8.1;
(u) "Default Interest" has the meaning provided for in
section 8.3;
(v) "Default Offer" has the meaning provided for in section 8.3;
(w) "Defaulting Shareholder" has the meaning provided for in
section 8.1;
(x) "Determination Date" has the meaning provided for in
section 12.1;
(y) "Disclosure Documents" has the meaning provided for in
section 6.8(a);
(z) "Fair Market Value" means, with respect to any Shares or
Convertible Securities, the highest price available for such
Shares or Convertible
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<PAGE> 10
Securities, as the case may be, in an open and unrestricted
market between informed and prudent parties, acting at Arm's
Length and under no compulsion to act, expressed in terms of
cash, as determined pursuant to and in accordance with section
12;
(aa) "FMV Report" has the meaning provided for in section 12.1;
(ab) "Income Tax Act" means the Income Tax Act (Canada), S.C. 1985,
Fifth Supplement, c.1, as amended and in force on the date
hereof;
(ac) "Indemnified Party" has the meaning provided for in
section 6.9;
(ad) "Initial Cash Call Notice" has the meaning provided for in
section 3.2(a);
(ae) "Interest" means, in respect of each Shareholder, all of its
Shares, Convertible Securities and Shareholder's Loan (and
accrued interest thereon, if any);
(af) "1933 Act" means the Securities Act of 1933 of the United
States, as amended, together with all regulations, rules and
policies from time to time thereunder;
(ag) "1996-97 Budget" has the meaning provided for in
section 5.11(f);
(ah) "Non-Advancing Shareholder" has the meaning provided for in
section 3.2(e);
(ai) "Non-defaulting Shareholder" or "Non-defaulting Shareholders"
has the meaning provided for in section 8.1(a);
(aj) "Offered Securities" has the meaning provided for in
section 4.1;
(ak) "Offered Shares" has the meaning provided for in
section 7.2(a);
(al) "Offering Expenses" means all expenses incidental to the
Company's performance of or compliance with its obligations
under section 6 of this Agreement, including, without
limitation, all registration and filing fees, insurance costs,
all fees and expenses of complying with the Securities Laws,
all printing and translation expenses, all reasonable fees and
disbursements of counsel to the Selling Shareholders (who
shall, except in the case of a conflict, be the law firm which
acts as counsel to the Company in connection with the
registration or qualification), all reasonable fees and
disbursements of counsel for the Company and its auditors,
including the expenses of any special audits required by or
incidental to performance and compliance, but excluding
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<PAGE> 11
any underwriting fees, discounts and commissions and
applicable transfer taxes, if any, which shall be borne by the
Selling Shareholders, pro rata in proportion to the number of
Shares being sold by each Selling Shareholder;
(am) "Offering Notice" has the meaning provided for in section 6.1;
(an) "Other Shareholders" has the meaning provided for in
section 7.7(a);
(ao) "Party" means a Person who has either executed and delivered
this Agreement or an Assumption Agreement, and "Parties" means
all or more than one of them;
(ap) "Person" means an individual, corporation, limited liability
corporation, partnership, limited liability partnership,
association, trust or other entity or organization;
(aq) "Prime Rate" means the annual rate of interest designated from
time to time by the Bank as its prime rate;
(ar) "Proposed Transferee" has the meaning provided for in
section 7.5;
(as) "Proposing Transferor" has the meaning provided for in
section 7.2(a);
(at) "Public Offering" has the meaning provided for in
section 16.1(c);
(au) "Publicly Offered Securities" has the meaning provided for in
section 6.1;
(av) "Purchase Notice" has the meaning provided for in
section 8.2(c);
(aw) "Purchase Price" means, with respect to any sale and purchase
of the Shares or Interest of a Shareholder pursuant hereto,
the amount payable to purchase such Shares or Interest as
determined in accordance with the provisions hereof applicable
to that sale and purchase;
(ax) "Purchaser" means a Person which is the purchaser (or Persons
which are the purchasers) of Shares or of an Interest pursuant
to any of the provisions of this Agreement;
(ay) "Second Cash Call Notice" has the meaning provided for in
section 3.2(b);
(az) "Securities Laws" has the meaning provided for in section 6.1;
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<PAGE> 12
(ba) "Selling Shareholder" or "Selling Shareholders" has the
meaning provided for in section 6.1;
(bb) "Selling Shareholder's Shares" has the meaning provided for in
section 6.1;
(bc) "Shareholder" means each Person (other than the Company) who:
(i) is the registered owner of any Shares;
(ii) is a Party; and
(iii) has not ceased to be a Shareholder pursuant to
section 10.1;
(bd) "Shareholder's Loan" means, in respect of each Shareholder,
the amount of money advanced from time to time as a loan by
that Shareholder to the Company and not repaid, together with
accrued and unpaid interest thereon, if any;
(be) "Shares" means, as at any date, all shares of any description
in the capital of the Company which are then issued and
outstanding, and, where used in connection with a particular
Shareholder, means, all shares in the capital of the Company
which, as at such date, are directly or indirectly owned by
that Shareholder;
(bf) "Subsidiary" shall have the meaning ascribed thereto in
subsection 1(3) of the Company Act;
(bg) "Super Majority Approval" means, with respect to any matter,
the approval of such matter set out in a resolution, consent
or other instrument executed, in one or more counterparts, by
Shareholders owning at least 75% of the issued and outstanding
Common shares;
(bh) "Tag-Along Notice" has the meaning provided for in
section 7.7(a)(ii);
(bi) "Third Party Offer" has the meaning provided for in
section 7.7(a);
(bj) "Third Party Offeror" has the meaning provided for in
section 7.7(a);
(bk) "Transfer Interest" has the meaning provided for in
section 9.2;
(bl) "Transfer Notice" has the meaning provided for in
section 7.2(a);
(bm) "Treasury Offer" has the meaning provided for in section 4.1;
7
<PAGE> 13
(bn) "Vendor" means a Shareholder who is the seller (or the
Shareholders who are the sellers) of Shares or of an Interest
or Interests pursuant to any of the provisions of this
Agreement; and
(bo) "Yukon Act" has the meaning provided for in section 17.8.
1.2 GENDER, PLURAL AND SINGULAR. In this Agreement, the masculine
includes the feminine and neuter genders and the plural includes the singular
and vice versa and modifications to the provisions of this Agreement may be
made accordingly as the context requires.
1.3 INTERPRETATION. The words like "herein", "hereof" "hereunder"
and other similar words refer to this Agreement as a whole, and should not be
limited to the particular section or part in which those words appear. All
references to sections refer, unless expressly stated otherwise, to the
sections, subsections or sub-subsections in this Agreement.
1.4 CAPTIONS. The captions appearing in this Agreement have been
inserted for reference and as a matter of convenience only and in no way
define, limit or enlarge the scope or meaning of this Agreement or any
provision hereof.
1.5 MEANING OF PRO RATA. Unless the context otherwise requires,
all rights, obligations or other matters which are, under the terms of this
Agreement, to be determined on a proportionate or pro rata basis, shall be
determined on a basis which is pro rata or proportionate to the total number of
Common shares issued and outstanding as of the date of such determination.
1.6 SHARE CHANGES. The provisions of this Agreement relating to
the Shares shall apply, mutatis mutandis, to any shares or securities:
(a) into or for which the Shares may be exchanged, converted,
changed, reclassified, subdivided or consolidated;
(b) acquired by the Shareholders pursuant to the exercise of a
right or offer granted or to be made by the Company;
(c) received by the Shareholders as a stock dividend or
distribution; and
(d) of the Company or of any successor corporation which may be
received by holders of the Shares on a reorganization,
amalgamation or merger.
1.7 ACCOUNTING TERMS. All accounting terms not defined in this
Agreement shall, whenever used in this Agreement, unless there is something in
the subject or context inconsistent therewith, have the respective meanings
ascribed to them in accordance with generally accepted accounting principles
from time to time applicable in Canada.
8
<PAGE> 14
1.8 CURRENCY. Unless otherwise indicated herein, all dollar
amounts referred to in this Agreement are expressed in lawful currency of
Canada.
1.9 DESCRIPTION OF SCHEDULES. The following are the schedules to
this Agreement, which form an integral part hereof:
Schedule "A" - Form of Assumption Agreement
SECTION 2 - REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS OF ACCUMED. AccuMed represents and warrants
to each of the other Parties that:
(a) AccuMed is a company duly incorporated under the laws of the
State of Delaware, United States of America and is valid,
subsisting and in good standing with respect to the filing of
annual reports;
(b) AccuMed has the corporate power to own the assets and
properties owned by it, to carry on the businesses carried on
by it, to enter into this Agreement and to perform and observe
the obligations and agreements set out in this Agreement;
(c) this Agreement has been duly executed and delivered by AccuMed
and is a valid and binding obligation of AccuMed enforceable
in accordance with its terms, except as may be limited by laws
of general application affecting the rights of creditors and
principles of equity; and
(d) AccuMed has good and sufficient right and authority to enter
into this Agreement on the terms and conditions herein set
forth.
2.2 REPRESENTATIONS OF XILLIX. Xillix represents and warrants to
each of the other Parties that:
(a) Xillix is a company duly incorporated under the laws of the
Province of British Columbia, is a reporting company, and is
valid, subsisting and in good standing with respect to the
filing of annual reports;
(b) Xillix has the corporate power to own the assets and
properties owned by it, to carry on the businesses carried on
by it, to enter into this Agreement and to perform and observe
the obligations and agreements set out in this Agreement;
(c) this Agreement has been duly executed and delivered by Xillix
and is a valid and binding obligation of Xillix enforceable in
accordance with its
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<PAGE> 15
terms, except as may be limited by laws of general application
affecting the rights of creditors and principles of equity; and
(d) Xillix has good and sufficient right and authority to enter
into this Agreement on the terms and conditions herein set
forth.
SECTION 3 - FINANCE/DISTRIBUTION OF NET PROFITS
3.1 INITIAL FUNDING. The Company shall use the proceeds in the
amount of $2,000,000 which it has received from the issue and sale of 1,000,000
Common shares to AccuMed as follows:
(a) to pay the fees (in cash, in the amount of 6% of such gross
proceeds) and the reasonable, documented expenses (not to
exceed $15,000 (U.S.)) payable to 1991 Capital West Partners
("Capital West") in connection with the sale of such Shares
pursuant to the terms of the engagement letter dated October
13, 1995 between Capital West and Xillix;
(b) to pay to Xillix all amounts referred to in section 3.9; and
(c) for the purposes described in its 1996-97 Budget.
3.2 ADDITIONAL FUNDING. The Company shall fund its business
operations and capital expenditures in the manner provided for in the Approved
Budget from time to time in effect. Should it be determined by the Board, in
accordance with sound and prudent business practices, that additional funds are
required by the Company at any time, the Company will attempt to borrow such
funds from a bank or other third party lender. To the extent that the Company
is unable to borrow such additional funds from a bank or other third party
lender, the Shareholders shall, upon receipt of the written notice referred to
in section 3.2(a) below, pro rata to their shareholdings in the capital of the
Company, advance to the Company sufficient money to meet the Company's
requirements. Such money will be requested and advanced in the following
manner:
(a) upon the Board determining that additional funds are required,
in accordance with this section 3.2, the Secretary of the
Company will deliver a notice (the "Initial Cash Call Notice")
to each of the Shareholders, advising them of the requirement
for additional funds, the amount of such funds, the purpose
for which they are required and each Shareholder's pro rata
share of such amount;
(b) the Shareholders shall consider and approve or disapprove of
the Initial Cash Call Notice within 10 business days after the
date on which such Notice is deemed given pursuant to section
17.2. If the Initial Cash Call Notice is approved by a Super
Majority Approval within
10
<PAGE> 16
such period, the Secretary of the Company shall deliver a
further notice (the "Second Cash Call Notice"), together with
a copy of such Super Majority Approval, to each of the
Shareholders, which notice shall set out the amount of money
required to be advanced by such Shareholder pursuant to the
Initial Cash Call Notice and the period, which shall not be
less than 60 days after the date on which the Second Cash Call
Notice is deemed given pursuant to section 17.2, during which
such money must be advanced to the Company;
(c) each Shareholder shall advance to the Company the amount of
money set out in the Second Cash Call Notice delivered to such
Shareholder within the period specified in such Notice;
(d) if each of the Shareholders advances the amount of money set
out in the Second Cash Call Notice delivered to it within the
period specified therein, such advances will be deemed to have
been made by way of Shareholder's Loans and the Company shall
issue to each Shareholder a receipt evidencing the amount
advanced by such Shareholder; and
(e) if any Shareholder (the "Non-Advancing Shareholder") fails to
advance to the Company the amount of money set out in the
Second Cash Call Notice delivered to it, within the period
specified in such Notice, (i) the other Shareholders (the
"Advancing Shareholders") may, at their option, within 14 days
thereafter advance all or any portion of such monies to the
Company, and (ii) the amount of money advanced to the Company
by each of the Advancing Shareholders pursuant to the Second
Cash Call Notice and this section 3.2(e) shall be deemed to
have been advanced by way of an irrevocable subscription by
such Shareholder for further Common shares, at a price per
share equal to the Fair Market Value thereof, in which event
the Company shall forthwith instruct the Auditors to determine
the Fair Market Value of such Common shares in accordance with
section 12 and, upon the final determination thereof, shall
make a Treasury Offer of such shares to the Shareholders in
accordance with section 4. If none of the Non-Advancing
Shareholders elects to purchase any of such Common shares in
accordance with section 4, the Company shall accept the
subscriptions of the Advancing Shareholders and issue all of
such Common shares pursuant thereto. If any of the
Non-Advancing Shareholders elects, in accordance with section
4, to purchase any of such Common shares, the number of Common
shares to be issued to the Advancing Shareholders shall be
reduced by the number of such Shares which the Non-Advancing
Shareholders have elected to purchase, on a pro rata basis, in
which event the Company shall, forthwith after the issuance of
such shares, repay to the Advancing Shareholders the excess
monies advanced by them, together with interest thereon at the
Prime Rate plus 2% per annum.
11
<PAGE> 17
3.3 LIMITED OBLIGATION. For greater certainty, it is acknowledged
and agreed that none of the Shareholders shall be legally obligated to advance
any monies to the Company, after the date of this Agreement, except such
advances as are approved by a Super Majority Approval pursuant to section 3.2.
3.4 SUBORDINATION OF SHAREHOLDER'S LOANS. The Shareholders shall
subordinate and postpone their respective Shareholder's Loans to any and all
financings or borrowings by the Company from its Bank, or from any other
financial institution, to the extent reasonably required by the Board.
3.5 REPAYMENT. As the finances of the Company permit, the Company
shall repay Shareholder's Loans as follows:
(a) firstly, the Shareholder whose Shareholder's Loan account is
greatest in proportion to its shareholding in the Company when
compared to the Shareholder's Loans and shareholdings in the
Company of the other Shareholders shall be repaid, until the
Shareholder's Loan of each Shareholder is proportional to its
shareholding in the Company when compared to the other
Shareholders; and
(b) secondly, the Shareholder's Loan of each of the Shareholders
shall be repaid on a pro rata basis in the proportion that the
total amount of its Shareholder's Loan bears to the total
amount of all Shareholder's Loans owing by the Company to all
of the Shareholders immediately prior to such repayment.
3.6 INTEREST. Subject to section 3.9, Shareholder's Loans shall
not bear interest.
3.7 RESTRICTION ON DEMAND. Subject to section 3.9, no Shareholder
shall demand repayment of its Shareholder's Loan, unless:
(a) such repayment is approved by a Super Majority Approval; or
(b) this Agreement has terminated in accordance with section 16
hereof.
3.8 INDEMNITIES. If at any time any of the Shareholders becomes a
guarantor or a surety of, or otherwise liable for, any indebtedness or
obligations of the Company, or any of its Subsidiaries, each of the other
Shareholders which has consented in writing to such guarantee, surety or other
liability, shall protect, indemnify and save harmless the Shareholder so liable
so that each of such Shareholders shall be liable and shall pay its share of
such indebtedness or obligation proportionately to the respective shareholdings
of such Shareholder in the capital of the Company (calculated as if such
Shareholders were the sole shareholders of the Company). Each of the
Shareholders hereby consents to the
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<PAGE> 18
obligation of Xillix to repay the loan of approximately $318,338 advanced by
the Western Economic Diversification Program to Xillix, and assumed by the
Company, and, for purposes of this section 3.8, acknowledges and agrees that
such obligation shall be deemed to be a guarantee of an obligation of the
Company provided by Xillix and consented to in writing by each of the other
Shareholders. Notwithstanding the joint and several or limited liability
nature of any guarantee, surety or liability entered into or assumed by any of
the Shareholders as between those Shareholders which have entered into, assumed
or consented in writing to any such guarantee, surety or other liability, their
liability for the payment of the above mentioned indebtedness and obligations
of the Company shall be proportionate to the respective shareholdings of such
Shareholders in the capital of the Company.
3.9 ADVANCES BY XILLIX. Notwithstanding any of the provisions of
this section 3, any and all financing provided by Xillix to the Company, and
any and all obligations of the Company incurred or paid by Xillix, in either
case in respect of the period from and after August 31, 1996 to and including
the date of this Agreement, shall bear interest at the Prime Rate plus 2% per
annum, and shall be paid by the Company to Xillix on a date not earlier than
the date of this Agreement and not later than 30 days after the Company
receives satisfactory evidence thereof.
3.10 DISTRIBUTION OF PROFITS. Except when precluded or prohibited
by the terms of any debt instrument or other agreement to which the Company is
a party or by which it is bound, and to the extent permitted by law, the net
profits of the Company available for distribution, after making such transfers
to reserves as the Board considers appropriate, shall be distributed annually
(unless otherwise determined by the Board), within 120 days of the Company's
fiscal year end, firstly by way of repayment of Shareholder's Loans in
accordance with the provisions of section 3, and secondly by way of dividends
or bonuses, as determined by the Board.
SECTION 4 - ISSUANCE OF ADDITIONAL SECURITIES
4.1 PRE-EMPTIVE RIGHTS. The Company shall not create, allot or
issue, or agree to create, allot or issue, any shares (including, without
limitation, any Common shares required to be issued pursuant to section
3.2(e)), or any options or other securities which are convertible or
exchangeable for or into shares in the capital of the Company (the "Convertible
Securities"), to any Person, unless, in addition to any other approvals
required under this Agreement and the Company Act, the Company first makes an
offer (the "Treasury Offer") to issue and/or sell such shares or Convertible
Securities (collectively, the "Offered Securities"), at a price per Offered
Security equal to the Fair Market Value thereof determined in accordance with
section 12, to all of the Shareholders as nearly as may be in proportion to the
number of Shares held by them respectively at the date of the Treasury Offer.
The Treasury Offer shall specify such price, shall limit the time within which
the Treasury Offer, if not accepted, will be deemed to be declined
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<PAGE> 19
(which time shall be not less than 15 days after the date on which such
Treasury Offer is deemed given pursuant to section 17.2), shall state that any
Shareholder which desires to subscribe for or purchase a number of Offered
Securities so offered in excess of its proportion shall in its reply state how
many Offered Securities in excess of its proportion for which it desires to
subscribe or purchase, and shall specify the date on which the Offered
Securities will be issued and paid for (which date shall not be less than 30
days after the date on which such Treasury Offer is deemed given pursuant to
section 17.2).
4.2 PRO RATA ALLOCATION. If all the Shareholders do not agree to
subscribe for their respective proportions of the Offered Securities, the
remaining Offered Securities shall be used to satisfy the claims of
Shareholders for Offered Securities in excess of their proportions, and if the
claims in excess are more than sufficient to exhaust such unclaimed Offered
Securities, the unclaimed Offered Securities shall be allocated pro rata among
the Shareholders desiring excess Offered Securities in proportion to their
existing holdings of Shares, but so that no Shareholder shall be bound to take
any Offered Securities in excess of the number which it specified in the reply
given under section 4.1.
4.3 PROPORTIONAL OFFER. If any Offered Securities shall not be
capable of being offered to or allocated among the Shareholders in proportion
to their existing holdings of Shares without division into fractions, the
Offered Securities shall be offered to or allocated among the Shareholders as
nearly as may be in proportion to the number of Shares held by them,
respectively, at the date of the Treasury Offer, such number to be determined
by the Board. If any of the Offered Securities covered by the Treasury Offer
shall be subscribed for or purchased by Shareholders pursuant to the foregoing
provisions of this section 4, then the Offered Securities so subscribed for or
purchased shall be issued and sold at the price set out in the Treasury Offer.
4.4 SALE TO THIRD PARTIES. If within the time limited by the
Treasury Offer all of the Offered Securities have not been subscribed for or
purchased by the Shareholders, the Company may, within 120 days from the date
of the Treasury Offer, issue and sell such number of Offered Securities as
shall not have been subscribed for or purchased by Shareholders pursuant to the
provisions of this section 4 to any Person or Persons at a price not less than
the price set out in the Treasury Offer and on the other terms and conditions
set out in the Treasury Offer; provided that such Person or Persons to whom the
Company issues and sells the Offered Securities, contemporaneously with the
purchase of the Offered Securities, shall have executed and delivered either
this Agreement or an Assumption Agreement. After the expiration of the said
120 days, no issuance of Offered Securities shall be made, except with the
consent in writing of all the Shareholders or by further Treasury Offer in
respect of such Offered Securities made in accordance with this section 4.
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<PAGE> 20
4.5 DETERMINATION OF PRICE OF ADDITIONAL SECURITIES. The issue
price for any and all Offered Securities to be issued and sold by the Company
to Shareholders pursuant to this section 4 (including, without limitation, the
Shares required to be issued pursuant to section 3.2(e)) will be the Fair
Market Value of such Offered Securities, which shall, unless each of the
Shareholders otherwise agrees in writing, be finally determined in accordance
with section 12 prior to the Company making the Treasury Offer.
4.6 EXCEPTION FOR PUBLIC OFFERINGS. The provisions contained in
sections 4.1 to 4.5, inclusive, shall not apply to a Public Offering.
SECTION 5 - MANAGEMENT
5.1 CORPORATE MATTERS. The Shareholders and the Company agree
that, notwithstanding any provisions to the contrary contained in the Articles
of the Company, the matters referred to in this section 5 shall be governed by
the applicable provisions of this section and that, in the case of any
inconsistency or conflict between the Articles of the Company and the
provisions of this section 5, the provisions of this section shall govern.
5.2 DIRECTORS. The Shareholders shall vote their Shares so that
the Board shall consist of five directors, of whom three shall be the nominees
of AccuMed, one shall be the nominee of Xillix and one shall be the President
of the Company. If a position on the Board becomes vacant for any reason
whatsoever, the Shareholder whose nominee formerly occupied that position shall
be entitled to nominate a new director to fill such vacancy. The directors of
the Company shall initially be as follows:
Name Nominee of
---- ----------
Branko Palcic President
Pierre J. Leduc Xillix
Peter P. Gombrich AccuMed
Norman J. Pressman AccuMed
Donald M. Earhart AccuMed
5.3 OFFICERS. Each Shareholder shall cause its nominee
director(s) to vote to appoint the following Persons to the offices set
opposite their respective names:
Name Office
---- ------
Peter P. Gombrich Chairman
Branko Palcic President
and Chief Executive Officer
Pierre J. Leduc Secretary
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5.4 DUTIES AND POWERS OF OFFICERS. Subject to the Articles of the
Company, the duties, powers and responsibilities of each of the officers of the
Company shall be those duties, powers and responsibilities determined from time
to time by the Board.
5.5 FAILURE TO VOTE. In the event that a director of the Company
shall fail to vote and act as a director to carry out the provisions of this
Agreement, the Shareholders shall exercise their rights as members of the
Company to remove such director and to elect in his or her place an individual
who will use his or her best efforts to carry out the provisions of this
Agreement.
5.6 VOTING. Each Shareholder shall vote or cause to be voted the
Shares held or controlled by it as provided for in or contemplated by this
Agreement, so as to give full effect to the provisions and to the spirit of
this Agreement, which provisions shall, to the extent permitted by law, in the
event of any inconsistency or conflict supersede and have precedence over the
provisions of the Articles and Memorandum of the Company.
5.7 SUPER MAJORITY REQUIRED. Except as otherwise provided in this
Agreement, the following matters will only be undertaken with, in addition to
the consents or approvals, if any, required under the Company Act or the
Articles of the Company, a Super Majority Approval:
(a) the sale, lease, transfer, mortgage, pledge or other
disposition of all or substantially all of the undertaking of
the Company;
(b) any increase, reduction, alteration, modification, amendment,
subdivision or consolidation of the authorized capital of the
Company, whether issued or unissued;
(c) the consolidation, merger or amalgamation of the Company or
any of its Subsidiaries with any other company, association,
partnership or legal entity;
(d) any expenditures or commitments not provided for in the
Approved Budget then in effect;
(e) any single capital expenditure of the Company or any of its
Subsidiaries in excess of $15,000, or any capital expenditures
which exceed, in the aggregate, the sum of $100,000 in any one
fiscal year of the Company;
(f) the creation, allotment or issuance of, or agreement to
create, allot or issue, any shares or other securities of the
Company or any of its Subsidiaries, or the granting of any
option or right capable of becoming an option to purchase any
shares or other securities of the Company or any of its
Subsidiaries, other than pursuant to section 3.2(e), but
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including, for greater certainty, the creation, allotment or
issuance of, or agreement to create, allot or issue, any
shares or other securities of the Company pursuant to or in
connection with a Public Offering;
(g) the guarantee by the Company or any of its Subsidiaries of the
debts of any other Person, other than a Subsidiary of the
Company, in any amount;
(h) any loans by the Company or any of its Subsidiaries to any
other Person, other than a Subsidiary of the Company, in any
amount;
(i) any contract (or amendment of such contract), agreement or
other transaction between the Company or any of its
Subsidiaries and any Shareholder or an Affiliate of a
Shareholder, other than the contracts, agreements or
transactions expressly referred to or contemplated herein;
(j) any agreement by the Company or any of its Subsidiaries which
restricts or purports to restrict, or which permits any other
party to accelerate or demand the payment of any indebtedness
of the Company or any of its Subsidiaries upon the sale,
transfer or other disposition by a shareholder of its Shares;
(k) any change in the authorized signing officers of the Company
or any of its Subsidiaries in respect of legal documents or
transactions with any bank or other financial institution;
(l) the winding up or liquidation of the Company, the institution
of proceedings to be adjudicated a bankrupt or insolvent,
consenting to the institution of such proceedings against the
Company, consenting to the institution of bankruptcy or
insolvency proceedings against the Company under the
Bankruptcy and Insolvency Act (Canada) or any other analogous
laws, consenting to the filing of any such petition or to the
appointment of a receiver or receiver manager of the property
of the Company, making a general assignment for the benefit of
creditors, or admitting in writing the Company's inability to
pay its debts as they become due or taking any corporate
action in furtherance of any of the aforesaid purposes;
(m) the declaration or payment of, or agreement to declare or pay,
any dividend, salary, bonus, fees or other remuneration by the
Company or any of its Subsidiaries to any Shareholder, or
Affiliate of a Shareholder, other than:
(i) the declaration and payment of dividends in respect
of the Common shares or preferred shares of the
Company which are
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<PAGE> 23
declared and paid on a pro rata basis to the holders
of all Common shares or preferred shares, as the
case may be;
(ii) the payment of interest on Shareholder's Loans in
accordance with section 3.6 hereof; and
(n) the redemption, repurchase or retirement for value of any
shares or other securities of the Company, unless the Company
offers to redeem, repurchase or retire all of the issued and
outstanding shares or securities of such class or, in case a
part only of such shares or securities is to be redeemed,
repurchase or retired, the Company offers to redeem,
repurchase or retire such shares or securities on a pro rata
basis;
(o) the repayment, in whole or in part, of any Shareholder's Loan
other than in accordance with section 3;
(p) the appointment or removal of directors or officers of any
Subsidiary of the Company;
(q) the appointment or removal of the President and/or Chief
Executive Officer of the Company;
(r) any amendment to an Approved Budget or the Business Plan;
(s) any transaction out of the ordinary course of the business of
the Company or any of its Subsidiaries; and
(t) after the completion of the continuance referred to in section
17.8, any other transaction or matter which is required to be
approved or authorized by a special resolution under the Yukon
Act.
5.8 REMUNERATION. Subject to section 5.7, the remuneration of the
officers of the Company, if any, shall be in such amounts as the Board may from
time to time determine.
5.9 BANK. The bank of the Company shall be The Royal Bank of
Canada or such other bank as the Board may from time to time determine (the
"Bank").
5.10 HANDLING OF MONEY. All money received by the Company from any
source shall be paid into the Bank to an account to be kept in the Company's
name and shall only be withdrawn or paid out by cheque or other similar
instrument signed by the Person or Persons and upon the terms and conditions as
the Board shall from time to time determine.
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<PAGE> 24
5.11 PREPARATION AND APPROVAL OF ANNUAL BUDGETS AND BUSINESS PLAN.
(a) The President of the Company shall, at least 120 days prior to
the end of each fiscal year of the Company, prepare and submit
an operating and capital budget to the Board, together with
any proposed amendments to the Business Plan, which the Board
shall revise or amend as it considers appropriate.
(b) The Board shall deliver a copy of the budget and amended
Business Plan referred to in section 5.11(a) above, as amended
pursuant to such section, to each of the Shareholders at least
60 days prior to the end of the Company's fiscal year.
(c) The Shareholders shall, at least 30 days prior to the end of
the fiscal year, approve, by a Super Majority Approval, the
budget and amended Business Plan delivered pursuant to section
5.11(b), either in the form delivered or subject to such
changes or amendments as the Shareholders approving the same
consider appropriate.
(d) The Parties acknowledge and agree that the Business Plan,
including the budget for the initial twelve month period
contained therein (the "1996-97 Budget"), has been reviewed
and approved by each of them.
(e) Each of the Parties shall use its best efforts to ensure that
the business and operations of the Company are conducted in
accordance with the Approved Budget and Business Plan from
time to time in effect.
5.12 DIRECTORS AND OFFICERS INSURANCE. AccuMed shall, at no cost
to the AccuMed, the other Shareholders or the directors and officers of the
Company, as soon as practicable take such steps as are necessary or desirable
to cause the directors and officers of the Company to be added as named
insureds pursuant to the Directors and Officers Liability insurance policy
maintained by AccuMed from time to time. If, at any time, AccuMed is unable to
include any of the directors and officers of the Company as named insureds
under such insurance policy, without the payment of increased premiums, the
Company will either reimburse AccuMed for such increased premiums, in which
event AccuMed shall promptly obtain the coverage referred to above, or the
Company will, at its expense, obtain separate Directors and Officers Liability
insurance for the benefit of the directors and officers who are not covered by
AccuMed's policy.
SECTION 6 - REGISTRATION RIGHTS
6.1 INCIDENTAL REGISTRATION. If the Company at any time proposes
to qualify and/or register any of its securities (the "Publicly Offered
Securities") under the securities laws of Canada or the United States of
America or any province, state,
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<PAGE> 25
territory or political subdivision thereof (the "Securities Laws"), whether or
not for sale for its own account, in a form and manner which would permit
distribution to the public under any of the Securities Laws of any of the
Company's securities, it will give prompt written notice (the "Offering
Notice") to the Shareholders of its intention to do so. Upon the written
request of any Shareholders (each such Shareholder being a "Selling
Shareholder"; if more than one, collectively the "Selling Shareholders")
delivered to the Company within 15 days after the giving of the Offering Notice
(which request shall specify the Shares intended to be disposed of by that
Selling Shareholder and the intended method or methods of disposition thereof),
the Company will use reasonable commercial efforts to effect the qualification
and registration under the applicable Securities Laws of, subject to
section 6.5, the Shares specified by each Selling Shareholder (the "Selling
Shareholder's Shares"), provided that if:
(a) Underwritten. The qualification or registration of the
Publicly Offered Securities relates to an underwritten
offering of the securities (on a firm commitment basis) by or
through one or more underwriters, whether or not for the
account of the Company;
(b) Not Included. None or less than all of the Selling
Shareholder's Shares are to be included in the underwritten
offering (either because the Company has not received a
request pursuant to section 6.1 or, having received such a
request, it has been unable so to include such Shares after
using reasonable efforts to do so as provided in section 6.5);
and
(c) Adverse Affect. The managing underwriter or underwriters of
the underwritten offering advises the Company in writing of
its view (together with the reasons therefor) that the
distribution of all or a specified portion of the Selling
Shareholder's Shares concurrently with the Offered Securities
by the underwriters will materially and adversely affect the
distribution of the Offered Securities by the underwriters;
the Company will promptly furnish the Selling Shareholders with a copy of such
writing and may, by written notice to the Selling Shareholders accompanying
such writing, require that the distribution of all or a specified portion of
the Selling Shareholder's Shares be deferred until the completion of the
distribution of such securities by the underwriters, but in no event for a
period extending beyond the earlier of the 180th day following the effective
date of the registration or qualification and the date of expiration of the
last to expire lock-up agreement, if any, entered into by any shareholder of
the Company at the request of the underwriters.
6.2 LIMITATION ON RIGHTS. The Company shall not be obligated to
effect any registration of any Selling Shareholder's Shares under section 6.1
incidental to the qualification and registration of any of its securities in
connection with any
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<PAGE> 26
acquisitions, securities exchange offers, dividend reinvestment plans or stock
option or other employee benefit plans.
6.3 OFFERING EXPENSES. The Company will pay all Offering Expenses
in connection with each registration of securities requested pursuant to
section 6.1, provided that the Company shall not be responsible for the
reasonable fees and expenses of more than one separate legal firm for all
Selling Shareholders, who shall, except in the case of a conflict, be the law
firm which acts as counsel to the Company in connection with the registration
or qualification of the securities.
6.4 REGISTRATION PROCEDURES. If and whenever the Company is
required to use reasonable commercial efforts to effect the qualification and
registration of any Shares under any of the Securities Laws as provided in
section 6.1, the Company will as expeditiously as possible:
(a) Prepare and File Preliminary Prospectus, etc. Prepare and
file (in any event within 80 days after the request(s) for
qualification and registration have been delivered to the
Company) the preliminary prospectus, registration statement or
similar document required under each of the applicable
Securities Laws, together with such other related documents as
may be necessary or appropriate for the purposes of the
proposed distribution, and shall, as soon as possible, prepare
and file under the applicable Securities Laws a (final)
prospectus, registration statement or similar document and
cause the (final) prospectus, registration statement or
similar document to become effective as soon as possible and
shall take all other steps and proceedings that may be
necessary in order to qualify the Shares for distribution in
accordance with the Securities Laws;
(b) Amendments and Supplements. Prepare and file with the
applicable securities regulatory authorities such amendments
and supplements to such preliminary prospectus, (final)
prospectus, registration statement and similar documents as
may be necessary to comply with the provisions of the
applicable Securities Laws with respect to the distribution of
all Shares and other securities covered thereby until the
earlier of such time as all of such Shares and other
securities have been disposed of and the expiration of four
months after the filing of the (final) prospectus;
(c) Furnish Copies. Furnish to the Selling Shareholders such
number of commercial (printed) copies of any documents
prepared or filed pursuant to sections 6.4(a) or (b)
(including all exhibits thereto and all documents incorporated
therein by reference) as the Selling Shareholders may
reasonably request;
(d) Other Deliveries. Furnish to the Selling Shareholders:
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(i) a copy of the opinion of counsel for the Company
which is delivered by such counsel to the
underwriter(s) participating in the qualification or
registration of the Shares or securities, addressed
to the Selling Shareholders and dated the effective
date of the (final) prospectus or registration
statement; and
(ii) if applicable, a copy of the "comfort" letter which
is delivered to the underwriter(s) participating in
the qualification or registration of the Shares or
securities, addressed to the Selling Shareholders and
dated the effective date of the (final) prospectus or
registration statement and the closing date, signed
by the auditors of the Company;
which, in each case, shall cover substantially the same
matters as are customarily covered in such documents; and
(e) Misrepresentations. Notify the Selling Shareholders of the
happening of any event, as a result of which the preliminary
prospectus, the (final) prospectus or any registration
statement then in effect would:
(i) include a misrepresentation (within the meaning of
applicable Securities Laws);
(ii) contain or include an untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
under which they were made, either at the time such
registration statement became effective or at the
time such preliminary prospectus or (final)
prospectus was issued, as the case may be;
and, at the request of the Selling Shareholders, shall prepare
and furnish to the Selling Shareholders a reasonable number of
commercial (printed) copies of a supplement to or an amendment
of the preliminary prospectus, the (final) prospectus and any
registration statement as may be necessary so that, as
thereafter delivered to the purchasers of such Shares or other
securities, such document shall not include misrepresentation
(within the meaning of applicable Securities Laws).
6.5 UNDERWRITING AGREEMENT. If the Company at any time proposes
to register or qualify any of its securities under any of the Securities Laws,
whether or not for sale for its own account, and such securities are to be
distributed by or through one or more underwriters, the Company will make
reasonable efforts, if requested by the Selling Shareholders pursuant to
section 6.1, to arrange for the
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underwriters to include all or part of the Shares owned by the Selling
Shareholders, as requested by the Selling Shareholders, among those securities
to be distributed by or through the underwriters; provided that, for the
purposes hereof, reasonable efforts shall not require the Company to reduce the
amount or sale price of the securities proposed to be distributed by or through
the underwriters from the levels they would be if there were no distribution of
Shares held by Selling Shareholders. If the underwriter is unwilling to
underwrite all of the Shares entitled to registration and qualification under
section 6.1, then each of the Selling Shareholders shall be entitled to
registration and qualification of such number of Shares equal to the product
obtained by multiplying the number of Shares held by the Selling Shareholders
that the underwriter is prepared to underwrite by the quotient obtained by
dividing the number of Shares held by the Selling Shareholder by the aggregate
number of Shares held by all of the Selling Shareholders.
6.6 PREPARATION; REASONABLE INVESTIGATION. In connection with
preparation and filing of any preliminary prospectus, (final) prospectus,
registration statement or similar document as herein contemplated, the Company
will give the Selling Shareholders and their respective counsel, auditors and
other representatives the opportunity to participate in the preparation of such
documents and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and auditors as shall be
necessary in the opinion of the Selling Shareholders, and their respective
counsel, acting reasonably, and to conduct all due diligence which the Selling
Shareholders, and their respective counsel may reasonably require in order to
conduct a reasonable investigation for purposes of establishing a due diligence
defence as contemplated by the Securities Laws and in order to enable the
underwriters to execute the certificate required to be executed by them at the
end of each such document.
6.7 INFORMATION FROM SELLING SHAREHOLDERS. It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to this Agreement with respect to the qualification or registration of
the Shares of any Selling Shareholder that such Selling Shareholder shall
furnish to the Company such information regarding such Selling Shareholder, the
number of Shares owned by it, and the intended method of disposition of such
securities, as shall be required to effect the registration or qualification of
the Shares of such Selling Shareholder.
6.8 INDEMNIFICATION OF SELLING SHAREHOLDERS. In the event of any
qualification or registration of any Shares hereunder, the Company will
indemnify and hold harmless the Selling Shareholders, for and on behalf of
themselves and for and on behalf of and in trust for each of their respective
officers and directors, and each other Person, if any, who controls a Selling
Shareholder within the meaning of the 1933 Act, from and against any and all
losses, claims, damages, liabilities (whether arising under applicable
Securities Laws or otherwise), costs or expenses (but not including loss of
profit) caused or incurred:
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(a) Information alleged to be a Misrepresentation. By reason of
or arising out of any information or statement contained in
the preliminary prospectus, (final) prospectus, registration
statement, similar document or any amendment or supplement
thereto (the "Disclosure Documents") which is or is alleged to
be a misrepresentation (within the meaning of applicable
Securities Laws) in the Disclosure Documents; and/or
(b) Omission. By reason of or arising out of the omission or
alleged omission to state in the Disclosure Documents, any
material fact; and/or
(c) Misrepresentation. By reason of or arising out of any
misrepresentation or alleged misrepresentation contained in
the Disclosure Documents; and/or
(d) Rule 10b-5 Liability. By reason of or arising out of any of
the Disclosure Documents containing or including an untrue
statement of a material fact or an omission to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances under which they were made, either at the time
the registration statement became effective, at the time the
preliminary prospectus or (final) prospectus was issued or at
the closing of the sale of the securities.
Notwithstanding the contents of this section 6.8, the indemnification contained
in this section 6.8 shall not apply in respect of any losses, claims, damages,
liabilities, costs or expenses caused or incurred by reason of or arising out
of any statement, omission, misrepresentation or other matter or thing referred
to in this section 6.8 which is based upon or results from any information
relating solely to a Selling Shareholder in the Disclosure Documents and
provided by or on behalf of such Selling Shareholder for use therein.
6.9 NOTIFICATION OF CLAIM. In the event that any claim, action,
suit or proceeding, including, without limiting the generality of the
foregoing, any inquiry or investigation (whether formal or informal) is brought
or instituted against any of the Persons in respect of which indemnification is
or might reasonably be considered to be provided for in section 6.8, such
Person (the "Indemnified Party") shall promptly notify the Company and the
Company shall promptly retain counsel who shall be reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party in such claim, action,
suit or proceeding and the Company shall pay all of the reasonable fees and
disbursements of such counsel relating to the claim, action, suit or
proceeding.
6.10 RETENTION OF OTHER COUNSEL. In any such claim, action, suit
or proceeding, the Indemnified Party shall have the right to retain other
counsel to act
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on its behalf, provided that the fees and disbursements of such other counsel
shall be paid by the Indemnified Party unless, subject to section 6.11:
(a) Agreement Otherwise. The Company and the Indemnified Party
shall have mutually agreed to the retention of such other
counsel; or
(b) Conflict. The named parties to any such claim, action, suit
or proceeding (including any added, third or impleaded
parties) include both the Company and the Indemnified Party
and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing
interests between them.
6.11 SINGLE COUNSEL. If other counsel is retained as provided for
in sectionE6.10 and the Company is responsible for the fees and disbursements
of such counsel, the Company shall not, in connection with any such claim,
action, suit or proceeding in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate legal firm for all
Persons or corporations in respect of which indemnification is or might
reasonably be considered to be provided for in section 6.8.
6.12 SETTLEMENTS. Notwithstanding anything contained in this
Agreement, neither the Company nor the Selling Shareholders shall agree to any
settlement of any such claim, action, suit or proceeding unless the other has
consented in writing thereto, and the Company shall not be liable for any
settlement of any such claim, action, suit or proceeding unless it has
consented in writing thereto.
SECTION 7 - RESTRICTIONS ON TRANSFER
7.1 TRANSFERS RESTRICTED. Except as otherwise expressly provided
in this Agreement, no Shareholder will sell, assign, transfer, mortgage,
pledge, charge or otherwise dispose of or encumber any interest in or the
control over all or any part of its Interest to any Person, whether a
Shareholder or not, and no Shareholder will suffer or permit any sale,
assignment, transfer, mortgage, pledge, charge, disposition or other
encumbrance of any interest in or control over all or any part of its Interest
by any assignee of a bankrupt or insolvent Shareholder, execution creditor,
liquidator, receiver, mortgagee, pledgee or other security holder of a
Shareholder or suffer or permit any interest or control over all or any part of
its Interest to be transferred by operation of law, as upon a court order, or
declaration or execution sale or any other jurisdiction or otherwise, except
with the prior written consent of all of the Shareholders and if the transferee
of such Interest is a Shareholder or complies with sections 7.5 and 7.6.
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7.2 RIGHT OF FIRST REFUSAL.
(a) A Shareholder (the "Proposing Transferor") desiring to
transfer any or all of its Shares to any other Person, other
than to an Affiliate pursuant to section 7.3 of this
Agreement, shall give written notice to the Company (the
"Transfer Notice") specifying the number of its Shares that it
desires to transfer (the "Offered Shares"), the price,
expressed in lawful money of the United States of America, for
the Offered Shares, and the terms of payment upon which the
Proposing Transferor is prepared to transfer the Offered
Shares. The Transfer Notice shall constitute the Company as
the agent of the Proposing Transferor for the sale of the
Offered Shares to any other Shareholder or Shareholders at the
price and upon the terms of payment specified in the Transfer
Notice. The Transfer Notice shall constitute an offer by the
Proposing Transferor to the other Shareholders to sell the
Offered Shares to the other Shareholders and shall not be
revocable. If the Transfer Notice pertains to Shares of more
than one class, then the price and terms of payment for each
class of Shares shall be stated separately in the Transfer
Notice.
(b) The Company shall forthwith upon receipt of the Transfer
Notice transmit a copy of it to each Shareholder, other than
the Proposing Transferor, holding Shares of the class or
classes set out in the Transfer Notice and shall request that
each such Shareholder state in writing, within 14 days from
the date on which the Transfer Notice is deemed given pursuant
to section 17.2, whether it is willing to purchase any of the
Offered Shares and, if so, the maximum number it is willing to
purchase.
(c) Upon the expiration of the 14-day notice period provided for
in section 7.2(b) above, if the Company has received from the
Shareholders entitled to receive the Transfer Notice
sufficient acceptances to purchase all the Offered Shares, the
Company shall thereupon apportion the Offered Shares among the
Shareholders so accepting pro rata in proportion to the number
of shares held by each of them respectively up to the number
of Offered Shares accepted by each of them respectively, and
in the case of more than one class of Shares then pro rata in
respect of each class. If the Company did not receive
sufficient acceptances to purchase all of the Offered Shares,
the Company may, but only with the consent of the Proposing
Transferor, who shall not be obliged to sell in the aggregate
less than all the Offered Shares, apportion the Offered Shares
among the Shareholders accepting pro rata in proportion to the
number of Shares held by each of them respectively up to the
number of the Offered Shares accepted by each of them
respectively, and in the case of more than one class of Shares
then pro rata in respect of each class.
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(d) After an apportionment has been made pursuant to
section 7.2(c) above and upon payment of the price for the
Offered Shares apportioned, the Proposing Transferor shall be
bound to transfer those Shares in accordance with that
apportionment and if the Proposing Transferor fails to do so
the Company shall cause the name of the purchasing
Shareholders to be entered in the register of members of the
Company as the holders of those Shares and shall cancel the
share certificates previously issued to the Proposing
Transferor representing those Shares whether they have been
produced to the Company or not. Payment to the Company, as
agent for the Proposing Transferor, of the Purchase Price
shall be sufficient payment by the purchasing Shareholders and
entry of the transfer in the register of members of the
Company shall be conclusive evidence of the validity of the
transfer. Upon completion of the transfer, the Company shall
pay the Purchase Price to the Proposing Transferor.
(e) The Proposing Transferor may for a period of 180 days after
the expiration of the 14-day period provided for in
section 7.2(b) above transfer to any Person the Offered Shares
not purchased by other Shareholders pursuant to
sections 7.2(b), (c) and (d) above, provided that:
(i) the Proposing Transferor may not sell less than 85%
of the Offered Shares which have not been purchased
pursuant to the preceding provisions of this section
7.7;
(ii) the Proposing Transferor shall not sell any of the
Offered Shares at a price less than that specified in
the Transfer Notice or on terms which are materially
more favourable to the purchaser than those specified
in the Transfer Notice;
(iii) the Proposing Transferor shall not sell any of the
Offered Shares to any Person, unless the proposed
transfer complies with the requirements of, and is
not prohibited by the provisions of, sections 7.5 and
7.6; and
(iv) if the Proposing Transferor has not transferred the
Offered Shares or any of them within the 180-day
period then the provisions of this section 7.2 shall
again become applicable to all of the Offered Shares
not disposed of within the 180-day period.
(f) The provisions as to transfers of Shares contained in
sections 7.2(a), (b), (c), (d) and (e) shall not apply:
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(i) if before the proposed transfer of Shares is made,
each of the other Shareholders waives in writing its
right to receive a Transfer Notice relating thereto;
or
(ii) to any transfer of Shares pursuant to the provisions
of section 8 of this Agreement.
(g) The Proposing Transferor may include all or any part of its
Convertible Securities and/or Shareholder's Loan in the
Transfer Notice, in which case the price payable therefor
shall be included in the price of the Offered Shares, and all
references to Offered Shares in this section 7.2 shall include
the portion of the Convertible Securities and Shareholder's
Loan included therein. If the Proposing Transferor does not
include its Shareholder's Loan in the Transfer Notice, the
Proposing Transferor shall retain its Shareholder's Loan,
which shall be repaid in accordance with and be subject to the
provisions of section 3.5 hereof, provided that, for purposes
of determining the amount of any repayment of such
Shareholder's Loan under section 3.5, the Proposing Transferor
shall be deemed to continue to hold the Shares transferred
pursuant to this section 7.2.
7.3 TRANSFER TO AFFILIATES. Notwithstanding sections 7.1 and 7.2,
any Shareholder may sell, transfer or otherwise dispose of all, but not less
than all, of its Interest to an Affiliate which is wholly owned by such
Shareholder, provided that, prior to any such transfer, the Shareholder and the
Affiliate enter into an agreement with the other Parties, in form and content
acceptable to such Parties, which agreement shall provide that:
(a) one hundred percent (100%) of the Shareholder's Interest will
be transferred to the Affiliate;
(b) the Affiliate will remain wholly owned by such Shareholder so
long as the Affiliate holds the Interest, or any part thereof;
(c) prior to the Affiliate ceasing to be wholly owned by such
Shareholder, the Affiliate will transfer its Interest to the
Shareholder or to another Affiliate which is wholly owned by
such Shareholder, and that such other Affiliate will enter
into an agreement similar to this Agreement with the other
Shareholders and the Company;
(d) the Affiliate will otherwise be bound by and have the benefit
of the provisions of this Agreement; and
(e) the obligations of the original Shareholder hereunder shall
not in any way be released and shall continue in full force
and effect.
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7.4 NO TRANSFER BY DEFAULTING SHAREHOLDER. Notwithstanding any
other provision of this Agreement, except as required by the terms of section
8, no Shareholder shall be entitled to sell, transfer, assign or otherwise
dispose of its Interest, or any part thereof, without the prior written consent
of the other Shareholders, if it is at that time a Defaulting Shareholder,
unless prior to or concurrently with that sale, transfer or other disposition
it ceases to be a Defaulting Shareholder.
7.5 FURTHER RESTRICTIONS OF TRANSFER. Notwithstanding any other
provision of this Agreement, no Shareholder will transfer all or any part of
its Interest to any Person (the "Proposed Transferee"):
(a) if the transfer to the Proposed Transferee is prohibited by
applicable laws, regulations, orders or rulings, or by any
agreement, instrument, mortgage or encumbrance to which the
Company is a party or by which the Company or any material
part of its property or assets are bound, unless, in the case
of any such agreement, instrument, mortgage or encumbrance,
the written consent or approval of the other party or parties
thereto has first been obtained; and
(b) who is not then already a Shareholder, unless the Proposed
Transferee has agreed to be bound by this Agreement by
executing and delivering an Assumption Agreement. The
Shareholders will not recognize or treat as a shareholder of
the Company any Person who acquires any interest in or control
over any Shares or afford any such Person the rights afforded
by this Agreement or any of the incidents connected with being
a shareholder of the Company until such Person has subscribed
to and agreed to be bound by this Agreement in accordance with
section 7.6, and the Shareholders need only deal with as a
member of the Company those Persons who have subscribed to and
agreed to be bound by this Agreement.
7.6 SUBSEQUENT SHAREHOLDERS TO BE BOUND. Each Person who proposes
to become a shareholder of the Company or the holder of Convertible Securities
or a Shareholder's Loan after the date of this Agreement shall, prior to
becoming such, subscribe to and agree to be bound by the covenants, promises
and conditions contained in this Agreement by executing and delivering an
appropriately completed agreement to be bound hereby, substantially in the form
of Schedule "A" hereto (an "Assumption Agreement"). Each of the Parties
covenants and agrees that it will be bound to each of the other Parties and
that, upon the subscription to this Agreement by any subsequent Party, it will
be bound to such subsequent Party, and, in like manner, such subsequent Party
will be bound to each other Party, and to each subsequent Party thereafter.
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7.7 TAG-ALONG RIGHTS.
(a) Notice of Bona Fide Offer. If, at any time, a Proposing
Transferor which owns more than 50% of the issued and
outstanding Common shares receives a bona fide offer (the
"Third Party Offer") from any other Person (the "Third Party
Offeror") to purchase all or any part of the Interest held by
or on behalf of the Proposing Transferor, the Proposing
Transferor will not accept such Third Party Offer unless:
(i) the Third Party Offeror has agreed to purchase from
each of the Shareholders (the "Other Shareholders")
all, or the same percentage, of the Interest held by
or for the benefit of the Other Shareholders that the
Third Party Offeror is offering to purchase from the
Proposing Transferor, for the same price, and on the
same terms and conditions, as set out in the Third
Party Offer;
(ii) the Proposing Transferor has delivered to the Other
Shareholders a copy of such Third Party Offer and a
notice in writing (the "Tag-Along Notice") specifying
whether or not the Proposing Transferor is prepared
to accept such Third Party Offer;
(iii) if any of the Other Shareholders elects to sell its
Interest to the Third Party Offeror pursuant to
section 7.7(b)(i), the Third Party Offeror has
executed such agreements or documents reasonably
acceptable to the Other Shareholders to reflect the
agreement referred to in section 7.7(a)(i); and
(iv) if any of the Other Shareholders elects not to sell
its Interest to the Third Party Offeror pursuant to
section 7.7(b)(ii) (or pursuant to section 7.7(c), is
deemed to have elected not to sell its Interest to
the Third Party Offeror), the Third Party Offeror has
executed and delivered an Assumption Agreement.
(b) Rights of the Other Shareholders. Following receipt by the
Other Shareholders of a Tag-Along Notice, each of the Other
Shareholders will have the right, exercisable within 30 days
from the date on which the Tag-Along Notice is deemed given
pursuant to section 17.2, to notify the Proposing Transferor
in writing:
(i) that such Other Shareholder is electing to sell its
Interest to the Third Party Offeror at the price and
upon the terms of purchase and sale specified in the
Third Party Offer; or
(ii) that such Other Shareholder is electing not to sell
its Interest to the Third Party Offeror.
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(c) No Response. If any of the Other Shareholders does not notify
the Proposing Transferor in writing within the period of 30
days provided in section 7.7(b) of the election by such Other
Shareholder pursuant to section 7.7(b), such Other Shareholder
will be deemed to have elected not to sell its Interest to the
Third Party Offeror.
(d) Sale by the Proposing Transferor.
(i) Provided that the Proposing Transferor has complied
with section 7.7(a), following the expiration of the
30 day period referred to in section 7.7(b), the
Proposing Transferor may, for 30 days thereafter,
sell the Proposing Transferor's Interest to the Third
Party Offeror, at the price and in strict accordance
with all of the material terms and conditions stated
in the Third Party Offer.
(ii) The Proposing Transferor will not sell all or any
part of its Interest pursuant to section 7.7(d)(i) to
any Person other than the Third Party Offeror (or its
nominee) or at any price or on terms more favourable
to such Person than those set out in the Third Party
Offer.
SECTION 8 - DEFAULT
8.1 EVENTS OF DEFAULT. An event of default (a "Default") under
this Agreement arises if a Shareholder (the "Defaulting Shareholder"):
(a) fails to observe, perform or carry out any of its obligations
under this Agreement and such failure continues for 30 days
after the date on which a written notice of such default is
deemed given pursuant to section 17.2 by any Shareholder not
in default (the "Non-defaulting Shareholder" individually and
the "Non-defaulting Shareholders" collectively) to the
Defaulting Shareholder and the Company, which notice shall set
out particulars of the Default and demand that the same be
cured;
(b) fails to take reasonable actions to prevent or defend
assiduously any action, seizure, execution, attachment or
other proceeding which claims possession, sale, foreclosure,
the appointment of a receiver or receiver-manager, or
forfeiture or termination of or against all or any portion of
the Interest of the Defaulting Shareholder, and such failure
continues for 30 days after the date on which a written notice
thereof is deemed given pursuant to section 17.2 by a
Non-defaulting
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Shareholder to the Defaulting Shareholder and the Company,
which notice shall set out particulars of such action or
proceeding; or
(c) is adjudicated to be insolvent or bankrupt, if bankruptcy or
any other insolvency proceedings are filed against such
Shareholder, if a resolution is passed, or proceedings are
commenced, in respect of the dissolution or liquidation of
such Shareholder, whether voluntary or involuntary, if a
receiver, receiver-manager or trustee is appointed in respect
of all or a substantial part of the assets of such
Shareholder, if such Shareholder makes a proposal in
bankruptcy or an assignment for the benefit of creditors, or
if all or a substantial part of the assets of such Shareholder
are seized by a sheriff, receiver, trustee or secured
creditor.
8.2 REMEDIES. If a Default occurs under section 8.1, and has not
been remedied or cured, any one or more of the Non-defaulting Shareholders may:
(a) pursue any remedy available in law or in equity, each
Shareholder acknowledging that specific performance,
injunctive relief (mandatory or otherwise) or other equitable
relief may be the only adequate remedy for a Default;
(b) take all actions in its own name or in the name of the
Defaulting Shareholder, the Shareholders or the Company as may
reasonably be required to cure the Default, and all payments,
costs and expenses incurred by the Non-defaulting
Shareholder(s) will be payable by the Defaulting Shareholder
to the Non-defaulting Shareholder(s) on demand with interest
at the Prime Rate plus 4% per annum;
(c) implement the buy-sell procedure set out in section 8.3 by
giving written notice (the "Purchase Notice") to the Company
of the Default, the name of the Defaulting Shareholder and the
Non-Defaulting Shareholder's election to implement such
procedure; and
(d) waive the Default, provided that any waiver of a particular
Default shall only be effective if it is in writing, signed by
the Non-defaulting Shareholder, shall not operate as a waiver
of any subsequent or continuing Default, and shall not be
binding upon, or limit the remedies available to, any
Non-defaulting Shareholder who has not signed such waiver.
8.3 BUY-SELL PROCEDURE ON DEFAULT. In the event the buy-sell
procedure herein is implemented pursuant to section 8.2(c), the Defaulting
Shareholder is deemed to offer to sell (the "Default Offer") to the Company and
the Non-Defaulting Shareholder(s) all, but not less than all, of its Interest
(the "Default Interest") on the following terms and conditions:
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(a) the purchase price payable for the Default Interest shall be
the Fair Market Value of the Shares and Convertible Securities
included therein, determined as of the date of the Purchase
Notice in accordance with section 12, together with the full
amount of the principal and any and all accrued and unpaid
interest on any Shareholder's Loan included therein;
(b) upon receipt of the Purchase Notice, the Secretary of the
Company shall forthwith:
(i) transmit the Purchase Notice and a summary of the
terms of the Default Offer to each director of the
Company;
(ii) transmit the Purchase Notice and a summary of the
terms of the Default Offer to each of the
Non-defaulting Shareholder(s); and
(iii) call a meeting of the Board to consider the Default
Offer;
(c) the Company shall have the first right to accept the Default
Offer and, to the extent that it is accepted by the Company,
the Non-defaulting Shareholder(s) agree to refuse any pro rata
offer by the Company to purchase the Interest which is
required to be made by the Company under the Company Act, the
Articles of the Company or this Agreement;
(d) if the Default Offer is not wholly accepted by the Company
within 30 days after the date of the Purchase Notice:
(i) the Secretary of the Company shall advise the
Non-defaulting Shareholder(s) of the extent to which
the Default Offer is still open forthwith upon the
expiration of the aforesaid 30 day period;
(ii) that portion of the Default Offer not accepted by the
Company shall be open for acceptance within the 14
days following the end of the aforesaid 30 day period
by the Non-defaulting Shareholder(s) pro rata in
accordance with their respective shareholdings in the
Company of the kind and class of Shares included in
the Default Offer;
(iii) acceptance by the Non-defaulting Shareholder(s) of
the Default Offer shall be by notice to the Secretary
of the Company and by such acceptance a
Non-defaulting Shareholder may specify any additional
portion of the Default Interest offered for sale that
such Non-defaulting Shareholder is prepared to
purchase in the event that any of the other Non-
defaulting Shareholder(s) fails to accept such
Default Offer, and if any of the other Non-defaulting
Shareholder(s) fails
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to accept such Default Offer, such Non-defaulting
Shareholder (pro rata if more than one) shall be
entitled to purchase such additional portion of the
Default Interest as shall be so available;
(iv) upon the expiration of the 14-day notice period
provided for in section 8.3(d)(iii) above, if the
Company has received from Non-defaulting Shareholders
sufficient acceptances to purchase all of that
portion of the Default Interest which the Company has
not accepted under section 8.3(c), the Company shall
thereupon apportion such portion of the Default
Interest among the Non-defaulting Shareholders so
accepting pro rata in proportion to the number of
Shares held by each of them respectively up to the
amount of the Default Interest accepted by each of
them respectively, and, in the case of more than one
class of Shares, then pro rata in respect of each
class;
(e) for greater certainty, a Defaulting Shareholder shall not be
obliged to sell less than all of its Default Interest;
(f) upon the acceptance of the Default Offer in the manner and
within the times specified in this section 8.3, a binding
contract will be formed between the Defaulting Shareholder and
each of the Company and/or the Non-defaulting Shareholder(s)
who have accepted the Default Offer for the purchase and sale
of the portion of the Default Interest accepted by it, upon
the terms and conditions set out in the Default Offer and in
this Agreement, which contract will be completed in the manner
set out in section 9; and
(g) from and after the occurrence of a Default and until such
Default is remedied or cured, the Defaulting Shareholder shall
use its best efforts to cause its nominee(s) on the Board to
abstain from voting on any matter which involves such Default,
including, without limitation, the exercise by the Company of
its rights set out in section 8.3(c).
8.4 MONIES HELD. If and so long as a Shareholder is a Defaulting
Shareholder, all monies payable to that Defaulting Shareholder by the Company
by way of dividends, repayment of loans or other distributions, shall be held
by the Company until such time as the Shareholder is no longer a Defaulting
Shareholder.
SECTION 9 - COMPLETION OF TRANSFERS
9.1 TIME AND PLACE OF CLOSING. Except as otherwise expressly
provided herein, or unless the Purchaser and the Vendor otherwise agree in
writing, each
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contract of purchase and sale arising out of this Agreement will be completed
at a Closing to be held at 11:00 o'clock a.m., Vancouver time, at the
registered office of the Company or at such other place as the parties to such
contract may agree, on the day (the "Closing Date") which is the later of:
(a) 60 days following the date on which such contract is formed;
and
(b) 30 days following the final determination of the Purchase
Price;
or, if such day is a non-juridical day, on the next juridical day, or on such
earlier day as the parties to such contract may agree.
9.2 PARTIES TO THE CONTRACT. In this section 9, a contract
referred to in section 9.1 is called a "Contract", and the Shares, Convertible
Securities or Interest to be sold and purchased pursuant to a Contract are
called the "Transfer Interest".
9.3 PAYMENT FOR TRANSFER INTEREST. Except as otherwise expressly
provided herein, or unless the Purchaser and the Vendor otherwise agree in
writing, the Purchase Price for the Transfer Interest will be paid in full on
the Closing Date.
9.4 CLOSING DOCUMENTS AND ESCROW BY COMPANY.
(a) In addition to any other documents required by this Agreement
or the terms of the Contract, the Vendor will deliver to the
Purchaser at the Closing, against delivery by the Purchaser to
the Vendor of the documents referred to in section 9.4(b),
duly executed (where appropriate):
(i) such instruments of transfer and other documents, if
any, as may be necessary to fully and effectually
assign and transfer the Transfer Interest to the
Purchaser; and
(ii) all such other documents and assurances as may be
required to comply with and to fulfill the intent of
this Agreement and the terms of the Contract;
and, if such Closing relates to a Contract for the sale of all
of the Interest of the Vendor, the Vendor will also, at such
Closing, deliver to the Company, duly executed (where
appropriate):
(iii) the resignation of the Vendor, and any Persons
nominated by the Vendor, from all offices and
directorships in the Company and its Subsidiaries,
effective on the Closing Date;
(iv) if the Vendor is indebted to the Company, a certified
cheque of the Vendor payable to the Company for the
amount of such
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Indebtedness, less any amount then owing by the
Company to the Vendor; and
(v) a release of any and all claims which the Vendor may
have against the Company, other than in respect of
its Shareholder's Loan, if any.
(b) In addition to any other documents and things required by this
Agreement or the terms of the Contract, the Purchaser will
deliver to the Vendor at the Closing, duly executed where
appropriate, against delivery by the Vendor to the Purchaser
and/or the Company of the documents referred to in
section 9.4(a):
(i) the Purchase Price for the Transfer Interest payable
at the Closing in cash or by certified cheque drawn
on a major Canadian or United States bank; and
(ii) all such other documents and assurances as may be
required to comply with and to fulfill the intent of
this Agreement and the terms of the Contract;
and, if such Closing relates to a Contract for the sale of all
of the Interest of the Vendor, the Purchaser will, if it is
the Company, at such Closing also deliver to the Vendor a
release by the Company of any and all claims which the Company
may have against the Vendor, other than under section 14, and
a certified cheque in the amount of any monies owing by the
Company to the Vendor, less any amount then owing by the
Vendor to the Company.
(c) All documents delivered and monies paid by the Vendor to the
Purchaser and/or the Company, and by the Purchaser and/or the
Company to the Vendor, at or before the Closing, will be held
by such Parties in escrow until the other Party has delivered
all documents and paid all money required to be delivered or
paid by it at the Closing, at which time all such documents
and monies shall be released from escrow and the transfer of
the Transfer Interest to the Purchaser will be completed and
new certificates shall be issued by the Company for the Shares
included in the Transfer Interest.
9.5 TIME TO BE OF THE ESSENCE. Time will be of the essence of
each Contract and each Contract will be binding upon the parties thereto and
upon their respective heirs, executors, administrators, successors, legal
representatives and assigns.
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9.6 FAILURE TO COMPLETE.
(a) If the Vendor fails to attend the Closing or is present but
fails for any reason whatsoever to complete the sale of the
Transfer Interest when the Purchaser is ready, willing and
able to do so, the Purchaser may deposit the Purchase Price
for the Transfer Interest into a special account at any branch
in Vancouver, British Columbia of any Canadian chartered bank
in the name of, or in a solicitor's trust account for the
benefit of, the Vendor, and such deposit will constitute valid
and effective payment to the Vendor at the Closing.
(b) If the Purchaser deposits the Purchase Price for the Transfer
Interest into a special account pursuant to section 9.6(a),
then from and after the later of the date of such deposit
(even if any certificate representing any of the Transfer
Interest has not been delivered to the Purchaser or the
Company) the sale and purchase of the Transfer Interest will
be deemed to have been completed and all right, title, benefit
and interest, both at law and in equity, in and to the
Transfer Interest will be conclusively deemed to have been
transferred and assigned to and become vested in the Purchaser
and all right, title, benefit and interest, both at law and in
equity, of the Vendor, and of any assignee, transferee or
other Person having any interest, legal or equitable, in or to
the Transfer Interest, whether as a shareholder or creditor of
the Company or the Vendor, or otherwise, will cease and
determine, but the Vendor will be entitled to receive the
Purchase Price for the Transfer Interest, without interest,
upon completion of all acts and deeds as were required of the
Vendor to complete the sale of the Transfer Interest.
(c) For the purposes of this section 9.6, each Shareholder hereby
irrevocably constitutes and appoints each other Shareholder as
its true and lawful attorney in fact and agent for, in the
name of and on behalf of such first Shareholder to execute and
deliver, and to receive delivery of, all such assignments,
transfers, deeds, assurances and instruments as may be
necessary to effectively complete the sale of any Interest
pursuant to this Agreement on the records of the Company, and
such appointment and power of attorney will not be revoked by
the bankruptcy, insolvency, winding-up, liquidation,
dissolution, incapacity or death of such first Shareholder and
such first Shareholder hereby ratifies and confirms and agrees
to ratify and confirm all that any Shareholder, as attorney in
fact and agent for, in the name of and on behalf of such first
Shareholder, may lawfully do or cause to be done by virtue of
this section 9.6(c).
(d) If the Purchaser defaults at the Closing in paying the
Purchase Price for the Transfer Interest, then the Vendor may,
by delivering written notice to the Purchaser and the Company
that the Vendor is
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terminating the Contract, terminate the Contract and retake
possession of the Transfer Interest as the absolute owner
thereof, in which event the rights of the Purchaser in respect
of the Transfer Interest will revert to the Vendor and the
Vendor will be entitled, upon executing and delivering an
Assumption Agreement if the Vendor is not then a Shareholder,
to the return from the Company of the documents delivered by
the Vendor to the Purchaser and/or the Company in escrow in
connection with the Contract.
(e) If either the Vendor or the Purchaser fails to complete the
Contract as required herein the Contract is specifically
enforceable and nothing in this Agreement will be construed to
mitigate the availability of the remedy of specific
performance in respect of the Contract in a court of law.
9.7 WAIVER AND CONSENTS. Each of the Shareholders hereby
expressly consents to the transfer of any Shares, Convertible Securities or
Interests transferred in accordance with this Agreement, agrees to execute
promptly on demand specific waivers and consents if requested by another Party,
covenants and agrees to waive any restriction on transfer contained in the
Memorandum or Articles of the Company in order to give effect to such transfer
and will vote in favour of or consent in writing to resolutions of the
directors of the Company approving the transfer of any Shares, Convertible
Securities or Interests which is permitted or required by this Agreement. In
the case of any transfer of Shares in accordance with this Agreement where the
Company is the Purchaser of such Shares, each of the Shareholders, other than
the Vendor in respect of such Contract, hereby waives its right to require the
Company to purchase its Shares, except as expressly set forth herein, and
covenants to reject any pro rata offer to purchase its Shares which the Company
may be obliged to make pursuant to the provisions of the Company Act.
9.8 MULTIPLE PURCHASERS. If the Purchaser includes two or more
Shareholders, the purchasing Shareholders shall purchase the Shares or Interest
of the Vendor pro rata in accordance with the purchasing Shareholders'
respective shareholdings in the Company, excluding the Shares of the Vendor,
and each purchasing Shareholder shall be liable only for payment of the portion
of the Purchase Price payable in respect of the Shares or Interest to be
purchased by it. In order to avoid fractional shares, some Shares may be held
by the purchasing Shareholders as tenants in common.
9.9 SET-OFF IF VENDOR INDEBTED TO THE COMPANY. Notwithstanding
anything herein to the contrary, if on the date of the Closing the Vendor is,
according to the books of the Company and as certified by the Auditors of the
Company, indebted to the Company, the Purchaser has the right, in the case of a
liquidated claim, to pay and discharge the indebtedness of the Vendor out of
the purchase money payable by it to the Vendor, or in the case of an
unliquidated claim, to deposit in an interest-bearing trust account in a
Canadian chartered bank or trust company in escrow an
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amount estimated by the Purchaser to be equal to the unliquidated claim, and,
in either case, to reduce the amount of the Purchase Price payable to the
Vendor by the amount so paid or deposited. Any amount deposited in escrow as
aforesaid shall remain deposited until the claim in respect thereof has either
been settled or adjudicated, at which time it will be withdrawn and paid out
pursuant to the settlement or adjudication.
9.10 PAYMENT OF LIENS ON SHARES. Notwithstanding anything herein
to the contrary, if by reason of any lien, charge or encumbrance on the Shares
or Interest of the Vendor, the Vendor is unable to make delivery of the
Vendor's Shares or Interest free and clear of all charges, liens or
encumbrances to the Purchaser within the time limited therefor, the Purchaser
shall be at liberty to make payment to the holder of the lien or charge or the
governmental authority imposing the duty, tax, levy or lien, which payment
shall be deemed to be payment to the Vendor and shall be applied in reduction
of the unpaid balance of the Purchase Price and interest accrued thereon.
9.11 ASSUMPTION OF PURCHASE OBLIGATIONS. If immediately prior to
the sale of its Shares or Interest hereunder for any reason, the Vendor was a
Purchaser hereunder, the Purchaser of that Vendor's Shares or Interest shall,
up to a maximum of the Purchase Price payable by it, assume the Vendor's
obligations as a Purchaser hereunder and shall be entitled to set-off any
amounts paid as a result thereof against any amounts that would otherwise be
payable hereunder to the Vendor.
9.12 INDEMNITY. The Purchasers shall, from and after the Closing
of any Contract for the sale of all of the Interest of a Vendor, jointly and
severally indemnify such Vendor from any and all guarantees, sureties or
liabilities of such Vendor for or in respect of any indebtedness, obligations
and liabilities of the Company or any of its Subsidiaries granted by the
Vendor. Notwithstanding the joint and several nature of this indemnity from
the Purchasers to the Vendor, as between the Purchasers, the respective
liability of each Purchaser shall be in the same proportion as its
shareholdings in the Company, excluding the shareholding of the Vendor. If, at
any Closing, a Vendor ceases to be a Shareholder, the Purchasers and the
Company shall use their respective best efforts to cause such Vendor to be
released from all guarantees, sureties or liabilities of such Vendor for or in
respect of any indebtedness, obligations or liabilities of the Company and its
Subsidiaries as soon as reasonably possible after the Closing.
SECTION 10 - CEASING TO BE A SHAREHOLDER
10.1 VENDOR. A Vendor shall, from and after the Closing of the
sale and purchase of its Shares, if the Shares sold by the Vendor comprise all
the Shares of the Vendor, cease to be a Shareholder for the purposes of this
Agreement, provided that this provision shall not affect the rights and
obligations of the Vendor under
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this Agreement arising prior to that time or under section 14 hereof, nor shall
it affect the Vendor's rights in respect of the repayment by the Company of its
Shareholder's Loan if the Vendor did not transfer its Shareholder's Loan to the
Purchaser.
SECTION 11 - SHARE CERTIFICATES
11.1 LEGEND ON SHARE CERTIFICATES. All share certificates issued
by the Company shall have typed or otherwise written thereon the following
legend:
"The Shares represented by this certificate are subject to the
provisions of a Shareholders Agreement, dated as of the 15th
day of October, 1996, initially made among AccuMed
International, Inc., Xillix Technologies Corp. and Oncometrics
Imaging Corp., which agreement contains restrictions on the
right of the holder hereof to sell, assign, transfer, dispose
of, donate, mortgage, encumber, charge or otherwise deal with
the shares represented hereby and notice of those restrictions
is hereby given."
SECTION 12 - DETERMINATION OF FAIR MARKET VALUE
12.1 SUBMISSION TO AUDITORS. Upon receipt of a Purchase Notice, or
upon the Board approving the issuance of Offered Securities (which, for greater
certainty, includes any Shares which the Company is required to issue pursuant
to section 3.2(e)), the Company shall forthwith instruct the Auditors to
prepare a report (the "FMV Report") setting out an amount equal to the Fair
Market Value of the Default Interest (excluding any Shareholder's Loan included
therein) or the Offered Securities, as the case may be, as of the date of such
notice or approval (the "Determination Date") and summarizing their calculation
of such value. The Company and each of the Shareholders will use their
respective best efforts to cause the Auditors to complete and deliver a copy of
such report to each of the Parties as soon as practicable and, if possible,
within 60 days after the Determination Date. The Company and each of the
Shareholders will make available to the Auditors all books, records and other
data and information in their possession and control as the Auditors may
reasonably require in the preparation of such report.
12.2 REVIEW OF FMV REPORT. As soon as the FMV Report is prepared
and delivered in accordance with section 12.1 above, each of the Parties will
review the calculation of the Fair Market Value set out in the FMV Report and
will in good faith attempt to agree upon any disputes any of them may have in
respect of such calculation or the amount of the Fair Market Value, and for
such purpose each Party
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will make available to each other Party all books, records and other data and
information in its possession or control which may be relevant.
12.3 SUBMISSION TO ARBITRATION. If the Parties fail to resolve any
dispute pursuant to section 12.2, any of them may, within 21 days after the
delivery of the FMV Report, elect to have any unresolved issues in respect of
any dispute referred to in section 12.2 submitted to arbitration under section
13.1, and in such event the Parties will use their respective best efforts to
cause the Arbitrator to prepare a report setting out his determination of the
issues submitted to him or her and to deliver a copy of such report to each of
the Parties as soon as reasonably practicable and, if possible, within 45 days
after the date of such submission. The Parties will make available all books,
records or other data and information in their possession or control as the
Arbitrator may reasonably require in resolving such issues.
12.4 NO PREMIUMS, ETC. For greater certainty, it is acknowledged
and agreed that in determining the Fair Market Value of any Default Interest or
Offered Securities there shall be:
(a) neither premium nor discount for a control or minority
position;
(b) no consideration of the fact that the purchase and sale of
such Default Interest arises as a result of the occurrence of
a Default; and
(c) no consideration of the restrictions on transfer contained in
this Agreement, or otherwise.
12.5 FINAL AND CONCLUSIVE. The determination by the Auditors of
the Fair Market Value set out in the FMV Report will be conclusive, final and
binding on all Parties for the purpose of determining the Fair Market Value in
respect of any issues which none of the Parties shall have submitted, within
the 21-day period referred to in section 12.3, to arbitration under
section 13.1.
12.6 PAYMENT OF AUDITOR'S FEES. The fees and expenses charged by
the Auditors for preparing the FMV Report shall be paid as follows:
(a) if the FMV Report is prepared for purposes of section 4, by
the Company; and
(b) if the FMV Report is prepared for purposes of section 8, by
the Defaulting Shareholder.
SECTION 13 - ARBITRATION
13.1 ARBITRATION. Any and all disputes, controversies or
differences, arising out of, in relation to or in connection with this
Agreement, or any breach hereof,
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shall be referred to and finally resolved by arbitration by the British
Columbia International Commercial Arbitration Centre (the "Arbitrator")
pursuant to its Rules. The place of the arbitration shall be Vancouver,
British Columbia.
13.2 QUALIFICATIONS OF ARBITRATOR. If a dispute, controversy or
difference is submitted to arbitration pursuant to section 12.3, the Arbitrator
shall be an accredited member in good standing of The Canadian Institute of
Chartered Business Valuators or the equivalent professional association in the
United States of America.
13.3 FINAL AND BINDING. The decision of any Arbitrator with
respect to all issues or matters submitted to him for resolution shall be
conclusive, final and binding on all of the Parties and judgment on the award
may be entered in any court having jurisdiction.
SECTION 14 - NON-COMPETITION AND CONFIDENTIALITY
14.1 RESTRICTIONS. No Shareholder shall, while it is a Shareholder
or within a period of two (2) years immediately after it ceases to be a
Shareholder, directly or indirectly, either solely or in partnership, whether
by way of trust, agency or otherwise, jointly or in connection with any Person
or Persons, including, without limitation, any individual, firm, association,
syndicate, company, corporation or other business enterprise, as principal,
agent, shareholder, director, officer, employee or in any other manner
whatsoever:
(a) carry on or be engaged in, lend money to, guarantee the debts
or obligations of, or permit its name to be used in connection
with, any business which is similar to or competitive with the
Business, within Canada or the United States of America;
(b) solicit or attempt to solicit any employees or customers of
the Company, or any of its Subsidiaries, for the purpose of
employing any such employees or obtaining any business from
any such customers which is similar to or competitive with the
Business, whether directly, indirectly or in any capacity
whatsoever;
(c) do any act the probable result of which would be detrimental
to the business of the Company or any of its Subsidiaries, or
would be to cause relations between the Company or any of its
Subsidiaries and their respective customers or employees to be
impaired;
(d) use the name "Oncometrics", or any variation or derivation
thereof, in any business venture; or
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<PAGE> 48
(e) use for its own purposes, or disclose to any other Person,
except to duly authorized officers and employees of the
Company or any of its Subsidiaries entitled thereto, any trade
secret, business data or other information relating to the
Business or the assets and affairs of the Company, or acquired
by it by reason of its involvement or association with the
Company;
provided that, for greater certainty, it is acknowledged and agreed that this
section 14.1 shall not restrict or prevent:
(a) AccuMed from conducting any business activities relating
solely to cervical cancer;
(b) any of the Shareholders, or its Affiliates, from acquiring or
owning securities of any Person which are traded on a stock or
securities exchange, so long as such Shareholder and its
Affiliates do not collectively, directly or indirectly, own or
control more than five (5%) percent of any class of
securities of such Person;
(c) any of the Shareholders, or its Affiliates, from:
(i) owning or otherwise dealing with its Interest in
accordance with the terms of this Agreement; or
(ii) undertaking any activities on behalf of the Company
or any of its Affiliates which are provided for in or
contemplated by this Agreement.
14.2 REMEDIES. Each of the Shareholders acknowledges that by
reason of its unique knowledge of and association with the business of the
Company, the scope of the covenants in section 14.1 is reasonable and
commensurate with the protection of the legitimate interests of the Company and
that a breach by any such Shareholder of any of the covenants contained in
section 14.1 would result in damages to the Company and that the Company cannot
adequately be compensated for such damages by monetary award. Accordingly,
each of the Shareholders acknowledges that in the event of any such breach, in
addition to all other remedies available to the Company, at law, in equity or
under this Agreement, the Company shall, without the need to post a bond or any
other security or to prove damages, be entitled to such relief by way of
restraining order, injunction, decree, declaration or otherwise as may be
appropriate to ensure compliance with provisions of section 14.1, and each such
Shareholder acknowledges that the granting of such relief is fair and
reasonable in the circumstances. Each of the Shareholders further acknowledges
and agrees that the covenants contained in section 14.1 shall subsist even if
the rest of this Agreement is terminated for any reason whatsoever and that
such provisions are severable for such purpose.
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<PAGE> 49
SECTION 15 - AMENDMENTS TO AGREEMENT
15.1 AMENDMENTS. This Agreement may be amended, altered, varied or
supplemented, in whole or in part, by a Super Majority Approval; provided that
no such amendment, alteration, variation or supplement shall, unless otherwise
provided for in this Agreement, amend, alter or vary:
(a) any of the provisions contained in sections 3.8, 3.9, 8.1,
14.1, 14.2, 15.1, 16.1 or 16.2;
(b) any other provision of this Agreement in a manner which would
have an adverse effect on any Shareholder;
without the written consent of each Shareholder and the Company, and each and
every such amendment, alteration, variation or supplement shall, if approved in
accordance with the foregoing provisions:
(c) be effective on the later of the date of the Super Majority
Approval, the consent, if any, required by section 15.1(a) or
(b) above and the effective date, if any, specified in the
Super Majority Approval or such consents as the case may be;
(d) from and after its effective date (as determined in accordance
with section 15.1(c) above), be binding upon each of the
Parties, whether or not approved by such Party; and
(e) from and after its effective date (as determined in accordance
with section 15.1(c) above), be read together with this
Agreement, as if such amendment, alteration, variation or
supplement and this Agreement were set out in one document.
SECTION 16 - TERMINATION OF AGREEMENT
16.1 METHOD OF TERMINATION. This Agreement shall cease and
terminate on the occurrence of any of the following events, namely:
(a) the bankruptcy or receivership of the Company or the passing
of a resolution by the Company for its winding up or
dissolution pursuant to Section 280 or Section 291 of the
Company Act, or any similar provision enacted in substitution
therefor, or upon dissolution of the Company by order of the
Lieutenant-Governor in Council pursuant to Section 280 of the
Company Act or any similar provision enacted in substitution
therefor;
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<PAGE> 50
(b) the execution by each of the Shareholders and the Company of
an agreement in writing expressly terminating this Agreement;
or
(c) the consummation of an underwritten public offering of Common
shares of the Company pursuant to a registration statement
filed under the 1933 Act and/or a prospectus filed under the
Securities Laws of one or more of the Provinces of Canada
which, in any case, yields gross proceeds to the Company of
not less than $20,000,000 (a "Public Offering").
16.2 TERMINATION SHALL NOT AFFECT CERTAIN RIGHTS. No termination
of this Agreement shall affect:
(a) any right or liability of any Party which has accrued to any
other Party prior to the date of such termination or which
thereafter may accrue in respect of any act or omission to act
committed prior to such termination;
(b) any right or obligation of any Party which is expressly stated
elsewhere in this Agreement to survive the termination
thereof; or
(c) the rights and obligations of the Parties under section 14.
SECTION 17 - GENERAL
17.1 TIME. Time shall be of the essence of this Agreement.
17.2 NOTICES. All notices given pursuant to this Agreement shall
be in writing and shall be made by hand delivery, first class mail (registered
or certified, return receipt requested), telex, telecopier, or overnight air
courier guaranteeing next day delivery to the relevant address specified below.
Except as otherwise provided in this Agreement, each such notice shall be
deemed given: at the time delivered by hand, if personally delivered or mailed
postage prepaid; when answered back, if telexed; when receipt is acknowledged,
if telecopied; and the next business day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
45
<PAGE> 51
If to AccuMed, to:
AccuMed International, Inc.
900 North Franklin Street, Suite 401
Chicago, Illinois 60610
Attention: Peter P. Gombrich, Chief Executive Officer
Telecopy No.: 312-642-6884
Confirmation No.: 312-642-9200
with a copy to:
Graham & James LLP
400 Capitol Mall, Suite 2400
Sacramento, California 95814
Attention: Kevin A. Coyle, Esq.
Telecopy No.: 916-441-6700
Confirmation No.: 916-558-6700
If to Xillix, to:
Xillix Technologies Corp.
300 - 13775 Commerce Parkway
Richmond, B.C.
V6V 2V4
Attention: President
Telecopy No.: 604-278-5111
Confirmation No.: 604-278-5000
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<PAGE> 52
with a copy to:
Fraser & Beatty
1500 - 1040 West Georgia Street
Vancouver, B.C.
V6E 4H8
Attention: Gary R. Sollis
Telecopy No.: 604-683-5214
Confirmation No.: 604-687-4460
If to the Company, to:
Oncometrics Imaging Corp.
505 - 601 West Broadway Street
Vancouver, B.C.
V5Z 4C2
Attention: President
Telecopy No.: 604-875-9024
Confirmation No.: 604-875-9012
17.3 SEVERABILITY. If any part of this Agreement is declared or
held to be invalid for any reason whatsoever, such invalidity shall not affect
the validity of the remainder of this Agreement, which shall continue in full
force and effect and be construed as if this Agreement had been executed
without the invalid portion, and it is hereby declared the intention of the
Parties that this Agreement would have been executed without reference to any
portion that may, for any reason, be hereafter declared or held invalid.
17.4 SHAREHOLDERS TO TAKE FURTHER STEPS. Each Shareholder will
take all such actions, will execute and deliver all such documents and
assurances, and will exercise its rights as a shareholder of the Company to
cause the Company to pass all such resolutions and effect all such corporate
acts, as are necessary to fully and effectually perform, observe and carry out
the intent and the terms of this Agreement, including the convening of
meetings, attending at meetings, voting approval of resolutions or otherwise as
may be necessary for such purposes.
17.5 COMPANY TO BE BOUND. The Company will be bound by the terms
of this Agreement, and will do and perform all such acts and things and execute
all such documents and assurances as it has power to do and as are necessary to
fully
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<PAGE> 53
and effectually perform, observe and carry out the intent and the terms of this
Agreement.
17.6 CONFIDENTIALITY. None of the Parties will disclose the
existence or any of the terms or conditions of this Agreement to any Person who
is not a director, officer, employee or bona fide authorized representative
(which is deemed to include professional advisors) of such Party, without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, except:
(a) if such disclosure is required by law, including, without
limitation, the disclosure requirements of applicable
Securities Laws; or
(b) if such disclosure is in the normal course of such Party's
business and such disclosure is made on a "need-to-know" and
confidential basis;
and, if time permits, each Party shall, prior to issuing any press release or
making any other public announcement concerning the transactions contemplated
hereby, provide a copy of the text of such release or announcement to the other
Party for its review and comments.
17.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Province of British Columbia.
Each of the Parties hereby irrevocably attorns to the jurisdiction of the
courts of the Province of British Columbia, agrees that any such court shall
have in personam jurisdiction over it, consents to service of process in any
manner authorized by British Columbia law, and agrees that, subject to section
13, any action, suit or proceeding with respect to any disputes, differences or
controversies arising out of, in relation to or in connection with this
Agreement, or any breach hereof, shall be brought in the courts of the Province
of British Columbia. Each Party further agrees that a final judgment in any
such action or suit shall be conclusive and may be enforced in other
jurisdictions by suit or action on the judgment or in any other manner
specified by law.
17.8 CONTINUANCE INTO THE YUKON TERRITORY. The Parties acknowledge
and agree that, as soon as practicable following the date of this Agreement,
they shall take such actions and steps as are necessary or desirable in order
to continue the Company under the Business Corporations Act of the Yukon
Territory (the "Yukon Act"), and that upon completion of such continuance:
(a) this Agreement shall constitute an unanimous shareholders
agreement under section 148(1) of the Yukon Act;
(b) each and every reference herein to the Company shall be deemed
to be a reference to the Company as then continued and
existing under the Yukon Act;
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<PAGE> 54
(c) each and every reference herein to any section, provision or
requirement of the Company Act shall be deemed to be a
reference to the equivalent or similar section, provision or
requirement contained in the Yukon Act, if any;
(d) each and every reference to the Memorandum and/or Articles of
the Company shall be deemed to be a reference to the Articles
and/or Bylaws of the Company, as the case may be; and
(e) this Agreement shall, notwithstanding such continuance,
continue to be binding upon and enforceable against each of
the Parties in accordance with its terms.
17.9 CONFLICT WITH CHARTER DOCUMENTS. In the event of any conflict
between the provisions of this Agreement and the provisions of the Memorandum
or Articles of the Company, the provisions of this Agreement shall, to the
maximum extent permitted by law, govern and prevail.
17.10 WHOLE AGREEMENT. This Agreement contains the whole agreement
between the Parties in respect of the subject matter hereof and supersedes all
prior correspondence, agreements and understandings, oral or written, by or
between the Parties with respect thereto, including, without limitation, the
Letter of Intent dated July 3, 1996 among Xillix, the Company and AccuMed and
the business plans and executive summaries of the Company dated December, 1995
and May, 1996, copies of which were delivered to AccuMed and Xillix, except,
for the purposes of sections 5.7 and 5.11, the May, 1996 business plan and
executive summary, including the 1996-97 Budget contained therein. There are
no warranties, representations, terms, conditions or collateral agreements,
express, implied or otherwise, relating to the subject matter hereof, other
than as expressly set forth in this Agreement.
17.11 NO WAIVER. No failure to exercise or delay in exercising any
right or remedy under this Agreement by any Party shall operate as a waiver
thereof or of any other right or remedy which such Party may have hereunder,
nor shall any single or partial exercise of such right or remedy preclude any
further exercise thereof or of any right or remedy which such Party may have
hereunder.
17.12 CUMULATIVE RIGHTS. The rights and remedies provided herein
are cumulative and not exclusive of any rights and remedies provided by law, in
equity or otherwise.
17.13 ENUREMENT. This Agreement shall enure to the benefit of and
be binding upon the Parties and, except as otherwise provided herein or as
would be inconsistent with the provisions hereof, their respective heirs,
executors, administrators, successors and assigns.
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<PAGE> 55
17.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and such counterparts may be transmitted by electronic facsimile,
and each such counterpart shall be deemed to be an original and together such
counterparts shall constitute one document.
IN WITNESS WHEREOF the Parties have duly executed this
Agreement as of the day and year first above written.
ACCUMED INTERNATIONAL, INC.
By: /s/ PETER P. GOMBRICH
----------------------------------
Peter P. Gombrich,
Chief Executive Officer
XILLIX TECHNOLOGIES CORP.
By: /s/ PIERRE J. LEDUC
----------------------------------
Pierre J. Leduc, President
and Chief Executive Officer
ONCOMETRICS IMAGING CORP.
By: /s/ PIERRE J. LEDUC
----------------------------------
Authorized Signatory
By: /s/ BRANKO PALCIC
----------------------------------
Authorized Signatory
50
<PAGE> 56
SCHEDULE "A"
AGREEMENT TO BE BOUND
BY SHAREHOLDERS AGREEMENT
The undersigned, being the transferee of or subscriber for o
Common shares without par value in the capital of Oncometrics Imaging Corp., a
British Columbia corporation (the "Company"), as a condition to the receipt of
such shares, hereby acknowledges that the transfer and/or issuance of such
shares is restricted by the Shareholders Agreement dated as of October o, 1996
initially among the Company, Xillix Technologies Corp. and AccuMed
International, Inc. (the "Agreement"), and the undersigned hereby: (1)
acknowledges receipt of a copy of the Agreement; and (2) agrees to be bound by
the terms of the Agreement, as the same has been or may be amended from time to
time, and to observe and comply with all of the obligations of a Shareholder
thereunder.
Agreed to this * day of *, *.
---------------------------
*
---------------------------
*
---------------------------
*Include address for notices.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 2
AMENDMENT NO. 2 entered into as of October 10, 1996, with an effective
date of August 6, 1996 (the "Effective Date") to COLLABORATION AGREEMENT AND
WORLDWIDE EXCLUSIVE LICENSE dated March 22, 1994 (the "Collaboration
Agreement"), as amended by AMENDMENT NO. 1 to the Collaboration Agreement dated
April 12, 1995, by and between ACCUMED INTERNATIONAL, INC. (the successor to
Alamar Biosciences, Inc. ("Alamar")) and G&G DISPENSING, INC. ("G&G).
WHEREAS, the parties desire to amend certain of their respective
rights and obligations under the Collaboration Agreement and certain related
agreements;
NOW THEREFORE, in consideration of the premises and the mutual
promises set forth herein, the parties agree as follows:
1. For the purpose of this Amendment No. 2, Accumed
International, Inc. shall be defined as "Accumed". The parties agree that all
references to "Alamar" in the Collaboration Agreement, Amendment No. 1, the
Securities Purchase Agreement dated March 22, 1994 between G&G and Alamar (the
"Securities Purchase Agreement"), the Warrant issued by Alamar to G&G dated
March 22, 1994 (the "Warrant"), and the Escrow Agreement dated March 22, 1994
among G&G, Alamar and Hackmyer & Nordlicht (the "Escrow Agreement") are
intended to mean Accumed.
2. There will be no development, manufacture or sale of an
Actuator by the parties in connection with the Product or otherwise pursuant to
the Collaboration Agreement, and all references to an Actuator are therefore
deleted in their entirety.
3. The definition of the following term is hereby added to the
Collaboration Agreement as a new Section 1.2b:
1.2b "Commercially Viable Product" shall mean a Product which
can be manufactured by or on behalf of Accumed using reasonable
production tooling and production methods, for a per unit cost of
production no greater than $.75, which cost shall be comprised
exclusively of Accumed's costs for manufacturing labor and raw
materials associated with such production.
4. Section 5.2 of the Collaboration Agreement is hereby deleted
in its entirety. In satisfaction and lieu of the monthly payments and expenses
contemplated therein, Accumed shall pay G&G, as compensation for its activities
through the date of this Amendment No. 2 in accordance with Section 2.2 of the
Collaboration Agreement, the aggregate sum of $26,750, representing G&G's time
and out-of-pocket expenses devoted to such activities, provided
<PAGE> 2
that G&G promptly submits to Accumed an invoice itemizing time costs and
expenses.
5. Section 5.3(a) of the Collaboration Agreement is hereby
deleted in its entirety and replaced with the following:
(a) Amount. Accumed shall pay to G&G a non-refundable, except as
provided in Paragraph 14 of this Amendment No. 2, minimum annual
royalty for each twelve month period commencing August 1, 1996,
payable quarterly as described in Section 5.3(c) of the Collaboration
Agreement as follows:
i. First three twelve month periods: $25,000;
ii. Fourth twelve month period: $50,000; and
iii. Fifth twelve month period and each additional twelve
month period through the term of this Agreement as
defined in Section 12 below: $100,000.
6. Section 5.3(c) of the Collaboration Agreement is hereby
deleted and replaced with the following:
Accumed shall pay to G&G no later than the 30th day following the end
of each quarter based on a year beginning August 1, twenty five
percent (25%) of each year's minimum annual royalty. All payments
made under this Section 5.3 of this Agreement shall be made and
transmitted as described in Section 5.1 hereof. For the purpose of
clarity, payments under Section 5.3 are due no later than thirty (30)
days after each August 1, November 1, February 1 and May 1).
7. Section 5.4(a)(i) of the Collaboration Agreement is hereby
deleted in its entirety.
8. Section 5.4(a)(ii) of the Collaboration Agreement is hereby
deleted and replaced with the following:
ii. for each Disposable sold
[a] ten cents ($.10) each for the first 250,000
Disposables sold (1 - 250,000);
[b] eighteen cents ($.18) each for the next
750,000 Disposables sold (250,001 -
1,000,000) and
[c] twenty two cents ($.22) each for Disposables
sold in excess of 1,000,000.
2
<PAGE> 3
9. Section 5.4(b) of the Collaboration Agreement is hereby
deleted in its entirety and Section 5.4(c) of the Collaboration Agreement is
hereby renumbered as Section 5.4(b).
10. Section 5.4(d)(i) of the Collaboration Agreement is hereby
amended by deleting the first sentence thereof and replacing it with the
following sentence:
Accumed will remit to G&G either the royalties payable under this
Section 5.4 or, if higher, twenty five percent (25%) of the applicable
minimum annual royalty specified in Section 5.3(a) hereof, quarterly
within thirty (30) days after the end of each quarter commencing with
the quarter beginning August 1, 1996.
11. In the event Accumed breaches any of the provisions of this
Amendment No. 2, each of the foregoing terms shall be deemed null and void and
the original terms of the Collaboration Agreement replaced by this Amendment
No. 2 shall be reinstated. In such case, Accumed shall be responsible for all
payments due under the original terms of the Collaboration Agreement as though
this Amendment No. 2 had never been executed, and will immediately pay G&G all
amounts which would have been payable under the original terms of the
Collaboration Agreement (less any amounts otherwise paid by Accumed under the
terms of this Amendment No. 2).
12. (a) Accumed hereby grants G&G the unlimited right to
utilize Accumed's manufacturing facility in Westlake, Ohio and the tooling,
equipment and/or personnel located at such facility, for the production of the
Product or similar products for any and all purposes except those involving
minimum inhibitory concentration tests. Accumed will bill G&G for only (i) the
actual cost to Accumed of the labor and materials used by G&G in connection
with its use of Accumed's facility, tooling, equipment and/or personnel, plus
(ii) a surcharge of five percent (5%) on such actual labor and materials costs,
such billing to be done through a monthly detailed invoice. Notwithstanding
the foregoing, Accumed shall be under no obligation to make its facilities and
resources available to G&G to the extent that doing so would exceed Accumed's
manufacturing capacity or would result in Accumed's inability to satisfy demand
for the Product.
(b) If Accumed at any time discontinues manufacturing or
subcontracting the manufacture of the Product:
(i) Accumed shall notify G&G in writing that it
has discontinued the Product. G&G shall have the right, to be exercised within
ninety (90) days after receiving Accumed's notice, to purchase the tooling and
equipment previously utilized by Accumed in manufacturing the Product for its
fair market value, and Accumed will not unreasonably refuse to sell or deliver
the tooling and equipment to G&G.
3
<PAGE> 4
(ii) If Accumed intends to sell the tooling and
equipment previously utilized by Accumed in manufacturing the Product to a
third party, it will give written notice of such intent to G&G, specifying the
terms of sale and identity of the prospective purchaser, and G&G will have a
right of first refusal to purchase the tooling and equipment on the terms set
forth in the notice, such right to be exercised within thirty (30) days after
receipt of Accumed's notice by delivery of written notice of acceptance by G&G
to Accumed. If G&G does not exercise such right, Accumed will be free to sell
the tooling and equipment to the third party identified in its notice on the
terms and conditions set forth therein.
13. The parties confirm that Phase II and a portion of Phase III,
as described in the Collaboration Agreement, has been completed. Reference is
hereby made to Section 5.5(a) of the Collaboration Agreement, Section 2.3 of
the Securities Purchase Agreement and Section 3 of the Escrow Agreement. The
parties acknowledge that 29,000 Shares have previously been released from
escrow to G&G and that the remaining 116,000 Shares are in escrow. The parties
agree that 72,500 Shares in escrow, representing the 40% holdback pending
completion of Phase II and one-half of the 20% holdback pending completion of
Phase III, will be released from escrow and delivered to G&G on the earliest
day that such Shares may be freely sold by G&G (it being understood that such
Shares are currently subject to a lock-up agreement between Accumed and G&G).
The Escrow Agent identified in the Escrow Agreement is hereby authorized to
release such 72,500 Shares upon the expiration of the lock-up period without
any further action being necessary on the part of Accumed or G&G. The
remaining 43,500 Shares will be released to G&G as follows: 14,500 Shares will
be released upon the completion of molds and when a working prototype of the
Product exists, and 29,000 Shares will be released upon completion of Phase IV,
the date of the First Commercial Sale of the Product. Accumed and G&G will
provide joint written instructions to the Escrow Agent advising that the
applicable milestone has been obtained and directing that the corresponding
number of Shares and, if Phase IV has been completed, the Warrant, be released
to G&G.
14. Section 12.2(a)(ii) of the Collaboration Agreement is hereby
deleted in its entirety and Section 12.2(a)(iii) is renumbered as Section
12.2(a)(ii). Instead, either party shall have the right to terminate the
Collaboration Agreement by notice in writing to the other party in the event
that Phase IV is not completed on or before eighteen (18) months from the date
of this Amendment No. 2 (i.e., April 10, 1998); provided, however, that no
party may exercise such right of termination if it has not in good faith and
with reasonable diligence cooperated and pursued the development of the
Product. If G&G terminates the Collaboration Agreement because of Accumed's
failure to cooperate or diligently pursue the development of the Product, G&G
will be entitled to receive (i) as liquidated damages for all liability of
Accumed to
4
<PAGE> 5
G&G arising prior to the date of this Amendment No. 2, the sum of $93,684.18
(representing the amount currently owed by Accumed to G&G which G&G is
foregoing at Accumed's request in connection with this Amendment No. 2
($120,434.18), less the $26,750 to be paid to G&G pursuant to Section 3 of this
Amendment) and (ii) all out-of-pocket expenses for materials and all royalties
accrued and owing from the date of this Amendment No. 2 through the date of
such termination. If Accumed terminates the Collaboration Agreement because of
G&G's failure to cooperate or diligently pursue the development of the Product
or because a Commercially Viable Product has not been developed within the
allotted time period set forth in this Agreement through no fault of Accumed,
(i) all of the Shares and the Warrant remaining in escrow shall be forfeit by
G&G and (ii) G&G shall promptly refund to Accumed all minimum annual royalties
paid by Accumed pursuant to Section 5.3 hereof.
15. Section 12.1(a) of the Collaboration Agreement is hereby
amended by adding a new subparagraph (iv) thereto as follows:
iv. in the event that the license granted to Accumed
under this Agreement is rendered non-exclusive pursuant to Accumed's
failure to pay $200,000 in royalties from and after the ninth year of
this Agreement (beginning July 1, 2002) as specified in Section 5.3(b)
hereof.
16. Accumed agrees to pay $20,250 to attorney Eric Shellin for
costs associated with obtaining foreign patent protection for the Product. All
foreign patents applied for and/or granted are identified on Schedule A hereto
by a description of the country and date of filing, and application and/or
registration number. Except as agreed to above, Section 9 of the Collaboration
Agreement shall remain in full force and effect.
17. The payments to be made by Accumed under Sections 3 and 14
above will be made upon the earlier of (i) the closing of a public or private
offering of stock by Accumed or (ii) October 15, 1996.
18. Accumed agrees to pay G&G for its President, Jack Goodman, to
develop an assembly line method for producing the Product. in accordance with
the cost estimates set forth in Mr. Goodman's letter to Accumed dated July 29,
1996, a copy of which is attached hereto as Exhibit 1. Accumed will purchase
and own all of the materials and equipment related to such development.
Accumed will pay G&G at the rate of $100.00 per hour for Mr. Goodman's services
and will reimburse all reasonable and related out-of-pocket expenses incurred
by Mr. Goodman and/or G&G in connection therewith (including but not limited to
travel expenses) within thirty (30) days after G&G's delivery of an invoice
therefor. The total cost of such development activities, including all
necessary production equipment and set-up costs (except costs relating to the
5
<PAGE> 6
manufacture of the mold), is estimated to be approximately $119,000 plus travel
expenses. Without limiting the foregoing, Accumed shall pay G&G a bonus if the
production line is completed and operational prior to specified dates as
follows: (i) a bonus of $20,000 for completion within 11 months of the date of
this Amendment No. 2 (September 10, 1997); or (ii) a bonus of $10,000 for
completion within 15 months of the date of this Amendment No. 2 (by January 10,
1997).
19. Accumed hereby agrees to pay all legal fees and disbursements
of Hackmyer & Nordlicht for legal services rendered in connection with the
negotiation and preparation of this Amendment No. 2.
20. The Collaboration Agreement, Securities Purchase Agreement and
Escrow Agreement are hereby amended to provide that all notices permitted or
required to be sent to Accumed shall be sent to Accumed International, Inc.,
900 North Franklin, Suite 401, Chicago, Illinois 60610, Attention: Peter
Gombrich, Chief Executive Officer, Facsimile No. (312) 642-8684.
21. Except as amended hereby, the Collaboration Agreement,
Securities Purchase Agreement, Escrow Agreement and Warrant shall remain in
full force and effect. The terms of the Collaboration Agreement shall apply to
this Amendment No. 2, except to the extent that any of such terms are
contradictory herewith, in which event the terms of this Amendment No. 2 shall
prevail.
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
as of the date first above written, to be effective as of the Effective Date.
G&G DISPENSING, INC.
By: /s/ JACK GOODMAN
--------------------------------
Name: Jack Goodman
------------------------------
Title: President
-----------------------------
ACCUMED INTERNATIONAL, INC.
By: /s/ MICHAEL BURKE
--------------------------------
Name: Michael Burke
------------------------------
Title: President
-----------------------------
WITH RESPECT TO SECTIONS 13 and
21 ONLY
HACKMYER & NORDLICHT
By: /s/ BRIAN M. HAND
--------------------------------
Brian M. Hand
7
<PAGE> 8
SCHEDULE A
FOREIGN PATENT APPLICATIONS
Country Application No.
------- ---------------
Canada Serial No. 2,166,144
Japan Hei 7-503044
EP Based on PCT/US94/07008
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 446
<SECURITIES> 0
<RECEIVABLES> 1,428
<ALLOWANCES> 0
<INVENTORY> 1,567
<CURRENT-ASSETS> 3,679
<PP&E> 1,308
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,007
<CURRENT-LIABILITIES> 5,255
<BONDS> 0
0
0
<COMMON> 33,529
<OTHER-SE> (28,796)
<TOTAL-LIABILITY-AND-EQUITY> 10,007
<SALES> 3,668
<TOTAL-REVENUES> 3,668
<CGS> 2,054
<TOTAL-COSTS> 2,054
<OTHER-EXPENSES> 9,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,873)
<INCOME-PRETAX> (5,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,874)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> 0
</TABLE>
