-----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, V3PucHncBOQyzacjRtRM6nlTcLzGpqORTpUAV6MGTLhT69GZoRBVwq9MneEtHbsW qva5OZ5Ix65ufXbTWhICUA== 0000891618-98-003923.txt : 19980817 0000891618-98-003923.hdr.sgml : 19980817 ACCESSION NUMBER: 0000891618-98-003923 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTANA MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000893160 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 942976937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20931 FILM NUMBER: 98690318 BUSINESS ADDRESS: STREET 1: 3865 N BUSINESS CENTER DRIVE CITY: TUCSON STATE: AZ ZIP: 85705 BUSINESS PHONE: 5202272155 MAIL ADDRESS: STREET 1: 3865 N BUSINESS CENTER DR CITY: TUCSON STATE: AZ ZIP: 85705 10-Q 1 FORM 10-Q FOR PERIOD ENDED 6/30/98 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended June 30, 1998, or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period From ___________ to ___________ Commission file number 000-20931. VENTANA MEDICAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2976937 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3865 North Business Center Drive Tucson, Arizona 85705 (Address of principal executive offices) (Zip Code) (520) 887-2155 (Registrant's telephone number, including area code) Not Applicable (Formal name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant (1) has 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 periods 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 ----- ----- Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be Filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes_____ No_____ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of The latest practical date. Common Stock, $0.001 par value--13,346,689 shares as of July 31, 1998. 2 VENTANA MEDICAL SYSTEMS, INC. INDEX TO FORM 10-Q Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1998 (Unaudited) and December 31, 1997 Condensed Consolidated Statements of Operations Three months ended June 30, 1998 and 1997 (Unaudited) Six months ended June 30, 1998 and 1997 (Unaudited) Condensed Consolidated Statements of Cash Flows Six months ended June 30, 1998 and 1997 (Unaudited) Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K. Signature 3 VENTANA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands except share data)
June 30, December 31, ASSETS 1998 1997 ------------- ------------- (Unaudited) (Note) Current assets: Cash and cash equivalents $ 19,178 $ 18,902 Accounts receivable 10,696 8,047 Inventories (Note 2) 7,141 5,134 Other current assets 1,781 2,109 ------------- ------------- Total current assets 38,796 34,192 Property and equipment, net (Note 3) 6,635 6,105 Intangibles, net (Note 4) 7,776 8,055 ------------- ------------- Total assets $ 53,207 $ 48,352 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 2,637 $ 2,584 Other current liabilities (Note 5) 2,765 2,894 ------------- ------------- Total current liabilities 5,402 5,478 Long term debt 1,817 471 Stockholders' equity Preferred stock - $.001 par value; 5,000,000 shares authorized (Note 7) -- -- Common stock - $.001 par value; 50,000,000 shares authorized; 13,333,356 and 13,247,226 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively 13 13 Additional Paid-In Capital 77,821 76,313 Accumulated deficit (31,669) (33,782) Accumulated other comprehensive losses (177) (141) ------------- ------------- Total stockholders' equity 45,988 42,403 ------------- ------------- Total liabilities and stockholders' equity $ 53,207 $ 48,352 ============= =============
Note: The condensed consolidated balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes 2 4 VENTANA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Sales: Instruments $ 3,827 $ 1,919 $ 7,422 $ 3,890 Reagents and other 7,755 5,534 14,515 10,521 ------------- ------------- ------------- ------------- Total net sales 11,582 7,453 21,937 14,411 Cost of goods sold 3,477 2,780 6,930 5,481 ------------- ------------- ------------- ------------- Gross profit 8,105 4,673 15,007 8,930 Operating expenses: Research and development 1,391 714 2,591 1,443 Selling, general and administrative 5,547 3,630 10,521 7,008 Non-recurring expenses -- 1,656 -- 1,656 Amortization of acquisition costs 127 127 254 254 ------------- ------------- ------------- ------------- Income from operations 1,040 (1,454) 1,641 (1,431) Other income 262 76 472 262 ------------- ------------- ------------- ------------- Net income $ 1,302 $ (1,378) $ 2,113 $ (1,169) ============= ============= ============= ============= Net income per share (Note 6) Basic $ 0.10 $ (0.11) $ 0.16 $ (0.09) ============= ============= ============= ============= Diluted $ 0.09 $ (0.11) $ 0.14 $ (0.09) ============= ============= ============= =============
See accompanying notes 3 5 VENTANA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30 -------------------------------- 1998 1997 ------------- ------------- OPERATING ACTIVITIES: Net Income $ 2,113 $ (1,169) Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,189 793 Changes in operating assets and liabilities, net (3,325) 826 ------------- ------------- Net cash provided by operating activities (23) 450 INVESTING ACTIVITIES: Purchase of property and equipment, net (1,173) (1,651) Purchase of intangible assets -- (44) ------------- ------------- Net cash used in investing activities (1,173) (1,695) FINANCING ACTIVITIES: Issuance (repayment) of debt (including amounts from related parties) and stock 1,508 (10,397) Net proceeds from public offering -- 26,138 ------------- ------------- Net cash provided by financing activities 1,508 15,741 Effect of exchange rate change on cash (36) 55 ------------- ------------- Net increase in cash and cash equivalents 276 14,551 Cash and cash equivalents, beginning of period 18,902 11,067 ------------- ------------- Cash and cash equivalents, end of period $ 19,178 $ 25,618 ============= =============
See accompanying notes 4 6 VENTANA MEDICAL SYSTEMS, INC. Notes to Condensed Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES: The accompanying condensed consolidated financial statements are unaudited. They have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and are subject to year-end audit by independent auditors. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that the consolidated financial statements be read in conjunction with the financial statements and notes included in the Company's Annual Report and Form 10-K for the year ended December 31, 1997. The information furnished reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. Such adjustments consisted only of normal recurring items. It should also be noted that results for the interim periods are not necessarily indicative of the results expected for the full year or any future period. The presentation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVENTORIES Inventories consist of the following:
June 30 December 31 1998 1997 ------------- ------------- (in thousands) Raw material and work-in-process $ 5,051 $ 4,033 Finished goods 2,090 1,101 ------------- ------------- $ 7,141 $ 5,134 ============= =============
5 7 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
June 30 December 31 1998 1997 ------------- ------------- (in thousands) Diagnostic instruments $ 5,291 $ 4,830 Machinery and equipment 3,913 3,464 Computers and related equipment 1,506 1,190 Leasehold improvements 533 472 Furniture and fixtures 183 177 ------------- ------------- 11,426 10,133 Less accumulated depreciation and amortization 4,791 4,028 ------------- ------------- $ 6,635 $ 6,105 ============= =============
4. INTANGIBLES Intangibles consist of the following:
June 30 December 31 1998 1997 ------------- ------------- (in thousands) Customer base $ 4,100 $ 4,100 Developed technology 2,800 2,800 Goodwill, patents and other 2,244 2,244 ------------- ------------- 9,144 9,144 Less accumulated amortization 1,368 1,089 ------------- ------------- $ 7,776 $ 8,055 ============= =============
5. OTHER CURRENT LIABILITIES: Other current liabilities consist of the following:
March 31 December 31 1998 1997 ------------- ------------- (in thousands) Accrued payroll and payroll taxes $ 380 $ 421 Accrued commissions 320 146 Deferred revenue 667 334 Accrued legal reserves 0 946 Sales tax payable 463 410 Other accrued liabilities 935 637 ------------- ------------- $ 2,765 $ 2,894 ============= =============
6 8 6. EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share, which was required to be adopted by the Company on December 31, 1997. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share and is computed using the weighted average number of shares of common stock outstanding in the periods presented, adjusted for the effect of dilutive securities on the balance sheet date. Net income per share for all periods has been presented in conformance with the requirements of SFAS No. 128 as well as Staff Accounting Bulletin No. 98 issued by the Securities and Exchange Commission in February 1998. Statement of Computation of Weighted Average Shares Outstanding (in thousands except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Net income $ 1,302 $ (1,378) $ 2,113 $ (1,169) Weighted average common shares outstanding, basic 13,298 12,924 13,277 12,428 Add: dilutive stock options and warrants 1,549 -- 1,421 -- ------------- ------------- ------------- ------------- Weighted average common shares outstanding, diluted 14,847 12,924 14,698 12,428 Net income per share, basic $ 0.10 $ (0.11) $ 0.16 $ (0.09) ============= ============= ============= ============= Net income per share, diluted $ 0.09 $ (0.11) $ 0.14 $ (0.09) ============= ============= ============= =============
7. PREFERRED SHARES PURCHASE RIGHTS DIVIDEND: On March 9 1998, the Company's Board of Directors approved the establishment of a rights plan. Pursuant to this plan, the Board of Directors declared a dividend distribution of one Preferred Shares Purchase Right on each outstanding share of the Company's Common Stock for shareholders of record on May 8, 1998. Each right entitles stockholders to buy 1/1000th of a share of the Company's Series A Participating Preferred Stock at an exercise price of eighty-five dollars ($85.00). The Rights become exercisable following the tenth day after a person or group announces an acquisition of 20% or more of the Company's Common Stock or announces commencement of a tender offer the consummation of which would result in ownership by the person or group of 20% or more of the Common Stock. The Company is entitled to redeem the Rights at $0.01 per Right at any time on or before the tenth day following acquisition by a person or group of 20% or more of the Company's Common Stock. 7 9 If, prior to redemption of the Rights, a person or group acquires 20% or more of the Company's Common Stock, each Right not owned by a holder of 20% or more of the Common Stock will entitle its holder to purchase, at the Right's then current exercise price, that number of shares of Common Stock of the Company (or, in certain circumstances as determined by the Board of Directors, cash, other property or other securities) having a market value at that time of twice the Right's exercise price. If, after the tenth day following acquisition by a person or group of 20% or more of the Company's Common Stock, the Company sells more than 50% of its assets or earning power or is acquired in a merger or other business combination transaction, the acquiring person must assume the obligation under the Rights and the Right will become exercisable to acquire Common Stock of the acquiring person at the discounted price. At any time after an event triggering exercisability of the Rights at a discounted price and prior to the acquisition by the acquiring person of 50% or more of the outstanding Common Stock, the Board of Directors of the Company may exchange the Rights (other than those owned by the acquiring person or its affiliates) for Common Stock of the Company at an exchange ratio of one share of Common Stock per Right. 8. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' equity. At present, the only component of comprehensive income for the Company relates to foreign currency fluctuation adjustments. The components of comprehensive income for the three and six month periods ended June 30, 1998 and 1997 are as follows:
Three Months Ended Six Months Ended June 30, June 30, --------------------- ---------------------- 1998 1997 1998 1997 -------- -------- --------- -------- Net Income (loss) $ 1,302 $ (1,378) $ 2,113 $ (1,169) Foreign currency translation adjustments (57) 306 (36) 55 -------- --------- -------- -------- Comprehensive income (loss) $ 1,245 $ (1,072) $ 2,077 $ (1,114) ======== ======== ======== ========
The components of accumulated other comprehensive income (loss) at June 30, 1998 and December 31, 1997 were $(177) and $(141), respectively. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS: The following discussion of the financial condition and results of operations of Ventana should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto included elsewhere in this Form 10-Q. This Report on Form 10-Q contains certain 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. Actual events or results may differ materially from those anticipated by such forward-looking statements as a result of the factors described herein and in the documents incorporated herein by reference. Such forward-looking statements include, but are not limited to, statements concerning risks associated with the incidence of cancer and cancer screening, improvements in automated IHC; the ability of the Company to implement its business strategy; development and introduction of new products by the Company or other parties; research and development; marketing, sales and distribution; manufacturing; competition; third-party reimbursement; government regulation; and operating and capital requirements. OVERVIEW: Ventana Medical Systems, Inc. ("Ventana" or "the Company") develops, manufactures and markets proprietary instrument/reagent systems that automate immunohistochemistry ("IHC") and in situ hybridization ("ISH") tests for the analysis of cells and tissues on microscope slides. Each Ventana proprietary system placed typically provides a recurring revenue stream as customers consume reagents and supplies sold by the Company for each test conducted. Reagents consist of two principal components: a primary antibody and a detection chemistry which is used to visualize the primary antibody. Therefore, the principal economic drivers for the Company are the number, type and method of placement of instruments, and the amount of reagents and consumables used by the customer. The Company's strategy is to maximize the number of instruments placed with customers and thereby increase its ongoing, higher margin reagent revenue stream. The Company expects that reagents will comprise a greater proportion of total revenues in the future as its installed base of instruments increases. Ventana is a medical device company and, as such, is regulated by the United States Food and Drug Administration ("FDA"). As a result, the majority of the Company's products are regulated by FDA regulations which include the 510(k) pre-market notification ("510(k)") process, pre-market approval ("PMA") process, good manufacturing procedures ("GMP") and the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). See "Certain Factors Which May Affect Future Results" elsewhere in this report. In February 1996, Ventana acquired BioTek Solutions, Inc. ("BioTek"), for an aggregate consideration of $19.1 million, consisting of cash, promissory notes, and the assumption of liabilities. The transaction was accounted for as a purchase. The purchase price was allocated between tangible net assets and intangible assets consisting of developed technology, customer list, goodwill and in-process research and development. 9 11 As a result of the merger, the Company assumed certain contractual obligations and contingent liabilities including contractual arrangements with DAKO A/S ("DAKO"), Curtin Matheson Scientific, Inc. (a subsidiary of Fisher Scientific, Inc.) ("CMS"), Kollsman Manufacturing Company, Inc. ("Kollsman") and LJL BioSystems, Inc. ("LJL"). BioTek used CMS and DAKO as third-party distributors in the United States and international markets, respectively, and supported its United States sales efforts with field sales and technical support personnel. As a result, BioTek experienced lower gross margins on United States sales than if it had sold its products directly as well as a higher level of selling expense than typically incurred in conjunction with third-party distribution arrangements. BioTek's instruments also use a detection chemistry and batch processing approach which differ from the Company's proprietary system and which also contribute to those products' lower margins. Ventana's strategy regarding BioTek has been to integrate the operations of BioTek into the Ventana business model, in which most manufacturing, sales and marketing activities are performed by the Company. The United States distribution agreement between BioTek and CMS was terminated by mutual agreement in October 1997. The international distribution agreement with DAKO was amended and restated in May 1998 and provides for exclusive distribution of TechMate instruments by DAKO in defined geographic areas until the earlier of December 31, 1999 or when DAKO introduces a competitive product. The Company places instruments through direct sales, including nonrecourse leases, instrument rentals and the Company's qualified reagent installed base program ("QRIB"). In a QRIB, the Company provides the customer with the use of an instrument for a period of up to six months provided the customer purchases a minimum amount of reagents and consumables. At the end of the six month period, the customer must elect to purchase, rent or return the system. For QRIB placements, the Company incurs the cost of manufacturing or procuring instruments and recognizes revenues only at the time the instrument is either sold or rented rather than at the time of instrument placement. The manufacturing cost of instruments placed through QRIBs and rentals is charged to cost of goods sold by depreciating standard costs over a period of four years. The Company's future results of operations may fluctuate significantly from period to period due to a variety of factors. The initial placement of an instrument is subject to a longer, less consistent sales cycle than the sales of reagents, which begin and typically are recurring once an instrument is placed. The Company's operating results in the future are likely to fluctuate substantially from period to period because instrument sales are likely to remain an important part of revenues in the near future. The degree of fluctuation will depend on the timing, level and mix of instruments placed through direct sales and instruments placed through QRIBs or rentals. In addition, average daily reagent use by customers may also fluctuate from period to period, which may contribute to future fluctuations in revenues. Sales of instruments may also fluctuate from period to period because sales to the Company's international distributors typically provide such distributors with several months of instrument inventory, which the distributors will subsequently seek to place with end-users. The Company's instrument installed base includes instruments shipped to DAKO and recognized as sales. Furthermore, due both to the Company's increased sales focus on smaller hospitals and laboratories and the relatively high reagent sales growth rates in recent fiscal periods, the rate of growth in reagent sales in future periods is likely to be below that experienced during the past several fiscal periods. Other factors that may result in fluctuations in operating results include the timing of new product announcements and the introduction of new products and new technologies by the Company and 10 12 its competitors, market acceptance of the Company's current or new products, developments with respect to regulatory matters, availability and cost of raw materials purchased from suppliers, competitive pricing pressures, increased sales and marketing expenses associated with the implementation of the Company's market expansion strategies for its instruments and reagent products, and increased research and development expenditures. Future instrument and reagent sales could also be adversely affected by the configuration of the Company's patient priority systems, which require the use of the Company's detection chemistries, particularly if and to the extent that competitors are successful in developing and introducing new IHC instruments or if competitors offer reagent supply arrangements having pricing or other terms more favorable than those offered by the Company. Such increased competition in reagent supply could also adversely affect sales of reagents to batch processing instrument customers since those instruments do not require the use of the Company's reagents. In connection with future introductions of new products, the Company may be required to incur charges for inventory obsolescence in connection with unsold inventory of older generation products. To date, however, the Company has not incurred material charges or expenses associated with inventory obsolescence in connection with new product introductions. In addition, a significant portion of the Company's expense levels is based on its expectation of higher levels of revenues in the future and is relatively fixed in nature. Therefore, if revenue levels are below expectations, operating results in a given period are likely to be adversely affected. RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997: Net Sales: Net sales for the three and six months ended June 30, 1998 as compared to the same periods in 1997 increased 55% and 52% to $11.6 million and $21.9 million from $7.5 million and $14.4 million, respectively. The increase in net sales was attributable to an 99% and 91% increase in instrument sales for the three and six month periods and 40% and 38% increases in reagent and other sales for the three and six month periods. Instrument sales increased in both periods primarily due to large numbers of 1997 QRIB placements being converted to direct sales in 1998. Reagent and other sales increased due to sales of reagents to new customers and increased shipments to existing customers. Gross Margin: Gross profit for the three and six months ended June 30, 1998 increased to $8.1 million and $15.0 million, respectively, from $4.7 million and $8.9 million for the same periods in 1997, and the Company's gross margin for the three and six month periods increased to 70% and 68% from 63% and 62% for the prior year periods. Gross margins on instruments increased during the 1998 periods as a result of sales of the Company's NexES instrument, which was introduced in late 1997 and which has a lower manufacturing cost than its predecessor. Gross margins on reagent and other sales increased in the 1998 periods primarily due to a higher mix of proprietary reagent products, which carry a higher margin than batch processing reagents. In addition, higher pricing for reagents and increased service profitability contributed to the margin improvements. 11 13 Research and Development: Research and development expenses were $1.4 million for the three months ended June 30, 1998, and $2.6 million for the six months ended June 30, 1998. These amounts represent a 95% increase for the three month period and an 80% increase for the six month period over the respective periods of the prior year. The increases resulted primarily from accelerated development work on new special stains and in situ hybridization instrumentation, but also reflected a general increase in research activity and headcount investment. Research and development expenses also increased as a percent of sales to approximately 12% for the both 1998 periods compared to approximately 10% for the same periods during 1997, for the reasons noted above. Selling, General and Administrative ("SG&A"): Presented below is a summary of SG&A expense for the three and six months ended June 30, 1998 and 1997. SG&A SUMMARY:
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- -------------------------------------------- 1998 1997 1998 1997 ------------------- ------------------- ------------------- ------------------- % % % % $ Sales $ Sales $ Sales $ Sales ------------------- ------------------- ------------------- ------------------- ($ in thousands) Sales and marketing $ 4,360 38% $ 2,747 37% $ 8,211 37% $ 5,197 36% Administration 1,187 10% 883 12% 2,310 11% 1,811 13% ------------------- ------------------- ------------------- ------------------- Total SG&A $ 5,547 48% $ 3,630 49% $10,521 48% $ 7,008 49% =================== =================== =================== ===================
SG&A expense for the three month and six months ended June 30, 1998 increased to $5.5 and $10.5 million from $3.6 million and $7.0 million for the three and six months ended June 30, 1997, respectively. SG&A expense as a percentage of net sales decreased slightly for both 1998 periods to 48% as compared to 49% for both periods in 1997. The fluctuation in SG&A expenses from period to period reflects the growth of Ventana's sales and marketing organization to facilitate its market expansion strategy and a corresponding increase in infrastructure expenses to support a larger business base. The growth in sales and marketing expense in absolute terms is a function of the Company's decision to service the market through its own sales and marketing staff. In addition, increased sales volumes contributed to the increase as the Company increased its sales and marketing staff to support sales growth. As a percentage of sales, sales and marketing expenses were approximately equal during the 1997 and 1998 periods. The decline in administrative expenses as percentage of sales in the 1998 periods was due to a relative decline in litigation-related expenses. However, administrative expenses did increase in absolute terms due primarily to the Company's expanding business base in Europe and Japan. Amortization of Intangibles: Intangible assets consist primarily of goodwill, customer base and developed technology resulting from the BioTek acquisition, and patents. Such assets are amortized to expense over 12 14 estimated useful lives of 15 to 20 years. As a result, the Company will charge to expense each quarter approximately $0.1 million for the amortization of these intangible assets. Additionally, the Company will review the utility of these assets each quarter to assess their continued value. Should the Company determine that any of these assets are impaired, it will write them down to their estimated fair market value. LIQUIDITY AND CAPITAL RESOURCES: As of June 30, 1998 the Company's principal source of liquidity consisted of cash and cash equivalents of $19.2 million. The Company also had a $5 million revolving bank credit facility and no borrowings outstanding thereunder as of June 30, 1998. As of June 30, 1998, a $0.5 million letter of credit had been issued to facilitate certain contract manufacturing arrangements for the production of TechMate instruments, leaving an available revolving credit facility of approximately $4.5 million. Borrowings under the Company's bank credit facility are secured by a pledge of substantially all of the Company's assets and bear interest at the bank's prime rate. On February 18, 1997, the Company completed a public offering of its Common Stock resulting in net proceeds of $26.1 million to the Company. During February 1997, the Company repaid the $10.3 million of outstanding notes issued in connection with the acquisition of BioTek. Such repayment was made in accordance with the provisions of the Notes which provided that no interest would be due and payable thereon if full repayment was made prior to February 26, 1997. Accrued interest of $0.6 million was reversed into income in February 1997. The Company expects to use approximately $3.0 million of its available resources during the next twelve months for expenditures to increase manufacturing capacity and to enhance to its business application computer hardware and software resources. The Company anticipates that its remaining capital resources will be used for working capital and general corporate purposes. Pending such uses, the Company intends to invest its cash resources in short-term, interest bearing, investment grade securities. During the six months ended June 30, 1998 the Company used for operations and investing activities approximately $1.2 million, which was the same amount used in the six months ended June 30, 1997. In connection with BioTek's agreement with DAKO, DAKO made two loans to BioTek secured by a pledge of substantially all of BioTek's assets. DAKO also made prepayments on future instrument sales and reagent royalties to BioTek. These loans and prepayments were used to fund TechMate 250 instrument development and working capital requirements. In May 1998, the Company and DAKO entered into an amended and restated distribution agreement for the purpose of addressing several matters including the pricing dispute for the TechMate 250. The new agreement provides for the aggregate amount of the negotiated reduction in the TechMate price to be added to the BioTek debt to DAKO and for the entire debt to be unsecured. The restated debt, which at June 30, 1998 was included as long term debt in the Company's Condensed Consolidated Financial Statements in the amount of $1.6 million, accrues interest at 7% per annum payable quarterly commencing January 1, 2000. Principal payments on the debt are to be made in 16 quarterly installments, also starting January 1, 2000. 13 15 The Company believes that its existing capital resources, together with cash generated from product sales and available borrowing capacity under its bank credit facilities will be sufficient to satisfy its working capital requirements for the foreseeable future. The Company's future capital requirements will depend on many factors, including the extent to which the Company's products gain market acceptance, the mix of instruments placed through direct sales or rentals, progress of the Company's product development programs, competing technological and market developments, expansion of the Company's sales and marketing activities, the cost of manufacturing scale up activities, possible acquisitions of complementary businesses, products or technologies, the extent and duration of operating losses and the timing of regulatory approvals. The Company may be required to raise additional capital in the future through the issuance of either debt instruments or equity securities, or both. There is no assurance that such capital will be available to the extent required or on terms acceptable to the Company, or at all. CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS: The following discussion of the Company's risk factors should be read in conjunction with the foregoing Management Discussion and Analysis of financial condition and results of operations and the Company's financial statements and related notes thereto. Because of these and other factors, past financial performance should not be considered an indication of future performance. FUTURE FLUCTUATIONS IN OPERATING RESULTS. The Company derives revenues from the sale of instruments and reagents through its direct sales force and certain international distributors. The initial placement of an instrument is subject to a longer, less consistent sales cycle than the sale of reagents, which begin and are typically recurring once the instrument is placed. Consequently, the Company's future operating results are likely to fluctuate substantially from period to period because instrument sales are likely to remain an important part of revenues in the near future. The degree of fluctuation will depend on the timing, level and mix of instruments placed through direct sale versus QRIBs and rentals. In addition, average daily reagent use by customers may fluctuate from period to period, which may contribute to future fluctuations in revenues. In particular, customers who have received instruments under rental arrangements do not necessarily provide for specified reagent purchase commitments and there can be no assurance regarding the timing or volume of reagent purchases by such customers. Furthermore, customers that have entered into agreements may cancel those agreements. Accordingly, there can be no assurance regarding the level of revenues that will be generated by customers procuring instruments through rental arrangements; therefore, the Company's business, financial condition and results of operations could be materially and adversely affected. RATE OF MARKET ACCEPTANCE AND TECHNOLOGICAL CHANGE. Use of the Company's automated systems to perform diagnostic tests is becoming increasingly accepted as a replacement for tests performed manually by laboratory personnel. The rate of market acceptance of the Company's products will be largely dependent on the Company's ability to 14 16 persuade the medical community of the benefits of automated diagnostic testing using the Company's products. Market acceptance and sales of the Company's products may also be affected by the price and quality of its products. The Company's products could also be rendered obsolete or noncompetitive by virtue of technological innovations in the fields of cellular or molecular diagnostics. RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. The Company's future growth and profitability will be dependent, in large part, on its ability to develop, introduce and market new instruments and reagents used in diagnosing and selecting treatment for cancer and other disease states. The Company depends, in part, on the success of medical research in developing new antibodies, nucleic acid probes and clinical diagnostic procedures that can be adapted for use in the Company's systems. In addition, the Company will need to obtain licenses, on satisfactory terms, for certain technologies, which cannot be assured. Certain of the Company's products are currently under development, initial testing or preclinical or clinical evaluation by the Company. Other products are scheduled for future development. Products under development or scheduled for future development may prove to be unreliable from a diagnostic standpoint, may be difficult to manufacture in an efficient manner, may fail to receive necessary regulatory clearances may not achieve market acceptance or may encounter other unanticipated difficulties. COMPETITION. Competition in the diagnostic industry is intense and is expected to increase. Competition in the diagnostic industry is based on, among other things, product quality, price and the breadth of a company's product offerings. The Company's systems compete both with products manufactured by competitors and with traditional manual diagnostic procedures. The Company's competitors may succeed in developing products that are more reliable or effectively less costly than those developed by the Company and may be more successful than the Company in manufacturing and marketing their products. MANUFACTURING RISKS. The Company has manufactured patient priority instruments and reagents for commercial sale since late 1991. Manufacturing of the Company's batch processing instruments is performed by third parties. As the Company continues to increase production of such instruments and reagents and develops and introduces new products, it may, from time to time, experience difficulties in manufacturing. The Company must continue to increase production volumes of instruments and reagents, in a cost effective manner, in order to be profitable. To increase production levels, the Company will need to scale-up its manufacturing facilities, increase its automated manufacturing capabilities and continue to comply with current GMP regulations prescribed by the FDA and other standards prescribed by various federal, state and local regulatory agencies in the United States and other countries, including the International Standards Organization ("ISO") 9000 Series certifications. DEPENDENCE ON KEY SUPPLIERS. The Company's instruments and reagent products are formulated from chemicals, biological materials and parts utilizing proprietary Ventana technology as well as standard processing techniques. Certain components, raw materials and primary antibodies, used in the manufacturing of the Company's reagent products, are currently provided by single source vendors. There can be no assurance that the materials or parts or needed by the Company will be available in commercial quantities, at acceptable prices, or at all. Any supply interruption or related yield problems encountered in the use of materials from these vendors could have a material adverse effect on the Company's ability to manufacture its products until, or if, a new source of supply is obtained. 15 17 DEPENDENCE UPON THIRD PARTY MANUFACTURERS FOR BATCH PROCESSING INSTRUMENTS. The Company relies on two outside parties to manufacture its batch processing instruments. There can be no assurance that these manufacturers will be able to meet the Company's product needs in a satisfactory, cost effective or timely manner. The Company's reliance on third-party manufacturers involves a number of risks, including the absence of guaranteed capacity, reduced control over delivery schedules, quality assurance issues and costs. The amount and timing of resources to be devoted to these activities by such manufacturers are not within the control of the Company, and there can be no assurance that manufacturing problems will not occur in the future. RISKS ASSOCIATED WITH DISTRIBUTION RELATIONSHIPS. The Company's batch processing instruments and reagents have been sold under distribution agreements entered into by BioTek. In the United States, batch processing instruments and reagents were sold through Curtin Matheson Scientific, Inc. a subsidiary of Fisher Scientific, Inc. ("CMS"), under an exclusive agreement until it was terminated by mutual agreement in October 1997. United States sales through CMS were subject to several operating conditions and risks. In particular, it had been historically necessary for BioTek to support the efforts of CMS with direct field sales and support personnel. As a result, the Company generated lower gross margins on sales through CMS that it would generate were it to sell directly to end-users and incurs higher selling expenses than typically associated with third-party distribution arrangements. The Company has been distributing all batch processing products directly to end-users in the United States since the termination of this agreement. In Europe and certain other territories, batch processing instruments are sold through DAKO, which also pays BioTek a fixed dollar royalty for each instrument in service in exchange for the right to sell its own reagents for use with such systems. The agreement with DAKO provides DAKO with exclusive distribution rights for batch processing instruments in Europe and other territories. The exclusive distribution right expires on the earlier of the date of DAKO's own product introduction or December 31, 1999. The Company does not anticipate generating from DAKO significant sales of batch processing instruments through the expiration date of this agreement. RISKS ASSOCIATED WITH ACQUISITIONS. In February 1996 the Company acquired BioTek. Although the Company has no pending agreements or commitments, the Company may make additional acquisitions of complementary technologies or products in the future. Acquisitions of companies, divisions of companies, or products entail risks, including: (i) the potential inability to successfully integrate acquired operations and products or to realize anticipated synergies, economies of scale or other value, (ii) diversion of management's attention, (iii) loss of key employees of acquired operations and (iv) large one-time write-off and similar accounting changes including amortization of acquired goodwill. No assurance can be given that the Company will not incur problems in integrating BioTek's operations or any future acquisition and there can be no assurance that the acquisition of BioTek, or any future acquisition, will result in the Company becoming profitable or, if the Company achieves profitability, that such acquisition will increase the Company's profitability. Furthermore, there can be no assurance that the Company will realize value from any such acquisition which equals or exceeds the consideration paid. 16 18 RISKS RELATING TO PATENTS AND PROPRIETARY RIGHTS. The Company's success depends, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of others. There can be no assurance that the Company's patent applications will result in patents being issued or that any issued patents will provide protection against competitive technologies or will be held valid if challenged. Others may independently develop products similar to those of the Company or design around or otherwise circumvent patents issued by the Company. In the event that any relevant claims of third-party patents are upheld as valid and enforceable, the Company could be prevented from practicing the subject matter claimed in such patents, or would be required to obtain licenses from the patent owners of each of such patents or to redesign its products or processes to avoid infringement. There can be no assurance that such licenses would be available or, if available, would be on terms acceptable to the Company or that the Company would be successful in any attempt to redesign its products or processes to avoid infringement. If the Company does not obtain necessary licenses, it could be subject to litigation and encounter delays in product introductions while it attempts to design around such patents. Alternatively, the development, manufacture or sale of such products could be prevented. Litigation which could result would result in significant cost to the Company as well as diversion of management time. UNCERTAINTY OF FUTURE FUNDING OF CAPITAL REQUIREMENTS. The Company anticipates that its existing capital resources will be adequate to satisfy its capital requirements through at least the next 18 months. The Company's future capital requirements will depend on many factors, including the extent to which the Company's products gain market acceptance, the mix of instruments placed through direct sales, QRIBs or rentals, progress of the Company's product development programs, competing technological and market developments, expansion of the Company's sales and marketing activities, the cost of manufacturing scale up activities, possible acquisitions of complementary businesses, products or technologies, the extent and duration of operating losses and timing of regulatory approvals. The Company may require additional capital resources and there is no assurance such capital will be available to the extent required, on terms acceptable to the Company, or at all. Any such future capital requirements would result in the issuance of equity securities which could be dilutive to existing stockholders. DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the retention of principal members of its management, scientific, technical, marketing and sales staff and the recruitment of additional personnel. The Company does not maintain "key person" life insurance on any of its personnel. The Company competes with other companies, academic institutions, government entities and other organizations for qualified personnel in the areas of the Company's activities. The inability to hire or retain qualified personnel could have material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY RELATED TO GOVERNMENT FUNDING. A portion of the Company's products are sold to universities, research laboratories, private foundations and other institutions where funding is dependent upon grants from government agencies, such as the National Institutes of Health. However, research funding by the government may be significantly reduced under several budget proposals under consideration in the United States Congress, or for other reasons. Any such reduction may materially affect the ability of the Company's research customers to purchase the Company's products. FDA AND OTHER GOVERNMENT REGULATIONS. The manufacturing, marketing and sale of the Company's products are subject to extensive and rigorous government regulations in the 17 19 United States and other countries. In the United States, and certain other countries, the process of obtaining and maintaining required regulatory approvals is lengthy, expensive and uncertain. In the United States, the FDA regulates, as medical devices, clinical diagnostic tests and reagents, as well as instruments used in the diagnosis of adverse conditions. The Federal Food, Drug and Cosmetic Act governs the design, testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of the Company's products. There are two principal FDA regulatory review paths for medical devices: 510(k) process and the PMA process. The PMA process typically requires the submission of more extensive clinical data and is costlier and more time-consuming to complete than the 510(k) process. Regulators of medical devices in foreign countries where the Company operates have regulations similar to the United States in most cases. Additionally, the Company is required to comply with the FDA's good manufacturing procedures regulations. These regulations mandate certain operating, control and documentation procedures when manufacturing medical products, instruments and devices. The Company is also required to comply with the FDA's Clinical Laboratory Improvement Amendments of 1988 ("CLIA") regulations. These rules restrict the sale of reagents to clinical laboratories certified under CLIA. The full implementation of CLIA rules could limit the clinical customers to which the Company could sell reagents in the future. In addition to these regulations, the Company is subject to numerous federal, state and local laws and regulations relating to such matters as safe working conditions and environmental matters. There can be no assurance that such laws and regulations will not in the future have a material adverse effect on the Company's business, financial condition and results of operations. RISKS RELATING TO AVAILABILITY OF THIRD-PARTY REIMBURSEMENT AND POTENTIAL ADVERSE EFFECTS OF HEALTH CARE REFORM. The Company's ability to achieve revenue growth and profitability may depend on the ability of the Company's customers to obtain adequate levels of third-party reimbursement for the use of certain diagnostic tests in the United States, Europe and other countries. Currently, availability of third-party reimbursement is limited and uncertain for some IHC tests. PRODUCT LIABILITY AND RECALL; PRODUCT LIABILITY INSURANCE. The marketing and sales of the Company's diagnostic instruments and reagents entails risk of product liability claims. The Company has product liability insurance coverage with a per occurrence maximum of $1.0 million and an aggregate annual maximum of $10.0 million. There can be no assurance that this level of insurance coverage will be adequate or that insurance coverage will continue to be available on acceptable terms, or at all. A product liability claim or recall could have a material adverse effect on the Company's business, reputation, financial condition and results of operations. ENVIRONMENTAL MATTERS. Certain of the Company's manufacturing processes, primarily processes involved in manufacturing certain of the Company's reagent products, require the use of potentially hazardous and carcinogenic chemicals. The Company is required to comply with applicable federal, state and local laws regarding the use, storage and disposal of such materials. The Company currently uses third-party disposal services to remove and dispose of the hazardous materials used in the processes. The Company could, in the future, encounter claims from individuals, governmental authorities or other persons or entities in connection with exposure to, disposal or handling of such hazardous materials or violations of environmental 18 20 laws by the Company or its contractors and could also be required to incur additional expenditures for hazardous materials management or environmental compliance. Costs associated with environmental claims, violations of environmental laws or regulations, hazardous materials management and compliance with environmental laws could have a material adverse effect on the business, financial condition and results of operations of the Company. POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock, similar to the securities of other medical device and life sciences companies, is likely to be highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, FDA and other governmental regulations, developments with respect to patents or proprietary rights, public concern as to the safety of products developed by the Company or others, changes in financial analysts' estimated earnings or recommendations regarding the Company and general market conditions may have a material adverse effect on the market price of the Company's Common Stock. The Company's results of operations may, in future periods, fall below the expectations of public market analysts and investors and, in such event, the market price of the Company's Common Stock could be materially and adversely affected. ABSENCE OF DIVIDENDS. The Company has not declared or paid any cash dividends since its inception and does not intend to pay any cash dividends in the foreseeable future. In addition, the Company's bank credit agreement currently prohibits the Company from paying cash dividends. READINESS FOR THE YEAR 2000. The Company has developed a plan to modify its information technology to recognize the year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by the fourth quarter of 1998. The cost of this project will be immaterial and the Company does not expect it to have a significant effect on operations. The Company will continue to implement systems with strategic value and has started to implement a major upgrade of its management information systems which is expected to be completed by early 1999. In addition, the Company is initiating formal communications with significant suppliers and customers to determine the extent of which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. There is no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's operations. 19 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In March 1995, BioGenex Laboratories sued BioTek in the U.S. District Court for the Northern District of California for infringement of certain patent rights held by BioGenex relating to an antigen retrieval method used in IHC tests. BioGenex's claims included claims of both direct, indirect and contributory infringement. BioTek denied infringement and asserted several defenses, including the invalidity of the patent. In April 1995, BioTek ceased offering the products that were the subject of the alleged infringement. In May 1997, a judgment for approximately $850,000 was rendered against BioTek, which BioTek appealed. In April 1998, the Court of Appeals denied the appeal and the Company promptly satisfied all obligations stemming from the judgment. In January 1997, four individuals who are former BioTek noteholders who held in the aggregate approximately $1.1 million in principal amount of BioTek notes filed an action, Tse, et al v. Ventana Medical Systems, Inc., et al. No. 97-37, against the Company and certain of its directors and stockholders in the U.S. District Court for the District of Delaware. The complaint alleges, among other things, that the Company violated federal and California securities laws and engaged in common law fraud in connection with the BioTek shareholders' consent to the February 1996 merger of BioTek into Ventana and the related conversion of BioTek notes into Ventana notes. Plaintiffs seek substantial compensatory damages several times in excess of the principal amount of their BioTek notes, as well as substantial punitive damages, fees and costs. On April 25, 1997, plaintiffs filed an amended complaint. The amended complaint makes the same allegations as the original complaint and adds a claim under North Carolina securities laws. In May 1997, the Company made a motion to transfer the action to the district of Arizona, or alternatively to the Central District of California, which was denied by the Court. On December 16, 1997, the Company filed a motion to dismiss the amended complaint, which motion is pending in the Court. There is currently a stay of discovery while the motion to dismiss is pending. Based on the facts known to date, the Company believes the claims are without merit and intends to vigorously contest this suit. After consideration of the nature of the claims and the facts relating to the merger and the BioTek note exchange, the Company believes that it has meritorious defenses to the claims and that resolution of this matter will not have a material adverse effect on the Company's business, financial condition and results of operations; however, the results of the proceedings are uncertain and there can be no assurance to that effect. On July 16, 1997, a shareholder demand to review and copy corporate documents pursuant to Section 220 of the Delaware General Corporation Law was denied by the Company. As a result, as action entitled, , CA. Leung v. Ventana Medical Systems, Inc., No. 15812, was filed in the Court of Chancery for the State of Delaware. The plaintiff, which is related to the plaintiffs in the securities action discussed in the preceding paragraph, seeks inspection of certain books and records of the Company. The Company believes the plaintiff seeks the documents for an improper purpose and intends to defend this case vigorously. A trial on March 3, 1998 resulted in the judge ordering the parties to reach an agreement without a court order. The agreement provides only for the plaintiff's attorney to review the corporate documents supplied. In connection with a disagreement as to which price should be charged by BioTek to DAKO for the sale of TechMate 250 instruments, DAKO filed an arbitration request with the International Chamber of Commerce in July 1997. The arbitration was scheduled for October 1998. The 20 22 parties entered into an agreement in May 1998 which resulted in a resolution of the pricing dispute and termination of the arbitration proceeding. The Company has received notices of various claims from certain former employees. In particular, a lawsuit was filed by a former employee in May 1998 against the Company alleging sexual discrimination and associated claims. Based on its review of the matter, the Company does not believe that the resolution of these claims will have a material adverse effect on the Company's business, financial condition or results of operations. Other than the foregoing proceedings, the Company is not a party to any material pending litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Company was held on April 30, 1998, for the purpose of electing two Class II directors, Edward M. Giles and Rex J. Bates, increasing the number of shares reserved for issuance under the 1996 Stock Option Plan, approving the appointment of auditors and transacting any other business that might be brought forth. Proxies for the meeting were solicited pursuant to section 14(a) of the Securities and Exchange Act of 1934 and there were no solicitations in opposition to management's solicitations. Management's nominees for Class II directors, as listed in the proxy statement were elected with the following vote:
Shares Shares Shares voted "for" "withheld" not voted ---------- ------- --------- Edward M. Giles 10,814,920 354,230 2,089,631 Rex J. Bates 10,812,412 356,738 2,089,631
The amendment to the Company's 1996 Stock Option Plan to increase the number of shares of common stock reserved for issuance thereunder by 750,000 shares to a new total of 1,750,000 was approved by the following vote:
Shares Shares Shares Shares voted "for" voted "against" "abstaining" not voted ----------- --------------- ------------ --------- 8,556,119 750,547 12,377 3,939,738
The appointment of Ernst & Young, LLP as independent auditors was approved by the following vote:
Shares Shares Shares Shares voted "for" voted "against" "abstaining" not voted ----------- --------------- ------------ --------- 11,162,556 1,800 4,794 2,089,631
No other matters were submitted for vote. 21 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1(e) Amended and Restated Distribution Agreement with DAKO dated May 18, 1998. 27.1 Financial Data Schedule.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the quarter ended June 30, 1998. 22 24 SIGNATURE Pursuant to the requirements of the securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ventana Medical Systems, Inc. Date: August 13, 1998 By: /s/ Pierre Sice --------------------------- Pierre Sice Vice President, Chief Financial Officer, Treasurer and Secretary. ( Principal Financial and Accounting Officer) 23 25 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.1(e) Amendend and Restated Distribution Agreement with DAKO dated May 18, 1998. 27.1 Financial Data Schedule
EX-10.1E 2 AMENDED AND RESTATED DISTRIBUTION AGREEMENT 1 EXHIBIT 10.1(e) AMENDED AND RESTATED DISTRIBUTION AGREEMENT THIS AMENDED AND RESTATED DISTRIBUTION AGREEMENT is made and entered into as of this 18TH day of May, 1998, by and between BIOTEK SOLUTIONS, INC., a corporation organized under the laws of the state of California, hereinafter referred to as "BioTek", VENTANA MEDICAL SYSTEMS, INC., a corporation organized under the laws of the State of Delaware, hereinafter referred to as "Ventana" and DAKO A/S, a company organized under the laws of the Kingdom of Denmark, hereinafter referred to as "DAKO." WHEREAS, DAKO and BioTek are parties to that certain distribution agreement dated September 27, 1994, as amended by the First Amendment to Distribution Agreement dated March 24, 1995 and the Second Amendment to Distribution Agreement dated September 25, 1996, to which Ventana is also a party (the "Distribution Agreement"); and WHEREAS, BioTek, Ventana and DAKO desire to amend and restate the Distribution Agreement as set forth in this document (hereinafter, this "Agreement" shall refer to the Distribution Agreement, as amended and restated herein); and WHEREAS, DAKO has commenced arbitration proceedings against BioTek and Ventana, International Chamber of Commerce case number 9695/AMW (the "Arbitration"), and the parties desire to resolve the disputes subject to Arbitration and any other disputes between them as provided in this Agreement. NOW, THEREFORE, in consideration of the respective covenants of the parties herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto do promise and agree as follows: 1. DEFINITIONS. Certain of the terms used in this Agreement shall be defined as follows: "Accessories" means software, trays, slides, and pads for use in the operation of the Instruments, and Reagents marketed by BioTek. "Accessories Term" means the period commencing on the date of this Agreement and ending on the earlier to occur of (i) the occurrence of a DAKO Default; or (ii) 5:00 pm (New York City time) on the fifth (5th) anniversary of the date of this Agreement. "BioTek Installed Base" means those Instruments located in the United States which were sold, leased or otherwise supplied to the user thereof by BioTek or Ventana or an affiliate of or distributor of BioTek or Ventana on or prior to the date of this Agreement or at any time thereafter. 2 "COLA Adjustment Factor" means 105% with respect to Accessories and 107% with respect to Parts. "DAKO Corporation" means DAKO Corporation, a California corporation and a wholly-owned subsidiary of DAKO. "DAKO Default" means the termination by BioTek of this Agreement as the result of the occurrence with respect to DAKO of an event described in Section 7, below. "DAKO Installed Base" means those Instruments located in the Territory which were sold, leased or otherwise supplied to the user thereof by DAKO or an affiliate of DAKO or a distributor appointed by DAKO or an affiliate of DAKO on or prior to the date of this Agreement or at any time thereafter. "Exclusivity Period" means the period commencing on the date of this Agreement and ending on the earlier to occur of (i) the date DAKO has offered for sale in any part of the Territory an automated slide staining instrument competitive with the Instruments, or any of them; (ii) the occurrence of a DAKO Default; or (iii) December 31, 1999. "First Installation Date" means the date DAKO (or its affiliate or a distributor of DAKO or its affiliate) first invoices its customer for accessories or reagents for use on an Instrument after that Instrument becomes operational at a customer location. "Instruments" shall mean the TechMateTM brand of automated slide staining instruments manufactured by or for BioTek, which instruments are identified by BioTek as TechMate 250TM, TechMate 500TM and TechMate 1000TM Instruments. "Parts" means parts used to repair Instruments. "Parts Term" means the period commencing on the date of this Agreement and ending on the earlier to occur of (i) the occurrence of a DAKO Default; or (ii) 5:00 pm (New York City time) on the seventh (7th) anniversary of the date of this Agreement. "Products" means the Accessories, Instruments and Parts. "Reagents" means liquid chemicals consisting of primary antibodies, detection chemistries, hematoxylin and buffers. "Restricted Accessories" means detection chemistries, hematoxylin, buffers, slides, pads, and trays, but not primary antibodies and DAKO manual detection kits. "Scientific Services" means instruction in the use of Accessories and Reagents with the Instruments. "TechMate Royalties" means the royalties payable with respect to the TechMate 1000 and 500 Instruments sold to DAKO by BioTek. 2 3 "Technical Service" means service on the Instruments. "The date of this Agreement" means the date first set forth above. "Territory" means the entire world, excluding the United States, Canada, Australia, South America, Mexico, Central America, and the Caribbean. "Ventana" means Ventana Medical Systems, Inc., a Delaware corporation. 2. DISTRIBUTION OF PRODUCTS. 2.1. DISTRIBUTION OF INSTRUMENTS. Upon the terms and subject to the conditions set forth in this Agreement, during the Exclusivity Period, DAKO shall be the exclusive distributor of Instruments in the Territory; provided, however, BioTek or any affiliate thereof may show Instruments at trade shows in the Territory during the Exclusivity Period, but will clearly identify the Instruments shown as only being available in the Territory through DAKO, the exclusive distributor of Instruments in the Territory. During the Exclusivity Period, DAKO may not sell Instruments outside of the Territory. After the end of the Exclusivity Period, DAKO, BioTek and Ventana may distribute, sell, and lease Instruments both in as well as outside the Territory directly, through distributors or otherwise. DAKO has a significant inventory of Instruments and, accordingly, will not require any additional Instruments during the Exclusivity Period or thereafter, except that DAKO hereby orders from BioTek 10 TechMate 250 Instruments, at a purchase price, FOB BioTek's facility, Tucson, Arizona, USA, of $14,080.00 per Instrument, plus a prepaid royalty of $7,000.00 per Instrument, and BioTek hereby accepts such order. BioTek will deliver those Instruments to DAKO no later than June 30, 1998. BioTek has no additional obligation hereunder or otherwise to sell or otherwise supply Instruments to DAKO. Notwithstanding any provision of this Paragraph to the contrary, nothing herein will be construed as restricting BioTek or Ventana from selling any other type of automated slide staining instrument in the Territory, including without limitation, the Ventana NexES(R). During the Exclusivity Period, Ventana and BioTek waive any right to claim that DAKO has not used its best efforts to sell Instruments in the Territory. 2.2. SUPPLY OF PARTS AND ACCESSORIES. BioTek will supply to DAKO on a timely basis, during the Accessories Term, all Accessories detailed in SCHEDULE 2.2(a) required by DAKO from time to time and, during the Parts Term, all TechMate 1000 and 500 Parts detailed in SCHEDULE 2.2(b) required by DAKO from time to time, and DAKO will purchase all of its requirements for Accessories and TechMate 1000 and 500 Parts from BioTek during such terms, except as follows: (a) DAKO may at any time terminate its obligation to purchase any item of the Accessories (an "Excluded Item") by giving BioTek 60 days prior written notice of such termination. At the end of such period, BioTek will not have any obligation to sell the Excluded Item to DAKO and DAKO will not have any obligation to purchase the Excluded Item from BioTek. When giving such notice of termination, DAKO shall at its option be allowed to cancel orders for Excluded Items to be delivered later than 90 days after the service of the written notice of termination. 3 4 (b) DAKO may at any time terminate its obligation to purchase TechMate 1000 and 500 Parts by giving BioTek 60 days prior written notice of such termination. At the end of such period, BioTek will not have any obligation to sell TechMate 1000 and 500 Parts to DAKO and DAKO will not have any obligation to purchase TechMate 1000 and 500 Parts from BioTek. BioTek hereby grants to DAKO a perpetual nonexclusive royalty free license/sub-license to all such intellectual property rights of BioTek, Ventana or third parties as necessary for the manufacture by DAKO or DAKO's suppliers of Excluded Items and the TechMate 1000 and 500 Parts, the use, marketing, and sale/lease/supply of such Excluded Items and the TechMate 1000 and 500 Parts by DAKO, DAKO's affiliates and DAKO's distributors and for the use of such Excluded Items and the TechMate 1000 and 500 Parts by the customers of DAKO and DAKO's affiliates and DAKO's distributors. Such license will commence with respect to TechMate 1000 and 500 Parts or any Accessories at such time as BioTek's obligation hereunder to supply them terminates. 2.3. PURCHASE PRICE. The purchase prices for Accessories will be as set forth on attached SCHEDULE 2.2(a) and for TechMate 1000 and 500 Parts will be as set forth on attached SCHEDULE 2.2(b). These purchase prices will be adjusted annually, effective as of the first day of each calendar year commencing January 1, 1999, to an amount equal to the product of the purchase price in effect during the previous year, multiplied by the COLA Adjustment Factor. 2.4. TECHMATE 250 PARTS. Upon the execution of this Agreement, DAKO will purchase from BioTek, and BioTek will sell to DAKO, all of BioTek's inventories of TechMate 250 Parts, which inventories are listed on attached SCHEDULE 2.4. DAKO will pay BioTek an aggregate purchase price for those inventories of $40,000.00, FOB BioTek's facilities, Tucson, Arizona, and Strasbourg, France, upon delivery. BioTek will convey to DAKO good and marketable title to those inventories, free and clear of all liens, claims and encumbrances. DAKO may return, within 30 days of their delivery to DAKO, any items of those inventories which are defective. The purchase price of the defective Parts, based on the prices of the Parts reflected on attached SCHEDULE 2.4, will be refunded for any such defective Parts returned to BioTek. BioTek hereby grants to DAKO a perpetual nonexclusive royalty free license/sub-license to all such intellectual property rights of BioTek, Ventana or third parties as necessary for the manufacture by DAKO or DAKO's suppliers of TechMate 250 Parts, the use, marketing, and sale/lease/supply of TechMate 250 Parts by DAKO, DAKO's affiliates and DAKO's distributors and for the use of such Parts by the customers of DAKO and DAKO's affiliates and DAKO'S distributors. 2.5. METAL SKINS. BioTek acknowledges that DAKO desires to purchase from BioTek, and hereby agrees to purchase, metal skins for 79 TechMate 250 Instruments. BioTek agrees to sell those metal skins to DAKO at a price of $3,200.00 per unit, FOB BioTek's facilities in Tucson, Arizona, USA; provided, however, that if DAKO establishes that a metal skin replaces a resin skin which did not pass the Xylene Resistance Test described in attached EXHIBIT 2.5(a), BioTek will grant to DAKO a discount against the price of the metal skin as set 4 5 forth in attached EXHIBIT 2.5(b) based on the component which was not resistant to xylene. The parties acknowledge that the metal skins in stock at LJL BioSystems, Inc. ("LJL") are defective and agree that the metal skins called for in this Paragraph will be supplied as follows: (a) If LJL is able to repair the defect in the metal skins in stock to the reasonable satisfaction of DAKO, DAKO will accept those skins as repaired and BioTek will deliver all of them to DAKO no later than July 15, 1998. BioTek agrees to deliver ten (10) metal skins repaired by LJL to DAKO on or before May 31, 1998 and DAKO agrees to communicate to BioTek by June 15, 1998 whether the repairs are satisfactory or unsatisfactory. (b) If the repairs are unsatisfactory to DAKO in its reasonable discretion, BioTek will supply to DAKO satisfactory skins from an alternative source no later than August 30, 1998. 2.6. SHIPPING. All Products delivered pursuant to this Agreement shall be marked for shipment at the destination designated in DAKO's written purchase order, and shipped by Federal Express or a carrier or forwarding agent mutually agreed upon by the parties. Shipments shall be FOB BioTek's facilities in Tucson, Arizona, USA or Strasbourg, France, at which time risk of loss and title will pass to DAKO. DAKO will bear all freight, insurance and other costs and expenses of shipping to DAKO the Products purchased by it. 2.7. PAYMENT TERMS. DAKO will pay the purchase price for all Products purchased hereunder, and all other amounts payable under the terms of this Agreement, within 30 days of the later of the date of invoice or delivery of the Products, except as specifically provided in this Agreement to the contrary. 2.8. ORDERS. DAKO will order Accessories and TechMate 1000 and 500 Parts hereunder by submitting firm purchase orders to BioTek. DAKO will submit such firm purchase orders on its order form and BioTek will acknowledge the order by facsimile within two (2) working days of BioTek's receipt of DAKO's order. If the terms of DAKO's order or BioTek's acceptance thereof differ from the terms of this Agreement, the terms of this Agreement will govern. 2.9. PACKAGE MARKINGS. DAKO agrees to mark all packaging and inserts for Accessories and Parts, to the extent not already marked, with BioTek's trademarks in a form and size consistent with past practices. Products not sourced from Ventana or BioTek shall not be marked with BioTek's name. DAKO shall have the right but not an obligation to use the ChemMate trademark. 2.10. MISCELLANEOUS BIOTEK SERVICES. (a) BioTek will ship promptly, but in any event not later than sixty (60) days from receipt of order, DAKO's orders for Accessories and TechMate 1000 and 500 Parts. 5 6 (b) BioTek will notify DAKO immediately in writing if BioTek becomes aware of any defect or condition which renders any Instrument or Accessory in violation of any applicable governmental statute or regulation, or which in any way alters the specifications or quality of the Instrument or Accessory. (c) BioTek will provide to DAKO such types and quantities of technical information developed or acquired by BioTek from time to time, if any, as relate to the sale of the Products and the service of the Products, hereunder the documentation specified in attached SCHEDULE 2.10(c). DAKO will use such documentation solely for the purposes set forth in this Paragraph. 2.11. RETURN OF PRODUCTS. Except for returns in accordance with applicable product warranty provisions as provided below, DAKO may not return any Products purchased by it from BioTek or Ventana or any of their affiliates, whether before, on or after the date of this Agreement. 3. SETTLEMENT OF ISSUES. 3.1. OUTSTANDING INVOICES. DAKO hereby agrees that all outstanding invoices to it from Ventana or BioTek which are not yet due will be paid when due. BioTek and Ventana will accept the amount of $58,733.39 as payment in full of the amounts outstanding under the invoices from Ventana or BioTek numbered 852, 942, 1007, 34711, 36681, and 36682. DAKO will accept the amount of $15,729.00 as payment in full of the amounts outstanding under the invoices from DAKO numbered 96041, 96521, 96717, 96986, 97777, 99064, 99472, 99475, 99492, 99610, 10021, 10892, 11446, 11447 and 11591. Such amounts will be paid by DAKO and BioTek or Ventana by wire transfer within 10 days after the date of this Agreement. 3.2. PRICE ADJUSTMENT. (a) Pursuant to the Second Amendment, DAKO ordered from Ventana 316 TechMate 250s and the parties agreed on the price for the first 33 units, but disagreed on the price for the other 283 units. The parties now agree that the price per unit for units 34 to 180 is $20,000.00 per unit and the price for additional units is $14,080.00 per unit. Accordingly, DAKO has (a) overpaid for 67 units at the rate of $10,738 per unit (i.e., the aggregate amount of $719,446), and (b) overpaid for 80 units at the rate of $7,202 per unit (i.e., the aggregate amount of $576,160). Accordingly, the net overpayment is $1,295,606.00 and the interest accrued thereon totals $51,287.45 as of May 31, 1998. (b) Under the terms of Section 2.3 of the Second Amendment, the rate at which amounts owed to DAKO by BioTek are recouped upon the sale of TechMate 250 Instruments 34 and on is reduced from as follows: (i) Instruments 34-100 per unit from $10,018 per unit to $6,500; and (ii) Instruments 101-180 from $10,018 per unit to $6,500 (which recoupment rate is hereby acknowledged and agreed to by DAKO and BioTek). Accordingly, the excess recoupment totals $517,146.00 and the interest accrued thereon totals $16,842.62 as of May 31, 1998. 6 7 (c) The net amount of the overpayments and interest referred to in the previous subparagraphs totals $812,904.83, (the "Refund Amount") calculated as follows:
DESCRIPTION OF AMOUNT OWED AMOUNT OWED -------------------------- ----------- Overpayment of Price $1,295,606.00 Excess Recoupment $ (517,146.00) Interest on Price Overpayment $51,287.45 Interest on Excess Recoupment $ (16,842.62) ------------- REFUND AMOUNT $ 812,904.83
3.3. REPAYMENT. According to Sections 2.3.a. and b. of the Second Amendment to the Distribution Agreement (the "Second Amendment"), BioTek has agreed to repay to DAKO the amount of $2,003,566.00 (of which amount, $1,646,676 has already been recouped according to the terms of Section 2.3.b.(i) and (ii) of the Second Amendment). However, Section 2.3.b. of the Second Amendment also provides for an Adjusted Recoupment Rate in the event the price of TechMate 250 Instruments is reduced. Under this Section, the Adjusted Recoupment is $1,129,530.00 leaving $874,036.00 owed by BioTek to DAKO. In addition, DAKO will be entitled to recoup the amount of $3,540.00 per unit for the Instruments purchased pursuant to Paragraph 2.1, above, further reducing the amount owed by BioTek to $838,636.00. In full settlement of these recoupment obligations (i.e., the $838,636.00 owed by BioTek to DAKO (the "Repayment Amount")), BioTek will pay the Repayment Amount to DAKO in accordance with the provisions of Paragraph 3.5, below. 3.4. ROYALTIES. DAKO and BioTek acknowledge and agree that DAKO is current in the payment of all royalty invoices issued by BioTek pursuant to the Distribution Agreement through the date of this Agreement. DAKO agrees to pay when due all outstanding royalty invoices issued by BioTek through the date of this Agreement. DAKO will continue to pay royalties for TechMate 500 and 1000 Instruments as follows (regardless of whether the Instruments were installed or sold by DAKO prior to, on or after the date of this Agreement): (a) TECHMATE ROYALTIES. DAKO shall pay to BioTek the royalties set forth in SCHEDULE 3.4 hereto with respect to TechMate 500 and 1000 Instruments that are or were sold and delivered to DAKO or delivered to DAKO's customers based on DAKO's drop shipment directions. Such royalty shall be paid to BioTek by DAKO for each instrument installed by DAKO for five (5) years after installation. Such royalties per Instrument purchased shall be paid starting on the First Installation Date of the Instrument on a monthly basis not later than thirty (30) days after the last day of the month for which the royalties are payable. The foregoing provisions to the contrary notwithstanding: (i) The royalty payable during the ninth, tenth, eleventh and twelfth months after the date of delivery and thereafter will increase only to a maximum 7 8 of $534.00 per month, for a maximum of 15 Instruments sold solely for DAKO's European distributors in the following countries: Spain, Holland, Belgium, Austria, Norway, Finland and Slovenia. (ii) Such royalty shall not be paid for Instruments sold to pharmaceutical companies that purchase limited amounts of dual-labeled Reagents from DAKO, but DAKO shall pay instead a quarterly fee equal to 25% of dual-labeled Reagents sold by DAKO for use on such Instruments. (iii) Any TechMate 500 or TechMate 1000 Instrument installed after September 27, 1997 in any country in a hospital which already has one royalty-bearing TechMate 500 or TechMate 1000 Instrument installed, shall be royalty-free. However, if the volume of Reagents sold by DAKO for use in those Instruments installed in such hospital in any 6-month period exceeds 150% of the average volume sold to hospitals with only one such Instrument during that period, then DAKO shall, with effect from the end of that 6-month period, pay royalties for those two (2) Instruments, with such payments being made retroactive to the date of installation of the second Instrument. (iv) If DAKO's total volume of Reagents sold to a particular customer for use in an Instrument over any 12 consecutive months is reduced by more than 50% compared to the previous 12 consecutive months, then the royalty payable by DAKO with respect to such Instrument for the rest of the royalty period shall, commencing with the month following such calculation, be calculated instead at 25% of the amounts invoiced for Reagents for use with such Instrument by DAKO in each month (converted into US Dollars according to the exchange rate in effect at the end of such month). The relevant 12-month periods shall be the months 7-18 after installation and each subsequent 12-month period. (v) DAKO agrees that, with respect to Instruments sold in Sweden, the United Kingdom and France, in recognition of the royalty reduction to a maximum of $334.00 per month in such countries as stated in SCHEDULE 3.4, there may be an increase in the royalty paid to BioTek by DAKO, calculated after thirty (30) months of use of an Instrument by any customer in the three aforementioned countries if there is a sufficient increase in Reagent purchases by any one customer in any of such countries as determined by the following formula: Reagent sales for months 19 through 30 (inclusive) in excess of Reagent sales for months 7 through 18 (inclusive), reflected as a percentage increase, will be adjusted by subtracting 25% points from any such percentage. Such reduced percentage (if positive) will be the percentage increase in royalty, retroactive to month 19 of customer use and will create the new royalty to apply from and after such month 19. This adjustment will be made again in months 42 and 53 of the royalty period, and any increase adjusted retroactively, if applicable, for the prior 12 months. The 8 9 base period, for purposes of calculating the royalty adjustment at months 42 and 53, will also be the months 7 through 18. Notwithstanding the above, the royalty per month cannot exceed $734.00. (b) DEINSTALLED INSTRUMENTS. In the event that a TechMate 500 or 1000 Instrument for which royalties are payable hereunder is removed from service because it is replaced by a slide staining instrument not sold through DAKO, such TechMate 500 or 1000 Instrument (a "Deinstalled Instrument") shall not be counted for purposes of calculating the above royalties until such time as that TechMate 500 or 1000 Instrument is reinstalled. (c) MAXIMUM NUMBER OF INSTRUMENTS EXCLUDED FROM THE ROYALTY BASE. The foregoing to the contrary notwithstanding, DAKO shall be able to exclude a maximum of 30 TechMate 500 Instruments from the payment of royalties on the basis that they are not installed and will pay royalties at the Standard Royalty Rate on any uninstalled Instruments in excess of 30. The Deinstalled Instruments shall not be included when calculating the maximum of 30 royalty-free Instruments. The foregoing to the contrary notwithstanding: (i) An Instrument which is not repairable shall be excluded from the above 30 Instruments and shall not be subject to royalties. (ii) If DAKO believes that an Instrument is not repairable, DAKO shall advise BioTek and the Instrument will be deemed non repairable unless repaired by BioTek within 30 days of its receipt of such notice. Any such Instrument later installed shall, however, be subject to royalties from the date of that installation. (d) CERTIFIED REPORTS. Each royalty spreadsheet delivered under subparagraph (f), below, shall be certified to be true and correct by the chief financial officer of DAKO. Such spreadsheet shall contain reasonable detail as to the calculation of the amount due. DAKO agrees to keep and maintain accurate books and records relative to the TechMate Royalties and, for purposes of permitting BioTek to verify the accuracy of any such report, DAKO will make such books and records available for inspection during normal business hours at the offices of DAKO at any time, and from time to time, by an independent accountant appointed by BioTek. Audits will be at BioTek's own expense and will be conducted at DAKO's premises. BioTek will give DAKO ten (10) days prior written notice of the audit and may not audit DAKO's books any more frequently than quarterly. (e) U.S. DEINSTALLED INSTRUMENTS. The foregoing to the contrary notwithstanding, neither DAKO nor any affiliate thereof may reinstall any Instrument previously installed in the United States, if DAKO or any affiliate thereof has in stock any Instruments of that type which are subject to the royalty provisions of this Agreement (or would be subject thereto if installed). 9 10 (f) ROYALTY ADJUSTMENT. DAKO and BioTek agree that DAKO's obligations for TechMate 500 and 1000 royalties have been overpaid by the amount of $52,618 through September 30, 1997, to be paid to DAKO within ten (10) days after the date of this Agreement. The parties also agree that DAKO has paid royalties totaling $465,420 for the six (6) months ended March 31, 1998 and that this amount may be subject to adjustment based on further analysis of actual installation data. It is further agreed that DAKO will complete an internal audit of installation activity for the six (6) months ended March 31, 1998 and communicate any resulting changes to its royalty obligation to BioTek by e-mailing an updated royalty spreadsheet by the close of business June 30, 1998, and that BioTek will issue the applicable billing adjustment or credit statement no later than July 31, 1998. Thereafter, DAKO will continue to e-mail an updated spreadsheet to BioTek by the last day of each calendar quarter to finalize the royalty for the next previous calendar quarter (i.e., by the end of the second quarter of a calendar year DAKO will e-mail to Ventana an updated spreadsheet for the first quarter of that year). BioTek will issue each applicable billing adjustment the following month. BioTek's regular billings will always be based on the most recent update. This procedure will remain in force until all royalty obligations have expired. 3.5. PAYMENT OF OBLIGATIONS. The Repayment Amount and the Refund Amount (collectively, the "Debt") will accrue interest and be payable as follows: (a) Interest will accrue on the Debt at the rate of 7% per annum commencing January 1, 2000, and be payable quarterly as of each March 31, June 30, September 30 and December 31 commencing March 31, 2000. No interest will accrue on the Debt through January 1, 2000. (b) The principal portion of the Debt will be payable quarterly, on each April 1, July 1, October 1 and January 1, commencing January 1, 2000, in sixteen (16) equal quarterly installments. (c) Ventana and BioTek shall be jointly and severally liable for the fulfillment of the payment obligations according to this Paragraph 3.5. (d) The foregoing to the contrary notwithstanding, the Debt (and all accrued interest) will become immediately due and payable upon the occurrence of any of the following events: (i) Ventana and BioTek shall fail to pay when due any amounts payable under this Paragraph 3.5 and such failure shall continue for a period of thirty (30) days after written notice thereof from DAKO to Ventana and BioTek. (ii) If Ventana and/or BioTek shall make a general assignment for the benefit of creditors or shall become the subject of an "order for relief" within the meaning of the United States Bankruptcy Code, or shall voluntarily file a petition in bankruptcy or for reorganization or effect a plan or other arrangement with creditors. 10 11 3.6. RELEASES. (a) In consideration of this Agreement and the transactions contemplated herein, and other good and valuable consideration, DAKO, for itself and its subsidiaries, affiliates, successors and assigns, forever releases and discharges BioTek, and its officers, directors, shareholders, agents, partners, representatives, attorneys, employees, and their respective heirs, successors and assigns, and each of them, past and present, including without limitation, Ventana (the "BioTek Parties"), from and against any and all actions, obligations, costs, damages, losses, claims, liabilities and demands of whatever kind or nature which DAKO has as of the date hereof or it has had against BioTek or any of the other BioTek Parties, including, without limitation, any such claim or cause of action arising out of or in connection with any agreement, event, transaction, action, omission or circumstances occurring or existing on or prior to the date hereof by or involving the BioTek Parties, or any of them, excepting the obligations of BioTek and Ventana under this Agreement and those obligations, if any, which the parties agree by the specific terms of this Agreement will survive. (b) In consideration of this Agreement and the transactions contemplated herein, and other good and valuable consideration, BioTek, for itself and its parent, subsidiaries, affiliates, successors and assigns, forever releases and discharges DAKO, and its officers, directors, shareholders, agents, partners, representatives, attorneys, employees, and their respective heirs, successors and assigns, and each of them, past and present, including without limitation, DAKO Corporation (the "DAKO Parties"), from and against any and all actions, obligations, costs, damages, losses, claims, liabilities and demands of whatever kind or nature which BioTek has as of the date hereof or has had against DAKO or any of the DAKO Parties, including, without limitation, any such claim or cause of action arising out of or in connection with any agreement, event, transaction, action, omission or circumstances occurring or existing on or prior to the date hereof by or involving the DAKO Parties, or any of them, excepting the obligations of DAKO and DAKO Corporation under this Agreement and those obligations, if any, which the parties agree by the specific terms of this Agreement will survive. 3.7. TERMINATIONS. (a) All security interests of DAKO in the assets of BioTek, or any affiliate thereof, are hereby terminated and released. In that regard, DAKO agrees to execute such Uniform Commercial Code and other termination statements and documents as necessary to release any financing statements and other Instruments which are on file to perfect such security interests. (b) All Escrow Agreements between DAKO and BioTek under which blue prints, designs, drawings, specifications and other information is escrowed for the benefit of DAKO are hereby terminated, with all such materials held in escrow released to BioTek. DAKO will, upon request, execute such documents and Instruments as necessary to effectuate such termination and the return of such materials. 11 12 3.8 ARBITRATION. Upon execution of this agreement, DAKO, Ventana and BioTek will instruct the attorney's representing them in the Arbitration to file the Stipulation of Dismissal with Prejudice attached as Schedule 3.8. 4. RESTRICTIVE COVENANTS. 4.1. DAKO INSTALLED BASE. Neither BioTek nor any affiliate thereof (including without limitation, Ventana) will, at any time during the three (3) year period immediately following the date of this Agreement, sell Restricted Accessories or Parts for use on any Instrument in the DAKO Installed Base or render Scientific Service for or Technical Service on any such Instrument, and BioTek and Ventana will not permit any distributor of BioTek or an affiliate of BioTek to do any of the foregoing (however, with regard to Scientific Services or Technical Services, BioTek and Ventana will, as regards their distributors, only be obligated to use their best efforts to restrict their distributors from performing such services). If a customer operates an Instrument which is part of the DAKO Installed Base as well as any other slide staining instrument supplied by BioTek or Ventana (including without limitation, the Ventana NexES(R)), BioTek and Ventana and their affiliates cannot be held liable if customer used Restricted Accessories or Parts supplied by BioTek or Ventana or their affiliates on Instruments which are part of the DAKO Installed Base. Nothing herein will be construed to restrict BioTek or its affiliates or distributors from supplying any other products to customers with Instruments in the DAKO Installed Base, including without limitation, slide staining instruments competitive with the Instruments. 4.2. BIOTEK INSTALLED BASE. Neither DAKO nor any affiliate thereof (including without limitation DAKO Corporation), nor any distributor of DAKO or an affiliate of DAKO, will, at any time during the three (3) year period immediately following the date of this Agreement: (a) Actively promote manual detection kits for use on any Instrument in the BioTek Installed Base. Notwithstanding any provision of this Paragraph 4.2 to the contrary, DAKO Corporation or distributors may continue to supply manual DAKO detection kits and render Scientific Services to customers who are using DAKO manual detection kits on Instruments in the BioTek Installed Base as of the date hereof. Further, BioTek acknowledges that certain customers with Instruments that are part of the BioTek Installed Base may after the date hereof decide to use manual DAKO detection kits on their Instruments despite the fact that DAKO Corporation or its affiliates or distributors have not actively promoted such use. Nothing herein will be construed to restrict BioTek or Ventana from supplying Parts, Accessories and/or Reagents to any customer in the BioTek Installed Base. (b) Sell Prediluted Ready-To-Use ChemMate like reagents (other than primary antibodies) for use in any Instrument in the BioTek Installed Base. (c) Sell Parts, buffers, slides, pads or trays for use in any Instrument in the BioTek Installed Base. 12 13 (d) Render Technical Services on any Instrument in the BioTek Installed Base. If a customer operates an Instrument which is part of the BioTek Installed Base as well as any other slide staining instrument supplied by DAKO or DAKO Corporation and their affiliates or distributors (including without limitation, a DAKO Autostainer or any other product of DAKO), DAKO and DAKO Corporation and their affiliates cannot be held liable if the customer uses products supplied by DAKO or DAKO Corporation or their affiliates on Instruments which are part of the BioTek Installed Base. Nothing herein will be construed to restrict DAKO or DAKO Corporation or their affiliates or distributors from supplying any other products to customers with Instruments in the BioTek Installed Base, including without limitation, slide staining instruments competitive with the Instruments. 4.3. CONFIDENTIALITY. Each party acknowledges the confidential nature of certain of the information which may be disclosed hereunder or which may have been disclosed under the Distribution Agreement (including, but not limited to, names of customers and other marketing-related information) and agrees to retain such information in confidence; provided, however, that no information will be deemed confidential unless so designated at the time of disclosure. This provision shall survive the termination of this Agreement for a period of three (3) years. Confidential information (especially technical information) may also be the subject of separate confidentiality agreements which the parties enter into. The foregoing provisions to the contrary notwithstanding, the term "confidential information" does not include information of a party (the "Disclosing Party") which: (i) becomes generally available to the public other than as a result of a disclosure by the other party or its employees, agents, officers or directors; (ii) was rightfully available to such other party on a non-confidential basis prior to disclosure to such other party by the Disclosing Party or its employees, agents, officers or directors; or (iii) becomes rightfully available to such other party from a source other than the Disclosing Party or its employees, agents, officers or directors. Nothing herein shall be construed to limit the rights of a party to protect information which constitutes "trade secrets" under applicable laws, which such trade secrets shall be protected to the extent provided by such applicable laws. 4.4. REMEDIES. Each party recognizes that any breach by it or its affiliates of the restrictions imposed by this Paragraph 4 may result in irreparable injury to the other party. Accordingly, each party agrees that if it or its affiliates shall engage in any acts in violation of this Paragraph 4, the other party shall be entitled, in addition to such other remedies and damages as may be available to it, to an injunction prohibiting the breaching party from engaging in any such acts. 5. TRADEMARKS; LICENSES. 5.1. TRADE MARKS. DAKO shall not have any right to use any trademark or trade name or symbol of BioTek or any translation thereof now or hereafter applied or used in relation to any of the Products or otherwise, except as provided in this Paragraph and in Paragraph 2.9, above. DAKO may use the trademarks or trade names of BioTek in the advertising and promotion of the Products and DAKO is hereby licensed by BioTek to use 13 14 BioTek's trademarks and trade names as reasonably necessary to advertise and promote the Products. In the use of these trademarks and trade names of BioTek, DAKO will adhere to the standards and guidelines consistent with past practices. 5.2. LICENSES. 5.2.1. The Parties agree that: (a) DAKO, its affiliates and distributors shall perpetually be allowed to: (i) Market, sell, lease and otherwise supply to the customers in the Territory Instruments supplied from Ventana or BioTek to DAKO. (ii) Service the needs of Instruments which are part of the DAKO Installed Base in any way, hereunder by way of rendering Scientific Services and Technical Services and supplying accessories, reagents and Parts (hereunder other accessories, reagents and Parts than those sourced from Ventana or BioTek as well as other accessories and reagents than those used with the Instruments at present). (iii) Upgrade the Instruments and any software used with the Instruments. (b) DAKO, its affiliates and distributors and their customers in the Territory shall perpetually be allowed to use the Instruments, and to use any accessories, reagents and Parts (no matter from which supplier they are sourced) with the Instruments, and to use any methods related to the use of the Instruments, no matter whether such manufacture, marketing, sale/lease/supply and use is restricted due to proprietary rights of Ventana and/or BioTek and/or third parties. 5.2.2. Ventana and BioTek hereby grant to DAKO, its affiliates and distributors and their customers, perpetually, non-exclusively and royalty-free, any and all licenses and sub-licenses under any proprietary rights necessary for DAKO, its affiliates and distributors and their customers in order to exploit their rights according to this Paragraph 5.2. Hereunder, BioTek grants to DAKO, its affiliates and distributors and their customers a perpetual, nonexclusive, royalty-free license to use BioTek's patented "cap gap" art on all Instruments sold or otherwise furnished to DAKO by BioTek or Ventana, or by others. This license will not extend to any other instruments or products and, in particular, DAKO, its affiliates and distributors and their customers shall have no right to the use of that art for manufacturing, marketing or selling/leasing/supplying and using a DAKO proprietary slide staining instrument. 5.2.3. If certain suppliers of Excluded Items and/or TechMate 1000/500/250 Parts are not allowed to supply certain Excluded Items/Parts to DAKO without the prior consent of Ventana or BioTek, then Ventana and BioTek shall, if so requested by DAKO, have an obligation to grant the consent necessary. 14 15 6. PRODUCT WARRANTIES. 6.1. INSTRUMENTS. In full satisfaction of the warranty obligations of BioTek or Ventana to DAKO, or any distributor or affiliate of DAKO, for Instruments sold and/or to be sold by BioTek or Ventana, including without limitation, warranty claims with respect to the Instruments mentioned in Paragraph 2.1, above, or any payment for any claims for warranty work performed by DAKO prior to the date of this Agreement with respect to Instruments, BioTek shall pay to DAKO the amount of $110,000.00, in cash, by wire transfer, within ten (10) days after the date of this Agreement. 6.2. PARTS AND ACCESSORIES. With respect to Parts and Accessories sold by BioTek or Ventana to DAKO, or its affiliates, the product warranties set forth in attached SCHEDULE 6.2 shall apply. 6.3. INTELLECTUAL PROPERTY. BioTek represents and warrants that the Products supplied to DAKO under this Agreement shall not infringe upon the patents or proprietary rights of any third party. 7. DEFAULT. This Agreement may be terminated early as follows: (a) by either party, at its option, by notice in writing to the other party, in the event of a material breach of the terms hereof by the other party; provided, however, that if such breach is of a nature such that it is curable, such notice of termination shall not be effective if the breach is corrected within ninety (90) days after the giving of such notice, except that such 90-day period shall be automatically extended for an additional period of time reasonably necessary to cure such default, if such curable default cannot be cured within such 90-day period, provided the defaulting party commences the process of curing such default within said 90-day period and continuously and diligently (as determined by the nonbreaching party in its reasonable discretion) pursues such cure to completion; or (b) by either party, if the other party shall make a general assignment for the benefit of creditors or shall become the subject of an "order for relief" within the meaning of the United States Bankruptcy Code, or shall voluntarily file a petition in bankruptcy or for reorganization or effect a plan or other arrangement with creditors. The rights and duties of each party under this Agreement in respect of performance prior to termination shall survive and be enforceable in accordance with the terms of this Agreement. 8. VENTANA GUARANTY. Ventana guaranties the fulfillment of any and all of BioTek's obligations according to this Agreement. 15 16 9. MISCELLANEOUS. 9.1. ENTIRE AGREEMENT. This Agreement (together with any documents to which it refers) constitutes the entire Agreement between the parties with respect to the subject matter hereof. 9.2. DISTRIBUTION AGREEMENT SUPERSEDED. This Agreement supersedes any prior agreement between the parties or their predecessors with respect to the subject matter hereof, oral or written, including without limitation, the Distribution Agreement (which will terminate with the signing of this Agreement and cease to have any effect whatsoever). In connection with this Agreement, no party has relied upon any representation of any other party, save for any representation or warranty expressly set forth in this Agreement. After the end of the Exclusivity Period, no party shall have any rights and obligations towards the other parties except for those specified in this Agreement. 9.3. ASSIGNMENT AND SUCCESSION. This Agreement shall not be assigned or transferred by either party, voluntarily or by operation by law, without the prior written consent of the other party, except that BioTek may assign its rights and obligations under this Agreement to Ventana (or any subsidiary of Ventana, provided Ventana guaranties the obligations of that subsidiary), or Ventana or any such subsidiary may succeed to this Agreement by merger, consolidation or other similar transaction. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their permitted successors and assigns. 9.4. NOTICES. Any notice, demand or other communication to be served under this Agreement may be served upon any party hereto only by delivering the same by hand (directly or through an agent such as DHL) to the party to be served at its address (as set out below), or by sending the same by facsimile transmission to its facsimile number (as set out below) (followed by a hand-delivered copy as soon as practicable) or at such other address or number as it may from time to time notify in writing to the other party hereto. A notice or demand sent by facsimile transmission shall be deemed to have been served at the time of transmission and in proving service of the same, it will be sufficient to prove that such facsimile was duly transmitted to a current facsimile number of the relevant party: Address and facsimile number of Ventana and BioTek: Chief Financial Officer With a Copy to: Ventana Medical Systems, Inc. 3865 North Business Center Drive Thomas A. Myers, Esq. Tucson, AZ 85705 Godfrey & Kahn, S.C. Telephone No.: 520-690-2787 780 North Water Street Fax NO.: 520-887-2558 Milwaukee, WI 53202 Telephone No.: 414-273-3500 Fax NO.: 414-273-5198 16 17 Mr. Torben Jorgensen With a Copy to: President and CEO DAKO A/S Mr. Klaus Eldrup-Jorgensen Produktionsvej 42 Executive Vice President, DK-2600 Glostrup Sales and Marketing Denmark DAKO A/S Telephone No.: 45 44 85 9500 Produktionsvej 42 Fax NO.: 45 44 92 1115 DK-2600 Glostrup Denmark Telephone No.: 45 44 85 9500 Fax NO.: 45 44 92 3121 9.5. WAIVER. No term, provision or condition of this Agreement shall be waived unless such waiver is evidenced in writing and signed by the waiving party. 9.6. DELAY. An omission or delay by any party to the Agreement in exercising any right, power or privilege shall not operate as a waiver of such right, power or privilege. Any single or partial exercise of any such right, power or privilege shall not preclude any other or further exercise thereof or of any other right, power or privilege. The rights and remedies provided in the Agreement are cumulative with and not exclusive of any rights or remedies provided by law. 9.7. AMENDMENT. No amendment to this Agreement shall be effective unless made in writing and signed by both parties. 9.8. CURRENCY; INTEREST. All sales and prices shall be calculated, purchase prices and royalties determined, and purchase price and royalty payments made in United States Dollars. The term of all sales under this Agreement are net 30 days after the later of the date of delivery or invoice, unless and to the extent the provisions of this Agreement specifically provide otherwise. Any amounts due under this Agreement will accrue interest from the date due to the date paid at the rate of 12% per annum. In addition, the debtor shall reimburse the creditor upon demand for all costs incurred by the creditor in collecting such past due amounts, including without limitation, reasonable attorneys' fees and expenses. 9.9. SET-OFF. Each party may set-off any amounts owed to it and which is due for payment from the other party against any amounts it owes to the other party and which is due for payment. Hereunder, DAKO may set-off any amount owed to it and due from Ventana against any amounts it owes and which are due to BioTek or BioTek's assigns. 9.10. LIABILITY LIMITATION. Neither party to this Agreement or its affiliates (including without limitation, Ventana and DAKO Corporation) shall have any liability whatsoever for any incidental or consequential damages as a result of its breach of any agreement, covenant, warranty or representation in this Agreement. 17 18 9.11. FORCE MAJEURE. The obligations of either party to perform under this Agreement shall be excused during each period of delay caused by such matters acts of God, fires, explosions, bombing, floods, civil commotion, riots, labor disputes, strikes, lockouts, boycotts, picketing or other industrial disturbances, declared or undeclared wars, military or police actions, blockages, embargoes, insurrections, delays or carriers, breakdown of machinery, failure or curtailment or delay of manufacturers or suppliers, regulations or other governmental restrictions or controls and/or interruptions of business which are reasonably beyond the control of the party obligated to perform (a "Force Majeure"), except that nothing herein shall be construed to relieve a party from its obligation to pay when due any amount payable by that party to the other party. The affected party shall make best efforts to remedy the effects of such Force Majeure. Any Force Majeure event shall not excuse performance by the party, but shall delay performance, unless such Force Majeure continues for a period in excess of ninety (90) days. In such event, the party seeking performance may cancel its obligations hereunder. In addition, during the period BioTek's obligations hereunder are suspended as a result of any Force Majeure, DAKO may obtain Parts and Accessories from third parties to the extent BioTek is unable to meet DAKO's requirements (and the intellectual property licenses granted hereunder shall permit DAKO to do so). 9.12. AMENDMENTS. No amendment or modification of the terms of this Agreement shall be binding on either party, unless reduced to writing and signed by an authorized officer of the party to be bound. 9.13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with laws of the State of Arizona (excluding the rules on conflicts of laws). 9.14. NO CIRCUMVENTION. Each party agrees that it shall act in good faith with respect to its obligations under this Agreement and will not take any action with the intent to avoid its obligations under this Agreement or any provisions hereof restricting its actions. 9.15. ARBITRATION. All disputes arising in connection with this Agreement, including any question regarding its existence, validity, enforcement or termination, will be referred to and finally resolved by arbitration under the rules of the International Chamber of Commerce, which rules are deemed to be incorporated by reference into this Section. The arbitration tribunal will consist of three (3) arbitrators. Each party will select an arbitrator and the third will be selected by the mutual agreement of the parties. If the parties are unable to agree on the third arbitrator, that arbitrator will be appointed by the International Chamber of Commerce. The place of arbitration will be selected by the nonreferring party, and the language of arbitration will be English. The foregoing to the contrary notwithstanding, a party may bring legal action against the other party for injunctive relief to enforce any applicable provision of this Agreement. 9.16. RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed to be or construed as constituting either party as the agent or partner of the other. 9.17. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes. 18 19 IN WITNESS WHEREOF, the parties have caused their names to be subscribed on one or more counterparts of this Agreement, all of which such counterparts will be read together and construed as but one and the same instrument as of the day, month and year first above written. DAKO A/S By: /s/ Torben Jorgensen ------------------------------------- Torben Jorgensen BIOTEK SOLUTIONS, INC. By: /s/ John Patience ------------------------------------- John Patience, Chairman VENTANA MEDICAL SYSTEMS, INC. By: /s/ Henry T. Pietraszek ------------------------------------- Henry T. Pietraszek, President 19 20 DAKO CORPORATION AGREEMENT The undersigned, DAKO Corporation, a California corporation, hereby agrees to be bound by the provisions of Paragraph 4, above, and any other provisions of the Agreement applicable to it and acknowledges the release pursuant to Paragraph 3.6(a) , above, of the claims it may have against the BioTek Parties, or any of them (and concurs in such release). IN WITNESS WHEREOF, the undersigned has caused its name to be subscribed on one or more counterparts of this Agreement, all of which such counterparts will be read together and construed as but one and the same instrument as of the day, month and year first above written. DAKO CORPORATION By: ____________________________________ 20 21 SCHEDULE 2.2(a) ACCESSORY PRICING
=============================================================================== PART # DESCRIPTION PRICE IN USD - ------------------------------------------------------------------------------- 1402300 Hematoxylin, 350 mL $35.39 - ------------------------------------------------------------------------------- 1403300 Reagent Wells (250/Box) $26.70 - ------------------------------------------------------------------------------- POP075 Cap Gap Slides (1/2 gross) $14.35 - ------------------------------------------------------------------------------- POP100 Cap Gap Slides (1/2 gross) $14.35 - ------------------------------------------------------------------------------- POP130 Cap Gap Slides (1/2 gross) $20.25 - ------------------------------------------------------------------------------- 1400003 2X HP, 6 mL $28.50 - ------------------------------------------------------------------------------- 1400004 50X DAB, 6 mL $66.00 - ------------------------------------------------------------------------------- 1400008 Biotek Red #1, 8 mL $88.00 - ------------------------------------------------------------------------------- 1400009 Biotek Red #2, 8 mL $88.00 - ------------------------------------------------------------------------------- 1400010 Biotek Red #3, 8 mL $88.00 - ------------------------------------------------------------------------------- 1400402 Tris Buffer, 250 mL $28.00 - ------------------------------------------------------------------------------- 1400403 Alk Phos Tris Buffer $28.00 - ------------------------------------------------------------------------------- 1403704 Levamisole, 1 mL $28.00 - ------------------------------------------------------------------------------- RWP101 Reagent Wicking Pads (50/box) $107.00 - ------------------------------------------------------------------------------- RWP250 TM Horizon Wicking Pads (100/box) $145.00 ===============================================================================
22
SCHEDULE 2.2(b) TECHMATE 1000 & 500 PARTS PRICING - ------------------------------------------------------------------------------------------ USED ON PART NUMBER DESCRIPTION TECHMATE UNIT PRICE IN USD - ------------------------------------------------------------------------------------------ 100075-001 Charcoal Filter 1000 $211.70 100207-500 Pully Block Assembly 1000 $578.92 100380-001 X1 Drive Cable 1000 $164.20 100380-002 X2 Drive Cable 1000 $178.75 100380-003 Y Drive Cable 1000 $277.65 100380-004 Z Drive Cable 1000 $257.15 100380-005 X1 Drive Cable 500 $179.44 100380-006 X2 Drive Cable 500 $196.63 100380-007 Y Drive Cable 500 $268.62 100380-008 Z Drive Cable 500 $267.00 100410-500 Power Board/ MB Assy 1000 & 500 $1,875.00 100411-001 X Blocker Sensor Board 1000 & 500 $268.86 100412-001 Z Blocker Sensor Board 1000 & 500 $276.00 100501-001 Tile 1000 & 500 $49.80 100503-001 Insert, Large 1000 & 500 $19.30 100503-002 Insert, Small 1000 & 500 $19.30 100600-500 Effector Assembly 1000 & 500 $1,885.17 100601-001 Effector Boot 1000 & 500 $110.08 100710-001 Power Board X Block Flex 500 $324.50 100711-001 X Block Z Block Flex 500 $222.88 100713-001 Cable, LED Effector Flex 500 $100.00 100713-500 LED, Effector Flex 500 $236.95 200018-001 Charcoal Filter 500 $255.60 200115-500 Motor Drive Assembly 1000 & 500 $1,867.50 200207-500 Pully Block Assembly 500 $426.21 200222-500 Tension Arm 1000 & 500 $322.52 200413-500 Motor Drive Motherboard 1000 & 500 $456.00 200710-001 Power Board X Block Flex 500 $207.96 900018-001 Gas Shock 1000 & 500 $193.44 900213-500 Slideholder Assy., 60 Slides 1000 & 500 $1,503.00 900408-001 Computer 1000 & 500 $2,697.00 900464-001 Motor Drive Module 1000 & 500 $1,072.20 900471-001 Optical Encoder 1000 & 500 $245.00
23 SCHEDULE 2.4 TECHMATE 250 PARTS
- ------------------------------------------------------------------------------------------------------------- PER UNIT PART PRICE NUMBER PART DESCRIPTION US QTY EURO QTY TOTAL QTY (OLD) - ------------------------------------------------------------------------------------------------------------- 13-000-0078 LEVELING FEET 0 12 12 $41.00 13-005-0009 BEARING, SLEEVE 9 9 18 $2.40 23-000-0081 MAIN HARNESS 6 1 7 $180.80 23-000-0082 PRINTER CABLE 9 4 13 $128.00 23-000-0083 CABLE, FRONT PANEL 9 1 10 $144.00 23-000-0084 FLOPPY CABLE 7 7 14 $160.00 23-000-0085 OUTPUT POWER CABLE 6 5 11 $96.00 23-000-0086 FRONT PANEL CONTROL CABLE 0 6 6 $144.00 23-000-0087 AC INPUT CABLE 6 4 10 $80.00 23-000-0088 CABLE, MOTORS 9 4 13 $150.00 23-000-0089 FRONT PANEL, JUMPER CABLE 6 1 7 $80.00 25-001-0001 POWER ENTRY MOD 6 4 10 $126.88 25-007-0006 BLOWER, BRUSHLESS DC 0 5 5 $188.86 26-012-0006 STEPPER MOTOR 19 11 30 $256.90 26-014-0007 POWER SUPPLY 5 12 17 $432.00 26-100-0076 DISK, FLOPPY 3.5 0 1 1 $164.16 26-100-0077 FILTER, ORGANIC VAPOR 0 7 7 $63.60 36-002-0005 FRONT PANEL CONTROLER CHIP 10 1 11 $90.00 36-002-0006 IC, MOTION CONTROL 20 0 20 $80.00 40-000-0295 DISPLAY SHIELD 4X40 0 5 5 $50.00 41-000-0035 CPU PCB, 386SX 5 5 10 $968.40 41-000-0044 ASSY PCB, 1X16 DISPLAY 6 10 16 $886.25 41-000-0045 ASSY PCB, 4X40 DISPLAY 10 9 19 $669.78 41-000-0046 ASSY PCB, CONTROLLER 0 8 8 $588.54 43-000-0186 SENSOR, SLOTTED, SHIELDED - NARROW 20 11 31 $47.40 43-000-0187 SENSOR, SLOTTED, SHIELDED - WIDE 2 4 6 $64.80 43-000-0188 SENSOR, SLOTTED, UNSHIELDED - WIDE 5 3 8 $53.50 60-000-0162 HUB, GEAR MOLDED 9 10 19 $20.00 60-000-0276 SLIDE HOLDER ARM 0 3 3 $189.00 60-000-0353 GASKET, FILTER 16 0 16 $10.00 60-000-0987 SPLASH GUARD 2 0 2 $592.50 60-000-0988 BEZEL 2 0 2 $713.75 60-000-0989 CARRIER, TRAYS 4 0 4 $357.00 70-000-0015 REAGENT TRAY CARRIER 0 2 2 $1,878.00 70-000-0017 BEZEL 0 3 3 $3,132.00 ---------------------------------------------------------------------------------------------- TOTALS 208 168 376 ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------- VALUE AT PART PER UNIT PRICE LESS DISCOUNTED EXTENDED NUMBER PART DESCRIPTION PRICE 20% PRICE PRICE - ----------------------------------------------------------------------------------------------------------------------- AMOUNTS IN USD 13-000-0078 LEVELING FEET $17.27 $32.80 $393.60 $207.22 13-005-0009 BEARING, SLEEVE $1.01 $1.92 $34.56 $18.19 23-000-0081 MAIN HARNESS $76.15 $144.64 $1,012.48 $533.04 23-000-0082 PRINTER CABLE $53.91 $102.40 $1,331.20 $700.84 23-000-0083 CABLE, FRONT PANEL $60.65 $115.20 $1,152.00 $606.49 23-000-0084 FLOPPY CABLE $67.39 $128.00 $1,792.00 $943.43 23-000-0085 OUTPUT POWER CABLE $40.43 $76.80 $844.80 $444.76 23-000-0086 FRONT PANEL CONTROL CABLE $60.65 $115.20 $691.20 $363.90 23-000-0087 AC INPUT CABLE $33.69 $64.00 $640.00 $336.94 23-000-0088 CABLE, MOTORS $63.18 $120.00 $1,560.00 $821.29 23-000-0089 FRONT PANEL, JUMPER CABLE $33.69 $64.00 $448.00 $235.86 25-001-0001 POWER ENTRY MOD $53.44 $101.50 $1,015.04 $534.39 25-007-0006 BLOWER, BRUSHLESS DC $79.54 $151.09 $755.44 $397.72 26-012-0006 STEPPER MOTOR $108.20 $205.52 $6,165.60 $3,246.01 26-014-0007 POWER SUPPLY $181.95 $345.60 $5,875.20 $3,093.12 26-100-0076 DISK, FLOPPY 3.5 $69.14 $131.33 $131.33 $69.14 26-100-0077 FILTER, ORGANIC VAPOR $26.79 $50.88 $356.16 $187.51 36-002-0005 FRONT PANEL CONTROLER CHIP $37.91 $72.00 $792.00 $416.96 36-002-0006 IC, MOTION CONTROL $33.69 $64.00 $1,280.00 $673.88 40-000-0295 DISPLAY SHIELD 4X40 $21.06 $40.00 $200.00 $105.29 41-000-0035 CPU PCB, 386SX $407.87 $774.72 $7,747.20 $4,078.67 41-000-0044 ASSY PCB, 1X16 DISPLAY $373.27 $709.00 $11,344.00 $5,972.28 41-000-0045 ASSY PCB, 4X40 DISPLAY $282.10 $535.82 $10,180.66 $5,359.81 41-000-0046 ASSY PCB, CONTROLLER $247.88 $470.83 $3,766.66 $1,983.03 43-000-0186 SENSOR, SLOTTED, SHIELDED - NARROW $19.96 $37.92 $1,175.52 $618.88 43-000-0187 SENSOR, SLOTTED, SHIELDED - WIDE $27.29 $51.84 $311.04 $163.75 43-000-0188 SENSOR, SLOTTED, UNSHIELDED - WIDE $22.53 $42.80 $342.40 $180.26 60-000-0162 HUB, GEAR MOLDED $8.42 $16.00 $304.00 $160.05 60-000-0276 SLIDE HOLDER ARM $79.60 $151.20 $453.60 $238.81 60-000-0353 GASKET, FILTER $4.21 $8.00 $128.00 $67.39 60-000-0987 SPLASH GUARD $249.55 $474.00 $948.00 $499.09 60-000-0988 BEZEL $300.61 $571.00 $1,142.00 $601.23 60-000-0989 CARRIER, TRAYS $150.36 $285.60 $1,142.40 $601.44 70-000-0015 REAGENT TRAY CARRIER $790.97 $1,502.40 $3,004.80 $1,581.94 70-000-0017 BEZEL $1,319.12 $2,505.60 $7,516.80 $3,957.37 -------------------------------------------------------------------------------------------------------- TOTALS $10,263.62 $75,977.68 $40,000.00 --------------------------------------------------------------------------------------------------------
23 24 SCHEDULE 2.5(a) XYLENE RESISTANCE TEST PROTOCOL The Horizon bezels, trays, and splashguards, known herein as panels, are said to be xylene resistant if they do not display any visible degradation after being subjected to xylene for a period not to exceed 5 minutes. The test is conducted by applying xylene to the panels and allowing the xylene to remain in contact with the panel for a period, not to exceed five minutes. After the five-minute contact period, the xylene is wiped clean from the panel being tested. If no visual degradation is noticed, the panel passes the resistance test. If a panel fails, the panel is to be shipped to Ventana for further evaluation and testing. The area tested, on the panel, must be marked and no more than 50% percent of the panel should be subjected to the initial test thus providing an area for re-testing. 24 25 SCHEDULE 2.5(b) METAL SKIN DISCOUNT BASED ON RESULTS OF XYLENE RESISTANCE TEST
COMPONENT NOT RESISTANT TO XYLENE DISCOUNT TO METAL SKIN PURCHASE PRICE One tray holder 15% Two tray holders 30% The splashguard 30% The bezel 40% All plastic components in one unit 100%
25 26 SCHEDULE 2.10(c) DOCUMENTATION TO BE SUPPLIED BY BIOTEK TO DAKO
TM 250 TM 500 1. Source codes of the PC-Software. YES YES 2. Source codes for Microcontrollers of the Z-World Board of the TechMate 500. N/A YES 3. Source codes for PIC Microcontrollers on the Stepper Motor Controller Board of the TechMate 250. YES N/A 4. Layout files or layout prints of the various electronical boards. NO YES 5. Schematic files and/or Schematic printouts for the electronics. NO YES 6. Exposure drawings of both instruments. NO YES 7. Manufacturing data on mechanical parts (such as strength of steel cables). NO YES 8. Detailed mechanical drawings of the various parts of both systems as well as the matching mechanical limit data. NO YES 9. A detailed list of original part suppliers together with order number and purchase prices. NO YES 10. A list of quality control test after manufacturing. NO YES 11. File format for Protocol files in the TechMate 250. NO N/A 12. List of error codes and messages, with explanations. NO YES
NOTE: BioTek's obligation to supply documentation limited to documentation already in its possession. 26 27 SCHEDULE 3.4 TECHMATE 500 AND TECHMATE 1000 ROYALTY SCHEDULE
STANDARD ROYALTY $ PER MONTH PER INSTRUMENT - ---------------- -------------------------- Installation to end of the calendar month 0 (Installation month) First and second calendar months 0 Third and fourth calendar months 250 Fifth, sixth, seventh and eighth calendar months 500 Ninth, tenth, eleventh and twelfth calendar months 734 Thereafter 734
Notwithstanding the terms of the above table of royalties, the following royalty terms shall apply for the following countries:
UK FRANCE ITALY SWITZERLAND GERMANY SWEDEN ===================================================================================================================== Installation month 0 0 0 0 - --------------------------------------------------------------------------------------------------------------------- First calendar month 0 0 0 0 - --------------------------------------------------------------------------------------------------------------------- Second, third, and fourth calendar months 300 250 200 150 - --------------------------------------------------------------------------------------------------------------------- Fifth and sixth calendar months 600 500 400 300 - --------------------------------------------------------------------------------------------------------------------- Thereafter 734 634 534 334 - ---------------------------------------------------------------------------------------------------------------------
27 28 SCHEDULE 3.8 INTERNATIONAL CHAMBER OF COMMERCE CASE NO. 9695/AMW - -------------------------------------------------------------------------------- DAKO A/S, Claimant, STIPULATION OF DISMISSAL -and- WITH PREJUDICE BIOTEK SOLUTIONS, INC. and VENTANA MEDICAL SYSTEMS, INC., Defendants. - -------------------------------------------------------------------------------- IT IS HEREBY STIPULATED AND AGREED that the above proceeding be dismissed with prejudice on the merits, each party to bear its own costs and attorneys fees. The costs assessed by the International Chamber of Commerce in connection with the above proceeding shall be borne by each side equally. Dated New York, New York USA BROWN & WOOD LLP May , 1998. I. Scott Bieler Laurel J. Southworth One World Trade Center New York, NY 10048-0557 By_____________________________ I. Scott Bieler Attorneys for Claimant, DAKO A/S 29 Dated Milwaukee, Wisconsin USA GODFREY & KAHN, S.C. May ___, 1998. William H. Levit, Jr. Sean O'D. Bosack 780 North Water Street Milwaukee, WI 53202 By______________________________ William H. Levit, Jr. Attorneys for Defendants, BioTek Solutions Inc. and Ventana Medical Systems, Inc. 30 SCHEDULE 6.2 WARRANTY 1. WARRANTY FOR PARTS. Parts are warranted against defects in materials or workmanship for 12 months after the date of delivery to the end-user ("Buyer"), subject to all the terms and conditions set forth in this Warranty. 2. WARRANTY FOR ACCESSORIES. The Accessories are warranted, subject to all terms and conditions set forth in this Warranty, as follows: (1) only to conform to the quantity and content stated on the label and in the technical product inserts at the time of delivery to the Buyer and (2) against defects for 12 months after delivery to the Buyer: 3. REFUND, REPLACEMENT OR REPAIR. If any Part or Accessory is shown to have a defect covered by this Warranty, BioTek will refund DAKO's purchase price. 4. These warranties extend only to DAKO, DAKO's affiliates, DAKO's distributors and the buyer of the Product and may not be assigned or extended to a third person without the written consent of BioTek. 5. All warranties set forth herein are null and void unless a Warranty Claim has been made in writing by DAKO within 30 days after DAKO or an affiliate of DAKO has become aware of the defect. IT IS EXPRESSLY AGREED THAT ALL WARRANTIES SET FORTH HEREIN SHALL BE IN LIEU OF ALL WARRANTIES OF FITNESS AND OF THE WARRANTY OR MERCHANTABILITY AND THAT BIOTEK AND ITS DEALERS SHALL HAVE NO LIABILITY FOR SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND OR FROM ANY CAUSE WHATSOEVER ARISING OUT OF THE MANUFACTURE, SUE, SALE, HANDLING, REPAIR, MAINTENANCE OR REPLACEMENT OF ANY OF THE PRODUCTS. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE DESCRIPTION ON THE LABEL OF THE ACCESSORIES OR THE TECHNICAL PRODUCT INSERTS PACKED WITH THE ACCESSORIES OR EXTEND BEYOND THE PROVISIONS OF THIS WARRANTY. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS 6-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 JUN-30-1997 19,178 25,618 0 0 10,998 4,446 302 30 7,141 3,782 38,796 35,180 11,426 7,838 4,791 3,394 53,207 47,964 5,402 5,567 0 0 0 0 0 0 13 11 45,975 41,152 53,207 47,964 21,937 14,411 21,937 14,411 6,930 5,481 6,390 5,481 13,366 10,361 0 0 0 0 2,113 (1,169) 0 0 2,113 (1,169) 0 0 0 0 0 0 2,113 (1,169) 0.16 (0.09) 0.14 (0.09) For purposes of this exhibit, primary means basic.
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