-----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, RPf+ABzLgHF77RTmPk0nTcNpV6GRVmzKV+BgyqT+DsA7JKC7bJZIgjASds9KvbVZ D/6HahSO+aIwOogP79QwmA== 0000950148-01-000495.txt : 20010402 0000950148-01-000495.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950148-01-000495 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20652 FILM NUMBER: 1588167 BUSINESS ADDRESS: STREET 1: 900 N FRANKLIN ST STREET 2: STE 401 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 10-K405 1 v70395e10-k405.txt FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From To . ------------ ---------- Commission file number 0-20652 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.) 920 N. Franklin Street, Suite 402, Chicago, IL 60610 ---------------------------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number: (312) 642-9200 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share (Title of Class) Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common stock held by non-affiliates of the registrant on March 21, 2001 at a closing sale price of $0.40625 as reported by the Nasdaq Bulletin Board was approximately $1,811,000. Number of shares of common stock outstanding on March 21, 2001: 5,739,838. 2 ITEM 1 OF THIS FORM 10-K ENTITLED "BUSINESS" AND ITEM 7 OF THIS FORM 10-K ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27a OF THE SECURITIES ACT OF 1933 AND SECTION 21e OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS AccuMed International, Inc. is a Delaware corporation. AccuMed's predecessor was incorporated in California in June 1988 under the name Alamar Biosciences, Inc. and was engaged in developing, manufacturing and marketing microbiology products. AccuMed has a wholly owned subsidiary, Oncometrics Imaging Corp., a company continuing under the laws of the Yukon Territory, Canada. Oncometrics was formed in 1995 to complete the development of an automated instrument designed to be used in the detection, diagnosis and prognosis of early-stage lung cancer by measuring the DNA in the nuclei of cells on microscope slides. AccuMed acquired a two-thirds interest in Oncometrics in 1996. In 1998, we acquired the final one-third interest in Oncometrics. On January 29, 1999, AccuMed sold substantially all of the assets and certain liabilities related to our microbiology business, including Alamar, Sensititre and the ESP product line. AccuMed received gross proceeds of $ 15,150,000 in cash at the closing. The proceeds were used to retire $8,498,000 in debt, and the balance was retained for general corporate and working capital purposes. AccuMed and Ventana Medical Systems, Inc. entered into a License and Development Agreement dated March 24, 2000. Under this license agreement Ventana has paid AccuMed an initial license fee, a prepayment on royalties and a partial payment for certain development obligations that AccuMed is performing. AccuMed has granted Ventana license to use AccuMed's core technology, including patents, in the field of surgical pathology, which involves analyzing tissue samples ordered by physicians to be taken from surgical patients to determine the presence or absence of disease. This license agreement has an initial three-year term which will be extended for additional three-year terms unless either party gives the other notice of non-renewal within 180 days prior to the end of the current term. On March 29, 2000, AccuMed entered into a patent and technology license agreement with BCAM International, Inc., renamed CellMetrix, Inc., whereby AccuMed agreed to license its patents and proprietary information to CellMetrix for certain medical applications. Under the terms of the agreement, AccuMed received a license fee upon signing the agreement. Effective September 1, 2000, AccuMed and CellMetrix mutually agreed to terminate the license agreement. AccuMed is not required to refund any portion of the license fee it received. On March 29, 2000, AccuMed entered into a letter agreement to reinstate and amend its September 4, 1998 patent and technology license agreement with Ampersand Medical Corporation. AccuMed received an up-front license fee upon signing the letter agreement. On June 9, 2000, AccuMed signed a formal amendment to the agreement and received an advance royalty in the form of cash. AccuMed also received a convertible note, which was repaid in December 2000, and shares of Ampersand common stock as an additional advance royalty. On December 29, 2000, AccuMed and its subsidiary, Oncometrics, entered into agreements to license their patents and intellectual property to MonoGen, Inc. for certain medical applications. Promissory notes in 2 3 the aggregate amount of $500,000 were issued to AccuMed and Oncometrics as consideration for the up-front licensing fees due under the agreements. On February 7, 2001, AccuMed signed an agreement to merge with Ampersand. Under the terms of the agreement, holders of AccuMed's common stock will receive 0.6552 of a share (subject to adjustment) of Ampersand common stock in exchange for each share of AccuMed common stock. AccuMed's Series A Convertible Preferred Stock will be exchanged for preferred shares of Ampersand that will be convertible into Ampersand common stock. Consummation of the merger is subject to customary closing conditions, including approval by AccuMed's stockholders, and the registration of the Ampersand common stock with the Securities and Exchange Commission. Closing of the merger is expected to occur in the 2nd quarter of 2001. On February 7, 2001, AccuMed received a $470,000 advance from Ampersand to be used for working capital purposes. AccuMed issued a note payable of $800,000, which includes $330,000 of previously advanced funds, to Ampersand. On March 1, 2001, AccuMed received an additional advance of $225,000 from Ampersand and issued a corresponding note payable. These notes bear interest at prime, plus 2.5%, and are secured by AccuMed's inventory and a certain customer contract. These notes will be due and payable upon the earliest of May 31, 2001 or the termination of the merger agreement. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AccuMed's operations are in one laboratory market segment: Cytopathology. Cytopatholgy systems are made up of multiple instruments networked via proprietary software that support the review and analysis of Pap smears and other microscope slide-based cellular preparations. NARRATIVE DESCRIPTION OF BUSINESS GENERAL AccuMed designs, builds and supplies two product lines. We build these product lines with either our own microscopes or with commercially available microscopes which we modify. The first product line consists of "AcCells(TM)" computer-aided microscopes, which help medical experts to examine and diagnose specimens of human cells. These products include: - robotic slide-feeding systems to load and unload slides from the microscope, - bar-code readers to ensure proper identification of samples being analyzed, - electro-mechanical scanning stages, that part of the AcCell microscope that allows the AcCell computer to move and focus the slide more accurately than a human can, - automatic physical dotters to mark the locations of cells of interest, and - data management system software to enable the medical experts to review the relevant medical histories and report the results of their examination or diagnosis directly into a medical record-keeping system without human transcription or repeat entries. The second product line consists of "AcCell-Savant(R)." The AcCell-Savant includes all the AcCell components described above, as well as an electronic imaging system and our image analysis software. The electronic imaging system consists of a camera, electronics, optics and software which together produce digital images of specimens on the microscope slide. The image analysis software measures properties of the specimen from the digital images. These AcCell-Savant(R) measurements are objective, as opposed to the subjective analyses of specimens by human visual examination. 3 4 Medical experts can examine and diagnose human medical specimens more easily and accurately using our products. For example, a clinical laboratory can eliminate paper requisitions and paper medical reports by using AcCells which include our data management system. Laboratories that use paper requisitions and medical reports risk misdiagnosing specimens because of transcription and other clerical errors. Laboratory staff using our electronic data management system do not need to reenter data manually, thus saving time and reducing the risk of clerical error which can lead to misdiagnoses. Research scientists use the AcCell-Savant(R) research system, which we began marketing in 1999, to measure cellular DNA and other properties of medical specimens. We have sold modest numbers of the AcCell-Savant(R) research system to academic and medical research laboratories. These laboratories use our AcCell-Savant research system to more easily and accurately conduct experiments for a wide range of research applications in biology and pathology. Under FDA regulations, we are permitted to sell the AcCell-Savant(R) research system for these uses. The research and academic market is a small market compared to the commercial, clinical laboratory market which processes and diagnosis human medical specimens for patient care. Research scientists use the AcCell-Savant(R) research system in the following manner. In a lung cancer experiment, patients provide sputum specimens. Laboratory technicians prepare these specimens on microscope slides with a bar code label identifying the patient. The scientist inserts these slides into the AcCell-Savant(R) research system. The robotic slide-feeding system loads the slide into the microscope. The bar code reader identifies the patient and specimen information and stores this information in the computer. Digital images are produced using the electronic imaging system and scanning stage which moves the slide under the microscope. The image analysis software measures DNA and other properties of the cells in the digital images. The research scientist uses the statistical image analysis software to analyze these measurements objectively. Scientists use these statistical analyses to determine the presence and severity of lung cancer. AcCell-Savant(R) research systems record the digital images, measurements of cellular properties and statistical information in computer files which are the records of the scientist's experiment. The AcCell-Savant(R) then unloads the microscope slide. In addition to research applications, we believe the AcCell-Savant(R) can be adapted for many clinical, commercial laboratory applications. In our attempt to enter the clinical laboratory market, we are pursuing partnerships with other technology and product/service distribution companies. We are exploring arrangements with partners to combine AcCell-Savant(R) and/or AcCell technology with the partner's intellectual property. In these arrangements, we would sell our products for use in combination with the partner's intellectual property and products. For example, on March 27, 2000 AccuMed announced that it signed a multi-year agreement with Ventana Medical Systems, Inc. (Nasdaq: VMSI) to provide an Automated Cellular Image Analysis System to assist pathologists in analyzing cancer and infectious diseases. The system will be used to quantitate immunohistochemistry (IHC) and in-situ hybridization (ISH) stained samples. The combination of AccuMed's automated and quantitative imaging systems technology and Ventana's sales and marketing strengths to surgical pathology laboratories, will enable both companies to participate in the potentially attractive market for quantitative IHC and ISH image analysis. Built from AccuMed's core technology and products, Ventana expects to launch the sale of its first IHC products built upon custom-modified AcCell automated imaging platforms and imaging software in late 2001. That product will aid pathologists who evaluate breast cancer specimens, including the use of Ventana's stain for measuring Her-2/neu receptor overexpression. Physicians order tests to measure Her-2/neu receptor levels in tissue samples from cancer patients to decide whether breast cancer patients with metastatic disease will respond to Genentech's anti-cancer drug, Herceptin(R). Furthermore, AccuMed's automated and quantitative imaging instruments, software, systems, and supplies are not only well suited for tests on tissue samples from patients with cancer, but they are also ideal analytical instrument platforms for numerous clinical applications in early disease detection and medical follow-up. Society is at the forefront of significant changes in disease management. Molecular diagnostics and quantitative analyses of molecular profiles resulting from gene expression will be used to optimize therapeutic choices that ultimately improve patient outcomes. AccuMed's instrument and system platforms are well-suited for 4 5 numerous emerging tests for a wide variety of diseases including cancer (e.g., breast, prostate, colon, lung, bladder, lymphoma, and leukemia). We need FDA clearance to market the AcCell-Savant in the United States for clinical as opposed to research uses. At present, we have no plans to pursue an FDA clearance. AccuMed has generated limited revenues from the sale of our products to our original target market, clinical laboratories that examine or diagnose medical specimens including Pap smears. Currently, we do not actively market the AcCell as a stand-alone product, but we do continue to ship AcCell units when we receive orders. We believe that AccuMed is the only company within the computer-aided cytology screening cytodiagnostic market with a modular, expandable product, (our AcCell) that allows customers to upgrade to more fully automated versions and with a product line that support both gynecological and non-gynecological specimen analysis using both conventional Pap smears as well as liquid-based preparations. MARKETS AND PRODUCTS AccuMed is a medical device company developing proprietary diagnostic instruments for applications in early disease prevention, detection, diagnosis, prognosis, optimized selection of therapeutic regimens and agents, and therapeutic monitoring. Quantitative and automated microscopy is a powerful research tool, which applies complex computer algorithms to measurements of nuclei, cells, and tissues on a microscopy slide to derive medically significant information. AccuMed markets its computer-aided, automated, and quantitative microscopy workstations and systems, including analytical cytology and histology instruments and supplies, through joint ventures, technology licensing agreements, and research and development contracts. As one of AccuMed's laboratory partners stated, "Through its systems, AccuMed is not only providing products, but it is redefining the process of making a diagnosis." AccuMed is expanding its intellectual property portfolio and applying its proprietary technologies to the development of cost-effective, accurate, sensitive, easy-to-use, and innovative products that improve patient outcomes and healthcare provider performance. As a result of AccuMed's modular instrument platforms for cytology and histology applications, AccuMed has focused its efforts to commercialize its technology through partnerships with companies and institutions with a business focus in the following markets, among others: - Early lung cancer and other pulmonary disease detection and follow-up - Cancer and infectious disease diagnostics - Quantitative immunohistochemistry - Cytogenetics, screening and toxicology including in-situ hybridization - Anatomic pathology and information systems - Quality control and assurance for cytology/histology quality monitoring and reporting - Telepathology and medical image archiving/databases - Marker and probe development - Drug development for cancer patients - Linking diagnostics assays to therapeutics - Cellular imaging and analysis - Quantitative cytology and histology - Microscopy-based tests - Medical informatics PRODUCTS AccuMed's product development strategy has focused on taking what the human experts do best and "wrapping around them" technological solutions that make them more effective with respect to quality and cost-effectiveness. In addition, AccuMed provides instruments such as the AcCell-Savant to measure and analyze what the human eye-brain combination cannot see or perceive. AccuMed has developed the following technology and 5 6 products relying upon its core technologies including computer-aided microscopy, medical informatics, optical and electronic imaging systems, quantitative microscopy, and cytometry/histometry systems. The product development strategy employed at AccuMed is a layered approach. The underlying support for the product line is the AcCell computer-aided microscope, which is primarily a quality assurance device utilizing robotic and medical informatic technologies. The TracCell(TM) layer above the AcCell provides productivity enhancements by electronically mapping slides to identify the fields-of-view with the well stained and well preserved cells for human review. The AcCell-Savant layer immediately above the TracCell layer adds quantitative microscopy that facilitates systems that measure and report the content and distribution of DNA and other cellular constituents in biosamples. Probes analyzers are yet an additional layer of technology that introduce the capability of quantitatively determining the presence of genetics markers and probes in cellular and histological samples. Finally, the top layer of the technological pyramid anticipates the integration of all of these technologies with a medical informatics system to furnish complete assays from specimen processing through medical results reporting. The AcCell, TracCell and AcCell-Savant are AccuMed's original product lines (Series 2000) in computer-aided microscopy, slide mapping systems, and quantitative microscopy systems. COMPUTER-AIDED MICROSCOPY: ACCELL CYTOPATHOLOGY WORKSTATIONS Clinical cytology laboratories, using technologists and cytopathologists to prepare, screen and diagnose specimens are facing cost-containment pressures and a need to improve quality simultaneously. These requirements are increasing the demands on laboratories and their highly skilled cytologists to both increase throughput (i.e., laborsaving products that reduce cost and increase margin per test) and decrease their false negative rate (i.e., minimize liability exposure). The AcCell workstations were developed to enable cytologists to do what they do best -- interpret cytological findings -- and to speed the tedious non-interpretative functions while concurrently providing improved quality control, assurance and reporting functions during the screening and diagnostic process. The AcCell product line is a comprehensive family of integrated, expandable and technologically advanced products consisting of proprietary workstations that provide bar-coding for automated specimen identification, robotic slide loading to increase throughput and accuracy, support to ensure that 100% of a slide's sample deposition area is imaged during screening, electronic marking of cells and other objects-of-interest for rapid and reproducible automated relocation of selected cells of interest by pathologists during review sessions, accurate positional information that is continuously available, automated and high-accuracy physical dotting of slides, a data management system (DMS; typically interfaced to a Laboratory Information Systems (LIS)) that speeds and aids pathologists in diagnostic review sessions, automated report generation for specimen and laboratory management, and compatibility with both conventionally prepared Pap smears and liquid-based preparations. The DMS supports both gynecological and other sample processing and analysis. The primary benefits derived from the use of AcCell workstations are cost and time-savings, improved process control and quality, proactive risk management, and reported increases in the detection of abnormal cases. AcCells are the reliable, production-oriented workhorses for all of AccuMed's products. They are optimized review stations that support the human experts by maximizing their performance and providing a means for quality assurance in cytology and histology operations. Most importantly, however, these AcCell workstations form the basic building block of semi-automated and automated systems in that they serve as (a) the core of the human expert's specimen or patient sample review station and (b) the building block for all of the analytical instruments in the other screening and diagnostic market sectors. ELECTRONIC IMAGING SYSTEMS: TRACCELL SLIDE MAPPING Another technology developed by AccuMed is computerized slide mapping. This technology, implemented in the TracCell Slide Mapping System, has been FDA-cleared for use with conventional Pap smears as well as with Cytyc ThinPrep(R) liquid-based preparations. The TracCell stand-alone slide preprocessor produces electronic "maps" of slide-based cytological samples. These maps were designed to save slide-screening time and associated labor costs. The basic principle of TracCell slide mapping is that cytologists do not need to screen or 6 7 review microscope fields-of-view that do not contain any adequately stained, well-preserved diagnostic cells. By processing slides with a TracCell before the cytologist screens the slides at an AcCell review station, the cytologist can save time by being automatically routed past these "empty" fields-of-view. This productivity enhancement technology is also adaptable to the processing and review of tissue sections on microscope slides. An indirect benefit of the TracCell tool is that screeners can spend more time analyzing difficult-to-interpret cells or regions-of-interest without sacrificing overall productivity. The TracCell Slide Mapping System, by definition, includes an AcCell review station. AccuMed would entertain a licensee for the AcCell and TracCell products for use in the automation of conventional cytology diagnostic laboratories. Also, AccuMed is utilizing these products and technologies in more advanced clinical applications (e.g., quantitative immunohistochemistry and in-situ hybridization systems already licensed to Ventana Medical Systems, Inc.). QUANTITATIVE MICROSCOPY SYSTEMS: ACCELL-SAVANT IMAGE CYTOMETERS The AcCell-Savant/research (ACSr) instrument combines an AcCell computer-aided microscope with the Savant proprietary system of stains, protocols, imaging hardware and analytical software. This automated image cytometer generates analytical results regarding individual cells, including DNA content, optical texture and morphometric features. Statistical, graphical, and image data are displayed in a variety of formats to support cytology and histology research scientists, engineers, and clinicians. More specifically, AccuMed's Malignancy Associated Changes (MAC) methods and instruments are one of AccuMed's powerful sets of automated cytophotometry tools facilitating the cytological detection and diagnosis of cancer at early, more curable stages of development. The lead research product at AccuMed, known as the AcCell-Savant, is a high-resolution image cytometer and is currently available as a research instrument -- the AcCell-Savant/research (ACS/r). This analytical instrument incorporates an AcCell computer-aided microscope with the Savant system of stains, protocols, as well as proprietary imaging hardware and analytical software. The ACSr is a fully automated, high-resolution, absorbance microscopy-based cytometer that processes Thionin-Feulgen-stained cytology preparations and presents analytical results regarding the cellular DNA content of processed samples. This quantitative microscopy system includes an AcCell equipped with electronic-imaging for the evaluation of cytology samples prepared with proprietary nuclear DNA stains. Applications of this technology include measurement of cellular DNA content, chromatin distribution patterns, and nuclear areas for detection of early cancer and other diseases. - ACSr's automated operation makes it possible to measure thousands of cells per sample, thus increasing the statistical accuracy of tests. - ACSr's proprietary high precision computer-aided microscope with robotic slide handling and bar-coded sample identification ensures the reproducibility and reliability of results. - ACSr's proprietary electronic imaging and digital image processing are capable of selecting cells of interest, distinguishing them from background debris, cell clusters and non-targeted cells. This speeds the tedious non-interpretive functions while improving quality control and assurance. - ACSr's digital image processing and proprietary statistical analyses generate not only quantitative results but graphical displays as well (e.g., two-dimensional histograms, scattergrams and cell image gallery displays). These enable the user to detect subtle changes and rare cellular events readily and reliably. - ACSr's automated cell classification capability is customizable to the user's specifications. This eliminates the time consuming and labor-intensive process of manually classifying cells and provides flexibility for user-specific requirements. A key competitive advantage of the AcCell-Savant/research is its rapid, production-oriented automation enabling it to scan and analyze thousands of cells per sample without human intervention. Rather than relying upon interactive, labor-intensive approaches with statistical samples too small for sensitive cell cycle or 7 8 ploidy analyses, the AcCell-Savant approach solves these problems making speedy analyses of small or large (> 15,000 cellular events) sample sizes practical and cost-effective. In addition, this robust and unique approach enables users to select the cells of interest for analysis, free from background debris, cluster, and non-targeted cells such as non-tumor cells that could mask significant findings regarding the cells of interest to the operator. Additionally, use of the ACSr is a complementary approach to flow cytometry. The relative advantages of the image cytometry approach are that flow cytometry typically requires at least an order of magnitude more cells per analysis, the AcCell-Savant enables selectivity (ability to eliminate extraneous objects that mask results), and unlike the AcCell-Savant, flow cytometry users cannot "see & save" cells with their corresponding feature data sets. Finally, neither flow nor image cytometry can process histological sections in general, though the AcCell-Savant can process some tissue sections (e.g., muscle, heart, brain, nerve, ovary, and testicle) when the majority of their nuclei are non-overlapping. This robust and unique instrument is versatile enough to handle a variety of applications. Typical applications of the AcCell-Savant include research and applications development in the following areas: disease detection from cytology samples, Malignancy Associated Changes (MAC), DNA ploidy analyses, treatment planning and monitoring, cell cycle analyses of S-phase fractions, quality assurance via post-screening of cytology samples, infectious disease investigations, transplant rejection analyses, toxicology, chemoprevention, and general cellular research. Features and benefits of the AcCell-Savant/research system include the following: - Fully automated and high-speed operations - Normalized DNA data with calibration - Accurate, reproducible, and high resolution - Classifiers providing high sensitivity & specificity - Tunable to a wide variety of markers and probes - Enables rapid generation of feasibility data - Speeds drug research via faster protocols - Suitable for new clinical screening assays - Compatible with production-oriented AcCell-Savant Systems AccuMed owns multiple patents related to methods and devices for automatically detecting malignancy associated changes. Malignancy-associated changes are subtle changes known to take place in the nuclei of apparently normal cells found near cancerous or precancerous tissue. David M. Garner, Ph.D., co-inventor of the MAC patents and Senior Scientist at the British Columbia Cancer Agency (Vancouver, Canada) indicated "Malignancy-associated changes (MACs) are subtle changes that are known to take place in the nuclei of apparently normal cells found near cancer or precancerous tissue. As such, the measurement of MAC features can potentially improve specimen adequacy rates, increase the sensitivity of an early cancer detection screening test, and result in an easier-to-use, simpler, and more reliable assay. Also, MACs can be used to detect, not only lung cancer, but many other types of cancer and precancerous conditions." The AcCell-Savant products offer the unique combination of patented MAC methods and the benefits of high accuracy, sensitivity and throughput which enable research clinicians and scientists to detect and measure early subtle cellular changes in disease processes that may not be otherwise detectable by visual analyses alone. SYSTEM 3000 The next generation System 3000 products are being developed to enhance product features and benefits, and to increase market acceptance in diverse clinical applications. These products are comprised of the AcCell 3000 Review Station, the AccuTech and the Cognetix Analyzer. (a) ACCELL 3000 REVIEW STATION The AcCell 3000 is the human-operated cytology workstation of AccuMed's System 3000 product line. It is a fully integrated light microscopy and data management system for use in laboratories that perform slide-based microscopic examination of cellular materials. This combination microscope and computer was designed as 8 9 the cytologist's and/or pathologist's flagship "workhorse" tool. Specifically, the AcCell 3000 supports needs of the gynecological and non-gynecological cytology (e.g., cervical Pap smears and liquid-based preparations (LBPs), sputum cytology, fine-needle aspirations) laboratories as well as laboratories that perform hematology, gastroenterology, urology, cytogenetic, histology and related cytological and histological interpretations for the screening, diagnosis and reporting of cell-based samples, and for professional education and training. The AcCell 3000 provides this support through a set of user-oriented hardware and software tools integrated within a compact, reliable and easy-to-use package. The AcCell 3000 microscope automates the microscopy process while improving process control. It features a highly ergonomic user interface, a multi-user relational database and an interface to laboratory information systems (LIS) to improve the speed, accuracy and reliability of the sample evaluation process while reducing the physical strain that microscopists face in a clinical production environment. The instrument is capable of supporting multilingual operations. This computer-aided microscopy workstation can be operated as a stand-alone device, in a stand-alone network of other AcCell workstations within a cytology or anatomic pathology laboratory, or as a network of AcCell workstations interfaced to an LIS through an AcCell file server. The AcCell 3000 computer-aided microscopy products can also work in conjunction with the other System 3000 products under development (e.g., AccuTech-based versions of the FDA-cleared TracCell Slide Mapping Systems and AcCell-Savant Quantitative Microscopy Systems) that offer additional information from computer-aided sample analyses through the use of both interactive and fully automated electronic imaging systems. Features and benefits of the AcCell 3000 Review Station include the following: - Small footprint and compact - Enhanced user productivity - Optimized slide throughput - Data management system - Customizable - User options protected - Excellent optical imaging - Coupled to an analyzer - Enables "PreView" of images of abnormal cells received from Analyzer - AccuTech inside (i.e., "Savant powered") (b) ACCUTECH Specifically, the AccuTech was developed by AccuMed to remove the need to use commercially available microscopes in the AcCell and related product lines. Such commercially available microscopes did not provide adequate mechanical stability, for example, to enable high-speed focusing on machines that were being designed to operate consistently during multiple shifts and for seven days per week. Features and benefits of the AccuTech systems include the following: - High-precision computer-controlled imaging - Fixed optical system without field-operation variability - Computer-controlled illumination intensity with feedback control - High-resolution, ultra-fast computer-controlled focusing subsystem - Power objective changer with full three-dimensional and illumination compensation - Integral rotating filter mechanism for high-speed multi-spectral sensing - Rigid and fixed camera mounting system - Automatic re-calibration system to ensure slide-by-slide data quality (c) COGNETIX ANALYZER The AccuTech microscope frame is the core module not only within the AcCell 3000 Review Station, but also in the instrument designed to handle semi-automated or full automation with the capability of operating 24 hours/day, 7 days/week. That instrument is the Cognetix Analyzer. 9 10 The Cognetix Analyzer is assembled from modular components that enables it to be easily and rapidly customized to specific clinical assays based upon microscope slide-based samples. Such sample may be either cellular or histological. Feature and benefits of the Cognetix Analyzer include the following: - MAC detection and tunable to a variety of probes - Labor savings and walk-away automation - Continuous and high-speed operations - Image acquisition & sample classification software with classifiers - Sample tracking - Stable & reliable in field use with precision mechanics and focusing - Environment-tolerant - Photonic sensors - Configurable, scalable, and easy to use - Link to Review Station facilitates sending Dx images to Review Station - Built-in quality control and assurance - AccuTech inside (i.e., "Savant powered") SUPPLIES Supplies for AccuMed products include calibration slides, dotter tape cartridges, and DNA stain kits (i.e., microscope slides and reagents for DNA cytophotometry using the AcCell-Savant). INTELLECTUAL PROPERTY AccuMed has a strong intellectual property patent portfolio and core expertise (i.e., scientific and technical know-how) in computer-aided (AcCell, TracCell) and quantitative (Savant) optical microscopy; automated electronic imaging and screening systems; cytochemistry and histochemistry (DNA stains); analytical instruments and algorithms for cell and tissue image analysis; methods to measure intracellular malignancy associated changes (MAC); and medical devices and diagnosis systems. AccuMed develops its patent portfolio to establish value for its investors in areas of its core technologies, such as computer-aided microscopy. Furthermore, AccuMed pursues patent protection in disabling and competitive technologies if inventions occur which can protect key markets for AccuMed. Patents, trade secrets, and copyrights are used by AccuMed to protect its proprietary technology. SALES AND MARKETING Typically, AccuMed's products are not currently sold to laboratory end-users unaffiliated with AccuMed. Rather, AccuMed has four classes of customers. Quadrant I customers are beta-site customers who are used to provide marketing feedback to AccuMed regarding product design, performance and preferred enhancements. AccuMed remains confident that its core computer-aided microscope platform, the AcCell workstation, continues to provide a unique approach to improving cytology processes even in the conventional Pap test laboratories. Nevertheless, regardless of the merits of the originally targeted market, the AcCell workstation is the workhorse platform embedded in all other products by AccuMed, including the AcCell-Savant research systems, and the integral review station component of the automated early lung cancer screening systems, among others. Quandrant II customers are research and development scientists and clinicians who execute a commercialization agreement with AccuMed. Quadrant II creates an opportunity for a product pipeline for AccuMed through a virtual R&D organization that frees AccuMed from the direct expense of funding R&D for new applications development. This extramural R&D program is designed for leading researchers actively developing new clinical applications with commercial potential. These physicians, scientists and engineers are conducting 10 11 funded research using cytometry and histometry at teaching hospitals, universities and research institutes. Benefits to participating researchers include: - Discounted purchases of AcCell-Savant/ research and other R&D products - Royalty-based revenue stream from AccuMed commercialized products - Access to powerful and proprietary development tools - Ongoing technical support, services and updates - Access to advanced training and collaborations - Potential to participate in new product beta-tests and clinical trials - Participation in joint development projects - Expedited commercialization of new clinical assays - Support for patents and other intellectual property protection To date this AccuMed program has sites in Japan and Australia selecting AccuMed as their sole source for the commercialization of clinical tests involving cytology, histology, cytometry and histometry. Quadrant III customers are the primary business opportunity for AccuMed. This is the area in which AccuMed believes that significant and multiple business opportunities exist today, and that these opportunities are reliant upon the core existing technologies of AccuMed. The R&D and analytical instrument sales agreement with Ventana Medical Systems, as well as the agreement with Dianon Systems announced in December of 2000 to provide DNA measurement systems, are excellent examples of Quadrant III opportunities. Typically, with Quadrant III customers, AccuMed seeks a combination of (a) license fees, (b) R&D contracts, (c) use-based royalty stream, (d) product supply contracts, and (e) equity participating in the licensee's business. Quadrant IV customers are typically businesses in which AccuMed can either license its technology into a field-of-use that is remote from AccuMed's primary fields-of-interest in business development, or in which AccuMed can provide the customer with product on an OEM basis. This "technology transfer" market opportunity has already generated revenues for AccuMed in the area of point-of-care diagnostic systems. COMPETITION AccuMed believes that its cytopathology products must compete on the basis of functionality, product features and effectiveness of the product in standard medical practice, although price is also an important competitive factor. AccuMed's cytopathology products will face competition from companies that have developed or may be developing competing or alternative systems. AccuMed's competitors possess substantially greater financial, marketing, sales, distribution and technical resources than AccuMed, and more experience in research and development, clinical trials, regulatory matters, manufacturing and marketing. OPERATIONS AccuMed assembles and tests its cytopathology products at its Chicago facility. Currently, AccuMed is not manufacturing product, though it assembles and tests manufactured subassemblies. AccuMed anticipates future AcCell(TM) production will be done on a contract basis based on customer orders. GOVERNMENTAL REGULATION AccuMed's products and manufacturing processes are regulated by state and federal authorities, including the FDA and comparable authorities in certain states and other countries. The Federal Food, Drug and Cosmetic Act (the "FDA Act") regulations provide that some of AccuMed's products may not be shipped in interstate commerce without prior authorization from the FDA. Such authorization is based on a review by the FDA of the product's safety and efficacy as indicated for its intended uses. Medical devices may be authorized by the FDA for marketing in the United States either pursuant to a 510(k) Pre- 11 12 market Notification or a Pre-marketing Approval ("PMA"). The process of obtaining FDA marketing clearance and other applicable regulatory authorities may be costly. Some FDA 510(k) Notification applications and PMA's require preliminary internal studies, field studies and/or clinical trials in addition to an FDA submission to attain market clearance (the 510(k) process or market approval (the PMA process)). A 510(k) Notification, among other things, requires an applicant to show that its products are "substantially equivalent" in terms of safety and effectiveness to an existing FDA cleared predicate product. An applicant may only market a product submitted through the 510(k) Notification at such time as the FDA issues a written clearance determining that the product has been found to be substantially equivalent. A PMA is the FDA submission process where the product must demonstrate, independently of other like devices, that it is safe and effective for its indications for intended use. A PMA must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. The approval process usually takes substantially longer. During the review period, the FDA may conduct extensive reviews of AccuMed's facilities, deliver multiple requests for additional information and clarifications and convene advisory panels to assist in its determination. FDA enforcement policy strictly prohibits the promotion of learned or approved medical devices for non-approved or "off-label" uses. In addition, product clearances or approvals may be withdrawn for failure to comply with regulatory standards. Marketing in the United States of some of AccuMed's products under development may require additional FDA clearances. The FDA Act and other statutes and regulations, including various state statutes and regulations, govern the marketing, advertising and promotion of AccuMed's products. Failure to comply with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances, refusal to approve or clear new applications or notices and criminal prosecution. Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary from country to country. The time required to obtain clearance by a foreign country may be longer or shorter than that required for FDA clearance, and the requirements may differ. Export sales of certain devices that have not received FDA marketing clearance generally are subject to both FDA Certificate for Foreign Governments and, in some cases, general U.S. export regulations. In order to obtain a FDA export permit, AccuMed may be required to provide the FDA with documentation from the medical device regulatory authority of the country in which the purchaser is located. AccuMed has secured "CE" mark for the AcCell(TM) 2000 series and will seek the mark for its proposed products. The CE mark is recognized by countries that are members of the European Free Trade Association and will be required to be affixed to all medical devices sold in the European Union. RAW MATERIALS AND COMPONENTS Certain key components and raw materials used in assembling AccuMed's products are currently available through single-source vendors. Although AccuMed believes that alternative sources for such components and raw materials are available, any supply interruption in a single-sourced component or raw material would have a material adverse effect on AccuMed's ability to manufacture products until a new source of supply were qualified. RESEARCH AND DEVELOPMENT AccuMed's research and development efforts are focused on enhancing its existing products to address unmet needs within the diagnostic cytopathology market. During the fiscal years ended December 31, 2000, 1999, and 1998 expenditures for research and development were approximately $1,100,000, $1,900,000, and $2,600,000 respectively. 12 13 AccuMed is currently developing the following products: ACCELL/SAVANT(TM) DNA IMAGE CYTOMETER This product ("AcCell-Savant") is an automated high-resolution image cytometer (nuclear DNA analyzer) that processes Thionin-Feulgen stained cytology specimens for DNA analysis. Designed for both the research and clinical laboratory markets, this product line offers a unique combination of features and benefits including: (a) highly accurate, reliable, and reproducible system operation, (b) easy-to-use, rapid, and well documented instrument operation, (c) optimized accompanying specimen preparation/staining kits, (d) full automation---"load and walk-away" operation, (e) multi-slide cassette with random-access robotic slide handling, (f) high-resolution images with square pixels and large field-of-view, (g) stable, reliable, DNA specific Thionin-Feulgen stain, (h) suitable for many applications including ploidy, MAC, general cellular research, (i) ability to process conventional smears and monolayer preparations, (j) automated focus, (k) automated image segmentation, (l) optional automated cell/object classifier based upon user-supplied and defined training sets, (m) cell or object relocation and review capability in microscope or on monitor, (n) normalization: 1-D and 2-D histograms, (o) ability to normalize DNA histograms with internal and/or external references, (p) ability to extract measurements by cell populations or by individual cells/objects, (q) statistical analyses of measured data sets with graphical output displays, (r) display capabilities include cell image gallery displays, (s) report generator, (t) option for networked review microscopes to increase productivity, and (u) data export routines to interface to third-party applications such as multivariate statistical analyses packages. This product focuses on the clinical research and the clinical laboratory market, for clinical applications of image cytometry technology. Benefits of this product are anticipated to be: (1) High-quality instrumentation for automated and quantitative analyses (e.g., assays that cannot be performed by human experts alone). (2) Optimized for clinical application in production laboratory settings (e.g., high-volume tests). (3) Unattended slide handling; integrated with staining and cover slipping systems; custom reports, interface with LIS. (4) Use of (e.g., integrated solutions) DNA/Fuelgen stain kits, calibration slides and clinical laboratory protocols. AccuMed estimates that there are approximately 600 images processing and analysis systems installed worldwide for research purposes and additional 600 clinical systems. Because of uncertainty of current market provider commitment, AccuMed believes there is an opportunity for a competitive image analysis system. The size of this worldwide market is estimated to be over 1200 units at a cost of $100,000 per unit. Consumables such as staining kits used in conjunction with the DNAnalyzer would represent a potentially high margin continuing revenue stream. AccuMed believes various factors will influence market demand for this product within the domestic healthcare marketplace. The pressure for cost containment drives the need for tools that streamline aspects of the operational process. This product offers a user-friendly, general-purpose image analysis that operates on the AcCell(TM) technology platform, designed for clinical laboratory use. Also, competitive image analysis systems currently serving this market have been designed largely for the research market, but the level of customer support necessary to accommodate the clinical laboratory market is not readily available. AccuMed intends to offer strong field service and support along with this product. 13 14 Lastly, the consolidation of the healthcare industry drives the need to integrate various functions within the clinical laboratory. This product is part of an integrated family of tools that support a wide variety of functions within the clinical laboratory. AccuMed believes the AcCell-Savant platform can be applied effectively for tissue sites other than for lung tissue. In particular, the AcCell-Savant, with its MAC's capabilities, has the ability to not only detect early stage cervical cancer in an automated manner, but it has the potential ability to determine whether pre-cancerous cells will develop into cancer or not. INTELLECTUAL PROPERTY AccuMed relies on a combination of patents, licensing arrangements, trade names, trademarks, copyrights, trade secrets, know-how and proprietary technology as well as policies and procedures for maintaining the secrecy of trade secrets, know-how and proprietary technology in order to secure and protect its intellectual property rights. AccuMed has twenty-seven issued patents, three allowed patents, and forty pending patents in related technologies. AccuMed is also developing products (e.g., AcCell-Savant) that rely upon or utilizes the intellectual property of its wholly--owned subsidiary, Oncometrics. Oncometrics has five issued patents, two allowed patents, and twelve pending patents in related technologies. AccuMed is continuing to prepare additional patent applications. Since patent applications in the United States are maintained in secrecy until patents issue, and since publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, AccuMed cannot be certain that AccuMed or other relevant patent application filer was the first creator of inventions covered by pending patent applications or that such persons were the first to file patent applications for such inventions. Protections relating to portions of such technologies may be challenged or circumvented by competitors, and other portions may be in the public domain or protectable only under state trade secret laws. AccuMed owns trademark applications for "SpeciFind", "TracCell", "MacCell", "AcCell-Savant", "Improving Cytology Processes", and is currently preparing and may file additional U.S. and foreign trademark applications in the future. EMPLOYEES As of March 21, 2001, AccuMed employed 4 full-time employees. None of AccuMed's employees are represented by a labor union. AccuMed considers its relations with its employees to be good. AVAILABLE INFORMATION. We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy the documents we have filed at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room. Our SEC filings are also available to the public at the SEC's Internet site found at "http://www.sec.gov." You can also inspect our SEC filings at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. AccuMed's Internet website is "http://www.accumed.com". ITEM 2. PROPERTY AccuMed currently leases a 10,062 square foot facility at 920 North Franklin Street, Chicago, Illinois, pursuant to a lease expiring September 30, 2004. We have initiated a search to retain a real estate company to assist us in subleasing unneeded excess space. 14 15 ITEM 3. LEGAL PROCEEDINGS Except as described below, AccuMed is not currently a party to any material litigation and is not aware of any pending or threatened litigation against AccuMed that could have a material adverse effect upon AccuMed's business, operating results or financial condition. In June 1997, Merrill Corporation filed a complaint against AccuMed in the Circuit Court of Cook County, Illinois. The complaint alleges that AccuMed entered into a contract for printing services and has failed to pay for the services rendered. AccuMed alleges that the invoices submitted to it are inaccurate and excessive, and that Merrill did not perform all of the services for which it has purported to charge AccuMed. Merrill is seeking an award of $430,033, plus interest, attorneys' fees and costs. Discovery has been completed, and a trial has been set for July 16, 2001. AccuMed intends to defend the claims vigorously unless an acceptable settlement can be reached. However, if Merrill prevails in the litigation and is awarded the full amount it is seeking, the judgement would have a material adverse effect on AccuMed's financial condition and cash flows. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 2000. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Our common stock is quoted on the Nasdaq Bulletin Board under the symbol "ACMI.OB". The table below sets forth, for the periods indicated, the range of high and low sales prices for the common stock during the periods specified.
1999 FISCAL YEAR High Low ---- --- First Quarter 1.91 0.59 Second Quarter 1.31 0.72 Third Quarter 1.22 0.47 Fourth Quarter 4.00 0.56
2000 FISCAL YEAR High Low ---- --- First Quarter 3.69 1.31 Second Quarter 2.34 0.63 Third Quarter 0.97 0.50 Fourth Quarter 0.72 0.03
As of March 21, 2001, AccuMed had approximately 203 record holders of common stock. As of March 21, 2001, AccuMed estimates that there are approximately 4,127 beneficial holders of common stock, based on results of a broker search conducted in April 2000. AccuMed has never paid dividends on its common stock and does not intend to pay cash dividends for the foreseeable future. 15 16 ITEM 6. SELECTED FINANCIAL DATA On January 29, 1999, AccuMed closed the sale of its microbiology business. The income statement and balance sheet data presented below reflects the microbiology business as a discontinued operation. See Note 1 in the accompanying Financial Statements starting on page F-1.
FISCAL YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------- ------- -------- -------- -------- INCOME STATEMENT DATA: Net revenues $ 477 $ 136 $ 327 $ 1,001 $ 1,412 Cost of sales 122 1,146 856 1,557 1,394 Operating loss (3,654) (6,446) (9,796) (15,800) (13,387) Interest expense 39 501 1,411 3,569 458 Loss from continuing operations before (3,098) (6,803) (10,360) (18,858) (10,904) income taxes Income taxes -- -- -- -- -- Loss from continuing (3,098) (6,803) (10,360) (18,858) (10,904) operations Income (loss) from discontinued -- 8,199 3,351 1,939 (670) operations Net (loss) income (3,098) 1,396 (8,176) (16,919) (11,574) PER SHARE DATA: Basic loss from continuing operations ($ 0.55) ($ 1.24) ($ 2.04) ($ 5.13) ($ 3.85) Income (loss) from discontinued operations -- 1.49 0.66 0.53 (0.24) Extraordinary loss -- -- (0.23) -- -- Basic net (loss) income ($ 0.55) $ 0.25 ($ 1.61) ($ 4.60) ($ 4.09) Weighted average shares outstanding (000's) 5,653 5,491 5,080 3,675 2,829 BALANCE SHEET DATA: Working capital (deficit) ($ 812) $ 39 ($ 1,393) ($ 1,600) $ 2,150 Total assets 6,051 7,222 13,448 16,085 13,444 Long-term debt -- 167 5,782 11,455 231 Stockholders' equity 2,384 5,668 4,223 733 10,136
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL AccuMed markets and develops cost effective screening instruments and systems for clinical diagnostic laboratories, hospitals and others. Our integrated systems use reliable, accurate and innovative products and methods to provide laboratories with comprehensive solutions that are intended to improve efficiency and reduce costs while significantly improving disease detection. AccuMed currently is developing cytology computer-aided image cytometry instruments and systems that support early detection and diagnosis programs for screening high-risk individuals for cellular diseases, such as lung cancer. 16 17 During 1998, AccuMed received stockholder approval to sell its microbiology business. Accordingly, the results of the microbiology business are reported as a discontinued operation in the accompanying financial statements. On January 29, 1999, AccuMed closed the sale of the microbiology business for net proceeds of $14,400,000. The following management discussion and analysis of financial condition and results of operations relate only to the cytopathology business, AccuMed's only business line. Also, AccuMed is committed to a research and development program. Accordingly, AccuMed expects to incur additional operating losses over at least the next 12 months due to corporate overhead and development. OVERVIEW On February 7, 2001, AccuMed signed an agreement to merge with Ampersand Medical Corporation. Under the terms of the agreement, holders of AccuMed's common stock will receive 0.6552 of a share (subject to adjustment) of Ampersand common stock in exchange for each share of AccuMed common stock. Each share of AccuMed's Series A Convertible Preferred Stock will be exchanged for one share of preferred stock of Ampersand that will be convertible into Ampersand common stock. Consummation of the merger is subject to customary closing conditions, including the approval of AccuMed's stockholders, and the registration of the Ampersand common stock with the Securities and Exchange Commission. Closing of the merger is expected to occur in the second quarter of 2001. On February 7, 2001, AccuMed received a $470,000 advance from Ampersand to be used for working capital purposes. AccuMed issued a note payable of $800,000, which includes $330,000 of previously advanced funds, to Ampersand. On March 1, 2001, AccuMed received an additional advance of $225,000 from Ampersand and issued a corresponding note payable. These notes bear interest at prime plus 2.5%, and are secured by AccuMed's inventory and a certain customer contract. On December 29, 2000, AccuMed and its subsidiary, Oncometrics, entered into agreements to license their patents and intellectual property to MonoGen, Inc. ("MonoGen") for certain medical applications. Promissory notes were issued to AccuMed and Oncometrics as consideration for the up-front license fees due under the agreements. On March 29, 2000, AccuMed entered into a letter agreement to reinstate and amend its September 4, 1998 patent and technology license agreement with Ampersand. AccuMed received an up-front license fee upon signing the letter agreement. On June 9, 2000, AccuMed signed a formal amendment to the agreement and received an advance royalty in the form of cash. AccuMed also received a convertible note, which was repaid in December 2000, and shares of Ampersand common stock as an additional advance royalty. On March 29, 2000, AccuMed entered into a patent and technology license agreement with BCAM International, Inc., renamed CellMetrix, Inc., whereby AccuMed agreed to license its patents and proprietary information to CellMetrix for certain medical applications. Under the terms of the agreement, AccuMed received a license fee upon signing of the agreement. Effective September 1, 2000, AccuMed and CellMetrix mutually agreed to terminate the license agreement. AccuMed is not required to refund any portion of the license fee it received. On March 24, 2000, AccuMed entered into a license and development agreement with Ventana Medical Systems, Inc., whereby AccuMed agreed to license its patents and proprietary information to Ventana for certain medical applications. Under the terms of the agreement, AccuMed received an up-front licensing fee, advance royalty payment, and development funds. Additional funds are required to be paid by Ventana to AccuMed during 2001 for contract research. The agreement also provides for the sale of AcCell(TM) Systems to Ventana and royalties to be received in the future on the sale of covered products by Ventana. 17 18 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 REVENUES AND COST OF SALES AccuMed's net revenues were $477,000 for the year ended December 31, 2000 compared to $136,000 for the year ended December 31, 1999. Net revenues for the 2000 period reflect the sale of AcCell(TM) and AcCell-Savant(TM) units and licensing fees and royalties earned on our license agreements with Ampersand, CellMetrix, and Ventana, which were signed in 2000. Net revenues for the 1999 period represent the sale of one AcCell-Savant unit and sales of consumables and computer support equipment. Cost of sales represents the cost of products sold. Cost of sales for 1999 includes a non-cash charge of $1,106,000 to write-down inventories to net realizable value. OPERATING EXPENSES General and administrative expenses decreased by $414,000, or 13.2%, from $3,147,000 in the 1999 period to $2,733,000 in the 2000 period. The decrease in these expenses is a result of reduced corporate level activity due to the sale of the microbiology business and our efforts to reduce expenditures, less administrative cost following our 1999 consolidation of AccuMed's operations, and the application of qualifying costs to development funds received under our development obligation with Ventana. Research and development expenses decreased by $727,000, or 38.9%, from $1,870,000 in 1999 to $1,143,000 in 2000. The decrease in these expenses is a result of the application of qualifying costs to development funds received under our development obligation with Ventana, and benefits achieved from the consolidation of our research and development activities along with the 1999 consolidation of our operations. Sales and marketing expenses were $133,000 for the year ended December 31, 2000 compared to $282,000 for the 1999 period. The decrease in these expenses is primarily a result of personnel reductions, reduced spending on consultants, and the application of qualifying costs to development funds received under our development obligation with Ventana. For the year ended December 31, 1999, an asset impairment loss of $137,000 was recorded for the write-down of certain leasehold improvements. The impairment loss is a result of our consolidation of facilities and re-negotiation of facility leasing arrangements in February 2000. OTHER INCOME AND EXPENSE Interest expense for the year ended December 31, 2000 was $39,000 compared to $501,000 for the 1999 period. The decline in interest expense is a result of the repayment in January 1999 of AccuMed's 14.5% secured note payable and 12.0% unsecured convertible notes with proceeds from our sale of the microbiology division. Interest expense for the 1999 period also includes $370,000 from a non-cash write-off of deferred financing costs and debt discounts related to the repayment of these notes. During 2000, we sold a total of 85,776 of the common shares we hold in Ampersand on the open market for proceeds of $331,574. A realized gain on the sale of these shares of $331,574 was recorded in 2000. Other income for the year ended December 31, 2000 substantially represents interest income and $229,000 of income recorded upon the termination of our patent and technology license agreement with CellMetrix. The amount recognized as income is the remaining balance of deferred licensing fees at the date of termination. Other income for the year ended December 31, 1999, primarily represents interest income and non-refundable licensing fees of $100,000 recognized as income upon the termination of a patent and technology license agreement. 18 19 DISCONTINUED OPERATIONS AccuMed's loss of $158,000 in 1999 from discontinued operations reflects the results of operations of AccuMed's microbiology business before its sale in January 1999. In 1999, we recorded a gain of $8,357,000, net of income taxes of $140,000, on the disposal of the microbiology business. YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 REVENUES AND COST OF SALES AccuMed's net revenues were $136,000 for the year ended December 31, 1999 compared to $327,000 for the year ended December 31, 1998, a decrease of $191,000. The decrease in sales reflects a decline in the number of units of AccuMed's AcCell(TM) products sold. Cost of sales for the year ended December 31, 1999 includes a fourth quarter non-cash charge of $1,106,000 to write-down inventories to net realizable value. In October 1998, we ceased our manufacturing operations to eliminate the associated indirect overhead costs. Cost of sales for the year ended December 31, 1998 also includes non-capitalizable overhead costs and costs associated with suspending the manufacturing operations. OPERATING EXPENSES General and administrative expenses decreased by $2,161,000, or 40.1%, from $5,308,000 in 1998 to $3,147,000 in 1999. The decrease in these expenses is a result of reduced corporate level activity, including a reduction in personnel due to the sale of the microbiology business and less administrative cost due to the consolidation of AccuMed's cytopathology operations. Research and development expenses decreased by $700,000, or 27.2%, from $2,570,000 in 1998 to $1,870,000 in 1999. The decrease in these expenses reflects a reduction in personnel and research activity levels. Expenses in 1998 include costs associated with the AcCell 2000 and TracCell slide mapping systems, which were completed in August 1998. Sales and marketing expenses decreased by $1,107,000, or 80.0%, from $1,389,000 in 1998 to $282,000 in 1999. This decrease is a result of a reduction in our marketing personnel beginning in October 1998. OTHER INCOME AND EXPENSE Interest expense for the year ended December 31, 1999 was $501,000 compared to $1,411,000 for 1998. The decline in interest expense is a result of the repayment in January 1999 of AccuMed's 14.5% secured note payable and our 12.0% unsecured convertible notes with proceeds received from our sale of the microbiology division and the conversion in 1998 of convertible notes into Series A convertible preferred stock. Interest expense in 1999 also includes $370,000 from a non-cash write-off of deferred financing costs and debt discounts related to the repayment of these notes. Other income for the year ended December 31, 1999 was $145,000 compared to $848,000 for 1998. The decrease in other income is a result of a reduction in licensing fee income and a reduction in invested cash on hand, which had been available from proceeds received in a private placement in March 1998. EXTRAORDINARY LOSS For the year ended December 31, 1998, AccuMed incurred a $1,168,000 extraordinary loss related to the conversion of $5,275,000 in par value of convertible notes and $329,000 in accrued interest thereon into 1,245,340 shares of Series A Convertible Preferred Stock. Of the total expense, $193,000 represented cash fees and expenses. 19 20 LIQUIDITY AND CAPITAL RESOURCES AccuMed has incurred, and continues to incur, losses from operations and has a working capital deficiency. For the years ended December 31, 2000, 1999, and 1998, AccuMed incurred net losses from continuing operations of $3,098,000, $6,803,000, and $10,360,000, respectively. At December 31, 2000, AccuMed has a working capital deficiency of $812,000, and its available resources are not presently sufficient to fund its expected cash requirements through the end of 2001. These conditions raise substantial doubt about AccuMed's ability to continue as a going concern. In 2000 and early 2001, management of AccuMed implemented strategies to reduce losses from operations and cash used in operating activities. These strategies have included a reduction in personnel, curtailment of certain research and development efforts, and cutting of discretionary expenditures. As a result of the signing of the merger agreement with Ampersand, AccuMed has received in 2001 an aggregate of $695,000 in advances from Ampersand to be used for working capital purposes. The merger agreement requires additional advances of $225,000 per month from Ampersand in April and May 2001. The Ampersand advances will be dissolved upon the consummation of the merger or will be due and payable upon the earliest of May 31, 2001 or the termination of the merger agreement. The due date for repayment of these advances may be extended upon mutual agreement of AccuMed and Ampersand. Through February 28, 2001, AccuMed has collected $300,000 on $500,000 of notes due from MonoGen, Inc. as of December 31, 2000. The remaining amount of $200,000 due from MonoGen is payable on March 31, 2001. Development milestone payments in the aggregate amount of $400,000 are scheduled to be received in 2001 from Ventana under AccuMed's license and development agreement with Ventana. In addition, AccuMed expects to begin shipping licensed product to Ventana beginning in the fourth quarter of 2001. Management expects the merger agreement with Ampersand to be consummated in the second quarter of 2001. If AccuMed is not able to consummate the merger agreement with Ampersand, or if MonoGen or Ventana are not able to meet their payment obligations to AccuMed, or the development timetable with Ventana is not met or is substantially delayed, AccuMed would be required to pursue other strategies to maintain its liquidity. These strategies would include substantially curtailing its development and marketing efforts, liquidating its inventories and technology portfolio or ceasing operations. This would materially and adversely affect AccuMed's business, financial condition, results of operations, and cash flows. At December 31, 2000, AccuMed has current debt of $668,000. The debt consists of a Canadian dollar note of $151,000 ($218,000 in Canadian dollars), a non-interest bearing repayable contribution of $187,000, and a $330,000 note payable to Ampersand. The Canadian dollar note is due on demand, or in the event not called, principal payments are required at a rate of $25,000 U.S. dollars per month, plus interest at a rate of 6.0% over the Canadian prime rate. The Canadian dollar note is convertible into shares of AccuMed's common stock at a price of $1.43 per share. The repayable contribution was received under a Canadian government program and calls for semi-annual installments based on future sales of product and available funds, as defined. AccuMed is currently past due in making certain of its payment obligations under this program. As a result, AccuMed's repayment obligation is callable. The Ampersand note bore interest at a rate of prime, plus 2.5%, and was converted into a new $800,000 note upon the signing of the merger agreement with Ampersand on February 7, 2001. The Ampersand note is due and payable upon the earliest of May 31, 2001 or the termination of the merger agreement. The due date of the note may be extended upon mutual agreement of the parties. OPERATING ACTIVITIES Cash used in operating activities decreased to $1,117,000 in 2000 from $5,273,000 in 1999 and $10,418,000 in 1998. The decrease in the use of cash in operations in 2000 compared to 1999 is primarily a result of a decrease in operating expenses, exclusive of non-cash charges of $740,000, the receipt of $2,000,000 under AccuMed's agreements with Ventana, CellMetrix, and Ampersand, and other working capital changes. The decrease in cash used in 1999 compared to 1998 primarily reflects AccuMed's reduced operating costs. The 1999 period also reflects over $1,000,000 of cash used to reduce extended vendor payment terms carried over from the third and fourth quarters of 1998. 20 21 INVESTING ACTIVITIES For the year ended December 31, 2000, investing activities generated $804,000 in cash compared to $13,976,000 generated in 1999 and the use of $500,000 in cash in 1998. In 2000, AccuMed received $332,000 from the sale of shares it held in Ampersand and collected $500,000 from outstanding notes receivable. In 1999, AccuMed received $14,400,000 in proceeds, net of expenses incurred, from the sale of AccuMed's microbiology business. In 1998 we used $343,000 to acquire the remaining stock of our Oncometrics subsidiary. Capital expenditures in 2000, 1999, and 1998 were $28,000, $24,000 and $157,000, respectively. We do not anticipate material capital expenditures during 2001. FINANCING ACTIVITIES For the year ended December 31, 2000, AccuMed generated $120,000 from financing activities compared to the use of $8,498,000 in cash in 1999 and the generation of $4,943,000 in 1998. In 2000, we received $330,000 from the issuance of notes payable to Ampersand, and we used $210,000 for the pay down of AccuMed's Canadian dollar note payable. In 1999, we repaid all of our outstanding 14.5% secured notes and 12% unsecured convertible notes with proceeds from the sale of AccuMed's microbiology division. In 1998, AccuMed received $4,852,000 in net proceeds from a private placement of its common stock and warrants to purchase common stock. AccuMed currently has no commitments with respect to sources of additional financing other than with respect to funds to be received under our agreements with Ampersand, MonoGen, and Ventana. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AccuMed holds shares of common stock of Ampersand Medical Corporation, a publicly traded company. As a result, our financial results could be significantly affected by changes in the traded market price of this security. AccuMed has debt instruments that are denominated in Canadian dollars. The interest rate for one of the Canadian dollar denominated debt instruments is variable based on changes in the Canadian prime rate of interest. AccuMed also has a note payable with an interest rate that varies based on the U.S. prime rate of interest. As a result, our financial results could be significantly affected by changes in the exchange rate for Canadian dollars and to changes in the U.S. and Canadian prime rates of interest. Management does not actively employ strategies to minimize AccuMed's risks to these exposures. The following table presents information about the shares we hold in Ampersand as of December 31, 2000.
SHARES FAIR HELD VALUE ------- -------- Ampersand Medical Corporation 192,088 $195,085
The following tables present information about AccuMed's debt instruments that are subject to foreign currency and interest rate risk. The table presents principal cash flows, related weighted-average interest rate by expected maturity, and the applicable average Canadian to U.S. dollar exchange rate.
FAIR 2001 2002 TOTAL VALUE -------- ---- -------- -------- Foreign currency risk: Principal $338,288 -- $338,288 $338,288 Average interest rate 11.3% -- Exchange rate 1.4995 --
21 22
2001 2002 TOTAL VALUE -------- ---- -------- -------- Interest rate risk: Principal $481,288 -- $481,288 $481,288 Average interest rate 12.5%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements are filed with this report as pages F-1 through F-18 following the signature page: Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS AND DIRECTORS The sole executive officer and directors of AccuMed and their ages are as follows:
NAME AGE POSITION ---- --- -------- Paul F. Lavallee................... 61 Chairman of the Board and Chief Executive Officer Mark Banister...................... 38 Director Jack H. Halperin, Esq.............. 55 Director Robert L. Priddy................... 55 Director Leonard M. Schiller, Esq........... 60 Director
Set forth below is certain information regarding the business experience of the directors and executive officers of AccuMed. DIRECTORS PAUL F. LAVALLEE. Mr. Lavallee has been a member of the board of directors since December 1995 and has been Chairman of the Board and Chief Executive Officer of AccuMed since January 30, 1998. From January 30, 1998 through March 2, 2000, he also served as President. Since 1995, he has been Chairman of the Board of Biorthex, Inc., a venture capital backed start-up firm specializing in surgical and non-surgical orthopedics located in Montreal. From January 1996 until January 1997, Mr. Lavallee served as a consultant to Sigmedics, Inc., a biomedical company. From 1989 until December 1995, Mr. Lavallee served as Chairman, President and Chief Executive Officer of Sigmedics, Inc. Mr. Lavallee has a Bachelor of Science degree in Biology from Bates College and a Masters in Business Administration from the University of Chicago. 22 23 MARK BANISTER. Mr. Banister has been a director of AccuMed since April 1, 1998. Since January 1993, Mr. Banister has been an independent management consultant and investment advisor specializing in identifying investment opportunities in the smaller and medium company sector and assisting such companies with their development. Mr. Banister previously held senior positions at Bisgood Bishop Ltd. and Morgan Stanley International in London, England. JACK H. HALPERIN, ESQ. Mr. Halperin has been a director of AccuMed since June 1991 and served as Chairman of the board of directors from April 1995 through December 29, 1995. He also served as Secretary of AccuMed from August until December 1996 and from February 2000 to the present. Mr. Halperin is a corporate attorney with expertise in venture capital financing and has been practicing law independently since 1987. Mr. Halperin has a B.A. degree in English from Columbia University and a law degree from New York University School of Law. Mr. Halperin is also a member of the boards of directors of I-Flow Corporation, Memry Corporation, and Nocopi Technologies, Inc. ROBERT L. PRIDDY. Mr. Priddy has been a director of AccuMed since May 1997. Mr. Priddy has been Chairman of the Board and Chief Executive Officer of ValuJet, Inc., since its inception in October 1995. He was one of the founding partners of ValuJet Airlines, a wholly owned subsidiary of ValuJet, Inc., and served as Chairman of its board and its Chief Executive Officer from July 1992 until November 1996. From July 1991 until January 1993, Mr Priddy served as President of Florida Gulf Airlines. From January 1988 to November 1991, he served as President and Chief Executive Officer of Air Midwest, Inc., for which he also served as a director from November 1987 to November 1991. From 1979 to 1987, Mr. Priddy served as Vice President and Chief Financial Officer of Atlantic Southeast Airlines, Inc., which he also served as a director from 1981 to 1987. Mr. Priddy has a B.A. degree in economics from Tulane University. Mr. Priddy is also a member of the board of directors of Datalink, Inc., Commonwealth Associates and AirTran Holdings, Inc. LEONARD M. SCHILLER, ESQ. Mr. Schiller has been a director of AccuMed since April 1995. Mr. Schiller is a partner in the law firm of Schiller, Klein & McElroy, P.C. He has also been President of The Dearborn Group, a residential property management and real estate company involved in the ownership of residential properties throughout the Midwest. Mr. Schiller serves on the board of directors of Milestone Scientific, Inc., which develops dental equipment and disposable products for use by health care providers. Mr. Schiller served as a director of iMall, Inc. prior to its acquisition by Excite@Home. Mr. Schiller also serves as a consultant to several private and public companies. COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS AccuMed's board of directors held 5 meetings during the 2000 fiscal year. Each director attended a minimum of 75% of the aggregate of such meetings and the meetings held by each committee, if any, of the board of directors on which such director served during the last fiscal year. AccuMed has an Executive Committee, an Audit Committee and a Compensation Committee. Each of these committees is responsible to the full board of directors, and its activities are therefore subject to approval of the board of directors. The board of directors does not have a nominating or similar committee. The functions performed by the Audit Committee and the Compensation Committee and their membership are summarized below. The Audit Committee is responsible for reviewing AccuMed's internal accounting controls, meeting and conferring with AccuMed's certified public accountants, and reviewing the results of the accountants' auditing engagement. During fiscal year 2000, the Audit Committee held one meeting. The Audit Committee consists of Messrs. Halperin (Chairman), Banister, Priddy and Schiller. The Compensation Committee of the board of directors is comprised entirely of "disinterested" directors within the meaning of Rule16b-3 under the Securities Exchange Act of 1934. The Compensation Committee determines base compensation and discretionary cash bonuses for AccuMed's senior executives, if not determined by the full board of directors. These determinations are subject to the approval or ratification of the full 23 24 board of directors. The Compensation Committee also determines the number and terms of stock options to be granted to employees, directors (other than pursuant to the Board of Directors Compensation Plan described below), and consultants of AccuMed under AccuMed' stock option plans, unless previously determined by the full board of directors. During fiscal year 2000, the Compensation Committee held one meeting. The Compensation Committee consists of Messrs. Schiller (Chairman), Banister, Halperin and Priddy. DIRECTOR COMPENSATION Pursuant to the Board of Directors Compensation Plan as amended, each non-employee director is entitled to the following compensation for services as a director: (1) an immediately exercisable, five-year, nonqualified stock option to purchase 3,334 shares of common stock to be granted upon election to the board of directors, and (2) an immediately exercisable, nonqualified stock option to purchase 3,334 shares of common stock to be granted upon reelection of a non-employee director to serve an additional year on the board of directors. Such options are to be granted under AccuMed's stock option plans. The exercise price per share shall be the fair market value of a share of common stock on the date of grant. Directors are reimbursed for reasonable expenses incurred in attending meetings of the board of directors and committees thereof. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based upon a review of AccuMed's records, AccuMed believes that each report disclosing beneficial ownership of securities of AccuMed pursuant to Section 16(a) of the Securities Exchange Act required to be filed by the executive officers and directors of AccuMed during the fiscal year ended December 31, 2000 and prior fiscal years were timely filed except as follows. Each of Messrs. Banister, Halperin, Priddy and Schiller filed a late Form 4 disclosing stock options granted in May 1999. Each of Messrs. Lavallee and Pressman filed late Forms 4 disclosing stock options granted in March 1999 and March 2000. ITEM 11. EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION COMPENSATION COMMITTEE: The Compensation Committee of AccuMed's board of directors is composed entirely of outside directors. The committee is responsible for setting and adjusting the base salaries of all corporate officers, establishing cash incentive programs for officers, and the awarding of stock option grants to officers and all other employees. The committee is also responsible for the review and approval of any employment related contracts. COMPENSATION PHILOSOPHY: It is the goal of AccuMed to attract and retain a strong executive management team. The committee believes that there should be a link between the performance of AccuMed, from both financial and stockholder value standpoints, and executive compensation. Accordingly, base salaries are set to conformity with compensation market requirements for comparable sized companies, taking into account levels of responsibility and office location. However, short-term cash incentive compensation and long-term stock option incentive awards, are primarily related to the achievement of AccuMed's financial performance goals and to the enhancement of stockholder value. Internal and personal performance objectives play a lesser role in the executive incentive package. The committee is confident that the compensation and incentive policies and practices followed by AccuMed are appropriate for the industry and the compensation market in which AccuMed competes. Submitted by the 2000 Compensation Committee of AccuMed's board of directors: Mark Banister, Jack H. Halperin, Robert L. Priddy, and Leonard M. Schiller 24 25 SUMMARY COMPENSATION INFORMATION. The following tables set forth information regarding compensation paid or accrued with respect to the three preceding fiscal years to AccuMed's Chief Executive Officer and other executive officers of AccuMed whose total salary and bonus exceeded $100,000 for the 2000 fiscal year. SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards Securities Name and Principal All Other Underlying Position Year Salary Bonus Compensation Options - -------------------------- ------ ----------- ----------- ---------------- ------------- Paul F. Lavallee(1) 2000 $238,391 -- -- 100,000 Chairman and Chief 1999 225,000 $135,000 -- 100,000 Executive Officer 1998 208,212 -- -- 250,000 Norman J. Pressman, Ph.D.(2) 2000 200,000 -- $135,021(3) 100,000 President and Chief 1999 192,917 65,000 61,575(4) 100,000 Scientific Officer 1998 157,500 -- 41,049(4) 50,000
(1) Mr. Lavallee joined AccuMed as Chairman, Chief Executive Officer and President in January 1998. (2) Dr. Pressman resigned as President and Chief Scientific Officer on December 31, 2000. (3) The amount shown as Other Compensation in 2000 represents separation benefits accrued pursuant to a separation agreement entered into between AccuMed and Dr. Pressman on December 29, 2000, which was a modification of an employment agreement between Dr. Pressman and AccuMed entered into on July 5, 1996. (4) The amount shown as Other Compensation in 1999 and 1998 represents amortized forgiveness of a portion of a loan made by AccuMed to Dr. Pressman. OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 2000
% of Total Shares Number of Underlying Shares Options Grant Underlying Granted to Exercise Date Options Employees in Price Expiration Present Name Granted Year ($/Share) Date Value(1) - ------------------- ---------- ------------ ----------- ------------- ----------- Paul F. Lavallee 100,000 50.0% $2.31 3/14/10 $2.10 Norman J. Pressman, 100,000 50.0% $2.31 3/14/10 $2.10 Ph.D.
25 26 (1) AccuMed utilizes the Black-Scholes pricing model to determine the fair value of options granted. The following assumptions were incorporated into the model: risk-free rate -- 6.52%, expected volatility -- 143%, dividend yield -- 0%, and time of exercise -- 5 years. No adjustments were made for non-transferability of risk or risk of forfeiture. AGGREGATE OPTION EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2000 AND FISCAL YEAR END OPTION VALUES
Number of Shares Value of Underlying Unexercised Unexercised in-the-Money Options at Options at December 31, 2000 December 31, 2000 Name Exercisable Unexercisable Exercisable Unexercisable - ------------------- ----------------- ----------------- ------------------ --------------- Paul F. Lavallee 331,668 125,000 -- -- Norman J. Pressman, 158,334 125,000 -- -- Ph.D.
10-YEAR OPTION REPRICINGS
Number of Market Length of Securities Price of Exercise Original Underlying Stock At Price At Option Term Options Time of Time of New Remaining Repriced or Repricing Repricing or Exercise at Date of Amended or Amendment Amendments Price Repricing Date (#) ($) ($) ($) Amendment - ---------------- ----------- -------------- ------------- -------------- ----------- ------------- Paul F. Lavallee 3/23/98 250,000 $4.50 $9.375 $4.50 9.8 years
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS LAVALLEE COMPENSATION ARRANGEMENT; PROFESSIONAL SERVICES AGREEMENT. Effective January 30, 1998, AccuMed's board of directors appointed Mr. Lavallee Chairman of the Board, Chief Executive Officer and President of AccuMed, approved his compensation arrangements for his services, and directed management to memorialize those compensation arrangements in a professional services agreement to be effective retroactive to January 30, 1998. Mr. Lavallee's services are provided through an agreement dated April 13, 1998 (effective January 30, 1998) between AccuMed and Gypsy Hill LLC, a professional services entity. Mr. Lavallee's compensation is $225,000 annually, and he is eligible for an annual bonus of up to 30% thereof. The services can be terminated by AccuMed upon 12 months' written notice, or by Mr. Lavallee upon 30 days' written notice. Mr. Lavallee has been granted a non-qualified stock option to purchase 250,000 shares of common stock at an initial exercise price of $9.375, the closing sales price per share of AccuMed common stock on the grant date, January 30, 1998. If in AccuMed's first equity offering subsequent to the grant date, it sold common stock, or securities convertible or exercisable for common stock, at a price per share lower than the initial exercise price, then the option exercise price was to be reduced to equal the lower price sale per share. In March 1998, AccuMed completed an equity offering for shares of common stock and warrants exercisable to purchase common stock at $4.50 per share. Accordingly the 26 27 initial exercise price has been reset to $4.50. The option is exercisable as follows: (1) one-third of the underlying shares were immediately exercisable, (2) an additional one-third became exercisable on January 30, 1999, and (3) the final one-third of the underlying shares became exercisable on January 30, 2000. Mr. Lavallee is reimbursed for reasonable travel expenses from South Dakota to Chicago and living expenses while in Chicago. PRESSMAN EMPLOYMENT AGREEMENT AND OTHER COMPENSATION ARRANGEMENTS. Dr. Pressman and AccuMed entered into an Employment Agreement dated June 13, 1996, as amended, for a five-year term which began July 5, 1996. Pursuant to the agreement, Dr. Pressman served as an executive officer under various titles, most recently as President and Chief Scientific Officer. Dr. Pressman's annual salary was $200,000 and he was eligible to receive annually (1) cash bonuses of up to 30% of his annual salary, and (2) incentive stock options to purchase up to 8,334 shares of common stock based on the achievement of mutually agreed goals and objectives. On July 8, 1996, Dr. Pressman was granted an option to purchase an aggregate of 41,665 shares of common stock at an exercise price of $37.50 per share (the last reported sale price of the common stock on the date on which Dr. Pressman's employment commenced) which was immediately exercisable with respect to 8,333 shares and was to become exercisable with respect to 8,333 additional shares on each of the first through fourth anniversaries of the grant date. Dr. Pressman surrendered those options in February 1997 in order that the shares reserved for issuance upon exercise thereof could be reserved for issuance in a private placement of AccuMed's securities completed in March 1997. Dr. Pressman was entitled to receive replacement options to purchase 41,667 shares of common stock, exercisable at the fair market value, in May 1997. However, he waived his right to receive 8,333 of those options and was granted options to purchase 33,334 shares of common stock, exercisable at the then fair market value, in May 1997. Dr. Pressman was granted 4,167 shares of common stock on the date on which his employment commenced. Pursuant to Dr. Pressman's employment agreement, AccuMed loaned him an aggregate of $164,409.20, to cover relocation expenses and taxes in connection with the common stock issued to him when he began his employment, pursuant to promissory notes made in October and December 1996. In 1997 and 1996, Dr. Pressman repaid an aggregate of $51,000 of the loan. Until November 1997, 50% of bonuses awarded to Dr. Pressman were to be withheld by AccuMed in partial repayment of the loans. Pursuant to the employment agreement, AccuMed was obligated to cover various expenses relating to Dr. Pressman's efforts to sell his home and his living expenses in Chicago until the home was sold. In November 1997, AccuMed and Dr. Pressman agreed that the loan balance would be forgiven over the remaining term of his employment agreement, and AccuMed would have no further obligations related to Dr. Pressman's relocation expenses. On December 29, 2000, AccuMed and Dr. Pressman entered into a voluntary separation agreement, whereby Dr. Pressman resigned as President and Chief Scientific Officer on December 31, 2000. Pursuant to the separation agreement, AccuMed agreed to continue Dr. Pressman's current salary, automobile allowance, and health, life, and dental benefits through July 4, 2001. AccuMed also agreed to forgive the remaining portion of Dr. Pressman's loan balance of $10,785 due to AccuMed. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of AccuMed serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of AccuMed's board of directors or Compensation Committee. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT COMMON STOCK The table below sets forth certain information as of March 21, 2001 with respect to the beneficial ownership of common stock by (1) each person known by AccuMed to be the beneficial owner of more than 5% of the outstanding shares of common stock, (2) each director, (3) the executives named in the Summary Compensation Table, and (4) executive officers and directors as a group. As of March 21, 2001, there were 5,739,838 shares of common stock outstanding. 27 28 Unless otherwise noted, AccuMed believes that all persons named in the table have sole voting and investment power with respect to all shares of AccuMed common stock listed as beneficially owned by them. A person is deemed to be the beneficial holder of securities that can be acquired by the person currently or within 60 days of March 21, 2001 upon the exercise of warrants or options or the conversion of convertible preferred stock. Each beneficial owner's percentage ownership is determined by including shares, underlying options or warrants which are exercisable or preferred stock which is convertible by the person currently or within 60 days following this date, and excluding shares underlying options, warrants and convertible preferred stock held by any other person.
PERCENT OF SHARES NAME AND ADDRESS NUMBER OF SHARES BENEFICIALLY OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED ------------------- ------------------ ------------ Bellingham Capital Industries..................... 1,333,334(1) 20.8% P.O. Box 323 St. Helier Jersey, Chan. Islands Robert L. Priddy.................................. 911,152(2) 14.5% c/o AccuMed International, Inc. 920 N. Franklin St., Ste 402 Chicago, Il 60610 Edmund Shea....................................... 306,663(3) 5.2% 655 Brea Canyon Rd. Walnut, CA 91789 Paul F. Lavallee.................................. 431,334(4) 7.1% Mark Banister..................................... 10,002(5) * Jack H. Halperin.................................. 13,336(6) * Leonard Schiller.................................. 20,826(7) * Norman J. Pressman................................ 212,501(8) 3.6 - --------------- All directors and executive officers as a group (5 persons)..................................... 1,386,650(9) 20.7%
- ---------------------------- * Represents less than 1%. (1) Includes 667,667 shares underlying warrants held by Bellingham Capital Industries. (2) Mr. Priddy directly owns 355,555 shares of AccuMed common stock and warrants to purchase up to 306,230 shares of AccuMed common stock. The number shown includes 13,336 shares underlying stock options and 236,031 shares underlying Series A Convertible Preferred Stock. The number shown includes an additional 120,926 shares, and 147,373 shares underlying warrants, held by Commonwealth Associates, excluding securities held in Commonwealth Associates' trading account. Mr. Priddy is a control person of the corporate general partner of Commonwealth Associates and may be deemed to be beneficial owner of securities held by Commonwealth Associates. Mr. Priddy disclaims beneficial ownership of the securities held by Commonwealth Associates except to the extent of his percentage ownership interests in Commonwealth Associates. 28 29 (3) Includes 110,219 shares underlying warrants held by Mr. Shea. (4) Includes 378,334 shares underlying stock options held by Mr. Lavallee. (5) Includes 10,002 shares underlying stock options held by Mr. Banister. (6) Includes 13,336 shares underlying stock options held by Mr. Halperin. (7) Includes 13,336 shares underlying stock options held by Mr. Schiller. (8) Includes 208,334 shares underlying stock options held by Dr. Pressman. (9) Includes 236,031 shares underlying Series A Convertible Preferred Stock, 306,230, shares underlying warrants, and 428,344 shares underlying options held by executive officers and directors. PREFERRED STOCK The table below sets forth certain information as of March 21, 2001 with respect to the beneficial ownership of the Series A Convertible Preferred Stock by (1) each person known by AccuMed to be the beneficial owner of more than 5% of the outstanding shares of Series A Convertible Preferred Stock, (2) the only director, nominee or executive officer who owns any Series A Convertible Preferred Stock, and (3) executive officers and directors as a group. As of March 21, 2001, there were 572,485 shares of Series A Convertible Preferred Stock outstanding. Unless otherwise noted, AccuMed believes that all persons named in the table have sole voting and investment power with respect to all shares of Series A Convertible Preferred Stock listed as beneficially owned by them.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - ---------------------------------------------------- -------------------------- ------------- Robert L. Priddy.................................... 354,046 61.8% c/o AccuMed International, Inc. 920 N. Franklin St., Ste 402 Chicago, IL 60610 France Finance IV................................... 47,250 8.3% 51, rue Vivienne 75002 Paris, France Fifth Third Bank of Western Ohio, Trustee Piqua..... 35,405 6.1% Enterprises Corp. Profit Sharing Plan P.O. Box 703 Piqua, OH 45356 Shannon P. Acks..................................... 29,504 5.2% 502 Reston Mill Lane Marietta, GA 30067 All executive officers and directors as a group 354,046 61.8% (5 persons)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 29 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements. The following financial statements are filed as part of this report as pages F-1 through F-18 following the signature page: Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (b) No reports on Form 8-K were filed during the three month period ended December 31, 2000. (c) Exhibit Index
Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Bylaws of AccuMed.(1) 3.2 Amendment No. 1 to Bylaws of AccuMed.(19) 4.1 Certificate of Incorporation of AccuMed(1) 4.2 Certificate of Amendment to Certificate of Incorporation of AccuMed increasing authorized common stock(14) 4.3 Certificate of Designation, Rights and Preferences of Series A Convertible Preferred Stock(15) 4.4 Certificate of Correction to Certificate of Designation, Rights and Preferences of Series A Convertible Preferred Stock(15) 4.5 Certificate of Amendment to Certificate of Incorporation of AccuMed effecting reverse stock split(21) 4.6 Specimen Certificate for common stock(1) 4.7 Bylaws of AccuMed(1) 4.8 Amendment No. 1 to Bylaws of AccuMed(19) 4.9 Warrant Agreement dated as of February 23, 1998 between AccuMed and Commonwealth Associates, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,245,340 (pre split) common stock purchase Warrants issued to investors in a Note Exchange Offer.(15) 4.10 Warrant Agreement dated March 19, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 350,000(pre split) common stock purchase warrants issued to
30 31 Commonwealth Associates and/or its designees in exchange for warrants issued thereto in connection with a Note Exchange Offer(19) 4.11 Form of Subscription Agreement and Registration Rights Agreement dated as of February 23, 1998 between AccuMed and each of the investors in a Note Exchange Offer(15) 4.12 Warrant Agreement dated as of March 19, 1998, as amended by Amendment No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth Associates pertaining to an aggregate of 8,686,667 (pre split) common stock purchase Warrants issued to investors in a private placement. (19) 4.13 Form of Warrant Certificate representing an aggregate of 8,686,667 (pre split) common stock purchase Warrants issued to investors in a private placement in March 1998(19) 4.14 Form of Warrant to Purchase Common Stock dated March 19, 1998 or March 23, 1998, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,337,333 (pre split) common stock purchase Warrants issued to Commonwealth Associates, Bellingham Capital Industries, and Harold S. Blue and/or their respective designees in connection with a private placement.(19) 4.15 Form of Subscription Agreement and Registrant Rights Agreement dated March 19, 1998 or March 23, 1998 between AccuMed and each of the investors in a private placement(19) 4.16 Specimen stock certificate for common stock.(1) 10.1 AccuMed's Board of Directors Compensation Plan as amended by Minutes of Board of Directors meeting dated January 18, 1996 authorizing grants of stock options to non-employee directors.(1)(4) 10.2 Employment Agreement between AccuMed and Norman J. Pressman dated June 13, 1996 and Addendum to Employment Agreement between AccuMed and Norman J. Pressman dated July 16, 1996.(4)(5) 10.3 Separation Agreement dated December 29, 2000 between Norman J. Pressman and AccuMed. 10.4 1995 Stock Option Plan.(1)(4) 10.5 Amendment No. 1 to AccuMed's 1995 Stock Option Plan.(4)(7) 10.6 Amendment No. 2 to the 1995 Stock Option Plan.(4)(16) 10.7 Amendment No. 3 to the 1995 Stock Option Plan.(4)(19) 10.8 Form of Non-Qualified Stock Option Agreement governing options granted to former employees of AccuMed, Inc. pursuant to the Agreement and Plan of Reorganization dated as of April 21, 1995, as amended.(1)(4) 10.9 Form of Non-Qualified Stock Option Agreement governing options granted to employees and consultants under the 1995 Stock Option Plan.(1)(4) 10.10 Form of Incentive Stock Option Agreement governing options granted to employees under the 1995 Stock Option Plan.(1)(4) 10.11 Amended and Restated 1992 Stock Option Plan.(4)(8) 10.12 Amendment No. 1 to Amended and Restated 1992 Stock Option Plan.(4)(16)
31 32 10.13 Franklin Square Commercial Lease dated February 1, 2000 between AccuMed and the Lumber Company as Agent for the Beneficiary of LaSalle National Trust, N.A. pertaining to the premises located at Suite 405, 900 North Franklin Street and Suites 400, 401, 402, 920 North Franklin Street, Chicago, Illinois. 10.14 Form of Warrant Certificate dated as of March 13, 1997 evidencing right to acquire an aggregate of 850,000 shares of Common stock issued to several investors in a private placement consummated March 13, 1997.(16) 10.15 Form of Subscription Agreement between AccuMed and several investors in the private placement consummated on March 13, 1997.(16) 10.16 Form of Warrant to Purchase Common Stock dated February 23, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 200,000 (pre-split) common stock purchase Warrants issued to Commonwealth Associates and/or its designees in exchange for warrants previously issued thereto in connection with the placement of 12% Convertible Promissory Notes.(19) 10.17 Warrant Agreement dated as of February 2, 1998 between AccuMed and Robert L. Priddy representing warrants to purchase 100,000 (pre-split) shares of common stock.(19) 10.18 Agreement between AccuMed and Paul F. Lavallee and Gypsy Hill LLC effective January 29, 1998(21) 10.19 Warrant Agreement dated as of February 23, 1998 between AccuMed and Commonwealth Associates, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,245,340 (pre-split) common stock purchase Warrants issued to investors in a Note Exchange Offer.(15) 10.20 Warrant Agreement dated March 19, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 350,000 (pre-split) common stock purchase Warrants issued to Commonwealth Associates and/or its designees in exchange for warrants issued thereto in connection with a Note Exchange Offer.(19) 10.21 Form of Subscription Agreement and Registration Rights Agreement dated as of February 23, 1998 between AccuMed and each of the investors in a Note Exchange Offer.(15) 10.22 Warrant Agreement dated as of March 19, 1998, as amended by Amendment No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth Associates pertaining to an aggregate of 8,686,667 (pre-split) common stock purchase Warrants issued to investors in a private placement. (19) 10.23 Form of Warrant Certificate representing an aggregate of 8,686,667 (pre-split) common stock purchase Warrants issued to investors in a private placement in March 1998.(19) 10.24 Form of Warrant to Purchase Common stock dated March 19, 1998 or March 23, 1998, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,337,333 (pre-split) common stock purchase Warrants issued to Commonwealth Associates, Bellingham Capital Industries, and Harold S. Blue and/or their respective designees in connection with a private placement.(19) 10.25 Form of Subscription Agreement and Registration Rights Agreement dated March 19, 1998 or March 23, 1998 between AccuMed and each of the investors in a private placement.(19) 10.26 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock Option Plan(19)
32 33 10.27 Floating Rate Convertible Promissory Note dated June 26, 1998 by AccuMed in favor of Xillix Technologies Corp. in the original principal amount of CDN$500,000.(22) 10.28 Amendment to Floating Rate Convertible Promissory Note dated March 15, 2000 between AccuMed and Xillix Technologies Corp.(23) 10.29 License and Development Agreement dated March 24, 2000 between AccuMed and Ventana Medical Systems, Inc.+(23) 10.30 Patent and Technology License and Registration Rights Agreement dated March 29, 2000 between AccuMed and BCAM International, Inc.+(23) 10.31 Letter Agreement dated October 3, 2000 between AccuMed and CellMetrix, Inc. (formerly known as BCAM International, Inc.) terminating the Patent and Technology License and Registration Rights Agreement dated March 29, 2000. 10.32 Amendment to Patent and Technology License Agreement dated June 9, 2000 between AccuMed and Ampersand Medical Corporation.(24) 10.33 License Agreement dated December 29, 2000 between AccuMed and MonoGen, Inc.++ 10.34 Agreement and Plan of Merger dated February 7, 2001 among AccuMed, AccuMed Acquisition Corp., and Ampersand Medical Corporation. 10.35 Secured Promissory Note made February 7. 2001 by AccuMed in favor of Ampersand Medical Corporation in the original principal amount of $800,000. 10.36 Security Agreement dated February 7, 2001 between AccuMed and Ampersand Medical Corporation. 10.37 Secured Promissory Note made March 1, 2001 by AccuMed in favor of Ampersand Medical Corporation in the original principal amount of $225,000. 10.38 Promissory Note dated December 29, 2000 made by MonoGen, Inc. in favor of AccuMed in the original principal amount of $320,000. 21.1 Subsidiary of AccuMed. 23.1 Consent of KPMG LLP
- --------------- + Confidential treatment granted for portions of this document. ++ Confidential treatment sought for portions of this document. (1) Incorporated by reference to AccuMed's Transition Report on Form 10-KSB for the transition period ended December 31, 1995. (2) Incorporated by reference to Pre-Effective Amendment No. 4 to the Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on October 9, 1993. 33 34 (3) Incorporated by reference to AccuMed's Registration Statement on Form S-4 (File No. 33-99680), filed with the Commission on November 22, 1995. (4) Represents a management contract or compensatory plan or arrangement. (5) Incorporated by reference to AccuMed's Registration Statement Form S-2 (Regis. No. 333-09011) filed with the Commission on July 26, 1996. (6) Incorporated by reference to AccuMed's Annual Report on Form 10-KSB for the year ended September 30, 1994. (7) Incorporated by reference to Pre-effective Amendment No. 1 to the Registration Statement on Form S-2 (Regis. No. 333-09011) filed with the Commission on August 29, 1996. (8) Incorporated by reference to AccuMed's Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on June 3, 1992. (9) Incorporated by reference to Pre-effective Amendment No. 4 to the Registration Statement of Form S-2 (Regis. No. 333-09011) filed with the Commission on October 3, 1996. (10) Incorporated by reference to Pre-Effective Amendment No. 1 to Form SB-2, filed with the Commission on November 8, 1993). (11) Incorporated by Reference to Pre-effective Amendment No. 2 to the Registration Statement on Form S-2 (Regis. No. 333-09011) filed with the Commission on September 23, 1996. (12) Incorporated by reference to AccuMed's Registration Statement on Form S-3 (Reg. No. 333-07681), filed with the Commission on July 3, 1996. (13) Incorporated by reference to AccuMed's Current Report on Form 8-K dated March 3, 1997. (14) Incorporated by reference to AccuMed's Registration Statement on Form S-3 (Regis. No. 333-28125) filed with the Commission on May 30, 1997. (15) Incorporated by reference to AccuMed's Current Report on Form 8-K dated March 20, 1998. (16) Incorporated by reference to AccuMed's Annual Report on Form 10-KSB for the year ended December 31, 1996. (17) Incorporated by reference to AccuMed's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997. (18) Incorporated by reference to AccuMed's Quarterly Report on from 10-QSB for the quarter ended September 30, 1997. (19) Incorporated by reference to AccuMed's Annual Report on Form 10-K for the year ended December 31, 1997. (20) Incorporated by reference to the Registration Statement on Form S-3 (Regis. No. 333-56393) filed with the Commission on June 9, 1998. 34 35 (21) Incorporated by reference to AccuMed's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (22) Incorporated by reference to AccuMed's Registration Statement on Form S-3 filed with the Commission on November 9, 1999 (Regis. No. 333-90637). (23) Incorporated by reference to AccuMed's Annual Report on Form 10-K for the year ended December 31, 1999. (24) Incorporated by reference to AccuMed's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (d) Financial Statement Schedules. The following financial statement schedule is filed as part of this report as page F-20 and F-21 following the signature page: Schedule II - Valuation and Qualifying Accounts All other schedules required by Form 10-K Annual Report have been omitted because they were not applicable, were included in the notes to be consolidated financial statements, or were otherwise not required under the instructions contained in Regulation S-X. 35 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 30, 2001 ACCUMED INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE --------------------------------- Paul F. Lavallee, Chairman of the Board and Chief Executive Officer (principal executive officer and principal accounting officer) Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates so indicated. Each Director of the registrant whose signature appears below, hereby appoints Paul F. Lavallee individually as his attorney-in-fact to sign in his name and on his behalf as a director of the registrant, and to file with the SEC any and all Amendments to this Annual Report on Form 10-K to the same extent and with the same effect as if done personally. DATED: March 30, 2001 By: /s/ PAUL F. LAVALLEE --------------------------------- Paul F. Lavallee, Chairman DATED: March 30, 2001 By: /s/ JACK H. HALPERIN --------------------------------- Jack H. Halperin, Director DATED: March 30, 2001 By: /s/ MARK BANISTER -------------------------------- Mark Banister, Director DATED: March 30, 2001 By: /s/ LEONARD M. SCHILLER --------------------------------- Leonard M. Schiller, Director DATED: March 30, 2001 By: /s/ ROBERT L. PRIDDY -------------------------------- Robert L. Priddy, Director 36 37
Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Bylaws of AccuMed. (1) 3.2 Amendment No. 1 to Bylaws of AccuMed. (19) 4.1 Certificate of Incorporation of AccuMed (1) 4.2 Certificate of Amendment to Certificate of Incorporation of AccuMed increasing authorized common stock (14) 4.3 Certificate of Designation, Rights and Preferences of Series A Convertible Preferred Stock (15) 4.4 Certificate of Correction to Certificate of Designation, Rights and Preferences of Series A Convertible Preferred Stock (15) 4.5 Certificate of Amendment to Certificate of Incorporation of AccuMed effecting reverse stock split (21) 4.6 Specimen Certificate for common stock (1) 4.7 Bylaws of AccuMed (1) 4.8 Amendment No. 1 to Bylaws of AccuMed (19) 4.9 Warrant Agreement dated as of February 23, 1998 between AccuMed and Commonwealth Associates, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,245,340 (pre split) common stock purchase Warrants issued to investors in a Note Exchange Offer. (15) 4.10 Warrant Agreement dated March 19, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 350,000(pre split) common stock purchase warrants issued to Commonwealth Associates and/or its designees in exchange for warrants issued thereto in connection with a Note Exchange Offer (19) 4.11 Form of Subscription Agreement and Registration Rights Agreement dated as of February 23, 1998 between AccuMed and each of the investors in a Note Exchange Offer (15) 4.12 Warrant Agreement dated as of March 19, 1998, as amended by Amendment No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth Associates pertaining to an aggregate of 8,686,667 (pre split) common stock purchase Warrants issued to investors in a private placement. (19) 4.13 Form of Warrant Certificate representing an aggregate of 8,686,667 (pre split) common stock purchase Warrants issued to investors in a private placement in March 1998 (19) 4.14 Form of Warrant to Purchase Common Stock dated March 19, 1998 or March 23, 1998, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,337,333 (pre split) common stock purchase Warrants issued to Commonwealth Associates, Bellingham Capital Industries, and Harold S. Blue and/or their respective designees in connection with a private placement. (19)
37 38 4.15 Form of Subscription Agreement and Registrant Rights Agreement dated March 19, 1998 or March 23, 1998 between AccuMed and each of the investors in a private placement (19) 4.16 Specimen stock certificate for common stock. (1) 10.1 AccuMed's Board of Directors Compensation Plan as amended by Minutes of Board of Directors meeting dated January 18, 1996 authorizing grants of stock options to non-employee directors. (1)(4) 10.2 Employment Agreement between AccuMed and Norman J. Pressman dated June 13, 1996 and Addendum to Employment Agreement between AccuMed and Norman J. Pressman dated July 16, 1996. (4)(5) 10.3 Separation Agreement dated December 29, 2000 between Norman J. Pressman and AccuMed. 10.4 1995 Stock Option Plan. (1)(4) 10.5 Amendment No. 1 to AccuMed's 1995 Stock Option Plan.(4)(7) 10.6 Amendment No. 2 to the 1995 Stock Option Plan. (4)(16) 10.7 Amendment No. 3 to the 1995 Stock Option Plan. (4)(19) 10.8 Form of Non-Qualified Stock Option Agreement governing options granted to former employees of AccuMed, Inc. pursuant to the Agreement and Plan of Reorganization dated as of April 21, 1995, as amended. (1)(4) 10.9 Form of Non-Qualified Stock Option Agreement governing options granted to employees and consultants under the 1995 Stock Option Plan. (1)(4) 10.10 Form of Incentive Stock Option Agreement governing options granted to employees under the 1995 Stock Option Plan. (1)(4) 10.11 Amended and Restated 1992 Stock Option Plan. (4)(8) 10.12 Amendment No. 1 to Amended and Restated 1992 Stock Option Plan.(4)(16) 10.13 Franklin Square Commercial Lease dated February 1, 2000 between AccuMed and the Lumber Company as Agent for the Beneficiary of LaSalle National Trust, N.A. pertaining to the premises located at Suite 405, 900 North Franklin Street and Suites 400, 401, 402, 920 North Franklin Street, Chicago, Illinois. 10.14 Form of Warrant Certificate dated as of March 13, 1997 evidencing right to acquire an aggregate of 850,000 shares of Common stock issued to several investors in a private placement consummated March 13, 1997. (16) 10.15 Form of Subscription Agreement between AccuMed and several investors in the private placement consummated on March 13, 1997. (16) 10.16 Form of Warrant to Purchase Common Stock dated February 23, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 200,000 (pre-split) common stock purchase Warrants issued to Commonwealth Associates and/or its designees in exchange for warrants previously issued thereto in connection with the placement of 12% Convertible Promissory Notes. (19)
38 39 10.17 Warrant Agreement dated as of February 2, 1998 between AccuMed and Robert L. Priddy representing warrants to purchase 100,000 (pre-split) shares of common stock. (19) 10.18 Agreement between AccuMed and Paul F. Lavallee and Gypsy Hill LLC effective January 29, 1998 (21) 10.19 Warrant Agreement dated as of February 23, 1998 between AccuMed and Commonwealth Associates, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,245,340 (pre-split) common stock purchase Warrants issued to investors in a Note Exchange Offer. (15) 10.20 Warrant Agreement dated March 19, 1998 between AccuMed and Commonwealth Associates representing an aggregate of 350,000 (pre-split) common stock purchase Warrants issued to Commonwealth Associates and/or its designees in exchange for warrants issued thereto in connection with a Note Exchange Offer. (19) 10.21 Form of Subscription Agreement and Registration Rights Agreement dated as of February 23, 1998 between AccuMed and each of the investors in a Note Exchange Offer. (15) 10.22 Warrant Agreement dated as of March 19, 1998, as amended by Amendment No. 1 dated as of March 23, 1998, between AccuMed and Commonwealth Associates pertaining to an aggregate of 8,686,667 (pre-split) common stock purchase Warrants issued to investors in a private placement. (19) 10.23 Form of Warrant Certificate representing an aggregate of 8,686,667 (pre-split) common stock purchase Warrants issued to investors in a private placement in March 1998. (19) 10.24 Form of Warrant to Purchase Common stock dated March 19, 1998 or March 23, 1998, including form of Warrant Certificate attached as Exhibit A thereto, representing an aggregate of 1,337,333 (pre-split) common stock purchase Warrants issued to Commonwealth Associates, Bellingham Capital Industries, and Harold S. Blue and/or their respective designees in connection with a private placement. (19) 10.25 Form of Subscription Agreement and Registration Rights Agreement dated March 19, 1998 or March 23, 1998 between AccuMed and each of the investors in a private placement. (19) 10.26 1997 Stock Option Plan and Amendment No. 1 to the 1997 Stock Option Plan (19) 10.27 Floating Rate Convertible Promissory Note dated June 26, 1998 by AccuMed in favor of Xillix Technologies Corp. in the original principal amount of CDN$500,000. (22) 10.28 Amendment to Floating Rate Convertible Promissory Note dated March 15, 2000 between AccuMed and Xillix Technologies Corp.(23) 10.29 License and Development Agreement dated March 24, 2000 between AccuMed and Ventana Medical Systems, Inc.+(23) 10.30 Patent and Technology License and Registration Rights Agreement dated March 29, 2000 between AccuMed and BCAM International, Inc.+(23) 10.31 Letter Agreement dated October 3, 2000 between AccuMed and CellMetrix, Inc. (formerly known as BCAM International, Inc.) terminating the Patent and Technology License and Registration rights Agreement dated March 29, 2000
39 40 10.32 Amendment to Patent and Technology License Agreement dated June 9, 2000 between AccuMed and Ampersand Medical Corporation. (24) 10.33 License Agreement dated December 29, 2000 between AccuMed and MonoGen, Inc.++ 10.34 Agreement and Plan of Merger dated February 7, 2001 among AccuMed, AccuMed Acquisition Corp., and Ampersand Medical Corporation. 10.35 Secured Promissory Note made February 7, 2001 by AccuMed in favor of Ampersand Medical Corporation in the original principal amount of $800,000. 10.36 Security Agreement dated February 7, 2001 between AccuMed and Ampersand Medical Corporation. 10.37 Secured Promissory Note name March 1, 2001 by AccuMed in favor of Ampersand Medical Corporation in the original principal amount of $255,000. 10.38 Promissory Note dated December 29, 2000 made by MonoGen, Inc. in favor of AccuMed in the original principal amount of $320,000. 21.1 Subsidiary of AccuMed. 23.1 Consent of KPMG LLP
- --------------- + Confidential treatment granted for portions of this document. ++ Confidential treatment sought for portions of this document. (1) Incorporated by reference to AccuMed's Transition Report on Form 10-KSB for the transition period ended December 31, 1995. (2) Incorporated by reference to Pre-Effective Amendment No. 4 to the Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on October 9, 1993. (3) Incorporated by reference to AccuMed's Registration Statement on Form S-4 (File No. 33-99680), filed with the Commission on November 22, 1995. (4) Represents a management contract or compensatory plan or arrangement. (5) Incorporated by reference to AccuMed's Registration Statement Form S-2 (Regis. No. 333-09011) filed with the Commission on July 26, 1996. (6) Incorporated by reference to AccuMed's Annual Report on Form 10-KSB for the year ended September 30, 1994. (7) Incorporated by reference to Pre-effective Amendment No. 1 to the Registration Statement on Form S-2 (Regis. No. 333-09011) filed with the Commission on August 29, 1996. (8) Incorporated by reference to AccuMed's Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on June 3, 1992. 40 41 (9) Incorporated by reference to Pre-effective Amendment No. 4 to the Registration Statement of Form S-2 (Regis. No. 333-09011) filed with the Commission on October 3, 1996. (10) Incorporated by reference to Pre-Effective Amendment No. 1 to Form SB-2, filed with the Commission on November 8, 1993). (11) Incorporated by Reference to Pre-effective Amendment No. 2 to the Registration Statement on Form S-2 (Regis. No. 333-09011) filed with the Commission on September 23, 1996. (12) Incorporated by reference to AccuMed's Registration Statement on Form S-3 (Reg. No. 333-07681), filed with the Commission on July 3, 1996. (13) Incorporated by reference to AccuMed's Current Report on Form 8-K dated March 3, 1997. (14) Incorporated by reference to AccuMed's Registration Statement on Form S-3 (Regis. No. 333-28125) filed with the Commission on May 30, 1997. (15) Incorporated by reference to AccuMed's Current Report on Form 8-K dated March 20, 1998. (16) Incorporated by reference to AccuMed's Annual Report on Form 10-KSB for the year ended December 31, 1996. (17) Incorporated by reference to AccuMed's Quarterly Report on From 10-QSB for the quarter ended June 30, 1997. (18) Incorporated by reference to AccuMed's Quarterly Report on from 10-QSB for the quarter ended September 30, 1997. (19) Incorporated by reference to AccuMed's Annual Report on Form 10-K for the year ended December 31, 1997. (20) Incorporated by reference to the Registration Statement on Form S-3 (Regis. No. 333-56393) filed with the Commission on June 9, 1998. (21) Incorporated by reference to AccuMed's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (22) Incorporated by reference to AccuMed's Registration Statement on Form S-3 filed with the Commission on November 9, 1999 (Regis. No. 333-90637). (23) Incorporated by reference to AccuMed's Annual Report on Form 10-K for the year ended December 31, 1999. (24) Incorporated by reference to AccuMed's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (d) Financial Statement Schedules. The following financial statement schedule is filed as part of this report as page F-20 and F-21 following the signature page: Schedule II - Valuation and Qualifying Accounts 41 42 All other schedules required by Form 10-K Annual Report have been omitted because they were not applicable, were included in the notes to be consolidated financial statements, or were otherwise not required under the instructions contained in Regulation S-X. 42 43 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report ............................................ F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 ............ F-3 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 ..................................................... F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2000, 1999 and 1998 ............. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ..................................................... F-6 Notes to Consolidated Financial Statements .............................. F-7
F-1 44 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders AccuMed International, Inc.: We have audited the accompanying consolidated balance sheets of AccuMed International, Inc. and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AccuMed International, Inc. and subsidiary as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in a three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP Chicago, Illinois March 8, 2001 F-2 45 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- ASSETS 2000 1999 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 462 $ 196,303 Accounts receivable 19,600 -- Prepaid expenses and other current assets 18,984 7,944 Available-for-sale security 195,085 121,301 Notes receivable 492,772 400,000 Inventories 639,220 700,919 ------------ ------------ TOTAL CURRENT ASSETS 1,366,123 1,426,467 ------------ ------------ Property and equipment, net 385,372 705,273 Purchased technology, net of accumulated amortization of $2,876,000 in 2000 and $2,214,000 in 1999 3,523,866 4,185,868 Patents, net of accumulated amortization of $193,000 in 2000 and $130,000 in 1999 775,416 842,484 Note receivable, officer -- 62,237 ------------ ------------ $ 6,050,777 $ 7,222,329 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of debt $ 668,288 $ 362,550 Accounts payable 330,168 223,822 Accrued interest 13,161 15,415 Income taxes -- 35,000 Deferred revenues, current portion 419,739 -- Other current liabilities 747,020 750,183 ------------ ------------ TOTAL CURRENT LIABILITIES 2,178,376 1,386,970 ------------ ------------ Debt -- 167,000 Deferred revenues 1,487,973 -- STOCKHOLDERS' EQUITY Preferred stock, Series A convertible, 5,000,000 shares authorized; 590,197 issued and outstanding at December 31, 2000; 944,384 issued and outstanding at December 31, 1999; 2,655,893 4,249,735 Common stock, $0.01 par value; 50,000,000 shares authorized; 5,728,028 issued and outstanding at December 31, 2000; 5,491,901 issued and outstanding at December 31, 1999; 57,280 54,919 Additional paid-in capital 61,210,743 59,619,262 Accumulated other comprehensive income (loss) (190,939) (4,960) Accumulated deficit (61,131,812) (58,033,860) Treasury stock; 6,326 shares at December 31, 2000 and 1999 (216,737) (216,737) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,384,428 5,668,359 ------------ ------------ $ 6,050,777 $ 7,222,329 ============ ============
See accompanying notes to consolidated financial statements. F-3 46 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ----------- ----------- ------------ Net sales $ 303,034 $ 136,405 $ 326,862 Licensing fees 130,285 -- -- Royalties 44,000 -- -- ----------- ----------- ------------ Total net revenues 477,319 136,405 326,862 ----------- ----------- ------------ Operating expenses: Cost of sales 122,471 1,146,291 855,788 General and administrative 2,732,958 3,147,154 5,308,417 Research and development 1,142,805 1,869,587 2,569,864 Asset impairment -- 137,211 -- Sales and marketing 133,063 282,398 1,388,826 ----------- ----------- ------------ Total operating expenses 4,131,297 6,582,641 10,122,895 ----------- ----------- ------------ Operating loss (3,653,978) (6,446,236) (9,796,033) ----------- ----------- ------------ Other income (expense): Interest expense (38,932) (501,379) (1,411,335) Realized gain on available for sale security 331,574 -- -- Other income, net 263,384 144,794 847,613 ----------- ----------- ------------ Total other income (expense) 556,026 (356,585) (563,722) ----------- ----------- ------------ Loss before income taxes from continuing operations (3,097,952) (6,802,821) (10,359,755) Income tax expense -- -- -- ----------- ----------- ------------ Loss from continuing operations before extraordinary item (3,097,952) (6,802,821) (10,359,755) ----------- ----------- ------------ Discontinued operations: (Loss) income from discontinued operations -- (158,250) 3,351,486 Gain on disposal, net of income taxes of $140,000 -- 8,357,449 -- ----------- ----------- ------------ Income from discontinued operations -- 8,199,199 3,351,486 ----------- ----------- ------------ Extraordinary item - debt extinguishment loss -- -- (1,168,080) ----------- ----------- ------------ Net (loss) income $(3,097,952) $ 1,396,378 $ (8,176,349) =========== =========== ============ Basic and diluted loss per share from continuing operations before extraordinary item $ (0.55) $ (1.24) $ (2.04) Income per share from discontinued operations -- 1.49 0.66 Extraordinary loss per share from debt extinguishment -- -- (0.23) ----------- ----------- ------------ Basic and diluted net (loss) income per share $ (0.55) $ 0.25 $ (1.61) =========== =========== ============ Weighted average common shares outstanding - basic and diluted 5,653,060 5,491,480 5,079,894 =========== =========== ============
See accompanying notes to consolidated financial statements F-4 47 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------------- ---------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ---------- ----------- --------- ------- ----------- Balances at December 31, 1997 -- $ -- 3,788,145 $37,881 $52,143,231 ---------- ----------- --------- ------- ----------- Issuances of common stock -- -- 1,494,869 14,949 6,066,070 Issuances of preferred stock 1,245,338 5,604,030 -- -- -- Conversion of preferred stock to common (283,236) (1,274,564) 188,824 1,888 1,272,676 Stock options exercised -- -- 8,250 83 57,672 Cumulative translation adjustment -- -- -- -- -- Net loss -- -- -- -- -- ---------- ----------- --------- ------- ----------- Balances at December 31, 1998 962,102 4,329,466 5,480,088 54,801 59,539,649 ---------- ----------- --------- ------- ----------- Conversion of preferred stock to common (17,718) (79,731) 11,813 118 79,613 Cumulative translation adjustment -- -- -- -- -- Change in value of available-for-sale security -- -- -- -- -- Net income -- -- -- -- -- ---------- ----------- --------- ------- ----------- Balances at December 31, 1999 944,384 4,249,735 5,491,901 54,919 59,619,262 ---------- ----------- --------- ------- ----------- Conversion of preferred stock to common (354,187) (1,593,842) 236,127 2,361 1,591,481 Cumulative translation adjustment -- -- -- -- -- Change in value of available-for-sale security -- -- -- -- -- Net loss -- -- -- -- -- ---------- ----------- --------- ------- ----------- Balances at December 31, 2000 590,197 $ 2,655,893 5,728,028 $57,280 $61,210,743 ========== =========== ========= ======= ===========
ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS' COMPREHENSIVE INCOME (LOSS) DEFICIT STOCK EQUITY INCOME (LOSS) ------------- ------------ --------- ----------- ------------- Balances at December 31, 1997 $ 22,586 $(51,253,889) $(216,737) $ 733,072 $(16,928,576) --------- ------------ --------- ----------- ------------ Issuances of common stock -- -- -- 6,081,019 -- Issuances of preferred stock -- -- -- 5,604,030 -- Conversion of preferred stock to common -- -- -- -- -- Stock options exercised -- -- -- 57,755 -- Cumulative translation adjustment (76,581) -- -- (76,581) (76,581) Net loss -- (8,176,349) -- (8,176,349) (8,176,349) --------- ------------ --------- ----------- ------------ Balances at December 31, 1998 (53,995) (59,430,238) (216,737) 4,222,946 (8,252,930) --------- ------------ --------- ----------- ------------ Conversion of preferred stock to common -- -- -- -- -- Cumulative translation adjustment (72,266) -- -- (72,266) (72,266) Change in value of available-for-sale security 121,301 -- -- 121,301 121,301 Net income -- 1,396,378 -- 1,396,378 1,396,378 --------- ------------ --------- ----------- ------------ Balances at December 31, 1999 (4,960) (58,033,860) (216,737) 5,668,359 1,445,413 --------- ------------ --------- ----------- ------------ Conversion of preferred stock to common -- -- -- -- -- Cumulative translation adjustment (2,621) -- -- (2,621) (2,621) Change in value of available-for-sale security (183,358) -- -- (183,358) (183,358) Net loss -- (3,097,952) -- (3,097,952) (3,097,952) --------- ------------ --------- ----------- ------------ Balances at December 31, 2000 $(190,939) $(61,131,812) $(216,737) $ 2,384,428 $ (3,283,931) ========= ============ ========= =========== ============
See accompanying notes to consolidated financial statements. F-5 48 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 ----------- ------------ ------------ OPERATING ACTIVITIES: Net (loss) income $(3,097,952) $ 1,396,378 $ (8,176,349) Adjustments to reconcile net (loss) income to net cash used in operating activities: Income from discontinued operations -- (8,199,199) (3,351,486) Non-cash expenses of asset disposal -- 432,500 -- Write-off of leasehold improvements -- 137,211 -- Write-down of inventory -- 1,106,399 -- Depreciation and amortization 1,076,726 1,111,655 1,534,034 Realized gain on sale of available for sale security (331,574) -- -- Bad debt expense -- -- 337,353 Debt extinguishment loss -- -- 1,168,080 Minority interest -- -- (191,560) Expenses paid with issuances of stock or warrants -- -- 99,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable (19,600) 33,348 58,950 (Increase) decrease in prepaid expenses and other (11,040) 56,104 34,600 Decrease (increase) in inventories 61,699 (68,707) (456,472) Decrease (increase) in patents and other assets 62,237 (15,821) (66,975) Increase (decrease) in accounts payable 106,346 (1,584,427) (1,241,309) Increase in deferred revenues 1,057,798 -- -- (Decrease) increase in other current liabilities (21,704) 321,237 (165,825) ----------- ------------ ------------ CASH USED IN OPERATING ACTIVITIES (1,117,064) (5,273,322) (10,417,959) ----------- ------------ ------------ INVESTING ACTIVITIES: Capital expenditures (27,755) (23,999) (157,132) Purchase of Oncometrics stock -- -- (342,500) Payments for note receivable -- (400,000) -- Proceeds from note receivable 500,000 -- -- Proceeds from sales of available-for-sale security 331,574 -- -- Proceeds from sale of Microbiology division -- 15,150,000 -- Expenses related to sale of Microbiology division -- (750,000) -- ----------- ------------ ------------ CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 803,819 13,976,001 (499,632) ----------- ------------ ------------ FINANCING ACTIVITIES: Proceeds from issuances of common stock, net -- -- 4,852,394 Payments of notes payable (209,975) (8,497,551) (909,305) Proceeds from issuance of notes payable 330,000 -- 1,000,000 ----------- ------------ ------------ CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 120,025 (8,497,551) 4,943,089 ----------- ------------ ------------ CASH TRANSFER (TO) FROM DISCONTINUED OPERATIONS -- (209,945) 5,872,486 ----------- ------------ ------------ EFFECT OF EXCHANGE RATES ON CASH (2,621) (12,266) (16,581) ----------- ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (195,841) (17,083) (118,597) ----------- ------------ ------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 196,303 213,386 331,983 ----------- ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 462 $ 196,303 $ 213,386 =========== ============ ============
See accompanying notes to consolidated financial statements. F-6 49 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AccuMed International, Inc. and subsidiary ("AccuMed") engage in the development and marketing of cost effective screening instruments and systems for clinical diagnostic laboratories, hospitals and others. These activities are conducted primarily in the United States and Canada. AccuMed markets its products primarily to the cytopathology and immunohistochemistry laboratory markets. Our integrated systems use reliable, accurate and innovative products and methods to provide laboratories with comprehensive solutions that are intended to improve efficiency and reduce costs while achieving significant improvements in disease detection. AccuMed operates in one business segment and substantially all of its assets are located in the United States. Basis of Presentation The consolidated financial statements include the accounts of AccuMed International, Inc. and its wholly-owned subsidiary, Oncometrics Imaging Corp. ("Oncometrics"). All significant intercompany balances and transactions have been eliminated in consolidation. On December 22, 1998, (the measurement date), AccuMed received shareholder approval to sell its microbiology division under a sales agreement negotiated by management under the approval of the board of directors. On January 29, 1999, AccuMed closed the sale of the microbiology division for proceeds of $15,150,000. AccuMed recognized a gain of $8,357,000, net of income taxes of $140,000 and after working capital adjustments, on the disposal of the microbiology division. Accordingly, the microbiology division is accounted for as a discontinued operation in the accompanying consolidated balance sheets, statements of operations and statements of cash flows. Reverse Stock Split On May 19, 1998, the stockholders approved a reverse one-for-six stock split, which was affected by the Board of Directors as of May 21, 1998. The reverse split covered all outstanding common shares and all agreements concerning stock options, warrants, convertible notes and other commitments payable in shares of AccuMed's common stock. All references to per-share information in the accompanying financial statements and notes to the consolidated financial statements have been adjusted to reflect the reverse split on a retroactive basis. 2. GOING CONCERN AND MANAGEMENT'S PLANS AccuMed has incurred, and continues to incur, losses from operations and has a working capital deficiency. For the years ended December 31, 2000, 1999, and 1998, AccuMed incurred net losses from continuing operations of $3,098,000, $6,803,000, and $10,360,000, respectively. At December 31, 2000, AccuMed has a working capital deficiency of $812,000, and its available resources are not presently sufficient to fund its expected cash requirements through the end of 2001. These conditions raise substantial doubt about AccuMed's ability to continue as a going concern. In 2000 and early 2001, management of AccuMed implemented strategies to reduce losses from operations and cash used in operating activities. These strategies have included a reduction in personnel, curtailment of certain research and development efforts, and cutting of discretionary expenditures. On February 7, 2001, AccuMed entered into a merger agreement with Ampersand Medical Corporation ("Ampersand"). As a result of the signing of the merger agreement with Ampersand, AccuMed has received in 2001 an aggregate of $695,000 in advances from Ampersand to be used for working capital purposes. The merger agreement requires additional advances of $225,000 per month from Ampersand in April and May 2001. The Ampersand advances will be dissolved upon the consummation of the merger or will be due and payable upon the earliest of May 31, 2001 or the termination of the merger agreement. The due date for repayment of these advances may be extended upon mutual agreement of AccuMed and Ampersand. Through February 28, 2001, AccuMed has collected $300,000 on $500,000 of notes due from MonoGen, Inc. ("MonoGen") as of December 31, 2000. The remaining amount of $200,000 due from MonoGen is payable on March 31, 2001. Development milestone payments in the aggregate amount of $400,000 are scheduled to be received in 2001 from Ventana Medical Systems, Inc. ("Ventana") under AccuMed's license and development agreement with Ventana. In addition, AccuMed expects to begin shipping licensed product to Ventana beginning in the fourth quarter of 2001. Management expects the merger agreement with Ampersand to be consummated in the second quarter of 2001. If AccuMed is not able to consummate the merger agreement with Ampersand, or if MonoGen or Ventana are not able to meet their F-7 50 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) payment obligations to AccuMed, or the development timetable with Ventana is not met or is substantially delayed, AccuMed would be required to pursue other strategies to maintain its liquidity. These strategies would include substantially curtailing its development and marketing efforts, liquidation of its inventories and technology portfolio, or cessation of operations. This would materially and adversely affect AccuMed's business, financial condition, results of operations, and cash flows. 3. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Product revenue is recognized when products have been shipped, and the customer has made final acceptance. Fees that are received up-front for licenses are deferred and recognized as revenue systematically over the term of the related agreement. Royalty payments that are received in advance are deferred and recognized as revenue during the period that the royalties are earned on the sale of covered products. Funds received under contractual development obligations are deferred. Qualifying development costs incurred during the development process are charged against the deferred development funds received. The excess amount of development funds, if any, over the amount of qualifying costs incurred is recognized in income upon the completion of the development process. Contractual development costs in excess of the amount of development funds received are charged to operations as incurred. Cash and Cash Equivalents Cash and cash equivalents include cash held by financial institutions and money market fund investments with original maturities of three months or less. Inventories Inventories consist primarily of raw materials and finished product and are stated at the lower of cost (average cost) or market. Cost is determined by the first-in first-out method (FIFO). Available-for-Sale Security The available-for-sale security is reported at fair market value. Unrealized gains and losses on the available-for-sale security are excluded from earnings and reported as a component of accumulated other comprehensive income (loss) within stockholders' equity until realized. Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is provided on the straight-line method over the shorter of the estimated useful life of the improvement or the term of the lease. Expenditures for repairs and maintenance are charged to operations when incurred. Purchased Technology Purchased technology consists principally of values assigned to acquired proprietary technology. Such amounts are being amortized on a straight-line basis over the expected periods to be benefited, generally 10 years. Patents The cost of patents is amortized straight line over the estimated useful lives of the patent, generally 17 years. Impairment of Long-Lived Assets AccuMed accounts for long-lived assets in accordance with the provisions of Statement of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain intangibles be reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are F-8 51 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the difference between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Research and Development Costs Research and development costs are charged to operations as incurred. Warranty Estimated future warranty obligations related to certain products are provided by charges to operations in the period in which the related revenue is recognized. Use of Estimates Management of AccuMed has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Estimates are used when accounting for the allowance for un-collectable accounts receivable, inventory valuation, depreciation, warranty costs, income taxes and contingencies, among others. Actual results could be materially different from those estimates. 4. ACCOUNTS RECEIVABLE Accounts receivable are carried at estimated net realizable value. At December 31, 2000 and 1999, AccuMed had provided no allowances for doubtful accounts as the carrying value of accounts receivable approximated their net realizable value. Bad debt expense was zero for each of the years ended December 31, 2000 and 1999 and $337,353 for the year ended December 31, 1998. 5. NOTES RECEIVABLE On December 29, 2000, AccuMed and Oncometrics entered into agreements with MonoGen for the license of certain proprietary technology. Promissory notes in the aggregate amount of $500,000 were issued as consideration for the license fees due under the agreements. The notes are due in aggregate non-interest bearing installments of $100,000 on January 3, 2001, $100,000 on January 31, 2001, $100,000 on February 28, 2001, and $200,000 on March 31, 2001. The notes are carried in the consolidated balance sheet at the present value of the future cash flows using an interest rate of 9.5%. At December 31, 2000, the carrying amount of these notes is $492,772. Under an amendment to AccuMed's patent and technology license agreement with Ampersand, AccuMed received a $100,000 convertible promissory note from Ampersand. The note was originally due on March 29, 2001 and earned interest at a rate of 11.0% per annum. The full amount of the note was repaid on December 12, 2000. On November 16, 1999, AccuMed entered into a merger agreement with Microsulis Corporation ("Microsulis"), which was subsequently terminated on February 28, 2000. At December 31, 1999, AccuMed had advanced $400,000 under a line of credit to Microsulis. On March 31, 2000, AccuMed received $417,747, including interest, in full satisfaction of the amounts advanced to Microsulis. AccuMed has no obligation to make further advances to Microsulis. F-9 52 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. AVAILABLE-FOR-SALE SECURITY On December 4, 1998, AccuMed received 85,776 common shares of Bell National Corporation, ("Bell"), a public shell corporation, and warrants to purchase an additional 63,517 common shares of Bell at a price of $0.001 per share in exchange for its 2,000 membership units of InPath, L.L.C., a privately held company. No value was assigned to the Bell shares received because the underlying market value of Bell at the date of the transaction was deminimus. During 1999, the Company exercised all of the warrants. On May 26, 1999, Bell was merged into its wholly-owned subsidiary, Ampersand Medical Corporation. As a result of this merger, AccuMed's shares of Bell were exchanged for an equal number of shares of Ampersand. During 2000, AccuMed received an additional 128,571 common shares of Ampersand upon the amendment of AccuMed's patent and technology license agreement with Ampersand. These shares were recorded at a fair market value of $257,142 on their date of issuance. A total of 85,776 shares of Ampersand stock were sold during 2000 on the open market for proceeds of $331,574. A realized gain on the sale of these shares of $331,574 has been recorded in the statement of operations for the year ended December 31, 2000. AccuMed's investment in Ampersand shares is as follows at December 31:
2000 1999 ---------- -------- Shares held 192,088 149,293 Market value $ 195,085 $121,301 Unrealized (depreciation) appreciation $ (62,057) $121,301
7. INVENTORIES Inventories include the following at December 31:
2000 1999 -------- -------- Raw material and packaging supplies $539,944 $529,919 Work in process -- -- Finished goods 99,276 171,000 -------- -------- Total $639,220 $700,919 ======== ========
8. PROPERTY AND EQUIPMENT Property and equipment includes the following at December 31:
Estimated Useful Life 2000 1999 ------------ ------------ ----------- Equipment 3 - 5 Years $ 1,885,280 $ 1,876,344 Leasehold improvements 5 Years 182,646 140,290 ----------- ----------- 2,067,926 2,016,634 Less accumulated depreciation and amortization (1,682,554) (1,311,361) ----------- ----------- Total $ 385,372 $ 705,273 ========== ===========
Maintenance and repair expenses for the years ended December 31, 2000, 1999 and 1998 were $2,539, $14,663 and $55,942, respectively. There were no material capital commitments outstanding as of December 31, 2000. F-10 53 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. OTHER CURRENT LIABILITIES Other current liabilities consist of the following at December 31:
2000 1999 -------- -------- Litigation reserves $392,683 $485,000 Accrued franchise taxes 84,284 -- Accrued rent 22,248 103,247 Payroll and related 178,065 136,787 Other 69,740 25,149 -------- -------- Total $747,020 $750,183 ======== ========
10. DEBT Debt at December 31, 2000 and 1999, respectively, consists of the following:
2000 1999 -------- -------- Note payable to Ampersand $330,000 $ -- Floating rate convertible note payable 151,288 342,550 Non-interest bearing repayable contribution 187,000 187,000 -------- -------- Total long-term debt 668,288 529,550 Less current installments 668,288 362,550 -------- -------- Long-term debt, excluding current installments $ -- $167,000 ======== ========
As a result of the signing of a letter of intent to merge with Ampersand on September 22, 2000, AccuMed received an aggregate of $330,000 in advances from Ampersand in the form of a note payable. The note bears interest at a rate of prime, plus 2.5%, per annum and was converted into a new $800,000 note upon the signing of a definitive merger agreement with Ampersand on February 7, 2001. See Note 19 Subsequent Events. The floating rate convertible note payable, which is denominated in Canadian dollars ($217,855 Canadian at December 31, 2000), is due on demand, or in the event not called, principal payments are required at a rate of $25,000 U.S. dollars per month, plus interest at a rate of 6.0% over the Canadian prime rate. The note is convertible into shares of AccuMed's common stock at a price of $1.43 per share. The repayable contribution was received under a Canadian government program and calls for semi-annual installments based on sales of product and available funds. At December 31, 2000, AccuMed was past due in making certain of its payment obligations under this program. As a result, AccuMed's repayment obligation is callable. Aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2000 are as follows: 2001 $668,288 2002 -- 2003 -- 2004 -- 2005 -- Thereafter --
F-11 54 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. STOCKHOLDERS' EQUITY On February 23, 1998, AccuMed exchanged $5,275,000 in principal amount of its 12% convertible promissory notes plus accrued interest thereon of $329,030 for 1,245,338 shares of Series A convertible preferred stock and 3-year warrants to purchase 207,557 shares of common stock at an exercise price of $6.75 per share. The preferred stock is convertible into common stock at a conversion price of $6.75 per share. The Company registered the resale of the shares of common stock underlying the preferred stock and warrants with the Securities and Exchange Commission during 1998. See Note 18 Debt Extinguishment. During March 1998, the Company completed a private placement of 1,447,778 shares of common stock and 7-year warrants to purchase an aggregate of 1,447,778 shares of common stock at an exercise price of $4.50 per share for gross proceeds of $6,515,000, including $1,000,000 in notes payable converted into common stock, and net proceeds of $5,864,000 after payment of fees, commissions and expenses related thereto. The Company has registered the resale of the outstanding common stock and the common stock underlying the warrants with the Securities and Exchange Commission. During the years ended December 31, 2000, 1999 and 1998, 354,187 shares, 17,718 shares and 283,236 shares, respectively, of Series A convertible preferred stock were converted into 236,127 shares, 11,813 shares and 188,824 shares, respectively, of common stock. At December 31, 2000, there are 590,197 shares of Series A convertible preferred stock outstanding that are convertible into 393,465 shares of common stock. Warrants At December 31, 2000, AccuMed had outstanding warrants to purchase shares of common stock at any time through the expiration date as follows:
Shares Price Expiration Date --------- ----- --------------- 20,266 4.92 None 20,266 9.84 None 20,266 14.82 None 16,667 7.50 January, 2001 16,667 12.75 January, 2001 207,557 6.75 March 2001 33,334 6.75 March, 2002 8,334 15.00 August, 2002 40,964 15.56 September, 2002 16,667 4.50 February, 2003 1,561,817 4.50 March, 2005
F-12 55 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock Option Plan AccuMed has the following stock option plans for its employees, directors and consultants: the 1992 plan, the 1995 plan and the 1997 plan. Terms of the plans are summarized as follows: Exercise Price - Fair market value as determined by the closing price of the common stock on the date of issuance as reported by NASDAQ. Vesting Period - A portion of the options granted to certain participants vest immediately with the remaining options vesting on varying schedules not exceeding six years from date of grant. Options granted to others vest on varying schedules not exceeding six years from date of grant. Shares Available - At December 31, 2000 there were 126,339 shares available for grant under the Plans. The maximum number of shares that may be issued under the plans is 494,259 at December 31, 2000. AccuMed applies APB Opinion No. 25 and related interpretations in accounting for its Stock Option Plans for employees. Accordingly, no compensation cost has been recorded. Had compensation cost for the Company's Stock Option Plans been determined consistent with FASB Statement No. 123, the Company's net (loss) income and net (loss) income per share would have been as indicated below.
Year Ended December 31, ------------------------------------------------------- 2000 1999 1998 -------------- -------------- -------------- Net (loss) income, as reported $ (3,097,952) $ 1,396,378 $ (8,176,349) Net (loss) income, pro forma $ (4,258,602) $ 715,784 $ (10,476,223) Net (loss) income per share, as reported $ (0.55) $ 0.25 $ (1.61) Net (loss) income per share, pro forma $ (0.75) $ 0.13 $ (2.06)
The compensation cost of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998.
Year Ended December 31, ------------------------- 2000 1999 1998 ----- ----- ----- Dividend yield 0% 0% 0% Volatility 143% 143% 30% Risk free interest rate 6.53% 5.23% 7.00% Expected life in years 5 5 10
F-13 56 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock option activity during the periods indicated was as follows:
Weighted Number of Average Exercise Options Price --------- ---------------- Balance at December 31, 1997 416,252 $ 20.70 Granted 370,004 $ 4.87 Exercised (8,250) $ 7.00 Forfeited (277,852) $ 18.23 Expired -- -- -------- Balance at December 31, 1998 500,154 $ 10.60 Granted 307,670 $ 1.20 Exercised -- -- Forfeited (114,925) $ 19.10 Expired (792) $ 8.34 -------- Balance at December 31, 1999 692,107 $ 4.98 Granted 246,670 $ 2.23 Exercised -- -- Forfeited (18,751) $ 3.23 Expired (5,243) $ 5.51 -------- Balance at December 31, 2000 914,783 $ 5.05 ========
The fair value of options granted in 2000, 1999 and 1998 was $2.02, $1.09 and $2.72 per share, respectively. The following table summarizes information about stock options outstanding as of December 31, 2000:
Options outstanding Options exercisable ----------------------------------------- ------------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise exercise prices Outstanding Life Price Exercisable Price ---------------- ----------- ----------- --------- ----------- -------- $0.97 to $1.31 289,006 8.24 $ 1.21 144,756 $ 1.21 $2.31 200,000 9.17 2.31 50,000 2.31 $3.94 to $4.50 270,004 7.11 4.46 270,004 4.46 $6.00 to $6.78 50,417 6.40 6.01 50,417 6.01 $10.50 19,890 0.08 10.50 19,890 10.50 $22.50 to $23.64 80,882 5.05 23.52 80,882 23.52 $37.50 to $50.28 4,584 0.57 40.98 4,584 40.98 ------- ------- $0.97 to $50.28 914,783 7.51 5.05 620,533 6.60 ======= =======
F-14 57 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. INCOME TAXES AccuMed's income tax provision for the years ended December 31, 2000, 1999 and 1998 was allocated as follows:
2000 1999 1998 -------- -------- -------- Income from continuing operations $ -- $ -- $ -- Discontinued operations -- 140,000 -- Extraordinary item -- -- -- -------- -------- -------- $ -- $140,000 $ -- ======== ======== ========
A reconciliation of the significant differences between AccuMed's effective tax rate applicable to income from continuing operations and the federal statutory tax rate for the years ended December 31, 2000, 1999, and 1998 is as follows:
2000 1999 1998 -------- -------- -------- Federal statutory income tax rate (34.0)% (34.0)% (34.0)% State taxes, net of federal benefit (6.0) (6.0) (6.0) Increase in valuation allowance 40.0 40.0 40.0 ------ ------ ------ Effective income tax rate 0.0% 0.0% 0.0% ====== ====== ======
The net deferred tax assets and liabilities consist of the following at December 31:
2000 1999 ------------ ------------ Deferred tax assets: Net operating loss carryforwards $ 14,593,000 $ 12,972,000 Research and development credits 657,000 595,000 Other 1,235,000 1,763,000 ------------ ------------ Total 16,485,000 15,330,000 Valuation allowance (16,485,000) (15,330,000) ------------ ------------ Net deferred tax assets and liabilities $ -- $ -- ============ ============
At December 31, 2000, AccuMed had approximately $36,483,000 and $20,667,000 in net operating losses for federal and state tax purposes, respectively, available to be carried forward to future periods. The carry forwards expire from 2006 to 2020 for federal purposes and from 2012 to 2020 for state purposes. AccuMed's credits for research and development available to offset future federal income taxes expire from 2002 to 2014. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable losses and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not AccuMed will not realize the benefits of these deductible differences. In addition, utilization of net operating loss carryforwards and research and development credits available to offset future taxable income may be subject to annual limitations as a result of previous changes in ownership of the AccuMed. Accordingly, management of AccuMed has provided a valuation allowance equal to its recorded deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2000 and 1999 was an increase of $1,155,000 and a decrease of $1,322,000, respectively. F-15 58 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. LEASES Operating Leases AccuMed leases its facility under an operating type lease expiring in 2004. Rental expense is recognized on a straight-line basis over the life of the lease. As a result of AccuMed's consolidation of certain of its facilities and re-negotiation of its leasing arrangements, AccuMed recorded an expense in 1999 for the write-off of $137,211 in net book value of impaired leasehold improvements. At December 31, 2000 and 1999, accounts payable and other current liabilities include an accrual of $68,915 and $103,247, respectively, for rent concessions as part of the re-negotiated leasing arrangements. Total rental expense under operating leases during the years ended December 31, 2000, 1999 and 1998 was $251,000, $531,000 and $379,000, respectively. Future minimum annual lease payments under operating leases as of December 31, 2000 are:
Year Amount ---- ------ 2001 $209,000 2002 $152,000 2003 $160,000 2004 $124,000 Thereafter $ --
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash investing and financing activities: During the year ended December 31, 2000, AccuMed received 128,571 shares of Ampersand common stock and a $100,000 note receivable in exchange for amending its patent and technology license agreement with Ampersand. AccuMed also received an aggregate of $500,000 in notes in exchange for license agreements entered into with MonoGen. During 2000, 354,187 shares of Series A convertible preferred stock were converted into 236,127 shares of common stock. During the year ended December 31, 1999, 17,718 shares of Series A convertible preferred stock were converted into 11,813 shares of common stock. During the year ended December 31, 1998, AccuMed extinguished debt with a carrying value of $4,818,800 through the issuance of convertible preferred stock and common stock warrants with a fair value of $5,986,880 including transaction fees, resulting in an extraordinary loss of $1,168,000. AccuMed satisfied its obligation under a $1,000,000 note payable through the issuance of 222,223 shares of common stock. During 1998, 283,236 shares of Series A convertible preferred stock were converted into 188,824 shares of common stock. AccuMed issued a note in 1998 for $342,550 in connection with the purchase of a one-third interest in Oncometrics Imaging Corp. stock it did not already own.
Year Ended December 31, ------- -------- ---------- Cash paid during the year for: 2000 1999 1998 ------- -------- ---------- Operating Activities Interest $41,186 $292,008 $1,336,566 Income taxes -- $105,000 -- Investing and Financing Activities Deposit reclassified to fixed assets -- -- $ 125,000
15. COMMITMENTS AND CONTINGENCIES The company is involved in a legal proceeding with a certain vendor regarding a dispute over delivery of services. AccuMed has recorded an estimated accrual of $393,000 relating to the probable settlement of these legal proceedings. See Note 9, Other Current Liabilities. F-16 59 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. LICENSE AGREEMENTS On March 24, 2000, AccuMed entered into a license and development agreement with Ventana Medical Systems, Inc., whereby AccuMed agreed to license its patents and proprietary information and rights to Ventana for certain medical applications. Under the terms of the agreement, AccuMed has received and deferred an up-front licensing fee, advance royalty payment, and development funds. Additional development funds will be received over the next twelve months for contract research. The agreement also provides for the sale of AcCell(TM) Systems to Ventana and royalties to be received in the future on the sale of covered products by Ventana. The deferred up-front licensing fee is being recognized as revenue systematically over the 36-month term of the agreement. The advance royalty payment will be recognized as revenue during the period that the royalties are earned on the sale of covered products. AccuMed is required under the agreement to complete certain development obligations. Qualifying development costs incurred during the development process are being charged against the deferred development funds received. The excess amount of development funds, if any, over the amount of qualifying costs incurred will be recognized in income upon the completion of the development process. AccuMed does not anticipate that any excess development funds will be material. On March 29, 2000, the Company entered into a patent and technology license agreement with BCAM International, Inc., renamed CellMetrix, Inc. ("CellMetrix"), whereby AccuMed agreed to license its patents and proprietary information and rights to CellMetrix for certain medical applications. Under the terms of the agreement, AccuMed received a guaranteed license fee upon signing of the agreement. The amount of the guaranteed license fee received was deferred and being recognized over the 60-month term of the agreement. Effective September 1, 2000, AccuMed and CellMetrix mutually agreed to terminate the license agreement. As a result of the termination, the carrying amount of the deferred licensing fees of $229,000 was recognized as other income in the statement of operations for the year ended December 31, 2000. AccuMed is not required to refund any portion of the guaranteed license fee it received and has no further performance commitments under this terminated agreement. On March 29, 2000, AccuMed also entered into a letter agreement to reinstate and amend its September 4, 1998 patent and technology license agreement with Ampersand. Upon signing of the letter agreement, AccuMed received an up-front license fee. On June 9, 2000, AccuMed signed a formal amendment to the agreement and received an advance royalty in the form of cash. AccuMed also received a $100,000 convertible note and 128,571 shares of Ampersand common stock as an additional advance royalty. AccuMed has deferred the amount of the up-front license fee it received. This fee is being recognized as revenue systematically over the remaining 41-month term of the agreement. The advance royalties are being recognized as revenue during the period that the royalties are earned on the sale of covered products. On December 29, 2000, AccuMed and Oncometrics entered into agreements to license their patents and intellectual property to MonoGen for certain medical applications. Promissory notes in the aggregate amount of $500,000 were issued by Monogen as consideration for the up-front license fees due under the agreements. The up-front license fees have been deferred and will be recognized as revenue in the first quarter of 2001 upon the completion by AccuMed of its obligations under the agreements. 17. RELATED-PARTY TRANSACTIONS On February 2, 1998 a director/stockholder loaned AccuMed $1,000,000 at 12% annual interest plus 16,667 5-year warrants to purchase common stock at an exercise price of $9.36 per share. The loan was converted into common stock under the terms of a private placement of common stock in March 1998 and the exercise price of the warrants were re-priced to $4.50 per share. 18. DEBT EXTINGUISHMENT In 1998, AccuMed incurred an extraordinary loss of $1,168,080 related to the exchange of $5,275,000 in principal amount of its 12% convertible notes into Series A convertible preferred stock. This loss included stock, warrants and fees paid to the placement agent, warrants issued as an inducement to the converting noteholders, and the write-off of a proportional amount of deferred financing costs associated with the issuance of the convertible notes. The placement agent received fees of $175,000, 8,334 shares of common stock valued at $40,000, 7-year warrants to purchase 58,334 shares of common stock at $6.75 per share valued at $84,000, and repricing of previously issued 4-year warrants to purchase 33,334 shares of common stock at an exercise price of $18.75 per share to $6.75 per share, valued at $26,000. The converting noteholders received 3-year warrants to purchase 207,557 shares of common stock at an exercise price of $6.75 per share, valued at $37,380. F-17 60 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AccuMed utilized the Black-Scholes pricing model to determine the fair value of warrants issued. The following assumptions were incorporated into the model: risk-free rate -- 6%, expected volatility -- 30%, and expected dividend - -- zero. The risk-free rate is determined based on the interest rate of U.S. government treasury obligations with a maturity date comparable to the life of the warrant issued. Other assumptions, relating to warrant life, strike price and stock price, were determined at the date the warrant was issued. 19. SUBSEQUENT EVENTS On February 7, 2001, AccuMed signed an agreement to merge with Ampersand. Under the terms of the agreement, holders of AccuMed's common stock will receive 0.6552 of a share (subject to adjustment) of Ampersand common stock in exchange for each share of AccuMed common stock. Each share of AccuMed's Series A Convertible Preferred Stock will be exchanged for one share of preferred stock of Ampersand that will be convertible into Ampersand common stock. Consummation of the merger is subject to customary closing conditions, including the approval of AccuMed's stockholders, and the registration of the Ampersand common shares with the Securities and Exchange Commission. Closing of the merger is expected to occur in the second quarter of 2001. On February 7, 2001, AccuMed received a $470,000 advance from Ampersand to be used for working capital purposes. AccuMed issued a note payable of $800,000, which includes $330,000 of previously advanced funds, to Ampersand. On March 1, 2001, AccuMed received an additional advance of $225,000 from Ampersand and issued a corresponding note payable. These notes bear interest at prime, plus 2.5%, and are secured by AccuMed's inventory and a certain customer contract. These notes will be dissolved upon the consummation of the merger or will be due and payable upon the earliest of May 31, 2001 or the termination of the merger agreement. The due date of the note may be extended upon mutual agreement of the parties. F-18 61 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders AccuMed International, Inc.: Under date of March 8, 2001 we reported on the consolidated balance sheets of AccuMed International, Inc. and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2000, which are included in the annual report on Form 10-K for the year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. The audit report on the consolidated financial statements of AccuMed International, Inc. and subsidiary referred to above contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. The financial statement schedule included in the annual report on Form-10-K for the year 2000 does not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP Chicago, Illinois March 8, 2001 F-19 62 ACCUMED INTERNATIONAL, INC AND SUBSIDIARY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Reserves and Allowances deducted from asset accounts Additions Balance at Charged to Write-offs Balance Beginning Costs and and at End of Description of Period Expenses Disposals Other Changes Period - ------------------- ------------ ------------ ------------ --------------- ----------- Allowance for uncollectible accounts receivable Year Ended December 31, 1998 -- $245,592 -- -- $245,592 Year Ended December 31, 1999 $245,592 -- ($245,593) -- --- Year ended December 31, 2000 -- -- -- -- --- Inventory Valuation Reserve Year ended December 31, 1998 -- -- -- -- --- Year ended December 31, 1999 -- $1,106,399 -- -- $1,106,399 Year ended December 31, 2000 $1,106,399 -- ($921,606) -- $184,793
Reserve Allowances which support balance sheet caption reserves Deductions Credited Balance at to Costs Payments Balance Beginning and Under at End of Description of Period Expenses Warranty Other Changes Period - ------------------- ------------ ------------ ------------ --------------- ----------- Warranty Reserves Year ended December 31, 1998 $30,000 -- -- ($18,000)(a) $12,000 Year ended December 31, 1999 $12,000 ($12,000) -- -- -- Year Ended December 31, 2000 -- -- -- -- --
(a) Reserves of Oncometrics Imaging Corp. reclassified in current year F-20 63
Additions Amounts Balance at Charged to Payments Reclassified Balance Beginning Costs and Against from Accounts at End of Description of Period Expenses Reserve Payable Period - ------------------- ------------ ------------ ------------ --------------- ----------- Litigation Reserves Year ended December 31, 1998 -- -- -- -- --- Year ended December 31, 1999 -- $377,517 ($330,937) $438,420 $485,000 Year ended December 31, 2000 $485,000 -- ($92,317) -- $392,683
Provisions Balance at (Credits) Balance Beginning to Income at End of Description of Period Taxes Period - ------------------- ------------ ------------ ------------ --------------- ----------- Deferred Tax Asset Valuation Allowance Year ended December 31, 1998 $13,276,000 $3,376,000 -- -- $16,652,000 Year ended December 31, 1999 $16,652,000 ($1,322,000) -- -- $15,330,000 Year ended December 31, 2000 $15,330,000 $1,155,000 -- -- $16,485,000
F-21 EX-10.3 2 v70395ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 (ACCUMED LETTERHEAD) December 29, 2000 VIA HAND DELIVERY PERSONAL AND CONFIDENTIAL Norman J. Pressman, Ph.D. 390 Greenwood Avenue Glencoe, IL 60022 Re: SEPARATION AGREEMENT Dear Norm: This letter confirms our understanding regarding your voluntary separation from employment with AccuMed International, Inc. (the "Company"). The agreed separation arrangements are set out below. 1. SEPARATION FROM EMPLOYMENT Your voluntary separation from employment with the Company will be effective January 31, 2001. However, as of December 31, 2000, you will be deemed to have voluntarily resigned as President and Chief Scientific Officer of the Company and as Chairman of Oncometrics Imaging Corp. ("Oncometrics"). It is agreed and understood that (i) except as provided in the paragraph below and (ii) the nondisclosure agreement appended to this letter agreement as Attachment I, after December 31, 2000 you will have no further duties, responsibilities or obligations as an employee of the Company and as Chairman of Oncometrics. If requested by the Company after December 31, 2000, you will make yourself available to assist the Company at such mutually convenient times and places for one (1) day per month, noncumulative, without payment to you of any consulting fee until the earlier of the closing of a merger agreement between the Company and Ampersand Medical Corp. ("Ampersand") or July 4, 2001. In the event that during such time period the Company requests more than one (1) day per month of your time, you will make reasonable efforts to make yourself available to assist the Company at such mutually convenient times and places; for such additional assistance the Company shall pay to your then employer (or to you if you are not employed) a consulting fee of $1,000.00 per day plus incurred expenses. 2 2. MONOGEN, INC. The Company hereby acknowledges (i) that you intend to become employed by MonoGen, Inc. ("MonoGen") as President, Chief Executive Officer, and Director subject to an employment agreement between you and MonoGen effective on or about January 1, 2001, and (ii) that it has no objection to your entering into an employment agreement with MonoGen with an effective date as early as January 1, 2001. If requested to do so by you, the Company will promptly execute a release agreement permitting you to enter into an employment agreement with MonoGen. You hereby acknowledge that the Company has no authority nor responsibility in negotiating or securing your employment agreement with MonoGen. 3. COMPANY OPTIONS The Company and you hereby acknowledge that as of February 1, 2001 you shall have a ninety (90) day period during which you may exercise your Company options consisting of 100,000 options at an exercise price of $1.50 per share and an additional 100,000 options at an exercise price of $2.103 per share. The Company agrees to promptly provide you with documentation regarding your Company options including, but not limited to, number of options, award dates, vesting dates and exercise price. 4. SEPARATION BENEFITS The Company shall, as "Separation Benefits," continue to pay and provide to you on an uninterrupted basis from January 1, 2001 through July 4, 2001, subject to the "July 4, 2001 Provision" below, (i) your current salary payments, (ii) your current automobile allowance and maintenance reimbursements, and (iii) health, dental, and life insurance payments by the Company. It is agreed and understood that the salary payments to you, beginning with the salary payments for January 1, 2001 and beyond, shall be capped at a maximum of $100,000.00, exclusive of any and all other benefits due to you. 5. JULY 4, 2001 PROVISION The foregoing Separation Benefits shall cease as of the close of business on July 4, 2001 except as provided hereinbelow: (i) full payment of any balance of the Separation Benefits due to you through July 4, 2001 will be paid to you in a lump sum cash payment or wire transfer payment on or after January 1, 2001, and on or before the earlier of July 4, 2001 or the receipt of a payment of at least $1,000,000.00 from Ampersand by the Company resulting from either the execution of a definitive merger agreement between Ampersand and the Company or the closing of such a merger agreement. (ii) Notwithstanding any other provision of this letter agreement (a) the Company shall permit you to continue to contribute to the Company's 401(k) plan until the earlier of July 4, 2001 or the date you no longer 2 3 (iii) receive regular monthly salary payments from the Company and (b) effective July 5, 2001, if you so elect, the Company shall make available to you COBRA continuation coverage for 9 months or until the merger between the Company and Ampersand is completed, whichever occurs first. 6. COMPANY LOANS The Company agrees to promptly provide you with documentation regarding your Company loans including, but not limited to, transactions, dates, amounts paid and amounts forgiven by the Company. The Company further agrees to forgive all outstanding loans to you, and all amounts due the Company in conjunction with such loans, effective as of January 1, 2001. 7. VACATION PAY The Company agrees to pay to you as earned vacation pay the amount of $11,538.45. This amount shall be paid to you in a lump sum cash payment or wire transfer payment on or after January 1, 2001, and on or before the earlier of July 4, 2001 or the receipt of a payment of at least $1,000,000.00 from Ampersand by the Company resulting from either the execution of a definitive merger agreement between Ampersand and the Company or the closing of such a merger agreement. 8. COMPANY OFFICE AND EQUIPMENT The Company agrees to permit you to use your Company office, equipment, facilities and telephone/voicemail and e-mail access through January 31, 2001 at no cost to you. In addition, the Company agrees to permit you to purchase your current office computing and peripheral equipment for $2,000.00 payable in a lump sum cash payment. 9. ACKNOWLEDGMENTS The Company and you hereby acknowledge that the Patent and Technology License Agreement ("PTLA") between the Company and MonoGen and the employment agreement between you and MonoGen rely and are conditioned upon the full execution of this letter agreement. The Company hereby acknowledges that the execution of this letter agreement is with the approval of all necessary Company authorities, if any, including, but not limited to the Executive Compensation Committee of the ACMI Board of Directors, Company Board of Directors and Ampersand. The Company and you hereby acknowledge that each will execute this letter agreement on or before December 31, 2000, subject to the availability of and concurrent with the PTLA and employment agreement between you and MonoGen. The Company agrees to use its best efforts to negotiate and execute the PTLA on or before December 31, 3 4 2000. You agree to use your best efforts to negotiate and execute the MonoGen employment agreement on or before December 31, 2000. 10. GENERAL PROVISIONS (i) Hold Harmless. Notwithstanding any other provision of this letter agreement to the contrary, you shall continue to be covered under the Company's directors' and officers' liability insurance coverage and the Company will indemnify you and hold you harmless from and against all costs and expenses incurred by you, including the concurrent payment of your reasonable legal fees, costs and expenses, arising out of or resulting from your duties and activities as an employee of the Company and Chairman of Oncometrics, provided that your actions or failure to act, as the case may be, that give rise to such fees, costs and expenses did not constitute criminal conduct. This paragraph shall survive termination of this letter agreement. (ii) Mutual Release. Except for the right to enforce the terms of this letter agreement, the Company and you hereby irrevocably, voluntarily, unconditionally and generally release, acquit and forever discharge each other from any and all charges, complaints, claims, damages, actions, causes of action, suits, rights, demands and grievances of any nature whatsoever, known or unknown, which the Company and you have against each other. (iii) Mutual Non-Disparagement. The Company and you hereby agree not to make any statements or take any actions whatsoever that disparage or reflect negatively upon each other. (iv) Mutual Confidentiality. The Company and you hereby agree to keep this letter agreement strictly confidential. The Company agrees not to disclose the terms and existence of this letter agreement, other than to MonoGen as part of their due diligence process and except on a strict need-to-know basis or except as may be required by law. You agree not to disclose the terms and existence of this letter agreement except to your immediate family, your attorney and your financial advisor, or except as may be required by law. (v) Press Releases. The Company and you hereby agree that press releases or other public statements regarding your voluntary separation from employment with the Company will require mutual prior approval by the Company and you; neither the Company nor you will unreasonably withhold such approval. 4 5 (vi) Death or Disability. The Company agrees that in the event of your death or disability on or after December 31, 2000, all Separation Benefits and other payments or benefits due shall be paid to your estate on an accelerated basis as soon as practicable. (vii) Assignment. The Company agrees that this letter agreement shall be assigned to the successor of the Company or any controlling entity of the Company, including, but not limited to Ampersand. This letter agreement shall not be assignable by you. (viii) Miscellaneous. This letter agreement is deemed made and entered into in the State of Illinois, and in all respects shall be interpreted, enforced and governed under the laws of the State of Illinois, without giving effect to its choice of laws provisions, to the extent not preempted by federal law. Any dispute under this letter agreement shall be adjudicated by a court of competent jurisdiction in the State of Illinois. The language of all parts of this letter agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either party. The provisions of this letter agreement shall survive any termination of this letter agreement when necessary to effect the intent and terms of this letter agreement expressed herein. If any of the provisions of this letter agreement shall be held to be invalid by a court of competent jurisdiction, such holding shall not in any way whatsoever affect the validity of the remainder of this letter agreement. This letter agreement contains the entire agreement between you and the Company with respect to the matter of your employment and voluntary separation from employment. No modification of any provision of this letter agreement shall be effective unless made in writing and signed by you and a duly authorized officer of the Company. 5 6 Best wishes for success in your future endeavors. Sincerely, ACCUMED INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE ------------------------------- Paul F. Lavallee Chairman and CEO Date: 12/29/00 -------- AGREED AND ACCEPTED /s/ NORMAN J. PRESSMAN - ----------------------------------- Norman J. Pressman Date: 12/29/00 -------- 6 EX-10.13 3 v70395ex10-13.txt EXHIBIT 10.13 1 EXHIBIT 10.13 FRANKLIN SQUARE COMMERCIAL LEASE 1. BASIC LEASE PROVISIONS AND IDENTIFICATION OF EXHIBITS BASIC LEASE PROVISIONS PREMISES: Suite 405 in 900 N. Franklin, 400, 401,402 in 920 N. Franklin, Including all built-in improvements presently existing in the Premises. A. LANDLORD AND ADDRESS: The Lumber Co. as Agent for the beneficiary of LaSalle National Trust, N.A., successor to Exchange National Bank of Chicago, not personally, but as Trustee under Trust Agreement Trust No. 21657. 900 North Franklin, Chicago, Illinois 60610. B. TENANT AND CURRENT ADDRESS: AccuMed International, Inc., 920 North Franklin, Suite 402, Chicago, IL 60610. C. DATE OF LEASE EXECUTION: February 1, 2000 D. LEASE TERM: Four years and 7 months E. COMMENCEMENT DATE OF TERM: February 1, 2000 F. EXPIRATION DATE OF TERM: September 30, 2004 G. DATE OF OCCUPANCY: February 1, 2000 H. MONTHLY BASE RENT: Eleven Thousand Three Hundred Seventy Six and 00/100 ($11,376.00) (subject to adjustments provided herein) (Suite 205 - $950, 400 - $1,672, 401 - $2,610, 402 - $6,144 I. RENTABLE AREA OF THE PREMISES: Ten Thousand and Sixty Two. Suite 405 - 800 sq. ft., 400 - 1,410 sq. ft., 401 - 2,670 sq. ft., 402 - 5,182 sq. ft. (10,062 sq. ft.) J. SECURITY DEPOSIT: 0 and 00/100 dollars ($0) $0 applied to first months rent $0 held for term of lease K. ANNUAL BASE: 2000 1 2 L. PURPOSE: General office use. 1.02 ENUMBERATION OF EXHIBITS The exhibits set forth below and attached to this Lease by this reference: None attached. 2. PREMISES AND TERM 2.01 LEASE OF PREMISES Landlord hereby leases to Tenant and Tenant hereby accepts the Premises shown on Exhibit A. 2.02 TERM The term of this Lease ("Term") shall commence on the date ("Commencement Date") which is the earlier to occur of: (i) the date specified in Subsection 1.01G or (ii) the date Tenant first occupies all or part of the Premises. The Term shall expire on the date ("Expiration Date") specified in Subsection 1.01F, unless sooner terminated as otherwise provided elsewhere in this Lease. 3. RENT Tenant agrees to pay to Landlord at the office of the managing agent ("Manager") of the Landlord, or at such other place designated by Landlord, without any prior demand therefore and without any deduction whatsoever, base rent at the Monthly Base Rent specified in Subsection 1.01H, and, as applicable, Adjusted Monthly Base Rent as hereinafter defined. Monthly Base Rent is subject to adjustment pursuant to Sections 21.02 and 21.03, and as adjusted in hereinafter called "Adjusted Monthly Base Rent". Unless otherwise provided to the contrary in this Lease, Adjusted Monthly Base Rent shall be paid monthly in advance on the first day of each month of the Term, except that the first installment shall be paid by Tenant to Landlord upon execution of this Lease by Tenant. Adjusted Monthly Base Rent shall be prorated for partial months within the Lease in addition to Adjusted Monthly Base Rent shall be deemed additional rent ("Additional Rent"), and Adjusted Monthly Base Rent and Additional Rent shall hereinafter be collectively called "Rent". Tenant's covenant to pay Rent shall be independent of every other covenant in this Lease. 4. SECURITY DEPOSIT As security for the performance of its obligations under this Lese. Tenant upon its execution of this Lease has paid to Landlord a security deposit, (the "Security Deposit") in the amount specified in Subsection 1.01J. The Security Deposit may be applied by Landlord to cure and default of Tenant under this Lease, and upon notice by Landlord of such application, Tenant shall replenish the Security Deposit in full by promptly paying to Landlord the amount so applied. Within Thirty (30) days after the Expiration Date, Landlord shall return to Tenant the balance, if any, of the Security Deposit. The Security Deposit shall not be deemed an advance payment of Rent or measure of damages for any 2 3 default by Tenant under this Lease, nor shall it be a bar or defense to any action which Landlord may at any time commence against Tenant. 5. SERVICES 5.01 LANDLORD SERVICES Landlord will furnish to Tenant during the term of this Lease all necessary water for sanitary purposes used in connection with the toilets and wash basins and showers located in the Premises. If Tenant shall require water for purposes other than those above mentioned, Landlord may install a water meter and furnish water to Tenant for purposes other than above named at the same rate that Landlord shall be required to pay its supplier of water for the amount of water indicated by said water meter as being used by Tenant. Should Tenant fail to pay the bills for such water, and for electric current and gas, Landlord shall have the right to pay same, the amount whereof, together with any sums paid by the Landlord to keep the Premises in a healthy condition as above specified, are declared to be so much additional rent, and to be payable with the next installment of rent due hereunder. Tenant shall have use of passenger elevators in common with other tenants daily. Tenant shall have use of freight elevators in common with other tenants during regular hours prescribed by Landlord and any other hours that may be mutually agreed. Landlord shall not be liable for failure to supply elevator service occasioned by the breaking down of machinery or equipment or by strikes, accidents, unavoidable delays or causes beyond the control of Landlord. In any event, Landlord shall make Timely Repairs to insure elevator service for Tenant and Tenants invitees. 5.02 TENANT'S SERVICES Tenant shall pay for all utility service it requires directly to the utility furnishing such services. Tenant shall also pay its own heating and cooling cost. Tenant shall make arrangements directly with the telephone company servicing the Building for telephone service to the Premises. Tenant shall pay for the maintenance and replacement of all light fixtures, electrical switches, electrical outlets and lamps located in the Premises and all bulbs, tubes ballasts and starters utilized in the Premises. All existing lamps and lights to be in good working order upon possession date. 5.03 ENERGY CONSERVATION Landlord shall have the right to institute such policies, programs and measures as may be necessary or desirable, in Landlord's discretion, for the conservation and/or preservation of energy or energy related services, or as may be reasonably required to comply with any applicable codes, rules and regulations, whether mandatory or voluntary. 6. POSSESSION, USE AND ENJOYMENT OF PREMISES 6.01 POSSESSION AND USE OF PREMISES 3 4 Tenant shall be entitled to possession of the Premises upon Commencement Date. In the event of the failure of the Landlord to deliver possession of the Premises upon the Commencement Date, neither the Landlord or its agents shall be liable for any damages caused thereby, nor shall this Lease thereby become void or voidable. The Premises shall not be deemed to be unready for Tenant's occupancy or incomplete if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done in the Premises or any part thereof, of if the delay in work, changes, alterations or additions required or made by Tenant in the layout of finish of the Premises or any part thereof. Tenant shall occupy and use the Premises for purposes indicated in Section 1.01L only. Tenant shall not occupy or use the Premises (or permit the use or occupy of the Premises) for any purpose or in any manner which: (a) is unlawful or in violation of any applicable legal, governmental or quasi-governmental requirement, ordinance or rule (including the Board of Fire Underwriters); (b) may be dangerous to persons or property; (c) may invalidate or materially increase the amount of premiums for any insurance affecting the Building, and if any additional amounts of insurance premiums are so incurred, Tenant shall pay to Landlord the additional amounts on demand; or (d) may create a nuisance, disturb any other tenant of the Building of the occupants of neighboring property or injure the reputation of the Building. Tenant's acceptance of possession of the Premises shall be presumed to be Tenant's acknowledgment that the Premises are in satisfactory condition and that no further changes in the condition of the Premises shall be the obligation of the Landlord, except the construction and completion of those items set forth on EXHIBIT C attached hereto. 6.02 QUIET ENJOYMENT So long as Tenant shall not be in default under this Lease, Tenant shall be entitled to peaceful and quiet enjoyment of the Premises, subject to the terms of this Lease. 7. CONDITION OF PREMISES The Tenant's taking possession of the Premises shall be conclusive evidence that the Tenant accepted the Premises in the condition existing on the date Tenant first took possession, and that Tenant has waived all claims relating to the condition of the Premises, except claims, if any, which relate to Landlord's failure to complete the improvements set forth in EXHIBIT C attached hereto. No agreement of Landlord to alter, remodel, decorate, clean or improve the Premises or the Building , and no representation regarding the condition of the Premises has been made by or on behalf of Landlord to Tenant, except as stated in this Lease. At any time after the Commencement Date, upon the request from time to time of Landlord or Landlord's mortgagee, Tenant shall execute and deliver to Landlord or its mortgagee a standard type of estoppel certification. 8. ASSIGNMENT AND SUBLETTING 8.01 ASSIGNMENT Tenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Lease or the interest of Tenant in this Lease, in whole or in part, by operation of law or otherwise without prior written consent of Landlord. Such 4 5 consent shall not be unreasonably withheld or delayed. If Tenant or the beneficiary of Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by operation of law, of any partner or partners owning 51%, whether by a single transaction or event or by cumulative transactions or events, or more of the partnership interest, or the dissolution of the partnership shall be deemed an assignment of this Lease. If Tenant, or the beneficiary of Tenant is a corporation, any dissolution, merger, consolidation, or reorganization of the Tenant or the sale or the transfer of a controlling percentage of the capital stock of the tenant, whether by a single transaction or event or by cumulative transactions or events, shall be deemed an assignment of this lease. If the Tenant consists of more than one person, a purported assignment, voluntary, or by operation of law, from a majority of such persons to any of a majority of such persons to any or all of the others shall be deemed an assignment of this Lease. 8.02 SUBLETTING Tenant shall not sublet the whole or any part of the Premises without Landlord's prior written consent. Such consent shall not be unreasonably withheld or delayed. 9. MAINTENANCE 9.01 LANDLORD'S MAINTENANCE Landlord shall maintain and make necessary repairs on a timely basis to the structural elements of the Building and the electrical, plumbing, heating, ventilating and air-conditioning systems in the Building and exterior windows except that: (i) the cost of repairing any damage to any of the foregoing caused by the act or neglect of Tenant, any subtenant of Tenant, or their respective agents, employees, guests or invitees shall be paid by Tenant; and (ii) Landlord shall not be responsible for maintenance or repair of electrical or plumbing fixtures located within Premises. Landlord is responsible for the maintenance and repair of in office heating and cooling units. Outside windows will be cleaned two times per year at Landlord's expense. 9.02 TENANT'S MAINTENANCE Tenant, at its expense, shall keep and maintain the Premises in good order, condition and repair (including the keeping of the Premises in clean and orderly condition) and in accordance with all applicable legal, governmental and quasi-governmental and insurance carrier requirements, ordinances and rules. If Tenant fails to perform any of its obligations set forth in the Section 9,02, Landlord, in addition to its other remedies with respect to Tenant's breach of a covenant hereunder, may, in its dole discretion, but with prior notice to Tenant, perform the same, and Tenant shall pay to Landlord the direct out of pocket cost, and other costs and expenses arising from Landlord's involvement with such repairs and replacements, therefore upon demand. The Tenant shall pay the Landlord for overtime and for any other expenses incurred in the event repairs, alterations decorating or other work on the Premises are not made during ordinary business hours at the Tenant's request. 10. ALTERATIONS AND IMPROVEMENTS 5 6 10.01 TENANT'S ALTERATIONS All work performed within the Premises shall be in accordance with all applicable legal, governmental and quasi-governmental requirements, ordinances and rules (including the Board of Fire Underwriters), and all requirements of applicable insurance companies. All such work shall be done in a good and workmanlike manner and with the use of good grades of materials. Tenant shall not pledge, mortgage, hypothecate or in any way create a security interest in and to any of the alterations and improvements provided for herein to any creditor or third party without the prior written consent of Landlord. Tenant shall mot perform any work without the prior written consent of Landlord. This consent is exclusive for all Tenant furnishings. Such consent shall not be unreasonably withheld or delayed. 10.02 LIENS Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any other lien to be filed against the Building, the Land, the Premises, or any part thereof arising out of work performed, or alleged, or alleged to have been performed by, or at the direction of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant shall immediately either have such lien or claim for lien released of record or shall deliver to Landlord a bond in form, content, amount, and issued by surety, satisfactory to Landlord indemnifying Landlord, the Beneficiaries and others designated by Landlord against all costs and liabilities resulting from such lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien or claim for lien so released or to deliver such bond to Landlord, without investigating the validity of such lien, may pay or discharge the same, and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees. 10.03 ACCESS The Tenant shall permit the Landlord to erect, use and maintain pipes, ducts, wiring and conduits in and through the Premises. The Landlord or Landlord's agents shall have the right to enter upon the Premises, to inspect the same, and to make such inspections, repairs, alterations, improvements or additions to the Premises or the Building as the Landlord may deem necessary or desirable, and the Landlord shall be allowed to take all material into and upon said Premises that me be required therefore, so long as Tenant is nor unreasonable interfered with. If the Tenant shall not be personally present to permit an entry into the Premises, when for any reason an entry therein shall be necessary or desirable, the Landlord or Landlord's agents may enter the same by a master key, or may forcibly enter the same, without rendering the Landlord or such agents liable therefore (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting the obligations and covenants of this Lease. Whenever possible, Landlord will give to Tenant advanced notice of its intentions and purpose of entry to do work. Nothing herein contained, however, shall be deemed or construed to impose upon the Landlord any obligations, responsibility or liability whatsoever, for the care, supervision or repair of the Building or any part thereof, other than as herein provided. The Landlord shall also have the right at any time without the same constituting an actual or constructive eviction and without incurring any liability 6 7 to the Tenant therefore, to change the arrangements and/or location of entrances or passageways, doors and doorways and corridors, elevators, stairs, toilets or public parts of the Building, and to close entrances, doors, corridors, elevators or other facilities, so long as Tenant is not unreasonably interfered with. The Landlord shall not be liable to the Tenant for any expense, injury, loss or damage resulting from work done in or upon, or the use of, any adjacent or nearby building, land, street or alley. 11. WAIVER OF CLAIMS AND INDEMNITY 11.01 WAIVER A. Tenant's Waiver: Tenant releases Landlord and its beneficiaries, and their respective agents, employees and contractors from, and waives all claims against Landlord, Trustee and its beneficiaries and their respective agents, employees contractors, for damage to Tenant's property and loss of business, including business interruption, sustained by Tenant due to any cause whatsoever except for claims resulting from Landlord's gross negligence or willful misconduct. If such damage or injury is caused by the negligence or Landlord, Trustee or its beneficiaries, or their respective agents, employees or contractors, Tenant shall make a claim under its insurance policy as its sole remedy for such damage. All property belonging to Tenant or any occupant of the Premises that is in the building or the Premises shall be there at the risk of Tenant or other person only, and Landlord, Trustee and its beneficiaries and their respective agents, employees and contractors shall not be liable for damage thereto or theft or misappropriation thereof. B. Landlord's Waiver: Landlord release Tenant and its agent, employees and contractors from and waives all claims against Tenant and its agents, employees and contractors for damage to Landlord's property and loss of business, including loss of rents, sustained by Landlord due to any cause whatsoever except for claims resulting from Tenant's gross negligence or willful misconduct. 11.02 INDEMNIFICATION A. Tenant's Indemnity: Tenant agrees to indemnify, pay the costs of the defense of and hold harmless Landlord, Trustee and its beneficiaries and their respective agents, employees and contractors, from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorney's fees), for injuries to any persons (other than Landlord) and damage to or theft or misappropriation or loss of property (other than Landlord's) occurring in or about the Building and 7 8 arising from the use and occupancy of the Premises or from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises (including, without limitation, any alteration by Tenant) or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed under this lease or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. Without limiting the foregoing, Tenant shall indemnify, pay the costs of the defense of an hold Landlord Harmless from any claims, liabilities, damages, costs and expenses arising out of the use or storage of hazardous or toxic materials in the building by Tenant. If any such proceeding is filed against Landlord or any such indemnified party, Tenant agrees to pay the costs of the defense of Landlord or such indemnified party in such proceeding by Landlord shall not have the right o settle any such claims with the consent of Tenant. B. Landlord's Waiver: Landlord agrees to indemnify, pay the costs of the defense and hold harmless Tenant, its agents, employees and contractors, from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorney's fees), for injuries to any persons (other than Tenant) and damage to or theft or misappropriation or loss of property (other than Tenant's) occurring in or about the building and arising from any activity, work or thing done, permitted or suffered by Landlord in or about the Building or from any breach or default on the part of Landlord in the performance of any covenant or agreement on Landlord's part to be performed hereunder or due to any other act or omission of Landlord, its assignees, invitees (to the extent such invitees are at the building only), employees, contractors and agents. If any such proceeding is filed against Tenant or any such indemnified party, Landlord agrees to pay the costs of the defense of Tenant or such indemnified party in such proceeding at Landlord's sole cost by Tenant shall not have the right to settle any claim without consent of Landlord. 11.02 MUTUAL WAIVER OF CLAIMS AND SUBROGATION Whenever (a) any loss, cost, damage or expense resulting from fire, explosive, or any other occurrence is incurred by either of the parties to this lease or anyone claiming by, through or under them in connection with the Premises and (b) such party is then either covered in whole or in part by insurance with respect to such loss, cost, damage or any other expense, or required under this lease to be so insured, then the party so insured (or so required) hereby release the other party from any liability the other party may have on account of such loss, cost, damage, or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had insurance been carried as so required) and 8 9 waives any right of subrogation which might otherwise exist in or accrue to any person on account thereof (provided that such releases of liability and waiver of the right of subrogation shall not be operative in any case of increased cost, the other party shall have the right, within (30) days following written notice, to pay such increased cost, thereupon keeping such release and waiver in full force and effect). Whether the party released form liability hereunder is Landlord or Tenant, said term "Landlord" or "Tenant", respectively, and its respective trustees, beneficiaries, agents, partners, shareholders, officers, directors and employees. 12. LANDLORD'S REMEDIES 12.1 All right and remedies of the Landlord herein enumerated shall be cumulative and none shall exclude any other right or remedy allowed by law. 12.2 A. If the Tenants defaults in any payment of Rent, and the Tenant does no cure the default within (10) days after demand for payment of such Rent or if the Tenant defaults in the prompt and full performance of any other provisions of this Lease, and the Tenant does not cure the default with thirty (30) days after written demand by the Landlord that the default be cured (unless the default involves hazardous condition, which shall be cured forthwith); or if the leasehold interest of the Tenant be levied upon under execution or be attached by process of law, or if the Tenant makes an assignment for the benefit of creditors or admits its inability to pay its debts generally, or if a receiver be appointed for any property of the Tenant, or if the Tenant abandons the Premises, then, and in any such event, the Landlord, may if the Landlord so elects by not otherwise, and with or without notice of such election, and with or without any demand whatsoever, either forthwith terminate this Lease and the Tenant's right to possession of the Premises or, without terminating this Lease, forthwith terminate the Tenant's right to possession of the Premises, Except for defaults in payment of Rent, if Tenant is diligently proceeding to cure any default he shall have the ability to do so for up to sixty (60) days, after which all Landlords remedies will proceed. B. Upon termination of this Lease, whether by lapse of time or otherwise, or upon any termination of the Tenant's right to possession without termination of the Lease, the Tenant shall surrender possession and grants to the Landlord full and free license to enter into and upon the Premises in such event with or without process of law and to repossess the Landlord of the Premises and to remove any and all property therefrom, using such force as may be necessary, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without relinquishing the Landlord's rights to Rent or any other right given to the Landlord hereunder or by operation of law. 9 10 C. (Intentionally omitted) D. If any involuntary action or proceeding under any section or sections of any bankruptcy act in any court or tribunal shall adjudge or declare Tenant insolvent or unable to pay Tenant's debts, or if any voluntary petition or similar proceeding under any section or sections of any bankruptcy act shall be filed by Tenant in any court or tribunal to declare Tenant insolvent or unable to pay Tenant's debts, then and in any such event Landlord may, if Landlord so elects by note otherwise, and with or without notice of such election, and with or without entry or other action by Landlord, forthwith terminate this Lease, and notwithstanding any other provision of this Lease, Landlord shall forthwith upon such termination be entitled to recover damages in an amount equal to the then present value of the Rent for the remainder of the Term, less the fair rental value of the Premises for the remainder of the Term. E. Any and all property which may be removed from the Premises by the Landlord pursuant to the authority of the Lease or of law, to which the Tenant is or may be entitled, may be handled, removed or stored by the Landlord at the risk, cost and expense of the Tenant, and the Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. The Tenant shall pay to the Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be to the conclusively presumed to have been conveyed by the Tenant to the Landlord under this Lease as a bill of sale without further payment or credit by the Landlord to the Tenant. F. The Tenat shall pay upon demand all the Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by the Landlord, incurred in enforcing the tenants obligations hereunder or incurred by the Landlord in any litigation, negotiation or transaction in which the Tenant causes the Landlord, without the Landlord's fault, to become involved or concerned. 13. SURRENDER OF PREMISES Upon expiration or termination of this Lease or termination of Tenant's right of possession of the Premises, or any part thereof, Tenant shall surrender and vacate the Premises immediately and deliver possession thereof to Landlord in a clean, good and tenatable condition, ordinary wear and tear excepted. Upon any termination, Tenant shall be entitled to remove from the Premises all movable personal property of Tenant, provided Tenant shall immediately repair all damages resulting from such removal and shall restore the Premises to its original condition, ordinary wear and tear excepted. In the event possession of the Premises is not immediately delivered to Landlord or if Tenant shall fail to remove all of Tenant's movable personal property. As aforesaid, Landlord may remove any of such property therefrom without any liability to Tenant, 10 11 and at Tenant's expense. All movable personal property which may be removed from the Premises by Landlord shall be conclusively presumed to have been abandoned by Tenant, and title thereto shall pass to Landlord without any cost or credit therefore, and Landlord may, at its option ant at Tenant's expense, story and/or dispose of such property. 14. HOLDING OVER Tenant shall pay Landlord 1.5 time the latest adjusted Monthly Base Rent plus Operating expenses then applicable for each month or portion thereof Tenant retains possession of the Premises, or any portion thereof, after the expiration or termination of this Lease, and also shall pay all damages sustained by Landlord by reason of such retention of possession. The provisions of the Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord herein before or by law provided. If Tenant retains possession of the Premises, or any part thereof, for twenty (20) days after the written notice to Tenant, but not otherwise, such holding over shall constitute a renewal of the Lease for a period of One month specified by Landlord at Landlord's option on the sane terms and condition, except that the Adjusted Monthly Base Rent shall be increased by 125% of the latest Adjusted Monthly Base Rent, plus any subsequent escalations. Should Tenant wish to cancel this holdover portion of this Lease, Tenant must give to Landlord Four months advance written notice of its intent to cancel this lease. 15. DAMAGE BY FIRE OR OTHER CASUALTY 15.01 UNTENANTABILITY (Intentionally omitted) 15.02 DAMAGE BY TENANT In the event the Prmises or the Building is damaged by fire or other casualty resulting from the act or neglect of Tenant, its agents, contractors, employees or invitees, Tenant shall not be released from any of its obligations hereunder including, without limitation, its duty to repair the Premises and its liability to Landlord for damages caused by such fire or other casualty and its duty to pay Rent, which Rent shall not be abated. Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damage to alternations, additions, improvements or decorations provided by Landlord either directly or through an allowance to Tenant (whether by rent abatement or otherwise). 16. TENANT'S INSURANCE 16.01 Tenant, at Tenant's expense, agrees to purchase and maintain in force during the Term: (i) Comprehensive General Liability Insurance on an occurrence basis with minimum limits of liability in an amount of $500,000 for bodily injury, personal injury or death to any one person and $500,000 for bodily injury, person injury or death to more than one person, and $100,000 with respect to damage to property, including water and sprinkler damage; and (ii) Casualty insurance to cover his personalty. 11 12 16.02 The policies referred to in Section 16.1 shall name Landlord, the Beneficiaries, the Manager and their respective agents and employees as additional insureds; and shall contain the following provisions and endorsements: (i) that such insurance may not be canceled or amended without thirty (30) days prior written notice to Landlord, the Beneficiaries and the Manager; (ii) an express waiver of any right of subrogation by the insurance company against Landlord, the Beneficiaries, the Manager and their respective agents and employees; and (iii) that the policy shall not be invalidated should the insured waive in writing prior to a loss, any or all rights of recovery against any other party for losses covered by such policies. 16.03 Tenant shall deliver to Landlord, certificates of insurance of all policies and renewals thereof to be maintained by Tenant hereunder, no less than ten (10) day prior to the Commencement Date and note less that ten (10) days prior to the expiration date of each policy. Provided that the insurance policies of Tenant will not be invalidated nor will the right of the insured to collect the proceeds payable under such policies be adversely affected by the waiver contained in the following portion of this sentence, Tenant hereby expressly waves all rights of recovery which it might otherwise have against Landlord, the Beneficiaries, the Manager or their agents, and employees, for loss or damage to person, property or business to the extent that such loss or damage is covered by valid and collectible insurance policies, notwithstanding that such loss or damage may result form negligence of Landlord, the Beneficiaries, the Manager or their agents or employees. Tenant shall use its best efforts to obtain from its insurer the right to waive claims as set forth in the preceding sentence without thereby invalidating its insurance or affecting its right to proceeds payable thereunder. 17. RULES AND REGULATIONS 18. LANDLORD'S RIGHTS Landlord shall have the following rights exercisable without notice (except as expressly provided to the contrary in this Lease), without liability to Tenant for damage for injury to persons, property or business and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) To change the Building's name or street address upon ninety (90) days prior written note to Tenant; (ii) To install, affix and maintain all signs on the exterior and/or interior of the Building; (iii) To designate and/or approve prior to installation, all types of signs, window shades, blinds, drapes, awnings or other similar items, or other similar items, and all internal lighting that may be visible from the exterior of the Premises or the public corridors of the Building; (iv) To display the Premises to prospective tenants at reasonable hours during the last six (6) months of the Term; (v) To change the arrangement of entrances, doors, corridors, elevators and stairs in the Building, provided that no such change shall materially adversely affect access to the Premises; (vi) To grant to any party the exclusive right (to the extent permitted by law) to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purposes permitted hereunder; (vii) To prohibit the placing of vending or dispensing 12 13 machines of any kind in or about the Premises; (viii) To have access for Landlord and other tenants for the Building to any mail chutes and boxes located in or on the Premises according to the rules of the United States Post Office; (ix) To close the Building after normal business hours, except that Tenant and its employees and invitees shall be entitled to admission at all times, under such regulations as Landlord prescribes for security purposes; (x) To take any and all reasonable measures, including inspections and repairs to the Premises or to the Building, as may be necessary or desirable in the operation or protection thereof; (xi) To retain at all times master keys or passkeys to all doors in and to the Premises; (xii) To install, operate and maintain a building security system which monitors, by close circuit television or otherwise, all persons entering and leaving the Building and all public areas of the Building including, but not limited to, elevators and staircases; and (xiii) To install and maintain pipes, ducts, conduits, wires and structural elements located in the Premises which serve other parts of the Building. 19. MORTGAGE Landlord may execute and deliver a mortgage(s) or trust deed(s) in the nature of a mortgage, both sometimes hereinafter referred to as "Mortgage" against the Building or Land or any part thereof or interest therein, and may sell and lease back the Land. This Lease and the rights of Tenant hereunder shall be and are hereby made expressly subject and subordinate at all times to all such Mortgages and ground leases, now or hereafter existing an all amendments, modifications and renewals thereof and extensions, consolidations or replacements thereof, and to all advances made or hereafter to be made upon the security thereof. Landlord agrees to obtain in conjunction with any mortgage placed against Building subsequent to date hereof an agreement by mortgagee to refrain from disturbing tenancy or tenant so long as Tenant is not in default hereunder. 20. NOTICES All notices required or permitted to be given hereunder shall be in writing and shall be deemed given and delivered, whether or not received, when personally delivered, when deposited in the United States Mail, postage prepaid and properly addressed, certified mail, return receipt requested, at the addresses for Landlord indicated in Section 1.01(B), or such other address as Landlord shall designate by written notice to Tenant; and (ii) To Tenant: At the address specified in Subsection 1.01(C) prior to the Commencement Date, and at the Premises after the Commencement Date, or such other address as Tenant shall designate by written to Landlord. 21. ADJUSTMENTS TO MONTHLY BASE RENT 21.01 DEFINITIONS For the purposes of this article 21, the following words and phrases shall have the following meanings: A. "Adjustment Date" shall mean February 1, 2001 and each subsequent February 1 falling with the term. B. "Initial Adjustment Year" shall mean the calendar year 2001. 13 14 C. "Adjustment Year" shall mean the calendar year in which the `Initial Adjustment Date as defined herein below falls and each subsequent calendar year during which an Adjustment Date falls. D. "Adjustment Monthly Base Rent" shall mean rental (exclusive of Additional Rent) as from time to time computed and estimated under Sections 21.02 and 21.03 herein below, and shall mean "Monthly Base Rent" for all periods of time during which no adjustment has been applied. E. "Tax expense" shall mean and include all Federal, State and Local governmental taxes, assessments and charges (including transit district taxes or assessments) of every kind or nature, whether general, special, ordinary or extraordinary, which Landlord shall pay or become obligated to pay because of or in connection with the ownership, leasing, management, control or operation of the Building and the Land, or of the personal property, fixtures, machinery, equipment, systems and apparatus located therein or used in connection therein or used in connection therewith (including reasonable attorney's fees) paid by Landlord during such year. If a special assessment payable in installments is levied against the Land, Taxes for any year shall include only installments of such assessment and any interest payable or paid during such year. Taxes shall not include any Federal, State or Locales sales use franchise, capital stock, inheritance, general income, gift or estate taxes, except that if a change occurs in the method of taxation resulting in whole or in part the substitution of such taxes, or any other assessment, for any Taxes as above defined, such substituted taxes or assessments shall be included in Taxes. 21.02 ADJUSTMENTS A. On February 1, 2001 and on each Adjustment Date thereafter, adjusted Monthly Base Rent shall be increased by an amount equal to 5%. B. Effective as of February 1, 2001 ("Initial Adjustment Date") and on each February 1 falling within the Term, Adjusted monthly base rent shall be increased by an amount equal to 1/12th of the product of the Rentable Area of the Premises (as specifiedin subsection 1.01I), multiplied by the amount by which Per Square Foot Tax Expenses exceeds the actual Tax Expenses Paid during the Calendar year 2000. 21.03 PROJECTIONS FOR PURPOSES OF CALCULATING Tax Expenses for any Adjustment year, including the Initial Adjustment Year, Landlord shall deliver to Tenant a written statement (1) setting forth the Projections of Tax Expenses for the adjustment Year in which such Adjustment Base Rent based on such Projections to become effective as of said adjustment date; provided however that the failure of Landlord to provide any such statement shall not relieve Tenant from it obligation to continue to pay Adjusted Monthly Base Rent reflected thereby effective retroactively to the most recent preceding Adjustment Date. 14 15 21.04 READJUSTMENTS On or about April 1st following the end of each Adjustment Year, or at such later time as Landlord shall be able to determine the actual amounts of Tax Espenses for the Adjustment Year last ended, Landlord shall notify Tenant in writing of such actual amounts, if the total Adjusted Monthly Base Rent paid by Tenant during such Adjustment year exceeds the amount thereof payable for such year based upon actual Tax Expenses for such Adjustment Year, the Landlord shall credit such excess to Installments of Adjusted Monthly Base Rent payable after the date of Landlord's notice until such excess has been exhausted, of if this lease shall expire prior to full application of such excess, Landlord shall pay to Tenant the balance thereof not theretofore. 21.05 NO DECREASES IN MONTHLY BASE RENT Notwithstanding anything to the contrary contained in this Lease, Adjusted Monthly Base Rent shall not be adjusted or decreased below the amount set forth in Subsection 1.01H. 22. MISCELLANEOUS 22.01 LATE AND PENALTY CHARGES All rent and other payments due from Tenant to Landlord which are delinquent by more than ten (10) days shall bear interest at the rate of one and one-half percent (1-1/2%) per month, not prorated, from time to time, whichever is less, from the date due until paid. Tenant shall also pay to Landlord on demand a penalty charge of $25.00 for each check delivered to Landlord for Rent or other payments due hereunder, which is not honored by the institution on which it is drawn. 22.02 ENTIRE AGREEMENT This Lease and the Exhibits attached hereto contain the entire agreement between Landlord and Tenant concerning the Premises and there are no other agreements, either oral or written. 22.03 ACCORD AND SATISFACTION No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Rent due shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of money by Landlord form Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Term. 22.04 LANDLORD'S OBLIGATION ON SALE OF BUILDING 15 16 In the event of any sale or other transfer of the Building, Landlord and the seller or transferor (and the beneficiaries of any selling or transferring land trust) shall be entirely freed and relieved of all agreements and obligations of Landlord hereunder accruing or to be performed after the date of such sale or transfer, provided that Landlord sells the Building to a bona fide purchaser and that the new landlord agrees to assume the liabilities and responsibilities under this Lease. 22.05 BINDING EFFECT This Lease shall be binding upon and insure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and permitted assigns. 22.06 FORCE MAJEURE Landlord shall not be deemed in default with respect to any of the terms, covenants and conditions of this Lease on Landlord's part to be performed, if Landlord fails to timely perform same and such failure is due in whole or in part to any cause beyond the reasonable control of Landlord, other than for those matters set forth in Section 6.01. 22.07 CAPTIONS The Article and Section captions in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such Articles and Sections. 22.08 APPLICABLE LAW This Lease shall be construed in accordance with the law of the State of Illinois. 22.09 TIME Time is of the essence of this Lease and the performance of all obligations hereunder. 22.10 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES If Tenant fails to timely perform any of its duties under this Lease, Landlord shall have the right (but not the obligation), after the expiration of any grace period elsewhere under this Lease expressly granted to Tenant for the performance of such duty, to perform such duty on behalf and the expense of the Tenant without further prior notice to Tenant. 22.11 PARTIAL INVALIDITY If any term, covenant, or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of the Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant and condition of this Lease shall be valid and be enforced to the fullest extent permitted by law. 22.12 RIDERS 16 17 All riders attached hereto and executed both by Landlord and Tenant shall be deemed to be part hereof and hereby incorporated herein. INWITNESS WHEREOF, this Lease has been executed as of the date set forth in Subsection 1.01D hereof. The Lumber Company AccuMed International, Inc. By: /s/ JOHN BAUCHWITZ By: /s/ PAUL F. LAVALLEE ----------------------- ----------------------------- Its: Agent Its: Chairman and CEO --------------------- ---------------------------- 17 18 Exhibit 1 This is the first of two exhibits to the FRANKLIN SQUARE COMMERCIAL LEASE (Lease) dated as of February 1, 2000 between AccuMed International, Inc. (Tenant) and The Lumber Company as Agent for the beneficiary of LaSalle National Trust, N.A., not personally, but as Trustee under Trust Agreement Trust No. 21657 (Landlord). The following are modifications to the Lease: Page 1, point L. Suite 405, 900 North Franklin, shall be permitted to be used for both general office as well for a machine shop, its current use for Tenant. Suite 401, 920 North Franklin shall be permitted to be used for both general office use as well as for assembly work. Page 8, point 12 C. Point C is modified in whole as follows: If the Landlord elects to terminate the Tenant's right to possession only, without terminating the Lease, the Landlord may, at the Landlord's option, enter into the Premises, remove the tenant's sign and other evidences of tenancy, and take and hold possession thereof as provided in Subsection 12.01B, without such entry and possession terminating the Lease or releasing the Tenant, in whole or in part, from the Tenant's obligation to pay the Rent hereunder for the full Term. Upon and after entry into possession without termination of the Lease, the Landlord shall make a reasonable effort to relet the Premises or any port thereof for the account of the Tenant to any person, firm or corporation other than the Tenant for such rent, fir such time and upon such terms as the Landlord may reasonably determine, and the Landlord shall not be required to accept any tenant offered by the Tenant or to observe any instructions given by the Tenant about such reletting. In any such case, the Landlord may make reasonable repairs, alterations and additions in or to the Premises and redecorate the same to the extent deemed by the Landlord necessary or desirable, and the Tenant shall, upon demand, pay the reasonable expenses in reletting. If the consideration collected by the Landlord upon any such reletting for the Tenant's account is nor sufficient to pay monthly the full amount of the Rent reserved in this redecorating and the Landlord's expenses, the tenant shall pay to the Landlord the amount of each monthly deficiency upon demand. Page 10, point 15.01. Point 15.01 is modified in whole as follows: If the Building (including machinery or equipment used in its operation) or the Premises are made substantially untenantable by fire or other casualty, either Party may elect to: (i) terminate this Lease as of the date of the fire or other casualty by giving the other party written notice thereof within ninety (90) days after said date: or (ii) in the case of the Lessor, assuming the Tenant has not given notice to terminate in sub paragraph 15.01 (i), above, proceed to repair or restore the Building or the premises, other than leasehold improvements and personal 19 property paid for or installed by Tenant. Rent payments for the premises during this re-building period shall abate. This lease Exhibit 1 is signed as of February 1, 2000. The Lumber Company AccuMed International, Inc. BY /s/ JOHN BAUCHWITZ BY /s/ PAUL F. LAVALLEE -------------------- --------------------------- Name: John Bauchwitz Name: Paul F. Lavallee Title: Agent Title: Chairman and Chief Executive Officer 20 EXHIBIT 2 RELEASE OF LEASED SPACES AND SETTLEMENT This is the second of two exhibits to the FRANKLIN SQUARE COMMERCIAL LEASE (Lease) dated as of February 1, 2000 between AccuMed International, Inc. (Tenant) and The Lumber Company as Agent for the beneficiary of LaSalle National Trust, N.A., not personally, but as Trustee under Trust Agreement Trust No. 21657 (Landlord). 1. The lease dated July 12, 1994, as supplemented and amended, with respect to the following suites in 900 North Franklin Street, Chicago, Illinois 60610, numbers 206, 401, 501, 502/503, 504, 505, are terminated as of January 31, 2000. This termination is conditioned on the concurrent commencement of a lease for suite 405 in 900 North Franklin Street and suites 400, 401 and 402 in 920 North Franklin Street. 2. The lease of suite 401 in 920 North Franklin building is for a lease rental rate which is the same as that existing on suite 206 in 900 North Franklin Street. 3. The sum of $60,000 will be paid by AccuMed International, Inc. ("Lessee") over a nine-month period at a rate of $6,666.66 per month commencing March 1, 2000 and ending with the payment of November 1, 2000. 4. The cost of the buildout for Suite 600 in 900 North Franklin, to be occupied by City Access Providers, in lieu of occupancy of suite 401 in that same building will be $10,000 and will be paid by Lessee in two equal installments of $5,000 commencing February 21, 2000 and concluding with the payment on March 21, 2000. 5. Lessee will pay the rent difference between suites 600 and 401 in 900 North Franklin Street in the amount of $16,848 of which $8,424 shall be payable April 1, 2000 and $8,424 one year later. 6. Lessor, The Lumber Com., will waive the provisions of that letter dated June 25, 1996, regarding "Letter of Credit for Future Restoration of Stairwell" signed by Mark Santor, Lessee's then current Chief Financial Officer. (Copy of Letter attached) This lease Exhibit 2 is signed as of February 1, 2000 The Lumber Company AccuMed International, Inc. BY /s/ JOHN BAUCHWITZ BY /s/ PAUL F. LAVALLEE ------------------------ ------------------------ Name: John Bauchwitz Name: Paul F. Lavallee EX-10.31 4 v70395ex10-31.txt EXHIBIT 10.31 1 EXHIBIT 10.31 October 3, 2000 VIA FAX (631) 752-3558 Michael Strauss Chairman and Chief Executive Officer CellMetrix, Inc. 1800 Walt Whitman Road Melville, NY 11747 USA Dear Michael: This letter confirms the mutual termination of the Patent and Technology License and Registration Rights Agreement between AccuMed International, Inc. ("AccuMed") and BCAM International, Inc. (renamed CellMetrix, Inc. "CellMetrix") dated March 29, 2000, as amended by a letter agreement dated August 11, 2000 (the "Agreement"). Such termination was effective as of September 1, 2000. Section 9.5 of the Agreement specifies the provisions of the Agreement which survive its termination and remain in full force and effect. AccuMed International, Inc. By: /s/ NORMAN J. PRESSMAN ------------------------------------------ Norman J. Pressman, Ph.D. President and Chief Scientific Officer Agreed and acknowledged: CellMetrix, Inc. By: /s/ MICHAEL STRAUSS Date: October 3, 2000 ------------------------------ ------------------------------ Michael Strauss Chairman and Chief Executive Officer (Please return executed confirmation to sender via fax) EX-10.33 5 v70395ex10-33.txt EXHIBIT 10.33 1 EXHIBIT 10.33 LICENSE AGREEMENT THIS AGREEMENT is made and entered into as of December 29, 2000, by and between ACCUMED INTERNATIONAL, INC., a Delaware corporation, with a business address at 920 North Franklin Street, Suite 402, Chicago, IL 60610 ("AccuMed"), MONOGEN, INC., a Nevada corporation, with a business address at 6 Taft Court, Suite 150, Rockville, MD 20850 ("MonoGen"), and AMPERSAND MEDICAL CORP., a Delaware corporation, with a business address at 414 North Orleans Street, Suite 510, Chicago, IL 60610 ("Ampersand"). RECITALS A. AccuMed has developed a portfolio of intellectual property in the area of (1) computer-aided microscopy, (2) quantitative microscopy systems, (3) automated cytometry, and (4) disease detection, screening, diagnosis, prognosis, and therapeutic monitoring using cytometric instruments and methods. B. MonoGen is engaged in the research and development as well as the commercialization of medical devices, products, and services. C. MonoGen wishes to license from AccuMed, and AccuMed wishes to license to MonoGen, all such intellectual property, limited to the Field of Use (as defined herein), on the terms and conditions set forth in this Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing recitals, the terms and conditions set forth below, and other valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows: 1. Definitions. In this Agreement, the following terms shall have the following meanings: "AccuMed Intellectual Property Rights" shall mean any and all intellectual property rights, patent rights, copyrights, trademarks, trade secrets, information, and know-how, now or hereafter owned by, licensed to, or controlled by AccuMed or any Affiliate thereof, including without limitation AccuMed Patent Rights, AccuMed Technical Information, and AccuMed Trademarks. "AccuMed Patent Rights" shall mean: the U.S. and other patents listed in Exhibit A hereto; the U.S. and other patents that issue from the U.S. and other patent applications listed in Exhibit A hereto; all other patents and patent applications owned by, licensed to, or controlled by AccuMed or any Affiliate thereof, on the date hereof; all patents that issue from applications claiming the priority of any of the foregoing patents or patent applications; all continuations, 1 2 continuations-in-part, divisionals, re-examinations, reissues and extensions of any of the foregoing; and all counterparts of any of the foregoing. "AccuMed Technical Information" shall mean any and all trade secrets, information, and know-how, now or hereafter owned by, licensed to, or controlled by AccuMed or any Affiliate thereof, including without limitation any and all software, tools, modules, products, and documentation relating to and updates to the foregoing (all in both object and source code form), compositions, ideas, formulas, inventions (whether patentable or not, and whether or not reduced to practice), methods, processes, products, techniques, clinical data and reports, technical data and know-how, testing data and specifications, invention records, research records and reports, development reports, experimental and engineering reports, pilot and other product designs, models, prototypes and specifications, production designs and specifications, raw material specifications, quality control reports and specifications, drawings, blueprints and photographs, models, tools and parts, manufacturing and production processes and techniques, and marketing data, reports and studies. "AccuMed Trademarks" shall mean the trademarks, trade names, marks, and other similar items listed in Exhibit B hereto. "Affiliate" shall mean any corporation, limited liability company, partnership, or other business entity controlled by, controlling, or under common control with, the recited entity. "Control" shall mean direct or indirect ownership of fifty percent (50%) or more of the voting power of, or fifty percent (50%) or more of the equity interest in, such business entity. Notwithstanding the foregoing, "Affiliate" shall exclude Oncometrics Imaging Corp., a corporation continuing in the Yukon Territory, Canada. "Excluded Field of Use" shall mean the use of the AccuMed Intellectual Property Rights for: [***]1 "Exclusive Field of Use" shall mean, within the Nonexclusive Field of Use, the use of AccuMed Intellectual Property Rights for [***]2 "Exclusive Field of Use" shall exclude the Excluded Field of Use. "Field of Use" shall mean Exclusive Field of Use and the Nonexclusive Field of Use. "Nonexclusive Field of Use" shall mean the use of AccuMed Intellectual Property - -------- 1[***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 2 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 2 3 Rights [***]3 "Nonexclusive Field of Use" shall exclude the Excluded Field of Use. "Product" shall mean any component, device, equipment, kit, instrument, method, product, or system, the making, having made, using, offering to sell, selling, exporting, and importing of which, in absence of the license granted hereunder, would infringe or misappropriate any AccuMed Intellectual Property. The parties acknowledge that "Product" shall include, without limitation, [***]4. "Proposed Transaction" shall mean the transaction proposed, as of the date hereof, by and between AccuMed and Ampersand, by which AccuMed and Ampersand are to engage in an acquisition, merger, consolidation, or other business combination. 2. Grant. 2.1. General. Subject to the terms and conditions of this Agreement, AccuMed hereby grants to MonoGen, and MonoGen hereby accepts from AccuMed, an irrevocable, worldwide, fully paid-up, and perpetual license to make, have made, use, offer to sell, sell, export, and import Products in the Field of Use, under and with respect to AccuMed Intellectual Property Rights. 2.2. Exclusivity. The license granted by Section 2.1 hereof shall be exclusive in the Exclusive Field of Use and nonexclusive in the Nonexclusive Field of Use. If MonoGen fails to generate any revenues from the sale of Products in the Field of Use on or before the fifth anniversary of this Agreement, such license shall become, as of such fifth anniversary, nonexclusive also in the Exclusive Field of Use. 2.3. License Fee. In consideration of the license granted hereunder, MonoGen shall pay to AccuMed a license fee of [***]5 of which shall be paid immediately following the - -------- 3 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 4 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 5 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 3 4 execution of this Agreement, [***]6 on or before [***]7 before [***]8 before [***]9 as set forth in a Promissory Note signed by MonoGen for the benefit of AccuMed (the "Note"). MonoGen shall make the foregoing payments pursuant to written wiring instructions received from AccuMed. 3. Term and Termination. 3.1. Term. The term of this Agreement and the license granted hereunder shall commence on the date hereof and, unless terminated earlier pursuant to this Section 3, shall continue in perpetuity. 3.2. Termination Upon Default. AccuMed and MonoGen each may terminate this Agreement upon the breach by the other party of a material obligation hereunder, which breach is not cured by the defaulting party within thirty (30) days of written notice by the nondefaulting party. Notwithstanding the foregoing, if AccuMed declares, in accordance with the Note, that the entire unpaid balance of the Note is immediately due and payable, and if MonoGen fails to pay such balance within five (5) business days of MonoGen's receipt of Accumed's written notice declaring such balance immediately due and payable, AccuMed may terminate this Agreement by prior written notice to MonoGen of three (3) business days. 3.3. Termination by MonoGen. MonoGen may terminate this Agreement as to any country or countries by prior written notice to AccuMed of thirty (30) days, provided, however, that MonoGen shall not be relieved of its obligations under Section 2.3 hereof. 3.4. Effect of AccuMed's Bankruptcy. In the event that AccuMed shall declare or be declared bankrupt, MonoGen may terminate this Agreement. All rights and licenses granted under or pursuant to this Agreement by MonoGen or AccuMed are, and otherwise shall be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101 of the U.S. Bankruptcy Code. The parties agree that MonoGen shall retain and may exercise fully all of its rights and elections under the U.S. Bankruptcy Code. The parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against AccuMed under the U.S. Bankruptcy Code, MonoGen shall be entitled to a complete duplicate of (or complete access to, as appropriate) any intellectual property and all embodiments of such intellectual property, and the same, if not already in - -------- 6 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 7 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 8 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 9 [***] Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 4 5 MonoGen's possession, promptly shall be delivered to MonoGen (a) upon any such commencement of a bankruptcy proceeding, upon MonoGen's written request therefore, unless AccuMed (or a trustee on behalf of AccuMed) elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of AccuMed, upon written request therefore by MonoGen. In the event that MonoGen elects to terminate this Agreement pursuant to this Section 3.4, all rights and obligations hereunder shall terminate, provided however, MonoGen shall retain all licenses granted hereunder to AccuMed Intellectual Property Rights. 4. AccuMed Intellectual Property Rights. 4.1. Intellectual Property Records. On or before January 31, 2001,, AccuMed shall provide MonoGen with copies of all documents and materials pertaining to AccuMed Intellectual Property Rights then existing. Thereafter, AccuMed promptly shall provide MonoGen with copies of all documents and materials pertaining to AccuMed Intellectual Property Rights acquired or obtained by AccuMed during the term of this Agreement. Notwithstanding the foregoing, AccuMed shall not be required to provide MonoGen with copies of opinions of counsel pertaining to AccuMed Intellectual Property Rights 4.2. Patent Prosecution. At its expense and direction, AccuMed shall prepare, file, prosecute, maintain, and/or defend the AccuMed Patent Rights. AccuMed shall provide MonoGen with a reasonable opportunity to review and comment on, and to propose claim language for, any papers pertaining to proposed applications, responses, interferences, and oppositions before the filing thereof by AccuMed with any national, regional, or international patent office. With respect to the foregoing, if MonoGen concludes, in good faith, that taking any specific action(s) or failing to take any specific action(s) likely would have a material adverse effect on MonoGen's ability to commercialize the AccuMed Patent Rights or to commercialize a particular Product hereunder, and if MonoGen timely provides AccuMed written notice thereof, AccuMed shall not either take such specific action(s) or fail to take such specific action(s) without MonoGen's prior written consent (which consent shall not be unreasonably withheld), provided, however, that AccuMed shall remain able to fulfill its obligations to third parties under licenses existing on the date hereof. AccuMed shall retain outside counsel mutually acceptable to MonoGen to fulfill AccuMed's obligations under this Section 4.2. AccuMed and MonoGen acknowledge that, as of the date hereof, the law firm of McDonnell Boehnen Hulbert & Berghoff constitutes mutually acceptable counsel. 4.3. Abandonment of Patents or Applications. AccuMed shall be free, at any time, to elect not to proceed with and/or to abandon the preparation, filing, prosecution, maintenance or defense of any patent application or patent within the AccuMed Patent Rights, provided that AccuMed shall provide MonoGen written notice of such intention at least thirty (30) days before a final due date which would result in the abandonment or bar of patentability of such patent or patent application. In such case, MonoGen, at its option, and upon written notice to AccuMed, may continue prosecution or maintenance, at its own expense, of such patent or patent application, and AccuMed promptly shall assign and transfer to MonoGen all of its right, title, and 5 6 interest in and to such patent or patent application. 4.4. Infringement. If AccuMed or MonoGen learns, at any time, of any infringement or misappropriation or threatened infringement or misappropriation of any AccuMed Intellectual Property Right, such party promptly shall give written notice to the other party of any such infringement or misappropriation. Determination of the course of action then to be taken shall be based upon consultation between the parties. If any such infringement or misappropriation occurs on a commercial scale in the United States, Canada, European Union, Japan, China, or Australia, then, subject to any legal advice to the contrary, the parties agree that steps will be taken to end such infringement or misappropriation, including the initiation of legal proceedings. If AccuMed and MonoGen wish to institute a legal action or proceeding against an infringer or misappropriator, then the parties shall do so jointly and shall share equally the costs of any such action or proceeding and any damages awarded as a result of any such action or proceeding. If either AccuMed or MonoGen (but not the other party) wishes to institute a legal action or proceeding, the party so wishing to commence an action or proceeding can do so upon supplying to the other party a document setting out its obligations to pay all costs of and incidental to such action or proceeding, and to indemnify the other party against all such costs and all liabilities which might be incurred as a result of any such action or proceeding. The other party agrees to lend its name to the action or proceeding and to render all reasonable assistance on technical matters relating to such action or proceeding. Notwithstanding the foregoing, if the validity of any AccuMed Patent Right is placed in issue in any such action or proceeding, AccuMed, at its expense, shall defend such issue. 4.5. Notices. MonoGen shall cause an appropriate trademark notice to be affixed to or imprinted adjacent to each use of an AccuMed Trademark. AccuMed agrees that MonoGen may use its own trademark, trade name, or mark in connection with the sale of Products. MonoGen also shall cause an appropriate copyright notice in the name of AccuMed to appear on all copyrighted materials licensed to MonoGen hereunder. 4.6. Escrow. On or before January 31, 2001, AccuMed, at its own expense, shall deposit, into escrow, with a nonaffiliated third party, and in a form, reasonably acceptable to MonoGen, copies of all documentation and material, in whatever format or medium, evidencing AccuMed Intellectual Property Rights. AccuMed shall place in escrow at least the documentation and material listed in Exhibit C hereto. AccuMed shall provide MonoGen with a list of all documentation and material placed in escrow. The terms of the escrow, which shall be subject to MonoGen's approval, shall provide that, in the event of the commencement of a bankruptcy proceeding by or against AccuMed under the U.S. Bankruptcy Code, or of similar dissolution, insolvency, reorganization, or other proceeding involving the rights of creditors, MonoGen shall be entitled to receive promptly all such documentation and material placed in escrow. The parties 6 7 acknowledge (I) that AccuMed may open the escrow jointly in its name and in the name of its wholly owned subsidiary Oncometrics Imaging Corp., and (II) that both AccuMed and the latter company may deposit, into such escrow, documentation and material. 5. Covenants. 5.1. Nonsolicitation. Without AccuMed's prior written consent, neither MonoGen nor any Affiliate thereof, for two (2) years from the date hereof, shall hire, offer to hire, or solicit for employment any person who, on the date hereof, was employed by AccuMed, until such person has been separated from employment by AccuMed for at least 270 days. AccuMed and Ampersand hereby consent to the employment by MonoGen of.Norman Pressman, William Mayer, Marc Friedman, and Joseph Plandowski. AccuMed hereby acknowledges and agrees that none of the foregoing individuals are subject to any limitations or restrictions on employment (such as a covenant not to compete) that would interfere with their employment by MonoGen. The parties acknowledge that, while employed by MonoGen, Mr. William Mayer, for two (2) years, may devote up to fifty percent (50%) of his working time to the provision of services to AccuMed, in exchange for the payment by AccuMed to MonoGen of a reasonable consulting fee equal to MonoGen's costs for Mr. Mayer. Without MonoGen's prior written consent, for two (2) years from the date hereof, neither AccuMed, Ampersand, nor any Affiliate thereof shall hire, offer to hire, or solicit for employment any person who is employed by MonoGen, until such person has been separated from employment by MonoGen for at least 270 days. 5.2. Confidentiality. No party hereto or any Affiliate thereof shall use for any purpose inconsistent with this Agreement, disclose to any person (other than to its attorneys and accountants as required by them to perform customary services to such party), or keep or make copies of any documents, tapes, discs, or programs containing any confidential and proprietary information of any other party hereto or any Affiliate thereof. Each party hereto and any Affiliate thereof shall keep such information in strictest confidence. The parties acknowledge that, subject to Section 10.1 hereof, this Agreement, along with the name of the parties hereto, the license fee required hereby, the scope of the license granted hereby (such as the definition of Field of Use), and the patents and patent applications included within the definition of Licensed Patents, constitute confidential and proprietary information of AccuMed and MonoGen and may not be used for any purpose inconsistent with this Agreement or disclosed to any person without the other's prior written consent (which consent shall not be unreasonably withheld or delayed). 5.3. Joint Venture. In the event that the Proposed Transaction is consummated on or before June 30, 2001, MonoGen and Ampersand agree to negotiate, in good faith, a product development agreement by which [***]10 - -------- 10 Confidential treatment has been requested for the bracketed portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 7 8 5.4. Contract Research and Development. AccuMed and MonoGen acknowledge that, on or before June 30, 2001, and subject to their agreement, they may enter into a contractual relationship by which MonoGen provides research and development services to AccuMed, in complementary, or at least non-competitive, areas. 6. Representations and Warranties. 6.1. General. Each party hereto makes the following representations and warranties to any other party hereto, each of which is true and correct on the date hereof, and shall be unaffected by any investigation heretofore or hereafter made by the other party or by any knowledge of the other party other than as disclosed specifically in an exhibit to this Agreement. a. Corporate. It is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. It is duly licensed or qualified to do business as a foreign corporation, and is in good standing, in each jurisdiction in which the failure to become licensed or qualified would have a material adverse affect on it or its business as conducted now. It has all requisite corporate power and authority to own, operate, and lease its properties, to carry on its business as and where such business is being conducted now, to enter into this Agreement and the other documents and instruments to be executed and delivered pursuant hereto, and to perform in full the obligations contemplated hereby and thereby. b. Authority. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by it pursuant hereto and the performance by it of the obligations contemplated hereby and thereby have been duly approved and authorized by it. No other or further corporate act or proceeding on its part is necessary to approve or authorize this Agreement or such other documents and instruments or the performance of such obligations. This Agreement constitutes, and when executed and delivered such other documents and instruments will constitute, valid binding agreements on its part, enforceable generally in accordance with their respective terms and conditions. c. No Violation. Neither the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by it pursuant hereto, nor the performance by it of the obligations contemplated hereby and thereby (I) will violate any applicable statute, law, ordinance, rule, or regulation, or any order, writ, injunction, judgment, plan, or decree of any governmental body, (II) will require any authorization, consent, approval, exemption, or other action by or notice to any governmental body, or (III) will violate or conflict with, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or will result in the termination of, or accelerate the performance required by, or result in the creation of any lien, security interest, claim, pledge, license, assessment, covenant, restriction, charge, or other encumbrance of any nature whatsoever upon any of its assets or properties under, any term or condition of its charter or bylaws or of any contract, commitment, understanding, arrangement, or restriction of any kind or character to which it or any Affiliate is a party or by which it or any Affiliate or any of its assets or properties may be bound or affected. 8 9 6.2. Intellectual Property. AccuMed makes the following representations and warranties to MonoGen, each of which is true and correct on the date hereof, and shall be unaffected by any investigation heretofore or hereafter made by MonoGen or by any knowledge of MonoGen other than as disclosed specifically in an exhibit to this Agreement. a. Title. AccuMed has good and marketable title to the AccuMed Intellectual Property Rights, free and clear of all liens, security interests, claims, pledges, licenses, assessments, covenants, restrictions, charges, or other encumbrances of any nature whatsoever. AccuMed is the owner of all interest, right, and title in and to the AccuMed Intellectual Property Rights. None of the AccuMed Intellectual Property Rights to be licensed hereunder is subject to any restriction with respect to the assignability, licensability, and transferability thereof, and AccuMed has complete and unrestricted power and right to grant the license granted hereunder. Neither AccuMed nor any Affiliate thereof has any interest, right, or title in, to, or under any patent or patent application (other than the AccuMed Patent Rights) in the Field of Use. b. Compliance. The AccuMed Patent Rights currently are in material compliance with all legal requirements in the United States, including the payment of filing, examination, and maintenance fees. No AccuMed Patent Right has been or is now involved in any interference, reissue, reexamination, or opposition proceeding, and no such proceeding has been threatened in writing. To the knowledge of AccuMed or any Affiliate, there is no patent, patent application, printed publication, or other prior art of any person that conflicts in any material respect with any AccuMed Patent Right. c. Controversies. No litigation is now pending or was pending during the last two (2) years, and, to the knowledge of AccuMed or any Affiliate, no litigation has been threatened in writing during the last two (2) years (I), except as described in Exhibit D hereto, alleging that AccuMed or any Affiliate has engaged in any activity or conduct that infringes upon, misappropriates, violates, or constitutes the unauthorized use of any intellectual property rights of a third party, or (II) challenging the ownership, use, validity, or enforceability of any AccuMed Intellectual Property Right. Except as described in Exhibit D hereto, to the knowledge of AccuMed, no third party is infringing, misappropriating, violating, or using without authorization any AccuMed Intellectual Property Right, and no claims of the foregoing has been brought against any third party. 7. Indemnification. 7.1. General. Each party shall indemnify, defend, and hold harmless the other party against and from any claim, suit, action, damages, costs, losses, and expenses (including without limitation court costs and reasonable professional fees and disbursements) that, at any time, the other party may suffer by reason of the breach by the indemnifying party of any covenant, representation, warranty, or obligation in this Agreement. 9 10 7.2. Procedures. Any indemnified party hereunder shall provide the indemnifying party hereunder with prompt written notice of any action, proceeding, or claim subject to indemnification hereunder by the indemnifying party. The indemnifying party shall have the right to defend and settle, at its or his sole discretion and expense, any such action, suit, proceeding, or claim, provided, however, that the indemnifying party shall keep the indemnified party informed fully of any material developments in such action. 8. Resolution of Disputes. 8.1. General. Any dispute, controversy, or claim arising out of or relating to this Agreement or the license granted hereunder, the negotiations hereof, the entry hereunto, or the performance by the parties of their obligations hereunder shall be settled by binding arbitration conducted in English, in Chicago, Illinois, in accordance with the then Commercial Arbitration Rules of the American Arbitration Association, except as specifically provided otherwise in this Section. This Section shall be construed in accordance with the Federal Arbitration Act, notwithstanding any other choice of law provision in this Agreement. 8.2. Arbitrators. If the matter in controversy (exclusive of professional fees and disbursements) shall appear, as at the time of the demand for arbitration, to exceed U.S. $500,000, then the panel to be appointed shall consist of three (3) neutral arbitrators. Otherwise, the panel shall consist of one (1) neutral arbitrator. 8.3. Authority. The arbitrator(s) shall have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys fees and disbursements in such manner as is determined to be appropriate by the arbitrator(s). 8.4. Entry of Judgment. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having in personam and subject matter jurisdiction. Judgment rendered by the arbitrator(s) shall be final and non-appealable. 8.5. Confidentiality. All proceedings under this Section, and all evidence given or discovered pursuant thereto, shall be maintained in confidence by all parties and by the arbitrator(s). 8.6. Tolling. All applicable statutes of limitation with respect to the matters specifically being arbitrated shall be tolled while the procedures in this Section are pending. The parties shall take such action, if any, required to effectuate such tolling. 8.7. Equitable Relief. Notwithstanding anything else to the contrary in this Section 8, the parties acknowledge and agree that any breach of the obligations set forth in Sections 4.6, 5.1, and 5.2 shall result in irreparable injury to the affected party for which a remedy at law would be inadequate and that, in addition to any other relief at law which may be 10 11 available for such breach, the affected party shall be entitled to injunctive and other equitable relief as a court may grant. 9. Notice. All notices, requests, demands, and other communications permitted or required under this Agreement shall be given in writing and shall be (a) delivered personally, (b) sent by registered or certified mail, return receipt requested, postage prepaid, or (c) sent by a private courier service that provides written confirmations of receipt. If delivered personally, such communication shall be deemed given upon actual receipt. If sent by registered or certified mail, such communication shall be deemed given as of the date of delivery indicated on the return receipt. If sent by a private courier service, such communication shall be deemed given as of the date of delivery indicated on the written confirmation of receipt issued by the courier service. If the intended recipient fails or refuses to accept delivery, such communication shall be deemed given as of the date of such failure or refusal. Unless a party furnishes in writing to the other party a new address, the respective addresses of the parties to be used for any such communication are set forth at the beginning of this Agreement. 10. Miscellaneous. 10.1. Announcements. Both the timing and the content of all disclosures to third parties and all public announcements by any party hereto concerning this Agreement, the terms and conditions set forth herein, and the transactions contemplated hereby shall be subject to the prior written consent of the other parties hereto (which consent shall not be unreasonably withheld or delayed) in all essential respects, provided (I) that MonoGen's prior written consent shall not be required as to any statements and other information which AccuMed is required to submit to the Securities and Exchange Commission ("SEC") or to NASDAQ, and (II) that the prior written consent of the other parties shall not be required as to any statements and other information which the disclosing party is required by law to disclose. Notwithstanding anything else to the contrary in this Section 10.1, AccuMed shall use reasonable efforts, consistent with applicable law, to avoid disclosing to the SEC, to NASDAQ, or otherwise as required by law the name of Licensee, the license fee required hereby, the specific scope of the license granted hereby (such as the definition of Field of Use), and the patents and patent applications included within the definition of Licensed Patents; and AccuMed shall provide MonoGen with prior written notice before disclosing any of the foregoing information. 10.2. Entire Agreement. This Agreement and the exhibits hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede any prior understandings and agreements between the parties with respect to such subject matter, including the document entitled "Term Sheet: Patent and Technology License" signed by the parties. 10.3. Waiver. The failure of any party hereto at any time to require performance by any other party hereto of any provision of this Agreement shall not affect the right of such party to require in the future performance of that or any other provision. To be effective, any 11 12 waiver of any provision of this Agreement must be in writing, signed by the party to be bound thereby. Unless otherwise provided expressly in writing, a waiver by any party hereto of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, waiver of the provision itself, or a waiver of any right under this Agreement. 10.4. Severability. Should any part of provision of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any jurisdiction, the invalid or unenforceable part of provision shall be replaced with a provision which accomplishes, to the extent possible, the original business purpose of such part or provision in a valid and enforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto. 10.5. Assignment. Without the prior written consent of the other party (which consent shall not be withheld or delayed unreasonably), no party to this Agreement may assign, transfer, or encumber its rights hereunder or delegate its obligations hereunder to any other party, whether by act or deed, voluntarily or involuntarily, or by operation of law. Notwithstanding the foregoing, upon prior written notice to the other party, each party hereto may assign this Agreement to any Affiliate thereof or to any business entity purchasing all or substantially all of its assets, any business entity surviving in a merger involving such party hereto as a party thereto, or itself upon a change in control, provided that such Affiliate or other assignee becomes bound by the terms and conditions of this Agreement to the same extent as if it were named originally as a party hereto. The parties acknowledge that, as of the date hereof, AccuMed and Ampersand and its wholly owned acquisition subsidiary are contemplating the Proposed Transaction. MonoGen consents to the foregoing transaction, provided that it is consummated on or before June 30, 2001. Ampersand agrees that, if the Proposed Transaction is consummated, Ampersand and its wholly owned acquisition subsidiary shall become bound also by the obligations of AccuMed hereunder. 10.6. Binding Effect. This Agreement shall inure to the benefit of, and shall be binding upon, each party to this Agreement, its Affiliates, and their respective permitted assigns and successors. 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois other than its choice of law principles, except that any question arising out of this Agreement as to the validity, construction, or effect of any AccuMed Patent Rights shall be decided in accordance with the patent laws of the applicable jurisdiction. 10.8. Venue. Subject to Section 8 hereof, any action or controversy by and between the parties with respect to or relating to this Agreement shall be brought in Federal District Court in Chicago, Illinois or in the Illinois state courts of general jurisdiction in Chicago, 12 13 Illinois. The parties hereby submit to the jurisdiction of such courts. 10.9. Expenses. Each party shall bear its own legal costs and expenses arising out of the negotiation, execution and delivery of this Agreement and the agreements contemplated hereby. 10.10. Relationship of Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, distributorship, employer-employee, or joint venture relationship between the parties. No party shall incur any debts or make any commitments for any other party hereto except to the extent, if at all, specifically provided herein. 10.11. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.12. Authority to Sign. Each individual signing this Agreement on behalf of a party to this Agreement represents and warrants to the parties that he or she is duly authorized to sign this Agreement on behalf of such party. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers. ACCUMED MONOGEN, INC. INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE By: /s/ ANDRE DENIS ---------------------------- --------------------- Paul F. Lavallee Andre Denis Chairman & CEO Chairman AMPERSAND MEDICAL CORP. By: /s/ PETER P. GOMBRICH --------------------------- Peter P. Gombrich Chairman & CEO 13 EX-10.34 6 v70395ex10-34.txt EXHIBIT 10.34 1 EXHIBIT 10.34 - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER BY AND AMONG - -------------------------------------------------------------------------------- ACCUMED INTERNATIONAL, INC., ACCUMED ACQUISITION CORP. AND AMPERSAND MEDICAL CORPORATION DATED AS OF FEBRUARY 7, 2001 2 TABLE OF CONTENTS ARTICLE I THE MERGER AND RELATED MATTERS...................................................2 1.1 Merger...................................................................2 1.2 Merger Effective Time....................................................2 1.3 Conversion of Shares.....................................................2 1.4 Surviving Corporation in the Merger......................................4 1.5 Authorization for Issuance of Ampersand Common Stock; Exchange of Certificates.............................................................5 1.6 No Fractional Shares.....................................................6 1.7 Stockholder Approvals....................................................7 1.8 AccuMed Stock Options....................................................7 1.9 Registration Statement; Prospectus/Proxy Statement.......................7 1.10 Cooperation; Regulatory Approvals........................................8 1.11 Closing..................................................................9 1.12 Ampersand Loan to AccuMed................................................9 ARTICLE II REPRESENTATIONS AND WARRANTIES.................................................11 2.1 Organization, Good Standing, Authority, Insurance, Etc..................11 2.2 Capitalization..........................................................11 2.3 Ownership of Subsidiaries...............................................12 2.4 Financial Statements and Reports........................................12 2.5 Absence of Changes......................................................13 2.6 Prospectus/Proxy Statement..............................................14 2.7 No Broker's or Finder's Fees............................................14 2.8 Litigation and Other Proceedings........................................14 2.9 Compliance with Law.....................................................14 2.10 Corporate Actions.......................................................15 2.11 Authority...............................................................15 2.12 Employment Arrangements.................................................16 2.13 Employee Benefits.......................................................16 2.14 Information Furnished...................................................17 2.15 Property and Assets.....................................................17 2.16 Agreements and Instruments..............................................18 2.17 Material Contract Default; Contingent Liabilities.......................18 2.18 Tax Matters.............................................................19 2.19 Environmental Matters...................................................19 2.20 Exceptions to Representations and Warranties............................20 ARTICLE III COVENANTS.....................................................................20
i 3 3.1 Investigations; Access and Copies.......................................20 3.2 Conduct of Business.....................................................21 3.3 No Solicitation.........................................................23 3.4 Stockholder Approvals...................................................23 3.5 Accounting and Tax Treatment............................................23 3.6 Publicity...............................................................24 3.7 Cooperation Generally...................................................24 3.8 Additional Financial Statements and Reports.............................24 3.9 Employee Benefits and Agreements........................................24 3.10 Ampersand Lock-Up Agreements............................................25 ARTICLE IV CONDITIONS OF THE MERGER; TERMINATION OF AGREEMENT.............................25 4.1 Conditions to the Obligations of Each Party.............................25 4.2 Conditions to Obligations of AccuMed....................................28 4.3 Conditions to Obligations of Ampersand and Acquisition Sub..............28 4.4 Termination of Agreement................................................30 ARTICLE V TERMINATION OBLIGATIONS.........................................................32 5.1 Breach by AccuMed.......................................................32 5.2 Breach by Ampersand.....................................................32 5.3 Tender or Exchange Offer................................................32 5.4 Non-Fulfillment of AccuMed Obligations..................................32 5.5 Payment of Replacement Note.............................................33 ARTICLE VI CERTAIN POST-MERGER AGREEMENTS.................................................33 6.1 Indemnification.........................................................33 ARTICLE VII GENERAL.......................................................................34 7.1 Amendments..............................................................34 7.2 Confidentiality.........................................................35 7.3 Governing Law...........................................................35 7.4 Notices.................................................................35 7.5 No Assignment...........................................................36 7.6 Headings................................................................36 7.7 Counterparts............................................................36 7.8 Construction and Interpretation.........................................37 7.9 Binding Effect..........................................................37 7.10 Expenses................................................................37 7.11 Third Parties...........................................................37 7.12 Entire Agreement........................................................37 7.13 Waivers.................................................................37 7.14 Partial Invalidity......................................................37
ii 4 Schedules: Schedule I Disclosure Schedules for AccuMed Schedule II Disclosure Schedules for Ampersand and Acquisition Sub Exhibits: Exhibit A Form of AccuMed Voting Agreement Exhibit B Form of Replacement Note Exhibit C Budget Statement Exhibit D List of Employees Whose Employment Agreements Will Be Terminated Exhibit E Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of Ampersand Exhibit F Revised Budget Statement iii 5 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as of February 7, 2001 (the "Execution Date"), by and among AccuMed International, Inc., a Delaware corporation ("AccuMed"), AccuMed Acquisition Corp., a Delaware corporation ("Acquisition Sub"), and Ampersand Medical Corporation, a Delaware corporation ("Ampersand"). RECITALS WHEREAS, as of the execution hereof, AccuMed has (i) 50,000,000 authorized shares of common stock, $.01 par value (the "AccuMed Common Stock"), of which 5,733,935 shares are currently issued and outstanding, and (ii) 5,000,000 authorized shares of preferred stock, of which 581,339 shares of Series A Convertible Preferred Stock, $.01 par value (the "AccuMed Preferred Stock"), are currently issued and outstanding and convertible into 387,562 shares of AccuMed Common Stock; and WHEREAS, as of the execution hereof, Ampersand has (i) 50,000,000 authorized shares of common stock, $.001 par value (the "Ampersand Common Stock"), of which 30,056,468 shares are currently issued and outstanding, and (ii) 5,000,000 authorized shares of preferred stock, none of which are currently issued and outstanding; and WHEREAS, as of the execution hereof, Acquisition Sub has 3,000 authorized shares of common stock, without par value (the "Acquisition Sub Common Stock"), of which 100 shares are currently issued and outstanding and owned by Ampersand; and WHEREAS, the parties hereto desire that AccuMed be merged with and into Acquisition Sub in accordance with the terms and provisions of this Agreement, with Acquisition Sub as the surviving corporation (such merger being referred to hereinafter as the "Merger," and Acquisition Sub, after the Merger, being sometimes referred to hereinafter as the "Surviving Corporation"); and WHEREAS, it is intended that for federal income tax purposes the Merger shall qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and this Agreement shall constitute a plan of reorganization pursuant to Section 368 of the Internal Revenue Code; and WHEREAS, concurrently with the execution and delivery of this Agreement, and as an inducement to and condition of the willingness of Ampersand and Acquisition Sub to enter into this Agreement, each of the persons who are currently officers and/or directors of AccuMed have entered into voting agreements in the form attached hereto as Exhibit A; and 1 6 WHEREAS, the Board of Directors of each of the parties hereto, at meetings duly called and held, or pursuant to informal actions taken in accordance with applicable law, have determined that this Agreement and the transactions contemplated thereby are in the best interests of the respective parties, and the Board of Directors of each of AccuMed and Acquisition Sub have determined to recommend to their respective stockholders that they approve this Agreement and the transactions contemplated thereby; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I THE MERGER AND RELATED MATTERS I.1 Merger. Subject to the terms and conditions of this Agreement and pursuant to applicable law, at the Merger Effective Time (as such term is hereinafter defined), (i) AccuMed shall be merged with and into Acquisition Sub, (ii) the separate corporate existence of AccuMed shall cease, and (iii) Acquisition Sub, which shall immediately change its name to "AccuMed International, Inc.", as the Surviving Corporation, shall continue to be governed by the laws of the State of Delaware. I.2 Merger Effective Time. As soon as practicable after each of the conditions set forth in Article IV hereof has been satisfied or waived, the parties hereto will file, or cause to be filed, a certificate of merger with the appropriate authorities of the State of Delaware for the Merger, which certificate of merger shall be in the form required by and executed in accordance with the applicable provisions of law. The Merger shall become effective at the time and date that the Delaware certificate of merger is filed with the appropriate authorities of the State of Delaware (the "Merger Effective Time"), which shall be immediately following the Closing (as such term is hereinafter defined) and on the same day as the Closing, if practicable, or at such other date and time as may be agreed to by the parties and specified in the certificate of merger in accordance with applicable law. I.3 Conversion of Shares. At the Merger Effective Time, by virtue of the Merger and without any action on the part of the parties hereto or the holders of shares of AccuMed Common Stock, AccuMed Preferred Stock, Ampersand Common Stock or Acquisition Sub Common Stock: (a) Each share of AccuMed Common Stock issued and outstanding at the Merger Effective Time (except for Dissenting Shares, if applicable, as defined in Section 1.3(b) hereof), subject to Sections 1.3 (e) and 1.6 hereof, shall cease to be outstanding, shall cease to exist and shall be converted into and become six thousand five hundred fifty-two ten thousandths (.6552) of one (1) share of Ampersand Common Stock, which ratio (the "Exchange Ratio") shall be reduced if any AccuMed Derivative Securities (as defined in Section 1.3(c) 2 7 hereof) are exchanged for or converted into shares of AccuMed Common Stock between the Execution Date and the Merger Effective Time such that four million (4,000,000) shares of Ampersand Common Stock will be, in the aggregate, (i) exchanged for the AccuMed Common Stock, and/or (ii) reserved for issuance upon future conversion of shares of Ampersand Preferred Stock (as such term is hereinafter defined) into shares of Ampersand Common Stock. (b) Each share of AccuMed Preferred Stock issued and outstanding at the Merger Effective Time (except for Dissenting Shares, if applicable), subject to Sections 1.3(e) and 1.6 hereof shall also cease to be outstanding, shall also cease to exist and shall be converted into and become one (1) share of Ampersand Series A Convertible Preferred Stock (the "Ampersand Preferred Stock"), which shall have the rights and preferences set forth in the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock attached hereto as Exhibit E, including, but not limited to, the right to be converted into shares of Ampersand Common Stock in accordance with the Exchange Ratio. (c) Any shares of AccuMed capital stock held by a holder who dissents from the Merger in accordance with Section 262 of the Delaware General Corporation Law (the "DGCL") shall be referred to herein as "Dissenting Shares." Notwithstanding any other provision of this Agreement, any Dissenting Shares shall not, after the Merger Effective Time, be entitled to vote for any purpose or receive any dividends or other distributions and shall be entitled only to such rights as are afforded with respect to Dissenting Shares pursuant to the DGCL. (4) Every AccuMed security, except shares of AccuMed Preferred Stock, issued and outstanding at the Execution Date that is convertible into, exchangeable for or exerciseable with respect to, shares of AccuMed Common Stock, including all stock options, warrants and convertible debt instruments (collectively, the "AccuMed Derivative Securities"), if not converted, exchanged or exercised prior to the Merger Effective Time, shall, from and after the Merger Effective Time, be instead convertible into, exchangeable for or exerciseable with respect to Ampersand Common Stock at the Exchange Ratio upon payment of the applicable consideration required in connection with such conversion, exercise or exchange. The foregoing substitutions shall be undertaken consistent with, and not in a manner that will constitute a "modification" under, Section 424 of the Internal Revenue Code with respect to any such stock option that is an "incentive stock option." Furthermore, Ampersand shall make all filings required under federal and state securities laws promptly after the Merger Effective Time so as to permit the conversion, exchange or exercise of any such AccuMed Derivative Securities, and the sale of the shares of Ampersand Common Stock received by the security holder upon such conversion, exchange or exercise at and after the Merger Effective Time, and Ampersand shall continue to make such filings thereafter as may be necessary to permit the continued conversion, exchange or exercise of such securities and sale of such shares. (d) Any AccuMed securities that are owned or held by any party hereto (other than in a fiduciary capacity) at the Merger Effective Time shall cease to exist, the certificates for such securities shall as promptly as practicable be cancelled, such securities shall not be converted 3 8 into or evidence any securities of Ampersand Common Stock, and no shares of capital stock of Ampersand shall be issued or exchanged therefor. (e) Each share of Ampersand Common Stock issued and outstanding immediately before the Merger Effective Time shall remain an outstanding share of Ampersand Common Stock after the Merger Effective Time, and each share of Acquisition Sub Common Stock issued and outstanding immediately before the Merger Effective Time shall remain an outstanding share of Acquisition Sub Common Stock after the Merger Effective Time. (f) The holders of certificates evidencing shares of AccuMed Common Stock, AccuMed Preferred Stock or any other securities of AccuMed shall thereafter have no rights as stockholders of AccuMed (or Acquisition Sub), except such rights, if any, as they may have pursuant to the DGCL. I.4 Surviving Corporation in the Merger. (a) The name of the Surviving Corporation in the Merger shall be changed from "AccuMed Acquisition Corp." to "AccuMed International, Inc." (b) At the Merger Effective Time, subject to an amendment to change the name of the Surviving Corporation in accordance with the provisions of Section 1.4(a) hereof, the Certificate of Incorporation of Acquisition Sub as then in effect shall be the Certificate of Incorporation of the Surviving Corporation until further amended as provided therein or as otherwise permitted by the DGCL. (c) At the Merger Effective Time, the Bylaws of Acquisition Sub as then in effect shall be the Bylaws of the Surviving Corporation until amended as provided therein or as otherwise permitted by the DGCL. (d) The directors and executive officers of Acquisition Sub as of the Merger Effective Time shall remain as the directors and officers of the Surviving Corporation following the Merger until such directors or officers are replaced or additional directors or officers are elected or appointed in accordance with the provisions of the Certificate of Incorporation and Bylaws of the Surviving Corporation. (e) From and after the Merger Effective Time: (i) Acquisition Sub as the Surviving Corporation shall possess all assets and property of every description, and every interest in the assets and property, wherever located, and the rights, privileges, immunities, powers, franchises and authority, of a public as well as of a private nature, of each of AccuMed and Acquisition Sub, and all obligations belonging or due to each of AccuMed and Acquisition Sub, all of which shall vest in the Surviving Corporation without further act or deed. Title to any real estate or any interest in real estate vested in AccuMed or Acquisition Sub shall not revert nor in any way be impaired by reason of the Merger. 4 9 (ii) The Surviving Corporation will be liable for all of the obligations of each of AccuMed and Acquisition Sub. Any claim existing, or action or proceeding pending, by or against AccuMed or Acquisition Sub, may be prosecuted to judgment, with right of appeal, as if the Merger had not taken place, and the Surviving Corporation may be substituted in its place. (iii) All of the rights of creditors of each of AccuMed and Acquisition Sub will be preserved unimpaired, and all of the liens upon the property of AccuMed and Acquisition Sub will be preserved unimpaired only on the property affected by such liens immediately before the Merger Effective Time. I.5 Authorization for Issuance of Ampersand Common Stock; Exchange of Certificates. (a) Ampersand shall reserve for issuance a sufficient number of shares of Ampersand Common Stock for the purpose of issuing such shares to (i) the former holders of AccuMed Common Stock and AccuMed Preferred Stock, and (ii) the holders of AccuMed Derivative Securities, all in accordance with this Article I. (b) After the Merger Effective Time, holders of certificates theretofore evidencing outstanding AccuMed securities (other than as provided in Section 1.3 hereof), upon surrender of such certificates to an exchange agent appointed by Ampersand (the "Exchange Agent"), shall be entitled to receive certificates for the Ampersand securities to be substituted for the aforesaid AccuMed securities in accordance with the provisions of Section 1.3 hereof, and cash payments in lieu of fractional shares, if any, as provided in Section 1.6 hereof. As soon as practicable after the Merger Effective Time, the Exchange Agent will send a notice and transmittal form to each record holder of AccuMed securities at the Merger Effective Time whose securities are being exchanged in the manner provided herein, advising such holder of the effectiveness of the Merger and the procedure for surrendering to the Exchange Agent outstanding certificates formerly evidencing AccuMed securities in exchange for new certificates evidencing the substituted Ampersand securities. Upon surrender, each certificate formerly evidencing AccuMed securities shall be cancelled. (c) Until surrendered as provided in this Section 1.5, all outstanding certificates of a holder which, before the Merger Effective Time, evidenced AccuMed securities (other than those evidencing Dissenting Shares and shares cancelled at the Merger Effective Time pursuant to Section 1.3 hereof) will be deemed for all corporate purposes to evidence the securities of Ampersand exchanged for the AccuMed securities formerly evidenced thereby and the right to receive cash in lieu of any fractional Ampersand Common Stock interests the holder might otherwise have been entitled to receive hereunder. However, until such outstanding certificates formerly evidencing AccuMed securities are so surrendered, no dividend or distribution payable to holders of record of Ampersand Common Stock shall be paid to any holder of such outstanding certificates, but upon surrender of such outstanding certificates by such holder there shall be paid to such holder the amount of any dividends or distribution, without interest, theretofore paid with respect to such shares of Ampersand Common Stock, but not paid to such holder, and which dividends or distribution had a record date occurring on or after the Merger Effective Time and the 5 10 amount of any cash, without interest, payable to such holder in lieu of a fractional share interest pursuant to Section 1.6 hereof. After the Merger Effective Time, there shall be no further registration of transfers on the records of AccuMed of outstanding certificates formerly evidencing AccuMed securities and, if a certificate formerly evidencing such securities is presented to any party hereto, it shall be forwarded to the Exchange Agent for cancellation and exchanged for a certificate evidencing Ampersand securities and cash for any Ampersand Common Stock interests the holder might otherwise have been entitled to receive hereunder as herein provided. Following six (6) months after the Merger Effective Time, the Exchange Agent shall return to Ampersand any certificates for Ampersand securities and cash remaining in the possession of the Exchange Agent (together with any dividends in respect thereof) and thereafter the former holders of AccuMed securities shall look exclusively to Ampersand for Ampersand securities and cash to which they may be entitled hereunder. (d) All securities and cash in lieu of any fractional shares issued or paid upon the exchange of AccuMed securities in accordance with the above terms and conditions shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to such AccuMed securities. (e) If any new certificate for Ampersand securities is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance therefor that the certificate surrendered in exchange shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such transfer pay to the Exchange Agent any transfer or other taxes required by reason of the issuance of a new certificate evidencing Ampersand securities in any name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (f) In the event that any certificate evidencing AccuMed securities shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificate, upon the making of an affidavit of that fact by the holder thereof, such Ampersand securities and cash for any fractional share interest as may be required pursuant hereto; provided, however, that Ampersand, the Surviving Corporation or the Exchange Agent may, in the discretion of any of them, and as a condition precedent to the issuance or payment thereof, require the owner of such lost, stolen or destroyed certificate to deliver a bond in such sum as the requesting party may direct as indemnity against any claim that may be made against Ampersand, the Surviving Corporation, AccuMed, the Exchange Agent or any other person with respect to the certificate alleged to have been lost, stolen or destroyed. I.6 No Fractional Shares. Notwithstanding any term or provision hereof, no fractional shares of Ampersand Common Stock, and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued upon the conversion of or in exchange for any AccuMed securities; no dividend or distribution with respect to Ampersand Common Stock shall be payable on or with respect to any fractional share interest; and no such fractional share interest shall entitle the owner thereof to vote or to any other rights of a stockholder of Ampersand or the Surviving Corporation. In lieu of such fractional share interest, any holder of AccuMed securities 6 11 who would otherwise be entitled to a fractional share of Ampersand Common Stock will, upon surrender of such holder's certificate or certificates evidencing AccuMed Common securities outstanding immediately before the Merger Effective Time, be paid the applicable cash value of such fractional share interest, which shall be equal to the product of the fraction of the share to which such holder would otherwise have been entitled and the closing price of Ampersand Common Stock on the trading day immediately prior to the date of the Merger Effective Time. For the purpose of determining any such fractional share interest, all AccuMed securities owned by a holder of AccuMed Common Stock shall be considered in the aggregate so as to calculate the maximum number of whole shares of Ampersand Common Stock issuable to such person. I.7 Stockholder Approvals. (a) AccuMed shall, at the earliest practicable date, but in no event later than forty-five (45) days after the effective date of the Registration Statement (as such term is defined in Section 1.9(a) hereof), hold a meeting of its stockholders (the "AccuMed Stockholders' Meeting") to submit this Agreement for adoption by its stockholders. The affirmative vote of that number of holders of outstanding shares of AccuMed capital stock entitled to vote on such matter pursuant to the provisions of AccuMed's Certificate of Incorporation and the DGCL shall be required for such adoption. (b) Ampersand, as the sole shareholder of Acquisition Sub, shall, at the earliest practicable date, but in no event later than the date on which the AccuMed Stockholders' Meeting is held, by informal action in accordance with the provisions of the DGCL, cause this Agreement to be adopted on behalf of Acquisition Sub. I.8 AccuMed Stock Options. At the Merger Effective Time, by virtue of the Merger and without any action on the part of any holder of an option, each outstanding option under the stock option plans of AccuMed, in existence at the Execution Date, whether vested or unvested, shall continue outstanding as an option to purchase, in place of the purchase of each share of AccuMed Common Stock, the number of shares of Ampersand Common Stock as shall be determined by the Exchange Ratio. I.9 Registration Statement; Prospectus/Proxy Statement. (a) For the purposes (i) of holding the AccuMed Stockholders' Meeting, and (ii) of registering with the Securities and Exchange Commission ("SEC") and with applicable state securities authorities the Ampersand Common Stock to be issued to holders of AccuMed securities in connection with the Merger, the parties shall cooperate in the preparation of an appropriate registration statement (such registration statement, together with all and any amendments and supplements thereto, is referred to herein as the "Registration Statement"), including the Prospectus /Proxy Statement satisfying all applicable requirements of applicable state laws, and of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (such 7 12 Prospectus/Proxy Statement, together with any and all amendments or supplements thereto, is referred to herein as the "Prospectus/Proxy Statement"). (b) AccuMed shall furnish such information concerning AccuMed as is necessary in order to cause the Prospectus/Proxy Statement, insofar as it relates to AccuMed, to comply with Section 1.9(a) hereof. AccuMed agrees promptly to advise Ampersand if at any time before the AccuMed Stockholders' Meeting any information provided by AccuMed in the Prospectus/Proxy Statement becomes incorrect or incomplete in any material respect and to provide the information needed to correct such inaccuracy or omission. AccuMed shall also furnish Ampersand with such supplemental information as may be necessary in order to cause such Prospectus/Proxy Statement, insofar as it relates to AccuMed, to comply with Section 1.9(a) hereof. (c) Ampersand and Acquisition Sub shall furnish AccuMed with such information concerning Ampersand as is necessary in order to cause the Prospectus/Proxy Statement, insofar as it relates to Ampersand and Acquisition Sub, to comply with Section 1.9(a) hereof. Ampersand and Acquisition Sub agree promptly to advise AccuMed if at any time before the AccuMed Stockholders' Meeting any information provided by Ampersand in the Prospectus/Proxy Statement becomes incorrect or incomplete in any material respect and to provide AccuMed with the information needed to correct such inaccuracy or omission. Ampersand and Acquisition Sub shall furnish AccuMed with such supplemental information as may be necessary in order to cause the Prospectus/Proxy Statement, insofar as it relates to Ampersand and Acquisition Sub, to comply with Section 1.9(a). (d) Ampersand shall promptly file with the SEC and applicable state securities agencies the Registration Statement and all supplements or amendments thereto that shall become necessary as a result of information covered by the provisions of Sections 1.9(b) and (c) coming to the attention of Ampersand. The parties hereto shall use all reasonable efforts to cause the Registration Statement to become effective under the Securities Act and applicable state securities laws at the earliest practicable date. AccuMed authorizes Ampersand to utilize in the Registration Statement the information provided by AccuMed in regard to itself for the purpose of inclusion in the Prospectus/Proxy Statement. Ampersand shall advise AccuMed promptly when the Registration Statement has become effective and of any supplements or amendments thereto, and Ampersand shall furnish AccuMed with copies of all such documents. Before the Merger Effective Time or the termination of this Agreement, each party shall consult with the other with respect to any material (other than the Prospectus/Proxy Statement) that might constitute a "prospectus" relating to the Merger within the meaning of the Securities Act. I.10 Cooperation; Regulatory Approvals. The parties shall cooperate, and shall cause each of their respective affiliates to cooperate, in the preparation and submission by them, as promptly as reasonably practicable, of such applications, petitions and other filings as either of them may reasonably deem necessary or desirable to or with (i) all regulatory or governmental authorities having jurisdiction in regard to the Merger, (ii) the holders of shares of AccuMed securities, and (iii) any other persons, for the purpose of obtaining any approvals or consents necessary to consummate the Merger and the transactions contemplated hereby. Each party will 8 13 have the right to review and comment on such applications, petitions and filings in advance and shall furnish to the other copies thereof promptly after submission thereof. Any such materials must be acceptable to each of the parties hereto prior to submission to any regulatory or governmental authority or to any security holders or other third parties, except to the extent that the parties hereto may be legally required to proceed prior to obtaining such acceptance of the other parties hereto. Each party agrees to consult with the others with respect to obtaining all necessary consents and approvals, and each will keep the others apprised of the status of matters relating to such approvals and consents and the consummation of the transactions contemplated hereby. At the date hereof, none of the parties is aware of any reason that any regulatory approval required to be obtained by it would not be obtained or would be obtained subject to conditions that would have or result in a material adverse effect on any of the parties hereto. I.11 Closing. If (i) this Agreement has been duly approved by the respective stockholders of AccuMed and Acquisition Sub, and (ii) all relevant conditions of this Agreement have been satisfied or waived, a closing (the "Closing") shall take place as promptly as practicable thereafter at the principal office of Schwartz, Cooper, Greenberger & Krauss, Chartered, Chicago, Illinois, or at such other place as the parties agree upon, at which the parties will exchange certificates, opinions, letters and other documents as required hereby and will make the filings described in Section 1.2 hereof. Such Closing will take place within five (5) business days after the satisfaction or waiver of all conditions and/or obligations precedent to Closing contained in Article IV hereof, or at such other time as the parties agree upon. The parties shall use their respective best efforts to cause the Closing to occur on or prior to May 31, 2001 (the date of such Closing being hereinafter sometimes referred to as the "Closing Date"). I.12 Ampersand Loan to AccuMed. (a) The parties acknowledge and agree that upon execution of this Agreement by the parties, and as an additional inducement to AccuMed's acceptance of this Agreement and its covenant to enter into and consummate the Merger, Ampersand shall make a loan to AccuMed in the aggregate principal amount of Eight Hundred Thousand Dollars ($800,000) (the "Full Loan"), in immediately available funds, of which Three Hundred Thousand Dollars ($300,000) (the "Interim Loan") was previously advanced by Ampersand to AccuMed on September 22, 2000, as evidenced by a certain promissory note of said date issued by AccuMed to Ampersand (the "Initial Note"). The Full Loan shall be evidenced by AccuMed's delivery to Ampersand, at the Execution Date, of a new promissory note (the "Replacement Note") substantially in the form of Exhibit B attached hereto, which instrument shall replace the Initial Note and provide, among other things, for repayment of the full Eight Hundred Thousand Dollars ($800,000) of principal, with interest at the Prime Rate from time to time announced by LaSalle Bank National Association, plus two and one-half percent (22 %). The Replacement Note shall be secured by the grant of a first perfected security interest in, and lien against, the applicable collateral described in that certain Security Agreement, dated contemporaneously herewith, by and between AccuMed, as debtor thereunder, and Ampersand, as secured party thereunder (the "Security Agreement"). In addition to the foregoing, Ampersand and AccuMed agreed that the making of the Full Loan to AccuMed would be specifically conditioned upon the delivery by AccuMed to Ampersand of (i) a budget and projected cash flow statement (the "Budget Statement") for the six (6) month period commencing on September 22, 2000, which Budget Statement would be satisfactory to Ampersand in all respects, in Ampersand's 9 14 sole discretion, and the parties hereto acknowledge and agree that such Budget Statement has heretofore been delivered by AccuMed to Ampersand, and that such Budget Statement (a copy of which is attached hereto as Exhibit C) has been determined by Ampersand to be satisfactory, and (ii) a revised budget (the "Revised Budget Statement") for the period from and after the Execution Date and until the anticipated date of closing hereunder which sets forth the use of proceeds from the Full Loan and any Additional Loans (as such term is hereinafter defined) by AccuMed during such period and within which AccuMed will operate and not deviate from without the prior written consent of Ampersand, not to be unreasonably withheld (a copy of which Revised Budget Statement is attached hereto as Exhibit F). (b) Ampersand and AccuMed also hereby agree that (i) if by February 28, 2001 the Merger and the transactions contemplated hereby have not been consummated, then on the first day of each month thereafter, through May 31, 2001, Ampersand shall loan to AccuMed an additional Two Hundred Twenty-Five Thousand Dollars ($225,000) (the "Additional Loans") on the same terms and conditions as the Full Loan, provided that, simultaneously with the making of each Additional Loan, (1) the collateral securing the Full Loan under the Security Agreement shall be increased in accordance with the terms of the Security Agreement in order to secure such Additional Loan as well, and (2) AccuMed shall issue and deliver to Ampersand a new promissory note, substantially in the form of the Replacement Note, evidencing such Additional Loan; and (ii) if by May 31, 2001, the Merger and the transactions contemplated hereby have not been consummated, but the parties hereto have mutually agreed to extend the May 31, 2001 deadline contained in Section 4.4 hereof for effecting the Merger and consummating such transactions, then the time period in which Ampersand shall be obligated to make such monthly Additional Loans (in the same amount and on the same terms and conditions) shall be automatically extended until the Merger and the transactions contemplated hereby are consummated, or this Agreement is terminated, whichever comes first; provided, however, that prior to the making of each Additional Loan during such extended period, AccuMed and Ampersand shall identify on a schedule or schedules to be attached to the Security Agreement sufficient additional collateral to secure such Additional Loans in accordance with the terms and conditions of the Security Agreement. Each Additional Loan shall be made by wire transfer in immediately available funds to a bank account specified in writing by AccuMed for such purpose. If the first day of a month on which an Additional Loan is required to be made hereunder occurs on a Saturday, Sunday or bank holiday in the State of Illinois, such Additional Loan shall be made on the immediately preceding date which is not a Saturday, Sunday or bank holiday. The parties hereto specifically acknowledge and agree that the failure of Ampersand to make any Additional Loan within five (5) banking days after the date on which such Additional Loan is required to be made hereunder shall be an event of default hereunder, entitling AccuMed to terminate this Agreement immediately upon delivery of written notice thereof in accordance with the notice provisions of this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES AccuMed hereby represents and warrants to Ampersand and Acquisition Sub, and Ampersand and Acquisition Sub hereby jointly and severally represent and warrant to AccuMed, 10 15 except as disclosed in the Disclosure Schedules delivered by each of the parties to the others pursuant to Section 2.20 hereof, as follows: II.1 Organization, Good Standing, Authority, Insurance, Etc. It is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Section 2.1 of its Disclosure Schedules lists each "subsidiary" (the term "subsidiary" when used with respect to any party means any entity (including, without limitation, any corporation, partnership, joint venture or other organization, whether incorporated or unincorporated) which is consolidated with such party for financial reporting purposes (individually a "Subsidiary" and collectively the "Subsidiaries"). Each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction under which it is organized, as set forth in Section 2.1 of its Disclosure Schedules. It and each of its Subsidiaries has all requisite power and authority, and to the extent required by applicable law, is licensed to own, lease and operate its own properties and conduct its business as now being conducted. It has delivered or made available to the other parties a true, complete and correct copy of the articles of incorporation, certificate of incorporation or other organizing document and of the bylaws, as in effect on the date of this Agreement, of it and each of its Subsidiaries. Except as set forth in Section 2.1 of its Disclosure Schedules, it and each of its Subsidiaries is qualified to do business as a foreign corporation or entity and is in good standing in each jurisdiction in which qualification is necessary under applicable law, except to the extent that any failures to so qualify would not, in the aggregate, have a material adverse effect on it. Its minute books and those of each of its Subsidiaries contain complete and accurate records of all meetings and other corporate actions taken by its stockholders and Boards of Directors (including the committees of such Boards). II.2 Capitalization. 11 16 (a) Its authorized capital stock and the number of issued and outstanding shares of its capital stock as of the date hereof are accurately set forth in the recitals to this Agreement. All outstanding shares of its common stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in Section 2.2 of its Disclosure Schedules, as of the date of this Agreement, there are no options, convertible securities, warrants or other rights (preemptive or otherwise) to purchase or acquire any of its capital stock from it and no oral or written agreement, contract, arrangement, understanding, plan or instrument of any kind to which it or any of its Subsidiaries is subject with respect to the issuance, voting or sale of issued or unissued shares of its capital stock, and, with respect to any such securities or rights disclosed by Ampersand, Ampersand represents and warrants that there are no agreements with respect to such securities or rights, and no terms or provisions of or relating to such securities or rights, the effect of which would be to reduce the exercise price at which such securities or rights may be converted into shares of Ampersand Common Stock as a consequence of consummating the Merger or the transactions contemplated hereby. A true and complete copy of each plan and agreement pursuant to which such options, convertible securities, warrants or other rights have been granted or issued, as in effect on the date of this Agreement, is included in Section 2.2 of its Disclosure Schedules. Only the holders of its common stock have the right to vote at meetings of its stockholders on matters to be voted on thereat, except that the holders of shares of AccuMed Preferred Stock possess the right to vote on certain matters affecting the rights of such holders. The securities of AccuMed held in AccuMed's corporate treasury are identified in Section 2.2 of AccuMed's Disclosure Schedules. (b) With respect to the shares of Ampersand Common Stock to be issued in the Merger, Ampersand represents and warrants that such shares when so issued in accordance with this Agreement will be duly authorized, validly issued, fully paid and nonassessable and not subject to any preemptive rights. II.3 Ownership of Subsidiaries. All outstanding shares or ownership interests of its Subsidiaries are validly issued, fully paid, nonassessable and owned beneficially and of record by it or one of its Subsidiaries, free and clear of any lien, claim, charge, restriction, rights of third parties or encumbrance (collectively, "Encumbrance"), except as set forth in Section 2.3 of its Disclosure Schedules. There are no options, convertible securities, warrants or other rights (preemptive or otherwise) to purchase or acquire any capital stock or ownership interests of any of its Subsidiaries and no contracts to which it or any of its Subsidiaries is subject with respect to the issuance, voting or sale of issued or unissued shares of the capital stock or ownership interests of any of its Subsidiaries. Neither it nor any of its Subsidiaries owns more than two percent (2%) of the capital stock or other equity securities (including securities convertible or exchangeable into such securities) of, or more than two percent (2%) of the aggregate profit participations in, any entity other than a Subsidiary or as otherwise set forth in Section 2.3 of its Disclosure Schedules. II.4 Financial Statements and Reports. With respect to Ampersand and AccuMed: (a) No registration statement, offering circular, proxy statement, schedule or report filed by it or any of its Subsidiaries under various securities laws and regulations ("Regulatory Reports"), on the date of its effectiveness in the case of such registration statements, 12 17 or on the date of filing in the case of such reports or schedules, or on the date of mailing in the case of such proxy statements, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. For the past five years, it and its Subsidiaries have timely filed all Regulatory Reports required to be filed by them under various securities laws and regulations, except to the extent that all failures to so file, in the aggregate, would not have a material adverse effect on it; and all such documents, as finally amended, complied in all material respects with applicable requirements of law and, as of their respective dates or the dates as amended, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent stated therein, all financial statements and schedules included in the Regulatory Reports (or to be included in Regulatory Reports to be filed after the date hereof) (i) are or will be (with respect to financial statements with respect to periods ending after September 30, 2000), in accordance with its books and records and those of its consolidated Subsidiaries, and (ii) present (and in the case of financial statements with respect to periods ending after September 30, 2000, will present) fairly the consolidated financial position and consolidated results of operations or income, changes in the consolidated stockholders' equity and cash flows of it and its Subsidiaries as of the dates and for the periods indicated in accordance with generally accepted accounting principles applied on a basis consistent with prior periods (except for the omission of notes to unaudited statements and in the case of unaudited statements to normal recurring year-end adjustments normal in nature and amounts). Its audited consolidated financial statements at December 31, 1999 and for the year then ended and the consolidated financial statements for all periods thereafter up to the Closing reflect or will reflect, as the case may be, all liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) as of such date of it and its Subsidiaries required to be reflected in such financial statements in accordance with generally accepted accounting principles and contain or will contain (as the case may be) adequate reserves for losses on loans and properties acquired in settlement of loans, taxes and all other material accrued liabilities and for all reasonably anticipated material losses, if any, as of such date in accordance with generally accepted accounting principles. There exists no set of circumstances that could reasonably be expected to result in any liability or obligation material to it or its Subsidiaries, taken as a whole, except as disclosed in such consolidated financial statements at December 31, 1999 or for transactions effected or actions occurring or omitted to be taken after December 31, 1999 (i) in the ordinary course of business, (ii) as permitted by this Agreement, or (iii) as disclosed in its Regulatory Reports filed after December 31, 1999 and before the date of this Agreement. A true and complete copy of such December 31, 1999 financial statements has been delivered by it to the other parties. (b) To the extent permitted under applicable law, it has delivered or made available to the other parties each Regulatory Report filed, used or circulated by it with respect to periods since February 1, 1996 through the date of this Agreement and will promptly deliver to the other parties each such Regulatory Report filed, used or circulated after the date hereof, each in the form (including exhibits and any amendments thereto) filed with the applicable regulatory or governmental entity (or, if not so filed, in the form used or circulated). 13 18 II.5 Absence of Changes. With respect to Ampersand and AccuMed: (a) Since the date on which a Report on Form 10-Q was most recently filed by or on its behalf with the SEC, there has been no material adverse change affecting it. There is no occurrence, event or development of any nature existing or, to its best knowledge, threatened which may reasonably be expected to have a material adverse effect upon it. (b) Except as set forth in Section 2.5 of its Disclosure Schedules or in its Regulatory Reports filed after December 31, 1999 and before the date of this Agreement, since December 31, 1999, each of it and its Subsidiaries has owned and operated its respective assets, properties and businesses in the ordinary course and consistent with past practice. II.6 Prospectus/Proxy Statement. At the time the Prospectus/Proxy Statement is mailed to the AccuMed stockholders for the solicitation of proxies for the approval referred to in Section 1.7(a) hereof and at all times after such mailings up to and including the time of such approval, such Prospectus/Proxy Statement (including any supplements thereto), with respect to all information set forth therein relating to it (including its Subsidiaries) and its stockholders, its securities, this Agreement, the Merger and the other transactions contemplated hereby, will: (a) Comply in all material respects with applicable provisions of the Securities Act, the Exchange Act and the rules and regulations under such Acts; and (b) With respect to itself, and with respect to any information supplied by it, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which it is made, not misleading. II.7 No Broker's or Finder's Fees. No agent, broker, investment banker, person or firm acting on behalf or under authority of it or any of its Subsidiaries is or will be entitled to any broker's or finder's fee or any other commission or similar fee directly or indirectly in connection with the Merger or any other transaction contemplated hereby, except as set forth in Section 2.7 of its Disclosure Schedules. II.8 Litigation and Other Proceedings. Except for matters which would not have a material adverse effect on it, or except as set forth in Section 2.8 of its Disclosure Schedules, neither it nor any of its Subsidiaries is a defendant in, nor is any of its property subject to, any pending or, to its best knowledge, threatened claim, action, suit, investigation or proceeding or subject to any judicial order, judgment or decree. II.9 Compliance with Law. Except as set forth in Section 2.9 of its Disclosure Schedules: (a) It and each of its Subsidiaries are in compliance in all material respects with all laws, regulations, ordinances, rules, judgments, orders and decrees applicable to their respective operations and businesses, and neither it nor any of its Subsidiaries has received notice from any 14 19 federal, state or local government or governmental agency of any material violation of, and does not know of any material violations of, any of the above; (b) It and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and have made all filings, applications and registrations with, all federal, state, local and foreign governmental or regulatory bodies that are required in order to permit them to carry on their respective businesses as they are presently being conducted; (c) Other than with respect to those matters that have been cured or corrected, neither it nor any of its Subsidiaries has received since February 1, 1996 any notification or communication from any governmental or regulatory entity or the staff thereof (A) asserting that it or any of its Subsidiaries is not in material compliance with any of the statutes, regulations or ordinances that such governmental or regulatory entity administers or enforces; (B) threatening to revoke any material license, franchise, permit or authorization; or (C) threatening or contemplating any enforcement action by or supervisory or other written agreement with a state or federal regulator (nor, to the knowledge of its executive officers, do any grounds for any of the foregoing exist); and (d) Neither it nor any of its Subsidiaries is required to give prior notice to any regulatory agency of the proposed addition of an individual to their respective Board of Directors or the employment of an individual as a senior executive officer. II.10 Corporate Actions. (a) Its Board of Directors has (i) duly approved the Merger and this Agreement, and authorized its officers to execute and deliver this Agreement, and to take all action necessary to consummate the Merger and the other transactions contemplated hereby, and (ii) authorized and directed the submission for approval or adoption of this Agreement by all persons whose consent or approval may be necessary or required in regard thereto. (b) Its Board of Directors has taken all necessary action to exempt this Agreement and the transactions contemplated hereby from, and this Agreement and the transactions contemplated hereby are exempt from, (i) any applicable state takeover laws, (ii) any state laws limiting or restricting the voting rights of stockholders, (iii) any state laws requiring a stockholder approval vote in excess of the vote normally required in transactions of a similar type not involving a "related person," "interested stockholder" or person or entity of a similar type, and (iv) any provision in its or any of its Subsidiaries' articles of incorporation, certificate of incorporation, charter or bylaws, (A) restricting or limiting stock ownership or the voting rights of stockholders (other than the provisions of AccuMed's Certificate of Incorporation that limit the voting rights of the holders of the AccuMed Preferred Stock), or (B) requiring a stockholder approval vote in excess of the vote normally required in transactions of a similar type not involving a "related person," interested stockholder" or person or entity of a similar type. II.11 Authority. Except as set forth in Section 2.11 of its Disclosure Schedules, neither the execution nor delivery of, nor performance of any obligations under, this Agreement 15 20 by it, nor the consummation of the Merger, will violate any of the provisions of, or constitute a breach or default under, or give any person the right to terminate or accelerate payment or performance under, (i) its articles of incorporation, certificate of incorporation or bylaws, or the articles of incorporation, certificate of incorporation, charter or bylaws of any of its Subsidiaries, (ii) any regulatory restraint on the acquisition of it or control thereof, (iii) any law, rule, ordinance, regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which it or any of its Subsidiaries is subject, or (iv) any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation or instrument ("Contract") to which it or any of its Subsidiaries is a party or is subject or by which any of its or their properties or assets is bound and which provides for payments by, on behalf of, or to it and/or any of its Subsidiaries in excess of either $25,000 per annum or $100,000 over the term of such Contract. The parties acknowledge that the consummation of the Merger and the other transactions contemplated hereby is subject to various regulatory approvals. It has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder and thereunder, subject in the case of the Merger to the approval or adoption of this Agreement by its stockholders under applicable law. Other than (i) the receipt of Governmental Approvals (as defined in Section 4.1(c)), (ii) the approval or adoption of this Agreement by its stockholders, and (iii) except as set forth in Section 2.11 of its Disclosure Schedules with respect to any Contract, no consents or approvals are required on its behalf or on behalf of any of its Subsidiaries in connection with the consummation of the transactions contemplated by this Agreement. This Agreement constitutes the valid and binding obligations of it, enforceable in accordance with their terms, except as enforceability may be limited by applicable laws relating to bankruptcy, insolvency or creditors' rights generally and general principles of equity. II.12 Employment Arrangements. Except as set forth in Section 2.12 of its Disclosure Schedules, there are no agreements, plans or other arrangements with respect to employment, severance or other benefits with any current or former directors, officers or employees of it or any of its Subsidiaries which may not be terminated without penalty or expense (including any augmentation or acceleration of benefits) on thirty (30) days' or less notice to any such person. Except as set forth in Section 2.12 of its Disclosure Schedules, no payments or benefits (including any augmentation or acceleration thereof) to current or former directors, officers or employees of it or any of its Subsidiaries resulting from the transactions contemplated hereby or the termination of such person's service or employment within two (2) years after completion of the Merger will cause the imposition of excise taxes under Section 4999 of the Internal Revenue Code or the disallowance of a deduction to it, the Surviving Corporation, or any of their respective Subsidiaries pursuant to Sections 162 or 280G, or any other section of the Internal Revenue Code. II.13 Employee Benefits. 16 21 (a) Neither it nor any of its Subsidiaries maintains any funded deferred compensation plans (including profit sharing, pension, retirement savings or stock bonus plans), unfunded deferred compensation arrangements or employee benefit plans as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other than any plans ("Employee Plans") set forth in Section 2.13 of its Disclosure Schedules (true and correct copies of which it has delivered to the other parties). Neither it nor any of its Subsidiaries has incurred or reasonably expects to incur any liability to the Pension Benefit Guaranty Corporation, except for required premium payments which, to the extent due and payable, have been paid. The Employee Plans intended to be qualified under Section 401(a) of the Internal Revenue Code are so qualified, and it is not aware of any fact which would adversely affect the qualified status of such plans. Except as set forth in Section 2.13 of its Disclosure Schedules, neither it nor any of its Subsidiaries (a) provides health, medical, death or survivor benefits to any former employee or beneficiary thereof, or (b) maintains any form of current (exclusive of base salary and base wages) or deferred compensation, bonus, stock option, stock appreciation right, benefit, severance pay, retirement, employee stock ownership, incentive, group or individual health insurance, welfare or similar plan or arrangement for the benefit of any single or class of directors, officers or employees, whether active or retired (collectively "Benefit Arrangements"). (b) Except as disclosed in Section 2.13 of its Disclosure Schedules, all Employee Plans and Benefit Arrangements that are currently in effect were in effect for substantially all of calendar year 1999 and there has been no material amendment thereof (other than amendments required to comply with applicable law) or increase in the cost thereof or benefits payable thereunder on or after February 1, 1999. (c) To its best knowledge, with respect to all Employee Plans and Benefit Arrangements, it and each of its Subsidiaries are in substantial compliance with the requirements prescribed by any and all statutes, governmental or court orders or rules or regulations currently in effect, including but not limited to ERISA and the Internal Revenue Code, applicable to such Employee Plans or Benefit Arrangements. To its best knowledge, no condition exists that could constitute grounds for the termination of any Employee Plan under Section 4042 of ERISA; no "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code, has occurred with respect to any Employee Plan, or any other employee benefit plan maintained by it or any of its Subsidiaries which is covered by Title I of ERISA, which could subject any person to liability under Title I of ERISA or to the imposition of any tax under Section 4975 of the Internal Revenue Code; to its best knowledge, no Employee Plan subject to Part III of Subtitle B of Title I of ERISA or Section 412 of the Internal Revenue Code, or both, has incurred any "accumulated funding deficiency," as defined in Section 412 of the Internal Revenue Code, whether or not waived; neither it nor any of its Subsidiaries has failed to make any contribution or pay any amount due and owing as required by the terms of any Employee Plan or Benefit Arrangement. To its best knowledge, neither it nor any of its Subsidiaries has incurred or expects to incur, directly or indirectly, any liability under Title IV of ERISA arising in connection with the termination of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA which could constitute a liability of the Surviving Corporation or any of its Subsidiaries at or after the Merger Effective Time. 17 22 II.14 Information Furnished. No statement contained in any schedule, certificate or other document furnished (whether before, on or after the Execution Date) or to be furnished in writing by or on behalf of it to the other parties pursuant to this Agreement contains or will contain any untrue statement of a material fact or any material omission. To its best knowledge, no information that is material to the Merger and necessary to make the representations and warranties herein not misleading has been withheld from the other parties hereto. II.15 Property and Assets. It and its Subsidiaries have good and marketable title to all of their real property reflected in their financial statements at December 31, 1999, referred to in Section 2.4 hereof or acquired subsequent thereto, free and clear of all Encumbrances, except for (a) such items shown in such financial statements or in the notes thereto, (b) liens for current real estate taxes not yet delinquent, (c) customary easements, restrictions of record and title exceptions that are not material to the value or use of such property, (d) property sold or transferred in the ordinary course of business since the date of such financial statements, (e) as otherwise specifically indicated in its Regulatory Reports filed after December 31, 1999 and before the Execution Date or in Section 2.15 of its Disclosure Schedules. It and its Subsidiaries enjoy peaceful and undisturbed possession under all material leases for the use of real property under which they are the lessee; all of such leases are valid and binding and in full force and effect, and neither it nor any of its Subsidiaries is in default in any material respect under any such lease. No default will arise under any material real property, material personal property lease or material intellectual property license by reason of the consummation of the Merger without the lessor's or licensor's consent except as set forth in Section 2.15 of its Disclosure Schedules. There has been no material physical loss, damage or destruction, whether or not covered by insurance, affecting any of the real property or material personal property of it or its Subsidiaries since December 31, 1999. All fixed assets material to its or any of its Subsidiaries) respective businesses and currently used by it or any of its Subsidiaries are, in all material respects, in good operating condition and repair. II.16 Agreements and Instruments. Except as set forth in its Regulatory Reports filed after December 31, 1999 and before the Execution Date or in Section 2.16 of its Disclosure Schedules, neither it nor any of its Subsidiaries is a party to (a) any material agreement, arrangement or commitment not made in the ordinary course of business, (b) any agreement, indenture or other instrument relating to the borrowing of money by it or any of its Subsidiaries or the guarantee by it or of its Subsidiaries of any such obligation, (c) any agreements to make loans or for the provision, purchase or sale of goods, services or property between it or any of its Subsidiaries and any director or officer of it or any of its Subsidiaries or any affiliate or member of the immediate family of any of the foregoing, (d) any agreements with or concerning any labor or employee organization to which it or any of its Subsidiaries is a party, (e) any agreements between it or any of its Subsidiaries and any five percent (5%) or more stockholder of it, and (f) any agreements, directives, orders or similar arrangements between or involving it or any of its Subsidiaries and any state or regulatory authority. II.17 Material Contract Default; Contingent Liabilities. Neither it nor any of its Subsidiaries, nor any counterparty thereto, is in default in any respect under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it or 18 23 any Subsidiary of it is a party or by which its respective assets, business or operations may be bound or affected or under which it or its respective assets, business or operations receives benefits, which default is reasonably expected to have, either individually or in the aggregate, a material adverse effect on it, and, except as set forth in Section 2.17 of its Disclosure Schedules, there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default, and neither it nor any of its Subsidiaries has been given notice or is aware of any material, actual or contingent liability of any kind or nature that has not been disclosed to the other party hereunder, whether or not such type of liability is specifically mentioned in any provision of this Agreement. Furthermore, without limiting the generality of the foregoing, each party and its Subsidiaries has received all payments due to it under any and all existing contracts or other business arrangements in a timely fashion as of the Execution Date, and no payments under any such contracts or arrangements are, or are reasonably expected to become, in arrears from and after the date hereof and through and including the Merger Effective Time. II.18 Tax Matters. (a It and each of its Subsidiaries has duly and properly filed all federal, state, local and other tax returns and reports required to be filed by it or them and has made timely payments of all taxes due and payable, whether disputed or not; the current status of audits of such returns or reports by the Internal Revenue Service and other applicable tax authorities is as set forth in Section 2.18 of its Disclosure Schedules; and, except as set forth in Section 2.18 of its Disclosure Schedules, there is no agreement by it or any of its Subsidiaries for the extension of time for the assessment or payment of any taxes payable. Except as set forth in Section 2.18 of its Disclosure Schedules, neither the Internal Revenue Service nor any other taxing authority is now asserting or, to its best knowledge, threatening to assert any deficiency or claim for additional taxes (or interest thereon or penalties in connection therewith), nor is it aware of any basis for any such assertion or claim, including, but not limited to, any notification from its independent auditors, whether formal or informal, that any position taken by it or its Subsidiaries on any return or information report is inconsistent with established precedent and more likely than not to be challenged upon audit by the relevant taxing authority. It and each of its Subsidiaries has complied in all material respects with all applicable Internal Revenue Service backup withholding requirements. It and each of its Subsidiaries has complied with all applicable state law tax collection and reporting requirements. (b Adequate provision for any unpaid federal, state, local or foreign taxes due or to become due from it or any of its Subsidiaries for all periods through and including September 30, 2000 has been made and is reflected in its September 30, 2000 financial statements referred to in Section 2.4, and has been or will be made with respect to periods ending after September 30, 2000. II.19 Environmental Matters. To its best knowledge, neither it nor any of its Subsidiaries owns, leases, or otherwise controls any property affected by toxic waste, radon gas or other hazardous conditions or constructed in part with the use of asbestos which requires removal or encapsulation. Neither it nor any of its Subsidiaries is aware of, nor has it or any of its Subsidiaries received written notice from any governmental or regulatory body of, any past, present or future conditions, activities, practices or incidents which may interfere with or prevent 19 24 compliance or continued compliance with hazardous substance or other environmental laws or any regulation, order, decree, judgment or injunction, issued, entered, promulgated or approved thereunder or which may give rise to any common law or legal liability or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste. There is no civil, criminal or administrative claim, action, suit, proceeding, hearing or investigation pending or, to its knowledge, threatened against it or any of its Subsidiaries relating in any way to such hazardous substance laws or any regulation, order, decree, judgment or injunction issued, entered, promulgated or approved thereunder. II.20 Exceptions to Representations and Warranties. (a On or before the date hereof, AccuMed has delivered to Ampersand and Acquisition Sub, and Ampersand and Acquisition Sub have delivered to AccuMed, their respective Disclosure Schedules, setting forth, among other things, exceptions to any and all of their respective representations and warranties contained in this Article II, provided that each exception set forth in a Disclosure Schedule shall be deemed disclosed for purposes of all representations and warranties if such exception is contained in a section of a Disclosure Schedule corresponding to a Section in Article II, and provided further that (i) no such exception is required to be set forth in a Disclosure Schedule if its absence would not result in the related representation or warranty being deemed untrue or incorrect under the standard established by Section 2.20(b) hereof, and (ii) the mere inclusion of an exception in a Disclosure Schedule shall not be deemed an admission by a party that such exception represents a material fact, event or circumstance or would result in a material adverse effect or material adverse change. (b None of the representations or warranties of the parties hereto contained in this Article II shall be deemed untrue or incorrect, and no party shall be deemed to have breached its representations or warranties contained herein, as a consequence of the existence of any fact, circumstance or event if such fact, circumstance or event, individually or taken together with all other facts, circumstances or events, would not have a material adverse effect or material adverse change on such party. As used in this Agreement, the term "material adverse effect" or "material adverse change" means an effect or change which (i) is materially adverse to the financial condition of a party and its respective Subsidiaries taken as a whole, (ii) significantly and adversely affects the ability of AccuMed, Ampersand or Acquisition Sub to consummate the transactions contemplated hereby or to perform its material obligations hereunder, or (iii) enables any person to prevent the consummation of the transactions contemplated hereby; provided, however, that any effect or change resulting from (A) actions or omissions of the parties hereto contemplated by this Agreement or taken with the prior consent of the other parties in contemplation of the transactions provided for herein (including, without limitation, conforming accounting adjustments), or (B) circumstances generally affecting the industry or industries within which the parties operate (including changes in laws or regulations, accounting principles or general levels of interest rates) which do not adversely affect a party and its Subsidiaries, taken as a whole, in a manner 20 25 significantly different than the other parties hereto, shall be deemed not to be or have a material adverse effect or result in a material adverse change. ARTICLE III COVENANTS III.1 Investigations; Access and Copies. From and after the date of this Agreement, and through and including the Merger Effective Time, each party agrees to give to the other parties and their respective representatives and agents full access (to the extent lawful) to all of the premises, books, records and employees of it and its Subsidiaries at all reasonable times and to furnish and cause its Subsidiaries to furnish to the other party and its respective agents or representatives access to and true and complete copies of such financial and operating data, all documents with respect to matters to which reference is made in Article II hereof or on any list, schedule or certificate delivered or to be delivered in connection herewith and such other documents, records or information with respect to the businesses and properties of it and its Subsidiaries as the other party or its respective agents or representatives shall from time to time reasonably request; provided however, that any such inspection (a) shall be conducted in such manner as not to interfere unreasonably with the operation of the business of the entity inspected, and (b) shall not affect any of the representations or warranties hereunder. Each party will also give prompt written notice to the other parties of any event or development which, (x) had it existed or been known on the date of this Agreement, would have been required to be disclosed under this Agreement, (y) would cause any of its representations and warranties contained herein to be inaccurate or otherwise materially misleading, or (z) materially relates to the satisfaction of the conditions set forth in Article IV hereof. Notwithstanding anything to the contrary contained herein, none of the parties hereto nor any of their respective Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of the entity in possession or control of such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement or, in the event of any litigation or threatened litigation among the parties over the terms of this Agreement, where access to information may be adverse to the interests of such party. To the extent reasonably practicable, the parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. III.2 Conduct of Business. From and after the date of this Agreement, and through and including the Merger Effective Time or the termination of this Agreement, each party agrees, on behalf of itself and each of its respective Subsidiaries, except insofar as the Chief Executive Officer of each of the parties shall otherwise consent in writing (which consent shall not be unreasonably withheld): (a That it and its Subsidiaries shall (i) except as contemplated in this Agreement conduct their business only in the ordinary course consistent with past practices, (ii) maintain their books and records in accordance with past practices, and (iii) use all reasonable efforts to preserve intact their business organizations and assets, to maintain their rights, franchises and existing relations with customers, suppliers, employees and business associates and to take no 21 26 action that would (A) adversely affect the ability of any of them to obtain the Governmental Approvals (as defined in Section 4.1(c) hereof) or which would reasonably be expected to hinder or delay receipt of the Governmental Approvals, or (B) adversely affect their ability to perform their obligations under this Agreement; (b That, except as specifically otherwise permitted herein, neither it nor its Subsidiaries shall: (i) declare, set aside or pay any dividend or make any other distribution with respect to its capital stock, except for dividends or distributions by a wholly-owned Subsidiary of such party to such party; (ii) reacquire or buy any of its outstanding shares; (iii) issue or sell any shares of capital stock of it or any of its Subsidiaries, except shares of its common stock issued pursuant to exercise or conversion of stock options, warrants, convertible preferred stock or convertible notes outstanding on the Execution Date, if any, and which have been identified in its Disclosure Schedules; (iv) effect any stock split, stock dividend, reverse stock split or other reclassification or recapitalization of its common stock; or (v) grant any stock appreciation or other rights with respect to shares of capital stock of it or of any of its Subsidiaries; or (vi) enter into any agreement, or make any modification to any authorized or issued security, the effect of which is to cause the exercise price of any security convertible into shares of Ampersand Common Stock to be reduced upon consummation of the Merger or the transactions contemplated hereby; (c That, except as specifically otherwise permitted herein, neither it nor its Subsidiaries shall: (i) sell, dispose of or pledge any significant assets of it or of any of its Subsidiaries other than in the ordinary course of business consistent with past practices or to borrow funds consistent with the provisions hereinafter contained except as contemplated in Schedule 3.2 of its Disclosure Schedules; (ii) merge or consolidate it or any of its Subsidiaries into another entity or acquire any other entity or, except in accordance with its written business plan in effect on the date hereof, acquire any significant assets; (iii) sell or pledge or agree to sell or pledge or permit any lien to exist on any stock of any of its Subsidiaries owned by it; (iv) change the articles of incorporation or certificate of incorporation, charter, bylaws or other governing instruments of it or any of its Subsidiaries, except, in the case of Ampersand, with respect to the authorization of additional shares of Ampersand Common Stock, or otherwise as contemplated by this Agreement; (v) engage in any lending activities other than in the ordinary course of business consistent with past practices; (vi) form any new subsidiary or cause or permit a material change in the activities presently conducted by any Subsidiary or make additional investments in subsidiaries in excess of $100,000, except as contemplated in Schedule 3.2 of its Disclosure Schedules; (vii) engage in any off balance sheet interest rate swap arrangement, (viii) engage in any activity not contemplated by its written business plan in effect on the Execution Date; (ix) purchase any equity securities or incur or assume any indebtedness except in the ordinary and usual course of business; (x) authorize capital expenditures other than in the ordinary and usual course of business; or (xi) implement or adopt any change in its accounting principles, practices or methods other than as may be required by generally accepted accounting principles (the limitations contained in this Section 3.2 (c) shall also be deemed to constitute limitations as to the making of any commitment with respect to any of the matters set forth in this Section 3.2 (c)); and (d That, except (i) for the Seventy-Five Thousand Dollar ($75,000) aggregate bonus allocation to officers, directors and key employees heretofore approved by the Board of 22 27 Directors of AccuMed for the fiscal year ending on December 31, 2000, (ii) the severance agreement heretofore entered into by AccuMed with Norman Pressman, and (iii) as specifically otherwise permitted herein, neither it nor its Subsidiaries shall: (w) grant any general increase in compensation or benefits to its employees or officers or pay any bonuses to its employees or officers except in accordance with policies in effect on the Execution Date; (x) enter into, extend, renew, modify, amend or otherwise change any employment or severance agreements with any of its directors, officers or employees; (y) grant any increase in fees or other increases in compensation or other benefits to any of its present or former directors in such capacity; or (z) establish or sponsor any new Employee Plan or Benefit Arrangement or effect any change in its Employee Plans or Benefit Arrangements. III.3 No Solicitation. Each party agrees, on behalf of itself and each of its Subsidiaries, that, from and after the date hereof, it will not authorize or permit any officer, director, employee, investment banker, financial consultant, attorney, accountant or other representative of it or any of its Subsidiaries, directly or indirectly, to initiate contact with any person or entity in an effort to solicit, initiate or encourage any Takeover Proposal (as such term is defined below). Except as the fiduciary duties of its Board of Directors may otherwise require (as determined in good faith after consultation with legal counsel), each party agrees that it will not authorize or permit any officer, director, employee, investment banker, financial consultant, attorney, accountant or other representative of it or any of its Subsidiaries, directly or indirectly, (i) to cooperate with, or furnish or cause to be furnished any non-public information concerning its business, properties or assets to, any person or entity in connection with any Takeover Proposal; (ii) to negotiate any Takeover Proposal with any person or entity; or (iii) to enter into any agreement, letter of intent or agreement in principle as to any Takeover Proposal. Each party agrees that it shall promptly give written notice to the other upon becoming aware of any Takeover Proposal, such notice to contain, at a minimum, the identity of the persons submitting the Takeover Proposal, a copy of any written inquiry or other communication, the terms of any Takeover Proposal, any information requested or discussions sought to be initiated and the status of any requests, negotiations or expressions of interest. As used in this Agreement, "Takeover Proposal" shall mean any proposal, other than as contemplated by this Agreement, for a merger or other business combination involving any of the parties hereto or any of their respective Subsidiaries, or for the acquisition of an equity interest in any of the parties hereto that would give rise to a filing requirement with the SEC (as mandated by federal securities law), or for the acquisition of an equity interest greater than five percent (5%) in any of their respective Subsidiaries, or for the acquisition of a substantial portion of the assets of any party hereto or any of their respective Subsidiaries. III.4 Stockholder Approvals. AccuMed shall call the AccuMed Stockholders' Meeting, and Ampersand, as the sole shareholder of Acquisition Sub, shall, by informal action, approve this Agreement and the transactions contemplated hereby, in accordance with the provisions of Section 1.7 hereof. In connection with the AccuMed Stockholders' Meeting, the Board of Directors of AccuMed shall recommend approval of this Agreement and, the transactions contemplated hereby (and such recommendation shall be contained in the Prospectus/Proxy Statement), unless as a result of an unsolicited Takeover Proposal received by a party after the date hereof the Board of Directors of AccuMed determines in good faith, after consultation with its legal counsel, that to approve or to recommend approval by the stockholders of this Agreement and 23 28 the transactions contemplated hereby would constitute a breach of the fiduciary duties of such Board of Directors to the stockholders of AccuMed. AccuMed shall use its best efforts to solicit from its stockholders proxies in favor of approval and to take all other action necessary or helpful to secure a vote of the AccuMed stockholders in favor of this Agreement and the transactions contemplated hereby, except as the fiduciary duties of its Board of Directors may otherwise require. III.5 Accounting and Tax Treatment. After execution of this Agreement, none of the parties hereto shall take any action which would prevent the Merger and the other transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Internal Revenue Code. III.6 Publicity. From and after the Execution Date, and through and including the Merger Effective Time, none of the parties hereto nor any of their respective Subsidiaries shall, without the prior approval of the other parties hereto, issue or make, or permit any of its directors, employees, officers or agents to issue or make, any press release, disclosure or statement to the press or any third party with respect to the Merger or the other transactions contemplated hereby, except as required by law. The parties hereto shall cooperate when issuing or making any press release, disclosure or statement with respect to the Merger or the other transactions contemplated hereby. III.7 Cooperation Generally. From and after the Execution Date, and through and including the Merger Effective Time, the parties hereto and their respective Subsidiaries shall, in conformance with the provisions of this Agreement, use their best efforts, and take all actions necessary or appropriate, to consummate the Merger and the other transactions contemplated hereby at the earliest practicable date. III.8 Additional Financial Statements and Reports. As soon as reasonably practicable after they become publicly available, Ampersand and AccuMed shall furnish to each other their respective statements of financial condition, statements of operations or statements of income, statements of cash flows and statements of changes in stockholders' equity at all dates and for all periods before the Closing. Such financial statements will be prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition, results of operations and cash flows of the respective parties (subject, in the case of unaudited financial statements, to (i) normal year-end audit adjustments, (ii) any other adjustments described therein, and (iii) the absence of notes which, if presented, would not differ materially from those included with its most recent audited consolidated financial statements), and all of such financial statements will be prepared in conformity with the requirements of Form 10-Q or Form 10-K, as and if applicable, under the Exchange Act. As soon as reasonably practicable after they are filed, each of Ampersand and AccuMed shall, to the extent permitted under applicable law, furnish to the other its own Regulatory Reports. 24 29 III.9 Employee Benefits and Agreements. (a Following the Merger Effective Time, Ampersand or the Surviving Corporation shall honor, in accordance with their respective terms, all Benefit Arrangements and all provisions for vested benefits or other vested amounts theretofore earned or accrued under the Employee Plans of each of the parties hereto. (b The aforesaid Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of Ampersand or the Surviving Corporation until such time as the Employee Plans are integrated, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. Ampersand or the Surviving Corporation shall take such steps as are necessary as soon as practicable following the Merger Effective Time to integrate the Employee Plans, with (i) full credit for prior service with AccuMed or Ampersand or any of the AccuMed or Ampersand Subsidiaries for purposes of vesting and eligibility for participation (but not benefit accruals under any Employee Plan) and co-payments and deductibles, and (ii) waiver of all waiting periods and pre-existing condition exclusions or penalties. III.10 Ampersand Lock-Up Agreements. Ampersand shall cause each officer and director of Ampersand, and Acquisition Sub shall cause each officer and director of Acquisition Sub, to furnish to AccuMed, on or prior to the Closing Date, a letter, in form and substance satisfactory to counsel for AccuMed, pursuant to which each such person shall agree not to offer for sale, sell, distribute or otherwise dispose of any shares of Ampersand Common Stock during the sixty (60) days following the Closing Date. ARTICLE IV CONDITIONS OF THE MERGER; TERMINATION OF AGREEMENT IV.1 Conditions to the Obligations of Each Party. The obligations of each party to effect the Merger shall be subject to the satisfaction (or written waiver by such party, to the extent such condition is waivable) of the following conditions before the Merger Effective Time: (a Stockholder Approval. The respective stockholders of AccuMed and Acquisition Sub shall have approved or adopted this Agreement as specified in Section 1.7 hereof or as otherwise required by applicable law. (b No Proceedings. No order shall have been entered and remain in force restraining or prohibiting the Merger in any legal, administrative, arbitration, investigatory or other proceedings by any governmental or judicial or other authority. (c Governmental Approvals. To the extent required by applicable law or regulation, all approvals of or filings with any governmental or regulatory authority (collectively, "Governmental Approvals") shall have been obtained or made, and any waiting periods shall have expired in connection with the consummation of the Merger; provided, however, that none of the 25 30 preceding shall be deemed obtained or made if it shall be conditioned or restricted in a manner that would have or result in a material adverse effect on the Surviving Corporation as the parties hereto shall reasonably and in good faith agree. All other statutory or regulatory requirements for the valid consummation of the Merger shall have been satisfied. (d Registration Statement. The Registration Statement shall have been declared effective and shall not be subject to a stop order of the SEC (and no proceedings for that purpose shall have been initiated or threatened by the SEC) and, if the offer and sale of the Ampersand Common Stock in the Merger pursuant to this Agreement is subject to the securities laws of any state, shall not be subject to a stop order of any state securities authority. (e Legal Opinions. AccuMed shall have received the opinion letter of Schwartz, Cooper, Greenberger & Krauss, Chartered, counsel to Ampersand and Acquisition Sub, and Ampersand and Acquisition Sub shall have received the opinion letter of Joyce L. Wallach, Esq., counsel to AccuMed, in each case in form and substance satisfactory to the party or parties to whom addressed and to counsel for such party or parties, with respect to those matters customarily the subject of such opinion letters in transactions of the nature and magnitude of the transactions contemplated by this Agreement. (f Federal Tax Opinion. Ampersand and Acquisition Sub shall have received an opinion of tax counsel, dated as of the Closing Date, to the effect that for federal income tax purposes: (i The Merger will qualify as a "reorganization" under Section 368(a) of the Internal Revenue Code; (ii No gain or loss will be recognized by any party hereto by reason of the Merger; (iii The basis of the Ampersand Common Stock received by each holder of AccuMed Common Stock who exchanges AccuMed Common Stock for Ampersand Common Stock, and the basis of the Ampersand Preferred Stock received by each holder of AccuMed Preferred Stock who exchanges AccuMed Preferred Stock for Ampersand Preferred Stock, in the Merger will be the same as the basis of the AccuMed security surrendered in exchange therefor (subject, in the case of the AccuMed Common Stock, to any adjustments required as the result of receipt of cash in lieu of a fractional share of Ampersand Common Stock); (iv The holding period of the Ampersand Common Stock received by a holder of AccuMed Common Stock, and the holding period of the Ampersand Preferred Stock received by a holder of AccuMed Preferred Stock, in the Merger will include the holding period of the AccuMed Common Stock surrendered in exchange therefor, provided that such shares of AccuMed Common Stock or AccuMed Preferred Stock, as the case may be, were held as a capital asset by such stockholder at the Merger Effective Time; and 26 31 (v Cash received by an AccuMed stockholder in lieu of a fractional share interest of Ampersand Common Stock as part of the Merger will be treated as having been received as a distribution in full payment in exchange for the fractional share interest of Ampersand Common Stock which such stockholder would otherwise be entitled to receive and will qualify as capital gain or loss (assuming the AccuMed Common Stock was a capital asset in such stockholder's hands at the Merger Effective Time). (g Third Party Consents. All consents or approvals of all persons required for the execution, delivery and performance of this Agreement and the consummation of the Merger, including, but not limited to, the consents or approvals of all counterparties to existing material business contracts that contain provisions requiring that such consent or approval be given, and the Governmental Approvals referenced in Section 4.1(c) hereof shall have been obtained and shall be in full force and effect, unless the failure to obtain any such consent or approval is not reasonably likely to have, individually or in the aggregate, a material adverse effect on the Surviving Corporation as the parties shall reasonably and in good faith agree. (h Material Business Contracts. In its Disclosure Schedules, each party hereto shall have delivered to the others a list of all material business contracts to which the listing party is a party or by which it is bound or from which it benefits, which list shall be true and complete as of the Closing. (i Due Diligence Reviews. (i) During the period from the Execution Date through the Closing Date, Ampersand and Acquisition Sub shall be given the opportunity by AccuMed, at all reasonable times during normal business hours, to conduct a due diligence review of AccuMed and its business operations, which shall include but not be limited to, a review of all books and records and the opportunity to talk to such employees and contract counterparties as the parties shall reasonably agree upon, and, at the same time, AccuMed will be given the opportunity by Ampersand and Acquisition Sub to conduct a similar due diligence review of Ampersand and Acquisition Sub and their respective business operations. (ii) In the event that Ampersand or Acquisition Sub, on the one hand, or AccuMed, on the other hand, should identify during the course of the due diligence review being conducted by it hereunder, any matter or matters that, alone or in the aggregate, may have a material adverse effect on the party that is the subject of such due diligence review, or such party's business, or such party's ability to satisfy its representations, warranties or covenants under this Agreement, or that would impair the ability of such party to consummate this Agreement or the transactions contemplated hereby, then the parties hereto shall discuss such matter in good faith and use their respective best efforts to negotiate a mutually satisfactory solution to any differences of opinion with respect to the materiality of such matter or matters and/or the effect that such matter or matters is likely to have with respect to the ability of the reviewed party or parties to consummate this Agreement and the transactions contemplated hereby in the manner anticipated by the parties hereto, provided that if the parties hereto are, after all such discussions and 27 32 negotiations have ended, unable to resolve their differences concerning such matter or matters, then the reviewing party shall have the right, exerciseable in its sole discretion, for a period of five (5) business days after such discussions and negotiations have concluded, to terminate this Agreement without penalty therefor, but without prejudice to the right of the other party or parties, among other things, to seek judicial review of, or other remedies in regard to, the reasonableness of the terminating party or parties in regard to terminating this Agreement; provided, however, that in the case of Ampersand and Acquisition Sub, the right to terminate this Agreement pursuant to this subsection shall extend only until February 28, 2001, and in the case of AccuMed, the right to terminate this Agreement pursuant to this subsection shall extend only until the twenty-eighth (28th) day after the date on which Ampersand and Acquisition Sub have completed the delivery to AccuMed of a true and correct copy of each document responsive to the due diligence request submitted by AccuMed to Ampersand in a written memorandum dated September 29, 2000, a copy of which Ampersand acknowledges having received on or about such date. (iii) In the event that any matter as described in the immediately preceding subparagraph shall be discovered by a party after its respective cut-off date, as set forth in said subparagraph, such party shall thereafter have such rights with respect thereto and to the breach or anticipatory breach of this Agreement as shall be otherwise provided hereunder or by law. IV.2 Conditions to Obligations of AccuMed. The obligations of AccuMed to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction or written waiver by AccuMed of the following additional conditions before the Merger Effective Time: (a No Material Adverse Effect. From and after the Execution Date, and through and including the Merger Effective Time, neither Ampersand nor Acquisition Sub shall have been affected by any event or change which has had or caused a material adverse effect or material adverse change on it. (b Representations and Warranties to be True; Fulfillment of Covenants and Conditions. (i) The representations and warranties of Ampersand and Acquisition Sub shall be true and correct (subject to Section 2.20 hereof) as of the Execution Date and at the Merger Effective Time with the same effect as though made at the Merger Effective Time (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date) except where the failure to be true and correct would not have, or would not reasonably be expected to have, a material adverse effect, on Ampersand or Acquisition Sub; (ii) each of Ampersand and its Subsidiaries, including Acquisition Sub, shall have performed all obligations and complied with each covenant, in all material respects, and satisfied all conditions under this Agreement on its part to be satisfied at or before the Merger Effective Time; and (iii) each of Ampersand and Acquisition Sub shall have delivered to AccuMed a certificate, dated the Merger Effective Time and signed by its Chief Executive Officer and President, certifying as to the satisfaction of clauses (i) and (ii) hereof. 28 33 (c No Litigation. Other than as set forth in its Disclosure Schedules, neither Ampersand or Acquisition Sub, nor any other Ampersand Subsidiary, shall be subject to any pending litigation which, if determined adversely to Ampersand or any Ampersand Subsidiary, would have a material adverse effect on Ampersand or such Subsidiary. IV.3 Conditions to Obligations of Ampersand and Acquisition Sub. The obligations of Ampersand and Acquisition Sub to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction or written waiver by Ampersand and Acquisition Sub of the following additional conditions before the Merger Effective Time: (a No Material Adverse Effect. From and after the Execution Date, and through and including the Merger Effective Time, AccuMed shall not have been affected by any event or change which has had or caused a material adverse effect or material adverse change on AccuMed. (b Representations and Warranties to be True; Fulfillment of Covenants and Conditions. (i) The representations and warranties of AccuMed shall be true and correct (subject to Section 2.20 hereof) as of the Execution Date and at the Merger Effective Time with the same effect as though made at the Merger Effective Time (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date) except where the failure to be true and correct would not have, or would not reasonably be expected to have, a material adverse effect on AccuMed; (ii) AccuMed and its Subsidiaries shall have performed all obligations and complied with each covenant, in all material respects, and satisfied all conditions under this Agreement on its part to be satisfied at or before the Merger Effective Time; and (iii) AccuMed shall have delivered to Ampersand a certificate, dated the Merger Effective Time and signed by its Chief Executive Officer and President, certifying as to the satisfaction of clauses (i) and (ii) hereof. (c No Litigation. Other than as disclosed in its Disclosure Schedules, neither AccuMed nor any AccuMed Subsidiary shall be subject to any pending litigation which, if determined adversely to AccuMed or any AccuMed Subsidiary, would have a material adverse effect on AccuMed. (d Voting Agreements. Ampersand and Acquisition Sub shall have received from AccuMed, substantially in the form of Exhibit A attached hereto, the voting agreements of all officers and directors of AccuMed, as contemplated by this Agreement. (e Employment Agreements. Prior to Closing, AccuMed shall have terminated the employment agreements of those employees of AccuMed and/or its Subsidiaries identified and listed by Ampersand on Exhibit D attached hereto, in accordance with the applicable termination provisions contained in such agreements as of the Execution Date, or, in the absence of such provisions, upon such terms and conditions as shall be reasonably acceptable to Ampersand and Acquisition Sub. 29 34 (f Dissenting Shares. No more than five percent (5%) of the issued and outstanding shares of each class of AccuMed capital stock shall be Dissenting Shares as of the final date on which such shares may become Dissenting Shares under the DGCL. (g Compliance with Budget Statement. A certificate shall have been delivered by AccuMed to Ampersand, signed by AccuMed's Chief Executive Officer, certifying that, without the prior written approval of Ampersand and Acquisition Sub, no material expenditures of cash, other than the items set forth in the Budget Statement, have been made or committed to by AccuMed or its Subsidiaries during that portion of the time period covered by the Budget Statement that has preceded the Closing. IV.4 Termination of Agreement. (a Methods of Termination. This Agreement may be terminated at any time prior to the Merger Effective Time, whether before or after approval of this Agreement by the stockholders of AccuMed or Acquisition Sub, in the following manner: (i) by the mutual consent, in writing, of all of the parties hereto; or (ii) by AccuMed, by giving written notice of such termination to the other parties hereto if, upon the taking of the vote of AccuMed's stockholders required by the provisions of Section 1.7(a) hereof, the required approval of the AccuMed stockholders shall not be obtained, provided that the Board of Directors of AccuMed recommended, and used its best efforts to obtain, the adoption of this Agreement and approved of the transaction contemplated hereby prior to the taking of such vote; or (iii) by AccuMed, by giving written notice of such termination to Ampersand and Acquisition Sub, (A) if there has been (I) a material breach of any agreement herein on the part of Ampersand or Acquisition Sub which has not been cured or adequate assurance of cure given, in either case within twenty (20) calendar days following notice of such breach from AccuMed (subject, however, to the provisions of Section 1.12(b) hereof), or (II) a breach of a representation or warranty of Ampersand or Acquisition Sub herein which (individually or, together with such other breaches, in the aggregate) would reasonably be expected to materially impair the ability of Ampersand or Acquisition Sub to perform its obligations under this Agreement and which, in the reasonable opinion of AccuMed, by its nature cannot be cured prior to May 31, 2001, or (B) if there shall have occurred or been proposed after the date of this Agreement (I) any change in any law, rule or regulation, or (II) there shall have been any decision or action by any court, government or governmental agency, that could reasonably be expected to prevent consummation of the Merger or delay such consummation beyond May 31, 2001, or that would have a material adverse effect on Ampersand or Acquisition Sub; or (iv) by Ampersand or Acquisition Sub, by giving written notice of such termination to AccuMed, (A) if there has been (I) a material breach of any agreement herein on the part of AccuMed which has not been cured or adequate assurance of cure given, in either case within twenty (20) calendar days following notice of such breach from Ampersand or Acquisition 30 35 Sub, or (II) a breach of a representation or warranty of AccuMed herein which (individually or, together with other such breaches, in the aggregate) would reasonably be expected to materially impair the ability of AccuMed to perform its obligations under this Agreement and which, in the reasonable opinion of Ampersand or Acquisition Sub, by its nature cannot be cured prior to May 31, 2001, (B) if any Takeover Proposal (as defined in Section 3.3 hereof) with respect to AccuMed, other than as contemplated by this Agreement, shall have been proposed by any third party (and such proposal is not opposed in writing by AccuMed within twenty (20) calendar days after AccuMed shall have first received or become aware of such proposal, or AccuMed or its Board of Directors at any time shall cease to oppose such proposal or shall take, or permit any of its Subsidiaries to take, any action which is not consistent with opposition to such proposal), or shall have been agreed to or consummated, or (C) if there shall have occurred or been proposed after the Execution Date (I) any change in any law, rule or regulation, or (II) there shall have been any decision or action by any court, government or governmental agency, that could reasonably be expected to prevent consummation of the Merger or delay such consummation beyond May 31, 2001, or that would have a material adverse effect on AccuMed; or (v) by any party, by giving written notice of such termination to the other parties, if the Merger shall not have been consummated on or before May 31, 2001 (or such later date as the parties hereto may, from time to time, establish as the termination date hereof by Amendment hereto), unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; or (vi) by the reviewing party or parties pursuant to the terms and provisions of Section 4.1(i) hereof, provided that said party or parties shall have given timely notice of such termination to the other parties hereto in writing in accordance with the provisions of Section 7.4 hereof. (b Further Liability. If this Agreement is terminated for any reason, none of the parties hereto shall have any further liability hereunder of any nature whatsoever to the other parties; provided, however, that, notwithstanding the foregoing, (i) this Section 4.4(b) shall not preclude liability from attaching to a party who has caused the termination hereof by a willful act or a willful failure to act in violation of the terms and provisions hereof, and (ii) termination of this Agreement shall not terminate or affect the agreements of the parties contained in Section 2.7 (No Broker's or Finder's Fees), Section 3.6 (Publicity), Article V (Termination Obligations) and Section 7.2 (Confidentiality) hereof, the provisions of all of which shall survive any termination of this Agreement; provided, however, that any aggrieved party, without terminating this Agreement, shall be entitled to specifically enforce the terms hereof against the breaching party or parties in order to cause the Merger to be consummated. Each party hereto acknowledges that there is not an adequate remedy at law to compensate the other parties with respect to relating to the non-consummation of the Merger. To this end, each party, to the extent permitted by law, irrevocably waives any defense it might have based on the adequacy of a remedy at law that might be asserted as a bar to specific performance, injunctive relief or other equitable relief. 31 36 (c) No Survival of Representations, Warranties or Agreements. The representations, warranties and agreements set forth in this Agreement shall not survive the Merger Effective Time and shall be terminated and extinguished at the Merger Effective Time, and from and after the Merger Effective Time no party hereto shall have any liability to the other parties on account of any breach or failure of any of those representations, warranties or agreements; provided, however, that the foregoing clause (i) shall not apply to agreements of the parties which by their terms are intended to be performed after the Merger Effective Time by the Surviving Corporation or otherwise, and (ii) shall not relieve any party or person for liability for fraud, deception or intentional misrepresentation. ARTICLE V TERMINATION OBLIGATIONS V.1 Breach by AccuMed. If this Agreement is terminated by Ampersand or Acquisition Sub pursuant to Section 4.4(a)(iv)(B) hereof, AccuMed shall pay to Ampersand and Acquisition Sub, jointly, the aggregate amount of $500,000 immediately upon such termination. V.2 Breach by Ampersand. If this Agreement is terminated by AccuMed pursuant to Section 4.4(a)(iii)(A) hereof, Ampersand and Acquisition Sub, jointly, shall pay to AccuMed the aggregate amount of $500,000 immediately upon such termination. V.3 Tender or Exchange Offer. If any person or group of persons, other than Ampersand or Acquisition Sub, or any of their respective affiliates, shall commence a tender or exchange offer for ten percent (10%) or more of any class of securities of AccuMed, or if there shall be commenced by any person or group of persons, other than Ampersand or Acquisition Sub, or any of their respective affiliates, of a proxy contest with respect to AccuMed, or solicitation by any person or group of persons, other than Ampersand, Acquisition Sub, or any of their respective affiliates, of proxies with respect to securities of AccuMed prior to the Closing, and, as a consequence, the Merger is not approved by the AccuMed stockholders as and in the manner contemplated by this Agreement, and if thereafter (i) any agreement is entered into by AccuMed to effect a merger, sale of assets or other transaction intended to cause a change of control of AccuMed, or a tender or exchange offer is made to the AccuMed stockholders for the same purpose, and (ii) neither Ampersand, Acquisition Sub, nor any of their respective affiliates is a party thereto, and (iii) the making of such agreement or the initiation of such tender or exchange offer occurs within twelve (12) months after the latest date on which the AccuMed Stockholders Meeting should have been held in accordance with the provisions of Section 1.7(a) of this Agreement, AccuMed shall pay to Ampersand and Acquisition Sub, jointly, the aggregate amount of $500,000. Such amount shall be due at the closing of the transaction contemplated by such agreement or tender or exchange offer. If, however, Ampersand or Acquisition Sub, or any of their respective affiliates, is a party to such transaction, then the $500,000 provided for in this Section 5.3 will not be payable to Ampersand and Acquisition Sub hereunder. V.4 Non-Fulfillment of AccuMed Obligations. If AccuMed shall have withdrawn, or not included in the Prospectus/Proxy Statement, the recommendation of its Board of Directors 32 37 with respect to the Merger as provided for in this Agreement, or shall not have held the AccuMed Stockholders Meeting on, or by, the latest date provided for in Section 1.7(a) of this Agreement and, as a consequence, the Merger is not approved by the AccuMed stockholders as and in the manner contemplated by this Agreement, or the Merger does not close notwithstanding the fulfillment of all of the conditions of Section 4.2 hereof, and if thereafter any agreement is entered into by AccuMed to effect a merger, sale of assets or other transaction intended to cause a change of control of AccuMed, or a tender or exchange offer for ten percent (10%) or more of any class of securities of AccuMed is made to the AccuMed stockholders for the same purpose, and neither Ampersand nor Acquisition Sub, nor any of their respective affiliates, is a party thereto, and the making of such agreement or the initiation of such tender or exchange offer occurs within twelve (12) months after the latest date on which the AccuMed Stockholders Meeting should have been held in accordance with the provisions of Section 1.7(a) of this Agreement, AccuMed shall pay to Ampersand and Acquisition Sub, jointly, the aggregate amount of $500,000. Such amount shall be due at the closing of the transaction contemplated by such agreement, tender or exchange offer. If, however, Ampersand or Acquisition Sub or any of their respective affiliates, is a party to such transaction, then the $500,000 provided for in this Section 5.4 will not be payable to Ampersand and Acquisition Sub hereunder. V.5 Payment of Replacement Note. The full principal amount of the Replacement Note, together with all accrued but unpaid interest thereon, shall become due and payable to the holder thereof immediately upon the earlier to occur of (i) termination, for any reason, of this Agreement and the transactions contemplated hereby, and (ii) May 31, 2001, or such later date as the parties hereto may, from time to time, establish as the termination date hereof and thereof by amendment hereto; provided, however, that if this Agreement is terminated by AccuMed pursuant to the provisions of Section 4.4(a)(iii)(A) hereof, and AccuMed becomes entitled to payment of the $500,000 amount provided for in Section 5.2 hereof, then AccuMed shall have the right to offset such $500,000 amount against any payments due to the holder of the Replacement Note under this Section 5.5, and the payment of any balance thereafter remaining due and payable under the Replacement Note shall instead become due and payable on the sixtieth (60th) day following the date on which the termination of this Agreement became effective. ARTICLE VI CERTAIN POST-MERGER AGREEMENTS VI.1 Indemnification. 33 38 (a) From and after the Merger Effective Time, Ampersand and the Surviving Corporation shall indemnify, defend and hold harmless each person who is now, or who has been at any time before the Execution Date or who becomes before the Merger Effective Time, an officer or director of any of the parties hereto or any of their respective Subsidiaries (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including reasonable attorney's fees), liabilities, judgments or amounts that are paid in settlement (which settlement shall require the prior written consent of Ampersand and the Surviving Corporation, which consent shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal or administrative (each a "Claim"), in which an Indemnified Party is, or is threatened to be made, a party based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of any of the parties hereto or any of their respective Subsidiaries if such Claim pertains to any matter or fact arising, existing at or occurring before the Merger Effective Time (including, without, limitation, the Merger and the other transactions contemplated hereby), regardless of whether such Claim is asserted or claimed before, or at or after, the Merger Effective Time (the "Indemnified Liabilities"), to the fullest extent permitted under applicable state or federal law in effect as of the Execution Date or as amended applicable to a time before the Merger Effective Time, and Ampersand or the Surviving Corporation shall pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted by applicable state or federal law in effect as of the Execution Date or as amended applicable to a time before the Merger Effective Time upon receipt of any undertaking required by applicable law. Any Indemnified Party wishing to claim indemnification under this Section 6.1(a), upon learning of any Claim, shall notify Ampersand and the Surviving Corporation (but the failure so to notify Ampersand and the Surviving Corporation shall not relieve either of them from any liability which it may have under this Section 6.1(a), except to the extent such failure materially prejudices Ampersand or the Surviving Corporation) and shall deliver to Ampersand and the Surviving Corporation the undertaking, if any, required by applicable law. Ampersand and the Surviving Corporation shall ensure, to the extent permitted under applicable law, that all limitations of liability existing in favor of the Indemnified Parties as provided in their respective governing entity documents, as in effect as of the Execution Date, or allowed under applicable state or federal law as in effect as of the Execution Date or as amended applicable to a time before the Merger Effective Time, with respect to claims or liabilities arising from facts or events existing or occurring before the Merger Effective Time (including, without limitation, the transactions contemplated hereby), shall survive the Merger. (b) For a period of six (6) years from and after the Merger Effective Time, Ampersand and the Surviving Corporation shall cause to be maintained in effect the current policies of directors' and officers' liability insurance (if any) maintained by AccuMed and its Subsidiaries (provided that they may substitute therefor policies from financially capable insurers of at least the same coverage and amounts and containing terms and conditions that are carried by Ampersand and its Subsidiaries in the ordinary course of business) with respect to claims arising from facts or events which occurred before the Merger Effective Time. (c) The obligations of Ampersand and the Surviving Corporation provided under paragraphs (a) and (b) of this Section 6.1 are intended to be enforceable against Ampersand 34 39 and the Surviving Corporation directly by the Indemnified Parties and shall be binding on all respective successors and permitted assigns of Ampersand and the Surviving Corporation. ARTICLE VII GENERAL VII.1 Amendments. Subject to applicable law, this Agreement may be amended, whether before or after any stockholder approval hereof, by an agreement in writing executed in the same manner as this Agreement and authorized or ratified by the Boards of Directors of the parties hereto, provided that after the approval of this Agreement by the stockholders of either AccuMed or Acquisition Sub, no such amendment may change the amount or form of the consideration to be delivered hereunder pursuant to Section 1.3 hereof without the further approval of such stockholders. VII.2 Confidentiality. All information disclosed by any party hereunder or in connection herewith, whether prior or subsequent to the date of this Agreement, including, without limitation, any information obtained pursuant to Section 3.1 hereof, shall be kept confidential by the person receiving such information and shall not be used by such person otherwise than as herein contemplated, all in accordance with the terms of Paragraph 13 of that certain Confidential Term Sheet (the "Term Sheet") between Ampersand and AccuMed, dated September 22, 2000, which confidentiality terms the parties hereto acknowledge and agree shall have a continuing, binding effect notwithstanding the termination of all other provisions of said Term Sheet. In the event of the termination of this Agreement, each party hereto shall use all reasonable efforts to return, upon request, to the other parties hereto all documents (and reproductions thereof) received from such other parties (and, in the case of reproductions, all such reproductions) that include information subject to the confidentiality requirements set forth above in this Section 7.2 and the Term Sheet. VII.3 Governing Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the laws of the State of Illinois, without taking into account any provisions regarding choice of law, except to the extent certain matters may be governed by federal law by reason of preemption. VII.4 Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if it is in writing and either personally served, sent by confirmed facsimile transmission, air courier guaranteeing next business day delivery or certified or registered United States mail, postage prepaid, and shall be deemed delivered upon receipt if personally served, or upon confirmation of receipt if sent by facsimile transmission, or the next business day, if sent by air courier guaranteeing next business day delivery, or, if sent by mail, there (3) business days after deposit in the United States mail with postage prepaid and properly addressed. For purposes hereof, the addresses of the parties hereto shall be as follows: 35 40 If to AccuMed, to AccuMed International, Inc. 920 North Franklin Street Suite 402 Chicago, Illinois 60610 Attention: Paul F. Lavallee, Chairman of the Board and Chief Executive Officer Telecopier: (312) 642-8684 Confirmation: (312) 642-9200 with a copy to: Joyce L. Wallach, Esq. 1500 7th Avenue Sacramento, California 95818 Telecopier: (916) 341-0256 Confirmation: (916) 341-0255 If to Ampersand or Acquisition Sub, to Ampersand Medical Corporation (or AccuMed Acquisition Corp., as the case may be) 414 North Orleans Suite 510 Chicago, Illinois 60610 Attention: Peter P. Gombrich, Chairman of the Board and Chief Executive Officer Telecopier: (312) 222-9580 Confirmation: (312-222-9550 with a copy to: Schwartz, Cooper, Greenberger & Krauss, Chartered 180 North LaSalle Street Suite 2700 Chicago, Illinois 60601 Attention: Richard J. Firfer, Esq. or Robert A. Smoller, Esq., Telecopier: (312) 782-8416 Confirmation: (312) 346-1300 or to such other address as shall be furnished in writing by any party to the others in accordance with the provisions of this Section 7.4. 36 41 VII.5 No Assignment. This Agreement may not be assigned by any party hereto, by operation of law or otherwise, except as contemplated hereby. VII.6 Headings. The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. VII.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the others. VII.8 Construction and Interpretation. Except as the context otherwise requires, all references herein to any state or federal regulatory agency shall also be deemed to refer to any predecessor or successor agency, and all references to state and federal statutes or regulations shall also be deemed to refer to any successor statute or regulation, as amended. VII.9 Binding Effect. This Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, beneficiaries, officers, directors, stockholders, employees, agents, successors and permitted assigns. VII.10 Expenses. In the event that the Merger and the transactions contemplated hereby are not consummated, each of the parties hereto shall be responsible for its own expenses incident thereto. VII.11 Third Parties. The parties hereto acknowledge and agree that by entering into this Agreement they do not intend to confer any benefits, rights, privileges, actions or remedies on any person or entity under any third party beneficiary theory or otherwise, except that after the Merger Effective Time, the beneficiaries of any representations, warranties or covenants of any of the parties hereto that survive the Merger may enforce such representations, warranties and covenants, VII.12 Entire Agreement. This Agreement, including the schedules, exhibits, certificates and other writings delivered in connection herewith, contains the entire understanding and agreement of the parties hereto with respect to the subject matter hereof, and supercedes all prior and contemporaneous agreements, understandings, proposals, letters of intent, term sheets, representations, warranties and covenants in regard thereto, except as otherwise stated herein. VII.13 Waivers. Any term or provision of this Agreement may be waived, or the time for its performance may be extended by the party or parties entitled to the benefit thereof. Any such waiver shall be validly and sufficiently given for the purposes of this Agreement if, as to any party, it is in writing and signed by an authorized representative of such party. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 37 42 VII.14 Partial Invalidity. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. [Signature Page Follows] 38 43 IN WITNESS WHEREOF, each party has caused this Agreement to be executed on its behalf by its duly authorized officer as of the date first hereinabove set forth. ACCUMED INTERNATIONAL, INC. AMPERSAND CORPORATION By: /s/ PAUL F. LAVALLEE By: /s/ PETER P. GOMBRICH --------------------------------- ------------------------------------- Paul F. Lavallee, Peter P. Gombrich, Chairman of the Board Chairman of the Board and Chief Executive Officer and Chief Executive Officer ACCUMED ACQUISITION CORP. By: /s/ PETER P. GOMBRICH ------------------------------------- Peter P. Gombrich, President 39 EX-10.35 7 v70395ex10-35.txt EXHIBIT 10.35 1 EXHIBIT 10.35 SECURED PROMISSORY NOTE $800,000.00 February 7, 2001 Chicago, Illinois 1. FOR VALUE RECEIVED, AccuMed International, Inc. ("Maker"), whose principal place of business is located at 920 North Franklin Street, Suite 402, Chicago, Illinois 60610, hereby promises to pay to the order of Ampersand Medical Corporation ("Payee"), whose principal place of business is located at 414 North Orleans, Suite 510, Chicago, Illinois 60610, the principal sum of EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($800,000.00), at the place and in the manner hereinafter provided, together with interest thereon at the rates described below. 2. Interest shall accrue on the balance of principal from time to time unpaid under this Note prior to the Maturity Date (as hereinafter defined) at an annual rate equal to Prime plus two and one-half percent (22%). For purposes hereof, "Prime" shall mean the rate of interest from time to time announced by LaSalle Bank, National Association ("Bank"), as its Prime Rate, which is not necessarily the Bank=s lowest or most favorable rate of interest at any given time. Interest shall be computed on the basis of a year consisting of 360 days and shall be based on the actual number of days during the period for which interest is being charged. 3. Principal and interest under this Note shall be due and payable on the earlier to occur of the following: (i) termination of the contemplated merger transaction as outlined in the Merger Agreement (as such term is defined in paragraph 4 hereof); and (ii) May 31, 2001 or such later date as the parties to the Merger Agreement may, from time to time, establish as the termination date of the Merger Agreement by amendment thereto (such payment due date being hereinafter referred to as the "Maturity Date"); provided, however, the Maturity Date shall be automatically extended (without requiring a written amendment hereto) to such later date, if any, as Maker and Payee agree by amendment of the date specified in Section 4.4(a)(v) of the Merger Agreement (as such term is hereinafter defined). 4. This Note is executed simultaneously and in conjunction with the execution and delivery by Maker and Payee of that certain Agreement and Plan of Merger, dated as of February 7, 2001 (the "Merger Agreement"), pursuant to which the parties thereto have agreed to enter into the merger described therein. This Note evidences the loan from Payee to Maker referred to in paragraph 1.12 of the Merger Agreement. 5. From and after the Maturity Date, or during any period in which an Event of Default (as hereinafter defined) exists under this Note, Maker shall pay interest on the balance of principal then remaining unpaid at an annual rate (the "Default Rate") equal to Prime plus five percent (5%). The interest accruing under this paragraph 5 shall be immediately due and payable by Maker to the holder of this Note on demand and shall be additional indebtedness evidenced by this Note. 2 6. Maker reserves the privilege, without penalty or premium therefor, to prepay all or any part of the principal balance of this Note at any time and from time to time upon two (2) business days prior written notice to Payee of its intention to do so. 7. All payments and prepayments on account of the indebtedness evidenced by this Note shall be first applied to accrued and unpaid interest on the unpaid principal balance of this Note, and second to all other sums then due Payee hereunder. 8. All payments of principal and interest hereunder shall be paid by check or in coin or currency and shall be made at Payee=s principal place of business, as hereinabove set forth. Payment made by check shall be deemed paid on the date Payee receives such check; provided, however, that if such check is subsequently returned to Payee unpaid due to insufficient funds or otherwise, the payment shall not be deemed to have been made and shall continue to bear interest until collected. If payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of Illinois, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the then applicable interest rate during such extension. 9. An Event of Default shall occur hereunder if: (1) any amount payable hereunder is not paid when due; or (2) Maker shall otherwise fail to perform any of the promises to be performed by Maker hereunder or under any security agreement with Payee relating thereto; or (3) Maker or any person who is or shall become primarily or secondarily liable for any payment hereunder, who is a natural person, dies; or (4) Maker or any other party liable with respect to any payment hereunder, or any guarantor or accommodation endorser or third party pledgor, shall make any assignment for the benefit of creditors, or there shall be commenced by or against Maker or any such party any bankruptcy, receivership, insolvency, reorganization, dissolution or liquidation proceedings, or there shall be the entry of any judgment, levy, attachment, garnishment or other process, or the filing of any lien, against any of the Collateral (as such term is defined in the Security Agreement referred to in paragraph 12 hereof); or (5) in the opinion of Payee, acting in good faith, there is any deterioration or impairment of any of the Collateral, or any actual decline or depreciation in the value or market price thereof that causes the Collateral to become unsatisfactory as to value, and the Payee has provided Maker with written notice describing the basis of such opinion, and if Maker has failed, within five (5) business days after receiving such notice to (x) provide documents effectively refuting such opinion to Payee=s satisfaction, or (y) provide additional Collateral to eliminate the deficit or pay down the indebtedness in an amount sufficient to erase such deficit; or (6) there is a determination by Payee that a material adverse change has occurred in the financial condition of the Maker from the condition set forth in the most recent financial statement of Maker furnished to Payee, or from the financial condition of the Maker most recently disclosed to Payee in any manner; or (7) Maker shall fail to do any commercially reasonable act necessary to preserve or maintain the value and collectability of the Collateral; or (8) Maker shall fail, within five (5) business days after receiving a written request by Payee, to permit inspection by Payee (during normal business hours) of Maker=s books and records pertaining to the Collateral; or (9) any guarantor of this Note shall discontinue or contest the validity of such guaranty; or (10) there shall occur any material adverse event that causes a change in the financial condition of Maker, or that would have a material adverse effect on the business of Maker. 3 10. At the election of the holder hereof, whenever Maker shall be in default as aforesaid (an "Event of Default"), and all applicable cure periods have expired without a cure having been effected, then without demand or notice of any kind, the entire unpaid principal amount hereof, and all interest accrued thereon, shall become immediately due and payable. Failure of the holder to exercise such election shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. No holder hereof shall, by any act of omission or commission, be deemed to waive any of its rights, remedies or powers hereunder or otherwise unless such waiver is in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. The rights, remedies and powers of the holder hereof, as provided in this Note, are cumulative and concurrent, and may be pursued singly, successively or together against Maker and any security given at any time to secure the repayment hereof, all at the sole discretion of the holder hereof. If any suit or action is instituted or attorneys are employed to collect this Note or any part thereof, Maker promises and agrees to pay all costs of collection, including reasonable attorneys= fees and court costs. 11. Maker hereby (i) waives presentment and demand for payment, notice of nonpayment and of dishonor, protest of dishonor, and notice of protest; and (ii) waives any and all lack of diligence and delays in the enforcement of the payment hereof. 12. This Note is secured by that certain Security Agreement, dated as of the date hereof, pursuant to which Maker has pledged certain of its assets and property, as described therein, as security for the payment hereof. 13. This Note evidences a business loan that comes within the purview of Section 205/4, paragraph (1)(c) of Chapter 815 of the Illinois Compiled Statutes, as amended. Maker agrees that the obligation evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq. 14. Time is of the essence hereof. 15. This Note is governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the statutes, laws and decisions of the State of Illinois, without regard to conflicts of laws principles. This Note may not be changed or amended orally but only by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought. 16. This Note has been made and delivered at Chicago, Illinois and all funds disbursed to or for the benefit of Maker will be disbursed in Chicago, Illinois. 17. The obligations and liabilities of Maker under this Note shall be binding upon and enforceable against Maker and its successors and assigns. This Note shall inure to the benefit of and may be enforced by Payee and its successors and assigns. 18. In the event one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable in any respect by a court of competent 4 jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Payee shall not collect a rate of interest on the principal balance under this Note in excess of the maximum contract rate of interest permitted by applicable law. All interest found in excess of that rate of interest allowed and collected by Payee shall be applied to the principal balance in such manner as to prevent the payment and collection of interest in excess of the rate permitted by applicable law. IN WITNESS WHEREOF, Maker has executed this Note as of the date first hereinabove written. ACCUMED INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE ---------------------------------------- Paul F. Lavallee, Chairman of the Board and Chief Executive Officer EX-10.36 8 v70395ex10-36.txt EXHIBIT 10.36 1 EXHIBIT 10.36 SECURITY AGREEMENT This Security Agreement (this "Agreement") is made and entered into as of the 7th day of February, 2001, by and between ACCUMED INTERNATIONAL, INC., a Delaware corporation with its principal place of business at 920 North Franklin Street, Suite 402, Chicago, Illinois 60610 ("Debtor"), and AMPERSAND MEDICAL CORPORATION, a Delaware corporation with its principal place of business at 414 N. Orleans, Suite 510, Chicago, Illinois 60610 ("Secured Party"). WITNESSETH: WHEREAS, Debtor and Secured Party have entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of the date hereof; and WHEREAS, in connection with the Merger Agreement Debtor has executed a certain Secured Promissory Note of even date herewith, made payable to Secured Party (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Note"), providing for the making of a term loan to Debtor in the principal amount of Eight Hundred Thousand and No/100 Dollars ($800,000.00), and as a condition to the making of such loan Debtor is required to grant the security interest contemplated by this Agreement; NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and in the Note, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS 1.1 General Definitions. When used herein, the following terms shall have the following meanings: (a) "Code" shall mean the Uniform Commercial Code as in effect in the State of Illinois from time to time. (b) "Collateral" shall mean the Initial Collateral and the Additional Collateral, collectively, as specified in Section 2.1(a) and 2.1(b) hereof, respectively. (c) "Default" shall mean the occurrence or existence of any "Event of Default" under (and as defined in) the Note. (d) "Financing Agreements" shall mean the Note and all other agreements, instruments and documents executed by or on behalf of Debtor and delivered to Secured Party in connection therewith, including, without limitation, this Agreement. (e) "Liabilities" shall mean all liabilities, obligations and indebtedness of any and every kind and nature that arise under the Note, this Agreement or any other Financing Agreement, whether heretofore, now or hereafter owing, arising, due or payable from 2 Debtor to Secured Party. (f) "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever with respect to any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a capitalized lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice, under the Code or other comparable law of any jurisdiction. (g) "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, limited liability company, corporation, institution, entity, party or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.2 Other Terms. All other terms contained in this Agreement, where the context so indicates (unless otherwise specifically defined herein), shall have the meanings provided by the Code to the extent the same are used or defined therein. 2. COLLATERAL 2.1 Security Interest. (a) To secure payment and performance of Debtor's Liabilities, Debtor hereby grants to Secured Party a continuing security interest in and to all of Debtor's right, title and interest in and to all assets and property of Debtor listed on SCHEDULE A attached hereto, as such schedule may be amended, restated, supplemented or otherwise modified from time to time, whether such assets and property are owned on the date hereof or hereafter acquired, and all sale proceeds of such assets and property, and any and all insurance proceeds pertaining to such assets and property, together with all of Debtor's books and records pertaining to such assets and property (collectively, the "Initial Collateral"). (b) To secure payment and performance of the Additional Loans provided for in Section 1.12(b) of the Merger Agreement, Debtor also hereby grants to Secured Party a continuing security interest in and to all of Debtor's right, title and interest in and to the assets and property listed on SCHEDULES B, C and D attached hereto (collectively, the "Additional Collateral"), as such schedules may be amended, restated, supplemented or otherwise modified from time to time, together with all of Debtor's books and records pertaining to such Additional Collateral, but such continuing security interest shall only become effective as to the Additional Collateral as and when the Additional Loans (as defined in the Merger Agreement) are actually made by Secured Party, in the following 3 manner: (i) to the Additional Collateral listed on SCHEDULE B when the first Additional Loan is made; (ii) to the Additional Collateral listed on SCHEDULE C when the second Additional Loan is made; (iii) to the Additional Collateral listed on SCHEDULE D when the third Additional Loan is made. 2.2 Financing Statements. Debtor will execute and deliver to Secured Party such financing statements or amendments thereof or supplements thereto, and such other instruments as Secured Party may from time to time require in order to preserve, protect and maintain the security interest granted hereby. Debtor further agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement shall be sufficient as a financing statement. 2.3 Attachment. Subject to the provisions of Section 2.1(b) hereof, Debtor confirms that value has been given and that Debtor and Secured Party have not agreed to postpone the time for attachment of the security interest created by this Agreement to any of the Collateral. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1 Representations and Warranties. Debtor hereby represents and warrants to Secured Party that: (a) Debtor (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the nature of Debtor's business or the ownership of its property requires such qualification, and (iii) has all requisite corporate power and authority to own, operate and encumber its property and to conduct its business as presently conducted. (b) Debtor has the requisite corporate power and authority to execute, deliver and perform each of the Note, this Agreement and each document that is to be executed by it in connection with either of them. The execution, delivery, performance and filing, as the case may be, of each such document have been duly approved by the Board of Directors of Debtor and such approval has not been rescinded. No other corporate actions or proceedings on the part of Debtor are necessary to consummate such transactions. Each of the Note, this Agreement and each document that is to be executed by Debtor in connection with either of them has been duly executed and delivered by Debtor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, and is in full force and effect. (c) The execution, delivery and performance of each of the Note, this 4 Agreement and each document that is to be executed by Debtor in connection with either of them do not and will not (i) conflict with Debtor's certificate of incorporation or by- laws, (ii) conflict with any law known to Debtor to be applicable to, or binding on, its business or the Collateral or any contractual restriction binding on or affecting the Debtor, or (iii) result in or require the creation or imposition of any Lien not contemplated by the Note or this Agreement. (d) Debtor is and will be the owner of, and has and will have good and marketable title to, the Collateral. Debtor is the legal and beneficial owner of the Collateral, free and clear of any and all Liens and other interests of third parties, except for the security interest created by this Agreement. No financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office on the date hereof. (e) The respective locations where Debtor keeps the Collateral and Debtor's principal place of business and chief executive office are and will be located at the address first set forth hereinabove. (f) The correct corporate name of Debtor on the date hereof is AccuMed International, Inc., and Debtor will not use any other corporate or fictitious name without notifying Secured Party. Debtor will not change its name, identity or structure in any manner without the prior written consent of Secured Party, which shall not be unreasonably withheld, provided that, as a condition to the effectiveness of any such consent, Debtor shall execute and deliver to the Secured Party, at Debtor's expense, any financing statements or other documents requested by Secured Party reasonably necessary or desirable to maintain the validity, perfection and priority of the Lien intended to be created hereby. (g) This Agreement, together with the filing of a financing statement with the Secretary of State of Illinois, upon the giving of value to Debtor by Secured Party, creates a valid and perfected security interest in the Collateral (other than Collateral in which a security interest may not be perfected by filing a financing statement under the Code) in accordance with the terms of this Agreement. (h) No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any governmental authority is required (i) for the grant by Debtor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by Debtor, (ii) for the perfection or, except for the filing of the appropriate continuation statements with respect to the financing statements described in clause (g) above, maintenance of the security interest created hereby (including the maintenance of the relative priority of such security interest), or (iii) for the exercise by Secured Party of its rights and remedies hereunder. (i) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived in writing. 5 3.2 Covenants. Until performance, payment and/or satisfaction, in full, of the Liabilities, Debtor covenants and agrees as follows: (a) Debtor will furnish to Secured Party such information relevant to the Collateral as Secured Party may from time to time reasonably request, including, without limitation, documents pertaining to the original delivery of the Collateral to Debtor or other receipts for such Collateral. (b) Debtor will maintain adequate insurance against loss or damage to the Collateral and shall cause Secured Party to be named as an additional insured and loss payee with respect thereto during the term of this Agreement. Debtor shall promptly and from time to time, upon request, provide Secured Party with written certification of such insurance coverage. 4. SALES, COLLECTIONS AND REPORTS 4.1 Sales. Debtor may not sell or otherwise dispose of the Collateral (other than within the ordinary course of its business, consistent with past practice) without the prior written consent of Secured Party. At such time, upon or after the occurrence of a Default, if any, as Secured Party shall notify Debtor of such Default, Debtor shall take such action with respect to the disposition of the Collateral and of the proceeds thereof, as Secured Party may request. 4.2 Endorsement by Secured Party. Debtor hereby authorizes Secured Party to endorse, in the name of Debtor, any item, howsoever received by Secured Party, representing proceeds of any of the Collateral. 4.3 Other Collateral Issues. Debtor will deliver to Secured Party, at such times and in such form as shall reasonably be designated by Secured Party, assignments, schedules and reports relating to the Collateral. Upon request by Secured Party, Debtor will mark its books and records to reflect the security interest of Secured Party in the Collateral. 5. DEFAULT; REMEDIES 5.1 Remedies. In the event a Default shall occur and while it is continuing: (a) All Liabilities may (notwithstanding any provisions thereof), at the option of Secured Party, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable, and Secured Party may exercise from time to time any rights or remedies available to it under applicable laws or in equity, including, without limitation, the Code, in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement, in any of the other Financing Agreements, or otherwise, all of which remedies shall be cumulative. (b) At Secured Party's request, Debtor will promptly, at Debtor's expense, 6 assemble the Collateral at one or more places, reasonably convenient to both parties, where the Collateral may, at Secured Party's option, remain, at Debtor's expense, pending sale or other disposition thereof. (c) Debtor acknowledges that any breach by Debtor of any of the provisions of this Section 5.1 will cause irreparable injury to Secured Party, and that there is no adequate remedy at law for a breach of the provisions of such Section. Debtor agrees that Secured Party will have the immediate right, upon such breach, to seek to obtain injunctive and other equitable relief in any court of competent jurisdiction without any requirement of notice, and that the granting of any such relief shall not preclude Secured Party from pursuing any other available relief or remedies for such breach. 5.2 Sale of Collateral. Any notification required by law of intended sale, lease or other disposition by or on behalf of Secured Party of any of the Collateral shall be deemed reasonably and properly given if mailed, postage prepaid, to Debtor at Debtor's address set forth at the beginning of this Agreement, at least twenty (20) business days before such sale, lease or other disposition. Notice sent in such manner shall be deemed received on the fifth business day following the day of deposit in the mails. Any proceeds of any sale, lease or other disposition by Secured Party of any of the Collateral may be applied by Secured Party to the payment of expenses in connection with the Collateral, including, without limitation, reasonable "Attorneys' Fees" (as defined in Section 5.3 hereof) and legal expenses. Any balance of such proceeds may be applied by Secured Party toward the payment of the Liabilities in the manner set forth in Section 7.5 hereof. Debtor shall remain liable for any deficiency, and Secured Party shall account for any surplus. 5.3 Attorneys' Fees; Costs and Expenses. "Attorneys' Fees" shall mean the reasonable value of the services of the attorneys and legal agents employed by Secured Party, from time to time, to commence, defend or intervene in any court proceeding, or to file a petition, complaint, answer, motion or other pleadings, or to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) relating to the Collateral, this Agreement, the Note, or any of the other Financing Agreements, or to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral or to attempt to enforce any security interest in any of the Collateral, or to enforce the rights of Secured Party to collect any of the Liabilities. Such attorneys' fees, and any expenses, costs and charges relating thereto, including, without limitation, all fees of all paralegals and other staff employed by such attorneys, and all other costs and expenses incurred by Secured Party with respect to the enforcement, collection or protection of its interests in the Collateral shall be repayable by Debtor to Secured Party on demand, shall be additional Liabilities and shall be secured by the Collateral. 5.4 Waiver of Bonds. IN THE EVENT THAT SECURED PARTY SEEKS TO TAKE POSSESSION OF ANY OR ALL OF THE COLLATERAL BY COURT PROCESS, TO OBTAIN ANY INJUNCTION OR OTHER EQUITABLE RELIEF REQUIRING DEBTOR TO COMPLY WITH ANY OR ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, SECTION 5.1 HEREOF, OR OTHERWISE TO COMPLY WITH APPLICABLE LAW, DEBTOR HEREBY IRREVOCABLY 7 WAIVES ANY BONDS AND ANY SURETY THEREON OR SECURITY RELATING THERETO THAT IS REQUIRED OR ALLOWED BY ANY STATUTE, COURT RULE OR OTHERWISE AS AN INCIDENT TO SUCH POSSESSION OR INJUNCTION, AND WAIVES ANY DEMAND FOR POSSESSION PRIOR TO THE COMMENCEMENT OF ANY SUIT OR ACTION TO RECOVER WITH RESPECT THERETO. 5.5 Waiver of Demand. Except as otherwise provided in the Note, demand, presentment, protest and notice of nonpayment is hereby waived by Debtor. Debtor also waives the benefit of all valuation, appraisal and exemption laws. 5.6 Waiver of Notice. IN THE EVENT OF A DEFAULT (PURSUANT TO AUTHORITY GRANTED BY ITS BOARD OF DIRECTORS), DEBTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY SECURED PARTY OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR HEARING, AND DEBTOR ACKNOWLEDGES THAT IN EXECUTING THIS AGREEMENT IT HAS BEEN ADVISED BY COUNSEL WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT. 5.7 Grant of License. Secured Party is hereby granted a license and right to use, following the occurrence and during the continuance of a Default, without payment of royalty or other compensation, Debtor's labels, patents, copyrights, trade names, trademarks, service marks, and advertising material, as it pertains to the Collateral, in connection with, advertising for sale and selling of any Collateral. 6. TERM 6.1 Term of Agreement. This Agreement shall continue in full force and effect so long as any Liabilities are owing by Debtor to Secured Party. 6.2 Termination. No termination of this Agreement shall in any way affect or impair the rights or liabilities of the parties hereto with respect to any transactions or events that occurred prior to such termination date or to any Collateral in which Secured Party has a security interest. All agreements, warranties and representations of Debtor shall survive such termination. 7. MISCELLANEOUS 7.1 Receipt of Payments. For purposes of determining the amount of the Liabilities, including, without limitation, the computations of interest that may from time to time be owing by Debtor to Secured Party, the receipt of any check or any other item of payment by Secured Party shall not be treated as a payment on account of the Liabilities until such check or other item of payment is actually paid in collected funds. Any statement of account rendered by Secured Party to Debtor relating to the Liabilities, including, without limitation, all statements of balances owing, accrued interest, expenses and costs, shall be presumed to be correct and accurate and constitute an account stated unless, within thirty (30) days after receipt thereof by Debtor, Debtor shall deliver to Secured Party written objection thereto specifying the error or errors, if any, 8 contained in any such statement. 7.2 Successors and Assigns. Whenever in this Agreement there is reference made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and assigns of such party. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of Debtor and Secured Party. 7.3 Survival of Representations. All representations and warranties of Debtor, and all terms, provisions, conditions and agreements to be performed by Debtor contained herein, or in any of the other Financing Agreements, shall be true and satisfied at the time of the execution of this Agreement, and shall survive the execution and delivery of this Agreement. 7.4 Governing Law; Severability. This Agreement shall be construed in all respects in accordance with, and governed by, the laws and decisions of the State of Illinois, without regard to conflicts of laws principles. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 7.5 Application of Payment. Debtor irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received by Secured Party from Debtor, and Debtor does hereby irrevocably agree that Secured Party shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times hereafter against the Liabilities hereunder in such manner as Secured Party may deem advisable, notwithstanding any entry by Secured Party upon any of its books and records. 7.6 Invalidated Payment. Debtor agrees that to the extent that Debtor makes a payment or payments to Secured Party, which payment or payments, or any part thereof, are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Debtor, its estate, trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Liability or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated and included within the Liabilities as of the date of such initial payment, reduction or satisfaction occurred. 7.7 Submission to Jurisdiction. DEBTOR CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF ILLINOIS, AND DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON DEBTOR AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO DEBTOR AT ITS ADDRESS STATED AT THE BEGINNING OF THIS AGREEMENT. 7.8 Notice. Except as otherwise provided for herein, any statement, notice or other 9 communication required or permitted hereunder shall be in writing and may be personally served, sent by facsimile transmission, air courier guaranteeing next business day delivery or certified or registered United States mail, postage prepaid, and shall be deemed delivered upon receipt if personally served, upon confirmation of receipt if sent by facsimile transmission, the next business day, if sent by air courier guaranteeing next business day delivery, and, if sent by mail, three (3) business days after deposit in the United States mail with postage prepaid and properly addressed. For purposes of this Section 7.8, the addresses of the parties hereto shall be as follows: If to Debtor, at: AccuMed International, Inc. 920 N. Franklin St., Suite 402 Chicago, IL 60610 Attention: Paul F. Lavallee, Chairman of the Board and Chief Executive Officer Telecopier: (312) 642-8684; Confirmation:(312) 642-9200 With a copy to: Joyce L. Wallach, Esq. 1500 7th Avenue Sacramento, CA 95818 Telecopier: (916) 341-0256; Confirmation: (916) 341-0255 If to Secured Party, at: Ampersand Medical Corporation 414 N. Orleans, Suite 510 Chicago, IL 60610 Attention: Peter P. Gombrich, Chairman of the Board and Chief Executive Officer Telecopier: (312) 222-9580; Confirmation: (312) 222-9550 With a copy to: Schwartz, Cooper, Greenberger & Krauss, Chartered 180 N. LaSalle Street, Suite 2700 Chicago, IL 60601 Attention: Richard J. Firfer, Esq. or Robert A. Smoller, Esq. Telecopier: (312) 728-8416; Confirmation: (312) 346-1300
or, as to each party, at such other address as may be designated by such party in a written notice to the other party to this Agreement in accordance with this Section 7.8. 7.9 Conflict With Note. In the event of any conflict between the terms and provisions of the Note, on the one hand, and the terms and provisions of this Agreement, or the terms and provisions of any other Financing Agreement, on the other hand, the terms and provisions of the Note shall prevail. 10 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first hereinabove written. ACCUMED INTERNATIONAL, INC. By:/s/ PAUL F. LAVALLEE --------------------------------- Paul F. Lavallee, Chairman of the Board and Chief Executive Officer AMPERSAND MEDICAL CORPORATION By:/s/ PETER P. GOMBRICH --------------------------------- Peter P. Gombrich, Chairman of the Board and Chief Executive Officer EX-10.37 9 v70395ex10-37.txt EXHIBIT 10.37 1 EXHIBIT 10.37 SECURED PROMISSORY NOTE $225,000.00 March 1, 2001 Chicago, Illinois 1. FOR VALUE RECEIVED, AccuMed International, Inc. ("Maker"), whose principal place of business is located at 920 North Franklin Street, Suite 402, Chicago, Illinois 60610, hereby promises to pay to the order of Ampersand Medical Corporation ("Payee"), whose principal place of business is located at 414 North Orleans, Suite 510, Chicago, Illinois 60610, the principal sum of TWO HUNDRED TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($225,000.00), at the place and in the manner hereinafter provided, together with interest thereon at the rates described below. 2. Interest shall accrue on the balance of principal from time to time unpaid under this Note prior to the Maturity Date (as hereinafter defined) at an annual rate equal to Prime plus two and one-half percent (22%). For purposes hereof, "Prime" shall mean the rate of interest from time to time announced by LaSalle Bank, National Association ("Bank"), as its Prime Rate, which is not necessarily the Bank=s lowest or most favorable rate of interest at any given time. Interest shall be computed on the basis of a year consisting of 360 days and shall be based on the actual number of days during the period for which interest is being charged. 3. Principal and interest under this Note shall be due and payable on the earlier to occur of the following: (i) termination of the contemplated merger transaction as outlined in the Merger Agreement (as such term is defined in paragraph 4 hereof); and (ii) May 31, 2001 or such later date as the parties to the Merger Agreement may, from time to time, establish as the termination date of the Merger Agreement by amendment thereto (such payment due date being hereinafter referred to as the "Maturity Date"); provided, however, the Maturity Date shall be automatically extended (without requiring a written amendment hereto) to such later date, if any, as Maker and Payee agree by amendment of the date specified in Section 4.4(a)(v) of the Merger Agreement (as such term is hereinafter defined). 4. This Note is executed and delivered in connection with that certain Agreement and Plan of Merger, dated as of February 7, 2001 by and between Payee and Maker (the "Merger Agreement"), pursuant to which the parties thereto have agreed to enter into the merger described therein. This Note evidences an Additional Loan (as such term is defined in the Merger Agreement) from Payee to Maker referred to in paragraph 1.12 of the Merger Agreement. 5. From and after the Maturity Date, or during any period in which an Event of Default (as hereinafter defined) exists under this Note, Maker shall pay interest on the balance of principal then remaining unpaid at an annual rate (the "Default Rate") equal to Prime plus five percent (5%). The interest accruing under this paragraph 5 shall be immediately due and payable by Maker to the holder of this Note on demand and shall be additional indebtedness evidenced by this Note. 2 6. Maker reserves the privilege, without penalty or premium therefor, to prepay all or any part of the principal balance of this Note at any time and from time to time upon two (2) business days prior written notice to Payee of its intention to do so. 7. All payments and prepayments on account of the indebtedness evidenced by this Note shall be first applied to accrued and unpaid interest on the unpaid principal balance of this Note, and second to all other sums then due Payee hereunder. 8. All payments of principal and interest hereunder shall be paid by check or in coin or currency and shall be made at Payee=s principal place of business, as hereinabove set forth. Payment made by check shall be deemed paid on the date Payee receives such check; provided, however, that if such check is subsequently returned to Payee unpaid due to insufficient funds or otherwise, the payment shall not be deemed to have been made and shall continue to bear interest until collected. If payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of Illinois, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the then applicable interest rate during such extension. 9. An Event of Default shall occur hereunder if: (1) any amount payable hereunder is not paid when due; or (2) Maker shall otherwise fail to perform any of the promises to be performed by Maker hereunder or under any security agreement with Payee relating thereto; or (3) Maker or any person who is or shall become primarily or secondarily liable for any payment hereunder, who is a natural person, dies; or (4) Maker or any other party liable with respect to any payment hereunder, or any guarantor or accommodation endorser or third party pledgor, shall make any assignment for the benefit of creditors, or there shall be commenced by or against Maker or any such party any bankruptcy, receivership, insolvency, reorganization, dissolution or liquidation proceedings, or there shall be the entry of any judgment, levy, attachment, garnishment or other process, or the filing of any lien, against any of the Collateral (as such term is defined in the Security Agreement referred to in paragraph 12 hereof); or (5) in the opinion of Payee, acting in good faith, there is any deterioration or impairment of any of the Collateral, or any actual decline or depreciation in the value or market price thereof that causes the Collateral to become unsatisfactory as to value, and the Payee has provided Maker with written notice describing the basis of such opinion, and if Maker has failed, within five (5) business days after receiving such notice to (x) provide documents effectively refuting such opinion to Payee=s satisfaction, or (y) provide additional Collateral to eliminate the deficit or pay down the indebtedness in an amount sufficient to erase such deficit; or (6) there is a determination by Payee that a material adverse change has occurred in the financial condition of the Maker from the condition set forth in the most recent financial statement of Maker furnished to Payee, or from the financial condition of the Maker most recently disclosed to Payee in any manner; or (7) Maker shall fail to do any commercially reasonable act necessary to preserve or maintain the value and collectability of the Collateral; or (8) Maker shall fail, within five (5) business days after receiving a written request by Payee, to permit inspection by Payee (during normal business hours) of Maker=s books and records pertaining to the Collateral; or (9) any guarantor of this Note shall discontinue or contest the validity of such guaranty; or (10) there shall occur any material adverse event that causes a change in the financial condition of Maker, or that would have a material adverse effect on the business of Maker. 3 10. At the election of the holder hereof, whenever Maker shall be in default as aforesaid (an "Event of Default"), and all applicable cure periods have expired without a cure having been effected, then without demand or notice of any kind, the entire unpaid principal amount hereof, and all interest accrued thereon, shall become immediately due and payable. Failure of the holder to exercise such election shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. No holder hereof shall, by any act of omission or commission, be deemed to waive any of its rights, remedies or powers hereunder or otherwise unless such waiver is in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. The rights, remedies and powers of the holder hereof, as provided in this Note, are cumulative and concurrent, and may be pursued singly, successively or together against Maker and any security given at any time to secure the repayment hereof, all at the sole discretion of the holder hereof. If any suit or action is instituted or attorneys are employed to collect this Note or any part thereof, Maker promises and agrees to pay all costs of collection, including reasonable attorneys= fees and court costs. 11. Maker hereby (i) waives presentment and demand for payment, notice of nonpayment and of dishonor, protest of dishonor, and notice of protest; and (ii) waives any and all lack of diligence and delays in the enforcement of the payment hereof. 12. This Note is secured by that certain Security Agreement, dated as of the date hereof, pursuant to which Maker has pledged certain of its assets and property, as described therein, as security for the payment hereof. 13. This Note evidences a business loan that comes within the purview of Section 205/4, paragraph (1)(c) of Chapter 815 of the Illinois Compiled Statutes, as amended. Maker agrees that the obligation evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq. 14. Time is of the essence hereof. 15. This Note is governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the statutes, laws and decisions of the State of Illinois, without regard to conflicts of laws principles. This Note may not be changed or amended orally but only by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought. 16. This Note has been made and delivered at Chicago, Illinois and all funds disbursed to or for the benefit of Maker will be disbursed in Chicago, Illinois. 17. The obligations and liabilities of Maker under this Note shall be binding upon and enforceable against Maker and its successors and assigns. This Note shall inure to the benefit of and may be enforced by Payee and its successors and assigns. 18. In the event one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable in any respect by a court of competent 4 jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Payee shall not collect a rate of interest on the principal balance under this Note in excess of the maximum contract rate of interest permitted by applicable law. All interest found in excess of that rate of interest allowed and collected by Payee shall be applied to the principal balance in such manner as to prevent the payment and collection of interest in excess of the rate permitted by applicable law. IN WITNESS WHEREOF, Maker has executed this Note as of the date first hereinabove written. ACCUMED INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE ------------------------------------------ Paul F. Lavallee, Chairman of the Board and Chief Executive Officer EX-10.38 10 v70395ex10-38.txt EXHIBIT 10.38 1 EXHIBIT 10.38 PROMISSORY NOTE --------------- U.S. $320,000.00 December 29, 2000 FOR VALUE RECEIVED, the undersigned, MONOGEN, INC., a Nevada corporation ("Maker"), hereby promises to pay ACCUMED INTERNATIONAL, INC., an Illinois corporation ("Payee"), at 920 North Franklin Street, Suite 402, Chicago, Illinois 60610, or at such other place as the holder of this Note may from time to time designate in writing, the principal sum of Three Hundred Twenty Thousand U.S. Dollars (U.S. $320,000.00), payable in lawful money of the United States of America in installments as follows: Eighty Thousand U.S. Dollars (U.S. $80,000.00) shall be due and payable on or before January 31, 2001; Eighty Thousand U.S. Dollars (U.S. $80,000.00) shall be due and payable on or before February 28, 2001; and The remaining principal balance of the Note shall be due and payable on or before March 31, 2001. This Note may be prepaid in full or in part at any time without premium or penalty. All prepayments shall be applied against installments of principal due hereunder in the inverse order of their maturity. Without affecting the liability of any maker, indorser, surety or guarantor, the holder may, from time to time and without notice, renew or extend the time for payment, accept partial payment of any or all installments due hereunder, release or impair any collateral security for payment of this Note, or agree not to sue any party liable hereunder. An Event of Default shall be deemed to have occurred under this Note if Maker (a) fails to make any payment of principal within five (5) business days of such payment's due date; (b) makes any assignment for the benefit of creditors; (c) has a receiver, liquidator or trustee appointed for all or substantially all of Maker's assets; (d) is adjudicated insolvent; or (e) files a petition for bankruptcy or reorganization. Upon the occurrence of an Event of Default, Payee may, upon five (5) business days' prior written notice to Maker, declare the entire unpaid balance of this Note immediately due and payable (the "Default Payment Date"). In the event that Payee so declares the entire unpaid balance of the Note due and payable, interest thereon shall accrue from the Default Payment Date until paid in full at a rate per annum equal to the prime rate as published in The Wall Street Journal on the issue date nearest the Default Payment Date. This Note shall be governed by, and shall be construed and interpreted in accordance with, the internal laws of the State of Illinois, without reference or regard to the conflicts of law rules thereof. The parties hereto agree that exclusive jurisdiction and venue in any action relating to this Note shall be in the Federal District Court located in 2 Chicago, Illinois, or in Illinois state courts of general jurisdiction located in Chicago, Illinois. If any provision in this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. All words used in this Note will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words "hereof" and "hereunder" and similar references refer to this Note in its entirety and not to any specific section or subsection hereof. IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date first stated above. MONOGEN, INC. By: /s/ PETER J.N. KILNER ----------------------------------------- Peter J.N. Kilner, Vice President EX-21.1 11 v70395ex21-1.txt EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARY OF ACCUMED INTERNATIONAL, INC. Oncometrics Imaging Corp., a corporation continuing under the laws of the Yukon Territory, Canada. EX-23.1 12 v70395ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF KPMG LLP The Board of Directors AccuMed International, Inc.: We consent to incorporation by reference in the registration statements on Form S-3 (Nos. 333-04715 and 333-56393) and on Form S-8 (No.333-11219) of AccuMed International, Inc. of our reports dated March 8, 2001 relating to the consolidated balance sheets of AccuMed International, Inc. and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss)and cash flows for each of the years in the three-year period ended December 31, 2000 and related schedule, which reports appear in the December 31, 2000 annual report on Form 10-K of AccuMed International, Inc. Our reports dated March 8, 2001 contain an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a working capital deficiency, which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. /s/ KPMG LLP Chicago, Illinois March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----