-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MW8isvRhZU10BbF6alHdJorA4xcoSmzICFAPNgcIXYSVDkW1dG1+TS5aYPQebJnx vXOUKRWIcaSZxuTw/pB2eQ== 0000950148-97-001609.txt : 19970602 0000950148-97-001609.hdr.sgml : 19970602 ACCESSION NUMBER: 0000950148-97-001609 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970530 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCUMED INTERNATIONAL INC CENTRAL INDEX KEY: 0000888335 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 364054899 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28125 FILM NUMBER: 97617043 BUSINESS ADDRESS: STREET 1: 920 N FRANKLIN ST STREET 2: STE 402 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 3126429200 MAIL ADDRESS: STREET 1: 920 N FRANKLIN STREET STREET 2: SUITE 402 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: ALAMAR BIOSCIENCES INC DATE OF NAME CHANGE: 19950504 S-3 1 FORM S-3 1 As filed with the Securities and Exchange Commission on May 30, 1997 Registration No. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ACCUMED INTERNATIONAL, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-4054899 ----------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification no.) 900 N. FRANKLIN STREET, SUITE 401 CHICAGO, ILLINOIS 60610 (312) 642-9200 ------------------------------------------------------------------ (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) PETER P. GOMBRICH Chief Executive Officer AccuMed International, Inc. 900 N. Franklin Street, Suite 401 Chicago, Illinois 60610 (312) 642-9200 -------------------------------------------------------- (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copy to: JOYCE L. WALLACH, ESQ. AccuMed International, Inc. 900 N. Franklin Street, Suite 401 Chicago, Illinois 60610 (312) 642-9200 Telecopy (312) 642-2985 Approximate date of commencement of proposed sale to the public: from time to time after the effective date of this Registration Statement. 1 2 If only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed on continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE
=========================================================================================== PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF OFFERING AGGREGATE SECURITIES TO BE AMOUNT TO BE PRICE OFFERING REGISTERED REGISTERED PER SHARE(1) PRICE FEE - -------------------------------------------------------------------------------------------- Common Stock Underlying Warrants and Convertible Notes 3,770,000 shares $3.94 $14,853,800 $4,501 ===========================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, based on $3.94 per share, the average of the high and low sales prices reported for the Common Stock on May 23, 1997. 2 3 PROSPECTUS 3,770,000 SHARES ACCUMED INTERNATIONAL, INC. COMMON STOCK This Prospectus relates to 3,770,000 shares (the "Shares") of Common Stock, par value $0.01 per share (the "Common Stock"), of AccuMed International, Inc., a Delaware corporation (the "Company" or "AccuMed") of which an aggregate of 2,720,000 shares (the "Conversion Shares") are underlying 12% Convertible Promissory Notes (the "Notes") and 1,050,000 shares (the "Warrant Shares") are underlying Common Stock Purchase Warrants (the "Warrants"). The Company will not receive any of the proceeds from any sales of the Shares, but will receive aggregate gross proceeds of $3,281,250 if all of the Warrants are exercised to acquire the Warrant Shares for cash at their respective current exercises prices. The Registration Statement of which this Prospectus forms a part has been filed pursuant to the terms of the agreements governing the Warrants and the Notes between the Company and holders thereof. (Holders of Warrants and Notes are collectively referred to as the "Selling Securityholders.") See "Selling Securityholders." The Common Stock is quoted on the Nasdaq National Market under the trading symbol "ACMI." The Selling Securityholders may, from time to time, sell the Shares at market prices prevailing on Nasdaq at the time of the sale or at negotiated prices (this "Offering") under the terms described under the caption "Plan of Distribution." See "Risk Factors," "Selling Securityholders" and "Plan of Distribution." The last reported sale price for the Common Stock on May 23, 1997, as reported on the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), was $3.94 per share. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. No underwriting commissions or discounts will be paid by the Company in connection with this Offering. Estimated expenses payable by the Company in connection with this Offering are approximately $16,000. This date of this Prospectus is ________________, 1997. 4 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the Company's history of losses and uncertainty of profitability; the uncertainty of market acceptance of the Company's products; the Company's limited sales, marketing and distribution experience and dependence on distributors; the Company's highly competitive industry and rapid technological change within such industry; the Company's ability to obtain rights to technology and obtain and enforce patents and other proprietary rights; the Company's ability to commercialize and manufacture products; the results of clinical studies; the results of the Company's research and development activities; the business abilities and judgment of the Company's personnel; the availability of qualified personnel; changes in, or failure to comply with, governmental regulations; the ability to obtain adequate financing in the future; general and business conditions; and other factors referenced in this Prospectus. See "Risk Factors." AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices: New York Regional Office, 7 World Trade Center, Room 1400, New York, New York 10048 and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The maintains a Web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission, including the Company, at http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market and reports and other information regarding the Company may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. ADDITIONAL INFORMATION Additional information regarding the Company and the securities offered hereby is contained in the Registration Statement on Form S-3 (Registration No. 333-___________) of which this Prospectus forms a part, and the exhibits thereto filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). For further information pertaining to the Company and the securities offered hereby, reference is made to the Registration Statement and the exhibits thereto, which may be inspected without charge at, and copies of which may be obtained at prescribed rates from, the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company furnishes stockholders with annual reports containing audited financial statements and other periodic reports as the Company may deem to be appropriate or as required by law or the rules of the National Association of Securities Dealers, Inc. 2 5 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents which have heretofore been filed by the Company with the Commission pursuant to the Exchange Act are incorporated by reference herein and shall be deemed to be a part hereof: (1) The Company's Annual Report on Form 10-KSB for the year ended December 31, 1996. (2) The Company's Current Report on Form 8-K dated March 3, 1997 filed with the Commission on March 18, 1997. (3) The Company's Amendment No. 1 to Current Report on Form 8-K/A dated March 3, 1997 filed with the Commission on May 16, 1997. (4) The Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997. (5) The description of the Common Stock contained in the Company's Amendment No. 1 to Registration Statement on Form 8-A/A filed with the Commission on January 2, 1996. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of this Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon written or oral request, a copy of any or all of the documents incorporated by reference in this Prospectus (not including exhibits and other information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Requests for such documents should be directed to AccuMed International, Inc., located at 900 North Franklin Street, Suite 401, Chicago, Illinois 60610, Attn: Leonard R. Prange, Chief Financial Officer and Chief Operating Officer, telephone (312) 642-9200. The following are trade names and trademarks of the Company: the "Alamar" logo and name, alamarBlue(TM), AccuMed, Inc., AccuMed International, Inc., the "AccuMed" logo and name, AcCell(TM), TracCell(TM), MacroVision(TM), Sensititre(R), SensiTouch(TM), ARIS(TM), AutoReader(TM), AutoInnoculator(TM) Relational Cytopathology Reference Guide(TM), FluoreTone(TM), MacCell(TM) and SpeciFind(TM). The Company's address is 900 North Franklin Street, Suite 401, Chicago, Illinois 60610, and its telephone number is (312) 642-9200. 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus, including information under "Risk Factors," and the financial statements incorporated be reference herein. Special Note: Certain statements set forth below constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking Statements" on page 2 for additional factors relating to such statements. THE COMPANY BACKGROUND AccuMed International, Inc. was incorporated in California in June 1988 under the name Alamar Biosciences, Inc. Prior to December 29, 1995, the Company was engaged in developing, manufacturing and marketing microbiology products, including alamarBlue(TM) and certain diagnostic test kits under the name Alamar. AccuMed, Inc., an Illinois corporation, was formed in February 1994 and was engaged in researching and developing cytopathology products. Effective January 1995, AccuMed, Inc. acquired the Sensititre microbiology business by purchasing certain assets of a division of Radiometer America, Inc. and purchasing from Radiometer (UK) Limited all of the shares of Sensititre Limited, an English registry company (renamed AccuMed International Limited, "Sensititre," and collectively, such businesses are referred to as "AccuMed, Inc."). On December 29, 1995, AccuMed, Inc. merged with and into the Company (the "Merger"). The Company then changed its name to AccuMed International, Inc., reincorporated under Delaware law and changed its fiscal year end from September 30 to December 31. On October 15, 1996, the Company acquired a two-thirds interest in Oncometrics Imaging Corp., a company continuing under the laws of the Yukon Territory, Canada ("Oncometrics"). Oncometrics was formed in 1995 as a wholly-owned subsidiary of Xillix Technologies Corp. 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. On October 15, 1996, the Company also acquired all the outstanding shares of common stock (the "RADCO Stock") not already owned by the Company of RADCO Ventures, Inc., a Delaware corporation ("RADCO"), at which time RADCO became a wholly-owned subsidiary of the Company. RADCO was formed in March 1996, for the purpose of developing a diagnostic microbiology test panel and automated reading instrument known as FluoreTone(TM). RADCO was merged with and into the Company effective November 15, 1996, at which time RADCO ceased to exist as a separate corporate entity. THE BUSINESS The Company designs, manufactures and markets diagnostic screening products for clinical diagnostic laboratories serving the cytopathology and microbiology markets. The Company's primary focus is on the development of cytopathology products that support the review and analysis of Pap smears in order to improve the quality of cell analysis and increase accuracy and productivity in the laboratory. The Company commenced sales of its initial cytopathology product, the AcCell(TM) Cytopathology System, an automated slide handling and microscopy workstation, at the end of the first quarter of 1996. The TracCell(TM) 2000 is a specimen mapping workstation, which automatically pre-screens Pap smear slides to identify and create a computerized map of empty space and certain non-clinically relevant portions of the specimen to permit a more efficient analysis of the test slide. The Company has completed clinical trials of the TracCell 2000 and in November 1996 filed a pre-market notification under Section 510(k) (a "510(k) Notification") under the United States Food, Drug and 4 7 Cosmetic Act (the "FD&C Act") with the United States Food and Drug Administration (the "FDA") with respect to the TracCell 2000. In May 1996, the Company entered into an agreement with Olympus America, a leading supplier of microscopes to the cytopathology market, pursuant to which Olympus America has exclusive third party distribution rights to the AcCell 2000 and 2001 Systems in the Western Hemisphere. Olympus also has a right of first negotiation and refusal to be the exclusive distributor in the Western Hemisphere of future microscopy products developed by the Company. In May 1997, the Company entered into an agreement with Leica Microscopy and Systems GmbH, a leader in precision microscopy and imaging technology ("Leica"), pursuant to which Leica has exclusive third party distribution rights to the AcCell 2000 and 2001 Systems outside the Western Hemisphere. Leica also has a right of first refusal and negotiation to be the exclusive distributor outside the Western Hemisphere of future cytopathology products developed by the Company. The Company also develops, manufactures and markets in vitro diagnostic clinical microbiology products for the human clinical laboratory, veterinary and pharmaceutical markets. In March 1997, the Company acquired certain assets relating to the ESP Culture System II product line (the "ESP Product Line") from Difco Microbiology Systems, Inc., a Michigan corporation ("Difco"), consisting of disposables, software and instruments for the growth and detection of microorganisms in blood cultures, sterile body fluids and mycobacteria samples. The Company offers the microbiology laboratory a variety of FDA-cleared products, under the trade name Sensititre, for the minimum inhibitory concentration and identification ("MIC/ID") testing of bacteria suspected of causing infections and for measuring the susceptibility of such bacteria to different types and concentrations of antibiotics. AccuMed's microbiology products include disposable test kits and a range of automated instruments. In September 1996, the Company entered into an agreement with Fisher Scientific Company ("Fisher Scientific"), a leading distributor of clinical laboratory products, pursuant to which Fisher has been granted exclusive rights to distribute the Company's Sensititre human clinical microbiology products in the United States. The Company also markets alamarBlue(TM), a proprietary, non-toxic indicator reagent that measures cell growth for in vitro testing. The Company is developing the KB Reader, an automated instrument designed to read the results of a Kirby-Bauer method susceptibility test. The Company is also developing Fluoretone, a diagnostic microbiology test panel and an automated reading instrument. There can be no assurance that any such products will be successfully developed or marketed. The Company's principal executive offices are located at 900 North Franklin Street, Suite 401, Chicago, Illinois 60610, and its telephone number is (312) 642-9200. 5 8 THE OFFERING Securities offered............ 3,770,000 shares of Common Stock offered by the Selling Securityholders. Common Stock outstanding after the Offering (1)...... 25,918,732 shares (which assumes the exercise of Warrants and conversion of Notes to acquire an aggregate of 3,770,000 Warrant Shares and Conversion Shares to be sold in the Offering). Use of Proceeds............... The Company will not receive any proceeds from the sale of the Common Stock by the Selling Securityholders. Aggregate proceeds to the Company of $3,281,250 pursuant to exercises of Warrants by the Selling Securityholders, if all the Warrants are exercised, will be used by the Company for general corporate purposes, including research and development, sales and marketing, manufacturing equipment and facilities and working capital. Nasdaq National Market Symbol................ ACMI - ----------------------------- (1) Based upon shares outstanding at May 23, 1997, of which (i) 34,654 shares are subject to forfeiture if the Company is unable through August 1997 to perfect and maintain rights free of liens in certain acquired patents; and (ii) 116,000 shares are subject to forfeiture if certain milestones under a microbiology product development agreement are not achieved. Excludes: (i) an aggregate of 5,477,825 shares reserved for issuance upon exercise of warrants (other than the Warrants relating to the Warrant Shares) outstanding at May 23, 1997; (ii) an aggregate of 2,978,785 shares reserved for issuance upon the exercise of stock options outstanding at May 23, 1997, including options to purchase 1,803,775 shares the granting of which is subject to stockholder approval of the 1997 Stock Option Plan; and (iii) an aggregate of 2,021,215 shares reserved for issuance upon exercise of options available for future grant under the Company's 1997 Stock Option Plan, the reservation of which is subject to stockholder approval of such Plan. 6 9 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information in this Prospectus. Special Note: Certain statements set forth below constitute "forward-looking statements" within the meaning of the Reform Act. See "Special Note Regarding Forward-Looking Statements" on page 2 for additional factors relating to such statements. Significant Capital Requirements; Possible Need for Additional Capital. The Company has and intends to continue to expend substantial funds for research and product development, scale-up of manufacturing capacity, marketing and distribution ramp-up, possible acquisitions, and other working capital and general corporate purposes. The Company's future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of expansion of manufacturing capacity, the costs, timing and success of the Company's product development efforts, the costs and timing of potential acquisitions, the extent to which the Company's existing and new products gain market acceptance, competing technological and market developments, the progress of commercialization efforts by the Company and its distributors, the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent claims and other intellectual property rights, developments related to regulatory and third party reimbursement matters, and other factors. Further, there can be no assurance that more than the minimum offering will be sold. If additional financing is needed, the Company may seek to raise additional funds through public or private financings, collaborative relationships or other arrangements. The Company currently has no commitments with respect to sources of additional financing, and there can be no assurance that any such financing sources, if needed, would be available to the Company or that adequate funds for the Company's operations, whether from the Company's revenues, financial markets, collaborative or other arrangements with corporate partners or from other sources, will be available when needed or on terms satisfactory to the Company. The failure of the Company to obtain adequate additional financing may result in the failure of the Company to repay the Notes when they become due and may require the Company to delay, curtail or scale back some or all of its research and development programs, sales and marketing efforts, manufacturing operations, clinical studies and regulatory activities and, potentially, to cease its operations. Any additional equity financing may involve substantial dilution to the Company's then-existing stockholders. Significant Operating Losses; Uncertainty of Profitability; Accumulated Deficit; Charges Arising from Amortization of Goodwill and In-Process Research and Development. The Company has incurred significant net operating losses in each fiscal quarter since its inception. As of March 31, 1997, the Company had an accumulated deficit of approximately $40.5 million. Losses are expected to continue for the foreseeable future until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations. There can be no assurance that the Company will be able to implement successfully its operating strategy, generate increased revenues or ever achieve profitable operations. During the first quarter of 1997, certain contingencies were satisfied with respect to 940,955 shares of Common Stock and warrants to purchase 63,472 shares of Common Stock issued in connection with the Merger. As a result, approximately $3.6 million, the fair market value of such securities at the date on which such contingencies were satisfied were recorded as goodwill associated with the Merger and charged off in its entirety to operations during the three months ended March 31, 1997 as an impaired asset. The Company's acquisition of a two-thirds equity interest in Oncometrics was accounted for under the purchase method of accounting, resulting in approximately $1.6 million of acquired in-process research and development and approximately $1.1 million of purchased technology. The $1.1 million of purchased technology will be amortized over its useful life of ten years and the $1.6 million of acquired in-process research and development was written off as a charge to earnings in the last quarter of 1996. 7 10 The Company's acquisition of all of the outstanding shares of Common Stock not previously owned by the Company of RADCO for an aggregate cost to the Company of $1.4 million also included approximately $800,000 of acquired in-process research and development. Amounts recorded as acquired in-process research and development for the RADCO acquisition were written off as a charge to earnings in the last quarter of 1996. LIMITED RELEVANT OPERATING HISTORY; SIGNIFICANT OPERATING LOSSES; ACCUMULATED DEFICIT; SUBSTANTIAL COSTS OF INTEGRATION AND CONSOLIDATION; UNCERTAINTY OF PROFITABILITY. The Company was formed in 1988 under the name Alamar Biosciences, Inc. and was engaged primarily in research and development of microbiology products based on the alamarBlue technology. Prior to the Merger, the Company never realized any significant revenues from product sales. AccuMed, Inc. was incorporated in February 1994 and, effective January 1995, acquired the Sensititre microbiology business. Until such acquisition, AccuMed, Inc. had no revenues and operations consisted of a limited amount of cytopathology research and development. Accordingly, although the Sensititre business had a significant operating history and revenues from sales, AccuMed, Inc., as a separate entity, had very limited operating history prior to the Merger. Upon consummation of the Merger, the operations of the Company and AccuMed, Inc. were combined, and the Company began to develop, manufacture and sell both the alamarBlue and the Sensititre microbiology products and recently began to commercialize certain AccuMed cytopathology products. Thus, the Company has a limited relevant operating history upon which an evaluation of its prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in a continually evolving industry with an increasing number of market entrants and intense competition as well as the risks, expenses and difficulties encountered in the shift from development to commercialization of new products based on innovative technology. The Company has been advised that Difco, and its affiliates Difco Laboratories Incorporated, a Michigan corporation ("Difco Labs Michigan") and Difco Laboratories Incorporated, a Wisconsin corporation ("Difco Labs Wisconsin"), have been engaged in the production of the ESP Product Line since 1992. Accordingly, there is a limited relevant operating history with respect to the ESP Product Line upon which an evaluation of its prospects can be made. Difco has not been able to conduct the ESP Business in a profitable manner and there can be no assurance that the Company will be able to conduct the ESP Business, whether on its own or through third parties, in a profitable manner. Failure to conduct the ESP Business in a profitable manner could have a material adverse effect on the Company's business, results of operations and financial condition. The Company has incurred significant net operating losses in each fiscal quarter since its inception. For the fiscal year ended September 30, 1995, and for the transition period ended December 31, 1995, and the fiscal year ended December 31, 1996, the Company's net losses were approximately $3.8 million, $5.7 million and $11.6 million, respectively. Losses for the fiscal years ended September 30, 1995 and for the transition period ended December 31, 1995 relate solely to the Company's operations prior to the Merger. As of March 31, 1997, the Company had an accumulated deficit of approximately $40.5 million. Losses are expected to continue for the foreseeable future until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations. There can be no Company will be able to implement successfully its operating strategy, generate increased revenues or ever achieve profitable operations. See "- Uncertainty of Market Acceptance and Initial Investment in Cytopathology Products." UNCERTAINTY OF MARKET ACCEPTANCE AND INITIAL INVESTMENT IN CYTOPATHOLOGY PRODUCTS. The Company has generated limited revenues from the sale of its cytopathology products to date. The Company's success, growth and profitability will depend primarily on market acceptance of the AcCell System 2000 and 2001 and the TracCell 2000, if cleared for marketing by the FDA and other applicable regulatory authorities, for use in connection with cervical cancer screening by cytopathology laboratories. Market acceptance will depend on the Company's ability to demonstrate to such laboratories that the limitations associated with conventional Pap smear screening and analysis can be cost effectively addressed by its products. There can be no assurance that the 8 11 Company can demonstrate that the high initial cost of equipping existing laboratories with the AcCell Series 2000 and the TracCell 2000, if cleared for marketing by the FDA and other applicable regulatory authorities, will be offset by a reduction in costs associated with increased efficiency and decreased malpractice liability risks resulting from more accurate diagnoses, better data management capability and better documentation of slide review procedures. The Company believes that many clinical laboratories offer Pap smear tests at lower gross margins than other tests in order to receive orders for other, higher margin, laboratory tests. As a result, clinical laboratories may be reluctant or unwilling to accept the additional costs related to installing and utilizing the AcCell System and the TracCell 2000. Furthermore, clinical laboratories have recently been presented with a variety of new products claimed to improve the cervical cancer screening process either through changing the slide preparation method, automating the re-examination or rescreening of conventional specimens previously diagnosed as negative or rescreening such specimens using reagents to detect certain RNA/DNA hybrid cells claimed to indicate the presence of cervical cancer. This proliferation of competing claims, products and approaches to cervical cancer screening may cause market confusion which could result in a laboratory maintaining its current equipment and practices or delaying a decision of whether to purchase the Company's products or a competing product. See "Technological Change and Competition." LIMITED NUMBER OF CUSTOMERS. Due in part to a recent trend toward consolidation of clinical laboratories, the Company expects that the number of potential domestic customers for its cytopathology products will decrease. Due to the relative size of the largest U.S. laboratories, it is likely that a significant portion of the sales of the AcCell System and the TracCell 2000, if cleared for marketing by the FDA and other applicable regulatory authorities, will be concentrated among a relatively small number of customers. In order to promote acceptance in the market, the Company will need to foster an awareness of and acceptance by these potential customers of the AcCell System and the TracCell 2000 and of the benefits of such systems over current methods. The Company's dependence on sales to large laboratories may strengthen the purchasing leverage of these potential customers. There can be no assurance that the Company will be successful in selling its products, or that any such sales will result in sufficient revenue to allow the Company to become profitable. DELAYED OR UNSUCCESSFUL PRODUCT DEVELOPMENT. The Company's growth and profitability will depend, in part, upon its ability to complete development of and successfully introduce new products, including the TracCell 2000. The Company will likely be required to undertake time-consuming and costly development activities and seek regulatory approval for new products. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products, that regulatory clearance or approval of these or any new products will be granted on a timely basis, if ever, or that the new products will adequately meet the requirements of the applicable market or achieve market acceptance. The completion of the development of any of the Company's products under development remains subject to all the risks associated with the commercialization of new products based on innovative technologies, including unanticipated technical or other problems, manufacturing difficulties and the possible insufficiency of the funds allocated for the completion of such development, which could result in a change in the design, delay in the development or the abandonment of such products. Consequently, there can be no assurance that any of the Company's products under development will be successfully developed or manufactured or, if developed and manufactured, that such products will meet price or performance objectives, be developed on a timely basis or prove to be as effective as competing products. The inability to successfully complete development of a product or application, or a determination by the Company, for financial, technical or other reasons, not to complete development of any product or application, particularly in instances in which the Company has made significant capital expenditures, could have a material adverse effect on the Company's business, financial condition and results of operations and could cause the Company to reassess its business strategy. Such reassessment could lead to changes in the Company's overall business plan, including the relative emphasis on current, as well as future, products. See "- Government Regulation." 9 12 LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE; DEPENDENCE ON THIRD-PARTY DISTRIBUTORS. In order for the Company to increase revenues and achieve profitability, the Company's products, particularly its current and proposed cytopathology products, must achieve a significant degree of market acceptance. The Company has only limited experience marketing and selling its cytopathology products. The Company intends to distribute its cytopathology and human clinical microbiology products primarily through a limited number of distributors. The Company has only recently entered into its current distribution arrangements. With respect to cytopathology products, the Company has entered into an exclusive, three year distribution agreement (commencing May 1996) for the Western Hemisphere with Olympus America, and an exclusive, five year distribution agreement (commencing May 1997) for territory other than the Western Hemisphere with Leica. With respect to human, clinical microbiology products marketed under the Sensititre trade name, the Company has entered into an exclusive, four year distribution agreement (commencing September 1996) for the United States with Fisher Scientific. In December 1996, the Company entered into a Manufacturing and License Agreement with Salcom S.r.l. ("Salcom") pursuant to which Salcom has been granted certain exclusive rights in and to technology and related trade secrets, know-how and patent rights relating to alamarBlue(TM) (the "Licensed Technology") to manufacture and distribute the Company's alamarBlue(TM) microbiology products in parts of Europe and Japan. Salcom is obligated to pay royalties to the Company on net sales of any product which encompasses or incorporates the Licensed Technology until September 30, 1999, subject to certain conditions and restrictions. The Company will be required to enter into additional distribution arrangements in order to achieve broad distribution of its products. There can be no assurance that the Company will be able to maintain its current distribution arrangements or that the Company will be able to enter into and maintain arrangements with additional distributors on acceptable terms, or on a timely basis, if ever. The Company will be dependent upon these distributors to assist it in promoting market acceptance of and demand for its products. In addition, because the Company intends to rely on a limited number of distributors, sales to these distributors could account for a significant portion of the Company's revenues. There can be no assurance that these distributors will devote the resources necessary to provide effective sales and marketing support to the Company. In addition, the Company's distributors may give higher priority to the products of other medical suppliers or their own products, thus reducing their efforts to sell the Company's products. If any of the Company's distributors becomes unwilling or unable to promote, market and sell its products, the Company's business, financial condition and results of operations would be materially adversely affected. Further, Olympus America, Leica and Fisher Scientific are the exclusive distributors of the respective products in the respective territories covered by the Company's agreements with such distributors, and other distributors also may be granted exclusive distribution rights. To the extent any exclusive distributor fails to adequately promote, market and sell the Company's products, the Company may not be able to secure a replacement distributor until after the term of the distribution contract is complete or until such contract can otherwise be terminated. TECHNOLOGICAL CHANGE AND COMPETITION. The Company's AcCell System currently faces and the TracCell 2000, if cleared for marketing by the FDA and other applicable regulatory authorities, will face competition from companies that have developed or may be developing competing systems. The Company believes that many of the Company's existing and potential competitors possess substantially greater financial, marketing, sales, distribution and technical resources than the Company, and more experience in research and development, clinical trials, regulatory matters, manufacturing and marketing. The Company is aware of two companies that currently market imaging systems to re-examine or rescreen conventional Pap smear specimens previously diagnosed as negative as well as two companies that are developing devices for the preparation and analysis of Pap smear slides. The Company is aware that at least one such company has submitted an imaging system for use as a primary means of screening Pap smear slides under a pre-market approval application (a "PMA") to the FDA under the United States Food, Drug and Cosmetic Act (the "FD&C Act"). Another company markets a manual 10 13 rescreening test claimed to detect the presence of cervical cancer using reagents to detect certain RNA/DNA hybrid cells. If any company currently marketing rescreening products receives FDA clearance or approval for use of its product as a primary screening system to replace or work in conjunction with conventional Pap smear screening or if automated analysis systems are developed and receive FDA clearance or approval, the use of conventional Pap smear screening could be substantially affected and the Company's business, financial condition and results of operations could be materially adversely affected. The market for the Company's current and, if developed, proposed microbiology products is highly competitive, and the Company competes with numerous well-established foreign and domestic companies, most of which possess substantially greater financial, technical, marketing, personnel and other resources than the Company and have established reputations for success in the development, sale and service of manual and/or automated in vitro diagnostic testing products. A significant portion of the MIC/ID testing market in the United States is controlled by two companies, MicroScan, Inc., a wholly-owned subsidiary of Dade International, Inc. ("MicroScan"), and bioMerieux Vitek, a division of bioMerieux, a French company ("bioMerieux Vitek"). The ESP Product Line faces competition from companies that have developed or may be developing competing product lines. The Company believes that many of the Company's existing and potential competitors possess substantially greater financial, marketing, sales, distribution and technical resources than the Company, and more experience in research and development, clinical trials, regulatory matters, manufacturing and marketing. The Company is aware of at least two companies (including Becton, Dickinson and Company), other than Difco, Difco Labs Michigan and Difco Labs Wisconsin that currently produce and market products similar to the ESP Product Line. The medical diagnostics industry is characterized by rapid product development and technological advances. There can be no assurance that other technologies or products that are functionally similar to those of the Company are not currently available or under development, or that other companies with expertise and resources that would encourage them to attempt to develop and market competitive products will not develop new products that compete directly with the Company's products. The Company's products could be rendered obsolete or uneconomical by the introduction and market acceptance of competing products, technological advances of the Company's current or potential competitors, or by other approaches. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competition, including the development and commercialization of new products and technology, will not have a material adverse effect on the Company's business, financial condition and results of operations. GOVERNMENT REGULATION. The Company's products and manufacturing processes are regulated by state and federal authorities, including the FDA and comparable authorities in certain states and other countries. Failure to comply with the FD&C Act and any applicable regulatory requirements can result in, among other things, civil and criminal fines, product recalls, detentions, seizures, injunctions and criminal prosecutions. United States regulatory requirements promulgated under the FD&C Act provide that many of the Company'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 effectiveness for its intended uses. Medical devices may be authorized by the FDA for marketing in the United States either pursuant to a 510(k) Notification or a PMA. The process of obtaining marketing clearance from the FDA and other applicable regulatory authorities can be expensive, uncertain and time consuming, frequently requiring several years from the commencement of clinical trials or submission of data to the receipt of regulatory approval. 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 existing products that are currently permitted to be marketed. An applicant is permitted to begin marketing a product as to which it has submitted a 510(k) Notification at such time 11 14 as the FDA issues a written finding of substantial equivalence. Requests for additional information may delay the market introduction of certain of an applicant's products and, in practice, initial clearance of products often takes substantially longer than the FDA pre-market notification review period of 90 days. The Company has completed clinical trials of the TracCell 2000 and in November 1996 filed a 510(k) Notification with the FDA with respect to the TracCell 2000. A PMA consists of the submission to the FDA of information sufficient to establish independently that a device is safe and effective for its 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. By statute, the FDA is required to respond to a PMA within 180 days from the date of its submission; however, the approval process usually takes substantially longer, often as long as several years. During the review period, the FDA may conduct extensive reviews of the Company's facilities, deliver multiple requests for additional information and clarifications and convene advisory panels to assist in its determination. FDA marketing clearances, if granted, may include significant limitations on the intended uses for which a product may be marketed. FDA enforcement policy strictly prohibits the promotion of cleared or approved medical devices for non-approved or "off-label" uses. In addition, product clearances or approvals may be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing. Under current interpretation of FDA regulations, marketing of the AcCell 2000 in the United States does not require FDA marketing clearance. Marketing of the TracCell 2000 in the United States, however, does require pre-marketing clearance by the FDA. The Company has completed clinical trials of the TracCell 2000 and in November 1996 filed a 510(k) Notification with the FDA with respect to the TracCell 2000. There can be no assurance that FDA will clear the TracCell 2000 for marketing in the United States on a timely basis, if ever. Under current interpretation of FDA regulations, marketing of the Company's MIC/ID microbiology products in the United States requires FDA marketing clearance through the 510(k) Notification process. With respect to the Company's MIC/ID testing products, 510(k) Notifications must be filed and cleared with respect to each antibiotic used. The Company may submit applications to add individual antibiotics to those previously cleared as the market warrants. However, there can be no assurance that clearances will continue to be obtained or that obtained clearances will not be withdrawn. At the current time, alamarBlue is marketed for use in the industrial and research markets and therefore does not require FDA marketing clearance. The FDA could change its interpretation of the regulations and require a 510(k) Notification or PMA submission which, if pursued, may not be cleared, and may contain certain significant limitations on the intended uses for which the product is marketed. Marketing in the United States of the Company's products under development may require additional FDA clearances. For example, the Company's proposed automated pre-screening, specimen mapping workstation, the TracCell 2500, if developed, may not be sold in the United States unless and until the Company has obtained FDA marketing clearance, either through a 510(k) Notification or a PMA. In addition, marketing of the Company's proposed KB Reader and other proposed microbiology products, if developed, is likely to require FDA clearance through 510(k) Notifications. The Company is currently conducting research and development with respect to such products and has not yet begun clinical trials. There can be no assurance that any such products will be developed or, if developed, that such products will be cleared for marketing by the FDA or other applicable regulatory authorities or, if such clearance is received, that such marketing clearance will not be withdrawn. Sales of medical devices outside of the United States are subject to foreign regulatory requirements that vary from country to country. The time required to obtain clearance by a foreign country may be longer or shorter than 12 15 that required for FDA clearance, and the requirements may differ. Export sales of certain devices that have not received FDA marketing clearance generally are subject to both FDA certificate for product for export regulations and, in some cases, general U.S. export regulations. In order to obtain a FDA export permit, the Company may be required to provide the FDA with documentation from the medical device regulatory authority of the country in which the purchaser is located. No assurance can be given that foreign regulatory clearances will be granted on a timely basis, if ever, or that the Company will not be required to incur significant costs in obtaining or maintaining its foreign regulatory clearances. The Company intends to seek ISO 9001 qualification, an international manufacturing quality standard. The CE mark is recognized by countries that are members of the European Union and the European Free Trade Association and is required to be affixed to all medical devices sold in the European Union. The AcCell 2000 is certified as complying with CE mark requirements. However, no assurance can be given that the Company will obtain the CE mark for any proposed products or satisfy ISO 9001 standards, or that any product that the Company may develop or commercialize will obtain the CE mark or will obtain any other required regulatory clearance or approval on a timely basis, if ever. The Company is subject to certain FDA registration, record-keeping and reporting requirements, and certain of the Company's manufacturing facilities are obligated to follow FDA GMP Quality System Regulation and are subject to periodic FDA inspection. Any failure to comply with GMP Quality System Regulation or any other FDA or other government regulations could have a material adverse effect on the Company's business, financial condition and results of operations. In July 1996, the Company received from the FDA a warning letter regarding certain procedures used in connection with the manufacture of its microbiology products at the Sensititre facility in the United Kingdom. In such letter, the FDA stated that the Company manufactured sterile products at such facility and was not in compliance with GMP regulations relating to the manufacture of sterile products. On August 7, 1996, the Company submitted a written response to the FDA asserting that the products manufactured at the Sensititre facility are not sterile. The FDA has acknowledged in writing that the products are not represented as sterile and accepted the Company's GMP Quality System Regulation responses as adequate. The FDA has indicated that it will verify the Company's implementation during its next inspection and that import of the Company's devices will be permitted to continue. Federal, state and foreign regulations regarding the manufacture and sale of healthcare products and diagnostic devices are subject to future change. The Company cannot predict what material impact, if any, such changes might have on its business. Future changes in regulations or enforcement policies could impose more stringent requirements on the Company, compliance with which could adversely affect the Company's business. Such changes may relax certain requirements, which could prove beneficial to the Company's competitors and thus adversely affect the Company's business. In addition, regulations of the FDA, including GMP Quality System Regulation, and state and foreign laws and regulations, depend heavily on administrative interpretations, and there can be no assurance that future interpretations made by the FDA, or other regulatory authorities, with possible retroactive effect, will not adversely affect the Company. In addition to the regulations directly pertaining to the Company and its products, many of the Company's existing and potential customers are subject to extensive regulation and governmental oversight. Regulatory changes in the healthcare industry that adversely affect the business of the Company's customers could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to obtain necessary regulatory clearances in the United States or internationally on a timely basis, if ever. Delays in the receipt of, or failure to receive, such clearances, the loss of previously received listings or clearances, or failure to comply with existing or future regulatory requirements 13 16 would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON KEY EMPLOYEES. The Company believes that its success will depend to a significant extent upon the efforts and abilities of a small group of executive, scientific and marketing personnel, and in particular on Peter P. Gombrich, the Company's Chairman of the Board, Chief Executive Officer and President. The loss of the services of one or more of these key personnel could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company's future success will depend upon its ability to continue to attract and retain qualified scientific and management personnel who are in great demand. There can be no assurance that the Company will be successful in attracting and retaining such personnel. PROTECTION OF INTELLECTUAL PROPERTY. The Company relies on a combination of patents, licensing arrangements, trade names, trademarks, trade secrets, know-how and proprietary technology and 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. The Company has been issued a Great Britain patent and has filed or been assigned ten U.S. patent applications (one of which has been abandoned) and eight foreign patent applications covering certain aspects of its cytopathology products. The Company has been issued two U.S. patents and has filed or been assigned two U.S. patent applications, one Japanese patent application and one Canadian patent application related to its microbiology products. Additional U.S. and foreign patent applications covering the Company's cytopathology products are being prepared. The Company has been assigned one U.S. patent related to the ESP Product Line and one U.S. and two European patent applications related to such issued patent, as well as an additional U.S. patent application relating to the ESP Product Line. The Company holds certain licenses on several U.S. and foreign patents and other intellectual property rights regarding aspects of the technology embodied in the Sensititre product line and is the licensee of certain automated cell analysis technology. The Company holds a U.S. patent and has received a notice of intent to grant a related European patent with respect to a portion of the alamarBlue microbiology technology. None of the Company's pending patent applications have been granted as of the date of this Report, and there can be no assurance that any such patent application will result in an issued patent. The Company may, in the future, file additional patent applications; however, there can be no assurance that the Company will be successful in obtaining approval of any future patent applications it files with respect to its technologies. In addition, 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, the Company cannot be certain that the Company 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. There also can be no assurance that any patents, patent applications and patent licenses will adequately cover the Company's technologies. 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. The Company owns two U.S. trademark registrations for the trademark "Sensititre," and owns "ESP," "EZ DRAW," and "EZ VIEW," and has filed U.S. trademark applications for the trademarks "AcCell," "MacCell," "FluoreTone," "INSIGHT," "SpeciFind," "Relational Cytopathology Review Guide," "MacroVision" and "TracCell" and is currently preparing one more trademark application for filing. The Company may file additional U.S. and foreign trademark applications in the future. However, no trademark registrations have yet been granted to the Company, and there can be no assurance that any such registrations will be granted. In addition, there can be no assurance that third parties have not or will not adopt or register marks that are the same or substantially similar to those of the Company, or that such third parties will not be entitled to use such marks to the exclusion of the 14 17 Company. Selecting new trademarks to resolve such situations could involve significant costs, including the loss of goodwill already gained by the marks previously used. The Company relies for protection of its trade secrets, know-how and proprietary technology on nondisclosure and confidentiality agreements with its employees, consultants, distributors, suppliers, researchers and advisors. There can be no assurance that such agreements will provide meaningful protection for the Company's trade secrets, know-how or proprietary technology in the event of any unauthorized use or disclosure of such information. In addition, others may obtain access to, or independently develop, technologies or know-how similar to that of the Company. There can be no assurance that the Company's patents, patent applications, patent licenses, trademarks and trade secret protections will adequately protect the Company from potential infringement or misappropriation by third parties. Historically, the Company has been required to undertake costly litigation to enforce its intellectual property rights. Although the Company is not currently aware of any potential infringement, future litigation by the Company may be necessary to enforce its patent rights, as well as to protect its trade secrets, know-how and proprietary technology, or to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost to and diversion of effort by the Company. The Company's success will also depend on its ability to avoid infringement of patent or other proprietary rights of others. The Company is not aware that it is infringing any such rights of a third party, nor is it aware of proprietary rights of others for which it will be required to obtain a license in order to develop its products. However, there can be no assurance that the Company is not infringing the proprietary rights of others, or that the Company will not be required to defend itself against claimed infringement of the rights of others. Adverse determinations in any such litigation could subject the Company to significant liability to third parties, could require the Company to seek licenses from third parties and could prevent the Company from manufacturing, selling or using certain of its products or technologies, any of which could have a material adverse effect on the Company. POTENTIAL FLUCTUATIONS IN FUTURE QUARTERLY RESULTS. The Company expects that its operating results will fluctuate significantly from quarter to quarter in the future and will depend on various factors, many of which are outside the Company's control. These factors include the success of the marketing efforts of the Company and its distribution partners, the likelihood, timing and costs associated with obtaining necessary regulatory clearances or approvals, the timing and level of expenditures associated with expansion of sales and marketing activities and overall operations, the Company's ability to cost effectively expand manufacturing capacity and maintain consistently acceptable yields, the timing of establishment of strategic distribution arrangements and the success of the activities conducted under such arrangements, changes in demand for the Company's products, order cancellations, competition, changes in government regulation and other factors, the timing of significant orders from and shipments to customers, and general economic conditions. These factors are difficult to forecast, and these or other factors could have a material adverse effect on the Company's business, financial condition and results of operations. Fluctuations in quarterly demand for products may adversely affect the continuity of the Company's manufacturing operations, increase uncertainty in operational planning, disrupt cash flow from operations and increase the volatility of the Company's stock price. The Company's expenditures are based in part on the Company's expectations as to future revenue levels and to a large extent are fixed in the short term. If revenues do not meet expectations, the Company's business, financial condition and results of operations could be materially adversely affected. The Company believes that period to period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. As a result of the foregoing factors, it is likely that in some future quarter the Company's revenue or operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock could be materially adversely affected. 15 18 NEED TO MANAGE EXPANDING OPERATIONS. The Company will be required to expand its operations, particularly in the areas of sales and marketing and manufacturing. Such expansion will likely result in new and increased responsibilities for management personnel and place significant strain upon the Company's management, operating and financial systems and resources. To accommodate any such growth and compete effectively, the Company may be required to implement and/or improve its information systems, procedures and controls, and to expand, train, motivate and manage its work force. The Company's future success will depend to a significant extent on the ability of its current and future management personnel to operate effectively, both independently and as a group. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's future operations. Any failure to implement and improve the Company's operational, financial and management systems or to expand, train, motivate or manage employees as required by future growth, if any, could have a material adverse effect on the Company's business, financial condition and results of operations. RISK OF LITIGATION; RISK OF PRODUCT RECALLS; POTENTIAL UNAVAILABILITY OF INSURANCE. Commercial screening of Pap smear tests has been characterized by significant malpractice litigation. The Company faces a risk of exposure to product liability, errors and omissions or other claims if the use of its AcCell System 2000 or any future potential products, including the TracCell 2000, is alleged to have contributed to or resulted in a false negative diagnosis. While neither the AcCell System 2000 nor the TracCell 2000 is purported to offer any clinical diagnosis, there can be no assurance that the Company will avoid significant litigation. The Company also faces the possibility that defects in designs or manufacture of its products could result in product recall. The Company currently maintains a product liability insurance policy providing maximum coverage of $10.0 million and per occurrence coverage of $10.0 million. The medical device industry in general has experienced increasing difficulty in obtaining and maintaining reasonable product liability coverage, and substantial increases in insurance premium costs in many cases have rendered coverage economically impractical. There can be no assurance that the Company's existing product liability insurance will be adequate or continue to be available, or that additional product liability insurance will be available to the Company when needed or at a reasonable cost. An inability to maintain insurance at acceptable costs or otherwise protect against potential product liability could prevent or inhibit the continued commercialization of the Company's products. In addition, a product liability claim in excess of relevant insurance coverage or a product recall could have a material adverse effect on the Company's business, financial condition and results of operations. ENVIRONMENTAL REGULATION. The Company is subject to a variety of local, state, federal and foreign government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic, infectious and other hazardous substances used to manufacture the Company's products. The failure to comply with current or future regulations could result in the imposition of substantial fines against the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. There can be no assurance that the Company will not be required to incur significant costs to comply with any such laws and regulations in the future, or that such laws or regulations will not have a material adverse effect on the Company's business, financial condition and results of operations. Any failure by the Company to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous chemicals or hazardous, infectious or toxic substances could subject the Company to significant liabilities, including joint and several liability under certain statutes. The imposition of such liabilities could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF PROFITABLE CYTOPATHOLOGY MANUFACTURING. The Company has only recently developed the AcCell System 2000 and marketing and sales of the AcCell System 2000 have only recently begun. The Company is also currently developing the manufacturing processes for the TracCell 2000. There can be no assurance that the 16 19 Company will be able to sell sufficient numbers of systems or develop volume manufacturing processes that will lead to the cost-effective manufacture of the AcCell System 2000 or the TracCell 2000. The Company also faces the possibility that defects in designs or manufacture of its products could result in product recall. DEPENDENCE ON SUPPLIERS. Certain key components and raw materials used in the manufacturing of the Company's products are currently obtained from single vendors. Although the Company believes that alternative sources for such components and raw materials are available, any supply interruption in a single-sourced component or raw material would have a material adverse effect on the Company's ability to manufacture products until a new source of supply were qualified. There can be no assurance that the Company would be successful in qualifying additional sources on a timely basis, if ever. Failure to do so would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, an uncorrected impurity or a supplier's variation in a raw material, either unknown to the Company or incompatible with the Company's manufacturing process, could have a material adverse effect on the Company's ability to manufacture certain of its products. IMPACT OF MEDICARE, MEDICAID AND OTHER THIRD-PARTY REIMBURSEMENT. In the United States, some Pap smear screenings and MIC/ID tests are currently paid for by the patient directly, and the level of reimbursement by third party payers that do provide reimbursement varies considerably. Third party payers (Medicare/Medicaid, private health insurance, health administration authorities in foreign countries and other organizations) may affect the demand, pricing or relative attractiveness of the Company's products and services by regulating the frequency and maximum amount of reimbursement for Pap smear screening and MIC/ID testing provided by such payers or by not providing any reimbursement at all. Restrictions on reimbursement for Pap smear screening and MIC/ID testing may limit the price that the Company can charge for its products or reduce the demand for them. In addition, if the level of reimbursement provided by Medicare and Medicaid is significantly below the amount laboratories and hospitals charge patients to perform Pap smear screening and MIC/ID testing, respectively, the size of the potential market available to the Company may be reduced. There can be no assurance that the level of reimbursement for Pap smear screening and MIC/ID testing will achieve, or be maintained at, levels necessary to permit the Company to generate substantial revenues or be profitable. In the international market, reimbursement by private third party medical insurance providers, including governmental insurers and providers, varies from country to country. In certain countries, the Company's ability to achieve significant market penetration may depend upon the availability of third party or governmental reimbursement. UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTH CARE REFORM. The health care industry is undergoing fundamental changes that are the result of political, economic and regulatory influences. In the United States, comprehensive programs have been proposed that seek to control the escalation of health care expenditures within the economy. Reforms that have been, and may be, considered include controls on health care spending through limitations on the increase in private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups and other fundamental changes to the health care delivery system. Health care reform could, for example, result in a reduction in the recommended frequency of Pap smear screening or limitations on reimbursement which would likely reduce the demand for the Company's cytopathology products. Demand for the Company's MIC/ID products could be similarly affected. The Company anticipates that Congress and state legislatures will continue to review and assess cost containment measures, alternative health care delivery systems and methods of payment, and that public debate of these issues will likely continue. Due to uncertainties regarding the outcome of health care reform initiatives and their enactment and implementation, the Company cannot predict what reforms will be proposed or adopted or the effect that such proposals or their adoption may have on the Company. There can be no assurance that future health care legislation or other changes in the administration or interpretation of government health care or third party reimbursement programs will not have a material adverse 17 20 effect on the Company's business, financial condition and results of operations. INTERNATIONAL SALES AND OPERATIONS RISKS. The Company sells microbiology products and intends to sell its cytopathology and any future products to customers both domestically and internationally. International sales and operations may be limited or disrupted by the imposition of government controls, export license requirements, political instability, trade restrictions, changes in tariffs or difficulties in staffing and managing international operations. Foreign regulatory authorities often establish product standards different from those in the United States and any inability to obtain foreign regulatory approvals on a timely basis could have a material adverse effect on the Company's international business operations. Additionally, the Company's business, financial condition and results of operations may be adversely affected by increases in duty rates and difficulties in obtaining required licenses and permits. There can be no assurance that the Company will be able to successfully commercialize its products, or any future products, in any foreign market. POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the shares of the Company's Common Stock, like that of the common stock of many other medical products and high technology companies, has in the past been, and is likely in the future to continue to be, highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new commercial products by the Company or competitors, government regulation, changes in the current structure of the health care financing and payment systems, developments in or disputes regarding patent or other proprietary rights, economic and other external factors and general market conditions may have a significant effect on the market price of the Common Stock. Moreover, the stock market has from time to time experienced extreme price and volume fluctuations which have particularly affected the market prices for medical products and high technology companies and which have often been unrelated to the operating performance of such companies. These broad market fluctuations, as well as general economic, political and market conditions, may adversely affect the market price of the Company's Common Stock. In the past, following periods of volatility in the market price of a company's common stock, securities class action litigations have occurred against the issuing company. There can be no assurance that such litigation will not occur in the future with respect to the Company. Such litigation could result in substantial costs and diversion of management's attention and resources, which could have a material adverse effect on the Company's business, financial condition and results of operations. Any adverse determination in such litigation could also subject the Company to significant liabilities. LACK OF DIVIDENDS. The Company has never paid cash or other dividends on its Common Stock and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. See "Dividend Policy." AUTHORIZATION AND POTENTIAL ISSUANCE OF PREFERRED STOCK; DELAWARE ANTI-TAKEOVER LAW. The Company's Certificate of Incorporation authorizes the issuance of Preferred Stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Common Stock. Although the Company does not currently intend to issue any shares of its Preferred Stock, in the event of issuance, such shares could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. There can be no assurance that the Company will not, under certain circumstances, issue shares of its Preferred Stock. Furthermore, the Company may in the future adopt other measures that may have the effect of delaying, deferring or preventing a change in control of the Company. Certain of such measures may be adopted without any further vote or action by the stockholders, although the Company has no present plans to adopt any such measures. The Company is also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of the Company, impede a merger, consolidation or other business combination involving the Company or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. 18 21 SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common Stock in the public market, or the possibility of such sales occurring, could adversely affect prevailing market prices for the Common Stock or the future ability of the Company to raise capital through an offering of equity securities. As of May 23, 1997, the Company has outstanding 22,148,732 shares of Common Stock, warrants to purchase 6,528,000 shares of Common Stock (including the 1,050,000 Warrants relating to the Warrant Shares covered under the Registration Statement of which this Prospectus forms a part) and options to purchase 2,978,785 shares of Common Stock (of which 1,803,775 options are subject to stockholder approval of the 1997 Stock Option Plan). Of the outstanding shares, (i) 34,654 shares are subject to forfeiture if the Company is unable through August 1997 to perfect and maintain rights free of liens in certain acquired patents; and (ii) 116,000 shares are subject to forfeiture if certain milestones under a microbiology product development agreement are not achieved. As of May 23, 1997, 21,657,025 shares have been sold or are available for immediate sale in the public market pursuant to effective registration statements or exemptions from registration under the Securities Act of 1933, as amended (the "Securities Act"), subject in the case of certain holders to the limitations applicable to affiliates pursuant to Rule 144 under the Securities Act. An additional 1,733,875 shares of Common Stock that were issued in connection with the Merger will become available for immediate sale in the public market on June 30, 1997 upon the expiration of certain restrictions placed on such shares in connection with the Merger. The directors, executive officers and certain securityholders of the Company, who held in the aggregate 8,242,276 of the remaining outstanding shares at October 3, 1996 have entered into "lock-up" agreements with Vector Securities International, Inc. and Tucker Anthony Incorporated, as representatives of the Underwriters (the "Representatives") in the public offering of Common Stock effective October 3, 1996 (the "Public Offering"). In accordance with such lock-up agreements, an aggregate of 1,584,004 shares of Common Stock will become available for immediate sale in the public market commencing 91 days after the date of the Public Offering, 1,583,997 shares will become available for immediate sale in the public market commencing 181 days after the date of the Public Offering and 5,074,275 shares will become available for immediate sale in the public market commencing 271 days after the date of the Public Offering, subject in the case of certain holders to the limitations applicable to affiliates pursuant to Rule 144, and, with respect to 116,000 shares, release from escrow. The remaining 69,308 shares were issued in August 1996 and are restricted securities under Rule 144 and may not be sold unless registered or pursuant to an applicable exemption from registration. Holders of approximately 1,387,500 of the warrants outstanding on October 3, 1996 have entered into lock-up agreements with the Representatives restricting the sale of shares underlying such warrants in the public market for a period of 60 days from the date of the Public Offering. Holders of an additional 2,595,808 of the warrants outstanding on October 3, 1997 have entered into lock-up agreements restricting the sale of such warrants and the shares underlying such warrants for a period of 90 days with respect to 865,270 warrants, 180 days with respect to 865,269 warrants and 270 days with respect to 865,269 warrants. The Company has registered the issuance of 1,240,010 shares of Common Stock issuable upon the exercise of options outstanding pursuant to certain of the Company's stock option plans. Such shares are available for immediate sale in the public market upon exercise of options. Holders of approximately 756,700 of such options outstanding on October 3, 1997 have executed lock-up agreements with the Representatives restricting the sale of such shares in the public market for a period of 90 days with respect to 185,567 option shares, 180 days with respect to 185,567 option shares and 270 days with respect to 385,566 option shares, in each case, following the date of the Public Offering. The Representatives may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to such lock-up agreements. Following the expiration of the applicable lock-up periods, such shares will be available for immediate sale in the public market without limitation. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares of Common Stock by the Selling Securityholders. If the holders exercise the Warrants to acquire all the Warrant Shares, the Company will receive 19 22 aggregate gross proceeds of approximately $3,281,250, at the current exercise prices which will be used as unlocated working capital. The Company has agreed to pay certain expenses in connection with this Offering, currently estimated to be approximately $16,000. 20 23 PRICE RANGE OF COMMON STOCK The Company's Common Stock is quoted on the Nasdaq National Market under the trading symbol "ACMI." On May 23, 1997, the last reported sale price of the Common Stock on the Nasdaq National Market was $3.94 per share. The table below sets forth, for the periods indicated, the range of high and low sales prices for the Common Stock on the Nasdaq National Market. At May 23, 1997, the Company had approximately 412 stockholders of record.
High Low -------- -------- 1995 FISCAL YEAR First Quarter $ 1.75 $ 0.31 Second Quarter 1.75 0.50 Third Quarter 1.50 0.81 Fourth Quarter 1.50 0.75 TRANSITION PERIOD (1) October 1, 1995 through December 31, 1995 $ 1.69 $ 1.00 1996 FISCAL YEAR (1) First Quarter $ 6.25 $ 1.06 Second Quarter 9.38 4.88 Third Quarter 7.00 4.16 Fourth Quarter 5.06 2.25 1997 FISCAL YEAR First Quarter $ 4.44 $ 2.41 Second Quarter (through May 23, 1997) 4.13 3.25
- --------------- (1) On December 31, 1995, the Company changed its fiscal year end from September 30 to December 31. 21 24 SELLING SECURITYHOLDERS The following table sets forth information as of May 23, 1997 (the "Reference Date") with respect to the beneficial ownership of shares of Common Stock by each of the Selling Securityholders. At the Reference Date there were 22,148,732 shares of Common Stock outstanding.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING(1) SHARES TO AFTER OFFERING(1) NAME AND ADDRESS -------------------- BE SOLD IN ---------------------- OF BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT - ------------------- ------- ------- -------- ------- ------- Shannon P. Acks(2) 52,500 * 52,500 -0- -0- American Equities Overseas, Inc.(3)(4) 139,655 * 5,880 133,775 * Basil Asciutto(4)(5)(6) 8,427 * 8,427 -0- -0- Richard L. Baselon & Eileen A. Baselon(7) 42,000 * 42,000 -0- -0- Andy Bello(5)(8) 720 * 720 -0- -0- Robert Beurel(5)(9) 5,554 * 5,554 -0- -0- Caisse Centrale des Banques Popilaires(10) 42,000 * 42,000 -0- -0- Leslie G. Callahan, III(11) 10,000 * 42,000 -0- -0- Richard Campanella(5)(12) 220 * 220 -0- -0- Clariden Bank(13) 63,000 * 63,000 -0- -0- Norman H. Cohen(14) 10,500 * 10,500 -0- -0- Commonwealth Associates, Inc.(4)(5)(15) 1,909,300 8.1% 20,000 1,889,300 8.0 Conzett Europa-Inv. Limited(16) 315,000 * 315,000 -0- -0- Mark Danieli(5)(17) 444 * 444 -0- -0- DW Trustees (B.V.I.) Limited(18) 21,000 * 21,000 -0- -0- Egger & Co.(19) 105,000 * 105,000 -0- -0- Cornelia Eldridge(5)(20) 4,000 * 4,000 -0- -0-
22 25
Energa Capital Forbank & Co.(21) 63,000 * 63,000 -0- -0- Kenneth R. Falchuk(22) 21,000 * 21,000 -0- -0- Michael S. Falk(4)(5)(23) 2,893,452 11.7 96,521 2,796,931 11.3 Fifth Third Bank of Western Ohio, Trustee(24) 63,000 * 63,000 -0- -0- France Finance IV(25) 84,000 84,000 -0- -0- Anthony Giardina(4)(5)(26) 1,387 * 1,387 -0- -0- Paul D. Goldenheim(27) 10,500 * 10,500 -0- -0- Zachary Gomes(28) 42,000 * 42,000 -0- -0- Jonathan D. Green(29) 21,000 * 21,000 -0- -0- Brian Greenstein(5)(30) 129 * 129 -0- -0- Marco Guidice(4)(5)(31) 91 * 91 -0- -0- Richard Galterio(5)(32) 114 * 114 -0- -0- The Hart Family Trust(33) 10,500 * 10,500 -0- -0- Susan Hoffman(5)(34) 1,000 * 1,000 -0- -0- Wilfred Huse(35) 21,000 * 21,000 -0- -0- Wilfred Huse, MD, Inc. Money Purchase Pension Plan(36) 21,000 * 21,000 -0- -0- Jerry L. & Deborah J Ivy JT Ten(37) 42,000 * 42,000 -0- -0- James W. Jackman(38) 21,000 * 21,000 -0- -0- William J. and Ann S Jackson JTROS(39) 42,000 * 42,000 -0- -0- JF Shea Co., Inc. as Nominee 1997-7(40) 672,000 * 672,000 -0- -0- Jo-Bar Enterprises LLC(4)(41) 42,000 * 42,000 -0- -0- Peggy Jordan(42) 42,000 * 42,000 -0- -0-
23 26
LAD Equity Partners, LP(43) 42,000 * 42,000 -0- -0- Stephen LaBarbara(4)(5)(44) 3,460 * 3,460 -0- -0- Vincent LaBarbara(4)(5)(45) 6,192 * 6,192 -0- -0- Daniel R. Lee(4)(46) 42,000 * 42,000 -0- -0- Albert Legere(5)(47) 114 * 114 -0- -0- Craig Leppla(5)(48) 444 * 444 -0- -0- The Lesile Group(4)(49) 1,027 * 1,027 -0- -0- Douglas Levine(50) 15,750 * 15,750 -0- -0- Beth Lipman(4)(5)(51) 500 * 500 -0- -0- John V. Luck(4)(52) 21,000 * 21,000 -0- -0- Michael R. Lyall(5)(53) 3,890 * 3,890 -0- -0- Greg Manocherian(54) 10,500 * 10,500 -0- -0- Jed R. Manocherian 1995 Property Trust(55) 5,250 * 5,250 -0- -0- Mario Marsillo(5)(56) 1,030 * 1,030 -0- -0- Patrick H. and Lee M Miller, Jr. JTWROS(57) 210,000 * 210,000 -0- -0- Alvin Mirman(4)(5)(58) 2,112 * 2,112 -0- -0- Mizeboume Investment Corp.(59) 21,000 * 21,000 -0- -0- Ronand Moschetta(5)(60) 1,109 * 1,109 -0- -0- Robert Nass(5)(61) 665 * 665 -0- -0- Northlea Partners Ltd.(4)(62) 342,657 1.5 21,000 321,657 1.4 Robert O'Sullivan(4)(5)(63) 8,405 * 8,405 -0- -0- Robert O'Sullivan Family Trust(5)(64) 21,000 * 21,000 -0- -0- Thomas A. Peacock(65) 42,000 * 42,000 -0- -0-
24 27
Richard Perreira(66) 500 * 500 -0- -0- Estate of Daniel Parker(5)(67) 1,027 * 1,027 -0- -0- Robert L. Priddy(4)(68) 1,537,410 6.7 637,410 900,000 3.9 Eric Rand(5)(69) 8,595 * 8,595 -0- -0- Vincent Riccardi(4)(5)(70) 91 * 91 -0- -0- Scott Rickman(5)(71) 2,000 * 2,000 -0- -0- John Robinson(4)(5)(72) 48,262 * 48,262 -0- -0- Wayne Rogers(73) 21,000 * 21,000 -0- -0- Keith Rosenbloom(4)(5)(74) 8,831 * 8,831 -0- -0- Cathy Ross(4)(5)(75) 500 * 500 -0- -0- Royal Bank of Canada Trust Company(76) 157,500 * 157,500 -0- -0- Eric Rubenstein(5)(77) 889 * 889 -0- -0- William R. Schoen(4)(78) 21,000 * 21,000 -0- -0- Muarry Segal(4)(5)(79) 1,284 * 1,284 -0- -0- Suzanne Schiller(4)(80) 21,000 * 21,000 -0- -0- Edward T. Scneider(81) 42,000 * 42,000 -0- -0- Bradford Van Sicien(5)(82) 500 * 500 -0- -0- Edmund Shea(83) 1,5588 * 1,558 -0- -0- Stephen Stein(5)(84) 500 * 500 -0- -0- Inder Tallur(5)(85) 553 * 553 -0- -0- Theodore Stern Money Purchase Plan(86) 168,000 * 168,000 -0- -0- Robert Tucker(5)(87) 1,027 * 1,027 -0- -0- Vitali Maritime Corp.(4)(88) 42,000 * 42,000 -0- -0- Michael Volpe(4)(5)(89) 558 * 558 -0- -0-
25 28
Stephen J. Warner(90) 21,000 * 21,000 -0- -0- Joyce Westmoreland(91) 21,000 * 21,000 -0- -0- David Wynn(5)(92) 590 * 590 -0- -0- Joseph P. Wynne(4)(5)(93) 3,890 * 3,890 -0- -0- Kenneth Zises(94) 21,000 * 21,000 -0- -0- ---
- ------------------ * Represents less than 1%. (1) Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock listed as beneficially owned by them. A person is deemed to be the beneficial holder of securities that can be acquired by such person within 60 days from the Reference Date upon the exercise of warrants or Notes. Each beneficial owner's percentage ownership is determined by including shares underlying Notes or warrants which are exercisable by such person currently or within 60 days following the Reference Date, and excluding shares underlying options and warrants held by any other person. The percentage of shares owned after the Offering is calculated assuming that 25,918,732 shares of Common Stock will be outstanding, which includes the 22,148,732 shares outstanding on the Reference Date and an additional 3,770,000 Shares underlying the Warrants and Notes which would have to be exercised in order to sell the Shares. (2) Shares listed as held by Ms. Acks include 12,500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 40,000 shares underlying Notes that are not exercisable within 60 days of the Reference Date. (3) Shares listed as held by American Equities Overseas, Inc. include 139,655 shares underling warrants that are exercisable currently or within 60 days following the Reference Date. The Shares offered in this Offering by American Equities Overseas, Inc. are underlying currently exercisable Warrants transferred to it by Commonwealth Associates. Such Warrants were issued as compensation for the services of Commonwealth Associates in connection with the Private Placement. American Equities Overseas, Inc. has served as a placement agent in the sale of the Company's securities for which it has received commissions in the forms of cash and securities. See "Certain Relationships and Transactions." (4) Transfer of shares listed as held by such Selling Securityholders are subject to restrictions pursuant to a Lock-up Letter between the holder and Tucker Anthony Incorporated and Vector Securities as representatives of the several underwriters in the Public Offering of the Company's Common Stock effective on October 3, 1996. Such Lock-up Letter is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. (5) Shares listed as being offered in this Offering by the Selling Securityholder are Shares underlying Warrants issued directly to Commonwealth Associates and subsequently transferred by it to the Selling Securityholder. Such Warrants were issued to Commonwealth Associates as compensation for services as placement agent in the Private Placement. The Selling Securityholder is currently or was formerly associated with Commonwealth Associates. Commonwealth Associates disclaims beneficial ownership of such Shares and Warrants. See "Certain Relationships and Transactions." 26 29 (6) Shares listed as held by Mr. Asciutto include 8,427 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (7) Shares listed as held by the Baselons include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (8) Shares listed as held by Mr. Bello include 720 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (9) Shares listed as held by Mr. Beurel include 5,554 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (10) Shares listed as held by Caisse Centrale des Banques Popilaires include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (11) Shares listed as held by Mr. Callahan include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (12) Shares listed as held by Mr. Campanella include 220 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (13) Shares listed as held by Clariden Bank include 15,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 48,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (14) Shares listed as held by Mr. Cohen include 2,500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 8,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (15) The number of shares owned prior to the Offering includes 1,347,078 shares underlying warrants and the number of shares owned after the Offering includes 1,367,078 shares underlying warrants, each such warrant is exercisable currently or within 60 days of the Reference Date. Excludes securities held in Commonwealth Associates' trading account. Certain of the Warrants to purchase shares are held in the name of Commonwealth Associates for the account of its equity owners, certain of its employees and certain officers and/or directors of its corporate general partner. Commonwealth Associates has acted as underwriter and placement agent in sales of the Company's securities for which it has received commissions in the form of cash and securities. See "Certain Relationships and Transactions." (16) Shares listed as held by Conzett Europa-Inv. Limited include 75,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 240,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (17) Shares listed as held by Mr. Danieli include 444 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. 27 30 (18) Shares listed as held by DW Trustees include 5,0000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (19) Shares listed as held by Egger & Co. include 25,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 80,0000 shares underlying Notes that are convertible within 60 days of the Reference Date. (20) Shares listed as held by Ms. Eldridge include 4,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (21) Shares listed as held by Energa Capital Forbank & Co. include 15,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 48,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (22) Shares listed as held by Mr. Falchuk include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (23) Mr. Falk directly owns 302,222 shares of Common Stock and warrants to purchase up to 581,930 shares of Common Stock which are exercisable currently or within 60 days following the Reference Date. The number of shares listed as owned by Mr. Falk includes an additional 542,222 shares, and 1,367,078 shares underlying warrants that are exercisable currently or within 60 days following the Reference Date, held by Commonwealth Associates (excluding securities held in Commonwealth Associates' trading account). Mr. Falk is a control person of the corporate general partner of Commonwealth Associates and may be deemed to be beneficial owner of securities held by Commonwealth Associates. The number of shares also includes an additional 100,000 shares underlying warrants that are exercisable currently or within 60 days following the Reference Date held by Anne Falk, Mr. Falk's spouse. Mr. Falk disclaims beneficial ownership of the securities held by Commonwealth Associates except to the extent of his percentage ownership interests in Commonwealth Associates. Shares and warrants held directly by Mr. Falk were transferred to him by Commonwealth Associates. Commonwealth Associates disclaims beneficial ownership of such shares and warrants and the underlying warrant shares. Such shares and warrants were issued to Commonwealth Associates as compensation for certain services rendered to the Company. The shares listed under the caption "Shares to be Sold in Offering" include 20,000 shares to be sold by Commonwealth Associates in this Offering. See "Certain Relationships and Transactions." (24) Shares listed as held by Fifth Third Bank include 15,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 48,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (25) Shares listed as held by France Finance IV include 20,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 64,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (26) Shares listed as held by Mr. Giardina include 1,387 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (27) Shares listed as held by Mr. Goldenheim include 2,500 shares underlying Warrants that are exercisable 28 31 currently or within 60 days following the Reference Date and 8,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (28) Shares listed as held by Mr. Gomes include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (29) Shares listed as held by Mr. Green include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (30) Shares listed as held by Mr. Greenstein include 129 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (31) Shares listed as held by Mr. Guidice include 91 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (32) Shares listed as held by Mr. Galterio include 114 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (33) Shares listed as held by The Hart Family Trust include 2,500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 80,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (34) Shares listed as held by Ms. Hoffman include 1,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (35) Shares listed as held by Mr. Huse include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (36) Shares listed as held by the Huse Money Purchase Pension Plan include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (37) Shares listed as held by the Ivys include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (38) Shares listed as held by Mr. Jackman include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (39) Shares listed as held by the Jacksons include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (40) Shares listed as held by JF Shea Co, Inc. include 160,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 512,000 shares underlying Notes that are 29 32 convertible within 60 days of the Reference Date. (41) Shares listed as held by Jo-Bar Enterprises LLC include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (42) Shares listed as held by Ms. Jordan include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (43) Shares listed as held by LAD Equity Partners include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (44) Shares listed as held by Stephen LaBarbara include 3,460 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (45) Shares listed as held by Vincent LaBarbara include 6,192 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (46) Shares listed as held by Mr. Lee include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (47) Shares listed as held by Mr. Legere include 114 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (48) Shares listed as held by Mr. Leppla include 444 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (49) Shares listed as held by The Lesile Group include 1,027 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (50) Shares listed as held by Mr. Levine include 3,750 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 12,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (51) Shares listed as held by Ms. Lipman include 500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (52) Shares listed as held by Mr. Luck include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (53) Shares listed as held by Mr. Lyall include 3,890 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (54) Shares listed as held by Mr. Manocherian include 2,500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 8,000 shares underlying Notes that are 30 33 convertible within 60 days of the Reference Date. (55) Shares listed as held by Jed R. Manocherian 1995 Property Trust include 1,250 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 4,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (56) Shares listed as held by Mr. Marsillo include 1,030 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (57) Shares listed as held by the Millers include 50,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 160,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (58) Shares listed as held by Mr. Mirman include 2,112 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (59) Shares listed as held by Mizebourme Investment Corp. include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (60) Shares listed as held by Mr. Moschetta include 1,109 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (61) Shares listed as held by Mr. Nass include 665 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (62) Shares listed as held by Northlea Partners Ltd. include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. Includes 34,895 shares underlying stock options held by John D. Abeles, MD that are exercisable currently or within 60 days following the Reference Date. Includes 253,713 shares of Common Stock held of record and 38,049 shares underlying warrants exercisable currently or within 60 days following the Reference Date held of record by Northlea Partners Limited, as to which Dr. Abeles disclaims beneficial ownership except with respect to his 1% general partnership ownership. Dr. Abeles served as a director of the Company from 1988 until May 1997. (63) Shares listed as held by Mr. O'Sullivan include 8,405 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (64) Shares listed as held by Robert O'Sullivan Family Trust include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (65) Shares listed as held by Mr. Peacock include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (66) Shares listed as held by Mr. Perreira include 500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. 31 34 (67) Shares listed as held by the Parker Estate include 1,027 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (68) Mr. Priddy is a director of the Company. Shares listed as held by Mr. Priddy include 257,410 shares underlying warrants that are exercisable currently or within 60 days following the Reference Date and 480,000 shares underlying Notes that are convertible within 60 days of the Reference Date. Shares to be offered by Mr. Priddy include Shares underlying 7,410 Warrants transferred to Mr. Priddy by Commonwealth Associates. See "Certain Relationships and Transactions." (69) Shares listed as held by Mr. Rand include 8,585 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (70) Shares listed as held by Mr. Riccardi include 91 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (71) Shares listed as held by Mr. Rickman include 2,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (72) Shares listed as held by Mr. Robinson include 16,262 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (73) Shares listed as held by Mr. Rogers include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (74) Shares listed as held by Mr. Rosenbloom include 8,831 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (75) Shares listed as held by Ms. Ross include 500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (76) Shares listed as held by Royal Bank of Canada Trust Company include 37,500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 157,500 shares underlying Notes that are convertible within 60 days of the Reference Date. (77) Shares listed as held by Mr. Rubenstein include 889 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (78) Shares listed as held by Mr. Schoen include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (79) Shares listed as held by Mr. Segal include 1,284 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (80) Shares listed as held by Ms. Schiller include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (81) Shares listed as held by Mr. Scneider include 10,000 shares underlying Warrants that are exercisable 32 35 currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (82) Shares listed as held by Mr. Van Sicien include 500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (83) Shares listed as held by Mr. Shea include 1,558 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. See "Certain Transactions and Relationships." (84) Shares listed as held by Mr. Stein include 500 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (85) Shares listed as held by Mr. Tallur include 553 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (86) Shares listed as held by the Stern Money Purchase Plan include 40,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 128,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (87) Shares listed as held by Mr. Tucker include 1,027 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (88) Shares listed as held by Vitali Maritime Corp. include 10,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 32,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (89) Shares listed as held by Mr. Volpe include 558 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (90) Shares listed as held by Mr. Warner include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (91) Shares listed as held by Ms. Westmoreland include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. (92) Shares listed as held by Mr. Wynn include 590 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (93) Shares listed as held by Mr. Wynne include 3,890 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date. (94) Shares listed as held by Mr. Zises include 5,000 shares underlying Warrants that are exercisable currently or within 60 days following the Reference Date and 16,000 shares underlying Notes that are convertible within 60 days of the Reference Date. The Company has agreed to indemnify certain of the Selling Securityholders 33 36 and the Selling Securityholders have agreed to indemnify the Company against certain civil liabilities, including liabilities under the Securities Act. Except as noted in the footnotes above and under the caption "Certain Relationships and Transactions" below, none of the Selling Securityholders has held any office or maintained any material relationship with the Company during the past three years. 34 37 CERTAIN RELATIONSHIPS AND TRANSACTIONS Set forth below is certain information regarding certain relationships and transactions between the Selling Securityholders and the Company. Commonwealth Associates, Inc. ("Commonwealth Associates") is a principal stockholder. On March 14, 1997, the Company consummated a private placement (the "Private Placement") of 85 units (the "Units") each consisting of $100,000 in principal amount of Notes and Warrants to purchase 10,000 shares of Common Stock, for which Commonwealth Associates acted as placement agent and received from the Company (i) cash commissions equal to 7% of the gross proceeds, (ii) five-year Warrants to purchase 200,000 shares of Common Stock at an exercise price of $3.125 per share (of which Warrants, Commonwealth has subsequently transferred beneficial ownership to certain of its designees) and (iii) an accountable expense reimbursement of $56,500 in cash. Pursuant to a letter agreement dated as of February 14, 1995 among the Company, AccuMed, Inc. and Commonwealth Associates, Commonwealth Associates was paid a fee for acting as a "finder" in connection with the merger of AccuMed, Inc. into the Company. The fee was paid in the form of $50,000 in cash, 444,444 shares of Common Stock, and a five-year warrant to purchase up to 750,000 shares of Common Stock at an exercise price of $1.25 per share. During 1995, Commonwealth Associates acted as placement agent for the Company in certain private placements of Common Stock for which Commonwealth Associates received an aggregate of (i) $353,000 in cash commissions, (ii) a non-accountable expense allowance of $106,000, (iii) approximately $10,600 in reimbursement for the fees and expenses of counsel, and (iv) a warrant to purchase an aggregate of 564,840 shares of the Common Stock at an exercise price of $0.625 per share. During 1995, the Company paid Commonwealth Associates an aggregate of $59,000 in cash pursuant to a Consulting Agreement in effect from January 1, 1995 through December 31, 1995. As reimbursement for certain expenses incurred by Commonwealth Associates in connection with a terminated private placement of securities for which Commonwealth Associates was to act as placement agent, the Company (i) issued to Commonwealth Associates on December 31, 1994 a five-year warrant to purchase an aggregate of 420,000 shares of Common Stock at an exercise price of $0.25 per share and (ii) issued to designees of Commonwealth Associates on December 29, 1995 five-year warrants to purchase an aggregate of 104,000 shares of Common Stock at an exercise price of $2.125 per share, which warrants expire on October 31, 1997. The Company has agreed, with respect to the exercise of warrants to purchase an aggregate of 2,702,905 shares of Common Stock (the "Redeemable Warrants") issued in connection with the Company's initial public offering and certain private placements, to pay to Commonwealth Associates a fee of 5% of the exercise price of each Redeemable Warrant exercised; provided, however, that Commonwealth Associates will not be entitled to receive such compensation for Redeemable Warrant exercise transactions in which: (i) the market price of the Common Stock at the time of the exercise is lower than the exercise price of the Redeemable Warrants; (ii) the Redeemable Warrants are held in any discretionary account; (iii) disclosure of compensation arrangements is not made in documents provided to holders of Redeemable Warrants at the time of exercise; (iv) the exercise of the Redeemable Warrants is unsolicited; and (v) the transaction was in violation of Rule 10b-6 promulgated under the Exchange Act. As of April 1, 1997, Redeemable Warrants had been exercised to purchase 200 shares of Common Stock. If the closing price per share of Common Stock exceeds $7.50 per share (subject to adjustment) for a minimum of 20 consecutive trading days, the Company would have the right to redeem the Redeemable Warrants, upon notice of not less than 60 days given to holders within three days following any such 20 day period, at a redemption price of $0.25 per underlying share. The exercise price of the Redeemable Warrants, which expire October 1, 1997, is $5.00 per share. The Company has agreed with the underwriters of the Company's underwritten public offering consummated in October 1996, not to redeem the Redeemable Warrants, without the consent of the representatives of the several underwriters, prior to October 3, 1997. 35 38 The Company issued to American Equities Overseas, Inc. ("American Equities"), a Selling Securityholder, an immediately exercisable, five-year warrant to purchase up to 100,000 shares of Common Stock at an exercise price of $0.25 per share. Such warrant was issued to American Equities by the Company in September 1995 as reimbursement for expenses incurred by American Equities in connection with a terminated private placement in 1994 and advisory services in connection with certain of the Company's European stockholders. In March 1996, the Company issued to American Equities immediately exercisable five-year warrants to purchase an aggregate of 42,500 shares of Common Stock at an exercise price of $3.87 per share and 20,000 shares at an exercise price of $3.42 per share, as partial compensation for its services in placing warrants to purchase Common Stock and securities of RADCO in connection with the capitalization of RADCO. American Equities acted as placement agent in connection with the sale of Common Stock to certain European investors in May 1996, for which it received aggregate cash commissions of $56,250. Pursuant to an agreement dated July 18, 1996 among the Company, RADCO and American Equities, the Company paid to American Equities a fee of $15,000 in cash upon consummation of the RADCO acquisition. As a part of the RADCO acquisition, the Company purchased from American Equities 50,000 shares of RADCO Stock in consideration of payment of approximately $14,000 in cash. Robert L. Priddy, a director of the Company since May 23, 1997, is the beneficial owner of 9.9% of the common stock of Commonwealth Associates. Mr. Priddy loaned the Company $3,000,000 pursuant to a loan (the "Bridge Loan") in the aggregate principal amount of $6,000,000 made pursuant to a Loan Agreement dated as of February 19, 1997 among the Company and Mr. Priddy and Edmund H. Shea, Jr. (collectively, the "Lender"), evidenced by a Convertible Promissory Note dated as of February 19, 1997 made by the Company in favor of the Lender. Interest on the indebtedness under the Bridge Loan accrued at a rate of 12% per annum payable at maturity. All amounts owed to the Lender by the Company pursuant to the Bridge Loan, including an aggregate of $130,000 representing the loan origination fee, interest and the prepayment premium were paid in full as of March 14, 1997 with a portion of the proceeds of the Private Placement. Mr. Priddy purchased 15 Units for an aggregate purchase price of $1,500,000 in the Private Placement. Edmund H. Shea, Jr., a Selling Securityholder, loaned the Company $3,000,000 pursuant the Bridge Loan in the aggregate principal amount of $6,000,000 made pursuant to a Loan Agreement dated as of February 19, 1997 among the Company and Mr. Priddy and Mr. Shea (collectively, the "Lender"), evidenced by a Convertible Promissory Note dated as of February 19, 1997 made by the Company in favor of the Lender. Interest on the indebtedness under the Bridge Loan accrued at a rate of 12% per annum payable at maturity. All amounts owed to the Lender by the Company pursuant to the Bridge Loan, including an aggregate of $130,000 representing the loan origination fee, interest and the prepayment premium were paid in full as of March 14, 1997 with a portion of the proceeds of the Private Placement. PLAN OF DISTRIBUTION The Selling Securityholders may sell the Shares of Common Stock (i) in an underwritten offering or offerings, (ii) through brokers and dealers, (iii) "at the market" to or through a market maker or in an existing trading market, on an exchange or otherwise, for such Shares, (iv) in other ways not involving market makers or established trading markets, including direct sales to purchasers and (v) to the extent not prohibited by applicable securities law, in ways other than pursuant to the distribution plan presented in this Prospectus. The distribution of Shares of Common Stock may be effected from time to time in one or more underwritten transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Any such underwritten offering may be on a "best efforts" or a "firm commitment" basis. 36 39 In connection with any such underwritten offering, underwriters or agents may receive compensation from the Selling Securityholders for whom they may act as agents in the form of discounts, concessions or compensation in the form of discount, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. At any time a particular offer of Shares of Common Stock is made, if required, a Prospectus Supplement will be distributed that will set forth the names of the Selling Securityholder(s) offering such Shares of Common Stock, the aggregate amount of such Shares of Common Stock being offered and the terms of the offering, including the names or names of any underwriters, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a post-effective amendments to the tea Registration Statement of which this Prospectus forms as part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of such Shares of Common Stock. The Selling Securityholders and any underwriters, dealers or agents that participate int he distribution of Shares of Common Stock may be deemed to be underwriters,and any profit on the sale of Shares of Common Stock by the Selling Securityholders and any discount, commissions or concessions received by any such underwriters, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. Under an agreement that may be entered into by the Company, underwriters, dealers, and agents who participate in the distribution of Shares of Common stock may be entitled to indemnification by the Company against certain liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof. The sale of Shares of Common Stock by Selling Securityholders may also be effect from time to time by Selling Securityholders directly to purchasers or to or through certain broker-dealers. In connection with any such sale, any such broker-dealer, acting as agent or s principal, may be made pursuant to any of the methods described below. Such sales may be made on the Nasdaq or other exchanges on which the Common Stock is then traded, in the over-the-counter market, in negotiated transactions or otherwise at prices and at terms then prevailing or at prices related to the then-current market prices or at prices otherwise negotiated. The Shares of Common Stock may also be sold in one or more of the following transactions: (i) a block transactions (which may involve crosses) in which a broker-dealer may sell all or a portion of such shares as agent but may position and resell all or a portion of the block as principal to facilitate the transaction; (ii) purchases by any such broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this Prospectus which forms a part of the Registration Statement; (iii) a special offering, an exchange distribution or a secondary distribution in accordance with applicable stock exchange rules; and (iv) ordinary brokerage transactions and transactions in which any such broker-dealer solicits purchasers. In effecting sales, broker-dealers engaged by the Selling Securityholders may arrange for to the broker-dealers to participate. Broker-dealers will receive commissions or other compensation from the Selling Securityholders in amounts to be negotiated immediately prior to the sale that will not exceed the customary in the type of transactions involved. Broker-dealers may also receive compensation from purchasers of the Shares which is not expected to exceed that customary in the types of transactions involved. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In addition, any securities covered by this Prospectus that qualify for sale pursuant to Rule 144 under the Securities Act might be sold under 37 40 Rule 144 rather than pursuant to this Prospectus. LEGAL MATTERS The legality of the securities offered by this Prospectus will be passed upon for the Company by its General Counsel, Joyce L. Wallach, Esq. EXPERTS The balance sheet of Alamar Biosciences, Inc. as of September 30, 1995 and the statements of operations, stockholder's equity, and cash flows for the year ended September 30, 1995, as incorporated by reference in the Registration Statement of which this Prospectus forms a part, has been incorporated herein in reliance on the report, which included an explanatory paragraph related to Alamar Biosciences, Inc.'s ability to continue as a going concern, of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of said firm as experts in accounting and auditing. The consolidated financial statements of AccuMed International, Inc. and subsidiaries as of December 31, 1996 and December 31, 1995, and for the year ended December 31, 1996 and the three months ended December 31, 1995, incorporated by reference herein and elsewhere in the Registration Statement of which this Prospectus forms a part from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996, have been included therein and incorporated by reference herein and elsewhere in the Registration Statement of which this Prospectus forms a part in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, included therein and incorporated herein by reference, and upon the authority of said firm as experts in accounting and auditing. 38 41 =============================================================================== No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any selling securityholder. This Prospectus does not constitute an offer to sell, or a solicitation of any offer to buy any security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of any offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication information contained herein is correct as of any time subsequent to the date hereof. -------------------------------- TABLE OF CONTENTS Page ----- Special Note Regarding Forward Looking Statements Available Information........................... Additional Information.......................... Incorporation of Certain Documents by Reference Prospectus Summary.............................. The Company..................................... Risk Factors.................................... Use of Proceeds................................. Selling Securityholders......................... Certain Relationships and Transactions.......... Plan of Distribution............................ Legal Matters................................... Experts ....................................... =============================================================================== =============================================================================== 3,770,000 Shares ACCUMED INTERNATIONAL, INC. Common Stock -------------- PROSPECTUS --------------- =============================================================================== 42 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the issuance and distribution of the securities being registered hereunder. All of the amounts shown are estimates (except for the SEC registration fee).
SEC registration fee..............................................$4,501 Printing and engraving expenses...................................$2,000 Accounting fees and expenses......................................$5,000 Legal fees and expenses...........................................$2,000 Blue Sky fees and expenses........................................$2,000 Miscellaneous.....................................................$1,499 ------- TOTAL............................................................$16,000 =======
None of these expenses will be paid by the Selling Securityholders pursuant to the terms of the agreements under which the shares of Common Stock to be sold hereby were issued. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company has provisions in its Certificate of Incorporation which eliminate the liability of the Company's directors to the Company and its shareholders for monetary damages to the fullest extent permissible under Delaware law and provisions which authorize the Company to indemnify its directors and agents by bylaws, agreements or otherwise, to the fullest extent permitted by law. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by Delaware law. The Company's officers and directors are covered by a director's and officer's liability insurance policy maintained by the Company. Under the insurance policy, the Company is entitled to be reimbursed for indemnity payments that it is required or permitted to make to its directors and officers. ITEM 16. EXHIBITS The following exhibits are filed herewith:
Exhibit Number Description - ------- ------------
II-1 43 4.1 Certificate of Incorporation of the Registrant. 4.2 Certificate of Amendment to Certificate of Incorporation of the Registrant. 4.3 Specimen Certificate for Common Stock. (1) 4.4 Bylaws of the Registrant. (1) 4.5 Form of Lock-up Letter dated July 16, 1996 between Tucker Anthony Incorporated and Vector Securities as representatives of the several underwriters and each of the following Selling Securityholders: Michael Falk, Clarion Capital Corp., The P.L. Thomas Group, Inc., Gallagher Investment Corp., American Equities Overseas, Inc., Fred Kassner, Philip L. Thomas, Vincent LaBarbara, Robert Priddy, Ann F. Gallagher, Christopher C. Gallagher, Daniel R. Lee, Jo-Bar Enterprises LLC, J.A. Cardwell, Richard Friedman, Michael Burke, G&G Diagnostics LP I, Leonard M. Schiller, John Abeles, Andrew B. Hart, Northlea Partners Ltd., Hamilton T. Bailey, Alan Hammerman, James A. Cardwell, Jr., Charles Potter, Sheila Y. Schiller, Suzanne Schiller, William R. and Barbara J. Schoen, John Luck, Frederick J. Oswald, Richard A. Voell, and Wertheimer Partnership (2) 4.6 Lock-up Letter dated August 21, 1996 between Tucker Anthony Incorporated and Vector Securities as representatives of the several underwriters and Commonwealth Associates. (2) 4.7 Warrant Agreement among the Registrant, Commonwealth Associates and American Stock Transfer and Trust Company as transfer agent relating to Warrants to purchase an aggregate of 850,000 shares of Common Stock dated March 13, 1997. (3) 4.8 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. (3) 4.9 Form of Subscription Agreement between the Registrant and several investors in the private placement consummated on March 13, 1997. (3) 4.10 Form of 12% Convertible Promissory Note evidencing indebtedness in the original aggregate principal amount of $8.5 million made by the Registrant in favor of several investors in the private placement consummated on March 13, 1997. (3) 4.11 Stock Purchase Warrant between the Registrant and Commonwealth Associates dated as of March 13, 1997 pertaining to Warrants to purchase an aggregate of 200,000 shares of Common Stock and Form of Warrant Certificate dated as of March 13, 1997 evidencing the right to acquire an aggregate of 200,000 shares of Common Stock issued to Commonwealth Associates and/or its designees, issued in connection with the private placement consummated March 13, 1997.(3) 5.1 Opinion of Joyce L. Wallach, Esq., General Counsel to the Registrant, regarding the legality of the securities offered hereby. 23.1 Consent of Joyce L. Wallach, Esq., General Counsel to the Registrant, (contained in Exhibit 5.1). II-2 44 23.2 Consent of Coopers & Lybrand LLP. 23.3 Consent of KPMG Peat Marwick LLP. 24.1 Powers of Attorney (contained in the signature page to the Registration Statement). - ------------------------ (1) Incorporated by reference to the Registrant's Transition Report of Form 10-KSB for the transition period ended December 31, 1995. (2) Incorporated by reference to the Registrant's Post-effective Amendment No. 2 to the Registration Statement on Form S-3 (Regis. No. 333-04715). (3) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any additional or changed material information with respect to the plan of distribution. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 45 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois on May 30, 1997. ACCUMED INTERNATIONAL, INC. By: /s/ PETER P. GOMBRICH ------------------------------------- Peter P. Gombrich, Chairman, Chief Executive Officer and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Peter P. Gombrich and Leonard R. Prange, and each of the, attorneys-in-fact for the undersigned, each with the power of substitution, for the undersigned in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to file the same, with all exhibits thereto, and other documents inc connection therewith, with the Securities and Exchange Commission, hereby certifying and confirming all that each of said attorneys-in-fact or his substitute or substitutes may lawfully do or causes to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ PETER P. GOMBRICH Chairman of the Board, May 30, 1997 - -------------------------- (Peter P. Gombrich) Chief Executive Officer, and President (Principal Executive Officer) /s/ LEONARD R. PRANGE Chief Financial Officer May 30, 1997 - ------------------------ and Chief Operating (Leonard R. Prange) Officer (Principal Financial and Accounting Officer) Director - ----------------------- (J. Donald Gaines) /s/ JACK H. HALPERIN Director May 30, 1997 - ----------------------- (Jack H. Halperin) /s/ PAUL F. LAVALLEE Director May 30, 1997 - ----------------------- (Paul F. Lavallee)
II-4 46
/s/ JOSEPH W. PLANDOWSKI Director May 30, 1997 - ------------------------- (Joseph W. Plandowski) /s/ ROBERT L. PRIDDY Director May 30, 1997 - ------------------------- (Robert L. Priddy) /s/ LEONARD M. SCHILLER Director May 30, 1997 - ------------------------- (Leonard M. Schiller)
II-5 47 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ------------ 4.1 Certificate of Incorporation of the Registrant. 4.2 Certificate of Amendment to Certificate of Incorporation of the Registrant. 4.3 Specimen Certificate for Common Stock. (1) 4.4 Bylaws of the Registrant. (1) 4.5 Form of Lock-up Letter dated July 16, 1996 between Tucker Anthony Incorporated and Vector Securities as representatives of the several underwriters and each of the following Selling Securityholders: Michael Falk, Clarion Capital Corp., The P.L. Thomas Group, Inc., Gallagher Investment Corp., American Equities Overseas, Inc., Fred Kassner, Philip L. Thomas, Vincent LaBarbara, Robert Priddy, Ann F. Gallagher, Christopher C. Gallagher, Daniel R. Lee, Jo-Bar Enterprises LLC, J.A. Cardwell, Richard Friedman, Michael Burke, G&G Diagnostics LP I, Leonard M. Schiller, John Abeles, Andrew B. Hart, Northlea Partners Ltd., Hamilton T. Bailey, Alan Hammerman, James A. Cardwell, Jr., Charles Potter, Sheila Y. Schiller, Suzanne Schiller, William R. and Barbara J. Schoen, John Luck, Frederick J. Oswald, Richard A. Voell, and Wertheimer Partnership (2) 4.6 Lock-up Letter dated August 21, 1996 between Tucker Anthony Incorporated and Vector Securities as representatives of the several underwriters and Commonwealth Associates. (2) 4.7 Warrant Agreement among the Registrant, Commonwealth Associates and American Stock Transfer and Trust Company as transfer agent relating to Warrants to purchase an aggregate of 850,000 shares of Common Stock dated March 13, 1997. (3) 4.8 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. (3) 4.9 Form of Subscription Agreement between the Registrant and several investors in the private placement consummated on March 13, 1997. (3) 4.10 Form of 12% Convertible Promissory Note evidencing indebtedness in the original aggregate principal amount of $8.5 million made by the Registrant in favor of several investors in the private placement consummated on March 13, 1997. (3) 4.11 Stock Purchase Warrant between the Registrant and Commonwealth Associates dated as of March 13, 1997 pertaining to Warrants to purchase an aggregate of 200,000 shares of Common Stock and Form of Warrant Certificate dated as of March 13, 1997 evidencing the right to acquire an aggregate of 200,000 shares of Common Stock issued to Commonwealth Associates and/or its designees, issued in connection with the private placement consummated March 13, 1997.(3)
II-6 48
5.1 Opinion of Joyce L. Wallach, Esq., General Counsel to the Registrant, regarding the legality of the securities offered hereby. 23.1 Consent of Joyce L. Wallach, Esq., General Counsel to the Registrant, (contained in Exhibit 5.1). 23.2 Consent of Coopers & Lybrand LLP. 23.3 Consent of KPMG Peat Marwick LLP. 24.1 Powers of Attorney (contained in the signature page to the Registration Statement).
- ------------------------ (1) Incorporated by reference to the Registrant's Transition Report of Form 10-KSB for the transition period ended December 31, 1995. (2) Incorporated by reference to the Registrant's Post-effective Amendment No. 2 to the Registration Statement on Form S-3 (Regis. No. 333-04715). (3) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996. EX-4.1 2 EXHIBIT 4.1 1 EXHIBIT 4.1 CERTIFICATE OF INCORPORATION OF ACCUMED INTERNATIONAL, INC. FIRST. The name of the corporation is: AccuMed International, Inc. (the "Corporation"). SECOND. The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of Newcastle (the "Registered Office"). The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). FOURTH. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 35,000,000 shares, divided into two classes as follows: 5,000,000 shares of Preferred Stock of the par value of $0.01 per share ("Preferred Stock"); and 30,000,000 shares of Common Stock of the par value of $0.01 per share ("Common Stock"). The designations, powers, preferences and rights, and the qualifications, limitations or restrictions of the above classes of stock are as follows: DIVISION I PREFERRED STOCK 1. The board of directors is expressly authorized at any time, and from time to time, to issue shares of Preferred Stock in one or more series, and for such 2 consideration as the board of directors may determine, with such voting powers, full or limited but not to exceed one vote per share, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issue thereof, and as are not stated in this Certificate of Incorporation, or any amendment thereto. All shares of any one series shall be of equal rank and identical in all respects. 2. No dividend shall be paid or declared on any particular series of Preferred Stock unless dividends shall be paid or declared pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series. 3. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the board of directors creating any series of Preferred Stock pursuant to this Division I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. Subject to the protective conditions or restrictions of any outstanding series of Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the Corporation. 4. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the Corporation, or which have been issued and reacquired in any manner, shall, upon compliance with any applicable provisions of the GCL, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the board of directors as part of the series of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. DIVISION II COMMON STOCK 1. DIVIDENDS. Subject to the preferential dividend rights, if any, applicable to shares of the Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for the 2 3 Preferred Stock, the holders of the Common Stock shall be entitled to receive to the extent permitted by law, such dividends as may be declared from time to time by the board of directors. 2. LIQUIDATION. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. 3. VOTING RIGHTS. Except as may be otherwise required by law or this Certificate of Incorporation, each holder of the Common Stock shall have one vote in respect of each share of stock held by him or her of record on the books of the Corporation on all matters voted upon by the stockholders. DIVISION III ELIMINATION OF PREEMPTIVE RIGHTS No holder of stock of any class of the Corporation shall be entitled as a matter of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class or capital stock of the Corporation, or of any bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the Corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the board of directors to such persons, firms, corporations or associations and upon such terms and for such consideration (not less than the par value or stated value thereof) as the board of directors in the exercise of its discretion may determine and as may be permitted by law without action by the stockholders. FIFTH. The name and mailing address of the incorporator are as follows: Roger R. Fross, 115 South LaSalle Street, Chicago, IL 60603. SIXTH. The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: 3 4 (1) The business and affairs of the Corporation shall be managed by or under the direction of the board of directors. (2) The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the by-laws of the Corporation. (3) The number of directors of the Corporation shall be as from time to time fixed by, or in the manner provided in, the by-laws of the Corporation. Election of directors need not be by written ballot unless the by-laws so provide. (4) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which the director derived an improper personal benefit. If the GCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL as so amended. Any repeal or modification of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. (5) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any by-laws adopted by the stockholders; provided, however, that no by-laws adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such by-laws had not been adopted. SEVENTH. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. EIGHTH. (1) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative 4 5 (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (2) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (3) To the extent that any person referred to in paragraphs (1) and (2) of this Article EIGHTH has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. 5 6 (4) Any indemnification under paragraphs (1) and (2) of this Article EIGHTH (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in said paragraphs (1) and (2). Such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (c) by the stockholders. (5) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as provided in this Article EIGHTH. (6) The Corporation may, to the extent authorized from time to time by the board of directors, grant rights to indemnification and to the advancement of expenses, to any employee or agent of the Corporation or its subsidiaries, or to any employee or agent of any entity providing contractual services for the Corporation or its subsidiaries, to the fullest extent of the provisions of this Article EIGHTH with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. (7) The indemnification and advancement of expenses provided by or granted pursuant to the other subsections of this Article EIGHTH shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (8) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article. 6 7 (9) For the purposes of this Article EIGHTH, references to the "Corporation" shall include in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article EIGHTH with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. (10) For purposes of this Article EIGHTH, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this paragraph. (11) The indemnification and advancement of expenses provided by, or granted pursuant to this Article EIGHTH shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Any repeal or modification of this Article EIGHTH shall not adversely affect any right to indemnification or advancement of expenses of any present or former director, officer, employee or agent of the Corporation existing at the time of such repeal or modification. (12) If this Article EIGHTH or any portion hereof is invalidated by any court of competent jurisdiction, then the Corporation shall nevertheless provide such indemnification and advancement of expenses as would otherwise be permitted under any portion of this Article EIGHTH that shall not have been invalidated. NINTH. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the 7 8 State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the GCL or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the GCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. TENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. I, the undersigned, being the sole incorporator hereinbefore named, for the purpose of forming a Corporation pursuant to the GCL, do make this certificate, hereby declaring and certifying that the facts herein stated are true and accordingly have hereunto set my hand this 8th day of December, 1995. /s/ ROGER FROSS Incorporator 8 EX-4.2 3 EXHIBIT 4.2 1 EXHIBIT 4.2 CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF ACCUMED INTERNATIONAL, INC. The undersigned, the President and Secretary of AccuMed International, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: 1. The Board of Directors of AccuMed International, Inc. duly adopted a resolution, in accordance with Section 242 of the General Corporation Law of the State of Delaware, to amend the Certificate of Incorporation of AccuMed International, Inc. to increase the authorized shares of Common Stock from 30,000,000 shares to 50,000,000 shares, and declaring the advisability thereof. 2. At the Combined Annual and Special Meeting of Stockholders held on May 23, 1997, dully called and held in accordance with the provisions of Section 222 of the General Corporation Law of the State of Delaware, a majority of the shares of the outstanding stock entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class, were voted in favor of such amendment in accordance with Section 242 of the General Corporation Law of the State of Delaware. 3. Article FOURTH of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: FOURTH. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 55,000,000 shares, divided into two classes as follows: 5,000,000 shares of Preferred Stock of the par value of $0.01 per share ("Preferred Stock"); and 1 2 50,000,000 shares of Common Stock of the par value of $0.01 per share ("Common Stock"). The designations, powers, preferences and rights, and the qualifications, limitations or restrictions of the above classes of stock are as follows: DIVISION I PREFERRED STOCK 1. The board of directors is expressly authorized at any time, and from time to time, to issue shares of Preferred Stock in one or more series, and for such consideration as the board of directors may determine, with such voting powers, full or limited but not to exceed one vote per share, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issue thereof, and as are not stated in this Certificate of Incorporation, or any amendment thereto. All shares of any one series shall be of equal rank and identical in all respects. 2. No dividend shall be paid or declared on any particular series of Preferred Stock unless dividends shall be paid or declared pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series. 3. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the board of directors creating any series of Preferred Stock pursuant to this Division I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. Subject to the protective conditions or restrictions of any outstanding series of Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the Corporation. 4. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the Corporation, or which have been issued and reacquired in any manner, shall, upon compliance with any applicable provisions of the GCL, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the board of directors as part of the series 2 3 of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. DIVISION II COMMON STOCK 1. DIVIDENDS. Subject to the preferential dividend rights, if any, applicable to shares of the Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for the Preferred Stock, the holders of the Common Stock shall be entitled to receive to the extent permitted by law, such dividends as may be declared from time to time by the board of directors. 2. LIQUIDATION. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. 3. VOTING RIGHTS. Except as may be otherwise required by law or this Certificate of Incorporation, each holder of the Common Stock shall have one vote in respect of each share of stock held by him or her of record on the books of the Corporation on all matters voted upon by the stockholders. DIVISION III ELIMINATION OF PREEMPTIVE RIGHTS No holder of stock of any class of the Corporation shall be entitled as a matter of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class or capital stock of the Corporation, or of any bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the Corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the board of directors to such persons, firms, 3 4 corporations or associations and upon such terms and for such consideration (not less than the par value or stated value thereof) as the board of directors in the exercise of its discretion may determine and as may be permitted by law without action by the stockholders. IN WITNESS WHEREOF, we have signed this Certificate this 23rd day of May 1997. ACCUMED INTERNATIONAL, INC. By: /s/ PETER P. GOMBRICH Peter P. Gombrich, President ATTEST: /s/ JOYCE L. WALLACH - ------------------------------ Joyce L. Wallach Secretary 4 EX-5.1 4 EXHIBIT 5.1 1 EXHIBIT 5.1 AccuMed International, Inc. 900 North Franklin Street, Suite 401 Chicago, Illinois 60610 May 30, 1997 The Board of Directors AccuMed International, Inc. 900 N. Franklin Street, Suite. 401 Chicago, Illinois 60610 Gentlemen: You have requested my opinion as General Counsel for AccuMed International, Inc., a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act"), and the Rules and Regulations promulgated thereunder, of an aggregate of 3,770,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), of which (i) 2,720,000 shares (the "Conversion Shares") are underlying 12% Convertible Promissory Notes (the "Notes") and 1,050,000 shares are underlying Warrants to purchase Common Stock (the "Warrant Shares") pursuant to a Registration Statement on Form S-3 (the "Registration Statement"). For purposes of this opinion, I have examined the Registration Statement filed with the Securities and Exchange Commission on or about the date hereof, including the prospectus which is a part thereof (the "Prospectus") and the exhibits thereto. I have also been furnished with and have examined originals or copies, certified or otherwise identified to my satisfaction, of all such records of the Company, agreements and other instruments, certificates of officers and representatives of the Company, certificates of public officials and other documents as I have deemed it necessary to require as a basis for the opinions hereafter expressed. As to questions of fact material to such opinions, I have, where relevant facts were not independently established, relied upon certifications by principal officers of the Company. I have made such further legal and factual examination and investigation as I deem necessary for purposes of rendering the following opinions. In my examination I have assumed the genuineness of all signatures, the legal capacity of natural persons, the correctness of facts set forth in certificates, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies, and -1- 2 the authenticity of the originals of such copies. I have also assumed that such documents have each been duly authorized, properly executed and delivered by each of the parties thereto other than the Company. I am a member of the bar of the State of California. My opinions below are limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the federal securities laws of the United States. Based on the foregoing, it is my opinion that all of (i) the Warrant Shares, when issued and delivered against payment in full of the respective Warrant exercise prices in accordance with the terms of the respective Warrants and warrant agreements governing such Warrants, and when sold and delivered in the manner described in the Prospectus, will be legally and validly issued, fully paid and nonassessable, and (ii) the Conversion Shares, when issued and delivered in accordance with the terms of the Notes and when sold and delivered in the manner described in the Prospectus, will be legally and validly issued, fully paid and nonassessable. I consent to the filing of this opinion as an exhibit to the Registration Statement and consent to the use of my name under the caption "Legal Matters" in the Prospectus. Very truly yours, /s/ JOYCE L. WALLACH - -------------------------- General Counsel EX-23.2 5 EXHIBIT 23.2 1 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Form S-3 (to be filed with the SEC on or about May 30, 1997) of our report, which included an explanatory paragraph related to substantial doubt about the ability of Alamar Biosciences, Inc. to continue as a going concern, dated November 19, 1995, on our audits of the financial statements of Alamar Biosciences, Inc. as of September 30, 1995 and for the year ended September 30, 1995, which report is included in the Annual Report on Form 10-KSB for the year ended September 30, 1995. We also consent to the reference to our firm under the caption "Experts." /S/ Coopers & Lybrand L.L.P. Sacramento, CA May 30, 1997 EX-23.3 6 EXHIBIT 23.3 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT The Board of Directors AccuMed International, Inc. We consent to incorporation by reference in the registration statement on Form S-3 of AccuMed International, Inc. of our report dated March 28, 1997, relating to the consolidated balance sheets of AccuMed International, Inc. and subsidiaries as of December 31, 1996 and December 31, 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1996 and for the three months ended December 31, 1995, which reports appear in the December 31, 1996 Annual Report on Form 10-KSB of AccuMed International, Inc., and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG PEAT MARWICK, LLP - ---------------------------- Chicago, Illinois May 29, 1997 -----END PRIVACY-ENHANCED MESSAGE-----