<PAGE> 1
As filed with the Securities and Exchange Commission on December 23, 1999
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ACCUMED INTERNATIONAL, INC.
------------------------------------------------
(Name of registrant as specified in its charter)
DELAWARE 2835 68-0165860
------------------- ------------------- ----------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification
of incorporation or Classification Code No.)
organization) Number)
920 N. Franklin Street, Suite 402
Chicago, Illinois 60610
(313) 642-9200
--------------
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
PAUL F. LAVALLEE
Chief Executive Officer
AccuMed International, Inc.
920 N. Franklin Street, Suite 402
Chicago, Illinois 60610
(312) 642-9200
fax (312) 642-8684
------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
JOYCE L. WALLACH, ESQ.
1500 - 7th Ave.
Sacramento, CA 95818
fax (916) 341-0256
Approximate date of commencement of proposed sale to the public: Upon
the completion of the merger described in the Registrant Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
Title of each class of Amount to be Price Per Share(1) Proposed Maximum Amount of
Securities To Be Registered Aggregate Registration
Registered Offering Price Fee
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Common Stock,
Par Value $0.01 11,696,830(1) $0.0793218(2) $897,037(3) $236.82(3)
- ----------------------------------------------------------------------------------------------------
Warrants to Purchase
Common Stock 3,014,646(1) $0 (2) $0 (2) $0(3)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of common stock and warrants to
acquire shares of common stock of the registrant that may be issued
pursuant to the merger agreement described in the Registration
Statement.
(2) Inasmuch as there is no market for the securities of Microsulis
Corporation to be received by the Registrant or cancelled in the merger,
the maximum offering price per share and maximum aggregate offering
price are calculated, pursuant to Rule 457(f)(2) under the Securities
Act, using the book value of the securities computed as of the latest
practicable date: $897,037, which was the book value of Microsulis as of
November 30, 1999.
(3) Calculated in accordance with Section 6(b) of the Securities Act and
Rule 457(f)(2).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
ACCUMED INTERNATIONAL, INC.
Proxy Statement-Prospectus
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The board of directors of AccuMed International, Inc. agreed to a merger
with Microsulis Corporation in which Microsulis will become a wholly-owned
subsidiary of AccuMed.
In the merger, AccuMed will issue a total of a minimum of 10,726,830
shares up to a maximum of 11,308,830 shares of AccuMed common stock. These
shares will be issued at a ratio of 1.94 AccuMed shares for each share of
Microsulis common stock outstanding at the time of the merger. We will also
issue five-year warrants to purchase a total of a minimum of 2,764,646 shares
and a maximum of 3,014,646 shares of AccuMed common stock exercisable at $6.75
per share. Microsulis common stockholders will receive one warrant for every two
shares of Microsulis common stock outstanding at the time of completion of the
merger. Upon completion of the merger, current AccuMed stockholders will retain
approximately a minimum of 35.2% and up to a maximum of 37.3% of the outstanding
common stock. The former Microsulis stockholders will then own approximately a
minimum of 62.7% and up to a maximum of 64.8% of the outstanding common stock.
AccuMed will also grant stock options to purchase 1,040,000 shares of common
stock at an exercise price of $2.50 per share to replace Microsulis stock
options. We will also grant an aggregate of 240,000 stock options exercisable at
$2.50 per share to the non-employee directors. A total of 750,000 stock options
would be granted to two executive officers exercisable at a minimum of $2.50 per
share.
Your board of directors has unanimously approved the terms of the merger
agreement and determined that the merger is advisable and in your best
interests. After careful consideration, your board of directors unanimously
recommends that you vote FOR approval of the merger agreement and the merger.
Details of the merger and other important information are included in
this document. A copy of the merger agreement is attached as Appendix A.
Additional information about AccuMed is contained in our 1998 annual report and
the quarterly report for the fiscal quarter ended September 30, 1999 which are
enclosed. This document is a proxy statement for soliciting proxies for the
special stockholders meeting. This document is also a prospectus relating to the
securities to be issued in the merger. WE URGE YOU TO READ THIS DOCUMENT
CAREFULLY.
FOR RISKS RELATING TO ACCUMED AND THE MERGER, SEE "RISK FACTORS"
BEGINNING ON PAGE 17.
We cannot complete the merger unless holders of a majority of the shares
of Accumed common stock voting at the special meeting of stockholders vote to
approve the merger agreement. AccuMed stockholders will also be asked to vote on
proposals to change AccuMed's name to "Microsulis Medical Corporation," and to
elect seven directors to serve on the board of directors until the next annual
meeting of stockholders.
The common stock is quoted on the Nasdaq SmallCap Market under the
trading symbol "ACMI." The last reported sale price for the common stock on
December 17, 1999, as reported on the Nasdaq SmallCap Market, was $3.50 per
share.
<PAGE> 4
Very truly yours,
Paul F. Lavallee
Chairman of the Board and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This proxy statement-prospectus dated [____________, 2000 was first
mailed to AccuMed stockholders on or about [________________, 2000.
<PAGE> 5
ACCUMED INTERNATIONAL, INC
920 North Franklin Street, Suite 402
Chicago, Illinois 60610
----------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on January 28, 2000
----------------------
Dear AccuMed stockholders:
Notice is hereby given that a special meeting of stockholders of AccuMed
International, Inc., a Delaware corporation, will be held at AccuMed's offices
located at 920 North Franklin Street, Suite 402, Chicago, Illinois, on Friday,
January 28, 2000 at 10:00 a.m (Chicago time), to consider and act upon the
following matters.
1. A proposal to approve the Agreement and Plan of Merger among Accumed,
AccuMed Acquisition Sub, Inc., a wholly-owned subsidiary of AccuMed, and
Microsulis Corporation dated as of November 16, 1999 and amended December 16,
1999 and December 21, 1999, and to approve the merger through which Microsulis
will become a wholly-owned subsidiary of AccuMed. In the merger, AccuMed will
issue a total of a minimum of 10,726,830 shares up to a maximum of 11,696,830
shares of AccuMed common stock. These shares will be issued at a ratio of 1.94
shares of AccuMed common stock for each share of Microsulis common stock. We
will also issue five-year warrants to purchase a total of a minimum of 2,764,646
shares up to a maximum of 3,014,646 shares of AccuMed common stock exercisable
at $6.75 per share. Microsulis stockholders will receive one warrant for every
two shares of Microsulis common stock. AccuMed will also grant stock options to
purchase 1,040,000 shares of common stock at an exercise price of $2.50 per
share to replace Microsulis stock options. We will also grant an aggregate of
240,000 stock options exercisable at $2.50 per share to the non-employee
directors. We will also grant a total of 750,000 stock options to two executive
officers exercisable at a minimum of $2.50 per share.
2. A proposal to amend AccuMed's Certificate of Incorporation to change
our name to "Microsulis Medical Corporation."
3. To elect seven directors to serve on the board of directors until the
next annual meeting of stockholders.
4. To transact other business and to consider and take action upon any
and all other matters that may properly come before the special meeting or any
adjournment of the meeting.
Your board of directors knows of no matters, other than those listed
above that will be presented for consideration at the special meeting. The
enclosed proxy statement-prospectus provides detailed information about the
matters to be voted on.
Your board of directors has fixed the close of business on December 9,
1999 as the record date for the determination of stockholders entitled to vote
at the special meeting.
The enclosed proxy statement-prospectus is accompanied by our annual
report on Form 10-K for the year ended December 31, 1998 and our quarterly
report on Form 10-Q for the quarter ended September 30, 1999.
<PAGE> 6
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON,
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AS
PROMPTLY AS POSSIBLE. THE PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO
VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
By Order of the board of directors
Chicago, Illinois Jack H. Halperin
[_________________, 1999 Secretary
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION.......................................... 5
FORWARD-LOOKING STATEMENTS................................................... 6
TRADEMARKS................................................................... 6
PROXY STATEMENT-PROSPECTUS SUMMARY........................................... 7
The Companies
AccuMed.................................................................. 7
Microsulis Corporation................................................... 7
Summary of the Merger Transaction
Structure of the Merger.................................................. 8
Common Stock and Warrants to be Issued to Microsulis Stockholders........ 8
Stock Options to be Granted.............................................. 8
Reasons for AccuMed's board of directors Recommending
Approval of the Merger................................................. 8
Composition of Board of Directors Following the Merger................... 9
Management of AccuMed Following the Merger............................... 9
Ability of a Single Stockholder to Control Affairs of
AccuMed Following the Merger........................................... 9
Completion and Effectiveness of the Merger............................... 9
Conditions to Completion of the Merger................................... 10
Termination of the Merger Agreement; Termination Fee..................... 10
Dissenters Rights of Appraisal........................................... 11
Interests of Officers, Directors and Director Nominees in the Merger..... 11
AccuMed Loans to Microsulis.............................................. 11
Important Federal Income Tax Consequences................................ 11
Accounting Treatment..................................................... 11
Regulatory Matters....................................................... 11
Restrictions on Ability to Sell AccuMed Common Stock and Warrants........ 11
Nasdaq Listing of AccuMed Common Stock................................... 12
AccuMed Special Meeting
Date, Time, Place and Purpose............................................ 12
Record Date; Stockholders Entitled to Vote; Voting Power................. 12
Revocability of Proxies.................................................. 12
COMPARATIVE PER SHARE DATA................................................... 14
ACCUMED INTERNATIONAL, INC. SELECTED HISTORICAL FINANCIAL DATA............... 15
RISK FACTORS
Risk Relative to the Merger................................................ 17
Risks Relating to AccuMed.................................................. 18
THE ACCUMED SPECIAL MEETING
Date, Time and Place of Special Meeting.................................... 28
Matters to be considered at the Special Meeting............................ 28
Revocability of Proxies.................................................... 29
Solicitation of Proxies; Expenses.......................................... 29
Stockholders Entitled to Vote.............................................. 29
Voting Procedures.......................................................... 29
Votes Required to Approve the Proposals.................................... 30
Quorum; Broker Non-Votes; Abstentions...................................... 30
Voting Stock Held by AccuMed and Microsulis Management..................... 31
Inspector of Elections..................................................... 31
Dissenters' Rights of Appraisal............................................ 31
</TABLE>
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<TABLE>
<S> <C>
Independent Auditors ............................................. 31
THE MERGER
Structure of the Merger and Securities to be Issued .............. 32
Background of the Merger ......................................... 33
Recommendation of the AccuMed board of directors and Reasons
for the Merger ................................................. 34
Recommendation of Microsulis Board of Directors and Reasons
for the Merger ................................................. 35
Federal Income Tax Consequences .................................. 36
Accounting Treatment of the Merger ............................... 38
Regulatory Matters ............................................... 38
Microsulis Stockholders Dissenters' Rights of Appraisal .......... 38
Listing of Common Stock on Nasdaq; No Public Market for Warrants . 38
Restrictions on Resales by Affiliates; Lock-up and Voting
Agreements; Registration Rights ................................ 38
Directors and Management of AccuMed After the Merger ............. 39
Interests of Officers, Directors and other Stockholders
in the Merger .................................................. 40
Possible Additional Sales of Microsulis Common Stock and
Corresponding Increases in AccuMed Stock and Warrants
to be Issued in the Merger ..................................... 41
Loans from AccuMed to Microsulis ................................. 41
THE MERGER AGREEMENT
The Merger; Closing; Effective Time .............................. 43
Conversion of Microsulis Common Stock; Exchange of Certificates .. 44
Treatment of Microsulis Stock Options ............................ 45
Representations and Warranties ................................... 45
Conduct of Business Pending the Merger ........................... 46
Loans from AccuMed to Microsulis ................................. 46
No Solicitation .................................................. 47
Indemnification of Microsulis Executives and Directors ........... 47
Conditions to Completion of the Merger ........................... 47
Termination of the Merger Agreement; Termination Fee ............. 48
Amendment; Waiver ................................................ 49
Fees and Expenses ................................................ 49
INFORMATION ABOUT ACCUMED
AccuMed's Business ............................................... 50
Director Nominees and Executive Officers ......................... 52
Committees and Meetings of AccuMed's Board of Directors .......... 53
Director Compensation ............................................ 54
Compensation Committee Interlocks and Insider Participation ...... 54
Robert L. Priddy ................................................. 54
Section 16(a) Beneficial Ownership Reporting Compliance .......... 55
Executive Compensation ........................................... 55
Report of the Compensation Committee on Executive Compensation . 55
Summary Compensation Table ..................................... 57
Option Grants During the Year Ended December 31, 1998 .......... 58
Aggregate Option Exercises During the Year Ended
December 31, 1998 and Fiscal Year End Option Values .......... 58
10-Year Option Repricings ...................................... 59
Employment Agreements and Severance .............................. 59
Performance Graph ................................................ 61
INFORMATION ABOUT MICROSULIS
Overview of Business ............................................. 62
Menorrhagia ...................................................... 62
The MEA System ................................................... 63
</TABLE>
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<TABLE>
<S> <C>
MEA System Components..................................... 64
The MEA Procedure......................................... 65
Results of Clinical Trials................................ 65
Current Alternative Therapies............................. 66
License Agreement with Microsulis Plc..................... 68
Microsulis Plc............................................ 69
Marketing and Distribution................................ 69
License, Patents and Proprietary Technology............... 70
Government Regulation..................................... 71
Third-Party Reimbursement................................. 72
Competition............................................... 72
Employees................................................. 73
Property.................................................. 73
Legal Proceedings......................................... 73
MICROSULIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview.................................................. 74
Results of Operations..................................... 74
Revenues.................................................. 74
FDA Expenses.............................................. 74
Amortization of Licensing Rights.......................... 74
Product Development Costs................................. 75
Salaries.................................................. 75
Trade Show Costs.......................................... 75
Other General and Administrative Expenses................. 75
Liquidity and Capital Resources........................... 75
DESCRIPTION OF ACCUMED WARRANTS TO BE ISSUED IN THE MERGER..... 77
DESCRIPTION OF ACCUMED CAPITAL STOCK
AccuMed Common Stock...................................... 79
AccuMed Preferred Stock................................... 79
Certain Provisions of Delaware Law........................ 80
Certain Charter and Bylaw Provisions...................... 80
Limitation of Liability................................... 80
Transfer Agent............................................ 80
DESCRIPTION OF MICROSULIS COMMON STOCK
Dividend Policy........................................... 81
COMPARISON OF RIGHTS OF HOLDERS OF ACCUMED AND MICROSULIS
COMMON STOCK
Voting Rights............................................. 82
Power to Call Special Meeting of Stockholders............. 82
Stockholders Action without a Meeting..................... 82
Size of Board of Directors................................ 82
Classification of Board of Directors...................... 83
Removal of Directors...................................... 83
Filling Vacancies on the board of Directors............... 83
Limitation of Liability of Directors; Indemnification..... 84
Business Combinations/Merger.............................. 84
Dissenters' Rights of Appraisal........................... 86
Inspection of Stockholder List............................ 87
Amendment of Certificate or Articles of Incorporation..... 87
Amendment of Bylaws....................................... 87
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
ADDITIONAL MATTERS TO BE VOTED ON BY ACCUMED STOCKHOLDERS
Amendment to Certificate of Incorporation to Change AccuMed's Name... 88
Election of Directors................................................ 88
Director Nominees.................................................... 88
Arrangements for Nomination as Director.............................. 90
ACCUMED SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock......................................................... 91
Preferred Stock...................................................... 93
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF MICROSULIS........................................................... 94
ADDITIONAL MATTERS
Legal Matters........................................................ 96
Experts.............................................................. 96
Stockholders Proposals for 2000 Annual Meeting....................... 96
</TABLE>
<PAGE> 11
WHERE YOU CAN FIND MORE INFORMATION
We are delivering with this proxy-statement prospectus copies of our
annual report on Form 10-K for the year ended December 31, 1998 and our
quarterly report on Form 10-Q for the quarter ended September 30, 1999. HOWEVER,
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT ACCUMED THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. We have filed a registration statement on Form S-4 with the Securities
and Exchange Commission to register the AccuMed securities to be issued in the
merger. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy the
registration statement and any other documents we have filed at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may call
the SEC at 1-800-SEC-0330 for further information about the Public Reference
Room. Our SEC filings are also available to the public at the SEC's Internet
site found at "http://www.sec.gov." You can also inspect our SEC filings at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
This proxy statement-prospectus is part of the registration statement
and does not contain all of the information included in the registration
statement. Whenever a reference is made in this prospectus to any contract or
other document of AccuMed, the reference may not be complete, and you should
refer to the exhibits that are part of the registration statement for a copy of
the contract or document.
In addition, the SEC allows us to "incorporate by reference" into this
proxy statement-prospectus the information we will file with it. This means we
can disclose important information to you by referring you to those documents.
Information incorporated by reference is part of this proxy
statement-prospectus. Later information filed with the SEC will update and
supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 prior to the special meeting scheduled to be
held on January 28, 2000.
* Our annual report on Form 10-K for the year ended December 31,
1998, including exhibits.
* Our current report on Form 8-K dated February 12, 1999.
* Our quarterly reports on Form 10-Q for the fiscal quarters ended
March 31, June 30 and September 30, 1999.
* The description of our common stock and accompanying rights
contained in amendment no. 1 to our registration statement on
Form 8-A/A filed with the SEC on January 2, 1996.
We will provide to each person, including any beneficial owner, to whom
a copy of this
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prospectus is delivered, a copy of any or all of the information we have
incorporated by reference in this prospectus. You may request copies of this
information, and we will provide it at no cost, by writing or telephoning us at:
Accumed International, Inc.
920 North Franklin Street, Suite 402
Chicago, Illinois 60610
Attn: Chief Executive Officer
Telephone: (312) 642-9200.
TO ENSURE THAT YOU RECEIVE THE INFORMATION IN A TIMELY FASHION, YOU MUST MAKE
YOUR REQUEST BY JANUARY 24, 2000.
FORWARD-LOOKING STATEMENTS
Some of the information in this proxy statement-prospectus contains
"forward-looking statements" within the meaning of the federal securities laws.
These statements relate to future events or the future financial performance of
AccuMed, Microsulis and the combined company. These statements describe
management's beliefs concerning the future based on currently available
information. We do not intend to update the forward-looking statements included
in this prospectus. Actual results could differ materially from those contained
in the forward-looking statements due to a number of risks and uncertainties.
Forward-looking statements typically are identified by the use of terms such as
"may," "will," "expect," "anticipate," "believe," "estimate," and similar words.
Some forward-looking statements are expressed differently. Important factors
that could cause our actual results to differ materially from our expectations
expressed in the forward-looking statements are set forth under the caption
"Risk Factors" and in other sections of this proxy statement-prospectus.
TRADEMARKS
The following are trade names and common law trademarks or registered
trademarks of AccuMed: the "ACCUMED" logo and name, "ACCELL," "TRACCELL,"
"ACCUTECH, "ACCELL-SAVANT," "ONCOMETRICS," "SPECIFIND," "MACCELL,"
"MACROVISION," "RELATIONAL CYTOPATHOLOGY REVIEW GUIDE," "IMPROVING CYTOLOGY
PROCESSES," and "AND YOU THOUGHT YOU'D SEEN IT ALL."
6
<PAGE> 13
PROXY STATEMENT-PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding AccuMed, Microsulis, the merger and the AccuMed securities
to be issued in the merger. You should also read our annual report on Form 10-K
for the year ended December 31, 1998 and our quarterly report for the quarter
ended September 30, 1999 which accompany this document, as well as the other
information incorporated by reference in this proxy statement-prospectus. See
"Where You Can Find More Information."
AccuMed has provided the information in this proxy statement-prospectus
about AccuMed, and Microsulis has provided the information in this document
about Microsulis.
THE COMPANIES
ACCUMED
Accumed International, Inc. is a biomedical company. We are developing
and commercializing products for use by clinical diagnostic laboratories to
review and analyze cytology and histology samples. Pap smears and other
microscope slide-based cellular samples are examples of cytology tests. Frozen
sections in anatomic pathology laboratories and immunohistochemistry are
examples of histology tests. Our products use our exclusively owned technology,
some of which is patented. AccuMed's primary focus is developing cytology and
histology products that improve the quality of cell-based and tissue-based
specimen analyses and increase productivity in the clinical diagnostic
laboratory. The first products we developed were designed for review and
analysis of both cervical and non-cervical conventional Pap smears and Pap
smears using liquid-based preparations.
Although the cervical Pap test is the largest volume diagnostic cytology
test, the pathology laboratory routinely conducts other tests based on samples
from numerous organs and areas of the body. Implementing these tests effectively
requires precision optical microscopy and careful error-free management of data.
AccuMed is currently developing products for these applications by combining our
AcCell technology with other technology for use in analyzing these samples in a
manner similar to that of qualitative and quantitative Pap tests. Our
exclusively owned technologies, including the AcCell and AcCell Savant, are
instrument platforms that can support a wide variety of manual, semi-automated
and automated medical tests involving cells and tissue. AccuMed is exploring
business arrangements to apply our platforms to new markets, in addition to
early lung cancer testing.
Our predecessor company, Alamar Biosciences, Inc. was incorporated in
California in 1988. AccuMed was reincorporated in Delaware in December 1995. Our
principal executive offices are located at 920 N. Franklin St., Ste. 401,
Chicago, Illinois 60610, and our telephone number is 312-642-9200.
MICROSULIS CORPORATION
Microsulis markets, distributes and may manufacture a Microwave
Endometrial Ablation (MEA) system for treatment of menorrhagia, a condition of
excessive menstrual blood loss in women. MEA is a minimally invasive day-patient
or out-patient procedure for the treatment of menorrhagia which can be performed
in approximately three to five minutes under local anesthesia. The typical
at-home recovery period is approximately two to three days. Unlike other
procedures currently on the market, the MEA
7
<PAGE> 14
system employs microwave frequency radiation, which allows for deeper
penetration into the endometrium in a much shorter time period than other
current procedures. During the procedure, a surgeon inserts an applicator into
the uterus and moves the applicator from side to side until the therapeutic
temperature is reached and the entire uterine cavity is covered.
Microsulis has the exclusive right to distribute the MEA system in North
America, Central America and South America pursuant to a 20-year license
agreement with Microsulis PLC. Microsulis is presently marketing the MEA system
for sale in Canada through its wholly-owned subsidiary, Microsulis (Canada)
Inc., with the assistance of a distributor, Minogue Medical, Inc. Distribution
of the MEA system in the U.S. requires approval by the FDA of a premarket
approval application.
SUMMARY OF THE MERGER TRANSACTION
STRUCTURE OF THE MERGER
When the merger is complete, Microsulis will become a wholly-owned
subsidiary of AccuMed. Following the merger, current AccuMed stockholders will
retain ownership of approximately 37.3% of the outstanding AccuMed common stock.
COMMON STOCK AND WARRANTS TO BE ISSUED TO MICROSULIS STOCKHOLDERS
In the merger, AccuMed will issue a total of a minimum of 10,726,830
shares and up to a maximum of 11,696,830 shares of AccuMed common stock. Holders
of Microsulis common stock will receive 1.94 AccuMed shares for each share of
Microsulis common stock outstanding at the time of completion of the merger. We
will also issue five-year warrants to purchase a total of a minimum of 2,764,646
shares up to a maximum of 3,014,646 shares of AccuMed common stock exercisable
at $6.75 per share. Holders of Microsulis common stock will receive one warrant
for every two shares of Microsulis common stock outstanding at the time of
completion of the merger. Following the merger, the former Microsulis
stockholders will own a minimum of approximately 62.7%, and up to a maximum of
approximately 64.8% of the outstanding shares common stock.
STOCK OPTIONS TO BE GRANTED
If the merger is completed, AccuMed will also grant stock options to
purchase a total of 1,040,000 shares of common stock at an exercise price of
$2.50 per share to replace currently outstanding Microsulis stock options.
AccuMed will also grant an aggregate of 240,000 stock options exercisable at
$2.50 per share to the non-employee directors. In addition, we will grant to two
executive officers a total of 750,000 stock options exercisable at a minimum of
$2.50 per share.
REASONS FOR ACCUMED'S BOARD OF DIRECTORS RECOMMENDING APPROVAL OF THE MERGER
After careful consideration, AccuMed's board of directors unanimously
recommends that you vote FOR approval of the merger agreement and the merger.
The Board has determined that the merger is in the best interests of AccuMed and
its stockholders. Some of the benefits that the Board anticipates are listed
below:
8
<PAGE> 15
* we anticipate that the combined companies will have a greater
opportunity to raise capital on acceptable terms than would be
possible for AccuMed alone;
* acquiring the Microsulis' Microwave Endometrial Ablation (MEA)
system product will increase our product and revenue base;
* the merger will strengthen the companies' scientific expertise in
the areas of new applications of both AccuMed's and Microsulis'
platform technologies;
* combining the personnel of AccuMed and Microsulis will enhance
product development and improvements;
* the combined companies may be able to operate more efficiently
than either company could on as separate businesses, which may
support future growth.
COMPOSITION OF BOARD OF DIRECTORS FOLLOWING THE MERGER
Four of the seven nominees for election as directors were selected by
Gillian Fraser, who will become the majority stockholder of AccuMed upon
completion of the merger. Those nominees are David Warner, Leslie J. Croland,
Marcus E. Finch and Paul Barrett. Mr. Warner is expected to serve as Chairman of
the Board. The other three nominees were selected by AccuMed's board of
directors. They are Paul Lavallee, Robert Priddy and Mark Banister and each is a
current AccuMed director.
Ms. Fraser, Mr. Priddy and Bellingham Capital Industries have agreed to
enter into an agreement requiring each of them to vote the shares of AccuMed
common stock in favor of election of four directors nominated by Ms. Fraser and
three directors nominated by AccuMed's Chief Executive Officer. This arrangement
will be in effect for up to two years following the merger. Upon completion of
the merger, these three stockholders will own a total of 10,197,789 shares
(50.3%), assuming the minimum number of shares of the AccuMed common stock is
issued. Thus, they will be able to control the composition of AccuMed's board of
directors.
MANAGEMENT OF ACCUMED FOLLOWING THE MERGER
Following the merger, Paul Lavallee will continue to serve as AccuMed's
Chief Executive Officer. We expect that David Warner, a director of Microsulis
PLC will take an active role in AccuMed's management as Chairman of the Board.
ABILITY OF A SINGLE STOCKHOLDER TO CONTROL AFFAIRS OF ACCUMED FOLLOWING THE
MERGER
Assuming the minimum number of shares is issued, Gillian Fraser will own
approximately 7,522,500 shares (38.4%) of the AccuMed common stock outstanding
upon completion of the merger. Thus, Ms. Fraser will be able to control the
outcome of stockholder votes.
COMPLETION AND EFFECTIVENESS OF THE MERGER
We will complete the merger when all of the conditions to completion of
the merger have
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<PAGE> 16
been satisfied or waived. The merger will become effective when we file the
articles of merger with the Florida Secretary of State
We are working toward completing the merger as quickly as possible. We
hope to complete the merger promptly following the AccuMed special meeting
scheduled for January 28, 2000.
CONDITIONS TO COMPLETION OF THE MERGER
Completion of the merger is subject to satisfaction of a number of
conditions, including:
* AccuMed's stockholders must vote a majority of the shares of
AccuMed common stock voting at the special meeting for approval
of the merger;
* Microsulis' stockholders must vote 80% of the outstanding shares
of Microsulis common stock for approval of the merger;
* both parties completing and being satisfied with the results of
an investigation of the other party's business and financial
condition;
* AccuMed will enter into professional services agreements with
Paul F. Lavallee and David Warner, and an employment agreement
with Marcus E. Finch;
* Gillian Fraser, Robert L. Priddy and Bellingham Capital
Industries will enter into agreements restricting the resale of
their AccuMed common stock and warrants following the merger, and
agreeing to vote in favor of directors nominated by Ms. Fraser
and Accumed's Chief Executive Officer;
* AccuMed will amend its certificate of incorporation to change its
name to "Microsulis Medical Corporation;"
* AccuMed will grant the stock options described above under the
caption "Stock Options to be Granted;"
* Microsulis will enter into several amendments to its license
agreement with Microsulis PLC relating to the MEA system;
* there is no material adverse change in our respective businesses.
Certain conditions to completion of the merger may be waived by the
company entitled to assert the condition.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEE
AccuMed and Microsulis may mutually agree to terminate the merger
agreement without completing the merger. The merger agreement may also be
terminated as follows:
* upon paying a $3,000,000 cash termination fee to the other party,
either AccuMed or Microsulis may terminate the merger agreement
to enter into an agreement with a
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<PAGE> 17
third party providing for a merger, sale of substantially all
assets or other transaction resulting in a change of control of
the terminating party;
* if the merger is not then completed, the merger agreement will
terminate automatically on January 31, 2000 unless the parties
agree to extend the date.
DISSENTERS RIGHTS OF APPRAISAL
Under Delaware corporate law, AccuMed stockholders are not entitled to
any dissenters' rights of appraisal if they vote against approval of the merger.
Microsulis stockholders who vote against the merger are entitled to dissenters'
rights under Florida corporate law. See "The AccuMed Special Meeting --
Dissenters' Rights of Appraisal," and "The Merger -- Microsulis Stockholders
Dissenters' Rights of Appraisal."
INTERESTS OF OFFICERS, DIRECTORS AND DIRECTOR NOMINEES IN THE MERGER
In considering the recommendation of the AccuMed and Microsulis boards
of directors to approve the merger, you should be aware that some executive
officers, current directors and director nominees have interests in the merger
that are different from, or in addition to your interests in the merger. These
interests include indemnification, employment arrangements and stock options.
ACCUMED LOANS TO MICROSULIS
In October and December 1999, AccuMed loaned Microsulis and its
subsidiary a total of $588,000. On December 21, 1999, Microsulis and its
subsidiary repaid AccuMed $188,000, reducing the loan balances to a total of
$400,000. AccuMed has agreed to loan Microsulis and its subsidiary up to a total
of $650,000. The loans carry interest at 10% annually and are secured by liens
on Microsulis' MEA systems. If the merger is not completed, Microsulis will be
required to repay the loans with interest on April 18, 2000.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES
We expect that neither Microsulis, nor its shareholders will recognize
gain or loss, for United States federal income tax purposes as a result of the
merger. TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER MAY
VARY DEPENDING UPON A PARTICULAR MICROSULIS SHAREHOLDER'S CIRCUMSTANCES. THE
SHAREHOLDERS OF MICROSULIS SHOULD CONSULT WITH THEIR TAX ADVISORS CONCERNING
THE EFFECTS OF THESE TRANSACTIONS ON THEIR INDIVIDUAL CIRCUMSTANCES.
ACCOUNTING TREATMENT
We intend to account for the merger under the purchase method of
accounting.
REGULATORY MATTERS
There are no federal or state regulatory approvals required to complete
the merger.
RESTRICTIONS ON ABILITY TO SELL ACCUMED COMMON STOCK AND WARRANTS
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<PAGE> 18
Microsulis stockholders, except for Gillian Fraser and any person
considered an "affiliate" of Microsulis or AccuMed under the Securities Act,
will be able to freely transfer the AccuMed common stock issued to them in the
merger. Affiliates may only sell shares of AccuMed common stock pursuant to a
registration statement or exemption under the Securities Act.
Microsulis stockholders may freely transfer the warrants issued to them
in the merger. However, there is no public trading market of the warrants.
Shares of AccuMed common stock acquired upon exercise of warrants issued
in the merger may only be resold pursuant to a registration statement or
exemption under the Securities Act. AccuMed has agreed to file with the SEC a
registration statement covering the resale of shares of AccuMed common stock
issuable on exercise of the warrants.
NASDAQ LISTING OF ACCUMED COMMON STOCK
AccuMed will file an application seeking to list on the Nasdaq SmallCap
Market the shares of AccuMed common stock, as well as the shares of AccuMed
common stock underlying the warrants and options to be issued, to be issued in
the merger.
ACCUMED SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
The AccuMed special meeting of stockholders will be held at AccuMed's
offices located at 920 N. Franklin St., Ste. 402, Chicago, Illinois, at 10:00
a.m. Chicago time on Friday, January 28, 2000. At the special meeting, AccuMed
will ask stockholders to:
* approve the merger;
* approve a change in AccuMed's name to "Microsulis Medical
Corporation;" and
* to elect seven directors to serve on the Board until the next
annual stockholders meeting.
AccuMed stockholders may also consider and vote on other matters which are
properly brought before the special meeting.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE; VOTING POWER
AccuMed stockholders can vote at the special meeting if they owned
shares of AccuMed common stock at the close of business on the record date of
December 9, 1999. As of this record date, approximately 5,491,901 shares of
common stock outstanding and entitled to vote at the special meeting. You will
have one vote for each share of common stock you owned as of the record date.
REVOCABILITY OF PROXIES
If you submit a proxy for use at the special meeting, you may change
your vote prior to the
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<PAGE> 19
voting as follows. First, you can send a written notice to the Secretary of
AccuMed stating that you would like to revoke your proxy. Second, you can
compete and submit a new proxy card. Third, you can attend the special meeting
and vote in person. Your attendance at the meeting alone will not revoke your
proxy.
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<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table sets forth (I) the historical net loss per common share and
the historical book value per common share data of AccuMed International, Inc.
Common Stock; (ii) the historical net loss per common share and the historical
book value per common share data of Microsulis Corporation Common Stock; (iii)
and the unaudited pro forma net loss per share and the unaudited pro forma book
value per share of AccuMed Common Stock after giving effect to the Merger. The
pro forma data does not purport to be indicative of the results of future
operations or the results that would have occurred had the merger been
consummated at the beginning of the periods presented. The information set forth
below should be read in conjunction with the financial statements and notes
thereto of AccuMed and Microsulis included or incorporated by reference herein
and the unaudited pro forma combined condensed financial statements and notes
thereto included elsewhere in this Proxy Statement/Prospectus. Neither AccuMed
nor Microsulis paid any cash dividends during the periods presented.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
ACCUMED MICROSULIS COMBINED
<S> <C> <C> <C>
BOOK VALUE PER SHARE AT:
September 30, 1999 $0.70 $0.10 $0.26
December 31, 1999 (0.72) 0.15 0.04
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEMS:
Nine months ended (0.78) (0.20) (0.31)
September 30,1999
Year ended December 31, 1998 (2.04) (0.09) (0.63)
</TABLE>
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<PAGE> 21
ACCUMED INTERNATIONAL, INC. SELECTED HISTORICAL FINANCIAL DATA
The following selected historical consolidated financial data (i) for the three
years ended December 31, 1998, 1997 and 1996 are derived from the audited
historical consolidated financial statements of AccuMed and (ii) for the nine
month periods ended September 30, 1999 and 1998 are derived from unaudited
historical consolidated financial statements of AccuMed. All the financial
statements presented here have been restated to reflect the sale of the
Microbiology Division on January 29, 1999. The AccuMed predecessor company,
Alamar Biosciences, Inc., is reflected as a discontinued business. Accordingly,
financial statements prior to 1996 are not meaningful. The unaudited AccuMed
financial statements include all adjustments, consisting of normal recurring
accruals, that AccuMed considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results of AccuMed for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999. The financial information set forth below should be
read in conjunction with AccuMed's consolidated financial statements, related
notes and other financial information incorporated by reference in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Fiscal Years Ended December 31,
1999 1998 1998 1997 1996
-----------------------------------------------------------------------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating revenues $ 11,435 $ 71,310 $ 326,862 $ 1,000,776 $ 1,412,256
Cost of sales (3,413) (472,168) (855,788) (1,557,175) (1,393,631)
------------ ------------- ------------ ------------ ------------
Gross profit (loss) 8.022 (400,858) (528,926) (556,399) 18,625
Operating expenses:
General and administrative 2,308,707 4,013,931 5,308,417 6,198,665 3,642,113
Research and development 1,438,865 2,054,399 2,569,864 4,035,360 2,474,408
Sales and marketing 199,380 1,085,962 1,388,826 1,427,735 1,331,088
Goodwill writeoff -- -- --
3,582,068 1,645,200
Acquired research and development -- -- -- -- 4,312,727
------------ ------------- ------------ ------------ ------------
Total operating expenses 3,946,952 7,154,297 9,267,107 15,243,828 13,405,536
------------ ------------- ------------ ------------ ------------
Operating (loss) (3,938,930) (7,555,155) (9,796,033) (15,800,227) (13,386,911)
Other income (expense):
Interest expense (485,867) (1,114,591) (1,411,335) (3,568,603) (458,214)
Other income (expense) 146,798 783,326 847,613 511,145 2,941,270
------------ ------------- ------------ ------------ ------------
Total other income (expense) (339,069) (331,265) (563,722) (3,057,458) 2,483,056
Loss before income taxes from
continuing operations (4,276,999) (7,886,420) (10,359,755) (18,857,685) (10,903,855)
Provision for income taxes
before extraordinary item -- -- -- -- --
------------ ------------- ------------ ------------ ------------
Loss from continuing operations (4,276,999) (7,886,420) (10,359,755) (18,857,685) (10,903,855)
Discontinued operations:
Income (loss) from discontinued
operations (158,250) 3,930,367 3,351,486 1,939,109 (669,958)
Gain on disposal 8,357,449
Extraordinary-item debt extinguishment -- (1,168,080) (1,168,080) -- --
------------ ------------- ------------ ------------ ------------
Net loss $ 3,922,200 ($ 5,124,133) ($ 8,176,349) ($16,918,576) ($11,573,813)
============ ============ ============ ============ ============
Basic loss per share before extraordinary item ($ 0.78) ($ 1.59) ($ 2.04) ($ 5.13) ($3.85)
Income (loss) from discontinued operations 1.50 0.79 0.66 0.53 (0.24)
Extraordinary loss from debt extinguishment -- (0.24) (0.23) -- --
------------ ------------- ------------ ------------ ------------
Basic net loss per share $ 0.72 ($ 1.04) ($ 1.61) ($ 4.60) ($ 4.09)
============ ============ ============ ============ ============
Weighted average common shares outstanding 5,471,784 4,950,396 5,079,894 3,675,488 2,829,245
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
At September 30, At December 31,
1999 1998 1997 1996
---------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,849,251 $ 213,386 $ 331,983 $ 2,643,900
Working capital (deficit) 2,095,528 (1,393,617) (1,600,119) 2,150,476
Total assets 10,012,614 12,659,572 16,084,927 13,444.470
Long-term obligations, net of
current maturities 173,712 5,781,850 11,609,315 687,636
Stockholders' equity $ 8,078,354 $ 4,222,946 $ 733,072 $ 10,135,996
</TABLE>
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<PAGE> 23
RISK FACTORS
You should carefully consider the following factors and the other
information in this prospectus before deciding to whether to vote in favor of
the merger.
RISK RELATING TO THE MERGER
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT ACCUMED'S STOCK PRICE AND
FUTURE BUSINESS OPERATIONS.
If the merger is not completed for any reason, AccuMed will face a
number of important risks, including the following:
* AccuMed's board of directors believe it will be difficult to
raise sufficient capital on acceptable terms to continue
AccuMed's operations as proposed in our business plan;
* if the current market price of the AccuMed common stock reflects
a market assumption that the merger will be completed, the price
of AccuMed common stock may decline; and
* costs relating to the merger, such as legal, accounting and
printing fees, must be paid even if the merger is not completed.
CHANGE IN COMPOSITION OF BOARD OF DIRECTORS.
The ability to achieve the benefits anticipated from the merger will
depend, in part, on the ability of AccuMed's new board of directors to work
together effectively in directing the management of the combined companies. Four
of the seven nominees for election as directors were selected by Gillian Fraser,
who will become the majority stockholder of AccuMed upon completion of the
merger. Those nominees are David Warner, Leslie J. Croland, Marcus E. Finch and
Paul Barrett. Mr. Warner is expected to serve as Chairman of the Board. The
other three nominees were selected by AccuMed's board of directors. They are
Paul Lavallee, Robert Priddy and Mark Banister and each is a current AccuMed
director.
CHANGES IN MANAGEMENT AND INTEGRATION OF OPERATIONS
The ability to achieve the benefits anticipated from the merger will
depend, in part, on the ability of the management team to work together
effectively in managing and integrating the affairs of the combined companies.
Following the merger, Paul Lavallee will continue to serve as AccuMed's Chief
Executive Officer. We expect that David Warner, a director of Microsulis PLC,
will take an active role in AccuMed's management as Chairman of the Board.
Marcus Finch, the Executive Vice President of Microsulis, will become an officer
of AccuMed.
Integrating the combined companies may temporarily distract management's
attention from the
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<PAGE> 24
day-to-day business of the combined companies. In addition, AccuMed is located
in Chicago, Illinois, while Microsulis Corporation is located in Fort
Lauderdale, Florida, and its subsidiary is located in Montreal, Canada. It may
be more difficult, costly and time consuming than we anticipate to integrate
these geographically diverse operations. AccuMed and Microsulis may not
accomplish this integration smoothly or successfully.
ABILITY OF A SINGLE STOCKHOLDER TO CONTROL STOCKHOLDER VOTES.
Gillian Fraser will own approximately 7,522,500 shares (38.4% assuming
the minimum number of shares are issued in the merger) of the AccuMed common
stock outstanding upon completion of the merger. Thus, Ms. Fraser will be able
to control the outcome of stockholder votes. Ms. Fraser, Mr. Priddy and
Bellingham Capital Industries have agreed to enter into an agreement requiring
each of them to vote the shares of AccuMed common stock in favor of election of
four directors nominated by Ms. Fraser and three directors nominated by
AccuMed's Chief Executive Officer. This arrangement will be in effect for up to
two years following the merger. Upon completion of the merger, these three
stockholders will own a total of 10,197,789 shares (50.3%) of the AccuMed common
stock, assuming the minimum number of shares of AccuMed common stock are issued
in the merger. Thus, they will be able to control the composition of AccuMed's
board of directors.
THE MARKET PRICE OF ACCUMED COMMON STOCK MAY DECLINE AS A RESULT OF THE MERGER.
AccuMed's stockholders will experience immediate and substantial
dilution upon issuance of shares of common stock in the merger. As of December
17, 1999, there are 5,491,901 shares of AccuMed common stock outstanding. In the
merger AccuMed will issue a total of a minimum of 10,726,830 shares and up to a
maximum of 11,696,830 shares of common stock. Thus, upon completion of the
merger there will be a minimum of 17,098,357 shares and a maximum of 18,068,357
shares of AccuMed common stock outstanding upon completion of the merger. This
substantial increase, a minimum of approximately 311% up to a maximum of 329%,
in the number of outstanding shares may cause a reduction in the market price
per share.
RISKS RELATING TO ACCUMED
WE NEED TO RAISE ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS IN THE NEAR TERM.
We have spent substantial funds for research and product development,
and other working capital and general corporate purposes. We believe that our
existing capital resources and anticipated internally generated revenues will
not provide sufficient capital to meet AccuMed's current and projected
requirements over the next 12 months. We will need to raise additional funds to
continue our operations as proposed in our business plan during the next 12
months. We may seek to raise additional funds through public or private
financings, collaborative relationships or other arrangements. Presently, we do
not have any commitments for additional funds. We may be unable to obtain any
financing sufficient to fund our proposed operations. If we fail to obtain
adequate additional financing, we may need to delay or scale back some or all of
our research and development programs, sales and marketing efforts,
manufacturing operations or out-sourcing, clinical studies and regulatory
activities. We may even be forced to cease our operations. If we raise
additional funds by
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<PAGE> 25
selling common stock and/or securities convertible into common stock, AccuMed's
then-existing stockholders may experience a substantial decrease in the value of
their investment in our common stock.
WE ARE UNCERTAIN OF THE AMOUNT OF OUR LONGER TERM FUNDING NEEDS.
Even if we are able to raise the funds necessary to continue our
proposed operations during the next 12 months, we do not know now whether we
will be able to sustain our longer term operations through our future revenues.
Whether we will need to raise funds to support our longer term operations will
depend upon numerous factors including:
* If and when we are able to complete the proposed merger with
Microsulis.
* The costs, timing and success of our efforts to develop the
AcCell-Savant lung cancer screening product or other AcCell-based
and Savant-based products, some of which will require FDA
clearance for U.S. sales beyond the current research related
sales.
* Whether we are able to increase sales of our existing products
and the AcCell-Savant.
* Our ability to cost effectively contract with a third party
manufacturer, or the costs and timing of expansion of our own
manufacturing capacity, to produce our existing products and the
AcCell-Savant.
* Our ability to timely enter into financially beneficial business
arrangements with partners to combine our AcCell and/or Savant
technologies with a partner's technology.
THERE IS ONLY A SHORT PERIOD IN WHICH YOU CAN EVALUATE OUR OPERATING AND
FINANCIAL RESULTS IN CONDUCTING OUR CURRENT BUSINESS.
At the end of January 1999, we sold our microbiology business and
shifted our focus exclusively to our cytopathology and histology testing
products. We have a very short period of operating results on which you can
evaluate our financial results based on this product focus. We have generated
limited sales of our current cytopathology and histology testing products.
Our company's product focus has changed significantly several times
since our original predecessor, Alamar Biosciences, Inc., began its business
with a single microbiology product in 1988. Through a merger at the end of
December 1995, that business was combined with the initial AccuMed cytopathology
products AcCell and TracCell, as well as an English subsidiary which
manufactured microbiology testing products.
In March 1997, AccuMed acquired the ESP product line from Difco Systems,
Inc. We conducted the ESP business in a profitable manner for just short of two
years when we sold our microbiology division, which included the ESP business,
the English subsidiary and the original Alamar product line.
In October 1996, AccuMed acquired a two-thirds interest in our
subsidiary Oncometrics, which was formed in 1995. In June 1998, we acquired sole
ownership of Oncometrics. We have
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<PAGE> 26
been working on developing and initial testing of the AcCell-Savant lung cancer
screening product since we acquired Oncometrics.
WE HAVE EXPERIENCED LOSSES FROM CONTINUING OPERATIONS, HAVE A SUBSTANTIAL
ACCUMULATED DEFICIT, AND MAY NEVER BECOME PROFITABLE.
We have incurred significant net operating losses in each fiscal quarter
since we have been in business. For the fiscal year ended December 31, 1998, and
for the nine-month period ended September 30, 1999, AccuMed's net operating
losses from continuing operations were approximately $10,359,755 million and
$1,080,118 million, respectively. As of September 30, 1999, AccuMed had an
accumulated deficit of approximately $55,508,038 million.
We expect to continue to experience losses for the foreseeable future
until the time, if ever, as AccuMed is able to sell products sufficient to
generate revenues adequate to support our operations. We may never be able to
achieve sales sufficient to generate revenues needed to support profitable
operations.
IF ACCUMED LIQUIDATES, THE PREFERRED STOCK HOLDERS MUST RECEIVE FULL PAYMENT
BEFORE ANY REMAINING FUNDS MAY BE PAID TO COMMON STOCK HOLDERS.
If AccuMed were to liquidate, proceeds from the sale of assets would be
applied first to satisfy any of our outstanding indebtedness, including trade
debt. At December 17, 1999, our only indebtedness, other than trade debt, is a
convertible note in the principal amount of CND$500,000 and a repayable
contribution to our subsidiary in the amount of $187,000. Any proceeds remaining
after full payment of all our indebtedness would be applied to pay the
liquidation preference of any of our preferred stock outstanding at liquidation.
The aggregate liquidation preference of our preferred stock outstanding at
December 17, 1999 is $4,249,735. If we were to liquidate, there may be
inadequate sale proceeds to distribute any funds to holders of common stock
following payment of our indebtedness and liquidation preferences on our
preferred stock.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET.
AccuMed has generated limited revenues from the sale of its
cytopathology products to date. If we are to become profitable, our future
profitability will depend primarily upon the successful development and
commercialization of the AcCell, TracCell and/or AcCell-Savant in markets
requiring instruments that analyze cells and/or tissues objectively, like early
lung cancer detection, among many others. Our success will also depend, but to a
lesser extent, on our ability to achieve market acceptance of our existing
AcCell systems and TracCell 2000 for use in connection with cervical cancer
screening by cytopathology laboratories.
AccuMed currently markets the AcCell cytopathology products directly and
on a limited basis in order to collect, analyze and document performance data of
the products in several primary clinical cytology laboratory market segments. We
are currently developing the prototype of the AcCell-Savant for clinical uses,
as opposed to research use. We began marketing the AcCell-Savant research system
in 1999. This marketing has resulted in modest sales of the AcCell-Savant to
academic and research laboratories through licensing agreements which provide
AccuMed a right to commercialize any intellectual property related to
applications developed by those laboratories.
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<PAGE> 27
WE HAVE LIMITED EXPERIENCE WITH SALES, MARKETING AND DISTRIBUTION AND HAVE NO
THIRD-PARTY DISTRIBUTORS.
If we are to increase our revenues and achieve profitability, we must
achieve significant acceptance and willingness of potential customers to
purchase our current and proposed products. We have only limited experience
marketing and selling our cytopathology products. We currently distribute our
products directly through one internal sales employee. AccuMed currently has no
arrangements with third-party distributors to sell our products. We intend to
continue to distribute our products in-house. If product demand increases, we
may expand our internal sales and marketing efforts and/or enter into
arrangements with third-party distributors.
In May 1996, AccuMed entered into its first distribution arrangement for
sales of cytopathology products within the Western Hemisphere by Olympus
Americas. At that time we also began our initial direct sales of cytopathology
products. In September 1997, AccuMed and Olympus terminated the distribution
agreement. Olympus sold very few AcCell Systems to end-users prior to
termination of the agreement. As required by the agreement, AccuMed has
repurchased the AcCell systems that were in Olympus' inventory.
In August 1998, AccuMed and Leica Microscopy and Systems GmbH terminated
a distribution agreement, entered into in May 1997, which had granted Leica
exclusive third-party distribution rights outside the Western Hemisphere for the
AcCell systems. While the agreement was in effect, Leica sold very few AcCell
systems.
AccuMed and Sunquest Information Systems, Inc. entered into a five-year
Finders Agreement on April 30, 1998. Sunquest has the right to market, in
collaboration with AccuMed, licenses for AccuMed's AcCell, TracCell, SpeciFind
and Data Management System/network software products to Sunquest software
endusers in the United States and Canada. On October 23, 1998, AccuMed advised
Sunquest that it refrain from making any efforts to sell products until further
notice. No sales or licenses were made under the agreement.
In order to achieve broad distribution of our products, we will need to
enter into successful distribution arrangements. We may be unable to enter into
and maintain arrangements with distributors on acceptable terms, or on a timely
basis, if ever. If we are able to enter into these types of distribution
arrangements, we will be dependent upon those distributors to assist us in
promoting market acceptance of and demand for our products.
WE MAY BE UNABLE TO PROFITABLY MANUFACTURE OR CONTRACT FOR MANUFACTURE OF OUR
CURRENT OR FUTURE PRODUCTS.
We currently have a limited capacity to assemble our current AcCell and
TracCell cytopathology products and do not plan to assemble additional units of
these products. If demand for these products increases beyond what we are able
to fill through our current inventory, we would need to obtain cost-effective
contracts with a third party to assemble these products. Presently, we have a
significant inventory of AcCell systems and no TracCells which we could use to
fill sale orders. We may be unable to enter into a cost-effective arrangement
for assembly of the these products on a timely basis, if at all. Also, we may be
unable to obtain the component parts to assemble additional AcCell 2000
products, which were previously supplied by a variety of vendors.
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If we successfully develop the AcCell-Savant for lung cancer testing, we
plan to contract with an outside assembler to assemble the products. We may be
unable to enter into cost-effect contracts with a third party to assemble this
product.
WE RELY ON OUR INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS.
Our success may depend in part on our ability to obtain trademark
protection for the names under which we market our products and to obtain
copyright and patent protection of our proprietary software and other technology
used in our products. However, we cannot assure you that we will be able to
build and maintain goodwill in our trademarks or obtain trademarks or patent
protection. Nor can we assure you that any trademark, copyright or issued patent
will provide competitive advantages for us. It is also possible that our
intellectual properties will be successfully challenged or circumvented by our
competitors.
We also rely on a combination of licensing arrangements, trade names,
trade secrets, know-how and proprietary technology and policies and procedures
for maintaining their secrecy in order to secure and protect our intellectual
property rights.
As of the date of this prospectus, AccuMed owns 18 issued patents,
including 12 United States patents, four United Kingdom patents, one German
patent, and one Canadian patent. In addition, AccuMed has 35 patent applications
pending throughout the world, including 11 United States patent applications,
eight Canadian patent applications, five German patent applications, five
international patent applications, three European patent applications, one
United Kingdom patent application, one Australian patent application, and one
Japanese patent application. We are continuing to prepare additional patent
applications.
Since patent applications in the United States are maintained in secrecy
until patents issue, and since publications of discoveries in the scientific or
patent literature tend to lag behind actual discoveries by several months,
AccuMed cannot be certain that AccuMed or another relevant patent applicant was
the first creator of inventions covered by pending patent applications or
whether AccuMed or another patent applicant was the first to file a patent
application for any particular invention. Protections relating to portions of
technology subject to a patent application may be challenged or circumvented by
competitors and other portions may be in the public domain or protectable only
under state trade secret laws. There also can be no assurance that any patents,
patent applications and patent licenses will adequately cover AccuMed's
technologies.
AccuMed owns a Canadian trademark registration for the mark
"ONCOMETRICS." In addition, AccuMed has eight pending U.S. trademark
applications for the marks "TRACCELL," "ACCELL-SAVANT," "ONCOMETRICS,"
"SPECIFIND," "MACCELL," "MACROVISION," "RELATIONAL CYTOPATHOLOGY REVIEW GUIDE,"
and "IMPROVING CYTOLOGY PROCESSES." AccuMed may file additional U.S. and foreign
trademark applications in the future. However, no additional trademark
registrations have yet been granted to AccuMed. There can be no assurance that
any future registrations will be granted. Also, it is possible that third
parties have or will adopt or register marks that are the same or substantially
similar to those of AccuMed. In addition, third parties may be entitled to use a
particular mark to the exclusion of AccuMed. Selecting new trademarks to resolve
these situations could involve significant costs, including the loss of goodwill
already gained by the marks previously used.
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WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR PATENTS
NOT INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY.
AccuMed's success will also depend on its ability to avoid infringement
of patent or other proprietary rights of others. AccuMed is not aware that it is
infringing any rights of a third party, nor is it aware of proprietary rights of
others for which it will be required to obtain a license in order to develop its
products.
We cannot be certain that AccuMed is not infringing the proprietary
rights of others, or that we will not be required to defend ourself against
claimed infringement of the rights of others. Adverse determinations in any
infringement litigation could require AccuMed to pay substantial economic
damages to third parties, could require AccuMed to seek licenses from third
parties and could prevent AccuMed from manufacturing, selling or using certain
of its products or technologies.
OUR COMPETITORS HAVE SIGNIFICANT FINANCIAL AND OTHER ADVANTAGES OVER US.
Our AcCell system and TracCell 2000 are competing with products of other
companies offering systems to analyze Pap smear tests. We believe that many of
our competitors possess substantially greater financial resources than we. We
also believe they have more experience in research and development, clinical
trials, regulatory matters, manufacturing, marketing, sales, and distribution.
We know that TriPath Imaging currently markets imaging systems to
re-examine or rescreen conventional Pap smear specimens previously diagnosed as
negative. We are also aware that Cytyc and Morphometrix are developing devices
for the preparation and analysis of Pap smear slides. AccuMed is aware that
TriPath Imaging has submitted an imaging system for use as a primary means of
screening Pap smear slides under a pre-market approval application to the FDA.
If any company currently marketing rescreening products receives FDA
clearance or approval for use of its product as a primary screening system to
replace or work in conjunction with conventional Pap smear screening, or if
automated analysis systems are developed and receive FDA clearance or approval,
the use of conventional Pap smear screening could decrease substantially. This
could substantially reduce the potential customer base for our AcCell and
TracCell products.
WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR PROPOSED PRODUCTS.
Our growth and profitability partially depends upon our ability to
complete development of and successfully introduce new products. We expect to
need to undertake time-consuming and costly development activities and seek
regulatory approval for the AcCell-Savant lung cancer screening product and
other potential new products for early disease detection, diagnosis or
therapeutic monitoring. We may experience difficulties that could delay or
prevent the successful development, introduction and marketing of the
AcCell-Savant and other potential new products. Also, regulatory clearance or
approval of these may not be granted on a timely basis, if ever. These new
products may not meet the requirements of the applicable market or achieve
market acceptance.
TO ACHIEVE SIGNIFICANT SALES OF OUR OF CURRENT AND FUTURE PRODUCTS WE MUST MEET
REQUIREMENTS OF GOVERNMENT REGULATIONS.
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AccuMed's products and manufacturing processes are regulated by state
and federal authorities, including the FDA and comparable authorities in certain
states and other countries. Failure to comply with the applicable laws and
regulatory requirements can result in, among other things, civil and criminal
fines, product recalls, detentions, seizures, injunctions and criminal
prosecutions. Furthermore, we will be unable to sell the AcCell-Savant in the
U.S, other than for research use and clinical use with restrictions, in the
United States without FDA clearance of a premarket approval application. We are
currently conducting research and development with respect to the AcCell-Savant
and have not yet begun clinical trials. Even if the AcCell-Savant and other new
products are developed, they may not be cleared for marketing by the FDA or
other applicable regulatory authorities. We are likely to need FDA clearance
prior to U.S. sales of some of our other possible future products, as well as
the AcCell-Savant.
FDA authorization is based on a review of the product's safety and
effectiveness for its intended uses. The process of obtaining marketing
clearance from the FDA and other applicable regulatory authorities can be
expensive, uncertain and time consuming, frequently requiring several years from
the start of clinical trials or submission of data to the receipt of regulatory
approval.
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain clearance by a foreign country may be longer or shorter than
that required for FDA clearance, and the requirements may differ. Export sales
of certain devices that have not received FDA marketing clearance generally are
subject to both FDA certificate for product for export regulations and, in some
cases, general U.S. export regulations. In order to obtain a FDA export permit,
AccuMed may be required to provide the FDA with documentation from the medical
device regulatory authority of the country in which the purchaser is located. We
may be unable to obtain necessary foreign regulatory clearances and may incur
significant costs in obtaining or maintaining any foreign regulatory clearances.
IF WE FAIL TO MAINTAIN THE LISTING REQUIREMENTS, OUR COMMON STOCK COULD BE
DELISTED FROM THE NASDAQ SMALLCAP MARKET.
Due to AccuMed's failure to meet the continued listing requirements of
the Nasdaq National Market, Nasdaq moved trading of the common stock to the
Nasdaq SmallCap Market on February 19, 1998, pursuant to a temporary exemption
from the initial listing requirements. We met all of the requirements of Nasdaq
to remove the temporary exemption and maintain trading of the common stock on
the Nasdaq SmallCap Market, as long as AccuMed keeps on meeting Nasdaq's
requirements for continued listing.
In order to maintain listing on the Nasdaq SmallCap Market, AccuMed will
have to maintain certain minimum financial and corporate governance requirements
which generally requires (1) net tangible assets of $2,000,000, (2) a public
float of 500,000 shares with a market value of $1,000,000, (3) a $1.00 minimum
bid price, (4) 300 round lot stockholders, and (4) two market makers. We cannot
assure you that AccuMed will be able to maintain compliance for continued
listing.
If the common stock is not listed on Nasdaq, trading, if any, in the
common stock would be conducted in the non-Nasdaq over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of AccuMed's common stock could be impaired. This might result in
a reduction in the number of shares be bought and sold, as well as delays in the
timing of transactions. It might also lead to reduction in security analyst
coverage, and
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lower prices for the common stock than might otherwise be attained.
Consequently, it might be more difficult for investors to dispose of, or to
obtain accurate quotations as to the market value of our common stock.
Delisting could also result in the common stock becoming characterized
as a low-priced or "penny" stock. This could severely limit the market liquidity
for the common stock as it would be subject to compliance with federal
securities regulations that limit the ability of broker-dealers to sell
low-priced stock. This could, in turn, impede the ability of stockholders to
sell their common stock.
OUR COMMON STOCK PRICE HAS BEEN VOLATILE.
The market price of our common stock, like that of many other medical
products and high technology companies, has in the past been, and is likely in
the future to continue to be, highly volatile. Factors effecting potential
volatility including:
* announcements of mergers, acquisitions or dispositions of assets;
* fluctuations in operating results;
* announcements of technological innovations or new commercial
products by us or our competitors;
* announcements of private placements of securities;
* operating losses;
* economic and other external factors.
WE HAVE NEVER PAID, AND ARE NOT PLANNING TO PAY, DIVIDENDS.
AccuMed has never paid cash or other dividends on its common stock and
does not anticipate paying any cash dividends on its common stock in the
foreseeable future.
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THE BOARD OF DIRECTORS IS AUTHORIZED TO ISSUE ADDITIONAL PREFERRED STOCK WHICH
WOULD HAVE PREFERENCES OVER COMMON STOCK AND COULD DETER A CHANGE IN CONTROL.
AccuMed's Certificate of Incorporation authorizes the issuance of
preferred stock with designations, rights and preferences as may be determined
from time to time by the board of directors. Accordingly, the board of directors
is empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of AccuMed's common
stock. AccuMed is currently authorized to issued a total of 5,000,000 shares of
preferred stock. We currently have outstanding 944,383 shares of Series A
Convertible Preferred Stock.
Currently, we do not intend to issue any other shares of preferred
stock. However, if we do issue additional preferred stock, those shares could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of AccuMed. Moreover, in the future, AccuMed may
adopt other measures that may have the effect of delaying, deferring or
preventing a change in control. AccuMed has no present plans to adopt any
anti-takeover measures. However, some anti-takeover measures may be adopted
without any further vote or action by the stockholders.
APPROXIMATELY 3,000,000 SHARES OF COMMON STOCK MAY BE SOLD IN THE PUBLIC MARKET
UPON EXERCISE OR CONVERSION OF OPTIONS, WARRANTS AND PREFERRED STOCK.
Sales of substantial amounts of common stock in the public market, or
the possibility of these sales occurring, could adversely affect prevailing
market prices for the common stock or the future ability of AccuMed to raise
capital through an offering of equity securities. As of December 17, 1999,
AccuMed has outstanding 5,491,901 shares of common stock which have been sold or
are available for immediate sale in the public market pursuant to effective
registration statements or exemptions from registration under the Securities
Act, subject in the case of certain holders to the limitations applicable to
affiliates pursuant to Rule 144 under the Securities Act. We have filed with the
SEC a registration statement to register the resale of 250,000 shares of common
stock underlying a convertible note. When that registration statement becomes
effective, those shares may be resold immediately in the public market.
As of December 17, 1999, AccuMed has effective registrations that will
allow holders of options, warrants, and preferred stock to sell a total of
2,971,215 shares of common stock that they are entitled to acquire upon exercise
of options and warrants and conversion of preferred stock as follows:
* 2,229,784 shares issuable upon exercise of outstanding warrants;
* 111,811 shares issuable upon exercise of options outstanding
under the 1992 and 1995 option plans;
* 629,620 shares issuable upon conversion of outstanding preferred
stock.
We also plan to register the resale of approximately 563,626 shares issuable
upon exercise of options outstanding under our 1997 stock option plan.
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YEAR 2000 COMPLIANCE.
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data files containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
Year 2000 approaches, these systems may be unable to accurately process certain
date-based information. AccuMed and third parties with which we do business rely
on numerous computer programs in our day-to-day operations.
AccuMed's Year 2000 compliance plan provided for and resulted in the
conversion of non-compliant information technology systems in the third quarter
of 1999. The conversion project involved three phases: selection and
installation of hardware and software, loading the financial database into the
new system, and testing. Conversion to Year 2000 compliant information
technology systems was completed in the third quarter of 1999.
AccuMed has reviewed its non-information technology systems and has
determined that any required repair of replacement of imbedded technology should
not have a significant impact on AccuMed's operations. AccuMed has received
representations from its vendors of non-financial network servers and software
that these products are Year 2000 compliant.
All of AccuMed's products, including software sold in products to
customers, have been developed with consideration for the millennium change, and
have undergone specific Year 2000 date testing to verify and validate
compliance.
AccuMed has made inquiry of its bank and has received representations
that the devices and software it uses is Year 2000 compliant.
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THE ACCUMED SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
This proxy statement-prospectus is being furnished to holders of AccuMed
common stock in connection with the solicitation of proxies by AccuMed's board
of directors for use at the special meeting of stockholders scheduled to be held
at AccuMed's principal offices located at 920 North Franklin Street, Suite 402,
Chicago, Illinois at 10:00 a.m. Friday, January 28, 2000 and at any and all
adjournments or postponements of the special meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, AccuMed stockholders will consider and vote upon
the three proposals described below.
(1) To approve the merger agreement and the merger in which AccuMed will
issue the following securities:
* a total of a minimum of 10,726,830 shares up to a maximum of
11,696,830 shares of AccuMed common stock to Microsulis
stockholders, at a ratio of 1.94 shares of AccuMed common stock
for each share of Microsulis common stock outstanding at the time
of completion of the merger;
* five-year warrants to purchase a total of a minimum of 2,764,646
shares up to a maximum of 3,014,646 shares of AccuMed common
stock exercisable at $6.75 per share to Microsulis stockholders,
at the rate of one warrant for every two shares of Microsulis
common stock outstanding at the time of completion of the merger;
* stock options to purchase 1,040,000 shares of common stock at an
exercise price of $2.50 per share to replace Microsulis stock
options;
* 240,000 stock options exercisable at $2.50 per share to the
non-employee directors elected at the special meeting; and
* 750,000 stock options to two executive officers exercisable at a
minimum of $2.50 per share.
Stockholder approval of the merger is not required under Delaware law.
However, Nasdaq requires that we obtain stockholder approval of transactions in
which AccuMed issues common stock and/or securities like the warrants and stock
options in an amount equal to or greater than 20% of the number of shares of
common stock outstanding before the issuance. Nasdaq rules require that a
majority of the shares of common stock voting at the special meeting, assuming
presences of a quorum, vote in favor of the issuance of these securities in
order to complete the merger.
(2) To amend AccuMed's Certificate of Incorporation to change our name
to "Microsulis Medical Corporation."
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(3) To elect seven directors to serve on the board of directors until
the next annual meeting of stockholders.
AccuMed stockholders may also be asked to vote on other matters that may
properly be submitted to a vote at the special meeting or any adjournment of the
meeting. Stockholders may also be asked to vote upon a proposal to adjourn or
postpone the special meeting. This adjournment or postponement could be used for
the purpose, among others, of allowing time for the solicitation of additional
votes to approve the merger and related issuance of securities.
REVOCABILITY OF PROXIES
A proxy for use at the special meeting is enclosed. Any stockholder who
executes and delivers a proxy may revoke it at any time prior to its use by: (1)
filing with the Secretary of AccuMed a notice of revocation of proxy; (2) filing
with the Secretary of AccuMed a valid proxy bearing a later date; or (3)
attending the special meeting and voting in person. Your attendance alone at the
special meeting will not revoke your proxy.
SOLICITATION OF PROXIES; EXPENSES
This proxy solicitation is being made by the board of directors of
AccuMed. The expense of the solicitation will be paid by AccuMed. AccuMed has
retained Corporate Investor Communications, Inc. (CIC) to conduct a broker
search, distribute the proxy materials and act as proxy solicitor in connection
with the special meeting. For these services, AccuMed will pay CIC a fee of
approximately $4,500. We will also reimburse CIC for out-of-pocket expenses,
estimated not to exceed $800. To the extent necessary to assure sufficient
representation at the special meeting, proxies may be solicited by any
appropriate means by CIC. In addition, proxies may be solicited by any
appropriate means by AccuMed's directors, officers, and regular employees, and
by the stock transfer agent for the common stock. These persons will not receive
any additional compensation for their solicitation efforts.
CIC will request that banks, brokers and other fiduciaries distribute
proxy materials to their customers who own beneficially the AccuMed common stock
listed of record in names of nominees. Although there is no formal reimbursement
arrangement, AccuMed will reimburse those persons their reasonable expenses of
the distribution.
STOCKHOLDERS ENTITLED TO VOTE
AccuMed's board of directors has fixed December 9, 1999, as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the special meeting. At the close of business on the record date, there were
outstanding and entitled to vote 5,491,901 shares of common stock.
VOTING PROCEDURES
Each holder of common stock will be entitled to one vote, in person or
by proxy, for each share standing in its name on the books of AccuMed as of the
record date on each of the matters duly presented for a vote at the special
meeting.
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In connection with the solicitation by the board of directors of proxies
for use at the special meeting, the board of directors has designated Paul F.
Lavallee, Chairman of the Board and Chief Executive Officer, and Norman J.
Pressman, President and Chief Scientific Officer, as proxies. Shares represented
by all properly executed proxies will be voted at the special meeting in
accordance with the instructions specified on those proxies. If no instructions
are specified, the shares represented by any properly executed proxy will be
voted FOR each of the three proposals described above.
The board of directors is not aware of any matters that will come before
the special meeting other than as described above. However, if other matters are
presented, the named proxies will, in the absence of instructions to the
contrary, vote those proxies in accordance with their judgment with respect to
any other matter properly coming before the special meeting.
VOTES REQUIRED TO APPROVE THE PROPOSALS
The Merger. Approval of the merger agreement and merger, including the
issuance of the common stock, warrants and stock options, requires the
affirmative vote of holders of a majority of the shares of common stock voting
in person or by proxy at the special meeting, assuming presence of a quorum.
Name Change. Approval of the amendment to AccuMed's certificate of
incorporation to change the company's name to "Microsulis Medical Corporation"
requires the affirmative vote of holders of a majority of the shares of common
stock outstanding on the record date.
Election of Directors. The validly-nominated nominees for election as
directors who rank first through seventh in the number of votes received from
holders of common stock represented in person or by proxy and voting at the
special meeting will be elected as directors. These nominees will be elected
even if some or all of them receive less than a majority of the total votes
cast, assuming presence of a quorum.
QUORUM; BROKER NON-VOTES; ABSTENTIONS
The presence in person or by properly executed proxy of holders of a
majority of the outstanding shares of common stock is necessary to constitute a
quorum for the transaction of business at the special meeting. For purposes of
determining whether a quorum is present, the inspector of elections will include
shares:
* the holders of which abstain from voting on any particular
matter; or
* for which executed proxies are returned by a broker that holds
shares in street name indicating that the broker does not have
discretionary authority to vote those shares on a particular
matter, otherwise known as broker non-votes.
With regard to the merger proposal, abstentions and broker non-votes
will be exclude from the vote and have no effect. With regard to the name
change, abstentions and broker non-votes will have the same effect as votes
against the name change. With regard to the election of directors, votes may be
cast in favor or withheld. Votes that are withheld will be excluded from the
vote and will have no effect.
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VOTING STOCK HELD BY ACCUMED AND MICROSULIS MANAGEMENT
As of the record date, AccuMed's directors and executive officers, and
their respective affiliates, beneficially owned 1,700,124 shares of outstanding
AccuMed common stock. This ownership represents 26.7% of the votes entitled to
be cast at the special meeting. AccuMed expects that these directors and
officers will vote their shares in favor of each of the proposals described in
this proxy statement-prospectus. Approval of the merger agreement and merger,
including the approval of securities to be issued in the merger, requires the
affirmative vote of a majority of the shares of AccuMed common stock voting in
person or by proxy, assuming presence of a quorum.
As of December 22, 1999, Microsulis' directors and executive officers,
and their respective affiliates, beneficially owned 5,194,000 shares (93.9%) of
outstanding Microsulis common stock entitled to vote at the Microsulis special
meeting. Approval of the merger agreement and merger by Microsulis stockholders
requires the affirmative vote of holders at least 80% of the outstanding
Microsulis common stock. Gillian Fraser owns 90.7% of the outstanding Microsulis
common stock and is expected to vote in favor of the merger at the Microsulis
special meeting.
INSPECTOR OF ELECTIONS
The board of directors has appointed Joyce L. Wallach, Esq., legal
counsel to AccuMed, as the inspector of elections for the special meeting. The
inspector of elections will determine the number of shares of common stock
represented in person or by proxy at the special meeting, whether a quorum
exists, the authenticity, and validity and effect of proxies, and will receive
and count the votes.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, holders of AccuMed common stock are not entitled to
dissenters rights or appraisal rights with respect to the merger or other
proposals to be considered at the meeting.
INDEPENDENT AUDITORS
A representative of KPMG LLP, independent certified public accountants
to AccuMed, is expected to be present at the special meeting. This
representative will have the opportunity to make a statement. AccuMed also
expects that this representative will be available to respond to appropriate
questions.
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THE MERGER
The following discussion summarizes the proposed merger and related
transactions. The merger agreement is attached to this proxy
statement-prospectus as Appendix A and is incorporated in this document by
reference. We urge you to read the detailed terms of and conditions to the
transactions which are contained in the merger agreement.
STRUCTURE OF THE MERGER AND SECURITIES TO BE ISSUED
* AccuMed Acquisition Sub, Inc., a wholly-owned subsidiary of
AccuMed formed solely to accomplish the merger, will be merged
with and into Microsulis Corporation;
* Microsulis will thus become a wholly-owned subsidiary of AccuMed;
* Microsulis (Canada), Inc., a wholly-owned subsidiary of
Microsulis Corporation, will become an indirect subsidiary of
AccuMed;
* a total of a minimum of 10,726,830 shares up to a maximum of
11,696,830 shares of AccuMed common stock to Microsulis
stockholders, issued at a ratio of 1.94 shares of AccuMed common
stock for each share of Microsulis common stock outstanding at
the time of completion of the merger;
* five-year warrants to purchase a total of a minimum of 2,764,646
shares up to a maximum of 3,014,646 shares of AccuMed common
stock exercisable at $6.75 per
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share to Microsulis stockholders, at a rate of one warrant for
every two shares of Microsulis common stock outstanding at the
time of completion of the merger;
* stock options to purchase 1,040,000 shares of common stock at an
exercise price of $2.50 per share to replace Microsulis stock
options;
* a total of 240,000 stock options exercisable at $2.50 per share,
60,000 options to each of the four non-employee directors to be
elected at the special meeting; and
* 750,000 stock options to two executive officers exercisable at a
minimum of $2.50 per share.
BACKGROUND OF THE MERGER
AccuMed's board of directors instructed management on May 18 to seek for
consideration a strategic financial partner, sale of any of our existing
technologies or a ale or merger of AccuMed. The board preferred the latter
approach which would allow us to gain access to greater financial resources and
marketing capabilities.
In May 1999, AccuMed retained Hank Weisman of Weisman and Associates, a
long time pharmaceutical industry expert, to assist in finding a strategic
financial partner within the pharmaceutical industry. While we contacted several
companies, only one signed a confidentiality agreement in order to look at our
products.
In late 1998, we had contacted several companies to ascertain their
potential interest in licensing our AcCell 2000 technology. Those discussions
were merely explanatory and did not result in a comprehensive exchange of
information between AccuMed and those other companies. Also in May 1998, we
contacted several investment banks to advise them that AccuMed was potentially
interested in a transaction that would add value to AccuMed in the form of
private cash investments or otherwise.
In June, July and August 1999, AccuMed's management met with chief
executive officers of several medical companies. The board considered a
preliminary negotiation proposal from one of those companies. However, the board
felt that the particular company was not a strong merger candidate from a
product standpoint and would require substantial capital to reach meaningful
sales potential. The board felt that a second company had insufficient operating
history and that its future product potential was highly speculative.
On July 12, 1999, Mr. Lavallee received a call from First Level Capital
asking if he would be willing to speak with representatives of the Microsulis
organization. Following a review of the Microsulis financial statements, Mr.
Lavallee spoke by phone with Mr. Warner of Microsulis. Within a few days, the
two companies entered into a non disclosure agreement. Then, Mr. Lavallee and
Mr. Warner met and presented an overview of their respective companies
businesses and a potential combination of the businesses. The next day, Mr.
Warner met with Mr. Priddy, a director, Executive Committee member, and
principal stockholder of AccuMed. Then, senior management, including technical
and clinical executives met in the U.S. and United Kingdom. Additionally, Mr.
Banister, a director and member of AccuMed's Executive Committee, met in Bath,
England on
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September 9, 1999 with Microsulis PLC management, technology and clinical
advisors.
AccuMed conducted additional due diligence with senior management of
AccuMed and Microsulis in as well as technology and clinical senior staff at the
offices of Microsulis Canada in Montreal, Canada. From mid August through early
October 1999, AccuMed board members and Microsulis.
Then AccuMed's board authorized its executive committee members to
negotiate with Microsulis, subject to board approval of any agreement. The board
determined that a merger with Microsulis represented the best transaction
available to the company and our stockholders. Two of the executive committee
members, Messrs. Lavallee and Priddy met in person with representatives of
Microsulis. The third executive committee member, Mr. Banister consulted by
telephone.
October 8, 1999, following two days of negotiations by executive
committee members, AccuMed's board approved the letter of intent and authorized
the executive committee to negotiate anticipated changes in the terms prior to
execution. Following execution of the letter of intent, both companies continued
their due diligence investigations of the other. Meetings of AccuMed executive
committee members and senior management of Microsulis continued as the parties
negotiated the merger agreement.
AccuMed's board approved the merger agreement in a telephonic meeting on
November 10, 1999. Subsequently, the AccuMed board approved three amendments to
the merger agreement by telephonic meetings.
The board believes that the merger is in the best interest of AccuMed
and its stockholders. The board was pleased to observe that the market price of
the AccuMed common stock has increased significantly since announcement of the
proposed merger.
RECOMMENDATION OF THE ACCUMED BOARD OF DIRECTORS AND REASONS FOR THE MERGER
AccuMed has been seeking a merger partner since June 1999. After having
preliminary discussions with several companies, we felt that the merger with
Microsulis Corporation was the transaction that was in the best interest of
AccuMed and our stockholders. We anticipate that AccuMed and our stockholders
will receive the following benefits from the merger:
The Board felt it would be difficult for AccuMed to raise sufficient
capital on acceptable terms to continue our operations as proposed in our
business plan, due to the minimal sales of AccuMed products and the depressed
share price of our common stock. We anticipate that the combined companies will
have a greater opportunity to raise capital on more acceptable terms than would
be possible for AccuMed alone.
Specifically, we anticipate that acquiring the Microwave Endometrial
Ablation (MEA) system product base through the merger, will strengthen AccuMed's
financial profile to potential investors or other sources of capital. Microsulis
PLC and Microsulis Asia have been successful in selling the MEA systems in the
U.K. and Asia. Microsulis Corporation has the exclusive rights to sell MEA
systems in the Western Hemisphere. Microsulis (Canada) Inc. has started sales of
the MEA systems in Canada. Microsulis Corporation anticipates beginning sales of
MEA systems soon in South America.
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The combined companies will be able to offer a more comprehensive set of
products to the clinical market place. This may increase market awareness of our
company and of AccuMed's current and proposed products. This could lead to
increased sales of AccuMed products.
We concluded that the merger will allow AccuMed access to Microsulis'
existing resources in areas including website design and maintenance, sales and
marketing, and scientific expertise and intellectual property. Due to the scale
back in AccuMed personnel, we currently have limited in-house personnel capacity
in these areas.
We anticipate that the merger will strengthen the companies' scientific
expertise in the areas of new applications of both AccuMed's and Microsulis'
platform technologies. In addition, we feel we will enhance product development
and improvements through combining both companies' personnel.
The combined technological resources and scientific knowledge may allow
the combined company to develop other products at a more rapid pace than would
be possible without the merger. Combining the intellectual property and
collaboration among both companies' personnel who create and manage the
intellectual property may lead to greater expansion of existing intellectual
property. This may also result in better and more comprehensive product
applications of the intellectual property.
The license agreement between Microsulis Corporation and Microsulis PLC
allows Microsulis Corporation to use future product developments by Microsulis
PLC. We may be able to improve existing and proposed AccuMed products through
access to these future developments and through the positive working
relationship we have developed with Microsulis PLC.
The combined companies can operate more efficiently than either company
could as a separate business. This efficiency may support future growth of both
product lines through a more effective use of the combined companies' resources.
The merger is fair and in the best interest of AccuMed and its
stockholders, especially in light of the currently poor market conditions for
companies in the medical imaging business.
RECOMMENDATION OF MICROSULIS BOARD OF DIRECTORS AND REASONS FOR THE MERGER
At a meeting held on November 9, 1999, the board of directors of
Microsulis unanimously approved the merger and determined that the terms of the
merger are fair to, and in the best interests of, Microsulis and its
stockholders. The board of Microsulis presently intends to recommend that
Microsulis' stockholders approve the merger.
The board of Microsulis concluded that the merger was the best way to
provide an opportunity to deliver value to the Microsulis stockholders given
Microsulis' limited financial resources and cash requirements to sustain
operations. In addition, the Microsulis board identified the following potential
benefits of the merger that it believed should contribute to the success of the
combined companies and benefit the Microsulis stockholders:
(a) The existing financial constraints on Microsulis severely limit
its ability to market its
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Microwave Endometrial Ablation system, and it would be difficult for Microsulis
to have access to adequate capital to implement its business plan if it does not
complete the merger; and
(b) The Microsulis board's belief that Microsulis will be able to
benefit from the existing technological resources and scientific knowledge of
AccuMed's management team.
In the course of its deliberation, the board of Microsulis reviewed and
considered various factors, including, among others:
(a) The prospects of Microsulis on a stand-alone basis, including
the financial alternatives for Microsulis, taking into consideration Microsulis'
unsuccessful efforts during 1999 to secure adequate financing on acceptable
terms;
(b) Microsulis' need for capital to compete successfully:
(c) The terms of the merger, including AccuMed's agreement to loan
Microsulis $650,000 secured by Microsulis' Microwave Endometrial Ablation
systems;
(d) Consideration of the public market and liquidity of the
securities to be issued to Microsulis' stockholders in the merger; and
(e) The requirement that the holders of record of at least 80% of
the outstanding shares of Microsulis common stock approve the merger.
This discussion of the information and factors considered by the board
of Microsulis is not intended to be exhaustive but includes all material factors
considered by the Microsulis board. In view of the variety of factors considered
in connection with its evaluation of the merger, the Microsulis board did not
find if practicable to and did not quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. Individual
members of the Microsulis board may have given different weights to the
different factors.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material United States Federal
income tax consequences to the holders of Microsulis common stock as a result of
the merger of AccuMed Acquisition SUB, Inc. and Microsulis Corporation. This
discussion is intended to address only the material United States Federal income
tax consequences of this transactions. It is of a general nature only and is not
intended to be, nor should it be construed to be, legal, business or tax advice
to any particular holder of Microsulis common stock. This discussion does not
address the income tax considerations applicable to investors that may be
subject to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, persons that will hold AccuMed
common stock or Microsulis common stock as other than capital assets or as
positions in hedging transactions, straddles or conversion transactions or
persons that have a functional currency other than the United States dollar.
Holders of Microsulis common stock should consult their own tax advisors with
respect to the consequences of the merger.
This discussion and the conclusions stated are based on the provisions
of the Internal Revenue
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Code of 1986, as amended, the applicable Treasury Regulations promulgated or
proposed thereunder, judicial authority and current administrative rulings and
practice, all of which are subject to change, possibly on a retroactive basis.
No ruling will be sought from the Internal Revenue Service with respect to the
statements made and the conclusions reached in the following discussion, and
there can be no assurance that the Internal Revenue Service will agree with
these statements and conclusions tax purposes. AccuMed's management has not
engaged a professional firm to provide a tax opinion relating to the
consequences of the merger.
It is the opinion of management, that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. Assuming that
the merger qualifies as a reorganization:
* Microsulis Corporation, AccuMed, and AccuMed Acquisition SUB, Inc will
each be a party to the reorganization and will not recognize gain or
loss solely as a result of AccuMed's issuance of AccuMed common stock
and warrants to acquire common stock of AccuMed in the merger or the
transfer, by operation of law of AccuMed Acquisition SUB's assets and
liabilities to Microsulis as a result of the merger.
* Microsulis shareholders will not recognize gain or loss upon their
receipt in the merger of AccuMed common stock in exchange for Microsulis
common stock.
* Microsulis shareholders will not recognize gain or loss upon their
receipt in the merger of warrants to acquire AccuMed common stock in
exchange for Microsulis common stock.
* The aggregate tax basis of the AccuMed common stock and warrants to
acquire AccuMed common stock received in the merger will be the same as
the shareholder's aggregate tax basis in the Microsulis common stock
exchanged in the merger.
* Each holder of Microsulis common stock shall allocate the aggregate tax
basis of the AccuMed common stock and warrants to acquire Accumed common
stock received in the merger. Such allocation shall be made between the
AccuMed common stock and the warrants to acquire AccuMed common stock
based upon the relative fair market values of the stock and warrants as
of the date of the merger.
* The holding period of AccuMed common stock and warrants to acquire
AccuMed common stock received by a Microsulis shareholder as a result of
the merger will include the period during which time the Microsulis
shareholder held the Microsulis common stock exchanged for of AccuMed
common stock and warrants to acquire AccuMed common stock.
This discussion is based upon the currently existing relevant provisions
of the Internal Revenue Code of 1986, as amended, the regulations thereunder,
and judicial and administrative interpretations thereof. These authorities are
subject to change, retroactively and/or prospectively, and any such change could
affect the validity this discussion.
A successful Internal Revenue Service challenge to the classification of
the merger as a reorganization within the meaning of Section 368(a) of the Code
would result in significant adverse tax consequences to the shareholders of
Microsulis. A Microsulis shareholder would recognize gain or loss
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with respect to each share of Microsulis common stock in an amount equal to the
difference between the shareholder's basis in its shares of Microsulis common
stock and the fair market value of the AccuMed common stock and warrants to
acquire AccuMed common stock received at the time of the merger. In such case,
each Microsulis shareholder's basis in its AccuMed shares would equal the fair
market value of those shares at the time of the merger. Such shareholder's
holding period would begin the day after the closing date of the merger.
Each Microsulis Corporation shareholder will be required to retain
certain records and file with the such shareholder's United States federal
income tax return, a statement regarding the merger.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger under the purchase method of
accounting.
REGULATORY MATTERS
There are no federal or state regulatory approvals required to complete
the merger.
MICROSULIS STOCKHOLDERS DISSENTERS' RIGHTS OF APPRAISAL
Any stockholder of record of Microsulis common stock entitled to vote on
the merger who objects to the merger may, as an alternative to receiving the
AccuMed common stock and warrants, demand appraisal of his or her Microsulis
common stock under the Florida Business Corporation Act by demanding in writing
that he or she be paid, in cash, the fair value of his or her Microsulis common
stock. At the time that Microsulis seeks stockholder approval of the merger, it
will advise its stockholders of these dissenters rights.
Approval of the merger by Microsulis stockholders requires the
affirmative vote of at least 80% of the shares of Microsulis common stock
entitled to vote at the special meeting of Microsulis stockholders. Microsulis
expects Gillian Fraser, the beneficial owner of 90.7% of the Microsulis common
stock entitled to vote, to vote her shares in favor of the merger at the special
meeting of Microsulis stockholders.
LISTING OF COMMON STOCK ON NASDAQ; NO PUBLIC MARKET FOR WARRANTS
AccuMed will file an application seeking to list on the Nasdaq SmallCap
Market the shares of AccuMed common stock, as well as the shares of AccuMed
common stock underlying the warrants and options to be issued in the merger. It
is a condition to completion of the merger that these shares of common stock be
accepted for listing by Nasdaq.
There is no public trading market for AccuMed warrants, and none is
expected to develop.
RESTRICTIONS ON RESALES BY AFFILIATES; LOCK-UP AND VOTING AGREEMENTS;
REGISTRATION RIGHTS
Securities Law Restrictions. AccuMed has registered under the Securities
Act the shares of AccuMed common stock and the warrants to purchase AccuMed
common stock it will issue to Microsulis stockholders in the merger.
Consequently, these shares and warrants may be traded freely without
restrictions by those stockholders not deemed to be affiliates of AccuMed or
Microsulis, as that term is
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defined under the Securities Act. An affiliate of Microsulis is a person who,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, Microsulis. This may include
officers and directors of Microsulis, as well as its principal stockholder,
Gillian Fraser. Any post-merger sale of shares received in the merger by a
Microsulis affiliate must be permitted by the resale provisions of Rule 145
under the Securities Act or as otherwise permitted under the Securities Act. In
the case of persons who become AccuMed affiliates, subsequent sales must be
permitted by the resale provisions of Rule 144 under the Securities Act.
Lock-up and Voting Agreements. Ms. Fraser, Robert Priddy and Bellingham
Capital Industries have agreed to enter into agreements in which they agree not
to sell, pledge or otherwise dispose of shares of AccuMed common stock,
preferred stock, or warrants or other rights to acquire AccuMed common or
preferred stock owned of record or beneficially by them beginning upon
completion of the merger, as follows:
* as to Mr. Priddy and Bellingham Capital, until the earlier of the
second anniversary of completion of the merger, or the date on
which the U.S. FDA approves the pre- marketing authorization
application pertaining to the Microwave Endometrial Ablation
system;
* as to Ms. Fraser, for one year longer than the restricted time
period applicable to Mr. Priddy and Bellingham Capital;
* if AccuMed exercises its right to redeem the warrants under the
warrant agreement, the restricted holders will be relieved from
the restrictions of the lockup in order that they may exercise
their warrants as all warrant holders are entitled within the
minimum 30-day notice period prior to AccuMed redeeming the
warrants;
* except that each of these restricted holders will be released
from their contractual resale restrictions with respect to 5% of
their holdings of their outstanding common stock and shares
underlying warrants during each three month period beginning
following completion of the merger;
* also, each of these restricted holders may be released from the
restrictions on resale of up to an additional 5% of their then
current holdings during each three month period following
completion of the merger, upon agreement of each of the parties.
The restricted stockholders will be entitled to transfer these securities to
another person who agrees to be bound by the lock-up restrictions.
During the restriction periods, the agreements will also require each of
them to vote the shares of AccuMed common stock in favor of election of four
directors nominated by Ms. Fraser and three directors nominated by AccuMed's
Chief Executive Officer. Upon completion of the merger, these three stockholders
will own a total of 10,197,789 shares (50.3%) of AccuMed common stock, assuming
issuance of the minimum number of shares of the AccuMed common stock in the
merger.
DIRECTORS AND MANAGEMENT OF ACCUMED AFTER THE MERGER
Four of the seven nominees for election as directors were selected by
Gillian Fraser, who will
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become the majority stockholder of AccuMed upon completion of the merger. Those
nominees are David Warner, Leslie J. Croland, Marcus E. Finch and Paul Barrett.
Mr. Warner is expected to serve as Chairman of the Board.
The other three nominees were selected by AccuMed's board of directors.
They are Paul F. Lavallee, Robert Priddy and Mark Banister and each is a current
AccuMed director. We expect AccuMed's current executive officers, Mr. Lavallee
(Chief Executive Officer) and Norman J. Pressman, Ph.D (President and Chief
Scientific Officer) to continue in their respective capacities after the merger.
For information about these directors and executive officers, see "About AccuMed
- --Executive Officers and Directors; --Director Compensation; --Executive
Compensation."
INTERESTS OF OFFICERS, DIRECTORS AND OTHER STOCKHOLDERS IN THE MERGER
In considering the recommendation of the AccuMed and Microsulis boards
of directors to approve the merger, you should be aware that some executive
officers, current directors and director nominees have interests in the merger
that are different from, or in addition to your interests in the merger.
Employment Agreements. Conditions to completion of the merger include
that AccuMed enter into the following agreements, satisfactory to Microsulis,
for the services of executive officers following the merger.
* A new professional services, or amendments to the existing
agreement, providing for Paul F. Lavallee to continue serving as
Chief Executive Officer of AccuMed.
* A professional services agreement providing for David Warner's
service to AccuMed. AccuMed anticipates that Mr. Warner will
serve as Chairman of the board of directors of AccuMed.
* An employment agreement with Marcus E. Finch.
Stock Options. The merger agreement requires AccuMed to grant the
following stock options upon completion of the merger.
* Mr. Lavallee will receive 500,000 options, and Mr. Warner will
receive 250,000 options exercisable at a minimum of $2.50 per
share. If AccuMed raises $4,000,000 or more in an equity and/or
debt financing at a per share price higher than $2.50 within the
first six months following completion of the merger, the exercise
price will be increased to that higher price. If a financing of
that amount is not completed by the six-month anniversary of
completion of the merger, and there has been a financing of a
smaller amount during that period at a per share amount higher
than $2.50, the exercise price will be increased to that higher
price. These options vest increments of 20% of options granted on
the following dates: (1) the six-month anniversary of completion
of the merger, (2) completion of FDA trials of the MEA system,
(3) FDA approval of the pre- marketing application for the MEA
system, (4) when the combined companies first achieve $10,000,000
in gross revenues, (5) when the combined companies first achieve
gross revenue of $20,000,000.
* Each of the four non-employee director elected at the special
meeting will receive 60,000
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options exercisable at $2.50 per share, for a total of 240,000
options. These options will vest as follows (1) 20,000
immediately, (2) an additional 20,000 on the day following each
of the annual meetings of stockholders of AccuMed held in 2001
and 2002, if the holder is reelected as a director at the
meetings.
* Mr. Finch will receive options to purchase 500,000 shares at
$2.50 per share in exchange for, and on substantially the same
terms as, his outstanding options to purchase 250,000 shares of
Microsulis common stock at $5.00 per share.
* In addition to the 60,000 non-employee director options, Leslie
J. Croland will receive fully-vested options to purchase 100,000
shares at $2.50 per share in exchange for his outstanding options
to purchase 100,000 shares of Microsulis common stock at $5.00
per share, of which 50,000 options are currently vested. Other
terms of the AccuMed options will be substantially similar to the
terms of his outstanding Microsulis options.
Indemnification. The combined companies will indemnify all current and
former directors and officers of Microsulis against liabilities resulting from
their actions and omissions in serving in those capacities prior to the merger.
This indemnification will be made to the full extent permitted under Florida
law. The combined companies will also advance to these people amounts for
expenses incurred by them in any proceeding against them for which they may be
indemnified. AccuMed will also enter into indemnification agreements with the
directors newly elected at the special meeting.
Payment of Microsulis Legal Fees. Mr. Croland is a partner of the law
firm Steel Hector Davis. If the merger is completed, Accumed will pay to Mr.
Croland's firm legal fees up to $50,000, in addition to costs, incurred by
Microsulis in connection with the merger and related transactions. This payment
is required within two business days following completion of AccuMed's first
equity and/or financing of $1,000,000 following the merger.
POSSIBLE ADDITIONAL SALES OF MICROSULIS COMMON STOCK AND CORRESPONDING INCREASES
IN ACCUMED STOCK AND WARRANTS TO BE ISSUED IN THE MERGER
Under the merger agreement, Microsulis is entitled to sell up to 500,000
additional shares of Microsulis common stock prior to completion of the merger.
Any additional shares sold prior to completion of the merger will be entitled to
receive the same consideration in the merger as any other holder of Microsulis
common stock at the time of completion of the merger. If the maximum additional
shares of Microsulis common stock are sold prior to completion of the merger,
the maximum of 11,696,830 shares of AccuMed common stock will be issued, along
with the maximum of warrants to purchase a total of 3,014,646 shares
These additional shares must be sold for a minimum $5.75 per share.
Microsulis is required to use at least 25% of the proceeds of any sale of these
additional shares to pay down the loans from AccuMed as described below.
LOANS FROM ACCUMED TO MICROSULIS
As required by the merger agreement, AccuMed has made loans to
Microsulis and its subsidiary. On October 18, 1999, AccuMed loaned the
subsidiary, Microsulis Canada, $310,000. On December 1, 1999, we loaned
Microsulis Canada an additional $124,000. On December 3, 1999, we loaned
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Microsulis $154,000. Thus, the total lending for Microsulis and its subsidiary
reached $588,000. On December 21, 1999, Microsulis and its subsidiary repaid
AccuMed $188,000, reducing the loan balances to a total of $400,000. Under the
merger agreement, Microsulis and its subsidiary are entitled to borrow up to a
total of $650,000. Thus, AccuMed may lend them up to an additional $250,000
prior to completion of the merger. The loans carry interest at 10% annually and
are secured by a lien on Microsulis' MEA systems. If the merger is not
completed, Microsulis will be required to repay the loans with interest on April
18, 2000.
Under the merger agreement, Microsulis is entitled to sell up to 500,000
additional shares of Microsulis common stock prior to completion of the merger.
These additional shares must be sold for a minimum $5.75 per share. Microsulis
is required to use at least 25% of the proceeds of any sale of these additional
shares to pay down the loans from AccuMed.
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THE MERGER AGREEMENT
THE MERGER; CLOSING; EFFECTIVE TIME
Closing of the merger will take place on the first business day after
the date on which the last of the conditions to completion of the merger is
fulfilled or waived, or at another time agreed to by AccuMed and Microsulis. On
the closing date, we will file articles of merger with the Florida Secretary of
State in accordance with the relevant provisions of Florida law. This will cause
AccuMed Acquisition Sub, Inc. to be merged with and into Microsulis Corporation.
AccuMed Acquisition Sub was formed shortly before the merger agreement was
executed for the sole purpose of effecting the merger. The merger will become
effective when the Florida Secretary of State accepts the articles of merger for
filing. At the effective time, AccuMed Acquisition Sub will cease to exist and
Microsulis will be the surviving corporation. Microsulis Corporation will then
become a wholly-owned subsidiary of AccuMed.
CONVERSION OF MICROSULIS COMMON STOCK; EXCHANGE OF CERTIFICATES
At the effective time, by virtue of the merger and without any action on
the part of any Microsulis stockholder, each issued and outstanding share of
Microsulis common stock, except dissenting shares, will be converted into 1.94
shares of AccuMed common stock. No fractional shares of AccuMed common stock
will be issued. Instead, if a Microsulis stockholder would be entitled to a
fractional share, it will be rounded up to one whole share of AccuMed common
stock. Also, every two shares of Microsulis common stock issued and outstanding,
except dissenting shares, will entitle the holder to receive one AccuMed
warrant.
As soon as practicable following the effective time of the merger, the
transfer agent for AccuMed's common stock will mail to each holder of Microsulis
common stock, except for dissenting shares, a letter of transmittal instructing
the holder how to surrender its certificate representing Microsulis common stock
in exchange for certificates representing AccuMed common stock and AccuMed
warrants.
If any certificates representing AccuMed common stock or warrants are to
be delivered to a person other than the person in whose name the surrendered
Microsulis stock certificates are registered, the surrendered certificate must
be properly endorsed and include appropriate stock powers.
Dividends or other distributions declared after the effective time, if
any, will accrue but not be paid with respect to Microsulis common stock, until
the certificates representing the Microsulis common stock are properly
surrendered for exchange. When those certificates are properly surrendered, any
unpaid dividends or other distributions will be paid, without interest.
Neither AccuMed nor Microsulis will be liable to any former holder of
Microsulis common stock for any AccuMed common stock, warrants, dividends or
distributions properly delivered to a public official according to applicable
abandoned property, escheat or similar law.
If a certificate representing Microsulis common stock has been lost,
stolen or destroyed, the exchange agent will issue certificates representing the
AccuMed common stock and warrants and any dividends or distributions upon
receipt of appropriate evidence of loss, theft or destruction and customary
indemnification.
After the effective time, there will be no transfers on Microsulis'
stock transfer books of shares
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of Microsulis common stock. If certificates representing shares of Microsulis
common stock represented after the effective time, they will be canceled and
exchanged for the applicable amount of AccuMed common stock and warrants.
TREATMENT OF MICROSULIS STOCK OPTIONS
Outstanding stock options to purchase a total of 395,000 shares of
Microsulis common stock at $5.00 per share held by 11 persons will be cancelled
and replaced with AccuMed stock options. Each of these Microsulis stock options
will be exchanged for two AccuMed stock options exercisable at $2.50 per share,
a total of 790,000 AccuMed stock options.
In addition, outstanding stock options to purchase a total of 250,000
shares of Microsulis common stock, of which 125,000 are vested, at $5.00 per
share held by three Microsulis directors, will be cancelled and replaced with
AccuMed stock options. Each of these Microsulis stock options will be exchanged
for one AccuMed stock options, for a total of 125,000 options, exercisable at
$2.50 per share.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by each of
AccuMed and Microsulis relating to, among other things:
* corporate organization, structure and power;
* capitalization;
* subsidiaries;
* authorization execution, delivery, performance and enforceability
of the merger agreement;
* required consents, approvals and authorizations of governmental
authorities and other persons relating to, and noncontravention
of other agreements because of, the merger agreement;
* documents filed by AccuMed with the SEC, the accuracy of
information in those documents, lack of undisclosed liabilities
of AccuMed;
* financial statements of Microsulis, the accuracy of the
information in those documents, the lack of undisclosed
liabilities of Microsulis;
* the absence of material adverse changes or events with respect to
AccuMed and Microsulis since September 30, 1999;
* compliance with applicable law;
* litigation;
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* title to assets;
* labor and employee matters;
* matters relating to AccuMed employee benefits and the Employee
Retirement Income Security Act of 1974, as amended;
* broker or finder's fee payable in connection with the merger;
* taxes;
* environmental law; and
* transactions with affiliates.
CONDUCT OF BUSINESS PENDING THE MERGER
From November 16, 1999 until the effective time, AccuMed and Microsulis
will, and will cause their subsidiaries, to conduct their business in the
ordinary course, and will use their reasonable best efforts to preserve intact
their present business organization and preserve relationships with customers,
suppliers and others having business dealings with them.
Additionally, AccuMed and Microsulis have agreed with limited exceptions
not to take any action outside the parameters specified in the merger agreement
with respect to, among other things:
* amending organizational documents;
* issuing, selling or encumbering any shares of capital stock or
securities to acquire capital stock;
* declaring or paying dividends or recapitalizing or redeeming
capital stock;
* selling, leasing or encumbering assets;
* incurring indebtedness;
* making acquisitions and capital expenditures;
* terminate or amend compensation, employment and other agreements
for the benefit of employees, officers or directors or increase
compensation or grant bonuses or other awards to those persons;
and
* taking any action that would make the representations and
warranties materially untrue or incorrect or prevent a condition
to completion of the merger from being satisfied as of the
effective time.
LOANS FROM ACCUMED TO MICROSULIS
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AccuMed is required to loan Microsulis and/or its subsidiary up to
$650,000. These loans bear interest at 10% per annum and are due on April 18,
2000 if the merger has not then been completed. Microsulis' repayment
obligations are secured by liens on its Microwave Endometrial Ablation systems.
NO SOLICITATION
Other than as required by law or fiduciary duties of the boards of
directors, AccuMed and Microsulis have agreed that neither they nor their
respective subsidiaries, officers, directors, representatives or agents will
take action to:
* initiate or solicit a proposal for a merger, consolidation or
similar transaction involving it, or for disposition of
substantially all its assets, or sale of its capital stock;
* enter into any agreement for one of these types of transactions;
and
* participate in negotiations or provide information in connection
with these types of transactions.
INDEMNIFICATION OF MICROSULIS EXECUTIVES AND DIRECTORS
The combined companies will indemnify all current and former directors
and officers of Microsulis against liabilities resulting from their actions and
omissions in serving in those capacities prior to the effective time. This
indemnification will be made to the full extent permitted under Florida law and
Microsulis' articles of incorporation and bylaws. The combined companies will
also advance to these people amounts for expenses incurred by them in any
proceeding against them for which they may be indemnified.
CONDITIONS TO COMPLETION OF THE MERGER
Completion of the merger is subject to satisfaction of a number of
conditions, including, among others:
* AccuMed's stockholders must vote a majority of shares of AccuMed
common stock voting at the special meeting for approval of the
merger;
* Microsulis' stockholders must vote 80% of the outstanding shares
of Microsulis common stock for approval of the merger;
* AccuMed's registration statement must be effective, no stop order
suspending its effectiveness will be in effect and no proceeding
for suspension of its effectiveness will have been initiated or
threatened in writing by the SEC;
* the absence of any law, governmental order, decree or injunction
prohibiting completion of the merger;
* the representations and warranties of each party will be
materially true as of the closing date for the merger;
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* each party shall have performed in all material respects its
agreements required by the merger agreement to be performed by it
prior to the effective time;
* all consents of third parties to completion of the merger have
been obtained;
* both parties completing and being satisfied with the results of
an investigation of the other party's business and financial
condition;
* AccuMed will enter into professional services agreements with
Paul F. Lavallee and David Warner, and an employment agreement
with Marcus E. Finch;
* Gillian Fraser, Robert L. Priddy and Bellingham Capital
Industries will enter into agreements restricting the resale of
their AccuMed common stock and warrants following the merger, and
agreeing to vote in favor of directors nominated by Ms. Fraser
and Accumed's Chief Executive Officer;
* AccuMed will amend its bylaws to require at least a two-thirds
vote of its board of directors to approve specified extraordinary
transactions for up to three years;
* AccuMed will amend its certificate of incorporation to change its
name to "Microsulis Medical Corporation;"
* AccuMed will grant 500,000 stock options to Paul F. Lavallee and
250,000 stock options to David Warner;
* AccuMed will grant 60,000 stock options to each of the four
non-employee directors elected at the special meeting;
* AccuMed will enter into indemnification agreements with the
directors newly elected at the special meeting;
* Microsulis will enter into several amendments to its license
agreement with Microsulis PLC relating to the MEA system;
* receipt of legal opinions;
* there is no material adverse change in AccuMed and Microsulis'
respective businesses;
Certain conditions to completion of the merger may be waived by the
company entitled to assert the condition.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEE
AccuMed and Microsulis may mutually agree to terminate the merger
agreement without completing the merger. The merger agreement may also be
terminated as follows:
* upon paying a $3,000,000 cash termination fee to the other party,
either AccuMed or
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Microsulis may terminate the merger agreement to enter into an
agreement with a third party providing for a merger, sale of
substantially all assets or other transaction resulting in a
change of control of the terminating party;
* if the merger is not then completed, the merger agreement will
terminate automatically on January 31, 2000 unless the parties
agree to extend the date.
AMENDMENT; WAIVER
Prior to the effective time, the merger agreement may be amended in
writing with the approval of the boards of directors of each party. After
stockholder approval of the merger and prior to the effective time, amendments
altering the indemnification provisions, securities to be issued in the merger,
and any changes adverse to the stockholders would be subject to further
stockholder approval.
Prior to the effective time, the parties may take the following actions
in writing upon approval of their respective boards of directors:
* extend the time for performance of any obligations of the other
party;
* waive any inaccuracies in the representations and warranties; and
* waive compliance with any of the agreements or conditions in the
merger agreement.
FEES AND EXPENSES
If the merger is not completed, each party will bear its own expenses
incurred in connection with the merger agreement and transactions contemplated
in the merger agreement.
If the merger is completed, AccuMed will pay the reasonable, documented
legal and accounting expenses and costs incurred by Microsulis. AccuMed is
required to pay legal fees of Microsulis to a maximum of $50,000, exclusive of
costs. These expenses will be payable two business days following completion of
AccuMed of a equity and/or debt financing raising at least $1,000,000.
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INFORMATION ABOUT ACCUMED
Important information about AccuMed is contained in our annual report on
Form 10-K for the year ended December 31, 1998 and our quarterly report on Form
10-Q for the quarter ended September 30, 1999 which accompany this proxy
statement-prospectus.
We have filed a registration statement on Form S-4 with the Securities
and Exchange Commission to register the AccuMed securities to be issued in the
merger. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy the
registration statement and any other documents we have filed at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may call
the SEC at 1-800-SEC-0330 for further information about the Public Reference
Room. Our SEC filings are also available to the public at the SEC's Internet
site found at "http://www.sec.gov." You can also inspect our SEC filings at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
ACCUMED'S BUSINESS
We are developing and commercializing products for use by clinical
diagnostic laboratories to review and analyze cytology and histology samples.
Pap smears and other microscope slide-based cellular samples are examples of
cytology tests. Frozen sections in anatomic pathology laboratories and
immunohistochemistry are examples of histology tests. Our products use our
exclusively owned technology, some of which is patented. AccuMed's primary focus
is developing cytology and histology products that improve the quality of
cell-based and tissue-based specimen analyses and increase productivity in the
clinical diagnostic laboratory. The first products we developed were designed
for review and analysis of both cervical and non-cervical conventional Pap
smears and Pap smears using liquid-based preparations.
Our first cytopathology product is the AcCell Cytopathology System, an
automated slide handling and data management system embedded in a microscopy
workstation. We first began selling AcCell Systems at the end of the first
quarter of 1996. Our second cytopathology product, the TracCell 2000 Slide
Mapping System, is an electronic slide mapping system. The TracCell 2000 is a
tool designed to increase productivity by automatically creating a computerized
map that excludes from human review empty space and certain some portions of the
specimen that are not relevant to diagnosis. This mapping permits a more
efficient analysis of the slide specimen. A human screener can then review the
mapped specimen through an AcCell microscopy workstation. In August 1997, the
Food and Drug Administration granted AccuMed clearance to market the TracCell
2000 in the United States.
We believe that our AcCell cytopathology workstations and systems are
the only computer-aided cytology screening products available to the clinical
cytology market that allows customers to upgrade to more fully automated
versions. This product line can be used in analyzing both gynecological and
non-gynecological specimens using both conventional Pap smears as well as
liquid-based preparations of any specimen type.
Although the cervical Pap test is the largest volume diagnostic cytology
test, the pathology laboratory routinely conducts other tests based on samples
from numerous organs and areas of the body. Implementing these tests effectively
requires precision optical microscopy and careful error-free
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management of data. AccuMed is currently developing products for these
applications by combining our AcCell technology with other technology for use in
analyzing these samples in a manner similar to that of qualitative and
quantitative Pap tests. The tests and methods rely, in part, on computer-aided
microscopy, electronic imaging, image cytometry, digital image processing and
analysis, cytochemistry and histochemistry, and medical informatics
technologies.
Early Lung Cancer Screening. AccuMed has also developed and assembled
technologies and systems that could lead to a much more effective, sensitive,
reliable, and commercially viable early lung cancer testing program. This could
lead to diagnosing lung cancer at earlier stages when the disease is more
curable.
We believe a screening program for early lung cancer detection and
diagnosis is possible. It must rely upon identifying and recruiting high-risk
patient populations into non-invasive screening programs before the patients
become symptomatic. A screening program for high-risk individuals has the
potential to save lives and significantly reduce overall healthcare costs
through earlier detection and treatment.
To achieve this goal, AccuMed is developing a cell and sample analysis
instrument platform, the AcCell-Savant. The AcCell-Savant, a quantitative
microscopy analytical instrument, includes features and benefits derived, in
part, from the AcCell workstations and TracCell slide mapping systems. It relies
on several core technologies including cytochemistry, computer-aided microscopy,
electronic imaging, digital image processing and analysis, and medical
informatics. This cell analysis platform facilitates the direct measurement of
cellular changes (e.g., "MAC" or Malignancy-Associated Changes) associated with
early disease development and progression. We believe these cellular tests could
be performed, with the AcCell-Savant, more sensitively, accurately, and
reproducibly than is possible conventional methods. The instrument's
photodetectors, electro-mechanical precision, ability to focus selectively
cell-by-cell and nucleus-by-nucleus on the most informative cell populations,
image processing and analysis algorithms, and statistical calibration and
classification methods gives the cytotechnologist, cytopathologist, and
cytologist-in-general the ability to analyze multiple lung cancer markers and
probes simultaneously for improved sensitivity, specificity and positive
predictive value. The human-machine interface allows the pathologist to
consider, in suspicious cases, the objective, visual and subvisual AcCell-Savant
data in their patient diagnostic reports.
We conducted a two-year field study with the British Columbia Cancer
Agency and a consortium of hospitals. The study included approximately 1,100
patient cases at high-risk for early lung cancer. The study took place in five
countries on three continents. Study results show that conventional sputum
cytopathology has a poor sensitivity for early stage lung cancer detection
though conventional methods can result in accurate diagnoses of lung cancer at
late stages when no therapy can effectively improve the patient outcomes. This
study also demonstrated that the AcCell-Savant approach can be several times
more accurate in detecting lung cancer in its early, most curable stage,
compared to conventional sputum testing.
We anticipate significant performance improvements for early detection
of lung cancer based upon current research and development activities in
enhanced and innovative methods of specimen collection; sample deposition,
fixation, and staining; panel test design with multiple probes; image analysis
algorithms; and computer-aided pattern recognition and classification methods.
Our research and development efforts are geared toward developing the
lung detection product to the point where we can conduct clinical trials
required to apply for FDA approval to market the
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product in the United States. We anticipate being ready to start clinical trials
in 2001.
Our exclusively owned technologies, including the AcCell and AcCell
Savant, are instrument platforms that can support a wide variety of manual,
semi-automated and automated medical tests involving cells and tissue. AccuMed
is exploring business arrangements to apply our platforms to new markets, in
addition to early lung cancer testing.
Markets and Products. AccuMed's products are sold to customers that
operate principally in the clinical laboratory segments of the healthcare
market. Currently, marketing of the AcCell systems is conducted through one
employee and is focused primarily in the research and development markets.
Modest sales of the AcCell-Savant have been made to academic and research
laboratories through licensing agreements which provide AccuMed the right to
commercialize any intellectual property developed by the laboratories related to
applications related to use of the AcCell-Savant developed by those
laboratories.
In the United States, we are currently permitted to sell the
AcCell-Savant for research use and clinical use with restrictions. To sell the
AcCell-Savant in the United States for other purposes, we will need to obtain
FDA clearance of a pre-market approval application of the product.
We are exploring business arrangements with partners to combine Savant
and/or AcCell technology with the partner's intellectual property. In these
arrangements, AccuMed would sell its platforms for use in combination with the
partner's intellectual property. We are also exploring business arrangements
with partners that may further speed the commercialization of the early lung
cancer screening test by bringing additional technology (e.g., lung cancer
probes for panel assays), prospective customers (e.g., clinical trial sites and
end-users), distribution channels (e.g., pharmaceutical industry), and
programmatic funding.
DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following is information regarding the business backgrounds of the
current AccuMed directors who are nominated for reelection at the special
meeting, and for AccuMed executive officers who will continue to serve as
AccuMed executive officers following the merger.
PAUL F. LAVALLEE. Mr. Lavallee has been a member of the Board since
December 1995 and has been Chairman of the Board and Chief Executive Officer of
AccuMed since January 30, 1998. From January 30, 1998 through March 2, 1999 he
also served as President of AccuMed. Since 1995, he has been Chairman of the
Board of Biorthex, Inc., a venture capital backed start-up firm specializing in
surgical and non-surgical orthopedics located in Montreal. From January 1996
until January 1997, Mr. Lavallee served as a consultant to Sigmedics, Inc., a
biomedical company. From 1989 until December 1995, Mr. Lavallee served as
Chairman, President and Chief Executive Officer of Sigmedics, Inc. Mr. Lavallee
has a Bachelor of Science degree in Biology from Bates College and a Masters in
Business Administration from the University of Chicago.
MARK BANISTER. Mr. Banister has been a director of AccuMed since April
1, 1998. Mr. Banister has been an independent management consultant and
investment advisor specializing in identifying investment opportunities in the
smaller and medium company sector and assisting those companies with their
development since January 1993. Since 1993, he has been a director of Verex
Laboratories Inc., a pharmaceutical development company based in Denver. Mr
Banister previously held senior positions
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at Bisgood Bishop Ltd. and Morgan Stanley International in London, England.
ROBERT L. PRIDDY. Mr. Priddy has been a director of AccuMed since May
1997. Mr. Priddy has been Chairman of the Board and Chief Executive Officer of
ValuJet, Inc., since its inception in October 1995. He was one of the founding
partners of ValuJet Airlines, a wholly owned subsidiary of ValuJet, Inc., and
served as Chairman of its Board and its Chief Executive Officer from July 1992
until November 1996. From July 1991 until January 1993, Mr Priddy served as
President of Florida Gulf Airlines. From January 1988 to November 1991, he
served as President and Chief Executive Officer of Air Midwest, Inc., for which
he also served as a director from November 1987 to November 1991. From 1979 to
1987, Mr. Priddy served as Vice President and Chief Financial Officer of
Atlantic Southeast Airlines, Inc., which he also served as a director from 1981
to 1987. Mr. Priddy has a B.A. degree in economics from Tulane University. Mr.
Priddy is also a member of the Board of Directors of Datalink, Inc., Lukens
Medical Corporation, Commonwealth Associates and AirTran Holdings, Inc.
NORMAN J. PRESSMAN, PH.D. Dr. Pressman has been Chief Scientific Officer
since May 1997 and President of AccuMed since March 1999. From May 1997 through
March 1999, he also served as Senior Vice President, Research. From July 1996
through May 1997, he served as a Senior Vice President of AccuMed and President
of the Cytopathology Division. From July 1993 until joining AccuMed, Dr.
Pressman was Manager for Biotechnology Development, Strategic Business
Development Group of Olympus America. Between July and September 1989, Dr.
Pressman was engaged in the formation of Cell Systems International, Inc., a
consulting firm in biomedical specimen collection, processing and analysis, of
which he served as President from September 1989 until July 1993. Dr. Pressman
was the lead research scientist in the Cytometry and Histometry program of the
Central Research and Development Department at E.I. du Pont de Nemours & Company
from December 1986 until July 1989. From September 1976 until December 1986, he
was an Assistant Professor (Pathology and Engineering) at The Johns Hopkins
University School of Medicine and Head of the Quantitative Cytopathology
Laboratories at The Johns Hopkins Medical Institutions. Dr. Pressman has a B.S.
degree in electrical engineering from Columbia University, a M.S. degree in
systems engineering and a Ph.D. in biomedical engineering from the University of
Pennsylvania.
COMMITTEES AND MEETINGS OF ACCUMED'S BOARD OF DIRECTORS
AccuMed's Board of Directors held 10 meetings during the 1998 fiscal year.
Each director attended a minimum of 75% of the aggregate of (x) those meetings
and (y) the meetings held by each committee, if any, of AccuMed's board of
directors on which the director served during the last fiscal year.
AccuMed has an Executive Committee, Audit Committee and a Compensation
Committee. AccuMed's board of directors does not have a nominating or similar
committee. The functions performed by the Audit Committee and the Compensation
Committee and their membership are summarized below.
AUDIT COMMITTEE. The Audit Committee is responsible for reviewing AccuMed's
internal accounting controls, meeting and conferring with AccuMed's certified
public accountants, and reviewing the results of the accountants' auditing
engagement. During fiscal year 1998, the Audit Committee held one meeting.
During the 1998 fiscal year and during the current year,
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Jack H. Halperin has served as Chairman of the Audit Committee. During the 1998
fiscal year until his resignation in May 1999, J. Donald Gaines served on the
Audit Committee. From January through May 1998 Joseph Plandowski served on the
Audit Committee. From May 1998, until his resignation in August 1999, Harold S.
Blue served as the Audit Committee. The Audit Committee is currently comprised
of Messrs. Halperin, Banister, Priddy and Schiller.
COMPENSATION COMMITTEE. The Compensation Committee of AccuMed's board of
directors is comprised entirely of non-employee directors. The Compensation
Committee determines base compensation and discretionary cash bonuses for
AccuMed's senior executives, if not determined by the full Board of Directors.
These determinations are subject to the approval or ratification of the full
Board of Directors. The Compensation Committee also determines the number and
terms of stock options to be granted to employees, directors, other than
pursuant to AccuMed's board of directors compensation plan described below, and
consultants of AccuMed under AccuMed' stock option plans, unless previously
determined by the full Board of Directors. During fiscal year 1998, the
Compensation Committee held one meeting.
During January 1998, the Compensation Committee was comprised of Messrs.
Lavallee, Chairman, Priddy and Leonard M. Schiller. Upon appointment as Chief
Executive Officer of AccuMed on January 30, 1998, Mr. Lavallee resigned from the
Compensation Committee. In March 1998, Mr. Gaines joined the Compensation
Committee as Chairman and served until his resignation in May 1999. The
Compensation Committee is currently comprised of Messrs. Banister, Halperin,
Priddy and Schiller, the Chairman
At the time of service, each member of the Compensation Committee was a
non-employee director.
DIRECTOR COMPENSATION
Under AccuMed's board of directors Compensation Plan, each non-employee
director is entitled to the following compensation for services as a director:
(1) an immediately exercisable, five-year, nonqualified stock option to purchase
3,334 shares of Common Stock to be granted upon election to AccuMed's board of
directors, and (2) an immediately exercisable, nonqualified stock option to
purchase 3,334 shares of Common Stock to be granted upon reelection of a
non-employee director to serve an additional year on AccuMed's board of
directors. The options are to be granted under AccuMed's stock option plans. The
exercise price per share shall be the fair market value of a share of Common
Stock on the date of grant. Directors are reimbursed for reasonable expenses
incurred in attending meetings of AccuMed's board of directors and committees
thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of AccuMed serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of AccuMed's Board of Directors or
Compensation Committee. Information regarding transactions between AccuMed and
Mr. Priddy required to be disclosed under the caption "Certain Relationships and
Related Transactions" is also described below.
ROBERT L. PRIDDY
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Mr. Priddy is a director and principal stockholder of AccuMed. He is also
the beneficial owner of 9.9% of the common stock of Commonwealth Associates, an
investment banking firm, which he has served as a director since January 1998.
On February 3, 1998, Mr. Priddy loaned AccuMed $1,000,000 in cash pursuant to a
Promissory Note and Security Agreement. AccuMed's repayment obligations were
secured by a junior lien on royalty payments to which AccuMed may then have been
entitled under a License Agreement with Becton Dickenson & Company. The
promissory note carried an annual interest rate of 12%. Principal and interest
under the promissory note were due and payable on the earlier of (x) April 2,
1998 and (y) upon closing of a securities offering in which AccuMed received
gross proceeds of at least $3,000,000. If the principal and interest were repaid
prior to April 2, 1998, AccuMed was required to pay a prepayment premium equal
to the difference between $20,000 and the amount of accrued and unpaid interest
under the promissory note. Mr. Priddy elected to participate in AccuMed's March
1998 private placement of securities by exchanging the amounts owed him under
the promissory note for 222,222 shares of common stock and warrants to purchase
222,222 shares of common stock at an exercise price of $4.50 per share. AccuMed
repaid the principal amount in full on March 19, 1998, and paid the interest and
prepayment premium on April 2, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of AccuMed's records, AccuMed believes that each report
disclosing beneficial ownership of securities of AccuMed pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended, required to be filed
by the executive officers and directors of AccuMed during the 1998 fiscal year
and prior fiscal years, were timely filed.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE: The Compensation Committee of AccuMed's board of
directors is composed entirely of outside directors. The Committee is
responsible for setting and adjusting the base salaries of all corporate
officers, establishing cash incentive programs for officers, and the awarding of
stock option grants to officers and all other employees. The Committee is also
responsible for the review and approval of any employment related contracts.
COMPENSATION PHILOSOPHY: It is the goal of AccuMed to attract and retain
a strong executive management team. The Committee believes that there should be
a link between the performance of AccuMed, from both financial and shareholder
value standpoints, and executive compensation. Accordingly, base salaries are
set to conformity with compensation market requirements for comparable sized
companies, taking into account levels of responsibility and office location.
However, short-term cash incentive compensation and long-term stock option
incentive awards, are primarily related to the achievement of AccuMed's
financial performance goals and to the enhancement of stockholder value.
Internal and personal performance objectives play a lesser role in the executive
incentive package.
The Committee is confident that the compensation and incentive policies
and practices followed by AccuMed are appropriate for the industry and the
compensation market in which AccuMed competes.
Submitted by the 1998 Compensation Committee of AccuMed's board of
directors:
Robert L. Priddy, J. Donald Gaines and Leonard M. Schiller
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SUMMARY COMPENSATION INFORMATION. The following tables set forth
information regarding compensation paid or accrued with respect to the three
preceding fiscal years to AccuMed's Chief Executive Officer and other executive
officers of AccuMed whose total salary and bonus exceeded $100,000 for the 1998
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
Securities
All Other Restricted Underlying
Name and Principal Position Year Salary Bonus Compensation Stock Options
- --------------------------- ---- ------ ----- ------------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Lavallee (1) 1998 $208,212 -- -- -- 250,000
Chairman and Chief
Executive Officer
Peter P. Gombrich (2)(3) 1998 450,000 -- -- --
Chairman and Chief 1997 212,500 52,500 $ 6,000 -- --
Executive Officer 1996 75,000 87,154
Norman J. Pressman, Ph.D.(4) 1998 157,500 -- -- -- --
President and 1997 157,500 -- 6,000 -- 33,334
Chief Scientific Officer 1996 74,289 18,000 51,593 156,250 --
Leonard R. Prange (5) 1998 160,000 -- -- -- --
Chief Financial Officer and 1997 151,250 7,812 -- -- 33,334
Chief Operating Officer 1996 31,204 -- -- -- --
Joyce L. Wallach, Esq.(6) 1998 105,000 -- -- -- --
General Counsel 1997 105,000 -- -- -- 9,167
1996 6,394 -- -- -- --
</TABLE>
- --------------------
(1) Mr. Lavallee joined AccuMed as Chairman, Chief Executive Officer and
President in January 1998.
(2) Mr. Gombrich became Acting Chief Executive Officer of AccuMed on April
21, 1995. He served as Chairman of AccuMed's board of directors, Chief
Executive Officer and President from December 29, 1995 until January 30,
1998. Amounts shown as salary in 1998 include amounts paid or accrued
under terms of a separation agreement signed September 15, 1998.
(3) Amounts shown as bonus represent $52,600 paid or accrued for 1996 in
accordance with Mr. Gombrich's Employment Agreement. The balance of
$34,654 represents amount paid in 1995 for prior periods.
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(4) Dr. Pressman joined AccuMed in July 1996. Amounts shown as Other
Compensation represent relocation costs and related taxes reimbursed to
Dr. Pressman under the terms of his Employment Agreement.
(5) Mr. Prange served AccuMed from September 1996 through December 1998.
(6) Ms. Wallach served AccuMed from December 1996 through February 1999.
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of
Number of Total Shares
Shares Underlying Options
Underlying Granted to Exercise Grant Date
Options Employees in Price Expiration Present
Name Granted Year ($/Share) Date Value(1)
---- ---------- ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Paul F. Lavallee 250,000 100% $4.50 1/30/08 $2.51
</TABLE>
- -----------------
(1) AccuMed utilizes the Black-Scholes pricing model to determine the fair
value of options granted. The following assumptions were incorporated
into the model: risk-free rate - 6%, expected volatility - 20%, dividend
yield - 0%, and time of exercise - 10 years. No adjustments were made
for non-transferability of risk or risk of forfeiture.
AGGREGATE OPTION EXERCISES DURING THE YEAR ENDED
DECEMBER 31, 1998 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Shares Underlying Unexercised Value of Unexercised in-the-Money
Options at December 31, 1998 Options at December 31, 1998
-------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul F. Lavallee 83,333 166,667 -- --
Norman J. Pressman, Ph.D 33,334 -- -- --
Leonard R. Prange 33,334 -- -- --
Joyce L. Wallach, Esq. 3,056 6,111 -- --
</TABLE>
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10-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE TERM
UNDERLYING OF STOCK AT EXERCISE PRICE REMAINING AT
OPTIONS TIME OF ALL TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---- ------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Lavallee 3/23/98 250,000 $ 4.50 $ 9.375 $ 4.50 9.8 years
Leonard R. Prange 5/23/97 33,334 23.64 32.28 23.64 9.3 years
Norman J. Pressman 5/23/97 33,334 23.64 37.50 23.64 9.1 years
Kenneth Miller 3/24/95 23,667 8.34 42.00 8.34 2.2 years
Mark Santor 3/24/95 4,827 8.34 42.00 8.34 1.8 years
</TABLE>
EMPLOYMENT AGREEMENTS AND SEVERANCE
LAVALLEE COMPENSATION ARRANGEMENTS; PROFESSIONAL SERVICES AGREEMENT.
Effective January 30, 1998, AccuMed's board of directors appointed Mr. Lavallee
Chairman of the board, Chief Executive Officer and President of AccuMed,
approved his compensation arrangements for his services, and directed management
to memorialize those compensation arrangements in a professional services
agreement to be effective retroactive to January 30, 1998. Mr. Lavallee's
services are provided through an agreement dated April 13, 1998 (effective
January 30, 1998) between AccuMed and Gypsy Hill LLC, a professional services
entity. Mr. Lavallee's compensation is $225,000 annually, and he is eligible for
an annual bonus of up to 30% thereof. The services can be terminated by AccuMed
upon 12 months' written notice, or by Mr. Lavallee upon 30 days' written notice.
Mr. Lavallee has been granted a non-qualified stock option to purchase 250,000
shares of Common Stock at an initial exercise price of $9.375, the closing sales
price per share of AccuMed common stock on the grant date, January 30, 1998. If
in AccuMed's first equity offering subsequent to the grant date, it sells common
stock, or securities convertible or exercisable for common stock, at a price per
share lower than the initial exercise price, then it shall be reduced to equal
the lower price sale per share. In March 1998, AccuMed completed an equity
offering for shares of common stock and warrants exercisable to purchase common
stock at $4.50 per share, accordingly the initial exercise price has been reset
to $4.50. The option is exercisable as follows: (1) one-third of the underlying
shares were immediately exercisable, (2) an additional one-third became
exercisable on January 30, 1999, and (3) the final one-third of the underlying
shares will become exercisable on January 30, 2000. Mr. Lavallee is reimbursed
for reasonable traveling expenses from South Dakota to Chicago and living
expenses while in Chicago.
PRESSMAN EMPLOYMENT AGREEMENT. Dr. Pressman and AccuMed entered into an
Employment Agreement dated June 13, 1996, as amended, for a five-year term which
began July 5, 1996 and pursuant to which Dr. Pressman has served as an executive
officer under various titles. He is currently President and Chief Scientific
Officer. Dr. Pressman's annual salary is $200,000 and he is eligible to receive
annually (1) cash bonuses of up to 30% of his annual salary, and (2) incentive
stock options to purchase up to 8,334 shares of Common Stock based on the
achievement of mutually agreed goals and objectives. On July 8, 1996, Dr.
Pressman was granted an option to purchase an aggregate of 41,665 shares of
Common Stock at an exercise price of $37.50 per share (the last reported sale
price of the Common Stock on the Nasdaq SmallCap Market on the date on which Dr.
Pressman's employment commenced) which was immediately exercisable with respect
to 8,333 shares and was to become exercisable with respect to 8,333 additional
shares on each of the first through fourth anniversaries of the grant date. Dr.
Pressman surrendered those options in February 1997 in order that the shares
reserved for issuance upon
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exercise thereof could be reserved for issuance in a private placement of
AccuMed's securities completed in March 1997. Dr. Pressman was granted 4,167
shares of Common Stock on the date on which his employment commenced. Dr.
Pressman was entitled to receive replacement options to purchase 41,667 shares
of Common Stock in May 1997. However, he waived his right to receive 8,333 of
those options and was granted options to purchase 33,334 shares of Common Stock
in May 1997.
AccuMed may terminate Dr. Pressman's employment for cause at any time upon
written notice. AccuMed may terminate his employment without cause upon six
months' written notice, in which case Dr. Pressman would be entitled to an
amount equal to 12 months' salary as severance, paid over 12 months. Dr.
Pressman may terminate his employment for any reason upon six months' written
notice.
GOMBRICH EMPLOYMENT AND SEVERANCE AGREEMENT. Mr. Gombrich ceased to be
AccuMed's chief executive officer on January 30, 1998. Pursuant to an Employment
Agreement dated August 1, 1994 between Peter P. Gombrich and AccuMed, Inc. which
was assumed by AccuMed as a result of the merger of AccuMed, Inc. into AccuMed,
Mr. Gombrich served as Chairman of AccuMed's board of directors, Chief Executive
Officer and President of AccuMed from December 29, 1995 until he resigned on
January 30, 1998. Under terms of a settlement agreement signed September 4,
1998, Mr. Gombrich is to receive $450,000, of which $150,000 was payable
immediately with the balance payable in 16 monthly installments of $18,750,
starting September 15, 1998 and ending January 15, 2000.
PRANGE EMPLOYMENT AGREEMENT. Mr. Prange ceased to be an executive officer
of AccuMed on December 31, 1998. Pursuant to an Employment Agreement dated as of
September 9, 1996, Mr. Prange served as Chief Financial Officer and Corporate
Vice President of AccuMed at an initial annual salary of $125,000. In March
1997, Mr. Prange was appointed Chief Operating Officer and the Compensation
Committee increased his annual base salary to $160,000. He was eligible to
receive annual cash bonuses of up to 25% of his annual salary. Upon joining
AccuMed, Mr. Prange was granted options to purchase an aggregate of 25,000
shares of Common Stock at an exercise price of $32.28 per share (the fair market
value of the Common Stock on the grant date), which were immediately exercisable
with respect to 4,165, shares and were to become exercisable with respect to
4,167 additional shares on each of the first through fifth anniversaries of the
grant date. Mr. Prange surrendered those options in February 1997 in order that
the shares reserved for issuance upon exercise thereof could be reserved for
issuance in a private placement of AccuMed's securities completed in March 1997.
Mr. Prange resigned effective December 31, 1998.
WALLACH EMPLOYMENT LETTER. Ms. Wallach ceased to be an executive officer
of AccuMed on February 28, 1999. Pursuant to an Employment Letter dated November
25, 1996, Ms. Wallach served as General Counsel and Secretary of AccuMed from
December 1996 through February 1999. Her annual salary was $105,000, and she was
eligible for a bonus of up to 20% of her annual salary, based upon mutually
agreed goals and objectives. Ms. Wallach received options to purchase 5,000
shares of Common Stock upon acceptance of employment at an exercise price of
$23.64 per share (the fair market value on the grant date).
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PERFORMANCE GRAPH
The following graph depicts the cumulative total return on AccuMed's
Common Stock compared to the cumulative total return for the Nasdaq Composite
Index and the Nasdaq Biotechnology index. The graph assumes an investment of
$100 on December 31, 1993. Reinvestment of dividends is assumed in all cases.
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
AccuMed International, Inc. 100 23 51 101 53 9
NASDAQ Composite 100 97 135 166 202 283
NASDAQ Biotechnology 100 82 154 153 153 222
</TABLE>
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INFORMATION ABOUT MICROSULIS
Microsulis's principal executive office is presently located at One East
Broward Blvd., Suite 100, Ft. Lauderdale, Florida 33301. Microsulis' telephone
number is (800) 830-4904.
OVERVIEW OF BUSINESS
Microsulis was incorporated in Florida on January 8, 1998. Pursuant to a
license agreement with Microsulis PLC, Microsulis markets and distributes the
Microsulis PLC MEA system in Canada and intends to do so in the United States
and Latin America. MEA is a new treatment for menorrhagia, a condition of
excessive menstrual blood loss in women.
Microsulis's business strategy is to market, distribute and potentially
manufacture a safe and effective system for treating women with excessive
menstrual bleeding. Depending on the market conditions of a particular
territory, Microsulis may either sell the MEA system outright, or retain
ownership of the MEA system and charge the user on a cost per treatment basis.
To facilitate this procedure, the MEA applicator contains a micro-chip which is
able to monitor and limit the number of uses of the particular MEA applicator.
The MEA applicator can be programmed for a specified number of treatments. When
the specified number of treatments have been carried out, the user must return
the MEA applicator to Microsulis and obtain a new MEA applicator. Microsulis
believes that the MEA procedure offers both physicians and their female patients
a superior alternative to the procedures currently on the market for treating
menorrhagia. Microsulis aspires to become the leading distributor of a medical
device for the treatment of menorrhagia in the United States, Canada and Latin
America.
MENORRHAGIA
The normal menstrual cycle, which is controlled by the pituitary and ovarian
hormones, begins at the onset of menstruation (typically between the ages of 11
and 14) and ends at the onset of menopause (typically between the ages of 45 and
55). The endometrial lining of the uterus builds up each month in preparation
for pregnancy, sheds if no pregnancy occurs, and then regenerates for another
28-day cycle. Shedding of the endometrial lining of the uterus results in
menstrual bleeding which usually lasts four to seven days within a 28-day cycle.
Normal blood loss during menstruation is in the range of 25 to 79 ml per cycle.
Abnormal menstrual bleeding includes menstrual bleeding in excess of the
normal amount, prolonged bleeding beyond seven days duration at the expected
time of menstruation or bleeding more frequently than 28-day intervals.
Excessive menstrual bleeding, or menorrhagia, is clinically defined as total
blood loss exceeding 80 ml per cycle. From the onset of menstruation to
menopause, menorrhagia is most often due to hormonal imbalances or uterine
fibroids. It is a fairly common condition and a woman's perception of the amount
of her menstrual bleeding can often mean that bleeding at a lower rate than the
clinical definition is unacceptable to her. It results in exceptionally long and
heavy periods which can be severely debilitating because, in addition to the
general distress and inconvenience which heavy bleeding causes, the blood loss
often leads to iron deficiency anemia.
Studies conducted by the World Health Organization have revealed that
approximately 19% of all women aged 30 to 50 perceive their menstrual bleeding
to be excessive. Further, of the over 600,000 hysterectomies performed each year
in the United States alone,
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approximately 30% are performed specifically to relieve excessive menstrual
bleeding. Today, there are various procedures on the market for treating women
with excessive menstrual bleeding.
THE MEA SYSTEM
MEA was developed by Microsulis PLC and the School of Physics at the
University of Bath (United Kingdom) in 1993. The MEA system was first clinically
tested on women in October 1994. MEA underwent a one-year clinical investigation
which led to Medical Device Agency ("MDA") approval of the MEA system. In
comparison to the alternative surgical procedures that are currently available,
Microsulis believes that the MEA procedure will become the therapy of choice for
the treatment of menorrhagia, and plans to market, distribute and potentially
manufacture the MEA system in the United States, Canada and Latin America.
Unlike other procedures currently on the market, the MEA system utilizes
microwave frequency electromagnetic radiation, employing microwave power to heat
the endometrium. This has two main advantages. First, the high frequency of the
microwave energy, 9.2 GHz, ensures that the microwaves are absorbed only to a
depth of approximately 3mm with no penetration through the myometrium and
outside of the uterus. The heat generated in the microwave absorption zone is
also conducted deeper into the endometrium and basalis layer ablating
endometrial tissue to a maximum depth of 5-6mm. Second, as a result of this
strong absorption, the amount of power required to achieve the desired
temperature is relatively small, and the necessary energy can be delivered over
a much shorter time period than other treatments take.
This new use of microwave frequency electromagnetic radiation for the
treatment of menorrhagia has been successfully used on over 2,000 women
worldwide over a five year period; and, based on these treatments and the high
reported patient satisfaction rate, Microsulis believes that the MEA procedure
has the following advantages over current surgical procedures on the market:
ADVANTAGES TO THE PATIENT:
* Day patient procedure
* Minimally invasive procedure, no abdominal scars
* Short recovery period (2-3 days at home)
* Minimal post operative pain
* Improved or non-existent dysmenorrhea (period pain)
* Option for general or local anesthetic
* High satisfaction rate
ADVANTAGES TO THE SURGEON:
* Quick and simple procedure, short learning curve (a surgeon is normally
competent with the procedure following one demonstration and 2 or 3
hands-on treatments)
* Suitable for local or general anesthetic
* Day patient or out patient therapy
* No risk of fluid overload (oedema) as distension fluids are not necessary
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ADVANTAGES TO THE HEALTH CARE SYSTEM (HOSPITAL AND/OR THIRD PARTY PAYOR):
* Low treatment cost
* Higher turnover of patients replacing many hysterectomies with MEA
* Out patient (office) procedure
* Comprehensive training, technical support, installation, maintenance and
help line provided by Microsulis
SYSTEM FEATURES:
* Extremely quick, average time less than 3 minutes
* Precise application of heat into the endometrium and myometrium
* Continuous monitoring of the process for easy control by the surgeon
* MEA applicator coating allows easy movement of MEA applicator in the
uterus
* MEA applicators are suitable for autoclaving or solution sterilization
MEA SYSTEM COMPONENTS
The MEA procedure utilizes microwave frequency electromagnetic radiation. The
MEA system is comprised of a Control Unit which contains a Control and Data
Acquisition Unit, a Microwave Generator, a Keyboard and an Electrical Power
Supply Unit. Each system is supplied with a number of MEA applicators (generally
five) to satisfy the specific location's annual endometrial ablation demand.
Treatment parameters are recorded on the Data Acquisition Unit and a printer
connects to the Data Acquisition Unit to allow a hard copy of the treatment
parameters to be generated for the patient file.
The MEA applicator can be programmed for a specific number of treatments.
Each time the MEA applicator is used the use is recorded by means of a
micro-chip embodied within the MEA applicator. When the specified number of
treatments have been carried out or when one year has elapsed, whichever is
sooner, the MEA applicator is returned to Microsulis. New MEA applicators are
issued to replace those that are returned.
The MEA applicator is used to apply approximately only 22 watts of microwave
power at a frequency of 9.2 Ghz into the uterine cavity. The use of this
frequency ensures that the penetration of the energy into tissue is accurately
controlled to destroy the endometrium and part of the myometrium. The microwave
power passes along a cable and then to the MEA applicator tip where it radiates
in a spherical heating profile penetrating to the tissue.
The surgeon controls the power of the MEA applicator by means of a foot
switch. The MEA applicator is connected to the system by two cables. The coaxial
cable carries the microwave power from the microwave generator to the MEA
applicator. The second cable carries signals to and from the MEA applicator and
allows continuous temperature monitoring from the two thermocouples fitted to
the MEA applicator. Temperature is displayed graphically in real time.
The MEA system has various safety features including:
1. The Microwave Generator cannot be energized unless an MEA applicator is
connected to the system.
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2. Operation of the MEA system is inhibited if a problem is detected before
the start of patient treatment.
3. Safety interlocks prevent the Microwave Generator from being energized
unless both thermocouples in the MEA applicator are in agreement and body
temperature is indicated.
4. The patient and surgeon are protected by safety interlocks in the event of
microwave power or temperature excursions outside the preset limits.
THE MEA PROCEDURE
Pre-operative thinning of the endometrium has been utilized in all reported
treatments using a hormonal drug, either Zoladex (4 to 6 weeks before the
procedure) or Danazol (4 weeks beforehand). Such pre-operative thinning of the
lining of the endometrium is a prerequisite to ensure maximum efficacy of
endometrial ablation and resection techniques, although clinical trials at one
hospital in the United Kingdom are now underway with a view to removing the
requirement for such pre-operative thinning of the endometrium and the results
to date have been very encouraging. MEA can be administered under general or
local anesthetic. Local intracervical anesthetic block is achieved using 8.8 ml
Citanest (Prilocaine) with Octapressin.
First, the uterine characteristics are confirmed using either an ultra-sound
scanner or CO2 hysteroscopy. Then, the cervix is dilated to 9 mm and the length
of the cavity is measured. The MEA applicator is inserted through the cervix
until the tip reaches the fundus. Prior to applying power, the MEA instrument
readings are checked. Then, the surgeon applies power to the MEA applicator by
depressing the foot switch. While the temperature rises, the MEA applicator is
slowly moved from side to side. When the therapeutic temperature (i.e., 70-80
Celsius) has been reached, the surgeon slowly moves the MEA applicator to one
side to treat the cornual area, and then to the other side to treat the other
cornual area. The surgeon gradually withdraws the MEA applicator, moving slowly
from side to side to cover the entire uterine cavity, maintaining the
therapeutic temperature level throughout the procedure. When the MEA applicator
reaches the internal cervical os, the power is switched off (this position is
indicated by a solid mark on the MEA applicator shaft).
The average treatment time for a normal size uterus is three minutes. The
treatment is suitable for women whose family is complete and who have a normal
endometrial histology, no other pathology indicating hysterectomy and are
compliant with pre-treatment.
RESULTS OF CLINICAL TRIALS
The first MEA treatments were carried out at the Royal United Hospital in
Bath, United Kingdom in October 1994. Over 2,000 women have been treated at
various hospitals worldwide. In these treatments, success for the MEA system has
been defined in substantially the same manner that gynecologists define success
for other current therapies, that being reduced menstrual bleeding from a
condition of excessive bleeding to normal bleeding, light bleeding or spotting
or no bleeding at all, a reduction in period pain, and an overall patient
satisfaction rate.
Results for 247 patients treated at the Royal United Bath Hospital, which
includes a four year follow up on 21 patients are:
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Overall Patient Satisfaction Rate: 87%
No periods (amenorrhea) or very light periods: 66%
Furthermore, preoperatively, about 75% of women described moderate to severe
period pain (dysmenorrhea). Postoperatively, over 70% had no period pain or only
mild period pain at two years follow up.
Results at other hospitals were similar. Overall, only about 13% of patients
failed the treatment long-term and needed to have a hysterectomy. This compares
well with the approximately 20-30% long-term failure rate and necessity of
hysterectomy with other ablation methods.
In 1998 Microsulis PLC completed a randomized trial against Transcervical
Resection of the Endometrium (TCRE) at the Royal Aberdeen Infirmary Teaching
Hospital in the United Kingdom. TCRE has, for many years been considered the
"Gold Standard" of endometrial ablation techniques, but it is a difficult
procedure for surgeons to learn and is not without associated complications. In
the randomized trial, Microsulis PLC used the same patient selection criteria as
TCRE on 230 patients, with no exclusion for patients presenting with irregular
cavities or fibroids. The results of the trial were published in the
peer-reviewed medical journal "THE LANCET" on November 27, 1999 and showed:
* MEA amenorrhea and patient satisfaction were identical to TCRE; however,
* MEA led to highly significant improvements, similar to TCRE treatment, in
the "quality of life," as reported by patients;
* MEA is safe for both the operator and the patient;
* MEA produces fewer inter-operative complications than TCRE;
* MEA operations and post-operative hospital stay are shorter than for TCRE;
and
* MEA is easier for surgeons to learn and perform.
CURRENT ALTERNATIVE THERAPIES
Gynecologists usually define a successful treatment of menorrhagia as a
reduction from a condition of excessive bleeding to normal bleeding
("eumenorrhea"), light bleeding or spotting ("hypomenorrhea") or no bleeding at
all ("amenorrhea"). Current therapy for excessive bleeding typically begins with
drug therapy. For patients who do not respond to or cannot tolerate the side
effects of drug therapy, another common treatment is dilatation and curettage.
In cases where neither of these treatments is effective in reducing menstrual
flow, various surgical procedures are available to the patient. The following
summarizes the various alternatives to the MEA procedure currently available to
women suffering from menorrhagia.
DRUG THERAPY
The first line of treatment for excessive uterine bleeding is drug therapy,
where women are prescribed a low dose birth control pill or other hormone to
regulate dysfunctional uterine bleeding. Other drugs prescribed include
Tranexamic acid and Danazol. Drug therapy is effective in approximately 60% of
the patients; however, these patients often have to continue the drug treatment
until the onset of menopause. An estimated 40% of patients experience adverse
side effects such as bloating, nausea, weight gain, headaches, depression and
mood swings. Drug therapy may be prescribed by any physician, is normally
reimbursable by third parties and does not include any of the disadvantages of a
surgical or ablative procedure. In particular, it is utilized by women who wish
to maintain the ability to have children.
DILATATION AND CURETTAGE ("D&C")
Where drug therapy alone is not effective, a D&C will often be used in
conjunction with the drugs. It is a 15 to 30 minute surgical procedure in which
the uterine contents (including the endometrial lining) are either
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scraped away or removed through vacuum aspiration. This procedure is often
carried out on women with menorrhagia for diagnostic purposes, primarily to
identify the rare possibility of an endometrial malignancy. A D&C may reduce
bleeding for a few menstrual cycles, but is usually not successful in curing
menorrhagia. The procedure must be repeated periodically, since it is usually
effective only during the first few menstrual cycles after the procedure, and
consequently subjects the patient to the risks of uterine perforation, infection
and the complications of general anesthesia each time it is performed.
TRANS-CERVICAL RESECTION OF THE ENDOMETRIUM ("TCRE")
This procedure requires the use of a resectoscope which is a hysteroscope
adapted to incorporate a heated wire loop. The loop is used to cut away the
endometrium. Clear irrigating fluid, usually sorbitol or glycine, is circulated
under rapid flow to rinse the uterus of blood and tissue debris that would
otherwise obscure vision. During the procedure, myometrial blood vessels can be
transected and there is instant access to both the arterial and venous system.
Thus, the irrigating fluid is taken up into the bloodstream. The physician must
carefully monitor the input and output of the irrigating fluid to ensure that
fluid overload ("edema") does not occur. This can result in serious side effects
and complications. In addition, the physician must be careful to avoid
perforating the uterus and resecting parts of neighboring organs such as the
bowel.
While TCRE is an effective treatment for menorrhagia, it is a procedure which
requires a great deal of skill to perform well and many gynecologists are
reluctant to undertake the considerable training necessary to perform the
procedure. Further, the surgeon needs to continue to do significant numbers of
TCRE's in order to maintain skills and to minimize the risk of complications.
TCRE, in terms of clinical effectiveness, is commonly understood to be the
"gold standard" among the surgical intervention procedures that are available
for the treatment of menorrhagia. There is a great deal of clinical literature
on its effectiveness. Large numbers of patients with many years of long-term
follow-up show that TCRE is an extremely effective technique, short of
hysterectomy, for curing menorrhagia, notwithstanding the very high degree of
skill and practice required to become and remain competent in performing the
procedure.
ROLLER BALL TREATMENT
Roller Ball Treatment is similar to TCRE but uses a heated rolling ball
instead of the cutting loop to destroy the endometrial tissue. It also requires
a great deal of skill and has similar risks to TCRE, although it is regarded by
many surgeons as a safer technique.
ENDOMETRIAL LASER ABLATION
In this procedure, a laser is inserted into the uterus through a hysteroscope
and as much of the endometrium as possible is destroyed. Irrigating fluid is
also used in the procedure and the same risk of excessive fluid uptake leading
to edema, as in the TCRE procedure, applies. This is a time consuming procedure
and requires expensive laser equipment and optical fiber delivery systems.
UTERINE BALLOON THERAPY
In this procedure, the physician inserts a balloon catheter vaginally through
the cervix and into the uterus. The balloon is inflated with sterile fluid,
which in turn is heated by an element inside the balloon. The temperature is
raised to approximately 87 degrees Celsius and maintained at that temperature
for about eight minutes. Thermal ablation of the uterine lining results from
intimate contact of the endometrium with the heated balloon.
Balloons do not conform well with the corners of the uterine cavity and these
areas can also be the coolest parts of the balloon. Consequently, residual
pockets of endometrial tissue can be left causing continued bleeding and pain.
Uterine Balloon Therapy cannot be used with irregular cavities containing
sub-mucosal fibroids or polyps because the balloons do not treat or conform well
with the irregularities. Thus, 30% or more of the typical population of female
patients who seek treatment for menorrhagia are not eligible to be treated with
balloon therapy. Thermal balloons are relatively expensive and their long-term
effectiveness has yet to be
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proven.
HYSTERECTOMY
By far the most invasive procedure to cure menorrhagia is a hysterectomy, the
surgical removal of the uterus. This procedure provides a definitive cure for
excessive menstrual bleeding; however, it is a major surgery which requires
general anesthesia, several days in the hospital and an average six weeks or
more convalescence. In addition to the trauma of the removal of the uterus, it
is likely that women undergoing a hysterectomy will require a prolonged course
of hormone replacement therapy ("HRT") due to the hormonal imbalance of the body
which frequently results from removal of the uterus.
Hysterectomy is the second most frequently performed female surgical
procedure in the United States, and approximately 30% of the over 600,000
hysterectomies performed annually in the United States are performed
specifically to cure excessive menstrual bleeding. However, because of the wide
range of potential surgical and psychological risks, this operation has become
unacceptable to many women.
COMPARATIVE TREATMENT TIMES
Based on research conducted by Microsulis PLC, Microsulis believes that the
time required to perform the procedures currently on the market is as follows:
<TABLE>
<CAPTION>
Procedure Duration of Procedure (in minutes)
--------- ----------------------------------
<S> <C>
TCRE 15-20
Roller Ball 20
Endometrial 20-35
Laser Ablation
Uterine Balloon 8-10
Hysterectomy 30-90
MEA 3-5
</TABLE>
Women who undergo a hysterectomy have a convalescence period after the
procedure of several days in the hospital and then six to eight weeks at home.
Based on the aforementioned comparisons, Microsulis believes that the MEA
procedure will prove safer and easier to administer than the competing
procedures set forth herein for the treatment of menorrhagia. For a comparison
of the MEA procedure with alternative procedures currently on the market.
LICENSE AGREEMENT WITH MICROSULIS PLC
On February 6, 1998, Microsulis entered into a 20-year license agreement with
Microsulis PLC, the manufacturer of the MEA system. Pursuant to the license
agreement, Microsulis has paid Microsulis PLC a licensing fee of ,750,000 Pounds
Sterling. Under this agreement, if Microsulis begins to manufacture the MEA
system, it will be required to pay Microsulis PLC royalties, on a quarterly
basis, in the amount of 10% of Microsulis's Net Sales Value of the MEA system.
Net Sales Value is defined in the license agreement as the invoiced price of the
MEA system manufactured and sold by Microsulis to third parties in an
arm's-length transaction, or if the sale is not at arm's-length, the value after
deducting normal trade discounts.
Pursuant to the license agreement, Microsulis will market and distribute the
MEA system in the United States, Canada and Central and South America.
Microsulis also has the right to manufacture the MEA system beginning two years
from the date of FDA approval through the expiration of the license agreement.
Furthermore, for the term of the license agreement, Microsulis has a right of
first refusal to distribute in its exclusive territory any other technology or
procedure that is developed by Microsulis PLC related to its patented microwave
technology.
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Microsulis cannot, without the consent of Microsulis PLC, alter or improve the
MEA system. Thus, Microsulis is dependent on Microsulis PLC for making
advancements to the MEA system to compete with new technology.
The license agreement also requires Microsulis to satisfy certain performance
standards in order to retain its license. Microsulis must sell a certain amount
of complete MEA systems and MEA applicators. Specifically, Microsulis must sell
15 complete systems in 1999, 25 complete systems in 2000, 50 complete systems in
2001 and 100 complete systems in 2002, and thereafter until the expiration of
the license agreement. In addition, Microsulis must sell a minimum of 50 MEA
applicators in 1999, 125 MEA applicators in 2000, 250 MEA applicators in 2001,
and at least 500 MEA applicators each year thereafter until the expiration of
the license agreement. After Microsulis begins to manufacture its own MEA
system, it must pay Microsulis PLC royalties in the amount of 10% of its net
quarterly sales. It is a condition to completion of the merger that Microsulis
enter into several amendments to the license agreement.
MICROSULIS PLC
Microsulis PLC is a United Kingdom registered company specializing in the
application of microwave radiation for therapy and diagnostics in the health
industry. Microsulis PLC has a development and manufacturing facility at its
Waterlooville site in Hampshire, England.
Microsulis PLC developed the concept of using microwaves to treat menorrhagia
in 1993, after discussions with the School of Physics at Bath University and the
Medical Physics Department and the Department of Obstetrics and Gynecology at
the Royal United Hospital in Bath. Laboratory trials demonstrated that low
levels of high-frequency microwaves could be directed into human tissue to
achieve localized areas of tissue destruction. These were followed up by highly
promising clinical trials at the Royal United Hospital and then by a successful
Medical Devices Agency (MDA) clinical investigation at three United Kingdom
hospitals.
Microsulis PLC is investing in research for the advancement of microwave
endometrial ablation, further refinement of the MEA system and the development
of other new products using microwave technology. In the future, Microsulis
plans to have the opportunity to negotiate modifications to its license
agreement to obtain access to such new products being developed by Microsulis
PLC. There can be no assurances that Microsulis PLC will be successful in
developing new products using microwave technology or that Microsulis will be
able to license such products from Microsulis PLC and successfully market them.
In 1996, the Microsulis PLC quality system was approved by SGS Yarsley
International Certification Services to ISO 9001 and EN 436001 quality standards
recognized by the European community. In 1998, Microsulis PLC was also certified
to the new international ISO 13485 standard for medical devices. In order to
retain its registration to these quality standards, Microsulis PLC undergoes
quality control inspections every six months by SGS Yarsley International
Certification Services. The ISO 9001 and ISO 13485 standards are similar in most
respects to the Good Manufacturing Practices ("GMP") standard of quality applied
in the United States by the FDA. Microsulis PLC is currently in the process of
implementing the additional quality requirements to conform with the FDA's GMP
requirements. The MEA system and the MEA applicators are CE marked. The MEA
system was also granted CSA and UL approvals in 1998.
MARKETING AND DISTRIBUTION
Microsulis is still in its early stages of development. As such, Microsulis
has not established long-term marketing and distribution strategies, although it
has entered into a five-year management and exclusive distribution agreement
with a Canadian corporation to promote and distribute the MEA system in Canada.
On December 30, 1998, Microsulis and its wholly-owned subsidiary, MCAN, entered
into a five-year Management and Distribution Agreement with Minogue Medical and
its President, Mr. Danny Minogue, who currently serves as the President and a
director of MCAN. Under this agreement, Minogue Medical serves as the managing
agent and exclusive distributor of the MEA system in Canada. In its role as
managing agent, Minogue Medical is responsible for administering the affairs of
MCAN, including the preparation of an annual budget, servicing customers,
receiving and shipping the MEA system and related products. As the exclusive
distributor of the MEA system in Canada, Minogue Medical's responsibilities
include developing a marketing strategy to promote the MEA system, hiring all
necessary sales and customer service personnel and using its
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best efforts to expand the customer base in Canada.
In return for serving as the managing agent and exclusive distributor of the
MEA system in Canada, MCAN will pay Minogue Medical a commission on each product
sale, including a sale of the MEA system or a sale on a per treatment basis.
Minogue Medical will also receive an annual managing agent fee equal to the
greater of Canadian $6,000, or (1) a percentage of MCAN's net sales, plus (2) a
percentage of MCAN's net income before taxes for net income up to Canadian
$500,000, plus (3) a percentage of MCAN's net income before taxes for net income
in excess of Canadian $500,000. Furthermore, Microsulis has granted Danny
Minogue a stock option to purchase up to 50,000 shares of Microsulis common
stock at an exercise price of U.S. $5.00 per share.
Microsulis has begun to market and distribute the MEA system in Canada, and
plans to do the same in Latin America as it awaits FDA approval in the United
States. The MEA system is currently being used to treat women in Canada at the
Anna Laberge Hospital in Chateauguay, Quebec, at the Dartmouth General Hospital
in Dartmouth, Nova Scotia and at the Royal Victoria Hospital in Montreal,
Quebec. As Microsulis has done in Canada through its exclusive distributor,
Minogue Medical, Microsulis, at least initially, may need to hire independent
distributors in certain countries throughout Latin America in order to
distribute the MEA system in those targeted markets. Eventually, Microsulis may
end all reliance on outside distributors and create its own sales force to
distribute its products in its Exclusive Territory.
Microsulis, through MCAN, has begun marketing the MEA system in Canada with
the assistance of Minogue. Microsulis PLC has developed an informational
videotape, in both French and English, to distribute to various prominent
gynecologists and hospitals in Canada. On May 9, 1998, Microsulis and Microsulis
PLC held a symposium on microwave technology and the MEA system in Toronto,
Canada to an audience of approximately 50 Canadian gynecologists, at which
Microsulis demonstrated the use of the MEA system. On February 13, 1999, MCAN
and Microsulis PLC held another symposium on the MEA system via simultaneous
video conference in Montreal and Toronto, Canada to an audience of approximately
80 gynecologists. On April 26, 1999, Microsulis PLC and MCAN participated in a
symposium in Montreal at the Annual Meeting of the International Society for
Gynecologic Endoscopy where they presented on the topic of MEA for the treatment
of excessive menstrual bleeding.
Microsulis plans to market the MEA system in the United States and Latin
America through a similar fashion. Microsulis intends to utilize informational
videotapes, pamphlets and brochures, symposiums on the MEA system, publications
on MEA in respected medical journals and popular women's magazines, press
releases, network and local television news, as well as other methods to market
the MEA system in its targeted territories.
Microsulis's overall marketing strategy is designed to promote the safety,
effectiveness, efficacy and ease of use of the MEA procedure. Through its
marketing strategy, Microsulis hopes to increase the awareness of the female
population and the medical communities in the United States, Canada and Latin
America of MEA as a better surgical alternative to the other surgical procedures
currently on the market for the treatment of excessive menstrual blood loss.
LICENSE, PATENTS AND PROPRIETARY TECHNOLOGY
Microsulis's success depends in part on its and Microsulis PLC's ability to
preserve their trade secrets and proprietary technology. Microsulis PLC
currently has patent applications on the MEA applicator pending in the United
States and Canada. Further, Microsulis PLC has a registered trademark on the
"Microsulis" name in the United States, and has trademark applications pending
in Canada on the "Microsulis" name, design and logo. In addition to patents and
trademarks, Microsulis relies on trade secrets and proprietary knowledge which
it seeks to protect, in part, through proprietary information agreements with
employees, consultants and advisors.
Pursuant to the license agreement, Microsulis PLC must preserve and protect
the intellectual property during the term of the license agreement. Microsulis
PLC may not cause or permit anything to damage or endanger the intellectual
property rights to the detriment of Microsulis during the term of the license
agreement. Although Microsulis has this protection pursuant to the license
agreement.
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GOVERNMENT REGULATION
The manufacture and distribution of medical devices, including the MEA
system, is subject to extensive government regulation by numerous government
authorities in the United States, Canada and Latin America. In the United
States, the MEA system is regulated as a medical device and subject to the FDA's
Premarket Approval ("PMA") requirements. As a result, Microsulis will not be
able to commence marketing and commercial sales of the MEA system in the United
States unless and until it receives a PMA from the FDA. The first step in the
PMA process is the submission to the FDA of an Investigational Device Exemption
("IDE") which includes the results of bench tests and laboratory studies, a
complete description of the device and its components and a detailed description
of the methods, facilities and controls used for manufacturing, including the
method of sterilization and its assurance. Microsulis received IDE approval from
the FDA in October 1999 and intends to commence clinical studies to collect
safety and efficacy data early in the year 2000. Upon completion of the clinical
study under an IDE, Microsulis will submit a PMA application to the FDA to
receive approval to market the MEA system in the United States. After completion
of the FDA's preliminary review of the PMA submission, the submission is sent to
an FDA selected scientific advisory panel composed of physicians and scientists
with expertise in the particular field. The FDA scientific advisory panel issues
a recommendation to the FDA that includes conditions for approval of the PMA.
Toward the end of the PMA review process, the FDA will conduct an inspection of
the manufacturer's facilities to ensure that they are in compliance with the
applicable GMP requirements. If the FDA evaluation of both the PMA application
and the manufacturing facilities is favorable, the FDA will issue an approval
letter, which usually contains a number of conditions which must be met in order
to secure final approval. If those conditions have been fulfilled to the
satisfaction of the FDA, the agency will issue a PMA authorizing commercial
marketing of the device. The PMA review and approval process is expected to take
up to two years or longer to complete from the date of filing.
Even though the MEA system has been used on over 2,000 women worldwide,
Microsulis will need to conduct a multi-center randomized clinical trial in the
United States prior to filing for regulatory approval. There can be no assurance
as to whether or when Microsulis will complete the required clinical trials,
whether safety and efficacy data collected during clinical trials will be
sufficient to support a PMA filing or whether Microsulis will receive a PMA for
any of its products. In addition, if Microsulis does receive a PMA, there can be
no assurance that it will not be for a more limited indication than Microsulis
has requested, which could limit the addressable market of the MEA system. In
addition, changes in existing regulations or adoption of new government
regulation or policies could prevent or delay regulatory approval of the MEA
system.
If a PMA is granted, subsequent modifications to the approved device or
manufacturing process may require a supplemental PMA or may require the
submission of a new PMA application, which could require substantial additional
clinical efficacy data and FDA review. In addition, FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. Failure to comply with applicable regulatory requirements, including
marketing products for unapproved uses, could result in, among other things, FDA
warning letters, fines, injunctions, civil penalties, recall or seizure of the
product, total or partial suspension of distribution and production, refusal of
the government to grant premarket clearance or premarket approval for the
device, withdrawal of approval and criminal prosecution.
Every company that manufactures or assembles medical devices is required to
be registered with the FDA and adhere to applicable FDA regulations regarding
GMP and similar regulations in other countries, which include testing, control
and documentation requirements. Ongoing compliance with GMP and other regulatory
requirements will be monitored through periodic inspections by state and federal
agencies, including the FDA. Microsulis believes that its manufacturing and
quality control procedures will comply with the FDA's GMP regulations. In
addition, marketed products are subject to continuing FDA scrutiny for
compliance with the FDA requirements relating to promotional activities.
Distribution of medical devices outside the United States is subject to
international regulatory requirements that vary from country to country. The
requirements for approval for sale internationally differ from those required
for FDA approval. As a result of the reciprocity between medical quality
standards in the United Kingdom and Canada, the MEA system meets the medical
quality regulatory requirements in Canada, and thus can be distributed in Canada
while Microsulis awaits FDA approval in the United States. Microsulis is
currently inquiring into regulatory requirements in targeted Latin American
countries, but anticipates that the
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quality controls already in place on the MEA system will comply with the medical
requirements in Latin America. However, there can be no assurance that the MEA
system will comply with applicable regulatory requirements in Latin America;
and, consequently, that Microsulis will be able to successfully market and
distribute the MEA system in Latin America.
THIRD-PARTY REIMBURSEMENT
In the United States, health care providers, such as hospitals and physicians
that purchase medical devices for treatment of their patients, generally rely on
third-party payors, such as Medicare, Medicaid and private insurance plans, to
reimburse all or part of the costs and fees associated with the procedures
performed with these devices.
Microsulis's success will depend upon, among other things, its ability to
obtain satisfactory reimbursement from health care payors for the MEA system.
Microsulis does not expect that third-party reimbursement will be available, if
at all, for use of the MEA system in the United States until FDA approval is
received. If FDA approval is received, third-party reimbursement for the MEA
system will be dependent upon decisions by Medicare, as well as by individual
health maintenance organizations, private insurers and other payors. Microsulis
believes the MEA system will be reimbursed in the United States under existing
procedure codes for endometrial ablation. However, there can be no assurance
that this will occur or that the reimbursement under these codes will be
adequate. Given the efforts to control and decrease health care costs in recent
years, there can be no assurance that any reimbursement will be sufficient to
assure profitability.
Reimbursement systems in international markets vary significantly by country,
and by region within some countries, and reimbursement approvals must be
obtained on a country by country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government managed systems. Large scale market acceptance of the MEA system will
depend on the availability and level of reimbursement in Canada, the United
States and Latin America. Obtaining reimbursement approvals can require 12 to 18
months or longer. There can be no assurance that Microsulis will obtain
reimbursement approval for the MEA system in Canada, Latin America or the United
States within any particular time, for a particular amount, or at all.
Regardless of the type of reimbursement system, Microsulis believes that
physician advocacy of the MEA system will be essential to obtain reimbursement.
Availability of reimbursement will depend not only on the clinical efficacy and
cost of the MEA procedure, but also on the duration of relief provided by the
procedure.
COMPETITION
At present, Microsulis considers its primary competition to be current
therapies for the treatment of excessive menstrual bleeding, including drug
therapy, D&C, hysterectomy, TCRE, roller ball, endometrial laser ablation and
uterine balloon therapy. The MEA system may compete with other systems
manufactured and marketed by companies outside the United States.
There are many large companies, including Gynecare, Inc., a Johnson & Johnson
affiliated company, which manufactures and distributes the Uterine Balloon
Therapy system, with greater financial, manufacturing , marketing, distribution
and technical resources and clinical experience than Microsulis. Such companies
are developing and marketing devices for surgical removal of the uterus, uterine
fibroids, the endometrial lining of the uterus and other uterine tissue or
non-surgical methods such as drug therapy. Additionally, there are various
smaller companies developing alternative methods of treatment of menorrhagia
that compete with Microsulis. One such company is BEI Medical Systems Company,
Inc., a Nasdaq listed company which manufactures various diagnostic and
therapeutic gynecological products. BEI Medical Systems Company recently
completed its IDE requirements and is now in the process of submitting a
supplement to its FDA application to continue testing its patented
HydroThermAblator(R) system ("HTA(R)"). BEI Medical Systems has claimed
favorable results from use of the HTA(R) procedure based on the clinical testing
that has been conducted. There can be no assurance that these companies will not
succeed in developing technologies and products that are more effective than the
MEA system or that would render the MEA system obsolete or not competitive.
Microsulis will also compete with such companies for sites to conduct clinical
trials to obtain FDA
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approval.
As a result of the entry of large and small companies into the market,
Microsulis expects competition for devices and systems used to treat excessive
menstrual bleeding to increase. Microsulis believes that the primary competitive
factors in the market for treatment of excessive menstrual bleeding are safety,
efficacy, ease of use, reliability and cost-effectiveness. Microsulis believes
that the MEA system will be less costly than highly-invasive, traditional
surgical procedures and may ultimately replace these procedures in some
applications. The MEA system may also enable physicians to perform procedures
which are less invasive, with reduced patient trauma and in a shorter period of
time. As a result, Microsulis believes that the MEA system competes favorably
with respect to safety, efficiency, cost-effectiveness and ease of use when
compared with other treatments, although no assurance can be given that it will
be able to continue to do so.
EMPLOYEES
Microsulis currently has one full-time employee, Mr. Marcus E. Finch, and one
part-time employee, Dr. Ronald John Addleson. Mr. Finch is the Executive Vice
President and Secretary of Microsulis, earning an annual salary of $120,000. Dr.
Addleson is the President of Microsulis. He receives no cash compensation for
his services as a part-time employee of Microsulis, but has been granted a stock
option to purchase up to 50,000 shares of Microsulis common stock at an exercise
price of $5.00 per share. Mr. Finch has also been granted a stock option to
purchase up to 250,000 shares of Common Stock at an exercise price of $5.00 per
share.
PROPERTY
Microsulis's office is temporarily located at One East Broward Blvd., Suite
100, Ft. Lauderdale, Florida 33301. Although these facilities are adequate for
Microsulis's current operating requirements, it is anticipated that Microsulis
will lease office space for its executive offices in Miami, Florida.
Microsulis purchased a condominium in Miami, Florida in March 1999.
Microsulis uses the condominium to accommodate officers, directors, shareholders
and other guests of Microsulis. Microsulis also intends to set up telephone
lines at the condominium to be used, on many occasions, in lieu of the more
costly cellular telephone services currently used by Microsulis's officers and
directors in order to conduct Microsulis's business.
LEGAL PROCEEDINGS
Microsulis is not a party to any legal proceeding.
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MICROSULIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Microsulis was formed on January 8, 1998 to market, distribute and
potentially manufacture in the United States, Canada and Latin America a medical
device known as the Microwave Endometrial Ablation System for the treatment of
menorrhaghia, a condition of excessive menstrual blood loss in women. We have
the exclusive right to distribute the system in our territory pursuant to a
20-year license agreement with Microsulis PLC, a corporation organized under the
laws of the England. On May 22, 1998, we created a wholly-owned subsidiary,
Microsulis (Canada), Inc. for the purpose of distributing the system in Canada.
Since our formation, we have obtained a license to market, distribute and
potentially sell the Microwave Endometrial Ablation System in our exclusive
territory. We have also developed a marketing strategy for the system and
started implementing the strategy in Canada. Our major achievement has been the
attainment of FDA approval for our Investigative Device Exemption. We will now
commence clinical trials of our system. We expect to submit a Pre-Market
Approval Application from the FDA in the fall of 2001. With this approval, we
will be able to commence sales of our system in the United States. During the
FDA clinical trial period, we intend to increase our efforts to market the
system in Canada and to begin marketing efforts in certain countries in Latin
America.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND WITH THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
REVENUES
Our revenues have been limited since our inception due to the start up nature
of our operations and due to the lack of FDA approval for the use of our product
in the United States of America. During the nine-month period ended September
30, 1999, we generated approximately $7,000 of revenues from the initial
procedures in Canada using our system. As we increase our marketing efforts in
Canada, we expect our revenues to increase from our operations in Canada. No
revenues were generated during the nine-month period September 30, 1998. No
revenues will be generated in the U.S.A. until we obtain approval from the FDA.
We received FDA approval for our Investigation Device Exemption in October 1999.
We submitted our clinical trial plan to each site's internal review board. We
anticipate initial patient recruitment and enrollment for our clinical trials
commencing in January 2000. After we complete our clinical trials and submit the
data to the FDA, we expect to submit a Pre-Market Approval Application to the
FDA in the spring of 2001. We anticipate receiving FDA approval of our
application by the fall of 2001 and will commence sales of our Microwave
Endometrial Ablation system at that time.
No revenues were generated during the period January 8, 1998 (date of
inception) through December 31, 1998.
FDA EXPENSES
FDA expenses consist of primarily of legal fees relating to our FDA
application and consulting fees relating to the establishment of our FDA trial
sites. FDA expenses increased to approximately $266,000 for the nine months
ended September 30, 1999, up $248,000 from approximately $18,000 in the same
period in 1998. The increase was primarily due to legal and clinical trial
consulting fees. We expect FDA expenses to continue to increase in absolute
dollars to support our continued effort to obtain FDA approval for the use of
our product in the USA.
FDA expenses incurred during the period January 8, 1998 (date of inception)
through December 31, 1998 was approximated $62,000.
AMORTIZATION OF LICENSING RIGHTS
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In January 1998, we acquired, for 750,000 British Sterling Pounds, the
licensing and future manufacturing rights for our system in the United States,
Canada and Latin America. The initial term of the agreement is for 20 years,
with one five-year extension available. We compute amortization expense on a
straight-line basis over the 20-year term of the agreement. We expect
amortization of the rights to approximate $62,000 per year.
PRODUCT DEVELOPMENT COSTS
Product development costs consist of labor and materials associated with our
efforts to improve the Microwave Endometrial Ablation System. Product
development costs increased to approximately $168,000 for the nine months ended
September 30, 1999. We did not incur any product development costs during the
nine months ended September 30, 1998. The increase is primarily due to costs
associated with the development of an improved version of our Microwave
Endometrial Ablation System. We expect product development costs to be
approximately $200,000 for the year 2000.
We did not incur any product development costs during the period January 8,
1998 (date of inception) through December 31, 1998.
SALARIES
We incurred $90,000 of salary expense during the nine months ended September
30, 1999. We had no employees during the nine months ended September 30, 1998.
We currently have two employees with aggregate annual salaries of $170,000. We
expect our salary expense to increase by approximately $50,000 per year due to
the hiring of one additional administrative assistant and the increase in salary
projected for our executive vice president.
We incurred approximately $16,000 of salary expense during the period January
8, 1998 (date of inception) through December 31, 1998, as a result of hiring one
employee in the fourth quarter of 1998.
TRADE SHOW COSTS
Trade Show Costs consist of the purchase of an exhibit booth and costs
associated with trade show attendance, including breakfast meeting sponsorships
and fees and expenses for physician speakers. Trade show costs increased to
approximately $141,000 for the nine months ended September 30, 1999, up $88,000
from approximately $54,000 in the same period in 1998. The increase was
primarily due to our introduction and exhibition of our system to the annual
clinical conferences of the International Society of Gynecological Endoscopists,
American Association of Gynecological Laporoscopists and provincial events of
the Canadian Society of Obstetricians and Gynecologists. We expect trade show
costs to continue to increase in absolute dollars to support our continued
effort to obtain market our product in the United States, Canada and Latin
America.
We incurred approximately $54,000 of trade show costs during the period
January 8, 1998 (date of inception) through December 31, 1998.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES
Other general and administrative expenses include advertising, housing,
depreciation, insurance, professional, office, training, travel and other
miscellaneous expenses. Other general and administrative expenses increased to
approximately $321,000 for the nine months ended September 30, 1999, up $154,000
from approximately $167,000 in the same period in 1998. The increase was
primarily due to our increase in general corporate activity. We expect these
expenses to increase as the general and administrative functions grow to support
the overall growth of our business.
We incurred approximately $235,000 of other general and administrative
expenses during the period January 8, 1998 (date of inception) through December
31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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As of September 30, 1999, December 31, 1998 and September 30, 1998 we had
negative working capital positions of approximately $1,013,000, $455,000 and
$358,000, respectively. As of September 30, 1999, our principal source of
liquidity consisted of cash of approximately $47,000 and accounts receivable of
approximately $11,000. Since our inception in January 1998 through September 30,
1999, we have financed our activity and our losses ($1,533,754) primarily
through the issuance of our common stock in private placement transactions. We
received net proceeds from these issuances of approximately $2,093,000, of which
approximately $832,000 was received in 1999 and approximately $1,260,000 was
received in 1998. These funds were primarily used for our purchase of the
licensing and future manufacturing rights for the Microwave Endometrial Ablation
System in the United States, Canada and Latin America for approximately
$1,236,000 ($824,000 was paid in 1998 and the remaining balance of $416,000 was
paid in 1999), the purchase of approximately $401,000 of equipment and property
in 1999 and approximately $63,000 of equipment in 1998, and for general working
capital purposes.
In 1999, we received proceeds, and issued a corresponding note payable to a
related party, in the amount of $301,288. The funds were used for general
working capital purposes.
In June 1999, we obtained a $60,000 revolving line of credit with a financial
institution. The line of credit agreement expires in July 2002, and borrowings
are collateralized by the Company's condominium. At September 30, 1999,
approximately $42,000 was due under the line of credit agreement. These
borrowings were used for general working capital purposes.
In addition to the aforementioned, we have also partially financed our
activity and our losses through the increase in our other payables and accruals
to approximately $764,00 as of September 30, 1999 (approximately $123,000 as of
December 31, 1998 and approximately $103,000 as of September 30, 1998).
In order to fund our anticipated capital needs for the next 12 months, we
will require at least $3 million for marketing expenses associated with the
development of the Canadian market, FDA trial site expenses, future equipment
purchases and the commencement of our efforts to develop the Latin American
market. We intend to raise this capital through arrangements with third parties
or a merger with another corporate entity, such as AccuMed, equity or debt
financings, or from other sources including the proceeds from product sales in
Canada, if any. There is no assurance that we will be successful in consummating
any such arrangements. If adequate funds are not available, we may be required
to significantly curtail or suspend our planned operations.
On November 16, 1999, we entered into a merger agreement with AccuMed. The
merger agreement may be terminated under defined circumstances. We may be
required to pay a significant fee to AccuMed if we terminate the agreement and
complete a deal with another party. Under the merger agreement, we were advanced
$588,000, which we used to purchase additional Microwave Endometrial Ablation
Systems for our FDA clinical trials. The advance is collateralized by the
Company's equipment. In December, we repaid AccuMed $188,000 with the proceeds
of the private sale of 106,000 shares of our comment stock. The balance of the
proceeds from that private sale ($413,000) was used to reduce certain payables
and will be used for the purchase of additional Microwave Endometrial Systems
and general corporate purposes.
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DESCRIPTION OF ACCUMED WARRANTS TO BE ISSUED IN THE MERGER
The form of warrant agreement and warrant certificate are attached as
Appendix B to this proxy statement-prospectus. We encourage you to read it in
its entirety.
AccuMed will issue warrants to purchase a total of 2,764,646 shares of
AccuMed common stock. Each warrant entitles the holder to purchase one share of
AccuMed common stock at an exercise price of $6.75 per share, subject to
adjustment. The warrants will be immediately fully exercisable from the
effective time of the merger and expire on the fifth anniversary of completion
of the merger.
ADJUSTMENT TO EXERCISE PRICE. The exercise price of the warrants will be
adjusted in the event of a stock dividend, subdivision or combination of stock,
and issuances of stock or warrants or convertible securities for less than the
current market value. Fair market value is calculated as the average of the
closing bid prices for the 20 consecutive trading days prior to the stock
issuance. The exercise price in effect immediately prior to transaction will be
changed to a price determined by multiplying the exercise price by a fraction,
the numerator of which will be the sum of the number of shares of AccuMed common
stock outstanding immediately prior to the transaction and the number of shares
of AccuMed common stock which the aggregate consideration received for the
issuance of such additional shares in the transaction would purchase at the
current market price per share of AccuMed common stock, and the denominator of
which will be the sum of the number of shares of AccuMed common stock
outstanding immediately after the transaction. The total number of shares of
AccuMed common stock purchasable upon the exercise of each warrant will be the
number of shares purchasable at the exercise price immediately prior to the
adjustment multiplied by a fraction, the numerator of which will be the exercise
price in effect immediately prior to the adjustment and the denominator of which
will be the exercise price in effect immediately after the adjustment.
In case of a reclassification, capital reorganization, merger or
consolidation in which AccuMed is not the continuing corporation or which
results in a change in outstanding shares of AccuMed common stock, or sale of
substantially all assets, AccuMed will cause provision to be made so that each
holder of a warrant will have the right by exercising its warrant to purchase
the kind and number of shares of stock or other securities or cash or other
property receivable in the transaction by a holder of the number of shares of
AccuMed common stock issuable upon exercise of the warrant immediately prior to
the transaction.
REDEMPTION. If the AccuMed common stock trades above $13.50 per share for at
least 20 consecutive trading days, AccuMed may elect to redeem all of the
outstanding warrants at $0.25 per share. AccuMed must send a redemption notice
to each registered holder of warrants within 15 days following this 20-day
trading period. The notice will specify the redemption date not less than 30
days following the date on which the notice is mailed to holders. The notice
will advise holders that their warrants will terminate at 5:00 p.m. New York
time on the business day immediately preceding the redemption date. On and after
the redemption date, holders of warrants will have no further rights except to
receive payment of $0.25 per warrant upon surrender of the warrant certificate.
REGISTRATION RIGHTS. From the effective time of the merger until the tenth
anniversary of completion of the merger, holders of at least 50% of the
aggregate number of shares of AccuMed common stock issued and issuable upon
exercise of the warrants may require AccuMed to register the resale of these
shares under the Securities Act. AccuMed will then send a notice to all other
registered holders of warrants advising them of their right to have included in
the registration statement the shares issued or issuable to them upon exercise
of warrants. AccuMed will include any in the registration statement the shares
of each Any holder who responds within 30 days following delivery of this
notice.
Prior to the time that all shares issued or issuable upon exercise of the
warrants, if AccuMed determines to offer its securities on a registration
statement other than in a business combination or pursuant to stock options,
AccuMed will send a notice to the registered holders of warrants. If holders of
at least 50% of the aggregate number of shares of AccuMed common stock issued
and issuable upon exercise of the warrants notify AccuMed within 20 days
following receipt of the notice, their shares of AccuMed common stock issued or
issuable upon exercise of their warrants will be included in the registration.
If the shares of AccuMed common stock are included in a registration
statement providing for an
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underwritten offering by AccuMed, the underwriters may reduce the number of
shares to be included for sale by holders of warrants and require the holder not
to sell the exclude shares for up to 180 days.
AccuMed will bear the expenses of registration.
MODIFICATION. Terms of the warrants my be modified with the agreement of
AccuMed and holders of at least 50% of the warrants then outstanding. However,
no change in the number or nature of securities purchasable, exercise price or
expiration date can be made without written consent of the holder.
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DESCRIPTION OF ACCUMED CAPITAL STOCK
AccuMed's authorized capital stock consists of 50,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share.
ACCUMED COMMON STOCK
As of December 17, 1999, there were 5,491,901 shares of AccuMed common stock
outstanding held of record by 311 persons. Outstanding preferred stock was then
convertible into 629,620 shares of AccuMed common stock. An outstanding
promissory note was then convertible into approximately 250,000 shares of
AccuMed common stock. Exercisable stock options and warrants to purchase an
aggregate of 2,905,221 shares of AccuMed common stock were also outstanding.
AccuMed common stockholders are entitled to one vote per share on all matters
to be voted upon by AccuMed common stockholders. AccuMed stockholders may not
cumulate votes for the election of directors.
AccuMed common stockholders are entitled to receive ratably any dividends as
may be declared from time to time by the AccuMed board of directors out of funds
legally available for dividend payments, subject to dividend preferences of any
holders of preferred stock. In the event of liquidation or dissolution of
AccuMed, its common stockholders are entitled to share ratably in all assets
remaining after payment of liabilities and liquidation preferences of any
preferred stock. AccuMed common stockholders do not have any preemptive or
conversion rights or other subscription rights. Neither redemption nor sinking
fund provisions apply to AccuMed common stock.
All outstanding shares of AccuMed common stock are fully paid and
non-assessable.
ACCUMED PREFERRED STOCK
AUTHORIZATION TO ISSUE ADDITIONAL PREFERRED STOCK
AccuMed's board of directors may issue up to 5,000,000 total shares of
preferred stock, including the series A preferred currently outstanding, in one
or more series and, subject to Delaware corporate law, may:
* fix the number of shares and designation of any series;
* fix its preferences, limitations, rights qualifications and restrictions;
and
* determine the voting power of any such series.
Although AccuMed presently does not intend to do so, our board may issue
additional preferred stock with voting and conversion rights which could
negatively affect the voting power or other rights of AccuMed common
stockholders without stockholder approval. For example, the issuance of
additional preferred stock could further decrease the amount assets available
for distribution to common stockholders and delay or prevent a change in control
of AccuMed.
SERIES A CONVERTIBLE PREFERRED STOCK
At December 17, 1999, there were 944,383 shares of Series A Convertible
Preferred Stock outstanding. Each share is convertible into 0.67 shares of
AccuMed common stock at the election of the holder without payment of any
additional consideration.
Liquidation Preference. If AccuMed were to liquidate, each holder of Series A
preferred stock will be entitled to receive an amount equal to the stated value
of its shares. The Series A liquidation preference must be satisfied in full
before any payment may be made on the AccuMed common stock or other stock
ranking junior to the Series A preferred. The liquidation preference and stated
value of Series A preferred stock is $4.50 per share. The aggregate liquidation
preference and stated value of the Series A preferred stock is $4,249,735.
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Voting Rights. The holders of Series A preferred are entitled to the
following voting rights, in addition to any voting rights which may be required
under Delaware law. AccuMed may not take any of the following actions with the
affirmative vote of a majority of the outstanding Series A preferred shares:
* issue any shares of preferred stock senior as to liquidation and/or
dividend;
* change the rights of the Series A preferred as to adversely affect it; and
* incur some forms of debt.
CERTAIN PROVISIONS OF DELAWARE LAW
As a Delaware corporation, AccuMed is subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law. In general, the statue
prohibits a publicly traded Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction by which that person became an interested
stockholder, unless the transaction is approved in the prescribed manner. For
purposes of Section 203, a "business combination" includes a merger, asset sale
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior did own, 15% or more
of the corporation's voting stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
Special Meetings. AccuMed's bylaws provide that special meetings of
stockholders may be called only by the chairman of the board, the president or
the secretary at the request in writing of a majority of the board of directors.
This provision may make it more difficult for stockholders to take action
opposed by the board.
Indemnification of Directors and Officers. AccuMed's certificate of
incorporation provides a right to indemnification to the fullest extent
permitted by law for expenses, attorney's fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by an officer or director
arising from a threatened, pending or completed proceeding, other than an action
by or in the right of AccuMed, by reason of the fact that the officer or
director is or was an officer or director or was serving at the request of
AccuMed as an officer, director, employee or agent of another corporation or
other enterprise. This indemnification is available if the officer or director
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of AccuMed.
Similar indemnification is provided to officers and directors in proceedings
brought by or in the right of AccuMed, except if the person is adjudged to be
liable in respect of a claim, issue or matter, unless the court in which the
action was brought determines that the person is fairly and reasonably entitled
to indemnity.
LIMITATION OF LIABILITY
AccuMed's certificate of incorporation provides that no director will be
personally libel to AccuMed or its stockholder for monetary damages for a breach
of fiduciary duty as a director, except for liability:
* any breach of the director's duty of loyalty to AccuMed or its
stockholders;
* acts or omissions not in good faith or which involve intentional
misconduct or a knowing volition of law;
* for the payment of unlawful dividends and other actions prohibited by
Delaware corporate law; and
* for any transaction resulting in receipt by the director of an improper
personal benefit.
TRANSFER AGENT
The transfer agent for the AccuMed common stock is First Chicago Trust
Company of New York, a division of Equserve.
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DESCRIPTION OF MICROSULIS COMMON STOCK
At December 17, 1999 there were 5,529,292 shares of Microsulis common stock
issued and outstanding. The holders of the Microsulis common stock are entitled
to one non-cumulative vote per share, either in person or by proxy, on all
matters that may be voted upon by the shareholders at shareholder meetings. The
holders of Microsulis common stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. In the event of liquidation,
dissolution or winding up of Microsulis, the holders of Microsulis common stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Microsulis common stock have no preemptive, subscription
or conversion rights. There are no redemption or sinking fund provisions
applicable to the Microsulis common stock. All outstanding shares of Microsulis
common stock are fully paid and are non-assessable.
The holders of the shares of Microsulis common stock do not have cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares, voting for the election of directors, can elect all of the directors of
Microsulis if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of Microsulis's directors.
DIVIDEND POLICY
Holders of Microsulis common stock are entitled to cash dividends when, as
and if declared by Microsulis' board of directors out of funds that are legally
available for dividends. Microsulis has not paid dividends in the past and does
not anticipate paying dividends in the foreseeable future. Microsulis intends to
retain earnings, if any, to finance the development and expansion of the
business. Any future dividend policy will be subject to the discretion of the
Microsulis board of directors and will be contingent upon Microsulis's earnings,
if any, Microsulis's financial condition, capital requirements, general business
conditions and such other factors as the board of directors deems relevant.
Future dividends may also be subject to covenants contained in loan agreements
or other financing documents. Therefore, there can be no assurance that cash
dividends of any kind will ever be paid.
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COMPARISON OF RIGHTS OF HOLDERS OF
ACCUMED AND MICROSULIS COMMON STOCK
The total number of authorized shares of capital stock of AccuMed is
55,000,000 shares, consisting of 50,000,000 shares of common stock and 5,000,000
shares of preferred stock. The authorized capital stock of Microsulis is
40,000,000 shares of common stock, par value $0.001 per share.
AccuMed is incorporated in the state of Delaware and Microsulis is
incorporated in the state of Florida. Because Microsulis stockholders will hold
AccuMed common stock rather than Microsulis common stock following the merger,
their rights as stockholders will be governed by Delaware law. Their rights will
also be governed by AccuMed's certificate of incorporation and bylaws, rather
than the Microsulis articles of incorporation and bylaws.
VOTING RIGHTS
AccuMed common stockholders are entitled to one vote per share on all matters
to be voted upon by AccuMed common stockholders. Under Delaware law cumulative
voting in the election of directors is allowed but is not mandatory. AccuMed's
certificate of incorporation and bylaws do not permit cumulative voting. Under
cumulative voting, each share of stock normally entitled to one vote is entitled
to a number of votes equal to the number of directors to be elected. A
stockholder may then cast all its votes for a single candidate or may allocate
them among as many candidates as the stockholder may choose.
Each share of Microsulis common stock entitles the holder to one vote on each
matter presented to shareholders for vote. Except as requited by Florida law,
the holders of Microsulis common stock note together as a single class.
Microsulis bylaws provided that the presence, in person or by proxy, of the
holders of a majority of the shares entitled to be cast by the shareholders
entitled to vote shall constitute a quorum for the transaction of business.
POWER TO CALL SPECIAL MEETING OF STOCKHOLDERS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or any other person as may be provided in the certificate of
incorporation or bylaws. The AccuMed bylaws provide that a special meeting may
be called only by the chairman of the board, the president or the secretary at
the request in writing of a majority of the board of directors.
Microsulis' bylaws provided that a special meeting of shareholders may be
called at any time by the President of the Microsulis Board, and shall be called
by the President of Microsulis upon the written request of the holders of not
less that 10% of the Microsulis voting stock.
STOCKHOLDER ACTION WITHOUT A MEETING
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken at a meeting of the stockholders
may be taken without a meeting and without prior notice if a consent in writing
is singed by the holders of outstanding shares having at least the minimum
number of votes that would be necessary to take the action at a meeting at which
all shares entitled to vote were present and voted.
AccuMed's bylaws permit stockholders to vote by written consent.
Under Florida law, unless otherwise provided in the articles of
incorporation, action required or permitted to be taken at an annual or special
meeting of stockholders may be taken without a meeting, without prior notice,
and without a vote if a consent in writing is signed by the holders of
outstanding shares having at least the minimum number of votes that would be
necessary to take action at a meeting at which all shares entitled to vote were
present and voted. Microsulis stockholders may vote by written consent.
SIZE OF BOARD OF DIRECTORS
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Under Delaware law, the number of directors is fixed by the bylaws, unless
the certificate of incorporation fixes the number of directors. AccuMed's
certificate of incorporation does not specify the number of directors. AccuMed's
bylaws permit the board to set the exact number of directors within a range of
seven to nine persons. AccuMed's board presently consists of seven
directorships, two of which are vacant. AccuMed's stockholders will vote at the
special meeting to elect seven directors to serve until the next annual meeting
of stockholders.
Microsulis' bylaws provide that the Microsulis Board shall consist of not
less than one and not more than ten directors elected to a one-year term at each
annual meeting of shareholders. The number of directors shall be determined from
time to time by resolution of the Microsulis Board. The Microsulis Board is
currently comprised of four directors. Shareholders of Microsulis do not have
cumulative voting rights.
CLASSIFICATION OF BOARD OF DIRECTORS
A classified board is one with respect to which a certain number of
directors, but not necessarily all, are elected on a rotating basis each year.
Delaware law permits, but does not require, a classified board of directors
pursuant to which the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. The AccuMed certificate of incorporation and bylaws do not
provide for a classified board.
Under Florida law, the articles of incorporation or bylaws of a corporation
may provide for directors to be divided into one, two or three classes, serving
staggered terms. The Microsulis articles of incorporation and bylaws do not
provide for a staggered terms for directors.
REMOVAL OF DIRECTORS
Under Delaware law, any director or the entire board of directors of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. AccuMed's
certificate and bylaws do not provide for a classified board of directors or
cumulative voting. As a result, any director of AccuMed or the entire board of
directors may be removed with or without cause by the approval of a majority of
the outstanding shares entitled to vote at an election of directors.
The Microsulis charter provides that directors may only be removed for cause
within one year of the event constituting cause by the affirmative vote of (1)
the holders of at least a majority of the them outstanding shares of Microsulis
voting stock, or (2) at least a majority of the total number of directors. The
Microsulis charter provides that "cause" for removal exists, except as may be
provided by law, only if: (1) the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction to be liable for
negligence or misconduct in the performance of his duty to Microsulis in a
matter of substantial importance to Microsulis and such adjudication is no
longer subject to direct appeal.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any vacancies or any newly created directorships on AccuMed's board resulting
from any increase in the number of authorized directors may be filled by a
majority of the reaming members of the board of directors or by a sole remaining
director. If the remaining members of the board who fill a vacancy or newly
created directorship are less than a majority of the board, as constituted
immediately prior to the increase, any AccuMed stockholder holding at least ten
percent of the outstanding shares of AccuMed entitled to vote may request that
the Delaware Court of Chancery order an election to fill the vacancy or newly
created directorship or to replace the directors chosen by the remaining board
members to fill the vacancy or newly created directorship.
The Microsulis bylaws provide that any vacancies on the Microsulis board
resulting from death, resignation, retirement, removal or otherwise may be
filled by the affirmative vote of a majority of the remaining directors then in
office, though less than a quorum of the Microsulis Board, or by the affirmative
note of the holder of at least a majority of the shares present and entitled to
note at any meeting held during the existence of such vacancy, provided the
filling of such vacancy is included in Microsulis proxy material for the
meeting. The
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Microsulis bylaws provide that newly created directorships resulting form any
increase in the number of directors shall be filled by the affirmative vote of a
majority of the directors then in office. Such directors will serve until the
next annual meeting of shareholders and until his successor shall have been
elected and qualified, or his death, resignation or removal.
LIMITATION OF LIABILITY OF DIRECTORS; INDEMNIFICATION
AccuMed's certificate of incorporation eliminates the liability of directors
to the corporation and its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extend permissible under Delaware
law. Under Delaware law, we may not limit or eliminate director monetary
liability for:
* Breaches of the director's duty of loyalty to AccuMed or its stockholders;
* Acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
* The payment of unlawful dividends or unlawful stock repurchase or
redemptions; or
* Transactions in which the director received an improper benefit.
Delaware law generally permits indemnification of expenses, including
attorneys' fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in the best interests of the corporation. Without court approval, however,
no indemnification may be made in respect of any derivative action in which the
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation. Delaware law requires indemnification of
expenses to the extent the individual being indemnified has successfully
defended any action, claim, issue or matter on the merits or otherwise.
Under Delaware law, expenses incurred by an officer or director in defending
any action may be paid in advance if the director or officer undertakes to repay
the amounts if it is ultimately determined that he or she is not entitled to
indemnification. In addition, Delaware law authorizes a corporations;s purchase
of indemnity insurance for the benefit of its directors, officers, employees and
agents regardless of whether the corporation would have the power to indemnify
against the liability covered by the policy.
Delaware law also permits a Delaware corporation to provide indemnification
in excess of that provided by statute. Delaware law does not require authorizing
provisions in the certificate of incorporation. Limitations on indemnification
may be imposed by a court based on principles of public policy.
Neither Microsulis' articles of incorporation nor bylaws contains a provision
that limits a director's liability. Florida law provides that a director is not
personally liable nor monetary damages to the corporation or any other person
unless (1) the director breached or failed to perform his duties as director,
and (ii) the director's breach of, or failure to perform, those duties
constitutes: (a) a criminal violation; (b) a transaction resulting in the
derivation by such person of an improper personal benefit; (c) a circumstance
under which such person is liable for unlawful distributions; (d) conscious
disregard of the best interest of the corporation, or willful misconduct; or (e)
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety or property.
BUSINESS COMBINATIONS/MERGER
AccuMed is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. This provision prohibits a Delaware
corporation from engaging in a business combination with an interested
stockholder, as defined below, for three years following the date on which the
person or entity becomes an interested stockholder. With some exceptions, an
interested stockholder is a person or entity who or which owns, individually or
with or through certain other persons or entities, 15% or more of the
corporation's outstanding voting stock, including any rights to acquire stock
pursuant to an options, warrant, agreement, arrangement or understanding, or
upon the exercise of conversion
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or exchange rights, and stock with respect to which the person has voting rights
only. The three-year moratorium imposed by Section 203 on business combinations
does not apply if one or more of the following applies:
* Prior to the date on which the person becomes an interested stockholder,
the board of directors of the subject corporation approves either the
business combination or the transaction that resulted in the person
becoming an interested stockholder;
* Upon completion of the transaction that made the person an interested
stockholder, the person owns at least 85% of the corporations voting stock
outstanding, excluding shares owned by directors who are also officers of
the subject corporation and shares held by employee stock plans that do
not give employee participants the right to decide confidentially whether
to accept a tender or exchange offer; or
* On or after the date the person becomes an interested stockholder, the
board of directors approves the business combination and it is also
approved at a stockholder meeting by two-thirds of the outstanding voting
stock not owned by the interested stockholder.
FBCA Anti-Takeover Statute. Florida Business Corporation Act (FBCA) Section
607.0901, in general, requires an "affiliated transaction" with an "interested
shareholder" to be approved by the affirmative vote of the holders of two-thirds
of the voting shares other than the shares beneficially owned by the interested
shareholder, unless: (1) the affiliated transaction has been approved by a
majority of the disinterested directors; (2) the corporation has not had more
than 300 shareholders of record at any time during the three years preceding the
announcement date; (3) the interested shareholder has been the beneficial owner
of at least 80% of the corporation's outstanding voting shares for at least 5
years preceding the announcement date; (4) the interested shareholder is the
beneficial owner of at least 90% of the outstanding voting shares of the
corporation, exclusive of shares acquired directly from the corporation in a
transaction not approved by a majority of the disinterested directors; (5) the
corporation is an investment company registered under the Investment Company Act
of 1940; or (6) in the affiliated transactions, consideration shall be paid to
the holders of each class or series of voting shares and certain conditions are
met, as set forth in Section 607.0901 (4) (f).
The term "affiliated transaction" is defined to include, among other
transactions between the interested shareholder or any affiliate or associate of
the interested shareholder of the corporation or any director or indirect
majority-owned subsidiary thereof:
(1) any merger or consolidation;
(2) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition, in one transaction or a series of transaction, of assets
having:
(a) an aggregate fair market value equal to 5% or more of the aggregate
fair market value of all assets, determined on a consolidated basis,
of the corporation;
(b) an aggregate fair market value equal to 5% or more of the aggregate
fair market value of all the outstanding shares of the corporation; or
(c) 5% or more of the earning power or net income, determined on a
consolidated basis, of the corporation;
(3) the issuance of the transfer by the corporation or any subsidiary of the
corporation of any shares of the corporation or any subsidiary of the
corporation, which have an aggregate fair market value equal to 5% or more
of the aggregate fair market value of all the outstanding shares of the
corporation to the interested shareholders of the corporation;
(4) the offered, or a divided or distribution paid or made, pro rata to all
shareholders of the corporation;
(5) the adoption of any plan or proposal for the liquidation or dissolution of
the corporation proposed by or with the interested shareholder or any
affiliate or associate of the interested share holder;
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(6) certain transactions that would increase the interested shareholder's
proportionate share ownership of the outstanding voting share of the
corporation or such subsidiary by more than 5%; or
(7) any receipt by the interested shareholder or any affiliate or associate of
the interested shareholder of the benefit, directly or indirectly (except
proportionately as a shareholder of the corporation), of any loans,
advances, guaranties, pledges, or other financial assistance or any tax
credits or other tax advantages provided by or through the corporation. An
"interested shareholder" or a corporation is defined, subject to certain
exceptions, as any person who is the beneficial owner or mote that 10% of
the outstanding shares of the corporation. An "affiliate" is defined as a
person who directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, a specified
person. The term "associate" means any entity, other than the corporation
or any of its subsidiaries, of which such person is an officer, director,
or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of voting shares; any trust or other estate in which such
person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and any relative or
spouse of such person, or any relative of such spouse, who has the same
home as such person or who is an officer or director of the corporation or
any of its affiliates. A person is deemed to be a "beneficial owner" of
voting shares as to which such person and such person's affiliates and
associates, individually or in the voting of the voting shares; (ii)
investment power, which included the power to dispose of or to direct the
disposition of the voting shares; or (iii) the right to acquire the voting
power or investment power, whether or understanding, upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
however, in no case shall a director of the corporation be deemed to be the
beneficial owner of voting shares beneficially owned by another director of
the corporation solely by reason of actions undertaken by such persons in
their capacity as directors of the corporation.
Section 607.00901 does not apply to a Florida corporation which has, through
its original articles of incorporation, expressly elected not to be governed by
Section 607.0901 or "opted out" of coverage under Section 607.0901 by amending
its articles of incorporation or bylaws to that effect in accordance with
Section 607.0901. Section 607.0901 also does not apply to any affiliated
transaction of the corporation with an interested shareholder which became an
interested shareholder inadvertently, if such interested shareholder, as soon as
practicable, divests itself of a sufficient amount of the voting shares of the,
and would not at any time within the five-year period preceding the announcement
date with respect to such affiliated transaction have been an interested
shareholder but for such inadvertent acquisition. Any corporation that elected
not to be governed by Section 607.0901, either through a provision in its
original articles of incorporation or through an amendment to its articles of
incorporation or bylaws may elect to be bound by Section 607.0901 by adopting an
amendment to its articles of incorporation by bylaws that repeals the original
article or the amendment.
Section 607.0901 of the FBCA automatically applies to Microsulis, since
neither the Microsulis articles of incorporation nor bylaws contains any
provision "opting out" of the application of FBCA Section 607.0901. As a result,
the provisions of Section 607.0901 apply to transactions between Microsulis and
any of its respective "interested shareholders."
DISSENTERS' RIGHTS OF APPRAISAL
DELAWARE. Under Delaware law, a stockholder of a corporation participating in
specified major corporate transactions may, under varying circumstances, be
entitled to dissenters' rights of appraisal pursuant to which the stockholder
may receive cash in the amount of the fair market value of the shares held by
such stockholder in lieu of the consideration the stockholder would otherwise
receive in the transaction. Fair market value is as determined by a court or by
agreement of the corporation and the stockholder. Fair market value is exclusive
of any element of value arising from the accomplishment or expectation of the
merger or consolidation.
Appraisal rights are not available in the following situations:
* With respect to the sale, lease or exchange of all or substantially all of
the assets of a corporation;
* With respect to a merger or consolidation by a corporation the shares of
which are either listed on a national securities exchange or are held of
record by more than 2,000 holders if the stockholders receive only shares
of the surviving corporation or shares of any other corporation that re
either listed on a national securities exchange or held of record by more
than 2,000 holders, plus cash in lieu of fractional
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shares of that corporation; or
* To stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger under Delaware law.
FLORIDA. Stockholders have rights of appraisal upon consummation of a sale or
exchange of all, or substantially all, of the property of the corporation, other
than in the usual and ordinary course of business, if the stockholder is
entitled to vote on the sale or exchange pursuant to the Florida Business
Corporation Act, including a sale in dissolution but not including a sale
pursuant to a court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
stockholders within one year after the date of sale. There are no dissenters'
rights, unless a corporation's articles of incorporation provide otherwise, upon
a plan of merger or share exchange or a proposed sale or exchange of property,
to the holders of shares which, on the record date, were either registered on a
national securities exchange or designtaed as a national market system security
on an interdealer quotation system by the NASD, or held of record by not fewer
than 2,000 stockholders.
INSPECTION OF STOCKHOLDER LIST
Delaware law allows any stockholder to inspect the stockholder list for
a purpose reasonably related to the person's interests as a stockholder.
Delaware law also provides inspection rights as to a list of stockholders
entitled to vote at a meeting within a ten-day period preceding a stockholders'
meeting for any purpose germane to the meeting.
Florida law allows any stockholder to inspect and copy certain records
of the corporation, including stockholder lists, accounting records and excerpts
from minutes of the board of directors. In order to inspect these records,
however, among other requirements, the stockholder must give the corporation at
least five days prior written notice of demand for inspection and the demand for
inspection must be made in good faith and for a proper purpose.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION
Under Delaware law, a certificate of incorporation of a Delaware
corporation may be amended by approval of the board of directors of the
corporation and the affirmative vote of the holders of a majority of the
outstanding and entitled to vote, unless a higher vote is required by the
corporation's certificate of incorporation. AccuMed's certificate of
incorporation does not require a higher vote to amend our certificate of
incorporation.
Sections 607.1002 provides that the Board may adopt certain amendments
to the articles of incorporation without shareholder approval. However, Section
607.1003 provides certain amendments to the Microsulis articles of incorporation
with shareholder approval.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to
adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer upon the board of directors power to adopt,
amend or repeal bylaws. The stockholders always have the power to adopt, amend
or repeal bylaws, even though the board may also be delegated this power.
AccuMed's board of directors is authorized by the certificate of incorporation
and bylaws adopt, amend or repeal bylaws.
The Microsulis bylaws provide that they may be repealed, altered or
amended by the affirmative note of a majority of the Microsulis board to the
full extent permitted by law or by the affirmative note of a majority of the
holders of outstanding Microsulis voting stock present in person or by proxy at
any meeting of the shareholders called for that purpose.
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ADDITIONAL MATTERS TO BE VOTED ON BY ACCUMED STOCKHOLDERS
AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE ACCUMED'S NAME
AccuMed's Board has proposed an amendment to Article I of AccuMed's
Certificate of Incorporation to change the company's name from "AccuMed
International, Inc." to "Microsulis Medical Corporation." AccuMed has reserved
the new name with the Delaware Secretary of State and the Illinois Secretary of
State. Amendment of the Certificate of Incorporation is subject to the
affirmative approval by holders of a majority of the shares of AccuMed common
stock outstanding on the record date.
The merger agreement requires AccuMed to seek stockholder approval of the
name change. If the merger is completed, Microsulis Corporation will become a
wholly-owned subsidiary of AccuMed. AccuMed's board of directors believes that
the name change will more closely identify the business of the combined entities
following the merger, and strengthen identification of the Microsulis product
line as a major focus of the companies' combined business following the merger.
If the merger is completed and the name change is approved by
stockholders, AccuMed will file the Amendment with the Delaware Secretary of
State to effect the name change. If the merger is not completed for any reason,
the AccuMed will not effect the name change. The name change The text of the
Amendment is set forth on Appendix C to this proxy statement-prospectus.
ACCUMED'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
CHANGE ACCUMED'S NAME.
ELECTION OF DIRECTORS
Each of the seven nominees named below has consented to be named in this
proxy statement-prospectus and has consented to serve as a director, if so
elected. AccuMed has no reason to believe that any of the nominees will not be
available to serve; if, however, any nominee should for any reason become unable
or unwilling to serve, the shares represented by proxies received by AccuMed,
unless otherwise directed, will be voted for the election of another person as
AccuMed's board of directors may recommend, in place of the unavailable nominee.
ACCUMED'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE ELECTION OF EACH OF THE SEVEN NOMINEES FOR DIRECTOR.
DIRECTOR NOMINEES
The and director nominees and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul F. Lavallee.......... 59 Chairman of the Board and Chief Executive Officer
Mark Banister............. 36 Director
Robert L. Priddy.......... 53 Director
Paul Barrett.............. 54 Nominee
Lesile J. Croland, Esq.... 49 Nominee
Marcus E. Finch .......... 39
David Warner ............. 47 Nominee
</TABLE>
88
<PAGE> 93
MR. BANISTER. Mr. Banister has been a director of AccuMed since April 1,
1998. Mr. Banister has been an independent management consultant and investment
advisor specializing in identifying investment opportunities in the smaller and
medium company sector and assisting those companies with their development since
January 1993. Since 1993, he has been a director of Verex Laboratories Inc., a
pharmaceutical development company based in Denver. Mr Banister previously held
senior positions at Bisgood Bishop Ltd. and Morgan Stanley International in
London, England.
MR. BARRETT. Mr. Barrett is Chairman of the Board of Microsulis Plc and a
Director and Vice President of SmithKline Beecham International. He is also
Chairman of The Tropical Africa Advisory Group (TAAG) at the British department
of Trade and Industry, Chairman of Medreich Plc, Chairman of Groupement de
Production Pharmaceutique, Neuilly, France, and a Director of Laboratoire
Pharmaceutique Algerien in Algiers. He is a graduate of Durham University in the
UK and in 1993 was awarded the Order of the British Empire (O.B.E.) by Her
Majesty Queen Elizabeth II, for his services to export.
MR. CROLAND. Mr. Croland served as President and Secretary of Microsulis from
its inception until December 31, 1998. He has served as a director of Microsulis
since its inception in January 1998. Mr. Croland is an attorney who has been
practicing law since November 1978. In January 1999, Mr. Croland joined the law
firm of Steel Hector & Davis LLP as a partner. From January 1989 to December
1998, Mr. Croland was a shareholder and a director of the law firm Lucio,
Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A. Mr. Croland
obtained a Bachelor of Arts Degree at Williams College, a Juris Doctorate Degree
at Cleveland State University College of Law and a Masters Degree in Securities
Regulations at Georgetown University Law Center.
MR. FINCH. Mr. Finch serves as Executive Vice President, Secretary and a
director of Microsulis. Prior to joining Microsulis in November 1998, Mr. Finch
acted as a business development consultant for biotechnology companies, a
position he held since July 1997. From January 1991 through June 1997, Mr. Finch
served as Vice President of Business Development of Healthdyne Maternity
Management, where he directed the screening, identification and implementation
of new business opportunities for the home obstetrical care industry. Prior to
his position as Vice President of Business Development at Healthdyne, Mr. Finch
served Healthdyne in the capacities of director of business development, new
products manager and engineering manager during the period of September 1983
through January 1991. Mr. Finch obtained a Masters in Business Administration in
Marketing and a Masters in Business Administration in Finance at Georgia State
University and a Bachelor of Science in Mechanical Engineering at the University
of California at Davis.
MR. LAVALLEE. Mr. Lavallee has been a member of the Board since December 1995
and has been Chairman of the Board and Chief Executive Officer of AccuMed since
January 30, 1998. From January 30, 1998 through March 2, 1999 he also served as
President of AccuMed. Since 1995, he has been Chairman of the Board of Biorthex,
Inc., a venture capital backed start-up firm specializing in surgical and
non-surgical orthopedics located in Montreal. From January 1996 until January
1997, Mr. Lavallee served as a consultant to Sigmedics, Inc., a biomedical
company. From 1989 until December 1995, Mr. Lavallee served as Chairman,
President and Chief Executive Officer of Sigmedics, Inc. Mr. Lavallee has a
Bachelor of Science degree in Biology from Bates College and a Masters in
Business Administration from the University of Chicago.
MR. PRIDDY. Mr. Priddy has been a director of AccuMed since May 1997. Mr.
Priddy has been Chairman of the Board and Chief Executive Officer of ValuJet,
Inc., since its inception in October 1995. He was one of the founding partners
of ValuJet Airlines, a wholly owned subsidiary of ValuJet, Inc., and served as
Chairman of its Board and its Chief Executive Officer from July 1992 until
November 1996. From July 1991 until January 1993, Mr Priddy served as President
of Florida Gulf Airlines. From January 1988 to November 1991, he served as
President and Chief Executive Officer of Air Midwest, Inc., for which he also
served as a director from November 1987 to November 1991. From 1979 to 1987, Mr.
Priddy served as Vice President and Chief Financial Officer of Atlantic
Southeast Airlines, Inc., which he also served as a director from 1981 to 1987.
Mr. Priddy has a B.A. degree in economics from Tulane University. Mr. Priddy is
also a member of the Board of Directors of Datalink, Inc., Lukens Medical
Corporation, Commonwealth Associates and AirTran Holdings, Inc.
MR. WARNER. Mr. Warner is a independent investment and management consultant
with international interests. He has considerable knowledge of export markets
and for the previous 25 years has been active in
89
<PAGE> 94
Europe, the U.S., Africa and Asia. He is a Director of Microsulis Plc in the
United Kingdom and a Fellow of the Institute of Directors.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR
Pursuant to the merger agreement, AccuMed and Microsulis have agreed to
submit the following slate of nominees for election as director. Messrs.
Lavallee, Banister and Priddy, who are current directors of AccuMed, were
nominated by AccuMed's Board of Directors. See "Information about AccuMed"
beginning at "--Director Nominees and Executive Officers" for information
regarding AccuMed's board of directors and executive compensation.
Messrs. Barrett, Croland, Finch, and Warner were nominated by Gillian Fraser,
who is deemed the beneficial owner of 90.7% of the shares of Microsulis common
stock.
90
<PAGE> 95
ACCUMED SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
The table below sets forth certain information as of December 17, 1999
with respect to the beneficial ownership of AccuMed common stock by (1) each
person known by AccuMed to be the beneficial owner of more than 5% of the
outstanding shares of AccuMed common stock; (2) each current director and
director nominee; (3) the executive officers named in the Summary Compensation
Table, and (4) current executive officers and directors as a group. On the
December 17, 1999, there were 5,491,901 shares of AccuMed common stock
outstanding.
Unless otherwise noted, AccuMed believes that all persons named in the
table have sole voting and investment power with respect to all shares of
AccuMed common stock listed as beneficially owned by them. A person is deemed to
be the beneficial holder of securities that can be acquired by the person
currently or within 60 days December 17, 1999 upon the exercise of warrants or
options or the conversion of convertible preferred stock. Each beneficial
owner's percentage ownership is determined by including shares, underlying
options or warrants which are exercisable or preferred stock which is
convertible by the person currently, or within 60 days following December 17,
1999, and excluding shares underlying options, warrants and convertible
preferred stock held by any other person.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Shares
of Beneficial Owner Beneficially Owned Beneficially Owned
- ------------- ------------------ ------------------
<S> <C> <C>
Bellingham Capital Industries ...................... 1,333,334(1) 21.6%
P.O. Box 323
St. Helier Jersey, Chan. Islands
Robert L. Priddy ................................... 1,342,255(2) 21.1%
c/o AccuMed International, Inc.
920 N. Franklin St., Ste. 402
Chicago, IL 60610
Michael Falk ....................................... 629,575(3) 10.6%
c/o Commonwealth Associates
830 Third Avenue
New York, NY 10022
Commonwealth Associates ........................... 421,106(4) 7.3%
830 Third Avenue
New York, NY 10022
Edmund Shea ........................................ 307,556(5) 5.5%
655 Brea Canyon Rd
Walnut, CA 91789
Paul F. Lavallee ................................... 253,000(6) 4.6%
Mark Banister ...................................... 6,667(8) (*)
Paul Barrett ....................................... 0 0%
</TABLE>
91
<PAGE> 96
<TABLE>
<S> <C> <C>
Lesile J. Croland, Esq.............................. 0 0%
Marcus E. Finch ................................... 11,000 (*)
David Warner ...................................... 0 0%
Peter P. Gombrich .................................. 139,194 2.5%
Leonard R. Prange .................................. 7,299 (*)
Norman J. Pressman ................................. 44,166(7) (*)
Jack H. Halperin ................................... 19,276(9) (*)
Leonard Schiller ................................... 35,360(10) (*)
Joyce L. Wallach ................................... 252 (*)
All directors and executive officers as a group
(6 persons) ..................................... 1,700,724(11) 26.7%
</TABLE>
- --------------------------------
* Represents less than 1%.
(1) Includes 667,667 shares underlying warrants held by Bellingham Capital
Industries.
(2) Mr. Priddy directly owns 355,555 shares of AccuMed common stock and
warrants to purchase up to 322,897 shares of AccuMed common stock. The
number shown includes 10,001 shares underlying stock options and 236,031
shares underlying Series A preferred stock. The number shown includes an
additional 120,926 shares, and 300,180 shares underlying warrants, held by
Commonwealth Associates, excluding securities held in Commonwealth
Associates' trading account. Mr. Priddy is a control person of the
corporate general partner of Commonwealth Associates and may be deemed to
be beneficial owner of securities held by Commonwealth Associates. Mr.
Priddy disclaims beneficial ownership of the securities held by
Commonwealth Associates except to the extent of his percentage ownership
interests in Commonwealth Associates.
(3) Mr. Falk directly owns 72,593 shares of AccuMed common stock and warrants
to purchase up to 119,210 shares of common stock. The number shown
includes an additional 120,926 shares, and 300,180 shares underlying
warrants held by Commonwealth Associates, excluding securities held in
Commonwealth Associates' trading account. Mr. Falk is a control person of
the corporate general partner of Commonwealth Associates and may be deemed
to be beneficial owner of securities held by Commonwealth Associates. The
number of shares also includes an additional 16,667 shares underlying
warrants held by Anne Falk, Mr. Falk's spouse. Mr. Falk disclaims
beneficial ownership of the securities held by Commonwealth Associates
except to the extent of his percentage ownership interests in Commonwealth
Associates. Certain shares and warrants held directly by Mr. Falk were
transferred to him by Commonwealth Associates.
(4) Includes 300,180 shares underlying warrants held by Commonwealth
Associates. Excludes securities held in Commonwealth Associates' trading
accounts.
(5) Includes 111,112 shares underlying warrants held by Mr. Shea.
(6) Includes 250,000 shares underlying stock options held by Mr. Lavallee.
(7) Includes 40,000 shares underlying stock options held by Mr. Pressman.
(8) Includes 6,667 shares underlying stock options held by Mr. Banister.
(9) Includes 11,427 shares underlying stock options held by Mr. Halperin.
(10) Includes 10,836 shares underlying stock options and 12,500 shares
underlying warrants held by Mr. Schiller.
(11) Includes 236,031 shares underlying Series A preferred stock, 623,077
shares underlying warrants, and 322,264 shares underlying options held by
executive officers and directors.
92
<PAGE> 97
PREFERRED STOCK
The table below sets forth certain information as of December 17, 1999
with respect to the beneficial ownership of the Series A Convertible Preferred
Stock by (1) each person known by AccuMed to be the beneficial owner of more
than 5% of the outstanding shares of Series A convertible preferred stock, (2)
the only director, nominee or executive officer who owns any Seires A preferred
stock, and (3) executive officers and directors as a group. Based on 944,383
shares of Series A convertible preferred stock outstanding. Unless otherwise
noted, AccuMed believes that all persons named in the table have sole voting and
investment power with respect to all shares of Series A Convertible Preferred
Stock listed as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Robert L. Priddy ..................................... 354,046 37.5%
c/o AccuMed International, Inc.
920 N. Franklin St., Ste 402
Chicago, IL 60610
Conzett Europa - Inv Limited ......................... 177,023 18.7%
William Hobe, 20 Reid Street
Hamilton, Bermuda hm11
Egger & Co. Cust for Courcoux Bouvet ................. 59,062 6.3%
c/o Chase Manhattan Bank N.A.
Church Street Station
New York, NY 10008
47,250 5.0%
France Finance IV ....................................
51, rue Vivienne
75002 Paris, FRANCE
All executive officers and directors as a
group (6 persons) .................................... 354,046 37.5%
</TABLE>
93
<PAGE> 98
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF MICROSULIS
The following table sets forth the beneficial ownership of the Microsulis
Common Stock as of December 17, 1999, by: (1) each of the Microsulis officers
and directors; (2) each person who is known by Microsulis to own beneficially 5%
or more of the outstanding shares of Microsulis common stock; and (3) all of
Microsulis' executive officers and directors as a group. Includes shares
underlying options or other rights exercisable by the holder within 60 days of
December 17, 1999. But those shares are not deemed outstanding for the purpose
of calculating the percentage owned by each other shareholder listed. Based on
5,529,292 shares of Microsulis common stock outstanding as of December 17, 1999.
<TABLE>
<CAPTION>
Name and
Address Shares Beneficially
of Owner Owned
Number Percent
- ----------------------------------------------------------------------
<S> <C> <C>
Gillian Fraser 5,015,000 90.7%
P.O. Box 31740
Seven Mile Beach
Grand Cayman
Cayman Islands, BWI
Leslie J. Croland 54,000(1) 0.97%
9840 W. Suburban Drive
Miami, Florida 33156
Marcus E. Finch 50,000(2) 0.90%
901 NW 124th Avenue
Coral Springs, FL 33071
Brian C. Butters 50,000(3) 0.90%
26 Oaks
Coppice, Waterlooville Hants,
P08 9QR United Kingdom
Ronald John Addleson 25,000(4) 0.45%
#30 Pasadora Place
Smith Road, P.O. Box 30073
Seven Mile Beach, Grand Cayman
Cayman Islands, BWI
All executive officers and 179,000 3.2%
directors as a group (four persons) (2)(3)(4)
</TABLE>
(1) Represents 2,000 shares owned jointly by Mr. Croland and his wife and an
aggregate of 2,000 shares over which Mr. Croland's wife is the custodian for
their minor children. Includes options to purchase 50,000 shares of underlying
options.
94
<PAGE> 99
(2) Represents options to purchase 50,000 shares of underlying options.
(3) Represents options to purchase 50,000 shares of underlying options held by
Mr. Butters.
(4) Represent options to purchase 25,000 shares of underlying options held by
Mr. Addleson.
95
<PAGE> 100
ADDITIONAL MATTERS
LEGAL MATTERS
The validity of the AccuMed common stock and warrants to be issued in
connection with the merger will be passed upon for AccuMed by Joyce L. Wallach,
Esq., Sacramento, California. Ms. Wallach served as General Counsel and
Secretary of AccuMed from December 1996 through February 1999.
EXPERTS
The consolidated balance sheet as of December 31, 1998 and statements of
operations, stockholders' equity and cash flows of Microsulis Corporation and
Subsidiary for the period from January 8, 1998 (date of inception) to December
31, 1998 included in this proxy statement-prospectus have been audited by Moore
Stephens Lovelace, P.A., independent auditors, as stated in their report
appearing herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The next annual meeting of stockholders of AccuMed is expected to be held
in May 2000. Stockholder proposals intended to be presented at the next annual
meeting of AccuMed stockholders must be received by AccuMed not later than
January 31, 2000, to be considered for inclusion in AccuMed's proxy materials
relating to that meeting. Submitted proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
stockholders' proposals. Stockholder proposals should be addressed to the
attention of the Secretary, 920 N. Franklin, Suite 402, Chicago, IL 60610.
By Order of the Board of Directors
Jack H. Halperin, Secretary
96
<PAGE> 101
ACCUMED INTERNATIONAL, INC. UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
ACCUMED MICROSULIS Pro Forma
------------------------------------------------------------
September 30, 1999 September 30,1999 Adjustments
------------------------------------------------------------
<S> <C> <C>
ASSETS
Total current assets $3,856,076 $93,233
Fixed assets, net 886,618 444,431 B) 1,174,779
Deferred financing costs, net
Purchased technology 4,351,368 1,132,656 C) 1,721,805
Patents and Other assets 918,552 D) 72,433
Licensing rights, net
Net assets of discontinued operations
Excess of purchase price over net assets
acquired (goodwill) 1,499,595
-----------------------------------------------------------
Total assets $10,012,614 $1,670,320 4,468,612
===========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $1,760,548 $1,106,498
Long term debt 173,712 -
Stockholders' equity
Preferred stock 4,249,735
Common stock 54,919 5,423 E) 107,268
E) (5,423)
Additional paid-in capital 59,619,262 2,092,153 E) (51,484,155)
E) 5,423
Other comprehensive income (120,787) - E) 120,787
Accumulated deficit (55,508,038) (1,533,754) E) 55,508,038
Treasury stock (216,737) - E) 216,674
-----------------------------------------------------------
Stockholders'equity 8,078,354 563,822 4,468,612
-----------------------------------------------------------
Total liabilities and equity $10,012,614 $1,670,320 4,468,612
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
-------------
Combined
-------------
<S> <C>
ASSETS
Total current assets $3,949,309
Fixed assets, net 2,505,828
Deferred financing costs, net
Purchased technology 7,205,829
Patents and Other assets 990,985
Licensing rights, net
Net assets of discontinued operations
Excess of purchase price over net assets
acquired (goodwill) 1,499,595
Total assets $16,151,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $2,867,046
Long term debt $173,712
Stockholders' equity
Preferred stock 4,249,735
Common stock 162,187
Additional paid-in capital 10,232,683
Other comprehensive income (120,787)
Accumulated deficit (1,533,754)
Treasury stock (63)
-----------
Stockholders'equity $12,990,001
-----------
Total liabilities and equity $16,030,759
===========
</TABLE>
<PAGE> 102
NOTES TO UNAUDITED PRO FORMA CONSENSED
CONSOLIDATED FINANCIAL STATEMENTS
(A) To reflect the excess of acquisition cost over the estimated fair value
of net assets acquired (goodwill). The purchase price, purchase-price
allocation, and financing of the transaction are summarized as follows:
Purchase price paid as:
<TABLE>
<S> <C>
Common stock (10,726,830 shares at $1.125) $12,067,683
Warrants: (2,764,646 at $0.19) 525,283
Costs related to issuance and registration of securities (113,000)
Direct costs of acquisition 67,000
-----------
Total purchase consideration $12,546,966
Allocated to:
Historical book value of AccuMed's assets and liabilities
as of September 30, 1999 8,078,354
Adjustments to step-up AccuMed's assets and liabilities
to fair value:
Fixed assets 1,174,779
Patents 72,433
Purchased technology 1,721,805
-----------
Adjustment to raise assets to fair value 2,969,017
-----------
Total allocation $11,047,371
-----------
Goodwill $ 1,499,595
===========
(B) To reflect stepup in AccuMed's Fixed Asset value $1,174,779
(C) To reflect stepup in AccuMed's Purchased Technology value $1,721,805
(D) To reflect stepup in AccuMed's Patent value $ 72,433
(E) To reflect the elimination of AccuMed shareholders' equity and to
reflect AccuMed's common stock as partial consideration for the
purchase. $12,546,966
(F) To reflect increase in depreciation and amortization expense due
To (1) amortization of goodwill on a straight-line basis over 20 years
$574,257 For a nine-month interim period ($430,692)
(G) To reflect increase in depreciation resulting from a step-up in fixed
assets, patents and purchased technology depreciated and amortized on a
straight-line basis over periods averaging seven years. $132,729
For a nine-month interim period ($ 99,547).
</TABLE>
<PAGE> 103
ACCUMED INTERNATIOPNAL, INC. UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL
ACCUMED MICROSULIS
YEAR ENDED DECEMBER 31 Pro Forma Pro Forma
---------------------------------------------------------------
1998 1998 Adjustments Combined
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $326,862 - $326,862
Cost of sales (855,788) - (855,788)
------------ --------- -----------
Gross profit (loss) (528,926) - (528,926)
------------ --------- -----------
Operating expenses:
General and administrative 5,308,417 $225,417 5,533,834
Acquired Research and development
Research and development 2,569,864 61,463 2,631,327
Depreciation and amortization from proforma -
transaction F) 574,257 706,986
G) 132,729
Sales and marketing 1,388,826 136,268 1,525,094
------------ --------- -----------
Total operating expenses 9,267,107 423,148 10,397,241
------------ --------- -----------
Operating loss (9,796,033) (423,148) (10,926,167)
------------ --------- -----------
Total other income (expense) (563,722) (54,904) (618,626)
------------ --------- -----------
Loss from continuing operations before taxes (10,359,755) (478,052) (11,544,793)
Income tax expense - - -
------------ --------- -----------
Net Loss from continuing operations ($10,359,755) ($478,052) $11,544,793
============ ========= ===========
Basic loss per share from continuing operations ($2.04) ($0.09) $0.73
============ ========= ===========
Weighted average common shares outstanding 5,079,894 5,180,543 15,806,724
============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
ACCUMED MICROSULIS
NINE MONTHS ENDED
SEPTEBER 30, Pro Forma Pro Forma
---------------------------------------------------------------------
1999 1999 Adjustments Combined
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $11,435 $7,013 $18,448
Cost of sales (3,413) - (3,413)
----------- ----------- -----------
Gross profit (loss) 8,022 7,013 15,035
----------- ----------- -----------
Operating expenses:
General and administrative 2,308,707 322,928 2,631,635
Acquired Research and development
Research and development 1,438,865 434,040 1,872,905
Depreciation and amortization from proforma
transaction F) 430,692 530,239
G) 99,547
Sales and marketing 199,380 275,587 474,967
----------- ----------- -----------
Total operating expenses 3,946,952 1,032,555 5,509,746
----------- ----------- -----------
Operating loss (3,938,930) (1,025,542) (5,494,711)
----------- ----------- -----------
Total other income (expense) (329,069) (30,160) (359,229)
----------- ----------- -----------
Loss from continuing operations before taxes (4,268,168) (1,055,702) (5,853,940)
Income tax expense - - -
----------- ----------- -----------
Net Loss from continuing operations ($4,268,168) ($1,055,702) ($5,853,940)
=========== =========== ===========
Basic loss per share from continuing operations ($0.78) ($0.20) ($0.36)
=========== =========== ===========
Weighted average common shares outstanding 5,471,784 5,392,457 16,198,614
=========== =========== ===========
</TABLE>
<PAGE> 104
MICROSULIS CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<PAGE> 105
C O N T E N T S
--------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Shareholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE> 106
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Microsulis Corporation and Subsidiary
Miami, Florida
We have audited the accompanying consolidated balance sheet of Microsulis
Corporation and Subsidiary (a development stage company) as of December 31,
1998, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the period January 8, 1998 (date of
inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Microsulis
Corporation and Subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for the period January 8, 1998 (date of
inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred significant losses, a substantial
portion of its net assets are intangible; the ultimate realization of which is
uncertain, and the Company is in its development stage with limited operations
and revenues. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
Certified Public Accountants
Miami Lakes, Florida
March 23, 1999
-1-
<PAGE> 107
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 57,898
Prepaid expenses and other 25,502
TOTAL CURRENT ASSETS 83,400
EQUIPMENT 63,015
OTHER ASSETS
Licensing rights, net 1,178,992
-----------
TOTAL ASSETS $ 1,325,407
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 415,675
Accounts payable 26,889
Accrued liabilities 32,820
Accounts payable - related parties 5,922
Accrued interest 57,037
-----------
TOTAL CURRENT LIABILITIES 538,343
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value; 40,000,000 shares authorized;
5,256,800 shares issued and outstanding 5,257
Additional paid-in capital 1,259,859
Deficit accumulated during development stage (478,052)
-----------
TOTAL SHAREHOLDERS' EQUITY 787,064
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,325,407
===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
<PAGE> 108
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUES
$ -
EXPENSES
Travel 95,639
FDA expense 61,463
Amortization of licensing rights 56,633
Trade shows 54,369
Legal fees 44,414
Telephone 36,478
Video production 25,266
Salaries 16,000
Miscellaneous 32,886
-----------
TOTAL EXPENSES 423,148
NON-OPERATING INCOME AND (EXPENSE)
Interest income 2,133
Interest expense (57,037)
-----------
NET LOSS $ (478,052)
===========
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.09)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,180,543
===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE> 109
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
$0.001 PAR VALUE ADDITIONAL DURING TOTAL
------------------------ PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 8, 1998 -- $ -- $ -- $ -- $ --
INITIAL ISSUANCE OF 5,000,000 5,000 -- -- 5,000
COMMON STOCK
ISSUANCE OF COMMON STOCK IN
PRIVATE PLACEMENTS, net 256,800 257 1,259,859 -- 1,260,116
NET LOSS FOR THE period
january 8, 1998 (date of
inception) through
DECEMBER 31, 1998 -- -- -- (478,052) (478,052)
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 5,256,800 $ 5,257 $ 1,259,859 $ (478,052) $ 787,064
======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
<PAGE> 110
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (478,052)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of licensing rights 56,633
Exchange loss on note payable 3,717
Increase in prepaid expenses and other (25,502)
Increase in accounts payable 32,811
Increase in accrued liabilities 32,820
Increase in accrued interest 57,037
-----------
TOTAL ADJUSTMENTS 157,516
-----------
NET CASH USED IN OPERATING ACTIVITIES (320,536)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (63,015)
Acquisition of licensing rights (1,235,625)
-----------
NET CASH USED IN INVESTING ACTIVITIES (1,298,640)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial issuance of common stock 5,000
Proceeds from issuance of common stock in private placements 1,260,116
Issuance of note payable 411,958
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,677,074
-----------
NET INCREASE IN CASH 57,898
CASH AT BEGINNING OF PERIOD --
-----------
CASH AT END OF PERIOD $ 57,898
===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-5-
<PAGE> 111
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT RISKS
ORGANIZATION AND BASIS OF PRESENTATION
Microsulis Corporation was formed on January 8, 1998 to market,
distribute and potentially manufacture in the United States, Canada
and Latin America a medical device known as Microwave Endometrial
Ablation (the MEA System) for the treatment of menorrhaghia, a
condition of excessive menstrual blood loss in women. Microsulis
Corporation has the exclusive right to distribute the MEA System in
such territories pursuant to a 20-year license agreement with
Microsulis Plc (PLC), a corporation organized under the laws of the
United Kingdom. On May 22, 1998, Microsulis Corporation created a
wholly owned subsidiary Microsulis (Canada), Inc. (MCAN) for the
purpose of distributing the MEA System in Canada.
The consolidated financial statements include the accounts of
Microsulis Corporation and Microsulis (Canada), Inc. (collectively,
the Company). All significant intercom-pany accounts have been
eliminated in the consolidated financial statements.
The activity of the Company has not been significant since its
inception and has primarily been limited to organizational and
promotional activities, raising of capital and efforts towards
obtaining United States Food and Drug Administration (FDA) approval
for use of the MEA System in the United States. Accordingly, the
Company is considered to be in the development stage of its
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT RISKS
The Company's consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. During the
period January 8, 1998 (date of inception) through December 31, 1998,
the Company incurred a net loss of approximately $480,000. At December
31, 1998, the Company had an accumulated deficit and a net working
capital deficiency of approximately $450,000. Addi-tionally, a
substantial portion of the Company's total assets consist of licensing
rights, the ultimate realization of which is dependent upon market
acceptance of the MEA System and upon the Company receiving FDA
approval. In addition, the Company is still in its development stage
with no current operations or revenues and may be required to spend
significant funds in order to commercially exploit the Company's core
product. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
-6-
<PAGE> 112
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT RISKS (CONTINUED)
Management's plans with regard to these matters include marketing the
MEA System in Canada and Latin America while it attempts to obtain FDA
approval for the sale and distribution of the MEA System in the United
States and the generation of additional working capital through the
issuance of additional shares of the Company's common stock or debt
securities. The Company anticipates the initial source of its required
working capital to be derived from the issuance of additional debt or
equity securities. The issuance of any additional securities would
further dilute the current ownership structure. The Company also
intends to develop its infrastructure and organization to support its
anticipated operations in Canada and Latin America as funds become
available. There can be no assurance that management will be
successful in the implementation of its plans. The accompanying
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
EQUIPMENT
Equipment, which consists principally of MEA Systems, is stated at
cost. Depreciation is provided for using the straight-line method over
the estimated useful life of the equipment (approximately five years).
Depreciation shall commence when the Company places the machine in
service.
LICENSING RIGHTS
Effective January 23, 1998, the Company purchased from PLC (see Note
1), for 750,000 British Sterling Pounds, the licensing and future
manufacturing rights for the MEA System in the United States, Canada
and Latin America. The agreement requires the Company to pay PLC a
royalty of 10% of the net sales of equipment manufactured by the
Company, as defined, of all MEA Systems and related products. The
initial term of the agreement is for 20 years, with one five-year
extension available, and may be terminated by PLC if the Company does
not meet the following minimum sales requirements:
<TABLE>
<CAPTION>
YEAR ENDED MEA SYSTEM MEA SYSTEM
JANUARY 23, UNIT SALES APPLICATORS
----------- ---------- -----------
<S> <C> <C>
1999 8 0
2000 15 50
2001 25 125
2002 50 250
2003 100 500
Thereafter 100 500
</TABLE>
In December 1998, the Company received a waiver from PLC regarding the
minimum sales requirements for the year ended January 23, 1999.
The licensing rights are recorded at their original cost less
accumulated amortization, which is calculated on a straight-line basis
over the 20-year term of the agreement. The recoverability of the
rights will be evaluated and estimated on a recurring basis by
management of the Company. The primary indicator of recoverability is
manage-ment's opinion of forecasted profitability of the related
business or operations
-7-
<PAGE> 113
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LICENSING RIGHTS (CONTINUED)
compared to the carrying value of the rights. As of December 31, 1998,
there has been no provision for loss, which could result if the full
value of the licensing rights is not realized. A future change in
management's estimate of recoverability of these rights could have a
significant adverse impact on the financial position of the Company.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse (see Note 5).
REVENUE RECOGNITION
Revenues generated from MEA Systems owned by the Company will be
earned on a per treatment basis and will be recognized in the period
in which the treatment is performed. Revenue from the sale of MEA
Systems and related products to customers will be recognized at the
time the products are shipped.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares
outstanding during each period. Diluted income (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock and resulted in the issuance of common stock. Common
share equivalents are not considered in calculations of per share data
when their inclusion would have an anti-dilutive effect on diluted net
income (loss) per share. Basic and diluted loss per common share are
the same in 1998 as all common stock equivalents were anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments reflected in the Company's balance sheet at
December 31, 1998 include cash and notes payable. Because of the
circumstances and the nature of the Company's relationship with its
creditors, it was not practical to estimate the fair value of the
approximately $515,000 of notes payable outstanding as of December 31,
1998.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
-8-
<PAGE> 114
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposited in
financial institutions. The Company maintains its cash in bank
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk with respect to cash
and cash equivalents.
NOTE 3 - RELATED-PARTY TRANSACTIONS
In 1998, a company related through a common shareholder advanced to,
and paid for, certain expenses on behalf of the Company, aggregating
approximately $80,000. As of December 31, 1998, the unpaid balance due
to the Company approximates $5,000.
NOTE 4 - NOTE PAYABLE
In March 1998, the Company issued a note payable for 250,000 British
Sterling Pounds (approximately $412,000) to PLC for the unpaid balance
of the purchase price for the licensing rights (see Note 2). The note
accrues interest at the rate of 18% per annum and matures March 31,
1999. No principal or related interest payments were made on this note
in 1998.
NOTE 5 - INCOME TAXES
The difference between the Company's effective income tax rate and the
federal statutory rate at December 31, 1998 is reconciled below:
<TABLE>
<S> <C>
Federal provision (benefit) expected (34)%
State income taxes (3.6)
Increase in valuation allowance 37.6
------
0.0%
=======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998 are approximately as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Exchange loss $ 1,000
Organization costs 3,000
Net operating loss 175,000
---------
Gross deferred tax asset 179,000
Less valuation allowance (179,000)
---------
Deferred tax asset $ -
==========
</TABLE>
During 1998, the deferred tax asset valuation allowance increased
$179,000. There were no deferred tax liabilities as of December 31,
1998.
-9-
<PAGE> 115
NOTE 5 - INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company has a net operating loss
carryforward of approximately $466,000 available to offset future
taxable income. The net operating loss carryforward expires in the
year 2018. Under U.S. federal tax law, certain changes in ownership of
a company may cause a limitation on future utilization of these loss
carryforwards.
NOTE 6 - STOCKHOLDERS' EQUITY
INITIAL ISSUANCE OF COMMON STOCK
In January 1998, the Company issued 5,000,000 shares of its common
stock to the founder of the Company for $5,000.
PRIVATE PLACEMENT
During the year ended December 31, 1998, the Company issued an
aggregate of 256,800 shares of its common stock at $5.00 per share in
private placement transactions. The Company received net proceeds of
$1,260,116 from these offerings.
NOTE 7 - STOCK OPTIONS
In November and December 1998, the Company issued to officers and
directors of the Company and to a member of its advisory committee
options to purchase an aggregate of 510,000 shares of its common stock
at $5.00 per share. A portion of the options granted, 157,500, vested
upon their issuance; 207,500 options vest upon receipt of FDA approval
to market and distribute the MEA System in the United States; the
remaining options vest when certain sales milestones are met. The
options have maximum terms of five to six years from the date of
grant.
Activity related to the Company's stock options during the period
January 8, 1998 through December 31, 1998, was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
<S> <C> <C>
JANUARY 8, 1998 - -
Grants 510,000 $5.00
Exercises - -
Cancellations - -
---------
DECEMBER 31, 1998 510,000 $5.00
=========
Options Exercisable at:
December 31, 1998 157,500 $5.00
=========
</TABLE>
-10-
<PAGE> 116
NOTE 7 - STOCK OPTIONS (CONTINUED)
The following table summarizes information about options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICES SHARES LIFE (IN YEARS) EXERCISE PRICE
--------------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
$5.00 510,000 5.01 $5.00
</TABLE>
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
---------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE
RANGE OF EXERCISE PRICES SHARES EXERCISE PRICE
------------------------ ------------------ -----------------
<S> <C> <C>
$5.00 152,500 $5.00
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
establishes financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees based
on new fair value accounting rules. Companies that choose not to adopt
the new fair value accounting rules are required to disclose net
income and earnings per share under the new method on a pro forma
basis. The Company accounts for its options and warrants according to
APB No. 25 and follows the disclosure provisions of SFAS 123.
Accordingly, if options or warrants are granted to employees or others
for services and other consideration with an exercise price below the
fair market value on the date of the grant, the difference between the
exercise price and the fair market value is charged to operations. The
fair value of the options granted during the period January 8, 1998
(date of inception) through December 31, 1998 reported below has been
estimated at the dates of grant using the Black-Scholes option-pricing
model with the following assumptions:
Expected life (in years) 5
Risk-free interest rate 6.0%
Volatility 17%
Dividend yield 0.0%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company's options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable
single measure of the fair value of its options.
-11-
<PAGE> 117
NOTE 7 - STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
Pro forma net loss $(717,000)
Pro forma basis loss per common share $(0.14)
The effects on pro forma disclosures of applying SFAS 123 are not
necessarily indicative of the effects on pro forma disclosures of
future years.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
SIGNIFICANT SUPPLIER
As prescribed by the licensing agreement with PLC (see Note 2), the
Company may not manufacture the MEA System until two years after FDA
approval for the sale of the MEA System in the United States is
granted. Accordingly, the Company will be totally reliant upon PLC for
supplying MEA Systems and related products until it can obtain the
required FDA approvals and construct an adequate manufacturing
facility, neither of which can be assured. An interruption in the
supply of MEA Systems from PLC could have a significant adverse impact
on the Company.
FDA APPROVAL
The Company's management believes that obtaining FDA approval for the
sale of the MEA System in the United States is imperative for the
ultimate viability of the Company. The Company has submitted a
Pre-investigational System Exemption (IDE) with the FDA, received the
FDA's comments thereon and has responded to those comments. Management
hopes to obtain an IDE in 1999 so that it may commence clinical
trials. There can be no assurance that the Company will ever obtain
the required FDA approval for the MEA System.
THIRD-PARTY REIMBURSEMENT
The Company's success will depend upon, among other things, the
ability to obtain satisfactory reimbursement from health care payors
for the MEA System. Third-party reimbursement will not be available
for use of the MEA System in the United States unless and until FDA
approval is received. If FDA approval is received, third-party
reimbursement for the MEA System will be dependent upon decisions by
Medicare, individual managed care organizations, private insurers and
other payors. While the Company believes that the cost of the MEA
procedure will be reimbursed in the United States under existing
procedure codes for endometrial ablation, there can be no assurance
that this will occur or that the reimbursement will be adequate. In
light of the recent efforts to control health care costs, there is no
assurance that any third-party reimbursement will be sufficient to
ensure the Company's profitability.
Furthermore, reimbursement systems in international markets vary
significantly and reimbursement approvals must be obtained on a
country by country basis. Large scale market acceptance of the MEA
System will depend on the availability and level of reimbursement in
Canada and Latin America.
-12-
<PAGE> 118
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
THIRD-PARTY REIMBURSEMENT (CONTINUED)
Regardless of the type of reimbursement system, the Company believes
that physician endorsement for the MEA System will be available in the
United States, Canada or Latin America, or that physicians will
support and advocate the MEA procedure. Failure by physicians,
hospitals and other users of the MEA System to obtain sufficient
reimbursement for use of the MEA procedure would have a material
adverse effect on the Company's business, financial condition and
operating results.
EMPLOYMENT AGREEMENTS
On November 12, 1998, the Company entered into an employment agreement
with an officer of the Company that requires the payment of a minimum
monthly salary plus related benefits. As part of this agreement, the
Company issued to the employee options to purchase 250,000 shares of
the Company's common stock for $5.00 per share. The employment
agreement terminates November 11, 2003.
YEAR 2000 ISSUES
The Year 2000 issue is the result of shortcomings in electronic data
processing systems and other electronic equipment that may adversely
affect business operations.
The Company, Microsulis PLC and third parties with which Microsulis
PLC does business rely on numerous computer programs in their
day-to-day operations. Microsulis PLC has informed the Company that it
has completed all necessary testing of the MEA System and concluded
that it is Year 2000 compliant. Microsulis PLC is currently testing
its office equipment for Year 2000 compliance. Microsulis PLC has
further informed the Company that it is in the process of obtaining
information from its external suppliers and other third parties with
which it does business regarding their Year 2000 compliance status.
Although Microsulis PLC has communicated with such third parties to
ensure that they take appropriate action to address Year 2000 issues,
there can be no assurance that the systems of third parties on which
Microsulis PLC's MEA System relies will be timely converted. If such
systems are not converted on a timely basis, the Company's business,
financial condition and operating results could be adversely affected.
It remains uncertain whether the potential disruption from Year 2000
issues will have a material effect on the Company's business
operations. The accompanying financial statements contain no provision
or adjustments related to the ultimate outcome of this uncertainty.
-13-
<PAGE> 119
NOTE 9 - SUBSEQUENT EVENTS
MANAGEMENT AND DISTRIBUTION AGREEMENT
On January 1, 1999, the Company entered into a management and
distribution agreement with Minogue Medical, Inc. (Minogue). Under
this agreement, Minogue will serve as the Company's managing agent and
exclusive distributor of its product in Canada for a term of five
years. As consideration of Minogue serving as the managing agent in
Canada, the Company will pay Minogue an annual fee equal to the
greater of $6,000, or the sum of 1% of MCAN's net sales (as defined)
plus 5% of MCAN's net income before income taxes for the fiscal year
for net income amounts up to $500,000 plus 10% of MCAN's net income
before income taxes for the fiscal year for net income amounts in
excess of $500,000. As consideration of Minogue serving as exclusive
distributor in Canada, Minogue shall receive a commission on all MCAN
sales.
CONDOMINIUM PURCHASE AGREEMENT
In February 1999, the Company entered into a purchase agreement for a
condominium located in Dade County, Florida. In March 1999, the
agreement was closed and the Company took possession of the
condominium. The total purchase price approximated $128,000.
ISSUANCE OF COMMON STOCK
The Company issued in a private placement 166,492 shares of its common
stock at $5.00 per share during the period January 1, 1999 through
March 23, 1999. The Company received proceeds of approximately
$832,000 from this issuance.
ISSUANCE OF STOCK OPTIONS
The Company issued options to purchase an aggregate of 135,000 shares
of its common stock to advisory board members, officers and
consultants during the period January 1, 1999 through March 23, 1999.
The options are exercisable at $5.00 per share and expire in five
years.
PROPOSED PRIVATE PLACEMENT
In March 1999, the Company entered into an exclusive financial advisor
and consultant agreement (the Agreement) with an investment banker.
The Agreement is for a three-year period and relates to the Company's
corporate finance, merger and acquisition, and financial service
matters. As part of this Agreement, the investment banker will
underwrite a private placement of up to 700,000 shares of the
Company's common stock at $6.00 per share. The Agreement requires,
among other things, quarterly fees, a 10% commission and a 2%
non-accountable expense allowance of the gross proceeds of the private
placement to be paid to the investment banker. The agreement also
requires the that Company issue to the investment banker warrants to
purchase up to 700,000 shares of the Company's common stock at an
exercise price of $6.00 per share.
-14-
<PAGE> 120
MICROSULIS CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 1999
AND
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998
<PAGE> 121
C O N T E N T S
--------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
</TABLE>
<PAGE> 122
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 47,347 $ 180,024
Accounts receivable 10,536 --
Prepaid expenses and other 35,350 14,894
----------- -----------
TOTAL CURRENT ASSETS 93,233 194,918
PROPERTY AND EQUIPMENT
Condominium 145,435 --
Equipment 318,550 --
------------ -----------
463,985 --
Less accumulated depreciation (19,554) --
NET PROPERTY AND EQUIPMENT 444,431 --
OTHER ASSETS
Licensing rights, net 1,132,656 1,194,437
----------- -----------
TOTAL ASSETS $ 1,670,320 $ 1,389,355
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under line-of-credit agreement $ 41,520 $ --
Note payable -- 449,900
Accounts payable 756,082 38,902
Note payable - related party 301,288 --
Accounts payable - related parties 7,608 64,025
----------- -----------
TOTAL CURRENT LIABILITIES 1,106,498 552,827
=========== ===========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value; 40,000,000 shares authorized;
5,423,292 and 5,234,800 shares issued and outstanding,
respectively 5,423 5,235
Additional paid-in capital 2,092,153 1,149,881
Deficit accumulated during development stage (1,533,754) (318,588)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 563,822 836,528
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,670,320 $ 1,389,355
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-1-
<PAGE> 123
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
AND
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cumulative
From January 8,
1998 (Inception)
Through
1999 1998 September 30, 1999
----------- ------------ ------------------
<S> <C> <C> <C>
REVENUES, NET $ 7,013 $ 7,013 $ --
EXPENSES
Advertising 17,892 -- 17,892
Amortization of licensing rights 46,336 41,188 102,969
Condo expense 11,503 -- 11,503
Depreciation 19,554 -- 19,554
FDA expense 266,280 18,055 327,743
Insurance 15,711 -- 15,711
Legal fees 112,368 29,757 156,782
Miscellaneous 50,056 11,955 82,942
Product development costs 167,760 -- 167,760
Salaries 90,000 -- 106,000
Telephone 23,736 29,104 60,214
Trade shows 141,216 55,614 195,585
Training costs 15,973 -- 15,973
Travel 50,457 70,776 146,096
Video production 3,713 25,266 28,979
----------- ----------- ------------
TOTAL EXPENSES 1,032,555 281,715 1,455,703
NON-OPERATING INCOME AND (EXPENSE)
Interest income 2,610 1,152 4,743
Interest expense (32,770) (38,025) (89,807)
----------- ----------- ------------
NET LOSS $(1,055,702) $ (318,588) $(1,533,754)
=========== =========== ===========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (0.20) $ (0.06)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,392,457 5,157,463
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-2-
<PAGE> 124
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
AND
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
$0.001 Par Value Additional During Total
-------------------------- Paid-In Development Shareholders'
Shares Amount Capital Stage Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 8, 1998 -- $ -- $ -- $ $ --
INITIAL ISSUANCE OF COMMON STOCK 5,000,000 5,000 -- -- 5,000
ISSUANCE OF COMMON STOCK IN PRIVATE
PLACEMENTS, NET 234,800 235 1,149,881 -- 1,150,116
NET LOSS FOR THE PERIOD JANUARY 8, 1998
(DATE OF INCEPTION) THROUGH
SEPTEMBER 30, 1998 -- -- -- (318,588) (318,588)
----------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 5,234,800 5,235 1,149,881 (318,588) 836,528
ISSUANCE OF COMMON STOCK IN PRIVATE
PLACEMENTS, NET 22,000 22 109,978 -- 110,000
NET LOSS FOR THE PERIOD OCTOBER 1, 1998
THROUGH DECEMBER 31, 1998 -- -- -- (159,464) (159,464)
----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 5,256,800 5,257 1,259,859 (478,052) 787,064
ISSUANCE OF COMMON STOCK IN PRIVATE
PLACEMENTS, NET 166,492 166 832,294 -- 832,460
NET LOSS FOR THE PERIOD JANUARY 1, 1999
THROUGH SEPTEMBER 30, 1999 -- -- -- (1,055,702) (1,055,702)
----------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 5,423,292 $ 5,423 $ 2,092,153 $(1,533,754) $ 563,822
===========================================================================-
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
<PAGE> 125
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
AND
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cumulative
From January 8,
1998 (Inception)
Through
1999 1998 September 30, 1999
------------ ------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,055,702) $ (318,588) $(1,533,754)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 19,554 -- 19,554
Amortization of licensing rights 46,336 41,188 102,969
Increase in accounts receivable (10,536) -- (10,536)
Exchange loss on note payable -- -- 3,717
Increase in prepaid expenses and other (9,848) (14,894) (35,350)
Increase in accounts payable and accrued liabilities 641,022 140,869 763,690
----------- ----------- -----------
TOTAL ADJUSTMENTS 686,528 167,163 844,044
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (369,174) (151,425) (689,710)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (400,970) -- (463,985)
Acquisition of licensing rights -- (1,235,625) (1,235,625)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (400,970) (1,235,625) (1,699,610)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial issuance of common stock -- 5,000 5,000
Proceeds from issuance of common stock in
private placements 832,460 1,150,116 2,092,576
Issuance (repayments) of note payable (415,675) 411,958 (3,717)
Issuance of note payable to related party 301,288 -- 301,288
Borrowings under line of credit, net 41,520 -- 41,520
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 759,593 1,567,074 2,436,667
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (10,551) 180,024 47,347
CASH AT BEGINNING OF PERIOD 57,898 -- --
----------- ----------- -----------
CASH AT END OF PERIOD $ 47,347 $ 180,024 $ 47,347
=========== =========== ===========
</TABLE>
-4-
<PAGE> 126
MICROSULIS CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
AND
FOR THE PERIOD JANUARY 8, 1998 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998
NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT RISKS
ORGANIZATION AND BASIS OF PRESENTATION
Microsulis Corporation was formed on January 8, 1998 to market,
distribute and potentially manufacture in the United States, Canada
and Latin America a medical device known as Microwave Endometrial
Ablation (the MEA System) for the treatment of menorrhaghia, a
condition of excessive menstrual blood loss in women. Microsulis
Corporation has the exclusive right to distribute the MEA System in
such territories pursuant to a 20-year license agreement with
Microsulis Plc (PLC), a corporation organized under the laws of the
United Kingdom. On May 22, 1998, Microsulis Corporation created a
wholly owned subsidiary Microsulis (Canada), Inc. (MCAN) for the
purpose of distributing the MEA System in Canada.
The consolidated financial statements include the accounts of
Microsulis Corporation and Microsulis (Canada), Inc. (collectively,
the Company). All significant intercom-pany accounts have been
eliminated in the consolidated financial statements.
The activity of the Company since its inception has primarily been
limited to organizational and promotional activities, raising of
capital and efforts towards obtaining United States Food and Drug
Administration (FDA) approval for use of the MEA System in the United
States, and in May 1999 the Company commenced commercially
distributing the MEA System in Canada. Accordingly, the Company is
considered to be in the development stage of its operations.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments
necessary to present fairly the financial position of Microsulis
Corporation and Subsidiary as of September 30, 1999 and 1998, and the
results of its operations and its cash flows for the nine-month period
then ended. The results of operations for he periods ended September
30, 1999 and 1998 are not necessarily indicative of the operating
results for the full year.
-5-
<PAGE> 127
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT RISKS
The Company's consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. During the
period January 8, 1998 (date of inception) through September 30, 1998
and January 1, 1999 through September 30, 1999, the Company incurred
net losses of approximately $319,000 and $1,056,000, respectively. At
September 30, 1999, the Company had an accumulated deficit and a net
working capital deficiency of approximately $1,534,000 and $1,013,000,
respectively. Additionally, a substantial portion of the Company's
total assets consist of licensing rights, the ultimate realization of
which is dependent upon market acceptance of the MEA System and upon
the Company receiving FDA approval. In addition, the Company is still
in its development stage with limited current revenues and may be
required to spend significant funds in order to commercially exploit
the Company's core product. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans with regard to these matters include marketing the
MEA System in Canada and Latin America while it attempts to obtain FDA
approval for the sale and distribution of the MEA System in the United
States, and the generation of additional working capital through the
issuance of additional shares of the Company's common stock or debt
securities. The Company anticipates the initial source of its required
working capital to be derived from the issuance of additional debt or
equity securities. The issuance of any additional securities would
further dilute the current ownership structure. The Company also
intends to develop its infrastructure and organization to support its
anticipated operations in Canada and Latin America as funds become
available. There can be no assurance that management will be
successful in the implementation of its plans. The accompanying
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
EQUIPMENT
Property and equipment, which consists principally of a condominium
and MEA Systems, is stated at cost. Depreciation is provided for using
the straight-line method over the estimated useful life of the asset
(approximately five to twenty years).
LICENSING RIGHTS
Effective January 23, 1998, the Company purchased from PLC (see Note
1), for 750,000 British Sterling Pounds, the licensing and future
manufacturing rights for the MEA System in the United States, Canada
and Latin America. The agreement requires the Company to pay PLC a
royalty of 10% of the net sales of equipment manufactured by the
Company, as defined, of all MEA Systems and related products. The
initial term of the agreement is for 20 years, with one five-year
extension available, and may be terminated by PLC if the Company does
not meet the following minimum sales requirements:
<TABLE>
<CAPTION>
YEAR ENDED MEA SYSTEM MEA SYSTEM
JANUARY 23, UNIT SALES APPLICATORS
----------- ---------- -----------
<S> <C> <C>
1999 8 0
2000 15 50
2001 25 125
2002 50 250
2003 100 500
Thereafter 100 500
</TABLE>
-6-
<PAGE> 128
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1998, the Company received a waiver from PLC regarding the
minimum sales requirements for the year ended January 23, 1999.
The licensing rights are recorded at their original cost less
accumulated amortization, which is calculated on a straight-line basis
over the 20-year term of the agreement. The recoverability of the
rights will be evaluated and estimated on a recurring basis by
management of the Company. The primary indicator of recoverability is
manage-ment's opinion of forecasted profitability of the related
business or operations compared to the carrying value of the rights.
As of September 30, 1999, there has been no provision for loss, which
could result if the full value of the licensing rights is not
realized. A future change in management's estimate of recoverability
of these rights could have a significant adverse impact on the
financial position of the Company.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse (see Note 5).
REVENUE RECOGNITION
Revenues generated from MEA Systems owned by the Company will be
earned on a per treatment basis and will be recognized in the period
in which the treatment is performed. Revenue from the sale of MEA
Systems and related products to customers will be recognized at the
time the products are shipped.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares
outstanding during each period. Diluted income (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock and resulted in the issuance of common stock. Common
share equivalents are not considered in calculations of per share data
when their inclusion would have an anti-dilutive effect on diluted net
income (loss) per share. Basic and diluted loss per common share are
the same in 1999 and 1998, as all common stock equivalents were
anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments reflected in the Company's balance sheets at
September 30, 1999 and 1998 include cash, accounts receivable,
accounts payable, bank loan and notes payable. The carrying amount of
cash, accounts receivable and accounts payable, bank loan and notes
payable approximate their fair value due to the short maturity of
those instruments.
-7-
<PAGE> 129
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposited in
financial institutions. The Company maintains its cash in bank
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes
that it is not exposed to any significant credit risk with respect to
cash and cash equivalents.
NOTE 3 - RELATED-PARTY TRANSACTIONS
In the periods ended September 30, 1999 and 1998, related parties of a
controlling shareholder advanced to, and paid for, certain expenses on
behalf of the Company, aggregating approximately $53,000 and 64,000,
respectively. As of September 30, 1999 and 1998, the unpaid balance
due to the related company approximated $8,000 and $64,000,
respectively.
In August and September 1999, a related party advanced to the Company
$50,000 and $250,000, respectively. The notes are due upon demand and
accrue interest at rate of 10% per annum. Accrued interest due on
these notes as of September 30, 1999, was approximately $1,300.
NOTE 4 - NOTE PAYABLE
In March 1998, the Company issued a note payable for 250,000 British
Sterling Pounds (approximately $412,000) to PLC for the unpaid balance
of the purchase price for the licensing rights (see Note 2). The note
accrues interest at the rate of 18% per annum and matures March 31,
1999. The balance recorded in the accompanying financial statements
includes approximately $38,000 of accrued interest. No principal or
related interest payments were made on this note in 1998. The entire
balance due was repaid in 1999.
NOTE 5 - INCOME TAXES
The difference between the Company's effective income tax rate and the
federal statutory rate at December 31, 1998 is reconciled below:
Federal provision (benefit) expected (34)%
State income taxes (3.6)
Increase in valuation allowance 37.6
0.0%
=====
-8-
<PAGE> 130
NOTE 5 - INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company has a net operating loss
carryforward of approximately $466,000 available to offset future
taxable income. The net operating loss carryforward expires in the
year 2018. Under U.S. federal tax law, certain changes in ownership of
a company may cause a limitation on future utilization of these loss
carryforwards.
NOTE 6 - STOCKHOLDERS' EQUITY
INITIAL ISSUANCE OF COMMON STOCK
In January 1998, the Company issued 5,000,000 shares of its common
stock to the founder of the Company for $5,000.
PRIVATE PLACEMENT
During the nine months ended September 30, 1999, the Company issued an
aggregate of 166,492 shares of its common stock at $5.00 per share in
private placement transactions. The Company received net proceeds of
$832,460 from these offerings.
During the three months ended December 31, 1998, the Company issued an
aggregate of 22,000 shares of its common stock at $5.00 per share in
private placement transactions. The Company received net proceeds of
$111,000 from these offerings.
During the period ended September 30, 1998, the Company issued an
aggregate of 234,800 shares of its common stock at $5.00 per share in
private placement transactions. The Company received net proceeds of
$1,150,116 from these offerings.
NOTE 7 - STOCK OPTIONS
In November and December 1998, the Company issued to officers and
directors of the Company, and to a member of its advisory committee,
options to purchase an aggregate of 510,000 shares of its common stock
at $5.00 per share. A portion of the options granted, 157,500, vested
upon their issuance; 207,500 options vest upon receipt of FDA approval
to market and distribute the MEA System in the United States; the
remaining options vest when certain sales milestones are met. The
options have maximum terms of five to six years from the date of
grant.
The Company issued options to purchase an aggregate of 135,000 shares
of its common stock to advisory board members, officers and
consultants during the period January 1, 1999 through March 23, 1999.
The options are exercisable at $5.00 per share and expire in five
years.
-9-
<PAGE> 131
NOTE 7 - STOCK OPTIONS (CONTINUED)
Activity related to the Company's stock options during the period
January 8, 1998 through December 31, 1998, was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
JANUARY 8, 1998 -
Grants 510,000 $5.00
Exercises - -
Cancellations - -
-------
DECEMBER 31, 1998 510,000 $5.00
Grants 135,000 $5.00
Exercises - -
Cancellations - -
-------
SEPTEMBER 30, 1999 645,000 $5.00
=======
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
SIGNIFICANT SUPPLIER
As prescribed by the licensing agreement with PLC (see Note 2), the
Company may not manufacture the MEA System until two years after FDA
approval for the sale of the MEA System in the United States is
granted. Accordingly, the Company will be totally reliant upon PLC for
supplying MEA Systems and related products until it can obtain the
required FDA approvals and construct an adequate manufacturing
facility, neither of which can be assured. An interruption in the
supply of MEA Systems from PLC could have a significant adverse impact
on the Company.
FDA APPROVAL
The Company's management believes that obtaining FDA approval for the
sale of the MEA System in the United States is imperative for the
ultimate viability of the Company. The Company has submitted a
Pre-investigational System Exemption (IDE) with the FDA, received the
FDA's comments thereon and has responded to those comments. Management
hopes to obtain an IDE in 1999 so that it may commence clinical trials
(see Note 9). There can be no assurance that the Company will ever
obtain the required FDA approval for the MEA System.
THIRD-PARTY REIMBURSEMENT
The Company's success will depend upon, among other things, the
ability to obtain satisfactory reimbursement from health care payors
for the MEA System. Third-party reimbursement will not be available
for use of the MEA System in the United States unless and until FDA
approval is received. If FDA approval is received, third-party
reimbursement for the MEA System will be dependent upon decisions by
Medicare, individual managed care organizations, private insurers and
other payors. While the
-10-
<PAGE> 132
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
THIRD-PARTY REIMBURSEMENT (CONTINUED)
Company believes that the cost of the MEA procedure will be reimbursed
in the United States under existing procedure codes for endometrial
ablation, there can be no assurance that this will occur or that the
reimbursement will be adequate. In light of the recent efforts to
control health care costs, there is no assurance that any third-party
reimbursement will be sufficient to ensure the Company's
profitability.
Furthermore, reimbursement systems in international markets vary
significantly and reimbursement approvals must be obtained on a
country by country basis. Large scale market acceptance of the MEA
System will depend on the availability and level of reimbursement in
Canada and Latin America.
Regardless of the type of reimbursement system, the Company believes
that physician endorsement for the MEA System will be available in the
United States, Canada or Latin America, and that physicians will
support and advocate the MEA procedure. Failure by physicians,
hospitals and other users of the MEA System to obtain sufficient
reimbursement for use of the MEA procedure would have a material
adverse effect on the Company's business, financial condition and
operating results.
EMPLOYMENT AGREEMENTS
On November 12, 1998, the Company entered into an employment agreement
with an officer of the Company that requires the payment of a minimum
monthly salary plus related benefits. As part of this agreement, the
Company issued to the employee options to purchase 250,000 shares of
the Company's common stock for $5.00 per share. The employment
agreement terminates November 11, 2003.
MANAGEMENT AND DISTRIBUTION AGREEMENT
On January 1, 1999, and as amended on March 23, 1999, the Company
entered into a management and distribution agreement with Minogue
Medical, Inc. (Minogue). Under this agreement, Minogue will serve as
the Company's managing agent and exclusive distributor of its product
in Canada for a term of five years. As consideration for Minogue
serving as the managing agent in Canada, the Company will pay Minogue
an annual fee equal to the greater of $6,000, or the sum of 1% of
MCAN's net sales (as defined) plus 5% of MCAN's net income before
income taxes for the fiscal year for net income amounts up to $500,000
plus 10% of MCAN's net income before income taxes for the fiscal year
for net income amounts in excess of $500,000. As consideration for
Minogue serving as exclusive distributor in Canada, Minogue shall
receive a commission on all MCAN sales.
LINE OF CREDIT
In June 1999, the Company obtained a $60,000 revolving line of credit
with a financial institution. Interest accrues at the rate of prime
plus 1-1/2%. The line expires in July 2002, and borrowings are
collateralized by the Company's condominium.
-11-
<PAGE> 133
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
YEAR 2000 ISSUES
The Year 2000 issue is the result of shortcomings in electronic data
processing systems and other electronic equipment that may adversely
affect business operations.
The Company, Microsulis PLC and third parties with which Microsulis
PLC does business, relies on numerous computer programs in its
day-to-day operations. Microsulis PLC has informed the Company that it
has completed all necessary testing of the MEA System and has
concluded that it is Year 2000 compliant. Microsulis PLC is currently
testing its office equipment for Year 2000 compliance. Microsulis PLC
has further informed the Company that it is in the process of
obtaining information from its external suppliers and other third
parties with which it does business regarding their Year 2000
compliance status. Although Microsulis PLC has communicated with such
third parties to ensure that they take appropriate action to address
Year 2000 issues, there can be no assurance that the systems of third
parties on which Microsulis PLC's MEA System relies will be timely
converted. If such systems are not converted on a timely basis, the
Company's business, financial condition and operating results could be
adversely affected. It remains uncertain whether the potential
disruption from Year 2000 issues will have a material effect on the
Company's business operations. The accompanying financial statements
contain no provision or adjustments related to the ultimate outcome of
this uncertainty.
NOTE 9 - SUBSEQUENT EVENTS
FDA APPROVAL
In October 1999, the FDA granted the Company conditional approval on
its Investigational Device Exemption application. The approval was
granted on the condition that, within 45 days from the date of
conditional approval, the Company submit information correcting
deficiencies noted by the FDA.
PROPOSED MERGER
In October 1999, the Company entered into a letter of intent with
AccuMed International, Inc. (AccuMed). Pursuant to the letter of
intent, the Company will merge with a wholly owned subsidiary of
AccuMed in a stock-for-stock transaction, with the Company being the
surviving corporation. The letter of intent may be terminated under
defined circumstances; however, significant penalties may be imposed.
Under the letter of intent, $310,000 has been advanced to the Company
by AccuMed. The advance is collateralized by the Company's equipment.
-12-
<PAGE> 134
APPENDIX C
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ACCUMED INTERNATIONAL, INC.
AccuMed International, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware hereby certifies:
FIRST: By Special Meeting of the stockholders of AccuMed
International, Inc. (the "Corporation"), a resolution was duly adopted setting
forth a proposed amendment to Article I of the Certificate of Incorporation of
said Corporation, declaring said amendment to be advisable. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Amendment of the Certificate
of Incorporation as proposed by the Board of Directors of the
Corporation, attached hereto as Exhibit "A", be adopted
whereby Article I of the Certificate of Incorporation is
amended to reflect a corporate name change to Microsulis
Medical Corporation, and that Article I of the Certificate of
Incorporation be hereby amended to read in its entirety as
follows:
1. The name of the corporation is Microsulis Medical
Corporation.
SECOND: That, hereafter, pursuant to the recommendation of the
Board of Directors of the Corporation, the majority stockholders entitled to
vote in consideration of such amendment duly adopted such action in accordance
with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this
certificate to be signed by Paul F. Lavallee, its Chairman and Chief Executive
Officer, on __________________, 2000.
ACCUMED INTERNATIONAL, INC.
By:
-------------------------------
Paul F. Lavallee
Chairman and
Chief Executive Officer
Attested to:
By:
----------------------------------
Joyce L. Wallach, Esq.
Assistant Secretary
<PAGE> 135
ACCUMED INTERNATIONAL, INC.
920 North Franklin Street, Suite 402
Chicago, Illinois 60610
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 28, 2000
The undersigned hereby appoints Paul F. Lavallee and Norman J. Pressman and
each of them, Proxies, each with full power of submission to vote all of the
stock of the undersigned at the Special Meeting of Stockholders of AccuMed
International, Inc. (the "Company") to be held on Friday, January 28, 2000 at
10:00 a.m. (Chicago time) at the Company's offices located at 920 North
Franklin Street, Suite 402, Chicago, Illinois, and at any adjournments thereof,
in the manner indicated and in their discretion on any other business which may
properly come before said meeting, all in accordance with and as more fully
described in the Notice and accompanying Proxy Statement for said meeting,
receipt of which is hereby acknowledged. THE SHARES REPRESENTED BY THIS PROXY
SHALL BE VOTED AS SPECIFIED BELOW. IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR APPROVAL OF EACH OF THE PROPOSALS LISTED, INCLUDING FOR THE
ELECTION OF DIRECTOR NOMINEES.
1. To approve the merger agreement and the merger, including the issuance of
securities required by the merger agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve an amendment to the certificate of incorporation to change the
Company's name to "Microsulis Medical Corporation."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Election of Mark Banister, Paul Barrett, Leslie J. Croland, Marcus E.
Finch, Paul F. Lavallee, and Robert Priddy as directors to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified.
<PAGE> 136
Please mark your
[ X ] votes as in this
example.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.
IF NO SPECIFICATION IS MADE THIS PROXY WILL BE VOTED IN FAVOR OF THE
PROPOSALS DESCRIBED BELOW.
FOR WITHHELD
3. Election of 4. In their discretion, the proxy
Directors [ ] [ ] holders are authorized to vote
(see reverse) upon such other business as
may properly come before the
meeting or any adjournments
For, except vote withheld for thereof, if such business was
the Following nominee(s): known to the Board of
Directors prior to the
_______________________________________ solicitation of this Proxy.
SIGNATURE(S) _________________________________________ DATE ______________, 2000
Please sign exactly as name appears hereon. Please date, sign and return the
Proxy promptly in the enclosed envelope. When signing as attorney,
administrator, trustee or guardian, please give full title. If the signature is
for a corporation, please sign full corporate name by authorized officer. If
the shares are registered in more than one name all holders must sign.
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Provisions of the Registrant's Certificate of Incorporation (i)
eliminate the liability of the Registrant's directors to the Registrant and its
stockholders for monetary damages to the fullest extent permissible under
Delaware law, and (ii) authorize the Registrant to indemnify its directors,
officers, employees and agents by bylaws, agreements or otherwise, to the
fullest extent permitted by law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.
The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including circumstances in which indemnification is otherwise discretionary
under Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger among the registrant, AccuMed
Acquisition SUB, Inc., and Microsulis Corporation dated November
16, 1999, as amended December 16, 1999, December 21, 1999 and
December 22, 1999.
3.1 Form of Warrant Agreement and Warrant Certificate to be issued in
the merger with Microsulis.
3.2 Bylaws of the Registrant. (1)
3.3 Amendment No. 1 to Bylaws of the Registrant. (19)
4.1 Certificate of Incorporation of the Registrant (1)
4.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant increasing authorized Common Stock (14)
4.3 Certificate of Designation, Rights and Preferences of Series A
Convertible Preferred Stock (15)
4.4 Certificate of Correction to Certificate of Designation, Rights
and Preferences of Series A Convertible Preferred Stock (15)
4.5 Certificate of Amendment to Certificate of Incorporation of the
Registrant effecting reverse stock split (21)
4.6 Specimen Certificate for Common Stock (1)
4.7 Bylaws of the Registrant (1)
4.8 Amendment No. 1 to Bylaws of the Registrant (19)
</TABLE>
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<PAGE> 138
<TABLE>
<S> <C>
4.9 Warrant Agreement dated as of February 23, 1998 between the
Company and Commonwealth Associates, including form of Warrant
Certificate attached as Exhibit A thereto, representing an
aggregate of 1,245,340 (pre split) Common Stock purchase Warrants
issued to investors in a Note Exchange Offer. (15)
4.10 Warrant Agreement dated March 19, 1998 between the Registrant and
Commonwealth Associates representing an aggregate of 350,000(pre
split) Common Stock purchase warrants issued to Commonwealth
Associates and/or its designees in exchange for warrants issued
thereto in connection with a Note Exchange Offer (19)
4.11 Form of Subscription Agreement and Registration Rights Agreement
dated as of February 23, 1998 between the Registrant and each of
the investors in a Note Exchange Offer (15)
4.12 Warrant Agreement dated as of March 19, 1998, as amended by
Amendment No. 1 dated as of March 23, 1998, between the
Registrant and Commonwealth Associates pertaining to an aggregate
of 8,686,667 (pre split) Common Stock purchase Warrants issued to
investors in a private placement. (19)
4.13 Form of Warrant Certificate representing an aggregate of
8,686,667 (pre split) Common Stock purchase Warrants issued to
investors in a private placement in March 1998 (19)
4.14 Form of Warrant to Purchase Common Stock dated March 19, 1998 or
March 23, 1998, including form of Warrant Certificate attached as
Exhibit A thereto, representing an aggregate of 1,337,333 (pre
split) Common Stock purchase Warrants issued to Commonwealth
Associates, Bellingham Capital Industries, and Harold S. Blue
and/or their respective designees in connection with a private
placement. (19)
4.15 Form of Subscription Agreement and Registrant Rights Agreement
dated March 19, 1998 or March 23, 1998 between the Registrant and
each of the investors in a private placement (19)
4.16 Specimen stock certificate for Common Stock. (1)
5.1 Opinion of Joyce L. Wallach, Esq., counsel to the Registrant,
regarding the legality of the securities offered hereby.
10.1 The Registrant's Board of Directors Compensation Plan as amended
by Minutes of Board of Directors meeting dated January 18, 1996
authorizing grants of stock options to non-employee directors.
(1)(4)
10.2 Separation Agreement and General Release between the Registrant
and Michael D. Burke dated December 31, 1997. (4)(19)
10.3 Employment Agreement between the Registrant and Norman J.
Pressman dated June 13, 1996 and Addendum to Employment Agreement
between the Registrant and Norman J. Pressman dated July 16,
1996. (4)(5)
10.4 License and Distribution Agreement dated February 20, 1996
between the Registrant and BioKit, S.A. (1)
10.5 1995 Stock Option Plan. (1)(4)
10.6 Amendment No. 1 to the Registrant's 1995 Stock Option Plan.(4)(7)
10.7 Amendment No. 2 to the 1995 Stock Option Plan. (4)(16)
</TABLE>
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<PAGE> 139
<TABLE>
<S> <C>
10.8 Amendment No. 3 to the 1995 Stock Option Plan. (4)(19)
10.9 Form of Non-Qualified Stock Option Agreement governing options
granted to former employees of AccuMed, Inc. pursuant to the
Agreement and Plan of Reorganization dated as of April 21, 1995,
as amended. (1)(4)
10.10 Form of Non-Qualified Stock Option Agreement governing options
granted to employees and consultants under the 1995 Stock Option
Plan. (1)(4)
10.11 Form of Incentive Stock Option Agreement governing options
granted to employees under the 1995 Stock Option Plan. (1)(4)
10.12 Amended and Restated 1990 Stock Option Plan. (4)(8)
10.13 Amendment No. 1 to Amended and Restated 1990 Stock Option
Plan.(4)(16)
10.14 Franklin Square Commercial Lease dated July 13, 1994 between the
Registrant and the Lumber Company as Agent for the Beneficiary of
LaSalle National Trust, N.A. pertaining to the premises located
at Suite 401, 4th Floor North, 900 North Franklin Street,
Chicago, Illinois. (1)
10.15 Form of Warrant Certificate dated as of March 13, 1997 evidencing
right to acquire an aggregate of 850,000 shares of Common Stock
issued to several investors in a private placement consummated
March 13, 1997. (16)
10.16 Form of Subscription Agreement between the Registrant and several
investors in the private placement consummated on March 13, 1997.
(16)
10.17 Form of Warrant to Purchase Common Stock dated February 23, 1998
between the Registrant and Commonwealth Associates representing
an aggregate of 200,000 Common Stock purchase Warrants issued to
Commonwealth Associates and/or its designees in exchange for
warrants previously issued thereto in connection with the
placement of 12% Convertible Promissory Notes. (19)
10.18 Security Agreement dated as of February 2, 1998 between the
Registrant as Debtor and Robert L. Priddy as Secured Party. (19)
10.19 Warrant Agreement dated as of February 2, 1998 between the
Registrant and Robert L. Priddy representing warrants to purchase
100,000 shares of Common Stock. (19)
10.20 Agreement between the Company and Paul F. Lavallee and Gypsy Hill
LLC effective January 29, 1998 (21)
10.21 Agency Agreement dated as of February 13, 1998, as amended by
Amendment No. 1 dated as of February 23, 1998, between the
Registrant and Commonwealth Associates pertaining to a Note
Exchange Offer. (19)
10.22 Warrant Agreement dated as of February 23, 1998 between the
Company and Commonwealth Associates, including form of Warrant
Certificate attached as Exhibit A thereto, representing an
aggregate of 1,245,340 Common Stock purchase Warrants issued to
investors in a Note Exchange Offer. (15)
10.23 Warrant Agreement dated March 19, 1998 between the Registrant and
Commonwealth Associates representing an aggregate of 350,000
Common Stock purchase Warrants issued to Commonwealth Associates
and/or its designees in exchange for warrants issued thereto in
</TABLE>
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<TABLE>
<S> <C>
connection with a Note Exchange Offer. (19)
10.24 Form of Subscription Agreement and Registration Rights Agreement
dated as of February 23, 1998 between the Registrant and each of
the investors in a Note Exchange Offer. (15)
10.25 Agency Agreement dated as of March 12, 1998, as amended by
Amendment No. 1 dated as of March 19, 1998, between the
Registrant and Commonwealth Associates pertaining to a private
placement. (19)
10.26 Warrant Agreement dated as of March 19, 1998, as amended by
Amendment No. 1 dated as of March 23, 1998, between the
Registrant and Commonwealth Associates pertaining to an aggregate
of 8,686,667 Common Stock purchase Warrants issued to investors
in a private placement. (19)
10.27 Form of Warrant Certificate representing an aggregate of
8,686,667 Common Stock purchase Warrants issued to investors in a
private placement in March 1998. (19)
10.28 Form of Warrant to Purchase Common Stock dated March 19, 1998 or
March 23, 1998, including form of Warrant Certificate attached as
Exhibit A thereto, representing an aggregate of 1,337,333 Common
Stock purchase Warrants issued to Commonwealth Associates,
Bellingham Capital Industries, and Harold S. Blue and/or their
respective designees in connection with a private placement. (19)
10.29 Form of Subscription Agreement and Registration Rights Agreement
dated March 19, 1998 or March 23, 1998 between the Registrant and
each of the investors in a private placement. (19)
10.30 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock
Option Plan (19)
10.31 Asset Purchase Agreement by and between AccuMed International,
Inc. and AMI Acquisition Corp. dated as of November 20, 1998 (22)
10.32 Floating Rate Convertible Promissory Note dated June 26, 1998 by
the Registrant in favor of Xillix Technologies Corp. in the
original principal amount of CDN$500,000. (23)
21.1 Subsidiary of the Registrant.
23.1 Consent of Joyce L. Wallach, Esq., counsel to the Registrant
(contained in Exhibit 5.1 hereof).
23.2 Consent of KPMG, LLP (to be filed by amendment).
23.3 Consent of Moore Stephens Lovelace, P.A.
24.1 Power of Attorney (contained in signature page to this
Registration Statement).
</TABLE>
---------------
(1) Incorporated by reference to the Registrant's Transition Report
on Form 10-KSB for the transition period ended December 31, 1995.
(2) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registration Statement on Form S-1 (Reg. No. 33-48302), filed
with the Commission on October 9, 1993.
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (File No. 33-99680), filed with the
Commission on November 22, 1995.
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<PAGE> 141
(4) Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Registration Statement.
(5) Incorporated by reference to the Registrant's Registration
Statement Form S-2 (Regis. No. 333-09011) filed with the
Commission on July 26, 1996.
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended September 30, 1994.
(7) Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-2 (Regis. No. 333-09011) filed
with the Commission on August 29, 1996.
(8) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-48302), filed with the
Commission on June 3, 1992.
(9) Incorporated by reference to Pre-effective Amendment No. 4 to the
Registration Statement of Form S-2 (Regis. No. 333-09011) filed
with the Commission on October 3, 1996.
(10) Incorporated by reference to Pre-Effective Amendment No. 1 to
Form SB-2, filed with the Commission on November 8, 1993).
(11) Incorporated by Reference to Pre-effective Amendment No. 2 to the
Registration Statement on Form S-2 (Regis. No. 333-09011) filed
with the Commission on September 23, 1996.
(12) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Reg. No. 333-07681), filed with the
Commission on July 3, 1996.
(13) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 3, 1997.
(14) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Regis. No. 333-28125) filed with the
Commission on May 30, 1997.
(15) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 20, 1998.
(16) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
(17) Incorporated by reference to Registrant's Quarterly Report on
From 10-QSB for the quarter ended June 30, 1997. (18)
Incorporated by reference to Registrant's Quarterly Report on
from 10-QSB for the quarter ended September 30, 1997.
(19) Incorporated by reference to the Registrant"s Annual Report on
Form 10-K for the year ended December 31, 1997.
(20) Incorporated by reference to the Registration Statement on Form
S-3 (Regis. No. 333-56393) filed with the Commission on June 9,
1998.
(21) Incorporated by reference to the Registrant"s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
(22) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated January 29, 1999.
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<PAGE> 142
(23) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 filed with the Commission on November 9,
1999 (Regis. No. 333-90637).
(b) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are filed herewith.
Schedule A Registrant and Subsidiaries. Valuation and Qualifying
Accounts.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offer
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 1 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be present by Article
3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to
be
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<PAGE> 143
delivered to each person to whom the prospectus is sent or give, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(1) The undersigned registrant hereby undertakes as follows, that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters. In addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and issued in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Chicago, state of
Illinois on December 23, 1999.
ACCUMED INTERNATIONAL, INC.
By: /s/ Paul F. Lavallee
----------------------------
Paul F. Lavallee, Chairman,
Chief Executive Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul F. Lavallee attorney-in-fact for the
undersigned, with the power of substitution, for the undersigned in any and all
capacities, to sign any and all amendments to this registration statement
(including post-effective amendments), and to file the same, with all exhibits
thereto, and other documents inc connection therewith, with the Securities and
Exchange Commission, hereby certifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes may lawfully do or causes to
be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Paul F. Lavallee Director December 23, 1999
- ------------------------
(Paul F. Lavallee)
/s/ Mark Banister Director December 23, 1999
- ------------------------
(Mark Banister)
/s/ Jack H. Halperin Director December 23, 1999
- ------------------------
(Jack H. Halperin)
/s/ Robert L. Priddy Director December 23, 1999
- ------------------------
(Robert L. Priddy)
/s/ Leonard M. Schiller Director December 23, 1999
- ------------------------
(Leonard M. Schiller)
</TABLE>
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<PAGE> 145
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger among the registrant, AccuMed
Acquisition SUB, Inc., and Microsulis Corporation dated November
16, 1999, as amended December 16, 1999 and December 21, 1999.
3.1 Form of Warrant Agreement and Warrant Certificate to be issued in
the merger with Microsulis.
3.2 Bylaws of the Registrant. (1)
3.3 Amendment No. 1 to Bylaws of the Registrant. (19)
4.1 Certificate of Incorporation of the Registrant (1)
4.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant increasing authorized Common Stock (14)
4.3 Certificate of Designation, Rights and Preferences of Series A
Convertible Preferred Stock (15)
4.4 Certificate of Correction to Certificate of Designation, Rights
and Preferences of Series A Convertible Preferred Stock (15)
4.5 Certificate of Amendment to Certificate of Incorporation of the
Registrant effecting reverse stock split (21)
4.6 Specimen Certificate for Common Stock (1)
4.7 Bylaws of the Registrant (1)
4.8 Amendment No. 1 to Bylaws of the Registrant (19)
4.9 Warrant Agreement dated as of February 23, 1998 between the
Company and Commonwealth Associates, including form of Warrant
Certificate attached as Exhibit A thereto, representing an
aggregate of 1,245,340 (pre split) Common Stock purchase Warrants
issued to investors in a Note Exchange Offer. (15)
4.10 Warrant Agreement dated March 19, 1998 between the Registrant and
Commonwealth Associates representing an aggregate of 350,000(pre
split) Common Stock purchase warrants issued to Commonwealth
Associates and/or its designees in exchange for warrants issued
thereto in connection with a Note Exchange Offer (19)
4.11 Form of Subscription Agreement and Registration Rights Agreement
dated as of February 23, 1998 between the Registrant and each of
the investors in a Note Exchange Offer (15)
4.12 Warrant Agreement dated as of March 19, 1998, as amended by
Amendment No. 1 dated as of March 23, 1998, between the
Registrant and Commonwealth Associates pertaining to an aggregate
of 8,686,667 (pre split) Common Stock purchase Warrants issued to
investors in a private placement. (19)
</TABLE>
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<PAGE> 146
<TABLE>
<S> <C>
4.13 Form of Warrant Certificate representing an aggregate of
8,686,667 (pre split) Common Stock purchase Warrants issued to
investors in a private placement in March 1998 (19)
4.14 Form of Warrant to Purchase Common Stock dated March 19, 1998 or
March 23, 1998, including form of Warrant Certificate attached as
Exhibit A thereto, representing an aggregate of 1,337,333 (pre
split) Common Stock purchase Warrants issued to Commonwealth
Associates, Bellingham Capital Industries, and Harold S. Blue
and/or their respective designees in connection with a private
placement. (19)
4.15 Form of Subscription Agreement and Registrant Rights Agreement
dated March 19, 1998 or March 23, 1998 between the Registrant and
each of the investors in a private placement (19)
4.16 Specimen stock certificate for Common Stock. (1)
5.1 Opinion of Joyce L. Wallach, Esq., counsel to the Registrant,
regarding the legality of the securities offered hereby.
10.1 The Registrant's Board of Directors Compensation Plan as amended
by Minutes of Board of Directors meeting dated January 18, 1996
authorizing grants of stock options to non-employee directors.
(1)(4)
10.2 Separation Agreement and General Release between the Registrant
and Michael D. Burke dated December 31, 1997. (4)(19)
10.3 Employment Agreement between the Registrant and Norman J.
Pressman dated June 13, 1996 and Addendum to Employment Agreement
between the Registrant and Norman J. Pressman dated July 16,
1996. (4)(5)
10.4 License and Distribution Agreement dated February 20, 1996
between the Registrant and BioKit, S.A. (1)
10.5 1995 Stock Option Plan. (1)(4)
10.6 Amendment No. 1 to the Registrant's 1995 Stock Option Plan.(4)(7)
10.7 Amendment No. 2 to the 1995 Stock Option Plan. (4)(16)
10.8 Amendment No. 3 to the 1995 Stock Option Plan. (4)(19)
10.9 Form of Non-Qualified Stock Option Agreement governing options
granted to former employees of AccuMed, Inc. pursuant to the
Agreement and Plan of Reorganization dated as of April 21, 1995,
as amended. (1)(4)
10.10 Form of Non-Qualified Stock Option Agreement governing options
granted to employees and consultants under the 1995 Stock Option
Plan. (1)(4)
10.11 Form of Incentive Stock Option Agreement governing options
granted to employees under the 1995 Stock Option Plan. (1)(4)
10.12 Amended and Restated 1990 Stock Option Plan. (4)(8)
10.13 Amendment No. 1 to Amended and Restated 1990 Stock Option
Plan.(4)(16)
</TABLE>
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<PAGE> 147
<TABLE>
<S> <C>
10.14 Franklin Square Commercial Lease dated July 13, 1994 between the
Registrant and the Lumber Company as Agent for the Beneficiary of
LaSalle National Trust, N.A. pertaining to the premises located
at Suite 401, 4th Floor North, 900 North Franklin Street,
Chicago, Illinois. (1)
10.15 Form of Warrant Certificate dated as of March 13, 1997 evidencing
right to acquire an aggregate of 850,000 shares of Common Stock
issued to several investors in a private placement consummated
March 13, 1997. (16)
10.16 Form of Subscription Agreement between the Registrant and several
investors in the private placement consummated on March 13, 1997.
(16)
10.17 Form of Warrant to Purchase Common Stock dated February 23, 1998
between the Registrant and Commonwealth Associates representing
an aggregate of 200,000 Common Stock purchase Warrants issued to
Commonwealth Associates and/or its designees in exchange for
warrants previously issued thereto in connection with the
placement of 12% Convertible Promissory Notes. (19)
10.18 Security Agreement dated as of February 2, 1998 between the
Registrant as Debtor and Robert L. Priddy as Secured Party. (19)
10.19 Warrant Agreement dated as of February 2, 1998 between the
Registrant and Robert L. Priddy representing warrants to purchase
100,000 shares of Common Stock. (19)
10.20 Agreement between the Company and Paul F. Lavallee and Gypsy Hill
LLC effective January 29, 1998 (21)
10.21 Agency Agreement dated as of February 13, 1998, as amended by
Amendment No. 1 dated as of February 23, 1998, between the
Registrant and Commonwealth Associates pertaining to a Note
Exchange Offer. (19)
10.22 Warrant Agreement dated as of February 23, 1998 between the
Company and Commonwealth Associates, including form of Warrant
Certificate attached as Exhibit A thereto, representing an
aggregate of 1,245,340 Common Stock purchase Warrants issued to
investors in a Note Exchange Offer. (15)
10.23 Warrant Agreement dated March 19, 1998 between the Registrant and
Commonwealth Associates representing an aggregate of 350,000
Common Stock purchase Warrants issued to Commonwealth Associates
and/or its designees in exchange for warrants issued thereto in
connection with a Note Exchange Offer. (19)
10.24 Form of Subscription Agreement and Registration Rights Agreement
dated as of February 23, 1998 between the Registrant and each of
the investors in a Note Exchange Offer. (15)
10.25 Agency Agreement dated as of March 12, 1998, as amended by
Amendment No. 1 dated as of March 19, 1998, between the
Registrant and Commonwealth Associates pertaining to a private
placement. (19)
10.26 Warrant Agreement dated as of March 19, 1998, as amended by
Amendment No. 1 dated as of March 23, 1998, between the
Registrant and Commonwealth Associates pertaining to an aggregate
of 8,686,667 Common Stock purchase Warrants issued to investors
in a private placement. (19)
</TABLE>
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<PAGE> 148
<TABLE>
<S> <C>
10.27 Form of Warrant Certificate representing an aggregate of
8,686,667 Common Stock purchase Warrants issued to investors in a
private placement in March 1998. (19)
10.28 Form of Warrant to Purchase Common Stock dated March 19, 1998 or
March 23, 1998, including form of Warrant Certificate attached as
Exhibit A thereto, representing an aggregate of 1,337,333 Common
Stock purchase Warrants issued to Commonwealth Associates,
Bellingham Capital Industries, and Harold S. Blue and/or their
respective designees in connection with a private placement. (19)
10.29 Form of Subscription Agreement and Registration Rights Agreement
dated March 19, 1998 or March 23, 1998 between the Registrant and
each of the investors in a private placement. (19)
10.30 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock
Option Plan (19)
10.31 Asset Purchase Agreement by and between AccuMed International,
Inc. and AMI Acquisition Corp. dated as of November 20, 1998 (22)
10.32 Floating Rate Convertible Promissory Note dated June 26, 1998 by
the Registrant in favor of Xillix Technologies Corp. in the
original principal amount of CDN$500,000. (23)
21.1 Subsidiary of the Registrant.
23.1 Consent of Joyce L. Wallach, Esq., counsel to the Registrant
(contained in Exhibit 5.1 hereof).
23.2 Consent of KPMG, LLP (to be filed by amendment).
23.3 Consent of Moore Stephens Lovelace, P.A.
24.1 Power of Attorney (contained in signature page to this
Registration Statement).
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Transition Report
on Form 10-KSB for the transition period ended December 31, 1995.
(2) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registration Statement on Form S-1 (Reg. No. 33-48302), filed
with the Commission on October 9, 1993.
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (File No. 33-99680), filed with the
Commission on November 22, 1995.
(4) Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Registration Statement.
(5) Incorporated by reference to the Registrant's Registration
Statement Form S-2 (Regis. No. 333-09011) filed with the
Commission on July 26, 1996.
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended September 30, 1994.
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<PAGE> 149
(7) Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-2 (Regis. No. 333-09011) filed
with the Commission on August 29, 1996.
(8) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-48302), filed with the
Commission on June 3, 1992.
(9) Incorporated by reference to Pre-effective Amendment No. 4 to the
Registration Statement of Form S-2 (Regis. No. 333-09011) filed
with the Commission on October 3, 1996.
(10) Incorporated by reference to Pre-Effective Amendment No. 1 to
Form SB-2, filed with the Commission on November 8, 1993).
(11) Incorporated by Reference to Pre-effective Amendment No. 2 to the
Registration Statement on Form S-2 (Regis. No. 333-09011) filed
with the Commission on September 23, 1996.
(12) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Reg. No. 333-07681), filed with the
Commission on July 3, 1996.
(13) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 3, 1997.
(14) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 (Regis. No. 333-28125) filed with the
Commission on May 30, 1997.
(15) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 20, 1998.
(16) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
(17) Incorporated by reference to Registrant's Quarterly Report on
From 10-QSB for the quarter ended June 30, 1997.
(18) Incorporated by reference to Registrant's Quarterly Report on
from 10-QSB for the quarter ended September 30, 1997.
(19) Incorporated by reference to the Registrant"s Annual Report on
Form 10-K for the year ended December 31, 1997.
(20) Incorporated by reference to the Registration Statement on Form
S-3 (Regis. No. 333-56393) filed with the Commission on June 9,
1998.
(21) Incorporated by reference to the Registrant"s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
(22) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated January 29, 1999.
(23) Incorporated by reference to the Registrant's Registration
Statement on Form S-3 filed with the Commission on November 9,
1999 (Regis. No. 333-90637).
II-13
<PAGE> 1
Exhibit 2.1
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
among
ACCUMED INTERNATIONAL, INC.,
ACCUMED ACQUISITION SUB, INC.
and
MICROSULIS CORPORATION
Dated as of November 16, 1999
================================================================================
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
November 16, 1999, is entered into by and among AccuMed International, Inc., a
Delaware corporation ("AccuMed"), AccuMed Acquisition Sub, Inc., a Florida
corporation and wholly-owned subsidiary of AccuMed ("Acquisition Sub"), and
Microsulis Corporation, a Florida corporation (the "Company").
RECITALS
A. AccuMed has proposed that it will acquire the Company in a
transaction in which Acquisition Sub will merge with and into the Company, as a
result of which AccuMed will become the holder of all the outstanding shares of
common stock of the Company and the holders of shares of common stock of the
Company outstanding immediately prior to such merger will become holders of
shares of common stock of AccuMed and warrants to purchase shares of common
stock of AccuMed.
B. The Boards of Directors of AccuMed, Acquisition Sub and the Company
have each determined that the Merger is in the best interests of their
respective corporations and shareholders.
C. AccuMed and the Company intend that this Agreement qualify as a plan
of reorganization for Federal income tax purposes, and that the Merger be
treated as a reorganization governed by Section 368(a)(1)(a) and Section
368(a)(2)(e) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used in this Agreement, the following terms
with initial capital letters will have the meanings set forth below:
"AccuMed Common Stock" means the shares of common stock of AccuMed, par
value $.01 per share.
"AccuMed Capital Stock" means shares of AccuMed Common Stock and shares
of AccuMed Preferred Stock.
<PAGE> 3
"Acquisition Sub Common Stock" means shares of common stock of
Acquisition Sub, par value $.01 per share.
"AccuMed Warrants" means five-year warrants to purchase AccuMed Common
Stock, which have an exercise price of $6.75 per share. The Form of AccuMed
Warrant is attached hereto as Exhibit A.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, controls, is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with correlative
meaning, "controlling," "controlled by" and "under common control with") means
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person (whether through the
ownership of voting securities, by contract or otherwise).
"Company Common Stock" means the shares of common stock, par value
$.001 per share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Environmental Law" means any applicable Legal Requirement relating to
the protection, preservation or restoration of the environment (including, air,
water vapor, surface water, ground water, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource).
"Equity Affiliate" means, as to any Person, any other Person in which
such Person or any of its Subsidiaries holds a twenty-five percent (25%) or
greater equity interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, as to any Person, any trade, or business
(whether or not incorporated) that is treated as a single employer with such
Person under Section 414(b), (c), (m) or (o) of the Code.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Knowledge" means the actual present knowledge of a Person that is a
human being and, in the case of a Person that is not a human being, the present
actual knowledge of any director or officer (or any human being having duties
comparable, to those of a director or officer) of such Person.
"Legal Requirement" means any statute, ordinance, code, law, rule,
regulation, order or other requirement, standard or procedure enacted, adopted
or applied by any Governmental Entity,
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<PAGE> 4
including judicial decisions applying common law or interpreting any other Legal
Requirement or any agreement entered into with a Governmental Entity in
resolution of a dispute or otherwise.
"Lien" means any lien, security interest, pledge, charge, claim,
option, right to acquire, restriction on transfer, voting restriction or
encumbrance of any nature.
"Material Adverse Effect" means a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities or
operations of a Person and its Subsidiaries, taken as a whole, or on the ability
of such Person to perform its obligations under this Agreement.
"Person" means any human being or any partnership, limited liability
company, corporation business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity.
"SEC" means the United States Securities and Exchange Commission.
"Subsidiary" means, with respect to any Person, any other Person more
than 50% of whose outstanding voting securities or partnership or other equity
interests, as the case may be, are directly or indirectly owned by such Person.
SECTION 1.2 Other Definitions. The following terms are defined in the
Sections indicated:
<TABLE>
<CAPTION>
Term Section
---- ------------
<S> <C>
AccuMed...................................................... Preamble
AccuMed Benefit Plans........................................ 4.11 (a)
AccuMed Certificates......................................... 3.2 (a)
AccuMed Permits.............................................. 4.8 (a)
AccuMed SEC Reports.......................................... 4.7 (a)
Acquisition Proposal......................................... 7.10
Acquisition Sub.............................................. Preamble
Articles of Incorporation.................................... 2.1 (a)
Agreement.................................................... Preamble
Articles of Merger........................................... 2.2
Break-Up Fee................................................. 9.1 (b)
Closing...................................................... 3.11
Closing Date................................................. 3.11
Collateral................................................... 6.3 (a)
Company...................................................... Preamble
Company Financial Statements................................. 5.7 (a)
Company Permits.............................................. 5.8 (a)
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C>
Company Stock Certificates................................. 3.2 (a)
Debtors.................................................... 6.3 (a)
Dissenting Shares.......................................... 3.6
Effective Time............................................. 2.2
Exchange Act............................................... 4.6
Exchange Agent............................................. 3.2 (a)
Executive.................................................. 7.11(a)
FBCA....................................................... 2.1
Governmental Entity........................................ 4.8 (a)
Indemnified Party.......................................... 7.2 (f) (iii)
Indemnifying Party......................................... 7.2 (f) (iii)
License Agreement.......................................... 8.3 (b)
Lock-Up Restrictions....................................... 8.1 (h)(i)
Losses..................................................... 7.2 (f) (i)
Meeting.................................................... 7.3
Merger..................................................... 2.1
Merger Consideration....................................... 3.1
Most Recent AccuMed Balance Sheet.......................... 4.7 (c)
Notes...................................................... 6.3 (a) (i)
Preliminary Proxy Statement/ Prospectus.................... 7.2 (a)
Proxy Statement/ Prospectus................................ 7.2 (a)
Restricted Stockholders.................................... 8.1 (h)
SEC Filings................................................ 7.2 (b)
Securities Act............................................. 4.6
Security Agreement......................................... 6.3 (a) (i)
Surviving Corporation...................................... 2.1
</TABLE>
SECTION 1.3 Use of Terms. Terms used with initial capital letters will
have the meanings specified, applicable to both singular and plural forms, for
all purposes of this Agreement. All pronouns (and any variations) will be deemed
to refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than a limiting sense. The word day means a calendar day. All accounting
terms not otherwise defined in this Agreement will have the meanings ascribed to
them under GAAP.
ARTICLE II
THE MERGER AND RELATED MATTERS
SECTION 2.1 The Merger. Subject to the terms and conditions of this
Agreement and the Florida Business Corporation Act ("FBCA"), at the Effective
Time: (i) Acquisition Sub will be merged with and into the Company (the
"Merger"); (ii) the separate existence of Acquisition Sub will cease and the
Company will continue as the surviving corporation in the Merger (the "Surviving
Corporation"); and (iii) the name of the Surviving Corporation will be
Microsulis Corporation. From and after the Effective Time, and without any
further action on the part of
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<PAGE> 6
any Person, the Merger will have all the effects provided by applicable Legal
Requirements, including Sections 607.1302 and 607.1320 of the FBCA, the effects
described in Section 3.1 with respect to the capital stock of Acquisition Sub
and the Company and, subject to applicable Legal Requirements, the following
additional effects:
(a) Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Company (the "Articles of Incorporation"), as in effect
immediately prior to the Effective Time, will become the Articles of
Incorporation of the Surviving Corporation, and such Articles of Incorporation
may thereafter be amended and/or restated as provided therein and by the FBCA.
(b) Bylaws. At the Effective Time, the Bylaws of the Company, as in
effect immediately prior to the Effective Time, will become the Bylaws of the
Surviving Corporation, and such Bylaws may thereafter be amended or repealed in
accordance with their terms and the Articles of Incorporation of the Surviving
Corporation and as provided by the FBCA.
(c) Directors. At the Effective Time, the directors of the Company
immediately prior to the Effective Time will resign and AccuMed shall elect the
persons who will become the directors of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation and the FBCA and until the earlier of such directors
resignation or removal or such director's successor is duly elected and
qualified, as the case may be.
(d) Officers. At the Effective Time, the officers of the Company
immediately prior to the Effective Time will resign and the directors of the
Company will elect the officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation and the FBCA and until the earlier of such officer's
resignation or removal or such officer's successor is duly appointed and
qualified, as the case may, be.
(e) Properties and Liabilities. At the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and
Acquisition Sub will vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Acquisition Sub will become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.2 Effective Time of the Merger. Subject to the terms and
conditions in this Agreement, the parties will prepare, sign and acknowledge, in
accordance with the FBCA articles of merger (the "Articles of Merger") and
deliver the Articles of Merger to the Secretary of State of the State of Florida
for filing pursuant to the FBCA on the Closing Date. The Merger will become
effective upon the filing of the Articles of Merger with the Secretary of State
of the State of Florida. As used in this Agreement, the "Effective Time" means
the time at which the Articles of Merger are filed with the Secretary of State
of the State of Florida.
5
<PAGE> 7
ARTICLE III
CONVERSION OF CAPITAL STOCK
SECTION 3.1 Merger Consideration and Conversion of Stock. The aggregate
consideration deliverable by AccuMed in the Merger (the "Merger Consideration")
will be equal to (i) 10,521,190 shares of AccuMed Common Stock and (ii) AccuMed
Warrants to purchase 2,711,646 shares of AccuMed Commons Stock, in exchange for
all of the issued and outstanding Company Common Stock issued prior to the
Effective Time minus the number of Dissenting Shares (as defined in Section
3.6). The Merger Consideration will be deliverable at the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of capital stock of any corporation as follows:
(a) Each share of Company Common Stock outstanding immediately prior to
the Effective Time (except shares subject to Section 3.1 (b) and Dissenting
Shares) will be converted into and will thereafter evidence and become (i) 1.94
shares of AccuMed Common Stock and (ii) as to any holder of shares of Company
Common Stock, if the total number of shares of Company Common Stock of such
holder is not convertible into a whole number of shares of AccuMed Common Stock,
a fractional share of AccuMed Common Stock which would have been issued to such
holder will be rounded up to a whole share of AccuMed Common Stock. In addition,
every two shares of Company Common Stock outstanding immediately prior to the
Effective Time (except shares subject to Section 3.1(b) and Dissenting Shares)
will entitle the holder thereof to receive one AccuMed Warrant.
(b) Each share of the capital stock of the Company issued and
outstanding immediately prior to the Effective Time and owned directly or
indirectly by the Company, if any, will be canceled and retired, and no AccuMed
Common Stock or other consideration will be delivered in exchange therefor.
(c) Each share of the capital stock of Acquisition Sub issued and
outstanding immediately prior to the Effective Time will remain outstanding and
will thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
SECTION 3.2 Exchange of Certificates.
(a) Exchange Agent. First Chicago Trust Company of New York (or, if
First Chicago Trust Company of New York is unable or unwilling to serve in such
capacity, another bank or trust company selected by AccuMed and reasonably
acceptable to the Company) will act as exchange agent (the "Exchange Agent") in
connection with the surrender of certificates that, prior to the Effective Time,
evidenced outstanding shares of Company Common Stock ("Company Stock
Certificates"). Prior to the Closing Date, AccuMed will deposit with the
Exchange Agent for exchange in accordance with this Section 3.2 certificates
evidencing the shares of AccuMed
6
<PAGE> 8
Common Stock ("AccuMed Certificates") and the AccuMed Warrants, to be issued in
the Merger, which securities will be deemed to be issued at the Effective Time.
(b) Exchange. As soon as practicable after the Effective Time, but
subject to the provisions of Section 3.6 regarding Dissenting Shares, AccuMed
will cause the Exchange Agent to mail to each Person who was a holder of record
of Company Common Stock at the Effective Time: (i) a letter of transmittal
(which will specify that delivery will be effective, and risk of loss and title
to any Company Stock Certificates will pass, only upon delivery of the Company
Stock Certificates to the Exchange Agent and will be in such form and will have
such other provisions that are specified by AccuMed and reasonably acceptable to
the Company); and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for AccuMed Certificates (together with
any dividend or distribution with respect thereto made after the Effective
Time). Upon surrender of a Company Stock Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by AccuMed,
together with such letter of transmittal, duly executed, and such other
documents as may be required by the Exchange Agent or such other agent, the
holder of such Company Stock Certificate will be entitled to receive in exchange
therefor AccuMed Certificates and AccuMed Warrants representing the number of
whole shares of AccuMed Common Stock and AccuMed Warrants that such holder has
the right to receive pursuant to this Agreement (together with any dividend or
distribution with respect thereto made after the Effective Time), and the
Company Stock Certificate so surrendered will be canceled. In the event of a
transfer of ownership of Company Common Stock that is not registered in the
transfer records of the Company, AccuMed Certificates and AccuMed Warrants
representing the proper number of shares of AccuMed Common Stock and AccuMed
Warrants may be issued to a Person other than the Person in whose name the
surrendered Company Stock Certificate is registered if the Company Stock
Certificate representing such Company Common Stock is presented to the Exchange
Agent accompanied by all documents required to evidence and effect such transfer
and by evidence reasonably satisfactory to AccuMed that any applicable stock
transfer tax or other taxes required by reason of the issuance of shares of
AccuMed Common Stock and AccuMed Warrants has been paid or is not applicable.
AccuMed will not directly or indirectly pay or reimburse any Person for any
transfer taxes of the type referred to in the preceding sentence. If any AccuMed
Certificates or AccuMed Warrants are to be delivered to a Person other than the
Person in whose name the Company Stock Certificates surrendered in exchange
therefor are registered, it will be a condition to the delivery of such AccuMed
Certificates or AccuMed Warrants, as the case may be, that the Company Stock
Certificates so surrendered are properly endorsed or accompanied by appropriate
stock powers and otherwise in proper form for transfer, that such transfer
otherwise is proper and that the Person requesting such transfer pay to the
Exchange Agent any transfer or other taxes payable by reason of the foregoing or
establishes to the satisfaction of the Exchange Agent that such taxes have been
paid or are not required to be paid.
(c) Certificates Not Exchanged. After the Effective Time, each
outstanding Company Stock Certificate will, until surrendered for exchange in
accordance with this Section 3.2, be deemed for all purposes to evidence
ownership of the number of whole shares of AccuMed Common
7
<PAGE> 9
Stock and AccuMed Warrants into which the shares of Company Common Stock (which,
prior to the Effective Time, were represented thereby) are converted in
accordance with Section 3.1, together with the right to receive any dividend or
distribution with respect thereto made after the Effective Time.
(d) Expenses. Except as otherwise expressly provided in this Agreement,
AccuMed will pay all charges and expenses, including those of the Exchange
Agent, in connection with the exchange of shares of AccuMed Common Stock and
AccuMed Warrants for shares of Company Common Stock, except any charges or
expenses that are otherwise solely the liability of one or more holders of
Company Common Stock. Any AccuMed Certificates and AccuMed Warrants deposited
with the Exchange Agent that remain unclaimed by the former shareholders of the
Company after six months following the Effective Time will be delivered to
AccuMed upon its demand, and any former shareholders of the Company who have not
then complied with the instructions for exchanging their Company Stock
Certificates will thereafter look only to AccuMed for exchange of Company Stock
Certificates and for any dividend or distribution with respect thereto made
after the Effective Time.
SECTION 3.3 Dividends and Other Distributions. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of AccuMed Common Stock with a record date after the Effective Time will be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of AccuMed Common Stock issuable upon surrender thereof until the holder
of such Company Stock Certificate surrenders such Company Stock Certificate in
accordance with Section 3.2. Subject to the effect of applicable Legal
Requirements, following surrender of any such Company Stock Certificate, AccuMed
will pay or cause to be paid, without interest, to the record holder of AccuMed
Certificates issued in exchange therefor, (a) at the time of such surrender, the
amount, if any, of dividends or other distributions by AccuMed with a record
date after the Effective Time theretofore paid with respect to such whole shares
of AccuMed Common Stock and (b) at the appropriate payment date, the amount of
dividends or other distributions (if any) by AccuMed with a record date after
the Effective Time but prior to surrender of such Company Stock Certificate and
a payment date subsequent to such surrender payable with respect to such whole
shares of AccuMed Common Stock.
SECTION 3.4 No Liability. None of AccuMed, Acquisition Sub, the
Company, the Surviving Corporation or the Exchange Agent will be liable to any
holder of shares of Company Common Stock for any shares of AccuMed Common Stock,
AccuMed Warrants, dividends or distributions with respect thereto delivered to a
state abandoned property administrator or other public official pursuant to any
applicable abandoned property, escheat or similar law.
SECTION 3.5 Lost Certificates. If any Company Stock Certificate is
lost, stolen or destroyed, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Company Stock Certificate the shares of AccuMed Common
Stock (and any dividend or distribution with respect thereto made after the
Effective Time) deliverable in respect thereof as determined in accordance
8
<PAGE> 10
with the terms of this Agreement, subject to the condition that the Person to
whom the AccuMed Common Stock (and any dividend or distribution with respect
thereto made after the Effective Time) are to be issued, shall have (a)
delivered to AccuMed an affidavit claiming such Company Stock Certificate to be
lost, stolen, or destroyed and (b) if required by AccuMed, give AccuMed an
indemnity satisfactory to AccuMed against any claim that may be made against
AccuMed with respect to the Company Stock Certificate alleged to have been lost,
stolen or destroyed.
SECTION 3.6 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time that are held by holders of such shares
who have not voted in favor of the Merger or consented thereto in writing and
who have demanded appraisal rights with respect thereto in accordance with
Sections 607.1302 and 607.1320 of the FBCA (the "Dissenting Shares") will not be
converted into or be exchangeable for the right to receive shares of AccuMed
Common Stock, AccuMed Warrants or any dividend or distribution with respect
thereto made after the Effective Time, but holders of Dissenting Shares will be
entitled to receive payment of the fair value of their Dissenting Shares in
accordance with the provisions of the FBCA and this Section 3.6. Any shares of
Company Common Stock held by a shareholder who, prior to the Effective Time,
withdraws a demand for appraisal of such shares or loses the right to appraisal
as provided in the FBCA will not be considered Dissenting Shares. The Company
will give AccuMed prompt notice of any written demands for appraisal of any
shares of Company Common Stock, attempted withdrawals of such demand and any
other notices or other documents received by the Company pursuant to the FBCA
relating to shareholders' rights of appraisal. The Company will make all
payments required by the FBCA to be made in respect of Dissenting Shares,
including any costs assessed against the Company pursuant to Sections 607.1302
and 607.1320 of the FBCA, and AccuMed or any of its Affiliates will directly or
indirectly reimburse or otherwise provide funds to the Company with respect to
such payments.
SECTION 3.7 Treatment of Stock Options. On the Effective Time, all of
the Company's outstanding stock options to purchase an aggregate of 645,000
shares of Company Common Stock, at an exercise price of $5.00 per share, which
are held by 14 Persons, will be canceled and AccuMed will issue the following
stock options to such persons:
(a) Marcus E. Finch, a director and the Executive Vice President of the
Company, will receive stock options to purchase 500,000 shares of AccuMed Common
Stock, at an exercise price of $2.50 per share. The exercise period, terms of
vesting and other terms and conditions of the stock options to purchase AccuMed
Common Stock to be issued to Mr. Finch will be substantially the same as the
terms in Mr. Finch's present stock option to purchase 250,000 shares of Company
Common Stock.
(b) The three other directors of the Company have stock options to
purchase an aggregate of 250,000 shares of Company Common Stock, of which
options to purchase 125,000 shares of Company Common Stock have vested. At the
Effective Time, such directors will receive fully-vested stock options to
purchase an aggregate of 250,000 shares of AccuMed Common Stock, at
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<PAGE> 11
an exercise price of $2.50 per share. The exercise period and the other terms
and conditions of the stock options to purchase AccuMed Common Stock to be
issued to such directors will be substantially the same as the terms in such
directors' present stock options to purchase shares of Company Common Stock.
(c) The remaining 10 Persons holding stock options to purchase an
aggregate of 145,000 shares of Company Common Stock will be canceled and such
persons will receive stock options to purchase an aggregate of 290,000 shares of
AccuMed Common Stock, at an exercise price of $2.50 per share. The exercise
period, terms of vesting and other terms and conditions of the stock options to
purchase AccuMed Common Stock to be issued to such 10 Persons will be
substantially the same as the terms in such Persons' present stock options to
purchase shares of Company Common Stock.
(d) As soon as practicable after the Effective Time, AccuMed will file
a registration statement with the SEC covering all of the shares of AccuMed
Common Stock underlying the stock options referred to in this Section 3.7.
SECTION 3.8 Shareholders' Approval. Subject to fiduciary duty
obligations of the respective Boards of Directors of the Company and AccuMed
under applicable Legal Requirements, the Company and AccuMed will use their
respective best efforts, in accordance with applicable Legal Requirements and
the Articles of Incorporation and Bylaws of the Company and the Certificate of
Incorporation and Bylaws of AccuMed, to have this Agreement and the Merger
approved by the respective holders of capital stock of the Company and AccuMed
entitled to vote thereon. The Company and AccuMed will notify each other of the
date set for any shareholder action to be taken in connection with approval of
the Merger not later than 30 days prior to such date. The respective Boards of
Directors of the Company and AccuMed will, subject to fiduciary duty obligations
under applicable Legal Requirements, recommend that holders of the voting
capital stock of their respective companies vote to adopt this Agreement and
approve the Merger, and the transactions contemplated by this Agreement and will
use commercially reasonable efforts to solicit from such holders proxies in
favor of such approval and adoption and take all other action necessary or
helpful to secure such favorable vote.
SECTION 3.9 Closing of the Company's Transfer Books. At the Effective
Time, the stock transfer books of the Company will be closed and no transfer of
shares of Company Common Stock will be made thereafter. In the event that, after
the Effective Time, Company Stock Certificates are presented to the Surviving
Corporation, they will be canceled and exchanged for the AccuMed Certificates
and AccuMed Warrants, as provided in Section 3.2(b).
SECTION 3.10 Obligation of Good Faith and Assistance in Consummation of
the Merger. Each of AccuMed, Acquisition Sub and the Company agree to proceed in
good faith, provide all reasonable assistance to, and will cooperate with, each
other using their commercially reasonable efforts in order to effect the
execution of this Agreement and the consummation of the transactions
contemplated herein on an expedited basis.
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SECTION 3.11 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place (i) at the offices of Steel
Hector & Davis LLP, 200 South Biscayne Boulevard, Miami, Florida 33131, at 9:00
A.M. local time on the date that is the first business day after the day on
which the last of the conditions set forth in Article VIII (excluding delivery
of opinions and certificates) is fulfilled or waived or (ii) at such other place
and time as AccuMed and the Company agree in writing. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACCUMED AND ACQUISITION SUB
AccuMed and Acquisition Sub jointly and severally represent and warrant
to the Company as follows:
SECTION 4.1 Organization and Qualification. AccuMed is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, Acquisition Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida, and each
has all requisite corporate power and authority to carry on its business as it
is now being conducted. Each of AccuMed and Acquisition Sub is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary.
SECTION 4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
AccuMed consists of: (i) 50,000,000 shares of common stock, par value $.01 per
share, of which 5,491,901 shares are issued and outstanding; and (ii) 5,000,000
shares of series A convertible preferred stock, par value $.01 per share, of
which 944,383 shares are issued and outstanding. The preferred stock is
convertible into 629,620 shares of AccuMed Common Stock.
(b) Except as set forth on Schedule 4.2(b), there are no options,
warrants, convertible preferred stock, convertible notes, calls, subscriptions
or other rights, agreements or commitments of any kind (including preemptive
rights), to which AccuMed or any of its Subsidiaries is a party, relating to the
issued or unissued capital stock or other securities of AccuMed. Schedule 4.2(b)
sets forth all such options, warrants, convertible preferred stock,
convertible notes, calls, subscriptions or other rights, agreements or
commitments that are outstanding (i) the number of shares and the class or
series of capital stock of AccuMed issuable pursuant thereto, (ii) the exercise
or conversion price, (iii) the exercise or conversion period and (iv) if not
immediately exercisable or convertible, the date on which they can be exercised
or converted.
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(c) All shares of AccuMed Common Stock and AccuMed Warrants to be
issued in connection with the Merger, when issued in accordance with this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
(d) As of the date of this Agreement, the authorized capital stock of
Acquisition Sub consists of 1,000 shares of common stock, par value $.01 per
share, of which 1,000 shares are issues and outstanding, all of which are owned
beneficially and of record by AccuMed.
SECTION 4.3 Subsidiaries. All Equity Affiliates of AccuMed are listed
on Schedule 4.3 to this Agreement, which Schedule reflects the percentage and
nature of AccuMed's ownership of each Subsidiary and Equity Affiliate of
AccuMed. Each of AccuMed's Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation and has the corporate or partnership
power to carry on its business as it is now being conducted or currently
proposed to be conducted. Each of AccuMed's Subsidiaries is duly qualified as a
foreign corporation or partnership to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary except
where the failure to be so qualified would not have a Material Adverse Effect on
AccuMed. All the outstanding shares of capital stock of each of AccuMed's
Subsidiaries that is a corporation are validly issued, fully paid and
nonassessable. The shares of capital stock or partnership or other ownership
interests in each of AccuMed's Subsidiaries or Equity Affiliates that are owned
by AccuMed or by a Subsidiary of AccuMed are owned free and clear of any Liens,
are not subject to and have not been issued in violation of any preemptive
rights and have not been issued in violation of any federal or state securities
laws or any other Legal Requirement. There are not, as of the date hereof, and
at the Effective Time other than pursuant to this Agreement there will not be,
any outstanding options, warrants, convertible preferred stock, convertible
notes, calls or other rights, agreements or commitments of any character, to
which AccuMed or any of its Subsidiaries is a party, relating to the issued or
unissued capital stock, other securities or partnership or other ownership
interests in any of the Subsidiaries or Equity Affiliates of AccuMed.
SECTION 4.4 Authority Relative to this Agreement. Each of AccuMed and
Acquisition Sub has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement by AccuMed and Acquisition Sub
have been duly authorized by the Boards of Directors of AccuMed and Acquisition
Sub, and by AccuMed as the sole stockholder of Acquisition Sub, and no other
corporate proceedings on the part of AccuMed or Acquisition Sub are necessary to
authorize this Agreement and the transactions contemplated by this Agreement.
This Agreement constitutes a valid and binding obligation of each of AccuMed and
Acquisition Sub enforceable against each of them in accordance with its terms,
except (i) as enforcement may be limited by bankruptcy, insolvency or other
similar Legal Requirements affecting the enforcement of creditors' rights
generally, (ii) as the availability of indemnification and other remedies may be
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limited by federal and state securities laws and (iii) for limitations imposed
by general principles of equity.
SECTION 4.5 No Breach; Required Consents. The execution and delivery of
this Agreement by AccuMed and Acquisition Sub do not, and the consummation of
the transactions contemplated by this Agreement by AccuMed and Acquisition Sub
will not: (a) violate or conflict with the Certificate or Articles of
Incorporation or Bylaws of AccuMed or Acquisition Sub; (b) constitute a breach
or default (or an event that with notice or lapse of time or both would become a
breach or default) or give rise to any Lien, third party right of termination,
cancellation, modification or acceleration under any agreement or undertaking to
which AccuMed or Acquisition Sub is a party or by which any of them is bound; or
(c) subject to obtaining the approvals and making the filings described in
Section 4.6, constitute a violation of any applicable Legal Requirement.
SECTION 4.6 Consents and Approvals. Except as set forth on Schedule
4.6, neither the execution and delivery of this Agreement by AccuMed and
Acquisition Sub nor the consummation of the transactions contemplated by this
Agreement by AccuMed and Acquisition Sub will require AccuMed or Acquisition Sub
to make any filing, or registration with, or obtain any, authorization, consent
or approval of, any Governmental Entity, except those required in connection, or
in compliance, with the provisions of (i) the Securities Act of 1933, as amended
(the "Securities Act"), (ii) the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and (iii) the corporation, securities or blue sky laws or
regulations, or similar Legal Requirements, of various states of the United
States, and other than such filings, registrations, authorizations, consents or
approvals the failure of which to make or obtain would not have a Material
Adverse Effect on AccuMed or Acquisition Sub or prevent the consummation of the
transactions contemplated by this Agreement.
SECTION 4.7 Reports and Financial Statements.
(a) SEC Reports. AccuMed has filed all required forms, reports and
documents required to be filed with the SEC since AccuMed was incorporated,
(collectively, the "AccuMed SEC Reports"). As of their respective dates or
effective dates and except as the same may have been corrected, updated or
superseded by means of a subsequent filing with the SEC prior to the date of
this Agreement, none of the AccuMed SEC Reports, including any financial
statements or schedules included or incorporated by reference therein, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. AccuMed has delivered to the Company, in the forms
filed with the SEC, all the AccuMed SEC Reports filed since December 1995.
(b) Financial Statements. The audited consolidated financial statements
of AccuMed contained in the AccuMed SEC Reports comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved
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(except as may be indicated in the notes thereto) and present fairly AccuMed's
consolidated financial condition and the results of its operations as of the
relevant dates thereof and for the periods covered thereby. The unaudited
consolidated interim financial statements contained in the AccuMed SEC Reports
comply in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC, with respect thereto, were
prepared on a basis consistent with prior interim periods (except as required by
applicable changes in GAAP or in SEC accounting policies) and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of AccuMed's consolidated financial condition and results of
operations for such periods.
(c) Absence of Certain Changes. Except as disclosed in the AccuMed SEC
Reports, since the date of the most recent balance sheet of AccuMed included in
AccuMed's Form 10-Q for the nine-month period ended September 30, 1999 (the
"Most Recent AccuMed Balance Sheet"), there has not been any: (i) transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that, individually
or in the aggregate, has had, or would have, a Material Adverse Effect on
AccuMed; (ii) declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of AccuMed; or (iii) entry into any commitment or transaction material to
AccuMed and its Subsidiaries taken as a whole (including any borrowing or sale
of assets) except in the ordinary course of business consistent with past
practice.
(d) Absence of Undisclosed Liabilities. Except as disclosed in the
AccuMed SEC Reports, AccuMed does not have any indebtedness, liability or
obligation required by GAAP to be reflected on a balance sheet that is not
reflected or reserved against in the Most Recent AccuMed Balance Sheet other
than liabilities, obligations and contingencies that (i) were incurred after the
date of the Most Recent AccuMed Balance Sheet in the ordinary course of business
or (ii) would not, in the aggregate, have a Material Adverse Effect on AccuMed.
SECTION 4.8 Compliance with Law; Litigation.
(a) Except as disclosed in the AccuMed SEC Reports, AccuMed and its
Subsidiaries hold all permits, licenses, franchises, variances, exemptions,
concessions, leases, instruments, orders and approvals (the "AccuMed Permits")
of all courts, administrative agencies or commissions or other governmental
authorities or instrumentalities, domestic or foreign (each, a "Governmental
Entity") required to be held under applicable Legal Requirements, except for
such AccuMed Permits the failure of which to hold, individually or in the
aggregate, does not have and, in the future is not likely to have, a Material
Adverse Effect on AccuMed. AccuMed and its Subsidiaries are in compliance with
the terms of the AccuMed Permits, except for such failures to comply that,
individually or in the aggregate, would not have a Material Adverse Effect on
AccuMed. The businesses of AccuMed and its Subsidiaries are not being conducted
in violation of any Legal Requirement. No investigation or review by any
Governmental Entity with respect to AccuMed or any of its Subsidiaries is
pending or, to the Knowledge of AccuMed, threatened,
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<PAGE> 16
nor has any Governmental Entity indicated to AccuMed in writing an intention to
conduct the same, other than those the outcome of which would not have a
Material Adverse Effect on AccuMed.
(b) Except as disclosed in the AccuMed SEC Reports or on Schedule 4.8
(b), there is no suit, action or proceeding pending or, to the knowledge of
AccuMed, threatened, against or affecting AccuMed or any of its Subsidiaries
that has had or is likely to have a Material Adverse Effect on AccuMed nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against AccuMed or any of its Subsidiaries that has
had or is likely to have a Material Adverse Effect on AccuMed.
SECTION 4.9 Title to Assets. Except as disclosed in the AccuMed SEC
Reports, AccuMed and its Subsidiaries have good and merchantable title to all
material assets included in AccuMed's Most Recent Balance Sheet, free and clear
of any Lien except: (a) landlord's Liens and Liens for property taxes not
delinquent; (b) statutory Liens that were created in the ordinary course of
business and do not materially detract from the value of such assets or
materially impair the use thereof in the operation of AccuMed's business; (c)
leased interests in property owned by others and leased interests in property
leased to others; and (d) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions, or other restrictions or
encumbrances relating to or affecting real property that do not, individually or
in the aggregate, materially interfere with the use of such real property in the
operation of AccuMed's business.
SECTION 4.10 Labor and Employee Matters. AccuMed is not a party to any
contract with any labor organization and has not agreed to recognize any union
or other collective bargaining unit. As of the date of this Agreement, no union
or other collective bargaining unit has been certified as representing any of
AccuMed's employees. As of the date of this Agreement, there is no
representation or organizing effort pending or threatened against or affecting
or involving AccuMed. AccuMed and its Subsidiaries are in compliance with all
applicable Legal Requirements relating to the employment of employees, including
any obligations relating to employment standards legislation, pay equity,
occupational health and safety, labor relations and human rights legislation.
Schedule 4.10 sets forth all agreements or arrangements with any employee of
AccuMed, whether oral or in writing, with respect to such employee's employment
with AccuMed other than agreements or arrangements otherwise disclosed on
Schedule 4.11 (a).
SECTION 4.11 ERISA.
(a) Schedule 4.11(a) sets forth all "employee benefit plans," as
defined in ERISA, and all other material employee benefit arrangements, programs
or payroll practices, including severance pay, sick leave, vacation pay, salary
continuation for disability, deferred compensation, bonus, stock purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement,
employee assistance and employee discounts, that AccuMed or any of its ERISA
Affiliates maintains or has an obligation to make contributions (the "AccuMed
Benefit Plans").
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(b) Neither AccuMed nor any of its ERISA Affiliates has incurred any
unsatisfied withdrawal liability, as defined in Section 4201 of ERISA, with
respect to any multiemployer plan, nor has any of them incurred any liability
due to the termination or reorganization of any multiemployer plan. Neither
AccuMed nor any of its ERISA Affiliates reasonably expects to incur any
liability due to a withdrawal from or termination or reorganization of a
multiemployer plan.
(c) Each AccuMed Benefit Plan that is intended to qualify under Section
401 of the Code and the trust maintained pursuant thereto has been determined to
be exempt from federal income taxation under Section 501 of the Code by the
Internal Revenue Service, and nothing has occurred with respect to any such plan
since such determination that is likely to result in the loss of such exemption
or the imposition of any material liability, penalty or tax under ERISA or the
Code. Each AccuMed Benefit Plan has at all times been maintained in all material
respects, by its terms and in operation, in accordance with all applicable Legal
Requirements.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under the
AccuMed Benefit Plans or pursuant to applicable Legal Requirements (without
regard to any waivers granted under Section 412 of the Code) to any funds or
trusts established thereunder or in connection therewith have been made by the
due date thereof (including any valid extension or grace period) and no
accumulated funding deficiency exists with respect to any of the AccuMed Benefit
Plans subject to Section 412 of the Code.
(e) There have been no violations of ERISA or the Code with respect to
the filing of applicable reports, documents and notices regarding the AccuMed
Benefit Plans with the Secretary of Labor and the Secretary of the Treasury or
the furnishing of such reports, documents and notices to the participants or
beneficiaries of the AccuMed Benefit Plans.
(f) There are no pending actions, claims or lawsuits that have been
asserted or instituted against the AccuMed Benefit Plans, the assets of any of
the trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the AccuMed Benefit Plans, with respect to the
operation of such plans (other than routine benefit claims), nor does AccuMed
have Knowledge of facts that reasonably could be expected to form the basis for
any such action, claim or lawsuit, except any such actions, claims or lawsuits
that, individually or in the aggregate, would not have a Material Adverse Effect
on AccuMed.
(g) Except as provided in Schedule 4.11(g) and as may be required under
Section 4980B of the Code, neither AccuMed nor any of its ERISA Affiliates
maintains any AccuMed Benefit Plan that provides medical or welfare benefits to
former employees.
SECTION 4.12 Operations of Acquisition Sub. As of the date of this
Agreement, Acquisition Sub has engaged in no other business activities other
than this Agreement and the transactions contemplated by this Agreement and has
no material assets or liabilities other than its rights and obligations under
this Agreement.
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SECTION 4.13 No Broker. Except for First Level Capital, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of AccuMed or
Acquisition Sub. Within two (2) business days after AccuMed's receipt of the
first $1 million of net proceeds from an equity, debt or hybrid financing after
the Closing Date, First Level Capital will receive from AccuMed: (a) $50,000 in
cash and (b) five-year warrants to purchase 100,000 shares of AccuMed Common
Stock at an exercise price of $6.75 per share.
SECTION 4.14 Taxes.
(a) Each of AccuMed and its Subsidiaries has filed all material tax
returns and reports required to be filed by it and all such returns and reports
are complete and correct in all material respects, or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file, to be complete or
correct or to have extensions granted that remain in effect individually or in
the aggregate are not reasonably likely to have a material adverse effect on
AccuMed. The Company and each of its Subsidiaries has paid (or AccuMed has paid
on its behalf) all taxes shown as due on such returns, and the AccuMed SEC
Reports reflect an adequate reserve for all taxes payable by AccuMed and its
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(b) No deficiencies for any taxes have been proposed, asserted or
assessed against AccuMed or any of its Subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate are
not reasonably likely to have a Material Adverse Effect on AccuMed. The federal
income tax returns of AccuMed and each of its Subsidiaries consolidated in such
returns have closed by virtue of the applicable statute of limitations.
(c) Neither AccuMed nor any of its Subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a)(2)(e) of the Code.
(d) The AccuMed employee compensation arrangements in effect as of the
date of this Agreement have been designed so that the disallowance of a material
deduction under Section 162(m) of the Code for employee remuneration will not
apply to any amounts paid or payable by AccuMed or any of its Subsidiaries under
any such plan or arrangement and, to the Knowledge of AccuMed, no fact or
circumstance exists that is reasonably likely to cause such disallowance to
apply to any such amounts.
(e) Neither AccuMed nor any of its Subsidiaries has constituted either
a "distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years prior to the date of this Agreement
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or (y) in a distribution which could otherwise constitute part of a "plan" or
"series of related transactions" (within the meaning of Section 355(e) of the
Code) in conjunction with the Merger.
(f) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or additions
with respect thereto, (y) liability for the payment of any amounts of the type
described in (x) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (z) liability for the payment of any amounts as a
result of being party to any tax sharing agreement or as a result of any express
or implied obligation to indemnify any other person with respect to the payment
of any amounts of the type described in clause (x) or (y).
SECTION 4.15 Environmental Laws.
(a) Each of AccuMed and its Subsidiaries is in compliance in all
respects with all Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect on AccuMed; and
(b) No orders, directions or notices have been issued pursuant to any
Environmental Law and no Governmental Entity has submitted to any of AccuMed and
its Subsidiaries any request for information pursuant to any Environmental Law.
SECTION 4.16 Transactions with Affiliates. Except as disclosed in the
AccuMed SEC Reports or as contemplated by this Agreement, there is no lease,
sublease, indebtedness, contract, agreement, commitment, understanding or other
arrangement of any kind entered into by AccuMed with any officer, director or
shareholder of AccuMed or any "affiliate" or "associate" of any of them (as
those terms are defined in the Exchange Act) or of AccuMed, except, in each
case, for compensation paid to directors and officers consistent with previously
established policies (including normal merit increases in such compensation in
the ordinary course of business), reimbursements of ordinary and necessary
expenses incurred in connection with their employment and amounts paid or
benefits granted pursuant to AccuMed Benefit Plans.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to AccuMed and Acquisition Sub as
follows:
SECTION 5.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and has all requisite corporate power and authority to
carry on its business as it is now being conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
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each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Common Stock, $.001 par value per share, of which 5,423,292
shares are issued and outstanding.
(b) Except as set forth on Schedule 5.2(b), there are no options,
warrants, calls, subscriptions convertible preferred stock, convertible notes or
other rights, agreements or commitments of any kind (including preemptive
rights), to which the Company or any of its Subsidiaries is a party, relating to
the issued or unissued capital stock or other securities of the Company.
Schedule 5.2 (b) sets forth all such options, warrants, calls, subscriptions or
other rights, agreements or commitments that are outstanding (i) the number of
shares and the class or series of capital stock of the Company issuable pursuant
thereto, (ii) the exercise or conversion price, (iii) the exercise or conversion
period and (iv) if not immediately exercisable or convertible, the date on which
they can be exercised or converted. On the Effective Time, all such options,
warrants, calls, subscriptions or other rights, agreements or commitments set
forth on Schedule 5.2(b), will be canceled and holders thereof will receive the
AccuMed Stock options referred to in Section 3.7 hereof.
(c) All issued and outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable, are not
subject to, and have not been issued in violation of, any preemptive rights, and
have not been issued in violation of any federal or state securities laws or any
other Legal Requirement.
SECTION 5.3 Subsidiaries. All Equity Affiliates of the Company are
listed on Schedule 5.3 to this Agreement, which Schedule reflects the percentage
and nature of the Company's ownership of each Subsidiary and Equity Affiliate of
the Company. Each of the Company's Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation and has the corporate or partnership
power to carry on its business as it is now being conducted or currently
proposed to be conducted. Each of the Company's Subsidiaries is duly qualified
as a foreign corporation or partnership to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary except
where the failure to be so qualified will not have a Material Adverse Effect on
the Company. All the outstanding shares of capital stock of each of the
Company's Subsidiaries that is a corporation are validly issued, fully paid and
nonassessable. The shares of capital stock or partnership or other ownership
interests in each of the Company's Subsidiaries or Equity Affiliates that are
owned by the Company or by a Subsidiary of the Company are owned free and clear
of any Liens, are not subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any federal or state
securities laws or any other Legal
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Requirement. Except as set forth on Schedule 5.2(b), there are not, as of the
date hereof, and at the Effective Time there will not be, any outstanding
options, warrants, calls convertible preferred stock, convertible notes, or
other rights, agreements or commitments of any character, to which the Company
or any of its Subsidiaries is a party, relating to the issued or unissued
capital stock, other securities or partnership or other ownership interests in
any of the Subsidiaries or Equity Affiliates of the Company.
SECTION 5.4 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and, subject to approval of this Agreement by the holders of the Company Common
Stock, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by the
Company's Board of Directors. Except for the approval of the holders of Company
Common Stock, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated by this
Agreement. Subject to approval of the shareholders of the Company in accordance
with the FBCA, this Agreement constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms except (i) as enforcement may
be limited by bankruptcy, insolvency or other similar Legal Requirements
affecting the enforcement of creditors' rights generally, (ii) as the
availability of indemnification and other remedies may be limited by federal and
state securities laws and (iii) for limitations imposed by general principles of
equity.
SECTION 5.5 No Breach; Required Consents. The execution and delivery of
this Agreement by the Company does not, and the consummation of the transactions
contemplated by this Agreement by the Company will not: (a) subject to the
approval of holders of Company Common Stock, violate or conflict with the
Articles of Incorporation or Bylaws of the Company; (b) constitute a breach or
default (or an event that with notice or lapse of time or both would become a
breach or default) or give rise to any Lien, third-party right of termination,
cancellation, modification or acceleration under any agreement or undertaking to
which the Company is a party or by which it is bound, or (c) subject to
obtaining the consents, approvals or authorizations and making the filings or
registrations described in Section 5.6, constitute a violation of any Legal
Requirement.
SECTION 5.6 Consents and Approvals. Except as set forth on Schedule
5.6, neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated by this Agreement by the Company
will require the Company to make any filing or registration with, or obtain any
authorization, consent or approval of, any Governmental Entity or any other
Person.
SECTION 5.7 Reports and Financial Statements.
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(a) Financial Statements. The Company has provided to AccuMed copies of
its audited financial statements for December 31, 1998 and the unaudited interim
financial statements for September 30, 1999 (the "Company Financial
Statements"), which comply in all material respects with applicable accounting
requirements, were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), present fairly the Company's consolidated financial condition and the
results of its operations as of the relevant dates thereof and for the periods
covered thereby, and include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the Company's
consolidated financial condition and results of operations for such periods.
(b) Absence of Certain Changes. Since the date of the most recent
consolidated balance sheet of the Company included in the Company Financial
Statements and except as set forth on Schedule 5.7(b), there has not been any:
(i) transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
that, individually or in the aggregate, has had, or would have, a Material
Adverse Effect on the Company (other than as a result of changes in laws or
regulations of general applicability or any changes. resulting from general
economic, financial, market or industry-wide conditions); (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of the Company; or (iii)
entry into any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including any borrowing or sale of assets) except
in the ordinary course of business consistent with past practice.
(c) Absence of Undisclosed Liabilities. The Company does not have any
indebtedness, liability or obligation required by GAAP to be reflected on a
balance sheet that is not reflected or reserved against in the Company Financial
Statements other than liabilities, obligations and contingencies that (i) were
incurred after the date of the Company Financial Statement in the ordinary
course of business or (ii) would not, in the aggregate, have a Material Adverse
Effect on the Company.
SECTION 5.8 Compliance with Law; Litigation.
(a) Except as disclosed on Schedule 5.8, the Company and its
Subsidiaries hold all permits, licenses, franchises, variances, exemptions,
concessions, leases, instruments, orders and. approvals (the "Company Permits")
of all Governmental Entities required to be held under applicable Legal
Requirements, except such Company Permits the failure of which to hold,
individually or in the aggregate, does not have and, in the future is not likely
to have, a Material Adverse Effect on the Company. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except for
such failures to comply that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any Legal Requirement. No
investigation or review by any Governmental Entity with respect to the Company
or any of its Subsidiaries is pending, or, to the Knowledge of the Company,
threatened, nor has any
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Governmental Entity indicated to the Company in writing an intention to conduct
the same, other than those the outcome of which would not have a Material
Adverse Effect on the Company.
(b) There is no suit, action or proceeding pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries that has had or is likely to have a Material Adverse Effect on the
Company nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
Subsidiaries that has had or is likely to have a Material Adverse Effect on the
Company.
SECTION 5.9 Title to Assets. The Company and its Subsidiaries have good
and merchantable title to all material assets reflected on the Company Financial
Statements, free and clear of any Lien except: (a) landlord's Liens and Liens
for property taxes not delinquent; (b) statutory Liens that were created in the
ordinary course of business and do not materially detract from the value of such
assets or materially impair the use thereof in the operation of the Company's
business; (c) the Liens listed on Schedule 5.9; (d) leased interests in property
owned by others; and leased interests in property leased to others; and (e)
zoning, building or similar restrictions, easements, rights-of-way, reservations
of rights, conditions, or other restrictions or encumbrances relating to or
affecting real property that do not, individually or in the aggregate,
materially interfere with the use of such real property in the operation of the
Company's business.
SECTION 5.10 Labor and Employee Matters. Schedule 5.10 sets forth all
agreements or arrangements with any employee of the Company and its Subsidiary,
whether oral or in writing, with respect to such employee's employment with the
Company or its Subsidiary.
SECTION 5.11 Approval.
(a) The Board of Directors of the Company at a meeting duly called and
held: (i) determined that the Merger is advisable and fair and in the best
interests of the Company and its shareholders; (ii) approved the Merger, and
this Agreement and the transactions contemplated by this Agreement in accordance
with the provisions of Section 607.1101 of the FBCA; and (iii) recommended the
approval of this Agreement, and the Merger by the holders of the Company Common
Stock and directed that the Merger be submitted for consideration by the
Company's shareholders at the Meeting in accordance with the provisions of
Section 607.1103 of the FBCA.
(b) The vote of 80% of the outstanding shares of the Company Common
Stock entitled to vote, voting as a single class, is the vote required for the
adoption and approval of this Agreement, the Merger and the other transactions
contemplated by this Agreement. No class or series of shares of capital stock of
the Company is entitled to vote on the adoption and approval of this Agreement,
the Merger, or the other transactions contemplated by this Agreement as a
separate class or series.
SECTION 5.12 Taxes.
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(a) Each of the Company and its Subsidiary has filed all material tax
returns and reports required to be filed by it and all such returns and reports
are complete and correct in all material respects, or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file, to be complete or
correct or to have extensions granted that remain in effect individually or in
the aggregate are not reasonably likely to have a Material Adverse Effect on the
Company. The Company and its Subsidiary has paid (or the Company has paid on its
behalf) all taxes shown as due on such returns, and the Company Financial
Statements reflect an adequate reserve for all taxes payable by the Company and
its Subsidiary for all taxable periods and portions thereof accrued through the
date of such financial statements.
(b) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiary that are not adequately
reserved for, except for deficiencies that individually or in the aggregate are
not reasonably likely to have a Material Adverse Effect on the Company. The
federal income tax returns of the Company and its Subsidiary consolidated in
such returns have closed by virtue of the applicable statute of limitations.
(c) Neither the Company nor its Subsidiary has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a)(2)(e) of the Code.
(d) Neither the Company nor its Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
SECTION 5.13 Environmental Laws.
(a) Each of the Company and its Subsidiary is in compliance in all
respects with all Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect on the Company; and
(b) No orders, directions or notices have been issued pursuant to any
Environmental Law and no Governmental Entity has submitted to any of the Company
and its Subsidiary any request for information pursuant to any Environmental
Law.
SECTION 5.14 Transactions with Affiliates. Except as disclosed in the
Company Financial Statements or Schedule 5.14, there is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding or other
arrangement of any kind entered into by the Company with any officer, director
or shareholder of the Company, its Subsidiary or any "affiliate" or
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"associate" of any of them (as those terms are defined in the Exchange Act) or
of the Company or its Subsidiary, except, in each case, for compensation paid to
directors and officers consistent with previously established policies
(including normal merit increases in such compensation in the ordinary course of
business), reimbursements of ordinary and necessary expenses incurred in
connection with their employment.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business of the Company. Prior to the Effective
Time without the prior consent of AccuMed:
(a) The Company will conduct, and will cause its Subsidiary to conduct,
its business in the ordinary course, and will use, and will cause its Subsidiary
to use, its reasonable best efforts to preserve intact its present business
organization and to preserve relationships with customers, suppliers and others
having business dealings with them.
(b) Except as required or permitted by this Agreement, the Company will
not, and will not permit its Subsidiary to: (i) sell or pledge or agree to sell
or pledge any capital stock or other ownership interest in its Subsidiary; (ii)
amend or propose to amend the Articles of Incorporation or Bylaws of the Company
or its Subsidiary; (iii) split, combine or reclassify its outstanding capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of, or
other ownership interests in, the Company or its Subsidiary, or declare, set
aside or pay any dividend or other distribution to shareholders of the Company;
(iv) directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of capital stock of, or other
ownership interests in, the Company or its Subsidiary; or (v) agree to do any of
the foregoing.
(c) The Company will not, and will not permit its Subsidiary to: (i)
issue, deliver or sell or agree to issue, deliver or sell any shares of capital
stock of, or other ownership interests in, the Company or its Subsidiary, or any
option, warrant or other right to acquire, or any security convertible into,
shares of capital stock of, or other ownership interests in, the Company or its
Subsidiary, except as required or permitted by this Agreement; (ii) acquire,
lease or dispose of any assets, other than in the ordinary course of business
consistent with past practice; (iii) (A) create, assume or incur any
indebtedness for borrowed money exceeding $300,000 and, with the approval of the
Chief Executive Officer of AccuMed, any indebtedness incurred in acquiring any
equipment or inventory from Microsulis PLC, other than indebtedness incurred
from AccuMed in accordance with Section 6.3 hereof or to refinance outstanding
indebtedness in an amount not exceeding the principal amount of the indebtedness
being refinanced and indebtedness owed by the Company to its Subsidiary or by
way of the Company's Subsidiary to the Company or the Subsidiary of the Company,
(B) mortgage, pledge or subject to any Lien any of its assets except to secure
indebtedness permitted by the foregoing clause (A) and Liens described in
clauses (a)
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through (e) of Section 5.9 or (C) enter into any other material transaction
other than in each case in the ordinary course of business consistent with past
practice; (iv) make any payments with respect to any indebtedness of the Company
or its Subsidiary except such payments that are scheduled to come due prior to
the Effective Time, (v) acquire by merging or consolidating with, or by
acquiring assets of, or by purchasing a substantial ownership interest in, or by
any other method, any business or any other Person, in each case in this clause
(v) that are material, individually or in the aggregate, to the Company and its
Subsidiary taken as a whole; (vi) loan any money; or (vii) agree to do any of
the foregoing.
(d) Except as required to comply with applicable Legal Requirements or
as otherwise contemplated by this Agreement, the Company will not, and will not
permit its Subsidiary to: (i) adopt or terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current or
former employee; (ii) increase in any manner the compensation or benefits of any
director, officer or employee (except normal increases in the ordinary course of
business consistent with past practice); (iii) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement; (iv) take any
action to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement (except in
the ordinary course of business consistent with past practice); or (v) agree to
do any of the foregoing.
(e) The Company will not take or agree to take, and will cause its
Subsidiary not to take or agree to take, any action that would: (i) make any
representation or warranty of the Company set forth in this Agreement untrue or
incorrect so as to cause the condition set forth in Section 8.3 (a) of this
Agreement not to be fulfilled as of the Effective Time; or (ii) result in any of
the other conditions of this Agreement set forth in Section 8.1 or Section 8.3
of this Agreement not to be satisfied as of the Effective Time.
SECTION 6.2 Conduct of Business of AccuMed. Prior to the Effective
Time, except as set forth on Schedule 6.2 to this Agreement, without the prior
consent of the Company:
(a) AccuMed will conduct, and will cause each of its Subsidiaries to
conduct, its business in the ordinary course, and will use, and will cause each
of its Subsidiaries to use, its reasonable best efforts to preserve intact its
present business organization and to preserve relationships with customers,
suppliers and others having business dealings with them.
(b) Except as required or permitted by this Agreement, AccuMed will
not, and will not permit any of its Subsidiaries to: (i) except upon exercise or
conversion of options, warrants, convertible preferred stock, or convertible
notes listed on Schedule 4.2(b), sell or pledge or agree to sell or pledge any
capital stock or other ownership interest in any of its Subsidiaries; (ii) amend
or propose to amend the Certificate of Incorporation, Articles of Continuation
or Bylaws of AccuMed or any of its Subsidiaries; (iii) split, combine or
reclassify its outstanding capital
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stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of, or
other ownership interests in, AccuMed or any of its Subsidiaries, or declare,
set aside or pay any dividend or other distribution to shareholders of AccuMed;
(iv) directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of capital stock of, or other
ownership interests in, AccuMed or any of its Subsidiaries; or (v) agree to do
any of the foregoing.
(c) AccuMed will not, and will not permit any of its Subsidiaries to:
(i) issue, deliver or sell or agree to issue, deliver or sell any shares of
capital stock of, or other ownership interests in, AccuMed or any of its
Subsidiaries, or any option, warrant or other right to acquire, or any security
convertible into, shares of capital stock of, or other ownership interests in,
AccuMed or any of its Subsidiaries, except as required or permitted by this
Agreement; (ii) acquire, lease or dispose of any assets, other than in the
ordinary course of business consistent with past practice; (iii) (A) create,
assume or incur any indebtedness for borrowed money exceeding $100,000, other
than indebtedness incurred to refinance outstanding indebtedness in an amount
not exceeding the principal amount of the indebtedness being refinanced and
indebtedness owed by AccuMed to any of its Subsidiaries or by way of AccuMed's
Subsidiaries to AccuMed or any other Subsidiary of AccuMed, (B) mortgage, pledge
or subject to any Lien any of its assets except to secure indebtedness permitted
by the foregoing clause (A) and Liens described in clauses (a) through (d) of
Section 4.9 or (C) enter into any other material transaction other than in each
case in the ordinary course of business consistent with past practice; (iv) make
any payments with respect to any indebtedness of AccuMed or its Subsidiaries
except such payments that are scheduled to come due prior to the Effective Time,
(v) acquire by merging or consolidating with, or by acquiring assets of, or by
purchasing a substantial ownership interest in, or by any other method, any
business or any other Person, in each case in this clause (v) that are material,
individually or in the aggregate, to AccuMed and its Subsidiaries taken as a
whole; or (vi) agree to do any of the foregoing.
(d) Except as required to comply with applicable Legal Requirements or
existing Company Benefit Plans or as otherwise contemplated by this Agreement,
AccuMed will not, and will not permit any of its Subsidiaries to: (i) adopt or
terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other Company Benefit Plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current or
former employee; (ii) increase in any manner the compensation or benefits of any
director, officer or employee (except normal increases in the ordinary course of
business consistent with past practice); (iii) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Company
Benefit Plan; (iv) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement, contract
or arrangement or Company Benefit Plan (except in the ordinary course of
business consistent with past practice); or (v) agree to do any of the
foregoing.
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(e) AccuMed will not take or agree to take, and will cause its
Subsidiary not to take or agree to take, any action that would: (i) make any
representation or warranty of AccuMed set forth in this Agreement untrue or
incorrect so as to cause the condition set forth in Section 8.2 (a) of this
Agreement not to be fulfilled as of the Effective Time; or (ii) result in any of
the other conditions of this Agreement set forth in Section 8.1 or Section 8.2
of this Agreement not to be satisfied as of the Effective Time.
SECTION 6.3 Loan from AccuMed to the Company. Prior to the Effective
Time:
(a) Notwithstanding the provisions of Section 6.2 hereof, AccuMed will
lend to the Company and/or Microsulis (Canada), Inc., a wholly-owned subsidiary
of the Company (collectively the "Debtors"), up to an aggregate of U.S.$620,000
(of which U.S. $310,000 was loaned to Microsulis (Canada), Inc. on October 18,
1999) from time to time in U.S. dollar increments equal to the agreed value of
the microwave endometrial ablation systems and related applicators pledged (the
"Collateral") to secure the repayment obligations of the Debtors to AccuMed.
Such loans shall be made on the following terms and conditions:
(i) the parties will execute promissory notes (the "Notes")
and a security agreement (the "Security Agreement"), containing substantially
the same terms as set forth in the Note and Security Agreement relating to the
October 18, 1999 loan;
(ii) the Notes will bear interest at the rate of 10% per
annum, payable semi-annually in arrears;
(iii) all indebtedness of Debtors to AccuMed pursuant to this
Section 6.3 will be due and payable on May 18, 2000.
(b) Following the lending of the $620,000 referred to in Section
6.3(a), and upon the written request of the Company, AccuMed will lend the
Company up to an additional U.S.$30,000, the repayment obligations of which will
be secured by the Collateral then pledged to AccuMed, without the requirement of
any additional security. Such transactions shall be evidence by a promissory
note in substantially the form as the Notes evidencing the indebtedness
contemplated by Section 6.3(a)(i), and an amendment to the Security Agreement
made by Debtor(s) in favor of AccuMed.
SECTION 6.4 Remedies for Breach. The sole remedies (i) of AccuMed and
Acquisition Sub for any breach by the Company of Section 6.1(e), and (ii) of the
Company for any breach by AccuMed of Section 6.2(e), will be injunctive relief
or termination of this Agreement pursuant to Article X, unless, in any case,
such breach is willful or intentional, in which event any and all available
legal or equitable remedies may be obtained.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access and Information. Each of the Company and AccuMed and
their respective Subsidiaries will afford to the other and to the other's
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel.
SECTION 7.2 SEC Filings.
(a) AccuMed will prepare as soon as reasonably practicable after the
date of this Agreement and file with the SEC a proxy statement/registration
statement (the "Preliminary Proxy Statement/Prospectus"), comprising preliminary
proxy materials of AccuMed under the Exchange Act with respect to the Merger
and, a Registration Statement on Form S-4 and preliminary prospectus under the
Securities Act with respect to the AccuMed Common Stock, the AccuMed Warrants
and the AccuMed Common Stock underlying the AccuMed Warrants to be issued in the
Merger. AccuMed will thereafter use its reasonable best efforts to respond to
any comments of the SEC with respect thereto and to cause a definitive proxy
statement/registration statement (including an supplements and amendments
thereto; the "Proxy Statement/Prospectus") and proxy to be mailed to AccuMed's
shareholders as of the record date for the meeting as promptly as practicable.
(b) The Company and AccuMed will cooperate with each other and provide
all information necessary to prepare the Preliminary Proxy Statement/Prospectus,
the Proxy Statement/Prospectus and any other filings required under the
Securities Act and the Exchange Act (collectively "SEC Filings") and will
provide promptly to the other party any information that such party may obtain
that could necessitate amending any such document.
(c) AccuMed will notify the Company promptly of the receipt of any
comments from the SEC or its staff or any other government official and of any
requests by the SEC or its staff or any other government official for amendments
or supplements to any of the SEC Filings or for additional information and will
supply the Company with copies of all correspondence between AccuMed or any of
its representatives and the SEC or its staff or any other government official
with respect thereto. If at any time prior to the Effective Time, any event
occurs that should be set forth in an amendment of, or a supplement to, any of
the SEC Filings, AccuMed promptly will prepare and file such amendment or
supplement and will distribute such amendment or supplement as required by
applicable Legal Requirements, including, in the case of an amendment or
supplement to the Proxy Statement/Prospectus, mailing such supplement or
amendment to the Company's shareholders as of the record date for the meeting.
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(d) AccuMed covenants that the SEC Filings (other than any information
provided by the Company for inclusion in the SEC Filings) (i) will comply in all
material respects with the Securities Act and the Exchange Act and (ii) will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they are made, not
misleading.
(e) AccuMed will be responsible for all reasonable expenses incurred in
complying with this Section 7.2, including all registration, qualification and
filing fees, printing expenses, fees and disbursements of counsel (including
counsel to the Company if the Merger is consummated or if the Company terminates
this Agreement due to a material breach of the agreements, covenants,
representations or warranties of AccuMed and/or Acquisition Sub set forth
herein) and applicable blue-sky fees and expenses. Notwithstanding any provision
contained herein to the contrary, AccuMed's obligations under this Section
7.2(e) will survive the termination of this Agreement by the Company due to a
material breach of the agreements, covenants, representations or warranties of
AccuMed contained herein.
(f) (i) AccuMed will indemnify, defend, and hold harmless the Company,
its officers, directors, employees and agents and each other Person, if any, who
controls any of the foregoing within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities (collectively, "Losses"), joint or several, to which any of the
foregoing may become subject under the Securities Act or the Exchange Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise out of
or are based upon (A) an untrue statement or alleged untrue statement of a
material fact contained in any SEC Filing, or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that such misstatement or
omission was based on or omitted from information provided by AccuMed in writing
for inclusion in the SEC Filings or was made in reliance upon and in conformity
with such information. AccuMed promptly will reimburse the Company and each such
officer, director, employee, agent and controlling Person for any reasonable
legal or any other expenses reasonably incurred by any of them in connection
with investigating or defending any such Losses (or action in respect thereof).
(ii) If this Agreement is terminated prior to the consummation
of the Merger, the Company will indemnify, defend and hold harmless each of
AccuMed and Acquisition Sub and their officers and directors and each other
Person, if any, who controls any of the foregoing within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, against any Losses,
joint or several, to which any of the foregoing may become subject under the
Securities Act or the Exchange Act or otherwise, insofar as such Losses (or
actions in respect thereof) arise out of or are based upon (A) an untrue
statement or alleged untrue statement of a material fact contained in any SEC
Filing or (B) the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, provided that the
misstatement or
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omission was based on or omitted from information provided by the Company in
writing for use in the SEC Filings. The Company promptly will reimburse AccuMed
and Acquisition Sub and each such officer, director and controlling Person for
any reasonable legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such Losses (or action in respect
thereof).
(iii) For purposes of this Section 7.2, (A) "Indemnifying
Party" means the Person having an obligation hereunder to indemnify any other
Person pursuant to this Section 7.2, (B) "Indemnified Party" means the Person
having the right to be indemnified pursuant to this Section 7.2 and (C) any
information concerning the Company that is included in any SEC Filing that is
provided to the Company or its counsel for review within a reasonable period
before filing or use thereof and to which the Company has not provided written
notice of objection to AccuMed will be deemed to have been provided by the
Company in writing for inclusion in such SEC Filing. Whenever any claim for
indemnification arises under this Section 7.2, the Indemnified Party will
promptly notify the Indemnifying Party in writing of such claim and, when known,
the facts constituting the basis for such claim (in reasonable detail). Failure
by the Indemnified Party so to notify the Indemnifying Party will not relieve
the Indemnifying Party of any liability hereunder except to the extent that such
failure materially prejudices the Indemnifying Party.
(iv) After such notice, if the Indemnifying Party undertakes
to defend any such claim, then the Indemnifying Party will be entitled, if it so
elects, to take control of the defense and investigation with respect to such
claim and to employ and engage attorneys of its own choice to handle and defend
such claim, at the Indemnifying Party's cost, risk and expense, upon notice to
the Indemnified Party of such election, which notice acknowledges the
Indemnifying Party's obligation to provide indemnification hereunder. The
Indemnifying Party will not settle any third-party claim that is the subject of
indemnification without the written consent of the Indemnified Party, which
consent will not be unreasonably withheld; provided however, that the
Indemnifying Party may settle a claim without the Indemnified Party's consent if
the settlement (A) makes no admission or acknowledgment of liability or
culpability with respect to the Indemnified Party, (B) includes a complete
release of the Indemnified Party and (C) does not require the Indemnified Party
to make any payment or forego or take any action. The Indemnified Party will
cooperate in all reasonable respects with the Indemnifying Party and its
attorneys in the investigation, trial and defense of any lawsuit or action with
respect to such claim and any appeal arising therefrom (including the filing in
the Indemnified Party's name or appropriate cross claims, and counterclaims) and
the Indemnifying Party will reimburse the Indemnified Party, for all reasonable,
documented direct out-of-pocket expenses incurred by the Indemnified Party in
connection with such cooperation. The Indemnified Party may, at its own expense,
participate in any investigation, trial and defense of such lawsuit or action
controlled by the Indemnifying Party and any appeal arising therefrom. If, after
receipt of a claim notice pursuant to Section 7.2(f) (iii), the Indemnifying
Party does not undertake to defend any such claim, the Indemnified Party may,
but will have no obligation to, contest any lawsuit or action with respect to
such claim and the Indemnifying Party will be bound by the result obtained with
respect thereto by the Indemnified Party (including the settlement thereof
without the consent of
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the Indemnifying Party). If there are one or more defenses available to the
Indemnified Party that conflict with, or are additional to, those available to
the Indemnifying Party, the Indemnified Party will have the right, at the
expense of the Indemnifying Party, to participate in the defense of the lawsuit
or action; provided however, that the Indemnified Party may not settle such
lawsuit or action without the consent of the Indemnifying Party, which consent
will not be unreasonably withheld.
(v) If the indemnification provided for in this Section 7.2(f)
is for any reason unavailable to the Indemnified Party in respect of any Losses
(or action in respect thereof) then the Indemnifying Party will, in lieu of
indemnifying the Indemnified Party, contribute to the amount paid or payable by
the Indemnified Party as a result of such Losses (or action in respect thereof),
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other with
respect to the statement or omission that resulted in such Losses (or action in
respect thereof) as well as any other relevant equitable considerations.
Relative fault with respect to an untrue or alleged untrue statement or omission
of a material fact will be determined by reference to whether the untrue or
alleged untrue statement or omission of a material fact related to information
supplied by the Indemnifying Party on the one hand or the Indemnified Party on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by the Indemnified Party as a result of the Losses
(or action in respect thereof) referred to above will be deemed to include any
legal or other expenses reasonably incurred by the Indemnified Party in
connection with investigating, trying or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
SECTION 7.3 Meeting of Shareholders of the Company. The Company will
take all action necessary, in accordance with the FBCA and the Articles of
Incorporation and Bylaws of the Company, to duly call, give notice of, convene
and hold a meeting of its shareholders as promptly as practicable, to consider
and vote upon the adoption and approval of this Agreement (as a plan of merger
in accordance with Section 607.1101 of the FBCA), the Merger and the other
transactions contemplated by this Agreement (the "Meeting"), to the extent such
approval is required by the FBCA and the Articles of Incorporation of the
Company.
SECTION 7.4 Compliance with the Securities Act. Prior to the Closing
Date, the Company will cause to be delivered to AccuMed a letter from the
Company, identifying all Persons who were, in its opinion, at the time of the
Meeting, "affiliates" of the Company as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act. AccuMed may cause the AccuMed
Certificates evidencing shares of AccuMed Common Stock issued to such Persons to
bear a legend referring to the applicability of paragraphs (c) and (d) of Rule
145 under the Securities Act.
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SECTION 7.5 [INTENTIONALLY DELETED.]
SECTION 7.6 Reasonable Best Efforts. Subject to the fiduciary duty
obligations of the Board of Directors of the Company and AccuMed, each of the
parties to this Agreement will use its reasonable best efforts to take, or cause
to be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements to consummate
and make effective the transactions contemplated by this Agreement in the most
expeditious, manner practicable, including the satisfaction of all conditions to
the Merger.
SECTION 7.7 Public Announcements. No party to this Agreement will make
any public announcements or otherwise communicate with any news media with
respect to this Agreement or any of the transactions contemplated by this
Agreement without prior consultation with the other parties as to the timing and
contents of any such announcement as may be reasonable under the circumstances;
provided however, that nothing contained herein will prevent any party from
promptly making all filings with Governmental Entities or public announcements
that, based upon a written opinion of its legal counsel, is required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement so long as such party gives
timely notice to the other parties of the anticipated disclosure and cooperates
with the other parties in designing reasonable procedural and other safeguards
to preserve, to the maximum extent possible, the confidentiality of all
information furnished by the other parties pursuant to this Agreement.
SECTION 7.8 Notification. In the event of, or after obtaining knowledge
of the occurrence or threatened occurrence of, any fact or circumstance that
would cause or constitute a breach of any of its representations and warranties
set forth herein, each party to this Agreement promptly will give notice thereof
to the other parties and will use its best efforts to prevent or remedy such
breach.
SECTION 7.9 Further Assurances. Each of the parties to this Agreement
will execute such documents and other instruments and take such further actions
as may be reasonably necessary or desirable to carry out the provisions of this
Agreement and to consummate the transactions contemplated by this Agreement or,
at and after the Closing Date, to evidence the consummation of the transactions
contemplated by this Agreement. Upon the terms and subject to the conditions of
this Agreement, each of the parties to this Agreement will take or cause to be
taken all actions and to do or cause to be done all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement and to obtain in a timely manner
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings.
SECTION 7.10 No Solicitation. Subject to the fiduciary duties of their
respective Board of Directors, the Company, AccuMed and their respective
Subsidiaries, officers, directors, representatives or agents shall not take any
action, directly or indirectly, to (i) initiate or solicit the submission of any
Acquisition Proposal, (ii) enter into any agreement with respect to any
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Acquisition Proposal or (iii) participate in negotiations with, or provide
information concerning the Company, its assets, liabilities or business to, any
Person in connection with any Acquisition Proposal. A party hereto will promptly
communicate to the other parties any solicitation or inquiry received by such
party and the terms of any proposal or inquiry that it may receive in respect of
any Acquisition Proposal, or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated with it. Nothing
in this Section 7.10 shall be construed as prohibiting the Board of Directors of
the Company or AccuMed, as the case may be, from (i) making any disclosure to
its shareholders, (ii) responding to any unsolicited proposal or inquiry by
advising the Person making such proposal or inquiry of the terms of this Section
7.10 or (iii) in the case of AccuMed, complying with the provisions of Rule
14e-2(a) and 14d-9 of the Exchange Act. "Acquisition Proposal" means any
proposed (i) merger, consolidation or similar transaction involving the Company
or AccuMed or their respective Subsidiaries, (ii) sale, lease or other
disposition directly or indirectly by merger, consolidation, share exchange or
otherwise of all or any substantial part of the assets of the Company or AccuMed
or their respective Subsidiaries, (iii) issuance, sale or other disposition of
securities of the Company Common Stock or AccuMed Capital Stock or (iv)
transaction in which any Person proposes to acquire beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of, or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, Company Common Stock or AccuMed Capital Stock.
SECTION 7.11 Indemnification of Executives and Directors.
(a) Indemnification. AccuMed will cause the Surviving Corporation to,
and, should the Surviving Corporation fail or be unable to do so, AccuMed shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date of this Agreement or who becomes prior to the Effective
Time, an officer or director of the Company (each, an "Executive"), against all
losses, expenses, damages, liabilities, costs, judgments, and amounts paid in
settlement in connection with any claim, action, suit, proceeding, or
investigation based on or arising out of, in whole or in part, any actions or
omissions of such Executive as an officer or director of the Company on or prior
to the Effective Time, including actions or omissions relating to any of the
transactions contemplated by this Agreement, to the fullest extent permitted
under the FBCA, the Articles of Incorporation and Bylaws of the Company, AccuMed
will cause the Surviving Corporation to pay expenses in advance of the final
disposition of any such claim, action, suit, proceeding, or investigation to
each Executive to the fullest extent permitted by applicable Legal Requirements
upon receipt of any undertaking required or contemplated by applicable Legal
Requirements. Without limiting the foregoing, in any case in which approval of
or a determination by the Surviving Corporation is required to effectuate any
indemnification, (i) the Executives will conclusively be deemed to have met the
applicable standards for indemnification with respect to any actions or
omissions of such Executives as an officer or director of the Company on or
prior to the Effective Time relating to any of the transactions contemplated by
this Agreement and (ii) AccuMed shall cause the Surviving
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Corporation to direct, at the election of any Executive, that the determination
of any such approval shall be made by independent counsel selected by the
Executive and reasonably acceptable to AccuMed. If any such claim, action, suit,
proceeding, or investigation is brought against any Executive (whether arising
before or after the Effective Time), (i) the Executive may retain counsel
satisfactory to him or her that is reasonably acceptable, and (ii) AccuMed will
pay or will cause the Surviving Corporation to pay all reasonable fees and
expenses of such counsel for the Executive, as such fees and expenses are
incurred, upon receipt of a written undertaking by the Executive that the
Executive will repay the amounts so paid if it ultimately is determined that he
is not entitled to be indemnified by the Surviving Corporation as authorized by
the FBCA. Neither AccuMed nor the Surviving Corporation shall have any
obligation hereunder to any Executive when and if a court of competent
jurisdiction shall ultimately determine, after exhaustion of all avenues of
appeal, that such Executive is not entitled to indemnification hereunder.
(b) Successors. If AccuMed or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
will not be the continuing or surviving Person of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provisions will be made so that the
successors and assigns of AccuMed or the Surviving Corporation assume the
obligations set forth in this Section 7.11.
SECTION 7.12. Tax Treatment. Each of AccuMed and the Company will use
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368(a)(1)(a) and Section 368(a)(2)(e) of the Code.
SECTION 7.13. Confidentiality. From and after the date hereof, each
party will, and will use its best efforts to cause its Affiliates to keep secret
and hold in strictest confidence any and all documents and information relating
to the other party and its respective Affiliates furnished to such first party
(whether before or after the date hereof) in connection with the transactions
contemplated hereunder other than the following: (a) information that has become
generally available to the public other than as a result of a wrongful
disclosure by such party or its Affiliates; (b) information that becomes
available to such party on a non-confidential basis from a third party having no
obligation of confidentiality to a party to this Agreement and which has not to
the Knowledge of the receiving party itself received such information directly
or indirectly in breach of any such obligation of confidentiality; and (c)
information that is required to be disclosed by applicable law or judicial
order; provided that the party making such disclosure or whose Affiliates are
making such disclosure will notify the other party as promptly as practicable
(and, if possible, prior to making such disclosure) and will use its reasonable
best efforts to limit the scope of such disclosure and seek confidential
treatment of the information to be disclosed. The obligations of the parties
under this Section 7.13 will survive the termination of this Agreement for a
period of twenty (24) months from such termination.
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ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Each party to this Agreement shall have completed and be satisfied
with the results of its due diligence investigation of matters pertaining to the
parties and the transaction described in this Agreement;
(b) This Agreement, the Merger and the transactions contemplated by
this Agreement will have been duly approved by the Board of Directors of each
party, and the holders of the outstanding AccuMed Capital Stock and the Company
Common Stock entitled to vote.
(c) The Registration Statement on Form S-4 that includes the Proxy
Statement/Prospectus will have become effective in accordance with the
provisions of the Securities Act and any necessary state securities law
approvals will have been obtained and no stop orders with respect thereto will
have been issued by the SEC and remain in effect.
(d) No Governmental Entity will have enacted, issued, promulgated,
enforced or entered any Legal Requirement that remains in effect and has the
effect of making the transactions contemplated by this Agreement illegal or
otherwise prohibiting the transactions contemplated by this Agreement, or that
questions the validity or the legality of the transactions contemplated by this
Agreement and that could reasonably be expected to materially and adversely
affect the value of the business of the Company or AccuMed, it being agreed that
each party will use its reasonable best efforts to have any such Legal
Requirement lifted.
(e) AccuMed will execute and deliver a new professional services
agreement (or amendments to the existing agreement), satisfactory to the Company
and AccuMed's Board of Directors, pursuant to which Paul Lavallee of Gypsy Hill
LLC will continue to serve as Chief Executive Officer of AccuMed beginning on
and following the Effective Time.
(f) AccuMed will enter into an agreement with Fallowfield Consultants
Ltd. to supply the services of David Warner to AccuMed on terms acceptable to
AccuMed and the Company.
(g) AccuMed will enter into an employment agreement with Marcus E.
Finch on terms acceptable to AccuMed and the Company.
(h) Gillian Fraser, Robert L. Priddy ("Priddy") and Bellingham Capital
Industries ("BCI") and their respective successors and assigns (the "Restricted
Stockholders") will enter into agreements with AccuMed pursuant to which:
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(i) each Restricted Stockholder will agree not to sell, pledge
or otherwise dispose of shares of AccuMed Capital Stock, AccuMed Warrants or
other rights to acquire AccuMed Capital Stock (the "Lock-Up Restrictions") held
of record or beneficially by such person from the Effective Time until the
earlier of (A) the second anniversary of the Effective Time, or (B) the date on
which the U.S. Food and Drug Administration ("FDA") approves the pre-marketing
authorization application pertaining to the microwave endometrial ablation
system ("PMA"). The Restricted Stockholders may transfer shares of AccuMed
Common Stock subject to the transferees executing and delivering an agreement to
be bound by the Lock-Up Restrictions; and
(ii) Gillian Fraser will agree to extend the Lock-Up
Restrictions relating to her AccuMed Warrants and the underlying shares of
AccuMed Common Stock for one year longer than the Lock-Up Restrictions in
Section 8.1(h)(i); and
(iii) each Restricted Stockholder will agree to vote its
shares in favor of the election of (A) the slate of four director nominees
submitted to the AccuMed Board of Directors by Gillian Fraser or her successors
or assigns, and (B) the slate of three director nominees submitted thereto by
AccuMed's Chief Executive Officer.
(i) AccuMed will amend its Certificate of Incorporation to change its
corporate name to Microsulis Medical Corporation.
(j) AccuMed will amend its Bylaws, in form and substance reasonably
acceptable to the Company, such that during the period of time from the
Effective Time through the termination of the Lock-Up Restrictions, a vote of at
least two-thirds of the members of the AccuMed Board of Directors will be
required in order to affect any of the following:
(i) an amendment to AccuMed's Certificate of Incorporation or
Bylaws;
(ii) issuance of securities, other than issuance of AccuMed
Capital Stock upon exercise of outstanding stock options, warrants or
convertible preferred stock;
(iii) incurrence or guarantee of indebtedness;
(iv) loaning money to an Affiliate of AccuMed;
(v) any transaction which would require stockholder approval
under the Delaware General Corporation Law;
(vi) a single or series of related expenditures involving an
Affiliate exceeding U.S.$50,000, unless approved by the Chief Executive Officer
of AccuMed;
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(vii) an increase or decrease in the number of directors which
constitute a full Board from time to time; and
(viii) approval of any amendment to the License Agreement (as
defined in Section 8.3(b) hereof) or of any new agreement or arrangement between
AccuMed and Microsulis PLC or an Affiliate thereof.
(k) AccuMed will issue to each of its non-employee directors (including
the qualified nominees submitted by the Company to AccuMed) stock options to
purchase 60,000 shares of AccuMed Common Stock at an exercise price of $2.50 per
share. Of such options, 20,000 options will vest on the Effective Time and
20,000 options each will vest on the day after each AccuMed annual meeting of
stockholders in the years 2001 and 2002, if the non-employee director is elected
to serve as a director of AccuMed at each of such meetings. Such options will
contain such other terms and conditions that are approved by the AccuMed Board
of Directors and the Company.
(l) AccuMed will issue to Paul Lavallee stock options to purchase
500,000 shares of AccuMed Common Stock at an exercise price equal to the greater
of (i) $2.50 per share or (ii) the per share purchase price of AccuMed
securities sold in the first $4 million equity, debt or hybrid financing of
AccuMed after the Closing Date, and if a financing of such amount is not
completed within the first six months after the Closing Date, then the per share
purchase price of AccuMed securities sold in the first AccuMed financing of any
amount during the six month period beginning on the Closing Date. Such options
will contain such other terms and conditions that are approved by the AccuMed
Board of Directors and the Company.
(m) AccuMed will issue to David Warner stock options to purchase
250,000 shares of AccuMed Common Stock at the same exercise price of Mr.
Lavallee's stock options in Section 8.1(1) hereof. Such options will contain
such other terms and conditions that are approved by the AccuMed Board of
Directors and the Company.
(n) As soon as practicable after the Effective Time, AccuMed will file
a registration statement with the SEC covering all of the shares of AccuMed
Common Stock underlying the stock options referred to in Sections 8.1(k)(l) and
(m) hereof.
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) AccuMed and Acquisition Sub will have performed in all material
respects their agreements contained in this Agreement required to be performed
by them at or prior to the Effective Time and the representations and warranties
of AccuMed and Acquisition Sub set forth in this Agreement if qualified by
materiality are true in all respects and if not so qualified are true in all
material respects when made and at and as of the Effective Time as if made at
and as of such
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time and the Company will have received a certificate of AccuMed and Acquisition
Sub executed on behalf of each such corporation by the Chief Executive Officer
of such corporations to that effect.
(b) The Company will have received the opinion of Joyce L. Wallach,
Esq., counsel to AccuMed and Acquisition Sub, substantially to the effect set
forth in Exhibit B.
(c) There will have been no material adverse change in the financial
condition, results of operations, assets, liabilities or business of AccuMed
since the date of this Agreement.
(d) AccuMed will execute and deliver indemnification agreements,
satisfactory to the Company and AccuMed's newly elected Board of Directors,
pursuant to which AccuMed will indemnify, defend and hold harmless each member
of AccuMed's Board of Directors as of the Effective Time.
(e) AccuMed will issue a proxy statement for use in connection with a
special meeting of its stockholders to vote upon the Merger, and include
proposals for (i) amending AccuMed's Certificate of Incorporation to change
AccuMed's corporate name to Microsulis Medical Corporation, (ii) electing seven
(7) directors to serve new terms beginning as of the Effective Time and
continuing until the next annual meeting of stockholders, and (iii) approving a
new AccuMed stock option plan, which was approved by the Company prior to the
submission of such plan to AccuMed's shareholders. Of the seven (7) nominees for
directors, four shall be qualified nominees submitted by Gillian Fraser to
AccuMed's Board of Directors in writing within a reasonable amount of time prior
to the anticipated filing of such proxy statement.
(f) There will have been no material adverse change in the financial
condition, results of operations, assets, liabilities or business of AccuMed
since the date of this Agreement.
SECTION 8.3 Conditions to Obligations of AccuMed and Acquisition Sub to
Effect the Merger. The obligations of AccuMed and Acquisition Sub to effect the
Merger will be subject to the fulfillment at or prior to the Effective Time of
the additional following conditions:
(a) The Company will have performed in all material respects its
agreements contained in this Agreement required to be performed by it at or
prior to the Effective Time and, except as contemplated or permitted by this
Agreement, the representations and warranties of the Company set forth in this
Agreement if qualified by materiality are true in all respects and if not so
qualified are true in all material respects when made and at and as of the
Effective Time as if made at and as of such time, and AccuMed and Acquisition
Sub will have received a certificate of the Company executed on behalf of the
Company by the Executive Vice President of the Company to that effect.
(b) The Company will have entered into an amendment, satisfactory to
AccuMed, regarding the License Agreement Endometrial Ablation, dated February 6,
1998, as amended on March 4,
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1998 and August 2, 1999 (the "License Agreement"), between Microsulis PLC, as
licensor, and the Company, as licensee, effective upon the Merger, which will
provide for (i) assignment by the Company of its rights under the License
Agreement to the Surviving Corporation; (ii) consequences other than
cancellation of the License Agreement in the event the Surviving Corporation
fails to achieve the specified sales minimums; and (iii) expansion of the
definition of "Products" as set forth in Section 3.15 and Schedule One of the
License Agreement to include "Related Products" as defined in Section 4.4 of the
Second Amendment to the Licence Agreement.
(c) All consents of third parties required to be obtained with respect
to the Merger and the other transactions contemplated by this Agreement will
have been obtained.
(d) The number of Dissenting Shares do not exceed 20% of the issued and
outstanding shares of Company Common Stock.
(e) There will have been no material adverse change in the financial
condition, results of operations, assets, liabilities or business of the Company
and its Subsidiary since the date of this Agreement.
(f) AccuMed will have received the opinion of Steel Hector & Davis LLP,
counsel to the Company, substantially to the effect set forth in Exhibit C.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the Company:
(a) by mutual consent of the parties in writing;
(b) notwithstanding Section 7.10, and effective upon payment of the
Break-Up Fee (as defined in this Section 9.1(b)), by either party for the sole
purpose of entering into a definitive agreement with a third party providing for
a merger, sale of substantially all assets or other transaction resulting in a
change of control of the party in lieu of the transactions contemplated by this
Agreement. In the event that a party terminates this Agreement pursuant to this
subsection, the terminating party will promptly upon such termination pay to the
other party a fee equal to three million U.S. dollars (U.S.$3,000,000.00) in
cash in immediately available funds (the "Break-Up Fee"); or
(c) if not earlier terminated pursuant to Sections 9.1(a) and (b)
above, automatically on January 31, 2000, unless such date is extended by mutual
written consent of the parties.
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SECTION 9.2 Effect of Termination. In the event of termination of this
Agreement by either AccuMed or the Company, as provided above, this Agreement
will forthwith become void, and (except for the willful breach of this Agreement
by any party to this Agreement) there will be no liability on the part of any of
the Company, AccuMed or Acquisition Sub, except as set forth in Sections 7.2(e)
and 9.1(b) hereof.
SECTION 9.3 Amendment. This Agreement may be amended by the parties to
this Agreement, by or pursuant to action taken by all of their Boards of
Directors, at any time before or after approval of this Agreement by the
shareholders of the Company and the shareholders of AccuMed and prior to the
Effective Time, but, after such approval, no amendment will be made that alters
the indemnification provisions of Sections 7.2 and 7.11 hereof, changes the
Merger Consideration or changes, in any way adverse to such shareholders, the
terms of the AccuMed Common Stock, AccuMed Warrants or that in any other way
materially adversely affects the rights of such shareholders, without the
further approval of such shareholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties to this
Agreement.
SECTION 9.4 Waiver. At any time prior to the Effective Time, the
parties to this Agreement, by or pursuant to action taken by their respective
Boards of Directors, may (i) extend the time for performance of any of the
obligations or other acts of the other parties to this Agreement, (ii) waive any
inaccuracies in the representations and warranties set forth in this Agreement
or in any documents delivered pursuant to this Agreement and (iii) waive
compliance with any of the agreements or conditions set forth in this Agreement.
Any agreement on the part of a party to this Agreement to any such extension or
waiver will be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE X
GENERAL PROVISIONS; DEFINITIONS
SECTION 10.1 Non-Survival of Representations, Warranties and
Agreements. No representations and warranties contained in this Agreement will
survive beyond the Closing Date. This Section 10.1 will not limit any covenant
or agreement of the parties to this Agreement that by its terms requires
performance after the Closing Date.
SECTION 10.2 Notices. All notices or other communications under this
Agreement will be in writing and will be given (and will be deemed to have been
duly given upon receipt) by delivery in person, by cable, overnight courier,
telegram, telex or other standard form of telecommunications, or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company: Microsulis Corporation
One East Broward Blvd. #100
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Ft. Lauderdale, FL 33301
Attention: President
Telecopy No.: 954-255-3739
With a copy to: Steel Hector & Davis LLP
200 South Biscayne Boulevard
Miami, FL 33131
Attention: Leslie J. Croland, Esq.
Telecopy No.: 305-577-7001
If to AccuMed or
Acquisition Sub: AccuMed International, Inc.
920 N. Franklin Street, Suite 402
Chicago, IL 60610
Attention: Paul F. Lavallee, CEO
Telecopy No.: 312-642-3101
With a copy to: Joyce L. Wallach, Esq.
1500 7th Avenue
Sacramento, CA 95818
Telecopy No.: 916-341-0256
or to such other addresses as any party may have furnished to the other parties
in writing in accordance with this Section.
SECTION 10.3 Fees and Expenses. Subject to the provisions of Sections
7.2(e), 7.2(f) and 9.1(b) hereof, if the Merger is not consummated for any
reason, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement will be paid by the party
incurring such expenses. If the Merger is consummated, the reasonable,
documented legal and accounting expenses and costs incurred by the Company in
connection with the transactions contemplated by this Agreement will be payable
after the Effective Time by AccuMed within two (2) business days after AccuMed
completes the first $1 million of equity, debt or hybrid financing after the
Closing Date; provided, however, that AccuMed will not be responsible to pay the
Company's legal expenses relating to this Agreement and the transactions
contemplated hereby in excess of $50,000.
SECTION 10.4 Specific Performance. The parties to this Agreement agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties will be
entitled to enforce specifically the terms and provisions of this Agreement in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
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SECTION 10.5 Third Party Beneficiaries. The parties to this Agreement
agree that the Company's shareholders, officers, directors and employees are
intended third party beneficiaries of the terms of this Agreement, to the extent
such terms refer expressly to such Persons, with full rights hereunder as if
each of them were a party to this Agreement.
SECTION 10.6 Entire Agreement. This Agreement will be of no force or
effect until executed and delivered by all of the parties to this Agreement.
SECTION 10.7 Arbitration. If any claim or dispute between the parties
arising out of, or related to, this Agreement, including any dispute as to the
enforceability or applicability of this arbitration provision, cannot be
resolved by the parties within 20 business days of the date that either party
notified the other party of same, in writing, or within such other time period
as may be agreed upon in writing by the parties, such claim or dispute will be
submitted to final and binding arbitration under the Federal Arbitration Act and
the auspices of the American Arbitration Association. Such arbitration will be
conducted in Wilmington, Delaware, applying the law of the State of Delaware
(without regard to Delaware's conflict of law provisions), and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrators will consist of a panel of three (3) arbitrators (the
"Arbitrators"), one of whom will be selected by the Company within ten business
days of the date that a notice of arbitration is delivered to the Company, one
of whom will be selected by AccuMed within such ten business day period, and one
of whom will be selected by the other two arbitrators within fifteen business
days of the appointment of the last arbitrator selected. The third arbitrator so
selected will act as chairman. If the two appointed arbitrators will fail to
select a third arbitrator within such fifteen business day period, the parties
will mutually select the third arbitrator. If the parties are unable to agree
within ten business days thereafter as to the third arbitrator, then either
party may request the American Arbitration Association to select the third
arbitrator. Each of the arbitrators will be individuals who have at least ten
years of experience in the health care field and will meet the qualifications
and abide by the Code of Ethics for arbitrators in commercial disputes of the
American Arbitration Association. All costs and expenses of the arbitration,
including actual attorneys' fees and disbursements, will be allocated among the
parties according to the Arbitrators' discretion. The award rendered by the
Arbitrators will be final and non-appealable, and judgment thereon may be
entered as a final judgment in any court having jurisdiction and enforced
accordingly. Each party hereto agrees to use their respective best efforts to
conduct and conclude the arbitration of any dispute under this Agreement as
quickly as possible.
SECTION 10.8 GOVERNING LAW AND WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT Will BE DEEMED TO BE MADE UNDER, AND IN ALL RESPECTS
WILL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH, THE LAW
OF THE STATE OF DELAWARE.
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(b) AS SET FORTH ABOVE, THE PARTIES TO THIS AGREEMENT INTEND TO SUBMIT
TO BINDING ARBITRATION ANY CLAIM OR DISPUTE THAT ARISES OUT OF OR IS RELATED TO
THIS AGREEMENT. IN THE EVENT THAT ANY CLAIM OR DISPUTE BETWEEN THE PARTIES
HERETO EVER GOES TO TRIAL BEFORE A COURT OF COMPETENT JURISDICTION, EACH PARTY
ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 10.8.
SECTION 10.9 No Oral Modifications. Neither this Agreement nor any of
its provisions may be changed, waived, discharged, or terminated orally, but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver, discharge, or termination is sought.
SECTION 10.10 Severability. If any provisions in this Agreement are
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions will not be affected and will be enforced to the extent
permitted by law without being impaired or invalidated in any way.
SECTION 10.11 Miscellaneous. This Agreement (including the documents
and instruments referred to in this Agreement) when executed and delivered,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter of this Agreement, including but not limited to,
the Letter of Intent, dated October 6, 1999, as amended on October 14, 1999,
between the Company and AccuMed. This Agreement may be executed in two or more
counterparts which together will constitute a single agreement. Any certificate
delivered pursuant to this Agreement will be made without personal liability on
the part of the officer or employee of the Person giving such certificate.
43
<PAGE> 45
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunder duly authorized all as of the date first
written above.
ACCUMED INTERNATIONAL, INC.
By: /s/ Paul F. Lavallee
-----------------------------------------
Name: Paul F. Lavallee
Title: Chairman and Chief Executive Officer
ACCUMED ACQUISITION SUB, INC.
By: /s/ Paul F. Lavallee
-----------------------------------------
Name: Paul F. Lavallee
Title: Chairman and Chief Executive Officer
MICROSULIS CORPORATION
By: /s/ Marcus E. Finch
-----------------------------------------
Name: Marcus E. Finch
Title: Executive Vice President
44
<PAGE> 46
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
made as of the 16th day of December 1999 among AccuMed International, Inc.,
AccuMed Acquisition Sub, Inc. and Microsulis Corporation.
RECITALS:
A. AccuMed International, Inc., AccuMed Acquisition Sub, Inc. and
Microsulis Corporation entered into that certain Agreement and Plan of Merger,
dated November 16, 1999 (the "Merger Agreement"); and
B. AccuMed International, Inc., AccuMed Acquisition Sub, Inc., and
Microsulis Corporation desire to amend the Merger Agreement in the manner set
forth herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1. Each of the foregoing recitals is expressly incorporated by this
reference as if each such recital was rewritten and restated herein in its
entirety.
2. Unless otherwise defined herein, all capitalized terms used in this
Amendment shall have the same meaning as the defined terms in the Merger
Agreement.
3. The first paragraph of Section 3.1 of the Merger Agreement is hereby
modified as follows (with the remaining language of Section 3.1 remaining
unchanged):
SECTION 3.1 Merger Consideration and Conversion of Stock. The aggregate
consideration deliverable by AccuMed in the Merger (the "Merger
Consideration") will be equal to (i) 10,726,830 shares of AccuMed
Common Stock and (ii) AccuMed Warrants to purchase 2,764,646 shares of
AccuMed Commons Stock, in exchange for all of the issued and
outstanding Company Common Stock issued prior to the Effective Time
minus the number of Dissenting Shares (as defined in Section 3.6). The
Merger Consideration will be deliverable at the Effective Time, by
virtue of the Merger and without any action on the part of the holders
of any shares of capital stock of any corporation as follows:
4. Section 5.2(a) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following language:
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Common Stock, $.001 per value per share, of which
5,529,292 shares are issued and outstanding.
<PAGE> 47
5. Section 6.3 of the Merger Agreement is hereby modified by inserting
an additional subsection (c), which will read as follows:
On December ___, 1999, the Company prepaid a total of $188,000 to
AccuMed under the Notes. Notwithstanding this prepayment and any
additional prepayments to be made by the Company and/or the Subsidiary
under the Notes, upon written request by the Company, AccuMed will lend
any additional sums to the Company and/or the Subsidiary up to an
aggregate loan amount of U.S.$650,000 (which amount includes any loans
outstanding on the date of this Amendment).
6. Section 9.1(c) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following language:
(c) if not earlier terminated pursuant to Sections 9.1(a) and (b)
above, automatically on February 28, 2000, unless such date is extended
by mutual written consent of the parties.
7. Schedule 5.9 to the Merger Agreement is hereby deleted in its
entirety and replaced with the following language:
SCHEDULE 5.9
Security Agreement dated October 18, 1999, as amended, by and between
the Subsidiary and AccuMed whereby AccuMed was granted a security
interest in certain collateral of the Subsidiary in consideration for a
two loans by AccuMed to Subsidiary in the amounts of $310,000 and
$124,000, respectively.
Security Agreement dated December 3, 1999 by and between the Company
and AccuMed whereby AccuMed was granted a security interest in certain
collateral of the Company in consideration for a loan by AccuMed to the
Company in the amount of $154,000.
The Company obtained a revolving line of credit from Gibraltar Bank,
FSB in the amount of $60,000. The line of credit is due to be repaid on
July 1, 2002. Borrowings under the line of credit are secured by a
mortgage on the Company=s condominium located at 9735 N.W. 52nd Street,
Unit 519, Miami, Florida.
8. This Amendment modifies the Merger Agreement and is deemed to be a
part thereof. Except as modified hereby, the terms and conditions of the Merger
Agreement remain in full force and effect. In the event of a conflict between
the terms of the Amendment and those of the Merger Agreement, the terms of this
Amendment shall govern.
2
<PAGE> 48
9. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
the same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day first written above.
ACCUMED INTERNATIONAL, INC. MICROSULIS CORPORATION
By: /s/ Paul F. Lavallee By: /s/ Marcus Finch
--------------------------------- ----------------------------------
Paul F. Lavallee, Chairman and Marcus Finch, Executive
Chief Executive Officer Vice President
ACCUMED ACQUISITION SUB, INC.
By: /s/ Paul F. Lavallee
---------------------------------
Paul F. Lavallee, Chairman and
Chief Executive Officer
3
<PAGE> 49
EXHIBIT 2.1
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
made as of the 21st day of December 1999 among AccuMed International, Inc.,
AccuMed Acquisition Sub, Inc. and Microsulis Corporation.
RECITALS:
A. AccuMed International, Inc., AccuMed Acquisition Sub, Inc. and
Microsulis Corporation entered into that certain Agreement and Plan of Merger,
dated November 16, 1999, as amended on December 16, 1999 (the "Merger
Agreement"); and
B. AccuMed International, Inc., AccuMed Acquisition Sub, Inc., and
Microsulis Corporation desire to further amend the Merger Agreement in the
manner set forth herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1. Each of the foregoing recitals is expressly incorporated by this
reference as if each such recital was rewritten and restated herein in its
entirety.
2. Unless otherwise defined herein, all capitalized terms used in this
Amendment shall have the same meaning as the defined terms in the Merger
Agreement.
3. Section 3.1 of the Merger Agreement is hereby modified by adding a
new paragraph 3.1(d) (with the remaining language of Section 3.1 remaining
unchanged):
(d) Notwithstanding anything contained herein to the contrary, the
Company will have the right to sell up to 500,000 additional shares of
Microsulis Common Stock at a purchase price of not less than $5.75 per
share. Any shares sold by the Company pursuant to this subsection
3.1(d) will be subject to the same conversion rates as set forth in
subsection 3.1(a) hereof; provided, however, that at least 25% of the
proceeds received from any sale of Microsulis Common Stock under this
subsection 3.1(d) will be used to repay any amounts due on loans from
AccuMed to the Company.
4. This Amendment modifies the Merger Agreement and is deemed to be a
part thereof. Except as modified hereby, the terms and conditions of the Merger
Agreement remain in full force and effect. In the event of a conflict between
the terms of the Amendment and those of the Merger Agreement, the terms of this
Amendment shall govern.
5. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
the same agreement.
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the day first written above.
ACCUMED INTERNATIONAL, INC. MICROSULIS CORPORATION
By: \s\ Paul F. Lavallee By: \s\ Marcus Finch
------------------------------ ----------------------------------
Paul F. Lavallee, Chairman and Marcus Finch, Executive Vice President
Chief Executive Officer
ACCUMED ACQUISITION SUB, INC.
By: \s\ Paul F. Lavallee
------------------------------
Paul F. Lavallee, Chairman and
Chief Executive Officer
2
<PAGE> 51
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
made as of the 22st day of December 1999 among AccuMed International, Inc.,
AccuMed Acquisition Sub, Inc. and Microsulis Corporation.
RECITALS:
A. AccuMed International, Inc., AccuMed Acquisition Sub, Inc. and
Microsulis Corporation entered into that certain Agreement and Plan of Merger,
dated November 16, 1999, as amended on December 16, 1999, and as further amended
on December 21, 1999 (the "Merger Agreement"); and
B. AccuMed International, Inc., AccuMed Acquisition Sub, Inc., and
Microsulis Corporation desire to further amend the Merger Agreement in the
manner set forth herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1. Each of the foregoing recitals is expressly incorporated by this
reference as if each such recital was rewritten and restated herein in its
entirety.
2. Unless otherwise defined herein, all capitalized terms used in this
Amendment shall have the same meaning as the defined terms in the Merger
Agreement.
3. Section 8.1(h)(i) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following language:
(i) each Restricted Stockholder will agree not to sell, pledge or otherwise
dispose of shares of AccuMed Capital Stock, AccuMed Warrants or other
rights to acquire AccuMed Capital Stock (the "Lock-Up Restrictions") held
of record or beneficially by such person from the Effective Time until the
earlier of (A) the second anniversary of the Effective Time, or (B) the
date on which the U.S. Food and Drug Administration ("FDA") approves the
pre-marketing authorization application pertaining to the microwave
endometrial ablation system ("PMA"). Notwithstanding the immediately
preceding sentence, each Restricted Stockholder will be permitted to sell,
pledge or otherwise dispose of up to 5% of its shares of AccuMed Capital
Stock, AccuMed Warrants or other rights to acquire AccuMed Capital Stock
every three months after the Effective Time, and upon unanimous agreement
of all of the Restricted Stockholders, each Restricted Stockholder will be
permitted to sell, pledge or otherwise dispose of up to an additional 5% of
its shares of AccuMed Capital Stock, AccuMed Warrants or other rights to
acquire AccuMed Capital Stock every three months after the Effective Time;
4. Section 8.1(h) is hereby modified by adding a new subsection 8(h)(iv) as
follows:
<PAGE> 52
(iv) notwithstanding anything contained herein to the contrary, any AccuMed
Warrants subject to the Lock-Up Restrictions will no longer be subject to
the Lock-Up Restrictions upon redemption of the AccuMed Warrants by
AccuMed.
5. This Amendment modifies the Merger Agreement and is deemed to be a part
thereof. Except as modified hereby, the terms and conditions of the Merger
Agreement remain in full force and effect. In the event of a conflict between
the terms of the Amendment and those of the Merger Agreement, the terms of this
Amendment shall govern.
6. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
the same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the day first written above.
ACCUMED INTERNATIONAL, INC. MICROSULIS CORPORATION
By: /s/ Paul F. Lavallee By: /s/ Marcus Finch
------------------------------ --------------------------------
Paul F. Lavallee, Chairman and Marcus Finch, Executive Vice
Chief Executive Officer President
ACCUMED ACQUISITION SUB, INC.
By: /s/ Paul F. Lavallee
--------------------------------
Paul F. Lavallee, Chairman and
Chief Executive Officer
2
<PAGE> 1
EXHIBIT 3.1
APPENDIX B
WARRANT AGREEMENT
AGREEMENT, dated as of _________________ 2000 among Microsulis
Medical Corporation (formerly named AccuMed International, Inc.), a Delaware
corporation (the "Company"), and the persons named on Schedule 1 (the
"Warrantholders").
W I T N E S S E T H
WHEREAS, pursuant to the Agreement and Plan of Merger dated
November 16, 1999 and amended December 16, 1999, December 21, 1999, and December
22, 1999 among the Company, AccuMed Acquisition Subsidiary, Inc. and Microsulis
Corporation (the "Merger Agreement"), the Company is required to issue to the
Warrantholders warrants (the "Warrants") to purchase an aggregate of up to
3,014,646 shares (the "Warrant Shares") of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"), each Warrant exercisable to purchase one
share of the Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, and the holders
of certificates representing the Warrants, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean common stock of the Company,
whether now or hereafter authorized, which has the right to participate in the
distributions of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 50,000,000 authorized shares
of Common Stock, par value $.01 per share.
(b) "Corporate Office" shall mean the office of the Company at
which at any particular time its principal business shall be administered, which
office is located at the date hereof at 920 North Franklin Street, Suite 402,
Chicago, Illinois 60610.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Company shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon properly completed and
duly executed by the Registered Holder thereof or its attorney duly authorized
in writing, and (b) payment in cash, or by official bank or
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<PAGE> 2
certified check made payable to the Company, of an amount in lawful money of the
United States of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean _____________,
2000.
(e) "Market Price" shall mean (i) the average closing bid price
of the Common Stock, for twenty (20) consecutive trading days ending on the
Calculation Date as reported by Nasdaq, if the Common Stock is traded on the
Nasdaq SmallCap Market, or (ii) the average last reported sales price of the
Common Stock, for twenty (20) consecutive trading days ending on the Calculation
Date, as reported by the primary exchange on which the Common Stock is traded,
if the Common Stock is traded on a national securities exchange, or by Nasdaq,
if the Common Stock is traded on the Nasdaq National Market.
(f) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $6.75 per share subject to adjustment from time to time pursuant to the
provisions of Section 8 hereof.
(g) "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Warrants
which price shall be $0.25 per Warrant.
(h) "Registered Holder" shall mean the person in whose name any
certificate representing applicable Warrants shall be registered on the books
maintained by the Company.
(i) "Registerable Securities" shall have the meaning set forth in
Section 10.1.
(j) "Transfer Agent" shall mean First Chicago Trust Company of
New York, as the Company's transfer agent for the Common Stock, or its
authorized successor, as such.
(k) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on _______________, 2005, or such earlier date as the Warrants shall be
redeemed; provided that if either of such date shall in the State of New York be
a holiday or a day on which banks are authorized to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
SECTION 2. Warrants and Issuance of Warrant Certificates.
-2-
<PAGE> 3
(a) A Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the
Company shall execute and deliver stock certificates in required whole number
denominations representing up to an aggregate of 3,014,646 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the
Company shall execute and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7;
and (v) at the option of the Company, in such form as may be approved by the its
Board of Directors, to reflect (a) any adjustment or change in the Purchase
Price or Target Price (as defined in Section 9) or the number of shares of
Common Stock purchasable upon exercise of the Warrants, made pursuant to Section
8 hereof and (b) other modifications approved by Warrantholders in accordance
with Section 17 hereof.
SECTION 3. Form and Execution of Warrant Certificates. (a) The
Warrant Certificates shall be substantially in the form annexed hereto as
Exhibit A (the provisions of which are hereby incorporated herein) and may have
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed, engraved or typed
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letter W.
-3-
<PAGE> 4
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer or Chief Financial
Officer and by its Secretary or an Assistant Secretary, by manual signatures or
by facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates and issue
and delivery thereof, such Warrant Certificates may nevertheless be issued and
delivered with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be such officer of the Company. After
execution by the Company, Warrant Certificates shall be delivered to the
Registered Holder.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder upon exercise thereof
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date the Company shall deposit the proceeds received from the
exercise of a Warrant, and promptly after clearance of checks received in
payment of the Purchase Price pursuant to such Warrants, cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder).
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue upon
exercise of Warrants, such number of shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants and payment of the Purchase Price pursuant to the terms hereof shall,
at the time of delivery, be duly and validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof
(other than those which the Company shall promptly pay or discharge).
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<PAGE> 5
(b) The Company will use reasonable efforts to obtain appropriate
approvals or registrations (in such states as requested in writing by or on
behalf of any Warrantholders) under state "blue sky" securities laws or
compliance with exemption requirements (if such exemptions are not self
executing) with respect to the exercise of the Warrants; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or qualify as a foreign corporation in any jurisdiction. With respect to
any such securities laws, however, Warrants may not be exercised by, or shares
of Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless (i) the person requesting the same has paid to the Company
the amount of transfer taxes or charges incident thereto, if any and (ii) the
Registered Holder has provided documentation satisfactory to the Company's
counsel that such issuance is not in violation of applicable Federal and state
securities laws.
SECTION 6. Exchange and Registration of Transfer.
Subject to the restrictions on transfer contained in the Warrant
Certificates and the [Stockholders Agreement (the "Stockholders Agreement")]
between the Company and certain of the initial Warrantholders:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Company at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall execute,
issue and deliver in exchange therefor the Warrant Certificate or Certificates
which the Registered Holder making the exchange shall be entitled to receive.
(b) The Company shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the
-5-
<PAGE> 6
transfer thereof in accordance with its regular practice. Upon due presentment
for registration of transfer of any Warrant Certificate at its Corporate Office,
the Company shall execute, issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate number
of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or its attorney-in-fact duly
authorized in writing provided to the Company.
(d) The Company may require payment by such Registered Holder of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Company and thereafter retained by the Company until termination of this
Agreement or, with the prior written consent of Registered Holder be disposed of
or destroyed.
(f) Prior to due presentment for registration of transfer
thereof, the Company may deem and treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof and of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon made by
anyone other than a duly authorized officer of the Company for all purposes and
shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to the Company, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and (in the absence of notice to the Company that the Warrant Certificate has
been acquired by a bonafide purchaser) and deliver to the Registered Holder in
lieu thereof a new Warrant Certificate of like tenor representing an equal
aggregate number of Warrants. Applicants for a substitute Warrant Certificate
shall comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
SECTION 8. Adjustment of Exercise Price and Number
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<PAGE> 7
of Shares of Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 8(g) below,
in the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price per share of the Common Stock on the date of the sale or issue
any shares of Common Stock as a stock dividend to the holders of Common Stock,
or subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Purchase Price in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent) determined by multiplying the Purchase Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection 8(f)(F)
below), if any, for the issuance of such additional shares would purchase at the
Market Price per share of Common Stock, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 8, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
8(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
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<PAGE> 8
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 8, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Registered Holder shall be
entitled as a result of such adjustment or, at the option of the Company, cause
to be distributed to such Registered Holder in substitution and replacement for
the Warrant Certificates held by it prior to the date of adjustment (and upon
surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Registered Holder shall be
entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant
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Certificates pursuant to Section 2(c) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share, and the number of shares purchasable were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or Chief Financial Officer, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant after
such adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly cause a brief summary thereof to be
sent by ordinary first class mail to each Registered Holder of Warrants at its
last address as it shall appear on the registry books of the Company. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity thereof except as to the holder to whom the Company failed
to mail such notice, or except as to the holder whose notice was defective. The
affidavit of the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(f) For purposes of Section 8(a) and 8(b) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at
any given time shall include shares of Common Stock owned or held
by or for the account of the Company and the sale or issuance of
such treasury shares or the distribution of any such treasury
shares shall not be considered a Change of Shares for purposes of
said sections.
(B) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of
at least $.10 in such price; provided that any adjustments which
by reason of this clause (B) are not required to be made shall be
carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect
hereunder.
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(C) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or any securities convertible
into or exchangeable for Common Stock without the payment of any
further consideration other than cash, if any (such convertible
or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any
rights or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible Securities, in
each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options
shall consist of cash, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (x) the
minimum aggregate consideration payable to the Company upon the
exercise of such rights, warrants or options, plus the
consideration received by the Company for the issuance or sale of
such rights, warrants or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less
than the Market Price of the Common Stock on the date of the
issuance or sale of such rights, warrants or options, then the
total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options)
shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 8(a) and 8(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per
share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately
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exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of such convertible Securities)
is less than the Market Price of the Common Stock on the date of
the sale of such Convertible Securities, then the total maximum
number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities (as of the date of the
sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 8(a)
and 8(b) hereof and shall be deemed to have been sold for cash in
an amount equal to such price per share.
(E) If the exercise or purchase price provided for in any
right, warrant or option referred to in (C) above, or the rate at
which any Convertible Securities referred to in (C) or (D) above
are convertible into or exchangeable for Common Stock, shall
change at any time (other than under or by reason of provisions
designed to protect against dilution), the Purchase Price then in
effect hereunder shall forthwith be readjusted to such Purchase
Price as would have obtained (1) had the adjustments made upon
the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance
of only the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon
the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities, (2) had
adjustments been made on the basis of the Purchase Price as
adjusted under clause (1) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or
sale of such rights, warrants, options or Convertible Securities,
and (3) had any such rights, warrants, options or Convertible
Securities then still outstanding been originally issued or sold
at the time of such change. On the expiration of any such right,
warrant or option or the termination of any such right to convert
or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such
Purchase Price as would
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<PAGE> 12
have obtained (a) had the adjustments made upon the issuance or
sale of such rights, warrants, options or Convertible Securities
been made upon the basis of the issuance of only the number of
shares of Common Stock theretofore actually delivered (and the
total consideration received therefor) upon the exercise of such
rights, warrants or options or upon the conversion or exchange of
such Convertible Securities and (b) had adjustments been made on
the basis of the Purchase Price as adjusted under clause (a) for
all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, the consideration
received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid
or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in
connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the exercise of any of the options presently
outstanding whether issued pursuant to the Merger Agreement or
under the Company's Stock Option Plans (the "Plans") for
officers, directors and certain other key personnel of, and
consultants to, the Company; or
(ii) upon the grant or exercise of any other options which may
hereafter be granted or exercised under the Plans or under any
other employee benefit plan of the Company; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or not such
rights, warrants or options were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold;
or
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<PAGE> 13
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made
upon the issuance or sale of such Convertible Securities and
whether or not such Convertible Securities were outstanding on
the date of the original sale of the Warrants or were thereafter
issued or sold; or
(vi) upon any amendment to or change in the terms of any
rights or warrants to subscribe for or purchase, or options for
the purchase of, Common Stock or Convertible Securities or in the
terms of any Convertible Securities, including, but not limited
to, any extension of any expiration date of any such right,
warrant or option, any change in any exercise or purchase price
provided for in any such right, warrant or option, any extension
of any date through which any Convertible Securities are
convertible into or exchangeable for Common Stock or any change
in the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock (other than rights,
warrants, options or Convertible Securities issued or sold after
the close of business on the date of the original issuance of the
Warrants (i) for which an adjustment in the Purchase Price then
in effect was theretofore made or required to be made, upon the
issuance or sale thereof, or (ii) for which such an adjustment
would have been required had the exercise or purchase price of
such rights, warrants or options at the time of the issuance or
sale thereof or the rate of conversion or exchange of such
Convertible Securities, at the time of the sale of such
Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the
purchase of, such Convertible Securities, been the price or rate
as changed, in which case the provisions of Section 8(f)(E)
hereof shall be applicable if, but only if, the exercise or
purchase price thereof, as changed, or the rate of conversion or
exchange thereof, as changed, consists of cash or requires the
payment of additional consideration, if any, consisting of cash
and the Company did not receive any consideration other than
cash, if any, in connection with such change).
(h) As used in this Section 8, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue of the Warrants and shall also include any capital stock of any class of
the Company thereafter authorized which shall not be limited to a fixed sum or
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<PAGE> 14
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation, as amended, as Common
Stock on the date of the original issue of the Warrants or (i), in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 8(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 8, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall declare any dividends or
distributions or grant to the holders of Common Stock, as such, rights or
warrants to subscribe for or to purchase, or any options for the purchase of,
Common Stock or securities convertible into or exchangeable for or carrying a
right, warrant or option to purchase Common Stock, the Company shall notify each
of the then Registered Holders of the Warrants of such event prior to its
occurrence to enable such Registered Holders to exercise their Warrants and
participate as holders of Common Stock in such event.
SECTION 9. Redemption.
(a) On not less than thirty (30) days' notice given at any time
after the date hereof (the "Redemption Notice"), to Registered Holders of the
Warrants being redeemed, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.25 per Warrant, provided the Market Price
of the Common Stock shall equal or exceed $13.50 per share (the "Target Price"),
subject to adjustment as set forth in Section 9(f), below. All Warrants must be
redeemed if any are redeemed. For purposes of this Section 9, the Calculation
Date shall mean a date within 15 days of the mailing of the Redemption Notice.
The date fixed for redemption of the Warrants is referred to herein as the
"Redemption Date".
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(b) If the conditions set forth in Section 9(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
Redemption Notice to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the right to exercise the
Warrant shall terminate at 5:00 P.M. (New York time) on the business day
immediately preceding the Redemption Date. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (a) to whom
notice was not mailed or (b) whose notice was defective. An affidavit of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Registered Holders of the Warrants shall have
no further rights except to receive, upon surrender of the Warrant, payment of
the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the
place specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of Common Stock are subdivided or combined into
a greater or smaller number of shares of Common Stock, the Target Price shall be
proportionally adjusted by the
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ratio which the total number of shares of Common Stock outstanding immediately
prior to such event bears to the total number of shares of Common Stock to be
outstanding immediately after such event.
SECTION 10. Registration Under The Securities Act of 1933.
The Company agrees to register for resale the shares of Common
Stock issued or issuable upon exercise of Warrants under the Securities Act of
1933, as amended (the "Act"), as set forth below.
10.1 Demand Registration.
(a) If at any time after the Exercise Date, but not more than
five (5) years from the Expiration Date, the Company shall receive a written
request therefor (the "Demand Notice") from holders (the "Requesting Holders")
of Warrants Shares (or Warrants exercisable to acquire Warrant Shares) equal to
50% or more of the aggregate number of Warrant Shares issuable upon exercise of
all of the Warrants ("Registrable Securities"), the Company shall prepare and
file with the Securities and Exchange Commission (the "SEC") a registration
statement under the Act covering the Registrable Securities which are the
subject of such request and shall use its reasonable best efforts to cause such
registration statement to become effective. In addition, upon the receipt of
such request, the Company shall promptly give written notice to all other record
holders of Registrable Securities that such registration is to be effected. The
Company shall include in such registration statement such Registrable Securities
for which it has received written requests to register by such other record
holders within thirty (30) days after the delivery of the Company's written
notice to such other record holders.
(b) In the event that at the time of the Demand Notice the
Company is in the process of preparing a registration statement under the Act
relating to an underwritten public offering, then no holder of securities of the
Company, including Requesting Holders, may include securities in such
registration if in the good faith judgment of the managing underwriter of such
public offering the inclusion of such securities would interfere with the
successful marketing of the securities being underwritten. Shares to be excluded
from an underwritten public offering shall be selected in a manner provided in
Section 10.2 below. To the extent only a portion of the Registrable Securities
held by a Requesting Holder is included in the underwritten public offering, a
registration statement covering
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<PAGE> 17
those Registrable Securities which are excluded from the underwritten public
offering will be filed within 180 days of the consummation of the underwritten
public offering.
(c) The obligation of the Company under this Section 10.1 shall
be limited to one registration statement. The Company shall pay the expenses
described in Section 10.10 for the registration statement filed pursuant to this
Section 10.1, except for underwriting discounts and commissions and legal fees
of the Requesting Holders, which shall be borne by the Requesting Holders.
10.2 "Piggyback" Registration Rights.
(a) From and after the Exercise Date, and until such time as
the Registrable Securities are freely salable (without restriction) under Rule
144 promulgated under the Act, if the Company shall determine to proceed with
the actual preparation and filing of a registration statement under the Act in
connection with the proposed offer and sale of any of its securities by it or
any of its security holders (other than a registration statement on Form S-4,
S-8 or other limited purpose form), the Company will give written notice of its
determination to all record holders of the Registrable Securities. Upon the
written request from the Requesting Holders, (as defined in Section 10.1) within
twenty (20) days after receipt of any such notice from the Company, the Company
will, except as herein provided, cause all such Registrable Securities to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Registrable Securities to be so registered; provided, further, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section 10.2 shall be
underwritten in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section 10.2 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. In the event that the Registrable
Securities requested for inclusion pursuant to this Section 10.2 together with
any other shares which have similar piggyback registration rights (such shares
and the Registrable Securities being collectively referred to as the "Requested
Stock") would, in the good faith judgment of the managing underwriter of such
public offering, reduce the number of shares to be offered by the Company or
interfere with the successful marketing of the shares of stock offered by the
Company, the number of shares of Requested Stock otherwise to be included in the
underwritten public offering may be reduced pro rata (by number of shares) among
the holders thereof requesting such registration or
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excluded in their entirety if so required by the underwriter. To the extent only
a portion of the Requested Stock is included in the underwritten public
offering, those shares of Requested Stock which are thus excluded from the
underwritten public offering shall be withheld from the market by the holders
thereof for a period, not to exceed 180 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering. A registration statement covering those shares of Requested Stock
excluded from the underwritten offering will be filed within 180 days of the
consummation of the underwritten public offering.
(b) The obligation of the Company under this Section 10.2 shall
be unlimited to the number of registration statements.
10.3 Registration Procedures.
(a) If and whenever the Company is required by the provisions of
Section 10.1 or 10.2 to effect the registration of Registrable Securities under
the Act, the Company will:
(i) prepare and file with the SEC a registration
statement with respect to such securities, and use its reasonable best efforts
to cause such registration statement to become and remain effective until the
Registrable Securities are freely salable without the volume limitations of Rule
144;
(ii) prepare and file with the SEC such amendments
to such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement effective until
the Registrable Securities are freely salable without the volume limitations of
Rule 144;
(iii) furnish to the security holders participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(iv) use its reasonable best efforts to register or
qualify the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating holders
may reasonably request in writing within twenty (20) days following the original
filing of such registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a
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foreign corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in
such registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(vi) notify such holders promptly of any request by
the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(vii) prepare and file with the SEC, promptly upon
the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders (and concurred in by counsel for the Company), is required under the Act
or the rules and regulations thereunder in connection with the distribution of
Common Stock by such holder;
(viii) prepare and promptly file with the SEC and
promptly notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; and
(ix) advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
10.4 Expenses.
(a) With respect to each registration requested pursuant to
Section 10.1 hereof, and with respect to each inclusion of Registrable
Securities in a registration statement pursuant to Section 10.2 hereof, all
fees, costs and expenses of and incidental to such registration, inclusion and
public offering (as specified in paragraph (b) below) in connection
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therewith shall be borne by the Company, provided, however, that any security
holders participating in such registration shall bear their pro rata share of
the underwriting discount and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be borne by
the Company as provided in paragraph (a) above shall include, without
limitation, all registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified (except as provided in 10.4(a)). Fees and disbursements
of counsel and accountants for the selling security holders and any other
expenses incurred by the selling security holders not expressly included above
shall be borne by the selling security holders.
10.5 Indemnification.
(a) The Company will indemnify and hold harmless each holder of
Registrable Securities which are included in a registration statement pursuant
to the provisions of Sections 10.1 or 10.2, its directors and officers, and any
underwriter (as defined in the Act) for such holder and each person, if any, who
controls such holder or such underwriter within the meaning of the Act, from and
against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such holder or any such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by such holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Sections 10.1 or 10.2 will indemnify
and hold harmless the Company, its directors
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and officers, any controlling person and any underwriter from and against, and
will reimburse the Company, its directors and officers, any controlling person
and any underwriter with respect to, any and all loss, damage, liability, cost
or expense to which the Company or any controlling person and/or any underwriter
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in strict conformity with written information
furnished by or on behalf of such holder specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 10.5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party,
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or in addition to those available
to the indemnified party, or if there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties have the right to select
separate counsel to participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of
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<PAGE> 22
said paragraph (a) or (b) for any legal or other expense subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party shall have
employed counsel in accordance with the provisions of the preceding sentence,
(ii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after the notice of the commencement of the action or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
SECTION 11. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company
shall nevertheless not be required to issue fractions of shares of Common Stock,
upon exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share of Common
Stock called for upon any exercise of a Warrant, the Company may, in its sole
discretion issue one additional whole share of Common Stock, or otherwise shall
pay to the Registered Holder an amount in cash equal to such fraction multiplied
by the current market value of such fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market or
Nasdaq SmallCap Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange on
the last trading day prior to the date of exercise of the
applicable Warrant or if no such sale is made on such day or no
last reported sale price is quoted, the average of the closing
bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is listed in the over-the-counter
market (other than on Nasdaq) or admitted to unlisted trading
privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the date
of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or
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<PAGE> 23
admitted to unlisted trading privileges and bid and asked prices
are not so reported, the current market value shall be an amount
determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
SECTION 12. Warrant Holders Not Deemed Stockholders. No
Registered Holder of Warrants shall, as such, be entitled to vote or to receive
dividends or be deemed the holder of Common Stock that may at any time be
issuable upon exercise of such Warrants for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Registered Holder of
Warrants, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue or reclassification
of stock, change of par value or change of stock to no par value, consolidation,
merger or conveyance or otherwise), or to receive notice of meetings, or to
receive dividends or subscription rights, until such Registered Holder shall
have exercised such an applicable Warrant and been issued shares of Common Stock
with respect thereto in accordance with the provisions hereof.
SECTION 13. Rights of Action. All rights of action with respect
to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Company
or of the holder of any other Warrant, may, on its own behalf and for its
benefit, enforce against the Company his right to exercise its Warrant for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 14. Agreement of Warrantholders. Every holder of a
Warrant, by its acceptance thereof, consents and agrees with the Company, and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Company by the Registered Holder thereof in person or by its attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the Corporate Office of the Company, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Company,
in its sole discretion, together with payment of any applicable transfer taxes;
and
(b) The Company may deem and treat the person in whose
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<PAGE> 24
name the Warrant Certificate is registered as the holder and as the absolute,
true and lawful owner of the Warrants represented thereby for all purposes, and
the Company shall not be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided in Section 7 hereof.
SECTION 15. Cancellation of Warrant Certificates. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be cancelled by the
Company and retired; the Company shall also cancel Common Stock following
exercise of any or all of the Warrants represented thereby or delivered to it
for transfer, splitup, combination or exchange.
SECTION 16. Modification of Agreement. This Agreement may be
modified, supplemented or altered with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, or the Purchase Price
therefor, or the acceleration of the Warrant Expiration Date, shall be made
without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than as otherwise provided herein.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Company, which
shall be initially the respective addresses set forth on Schedule 1; if to the
Company, at 920 North Franklin Street, Suite 402, Chicago, IL 60610, Attention:
Paul F. Lavallee, Chief Executive Officer.
SECTION 18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company (and its successors and assigns) and the
Registered Holders from time to time of Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any other person
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<PAGE> 25
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate on the
earlier to occur of (i) the close of business on the Expiration Date of all the
Warrants; or (ii) the date upon which all Warrants have been exercised.
SECTION 21. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original and all of
which together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
MICROSULIS MEDICAL CORPORATION
By: ____________________________________
Paul F. Lavallee
Chief Executive Officer
WARRANT HOLDERS
EXHIBIT A
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. [THE EXERCISE, SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS
EXERCISE ARE SUBJECT TO CERTAIN SO-CALLED "LOCK-UP" RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT DATED _____________, 2000 AMONG THE ISSUER, THE ORIGINAL
HOLDER OF
-25-
<PAGE> 26
THIS WARRANT AND THE OTHER STOCKHOLDERS NAMED THEREIN. A COPY OF SUCH AGREEMENT
MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE ISSUER AT ITS ADDRESS SET FORTH
HEREIN.]
No. W_________ _________________________
Warrants
VOID AFTER _________________, 2005
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
MICROSULIS MEDICAL CORPORATION
(formerly named AccuMed International, Inc.)
This certifies that FOR VALUE RECEIVED ________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $0.01 par value per share ("Common
Stock") of (Microsulis Medical Corporation, a Delaware corporation (the
"Company"), at any time commencing on _______________, 2000 and prior to the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Exercise Form on the reverse hereof properly
completed and duly executed, at the corporate office of the Company, accompanied
by payment of an amount equal to $6.75 (subject to adjustment) for each Warrant
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to Microsulis Medical
Corporation.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
___________________, 2000 among the Company and the Warrantholders named therein
pursuant to the Agreement and Plan of Merger dated November 16, 1999 and amended
December 16, 1999, December 21, 1999 and December 22, 1999 among the Company,
AccuMed Acquisition Sub and Microsulis Corporation.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
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<PAGE> 27
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Common Stock will be issued
in respect thereto. In the case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver to the Registered Holder a new
Warrant Certificate or Warrant Certificates of like tenor for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time)
on ___________________, 2005 or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Company, for a
new Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any of the rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option of
the Company, at a redemption price of $0.25 per Warrant at any time after the
date hereof, provided the Market Price (as defined in the Warrant Agreement) for
the Common Stock shall equal or exceed $13.50 per share. Notice of redemption
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in
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<PAGE> 28
the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants represented
hereby except to receive the $0.25 in cash per Warrant upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to the conflict
of law provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
MICROSULIS MEDICAL CORPORATION
Dated: ___________________, 2000
By: _____________________________
Paul F. Lavallee, Chief
Executive Officer
[seal]
Attest: ________________________
Joyce L. Wallach
Assistant Secretary
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<PAGE> 29
NOTICE OF EXERCISE
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise ________
_________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
[please print or type name and address]
and be delivered to
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated above.
The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers, Inc. If not
solicited by an NASD member, please write "unsolicited" in the space below.
______________________________________
(Name of NASD Member)
Dated:_________________________
X__________________________
___________________________
___________________________
Address
______________________________________
Taxpayer Identification Number
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<PAGE> 30
______________________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE NOTICE MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
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<PAGE> 31
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________________________
__________________________________________
__________________________________________
__________________________________________
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ _______________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:____________________
X_________________________
Signature Guaranteed
__________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE NOTICE MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
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<PAGE> 1
EXHIBIT 5.1
AccuMed International Inc.
920 N. Franklin Street, Suite 402
Chicago, Illinois 60610
December 22, 1999
The Board of Directors
AccuMed International, Inc.
920 N. Franklin Street, Suite 402
Chicago, Illinois 60610
Gentlemen:
You have requested my opinion as counsel for AccuMed International,
Inc., a Delaware corporation (the "Company"), in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and the Rules and regulations promulgated thereunder, of an aggregate of
11,696,830 shares (the "Shares") of the Company's common stock, par value $0.01
per share (the "Common Stock"), and warrants to purchase an aggregate of
3,014,646 shares of Common Stock (the "Warrants") pursuant to a Registration
Statement on Form S-4 (the "Registration Statement").
For purposes of this opinion, I have examined the Registration
Statement filed with the Securities and Exchange Commission on or about the date
hereof, including the prospectus which is a part thereof (the "Prospectus") and
the exhibits thereto. I have also been furnished with and have examined
originals or copies, certified or otherwise identified to my satisfaction, of
all such records of the Company, agreements and other instruments, certificates
of officers and representatives of the Company, certificates of public officials
and other documents as I have deemed it necessary to require as a basis for the
opinions hereafter expressed. As to questions of fact material to such opinions,
I have, where relevant facts were not independently established, relied upon
certifications by principal officers of the Company. I have made such further
legal and actual examination and investigation as I deem necessary for purposes
of rendering the following opinions.
In my examination I have assumed the genuineness of all signatures, the
legal capacity of natural persons, the correctness of facts set forth in
certificates, the authenticity of all documents submitted to me as originals,
the conformity to original documents of all documents submitted to me as
certified or photostatic copies, and the authenticity of the originals of
1
<PAGE> 2
such copies. I have also assumed that such documents have each been duly
authorized, properly executed and delivered by each of the parties thereto other
than the Company.
I am a member of the bar of the State of California. My opinions below
are limited to the laws of the State of California, the General Corporation Law
of the State of Delaware and the federal securities laws of the United States.
Based on the foregoing, it is my opinion that all of the Shares and
Warrants, when issued and delivered in accordance with the terms of the merger
agreement in the manner described in the proxy statement-prospectus, will be
legally and validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement and in any future amendments to the Registration
Statement and consent to the use of my name under the caption "Legal Matters" in
the Prospectus.
Sincerely,
/s/ Joyce L. Wallach, Esq.
2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY OF REGISTRANT
Oncometrics Imaging Corp., a corporation continuing under the laws of the Yukon
Territory, Canada.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the proxy statement-prospectus, which is a part of the
Registration Statement of Accumed International, Inc. on Form S-4, dated on or
about December 23, 1999, of our report dated March 23, 1999 on our audit of the
consolidated financial statements of Microsulis Corporation and Subsidiary as of
December 31, 1998 and for the period from January 8, 1998 (date of inception) to
December 31, 1998, and to the reference to our Firm under the heading "Experts"
in such proxy statement-prospectus.
\s\ Moore Stephens Lovelace, P.A.
Certified Public Accountants
Orlando, Florida
December 21, 1999
<PAGE> 2
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE A - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additons
Balance at charged to Balance at
Beginning costs and Other end of
Description of period expenses Retirements changes period
----------- --------- -------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted
from asset accounts
Allowance for uncollectible
accounts receivable
Year Ended December 31, 1996 $ 17,932 $ 108,160 $ -- $ -- $ 126,092
Year Ended December 31, 1997 $ 126,092 $ 268,728 $ -- $ 394,820
Year Ended December 31, 1998 $ 394,820 $ 377,353 $ (419,173) $ -- $ 353,000
Reserves and allowances which support
balance sheet caption reserves
Warranty reserves
Year Ended December 31, 1996 $ -- $ 30,000 $ -- $ -- $ 30,000
Year Ended December 31, 1997 $ 30,000 $ -- $ (332,701) $ 900,000(a) $ 597,299
Year Ended December 31, 1998 $ 597,299 $ -- $ (54,674) $ -- $ 542,625
</TABLE>
(a) reserves acquired through ESP product line acquisition on March 3, 1997
