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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-20652
AccuMed International, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4054899
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
920 N. Franklin Street, Suite 402, Chicago, IL 60610
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number: (312) 642-9200
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by checkmark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
the registrant on April 11, 2000 was: $7,411,119. Number of shares of common
stock outstanding on April 11, 2000: 5,673,149.
The information required by Part III, Items 10, 11, 12 and 13 are
incorporated by reference to the definitive proxy statement dealing with the
election of directors to be filed within 120 days of the last fiscal year end.
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ITEM 1 OF THIS FORM 10-K ENTITLED "BUSINESS" AND ITEM 7 OF THIS FORM 10-K
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27a OF THE SECURITIES ACT OF 1933 AND SECTION 21e OF THE SECURITIES
EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THE
FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
AccuMed International, Inc. is a Delaware corporation. AccuMed's
predecessor was incorporated in California in June 1988 under the name Alamar
Biosciences, Inc. and was engaged in developing, manufacturing and marketing
microbiology products.
AccuMed has a wholly owned subsidiary, Oncometrics Imaging Corp.,
a company continuing under the laws of the Yukon Territory, Canada. Oncometrics
was formed in 1995 to complete the development of an automated instrument
designed to be used in the detection, diagnosis and prognosis of early-stage
lung cancer by measuring the DNA in the nuclei of cells on microscope slides.
AccuMed acquired a two-thirds interest in Oncometrics in 1996. In 1998, we
acquired the final one-third interest in Oncometrics.
On January 29, 1999, AccuMed sold substantially all of the assets
and certain liabilities related to our microbiology business, including Alamar,
Sensititre and the ESP product line. AccuMed received gross proceeds of $
15,150,000 in cash at the closing. The proceeds were used to retire $8,498,000
in debt, and the balance was retained for general corporate and working capital
purposes.
AccuMed and Ventana Medical Systems, Inc. entered into a License
and Development Agreement dated March 24, 2000. Under this license agreement
Ventana has paid AccuMed an initial license fee, a prepayment on royalties and a
partial payment for certain development obligations that AccuMed will perform.
AccuMed has granted Ventana license to use AccuMed's core technology, including
patents, in the field of surgical pathology, which involves analyzing tissue
samples ordered by physicians to be taken from surgical patients to determine
the presence or absence of disease. This license agreement has an initial
three-year term which will be extended for additional three-year terms unless
either party gives the other notice of non-renewal within 180 days prior to the
end of the current term.
On March 29, 2000, AccuMed and BCAM International, Inc. entered
into a Patent and Technology License and Registration Rights Agreement. Through
this agreement, we have licensed to BCAM our core technology for use in a
specific field. BCAM has paid AccuMed an initial licensing fee and is required
to pay AccuMed additional licensing fees and royalties in the future.
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(b) Financial Information About Industry Segments
AccuMed's operations were in two laboratory market segments: (1)
Cytopathology - systems made up of multiple instruments networked via
proprietary software that support the review and analysis of Pap smears and
other microscope slide-based cellular preparations, and (2) Microbiology -
proprietary disposable products and automated instruments used to identify
infectious microorganisms and determine susceptibility to antimicrobial agents.
On January 29, 1999, AccuMed sold substantially all assets and certain
liabilities of our former microbiology business. Accordingly, this division is
reported as a discontinued operation in the accompanying financial statements.
(c) Narrative Description of Business
GENERAL
AccuMed designs, builds and supplies two product lines. We build
these product lines with either our own microscopes or with commercially
available microscopes which we modify.
The first product line consists of "AcCells(TM)" computer-aided
microscopes, which help medical experts to examine and diagnose specimens of
human cells. These products include:
- - robotic slide-feeding systems to load and unload slides from the
microscope,
- - bar-code readers to ensure proper identification of samples being
analyzed,
- - electro-mechanical scanning stages, that part of the AcCell microscope
that allows the AcCell computer to move and focus the slide more
accurately than a human can,
- - automatic physical dotters to mark the locations of cells of interest,
and
- - Data Management System software to enable the medical experts to review
the relevant medical histories and report the results of their
examination or diagnosis directly into a medical record-keeping system
without human transcription or repeat entries.
The second product line consists of "AcCell-Savant(R)." The
AcCell-Savant includes all the AcCell components described above, as well as an
electronic imaging system and our image analysis software. The electronic
imaging system consists of a camera, electronics, optics and software which
together produce digital images of specimens on the microscope slide. The image
analysis software measures properties of the specimen from the digital images.
These AcCell-Savant(R) measurements are objective, as opposed to the subjective
analyses of specimens by human visual examination.
Medical experts can examine and diagnose human medical specimens
more easily and accurately using our products. For example, a clinical
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laboratory can eliminate paper requisitions and paper medical reports by using
AcCells which include our Data Management System. Laboratories that use paper
requisitions and medical reports risk misdiagnosing specimens because of
transcription and other clerical errors. Laboratory staff using our electronic
Data Management System do not need to reenter data manually, thus saving time
and reducing the risk of clerical error which can lead to misdiagnoses.
Research scientists use the AcCell-Savant(R) research system,
which we began marketing in 1999, to measure cellular DNA and other properties
of medical specimens. We have sold modest numbers of the AcCell-Savant(R)
research system to academic and medical research laboratories. These
laboratories use our AcCell-Savant research system to more easily and accurately
conduct experiments for a wide range of research applications in biology and
pathology. Under FDA regulations, we are permitted to sell the AcCell-Savant(R)
research system for these uses. The research and academic market is a small
market compared to the commercial, clinical laboratory market which processes
and diagnosis human medical specimens for patient care.
Research scientists use the AcCell-Savant(R) research system in
the following manner. In a lung cancer experiment, patients provide sputum
specimens. Laboratory technicians prepare these specimens on microscope slides
with a bar code label identifying the patient. The scientist inserts these
slides into the AcCell-Savant(R) research system. The robotic slide-feeding
system loads the slide into the microscope. The bar code reader identifies the
patient and specimen information and stores this information in the computer.
Digital images are produced using the electronic imaging system and scanning
stage which moves the slide under the microscope. The image analysis software
measures DNA and other properties of the cells in the digital images. The
research scientist uses the statistical image analysis software to analyze these
measurements objectively. Scientists use these statistical analyses to determine
the presence and severity of lung cancer. AcCell-Savant(R) research systems
record the digital images, measurements of cellular properties and statistical
information in computer files which are the records of the scientist's
experiment. The AcCell-Savant(R) then unloads the microscope slide.
In addition to research applications, we believe we can adapt the
AcCell-Savant(R) for many clinical, commercial laboratory applications, like
early cancer detection. We are adapting the AcCell-Savant(R) for early lung
cancer detection and several other clinical applications. In our attempt to
enter the clinical laboratory market, we are pursuing partnerships with other
technology and product/service distribution companies. We are exploring
arrangements with partners to combine AcCell-Savant(R) and/or AcCell technology
with the partner's intellectual property. In these arrangements, we would sell
our products for use in combination with the partner's intellectual property and
products.
For example, on March 27, 2000 AccuMed announced that it signed a
multi-year agreement with Ventana Medical Systems, Inc. (Nasdaq: VMSI) to
provide an Automated Cellular Image Analysis System to assist pathologists in
analyzing cancer and infectious diseases. The system will be used to quantitate
immunohistochemistry (IHC) and in-situ hybridization (ISH) stained samples. The
combination of AccuMed's automated and quantitative imaging systems technology
and Ventana's sales and marketing strengths to surgical pathology laboratories,
will enable both companies to participate in the
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potentially attractive market for quantitative IHC and ISH image analysis. Built
from AccuMed's core technology and products, Ventana expects to launch the sale
of its first IHC products built upon custom-modified AcCell automated imaging
platforms and imaging software in late 2000. That product will aid pathologists
who evaluate breast cancer specimens, including the use of Ventana's stain for
measuring Her-2/neu receptor overexpression. Physicians order tests to measure
Her-2/neu receptor levels in tissue samples from cancer patients to decide
whether breast cancer patients with metastatic disease will respond to
Genentech's anti-cancer drug, Herceptin.
Furthermore, AccuMed's automated and quantitative imaging
instruments, software, systems, and supplies are not only well suited for tests
on tissue samples from patients with cancer, but they are also ideal analytical
instrument platforms for numerous clinical applications in early disease
detection and medical follow-up. On March 29, 2000, AccuMed signed a multi-year
agreement with BCAM International, Inc. (Nasdaq: BCAM) to license its core
technology in computer-aided microscopy, quantitative microscopy, and image
cytometry and histometry in the field of morphological, cytochemical,
cytogenetic, and quantitative sputum cytology, including without limitation DNA,
malignancy-associated changes, and any other genetic or molecular diagnostic
analyses for early lung cancer detection, screening, diagnosis, prognosis, and
patient monitoring. Through this agreement, which provides BCAM with access to
contract research and development services and manufactured products from
AccuMed, BCAM can build an early lung cancer detection and diagnostic business
using unique and patented cytopathology and molecular pathology-related
technology from AccuMed.
These deals were possible because of the generic and proprietary
advanced imaging systems that have been designed and built by AccuMed. These
deals are also commercially viable today because of the recent advances in
cellular genetics and molecular pathology including, in particular, the initial
and encouraging results stemming from human genomics research and development
projects.
We are at the forefront of significant changes in disease
management. Molecular diagnostics and quantitative analyses of molecular
profiles resulting from gene expression will be used to optimize therapeutic
choices that ultimately improve patient outcomes. AccuMed's instrument and
system platforms are well-suited for numerous emerging tests for a wide variety
of diseases including cancer (e.g., breast, prostate, colon, lung, bladder,
lymphoma, and leukemia).
We need FDA clearance to market the AcCell-Savant in the United
States for clinical as opposed to research uses. We are gearing our research and
development efforts toward developing the lung detection product which, through
a license can be used in clinical trials in 2001.
AccuMed has generated limited revenues from the sale of our
products to our original target market, clinical laboratories that examine or
diagnose medical specimens including Pap smears. Currently, we do not actively
market the AcCell as a stand-alone product.
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We believe that AccuMed is the only company competing in the
computer-aided cytology screening cytodiagnostic market with a modular,
expandable product, (our AcCell) that allows customers to upgrade to more fully
automated versions and with a product line that support both gynecological and
non-gynecological specimen analysis using both conventional Pap smears as well
as liquid-based preparations. Given the present healthcare and regulatory
environment, we believe our products will be more readily accepted than higher
priced, non-modular, non-interactive products that attempt to eliminate human
experts from the diagnostic process, and that are restricted to the analysis of
cervical Pap tests only.
Certain developments in the diagnostic markets we serve have
created growth opportunities. Cost containment pressures and demand for
preventative, early detection and diagnosis, and
therapeutic monitoring medical technology are likely to create demand for
labor-saving laboratory products that improve the quality and efficiency of
laboratory-based patient specimen interpretations and diagnoses.
AccuMed's goal is to develop cost-effective, accurate, sensitive,
easy-to-use, and innovative cytopathology products that improve patient outcomes
and healthcare provider performance, with competitive advantages in the markets
in which it operates. AccuMed's growth and profitability will depend, to a great
extent, upon its ability to complete development of and successfully introduce
new products through distribution channels of strategic partners. To achieve
this, AccuMed will need to continue research and development activities and
obtain regulatory approval or cooperate with strategic partners in their efforts
to obtain regulatory approval for such products with the U.S. Food and Drug
Administration.
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 to identify individuals with early more
curable lung cancer.
Lung cancer is a major cause of cancer-related deaths for both
men and women, accounting for more than one-third of all cancer-related deaths
and costs the U.S. healthcare system more than $50 billion in direct medical
expenses annually. Last year in the United States approximately 180,000 patients
were diagnosed with lung cancer. Most of the patients who will die from this
disease will lose their battle approximately within the first two years.
Worldwide estimates indicate that there are in excess of 900,000 new lung cancer
cases annually, and that the number of new cases expected to double within five
years.
Currently, AccuMed estimates only 7.5 million sputum cytology
diagnostic tests are performed annually, two-thirds of which are used for lung
cancer screening in Japan. Today, the remaining 2.5 million tests are performed
primarily on symptomatic patients. However, AccuMed estimates the worldwide
market for early lung cancer screening of high-risk and asymptomatic
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individuals to be between 50 and 175 million tests per year, with at least 23.5
million potential tests per year in the United States.
Lung cancer survival strongly depends upon early disease
detection and diagnosis. However, conventional sputum cytopathology tests are
not widely used because they fail to detect early curable lung cancer reliably.
AccuMed believes that approximately 90% of patients who are diagnosed with Stage
0 and between 45% to 80% of patients who are diagnosed with State I lung cancer
have at least a 5-year survival following their initial diagnosis. Contrasting
this, the survival rate is less than 9% for patients who are diagnosed with
State III or Stage IV lung cancer. Unfortunately, more than two-thirds of lung
cancer patients today are diagnosed at Stage III and IV because no widespread
early lung cancer-screening program has been developed similar to the
gynecological Pap test worldwide screening programs that have dramatically
reduced mortality from cervical cancer during the past 50 years.
AccuMed believes a screening program for early lung cancer
detection and diagnosis is possible. It must rely upon identifying and
recruiting high-risk patient populations and/or at-risk patients into
non-invasive screening programs before they become symptomatic. A screening
program for these individuals has the potential to not only save lives, but also
be a highly cost-effective healthcare program by significantly reducing overall
healthcare costs due to earlier detection and treatment.
To achieve this goal, AccuMed is developing the AcCell-Savant.
The AcCell-Savant, a quantitative microscopy analytical instrument, incorporates
features and benefits derived from the AccuMed proprietary AcCell(TM)
workstations and TracCell(TM) 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. AccuMed believes such cellular assays could be
performed, with the AcCell-Savant, more sensitively, accurately, and
reproducibly than is possible by the human eye-brain combination alone. 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 human
experts---the pathologists---to do the best diagnostic work possible, in
suspicious cases, by considering the objective, visual and subvisual
AcCell-Savant data in their patient diagnostic reports.
AccuMed and the British Columbia Cancer Agency conducted a
two-year field study and analysis of approximately one thousand patient cases
qualified to be at high-risk for early lung cancer. Results from that study show
that conventional sputum cytopathology has a reduced sensitivity for early stage
lung cancer detection. Most significantly, this study also demonstrated that the
AcCell-Savant approach improves, over conventional methods, the detection of the
early, most curable, lung cancers by up to several-fold. Further significant
performance improvements are anticipated
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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.
AccuMed intends to commercialize this early lung cancer
application through licensing our technology to a strategic partner.
LUNG CANCER SCREENING BUSINESS DEVELOPMENT
AccuMed has set the following major near-term (i.e., 2-year)
milestones in this lung cancer screening business development program: (1)
completion of comprehensive system requirements and specifications from specimen
collection and preparation through cellular analysis, diagnosis and reporting,
(2) development of the clinical instrument ("intended use" apparatus), (3)
submission of appropriate supplemental patent protection, (4) completion of a
pre-clinical trial (i.e., pilot run) with adequate screening test sensitivity
and specificity, (5) demonstration of revenues from research instrument sales,
and (6) demonstration of revenues from per-test usage fees at Alpha and Beta
sites.
MARKETS AND PRODUCTS
AccuMed, a leader in the field of quantitative and automated
microscopy, is a medical device company developing proprietary diagnostic
instruments for applications to early disease prevention, detection, diagnosis,
prognosis, optimized selection of therapeutic regimens and agents, and
therapeutic monitoring. Quantitative and automated microscopy is a powerful
research tool, which applies complex computer algorithms to measurements of
nuclei, cells, and tissues on a microscopy slide to derive medically significant
information. AccuMed markets its computer-aided, automated, and quantitative
microscopy workstations and systems, including analytical cytology and histology
instruments and supplies, through joint ventures, technology licensing
agreements, and research and development contracts.
As one of AccuMed's laboratory partners stated, "Through its
systems, AccuMed is not only providing products, but it is redefining the
process of making a diagnosis." This cell and tissue-imaging science and
technology company is rapidly expanding its intellectual property portfolio and
applying its proprietary technologies to the development of cost-effective,
accurate, sensitive, easy-to-use, and innovative products that improve patient
outcomes and healthcare provider performance.
As a result of AccuMed's modular instrument platforms for
cytology and histology applications, AccuMed has focused its efforts to
commercialize its technology through partnerships with companies and
institutions with a business focus in the following markets, among others:
- Early lung cancer and other pulmonary disease
detection and follow-up
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- Cancer and infectious disease diagnostics
- Quantitative immunohistochemistry
- Cytogenetics, screening and toxicology including in-situ
hybridization
- Anatomic pathology and information systems
- QC/QA for cytology/histology quality monitoring and
reporting
- Telepathology and medical image archiving/databases
- Marker and probe development
- Drug development for cancer patients
- Linking diagnostics assays to therapeutics
- Cellular imaging and analysis
- Quantitative cytology and histology
- Microscopy-based tests
- Medical informatics
B. PRODUCTS
AccuMed's product development strategy has focused on taking what
the human experts do best and "wrapping around them" technological solutions
that make them more effective with respect to quality and cost-effectiveness. In
addition, AccuMed provides instruments such as the AcCell-Savant to measure and
analyze what the human eye-brain combination cannot see or perceive. AccuMed has
developed the following technology and products relying upon its core
technologies including computer-aided microscopy, medical informatics, optical
and electronic imaging systems, quantitative microscopy, and
cytometry/histometry systems.
The product development strategy employed at AccuMed is a layered
approach. The underlying support for the product line is the AcCell
computer-aided microscope, which is primarily a quality assurance device
utilizing robotic and medical informatic technologies. The TracCell layer above
it provides productivity enhancements by electronically mapping slides to
identify the fields-of-view with the well stained and well preserved cells for
human review. The AcCell-Savant layer immediately above the TracCell layer adds
quantitative microscopy that facilitates systems that measure and report the
content and distribution of DNA and other cellular constituents in biosamples.
Probes analyzers are yet an additional layer of technology that introduce the
capability of quantitatively determining the presence of genetics markers and
probes in cellular and histological samples, for example. Finally, the top layer
of the technological pyramid anticipates the integration of all of these
technologies with a medical informatics system to furnish complete assays from
specimen processing through medical results reporting.
The AcCell, TracCell and AcCell-Savant are AccuMed's original
product lines (Series 2000) in computer-aided microscopy, slide mapping systems,
and quantitative microscopy systems.
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COMPUTER-AIDED MICROSCOPY: ACCELL CYTOPATHOLOGY WORKSTATIONS
Clinical cytology laboratories, using technologists and
cytopathologists to prepare, screen and diagnose specimens are facing
cost-containment pressures and a need to improve quality simultaneously. These
requirements are increasing the demands on laboratories and their highly skilled
cytologists to both increase throughput (i.e., laborsaving products that reduce
cost and increase margin per test) and decrease their false negative rate (i.e.,
minimize liability exposure). The AcCell workstations were developed to enable
cytologists to do what they do best - interpret cytological findings - and to
speed the tedious non-interpretative functions while concurrently providing
improved quality control, assurance and reporting functions during the screening
and diagnostic process.
The resultant AcCell product line is a comprehensive family of
integrated, expandable and technologically advanced products consisting of
proprietary workstations that provide bar-coding for automated specimen
identification, robotic slide loading to increase throughput and accuracy,
support to ensure that 100% of a slide's sample deposition area is imaged during
screening, XYZ electronic coordinate marking of cells and other
objects-of-interest for rapid and reproducible automated relocation of selected
cells of interest by pathologists during review sessions, accurate positional
information that is continuously available, automated and high-accuracy physical
dotting of slides, a data management system (DMS; typically interfaced to a
Laboratory Information Systems (LIS)) that speeds and aids pathologists in
diagnostic review sessions, automated report generation for specimen and
laboratory management, and compatibility with both conventionally prepared Pap
smears and liquid-based preparations. The DMS supports both gynecological and
other sample processing and analysis. The primary benefits derived from the use
of AcCell workstations are cost and timesavings, improved process control and
quality, proactive risk management, and reported increases in the detection of
abnormal cases.
AcCellS are the reliable, production-oriented workhorses for all
of AccuMed's products. They are optimized review stations that support the human
experts by maximizing their performance and providing a means for quality
assurance in cytology and histology operations.
Most importantly, however, these AcCell workstations form the
basic building block of semi-automated and automated systems in that they serve
as (a) the core of the human expert's specimen or patient sample review station
and (b) the building block for all of the analytical instruments in the other
screening and diagnostic market sectors.
ELECTRONIC IMAGING SYSTEMS: TRACCELL SLIDE MAPPING
Another technology developed by AccuMed is computerized slide mapping. This
technology, implemented in the TracCell Slide Mapping System, has been
FDA-cleared for use with conventional Pap smears as well as with Cytyc ThinPrep
liquid-based preparations. The TracCell stand-alone slide preprocessor produces
electronic "maps" of slide-based cytological samples. These maps were designed
to save slide-screening time and associated labor
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costs. The basic principle of TracCell slide mapping is that cytologists do not
need to screen or review microscope fields-of-view that do not contain any
adequately stained, well-preserved diagnostic cells. By processing slides with a
TracCell before the cytologist screens the slides at an AcCell review station,
the cytologist can save time by being automatically routed past these "empty"
fields-of-view. This productivity enhancement technology is also adaptable to
the processing and review of tissue sections on microscope slides. An indirect
benefit of the TracCell tool is that screeners can spend more time analyzing
difficult-to-interpret cells or regions-of-interest without sacrificing overall
productivity. The TracCell Slide Mapping System, by definition, includes an
AcCell review station. AccuMed is seeking a licensee for the AcCell and TracCell
products for use in the automation of conventional cytology diagnostic
laboratories. Also, AccuMed is utilizing these products and technologies in more
advanced clinical applications (e.g., early lung cancer detection and diagnosis;
and quantitative immunohistochemistry and in-situ hybridization systems already
licensed to Ventana Medical Systems, Inc.) that AccuMed intends to commercialize
through several joint venture or other strategic relationships.
QUANTITATIVE MICROSCOPY SYSTEMS: ACCELL-SAVANT IMAGE CYTOMETERS
The AcCell-Savant/research (ACSr) instrument combines an AcCell
computer-aided microscope with the Savant proprietary system of stains,
protocols, imaging hardware and analytical software. This automated image
cytometer generates analytical results regarding individual cells, including DNA
content, optical texture and morphometric features. Statistical, graphical, and
image data are displayed in a variety of formats to support cytology and
histology research scientists, engineers, and clinicians.
More specifically, AccuMed's MAC methods and instruments are one
of AccuMed's powerful sets of automated cytophotometry tools facilitating the
cytological detection and diagnosis of cancer at early, more curable stages of
development. The lead research product at AccuMed, known as the AcCell-Savant,
is a high-resolution image cytometer and is currently available as a research
instrument - the AcCell-Savant/research (ACS/r). This analytical instrument
incorporates an AcCell computer-aided microscope with the Savant system of
stains, protocols, as well as proprietary imaging hardware and analytical
software. The ACSr is a fully automated, high-resolution, absorbance
microscopy-based cytometer that processes Thionin-Feulgen-stained cytology
preparations and presents analytical results regarding the cellular DNA content
of processed samples. This quantitative microscopy system includes an AcCell
equipped with electronic-imaging for the evaluation of cytology samples prepared
with proprietary nuclear DNA stains. Applications of this technology include
measurement of cellular DNA content, chromatin distribution patterns, and
nuclear areas for detection of early cancer and other diseases.
- ACSr's automated operation makes it possible to measure
thousands of cells per sample, thus increasing the statistical
accuracy of tests.
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- ACSr's proprietary high precision computer-aided microscope
with robotic slide handling and bar-coded sample identification
ensures the reproducibility and reliability of results.
- ACSr's proprietary electronic imaging and digital image
processing are capable of selecting cells of interest,
distinguishing them from background debris, cell clusters and
non-targeted cells. This speeds the tedious non-interpretive
functions while improving quality control and assurance.
- ACSr's digital image processing and proprietary statistical
analyses generate not only quantitative results but graphical
displays as well (e.g., two-dimensional histograms, scattergrams
and cell image gallery displays). These enable the user to detect
subtle changes and rare cellular events readily and reliably.
- ACSr's automated cell classification capability is customizable
to the user's specifications. This eliminates the time consuming
and labor-intensive process of manually classifying cells and
provides flexibility for user-specific requirements.
A key competitive advantage of the AcCell-Savant/research is its
rapid, production-oriented automation enabling it to scan and analyze thousands
of cells per sample without human intervention. Rather than relying upon
interactive, labor-intensive approaches with statistical samples too small for
sensitive cell cycle or ploidy analyses, the AcCell-Savant approach solves these
problems making speedy analyses of small or large (> 15,000 cellular events)
sample sizes practical and cost-effective. In addition, this robust and unique
approach enables users to select the cells of interest for analysis, free from
background debris, cluster, and non-targeted cells such as non-tumor cells that
could mask significant findings regarding the cells of interest to the operator.
Additionally, use of the ACSr is a complementary approach to flow cytometry. The
relative advantages of the image cytometry approach are that flow cytometry
typically requires at least an order of magnitude more cells per analysis, the
AcCell-Savant enables selectivity (ability to eliminate extraneous objects that
mask results), and unlike the AcCell-Savant, flow cytometry users cannot "see &
save" cells with their corresponding feature data sets. Finally, neither flow
nor image cytometry can process histological sections in general, though the
AcCell-Savant can process some tissue sections (e.g., muscle, heart, brain,
nerve, ovary, and testicle) when the majority of their nuclei are
non-overlapping.
This robust and unique instrument is versatile enough to handle a
variety of applications. Typical applications of the AcCell-Savant include
research and applications development in the following areas: disease detection
from cytology samples, Malignancy Associated Changes (MAC), DNA ploidy analyses,
treatment planning and monitoring, cell cycle analyses of S-phase fractions,
quality assurance via post-screening of cytology samples, infectious disease
investigations, transplant rejection analyses, toxicology, chemoprevention, and
general cellular research.
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Features and benefits of the AcCell-Savant/research system
include the following:
- Fully automated and high-speed operations
- Normalized DNA data with calibration
- Accurate, reproducible, and high resolution
- Classifiers providing high sensitivity & specificity
- Tunable to a wide variety of markers and probes
- Enables rapid generation of feasibility data
- Speeds drug research via faster protocols
- Suitable for new clinical screening assays
- Compatible with production-oriented AcCell-Savant Systems
MALIGNANCY ASSOCIATED CHANGES
AccuMed owns multiple patents related to methods and devices for
automatically detecting malignancy associated changes. Malignancy-associated
changes are subtle changes known to take place in the nuclei of apparently
normal cells found near cancerous or precancerous tissue. David M. Garner,
Ph.D., co-inventor of the MAC patents and Senior Scientist at the British
Columbia Cancer Agency (Vancouver, Canada) indicated "Malignancy-associated
changes (MACs) are subtle changes that are known to take place in the nuclei of
apparently normal cells found near cancer or precancerous tissue. As such, the
measurement of MAC features can potentially improve specimen adequacy rates,
increase the sensitivity of an early cancer detection screening test, and result
in an easier-to-use, simpler, and more reliable assay. Also, MACs can be used to
detect, not only lung cancer, but many other types of cancer and precancerous
conditions."
The AcCell-Savant products offer the unique combination of
patented MAC methods and the benefits of high accuracy, sensitivity and
throughput which enable research clinicians and scientists to detect and measure
early subtle cellular changes in disease processes that may not be otherwise
detectable by visual analyses alone.
SYSTEM 3000
The next generation System 3000 products are being developed to
enhance product features and benefits, and to increase market acceptance in
diverse clinical applications.
ACCUTECH
Specifically, the AccuTech was developed by AccuMed to remove the
need to use commercially available microscopes in the AcCell and related product
lines. Such commercially available microscopes did not provide adequate
mechanical stability, for example, to enable high-speed focusing on machines
that were being designed to operate consistently during multiple shifts and for
seven days per week.
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Features and benefits of the AccuTech systems include the
following:
- High-precision computer-controlled imaging
- Fixed optical system without field-operation
variability
- Computer-controlled illumination intensity with
feedback control
- High-resolution, ultra-fast computer-controlled
focusing subsystem
- Power objective changer with full XYZ and
illumination compensation
- Integral rotating filter mechanism for high-speed
multi-spectral sensing
- Rigid and fixed camera mounting system
- Automatic re-calibration system to ensure
slide-by-slide data quality
ACCELL 3000 REVIEW STATION
The AcCell 3000 is the human-operated cytology workstation of
AccuMed's System 3000 product line. It is a fully integrated light microscopy
and data management system for use in laboratories that perform slide-based
microscopic examination of cellular materials. This combination microscope and
computer was designed as the cytologist's and/or pathologist's flagship
"workhorse" tool. Specifically, the AcCell 3000 supports needs of the
gynecological and non-gynecological cytology (e.g., cervical Pap smears and
liquid-based preparations (LBPs), sputum cytology, fine-needle aspirations)
laboratories as well as laboratories that perform hematology, gastroenterology,
urology, cytogenetic, histology and related cytological and histological
interpretations for the screening, diagnosis and reporting of cell-based
samples, and for professional education and training. The AcCell 3000 provides
this support through a set of user-oriented hardware and software tools
integrated within a compact, reliable and easy-to-use package. The AcCell 3000
microscope automates the microscopy process while improving process control. It
features a highly ergonomic user interface, a multi-user relational database and
an interface to laboratory information systems (LIS) to improve the speed,
accuracy and reliability of the sample evaluation process while reducing the
physical strain that microscopists face in a clinical production environment.
The instrument is capable of supporting multilingual operations. This
computer-aided microscopy workstation can be operated as a stand-alone device,
in a stand-alone network of other AcCell workstations within a cytology or
anatomic pathology laboratory, or as a network of AcCell workstations interfaced
to an LIS through an AcCell file server. The AcCell 3000 computer-aided
microscopy products can also work in conjunction with the other System 3000
products under development (e.g., AccuTech-based versions of the FDA-cleared
TracCell Slide Mapping Systems and AcCell-Savant Quantitative Microscopy
Systems) that offer additional information from computer-aided sample analyses
through the use of both interactive and fully automated electronic imaging
systems.
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Features and benefits of the AcCell 3000 Review Station include
the following:
- Small footprint and compact
- Enhanced user productivity
- Optimized slide throughput
- Data Management System
- Customizable
- User options protected
- Excellent optical imaging
- Coupled to Analyzer
- Enables "PreView" of images of abnormal cells received
from Analyzer
- AccuTech inside (i.e., "Savant powered")
COGNETIX ANALYZER
The AccuTech microscope frame is the core module not only within
the AcCell 3000 Review Station, but also in the instrument designed to handle
semi-automated or full automation with the capability of operating 24 hours/day,
7 days/week. That instrument is the Cognetix Analyzer.
The Cognetix Analyzer is assembled from modular components that
enables it to be easily and rapidly customized to specific clinical assays based
upon microscope slide-based samples. Such sample may be either cellular or
histological.
Feature and benefits of the Cognetix Analyzer include the
following:
- MAC detection and tunable to a variety of probes
- Labor savings and walk-away automation
- Continuous and high-speed operations
- Image acquisition & sample classification software with
classifiers
- Sample tracking
- Stable & reliable in field use with precision mechanics
and focusing
- Environment-tolerant
- Photonic sensors
- Configurable, scalable, and easy to use
- Link to Review Station facilitates sending Dx images to
Review Station
- Built-in QC and QA
- AccuTech inside (i.e., "Savant powered")
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<PAGE> 16
SUPPLIES
Supplies for AccuMed products include calibration slides, dotter
tape cartridges, and DNA stain kits (i.e., microscope slides and reagents for
DNA cytophotometry using the AcCell-Savant).
INTELLECTUAL PROPERTY
AccuMed has a strong intellectual property patent portfolio and
core expertise (i.e., scientific and technical know-how) in computer-aided
(AcCell, TracCell) and quantitative (Savant) optical microscopy; automated
electronic imaging and screening systems; cytochemistry and histochemistry (DNA
stains); analytical instruments and algorithms for cell and tissue image
analysis; methods to measure intracellular malignancy associated changes (MAC);
and medical devices and diagnosis systems.
APPROACH TO PROPRIETARY TECHNOLOGY
AccuMed aggressively develops its patent portfolio to establish
value for its investors in areas of its core technologies, such as
computer-aided microscopy. Furthermore, AccuMed pursues patent protection in
disabling and competitive technologies if inventions occur which can protect key
markets for AccuMed. Patents, trade secrets, and copyrights are used by AccuMed
to protect its proprietary technology.
3. SALES AND MARKETING
Typically, AccuMed's products are not currently sold to
laboratory end-users unaffiliated with AccuMed. Rather, AccuMed has four classes
of customers. Quadrant I customers are beta-site customers who are used to
provide marketing feedback to AccuMed regarding product design, performance and
preferred enhancements. AccuMed remains confident that its core computer-aided
microscope platform, the AcCell workstation, continues to provide a unique
approach to improving cytology processes even in the conventional Pap test
laboratories. Nevertheless, regardless of the merits of the originally targeted
market, the AcCell workstation is the workhorse platform embedded in all other
products by AccuMed, including the AcCell-Savant research systems, and the
integral review station component of the automated early lung cancer screening
systems, among others.
Quandrant II customers are research and development scientists
and clinicians who execute a commercialization agreement with AccuMed. Quadrant
II creates a product pipeline for AccuMed through a virtual R&D organization
that frees AccuMed from the direct expense of funding R&D for new applications
development. This extramural R&D program is designed for leading researchers
actively developing new clinical applications with commercial potential. These
physicians, scientists and engineers are conducting funded research using
cytometry and histometry at teaching hospitals, universities and research
institutes. Benefits to participating researchers include:
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<PAGE> 17
- Discounted purchases of AcCell-Savant/ research and
other R&D products
- Royalty-based revenue stream from AccuMed commercialized
products
- Access to powerful and proprietary development tools
- Ongoing technical support, services and updates
- Access to advanced training and collaborations
- Potential to participate in new product beta-tests and
clinical trials
- Participation in joint development projects
- Expedited commercialization of new clinical assays
- Support for patents and other intellectual property
protection
To date this AccuMed program has been successful with sites in
Japan and Australia selecting AccuMed as their sole source for the
commercialization of clinical tests involving cytology, histology, cytometry and
histometry.
Quadrant III customers are the primary business opportunity for
AccuMed. This is the area in which AccuMed believes that significant and
multiple business opportunities exist today, and that these opportunities are
reliant upon the core existing technologies of AccuMed. The recent announcement
of the R&D and analytical instrument sales agreement with Ventana Medical
Systems is an excellent example of a Quadrant III opportunity. Other examples
include announced or to-be-completed and announced licensing, R&D and product
supply agreements in the fields of early lung cancer detection and follow-up as
well as in the fields identified earlier in this Marketing and Products section.
Typically, with Quadrant III customers, AccuMed seeks a combination of (a)
license fees, (b) R&D contracts, (c) use-based royalty stream, (d) product
supply contracts, and (e) equity participating in the Licensee's business.
Quadrant IV customers are typically businesses in which AccuMed
can either license its technology into a field-of-use that is remote from
AccuMed's primary fields-of-interest in business development, or in which
AccuMed can provide the customer with product on an OEM basis. This "technology
transfer" market opportunity has already generated revenues for AccuMed in the
area of point-of-care diagnostic systems.
COMPETITION
AccuMed believes that its cytopathology products must compete on
the basis of functionality, product features and effectiveness of the product in
standard medical practice, although price is also an important competitive
factor.
AccuMed's cytopathology products will face competition from
companies that have developed or may be developing competing or alternative
systems. AccuMed's existing and potential competitors possess substantially
greater financial, marketing, sales, distribution and technical resources than
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AccuMed, and more experience in research and development, clinical trials,
regulatory matters, manufacturing and marketing.
OPERATIONS
AccuMed assembles and tests its cytopathology products at its
Chicago facility. AccuMed purchased and modified the stage-control mouse for use
with the AcCell(TM) 2000 series workstations but is currently developing a
proprietary and patented stage-control mouse. Currently, AccuMed is not
manufacturing product though it assembles and tests manufactured subassemblies.
AccuMed anticipates future AcCell(TM) production will be done on a contract
basis in the latter half of 2000, based on customer order backlog.
GOVERNMENTAL REGULATION
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.
The Federal Food, Drug and Cosmetic Act (the "FDA Act")
regulations provide that many of AccuMed's products may not be shipped in
interstate commerce without prior authorization from the FDA. Such authorization
is based on a review by the FDA of the product's safety and efficacy as
indicated for its intended uses. Medical devices may be authorized by the FDA
for marketing in the United States either pursuant to a 510(k) Pre-market
Notification or a Pre-marketing Approval ("PMA"). The process of obtaining FDA
marketing clearance and other applicable regulatory authorities may be costly.
Some FDA 510(k) Notification applications and PMA's require preliminary internal
studies, field studies and/or clinical trials in addition to an FDA submission
to attain market clearance (the 510(k) process or market approval (the PMA
process)).
A 510(k) Notification, among other things, requires an applicant
to show that its products are "substantially equivalent" in terms of safety and
effectiveness to an existing FDA cleared predicate product. An applicant may
only market a product submitted through the 510(k) Notification at such time as
the FDA issues a written clearance determining that the product has been found
to be substantially equivalent.
A PMA is the FDA submission process where the product must
demonstrate, independently of other like devices, that it is safe and effective
for its indications for intended use. A PMA must be supported by extensive data,
including preclinical and clinical trial data, as well as extensive literature
to prove the safety and effectiveness of the device. The approval process
usually takes substantially longer. During the review period, the FDA may
conduct extensive reviews of AccuMed's facilities, deliver multiple requests for
additional information and clarifications and convene advisory panels to assist
in its determination.
FDA enforcement policy strictly prohibits the promotion of
learned or approved medical devices for non-approved or "off-label" uses. In
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addition, product clearances or approvals may be withdrawn for failure to comply
with regulatory standards.
Marketing in the United States of AccuMed's products under
development may require additional FDA clearances. The FDA Act and other
statutes and regulations, including various state statutes and regulations,
govern the marketing, advertising and promotion of AccuMed's products. Failure
to comply with applicable requirements can result in fines, recall or seizure of
products, total or partial suspension of production, withdrawal of existing
product approvals or clearances, refusal to approve or clear new applications or
notices and criminal prosecution.
Sales of medical devices outside 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 Foreign Governments 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.
AccuMed has secured "CE" mark for the AcCell(TM) 2000 series and
is seeking the mark for its proposed products. The CE mark is recognized by
countries that are members of the European Free Trade Association and will be
required to be affixed to all medical devices sold in the European Union.
RAW MATERIALS AND COMPONENTS
Certain key components and raw materials used in assembling
AccuMed's products are currently provided by single-source vendors. Although
AccuMed believes that alternative sources for such components and raw materials
are available, any supply interruption in a single-sourced component or raw
material would have a material adverse effect on AccuMed's ability to
manufacture products until a new source of supply were qualified.
RESEARCH AND DEVELOPMENT
AccuMed's research and development efforts are focused on
introducing new cytopathology products as well as enhancing its existing
products to address unmet needs within the diagnostic cytopathology market.
AccuMed believes that a commitment to research and development is critical to
its ability to achieve its goals. During the fiscal years ended December 31,
1999, 1998, and 1997 expenditures for research and development were
approximately $1,900,000, $2,600,000 and $4,000,000 respectively.
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AccuMed is currently developing the following products:
ACCELL/SAVANT(TM) DNA IMAGE CYTOMETER
This product ("AcCell-Savant") is an automated high-resolution
image cytometer (nuclear DNA analyzer) that processes Thionin-Feulgen stained
cytology specimens for DNA analysis. Designed for both the research and clinical
laboratory markets, this product line offers a unique combination of features
and benefits including: (a) highly accurate, reliable, and reproducible system
operation, (b) easy-to-use, rapid, and well documented instrument operation, (c)
optimized accompanying specimen preparation/staining kits, (d) full
automation---"load and walk-away" operation, (e) multi-slide cassette with
random-access robotic slide handling, (f) high-resolution images with square
pixels and large field-of-view, (g) stable, reliable, DNA specific
Thionin-Feulgen stain, (h) suitable for many applications including ploidy, MAC,
general cellular research, (i) ability to process conventional smears and
monolayer preparations, (j) automated focus, (k) automated image segmentation,
(l) optional automated cell/object classifier based upon user-supplied and
defined training sets, (m) cell or object relocation and review capability in
microscope or on monitor, (n) normalization: 1-D and 2-D histograms, (o) ability
to normalize DNA histograms with internal and/or external references, (p)
ability to extract measurements by cell populations or by individual
cells/objects, (q) statistical analyses of measured data sets with graphical
output displays, (r) display capabilities include cell image gallery displays,
(s) Report generator, (t) option for networked review microscopes to increase
productivity, and (u) data export routines to interface to third-party
applications such as multivariate statistical analyses packages.
This product focuses on the clinical research and the clinical
laboratory market, for clinical applications of image cytometry technology.
Benefits of this product are anticipated to be:
(1) High-quality instrumentation for automated and quantitative
analyses (e.g., assays that cannot be performed by human experts alone).
(2) Optimized for clinical application in production laboratory
settings (e.g., high-volume tests).
(3) Unattended slide handling; integrated with staining and cover
slipping systems; custom reports, interface with LIS.
(4) Use of (e.g., integrated solutions) DNA/Fuelgen stain kits,
calibration slides and clinical laboratory protocols.
AccuMed estimates that there are approximately 600 images
processing and analysis systems installed worldwide for research purposes and
additional 600 clinical systems. Because of uncertainty of current market
provider commitment, AccuMed believes there is an opportunity for a competitive
image analysis system. The size of this worldwide market is estimated to be over
1200 units at a cost of $100,000 per unit. Consumables such as staining kits
used in conjunction with the DNAnalyzer would represent a potentially high
margin continuing revenue stream.
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AccuMed believes various factors will influence market demand for
this product within the domestic healthcare marketplace.
The pressure for cost containment drives the need for tools that
streamline aspects of the operational process. This product offers a
user-friendly, general-purpose image analysis that operates on the AcCell(TM)
technology platform, designed for clinical laboratory use.
Also, competitive image analysis systems currently serving this
market have been designed largely for the research market, but the level of
customer support necessary to accommodate the clinical laboratory market is not
readily available. AccuMed intends to offer strong field service and support
along with this product.
Lastly, the consolidation of the healthcare industry drives the
need to integrate various functions within the clinical laboratory. This product
is part of an integrated family of tools that support a wide variety of
functions within the clinical laboratory.
LUNG SPUTUM TESTING USING THE ACCELL-SAVANT
AccuMed believes current screening methods for the detection of
early lung cancer are impractical and ineffective, creating clear need for a
simple, cost effective, and reliable test for screening high-risk populations
for lung cancer. AccuMed is developing its Savant technologies to meet this
need. The Savant technology is similar to the screening done for cervical
cancer, where the death rate due to cervical cancer has been reduced by 5 to 10
times during the past 50 years as a results of Pap test screening.
AccuMed's principal lung sputum analysis technology revolves
around the use of the AcCell-Savant to screen high-risk individuals for lung
cancer. The objective is to identify patients who have lung cancer at an early
more curable stage. AccuMed believes that patients detected with lung cancer at
an early stage have up to a six times better chance of survival.
The Savant medical technologies can detect the presence of early
lung cancer from sputum on a microscope slide by measuring subtle changes in the
DNA of cell nuclei ("MAC's" or "malignancy associated changes"). These subtle
changes are measured using: The AcCell-Savant, an automated high-resolution
image cytometer; and the DNA staining kit, a quantitative and proprietary method
of reagents for staining DNA.
Feasibility tests have shown that this technology successfully
detected early lung cancer in over 80% of the samples and has the ability to
detect lung cancer up to two years before it can be detected by existing
conventional sputum tests or chest x-rays.
Successful commercialization of the lung sputum screening test in
the United States and other countries will depend on the availability of
reimbursement from third-party payors such as private insurers and managed care
organizations. Because the up-front, direct costs of using AccuMed's products
will result in an overall lower healthcare costs, AccuMed believes it
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can convince third-party payors that the overall cost savings to the healthcare
system, resulting from earlier detection for lung cancer, will more than offset
the cost of AccuMed's products. AccuMed intends to focus on obtaining coverage
and reimbursement from major national and regional managed care organizations
and insurance carriers throughout the United States. Most third-party payor
organizations independently evaluate new diagnostic procedures by reviewing the
published literature and the Medicare coverage and reimbursement policy on the
specific diagnostic procedure. To assist third-party payors in their respective
evaluations, AccuMed intends to provide scientific and clinical data to support
its claims of the safety and efficacy of AccuMed's product lines.
AccuMed believes the AcCell-Savant platform can be applied
effectively for tissue sites other than for lung tissue. In particular, the
AcCell-Savant, with its MAC's capabilities, has the ability to not only detect
early stage cervical cancer in an automated manner, but it has the potential
ability to determine whether pre-cancerous cells will develop into cancer or
not.
INTELLECTUAL PROPERTY
AccuMed relies on a combination of patents, licensing
arrangements, trade names, trademarks, copyrights, trade secrets, know-how and
proprietary technology as well as policies and procedures for maintaining the
secrecy of trade secrets, know-how and proprietary technology in order to secure
and protect its intellectual property rights. Three of AccuMed's patent
applications related to AcCell(TM) technology have been granted in the United
States as of the date of this report. Two additional AcCell-related patent
applications have been allowed in the U.S. and several other applications remain
pending (10) or are in development. AccuMed has twelve additional pending patent
applications covering certain aspects of its TracCell(TM)-based cytopathology
technology and products. AccuMed is also developing products (e.g.,
AcCell-Savant) that relies upon or utilizes the intellectual property of its
wholly owed subsidiary, Oncometrics. Oncometrics has five issued patents, two
allowed patents, and twelve pending patents in related technologies.
Additionally, AccuMed sold six microbiology-related U.S. patents with the
divestiture of that business.
AccuMed is 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 other relevant patent application filer was
the first creator of inventions covered by pending patent applications or that
such persons were the first to file patent applications for such inventions.
Protections relating to portions of such technologies may be challenged or
circumvented by competitors, and other portions may be in the public domain or
protectable only under state trade secret laws.
AccuMed owns or has guaranteed trademark applications for
"SpeciFind", "TracCell", "MacCell", "AcCell-Savant", "Improving Cytology
Processes", and is currently preparing and may file additional U.S. and foreign
trademark applications in the future.
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(e) Available Information.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy the 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 Internet website is "http://www.accumed.com".
EMPLOYEES
At March 27, 2000, AccuMed employed 10 full-time employees. None
of AccuMed's employees are represented by a labor union. AccuMed considers its
relations with its employees to be good.
ITEM 2. PROPERTY
AccuMed currently leases a 10,062 square foot facility at 920
North Franklin Street, Chicago, Illinois, pursuant to a lease expiring September
30, 2004.
ITEM 3. LEGAL PROCEEDINGS
AccuMed is not currently a party to any material litigation and
is not aware of any pending or threatened litigation against AccuMed that could
have a material adverse effect upon AccuMed's business, operating results or
financial condition.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the quarter ended December 31, 1999.
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and positions of all of
our executive officers. Officers are elected annually by the board of directors
at the first meeting of the board following the annual meeting of stockholders.
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<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Paul F. Lavallee 60 Chairman of the Board and Chief
Executive Officer
Norman J. Pressman, Ph.D. 52 President and Chief Scientific Officer
</TABLE>
PAUL F. LAVALLEE. Mr. Lavallee has been a director of AccuMed
since December 1995 and was elected Chairman, Chief Executive Officer and
President by the Board of Directors on January 30, 1998. He relinquished the
title of President in March 1999. Since January 1996, Mr. Lavallee has been a
healthcare consultant to the Venture Capital industry and has served as Chairman
of the Board for two start-up companies. From 1989 until December 1995, Mr.
Lavallee served as Chairman, President and Chief Executive Officer of Sigmedics,
Inc. Mr. Lavallee has a B.S. degree in biology from Bates College and a M.B.A.
degree from the University of Chicago.
NORMAN J. PRESSMAN, Ph.D. Dr. Pressman was named President in
March 1999 and continues to serve as Chief Scientific Officer. In 1998, Dr.
Pressman was appointed Chairman of the Board of Oncometrics Imaging, Corp., a
subsidiary of AccuMed International. He served as a Senior Vice President of
AccuMed and President of AccuMed's Cytopathology Division from July 1996 to May
1997 when he became Senior Vice President for Research and Development and Chief
Scientific Officer. From July 1993 until joining AccuMed, Dr. Pressman was
Manager of 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
as 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is quoted on the Nasdaq SmallCap Market and is
currently under the symbol "ACMI". The table below sets forth, for the periods
indicated, the range of high and low sales prices for the common stock during
the periods specified.
1998 FISCAL YEAR High Low
---- ---
First Quarter 13.88 3.75
Second Quarter 8.63 1.31
Third Quarter 2.06 0.56
Fourth Quarter 2.75 0.31
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1999 FISCAL YEAR High Low
---- ---
First Quarter 1.91 0.59
Second Quarter 1.31 0.72
Third Quarter 1.22 0.47
Fourth Quarter 4.00 0.56
As of March 27, 2000, AccuMed had approximately 178 record
holders of common stock. As of March 27, 2000, AccuMed estimates that there are
approximately 3,325 beneficial holders of Common Stock, based on preliminary
results of the broker search for conducted in January 2000.
AccuMed has never paid dividends on its common stock and does not
intend to pay cash dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
On January 29, 1999, AccuMed closed the sale of its microbiology
business. Prior to December 29, 1995, AccuMed's only operations were related to
the microbiology business. The income statement and balance sheet data presented
below reflects the microbiology business as a discontinued operation. See Note 1
in the accompanying Financial Statements starting on page F-1.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31, (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 136 $ 327 $ 1,001 $ 1,412 $ --
Gross profit (loss) (1,146) (529) (556) 19 --
Operating loss (6,446) (9,796) (15,800) (13,387) --
Interest expense 501 1,411 3,569 458 --
Loss from continuing
operations before
income taxes (6,803) (10,360) (18,858) (10,904) --
Income taxes -- -- -- -- --
Loss from continuing
operations (6,803) (10,360) (18,858) (10,904) --
Income (loss) from
Discontinued
Operations 8,199 3,351 1,939 (670) (3,759)
Net income (loss) 1,396 (8,170) (16,919) (11,574) (3,759)
Per Share Data:
Basic loss from
continuing operations ($ 1.24) ($ 2.04) ($ 5.13) ($ 3.85) --
Income (loss) from
discontinued operations 1.49 0.66 0.53 (0.24) (3.54)
Extraordinary loss -- (0.23) -- -- --
Basic net income (loss) $ 0.25 ($ 1.61) ($ 4.60) ($ 4.09) ($ 3.54)
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Weighted average
shares outstanding
(000's) 5,491 5,080 3,675 2,829 1,063
Balance Sheet Data:
Working capital (deficit) $ 39 ($ 1,393) ($ 1,600) $ 2,150 --
Total assets 7,222 13,448 16,085 13,444 1,098
Long-term debt 167 5,782 11,455 231 --
Stockholders' equity 5,668 4,223 733 10,136 1,098
</TABLE>
(1) AccuMed changed from a September 30 fiscal year end to a December
31 fiscal year end effective in 1995. The fiscal year 1995
amounts are for the September 30 year-end. For the three months
ended December 31, 1995, AccuMed's net loss was $5,742,000, or
$2.94 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During 1998, AccuMed received stockholder approval to sell its
microbiology business. Accordingly, the results of the microbiology business are
reported as a discontinued operation in the accompanying financial statements.
On January 29, 1999, AccuMed closed the sale of the microbiology business for
net proceeds of $14,400,000.
The following management discussion and analysis of financial
condition and results of operations relate only to the cytopathology business,
AccuMed's only business line. Also, AccuMed is committed to a substantial
research and development program. Accordingly, AccuMed expects to incur
additional operating losses over at least the next 12 months due to continued
spending for product development, prototype construction and testing and
regulatory activities. AccuMed anticipates it will offset some of these expenses
through contract research with licenses of our intellectual property.
OVERVIEW
AccuMed is engaged in the marketing and development of cost
effective screening instruments and systems for clinical diagnostic
laboratories, hospitals and others. Our integrated systems use reliable,
accurate and innovative products and methods to provide laboratories with
comprehensive solutions that are intended to improve efficiency and reduce costs
while achieving significant improvements in disease detection. AccuMed currently
is developing cytology computer-aided image cytometry instruments and systems
that support early detection and diagnosis programs for screening high-risk
individuals for cellular diseases, such as lung cancer.
On March 29, 2000, the Company entered into a patent and
technology license agreement with BCAM International, Inc. ("BCAM"), whereby the
Company agreed to license its patents and proprietary information and rights to
BCAM for
26
<PAGE> 27
certain medical applications. Under the terms of the agreement, the Company will
receive guaranteed license fees over the next nine months, shares of BCAM common
stock, and royalties to be received in the future on the sale of covered
products by BCAM.
On March 24, 2000, AccuMed entered into a license and development
agreement with Ventana Medical Systems, Inc., whereby we agreed to license our
patents and proprietary information and rights to Ventana for certain medical
applications. Under the terms of the agreement, we have received an up-front
licensing fee, advanced royalty payment and, development funds, paid
immediately. Additional funds will be received over the next twelve months for
contract research and purchase of AcCell Systems, and royalties to be received
in the future on the sale of covered products by Ventana.
On February 28, 2000, Microsulis Corporation chose not to extend
the time limit to complete its intended merger with AccuMed. On November 16,
1999, we entered into a merger agreement with Microsulis, whereby Microsulis
would have been merged into AccuMed.
On December 29, 1995, AccuMed acquired all of the common stock of
AccuMed, Inc. and its wholly owned subsidiary. Pursuant to the terms of a merger
agreement, 313,652 shares of common stock and 21,158 warrants were issued to
AccuMed, Inc. stockholders and warrantholders, respectively, which were
contingent and subject to forfeiture if specified performance goals were not
achieved by AccuMed. The contingency associated with 156,826 shares of common
stock and 10,579 warrants was resolved (performance goal achieved) in March 1996
resulting in contingent consideration of $5,430,326. Such amount has been
allocated to identifiable intangibles of acquired proprietary technology
($1,930,599) and in process research and development ($3,499,727). The acquired
proprietary technology is being amortized over the expected period to be
benefited of ten years, with the in-process research and development charged to
operations during the year ended December 31, 1996.
The contingency associated with the remaining 156,826 shares of
common stock and 10,579 warrants was resolved (performance goal achieved) in
March 1997, resulting in contingent consideration of $3,582,068. Such amount has
been recorded as goodwill associated with the merger and charged off in its
entirety to operations during the year ended December 31, 1997 as an impaired
asset.
On October 15, 1996, AccuMed acquired a two-thirds interest in
Oncometrics Imaging Corp. Oncometrics was formed in 1995 to complete the
development of an automated instrument designed to be used in the detection,
diagnosis and prognosis of early-stage cancer by measuring the DNA in cells on
microscope slides. In June 1998, AccuMed acquired the final one-third of
Oncometrics stock it did not own for $685,000.
27
<PAGE> 28
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
REVENUES AND GROSS MARGINS
AccuMed's sales revenues were $136,000 for the year ended
December 31, 1999 compared to $327,000 for the year ended December 31, 1998, a
decrease of $191,000. The decrease in sales reflects a decline in the number of
units of AccuMed's AcCellTM products sold. Cost of sales for the year ended
December 31, 1999 includes a fourth quarter non-cash charge of $1,106,000 to
write-down inventories to net realizable value. In October 1998, we ceased our
manufacturing operations to eliminate the associated indirect overhead costs and
anticipate our future product sales will be made on a build to order or contract
manufacturing basis. Cost of sales for the year ended December 31, 1998 also
includes non-capitalizable overhead costs and costs associated with suspending
the manufacturing operations.
OPERATING EXPENSES
General and administrative expenses decreased by $2,161,000, or
40.1%, from $5,308,000 in 1998 to $3,147,000 in 1999. The decrease in these
expenses is a result of reduced corporate level activity, including a reduction
in personnel due to the sale of the microbiology business and less
administrative cost due to the consolidation of AccuMed's cytopathology
operations.
Research and development expenses decreased by $700,000, or
27.2%, from $2,570,000 in 1998 to $1,870,000 in 1999. The decrease in these
expenses reflects a reduction in personnel and activity levels associated with
our ongoing efforts to develop next generation products associated with the
Savant medical technologies. Expenses in 1998 represent costs associated with
the AcCell 2000 and TracCell slide mapping systems, which were completed in
August 1998.
Sales and marketing expenses decreased by $1,107,000, or 80.0%,
from $1,389,000 in 1998 to $282,000 in 1999. This decrease is a result of a
reduction in our marketing personnel beginning in October 1998. AccuMed
continues to market its AcCell-Savant directly to research facilities.
For the year ended December 31, 1999, an asset impairment loss of
$137,000 was recorded for the write-down of certain leasehold improvements. The
impairment loss is a result of our consolidation of facilities and
re-negotiation of leasing arrangements in February 2000.
OTHER INCOME AND EXPENSE
Interest expense for the year ended December 31, 1999 was $501,000 compared to
$1,411,000 for 1998. The decline in interest expense is a result of the
repayment in January 1999 of AccuMed's 14.5% secured note payable and our 12.0%
unsecured convertible notes with proceeds received from our sale of its
microbiology division. Interest expense in 1999 also includes $370,000
28
<PAGE> 29
from a non-cash write-off of deferred financing costs and debt discounts related
to the repayment of these notes.
Other income for the year ended December 31, 1999 was $145,000
compared to $848,000 for 1998. The decrease in other income is a result of a
reduction in licensing fee income and a reduction in invested cash on hand,
which had been available from proceeds received in a private placement in March
1998.
DISCONTINUED OPERATIONS
AccuMed's loss of $158,000 in 1999 and income of $3,351,000 in
1998 from discontinued operations reflects the results of operations of
AccuMed's microbiology business before is sale in January 1999. In 1999, we
recorded a gain of $8,199,000, net of income taxes of $140,000, on the disposal
of the microbiology business.
EXTRAORDINARY LOSS
For the year ended December 31, 1998, AccuMed incurred a
$1,168,000 extraordinary loss related to the conversion of $5,275,000 in par
value of convertible notes and $329,000 in accrued interest thereon into
1,245,340 shares of series A convertible preferred stock. Of the total expense,
$193,000 represented cash fees and expenses. As a result of this exchange of
convertible notes for convertible preferred stock, AccuMed's net tangible assets
increased by about $4,700,000 and our interest expense was reduced by about
$633,000 through January 1999. At the conclusion of the sale of the microbiology
business in January 1999 the remaining notes were paid off using a portion of
the proceeds from that sale.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUES AND GROSS MARGINS
Fiscal 1998 revenues reflect the initial sale of the
AcCell-Savant(R) Research System for clinical DNA Analyzer to a medical research
facility. The 1998 gross loss on sales reflects non-capitalizable manufacturing
cost and costs associated with suspending manufacturing operations.
OPERATING EXPENSES
General and administrative expenses decreased $890,000 to
$5,309,000 in 1998 from $6,199,000 in 1997. This decrease is due primarily to
the reduction in the number of management and administrative personnel necessary
to support a reduced level of activity and a reduction in professional fees.
Research and development expenses decreased $1,465,000 to
$2,570,000 in 1998 from $4,035,000 in 1997. The decrease is due to costs
29
<PAGE> 30
associated with AccuMed's 510(K) clearance received from the U.S. Food and Drug
Administration in August 1997, and a reduction in personnel to focus on our next
generation product.
Sales and marketing expenses decreased by $39,000 to $1,389,000
in 1998 compared to $1,428,000 1997. These expenses remained relatively flat in
1998 as a result of growth of staff and development of the initial marketing
program for AccuMed's AcCell product line, which occurred in the first three
quarters of 1998. AccuMed reduced sales efforts in the fourth quarter of 1998 to
obtain additional documentation of the quantitative benefits of its products.
OTHER INCOME AND EXPENSE
Interest expense for the year ended December 31, 1998 was
$1,411,000 compared to $3,568,000 for 1997. The decrease reflects reduced debt
levels as a result of the conversion of $5.2 million in 12% convertible notes
into Series A preferred stock in February 1998. Also, in 1997 AccuMed had a
write-off of $1.9 million related to an "in the money" conversion feature of its
12% convertible notes.
Other income increased to $848,000 in 1998 from $511,000 in 1997.
This increase reflects licensing fee income of approximately $500,000 and
interest income earned from cash received in the private placement in March
1998.
DISCONTINUED OPERATIONS
Discontinued operations reflect the operating results of
AccuMed's microbiology business, which was disposed of in January 1999.
LIQUIDITY AND CAPITAL RESOURCES
AccuMed's primary cash requirements are for research and
development, general corporate and marketing expenses, which include salaries,
materials and consulting support, to develop and market our cytopathology
products and technology. We anticipate that the receipt of the license fees and
development funds under our license, product sales, and development agreement
with Ventana, our available cash and marketable securities on hand, and
collection of the line of credit with Microsulis Corporation will provide the
necessary liquidity to finance our projected operations and financing
obligations through the next twelve months.
At December 31, 1999, AccuMed's non-current assets include
purchased technology of $ 4,186,000, which is being amortized over a period of
ten years, and patents of $842,000, which are being amortized over the useful
lives of the patents, generally 17 years. The purchased technology was
originally recorded in connection with the merger of AccuMed Inc. in 1995 and
purchase of Oncometrics Imaging Corp. in 1996 and 1998. The carrying value of
these assets is expected to be realized from our licensing to others, such as
30
<PAGE> 31
Ventana, and our application in AccuMed's AcCell/Savant(R) Research Systems and
AcCell/Savant(R) DNA Image Cytometer.
At December 31, 1999, AccuMed has long-term debt, including the
current portion, of $530,000. The long-term debt consists of a $500,000 Canadian
dollar note and a non-interest bearing repayable contribution of $187,000. The
Canadian dollar note is payable in monthly installments of $25,000 US dollars,
plus interest at a rate of 6.0% over the Canadian prime rate, beginning March
15, 2000 through July 15, 2000, with the remainder due on demand. The demand
portion of the Canadian note is convertible into shares of AccuMed's common
stock at a price of $1.43 per share. The repayable contribution was received
under a Canadian government program and calls for semi-annual installments based
on a percentage of future sales of product and net working capital.
AccuMed's equity at December 31, 1999 was $5,668,000, of which
$8,199,000 was recorded in January 1999 from the gain on the sale of our
microbiology business.
OPERATING ACTIVITIES
Cash used in operating activities decreased to $5,273,000 in 1999
from $10,418,000 in 1998 and $12,352,000 in 1997. The decrease in cash used in
operating activities primarily reflects AccuMed's reduced operating costs during
these periods. The use of cash in operating activities reflects AccuMed's
ongoing efforts to develop our next generation product, which we believe will
have applications for early lung cancer testing. In addition, over $1,000,000 of
cash was used during 1999 to reduce vendor financing carried over from the third
and fourth quarters of 1998.
INVESTING ACTIVITIES
For the year ended December 31, 1999, investing activities
generated $13,976,000 in cash compared to the use of cash of $500,000 in 1998
and $7,290,000 in 1997. In 1999, AccuMed received $14,400,000 in proceeds, net
of expenses incurred, from the sale of AccuMed's microbiology business and
funded $400,000 under a line of credit arrangement to Microsulis Corporation,
which is expected to be re-paid in the second quarter of 2000. In 1998 and 1997,
we used $343,000 and $6,000,000, respectively, of cash to acquire the stock of
our Oncometrics subsidiary. Capital expenditures declined to $24,000 in 1999
from $157,000 in 1998 and $1,208,000 in 1997. The decline in capital
expenditures reflects the start-up of manufacturing activities and purchases of
equipment for sales and marketing and research and development activities in
1997 and subsequent reduction in these activities in 1998 and 1999. AccuMed does
not anticipate material capital expenditures during 2000.
FINANCING ACTIVITIES
For the year ended December 31, 1999, AccuMed used $8,498,000 in cash in
financing activities compared to $4,943,000 and $12,670,000 provided by
financing activities in 1998 and 1997, respectively. In January 1999, we
31
<PAGE> 32
repaid all of our outstanding 14.5% secured notes and 12% unsecured convertible
notes with proceeds from the sale of its microbiology business. In March 1998,
AccuMed received $4,852,000 in net proceeds from a private placement of its
common stock. During 1997, we received $12,151,000 in proceeds from long-term
debt, net of fees paid.
AccuMed currently has no commitments with respect to sources of
additional financing other than with respect to funds to be received under the
license and development agreement with Ventana.
AccuMed's future liquidity and capital requirements will depend
upon numerous factors, including the costs and timing of the our product
development and licensing efforts, the costs and timing of acceptance of
AccuMed's products, competing technological and market developments, the
progress of commercialization efforts of AccuMed and its distributors, the costs
involved in preparing, filing, prosecuting, maintaining, enforcing and defending
patent claims and other intellectual property rights, developments related to
regulatory and third-party reimbursement matters, and other factors.
IMPACT OF YEAR 2000
We completed our Year 2000 readiness initiatives and did not
experience any significant problems. We do not anticipate any significant
adverse business effects related to this issue. AccuMed did not incur material
costs to dedicated solely to Year 2000 remediation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this report as
pages F-1 through F-20 following the signature page:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to executive officers is included in
this report in the last section of Part I under the caption "Executive
32
<PAGE> 33
Officers of the Registrant". Information relating to directors appearing under
the caption "Election of Directors" in the definitive proxy statement for the
2000 Annual Meeting of Stockholders to be filed with the SEC within 120 days
following AccuMed's last fiscal year end is hereby incorporated herein by
reference. Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 appearing under the caption "Compliance With
Reporting Requirements" in the definitive proxy statement for the 2000 Annual
Meeting of Stockholders to be filed with the SEC is within 120 days following
AccuMed's last fiscal year end is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive
Compensation" contained in the definitive proxy statement for the 2000 Annual
Meeting of Stockholders to be filed with the SEC within 120 days following
AccuMed's last fiscal year end is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership
of Certain Beneficial Owners and Management" contained in the definitive proxy
statement for the 2000 Annual Meeting of Stockholders to be filed with the SEC
within 120 days following AccuMed's last fiscal year end is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain
Relationships and Related Transactions" contained in the definitive Proxy
statement for the 2000 Annual Meeting of Stockholders to be filed with the
Commission within 120 days following AccuMed's last fiscal year end is hereby
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements. The following financial statements are
filed as part of this report as pages F-1 through F-20 following the
signature page:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) No reports on Form 8-K were filed during the three month
period ended December 31, 1999.
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<PAGE> 34
(c) Exhibit Index
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Bylaws of AccuMed. (1)
3.2 Amendment No. 1 to Bylaws of AccuMed. (19)
4.1 Certificate of Incorporation of AccuMed (1)
4.2 Certificate of Amendment to Certificate of Incorporation of AccuMed
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 AccuMed
effecting reverse stock split (21)
4.6 Specimen Certificate for Common stock (1)
4.7 Bylaws of AccuMed (1)
4.8 Amendment No. 1 to Bylaws of AccuMed (19)
4.9 Warrant Agreement dated as of February 23, 1998 between AccuMed 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 AccuMed 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 AccuMed 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 AccuMed 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)
34
<PAGE> 35
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 AccuMed and each of the
investors in a private placement (19)
4.16 Specimen stock certificate for Common stock. (1)
10.1 AccuMed'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 Employment Agreement between AccuMed and Norman J. Pressman dated June
13, 1996 and Addendum to Employment Agreement between AccuMed and Norman
J. Pressman dated July 16, 1996. (4)(5)
10.3 1995 Stock Option Plan. (1)(4)
10.4 Amendment No. 1 to AccuMed's 1995 Stock Option Plan.(4)(7)
10.5 Amendment No. 2 to the 1995 Stock Option Plan. (4)(16)
10.6 Amendment No. 3 to the 1995 Stock Option Plan. (4)(19)
10.7 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)
10.8 Form of Non-Qualified Stock Option Agreement governing options granted
to employees and consultants under the 1995 Stock Option Plan. (1)(4)
10.9 Form of Incentive Stock Option Agreement governing options granted to
employees under the 1995 Stock Option Plan. (1)(4)
10.10 Amended and Restated 1990 Stock Option Plan. (4)(8)
10.11 Amendment No. 1 to Amended and Restated 1990 Stock Option Plan.(4)(16)
10.12 Franklin Square Commercial Lease dated July 13, 1994 between AccuMed 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)
35
<PAGE> 36
10.13 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)
10.14 Form of Subscription Agreement between AccuMed and several investors in
the private placement consummated on March 13, 1997. (16)
10.15 Form of Warrant to Purchase Common stock dated February 23, 1998 between
AccuMed 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)
10.16 Warrant Agreement dated as of February 2, 1998 between AccuMed and
Robert L. Priddy representing warrants to purchase 100,000 shares of
Common stock. (19)
10.17 Agreement between AccuMed and Paul F. Lavallee and Gypsy Hill LLC
effective January 29, 1998 (21)
10.18 Warrant Agreement dated as of February 23, 1998 between AccuMed 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)
10.19 Warrant Agreement dated March 19, 1998 between AccuMed 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)
10.20 Form of Subscription Agreement and Registration Rights Agreement dated
as of February 23, 1998 between AccuMed and each of the investors in a
Note Exchange Offer. (15)
10.21 Warrant Agreement dated as of March 19, 1998, as amended by Amendment
No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth
Associates pertaining to an aggregate of 8,686,667 Common stock purchase
Warrants issued to investors in a private placement. (19)
10.22 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)
10.23 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)
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<PAGE> 37
10.24 Form of Subscription Agreement and Registration Rights Agreement dated
March 19, 1998 or March 23, 1998 between AccuMed and each of the
investors in a private placement. (19)
10.25 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock Option
Plan (19)
10.26 Asset Purchase Agreement by and between AccuMed International, Inc. and
AMI Acquisition Corp. dated as of November 20, 1998 (22)
10.27 Floating Rate Convertible Promissory Note dated June 26, 1998 by AccuMed
in favor of Xillix Technologies Corp. in the original principal amount
of CDN$500,000. (23)
10.28 Amendment to Floating Rate Convertible Promissory Note dated March 15,
2000 between AccuMed and Xillix Technologies Corp.
10.29 License and Development Agreement dated March 24, 2000 between AccuMed
and Ventana Medical Systems, Inc. +
10.30 Patent and Technology License and Registration Rights Agreement dated
March 29, 2000 between AccuMed and BCAM International, Inc.+
21.1 Subsidiary of AccuMed.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule
- ---------------
+ Confidential treatment sought for portions of this document.
(1) Incorporated by reference to AccuMed'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 AccuMed'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 AccuMed's Registration Statement Form S-2
(Regis. No. 333-09011) filed with the Commission on July 26, 1996.
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<PAGE> 38
(6) Incorporated by reference to AccuMed'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 AccuMed'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 AccuMed's Registration Statement on Form
S-3 (Reg. No. 333-07681), filed with the Commission on July 3, 1996.
(13) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
March 3, 1997.
(14) Incorporated by reference to AccuMed's Registration Statement on Form
S-3 (Regis. No. 333-28125) filed with the Commission on May 30, 1997.
(15) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
March 20, 1998.
(16) Incorporated by reference to AccuMed'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 AccuMed'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 AccuMed's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
38
<PAGE> 39
(22) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
January 29, 1999.
(23) Incorporated by reference to AccuMed's Registration Statement on Form
S-3 filed with the Commission on November 9, 1999 (Regis. No.
333-90637).
(d) Financial Statement Schedules. The following financial
statement schedule is filed as part of this report as page F-22
following the signature page:
39
<PAGE> 40
Schedule IX - Valuation and Qualifying Accounts
All other schedules required by Form 10-K Annual Report have been
omitted because they were not applicable, were included in the notes to be
consolidated financial statements, or were otherwise not required under the
instructions contained in Regulation S-X.
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: April 14, 2000
ACCUMED INTERNATIONAL, INC.
By: /s/ PAUL F. LAVALLEE
---------------------------------
Paul F. Lavallee,
Chairman of the Board
and Chief Executive Officer
(principal executive officer
and principal accounting officer)
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates so indicated.
Each Director of the registrant whose signature appears below,
hereby appoints Paul F. Lavallee individually as his attorney-in-fact to sign in
his name and on his behalf as a director of the registrant, and to file with the
SEC any and all Amendments to this Annual Report on Form 10-K to the same extent
and with the same effect as if done personally.
DATED: April 14, 2000 By: /s/ PAUL F. LAVALLEE
----------------------------------------
Paul F. Lavallee, Chairman
DATED: April 14, 2000 By: /s/ JACK H. HALPERIN
----------------------------------------
Jack H. Halperin, Director
DATED: April 14, 2000 By: /s/ MARK BANISTER
----------------------------------------
Mark Banister, Director
DATED: April 14, 2000 By: /s/ LEONARD M. SCHILLER
----------------------------------------
Leonard M. Schiller, Director
DATED: April 14, 2000 By: /s/ ROBERT L. PRIDDY
----------------------------------------
Robert L. Priddy, Director
41
<PAGE> 42
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Bylaws of AccuMed. (1)
3.2 Amendment No. 1 to Bylaws of AccuMed. (19)
4.1 Certificate of Incorporation of AccuMed (1)
4.2 Certificate of Amendment to Certificate of Incorporation of AccuMed
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 AccuMed
effecting reverse stock split (21)
4.6 Specimen Certificate for Common stock (1)
4.7 Bylaws of AccuMed (1)
4.8 Amendment No. 1 to Bylaws of AccuMed (19)
4.9 Warrant Agreement dated as of February 23, 1998 between AccuMed 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 AccuMed 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 AccuMed 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 AccuMed 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
42
<PAGE> 43
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 AccuMed and each of the
investors in a private placement (19)
4.16 Specimen stock certificate for Common stock. (1)
10.1 AccuMed'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 Employment Agreement between AccuMed and Norman J. Pressman dated June
13, 1996 and Addendum to Employment Agreement between AccuMed and Norman
J. Pressman dated July 16, 1996. (4)(5)
10.3 1995 Stock Option Plan. (1)(4)
10.4 Amendment No. 1 to AccuMed's 1995 Stock Option Plan.(4)(7)
10.5 Amendment No. 2 to the 1995 Stock Option Plan. (4)(16)
10.6 Amendment No. 3 to the 1995 Stock Option Plan. (4)(19)
10.7 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)
10.8 Form of Non-Qualified Stock Option Agreement governing options granted
to employees and consultants under the 1995 Stock Option Plan. (1)(4)
10.9 Form of Incentive Stock Option Agreement governing options granted to
employees under the 1995 Stock Option Plan. (1)(4)
10.10 Amended and Restated 1990 Stock Option Plan. (4)(8)
10.11 Amendment No. 1 to Amended and Restated 1990 Stock Option Plan.(4)(16)
10.12 Franklin Square Commercial Lease dated July 13, 1994 between AccuMed 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)
10.13 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)
10.14 Form of Subscription Agreement between AccuMed and several investors in
the private placement consummated on March 13, 1997. (16)
10.15 Form of Warrant to Purchase Common stock dated February 23, 1998 between
AccuMed and Commonwealth Associates representing an aggregate of 200,000
Common stock purchase Warrants issued to Commonwealth Associates and/or
43
<PAGE> 44
its designees in exchange for warrants previously issued thereto in
connection with the placement of 12% Convertible Promissory Notes. (19)
10.16 Warrant Agreement dated as of February 2, 1998 between AccuMed and
Robert L. Priddy representing warrants to purchase 100,000 shares of
Common stock. (19)
10.17 Agreement between AccuMed and Paul F. Lavallee and Gypsy Hill LLC
effective January 29, 1998 (21)
10.18 Warrant Agreement dated as of February 23, 1998 between AccuMed 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)
10.19 Warrant Agreement dated March 19, 1998 between AccuMed 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)
10.20 Form of Subscription Agreement and Registration Rights Agreement dated
as of February 23, 1998 between AccuMed and each of the investors in a
Note Exchange Offer. (15)
10.21 Warrant Agreement dated as of March 19, 1998, as amended by Amendment
No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth
Associates pertaining to an aggregate of 8,686,667 Common stock purchase
Warrants issued to investors in a private placement. (19)
10.22 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)
10.23 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)
10.24 Form of Subscription Agreement and Registration Rights Agreement dated
March 19, 1998 or March 23, 1998 between AccuMed and each of the
investors in a private placement. (19)
10.25 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock Option
Plan (19)
10.26 Asset Purchase Agreement by and between AccuMed International, Inc. and
AMI Acquisition Corp. dated as of November 20, 1998 (22)
10.27 Floating Rate Convertible Promissory Note dated June 26, 1998 by AccuMed
in favor of Xillix Technologies Corp. in the original principal amount
of CDN$500,000. (23)
10.28 Amendment to Floating Rate Convertible Promissory Note dated March 15,
2000 between AccuMed and Xillix Technologies Corp.
44
<PAGE> 45
10.29 License and Development Agreement dated March 24, 2000 between AccuMed
and Ventana Medical Systems, Inc. +
10.30 Patent and Technology License and Registration Rights Agreement dated
March 29, 2000 between AccuMed and BCAM International, Inc.+
21.1 Subsidiary of AccuMed.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule
- ------------------
+ Confidential treatment sought for portions of this document.
(1) Incorporated by reference to AccuMed'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 AccuMed'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 AccuMed's Registration Statement Form S-2
(Regis. No. 333-09011) filed with the Commission on July 26, 1996.
(6) Incorporated by reference to AccuMed'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 AccuMed'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 AccuMed's Registration Statement on Form
S-3 (Reg. No. 333-07681), filed with the Commission on July 3, 1996.
45
<PAGE> 46
(13) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
March 3, 1997.
(14) Incorporated by reference to AccuMed's Registration Statement on Form
S-3 (Regis. No. 333-28125) filed with the Commission on May 30, 1997.
(15) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
March 20, 1998.
(16) Incorporated by reference to AccuMed's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
(18) 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 AccuMed'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 AccuMed's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(22) Incorporated by reference to AccuMed's Current Report on Form 8-K dated
January 29, 1999.
(23) Incorporated by reference to AccuMed's Registration Statement on Form
S-3 filed with the Commission on November 9, 1999 (Regis. No. 333-9063
46
<PAGE> 47
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ........................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ........... F-3
Consolidated Statements of Operations
for the Years Ended December 31, 1999, 1998 and 1997 ................... F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997 ................... F-5
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999, 1998 and 1997 ................... F-6
Notes to Consolidated Financial Statements ............................. F-7
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AccuMed International, Inc.:
We have audited the accompanying consolidated balance sheets of AccuMed
International, Inc. and subsidiary (the Company) as of December 31, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AccuMed
International, Inc. and subsidiary as of December 31, 1999 and December 31,
1998, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
March 29, 2000
F-2
<PAGE> 49
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 196,303 $ 213,386
Accounts receivable, net -- 33,348
Prepaid expenses and other current assets 7,944 64,048
Available-for-sale security 121,301 --
Note receivable 400,000 --
Inventories 700,919 1,738,611
------------ ------------
TOTAL CURRENT ASSETS 1,426,467 2,049,393
------------ ------------
Fixed assets, net 705,273 1,488,809
Deferred financing costs, net -- 177,625
Purchased technology, net of amortization of $2,214,000 in 1999
and $1,315,000 in 1998 4,185,868 5,085,018
Patents, net of accumulated amortization of $130,000 in 1999 842,484 761,414
and $82,000 in 1998
Note receivable, officer 62,237 123,150
Net assets of discontinued operations -- 3,762,397
------------ ------------
$ 7,222,329 $ 13,447,806
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long term debt, current portion $ 362,550 $ 1,155,400
Accounts payable 223,822 1,808,249
Accrued interest 15,415 189,069
Income taxes 35,000 --
Other current liabilities 750,183 290,292
------------ ------------
TOTAL CURRENT LIABILITIES 1,386,970 3,443,010
------------ ------------
Long term debt 167,000 5,781,850
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, Series A convertible, 5,000,000 shares authorized;
944,384 issued and outstanding at December 31, 1999;
962,102 issued and outstanding at December 31, 1998 4,249,735 4,329,466
Common stock, $0.01 par value; 50,000,000 shares authorized;
5,491,901 issued and outstanding at December 31, 1999;
5,480,088 issued and outstanding at December 31, 1998 54,919 54,801
Additional paid-in capital 59,619,262 59,539,649
Accumulated other comprehensive income (4,960) (53,995)
Accumulated deficit (58,033,860) (59,430,238)
Treasury stock; 6,326 shares at December 31, 1999 and 1998 (216,737) (216,737)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,668,359 4,222,946
------------ ------------
$ 7,222,329 $ 13,447,806
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 50
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 136,405 $ 326,862 $ 1,000,776
Less cost of sales (1,146,291) (855,788) (1,557,175)
------------ ------------ ------------
Gross profit (loss) (1,009,886) (528,926) (556,399)
------------ ------------ ------------
Operating expenses:
General and administrative 3,147,154 5,308,417 6,198,665
Research and development 1,869,587 2,569,864 4,035,360
Asset impairment 137,211 -- 3,582,068
Sales and marketing 282,398 1,388,826 1,427,735
------------ ------------ ------------
Total operating expenses 5,436,350 9,267,107 15,243,828
------------ ------------ ------------
Operating loss (6,446,236) (9,796,033) (15,800,227)
------------ ------------ ------------
Other income (expense):
Interest expense (501,379) (1,411,335) (3,568,603)
Other income, net 144,794 847,613 511,145
------------ ------------ ------------
Total other income (expense) (356,585) (563,722) (3,057,458)
------------ ------------ ------------
Loss before income taxes from continuing operations (6,802,821) (10,359,755) (18,857,685)
Income tax expense -- -- --
------------ ------------ ------------
Loss from continuing operations before extraordinary item (6,802,821) (10,359,755) (18,857,685)
------------ ------------ ------------
Discontinued operations:
(Loss) income from discontinued operations (158,250) 3,351,486 1,939,109
Gain on disposal, net of income taxes of $140,000 8,357,449 -- --
------------ ------------ ------------
Income from discontinued operations 8,199,199 3,351,486 1,939,109
------------ ------------ ------------
Extraordinary item - debt extinguishment loss -- (1,168,080) --
------------ ------------ ------------
Net income (loss) 1,396,378 (8,176,349) (16,918,576)
============ ============ ============
Basic loss per share from continuing operations
before extraordinary item $ (1.24) $ (2.04) $ (5.13)
Income per share from discontinued operations 1.49 0.66 0.53
Extraordinary loss per share from debt extinguishment -- (0.23) --
------------ ------------ ------------
Basic net loss per share $ 0.25 $ (1.61) $ (4.60)
============ ============ ============
Weighted average common shares outstanding 5,491,480 5,079,894 3,675,488
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 51
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------------- ---------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 -- -- 3,475,696 $ 34,757 $ 44,598,431
------------ ------------ ------------ ------------ ------------
Issuances of common stock -- -- 11,892 119 206,170
Issuances of warrants -- -- -- -- 3,187,606
Stock options exercised -- -- 60,310 603 407,958
Warrants exercised -- -- 83,422 834 258,795
Refund of stock issuance fees, net -- -- -- -- 74,877
Cumulative translation adjustment -- -- -- -- --
Shares received in litigation settlement -- -- -- -- --
Contingent shares issued -- -- 156,825 1,568 3,409,394
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1997 -- -- 3,788,145 37,881 52,143,231
------------ ------------ ------------ ------------ ------------
Issuances of common stock -- -- 1,494,869 14,949 6,066,070
Issuances of preferred stock 1,245,338 5,604,030 -- -- --
Conversion of preferred stock to common (283,236) (1,274,564) 188,824 1,888 1,272,676
Stock options exercised -- -- 8,250 83 57,672
Cumulative translation adjustment -- -- -- -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1998 962,102 4,329,466 5,480,088 54,801 59,539,649
------------ ------------ ------------ ------------ ------------
Conversion of preferred stock to common (17,718) (79,731) 11,813 118 79,613
Cumulative translation adjustment -- -- -- -- --
Change in value of available-for-sale security -- -- -- -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 944,384 $ 4,249,735 5,491,901 $ 54,919 $ 59,619,262
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS' COMPREHENSIVE
INCOME DEFICIT STOCK EQUITY INCOME (LOSS)
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 32,586 $(34,335,313) $ (194,465) $ 10,135,996 $(11,541,227)
------------ ------------ ------------ ------------ ------------
Issuances of common stock -- -- -- 206,289 --
Issuances of warrants -- -- -- 3,187,606 --
Stock options exercised -- -- -- 408,561 --
Warrants exercised -- -- -- 259,629 --
Refund of stock issuance fees, net -- -- -- 74,877 --
Cumulative translation adjustment (10,000) -- -- (10,000) (10,000)
Shares received in litigation settlement -- -- (22,272) (22,272) --
Contingent shares issued -- -- -- 3,410,962 --
Net loss -- (16,918,576) -- (16,918,576) (16,918,576)
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1997 22,586 (51,253,889) (216,737) 733,072 (16,928,576)
------------ ------------ ------------ ------------ ------------
Issuances of common stock -- -- -- 6,081,019 --
Issuances of preferred stock -- -- -- 5,604,030 --
Conversion of preferred stock to common -- -- -- -- --
Stock options exercised -- -- -- 57,755 --
Cumulative translation adjustment (76,581) -- -- (76,581) (76,581)
Net loss -- (8,176,349) -- (8,176,349) (8,176,349)
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1998 (53,995) (59,430,238) (216,737) 4,222,946 (8,252,930)
------------ ------------ ------------ ------------ ------------
Conversion of preferred stock to common -- -- -- -- --
Cumulative translation adjustment (72,266) -- -- (72,266) (72,266)
Change in value of available-for-sale security 121,301 -- -- 121,301 121,301
Net income -- 1,396,378 -- 1,396,378 1,396,378
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 $ (4,960) $(58,033,860) $ (216,737) $ 5,668,359 $ 1,445,413
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 52
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,396,378 ($ 8,176,349) ($16,918,576)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Income from discontinued operations (8,199,199) (3,351,486) (1,939,109)
Non-cash expenses of asset disposal 432,500 -- --
Write-off of leasehold improvements 137,211 -- --
Write-down of inventory 1,106,399 -- --
Depreciation and amortization 1,111,655 1,534,034 946,000
Write-off of impaired goodwill -- -- 3,582,068
Bad debt expense -- 337,353 --
Debt extinguishment loss -- 1,168,080 --
Writeoff of debt discount -- -- 2,139,000
Minority interest -- (191,560) (437,127)
Non-cash gain on settlement -- -- (22,272)
Expenses paid with issuances of stock or warrants -- 99,000 --
Changes in assets and liabilities:
Decrease in restricted cash -- -- 100,000
Decrease in accounts receivable 33,348 58,950 714,937
Decrease in prepaid expenses and deposits 56,104 34,600 99,105
(Increase) in inventories (68,707) (456,472) (597,066)
(Increase) in patents and other assets (15,821) (66,975) (555,925)
(Decrease) in accounts payable (1,584,427) (1,241,309) (239,918)
Increase (Decrease) in other current liabilities 321,237 (165,825) 776,530
------------ ------------ ------------
CASH USED IN OPERATING ACTIVITIES (5,273,322) (10,417,959) (12,352,353)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of fixed assets (23,999) (157,132) (1,208,130)
Purchase of Oncometrics stock -- (342,500) (6,000,000)
Increase in note receivable (400,000) -- --
Proceeds from sale of Microbiology division 15,150,000 -- --
Expenses related to sale of Microbiology division (750,000)
Purchased technology -- -- (82,342)
------------ ------------ ------------
CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 13,976,001 (499,632) (7,290,472)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuances of common stock, net -- 4,852,394 743,064
Deferred financing costs -- (849,124)
Notes receivable collected -- -- 50,074
Payment of notes payable and capital lease obligation (8,497,551) (909,305) (6,273,758)
Proceeds from issuance of notes payable -- 1,000,000 13,000,000
Proceeds from bridge loan -- -- 6,000,000
------------ ------------ ------------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (8,497,551) 4,943,089 12,670,256
------------ ------------ ------------
CASH TRANSFER (TO) FROM DISCONTINUED OPERATIONS (209,945) 5,872,486 4,670,652
------------ ------------ ------------
EFFECT OF EXCHANGE RATES ON CASH (12,266) (16,581) (10,000)
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,083) (118,597) (2,311,917)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 213,386 331,983 2,643,900
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 196,303 $ 213,386 $ 331,983
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 53
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
AccuMed International, Inc. and subsidiary ("the Company") engage in the
development and assembling of cost effective screening instruments and systems
for clinical diagnostic laboratories, hospitals and others. These activities are
conducted primarily in the United States and Canada. The Company markets its
products primarily to the Cytopathology laboratory market. Cytopathology systems
are made up of multiple instruments networked via proprietary software that
support the review and analysis of Pap smears and other microscope slide-based
cellular preparations. Substantially all of the Company's assets are located in
the United States.
Basis of Presentation
On December 22, 1998, (the measurement date), the company received
shareholder approval to sell its microbiology division under a sales agreement
negotiated by management under the approval of the board of directors. On
January 29, 1999, AccuMed closed the sale of the microbiology division for
proceeds of $15,150,000. The Company recognized a gain of $8,357,000, net of
income taxes of $140,000 and after working capital adjustments, on the disposal
of the microbiology division. Accordingly, the microbiology division is
accounted for as a discontinued operation in the accompanying consolidated
balance sheets, statements of operations and statements of cash flows.
Reverse Stock Split
On May 19, 1998, the stockholders approved a reverse one-for-six stock
split, which was effected by the Board of Directors as of May 21, 1998. The
reverse split covered all outstanding common shares and all agreements
concerning stock options, warrants, convertible notes and other commitments
payable in shares of the Company's common stock. All references to per-share
information in the accompanying financial statements and notes to the
consolidated financial statements have been adjusted to reflect the reverse
split on a retroactive basis.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AccuMed
International, Inc. and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Product revenue is recognized when products have been shipped and the
customer has made final acceptance.
Cash and Cash Equivalents
Cash and cash equivalents include cash held by financial institutions
and money market fund investments with original maturities of three months or
less.
Inventories
Inventories consist primarily of raw materials and finished product and
are stated at the lower of cost (average cost) or market. Cost is determined by
the first-in first-out method (FIFO). In the fourth quarter of 1999, AccuMed
reduced the carrying value of inventories by $1,106,399 based on management's
estimate of the recoverability of the inventories.
F-7
<PAGE> 54
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Available-for-Sale Security
The available-for-sale security is reported at fair market value.
Unrealized gains and losses on the available-for-sale security are excluded from
earnings and reported as a separate component of stockholders' equity until
realized.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of plant
and equipment is provided using the straight-line method over the estimated
useful lives of the assets. Amortization of leasehold improvements is provided
on the straight-line method over the shorter of the estimated useful life of the
improvement or the term of the lease. Expenditures for repairs and maintenance
are charged to operations when incurred.
Purchased Technology
Purchased technology consists principally of values assigned to acquired
proprietary technology. Such amounts are being amortized on a straight-line
basis over the expected periods to be benefited, generally 10 years. The Company
assesses the recoverability of such assets by determining whether the
amortization of the balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based on projected discounted future
operating cash flows of the related acquired businesses using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of these various assets will be impacted if the estimated future
operating cash flows are not achieved.
Patents
The cost of patents is amortized straight line over the estimated useful
lives of the patent, generally 17 years.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Warranty
Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is
recognized.
F-8
<PAGE> 55
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses to prepare these financial statements in conformity with generally
accepted accounting principles. Estimates are used when accounting for the
allowance for uncollectable accounts receivable, inventory valuation,
depreciation, warranty costs, income taxes and contingencies, among others.
Actual results could be materially different from those estimates.
Valuation of Options and Warrants Issued
The Company utilizes the Black-Scholes pricing model to determine the
fair value of warrants and options issued in exchange for goods or services.
During 1999, 1998 and 1997, the Company incorporated the following assumptions
into the model: risk free rate - ranging from 5% to 7%, expected volatility -
143% in 1999, 30% in 1998 and 20% in 1997, and expected dividends of zero. The
risk-free rate is determined based on the interest rate of U.S. Government
treasury obligations with a maturity date comparable to the life of the option
or warrant issued. Other assumptions, relating to option life, strike price and
stock price, are determined at the date the option or warrant is issued.
Non-monetary Transactions
Non-monetary transactions are recorded based on the fair values of the
assets or services involved. Fair values are determined based on the assets
exchanged or received, whichever is more clearly evident.
General Information Regarding Reportable Segments of an Enterprise
Effective December 31, 1997, the Company adopted SFAS No. 131 regarding
disclosures about segments of an enterprise and related information. Refer to
Note 1 for a description of the types of products from which the Company derives
its revenues. Subsequent to the sale of the Company's microbiology division on
January 29, 1999, the Company's products are marketed solely to the
Cytopathology laboratory market.
3. ACCOUNTS RECEIVABLE
Accounts receivable are carried at estimated net realizable value. At
December 31, 1999 and 1998, the Company had provided no allowances to write the
carrying value of accounts receivable to estimated net realizable value. Bad
debt expense was zero for each of the years ended December 31, 1999, 1998 and
1997, respectively.
4. NOTE RECEIVABLE
On November 16, 1999, the Company entered into a merger agreement with
Microsulis Corporation ("Microsulis"), which was subsequently terminated on
February 28, 2000. Under the terms of the merger agreement, the Company agreed
to provide a secured line of credit of $650,000 to Microsulis. The line of
credit bears interest at 10% per annum, payable semi-annually, matures on April
18, 2000, and is secured by certain assets of Microsulis. At December 31, 1999,
the Company had advanced $400,000 under the line of credit to Microsulis.
F-9
<PAGE> 56
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. AVAILABLE-FOR-SALE SECURITY
On December 4, 1998, the Company received 85,776 common shares of Bell National
Corporation, ("Bell), a public shell corporation, and warrants to purchase an
additional 63,517 common shares of Bell at a price of $0.001 per share in
exchange for its 2,000 membership units of InPath, L.L.C., a privately held
company. No value was assigned to the Bell shares received because the
underlying market value of Bell at the date of the transaction was deminimus.
During 1999, the Company exercised all of the warrants. On May 26, 1999, Bell
was merged into its wholly owned subsidiary, Ampersand Medical Corporation,
("Ampersand"). As a result of this merger, the Company's shares of Bell were
exchanged for an equal number of shares of Ampersand. At December 31, 1999, the
Company held 149,293 shares of Ampersand with a market value of $121,301. In
February 2000, the Company sold 85,776 shares in the open market for proceeds of
$334,844. In the first quarter of 2000, the Company recorded a realized gain on
the sale of these shares of $334,844.
6. INVENTORIES
Inventories include the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw material and packaging supplies $ 529,919 $ 907,038
Work in process -- --
Finished goods 171,000 831,573
---------- ----------
Total $ 700,919 $1,738,611
========== ==========
</TABLE>
7. FIXED ASSETS
Fixed assets includes the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Life 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Equipment 3 - 5 Years $ 1,876,344 $ 2,383,839
Leasehold improvements 5 - 13 Years 140,290 713,322
----------- -----------
2,016,634 3,097,161
Less accumulated depreciation and amortization (1,311,361) (1,608,352)
----------- -----------
Total $ 705,273 $ 1,488,809
=========== ===========
</TABLE>
Maintenance and repair expenses for the years ended December 31, 1999,
1998 and 1997 were $14,663, $55,942 and $51,854, respectively. There were no
material construction commitments outstanding as of December 31, 1999.
F-10
<PAGE> 57
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Litigation reserves $485,000 $ --
Warranty reserve -- 12,000
Accrued rent 103,247 158,000
Payroll and related 136,787 50,000
Other 25,149 70,292
-------- --------
Total $750,183 $290,292
======== ========
</TABLE>
9. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998, respectively, consists of
the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
14.5% secured note payable, net of unamortized discount of
$109,800 in 1998 $ -- $3,266,700
12% unsecured convertible notes due March 13, 2000, net of
unamortized discount of $84,000 in 1998 -- 3,141,000
Floating rate convertible note payable 342,550 342,550
Non-interest bearing repayable contribution 187,000 187,000
---------- ----------
Total long-term debt 529,550 6,937,250
Less current installments 362,550 1,155,400
---------- ----------
Long-term debt, excluding current installments $ 167,000 $5,781,850
========== ==========
</TABLE>
In 1998, $5,275,000 in principal amount of the 12% unsecured convertible
notes was exchanged for Series A convertible preferred stock. See Note 18 Debt
Extinguishment. On February 2, 1999, the Company repaid in full the remaining
portion of principal of $3,225,000, plus accrued interest, of the 12% unsecured
convertible notes with proceeds from the sale of its microbiology division.
The 14.5% secured note payable was repaid on January 29, 1999 for
$3,900,000, including prepayment penalties, with proceeds from the sale of the
Company's microbiology division.
The floating rate convertible note has a face amount of $500,000
Canadian dollars and was originally due on December 29, 1999. In 2000, the note
was amended to provide for monthly principal installments of $36,000 Canadian
dollars, plus interest, beginning March 15, 2000 through July 15, 2000. The
remaining portion of the note is due on demand. The demand portion of the note
is convertible, in whole or in part, into common stock of the Company at a price
of $1.43 per share. Interest on the note is at 6% over the Canadian prime rate
(7% at December 31, 1999).
The repayable contribution was received under a foreign government
program and calls for semi-annual installments based on future sales of product
and net working capital.
F-11
<PAGE> 58
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 362,550
2001 167,000
2002 --
2003 --
2004 --
Thereafter --
</TABLE>
10. STOCKHOLDERS' EQUITY
On February 23, 1998, the Company exchanged $5,275,000 in principal
amount of its 12% convertible promissory notes plus accrued interest thereon of
$329,030 for 1,245,338 shares of Series A convertible preferred stock and 5-year
warrants to purchase 207,557 shares of common stock at an exercise price of
$6.75 per share. The preferred stock is convertible into 830,227 shares of
common stock at a conversion price of $6.75 per share. The Company registered
the resale of the shares of common stock underlying the preferred stock and
warrants with the Securities and Exchange Commission during 1998. See Note 18
Debt Extinguishment.
During March 1998, the Company completed a private placement of
1,447,778 shares of common stock and 7-year warrants to purchase an aggregate of
1,447,778 shares of common stock at an exercise price of $4.50 per share for
gross proceeds of $6,515,000, including $1,000,000 in notes payable converted
into common stock, and net proceeds of $5,864,000 after payment of fees,
commissions and expenses related thereto. The Company has registered the resale
of the outstanding common stock and the common stock underlying the Warrants
with the Securities and Exchange Commission.
During 1999 and 1998, 17,718 shares and 283,236 shares, respectively, of
Series A convertible preferred stock were converted into 11,813 shares and
188,824 shares, respectively, of common stock.
F-12
<PAGE> 59
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Warrants
At December 31, 1999, the Company had outstanding warrants to purchase
shares of common stock at any time through the expiration date as follows:
<TABLE>
<CAPTION>
Shares Price Expiration Date
------ ----- ---------------
<S> <C> <C>
4,213 30.00 April, 2000
41,639 3.78 May, 2000
49,040 3.78 August, 2000
20,266 4.92 August, 2000
20,266 9.84 August, 2000
20,266 14.82 August, 2000
10,583 1.50 September, 2000
12,500 6.78 December, 2000
119,834 7.50 December, 2000
16,667 7.50 January, 2001
16,667 12.78 March, 2001
33,334 6.78 March, 2002
8,334 15.00 September, 2002
40,964 15.60 September, 2002
16,667 4.50 February, 2003
207,557 6.75 February, 2003
58,334 6.75 February, 2005
1,503,483 4.50 March, 2005
</TABLE>
Stock Option Plan
The Company has the following stock option plans for its employees,
directors and consultants: the 1990 plan, the 1992 plan, the 1995 plan and the
1997 plan. Terms of the plans are summarized as follows:
Exercise Price - For the 1990 Plan, fair market value determined by the Board of
Directors and not less than 110% of the determined fair market value in certain
instances. For the 1992, 1995 and 1997 plans, fair market value as determined by
the closing price of the common stock on the date of issuance as reported by
NASDAQ.
Vesting Period - A portion of the options granted to certain participants vest
immediately with the remaining options vesting on varying schedules not
exceeding six years from date of grant. Options granted to others vest on
varying schedules not exceeding six years from date of grant.
Shares Available - At December 31, 1999 there were 120,098 additional shares
available for grant under the Plans. The maximum number of shares that may be
issued under the plans is 510,117 at December 31, 1999.
F-13
<PAGE> 60
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Stock Option Plans for employees. Accordingly, no
compensation cost has been recorded. Had compensation cost for the Company's
Stock Option Plans been determined consistent with FASB Statement No. 123, the
Company's net income (loss) and net income (loss) per share would have been as
indicated below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss), as reported $ 1,396,378 $ (8,176,349) $ (16,918,576)
Net income (loss), pro forma $ 715,784 $ (10,476,223) $ (17,906,072)
Net income (loss) per share, as reported $ 0.25 $ (1.61) $ (4.60)
Net income (loss) per share, pro forma $ 0.13 $ (2.06) $ (4.87)
</TABLE>
Pro forma net income (loss) and net income (loss) per share reflect only
options granted since December 31, 1994. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income (loss) amounts presented above because
compensation cost is reflected over the options' vesting period of up to 10
years and compensation cost for options granted prior to January 1, 1995 is not
considered.
The compensation cost of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Volatility 143% 30% 20%
Risk free interest rate 5.23% 7.00% 7.00%
Expected life in years 5 10 10
</TABLE>
F-14
<PAGE> 61
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option activity during the periods indicated was as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average Exercise
Options Price
--------- ----------------
<S> <C> <C>
Balance at December 31, 1996 289,172 $ 18.90
Granted 269,400 $ 23.64
Exercised (60,310) $ 6.78
Forfeited (82,010) $ 34.20
Expired -- --
--------
Balance at December 31, 1997 416,252 $ 20.70
Granted 370,004 $ 4.87
Exercised (8,250) $ 7.00
Forfeited (277,852) $ 18.23
Expired -- --
--------
Balance at December 31, 1998 500,154 $ 10.60
Granted 307,670 $ 1.20
Exercised -- --
Forfeited (114,925) $ 19.10
Expired (792) $ 8.34
--------
Balance at December 31, 1999 692,107 $ 4.98
========
</TABLE>
The fair value of options granted in 1999, 1998 and 1997 was $1.09, $2.72 and
$15.36 per share, respectively. The following table summarizes information about
stock options outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
exercise prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 to $1.31 292,670 9.19 $ 1.21 66,670 $ 1.23
$3.78 to $4.50 272,745 8.03 4.45 189,412 4.43
$6.00 to $8.64 52,919 7.08 6.07 36,252 6.11
$10.50 19,890 1.08 10.50 19,890 10.50
$22.50 to $23.64 49,215 5.17 23.45 45,603 23.43
$37.50 to $50.28 4,668 1.57 41.15 4,668 41.15
-------- --------
$1.00 to $50.28 692,107 8.00 4.98 362,495 7.21
======== ========
</TABLE>
F-15
<PAGE> 62
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
The Company's income tax provision for the years ended December 31,
1999, 1998 and 1997 was allocated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ -- $ -- $ --
Discontinued operations 140,000 -- --
Extraordinary item -- -- --
------------------------------------
$140,000 $ -- $ --
====================================
</TABLE>
A reconciliation of the significant differences between the Company
effective tax rate applicable to income from continuing operations and the
federal statutory tax rate for the years ended December 31, 1999, 1998, and 1997
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal (6.0) (6.0) (6.0)
benefit
Increase in valuation allowance 40.0 40.0 40.0
----------------------------------
Effective income tax rate 0.0% 0.0% 0.0%
==================================
</TABLE>
The net deferred tax assets and liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 12,972,000 $ 15,037,000
Research and development credits 595,000 527,000
Other 1,763,000 1,088,000
------------ ------------
Total 15,330,000 16,652,000
Valuation allowance (15,330,000) (16,652,000)
------------ ------------
Net deferred tax assets and liabilities $ -- $ --
============ ============
</TABLE>
At December 31, 1999, the Company had approximately $32,429,000 and
$10,718,000 in net operating losses for federal and state tax purposes,
respectively, available to be carried forward to future periods. The carry
forwards expire from 2005 to 2018 for federal purposes and from 2012 to 2018 for
state purposes.
The Company's credits for research and development available to offset
future federal income taxes expire from 2002 to 2013.
The Company has recorded a valuation allowance equal to the deferred tax
assets based on its continuing operating losses. The valuation allowance was
decreased by $1,322,000 in 1999 and increased by $3,376,000 in 1998.
During the last three years, the Company has had more than a 50% change
in ownership. Section 382 of the Internal Revenue Code and comparable state
statutes impose certain annual limitations on the utilization of net operating
loss carry forwards and research and development credits that can be used to
offset income in future periods.
F-16
<PAGE> 63
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LEASES
Operating Leases
The Company leases its facilities under operating type leases expiring
through 2004. Rental expense is recognized on a straight-line basis over the
life of the lease. As a result of the Company's consolidation of certain of its
facilities and re-negotiation of its leasing arrangements in February 2000, the
Company recorded an expense in 1999 for the write-off of $137,211 in net book
value of impaired leasehold improvements. At December 31, 1999, other current
liabilities include an accrual of $103,247 for rent concessions negotiated as
part of the new leasing arrangements. Total rental expense under operating type
leases during the years ended December 31, 1999, 1998 and 1997 was $531,000,
$379,000 and $394,000, respectively.
Future minimum annual lease payments under operating leases as of
December 31, 1999 are:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
2000 $238,000
2001 $154,000
2002 $152,000
2003 $160,000
2004 $124,000
Thereafter $ --
</TABLE>
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
During the year ended December 31, 1999, 17,718 shares of Series A
convertible preferred stock were converted into 11,813 shares of common stock.
During the year ended December 31, 1998, the Company extinguished debt
with a carrying value of $4,818,800 through the issuance of convertible
preferred stock and common stock warrants with a fair value of $5,986,880
including transaction fees, resulting in an extraordinary loss of $1,168,000.
The Company satisfied its obligation under a $1,000,000 note payable through the
issuance of 222,223 shares of common stock. During 1998, 283,236 shares of
Series A convertible preferred stock were converted into 188,824 shares of
common stock. The Company issued a note in 1998 for $342,550 in connection with
the purchase of a one-third interest in Oncometrics Imaging Corp. stock it did
not already own.
F-17
<PAGE> 64
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 1997, the Company issued common stock
and warrants for the payment of interest, fees, consideration for the merger
(see Note 15) and patents. The value of common stock and warrants issued was
$2,101,000, $77,500, $3,582,000 and $206,000, respectively. The Company received
common stock as compensation for a litigation settlement, valued at $22,272 and
recorded as treasury stock in the accompanying consolidated balance sheet.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
Cash paid during the year for: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Interest $ 292,008 $1,336,566 $ 821,719
Income taxes $ 105,000 -- --
Investing and Financing Activities
Deposit reclassified to fixed assets -- $ 125,000 --
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The company is involved in legal proceedings with certain vendors
regarding disputes over delivery of good and services. The Company has recorded
an estimated accrual of $485,000 relating to the probable settlement of these
legal proceedings. See Note 8, Other Current Liabilities.
15. MERGER AND RELATED TRANSACTIONS
On December 29, 1995, the Company acquired all of the common stock of
AccuMed, Inc. and its wholly owned subsidiary. Pursuant to the terms of the
merger agreement, 313,650 shares of common stock and 21,158 warrants were issued
to AccuMed, Inc. stockholders and warrantholders respectively, which were
contingent and subject to forfeiture if specified performance goals were not
achieved by the merged entity during the 24 months beginning January 1, 1996.
The contingency associated with 156,825 shares of common stock and 10,579
warrants was resolved (performance goal achieved) in March 1996 resulting in
contingent consideration of approximately $5,430,000. Such amount has been
allocated to acquired proprietary technology ($1,930,000) and in-process
research and development ($3,500,000). The acquired proprietary technology is
being amortized over the expected period to be benefited of ten years, with the
in-process research and development charged to operations during 1996. The
contingency associated with the remaining 156,825 shares of common stock and
10,579 warrants was resolved (performance goal achieved) in March 1997 resulting
in contingent consideration of approximately $3,582,000. Such amount has been
recorded as goodwill associated with the merger and charged off in its entirety
to operations during 1997 as an impaired asset.
The acquisition of AccuMed, Inc. was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
assets purchased and liabilities assumed based upon their estimated fair values
at the date of acquisition. The excess of the purchase price over the fair value
of the tangible assets has been allocated to identifiable intangibles of
acquired proprietary technology ($2,645,000) and in-process research and
development ($3,965,000). The acquired proprietary technology is being amortized
over the expected period to be benefited, which is estimated to be 10 years with
the in-process research and development charged to operations at the date of
acquisition.
On October 15, 1996, the Company acquired a two-thirds interest in
Oncometrics Imaging Corp. ("Oncometrics") for a total purchase price of
$4,000,000, which included $2,000,000 to be used solely as working capital for
Oncometrics. On June 29, 1998, the Company acquired the remaining 33% of the
outstanding capital stock of Oncometrics Imaging Corp. ("Oncometrics") it did
not already own. The Company paid $342,500 in cash and $342,500 ($500,000 in
Canadian dollars) in a convertible note in exchange for the stock and a loan
payoff to the seller of $154,000. The note is
F-18
<PAGE> 65
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
convertible, in whole or in part, into common stock of the Company at a price of
$1.43 per share. See Note 9 Long-Term Debt.
These acquisitions have been accounted for using the purchase method of
accounting, and accordingly the purchase prices have been allocated to assets
purchased and liabilities assumed based on the fair values at the dates of
acquisition. The excess purchase price consists of $1,645,200 of acquired
in-process research and development and $1,796,000 of purchased technology. The
Company's share of Oncometrics' operations from the dates of acquisition have
been recorded in the consolidated statements of operations.
16. RELATED-PARTY TRANSACTIONS
On February 2, 1998 a director/stockholder loaned the Company $1,000,000
at 12% annual interest plus 16,667 5-year warrants to purchase common stock of
the Company at an exercise price of $9.36 per share. The loan was converted into
common stock under the terms of the private placement of common stock in March
1998 and the exercise price of the warrants were repriced to $4.50 per share.
In March 1997, the Company received a $6,000,000 bridge loan from a
director/shareholder of the Company. The loan was repaid 10 days later, together
with interest and a prepayment premium of $130,000. The Company used the
proceeds from this loan to purchase the ESP Product Line of its discontinued
microbiology division.
In September 1997, the Company received a $500,000 bridge loan from a
director/shareholder of the Company. The loan was repaid 30 days later, together
with interest and a prepayment premium of $10,000 and 8,334 5-year warrants to
purchase common stock of the Company at an exercise price of $15.00 per share.
The warrants were valued at $39,500 and recorded as interest expense in 1997.
17. DEBT EXTINGUISHMENT
In 1998, the Company incurred an extraordinary loss of $1,168,080
related to the exchange of $5,275,000 in principal amount of its 12% convertible
notes into Series A convertible preferred stock. This loss included stock,
warrants and fees paid to the placement agent, warrants issued as an inducement
to the converting noteholders, and the write-off of a proportional amount of
deferred financing costs associated with the issuance of the convertible notes.
The placement agent received fees of $175,000, 8,334 shares of common stock
valued at $40,000, 7-year warrants to purchase 58,334 shares of common stock at
$6.75 per share valued at $84,000, and repricing of previously issued 4-year
warrants to purchase 33,334 shares of common stock at an exercise price of
$18.75 per share to $6.75 per share, valued at $26,000. The converting
noteholders received 5-year warrants to purchase 207,557 shares of common stock
at an exercise price of $6.75 per share, valued at $37,380.
The Company utilized the Black-Scholes pricing model to determine the
fair value of warrants issued. The following assumptions were incorporated into
the model: risk-free rate - 6%, expected volatility - 30%, and expected dividend
- - zero. The risk-free rate is determined based on the interest rate of U.S.
government treasury obligations with a maturity date comparable to the life of
the warrant issued. Other assumptions, relating to warrant life, strike price
and stock price, are determined at the date the warrant was issued.
F-19
<PAGE> 66
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUBSEQUENT EVENTS
On March 24, 2000, the Company entered into a license and development
agreement with Ventana Medical Systems, Inc. ("Ventana"), whereby the Company
agreed to license its patents and proprietary information and rights to Ventana
for certain medical applications. Under the terms of the agreement, the Company
has received an up-front licensing fee, advance royalty payment, and development
funds. Additional funds will be received over the next twelve months for
contract research, purchase of AcCell Systems, and royalties to be received in
the future on the sale of covered products by Ventana.
On March 29, 2000, the Company entered into patent and technology
license agreement with BCAM International, Inc. ("BCAM"), whereby the Company
agreed to license its patents and proprietary information and rights to BCAM for
certain medical applications. Under the terms of the agreement, the Company will
receive guaranteed license fees over the next nine months, shares of BCAM common
stock, and royalties to be received in the future on the sale of covered
products by BCAM.
F-20
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AccuMed International, Inc.:
Under date of March 29, 2000 we reported on the consolidated balance sheet of
AccuMed International, Inc. and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999, as contained in the annual report on Form 10-K for the year 1999. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule included in
the annual report on Form 10-K for the year 1999. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, IL
March 29, 2000
F-21
<PAGE> 68
ACCUMED INTERNATIONAL, INC AND SUBSIDIARIES
SCHEDULE IX - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Reserves and
Allowances
deducted from
asset accounts
Additions
Balance at Charged to Write-offs Balance
Beginning Costs and and Other at End of
Description of Period Expenses Disposals Changes Period
- ----------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts
receivable
Year Ended
December 31, 1997 -- -- -- -- --
Year Ended
December 31, 1998 -- $ 245,592 -- -- $ 245,592
Year ended
December 31, 1999 $ 245,592 -- ($ 245,593) -- --
Inventory
Valuation Reserve
Year ended
December 31, 1997 -- -- -- -- --
Year ended
December 31, 1998 -- -- -- -- --
Year ended
December 31, 1999 -- $ 1,106,399 -- -- $ 1,106,399
</TABLE>
<TABLE>
<CAPTION>
Reserve
Allowances which
support balance
sheet caption
reserves
Deductions
Balance at Credited to Payments Balance
Beginning Costs and Under Other at End of
Description of Period Expenses Warranty Changes Period
- ----------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Warranty Reserves
Year ended
December 31, 1997 $ 30,000 -- -- -- $ 30,000
Year ended
December 31, 1998 $ 30,000 -- -- ($ 18,000)(a) $ 12,000
Year Ended
December 31, 1999 $ 12,000 ($ 12,000) -- -- --
</TABLE>
(a) Reserves of Oncometrics Imaging Corp.
reclassified in current year
<PAGE> 1
EXHIBIT 10.28
AMENDMENT TO FLOATING RATE CONVERTIBLE PROMISSORY NOTE
Amendment dated March 15, 2000 (this "Amendment") to the Floating Rate
Convertible Promissory Note made June 26, 1998 (the "Promissory Note"), in the
original principal amount of CND$500,000, between AccuMed International, Inc.
("AccuMed") and Xillix Technologies Corp. (the "Payee"). All capitalized terms
not otherwise defined herein shall have the same meaning as assigned in the
Promissory Note.
Whereas, the parties have previously extended the Maturity Date under
the Promissory Note until February 25, 2000; and the parties currently desire to
amend the terms for payment and interest under the Promissory Note.
Now, therefore, based upon the mutual covenants and promises set forth
below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows.
1. Payment Schedule for Approximately One-third of Principal Balance.
(a) On March 15, 2000, AccuMed paid to the Payee US$27,344.26
allocated as (i) US$25,000 in repayment of principal, and (ii) US$2,344.26 in
payment of accrued interest.
(b) On each of April 14, 2000, May 15, 2000, June 15, 2000,
and July 14, 2000, AccuMed will pay the Payee US$25,000 in principal, plus the
interest accrued on the entire principal balance outstanding since the most
recent prior payment.
(c) On the 15th of each month (or if the 15th is not a banking
day, then on the immediately preceding banking day), commencing on August 15,
2000, AccuMed will make a minimum payment of US$25,000 in principal plus
interest accrued on the entire principal balance outstanding since the most
recent prior payment until such time as the principal and interest have been
converted into AccuMed common stock or repaid in full.
2. Payment or Conversion of Approximately Two-thirds of Principal
Amount. The balance of the principal amount not provided to be repaid pursuant
to Sections 1(a) and 1(b), together with accrued and unpaid interest thereon,
shall be due and payable on demand of the Payee. At the Payee's election, such
principal amount and accrued interest may be converted into AccuMed common stock
at the rate of US$1.43 per share pursuant to the terms of the Promissory Note.
3. Interest Rate. Beginning on March 16, 2000, interest on the unpaid
principal balance shall accrue at a rate of the Prime Rate plus 6%.
4. Registration Statement. AccuMed will use its best efforts to cause
the Registration Statement on Form S-3 (file no. 333-90637) to be declared
effective by the Securities and
1
<PAGE> 2
Exchange Commission following filing by AccuMed of its Annual Report on Form
10-K for the year ended December 31, 1999.
5. Other Terms in Effect. All other terms and conditions of the
Promissory Note shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in one or two
counterparts, each of which shall be deemed an original and together shall
constitute one and the same Amendment.
The parties have caused this Amendment to be duly executed as of the
date first above written.
ACCUMED INTERNATIONAL, INC. XILLIX TECHNOLOGIES CORP.
By: /s/ PAUL F. LAVALLEE By: /s/ PIERRE LEDUC
-------------------- ----------------
Paul F. Lavallee Pierre Leduc
Chairman and Chief Executive Officer President and Chief
Executive Officer
2
<PAGE> 1
Exhibit 10.29
PATENT AND TECHNOLOGY LICENSE
AND
REGISTRATION RIGHTS AGREEMENT
This PATENT AND TECHNOLOGY LICENSE AND REGISTRATION RIGHTS AGREEMENT
(this "Agreement") is made as of March 29, 2000 by and between AccuMed
International, Inc., a Delaware corporation ("AccuMed"), and BCAM International,
Inc., a New York corporation ("Licensee").
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, AccuMed and Licensee hereby agree as follows:
SECTION 1
DEFINITIONS
The following capitalized terms used in this Agreement shall have the
respective meanings ascribed to them below in this Section unless otherwise
expressly defined in this Agreement (such definitions shall be equally
applicable to both the singular and plural forms of the defined terms). The
words "hereof," "herein" and "hereunder" and words of like import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section references are to this
Agreement unless otherwise specified.
"AccuMed Improvement" means any redesign, enhancement, or
modification, of the Licensed Products, whether or not patentable, developed by
AccuMed or any third party on AccuMed's behalf.
"Affiliate" means, with respect to a specified Person, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person.
"Cash/Stock Payment" has the meaning set forth in Section 3.3.
"Claim" means a patent claim made in a pending patent application
or in an issued patent.
"Copyrighted Work" means AccuMed's copyrighted works which relate
to the Patent Rights or Technology and which are delivered to and accepted by
Licensee pursuant to Section 2.7.
"Field" means the field of morphological, cytochemical,
cytogenetic, and
<PAGE> 2
quantitative sputum cytology, including without limitation DNA,
malignancy-associated changes, and any other genetic or molecular diagnostic
analyses for early lung cancer detection, screening, diagnosis, prognosis and
therapeutic monitoring.
"Field Exclusivity" means that the Field is exclusive to
Licensee.
"Foreign Patents" means, collectively, the letters patent, if
any, covering Claims of the U. S. Patents which are applied for by AccuMed or
issued to AccuMed in a country other than the United States as listed on
Schedule 2 (as amended from time to time to include all future AccuMed patents
related to the Field), subject to the provisions of Section 5.1 governing the
prosecution thereof.
"Guaranteed Cash License Fee" has the meaning set forth in
Section 3.1.
"Licensed Product" means any device, apparatus, instrument,
equipment, consumables, data, system, or component thereof, or method or process
or embodiments thereof which are covered by the Claims of the Patents or the
subject matter of the Technology, including without limitation AcCell, TracCell,
MACcell, AcCell-Savant, AccuTech, BioSight, Cognetics (certain of the preceding
product names are trademarks of AccuMed), DNA stains and kits, and related
supplies (e.g. calibration slides).
"Licensee Improvement" means any redesign, enhancement, or
modification, of the Licensed Products, whether or not patentable, developed by
Licensee or any third party on Licensee's behalf.
"Non-Cancellation Period" has the meaning set forth in Section
9.3.
"Patents" means, collectively, the U. S. Patents and the Foreign
Patents.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, governmental
authority, or any other entity.
"Proprietary Information" has the meaning set forth in Section
6.1.
"Required Royalty" has the meaning set forth in Section 3.2.
"Sales" means the gross amount of all sales, revenues, receipts,
cash, monies, fees, other amounts invoiced or collected by Licensee (whether on
its own or through its distributors or agents) in any currency or denominations
(whether in cash or by way of other benefit, advantage, or concession (in which
case the applicable revenue will be the monetary equivalent or value of same))
from the manufacture, use, sale, offer to sell, rental, lease or other transfer
of any Licensed Product, including without limitation on a per click, per test,
per assay, per slide or per use basis.
"Stock Payment" has the meaning set forth in Section 3.4.
2
<PAGE> 3
"Technology" means product designs, models, prototypes,
schematics, copyrighted works, know-how, technical information, and trade
secrets (including, without limitation, ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), manufacturing and production processes and techniques, research and
development information, drawings, blue prints, specifications, designs, bills
of material, computer software, and documentation), and embodiments thereof (in
whatever form or medium) of AccuMed (whether currently existing or developed by
AccuMed during the term of this Agreement) which directly relate to the Field,
and to, more generally, computer-aided microscopy, quantitative microscopy
systems, and automated cytometry and histomery systems..
"Termination Default" has the meaning set forth in Section 8.1.
"Territory" means the United States and any other country
throughout the world.
"U. S. Patents" means (i) Patents and the Applications for
Letters Patent listed on Schedule 2 (as amended from time to time to include all
future AccuMed patents related to the Field), (ii) the continuations,
continuations-in-part or divisions thereof, (iii) the letters patent issuing
therefrom by the United States Patent and Trademark Office, and (iv) the
extensions, renewals or reissues of such letters patent.
SECTION 2
LICENSE OF PATENTS AND TECHNOLOGY
2.1 GRANT OF LICENSE IN PATENTS. AccuMed hereby grants to Licensee, and
Licensee accepts from AccuMed, a non-transferable, non-divisible license to
make, have made, use, offer to sell, and sell Licensed Products covered by the
Claims of the Patents (whether now existing or developed in the future by
AccuMed) throughout the Territory on the terms and provisions hereof; the
license is exclusive as to the Field.
2.2 GRANT OF LICENSE IN TECHNOLOGY. AccuMed hereby grants to Licensee,
and Licensee accepts from AccuMed, an exclusive, non-transferable, non-divisible
license to make, have made, use, offer to sell, and sell Licensed Products
covered by the subject matter of the Technology (whether now existing or
developed in the future by AccuMed) throughout the Territory on the terms and
provisions hereof; the license is exclusive as to the Field.
2.3 GRANT OF LICENSE IN COPYRIGHTS. AccuMed hereby grants to Licensee,
and Licensee accepts from AccuMed, an exclusive, nontransferable, non-divisible
license to use and copy the Copyrighted Works in the Field on the terms and
provisions hereof.
2.4 SCOPE OF GRANT. (a) The licenses in the Patents, the Technology, and
the Copyrighted Works granted hereunder are not transferable (except as
expressly permitted by Section 11.8) and no right to sublicense is extended by
this Agreement. Licensee acknowledges that no license or right is hereby granted
by implication, estoppel, or otherwise, under any patent or patent right,
know-how, or trade secret not expressly identified in this Agreement. Licensee
3
<PAGE> 4
shall not make, have made, use, offer to sell, sell, or otherwise commercially
exploit any Licensed Products outside the scope of the licenses granted
hereunder.
(b) AccuMed reserves all rights not expressly granted herein. The
license in the Copyrighted Works granted hereunder shall be coincident and
coterminous with the licenses in the Patents and the Technology hereunder.
Without limiting the foregoing, the licenses granted hereunder shall not be
interpreted to limit or derogate AccuMed's right or ability to make, have made,
use, offer to sell, sell, license or to otherwise commercially exploit for its
own benefit the Patents, the Technology, and the Copyrighted Works in any manner
in connection with any products, systems, or processes or licenses outside of
the Field Exclusivity.
2.5 IMPROVEMENTS. Licensee Improvements will be owned by Licensee.
AccuMed Improvements will be owned by AccuMed. Licensee hereby grants to AccuMed
a non-exclusive license to use Licensee Improvements outside the Field
Exclusivity, solely to the extent Licensee shall have rights therein and
coterminous with the licenses granted to Licensee hereunder. AccuMed
Improvements shall be covered by the license grants under this Agreement solely
to the extent AccuMed shall have rights therein. Each party shall keep the other
party fully apprised of any improvements it may develop for the Licensed Product
and shall give the other party prompt written notice of any of the same, which
shall be given, in any event, not later than ten (10) business days after such
party becomes aware of the same.
2.6 DUTY TO MARKET. Licensee hereby covenants and agrees that during the
term of this Agreement it will use its best efforts to design, develop,
manufacture, sell, market, and support the Licensed Products as they are deemed
by Licensee to be useful in Licensee's business development within the Field.
2.7 DUTY TO DELIVER DOCUMENTATION. AccuMed shall at its sole cost and
expense, within forty-five (45) days after execution of this Agreement by
Licensee, deliver to Licensee a tangible and/or electronic copy of all of
AccuMed's documentation of the Patents and the Technology.
SECTION 3
LICENSE FEES, ROYALTIES, RECORDS, AND REPORTS
3.1 GUARANTEED CASH LICENSE FEE. Licensee shall pay AccuMed a
Guaranteed Cash License Fee equal to [***] (the "Guaranteed Cash
License Fee"), of which [***] shall be paid by Licensee to
AccuMed on the date hereof by wire transfer to the account of
AccuMed designated in writing (and shall be a condition precedent
to the effectiveness of the license grants hereunder) and the
remainder of which shall be payable in accordance with the
following payment schedule:
- ---------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 5
(i) [***]
(ii) [***]
(iii) [***]
(iv) [***]
(v) [***]
(vi) [***]
The payments referred to in (i) through (vi) above shall be made by wire
transfer to the account of AccuMed designated in writing by AccuMed at least two
business days prior to the payment due date. Licensee shall pay AccuMed a [***]%
late fee on the amount of any late payment from the fifth day after the due date
until the payment is made. The Guaranteed Cash License Fee shall be deemed to be
a license issue fee and shall neither be (i) refundable nor (ii) (except as
expressly provided in paragraph (b) of Section 5.1, in Section 5.2, and in
Section 5.3) in any circumstance credited or recoupable against any of the
Required Royalty payments due AccuMed under this Agreement.
3.2 REQUIRED ROYALTY; CREDIT FOR FIRST $[***]. For the rights and
privileges granted to Licensee under this Agreement, Licensee (subject to
paragraph (b) of Section 5.1, Section 5.2, and Section 5.3) shall pay to AccuMed
from and after the date hereof until the licenses hereunder are terminated in
accordance with this Agreement, a royalty rate equal to the percentage specified
on Schedule 1 of all Sales of any Licensed Product (the "Required Royalty"). A
product is considered subject to a Sale hereunder when payment is collected.
Licensee shall make the Required Royalty payments quarterly on or prior to the
tenth business day following the end of each quarter for which Required
Royalties are owing. The first $[***] of Required Royalties shall be credited
against the Cash/Stock Payment. Licensee's obligation to make quarterly payments
of Required Royalties shall commence with the first quarter in which Required
Royalties in excess of $[***] have been accrued.
3.3 CASH/STOCK PAYMENT. (a) As part of the consideration paid for the
licenses granted herein, Licensee shall pay AccuMed either $[***] (the
"Cash/Stock Payment") in cash or shares of Licensee's common stock ("Licensee
Common Stock"). On the first anniversary of this Agreement, Licensee shall
notify AccuMed whether it elects to make the Cash/Stock
- ---------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
Payment in cash or Licensee Common Stock. If Licensee elects to make such
payment in cash, it shall pay the cash to AccuMed within ten business days
following the first anniversary of this Agreement.
(b) If Licensee elects to make such payment in Licensee Common
Stock, Licensee shall deliver to AccuMed a certificate or certificates
representing the Licensee Common Stock within ten business days following the
date on which the Securities and Exchange Commission (the "SEC") declares
effective the registration statement registering the resale of such shares by
AccuMed, as provided in Section 10. Notwithstanding the foregoing, if the SEC
has not so declared such registration statement effective on or prior to the
ninetieth day following the first anniversary of this Agreement, Licensee shall
make the Cash/Stock Payment to AccuMed in cash within ten business days
following such ninetieth day. The number of shares of Licensee Common Stock
delivered to AccuMed having a fair market value of $[***] shall be determined by
reference to (i) the average closing bid price of the Licensee Common Stock, for
twenty (20) consecutive trading days ending on the date on which the SEC
declares the registration statement effective, as reported by Nasdaq, if the
Licensee Common Stock is traded on the Nasdaq Bulletin Board or SmallCap Market,
or (ii) the average last reported sales price of the Licensee Common Stock, for
twenty (20) consecutive trading days ending on the date on which the SEC
declares the registration statement effective, as reported by the primary
exchange on which the Licensee Common Stock is traded, if the Licensee Common
Stock is traded on a national securities exchange, or by Nasdaq, if the Licensee
Common Stock is traded on the Nasdaq National Market. The Licensee Common Stock,
if issued in payment of the Cash/Stock Payment, shall be fully paid and
non-assessable, and shall be issued without violation of any preemptive rights.
3.4 STOCK PAYMENT. As part of the consideration paid for the licenses
granted herein, Licensee shall issue to AccuMed a number of shares of Licensee
Common Stock (the "Stock Payment") determined as follows. The number of shares
shall equal to [***]% of the total number of shares of Licensee Common Stock and
any other class of common stock of the Licensee outstanding on the first
anniversary of this Agreement determined as follows. For purposes of this
calculation shares outstanding:
(i) except as provided in paragraph (ii) below, shall include
all shares issuable upon exercise of warrants, conversion of
convertible preferred stock, convertible notes and any other
securities (other than employee and director stock options)
outstanding on the first anniversary of this Agreement
exercisable for or convertible into any class of common stock of
Licensee;
(ii) shall include all shares issued and outstanding on the date
hereof and all shares issued and outstanding or issuable upon
exercise or conversion of securities sold during the first year
of this Agreement having aggregate gross proceeds of up to
$[***]; and shall exclude any shares issued or issuable as a
result
- ---------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE> 7
of sales of securities during the first year of this Agreement
exceeding the $[***] referenced in the immediately preceding
clause.
Licensee shall deliver to AccuMed a certificate or certificates representing the
Stock Payment within ten business days following the first anniversary of this
Agreement. If AccuMed's board of directors declares a dividend of all or part of
the Stock Payment to AccuMed's stockholders, Licensee shall reimburse AccuMed
for all reasonable, documented expenses related to such dividend distribution.
The Licensee Common Stock issued in payment of the Stock Payment shall be fully
paid and non-assessable, and shall be issued without violation of any preemptive
rights.
3.5 SCOPE OF ROYALTY. Sales subject to royalty shall not in any way be
limited by territorial limitations or by the source of those revenues, and will
include any revenues which Licensee directs to be paid to any other Person. The
calculation of Sales will be carried out in accordance with generally accepted
accounting principles applied on a consistent basis. Licensee will take all
reasonable and prudent steps necessary to collect monies payable on account of
Licensed Products.
3.6 AFFILIATED PERSON SALES. If Licensee sells, rents, or offers for use
a Licensed Product or otherwise makes a Sale to any Affiliate, then the Sales
with respect thereto shall be the price or terms at which Licensee should have
made the same Licensed Product available to a bona fide third party on an arms
length basis. No deductions or allowances whatsoever shall be made for the cost
of collections, or for commissions to Licensee's employees, officers, or
directors or any Affiliate.
3.7 PERIODIC REPORTS. Licensee, on the fifth business day following the
close of each calendar quarter, beginning with the calendar quarter in which
Licensee commences any actual Sales of Licensed Products, shall deliver to
AccuMed a true and accurate written report certified by Licensee's chief
financial officer of all of its Sales activities relating to the Licensed
Product for the immediately preceding calendar quarter to facilitate the proper
computation of the Required Royalty. These reports shall include the following:
(i) true and correct copies of all current product catalogues and price lists of
Licensee; (ii) identification of the quantity and type of any Licensed Products
sold, leased or rented upon which royalties are due; (iii) gross receipts for
such sale, lease or rental; and (iv)royalty due AccuMed.
In addition to the periodic reports described above, Licensee shall provide
AccuMed with copies of Licensee's annual audited financial statements within one
hundred twenty (120) days after the end of Licensee's fiscal year.
3.8 FINANCIAL RECORDS. Licensee shall keep full, true, and accurate
books of account containing all particulars which may be necessary for the
purpose of showing the royalty amounts payable to AccuMed hereunder. These books
of account shall be kept by Licensee at the usual place where its other books
are kept. These books and their supporting data will be open at reasonable
times, for a period of three (3) years following the end of the calendar year to
which they pertain, for inspection by an independent certified public accountant
retained by
- ---------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 8
AccuMed for the purpose of verifying Licensee's royalty statements or Licensee's
compliance with other provisions of this Agreement pursuant to Section 3.9.
Licensee shall prepare or cause the preparation of annual audited financial
statements for the purposes of reporting under Section 3.7.
3.9 AUDIT RIGHTS. AccuMed shall have the right to have periodic audits
of Licensee performed on not less than fifteen (15) days' advance written notice
by AccuMed to Licensee for the purposes of verifying royalty payments under this
Agreement. AccuMed shall be permitted to perform such audits not more often than
once in any calendar year. AccuMed may, in its discretion, retain the services
of an independent certified public accountant to perform any such audit. AccuMed
shall pay for the services of any such independent certified public accountant,
except as provided in this Section below. AccuMed will notify Licensee if
AccuMed's independent certified public accountant determines that Licensee has
understated the royalties due AccuMed by five percent (5%) or more over a
calendar quarter (a "Royalty Understatement"). If Licensee notifies AccuMed
within fifteen (15) days of such notice that Licensee's own independent
certified public accountant disputes the determination of AccuMed's certified
public accountant as to any Royalty Understatement (a "Licensee Dispute
Notice"), then the parties shall mutually designate a third independent
certified public accountant to audit the royalty payments hereunder. The
determination of such third accountant shall be binding on the parties. If
Licensee does not make a Licensee Dispute Notice or if any such third accountant
also determines that there has been a Royalty Understatement, then Licensee
shall pay to AccuMed, within fifteen (15) days after notice of a Royalty
Understatement by AccuMed or such third accountant, as applicable, (i) the
balance of such Royalty Understatement as determined by AccuMed's accountant,
but if there is a third accountant, as determined by such third accountant, (ii)
a penalty fee equal to five percent (5%) of any such Royalty Understatement plus
interest thereon at a rate equal to one percent (1%) per month or such lesser
amount as required by law, computed from the day on which such royalties were
due and owing to AccuMed, and (iii) the reasonable fees of AccuMed's accountant
for its services and, if applicable, any third accountant for its services. If
any such third accountant determines that there has not been a Royalty
Understatement, then AccuMed shall pay the reasonable fees for the services of
such third accountant.
3.10 INTEREST. Licensee shall pay AccuMed interest on all royalty
amounts which are past due under this Agreement at an interest rate equal to one
percent (1%) per month (or such lesser amount as required by law). Interest
under this Section shall be computed from the day the royalty amounts are due
and payable under this Agreement.
3.11 CURRENCY. All payments from Licensee to AccuMed shall be in U.S.
dollars (U.S.$), unless Licensee has been paid by any purchaser of the Licensed
Products in some other currency and AccuMed elects to be paid by Licensee with
regard to that transaction in the same currency.
3.12 TAXES. The payment to AccuMed of the royalties, fees, compensation,
and other payments provided for in this Agreement shall be free of any taxes,
charges, or remittance fees, whether levied by the federal, state, or municipal
governments in the Territory, or by other authorities, except for such income
tax which may be expressly required by the laws of the
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governments in the Territory to be paid for the account of AccuMed. The payment
of any such income taxes levied upon or withheld from royalties, fees,
compensations, or other payments due to AccuMed, and the filing of any
information or tax returns with respect thereto, shall be the responsibility of
Licensee, who shall be liable to AccuMed with respect to any amounts, fines, or
penalties arising out of or resulting from any failure, delay, or error in
discharging the aforesaid obligation.
SECTION 4
VALIDITY AND MARKING
4.1 VALIDITY. If Licensee or another challenges the validity of any of
the Patents once issued, Licensee agrees and is obligated to continue paying all
royalties due before such time as a final determination of invalidity and during
the pendency of any such validity challenge, and Licensee is not entitled to any
refund or credit for any such past royalty or Guaranteed Cash License Fee. If
Licensee challenges the validity of any of the Patents, Licensee agrees to pay
AccuMed's reasonable attorneys' fees and all associated costs in defending such
action, unless all of the Claims of each challenged Patent are held invalid or
unenforceable. Licensee agrees and is obligated to continue paying royalty
payments during the pendency of any challenge to the validity of any of the
Patents. If final judgments that are beyond further right of appeal are entered
which finally invalidate all issued Patents, thereafter Licensee's sole remedy
shall be the reduction in the rate of the Required Royalty in accordance with
Section 9.2; and Licensee shall continue thereafter to be obligated to pay such
reduced Required Royalty and any unpaid Guaranteed Cash License Fee, Cash/Stock
Payment and Stock Payment. Licensee shall not challenge the validity of any of
the Technology or the Copyrighted Works.
4.2 MARKING. As to any Patents issued, Licensee shall mark all Licensed
Products covered by the Claims of such Patent with the following statement, with
the bracketed language completed as appropriate, or, if any Foreign Patent
issues, such other similar statement as may be required under the laws
applicable to the marking of any such Foreign Patent:
"Licensed by [current corporate name of Licensee] under one or
more of the following patents: United States Patent Nos. [insert
the applicable patent numbers for the Patents which have
issued]."
SECTION 5
PROSECUTION; PROTECTION; AND INFRINGEMENT
5.1 PROSECUTION AND PROTECTION.
(a) AccuMed shall diligently and in a commercially reasonable
manner prosecute the application for and the issuance of the U.S. Patents and
Foreign Patents that AccuMed, in its sole discretion, decides to prosecute, at
the sole cost and expense of AccuMed. AccuMed shall diligently and in a
commercially reasonable manner maintain issued Patents at AccuMed's sole cost
and expense. If AccuMed determines in its sole discretion for commercial reasons
to abandon prosecution or maintenance of a patent application or issued patent,
as the case may be, in any jurisdiction, Licensee may elect to prosecute such
application or maintain such issued
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patent in such jurisdiction at its sole expense. In such case, AccuMed shall
assign all rights to Licensee necessary for Licensee to pursue such action.
(b) Licensee shall notify AccuMed in writing of Licensee's sale
of Licensed Products in any foreign country upon or prior to the date on which
Licensee first sells Licensed Products in such country. If a Foreign Patent
shall not already be pending or issued in such country, AccuMed shall have
twenty-one (21) days from such written notice to notify Licensee in writing
whether or not AccuMed will commence the prosecution of a Foreign Patent in such
country. If AccuMed elects, in such notice, to prosecute a Foreign Patent in
such country, AccuMed will promptly commence the prosecution thereof. If AccuMed
elects, in such notice, not to prosecute a Foreign Patent in such country or if
AccuMed fails to make a timely election, then Licensee may elect to prosecute
such Foreign Patent, at Licensee's sole cost and expense, for and on behalf of
and in the name of AccuMed. Licensee may deduct all reasonable out-of-pocket
costs and expenses, including without limitation, attorneys' fees and filing
costs, incurred by Licensee for its prosecution (in accordance its election
under with this paragraph) of Foreign Patents in any foreign country from the
Required Royalties (but not the Guaranteed Cash License Fee) applicable to that
country under Section 3.2. AccuMed will provide to Licensee all information,
papers, instruments or affidavits required to apply for and obtain Foreign
Patents in AccuMed's name and will provide reasonable assistance to Licensee in
Licensee's efforts to prosecute any Foreign Patents in accordance with its
election under this paragraph. Any such Foreign Patents prosecuted by Licensee
for and on behalf of AccuMed shall be the sole and exclusive property of
AccuMed, but Licensee shall be granted a license thereunder coincident with the
grant under Section 2.1 for all Foreign Patents.
(c) Except as provided in this Section, for and on behalf of
AccuMed, Licensee shall not prosecute any letters patent in any foreign country
covering any of the Claims of the U. S. Patents or any Foreign Patents. As
requested by AccuMed from time to time, Licensee shall provide reasonable
assistance to AccuMed (at AccuMed's sole cost and expense for the U. S. Patents
and the Foreign Patents in Canada and the European Community but otherwise at
the equal cost and expense of AccuMed and Licensee or Licensee's sole expense as
determined in accordance with paragraph (b) of this Section) in AccuMed's
prosecution of the Patents in accordance with this Section. AccuMed shall
maintain any issued Patents in a commercially reasonable manner. AccuMed shall
use commercially reasonable efforts to maintain the secrecy of its trade secrets
comprising any of the Technology. To the extent Licensee becomes aware of any
matters or events which may affect the validity of the Patents or protection of
the Technology, Licensee shall inform AccuMed of such matters or events within
ten (10) business days after Licensee becomes aware of any such matters or
events.
(d) Nothing in this Section shall (i) require either AccuMed or
Licensee to prosecute patents in any foreign country or (ii) restrict Licensee
from exercising its exclusive license rights under this Agreement in any foreign
country or throughout the Territory, regardless of whether Licensee or AccuMed
elects to prosecute any application for Foreign Patents therein.
5.2 INFRINGEMENT BY THIRD PARTIES. Each party shall inform the other
party of any infringement or suspected infringement of the Patents or
infringement (including any misappropriation) of the Technology of which such
party becomes aware within ten (10) business days after such party becomes aware
of any such infringement or suspected
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infringement. For a period of thirty (30) days after receipt by AccuMed of, or
AccuMed's sending of, such notice of infringement, AccuMed will have the
exclusive right to commence an action and otherwise assert rights in the Patents
and the Technology against any such infringers or suspected infringers and
retain all proceeds of such action or proceeding brought by it and will have the
right at its sole discretion to make any settlement or compromise with the
third-party infringer. If AccuMed shall elect to prosecute any such infringer,
Licensee shall take such steps as are reasonably requested by AccuMed to enable
it to protect its rights under the Patents and under the Technology against any
such infringement or suspected infringement. If (i) AccuMed fails to commence an
action or otherwise assert its rights in the Patents and the Technology against
any such infringers or suspected infringers within such thirty (30) day period
and (ii) Licensee provides AccuMed with the opinion of patent counsel mutually
acceptable to the parties stating that there is a likelihood of infringement or
misappropriation by such suspected infringers (an "Infringement Opinion"), then
Licensee may bring an action or proceeding (including any alternative dispute
resolution process) to enjoin the infringement, to recover damages for it, or
both and AccuMed grants Licensee the right to use AccuMed's name in connection
therewith and will have the right at Licensee's sole discretion to make any
settlement or compromise with the third-party infringer, in accordance with and
subject to the provisions set forth below. If an Infringement Opinion is
delivered to AccuMed and, accordingly, Licensee is permitted to bring such
action, then Licensee may elect to deduct a percentage of its out-of-pocket
costs and expenses (but otherwise will bear all other costs and expenses), which
includes without limitation court costs and attorneys' fees for such action up
to a maximum deduction of fifty percent (the "Fee Percentage") and shall notify
AccuMed of such election and the applicable Fee Percentage when the Infringement
Opinion is delivered by Licensee to AccuMed. Licensee shall be permitted to
deduct from future Guaranteed Cash License Fees, and Required Royalties, as they
become due under this Agreement, that portion of its out-of-pocket expenses in
an amount equal to the Fee Percentage thereof. All proceeds of such action or
proceeding brought by Licensee (if any) shall be shared between AccuMed and
Licensee pro rata in accordance with the Fee Percentage (i.e. AccuMed shall
receive the Fee Percentage of such proceeds and Licensee shall receive the
remainder). If Licensee shall be permitted to bring an action pursuant to this
Section, AccuMed shall take such steps as are reasonably requested by Licensee
to enable it to protect its Licensee rights under the Patents and under the
Technology against any such infringement or suspected infringement.
5.3 INFRINGEMENT OF THIRD PARTY RIGHTS. If Licensee makes or incurs any
out-of-pocket payments for settlements, damages, and/or royalties owing to third
parties (exclusive of one-half of Licensee's court costs, attorneys' fees and
other expenses of defense) as result of any claim by a third party that the
Patents or Technology incorporated in any Licensed Products infringe or violate
any third party patent, copyright, trademark, trade secret or other proprietary
right, then Licensee may deduct an amount equal to such out-of-pocket payments
from future Guaranteed Cash License Fees or Required Royalties as they become
due under this Agreement. The foregoing remedy will be the exclusive remedy of
Licensee for any third-party claim of infringement or misappropriation.
SECTION 6
CONFIDENTIALITY; COLLABORATION
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6.1 CONFIDENTIALITY.
(a) Proprietary Information. Each party will exercise all
reasonable precaution to retain in confidence and not disclose proprietary
information relating to (I) the Patents (except to the extent that the Patents
are or become issued patents) and the Technology, (ii) product designs,
prototypes, schematics, trade secrets (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, bills
of material, and technical data), and embodiments thereof (in whatever form or
medium), (iii) information concerning unsuccessful tests and ideas and
technologies which have not worked, as well as information concerning successful
technologies, (iv) information concerning either party's and its Affiliates' and
subsidiaries' business plans, (v) information which either party compiles and
maintains in databases for its Affiliates' and subsidiaries' internal business
purposes, (vi) information disclosed to either party in documents marked
"confidential," (vii) any software, firmware, documents (including, without
limitation, manuals, manuscripts, drawings, blueprints, schematics, engineering
logbooks, and laboratory notebooks), and methodologies, and (viii) other things
and ideas which one party may disclose to the other party in connection with
this Agreement or which one party may commission the other party to create,
improve or develop, and any other information which a party is informed that the
other party regards as confidential ("Proprietary Information"); provided
however that, notwithstanding anything contained herein to the contrary, (a)
such Proprietary Information shall only include such information (1) that each
party actually treats as confidential and (2) with respect to which each party
takes appropriate steps to safeguard from disclosure to others and (b) such
Proprietary Information described in clauses (ii) through (viii) above shall
only include such information which one party may disclose to and which is
received by the other party.
(b) Non-disclosure. Each party shall receive, develop and hold
Proprietary Information in confidence and shall use its best efforts to preserve
the confidentiality of such Proprietary Information consistent with the manner
in which it protects its own most confidential business information. Disclosures
of Proprietary Information to a party's personnel shall be limited to
"designated employees" with a need to know same and made solely as necessary to
enable them to exercise their employment or fiduciary duties. Each party shall
require each of its designated employees to sign a confidentiality agreement
prior to the time such individual is first allowed access to Proprietary
Information.
(c) Remedies. Each party acknowledges that its breach of the
foregoing confidentiality obligations would cause the other party irreparable
injury for which there would be no adequate remedy at law. Accordingly, each
party agrees that if such breach or threatened breach is proved by the other
party, the other party shall be entitled to appropriate injunctive relief and
such other relief as the court deems equitable in the circumstances.
(d) Duration. The parties' confidentiality obligations under this
Section shall remain in effect until the later of (I) five years after the
termination of this Agreement and (ii) so long as such information remains
protectable as a trade secret under applicable law, even if dealings between
Licensee and AccuMed have ceased.
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(e) Public Domain. This Section shall not restrict the rights of
a party to disclose information that:
(i) is requested or consented to be disclosed by the owner
thereof in writing;
(ii) is or becomes generally available to the public other
than by breach of this Agreement or other obligation of confidentiality; or
(iii) one party is required by law to disclose provided,
however, prior to any such disclosure, such party shall immediately notify the
other party in writing if such party believes that there will be a legal
requirement to disclose, to enable the other party to determine a more
appropriate means of disclosure and so that the other party is provided the
opportunity to contest such disclosure requirement through legal means.
6.2 COLLABORATION WITH ACCUMED PERSONNEL. From the date hereof through
May 30, 2000, AccuMed will make available to Licensee the limited time and
effort of Norman J. Pressman and AccuMed's technical/scientific research and
development personnel to assist and support Licensee in its capital raising
activities, provided that Licensee promptly reimburse AccuMed for the
reasonable, documented out-of-pocket expenses of such personnel in performing
such assistance and support.
SECTION 7
GENERAL REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS OF LICENSEE. Licensee hereby represents and warrants
to AccuMed, as of the date hereof, as follows:
(a) Licensee: (i) is a corporation duly formed and validly
existing under the laws of the State of New York; (ii) has the power and
authority to own its property and to carry on its business as now conducted or
as presently contemplated; and (iii) has the power and authority to execute,
deliver and perform this Agreement.
(b) The execution, delivery and performance by Licensee of this
Agreement: (i) have been duly authorized by all requisite action on the part of
Licensee, including any requisite approval of its board of directors; (ii) do
not violate any provision of law, the certificate of incorporation or bylaws of
Licensee, or any applicable order of any court or other governmental agency;
(iii) do not breach of the terms of any agreement, document, or instrument to
which Licensee is a party or which is binding upon Licensee or its property; and
(iv) do not require the approval, consent, authorization or act of, or the
making of any declaration, filing or registration with, any person or entity
(other than as required by Licensee pursuant to Section 11.2).
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(c) This Agreement constitutes a legal, valid and binding
obligation of Licensee, enforceable against Licensee in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy, reorganization,
insolvency and similar laws affecting creditors' rights generally and to
moratorium laws from time to time in effect and to the extent that such
enforcement is subject to the principles of equity in a proceeding at law or in
equity.
7.2 REPRESENTATIONS OF ACCUMED. AccuMed hereby represents and warrants
to Licensee, as of the date hereof, as follows:
(a) AccuMed: (i) is a corporation duly organized and validly
existing under the laws of the State of Delaware; (ii) has the power and
authority to own its property and to carry on its business as now conducted or
as presently contemplated; and (iii) has the power and authority to execute,
deliver and perform this Agreement.
(b) The execution, delivery and performance by AccuMed of this
Agreement: (i) have been duly authorized by all requisite corporate action on
the part of AccuMed, including any requisite approval of its board of directors;
(ii) do not violate any provision of law, the certificate of incorporation or
bylaws of AccuMed, or any applicable order of any court or other governmental
agency; (iii) do not breach of the terms of any agreement, document, or
instrument to which Licensee is a party or which is binding upon AccuMed or its
property; and (iv) do not, subject to Licensee's obligations under Section 11.2,
require the approval, consent, authorization or act of, or the making of any
declaration, filing or registration with, any person or entity by AccuMed.
(c) This Agreement constitutes a legal, valid and binding
obligation of AccuMed, enforceable against AccuMed in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, reorganization, insolvency
and similar laws affecting creditors' rights generally and to moratorium laws
from time to time in effect and to the extent that such enforcement is subject
to the principles of equity in a proceeding at law or in equity.
(d) The Patents and Technology licensed hereunder constitute all
of the Patents and Technology related to the Field owned by AccuMed.
(e) AccuMed has not received any notice of, and to AccuMed's
knowledge there is no basis to support, any third party claim that the Patents
or Technology infringe upon or otherwise violate the rights of a third party.
(f) AccuMed does not have pending, and to AccuMed's knowledge,
there is no basis to assert, any claim against any current or former employee
for misappropriation of the Patents or Technology.
(g) AccuMed has good and clear title to the Technology and
Patents, and there are no liens or encumbrances thereon.
SECTION 8
DEFAULT AND REMEDIES
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8.1 TERMINATION DEFAULT. The occurrence of the following events shall
constitute a "Termination Default" under this Agreement, Licensee fails to pay
to AccuMed any of the Guaranteed Cash License Fee, the Required Royalty, or any
other royalty payments, interest, fees, or other amounts due and owing to
AccuMed and any such failure to pay shall continue for more than fifteen
(15)days after written notice thereof from AccuMed to Licensee.
8.2 REMEDIES. If any Termination Default occurs, AccuMed may elect, at
its option, any or all of the following: (a) to terminate or suspend any or all
of the licenses granted under this Agreement; or (b) convert any or all of the
licenses granted under this Agreement to non-exclusive licenses. This Agreement
and the licenses granted by AccuMed to Licensee hereunder cannot be terminated
for any default of any term or condition of this Agreement other than a
Termination Default. If a default hereunder other than a Termination Default
occurs, the non-defaulting or non-breaching party may not terminate this
Agreement but may seek monetary damages or appropriate injunctive relief (other
than termination of the licenses hereunder) from the defaulting or breaching
party in a court or arbitration body of competent jurisdiction.
8.3 CUMULATION. Each party shall have, in addition to any other rights
and remedies contained in this Agreement, all of the rights and remedies
available under applicable laws, all of which rights and remedies shall be
cumulative, and non-exclusive, to the extent permitted by law.
8.4 EFFECTS OF WAIVER. The failure of either party to exercise any of
its rights hereunder shall not constitute a waiver of any of such rights, or
other rights or remedies available to that party hereunder or under applicable
law.
8.5 NO WAIVER. No delay or omission of either party to exercise any
right under this Agreement shall impair such right or be construed to be a
waiver of any Default or an acquiescence therein, and any single or partial
exercise of any such right shall not preclude other or further exercise thereof
or the exercise of any other right, and no waiver, amendment or other variation
of the terms, conditions or provisions of this Agreement whatsoever shall be
valid unless in a writing signed by that party and then only to the extent in
such writing specifically set forth. All remedies contained in this Agreement,
or by law afforded shall be cumulative.
SECTION 9
TERM AND TERMINATION; ACCUMED BUY-BACK; PARTIAL REFUND OF PAYMENTS
9.1 TERM. Unless earlier terminated by AccuMed pursuant to Section 8.2
or by Licensee or AccuMed pursuant to Section 9.3, this Agreement and the
licenses granted herein shall terminate upon the later of (x) 20 years from the
effective date hereof and (y) if any Patent shall issue, the expiration or
termination of the last issued Patent, including any modifications, extensions,
or reissues thereof.
9.2 EFFECT OF PATENT INVALIDATION. As to any Patents that have or shall
issue and, thereafter, if all Claims of all of the Patents should be finally
determined to be invalid by a decision of a court of competent jurisdiction that
is final beyond further right of appeal, then the
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rate of the Required Royalty shall be reduced by one-half of one percent (0.5%).
Licensee acknowledges that the licenses hereunder in the Technology independent
of any issued and valid Patent are valuable and reasonable consideration for the
Required Royalty. Licensee shall pay (subject to paragraph (b) of Section 5.1,
Section 5.2, and Section 5.3) all Required Royalties (at the percentage rate
specified on Schedule 1) due and payable before any such final determination of
invalidity and during the pendency of any validity challenge, and Licensee is
not entitled to any refund or credit for any past Required Royalties, or the
Guaranteed Cash License Fee payments, the Cash/Stock Payment or the Stock
Payment. Licensee shall pay all royalty payments accruing during the pendency of
any challenge to the validity of any of the Patents.
9.3 TERMINATION BY LICENSEE; ACCUMED BUY-BACK OF LICENSED RIGHTS.
(a) Non-cancellation Period. Licensee shall not be entitled to
terminate its obligations under this Agreement until the earlier to occur of (i)
the fifth anniversary date of this Agreement and (ii) AccuMed's receipt of the
Guaranteed Cash License Fee, the Cash/Stock Payment and the Stock Payment. (The
period from and after the date of execution of this Agreement and ending upon
the earlier event described in the immediately preceding sentence is the
"Non-Cancellation Period"). After the commencement of the Non-Cancellation
Period, Licensee may, at its election, (x) if Licensee shall have notified
AccuMed after the Non-Cancellation Period that in Licensee's reasonable
determination the commercial exploitation of the Licensed Product is not
commercially viable, terminate the exclusivity of the licenses granted hereunder
upon thirty (30) days' written notice to AccuMed or (y) terminate this
Agreement. If Licensee shall elect to terminate the exclusivity in accordance
with clause (x) above, then Licensee shall continue to be obligated to make
payments to AccuMed of any Required Royalties. Licensee shall pay all amounts
due and payable to AccuMed hereunder before any such election to terminate the
exclusivity in accordance with clause (x) above and Licensee is not entitled to
any refund or credit for any past Required Royalties, or the Guaranteed Cash
License Fee payments, Cash/Stock Payment or Stock Payment.
(b) AccuMed Buy-back of Licensed Rights. If by the [***]
anniversary of this Agreement AccuMed has not received an aggregate of $[***] in
Required Royalty payments, excluding the first $[***] in Required Royalty
payments, AccuMed may elect to terminate this Agreement on 30 days' written
notice to Licensee; provided however, that AccuMed shall repurchase all rights
granted to Licensee hereunder (except as otherwise provided in this Section
9.3(b)); provided further, that Licensee may unilaterally prevent such
termination and repurchase if Licensee pays AccuMed within such 30-day period
$[***] in cash by wire transfer to the account designated by AccuMed. The
repurchase payment shall equal the aggregate amount of
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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(i)[***], and (ii)[***]. The only rights of Licensee to survive such repurchase
shall be the licenses granted in Sections 2.1, 2.2 and 2.3 on a royalty free,
non-exclusive basis for use only in connection with automation of Licensee's
Trend CytoGram(registered trademark) in the Field.
9.4 EFFECT OF TERMINATION. Upon any termination of this Agreement
becoming effective, Licensee shall be relieved of all duties and obligations,
except that Licensee shall in any event be obligated to pay to AccuMed (i)
royalties and interest accrued and unpaid up to that time and royalties and
interest subsequently due on Licensed Products used, sold, leased or rented for
use in connection with the rights granted under this license prior to
termination becoming effective and (ii) any unpaid Required Royalties accrued
and unpaid as of the time of such termination. Licensee shall under no
circumstances be entitled to a return of monies theretofore paid or to an
abatement of royalties and interest accrued and unpaid on the effective date of
termination, including royalties and interest on Licensed Products used, rented
or sold in connection with the rights granted under this license prior to the
effective date of termination. If this Agreement shall terminate, then Licensee
shall, upon request of AccuMed, promptly return to AccuMed (or, at AccuMed's
discretion, destroy and certify to AccuMed the destruction of) the originals and
all copies of any and all materials in its possession or under its control to
the extent they are Copyrighted Works. Upon any election by Licensee in
accordance with this Agreement to convert the licenses hereunder to
non-exclusive licenses, then Licensee shall, upon request of AccuMed, promptly
return to AccuMed copies of any and all materials and documents in its
possession or under its control to the extent these materials relate in any
manner to the Licensed Product.
9.5 SURVIVAL OF CERTAIN TERMS. Notwithstanding the termination of this
Agreement as provided above, Sections 2.5, 5.3, 6.1, 8.1, 8.2, 8.3, 8.4, 8.5,
9.1, 9.2, 9.3, 9.4, 9.5, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8 11.9,
and 11.10 shall survive the termination of this Agreement. All representations,
warranties, indemnities and covenants contained in this Agreement shall continue
in full force and effect and shall survive notwithstanding the final payments of
all amounts due hereunder or the termination of this Agreement in any manner
whatsoever.
9.6 TECHNOLOGY ESCROW. Within 45 days following the date hereof, AccuMed
shall deposit into escrow documentation, in the forms mutually agreed by the
parties, of all the Technology and Patents, including without limitation
technical drawings, (the "Escrow"). AccuMed shall provide Licensee a listing of
all documentation placed in the Escrow. The Escrow shall provide that upon
AccuMed filing for bankruptcy protection, or ceasing to do business and AccuMed
has not assigned its obligations hereunder pursuant to Section 11.8, then the
contents of the Escrow shall be released to Licensee.
SECTION 10
REGISTRATION OF LICENSEE COMMON STOCK; RESALE LIMITATIONS
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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10.1 LISTING OF LICENSEE COMMON STOCK. Licensee shall take such actions
as are necessary to have the Licensee Common Stock which is issued to AccuMed to
be included for trading on the Nasdaq Bulletin Board or in such Nasdaq market or
stock exchange on which the Licensee Common Stock is traded at the time the
Licensee Common Stock is issued to AccuMed.
10.2 REGISTRATION UNDER SECURITIES ACT. (a) Licensee shall register for
resale all shares of Licensee Common Stock issued to AccuMed pursuant to this
Agreement (the "Registrable Securities") under the Securities Act of 1933, as
amended (the "Act"). Licensee shall prepare and file with the SEC a registration
statement under the Act covering the Registrable Securities and shall use its
reasonable best efforts to cause such registration statement to become
effective.
(b) In the event that at the time Licensee is required to
register the Registrable Securities Licensee is in the process of preparing a
registration statement under the Act relating to an underwritten public
offering, then no holder of securities of Licensee, 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 this Section 10.3. To the extent only
a portion of the Registrable Securities held by AccuMed is included in the
underwritten public offering, a registration statement covering 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) Licensee shall pay the expenses described in Section 10.5 for
the registration statement filed pursuant hereto, except for underwriting
discounts and commissions and legal fees of AccuMed, which shall be borne by
AccuMed.
10.3 UNDERWRITTEN OFFERING. If any registration pursuant hereto shall be
underwritten in whole or in part, Licensee may require that the Registrable
Securities 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 together with any other shares which have similar
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 Licensee or interfere with the successful marketing
of the shares of stock offered by Licensee, 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 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.
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10.4 REGISTRATION PROCEDURES. Licensee will:
(a) prepare and file with the SEC a registration statement with
respect to the Registrable 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;
(b) 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;
(c) furnish to AccuMed 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;
(d) 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 AccuMed may reasonably request in writing
within twenty (20) days following the original filing of such registration
statement, except that Licensee shall not for any purpose be required to execute
a general consent to service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified;
(e) notify AccuMed, 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;
(f) notify AccuMed promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(g) prepare and file with the SEC, promptly upon the request of
AccuMed, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for AccuMed (and concurred in by
counsel for Licensee), is required under the Act or the rules and regulations
thereunder in connection with the distribution of Registrable Securities by
AccuMed;
(h) prepare and promptly file with the SEC and promptly notify
AccuMed 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
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statements therein, in the light of the circumstances in which they were made,
not misleading; and
(i) advise AccuMed, 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.
10.5 EXPENSES.
(a) All fees, costs and expenses of and incidental to
registration hereunder, inclusion and public offering (as specified in paragraph
(b) below) in connection therewith shall be borne by Licensee, provided,
however, that AccuMed shall bear its pro rata share of the underwriting discount
and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be borne by
Licensee 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 Licensee, 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. Fees and disbursements of counsel and accountants for
AccuMed and any other expenses incurred by AccuMed not expressly included above
shall be borne by the AccuMed.
10.6 INDEMNIFICATION.
(a) Licensee will indemnify and hold harmless AccuMed, its
directors and officers, and any underwriter (as defined in the Act) for AccuMed
and each person, if any, who controls AccuMed or such underwriter within the
meaning of the Act, from and against, and will reimburse AccuMed and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which AccuMed 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 Licensee 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 AccuMed, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
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(b) AccuMed will indemnify and hold harmless Licensee, its
directors and officers, any controlling person and any underwriter from and
against, and will reimburse Licensee, its directors and officers, any
controlling person and any underwriter with respect to, any and all loss,
damage, liability, cost or expense to which Licensee 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 AccuMed 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 10.6 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 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.
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10.7 RESALE LIMITATIONS. During each of the first four 30-day periods
beginning on the date on which Licensee delivers to AccuMed a certificate or
certificates representing the Cash/Stock Payment, AccuMed shall not sell,
transfer or otherwise dispose of more than 25% of the total number of those
shares of Licensee Common Stock constituting the Cash/Stock Payment.
SECTION 11
MISCELLANEOUS PROVISIONS
11.1 USE OF BRANDING AND NAMES. As to any Licensed Product delivered
hereunder which bears branding of an AccuMed trademark, trade name or service
mark, Licensee shall not remove or obscure such branding. Licensee may negotiate
with AccuMed to deliver Licensed Products under private labeling on mutually
acceptable terms.
11.2 GOVERNMENT AUTHORIZATION. Licensee assumes the obligation at all
times, and at its own expense, of complying with all laws, requirements, and
regulations of the government of the Territory affecting or relating to this
Agreement or the Licensed Product.
11.3 LIMITATION OF LIABILITY AND WARRANTIES; INDEMNIFICATION.
(a) AccuMed DISCLAIMS ANY WARRANTIES, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, FOR ANY INFORMATION OR THE RESULTS OF USING ANY INTELLECTUAL PROPERTY
LICENSED UNDER THIS AGREEMENT WITH RESPECT TO Licensee OR ANY PURCHASER OF
LICENSED PRODUCTS, OR (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5.3) INTELLECTUAL
PROPERTY INFRINGEMENT RELATED IN ANY WAY TO THIS AGREEMENT.
(b) Notwithstanding anything to the contrary contained herein, no
party shall, under any circumstances, be liable to any other party for
consequential, incidental, or special damages of the other party, including but
not limited to, lost profits, even if such party has been apprised of the
likelihood of such damages.
(c) Licensee shall fully protect, indemnify and hold harmless
AccuMed and its subsidiaries, Affiliates and their officers, directors, and
employees from and against any and all costs, expenses, liabilities, or claims
of whatsoever nature or kind of any injury or damage, including, without
limitation, consequential damages, to third persons or property of third
persons, based upon or arising directly out of or resulting directly from:
(i) Any breach by Licensee of any of its obligations or
covenants contained herein;
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(ii) Licensee's or its agent's manufacture, use,
servicing, maintenance, or sales of the Licensed Products, or parts thereof;
(iii) Any claims alleging product liability, false or
misleading advertising, disease or death of any person, negligence or other
tortious acts or omissions based on the design and application of the Licensed
Products; or
(iv) Any claims for Licensee's negligent or willful acts
or omissions.
(d) If Licensee or any of its customers, distributors, agents, or
dealers is charged with or sued for infringement of any Patent by reason of
having manufactured, used, offered to sell, or sold any of the Licensed Products
within the scope of this Agreement herein granted, Licensee shall have the sole
responsibility for the investigation of each such charge or suit of
infringement, the defense of each such charge or suit, and the settlement of
each charge or suit.
(e) From and after the date of any first Sale of any Licensed
Product and during the term of this Agreement, Licensee shall maintain at its
own expense comprehensive general liability insurance for claims for damages
arising from bodily injury (including death) and property damages caused by, or
arising out of, acts or omissions of its employees and shall name AccuMed as an
additional insured thereon. The minimum limits of such insurance will be
$1,000,000 per individual; $2,000,000 per accident involving bodily injury; and
$1,000,000 per accident involving property damage. Maintenance of such insurance
coverage shall not relieve Licensee of any responsibility under this Agreement
for damages in excess of such insurance limits. Licensee shall name AccuMed as
an additional insured on its general commercial liability insurance policies,
and Licensee shall furnish or cause to be furnished to AccuMed a certificate of
such insurance promptly upon request by AccuMed. Any such insurance policy shall
provide that the insurer shall give AccuMed at least thirty days' prior written
notice of any impending cancellation, nonrenewal, expiration, or reduction in
coverage of the insurance.
11.4 ENTIRE AGREEMENT. This Agreement, together with the Schedules
incorporated by reference herein and the Mutual Non-disclosure Agreement
effective December 1, 1999 between the parties, constitutes the entire agreement
between AccuMed and Licensee relating to the subject matter hereof. There are no
terms, obligations, covenants, representations, statements, or conditions other
than those contained herein and therein. No variation or modification of this
Agreement or waiver of any of the terms or provisions hereof shall be deemed
valid unless made in a writing signed by all parties hereto.
11.5 NOTICES. All notices and other communications required or desired
to be served, given, or delivered hereunder shall be made in writing or by a
telecommunications device capable of creating a written record and shall be
addressed to the party to be notified as follows:
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If to AccuMed:
920 N. Franklin St., Ste. 401
Chicago, IL 60610
Attn: Paul F. Lavallee
Chairman and Chief Executive Officer
Telephone no. 312-642-9200
Telecopy no. 312-642-3101
If to Licensee:
BCAM International, Inc.
1800 Walt Whitman Road
Melville, NY 11747
Attn: Michael Strauss
Chairman, President and Chief Executive Officer
Telephone no. 516-752-3550
Telecopy no. 516-752-3558
or, as to each party, at such other address as designated by such party in a
written notice to the other party. Notices shall be deemed to have been duly
given (i) if delivered personally or otherwise actually received, (ii) if sent
by overnight delivery service, (iii) if mailed by first class United States
mail, postage prepaid, registered or certified, with return receipt requested,
or (iv) if sent by telecopy. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail and notice sent as provided in clause (iv)
above shall be effective upon transmission. Notice given in any other manner
described in this paragraph shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender.
11.6 HEADINGS. The headings appearing at the beginning of the numbered
articles and sections hereof have been inserted for convenience only and do not
constitute any part of this Agreement.
11.7 INVALID SECTIONS. Should any one section, or portion thereof, of
this Agreement be held invalid or invalidated by reason of any law, statute or
regulation existing now or in the future in any jurisdiction by any court of
competent jurisdiction or by a legally enforceable directive of any governmental
body, such section or portion thereof shall be validly reformed so as to
approximate the intent of the parties as nearly as possible, and, if
unenforceable, shall be divisible and deleted in such jurisdiction; and
otherwise this Agreement shall not be affected.
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11.8 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of Licensee and its successors and assignees permitted
hereunder and AccuMed and its successors and assignees permitted hereunder.
Licensee shall not assign this Agreement, except in a sale of substantially all
of the assets or equity shares of Licensee, to, or through a merger of Licensee
into, another entity which agrees in writing to be bound by this Agreement.
AccuMed shall not assign this Agreement, except in a sale of substantially all
of the assets or equity shares of AccuMed to, or through a merger of AccuMed
into, another entity which agrees in writing to be bound by this Agreement.
11.9 GOVERNING LAW; JURISDICTION. This Agreement shall be considered as
having been made in the United States of America and shall be construed and the
respective rights of the parties determined in accordance with the laws of the
State of Illinois. Each party hereto agrees that any legal action or proceeding
arising hereunder shall be brought either in federal or state courts located in
Cook County, Illinois and irrevocably submit themselves to the jurisdiction of
those courts.
11.10 INDEPENDENT CONTRACTORS. Each party hereto acknowledges that it
is and will be an independent contractor and under no circumstances shall such
be considered an agent, employee, partner or joint venturer of or with any other
party hereto. No authority or right is granted to any party to assume or create
any obligation or responsibility, express or implied, on behalf of or in the
name of any other party.
11.11 FIRST NOTIFICATION. AccuMed shall notify Licensee within five
business days after receiving a bona fide offer to purchase substantially all of
its assets or to be acquired in a merger, or following the date on which
AccuMed's board of directors adopts a resolution directing management to seek
such an offer.
11.12 PRESS RELEASES. AccuMed and Licensee shall issue, individually or
jointly, an initial press release or releases disclosing execution of this
Agreement. If the initial press release is joint, the parties will mutually
agree to the language. If the initial press releases as individual, each party
must approve the other party's language, which approval will not be unreasonably
withheld. Neither AccuMed nor Licensee shall issue a press release or make any
other public announcement regarding the subject matter of this Agreement without
the prior agreement of the other party, unless the releasing party, in good
faith, believes it is required to make such announcement under the federal
securities laws or applicable rules of Nasdaq or the stock exchange on which its
stock is quoted or traded.
11.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be considered an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Patent
and Technology License Agreement to be executed as of the day and year first
above written.
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ACCUMED INTERNATIONAL, INC.
By: /s/ Paul F. Lavallee
------------------------------
Paul F. Lavallee
Chairman and Chief Executive Officer
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
------------------------------
Michael Strauss
Chairman, President, and Chief Executive Officer
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Exhibit 10.30
LICENSE AND DEVELOPMENT AGREEMENT
This Agreement is entered as of March 24, 2000 (the "Effective Date") by
and between AccuMed International, Inc. ("AccuMed"), a Delaware corporation,
with a place of business at 920 N. Franklin, Suite 402, Chicago, IL 60610 and
Ventana Medical Systems, Inc. ("Ventana"), a Delaware corporation, with a place
of business at 3865 N. Business Center Drive, Tucson, AZ 85705.
1. DEFINITIONS.
"AccuMed Imaging Assets" shall mean all the assets, properties,
rights, titles and interests of every kind and nature, whether tangible or
intangible, worldwide related to AccuMed's imaging products, systems, or
services, including but not limited to fixed assets, equipment, tooling,
intellectual property rights, designs, software, and rights existing under
agreements of any type (including but not limited to development and marketing
contracts).
"AccuMed Intellectual Property Rights" shall mean all
intellectual property rights now or hereafter owned, licensed, or controlled by
AccuMed or any of its Subsidiaries, including but not limited to AccuMed Patent
Rights and AccuMed Technical Information, and any other patent rights,
copyrights, trademarks, and trade secret rights of AccuMed.
"AccuMed Patent Rights" shall mean any patent rights (including
rights to issued patents and pending patent applications) now or hereafter
owned, licensed, or controlled by AccuMed or any of its Subsidiaries during the
term of this Agreement, including but not limited to rights to the patents and
patent applications listed in Exhibit 1-1 (along with any divisionals,
continuations, continuations-in-part, reissues, re-examinations,
re-registrations or extensions thereof).
"AccuMed Software" shall mean AccuMed's pre-existing and
later-developed software, tools, modules, products, and related documentation,
and any updates made thereto, in both object code and source code form including
but not limited to related Source Code owned by AccuMed. AccuMed Software
includes, but is not limited to, any AccuMed software or data incorporated into
any Software Products or other deliverables provided to Ventana under this
Agreement.
"AccuMed Technical Information" shall mean all of AccuMed's trade
secrets, information, and know-how, now or hereafter owned, licensed or
controlled by AccuMed or any of its Subsidiaries during the term of this
Agreement.
"Alpha Testing" shall mean the alpha testing of Engineering
Prototypes of the imaging hardware platform AccuMed will supply Ventana and of
each Software
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<PAGE> 2
Product. Alpha Testing shall consist of Ventana's testing with assistance from
AccuMed of the performance of a product against a performance protocol to be
established by Ventana under this Agreement where such testing may be done
in-house at either Ventana's and/or AccuMed's facilities as Ventana may decide
in its sole discretion. A product shall be considered to have passed Alpha
Testing if it performs to the performance protocol as demonstrated to Ventana's
reasonable satisfaction.
"Basic Imaging and Report Generation Product" shall mean a
software product for capturing an image of tissue mounted on a microscope slide,
manipulating the image, and preparing a report to Ventana's specifications as
will be more fully described in the Marketing Specifications.
"Beta Testing" shall mean the beta testing of Manufacturing
Prototypes to a performance protocol established by Ventana in Ventana customer
labs as selected by Ventana for a period determined by Ventana in its sole
discretion. A product will be considered to have passed Beta Testing if it
performs to the performance protocol in all customer labs selected by Ventana
for Beta Testing.
"Breast Cancer Panel" shall mean [***]software products for
performing quantitated immunohistochemistry (QIHC) on patient breast cancer
slides stained for estrogen receptor, progesterone receptor, proliferation
receptor (as measured using either Ki-67 or MIB-1 antibodies) and her-2/neu
receptor as will be more fully described in the Marketing Specifications.
"Developed Software" shall mean all software and related
documentation developed by AccuMed for Ventana under this Agreement and any
updates made thereto.
"Development Plan" and "Development Schedule" will mean,
respectively, a plan and schedule designated as such in Section 6.1.
"Direct Costs" shall mean personnel, supplies, materials, and
contracted and outside services costs attributable to the materials or for the
production of an item.
"Effective Date" is defined in the preamble to the Agreement.
"Engineering Prototypes" shall mean fully developed hardware or
software products related to the Imaging System to be delivered to Ventana that
have not yet passed Alpha Testing.
"Excluded Field" shall mean but not limited to: [***] Excluded
Field shall not extend to Ventana's Medical Research Sales and Internal Research
and Development.
"FDA Approval" shall have the meaning specified in Section 9.1.6.
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 3
"Field" [***] Field shall exclude the Excluded Field.
"Field Exclusivity" shall mean the rights granted to Ventana and
the restrictions on AccuMed as specified in Section 5.1.
"Foreground Technology" shall have the meaning specified in
Section 3.1.
"Functional Specifications" shall mean a detailed engineering
specification that is in accordance with the Marketing Specifications and which
will be used by software and hardware engineers to develop the Imaging System
and Software Products.
"Imaging System" shall mean an automated pathology imaging system
based on AccuMed's existing AcCell 2001 workstation and to be further developed
by AccuMed in conformance with the Functional Specifications and improvements
made thereto by either party during the term of this Agreement. The Imaging
System includes but is not limited to certain basic software used in the
operation of the Imaging System.
"Installations" shall have the meaning specified in Section 7.4.
"Internal Research and Development" shall mean the internal use
of Imaging Systems by employees and contractors of a party to this Agreement
only for research and development.
"Maintenance" shall have the meaning specified in Section 7.4.
"Manufacturing Prototypes" shall mean the initial manufacturing
prototypes of the Imaging System and each Software Product manufactured or made
by AccuMed to be delivered to Ventana for Beta Testing in Ventana customer labs.
"Manufactured Product" shall mean each Imaging System
manufactured and sold by AccuMed to Ventana hereunder.
"Marketing Specifications" shall mean a detailed specification of
the performance requirements for the Imaging System and the Software Products
prepared by Ventana and will be an expanded version of the specifications
contained in Exhibit 1-2.
"Master Validation Protocol" shall mean a master validation
protocol used by Ventana to seek FDA 510k approval from the U.S. Food and Drug
Administration for the Imaging System and Software Products.
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
"Medical Research Sales" shall mean the sale by or under the
authority of a party to this Agreement of Imaging Systems to end customers only
for their internal medical research purposes, and expressly excludes the use or
sale of such Imaging Systems for: (i) any commercial use or gain by any such end
customers, (ii) any commercial use in the direct or indirect treatment of
patients, or (iii) any resale or further distribution by such end customers.
"Payment Report" shall mean a report designated as such in
Section 9.5.3.
"Ploidy Product" shall mean a software product to be developed by
AccuMed for Ventana for conducting DNA ploidy analysis as will be more fully
described in the Marketing Specifications.
"Product Exclusivity" shall mean the exclusivity of the licenses
granted to Ventana in Article 2.
"Products" shall mean any medical products and systems, including
but not limited to the [***] Products shall also include any subsequent hardware
and software products developed by AccuMed for Ventana under this Agreement.
"Proprietary Information" shall have the meaning specified in
Section 4.1.
"Rare Event Detection Product" shall mean a software product to
be developed by AccuMed for Ventana that will permit Ventana [***] The FDA
labeling that Ventana will be seeking and the protocol that will be required by
the FDA to obtain this label is referenced in Exhibit 1-4.
"Royalty Product" shall mean an Imaging System manufactured and
sold by or under the authority of Ventana. Royalty Product shall exclude any
Manufactured Product.
"Subsidiaries" shall mean any legal entity more than or equal to
fifty percent (50%) of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are,
now or hereafter, owned or controlled, directly or indirectly by a party.
"Software Products" shall mean any software product developed or
customized for Ventana under this Agreement, including but not limited to the
[***]
"Source Code" shall mean all source code and documentation for
the Software Products and any other software related to or used with any Imaging
System, and updates to all of the foregoing during the term of this Agreement.
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 5
"Technology Transfer" shall mean the transfer of AccuMed
Intellectual Property Rights embodied in tangible form, including copies of any
issued patents and pending patent applications, to Ventana as set forth in
Article 8.
"Telepathology Product" shall mean[***]
2. Grant of LicenseS.
2.1 Subject to the terms and conditions of this Agreement, AccuMed
hereby grants to Ventana and its Subsidiaries a perpetual, irrevocable,
worldwide, royalty-free (except as otherwise provided to be royalty-bearing
hereunder) license under AccuMed Patent Rights and AccuMed Technical Information
to use, make, have made, import, offer to sell and sell Products and to practice
any process or method involved in the manufacture or use of Products. The
foregoing license shall be (i) exclusive in the Field (even as against AccuMed
except as provided in Section 2.4 below) and non-exclusive outside the Field,
provided that such non-exclusive license shall not extend to the Excluded Field;
and (ii) sublicensable with AccuMed's written approval, which shall not be
unreasonably withheld.
2.2 Subject to the terms and conditions of this Agreement, AccuMed
hereby grants to Ventana and its Subsidiaries a sublicensable, perpetual,
irrevocable, worldwide, royalty-free (except as otherwise provided to be
royalty-bearing hereunder) license under AccuMed Intellectual Property Rights to
use, reproduce, distribute (directly or indirectly through one or more levels of
distribution), modify, adapt, and create derivative works of the AccuMed
Software (including any modifications and derivative works thereof made by
Ventana) and to otherwise utilize the AccuMed Software in the manufacture, sale,
or design of Products; provided that the AccuMed Software and modifications and
derivative works thereof may be distributed only in source and object code form
integrated into or bundled with Products or as updates of the AccuMed Software
provided to end-user customers of Products. The foregoing license shall be (i)
exclusive in the Field (even as against AccuMed) and non-exclusive outside the
Field, provided that such non-exclusive license shall not extend to the Excluded
Field; and (ii) sublicensable with AccuMed's written approval, which shall not
be unreasonably withheld.
2.2.1 With respect only to Source Code owned by AccuMed, the
foregoing license shall be limited to the maintenance, support, and continued
development of the Software Products and any other software related to or useful
with the Imaging System.
2.3 License Grant-Back. Subject to the terms and conditions of this
Agreement and during the term hereof, Ventana hereby grants to AccuMed a
non-exclusive, worldwide, non-sublicensable, royalty-free license, but only
outside of the
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Field, to use, reproduce, distribute, modify, adapt, and create derivative works
of the Developed Software; provided that the Developed Software may be
distributed only in source and object code form under the terms of an End-User
Software License reasonably acceptable to and approved in advance in writing by
Ventana.
2.4 Reservation. The license granted in Section 2.1 above is subject to
a reserved worldwide non-exclusive license in the Field to AccuMed solely for
Internal Research and Development and Medical Research Sales, subject to
AccuMed's obtaining a written agreement from end customers of Medical Research
Sales that any Imaging Systems sold are not licensed for commercial use by
others in the direct or indirect treatment of patients and shall not be resold
or further distributed.
2.5 Improvements. Any AccuMed modifications or improvements to the
AccuMed Software or Imaging System made before the termination of this Agreement
shall be included in the licenses of this Article 2 without additional charge to
Ventana. AccuMed agrees to promptly disclose such modifications and
improvements. To assist in the transfer of modifications and improvements,
Ventana shall be entitled to have a development engineer observe the operations
of AccuMed related to the subject matter of the licenses of this Article 2 for
up to one month per year during the term of this Agreement.
3. OWNERSHIP.
3.1 Ownership. Ventana shall exclusively own all right, title and
interest (including patent rights, copyrights, trade secret rights, mask work
rights and all other intellectual and industrial property rights of any sort
throughout the world) in any inventions, works of authorship, mask works, ideas
or information made or conceived or reduced to practice by AccuMed in the course
of performance under this Agreement (the "Foreground Technology"), which course
of performance shall include without limitation the initial and future
development of the Imaging System and Software Products or any maintenance
provided by AccuMed hereunder as part of this Agreement. However, Ventana shall
have no ownership of any Developer Stock. "Developer Stock" shall mean AccuMed's
preexisting software engines, development tools and routines, as well as
derivatives and modifications thereof; provided that if any such derivative or
modification is made in the course of performance under this Agreement, then it
will qualify as Developer Stock only if it (i) has substantially the same
functionality as other Developer Stock and (ii) has general applicability apart
from the Software Products.
3.1.1 AccuMed may use third party software in the software to be
delivered to Ventana under this Agreement; provided that (i) Ventana obtains the
rights from such third parties necessary to provide all rights granted to
Ventana under this Agreement and (ii) AccuMed obtains such third party software
at AccuMed's sole expense. Notwithstanding the foregoing, Ventana shall be
responsible for obtaining a license for the software to be used in the
Telepathology Product. If AccuMed uses Accumed or third party software or data
in any software or other materials to be delivered to Ventana under this
Agreement, AccuMed shall identify the software modules
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containing AccuMed Software and separately identify the modules containing third
party software at the time of delivery to Ventana.
3.2 AccuMed hereby makes and agrees to make any assignments necessary to
accomplish the foregoing ownership provisions. In interpreting such ownership
provisions anything made or conceived or reduced to practice by an employee or
contractor of AccuMed in the course of performance under this Agreement will be
deemed so made or conceived or reduced to practice by that party; AccuMed has
and will have appropriate agreements with all such employees and contractors
necessary to fully effect the provisions of this Article 3.
3.3 Ventana will have the exclusive right to, and, at Ventana's expense,
AccuMed agrees to assist Ventana in every proper way (including, without
limitation, becoming a nominal party) to, evidence, record and perfect the
foregoing assignments and to apply for and obtain recordation of and from time
to time enforce, maintain, and defend any proprietary right assigned to Ventana
under this Agreement. AccuMed will execute all documents Ventana may reasonably
request for such purposes.
3.4 Any assignment by AccuMed of copyright hereunder includes all rights
of paternity, integrity, disclosure and withdrawal and any other rights that may
be known as or referred to as "moral rights" (collectively "Moral Rights"). To
the extent such Moral Rights cannot be assigned under applicable law and to the
extent the following is allowed by the laws in the various countries where Moral
Rights exist, AccuMed hereby ratifies and consents to any action consistent with
the terms of this Agreement that would violate such Moral Rights in the absence
of such ratification/consent. AccuMed will confirm any such ratifications and
consents from time to time as requested by Ventana.
4. Confidential Information.
4.1 Confidentiality. Each party agrees that all inventions, processes,
materials, chemicals, know-how and ideas and all other business, technical and
financial information they obtain from the other are the confidential property
of the disclosing party ("Proprietary Information" of the disclosing party).
Except as expressly allowed in this Agreement, the receiving party will hold in
confidence and not use or disclose any Proprietary Information of the disclosing
party and shall similarly bind its employees in writing. The receiving party
shall not be obligated under this Section 4.1: (i) beyond five years after
termination of this Agreement or (ii) with respect to information the receiving
party can document:
(a) is or has become readily publicly available through no fault
of the receiving party or its employees or agents; or
(b) is received from a third party lawfully in possession of such
information and lawfully empowered to disclose such information and provided the
receiving party abides by all restrictions imposed by such third party; or
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(c) was rightfully in the possession of the receiving party prior
to its disclosure by the other party provided the receiving party abides by all
restrictions imposed on its possession of such information; or
(d) was independently developed by employees or consultants of
the receiving party without access to such Proprietary Information.
5. field Exclusivity.
5.1 Neither AccuMed nor any Subsidiary shall develop, manufacture,
purchase, distribute, or market anywhere worldwide during the term of this
Agreement (or have or enter into any agreement or arrangement with respect to)
any product or system: (i) competitive with or substantially similar to the
Imaging System or Software Products or (ii) in the Field.
5.2 Termination of Field Exclusivity shall have no effect on Product
Exclusivity under the licenses granted to Ventana under Article 2.
6. PRODUCT DEVELOPMENT.
6.1 Imaging System and Software Product Specifications. With respect to
the Imaging System and the Software Products, AccuMed shall, within [***]of
receiving the Marketing Specifications, complete the Functional Specifications
and a development plan and schedule consistent with the Marketing Specifications
("Development Plan" and "Development Schedule") for the Imaging System and the
Software Products. Ventana agrees to consult with and assist AccuMed in doing so
including but not limited to providing AccuMed's development engineers with
ongoing assistance by Ventana's medical experts as reasonably necessary to
develop the Software Products with functionality consistent with the Functional
Specifications and Ventana's intended customer markets. The completed Functional
Specifications and Development Plan and changes thereto are subject to the
approval of Ventana, which approval shall not be unreasonably withheld.
6.2 AccuMed's Development Obligations. For the Imaging System and
Software Products, AccuMed will perform the following activities consistent with
the Functional Specifications, Development Plan, and Development Schedule: (i)
undertake and complete development of the Imaging System and Software Products
as set forth in the completed Functional Specifications, including manufacturing
scale-up, (ii) prepare and provide Ventana with development information for the
Imaging System and Software Products as necessary or reasonably desirable for
any regulatory filings, (iii) assist with Alpha Testing and Beta Testing of the
Imaging System and Software Products as set forth herein, and (iv) deliver the
Engineering Prototypes and Manufacturing Prototypes to Ventana.
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6.2.1 Within [***] of the Effective Date, AccuMed shall deliver
to Ventana a first Engineering Prototype of the Imaging System and an
Engineering Prototype of the Rare Event Detection Product (each in a form
suitable for conducting FDA clinical trials).
6.2.2 Within [***] of the Effective Date, AccuMed shall deliver a
second Engineering Prototype of the Imaging System and Engineering Prototypes of
the [***].
6.2.3 Within [***] of the Effective Date, AccuMed shall deliver
the Engineering Prototype for the [***].
6.2.4 AccuMed shall deliver [***] Manufacturing Prototypes of the
Imaging System and [***] copies of each of the [***]
6.2.5 AccuMed shall deliver [***] Manufacturing Prototypes of the
[***] to Ventana for Beta Testing within 10 days of the completion of Alpha
Testing thereof.
6.2.6 Telepathology Product. AccuMed shall assist Ventana in its
search for and selection of a third party vendor for a software product suitable
for customization by AccuMed to deliver the Telepathology Product under this
Agreement. AccuMed or its contractors shall perform customization to such
vendor's product as necessary to ensure compliance with the Functional
Specifications and the compatibility and interoperability of the Telepathology
Product with the Imaging System and other Software Products and the manner of
Ventana's intended use thereof. AccuMed shall deliver an Engineering Prototype
and a Manufacturing Prototype of the Telepathology Product to Ventana on
reasonable successive dates consistent with other delivery dates hereunder and
as mutually agreed by the parties.
6.3 Ventana's Development Obligations.
6.3.1 Ventana shall provide AccuMed with the Marketing
Specifications within 15 days after the Effective Date for AccuMed's use in
preparing the Functional Specifications.
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6.3.2 Ventana shall complete Alpha Testing for the first
Engineering Prototype of the Imaging System and the Engineering Prototype of the
[***]to be delivered under Section 6.2.1 within [***]of the receipt thereof.
6.3.3 Ventana shall complete Alpha Testing for the second
Engineering Prototype of the Imaging System and the Engineering Prototypes of
the [***]to be delivered under Section 6.2.2 within [***]of the receipt thereof.
6.3.4 Ventana shall complete Beta Testing for the Manufacturing
Prototypes of the Imaging System, the [***]to be delivered under Section 6.2.4
within [***]of the receipt thereof.
6.3.5 Ventana shall complete Alpha Testing for the Engineering
Prototype of the [***]to be delivered under Section 6.2.3 within [***]of the
receipt thereof.
6.3.6 Ventana shall complete Beta Testing for the Manufacturing
Prototype of the [***]to be delivered under Section 6.2.5 within [***]of the
receipt thereof.
6.3.7 Ventana may in its sole discretion and at its expense
obtain any regulatory approvals necessary for Ventana's manufacturing, sales,
marketing, and service of the Imaging System, including but not limited to any
beta testing of the Manufacturing Prototypes by Ventana. Ventana's obligations
hereunder shall include, without limitation, all testing and other activity
necessary or useful to ensure compliance with applicable governmental or
administrative rules and regulations. Ventana shall be entitled to submit the
filings in its name.
6.3.8 Ventana shall commence FDA clinical trials for the Master
Validation Protocol within [***]after the completion of Alpha Testing for the
first Engineering Prototype of the Imaging System and the Engineering Prototype
of the [***]with an expectation of FDA clearance within [***]of the Effective
Date, assuming the Rare Event Detection Product is delivered by AccuMed on time
as provided hereunder and passes Alpha Testing within [***]of receipt by
Ventana.
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6.4 Acceptance.
6.4.1 Acceptance of Deliverables. All deliverables provided by
AccuMed under this Agreement shall be delivered for Ventana's acceptance testing
in accordance with the acceptance procedure set forth in Section 6.4.2 below.
Prior to each delivery, AccuMed shall have completed all required testing
applicable to such deliverables to ensure material compliance with the
applicable specifications hereunder.
6.4.2 Acceptance Testing.
(a) Acceptance Standards. Following receipt of each deliverable,
including but not limited to any deliverables intended for Alpha Testing or Beta
Testing, Ventana shall have the time period for testing as set forth under this
Agreement, or if not otherwise set forth herein for any deliverable, a time
period of 30 days (the "Verification Period") in which to use commercially
reasonable efforts to review, examine and verify such deliverable and notify
AccuMed of either: (a) any material failure thereof as determined by Ventana to
meet the applicable specifications, or (b) any other rejection for technical
reasons by Ventana as determined in its reasonable sole discretion (a
"Failure").
(b) Beta Testing. Any deliverable subject to Beta Testing
hereunder shall also be subject to technical acceptance by Ventana's selected
beta site customers. Such technical acceptance shall be determined by such
customer in its sole reasonable discretion. Such technical acceptance shall be
communicated to AccuMed by Ventana and shall be subject to the time limit for
the Verification Period above and the Acceptance Procedure set forth in
subsection (c) below.
(c) Acceptance Procedure. If Ventana discovers any Failure, it
shall promptly provide AccuMed with written notice of such Failure, including
all information reasonably available regarding such Failure. Upon receipt of
such notice, AccuMed shall use its best efforts, at AccuMed's sole cost and
expense, to correct any such Failure and to resubmit the corrected applicable
deliverables to Ventana as soon as commercially and technically practicable, but
in all events within 21 days following Ventana's notification of a Failure.
AccuMed shall repeat the process of correction and resubmission of the
applicable deliverable, subject to additional Verification Periods, until
Ventana's acceptance. The parties agree that any failure by Ventana to discover
and notify AccuMed of defects within any Verification Period shall not negate
any of AccuMed's representations or warranties, nor waive any of Ventana's
rights or remedies hereunder.
6.5 Future Development. AccuMed shall develop any improvements to the
Imaging System and Software Products as may be reasonably requested in writing
by Ventana from time to time during the term of this Agreement for Ventana's
continued expansion of its products sales and services and the continuing
introduction of new product features. Such requests may include but not be
limited to modifications to the
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initial Imaging System hardware platform, the development of a totally new,
higher throughput imaging system for larger labs, modifications to existing
software modules, and the development of completely new software modules for use
with existing or future imaging systems. Such development under this Section 6.5
shall be pursuant to specifications developed by Ventana with the cooperation of
AccuMed. Ventana shall pay AccuMed for such development work at an additional
development cost as mutually agreed by the parties.
7. SUPPLY AND MARKETING.
7.1 AccuMed's Supply Obligations. AccuMed shall manufacture and deliver
those quantities of Manufactured Product as specified below, FOB AccuMed's
plant. Manufactured Products delivered by AccuMed shall incorporate the latest
improvements to the Imaging System developed by AccuMed hereunder or otherwise
at no additional cost to Ventana, including but not limited to any such
improvements related to Maintenance. Each Manufactured Product shall include
without limitation all specified hardware and the Basic Imaging and Report
Generating Product.
7.2 Quantity.
7.2.1 AccuMed will manufacture and deliver [***] Manufactured
Products to Ventana with delivery at a rate of [***] Manufactured Products per
calendar quarter commencing with the first full calendar quarter following the
completion of Beta Testing for the Imaging System and all Software Products and
receipt by Ventana of FDA Approval. Delivery of such Manufactured Products may
be accelerated with mutual agreement. Each Manufactured Product will be
delivered with the AccuMed Software and/or Software Products as specified in
Ventana's sole discretion.
7.2.2 If AccuMed fails to ship at least 75% of the amount of any
Manufactured Product for a given calendar quarter as required above, (a "Supply
Deficiency"), Ventana may so notify AccuMed in writing whereby: (i) Technology
Transfer will be accelerated as necessary to permit the immediate manufacture of
Imaging Systems by Ventana, and (ii) AccuMed will promptly prepare a plan as to
how to remedy the situation (which may involve new or expanded production
facilities or a third party producer). AccuMed will use diligent efforts to
implement such plan and shall provide Ventana with quarterly reports on its
progress. If such plan is not substantially implemented within 2 months from
Ventana's notice (and it will not be substantially implemented in significantly
less time than Ventana could begin commercial production thereafter) (an
"Implementation Failure"), then AccuMed will provide Ventana with all technical
assistance reasonably necessary for Ventana to make and have made such
Manufactured Products to meet the portion of Ventana's requirements of that
Manufactured Product that AccuMed cannot supply hereunder, for which such
portion of Manufactured Products shall not be subject to a royalty as
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otherwise provided hereunder. In addition to the foregoing rights, in the event
of a Supply Deficiency, Ventana shall have the right to terminate any further
obligation to purchase Manufactured Products effective immediately upon
providing written notice to AccuMed.
7.3 Ventana's Marketing Obligations. Ventana represents, warrants and
agrees:
7.3.1 to comply with all export laws and restrictions and
regulations of the Department of Commerce or other United States or foreign
agency or authority, and not to export, or allow the export or reexport of any
Proprietary Information of AccuMed or any product thereof in violation of any
such restrictions, laws or regulations.
7.3.2 in addition to and without in any way limiting Ventana's
other obligations hereunder, to use all methods to protect the parties' rights
with respect to the Proprietary Information of AccuMed as it uses to protect its
own or any third party's confidential information or intellectual property
rights.
7.4 Maintenance. AccuMed shall provide maintenance services (including
but not limited to engineering and testing work) for the correction of defects
or errors and the development of improvements for all Manufactured Products and
Royalty Products or any other deliverables sold or provided to Ventana under
this Agreement (the "Maintenance"); provided that Ventana shall be responsible
for the actual installation and retrofitting (the "Installations") of software
upgrades or hardware improvements for any Manufactured Products and Royalty
Products that have been installed for use in a Ventana facility or purchased by
any other third party.
7.4.1. Maintenance shall include but not be limited to prompt
correction of any software errors and any hardware defects in any deliverables
provided to Ventana hereunder and AccuMed shall provide all personnel and bear
any and all expenses, travel or otherwise, as required as part of Maintenance
except for Installations. AccuMed shall commit at least one full-time equivalent
employee for providing Maintenance. Maintenance shall further include the
providing of all updates to any software and all improvements to any hardware
for any deliverables that have been provided to Ventana hereunder.
7.4.2 All software and hardware upgrades and improvements shall
be delivered to Ventana as part of Maintenance at no additional cost to Ventana,
except that Ventana shall pay AccuMed [***]for any hardware parts provided as
part of Maintenance that provide an improvement in performance other than due to
an error or defect correction.
7.4.3 During the term of this Agreement and as payment for the
Maintenance, Ventana shall pay AccuMed a maintenance fee of U.S. [***]with the
first
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such installment commencing on the first day of the first month of the first
full calendar quarter following receipt by Ventana of FDA Approval and
completion of Beta Testing for the Imaging System and all Software Products.
Ventana may discontinue Maintenance at any time with written 90-day notice.
7.5 Ventana shall purchase parts from AccuMed's current parts inventory:
(i) as required for the replacement of parts for the Manufactured Products
installed for end-use at any Ventana facility, and (ii) as needed by Ventana for
its manufacture of any Royalty Products; provided that the foregoing obligation
(a) shall only apply for those Manufactured Products or Royalty Products using
the AcCell 2001 hardware platform (and only for such parts that are usable), and
(b) shall not apply to any parts added to AccuMed's inventory after the
Effective Date. AccuMed shall provide a full written inventory list of such
parts and AccuMed's Direct Costs for each part to Ventana within 60 days of the
Effective Date. AccuMed shall internally identify and track such parts in its
inventory, and report such information to Ventana from time to time as
reasonably requested by Ventana, to assist Ventana in determining the extent of
its purchase obligation under this Section 7.5. Any parts purchased by Ventana
under this Section 7.5 shall be at AccuMed's[***]; provided that with respect to
parts purchased for Royalty Products, in no event will Ventana's total costs for
such parts per Royalty Product exceed $15,000. The obligations of this Section
7.5 shall not apply to any sublicensees of Ventana.
8. TECHNOLOGY TRANSFER.
8.1 Transfer of Technology. To carry on the physical transfer of AccuMed
Technical Information from AccuMed to Ventana, AccuMed shall provide to Ventana
as soon as reasonably practicable after the Effective Date all AccuMed
Intellectual Property Rights embodied in tangible form as is reasonably
necessary for Ventana to be ready to begin manufacture and continue development
of the Imaging System and the Software Products (including but not limited to
the Source Code, all related object code and documentation, and any other
related information) beginning on the earlier of: (i) one year after the
Effective Date or (ii) the completion of delivery of [***] Manufactured Products
to Ventana.
8.1.1 AccuMed shall further promptly disclose and transfer to
AccuMed on a monthly basis all Foreground Technology.
8.2 Technical Assistance. During the term of this Agreement, AccuMed
shall provide ongoing technical assistance by qualified AccuMed employees at
Ventana's site as necessary to transfer manufacturing capability for
Manufactured Products to Ventana and to support Ventana's ongoing manufacturing
and development efforts related to the Imaging System. Ventana shall pay
reasonable travel and lodging expenses to AccuMed
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for such technical assistance; provided such travel is approved in advance in
writing by Ventana.
8.3 Source Code. AccuMed shall deliver the Source Code to Ventana as
soon as reasonably practicable after the Effective Date and shall deliver
updates of the Source Code to Ventana on a quarterly basis thereafter.
9. PAYMENTS.
9.1 Development Funds. Ventana shall pay to AccuMed a total fee of U.S.
[***]for all development of the Imaging System and the delivery of the
Engineering Prototypes (including but not limited to all related software) under
this Agreement payable in installments as follows (the "Development Funds"):
9.1.1 Upon the execution of this Agreement by both parties,
Ventana shall pay [***] to AccuMed.
9.1.2 Upon completion of Alpha Testing and Ventana's acceptance
of the Engineering Prototypes for the Imaging System and the[***], Ventana shall
pay [***] to AccuMed.
9.1.3 Upon completion of Alpha Testing and Ventana's acceptance
of the Engineering Prototypes for the[***], Ventana shall pay [***] to AccuMed.
9.1.4 Upon completion of Beta Testing and acceptance by Ventana
and Ventana's beta site customers of the Engineering Prototypes for the Imaging
System, the[***], Ventana shall pay [***] to AccuMed.
9.1.5 Upon completion of Beta Testing and Ventana's acceptance of
the Engineering Prototype for the[***], Ventana shall pay [***] to AccuMed.
9.1.6 Upon the U.S. FDA issuing to Ventana a letter of
approvability of a Master Validation Protocol that is a 510k equivalent to that
obtained by [***]("FDA Approval"), Ventana shall pay [***] to AccuMed.
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9.2 Use of Development Funds. AccuMed shall hold and use the Development
Funds solely for the purpose of applying to AccuMed's direct and indirect
development costs under this Agreement until the completion of Beta Testing,
after which the foregoing restriction shall no longer apply.
9.3 Manufacturing Prototype Pricing. In addition to the Development
Funds, Ventana shall pay AccuMed U.S. [***]for each Manufacturing Prototype of
the Imaging System delivered to and accepted by Ventana hereunder. No payment
shall be due for any Manufacturing Prototypes of the Software Products.
9.4 Manufactured Product Pricing. In connection with the supply of
Manufactured Products, Ventana shall pay AccuMed U.S. [***]for each Manufactured
Product of the Imaging System delivered to and accepted by Ventana hereunder.
Except as set forth in Section 9.5 below, no payment shall be due for any
Software Products delivered with a Manufactured Product.
9.5 Royalties. Ventana will pay a royalty to AccuMed on the sale of each
Royalty Product and those software products set forth below by or under the
authority of Ventana; provided that no royalty shall be due for any Manufactured
Product purchased from Ventana or any bona fide sample and clinical trial
products or copies of software.
9.5.1 Royalty Amounts. The royalty shall be U.S. [***]for each
Royalty Product sold.
9.5.2 Software Products. In addition to the payment of a royalty
for each Royalty Product, Ventana shall pay an additional royalty to
AccuMed for each of the following listed software products integrated
into or bundled with either: (i) a Manufactured Product purchased from
AccuMed, or (ii) a Royalty Product manufactured and sold by Ventana;
provided that in no event shall any royalty be due for any such software
product obtained or licensed by Ventana from a third party (including
but not limited to the Telepathology Product). No royalty shall be due
for other Software Products not listed below. The royalty rates for
software products under this Section 9.5.2 shall be as follows:
<TABLE>
<CAPTION>
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PRODUCT ADDITIONAL ROYALTY PER
IMAGING SYSTEM
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<S> <C>
[***] [***]
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[***] [***]
- -------------------------------------------------------------------------------
</TABLE>
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9.5.3 Payment Report. With each payment of royalties, Ventana
shall provide AccuMed with a report delineating: (a) the number and types of
Royalty Products sold during the applicable period, and (b) the calculation of
the amount due (the "Payment Report").
9.5.4 Payment Terms. Royalties for sales of Royalty Product will
be due within sixty (60) days of the end of each calendar quarter with respect
to sales of Royalty Product recognized or received in such period. Royalties for
software products under Section 9.5.2 above are due at the same time as
royalties for the corresponding Royalty Product in which such software products
have been installed or in the calendar quarter of installation, if installed
later.
9.5.5 Records and Audit Rights. Ventana shall keep complete and
accurate records reflecting all information necessary or useful in verifying the
accuracy of each Payment Report. AccuMed shall have the right to hire an
independent certified public accountant to inspect all such records so required
to be kept by Ventana (which accountant shall agree in writing to keep all
information confidential except as needed to disclose any discovered
discrepancies to AccuMed); provided such audit: (i) is conducted during normal
business hours, (ii) is conducted no more often then once per year (unless a
discrepancy is discovered in favor of AccuMed), and (iii) is conducted only
after AccuMed has given thirty days prior written notice. AccuMed shall bear the
full cost and expense of such audit, unless AccuMed discovers a discrepancy of
more than 1% in which case such cost and expense shall be equally shared.
9.6 Up-Front License Fee Payments. Upon the execution of this Agreement
by both parties and as partial consideration for the license grants hereunder,
Ventana shall pay AccuMed: (i) an up-front non-creditable fee of[***], and (ii)
an additional up-front fee of [***] to be creditable against future royalties
due hereunder by Ventana.
10. LIMITED LIABILITY.
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER
PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.
11. TERM AND TERMINATION.
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11.1 Term. This Agreement will remain in effect for [***] years with
automatic [***]-year renewals unless either party gives written notice 180 days
prior to the end of the then current term not to renew or unless terminated
pursuant to Section 11.2.
11.2 Termination. This Agreement may be terminated in its entirety by a
party for cause immediately upon the occurrence of any of the following events:
(a) If the other ceases to do business, or otherwise terminates
its business operations;
(b) If the other materially breaches any provision of this
Agreement and fails to cure such breach within sixty (60) days of written notice
describing the breach; or
(c) If the other shall seek protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other (and not
dismissed within one hundred and twenty (120) days).
11.3 Liability Disclaimer. Neither party shall incur any liability
whatsoever for any damage, loss or expenses of any kind suffered or incurred by
the other (or for any compensation to the other) arising from or incident to any
termination of this Agreement by such party which complies with the terms of the
Agreement whether or not such party is aware of any such damage, loss or
expenses.
11.4 Effect of Termination. For any expiration or termination of this
Agreement, the following provisions shall survive: Sections 2.1, 2.2, 2.3, 2.4,
3, 4, 9.5, 10, 12, 13, and 15 and any other Sections as necessary for Ventana to
fully exploit its licenses under Article 2. Remedies for breaches will also
survive. Each party will promptly return all Proprietary Information of the
other (and all copies and abstracts thereof) that it is not entitled to use
under the surviving terms of this Agreement; provided that Ventana may retain
all Source Code and object code and documentation for the Software Products, all
information transferred by AccuMed as part of Technology Transfer, and any other
information received by Ventana hereunder that Ventana reasonably believes
necessary or desirable for exploitation of its licenses under Article 2.
11.5 Termination Not Sole Remedy. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available.
12. WARRANTY AND WARRANTY DISCLAIMERS.
- ---------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
18
<PAGE> 19
12.1 AccuMed hereby represents, warrants, and covenants to Ventana as
follows:
12.1.1 The Engineering Prototypes, the Manufacturing Prototypes,
and the Manufactured Products and the Software Products will conform to the
applicable Functional Specifications, as then in effect, and any published
AccuMed documentation related thereto. Such warranty does not apply to units
that have been mishandled or mistreated.
12.1.2 AccuMed and its Subsidiaries are the sole owner of the
patents and patent applications listed in Exhibit 1-1 and there are no other
patents issued and no other patent applications filed in any country worldwide,
in each case owned or filed by or specifically licensed to AccuMed or any of its
Subsidiaries relating to the Imaging System or the Software Products or methods
of use or the manufacture thereof.
12.1.3 AccuMed has not granted any third party any rights or
interests to any AccuMed Intellectual Property Rights relating to the Imaging
System or the Software Products.
12.1.4 AccuMed is not aware of any actual or potential violation,
infringement or misappropriation of any third party's rights (or any claim or
potential claim thereof) by any of the deliverables to be provided by AccuMed
hereunder (or inherent in the development, use or production thereof).
12.1.5 AccuMed has full power and authority to enter into and
perform this Agreement.
12.1.6 Neither AccuMed's entering nor performing this Agreement
will violate any right of or breach any obligation to any third party under any
agreement or arrangement between AccuMed and such third party.
12.2 EXCEPT FOR THE FOREGOING WARRANTY OF SECTION 12.1.1, ACCUMED DOES
NOT WARRANT THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY UNITS
DELIVERED TO VENTANA UNDER THIS AGREEMENT.
13. INDEMNITY. AccuMed shall hold Ventana and its officers, directors, agents
and employees harmless from liability resulting from infringement by the Imaging
System, the Software Products, or any other Products using parts, software, or
technical information provided by AccuMed of any patent, copyright, trade
secret, or other intellectual property right, provided AccuMed is promptly
notified of any and all threats, claims and proceedings related thereto and
given reasonable assistance and the opportunity to assume sole control over the
defense and all negotiations for a settlement or compromise; AccuMed will not be
responsible for any settlement it does not approve in writing. The foregoing
obligation of AccuMed does not apply with respect to any parts, software, or
technical information: (i) not supplied by AccuMed, (ii) to the extent
19
<PAGE> 20
such infringement arises from Ventana's specifications, (iii) which are modified
by Ventana after shipment by AccuMed, to the extent the alleged infringement
relates to such modification, (iv) combined, processed or used with other
products, processes or materials where the alleged infringement relates to such
combination, process or use, or (v) where the infringement is incident to use of
the Product but does not result primarily from the Product.
14. RIGHT OF NOTIFICATION. AccuMed shall notify Ventana in writing within 3 days
following the date on which any of the following occur: (i) AccuMed receives
from any person or entity a bona fide solicitation, proposal or offer with
respect to the merger or consolidation, purchase of common stock or securities
convertible into common stock of AccuMed exceeding 10% of AccuMed's then
outstanding common stock (on a fully diluted basis), or acquisition of assets
(other than inventory and excluding the license of assets) outside the ordinary
course of business, or similar transaction or business combination involving
AccuMed, or (ii) AccuMed determines (through its board of directors or
otherwise) to solicit, initiate, or participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate or facilitate in any other manner any effort or attempt by any other
person to do or seek any of the transactions described in subsection (i) above.
During the 20 day period beginning on the date of any such notice to Ventana,
AccuMed shall not enter into binding agreement to complete such transaction, and
shall not enter into any no-shop or standstill agreements with any person with
respect to such transaction.
15. GENERAL.
15.1 Amendment and Waiver. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or in any particular
instance and either retroactively or prospectively) only with the written
consent of the parties. However, it is the intention of the parties that this
Agreement be controlling over additional or different terms of any purchase
order, confirmation, invoice or similar document, even if accepted in writing by
both parties, and that waivers and amendments shall be effective only if made by
non-pre-printed agreements clearly understood by both parties to be an amendment
or waiver. The failure of either party to enforce its rights under this
Agreement at any time for any period shall not be construed as a waiver of such
rights.
15.2. Governing Law and Legal Actions. This Agreement shall be governed
by and construed under the laws of the State of Arizona without regard to
conflicts of laws provisions thereof and without regard to the United Nations
Convention on Contracts for the International Sale of Goods. Unless otherwise
elected by Ventana in writing for a particular instance (which Ventana may do at
its option), the sole jurisdiction and venue for actions related to the subject
matter hereof initiated by Ventana shall be the Arizona state and U.S. federal
courts having within their jurisdiction the location of Ventana's place of
business in Arizona. The sole jurisdiction and venue for actions related to the
subject matter hereof initiated by AccuMed shall be the Illinois state and U.S.
federal courts having within their jurisdiction the location of AccuMed's place
of business in
20
<PAGE> 21
Illinois. Both parties consent to the jurisdiction of such courts and agree that
process may be served in the manner provided herein for giving of notices or
otherwise as allowed by Arizona or Illinois state, as is applicable, or U.S.
federal law. In any action or proceeding to enforce rights under this Agreement,
the prevailing party shall be entitled to recover costs and attorneys' fees.
15.3 Headings. Headings and captions are for convenience only and are
not to be used in the interpretation of this Agreement.
15.4 Notices. Notices under this Agreement shall be sufficient only if
personally delivered, delivered by a major commercial rapid delivery courier
service or mailed by certified or registered mail, return receipt requested to a
party at its addresses first set forth herein or as amended by notice pursuant
to this subsection, to the attention of the Chief Executive Officer in the case
of AccuMed and to the attention of the Chief Financial Officer in the case of
Ventana. Any notice sent by AccuMed hereunder shall further require sending a
copy of such notice to: Ventana Medical Systems, Inc., 3865 N. Business Center
Drive, Tucson, AZ 85705, Attention: Legal Dept. If not received sooner, notice
by mail shall be deemed received 5 days after deposit in the U.S. mails.
15.5 Entire Agreement. This Agreement supersedes all proposals, oral or
written, all negotiations, conversations, or discussions between or among
parties relating to the subject matter of this Agreement and all past dealing or
industry custom.
15.6 Severability. If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
15.7 Basis of Bargain. Each party recognizes and agrees that the
warranty disclaimers and liability and remedy limitations in this Agreement are
material bargained for bases of this Agreement and that they have been taken
into account and reflected in determining the consideration to be given by each
party under this Agreement and in the decision by each party to enter into this
Agreement.
15.8 Relationship of Parties. The parties hereto expressly understand
and agree that the other is an independent contractor in the performance of each
and every part of this Agreement, is solely responsible for all of its employees
and agents and its labor costs and expenses arising in connection therewith.
15.9 Assignment. This Agreement and the rights and obligations hereunder
are not transferable or assignable without the prior written consent of the
parties hereto, except for rights to payment and except to a person or entity
who acquires all or substantially all of the assets or business of a party,
whether by sale, merger or otherwise.
15.10 Publicity and Press Releases. Except to the extent necessary under
applicable laws, the parties agree that no press releases or other publicity
relating to the
21
<PAGE> 22
substance of the matters contained herein will be made without joint approval. A
press release announcing this Agreement will be jointly developed and released
by the parties.
15.11 Force Majeure. No liability or loss of rights hereunder shall
result to either party from delay or failure in performance (other than payment)
caused by force majeure, that is, circumstances beyond the reasonable control of
the party affected thereby, including, without limitation, acts of God, fire,
flood, war, government action, compliance with laws or regulations (including,
without limitation, those related to infringement), strikes, lockouts or other
serious labor disputes, or shortage of or inability to obtain material or
equipment.
15.12 Remedies. Except as otherwise expressly stated in this Agreement,
the rights and remedies of a party set forth herein with respect to failure of
the other to comply with the terms of this Agreement (including, without
limitation, rights of full termination of this Agreement) are not exclusive, the
exercise thereof shall not constitute an election of remedies and the aggrieved
party shall in all events be entitled to seek whatever additional remedies may
be available in law or in equity.
15.13 Nonsolicitation. Neither party will encourage or solicit any
employee or consultant to leave the employ of the other; provided that the
foregoing (i) does not prohibit mass media advertising not specifically directed
towards employees or consultants of a party and (ii) will not apply after any
termination or expiration of this Agreement.
[SIGNATURES ON NEXT PAGE]
22
<PAGE> 23
ACCUMED VENTANA
By: /s/ PAUL LAVALLEE By: /s/ JOHN PATIENCE
--------------------------- ----------------------------
Name: Paul Lavallee Name: John Patience
Title: Chairman and CEO Title: Vice Chairman
23
<PAGE> 1
EXHIBIT 21.1
SUBISDIARY OF ACCUMED INTERNATIONAL, INC.
Oncometrics Imaging Corp., a corporation continuing under the laws of the Yukon
Territory.
<PAGE> 1
Exhibit 23.1
CONSENT OF KPMG LLP
The Board of Directors
AccuMed International, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-3 (Nos. 333-28125, 333-07681, 333-04715 and 333-56393) and on Form S-8 (No.
333-11219) of AccuMed International, Inc. of our reports dated March 29, 2000
relating to the consolidated balance sheets of AccuMed International, Inc. and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999 and related schedule,
which reports appear in the December 31, 1999 annual report on Form 10-K of
AccuMed International, Inc.
/s/ KPMG LLP
Chicago, IL
April 12, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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