-----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, CosNPpLPSLVJbCHjXHAWTpLlM07OkDBwXtULtzVx2J1vOTlRufazk2EH1ABT++x7 43GOnG4W7/vIEy/0jqgbMg== 0000950109-95-005384.txt : 19951227 0000950109-95-005384.hdr.sgml : 19951227 ACCESSION NUMBER: 0000950109-95-005384 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951226 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLOGIC INC CENTRAL INDEX KEY: 0000859737 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 042902449 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18281 FILM NUMBER: 95604448 BUSINESS ADDRESS: STREET 1: 590 LINCOLN ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178902300 MAIL ADDRESS: STREET 1: 590 LINCOLN STREET CITY: WALTHAM STATE: MA ZIP: 02154 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended SEPTEMBER 30, 1995 ------------------ 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: 0-18281 ------- HOLOGIC, INC. ------------- (Exact name of registrant as specified in its charter) DELAWARE 04-2902449 -------- ---------- (State of incorporation) (I.R.S. Employer Identification No.) 590 LINCOLN STREET, WALTHAM, MASSACHUSETTS 02154 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 890-2300 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE RIGHTS TO PURCHASE COMMON STOCK 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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- The aggregate market value of the registrant's Common Stock held by non- affiliates of the registrant as of November 30, 1995 was $176,540,991 based on the price of the last reported sale on the NASDAQ National Market System. As of November 30, 1995 there were 4,178,485 shares of the registrant's Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held on February 27, 1996 (Items 10,11,12 and 13). PART I ITEM 1. BUSINESS. Hologic, Inc. (the "Company") is a leading international developer, manufacturer and marketer of X-ray bone densitometers which precisely measure bone density for use in the diagnosis and monitoring of metabolic bone diseases such as osteoporosis. The Company pioneered the use of dual-energy X-ray absorptiometry ("DXA") to measure bone density, introducing the first DXA bone densitometer in 1987. Since this introduction, DXA systems have become the standard for measuring bone density. In 1995, the Company introduced its fourth generation of DXA bone densitometers, its clinically oriented QDR [registered trademark] 4500 ACCLAIM product line. To address the growing clinical market for the early diagnosis and monitoring of osteoporosis, the Company is developing products that it believes will complement its DXA product line. In December 1994, the Company acquired the ultrasound bone analyzer business of Walker Sonix, Inc. ("Walker Sonix"). The Company is developing an enhanced ultrasound bone analyzer, the Sahara [trademark] which it intends to introduce in clinical test sites in the United States and certain international markets during fiscal 1996. The Company believes that ultrasound systems could represent a relatively low cost, compact, easy-to-use, non-X-ray based, screening technique to assist in the initial diagnosis of osteoporosis. In September 1994, the Company began a joint development effort with Serex, Inc. ("Serex") to develop a diagnostic strip test to detect biochemical markers that indicate the rate of a patient's bone loss. The strip test is being designed to provide a physician with a real-time means of measuring a patient's biochemical response to osteoporosis therapies and compliance with those therapies, as a complement to periodic bone density measurements. The Company and Serex have also recently entered into an agreement in principle with a leading pharmaceutical company to develop and market an over-the-counter version of the strip test. BACKGROUND OSTEOPOROSIS. Osteoporosis is a condition characterized by reduced bone density that leads to an increased risk of fractures. Bone is a dynamic organ that is maintained through a process referred to as remodeling in which old bone is removed (resorption) and new bone is formed. In early adulthood, the levels of bone resorption and bone formation are generally balanced, with the quantity and distribution of bone throughout the body varying over time depending on muscle mass, strength and use. When remodeling does not function properly, and resorption exceeds formation, the result is a net loss of bone mass and density, often causing diminished structural integrity of the skeleton (particularly of the trabecular "spongy" bone) and an increased risk of fracture. According to the National Osteoporosis Foundation (the "NOF"), 25 million Americans, 80% of whom are women, and approximately 200 million people worldwide, suffer from osteoporosis. Osteoporosis typically develops silently over a period of years, eventually progressing to a point where a fracture can easily occur, causing pain and disability. The post-menopausal female population has the highest incidence of osteoporosis and the highest rate of 2 morbidity (loss of quality of life) and mortality due to osteoporosis. The NOF estimates that in the United States osteoporosis contributes to more than 1.3 million fractures annually, a majority of which were of the spine and hip, and that related direct health care and indirect productivity costs in 1987 were approximately $10 billion. Hip fractures lead to the most serious consequences. According to the NOF, as many as one in every five hip fracture patients dies from complications within a year after fracture, one in every four requires long-term care and an even higher percentage of hip fracture patients never return to an active and independent lifestyle. Until recently, osteoporosis was thought to be an untreatable consequence of aging. The Company believes that the recent development and introduction of new drug therapies, the aging of the population, and an increased focus on women's health issues and preventive medical practices has created a growing awareness among patients and physicians that osteoporosis is treatable. THERAPIES. The Company believes that over 70 clinical studies are currently in progress to assess the safety and effectiveness of new therapies to treat osteoporosis. However, prior to 1995, there were only two approved drug treatments for osteoporosis in the United States, hormone replacement therapy, using estrogen and related hormones ("HRT"), and calcitonin, with the most widely prescribed treatment being HRT. Patient concerns regarding complications related to prolonged use of HRT have contributed to a low compliance rate. Until recently, calcitonin was available only in an injectable form, a delivery method that has contributed to low patient compliance. Although HRT and calcitonin have generally been shown in clinical trials to slow or stop the loss of bone mass, these therapies have not been proven to restore bone mass. On September 29, 1995, the FDA approved Merck's drug Fosamax for the treatment of established osteoporosis in post-menopausal women. Fosamax is a bisphosphonate that acts by coating the bone surface and inhibiting bone resorption. Merck reports that in clinical studies of Fosamax conducted in over 16 countries post-menopausal patients with established osteoporosis who were treated with Fosamax gained on average of 7-10% bone mass in the spine and 7-8% bone mass in the hip over a three-year period compared to patients treated with placebo, and that Fosamax reduced the number of new vertebral fractures (fractures of the spine) by approximately 48% compared with placebo. Merck is conducting ongoing clinical trials to determine the effectiveness of Fosamax in preventing osteoporosis. Fosamax is also approved in at least 18 countries in addition to the United States. Other therapies cleared by the FDA to treat osteoporosis in 1995 are a one-tablet hormone replacement therapy, which combines estrogen and progestin, developed by Wyeth-Ayerst Laboratories, and an intra-nasal formulation of calcitonin developed by Sandoz. In addition, in November 1995, an FDA advisory committee recommended that the FDA approve slow-release sodium fluoride for the treatment of post-menopausal osteoporosis. Additional therapies undergoing clinical trials for the prevention or treatment of osteoporosis include bisphosphonates being developed by Proctor & Gamble (Rasidronate), Boehringer- Mannheim (Ibandronate) and Sanofi (Tiludronate), and estrogen analogues or anti- estrogens being developed by Eli Lilly (Raloxifene) and Pfizer (Draloxifene). 3 In several European countries, Japan and other international markets, there has been an earlier availability and greater acceptance of osteoporosis therapies. Some of these therapies include estrogens, bisphosphonates, calcitonins, vitamin D compounds and ipriflavone. The timing of when and where new drugs will become commercially available, if ever, is uncertain. However, the Company believes that there will be broadened and new approvals of osteoporosis therapies for both treatment and prevention which should positively impact the bone assessment market worldwide. Diagnosis and Monitoring of Osteoporosis. There are a number of different technologies that are available that can be used to assess bone mineral status. Since the introduction of the first DXA bone densitometer by the Company in 1987, dual energy X-ray absorptiometry has become the primary means of measuring bone density. Prior to that introduction, the most widely used bone density measuring technique for the hip and spine was dual photon absorptiometry (DPA). DPA systems were not very precise and required relatively long scanning times and the use of an expensive radioactive source that required periodic replacement. In contrast, DXA systems have much higher precision, require significantly shorter scanning times and do not require a radioactive source. DXA systems require a low patient radiation exposure. The most advanced DXA systems can be used to measure the bone density of the whole body, or any site, including the most important fracture sites of the hip or spine. As a result of their precision and versatility, DXA systems have become the predominant means of evaluating low bone density before fractures occur and monitoring changes in a patient's bone density in response to therapies. Other bone assessment technologies include single photon absorptiometry (SPA), radiographic absorptiometry (RA), quantitative computed tomography (QCT), quantitative ultrasound and biochemical markers. Single photon absorptiometry was introduced in the 1960s and represents an effective method of measuring bone density at a peripheral site of the skeleton (forearm or heel), although it cannot be used to measure the most important fracture sites of the spine or hip. SPA systems also have the added inconvenience of requiring the patient to place the site being scanned in water or other tissue-equivalent media to achieve precision. SPA, however, does represent a relatively inexpensive and valuable tool in the diagnosis of osteoporosis with reasonable precision and low radiation exposure. Quantitative computed tomography was introduced in the mid 1970s and can measure bone density by using a CT scanner to determine both the patient's bone density and bone distribution in three dimensions. QCT, however, has remained limited in clinical use because of its relatively high radiation dose and the high cost of CT scanner equipment. Radiographic absorptiometry, also introduced in the 1970s, measures bone density from two X-ray images (radiographs) of the hand placed alongside a calibration device using a conventional X-ray machine. The radiographs are 4 sent to a central processing laboratory where a computer measures the density of the bone. The precision of this technique is comparable to SPA measurements. An advantage of this system is that it does not require any additional capital investment, as traditional X-ray equipment can be used to obtain the radiographs. The technique, however, cannot be used to measure and monitor the hip or spine. Also, because the radiograph must be sent to a laboratory for testing, it does not provide a real-time assessment of bone density, and, if the test is positive, a follow-up consultation is required. The Company believes that RA will be useful in rural areas where there may not be a sufficient concentration of patients to justify a capital investment in DXA bone density measuring equipment. Ultrasound has long been used in medical testing. However, the use of ultrasound for the detection of osteoporosis was not commercially introduced until recently, and then only in certain foreign countries. Ultrasound measurement has concentrated mainly on the calcaneous (the heel), which is comprised primarily of trabecular bone, as a measuring site. Initial clinical trials of ultrasound systems have indicated a significant association of low ultrasonic bone measurements of the calcaneous and the risk of fracture. The latest developments in hardware and software, resulting in enhanced precision and ease of use, are currently making ultrasound techniques an option for the diagnosis of osteoporosis. Major advantages of ultrasound examination are the complete absence of radiation and the small size and low cost of the equipment. Ultrasound devices do not use X-rays in making their measurements and therefore do not require X-ray licensing or registered operators. However, because ultrasound bone measurements currently are not as precise as DXA and other measurements, they are less reliable for continued monitoring of small changes in bone density or for assessing the response to therapies. In addition, they are generally limited to measurements at peripheral sites, not the more important spine or hip fracture sites. Accordingly, the Company believes that the most likely use for ultrasound techniques currently employed and under development by the Company and others will be for initial screening for osteoporosis and not for continued monitoring of changes in bone density or the response to therapies. Biochemical markers are substances that are produced within the body that correlate directly or indirectly to disease or bodily function. A number of biochemical markers have been discovered that can be used to measure the rate of bone resorption or formation. These measurements, while not measuring bone density, can provide a means to assess quickly (within approximately three months) the effectiveness of treatment and patient compliance with therapies for osteoporosis. A baseline and subsequent bone density tests (as frequently as annually) must be used in conjunction with biochemical marker measurements to assess fully the bone density of the patient. Because biochemical markers cannot be used independently to diagnose osteoporosis or risk of fracture, or to monitor a patient's changes in bone density as a result of therapy or otherwise, the Company believes that biochemical marker tests, including those being developed by the Company, will complement and not replace densitometry. MARKET. The Company believes that the clinical market for osteoporosis diagnostic and monitoring products is expanding due to the recent development and introduction of new drug therapies to treat osteoporosis, the more widespread and increased reimbursement for bone density examinations, the 5 aging of the population, and an increased focus on women's health issues and preventive medical practices. All of these factors have led to an increased awareness by women and primary care providers, such as gynecologists and family physicians, that osteoporosis is a treatable disease and that measurement of bone density is an integral component of diagnosis and monitoring of this disease. Upon obtaining FDA approval for Fosamax in September 1995, Merck launched an extensive educational campaign to increase patient and physician awareness that osteoporosis is a treatable disease. In connection with this effort, Merck is promoting the use of DXA and other techniques to diagnose and monitor osteoporosis and the effects of drug therapies. The Company believes that this comprehensive Merck program will further accelerate the growth of the bone densitometer and related markets. Currently, Fosamax is only approved for use by patients with established osteoporosis. However, Merck and other drug companies are conducting ongoing clinical trials to establish the efficacy of drug therapies to prevent osteoporosis in high risk patients. Such approval would increase the need for patient testing and monitoring at an earlier age, before a patient is afflicted with osteoporosis. In the United States, the Health Care Finance Administration, which establishes guidelines for the reimbursement of health care providers treating Medicare and Medicaid patients, provided validation for DXA bone densitometry examinations as a clinically useful procedure by recommending the reimbursement for DXA bone evaluations at the rate of $68 per scan effective April 1994. Effective January 1995, HCFA furthered the clinical use of DXA evaluations by increasing the recommended reimbursement rate to $124. In part as a result of the reimbursement policy recommendations implemented by HCFA, bone density examinations are paid for by many private third party insurers in the United States. With the recent increase in reimbursement levels in the United States, and the FDA approval of Fosamax and other drug therapies, the Company believes that the United States market for bone densitometers and other methods of bone mineral assessment will expand from the hospitals, large clinics, research institutions and imaging and women's centers, to the larger potential market of primary care providers, including gynecologists and family physicians. In several European countries, Japan and other international markets, there has been a greater availability or acceptance of osteoporosis therapies and an earlier adoption of reimbursement for bone densitometry exams. Countries in which reimbursement for the use of X-ray bone densitometers has been approved include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and Switzerland. In addition, the Japanese government has been actively supporting an educational program to promote public awareness of osteoporosis as a treatable disease. In Latin American countries such as Argentina, Brazil and Chile, and in Pacific Rim countries, such as Australia, The Peoples Republic of China, South Korea and Taiwan, there is a growing use of osteoporosis therapies and an expanding market for osteoporosis diagnostic and monitoring equipment. HOLOGIC'S STRATEGY 6 The Company's goal is (i) to become the leading fully-integrated supplier of technologically advanced, innovative and clinically valuable diagnostic systems and tests that address the growing market for osteoporosis prevention and treatment, and (ii) to diversify into other medical device markets which it believes will be complementary to its current business. Key elements of this strategy are as follows: MAINTAIN AND ENHANCE DXA TECHNOLOGICAL LEADERSHIP. The Company has been a pioneer in the development of DXA bone densitometers. Since commercially introducing the first DXA bone densitometer in 1987, the Company introduced a bone densitometer capable of assessing the bone density of the entire body in 1989, introduced the first bone densitometer capable of taking supine lateral measurements of the spine in 1991 and introduced its fourth generation clinically-oriented QDR 4500 ACCLAIM series of bone densitometers in 1995. The ACCLAIM series integrates the Company's most advanced X-ray technology into a compact package that facilitates installation in a standard examination room. The Company believes that because of their technological features, its DXA systems have been and continue to be the most widely used bone densitometers for clinical studies involving the emerging drug therapies for osteoporosis. The Company intends to continue to enhance and expand upon its core technical expertise to develop increasingly efficient and cost-effective DXA bone densitometer solutions. EXPAND RANGE OF COMPLEMENTARY BONE DIAGNOSTIC AND MONITORING PRODUCTS. The Company believes that a significant market exists for relatively low-cost products that assess bone density, employ technologies that do not use X-rays or other ionizing radiation, and may be used in a doctor's office. In order to address this market, the Company is pursuing the development and acquisition of products that use ultrasound and biochemical markers to assess bone mineral status. Recent milestones achieved by the Company in connection with this pursuit include the following: . In December 1994, the Company acquired the Walker Sonix ultrasound bone analyzer business. . In September 1995, the Company introduced a prototype of the Sahara, an internally developed advanced ultrasound bone analyzer that does not require the use of water, at the American Society of Bone Mineral Research. . In September 1994, the Company began a joint development effort with Serex to develop a low-cost biochemical marker strip test. . In December 1995, the Company and Serex further entered into an agreement in principle with a major pharmaceutical company to develop an over-the-counter version of the biochemical marker strip test. The Company believes that if it is able to develop these products successfully it will be in a position to offer a full range of diagnostic and monitoring products for the growing osteoporosis market. The Company also plans to pursue other product development and market opportunities in the area of bone assessment that the Company identifies as promising. 7 EXPAND UNITED STATES DISTRIBUTION. The Company believes that the continued development of its distribution network in the United States will be an important factor in its continued success. The Company has developed an experienced 11 person direct sales force covering the United States and plans to enhance further its distribution capabilities in the United States through a combination of an expansion of its sales force and strategic alliances with companies with established distribution channels in the various market segments for the Company's products. CONTINUED INTERNATIONAL EXPANSION. International sales have accounted for approximately 75% of the Company's sales in fiscal 1995, with such sales being made predominantly to countries in Western Europe and Japan. In fiscal 1995, the Company increased its efforts to expand its market penetration into new markets in Latin America, including Argentina, Brazil and Chile, and along the Pacific Rim, including Australia, The Peoples Republic of China, South Korea and Taiwan. The Company intends to continue to seek to expand sales in these and other less-developed territories. DIVERSIFICATION INTO COMPLEMENTARY MARKETS. The Company is seeking to leverage its medical device development, manufacturing and distribution expertise to expand, through acquisition or strategic alliances, into complementary markets. Such markets could include other diagnostic or imaging markets, or other women's healthcare markets. There can be no assurance that the Company will be able to implement successfully any of its strategies on a timely basis, if at all, or if successfully implemented, that any of these strategies will enable the Company to maintain or enhance its growth. BONE ASSESSMENT PRODUCTS The Company's products include a family of DXA bone densitometers which are used for the precise measurement of bone density to assist physicians in the diagnosis and monitoring of metabolic bone diseases such as osteoporosis. Since commercially introducing the first DXA bone densitometer in 1987, the Company introduced its first bone densitometer capable of assessing the bone density of the entire body in 1989, introduced the first bone densitometer capable of taking lateral measurements of the spine in 1991, and, in 1995, introduced its new QDR 4500 ACCLAIM fourth generation series of bone densitometers, which integrates the Company's most advanced X-ray technology into a compact package that facilitates installation in a standard examination room. The United States list prices for the Company's DXA bone densitometers range from approximately $55,000 to $165,000 per system. The Company believes that a significant market may exist for relatively low-cost products that assess bone mineral status, employ technologies that do not use ionizing radiation and may be used in a doctor's office. In order to address this market, the Company has acquired or is developing products that use ultrasound or measure biochemical markers to assist in the assessment of bone mineral status. QDR X-RAY BONE DENSITOMETERS. Since the Company's first commercial shipment of a DXA system in October 1987, the Company has sold more than 2,000 DXA systems. The Company believes that its systems' performance advantages 8 and their early adoption by leading clinical investigators have led to their market acceptance. The Company's DXA systems have been purchased for multiple- site studies sponsored by the pharmaceutical companies and by the United States government for evaluation of the incidence and treatment of osteoporosis. In addition, pharmaceutical companies have promoted the purchase of the systems for use by physicians to assist in the diagnosis and treatment of osteoporosis. Advantages of the Company's DXA systems include high precision (consistency from test to test), low patient radiation exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast scanning time, low operating cost, no radioactive source and the ability to measure bone density of the most important fracture sites, the spine and hip. Studies conducted by the Company and independent investigators have demonstrated that the systems can detect a change in spine bone density with a precision error of less than 1%. All the Company's DXA systems employ the Company's patented Automatic Internal Reference System, which continuously calibrates each patient's bone density measurement to a known standard. This system virtually eliminates errors that might result from manual calibration and saves operators the time- consuming task of calibrating several times a day. The system automatically compensates for drift in the X-ray system, detectors or other electronic components which ensures long-term measurement stability. Each of the Company's DXA systems contains an X-ray source mounted beneath the patient, who is positioned lying on her back. The X-ray source generates alternating high and low energy pulses in a thin beam that passes through the Company's patented Automatic Internal Reference System and then through the patient to an X-ray detector mounted above the patient. Controlled by a computer, the X-ray source and detector are moved in tandem across the patient. When the X-ray beam is detected, it contains information about the X-ray absorbing characteristics of both the patient and the calibration materials in the Automatic Internal Reference System at each of the two levels of radiation. The system converts this information into a digital format which is processed and analyzed by a computer and displayed on a high-resolution color monitor, both of which are incorporated into the system. The Company has invested substantial resources in developing operating and applications software for its systems. The software includes calibration software, automated scan and analysis programs for each scan site, a patient data base manager that archives all raw data for later retrieval and analysis and allows the operator to review the current image with an earlier image of the same patient. Initial DXA systems developed by the Company employed a single narrow pencil beam detected by one receptor. In 1991, the Company introduced the first bone densitometer employing a high density fan shaped X-ray beam that is detected by an array of receptors. This configuration enables the system to obtain better quality images with improved spatial resolution, significantly faster scanning time and higher patient throughput compared to single-beam systems. Moreover, for standard spine and hip scans, fan beam technology can 9 reduce scan time by a factor of more than 25 compared to older single-beam scanning systems. The Company developed this fan beam technology to perform lateral (side-to- side) scans of the lower spine, in addition to the posterior-anterior (back-to- front) measurements performed by the Company's pencil beam systems. The earliest and most dramatic loss of bone density in the spine occurs primarily in the spine's soft (trabecular) bone, which is positioned directly behind the hard (cortical) bone when taking back-to-front measurements. This results in bone density measurements that average the density of the soft and hard bone and tends to mask changes in the soft bone. A lateral scan permits the imaging and measurement of the spine's soft bone with only limited interference from hard bone. In addition, a lateral scan reduces the interference caused by abnormal accumulation of bone and calcium deposits in and around the spine. Numerous scientific articles have established lateral bone densitometry, using supine patient positioning, as a highly precise and more diagnostically sensitive way to measure the spine than conventional posterior-anterior examinations. Lateral densitometry also eliminates scan artifacts such as aortic calcification or degenerative disease of the spinal processes that can distort conventional posterior-anterior measurements. In November 1994, the Company introduced the QDR 4500A ACCLAIM at the annual meeting of the Radiological Society of North America and in January 1995 obtained FDA clearance to sell the system in the United States. As of December 11, 1995, regulatory approval to sell the system in Japan was pending. See "Regulation." The Company's QDR 4500 ACCLAIM series of bone densitometers offers rapid scanning and high resolution imaging using the latest available fan beam and high density, solid-state multi-detector array technology. In addition, the QDR 4500 ACCLAIM series is built in modular configurations that allow customers to add new features and capabilities, while protecting their investment in the equipment and patient data. An important feature of the QDR 4500A and QDR 4500SL is their ability to perform lateral (side-to-side) scans of the lower spine, without turning the patient on her side, in addition to the posterior-anterior (back-to-front) measurements. The QDR 4500A and QDR 4500SL ACCLAIM are capable of producing high quality images of the spine, lateral spine, hip and other skeletal sites. The ACCLAIM's scan arm allows for multiple scan views without patient repositioning. The images produced can be combined with capabilities that enable vertebral dimensions to be determined with a radiation dose approximately ten to 100 times lower than that of conventional chest X-rays. Using the QDR 4500A or the QDR 4500SL, high-quality lateral images of the entire spine can now be obtained in as little as ten seconds. The ACCLAIM systems are designed to require less floor space than any other bone densitometer capable of taking hip and spine measurements. The special tabletop design and motorized scanner C-arm allow the QDR 4500C and QDR 4500SL to be installed in a standard 8ft x 8ft examination room (the QDR 4500W and QDR 4500A require an 8ft x 10ft room). Installation requirements for any of the ACCLAIM bone densitometers are minimal and normally do not 10 require special electrical, structural or lead-shielding preparation. In addition to their small size, the QDR 4500 series offers virtually silent operation. The ACCLAIM series has replaced the Company's QDR 1500, QDR 2000 and QDR 2000plus products. The Company has retained its QDR 1000plus system as a low- price offering. The QDR 1000plus employs the Company's older pencil beam technology. In the fourth quarter of fiscal 1995, the ACCLAIM series accounted for approximately 70% of DXA sales. ULTRASOUND. In December 1994, the Company acquired the ultrasound bone analyzer business of Walker Sonix. WalkerSonix had developed an ultrasound product line to assess bone mineral status of the heel. The location of the heel facilitates easy coupling of the ultrasound transducers at a site with a relatively low amount of overlying soft tissue. The heel is also made up of predominantly trabecular bone which tends to be more metabolically active. The Walker Sonix ultrasound devices measure two parameters, Broadbased Ultrasound Attention (BUA) and Speed of Sound (SOS) through a water medium to characterize bone mineral status. The use of water as a medium, which is a characteristic of other ultrasound bone analyzers, requires the patient to place her foot in water. The use of water requires cumbersome plumbing and cleaning mechanisms to be incorporated in the system. The Company is developing internally an enhanced dry ultrasound bone analyzer, called "Sahara" that will not require the use of water. The Company believes that this "dry" technology will offer further operator convenience by the elimination of the water handling required between each patient. The elimination of the use of water has also enabled the Company to reduce the size and weight of the device. In September 1995, the Company introduced a prototype of the Sahara at the American Society of Bone Mineral Research and plans to begin clinical trials of the Sahara in the United States and selected foreign countries, and to commence international sales of the system in fiscal 1996. Commercial introduction of the system in the United States is dependent upon FDA approval. The Company believes that this approval process may take as long as two to three years. There can be no assurance that the Company will be able to obtain FDA approval for the Sahara on a timely basis, if at all. Recent studies have suggested that ultrasound provides good separation of fracture populations from reference groups and suggests that this method is a promising screening tool for evaluating a patient's fracture risk. However, ultrasound does not allow for direct assessment of important hip and spine fracture sites, has undocumented ability to follow the effects of therapy and has less precision (reproducibility of results) compared to DXA measurements. Accordingly, the Company believes that ultrasound systems will be used predominantly as a low cost initial screening or diagnostic tool and not as a patient monitoring tool. BIOCHEMICAL MARKERS. In September 1994, the Company entered into a joint development agreement with Serex to develop a simple strip test for use by physicians to monitor the levels of a patient's biochemical markers that indicate the rate of bone resorption. In December 1995, the Company and Serex expanded the scope of this development effort by entering into an agreement in principle with a major pharmaceutical company to develop an over-the-counter 11 version of this strip test. Although biochemical markers cannot measure bone density, the Company believes that biochemical markers may be useful as a tool to determine if therapy is effective. This is accomplished by comparing the baseline level of the marker with the value obtained from a serial measurement performed only two or three months following the start of therapy. This same technique may be useful to evaluate patient compliance with a prescribed therapy. Traditionally, biochemical markers of bone were performed using high pressure liquid chromatography ("HPLC") methods conducted in a research laboratory. HPLC procedures are complex, labor intensive requiring a highly trained technician, relatively slow, subject to high variability and expensive. For these reasons, biochemical markers of bone using HPLC methods have not been used for routine clinical testing. Recently, several immunodiagnostic tests that are antibody-based have been developed as biochemical markers of bone remodeling. Immunodiagnostic tests may be performed in a variety of technical formats. The format that has been introduced by several companies is the microtitre plate system, which is used for many different types of in-vitro diagnostic tests and is normally performed in a reference laboratory. Serex has developed a proprietary and patented technology that enables complex immuno-chemistry assays to be performed in a strip test format that the Company believes is well-suited for testing directly in the physician's office or the home to provide a real-time assessment of bone resorption. In September 1994, the Company purchased a minority interest in Serex and entered into a license and supply agreement with Serex to develop a urine-based bone resorption test deliverable in a diagnostic strip test format. The Company believes that other applications for biochemical markers of bone as well as new markers are likely to be developed in the future, and under its agreement with Serex, the Company retains the first right of negotiation to develop and license such tests. There can be no assurance that Serex will be able to develop effective strip tests, either for physician or over-the-counter use, on a timely basis, if at all, that once developed, any strip test will be approved or cleared for sale in the United States or other jurisdictions, or that once cleared or approved for sale any strip test will be commercially successful. OTHER PRODUCTS; SCANORA In order to take advantage of its European sales force and associated distribution capability, in May 1993, the Company entered into exclusive distribution agreement with Soredex, S.A. ("Soredex"), a division of Orion Corporation of Helsinki, Finland, to distribute Scanora, a specialized system for taking X-ray images of the maxillo-facial anatomy (teeth, jaw and other facial structures). The Scanora system supports more than 1,000 different image modes, including pre-surgical planning of dental implants, reconstructive surgery and temporal mandibular joint repair. This system provides significantly improved images of the maxillo-facial anatomy compared to other techniques available in the market, such as panoramic X-rays or computed tomography. Dental implant procedures have experienced significant growth in Europe over the past five years. 12 Under the agreement, the Company is the exclusive distributor of Scanora systems in Western Europe, the Middle East and Africa, excluding South Africa and Namibia. In addition, the Company has non-exclusive distribution rights in several Eastern European countries. The agreement with Soredex provides for the Company to purchase a minimum number of systems in each contract year. In the event that the Company does not achieve the minimum levels set forth under this agreement, Soredex has the option to terminate the distribution agreement. The Company has met its minimum purchase requirements in each year of the contract. The agreement expires in May 1996, subject to the rights of each party to pursue an extension under conditions to be agreed upon at such time. There can be no assurance that the Company and Soredex will agree to an extension of the distribution agreement on favorable terms, if at all. CUSTOMERS The Company's DXA customers include many pharmaceutical companies active in the field of bone mineral metabolism, such as Ciba-Geigy, Eli Lilly, Merck, Pfizer, Proctor & Gamble, Rhone-Poulenc/Rorer, Sandoz, Sanofi Research and SmithKline. The Company believes that because of their technological features, its DXA systems have been and continue to be the most widely used bone densitometers for clinical studies involving the emerging drug therapies for osteoporosis. The Company has a group of eight employees who provide data collection and quality assurance services to such customers. Initial clinical evaluation sites for the Company's DXA systems included leading medical and research institutions, such as the Mayo Clinic, the Massachusetts General Hospital and the University of California at San Francisco in the United States; the University of Lyon and Guy's Hospital in Europe; and Kobe University in Japan. These institutions, along with many other leading medical institutions, continue to be users of the Company's DXA systems. The clinical demand for the Company's DXA bone densitometers is growing as a result of the increased worldwide focus on women's health problems and the availability of new osteoporosis therapies entering the market. More than 50% of the Company's new sales of DXA systems have shifted to the clinical segment of the market which includes radiologists, endocrinologists and rheumatologists. The Company expects a further shift in the market for bone densitometers to primary care physicians, including gynecologists and family physicians, in response to the development of new drug therapies for osteoporosis and the growing awareness of osteoporosis as a treatable disease. In fiscal 1995, the Company's sales to its Japanese distributor, Toyo Medic, accounted for 20% of product sales. The loss of Toyo Medic as a customer of the Company or an adverse change in the relationship between the Company and Toyo Medic could have a material adverse affect on the Company's business. MARKETING AND SALES In the United States, the Company sells its DXA systems primarily through its direct sales force. As of November 30, 1995, the Company had approximately 11 employees engaged in sales in the United States. In order to penetrate this market more effectively, the Company has expanded its direct 13 marketing activities, including additions to its sales force, and has implemented various leasing programs, including a program with a third party leasing company to make its QDR 4500C ACCLAIM system available to physicians on a fee-per-scan basis. To meet the growing demand for its products, the Company plans to enhance further its distribution capabilities in the United States through a combination of an expansion of its sales force and strategic alliances with companies with established distribution channels in the various market segments for the Company's products. The Company sells its DXA and Scanora systems in international markets through independent distributors, as well as a direct sales force in France, the Benelux countries, Spain and Portugal. As of November 30, 1995, the Company had six employees engaged in sales in Europe. The Company distributes its products in Japan through Toyo Medic, which has been the Company's exclusive distributor in Japan since April 1988. The agreement requires Toyo Medic to purchase certain minimum quantities and to provide technical and warranty support to its customers. In certain other territories outside the United States, the Company sells its DXA systems through independent distributors, all of whom offer technical support. Employees of these distributors and sales representatives have undergone product and technical training related to the Company's products. The Company has increased its efforts to expand its market penetration into Latin America, including Argentina, Brazil and Chile, and into Pacific Rim countries other than Japan, including Australia, the Peoples Republic of China, South Korea and Taiwan, by working with local sales representatives and distributors or entering into strategic marketing alliances in those territories. The Company believes that with time, Eastern Europe may present a significant opportunity for growth and also is seeking to expand its presence in the area. In fiscal 1995, foreign sales accounted for approximately 75% of the Company's product sales. The Company believes that the relatively high level of foreign sales reflects, in part, a more advanced regulatory status for drug therapies for osteoporosis in certain foreign countries than in the United States. Additionally, the large percentage of foreign sales in Japan in fiscal 1994 reflect a government initiative in Japan to provide wide-spread screening for women's health problems such as osteoporosis and the Company's efforts to develop new foreign markets. The Company's foreign sales are subject to risks generally associated with foreign sales, including United States and foreign regulatory approval requirements and policy changes. The relative strength of the United States dollar in relation to foreign currencies may also adversely affect the Company's sales to foreign countries. The Company also believes that its sales to Europe may be seasonal, with reduced orders in the summer months reflecting summer vacation schedules. International sales will also be affected by government approval of new drug therapies, changes in local health care policies regarding reimbursement and the strength of promotional efforts by its distributors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 11 of Notes to Consolidated Financial Statements. COMPETITION 14 The bone assessment market is highly competitive and characterized by continual change and improvement in technology, and multiple technologies that have been or are under development. Some of the companies in this industry have significantly greater manufacturing, marketing and financial resources than the Company. See "Background." Four companies, Lunar, Norland Medical Systems, Aloka and Hitachi, have developed DXA systems to measure bone density which compete with the Company's systems. The Company believes that competition in the field of DXA bone densitometry is based upon their price, precision, speed of measurement, patient radiation dose, cost and ease of operation, product versatility, product reliability and quality of service. The Company believes that it competes effectively with respect to these criteria. The Company believes that its DXA systems will also compete with other X-ray based modalities, including an radiographic absorptiometry product developed by CompuMed Inc. which has been licensed to Merck. The Company's DXA systems also compete with specially- equipped CT scanners and may compete with used and refurbished DXA systems. See "Background" for a discussion of the technical advantages and disadvantages of these other systems. Several companies, including Igea SPA, McCue Ultrasonics, Lunar, Myriad Ultrasound, Osteometer and Osteo-Sciences have developed ultrasound systems to assess bone mineral status. Some of these companies have had substantially more experience than the Company in developing and marketing their systems. The Company believes that competition in the field of ultrasound systems is based on price, precision, speed of measurement, cost and ease of operation, product versatility, product reliability and quality of service. The Company believes that advantages of its Sahara ultrasound bone analyzer system under development will include the system's dry operation, simple single-button operation, and a compact and self-contained design that does not require the use of a separate computer. No ultrasound bone analyzer has been approved for commercial sale in the United States. The timing of FDA clearance or approval for ultrasound bone analyzers in the United States, developed by the Company and others, could have a significant impact on their respective market shares. The Company believes that ultrasound systems will compete with DXA systems in the diagnostic market for initial screening of patients. However, the Company believes that because ultrasound systems can only measure peripheral skeletal sites and do not have the precision of DXA systems, DXA systems will continue to be the predominant means of monitoring bone density for patients being treated for or at high risk of osteoporosis. Three companies have obtained FDA clearance to market biochemical marker tests that evaluate bone turnover in a microtitre format. Ostex International and Metra Biosystems have been cleared to market biochemical markers that assess bone resorption. Hybritech and Metra Biosystems have been cleared to market biochemical markers that assess bone formation. One or more of these companies may develop point-of-care, over-the-counter or other biochemical marker tests that would compete with the biochemical marker strip tests being developed by the Company and Serex. Competition in this market will be based upon price, product reliability, diagnostic sensitivity, precision and ease of use. There can be no assurance that the Company and Serex will be able to compete effectively in this market. MANUFACTURING 15 The Company's manufacturing operations for its DXA and ultrasound systems consist primarily of assembly, test, burn-in and quality control. The Company purchases a major portion of the parts and peripheral components for its products, and manufactures certain subsystems, such as the high-voltage X-ray power supply, from raw materials. Parts and materials are readily available from several supply sources. The Company is required to purchase all of its requirements for Scanora from Soredex. Failure of Soredex to manufacture those systems on time and in accordance with specifications would have an adverse impact on the Company's sales of those systems. BACKLOG Backlog for the Company's systems as of November 30, 1995 and 1994 totaled approximately $4.6 million and $4.9 million, respectively. Backlog consists of purchase orders for which a delivery schedule within the next twelve months has been specified by the customer. Orders included in backlog may be canceled or rescheduled by customers without significant penalty. Backlog as of any particular date should not be relied upon as indicative of the Company's net revenues for any future period. RESEARCH AND DEVELOPMENT The Company's research and development efforts are focused on enhancing its existing products and developing new products for the bone assessment market. The Company's research and development personnel also are involved in establishing protocols, monitoring and interpreting and submitting test data to the FDA and other regulatory agencies to obtain the requisite clearances and approvals for its products. At November 30, 1995, the Company had 32 persons engaged in research and development, of whom 23 persons were engaged in the enhancement of the DXA product line and nine persons were engaged in the development and enhancement of the Company's ultrasound systems. Of these persons, ten persons were engaged in software development. The research and development group was responsible for the introduction of the Company's fourth generation QDR ACCLAIM series of DXA bone densitometers during 1995 and the ongoing development of the Company's Sahara bone analyzer. During fiscal 1995, 1994 and 1993, the Company's research and product development expenses were approximately $4.3 million, $3.4 million and $3.2 million, respectively. PATENTS AND PROPRIETARY RIGHTS The Company relies upon trade secrets and patents to protect its technology. Due to the rapid technological change that characterizes the medical instrumentation industry, the Company believes that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know- how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. Nevertheless, the Company has obtained patents and will continue to make efforts to obtain patents, when available, in connection with its product development program. The Company has obtained ten patents, licensed three patents and has pending 17 patent applications in the United States relating to its DXA technology, and has obtained three patents, licensed four patents 16 and has pending two patent applications in the United States relating to its ultrasound technology. The Company has obtained or applied for corresponding patents and patent applications for certain of these patents and patent applications in certain foreign countries. There can be no assurance that any of the Company's patent applications will be granted or that any patent or patent application will provide significant protection for the Company's products and technology. Moreover, there can be no assurance that foreign intellectual property laws will protect the Company's intellectual property rights. In the absence of significant patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products, processes or technology. In September 1994, Serex granted the Company an exclusive license to use Serex's technology to manufacture, market, sell and distribute the bio-chemical marker strip test being developed under a joint development agreement between Serex and the Company. Serex further granted the Company the right of first negotiation with respect to the development and distribution of new products conceived of by Serex for application in bone metabolism. In order to maintain its exclusive rights, the Company is required to purchase a certain minimum number of tests or pay Serex amounts that would have been paid had the Company purchased the minimum number of tests. If the Company does not meet these minimum requirements, its rights become nonexclusive. In June 1989, the Company granted an exclusive worldwide license of certain of its DXA technology to Vivid Technologies, Inc., an affiliate of S. David Ellenbogen and Jay A. Stein, the Chief Executive Officer and Senior Vice President of the Company, for the sole purpose of developing a baggage inspection and security system. Until recently, the Company had been involved in extensive patent litigation with Lunar, with each party claiming that the other was infringing certain patents held by the other. This litigation was settled by agreement dated November 22, 1995. The agreement provides for certain royalties to be paid by each party to the other for future sales of products using certain defined technologies. The Company does not believe that amounts to be paid by either party under this arrangement will be material. The agreement also provides that neither party will engage the other party in patent litigation for a period of ten years following the date of the agreement, regardless of the infringement claimed and regardless of whether the technology in question currently exists or is developed or acquired by the other party in the future. Neither party is required to disclose to the other any of its technology during this ten year period or otherwise. However, there can be no assurance that Lunar will not use the Company's technology in a manner that would materially and adversely affect the Company's business and results of operations. THIRD PARTY REIMBURSEMENT In the United States, the Health Care Finance Administration, which establishes guidelines for the reimbursement of health care providers treating Medicare and Medicaid patients, provided validation for DXA bone densitometry examinations as a clinically useful procedure by recommending the reimbursement for DXA bone evaluations at an initial rate of $68 per scan effective April 1994, which was increased to $124, effective January 1995. 17 The actual reimbursement amounts provided for DXA examinations is determined by the individual state Medicare carriers. As of December 1995, several of the more populous states, including California, Connecticut, New York, New Jersey and Pennsylvania, had no or only partial reimbursement of DXA examinations. In part as a result of HCFA's recommendations, bone density examinations are paid for by many private third party insurers in the United States. In several European countries, Japan and other international markets, there has generally been an earlier adoption of reimbursement for bone densitometry exams. Countries in which reimbursement for the use of X-ray bone densitometers has been approved include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and Switzerland. In addition, in Japan, where there is a general aversion to ionizing devices, the government has initiated a program to subsidize purchases of ultrasound bone densitometers. As a result, there is much greater use of ultrasound bone densitometers than in any other country. However, DXA bone densitometers continue to account for a substantial portion of the Japanese market. REGULATION The medical devices manufactured and marketed by the Company are subject to regulation by the FDA and, in many instances, by foreign governments. Under the Federal Food, Drug and Cosmetic Act (the "FDA Act"), manufacturers of medical devices must comply with certain regulations governing the testing, manufacturing, packaging and marketing of medical devices. The Company's products are also subject to the Radiation Control for Health and Safety Act, administered by the FDA, which imposes performance standards and record keeping, reporting, product testing and product labeling requirements for devices using radiation, such as X-rays. The FDA generally must approve the commercial sale of new medical devices. Commercial sales of the Company's medical devices within the United States must be preceded by either a premarket notification filing pursuant to Section 510(k) of the FDA Act or the granting of a premarket approval. The 510(k) notification filing must contain information that establishes that the device is substantially equivalent to an existing device that has been continuously marketed since May 28, 1976. The Company received FDA market clearance under 510(k) for its DXA bone densitometers and expects to be eligible to seek 510(k) clearance for its biochemical marker strip test for use by physicians, once developed. The premarket approval procedure involves a more complex and lengthy testing and review process by the FDA than the 510(k) premarket notification procedure and often requires at least several years to obtain. The Company must first obtain an investigational device exemption ("IDE") for the product to conduct extensive clinical testing of the device to obtain the necessary clinical data for submission to the FDA. The FDA will thereafter only grant premarket approval if, after evaluating this clinical data, it finds that the safety and efficacy of the product has been sufficiently demonstrated. This approval may restrict the number of devices distributed or require additional patient follow-up for an indefinite period of time. The Company believes that the approval to market its ultrasound products and its over-the-counter 18 biochemical market strip test, once developed, in the United States may be subject to this more stringent FDA review process. The Company's systems are also subject to approval by certain foreign regulatory and safety agencies. The Company is awaiting regulatory approval of the Company's QDR 4500 ACCLAIM systems in Japan and certain other foreign countries, and has obtained the requisite regulatory approvals for the systems in certain other countries. No assurance can be given that the FDA or foreign regulatory agencies will give the requisite approvals or clearances for any of the Company's medical devices under development on a timely basis, if at all. Moreover, after clearance is given, these agencies can later withdraw the clearance or require the Company to change the device or its manufacturing process or labeling, to supply additional proof of its safety and effectiveness, or to recall, repair, replace or refund the cost of the medical device, if it is shown to be hazardous or defective. The process of obtaining clearance to market products is costly and time-consuming and can delay the marketing and sale of the Company's products. As a manufacturer of medical devices, the Company is subject to certain other FDA regulations and the Company's manufacturing processes and facilities are subject to continuing review by the FDA. Most states and certain other foreign countries monitor and require licensing of X-ray devices. Federal, state and foreign regulations regarding the manufacture and sale of medical devices are subject to future change. The Company cannot predict what impact, if any, such changes might have on its business. EMPLOYEES As of November 30, 1995, the Company had 191 full-time employees, including 53 in manufacturing operations, 32 in research and development, 71 in marketing, sales and support services, 27 in finance and administration and eight in medical data management. None of the Company's employees are represented by a union. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company leases a 83,500 square foot building located in Waltham, Massachusetts. The initial term of the lease expires in June 1996, with the Company having an option to extend the lease for an additional four years. The Company has subleased approximately 26,500 square feet of this space to Vivid, an affiliate of Mr. Ellenbogen and Dr. Stein. During fiscal 1995, Vivid paid the Company approximately $320,000 for this space. The Company and Vivid have agreed that Vivid will vacate this space by the end of the second quarter of fiscal 1996, which the Company will then occupy. The Company also leases an additional 3,100 square feet of nearby office space under a tenancy at will. The Company believes that its facilities will be adequate for its needs for the foreseeable future. The Company also maintains sales and service offices in France, Belgium and Spain. The Company believes that it has adequate space for its anticipated needs and that suitable additional space will be available at commercially reasonable prices as needed. 19 ITEM 3. LEGAL PROCEEDINGS. On November 22, 1995, the Company and Lunar entered into a settlement agreement relating to litigation involving allegations of each party against the other of patent infringement. See "Item 1 --Patents and Proprietary Rights." Until recently, the Company had been involved in litigation brought in January 1995 by B.V. Optische Industrie de Oude Delft and two subsidiaries ("Oldelft") claiming damages relating to a prior patent dispute. On December 14, 1995, the United States District Court for the Southern District of New York granted the Company's Motion to Dismiss and dismissed all claims against the Company. While the court granted Oldelft leave to replead its complaint, no action has been filed with the court to date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote to the Company's security holders during the fourth quarter of the fiscal year ended September 30, 1995. 20 PART II ITEM 5. MARKET INFORMATION, HOLDERS AND DIVIDENDS. Market Information. The Company's Common Stock is traded on the NASDAQ National Market under the symbol "HOLX." The following table sets forth, for the periods indicated, the high and low sales prices per share of Common Stock, as reported by the NASDAQ National Market.
FISCAL YEAR ENDED SEPTEMBER 24, 1994 High Low ------- ------- First Quarter......................... $ 5 $ 3 1/2 Second Quarter........................ $ 7 3/8 $ 3 3/8 Third Quarter......................... $14 $ 6 3/8 Fourth Quarter........................ $18 $ 9 3/4 FISCAL YEAR ENDED SEPTEMBER 30, 1995 First Quarter......................... $18 1/8 $12 1/4 Second Quarter........................ $18 3/4 $13 1/4 Third Quarter......................... $17 3/8 $ 9 Fourth Quarter........................ $25 1/8 $15 3/8
Number of Holders. As of December 11, 1995, there were approximately 223 holders of record of the Company's Common Stock. Dividend Policy. The Company has never declared or paid cash dividends on its capital stock and does not plan to pay any cash dividends in the foreseeable future. The Company's current policy is to retain all of its earnings to finance future growth. 21 ITEM 6. SELECTED FINANCIAL DATA.
FISCAL YEARS ENDED ------------------ CONSOLIDATED STATEMENT OF September 30, September 25, September 24, September 30, OPERATIONS DATA ---------------- 1991 1992 1993 1994 1995 ------- ------- ------------- ------------- ------------- (In thousands, except per share data) Revenues: Product sales $15,258 $26,197 $24,140 $37,056 $41,130 Other revenue 1,799 73 708 1,428 2,270 ------- ------- ------- ------- ------- 17,057 26,270 24,848 38,484 43,400 Costs and Expenses: Cost of product sales 8,464 13,469 13,729 20,865 22,091 Research and development 3,559 3,608 3,182 3,442 4,301 Selling and marketing 2,373 4,692 5,472 5,893 7,835 General and administrative 1,249 3,132 3,501 4,189 4,461 Restructuring costs (1) -- -- 900 -- -- Litigation expenses (2) 1,190 -- -- -- 2,534 ------- ------- ------- ------- ------- 16,835 24,901 26,784 34,389 41,222 ------- ------- ------- ------- ------- Income (loss) from operations 222 1,369 (1,936) 4,095 2,178 ------- Interest income 793 502 300 316 610 Other income (expense) -- 231 (439) (81) (268) ------- ------- ------- ------- ------- Income (loss) before income taxes 1,015 2,102 (2,075) 4,330 2,520 Provision (benefit) for income taxes 314 623 (300) 1,335 650 ------- ------- ------- ------- ------- Net income (loss) $ 701 $ 1,479 $(1,775) $ 2,995 $ 1,870 ======= ======= ======= ======= ======= Net income (loss) per common and common equivalent share: Primary $0.17 $0.37 ($0.45) $0.71 $0.43 Fully diluted 0.69 0.41 Weighted average number of common and common equivalent shares outstanding: Primary 4,049 4,050 3,930 4,195 4,376 ======= ======= ======= ======= ======= Fully diluted 4,342 4,575 ======= ======= FISCAL YEARS ENDED ------------------ CONSOLIDATED BALANCE SHEET September 30, September 25, September 24, September 30, DATA: ---------------- 1991 1992 1993 1994 1995 ------- ------- ------------- ------------- ------------- (In thousands) Working capital $15,503 $16,427 $14,540 $17,688 $19,370 Total Liabilities 3,135 4,578 5,854 8,625 11,190 Total assets 19,809 22,695 22,166 28,497 33,862 Stockholders' equity 16,674 18,117 16,312 19,872 22,672
22 (1) The fiscal 1993 restructuring charge of $900,000, or $0.23 per share, relates to the reorganization of the Company's European operations. (2) The fiscal 1995 litigation expenses of $2.5 million, or $0.41 per share, relate primarily to certain patent litigation. A definitive agreement was reached by the Company and the other party to this litigation in November 1995 settling all outstanding disputes. See "Business -- Patents and Proprietary Rights." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Since inception, the Company has experienced generally increasing annual sales as interest in bone diseases, such as osteoporosis, has grown, as new drug therapies have become available in the United States and other countries to treat these diseases and as the use of DXA systems to measure bone density has become more widespread. The Company's revenues increased 75% to $43.4 million in 1995 from $24.8 million in 1993. During 1995, the Company's net income was adversely impacted by litigation costs of $2.5 million, or $0.41 per share, incurred in connection with the Company's dispute with Lunar, which was settled in November 1995, and, to a lesser extent, its dispute with Oldelft which was dismissed in December 1995. In fiscal 1993, the Company's sales dropped slightly from fiscal 1992 as a result of certain recessionary economic trends in Europe and a significant reduction of United States sales due to uncertainty over the direction of proposed healthcare reform. In fiscal 1994 and 1995, the economic climate in Europe steadily improved and the uncertainty over United States government reform of the healthcare system abated. In addition, the Company was successful in its efforts to develop new international markets in Latin America and the Pacific Rim. The Company commenced operations in April 1986 and was primarily engaged in product development through the end of fiscal 1987. The Company shipped the first QDR 1000 for clinical testing in June 1987 and began commercial shipments of the system in October 1987 upon receipt of FDA marketing clearance. The Company introduced a bone densitometer capable of assessing the bone density of the entire body in 1989, introduced the first bone densitometer capable of taking supine lateral measurements of the spine in 1991, and introduced its fourth generation clinically-oriented QDR 4500 ACCLAIM series of bone densitometers at the annual meeting of the Radiological Society of North America in November 1994. The Company's shipments of its high-end QDR 4500A ACCLAIM began in January 1995 and of its entire ACCLAIM product line began in the third quarter of fiscal 1995. In the fourth quarter of fiscal 1995, ACCLAIM sales represented approximately 70% of the Company's total DXA sales. The Company achieved a slightly higher gross margin on this product line because of higher selling prices and lower overall manufacturing costs than the older DXA line. 23 The Company believes that the two major drivers of the growth in demand for its bone densitometers are (i) the availability of new and effective drug therapies to treat and prevent bone diseases, including osteoporosis, and (ii) the availability of reimbursement to healthcare providers for bone density measurements of patients. On September 29, 1995, the FDA cleared for marketing Merck's new bisphosphonate, Fosamax, for treatment of established osteoporosis in post-menopausal women. The Health Care Finance Administration, the agency which administers Medicare, increased the recommended reimbursement rate for DXA tests to a national average of $124, effective January 1, 1995, from $68, the original recommended reimbursement rate which went into effect in April 1994. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of revenues represented by items as shown in the Company's consolidated statements of operations. 24
FISCAL YEARS ENDED ----------------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 --------------- -------------- -------------- Revenues: Product sales 97.1% 96.3% 94.8% Other revenue 2.9 3.7 5.2 ----- ----- ----- 100.0 100.0 100.0 ----- ----- ----- Costs and expenses: Cost of product sales 55.3 54.2 50.9 Research and development 12.8 8.9 9.9 Selling and marketing 22.0 15.3 18.1 General and administrative 14.1 10.9 10.3 Restructuring costs 3.6 -- -- Litigation expenses -- -- 5.8 ----- ----- ----- 107.8 89.3 95.0 ----- ----- ----- Income (loss) from operations (7.8) 10.7 5.0 Interest income 1.2 0.7 1.4 Other expense (1.7) (0.2) (0.6) ----- ----- ----- Income (loss) before income taxes (8.3) 11.2 5.8 Provision (benefit) for income taxes (1.2) 3.4 1.5 ----- ----- ----- Net income (loss) (7.1%) 7.8% 4.3% ===== ===== ===== - -------------------------
FISCAL YEARS ENDED SEPTEMBER 30, 1995, SEPTEMBER 24, 1994 AND SEPTEMBER 25, 1993 REVENUES. Total revenues were $43.4 million in fiscal 1995, $38.5 million in fiscal 1994 and $24.8 million in fiscal 1993. The increase in total revenues of 13% in fiscal 1995 compared to fiscal 1994 was primarily due to the increase in the total number of DXA product shipments in both the Company's domestic and international markets, particularly to Europe where product sales increased 30% over the prior year. During fiscal 1995, there was also a shift in product sales mix to the Company's new line of bone densitometers, the ACCLAIM series, which the Company began shipping in January 1995. The new ACCLAIM products have higher average selling prices than the comparable DXA bone densitometers which they replace. For the current year, sales of the ACCLAIM product accounted for over 42% of product sales. The increase in total revenues in fiscal 1994 compared to 1993 was primarily due to the increase in the total number of DXA product shipments in both the Company's domestic and international markets, particularly Japan where the Company's distributor accounted for 28% of product sales in fiscal 1994. During fiscal 1994, there was also a shift in product sales mix from fiscal 1993, with an increased percentage of sales being derived from the higher-priced QDR 2000plus and QDR 2000 systems, and an increase in sales of two X-ray products which the Company began to sell as a distributor, primarily in Europe. Other revenues consist of royalty revenues from the Company's licensing of its technology to a related party and revenue relating to medical data management services provided to pharmaceutical companies to assist in the collection and monitoring of clinical trial data. In fiscal 1995, other revenue increased 59% to $2.3 million from $1.4 million in fiscal 1994, 25 primarily due to an increase in revenue for medical data management services. In fiscal 1994, other revenue increased 101% from $710,000 in fiscal 1993 primarily due to an increase in royalty revenues and, to a lesser extent, an increase in revenue relating to medical data management services. See "Business -- Customers" and "Business -- Patents and Proprietary Rights." In fiscal 1995, approximately 37% of product sales were generated in Europe, 29% in Asia, 25% in the United States and 9% in other international markets. In fiscal 1994, approximately 38% of product sales were generated in Asia, 31% in Europe, 26% in the United States and 5% in other international markets. In fiscal 1993, approximately 51% of product sales were generated in Europe, 26% in the United States, 17% in Asia and 6% in other international markets. The Company expects that foreign sales in the current fiscal year will continue to account for a substantial portion of product sales. COSTS AND EXPENSES. The cost of product sales decreased as a percentage of product sales to 54% in fiscal 1995 from 56% in fiscal 1994 and from 57% in fiscal 1993. In fiscal 1995, these costs decreased as a percentage of product sales primarily due to the Company initiating shipments of its new family of DXA bone densitometers, the ACCLAIM series, and a volume increase in the number of DXA systems sold resulting in certain manufacturing efficiencies. The Company began selling the ACCLAIM product in the second quarter of fiscal 1995 and has recognized higher gross margins than on the older DXA product line from higher average selling prices and lower labor and overhead-related manufacturing costs. In fiscal 1994, the cost of product sales decreased as a percentage of product sales primarily due to the volume increase in the number of DXA systems sold and the associated manufacturing efficiencies. These gross margin improvements were offset somewhat by increased sales of X-ray systems, which are distributed but not manufactured by the Company in Europe, resulting in an overall gross margin percentage that is less than what is earned on the DXA product line. Research and development expenses increased 25% to $4.3 million (10% of total revenues) in fiscal 1995 from $3.4 million (9% of total revenues) in fiscal 1994 primarily due to the addition of engineering personnel and outside consultants working on the development of new products and the funding of Serex to develop a biochemical marker strip test. In fiscal 1994, research and development expenses increased from $3.2 million (13% of total revenues) in fiscal 1993 primarily due to the addition of engineering personnel working on the development of new products and due to higher prototype material costs associated with the Company's new fourth-generation QDR 4500 ACCLAIM bone densitometers. Selling and marketing expenses increased 33% to $7.8 million (19% of product sales) in fiscal 1995 from $5.9 million (16% of product sales) in fiscal 1994. The increase in fiscal 1995 expenses was primarily due to an increase in sales personnel and related expenses, marketing and promotional costs incurred in connection with the introduction of the QDR 4500 ACCLAIM product and increased sales commissions based on the higher sales volume. In fiscal 1994, selling and marketing expenses increased 8% from $5.5 million (23% of product sales) in fiscal 1993. The increase in fiscal 1994 from 1993 was primarily due to increased sales commissions based on the higher sales volume, especially in North America and Latin America where the Company sells directly to end-user customers. In addition, the Company incurred additional 26 costs in connection with its initiation of a formal new business development effort, which has resulted in the Company's recent product acquisitions and strategic alliances. The decrease in expenses as a percentage of product sales in fiscal 1994 was due to the significant increase in sales volume to distributors which generally do not receive commissions. General and administrative expenses increased to $4.5 million (10% of total revenues) in fiscal 1995 from $4.2 million (11% of total revenues) in fiscal 1994 and $3.5 million (14% of total revenues) in fiscal 1993. The increase in fiscal 1995 was primarily due to increased head count and other compensation- related expenditures. The increase in fiscal 1994 when compared to fiscal 1993 was primarily due to increases in accounts receivable reserves, which reflects the increase in accounts receivable, and an increase in employee incentive programs. These increases were offset in part by a decrease of general and administrative expenses in Europe as part of the reorganization begun in the fourth quarter of fiscal 1993. Litigation expenses incurred in fiscal 1995 were in connection with the Company's disputes with Lunar and Oldelft. Legal expenses in connection with the patent litigation with Lunar began in October 1994 and represent a substantial portion of the total litigation expenses. In November 1995, a definitive agreement that provides for the cross-licensing of certain patent rights involving DXA and ultrasound technologies for a period of ten years was reached by the Company and Lunar. The complaint brought by Oldelft against the Company was dismissed in December 1995. See Item 1 "Business - Patents and Proprietary Rights" and Item 3 - "Legal Proceedings." In the fourth quarter of fiscal 1993, the Company recorded a restructuring charge of $900,000. This nonrecurring charge covered the reorganization of its European operations, including consolidation of the distribution and administrative infrastructure, asset write-offs including receivables and inventory, and a reduction of its European workforce. The charges from this restructuring were a result of the weak European economy and the Company's desire to reallocate its resources to expanding territories with greater growth potential. At the end of fiscal 1994, the Company's reorganization was complete and all restructuring charges had been incurred. INTEREST INCOME. Interest income increased to $610,000 in fiscal 1995 from $320,000 in fiscal 1994 as the Company earned a higher rate of return on a slightly higher investment base than in the prior year and increased the number of long-term receivables to Latin American customers. In fiscal 1994, interest income increased from $300,000 in fiscal 1993 as the Company earned a slightly higher rate of return on a slightly lower investment base than in the preceding year. OTHER EXPENSE. In fiscal 1995 and 1994, the Company incurred other expenses of $270,000 and $80,000, respectively. These expenses were primarily attributable to the interest costs on a line of credit established by the Company in the third quarter of fiscal 1994 for use by the Company's European subsidiaries to borrow funds in their local currencies to pay for all intercompany sales, thereby reducing the foreign currency exposure on those transactions. 27 In fiscal 1993, the Company recognized other expenses of $440,000 which primarily represented foreign currency exchange losses, net of hedge transactions, arising from the Company's United States dollar-denominated sales to its three European subsidiaries. Approximately one-half of the losses for the year were incurred in the first quarter, prior to the implementation of the Company's program to purchase foreign currency forward contracts to hedge its foreign currency exposure. In 1993, the United States dollar strengthened significantly against the three foreign currencies (the French franc, the Belgian franc and the Spanish peseta) in which the subsidiaries conducted business causing the Company to recognize a transaction loss. To the extent that foreign currency exchange rates fluctuate in the future, the Company may be exposed to continued financial risk. Although the Company has established a borrowing line denominated in the two foreign currencies (the French franc and the Belgian franc) in which the subsidiaries currently conduct business to minimize this risk, there can be no assurance that the Company will be successful or can fully hedge its outstanding exposure. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 25.8% in fiscal 1995 and 30.8% in fiscal 1994. In fiscal 1993, the Company had a benefit for income taxes as a result of that year's loss. The Company's effective tax rate is lower than the statutory tax rates due primarily to the utilization of tax credits, the utilization of net operating losses in foreign jurisdictions and tax benefits associated with the Company's foreign sales corporation. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations primarily through cash flows from operations and the issuance of Common Stock. On December 14, 1995 the Company filed a Registration Statement with the Securities and Exchange Commission with respect to a proposed offering by the Company of 1,200,000 shares of its Common Stock. The Company plans to use the net proceeds of the offering, if made, for general corporate purposes, including working capital, new product development, sales and marketing expansion and potential acquisitions. At September 30, 1995, the Company's working capital was $19.4 million. At such date, the Company had $9.9 million in cash, cash equivalents and short-term investments. The current cash, cash equivalents and investments balance increased approximately $540,000 from September 24, 1994 primarily due to an increase in the Company's current liabilities, which were partially offset by an increase in inventories and accounts receivable. The increase in current liabilities, inventories and accounts receivable reflects the Company's introduction of its new ACCLAIM family of bone densitometers and the increase in sales activity. At September 30, 1995, one customer had accounts receivable outstanding of approximately $2.2 million, which were current within their payment terms. The Company finances certain sales to Latin America over a two to three year time frame. At September 30, 1995, the Company had long-term accounts receivable outstanding of approximately $800,000 relating to these sales, which were included in other assets. Working capital increased by approximately $1.7 million in fiscal 1995, primarily from the addition of net income. In fiscal 1995, the Company 28 purchased $800,000 of property and equipment, primarily computers and other equipment associated with the hiring of additional personnel. The Company does not currently have any significant capital commitments and believes that existing sources of liquidity, including the anticipated net proceeds of the proposed offering, funds expected to be generated from operations and a $3.0 million credit line for use by its European subsidiaries, will provide adequate cash to fund the Company's anticipated working capital and other cash needs for the foreseeable future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is incorporated by reference to the sections entitled "Election of Directors" and "Executive Officers" in the Registrant's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference to the sections entitled "Executive Compensation" in the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference to the section entitled "Share Ownership of Directors, Officers and Certain Beneficial Owners" in the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference to the section entitled "Certain Transactions" in the Registrant's Proxy Statement. 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets as of September 24 1994 and September 30, 1995 Consolidated Statements of Operations for the years ended September 25, 1993, September 24, 1994 and September 30, 1995 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended September 25, 1993, September 24, 1994 and September 30, 1995 Consolidated Statements of Cash Flows for the years ended September 25, 1993, September 24, 1994 and September 30, 1995 Notes to Consolidated Financial Statements (2) Financial Statement Schedules The following financial statement schedules are filed as part of this report and should be read in conjunction with the consolidated financial statements: SCHEDULE -------- Report of Independent Public Accountants on Schedule II Valuation and Qualifying Accounts All other schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. (3) Listing of Exhibits
Exhibit Number Reference - ------- --------- 2.01 Merger Agreement between the Company and its Massachusetts predecessor............................... A 3.01 Certificate of Incorporation of the Company................. A 3.02 By-laws of the Company...................................... A 4.01 Specimen certificate for shares of the Company's Common Stock...................................... A 4.02 Description of capital stock (contained in the Certificate of Incorporation of the Company filed, as Exhibit 3.01)..... A 4.03 Rights Agreement dated December 22, 1992.................... C
30
4.04 Amendment No. 1 to Rights Agreement......................... G 10.07 1986 Combination Stock Option Plan, as amended.............. F* 10.08 Amended and Restated 1990 Non-Employee Director Stock Option Plan.................................. 10.09 Employee Stock Purchase Plan of the Company................. F 10.10 1995 Combination Stock Option Plan.......................... * 10.12 Form of Indemnification Agreement for directors and certain officers of the Company............................. A* 10.17 Management Agreement between the Company and Vivid Technologies, Inc..................................... A* 10.18 License Agreement between the Company and Vivid Technologies, Inc..................................... A 10.19 Distribution Agreement between the Company, Toyo Medic Company Limited and Yokogawa Medical Systems, Ltd........... B* 10.20 Facility lease between the Company and Lincoln Street Trust........................................ B 10.21 Orion Corporation Soredex Distribution Agreement for Scanora.......................... D** 10.22 Employment Agreement with an officer of the Company.............................................. E 10.23 Form of Selling Stockholders Agreement...................... 10.24 Serex License Agreement..................................... ** 11.01 Statement re: Computation of Per Share Earnings............ 22.01 Subsidiaries of the Company................................. C 24.01 Consent of Arthur Andersen LLP.............................. 28.01 Press Release dated December 22, 1992....................... C 28.02 Letter to Stockholders dated December 22, 1992.............. C - -----------------------
* Management compensation plan or arrangement ** Confidentiality requested as to certain provisions A. The above exhibits were previously filed as an exhibit of the same number to the Company's Registration Statement on Form S-1 (Registration No. 33-33128) filed on January 24, 1990 and are incorporated herein by reference. B. The above exhibits were previously filed as an exhibit of the same number to the Company's 1990 Annual Report on Form 10-K and are incorporated herein by reference. C. The above exhibit were previously filed as an exhibit of the same number to the Company's 1992 Annual Report on Form 10-K and are incorporated herein by reference. D. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated herein by reference. E. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Annual Report on Form 10-K and is incorporated herein by reference. 31 F. The above exhibits were previously filed as an exhibit of the same number to the Company's 1994 Annual Report on Form 10-K and is incorporated herein by reference. G. The above exhibit was previously filed as an exhibit of the same number of the Company's Registration Statement on Form S-3 (Registration No. 33-65019) filed on December 14, 1995 and is incorporated herein by reference. (d) Financial Statement Schedules: The financial statement schedules required are included as part of Item (2) above. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOLOGIC, INC. By: /s/ S. DAVID ELLENBOGEN _______________________________ S. DAVID ELLENBOGEN Chief Executive Officer Dated: December 22, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ S. DAVID ELLENBOGEN Director and Chief Executive Officer December 22, 1995 ____________________________ S. DAVID ELLENBOGEN /s/ GLENN P. MUIR Vice President, Finance and Principal Financial and Accounting Officer December 22, 1995 ____________________________ GLENN P. MUIR /s/ JAY A. STEIN Director and Senior Vice President December 22, 1995 ____________________________ JAY A. STEIN /s/ IRWIN JACOBS Director December 22, 1995 ____________________________ IRWIN JACOBS /s/ WILLIAM A. PECK Director December 22, 1995 ____________________________ WILLIAM A. PECK /s/ GERALD SEGEL Director December 22, 1995 ____________________________ GERALD SEGEL 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Hologic, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in this Form 10-K, and have issued our report thereon dated November 22, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 (a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts, November 22, 1995 34 SCHEDULE II ------------ HOLOGIC, INC. AND SUBSIDIARIES ------------------------------ VALUATION AND QUALIFYING ACCOUNTS ---------------------------------
Additions Balance at ---------- Beginning Charged to Charged to Balance of Costs and Other Deductions at End Description Period Expenses Accounts (1) of Period - ----------- ------ -------- -------- ---------- --------- Allowance for doubtful accounts - ------------------------------- Year ended September 30, 1995 $850,000 $0 $0 $0 $850,000 Year ended September 24, 1994 $195,000 $713,192 $0 ($58,192) $850,000 Year ended September 25, 1993 $125,000 $70,000 $0 $0 $195,000
(1) Specific write-offs HOLOGIC, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................................. F-2 Consolidated Balance Sheets as of September 24, 1994 and September 30, 1995..................................................................... F-3 Consolidated Statements of Operations for the years ended September 25, 1993, September 24, 1994 and September 30, 1995.......................... F-4 Consolidated Statements of Stockholders' Equity for the years ended September 25, 1993, September 24, 1994 and September 30, 1995............ F-5 Consolidated Statements of Cash Flows for the years ended September 25, 1993, September 24, 1994 and September 30, 1995.......................... F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Hologic, Inc.: We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a Delaware corporation) and subsidiaries as of September 24, 1994 and September 30, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hologic, Inc. and subsidiaries as of September 24, 1994 and September 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts November 22, 1995 (except with respect to the matter discussed in Note 13, as to which the date is December 14, 1995) F-2 HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER SEPTEMBER 24, 1994 30, 1995 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents.......................... $ 5,880,010 $ 7,447,813 Short-term investments............................. 3,519,515 2,492,671 Accounts receivable, less reserves of $850,000..... 10,893,649 11,643,883 Inventories........................................ 4,435,033 6,917,000 Prepaid expenses and other current assets.......... 1,584,132 2,058,707 ----------- ----------- Total current assets............................. 26,312,339 30,560,074 ----------- ----------- Property and Equipment, at cost: Equipment.......................................... 1,922,473 2,600,381 Furniture and fixtures............................. 553,393 652,446 Leasehold improvements............................. 448,529 506,495 ----------- ----------- 2,924,395 3,759,322 Less--Accumulated depreciation and amortization.... 1,796,826 2,298,168 ----------- ----------- 1,127,569 1,461,154 ----------- ----------- Other Assets, net.................................... 1,057,254 1,840,785 ----------- ----------- $28,497,162 $33,862,013 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit..................................... $ 2,417,034 $ 2,058,898 Accounts payable................................... 1,865,413 3,773,000 Accrued expenses................................... 3,474,482 3,965,750 Deferred revenue................................... 867,861 1,392,667 ----------- ----------- Total current liabilities........................ 8,624,790 11,190,315 ----------- ----------- Commitments and Contingencies (Notes 8 and 13) Stockholders' Equity: Preferred stock, $.01 par value-- Authorized--1,622,685 shares Issued and outstanding--none..................... -- -- Common stock, $.01 par value-- Authorized--10,000,000 shares Issued and outstanding--4,024,581 shares and 4,122,100 shares in 1994 and 1995, respectively. 40,246 41,221 Capital in excess of par value....................... 14,450,085 15,354,893 Retained earnings.................................... 5,551,074 7,420,593 Cumulative translation adjustment.................... (169,033) (145,009) ----------- ----------- Total stockholders' equity....................... 19,872,372 22,671,698 ----------- ----------- $28,497,162 $33,862,013 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED ------------------------------------- SEPTEMBER SEPTEMBER SEPTEMBER 25, 1993 24, 1994 30, 1995 ----------- ----------- ----------- Revenues: Product sales........................ $24,139,565 $37,056,109 $41,129,782 Other revenue........................ 708,831 1,427,634 2,270,068 ----------- ----------- ----------- 24,848,396 38,483,743 43,399,850 ----------- ----------- ----------- Costs and Expenses: Cost of product sales................ 13,729,012 20,865,075 22,090,963 Research and development............. 3,182,412 3,441,871 4,300,474 Selling and marketing................ 5,472,413 5,892,377 7,835,418 General and administrative........... 3,500,998 4,189,377 4,461,335 Litigation expenses.................. -- -- 2,533,493 Restructuring costs.................. 900,000 -- -- ----------- ----------- ----------- 26,784,835 34,388,700 41,221,683 ----------- ----------- ----------- Income (loss) from operations...... (1,936,439) 4,095,043 2,178,167 Interest Income........................ 300,468 315,886 609,678 Other Expense.......................... (438,869) (80,752) (268,326) ----------- ----------- ----------- Income (loss) before income taxes.. (2,074,840) 4,330,177 2,519,519 Provision (Benefit) for Income Taxes... (300,000) 1,335,000 650,000 ----------- ----------- ----------- Net income (loss).................. $(1,774,840) $ 2,995,177 $ 1,869,519 =========== =========== =========== Net Income (Loss) Per Common and Common Equivalent Share: Primary.............................. $ (.45) $ .71 $ .43 =========== =========== =========== Fully diluted........................ $ .69 $ .41 =========== =========== Weighted Average Number of Common and Common Equivalent Shares Outstanding: Primary.............................. 3,930,068 4,194,914 4,375,880 =========== =========== =========== Fully diluted........................ 4,341,810 4,575,426 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ----------------- $.01 CAPITAL IN CUMULATIVE TOTAL NUMBER OF PAR EXCESS OF RETAINED TRANSLATION STOCKHOLDERS' SHARES VALUE PAR VALUE EARNINGS ADJUSTMENT EQUITY --------- ------- ----------- ---------- ----------- ------------- Balance, September 30, 1992................... 3,906,100 $39,061 $13,824,437 $4,330,737 $ (77,475) $18,116,760 Exercise of stock op- tions and stock pur- chase warrants....... 29,650 296 10,107 -- -- 10,403 Issuance of common stock for patent ac- quisition............ 10,667 107 49,893 -- -- 50,000 Net loss.............. -- -- -- (1,774,840) -- (1,774,840) Translation adjust- ments................ -- -- -- -- (90,104) (90,104) --------- ------- ----------- ---------- --------- ----------- Balance, September 25, 1993................... 3,946,417 39,464 13,884,437 2,555,897 (167,579) 16,312,219 Exercise of stock op- tions................ 78,164 782 365,648 -- -- 366,430 Tax benefit from stock options exercised.... -- -- 200,000 -- -- 200,000 Net income............ -- -- -- 2,995,177 -- 2,995,177 Translation adjust- ments................ -- -- -- -- (1,454) (1,454) --------- ------- ----------- ---------- --------- ----------- Balance, September 24, 1994................... 4,024,581 40,246 14,450,085 5,551,074 (169,033) 19,872,372 Exercise of stock op- tions................ 64,718 647 241,895 -- -- 242,542 Issuance of common stock under employee stock purchase plan.. 4,780 48 59,105 -- -- 59,153 Stock issuance in con- junction with collab- oration agreement.... 28,021 280 323,808 -- -- 324,088 Tax benefit from stock options exercised.... -- -- 280,000 -- -- 280,000 Net income............ -- -- -- 1,869,519 -- 1,869,519 Translation adjust- ments................ -- -- -- -- 24,024 24,024 --------- ------- ----------- ---------- --------- ----------- Balance, September 30, 1995................... 4,122,100 $41,221 $15,354,893 $7,420,593 $(145,009) $22,671,698 ========= ======= =========== ========== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 ------------- ------------- ------------- Cash Flows from Operating Activities: Net income (loss).................. $(1,774,840) $2,995,177 $1,869,519 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization.... 424,787 593,519 565,806 Changes in assets and liabili- ties-- Accounts receivable............ (680,391) (5,738,374) (883,961) Inventories.................... 238,727 (387,204) (2,445,327) Prepaid expenses and other cur- rent assets................... (21,539) (580,031) (411,442) Accounts payable............... 518,306 (131,964) 1,781,387 Accrued expenses............... 884,779 241,960 525,350 Deferred revenue............... 121,604 27,344 505,765 ----------- ---------- ---------- Net cash provided by (used in) operating activities.... (288,567) (2,979,573) 1,507,097 ----------- ---------- ---------- Cash Flows from Investing Activities: Net (purchases) sales of short-term investments....................... 4,736,921 (79,340) 1,026,844 Purchase of property and equipment, net............................... (213,426) (495,159) (802,822) Increase in other assets........... (286,448) (37,579) (193,729) ----------- ---------- ---------- Net cash provided by (used in) investing activities.... 4,237,047 (612,078) 30,293 ----------- ---------- ---------- Cash Flows from Financing Activities: Borrowings (settlement) under line of credit......................... -- 2,311,352 (536,200) Net proceeds from sale of common stock............................. 10,403 366,430 301,695 Tax benefit from stock options ex- ercised........................... -- 200,000 280,000 ----------- ---------- ---------- Net cash provided by financ- ing activities.............. 10,403 2,877,782 45,495 ----------- ---------- ---------- Effect of Exchange Rate Changes on Cash................................ 359,645 (94,627) (15,082) ----------- ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents.................... 4,318,528 (808,496) 1,567,803 Cash and Cash Equivalents, beginning of year............................. 2,369,978 6,688,506 5,880,010 ----------- ---------- ---------- Cash and Cash Equivalents, end of year................................ $ 6,688,506 $5,880,010 $7,447,813 =========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for in- come taxes........................ $ 214,072 $1,259,940 $ 182,809 =========== ========== ========== Supplemental Schedule of Noncash Transactions: Common stock issued for patent ac- quisition......................... $ 50,000 $ -- $ -- =========== ========== ========== Preferred stock investment acquired in exchange for common stock...... $ -- $ -- $ 324,088 =========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS Hologic, Inc. (the Company) is engaged in the development, manufacture and distribution of proprietary x-ray and other medical systems. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements. (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. (b) Change in Fiscal Year During fiscal 1993, the Company elected to change its fiscal year-end from September 30 to the last Saturday in September. Fiscal 1993, 1994 and 1995 ended on September 25, 1993, September 24, 1994 and September 30, 1995. (c) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash and Cash Equivalents and Short-term Investments The Company considers all highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents. Included in cash equivalents at September 24, 1994 is approximately $4,804,000 of securities purchased under agreements to resell. Included in cash equivalents at September 30, 1995 is approximately $4,217,000 of securities purchased under agreements to resell. The securities purchased under agreements to resell are collateralized by U.S. Government securities. Short-term investments have maturities of greater than three months and consist of securities issued by the U.S. Government and its agencies. The Company accounts for investments in accordance with the Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, investments that the Company has the positive intent and ability to hold to maturity are reported at amortized cost, which approximates fair market value, and are classified as held-to-maturity. These investments include cash, cash equivalents and securities issued by U.S. Government agencies, which total $6,522,000 at September 30, 1995. Investments purchased to be held for indefinite periods of time and not intended at the time of purchase to be held until maturity are classified as available-for-sale, which total $1,803,000 at September 30, 1995. These investments consist of securities issued by the U.S. Government and are carried at cost which approximates fair market value. F-7 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (e) Concentration of Credit Risk SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of trade accounts receivable. The Company utilizes distributors in certain countries with various credit terms, depending on the individual circumstances. One distributor had amounts due to the Company of approximately $4,817,000 and $2,231,000 as of September 24, 1994 and September 30, 1995, respectively. This distributor accounted for 14%, 28% and 20% of product sales for fiscal 1993, 1994 and 1995, respectively. (f) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
SEPTEMBER 24, SEPTEMBER 30, 1994 1995 ------------- ------------- Raw materials and work-in-process............. $3,258,076 $4,030,275 Finished goods................................ 1,176,957 2,886,725 ---------- ---------- $4,435,033 $6,917,000 ========== ==========
Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. (g) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations, using the straight-line and declining-balance methods, which allocate the cost of property and equipment over the following estimated useful lives:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE -------------------- ------------- Equipment.................. 5 Years Furniture and fixtures..... 5-7 Years Leasehold improvements..... Life of lease
(h) Intangible Assets The Company assesses the realizability of intangible assets in accordance with SFAS No. 121, Accounting for Impairment of Long-lived Assets and for Long-lived Assets To Be Disposed Of. (i) Foreign Currency Translation The Company translates certain of its accounts and the financial statements of its foreign subsidiaries in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at year-end, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. Gains and losses from foreign currency translation are credited or charged to cumulative translation adjustment, included in stockholders' equity in the accompanying consolidated balance sheets. Transaction losses of approximately $430,000 in fiscal 1993 are included in other expense in the accompanying consolidated statements of operations. Transaction gains in fiscal 1994 and 1995 were not significant. F-8 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (j) Revenue Recognition The Company recognizes product revenue upon shipment. A provision is made at that time for estimated warranty costs to be incurred. Other revenues are recorded at the time the product is shipped or the service rendered. Maintenance revenues are recognized over the term of the contract. Cash received in excess of revenues recognized is included in deferred revenue in the accompanying consolidated balance sheets. (k) Research and Development and Software Development Costs Research and development costs, other than software development costs, have been charged to operations as incurred. SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, requires the capitalization of certain computer software development costs incurred after technological feasibility is established. The Company believes that once technological feasibility of a software product has been established, the additional development costs incurred to bring the product to a commercially acceptable level are not significant. (l) Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per share data are computed using the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from stock options have been included in the computation using the treasury stock method only when their effect would be dilutive. Fully dilutive net income per share has been separately presented only when the difference from primary net income per share is significant. (m) Restructuring Charge In fiscal 1993, the Company recorded a nonrecurring restructuring charge of $900,000, representing the costs associated with reorganizing its European operations. These costs included a reduction in work force, consolidation of distribution and administrative functions, and asset write-offs and write- downs. The restructuring was completed during the fourth quarter of fiscal 1994. (n) Derivative Financial Instruments During October 1994, the Financial Accounting Standards Board issued SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments, which requires disclosures about derivative financial instruments. SFAS No. 119 will be effective for fiscal 1996. The Company does not expect the adoption of this standard to have a material effect on its consolidated financial position or results of operations. At September 30, 1995, the Company had no instruments requiring disclosure under SFAS No. 119. (3) LINE OF CREDIT The Company maintains a line of credit with a bank for the equivalent of $3,000,000, which bears interest at the Paris Interbank Offered Rate (6.375% at September 30, 1995) plus 2.25%. The borrowings under this line are primarily used by the Company's European subsidiaries to settle intercompany sales and are denominated in the respective local currencies of its European subsidiaries. The line of credit may be canceled by the bank with a 30-day notice. Interest expense on this line of credit of approximately $79,000 and $204,000 has been included in other expenses in the accompanying consolidated statements of operations for 1994 and 1995, respectively. F-9 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) INCOME TAXES The Company provides for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. The provision (benefit) for income taxes in the accompanying consolidated statements of operations consists of the following:
YEARS ENDED ----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 ------------- ------------- ------------- Federal-- Current....................... $(295,000) $1,395,000 $415,000 Deferred...................... (15,000) (105,000) 135,000 --------- ---------- -------- (310,000) 1,290,000 550,000 --------- ---------- -------- State-- Current....................... 10,000 45,000 90,000 --------- ---------- -------- Foreign-- Current....................... -- -- 10,000 --------- ---------- -------- $(300,000) $1,335,000 $650,000 ========= ========== ========
A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
YEARS ENDED ----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 ------------- ------------- ------------- Income tax provision (benefit) at federal statutory rate.............. (34.0)% 34.0% 34.0% Increase (decrease) in tax resulting from-- Net effect of (income) losses of foreign subsidiaries not (provided) benefited.............. 20.5 (0.9) (6.7) State tax provision, net of federal benefit........................... 0.3 0.7 2.4 Research and development tax cred- it................................ (1.3) (0.5) (1.9) Effect of not providing U.S. taxes on exempt FSC income.............. (3.5) (4.5) (5.3) Other.............................. 3.5 2.0 3.3 ----- ---- ---- Effective tax rate................... (14.5)% 30.8% 25.8% ===== ==== ====
The components of domestic and foreign income (loss) before the provision for income taxes are as follows:
YEARS ENDED ----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 ------------- ------------- ------------- Domestic........................ $ (823,792) $4,211,439 $1,988,346 Foreign......................... (1,251,048) 118,738 531,173 ----------- ---------- ---------- $(2,074,840) $4,330,177 $2,519,519 =========== ========== ==========
During fiscal 1994 and 1995, the Company realized tax benefits of approximately $200,000 and $280,000, respectively, relating to the exercise of certain stock options. These benefits are reflected as a component of capital in excess of par value. F-10 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The components of the net deferred tax amount recognized in the accompanying consolidated balance sheets are as follows:
SEPTEMBER 24, SEPTEMBER 30, 1994 1995 ------------- ------------- Deferred tax assets........................... $1,450,000 $1,175,000 Valuation allowance........................... (696,000) (488,000) ---------- ---------- $ 754,000 $ 687,000 ========== ==========
The approximate income tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is approximately as follows:
SEPTEMBER 24, SEPTEMBER 30, 1994 1995 ------------- ------------- Foreign net operating loss carryforwards..... $ 561,000 $ 353,000 Nondeductible accruals....................... 389,000 290,000 Nondeductible reserves....................... 496,000 511,000 Other temporary differences.................. 4,000 21,000 ---------- ---------- $1,450,000 $1,175,000 ========== ==========
The valuation allowance relates primarily to certain deferred tax assets in foreign jurisdictions, for which realization is uncertain. The reduction in the valuation allowance in 1995 is directly attributable to the reduction of foreign net operating losses. (5) COMMON STOCK (a) Stock Option Plans The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is administered by the Board of Directors and authorizes the Company to issue options to purchase up to 950,000 shares that have been reserved by the Company. Under the terms of the 1986 Plan, the Company may grant employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock at a price not less than fair market value at the date of grant. In addition, the Company may grant nonqualified options to other participants. As of September 30, 1995, the Company had granted options to purchase 927,502 shares, of which options to purchase 345,819 shares had been exercised. These options vest over a five-year period and are exercisable at varying dates. The Company's 1990 Nonemployee Director Stock Option Plan (the Directors' Plan) allows for eligible directors to receive options to purchase 5,000 shares of common stock upon election as a director. The options vest ratably over a five-year period. In addition, eligible directors are entitled to annual option grants to purchase 2,000 shares of common stock, which vest after six months. Option grants under the Directors' Plan are at not less than fair market value on the date of grant. The Company has reserved 75,000 shares of common stock for issuance under the Directors' Plan. As of September 30, 1995, the Company had granted options to purchase 35,000 shares, of which options to purchase 7,000 shares had been exercised. In June 1995, the Board of Directors adopted, subject to stockholders' approval, the 1995 Combination Stock Option Plan, pursuant to which the Company is authorized to issue 550,000 options to purchase shares. Pending stockholder approval, the Company had granted 275,000 options under this plan. F-11 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes all stock option activity under the 1986 and 1995 Plans and the Directors' Plan for the three years ended September 30, 1995.
NUMBER EXERCISE PRICE OF SHARES PER SHARE --------- -------------- Outstanding, September 30, 1992................. 297,413 $ .10-$22.75 Granted....................................... 252,450 4.38- 5.63 Terminated.................................... (164,363) .10- 22.75 Exercised..................................... (13,850) .10- 1.00 -------- ------------- Outstanding, September 25, 1993................. 371,650 .10- 17.75 Granted....................................... 303,400 3.63- 10.50 Terminated.................................... (13,185) 1.00- 7.38 Exercised..................................... (78,164) .10- 8.50 -------- ------------- Outstanding, September 24, 1994................. 583,701 .10- 17.75 Granted....................................... 373,300 12.38- 18.88 Terminated.................................... (7,600) 3.88- 14.13 Exercised..................................... (64,718) .10- 14.13 -------- ------------- Outstanding, September 30, 1995................. 884,683 $ .10-$18.88 ======== ============= Exercisable, September 30, 1995................. 234,733 $ .10-$14.13 ======== =============
(b) Employee Stock Purchase Plan In December 1994, the Company adopted the 1995 Employee Stock Purchase Plan (the ESP Plan) in compliance with Section 423 of the Internal Revenue Code. Employees who have completed 12 consecutive months or two years, whether or not consecutive, of employment with the Company are eligible to participate in the ESP Plan. The ESP Plan allows participants to purchase common stock of the Company at 85% of the fair market value, as defined. The Company may issue up to 100,000 shares under the ESP Plan. During fiscal 1995, the Company issued 4,780 shares under the ESP Plan. At September 30, 1995, the Company has 95,220 shares available for purchase under the ESP Plan. (c) Rights Agreement In December 1992, the Company adopted a shareholder rights plan. The plan is intended to protect shareholders from unfair or coercive takeover practices. In accordance with the plan, the Board of Directors declared a dividend distribution of one common stock purchase right for each share of common stock outstanding until the rights become detachable. Each right entitles the registered holder to purchase from the Company one share of common stock for $30, adjusted for certain events. In the event that the Company is acquired in a merger or other business combination transaction or more than 50% of its assets or earning power are sold, each holder shall thereafter have the right to receive, upon exercise of each right, that number of shares of Common Stock of the acquiring Company which at the time of such transaction would have a market value of two times the $30 per share exercise price. The rights will not be detachable or exercisable until certain events occur. The Board of Directors may elect to terminate the rights under certain circumstances. (6) PROFIT-SHARING 401(K) PLAN The Company has a qualified profit-sharing plan covering substantially all of its employees. Contributions to the plan are at the discretion of the Company's Board of Directors. The Company has recorded approximately $98,000, $120,000 and $135,000 as a provision for the profit-sharing contribution for fiscal 1993, 1994 and 1995, respectively. F-12 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (7) RELATED-PARTY TRANSACTIONS (a) Management Services Agreement The Company has an agreement with Vivid Technologies, Inc. (Vivid), an affiliated company, whereby the Company provides management, administrative and support services. In addition, the Company leases a portion of its facilities to Vivid through June 1996 for approximately $15,000 per month. Vivid pays the Company for all direct costs incurred, as well as a portion of the Company's overhead costs, as defined, representing the pro rata portion of costs attributable to Vivid. The Company has charged Vivid approximately $304,000, $544,000 and $530,000 under the agreement during fiscal 1993, 1994 and 1995, respectively, which has been offset against operating expenses of the Company. Vivid also purchased approximately $154,000, $229,000 and $210,000 of inventory and spare parts from the Company in fiscal 1993, 1994 and 1995, respectively. Of these amounts, approximately $291,000 and $463,000 was unpaid as of September 24, 1994 and September 30, 1995, respectively. (b) License and Technology Agreement The Company has an agreement with Vivid whereby Vivid obtained a perpetual, exclusive worldwide license to utilize certain of the Company's technology and patents for the sole purpose of developing baggage and inspection security systems. Royalty payments to the Company under the agreement are 5% of product revenue on Vivid's first $50 million in sales; thereafter, payments are 3% of Vivid's sales up to $200 million. No royalty payments will be made on aggregate revenues in excess of $200 million. The agreement terminates by mutual agreement of the two parties or under certain other circumstances, as defined. The Company recognized approximately $138,000, $688,000 and $719,000 of royalty revenue under the agreement for fiscal 1993, 1994 and 1995, respectively. Approximately $189,000 and $351,000 was outstanding at September 24, 1994 and September 30, 1995, respectively. (8) COMMITMENTS (a) Operating Leases The Company and its subsidiaries lease certain equipment and conduct their operations in leased facilities under operating lease agreements that expire through fiscal 2002. In addition, the facility lease requires the Company to pay a percentage of real estate taxes and certain operating costs of the property. Future minimum lease payments under the operating leases are approximately as follows:
FISCAL YEAR ENDING AMOUNT ------------------ ---------- September 28, 1996............ $ 890,000 September 27, 1997............ 811,000 September 26, 1998............ 775,000 September 25, 1999............ 760,000 September 24, 2000............ 760,000 Thereafter.................... 931,000 ---------- $4,927,000 ==========
Rental expense, net of subrentals from Vivid, was approximately $784,000, $647,000 and $632,000 for fiscal 1993, 1994 and 1995, respectively. The lease agreement for the Company's headquarters included a free rent and reduced rent period. The Company is recognizing the rent expense evenly over the term of the lease agreement. F-13 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (b) Patent Acquisition In fiscal 1992, the Company acquired certain patents pertaining to technology incorporated into certain of the Company's products. The Company paid approximately $245,000 for these patents and related expenses upon entering into the agreement. In May 1993, this agreement was amended such that the Company paid approximately $344,000 for additional patent rights and related expenses, of which $50,000 was paid through the issuance of 10,667 shares of common stock. The Company may be required to make additional payments of common stock (up to a maximum of 32,000 shares) for certain additional patent rights, if and when available. The cost of these patents are being amortized over their expected life of 10 years. (9) COLLABORATION AGREEMENT In June 1995, the Company acquired a 5% minority interest in a collaborating company. To acquire this minority interest, the Company issued 28,021 shares of common stock and paid $75,912 in cash in return for all of the outstanding convertible preferred stock of the collaborating company. The Company also entered into a development agreement with the collaborating company related to a certain product. As part of the development agreement, the Company will reimburse the collaborating company for expenses incurred in the development of this product. In order to maintain its exclusive rights in the collaborating company's technology, the Company must meet required sales volumes, as defined, in the five years commencing 90 days after approval of the product by the Food and Drug Administration. The Company is also required to pay royalties to the collaborating company based on net sales of the product, as defined. (10) FEE PER SCAN PROGRAM The Company has entered into a strategic fee per scan program with a leasing company whereby the Company sells its systems to the leasing company, which in turn, leases the systems to third parties. Under the terms of the agreement, the Company is contingently liable for a certain amount per system, up to a maximum of $500,000. At September 30, 1995, the Company was liable for approximately $89,000. A portion of the program is guaranteed by a third party. (11) GEOGRAPHIC INFORMATION Revenues, net income (loss) and identifiable assets for the Company's U.S. and European operations are summarized as follows:
1993 ----------------------------------------------------- UNITED EUROPEAN STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ Revenues from unaffiliated customers................. $15,997,129 $ 8,851,267 $ -- $24,848,396 Transfers between geo- graphic areas............. 4,398,089 588,631 (4,986,720) -- ----------- ----------- ----------- ----------- Total revenues......... $20,395,218 $ 9,439,898 $(4,986,720) $24,848,396 =========== =========== =========== =========== Net loss................... $ (404,526) $(1,251,048) $ (119,266) $(1,774,840) =========== =========== =========== =========== Identifiable assets........ $19,264,066 $ 4,001,885 $(1,099,827) $22,166,124 =========== =========== =========== ===========
F-14 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994 --------------------------------------------------- UNITED EUROPEAN STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ Revenues from unaffiliated customers.................. $29,646,443 $ 8,837,300 $ -- $38,483,743 Transfers between geographic areas...................... 2,833,417 1,452,712 (4,286,129) -- ----------- ----------- ----------- ----------- Total revenues.......... $32,479,860 $10,290,012 $(4,286,129) $38,483,743 =========== =========== =========== =========== Net income.................. $ 2,869,578 $ 118,738 $ 6,861 $ 2,995,177 =========== =========== =========== =========== Identifiable assets......... $24,698,626 $ 5,091,193 $(1,292,657) $28,497,162 =========== =========== =========== =========== 1995 --------------------------------------------------- UNITED EUROPEAN STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ Revenues from unaffiliated customers.................. $31,249,364 $12,150,486 $ -- $43,399,850 Transfers between geographic areas...................... 4,105,914 2,085,185 (6,191,099) -- ----------- ----------- ----------- ----------- Total revenues.......... $35,355,278 $14,235,671 $(6,191,099) $43,399,850 =========== =========== =========== =========== Net income (loss)........... $ 1,364,676 $ 519,941 $ (15,098) $ 1,869,519 =========== =========== =========== =========== Identifiable assets......... $28,993,088 $ 6,353,095 $(1,484,170) $33,862,013 =========== =========== =========== ===========
Export sales from the United States to unaffiliated customers primarily in Europe and Asia during fiscal 1993, 1994 and 1995 totaled approximately $8,944,000, $16,166,000 and $15,601,000, respectively. Transfers between the Company and its European subsidiaries are generally recorded at amounts similar to the prices paid by unaffiliated foreign dealers. All intercompany profit is eliminated in consolidation. Export product sales as a percentage of total product sales are as follows:
YEARS ENDED ----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 30, 1993 1994 1995 ------------- ------------- ------------- Europe.......................... 51% 31% 37% Asia............................ 17 38 29 All others...................... 6 5 9 --- --- --- 74% 74% 75% === === ===
(12) ACCRUED EXPENSES Accrued expenses consist of the following:
SEPTEMBER 24, SEPTEMBER 30, 1994 1995 ------------- ------------- Accrued payroll and employee benefits......... $1,007,867 $ 869,752 Accrued income taxes.......................... 578,073 581,222 Accrued commissions........................... 511,330 914,259 Accrued legal................................. 250,000 586,738 Other accrued expenses........................ 1,127,212 1,013,779 ---------- ---------- $3,474,482 $3,965,750 ========== ==========
F-15 HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (13) LITIGATION On September 7, 1994, Lunar Corporation (Lunar) filed a complaint in United States District Court against the Company, alleging, among other things, that two of the Company's patents are not valid and infringe on three of Lunar's patents. The Company filed a counterclaim against Lunar with respect to the infringement of two of the Company's patents and a declaration that certain of Lunar's patents are invalid and unenforceable. On November 22, 1995, the Company and Lunar executed a definitive agreement settling all disputes between the parties. The agreement provides for the cross-licensing of certain patent rights and continuing payments between the parties related to future sales. The Company and Lunar have agreed not to engage each other in patent litigation in the area of x-ray densitometry and ultrasound for a ten-year period. Management believes that the financial terms of this agreement will not have a material adverse effect on the Company's financial position or results of operations. On January 24, 1995, B.V. Optische Industrie de Oude Delft (Oldelft) filed suit in the United States District Court against the Company seeking unspecified treble damages, attorneys' fees and costs relating to a prior patent dispute between the Company and Oldelft relating to equalization radiography. On December 14, 1995, the litigation was dismissed by the United States District Court. Management believes that the outcome of this dispute will not have a material adverse effect on the Company's financial position or results of operations. (14) QUARTERLY INCOME STATEMENT INFORMATION (UNAUDITED) The following table presents a summary of quarterly results of operations for 1994 and 1995:
1994 ---------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ---------- ----------- ----------- Total revenue................... $ 7,647,423 $9,907,203 $10,948,026 $ 9,981,091 Net income...................... 413,415 873,989 1,195,525 512,248 Primary net income per common and common equivalent share............... .10 .21 .28 .12 1995 ---------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ---------- ----------- ----------- Total revenue................... $10,198,855 $9,031,119 $11,301,320 $12,868,556 Net income...................... 643,720 153,610 487,668 584,521 Primary net income per common and common equivalent share............... .15 .03 .11 .13
F-16 EXHIBIT INDEX
Exhibit Number Reference - ------- --------- 2.01 Merger Agreement between the Company and its Massachusetts predecessor............................... A 3.01 Certificate of Incorporation of the Company................. A 3.02 By-laws of the Company...................................... A 4.01 Specimen certificate for shares of the Company's Common Stock...................................... A 4.02 Description of capital stock (contained in the Certificate of Incorporation of the Company filed, as Exhibit 3.01)..... A 4.03 Rights Agreement dated December 22, 1992.................... C 4.04 Amendment No. 1 to Rights Agreement......................... G 10.07 1986 Combination Stock Option Plan, as amended.............. F* 10.08 Amended and Restated 1990 Non-Employee Director Stock Option Plan.................................. * 10.09 Employee Stock Purchase Plan of the Company................. F 10.10 1995 Combination Stock Option Plan.......................... * 10.12 Form of Indemnification Agreement for directors and certain officers of the Company............................. A* 10.17 Management Agreement between the Company and Vivid Technologies, Inc..................................... A* 10.18 License Agreement between the Company and Vivid Technologies, Inc..................................... A 10.19 Distribution Agreement between the Company, Toyo Medic Company Limited and Yokogawa Medical Systems, Ltd........... B* 10.20 Facility lease between the Company and Lincoln Street Trust........................................ B 10.21 Orion Corporation Soredex Distribution Agreement for Scanora.......................... D** 10.22 Employment Agreement with an officer of the Company.............................................. E 10.23 Form of Selling Stockholders Agreement...................... 10.24 Serex License Agreement..................................... ** 11.01 Statement re: Computation of Per Share Earnings............ 22.01 Subsidiaries of the Company................................. C 24.01 Consent of Arthur Andersen LLP.............................. 28.01 Press Release dated December 22, 1992....................... C 28.02 Letter to Stockholders dated December 22, 1992.............. C - -----------------------
* Management compensation plan or arrangement ** Confidentiality requested as to certain provisions A. The above exhibits were previously filed as an exhibit of the same number to the Company's Registration Statement on Form S-1 (Registration No. 33-33128) filed on January 24, 1990 and are incorporated herein by reference. B. The above exhibits were previously filed as an exhibit of the same number to the Company's 1990 Annual Report on Form 10-K and are incorporated herein by reference. C. The above exhibit were previously filed as an exhibit of the same number to the Company's 1992 Annual Report on Form 10-K and are incorporated herein by reference. D. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated herein by reference. E. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Annual Report on Form 10-K and is incorporated herein by reference. F. The above exhibits were previously filed as an exhibit of the same number to the Company's 1994 Annual Report on Form 10-K and is incorporated herein by reference G. The above exhibit was previously filed as an exhibit of the same number of the Company's Registration Statement on Form S-3 (Registration No. 33-65019) filed on December 14, 1995 and is incorporated herein by reference. EX-10.08 2 DIRECTOR STOCK OPTION PLAN Exhibit 10.08 HOLOGIC, INC. AMENDED AND RESTATED 1990 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purpose. The purpose of this 1990 Non-Employee Director Stock Option Plan is to attract and retain the services of experienced and knowledgeable independent directors of the Corporation for the benefit of the Corporation and its stockholders and to provide additional incentives for such independent directors to continue to work for the best interests of the Corporation and its stockholders through continuing ownership of its common stock. 2. Definitions. As used herein, each of the following terms has the indicated meaning: "Corporation" means Hologic, Inc. "Eligible Director" means each director of the Corporation who is not then an employee of the Corporation or affiliated with any holder of more than 5% of the outstanding voting stock of the Corporation. "Fair Market Value" means the last sale price of the Shares as reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or on a national securities exchange on which the Shares may be traded on the date of the granting of the Option, or if such date is not a business day, the first business day preceding such grant. If the Shares are not publicly traded, the fair market value shall mean the fair market value of the Shares as determined by the Board of Directors. "Option" means the contractual right to purchase Shares upon the specific terms set forth in this Plan. "Option Exercise Period" means the period commencing on the date of grant of an Option pursuant to this Plan and ending ten years from the date of grant. "Plan" means this amended and restated Hologic, Inc. 1990 Non-Employee Director Stock Option Plan. "Shares" means the Common Stock, $.01 par value, of the Corporation. 3. Stock Subject to the Plan. The aggregate number of Shares that may be issued and sold under the Plan shall be 100,000 shares. The Shares to be issued upon exercise of Options granted under this Plan shall be made available, at the discretion of the Board of Directors, from (i) treasury Shares and/or Shares reacquired by the Corporation for such purposes, including Shares purchased in the open market, (ii) authorized but unissued Shares, and (iii) Shares previously reserved for issuance upon exercise of Options which have expired or been terminated. If any Option granted under this Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased Shares covered thereby shall become available for grant as additional Options under the Plan so long as it shall remain in effect. 4. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Corporation (the "Board"). The Board shall, subject to the provisions of the Plan, grant options under the Plan and shall have the power to construe the Plan, to determine all questions as to eligibility, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. The Board may delegate any and all of its authority hereunder to one or more Committees of the Board. 5. Eligibility; Grant of Options. Each Eligible Director shall be granted an option to acquire 5,000 Shares (the "Initial Option") effective on the date he or she is first elected to the Board. In addition, each Eligible Director who has served as a Director for a full fiscal year will be entitled to receive options to purchase an additional 4,000 shares of Common Stock on December 15 of each year (provided the director continues to be an Eligible Director on that Date) until the director has received options to purchase 22,000 additional shares (the "Additional Options"). 6. Terms of Options and Limitations Thereon. (a) Option Agreement. Each Option granted under this Plan shall be evidenced by an option agreement between the Corporation and the Option holder and shall be upon such terms and conditions not inconsistent with this Plan as the Board may determine. Each Option shall explicitly state that it is not intended to be an "incentive stock option" as that term is defined in Section 422 of the Internal Revenue Code. (b) Price. The price at which any Shares may be purchased pursuant to the exercise of an Option shall be the Fair Market Value of the Shares on the date of grant, but in no event shall the price be less than the par value of the Shares. (c) Exercise of Options. Subject to Paragraph 7 of this Plan, each Option granted under this Plan may be exercised in full at one time or in part from time to time only during the Option Exercise Period on the giving of written notice, signed by the person or persons exercising the Option, to the Corporation stating the numbers of Shares with respect to which the Option is being exercised, accompanied by full payment for such Shares pursuant to Paragraph 7(b) hereof; provided however, (i) if a person to whom an Option has been granted is permanently disabled or dies during the Option Exercise Period, the portion of such Option then exercisable, as provided in Paragraph 7(a), shall be exercisable by him or her or by the executors, administrators, legatees or distributees of his or her estate during the 12 months following his or her or death or permanent disability and, (ii) if a person to whom an Option has been granted ceases to be a director of the Corporation for any cause other than death or permanent disability, the portion of Option then exercisable shall be exercisable during the thirty (30) day period following the date such person ceased to be a director, but, in any event, only to the extent vested pursuant to Paragraph 7(a) hereof. (d) Non-Assignability. No Option or right or interest in an Option shall be assignable or transferable by the holder except by will or the laws of descent and distribution and during the lifetime of the holder shall be exercisable only by him or her. 7. Vesting; Payment. (a) Options granted under this Plan may be exercised as follows: the Initial Options may be exercised during the Option Exercise Period at the rate of 20% per year, commencing one year after the date of grant, such that the Option may be exercised in full from and after five years from the date of grant, and the Additional Options may be exercised during the Option Exercise Period at any time after six months from the date of grant. (b) The purchase price of Shares upon exercise of an Option shall be paid by the Option holder in full upon exercise and may be paid (i) in cash, (ii) by delivery of Shares having a Fair Market Value on the date of -2- exercise equal to the purchase price, or (iii) any combination of cash and Shares, as the Board may determine. (c) No Shares shall be issued or transferred upon exercise of any Option under this Plan unless and until all legal requirements applicable to the issuance or transfer of such shares and such other requirements as are consistent with the Plan have been complied with to the satisfaction of the Board, including without limitation those described in Paragraph 10 hereof. 8. Stock Adjustments. (a) If the Corporation is a party to any merger or consolidation, any purchase or acquisition of property or stock, or any separation, reorganization or liquidation, the Board (or, if the Corporation is not the surviving corporation, the Board of Directors of the surviving corporation) shall have the power to make arrangements, which shall be binding upon the holders of unexpired Options, for the substitution of new options for, or the assumption by another corporation of, any unexpired Options then outstanding hereunder. (b) If by reason of recapitalization, reclassification, stock split-up, combination of shares, separation (including a spin-off) or dividend on the Stock payable in Shares, the outstanding Shares of the Corporation are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Corporation, the Board shall conclusively determine the appropriate adjustment in the exercise prices of outstanding Options and in the number and kind of shares as to which outstanding Options shall be exercisable. (c) In the event of a transaction of the type described in Paragraphs (a) and (b) above, the total number of Shares on which Options may be granted under this Plan shall be appropriately adjusted by the Board. 9. No Rights Other Than Those Expressly Created. No person affiliated with the Corporation or other person shall have any claim or right to be granted an Option hereunder. Neither this Plan nor any action taken hereunder shall be construed as (i) giving any Option holder any right to continue to be affiliated with the Corporation, (ii) giving any Option holder any equity or interest of any kind in any assets of the Corporation, or (iii) creating a trust of any kind or a fiduciary relationship of any kind between the Corporation and any such person. No Option holder shall have any of the rights of a stockholder with respect to Shares covered by an Option until such time as the Option has been exercised and Shares have been issued to such person. 10. Miscellaneous. (a) Withholding of Taxes. Pursuant to applicable federal, state, local or foreign laws, the Corporation may be required to collect income or other taxes upon the grant of an Option to, or exercise of an Option by, a holder. The Corporation may require, as a condition to the exercise of an Option, that the recipient pay the Corporation, at such time as the Board determines, the amount of any taxes which the Board may determine is required to be withheld. (b) Securities Law Compliance. Upon exercise of an Option, the holder shall be required to make such representations and furnish such information as may, in the opinion of counsel for the Corporation, be appropriate to permit the Corporation to issue or transfer the Shares in compliance with the provisions of applicable federal or state securities laws. The Corporation, in its discretion, may postpone the issuance and delivery of Shares upon any exercise of an Option until completion of such registration or other qualification of such Shares under any federal or state laws, or stock -3- exchange listing, as the Corporation may consider appropriate. The Corporation is not obligated to register or qualify the Shares under federal or state securities laws and may refuse to issue such Shares if neither registration nor exemption therefrom is practical. The Board may require that prior to the issuance or transfer of any Shares upon exercise of an Option, the recipient enter into a written agreement to comply with any restrictions on subsequent disposition that the Board or the Corporation deems necessary or advisable under any applicable federal and state securities laws. Certificates representing the Shares issued hereunder may be legended to reflect such restrictions. (c) Indemnity. The Board shall not be liable for any act, omission, interpretation, construction or determination made in good faith in connection with its responsibilities with respect to the Plan, and the Corporation hereby agrees to indemnify the members of the Board, in respect of any claim, loss, damage, or expense (including counsel fees) arising from any such act, omission, interpretation, construction or determination to the full extent permitted by law. 11. Effective Date; Amendment; Termination. (a) The effective date of this Plan shall be the date of the approval of stockholders of the Corporation holding at least a majority of the voting stock of the Corporation. (b) The date of grant of any Option granted hereunder shall be the date upon which the Eligible Director to whom the Option is granted becomes a director of the Company. (c) The Board, or any Committee who has been delegated the authority to do so, may at any time, and from time to time, amend, suspend or terminate this Plan in whole or in part. Provided however, that so long as there is a requirement under Rule 16b-3 under the Securities Exchange Act of 1934, as amended, for stockholder approval of a Plan and certain amendments thereto, any such amendment which (i) materially increases the number of Shares which may be subject to Options granted under the Plan, (ii) materially increases the benefits accruing to participants in the Plan, or (iii) materially modifies the requirement for eligibility to participate in the Plan, shall be subject to stockholder approval, to the extent so required under said Rule; and provided further that the Plan may not be modified more often than once every six months to materially modify (i) the requirements for eligibility under the Plan, (ii) the timing of the grants of Options under the Plan or (iii) the number of Shares subject to Options to be granted under the Plan. Except as provided herein, no amendment, suspension or termination of this Plan may adversely affect the rights of any person under an Option that has been granted to such person without such person's consent. (d) This Plan shall terminate January 3, 2000, and no Option shall be granted under this Plan thereafter, but such termination shall not affect the validity of Options granted prior to the date of termination. Date of Original Board of Director Adoption: January 3, 1990 Date of Original Stockholder Adoption: January 10, 1990 -4- Date of Amendments: Board of Director Approval Stockholder Approval - ------------------------------- -------------------- December 13, 1991 (amended and February 10, 1992 restated) December 10, 1993 February 25, 1994 December 15, 1995 -5- EX-10.10 3 1995 COMBINATION STOCK OPTION PLAN Exhibit 10.10 HOLOGIC, INC. ------------- 1995 COMBINATION STOCK OPTION PLAN ---------------------------------- SECTION I. PURPOSE OF THE PLAN. The purposes of this Hologic, Inc. 1995 Combination Stock Option Plan (the "1995 Plan") are (i) to provide long-term incentives and rewards to those key employees (the "Employee Participants") of Hologic, Inc. (the "Corporation") and its subsidiaries (if any), and any other persons (the "Non-employee Participants") who are in a position to contribute to the long-term success and growth of the Corporation and its subsidiaries, (ii) to assist the Corporation in retaining and attracting executives and key employees with requisite experience and ability, and (iii) to associate more closely the interests of such executives and key employees with those of the Corporation's stockholders. Notwithstanding the foregoing, if Section 16, as defined in Section II, is applicable to the Corporation, then any director of the Corporation who is a member of the Committee, as defined in paragraph (a) of Section III, shall not be eligible to receive any Stock Options. SECTION II. DEFINITIONS. "Code" is the Internal Revenue Code of 1986, as it may be amended from time to time. "Common Stock" is the $.01 par value common stock of the Corporation. "Committee" is defined in Section III, paragraph (a). "Corporation" is defined in Section I. "Corporation ISOs" are all stock options (including 1995 Plan ISOs) which (i) are Incentive Stock Options and (ii) are granted under any plans (including this 1995 Plan) of the Corporation, a Parent Corporation and/or a Subsidiary Corporation. "Employee Participants" is defined in Section I. "Fair Market Value" of any property is the value of the property as reasonably determined by the Committee. "Incentive Stock Option" is a stock option which is treated as an incentive stock option under Section 422 of the Code. "1995 Plan" is defined in Section I. "1995 Plan ISOs" are Stock Options which are Incentive Stock Options. "Non-employee Participants" is defined in Section I. "Non-qualified Option" is a Stock Option which does not qualify as an Incentive Stock Option or for which the Committee provides, in the -1- terms of such option and at the time such option is granted, that the option shall not be treated as an Incentive Stock Option. "Parent Corporation" has the meaning provided in Section 424(e) of the Code. "Participants" are all persons who are either Employee Participants or Non-employee Participants. "Permanent and Total Disability" has the meaning provided in Section 22(e)(3) of the Code. "Section 16" means Section 16 of the Securities Exchange Act of 1934, as amended, or any similar or successor statute, and any rules, regulations, or policies adopted or applied thereunder. "Stockholder Approval" means the affirmative vote of at least a majority of the shares of Common Stock present and entitled to vote at a duly held meeting of the stockholders of the Corporation, unless a greater vote is required by state law or Section 16, if applicable to the Corporation, in which case such greater requirement shall apply. Stockholder approval may be obtained by written consent or other means, to the extent permitted by applicable state law. "Stock Options" are rights granted pursuant to this 1995 Plan to purchase shares of Common Stock at a fixed price. "Subsidiary Corporation" has the meaning provided in Section 424(f) of the Code. "Ten Percent Stockholder" means, with respect to a 1995 Plan ISO, any individual who directly or indirectly owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or any Parent Corporation or any Subsidiary Corporation at the time such 1995 Plan ISO is granted. SECTION III. ADMINISTRATION. (a) The Committee. This 1995 Plan shall be administered by a compensation committee designated by the Board of Directors of the Corporation, which may include any persons (including any or all of the directors) designated by the Board of Directors (the administering body is hereafter referred to as the "Committee"). The Committee shall serve at the pleasure of the Board of Directors, which may from time to time, and in its sole discretion, discharge any member, appoint additional new members in substitution for those previously appointed and/or fill vacancies however caused. A majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. No person shall be eligible to be a member of the Committee if that person's membership would prevent the plan from complying with Section 16, if applicable to the Corporation. At such time as any class of equity security of the Corporation is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Act"), (i) the Committee shall consist of at least two members of the Board of Directors and (ii) no member -2- of the Committee while a member thereof shall be granted Stock Options under this Plan, nor may any person be appointed to the Committee unless he was not granted or awarded stock options or shares of Common Stock under this 1995 Plan or any other plan of the Corporation at any time within the one-year period immediately prior to such appointment as provided in Rule 16b-3 promulgated under the Act. (b) Authority and Discretion of the Committee. Subject to the express provisions of this 1995 Plan and provided that all actions taken shall be consistent with the purposes of this 1995 Plan, and subject to ratification by the Board of Directors only if required by applicable law, the Committee shall have full and complete authority and the sole discretion to: (i) determine those persons who shall constitute key employees eligible to be Employee Participants; (ii) select the Participants to whom Stock Options shall be granted under this 1995 Plan; (iii) determine the size and the form of the Stock Options, if any, to be granted to any Participant; (iv) determine the time or times such Stock Options shall be granted including the grant of Stock Options in connection with other awards made, or compensation paid, to the Participant; (v) establish the terms and conditions upon which such Stock Options may be exercised and/or transferred, including the exercise of Stock Options in connection with other awards made, or compensation paid, to the Participant; (vi) make or alter any restrictions and conditions upon such Stock Options and the Stock received on exercise thereof, including, but not limited to, providing for limitations on the Participant's right to keep any Stock received on termination of employment; (vii) determine whether the Participant or the Corporation has achieved any goals or otherwise satisfied any conditions or requirements that may be imposed on or related to the exercise of Stock Options; and (viii) adopt such rules and regulations, establish, define and/or interpret these and any other terms and conditions, and make all determinations (which may be on a case-by-case basis) deemed necessary or desirable for the administration of this 1995 Plan. Notwithstanding any provision of this 1995 Plan to the contrary, only Employee Participants shall be eligible to receive 1995 Plan ISOs. If the Common Stock is registered pursuant to Section 12 of the 1934 Act, then notwithstanding any provision of this 1995 Plan to the contrary, grants of Stock Options to non- employee directors must be uniformly offered to all such non-employee directors. (c) Applicable Law. This 1995 Plan, and all Stock Options shall be governed by the law of the state in which the Corporation is incorporated. SECTION IV. TERMS OF STOCK OPTIONS. (a) Agreements. Stock Options shall be evidenced by a written agreement between the Corporation and the Participant awarded the Stock Option. This agreement shall be in such form, and contain such terms and conditions (not inconsistent with this 1995 Plan) as the Committee may determine. If the Stock Option described therein is not intended to be an Incentive Stock Option, but otherwise qualifies as an Incentive Stock Option, the agreement shall include the following, or a similar, statement: "This stock option is not intended to be an Incentive Stock Option, as that term is described in Section 422 of the Internal Revenue Code of 1986, as amended." (b) Term. Stock Options shall be for such periods as may be determined by the Committee, provided that in the case of 1995 Plan ISOs, the term -3- of any such 1995 Plan ISO shall not extend beyond three months after the time the Participant ceases to be an employee of the Corporation. Notwithstanding the foregoing, the Committee may provide in a 1995 Plan ISO that in the event of the Permanent and Total Disability or death of the Participant, the 1995 Plan ISO may be exercised by the Participant or his estate (if applicable) for a period of up to one year after the date of such Permanent and Total Disability or Death. In no event may a 1995 Plan ISO be exercisable (including provisions, if any, for exercise in installments) subsequent to ten years after the date of grant, or, in the case of 1995 Plan ISOs granted to Ten Percent Stockholders, more than five years after the date of grant. (c) Purchase Price. The purchase price of shares purchased pursuant to any Stock Option shall be determined by the Committee, and shall be paid by the Participant or other person permitted to exercise the Stock Option in full upon exercise, (i) in cash, (ii) by delivery of shares of Common Stock (valued at their Fair Market Value on the date of such exercise), (iii) any other property (valued at its Fair Market Value on the date of such exercise), or (iv) any combination of cash, stock and other property, with any payment made pursuant to subparagraphs (ii), (iii) or (iv) only as permitted by the Committee, in its sole discretion. In no event will the purchase price of Common Stock be less than the par value of the Common Stock. Furthermore, the purchase price of Common Stock subject to a 1995 Plan ISO shall not be less than the Fair Market Value of the Common Stock on the date of the issuance of the 1995 Plan ISO, provided that in the case of 1995 Plan ISOs granted to Ten Percent Stockholders, the purchase price shall not be less than 110% of the Fair Market Value of the Common Stock on the date of issuance of the 1995 Plan ISO. (d) Further Restrictions as to Incentive Stock Options. To the extent that the aggregate Fair Market Value of Common Stock with respect to which Corporation ISOs (determined without regard to this section) are exercisable for the first time by any Employee Participant during any calendar year exceeds $100,000, such Corporation ISOs shall be treated as options which are not Incentive Stock Options. For the purpose of this limitation, options shall be taken into account in the order granted, and the Committee may designate that portion of any Corporation ISO that shall be treated as not an Incentive Stock Option in the event that the provisions of this paragraph apply to a portion of any option, unless otherwise required by the Code or regulations of the Internal Revenue Service. The designation described in the preceding sentence may be made at such time as the Committee considers appropriate, including after the issuance of the option or at the time of its exercise. For the purpose of this section, Fair Market Value shall be determined as of the time the option with respect to such stock is granted. (e) Restrictions. At the discretion of the Committee, the Stock Options, as well as the Common Stock issued pursuant to the Stock Options, may be subject to restrictions on vesting or transferability. For the purposes of this limitation, options shall be taken into account in the order granted. (f) Withholding of Taxes. Pursuant to applicable federal, state, local or foreign laws, the Corporation may be required to collect income or other taxes upon the grant of a Stock Option to, or exercise of a Stock Option by, a holder. The Corporation may require, as a condition to the exercise of a Stock Option, or demand, at such other time as it may consider appropriate, that the Participant pay the Corporation the amount of any taxes which the -4- Corporation may determine is required to be withheld or collected, and the Participant shall comply with the requirement or demand of the Corporation. In its discretion, the Corporation may withhold shares to be received upon exercise of a Stock Option if it deems this an appropriate method for withholding or collecting taxes. (g) Securities Law Compliance. Upon exercise (or partial exercise) of a Stock Option, the Participant or other holder of the Stock Option shall make such representations and furnish such information as may, in the opinion of counsel for the Corporation, be appropriate to permit the Corporation to issue or transfer Stock in compliance with the provisions of applicable federal or state securities laws. The Corporation, in its discretion, may postpone the issuance and delivery of Stock upon any exercise of this Option until completion of such registration or other qualification of such shares under any federal or state laws, or stock exchange listing, as the Corporation may consider appropriate. Furthermore, the Corporation is not obligated to register or qualify the shares of Common Stock to be issued upon exercise of a Stock Option under federal or state securities laws (or to register or qualify them at any time thereafter), and it may refuse to issue such shares if, in its sole discretion, registration or exemption from registration is not practical or available. The Corporation may require that prior to the issuance or transfer of Stock upon exercise of a Stock Option, the Participant enter into a written agreement to comply with any restrictions on subsequent disposition that the Corporation deems necessary or advisable under any applicable federal and state securities laws. Certificates of Stock issued hereunder may bear a legend reflecting such restrictions. (h) Right to Stock Option. No employee of the Corporation or any other person shall have any claim or right to be a participant in this 1995 Plan or to be granted a Stock Option hereunder. Neither this 1995 Plan nor any action taken hereunder shall be construed as giving any person any right to be retained in the employ of the Corporation. Nothing contained hereunder shall be construed as giving any person any equity or interest of any kind in any assets of the Corporation or creating a trust of any kind or a fiduciary relationship of any kind between the Corporation and any such person. As to any claim for any unpaid amounts under this 1995 Plan, any person having a claim for payments shall be an unsecured creditor. (i) Indemnity. Neither the Board of Directors nor the Committee, nor any members of either, nor any employees of the Corporation or any parent, subsidiary, or other affiliate, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with their responsibilities with respect to this 1995 Plan, and the Corporation hereby agrees to indemnify the members of the Board of Directors, the members of the Committee, and the employees of the Corporation and its parent or subsidiaries in respect of any claim, loss, damage, or expense (including reasonable counsel fees) arising from any such act, omission, interpretation, construction or determination to the full extent permitted by law. (j) Participation by Foreigners. Without amending this 1995 Plan, except to the extent required by the Code in the case of Incentive Stock Options, the Committee may modify grants made to participants who are foreign nationals or employed outside the United States so as to recognize differences in local law, tax policy, or custom. -5- SECTION V. AMENDMENT AND TERMINATION; ADJUSTMENTS UPON CHANGES IN STOCK. The Board of Directors of the Corporation may at any time, and from time to time, amend, suspend or terminate this 1995 Plan in whole or in part; provided, however, that neither the Board of Directors nor the Committee may materially amend or modify the definition of Employee Participants, materially increase the benefits accruing to Participants, increase the number of shares of Common Stock reserved for purposes of this 1995 Plan, extend the term of this 1995 Plan, materially modify the requirements to be a Participant in this 1995 Plan, or otherwise modify this 1995 Plan in any way or manner requiring the approval of the Stockholders under the Code, or rules and regulations thereunder, or Section 16, if applicable to the Corporation, without Stockholder Approval and compliance with any applicable law, rules, or regulations. Except as provided herein, no amendment, suspension or termination of this 1995 Plan may affect the rights of a Participant to whom a Stock Option has been granted without such Participant's consent. The Committee is specifically authorized to convert, in its discretion, the unexercised portion of any 1995 Plan ISO granted to an Employee Participant to a Non-qualified Option at any time prior to the exercise, in full, of such 1995 Plan ISO. If there shall be any change in the Common Stock or to any Stock Option granted under this 1995 Plan through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate structure of the Corporation, appropriate adjustments may be made by the Committee (or if the Corporation is not the surviving corporation in any such transaction, the Board of Directors of the surviving corporation, or its designee) in the aggregate number and kind of shares subject to this 1995 Plan, and the number and kind of shares and the price per share subject to outstanding options, provided that such adjustment does not affect the qualification of any 1995 Plan ISO as an Incentive Stock Option. In connection with the foregoing, the Committee may issue new Stock Options in exchange for outstanding Stock Options. SECTION VI. SHARES OF STOCK SUBJECT TO THE PLAN. The number of shares of Common Stock that may be the subject of awards under this 1995 Plan shall not exceed an aggregate of 550,000 shares. Shares to be delivered under this 1995 Plan may be either authorized but unissued shares of Common Stock or treasury shares. Any shares subject to an option hereunder which for any reason terminates, is cancelled or otherwise expires unexercised, and any shares reacquired by the Corporation due to restrictions imposed on the shares, shares returned because payment is made hereunder in stock of equivalent value rather than in cash, and/or shares reacquired from a recipient for any other reason shall, at such time, no longer count towards the aggregate number of shares which have been the subject of Stock Options issued hereunder, and such number of shares shall be subject to further awards under this 1995 Plan, provided, first, that the total number of shares then eligible for award under this 1995 Plan may not exceed the total specified in the first sentence of this Section VI, and second, that the number of shares subject to further awards shall not be increased in any way that would cause this 1995 Plan or any Stock Option to not comply with Section 16, if applicable to the Corporation. SECTION VII. EFFECTIVE DATE AND TERM OF THIS PLAN. -6- Provided there is Stockholder Approval on or before June 28, 1996, the effective date of this 1995 Plan is June 28, 1995 (the "Effective Date") and awards under this 1995 Plan may be made for a period of ten years commencing on the Effective Date. The period during which a Stock Option may be exercised may extend beyond that time as provided herein. Date of Approval by Board of Directors: June 28, 1995 Date of Approval by the Stockholders: -7- EX-10.23 4 FORM OF SELLING STOCKHOLDERS AGREEMENT EXHIBIT 10.23 Name: ______________________ SELLING STOCKHOLDER AGREEMENT ----------------------------- AGREEMENT, dated as of December __, 1995 (the "Agreement"), among Hologic, Inc., a Delaware corporation (the "Company"), and each stockholder of the Company listed on Exhibit A, attached hereto (collectively the "Selling Stockholders"). W I T N E S S E T H ------------------- WHEREAS, the Board of Directors of the Company has determined that a public offering (the "Public Offering") of the Company's Common Stock, $.01 par value (the "Common Stock"), would be beneficial to the Company and its stockholders and proposes to issue shares of Common Stock (the "Company Shares") for such purpose; and WHEREAS, the Company also has determined that it would be beneficial to the Company and its stockholders for certain stockholders to have the opportunity to sell in the Public Offering a portion of the shares of Common Stock held by such stockholders; and WHEREAS, the Company has offered such stockholders such opportunity and the Selling Stockholders propose to accept such offer and sell in the Public Offering an aggregate of up to 180,000 shares of Common Stock (the "Stockholder Shares"). NOW THEREFORE, in consideration of the mutual and dependent promises hereinafter set forth and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Payment of Expenses. ------------------- (a) The Company shall pay (i) all of the expenses, other than underwriting discounts, incurred in connection with the Public Offering (including, but not limited to, all registration, filing and qualification fees, transfer agent's fees, printing and engraving fees and legal and accounting fees), and (ii) the Company's pro rata portion of all underwriting discounts incurred in connection with the Public Offering, determined in accordance with the number of Company Shares and Stockholder Shares actually sold by each respective party in the Public Offering. (b) Each Selling Stockholder shall pay such Selling Stockholder's pro rata portion of all underwriting discounts incurred in connection with the Public Offering, determined in accordance with the number of Company Shares and Stockholder Shares actually sold by each respective party in the Public Offering. (c) Notwithstanding the provisions of this Section 1 or any other agreement of the Company to pay certain expenses of the Public Offering, if the payment of any such expenses by the Company shall be prohibited by any state Blue Sky or securities regulatory commission in a jurisdiction in which Shares are offered, then each Selling Stockholder agrees to pay his or its 1 pro rata portion of any such expenses determined in accordance with the number of Company Shares and Stockholder Shares actually sold by each respective party in the Public Offering. SECTION 2. Indemnification; Contribution. ----------------------------- (a) The Company shall indemnify each of the Selling Stockholders, and each person (if any) who controls such Selling Stockholder within the meaning of Section 15 of the Securities Act of 1933, as amended (the "Act"), against all losses, claims, damages and liabilities and expense (including all reasonable fees and disbursements of counsel incurred in defending against any such claim, damage or liability) caused by any untrue statement or alleged untrue statement of a material fact contained in the registration statement filed or to be filed with the Securities and Exchange Commission (the "Commission"), in connection with the Public Offering, as the same may be amended or supplemented from time to time (the "Registration Statement") or in any prospectus filed with, or delivered to, the Commission in connection with the Public Offering, or caused by any omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; provided, however, -------- ------- insofar as such losses, claims, damages, or liabilities are caused by an untrue statement of a material fact contained in, or any material fact omitted from, information relating to a Selling Stockholder furnished in writing to the Company by such Selling Stockholder for use in the Registration Statement or any amendment or supplement thereto, or any such prospectus, then the Company shall have no obligation hereunder to indemnify the Selling Stockholder furnishing such information. (b) Each Selling Stockholder shall indemnify each of the Company and the other Selling Stockholders, and each person (if any) who controls the Company or such other Selling Stockholder within the meaning of Section 15 of the Act, against all losses, claims, damages and liabilities and expense (including all reasonable fees and disbursements of counsel incurred in defending against any such claim, damage or liability) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or in any prospectus filed with, or delivered to, the Commission in connection with the Public Offering, or caused by any omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, but only with respect to information relating to such Selling Stockholder furnished in writing by or on behalf of such Selling Stockholder expressly for use in the Registration Statement or any amendment or supplement thereto, or any such prospectus, provided, however, no -------- ------- Selling Stockholder shall be liable in an amount that exceeds the aggregate public offering price of the Stockholder Shares sold by the Selling Stockholder, net of the underwriting discount. (c) The indemnity agreements of the Company and the Selling Stockholders contained in this Section 2 shall remain in effect regardless of any investigation made by or on behalf of any indemnified party and shall survive delivery of the shares of Common Stock pursuant to the Public Offering. 2 (d) In order to provide for just and equitable contribution in circumstances in which indemnification provided for in paragraph (a) of this Section 2 is unavailable, the Company and each of the Selling Stockholders shall contribute to the aggregate losses, claims, damages, liabilities and expenses (including all reasonable fees and disbursements of counsel incurred in defending against any claim, damage, or liability), to which one or more of the Selling Stockholders may be subject in such proportion as is appropriate to reflect the relevant fault of the Company and the respective Selling Stockholders in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities and expenses as well as any other relevant equitable considerations: provided, however, that: -------- ------- (i) in any case where any Selling Stockholder is seeking contribution hereunder, such Selling Stockholder shall be entitled to contribution from the remaining Selling Stockholders pursuant to this Agreement, only after first seeking contribution from the Company; (ii) no Selling Stockholder shall in any case be required to contribute or make any payments under this paragraph (d) which in the aggregate exceed his pro rata share of such losses, claims, damages, liabilities and expenses determined in accordance with the total number of Company Shares and Stockholder Shares sold by each respective party hereto provided, however, that, -------- ------- except as set forth in subparagraph (iii) of this paragraph (d), no Selling Stockholder shall be liable to contribute an amount that exceeds the aggregate public offering price of the Stockholder Shares sold by the Selling Stockholder, net of the underwriting discount; (iii) in the event the Company or any Selling Stockholder defaults on its obligation to make any contribution pursuant to this paragraph (d), the amount that each of the remaining parties is obligated to contribute hereunder shall be increased in accordance with the relation of the number of shares of Common Stock being sold by each such remaining party to the aggregate number of shares of Common Stock being sold by all such remaining parties; (iv) neither the Company nor any Selling Stockholder will be required to make any contribution to another Selling Stockholder with respect to matters for which the other Selling Stockholder would not otherwise be entitled to be indemnified under paragraph (a) of this Section 2 had such indemnification been available; and (v) for purposes of this paragraph (d), each person, if any, who controls a Selling Stockholder within the meaning of Section 15 of the Act, and each director, officer or partner (if any) of such Selling Stockholder, shall have the same rights to contribution under this Agreement as such Selling Stockholder. SECTION 3. Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts. 3 SECTION 4. Invalidity. ---------- If any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the remaining provisions of the Agreement, all of which shall remain in effect. SECTION 5. Counterparts. ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. SECTION 6. Notices. ------- Any notice given pursuant to this Agreement shall be sent by certified mail, return receipt requested, to the address set forth under each party's name on the signature page of this Agreement, or to such other address as may be designated by notice given to each party pursuant to the provisions hereof. SECTION 7. Headings. -------- The headings contained in this Agreement are for descriptive purposes only and shall not be given substantive effect. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first written above. HOLOGIC, INC., a Delaware corporation By: ------------------------------------ Steve L. Nakashige, President SELLING STOCKHOLDER --------------------------------------- Address: --------------------------------------- --------------------------------------- --------------------------------------- 4 Exhibit A --------- Selling Stockholders Shares to be Sold -------------------- ----------------- 5 EX-10.24 5 SEREX LICENSE AGREEMENT EXHIBIT 10.24 LICENSE AND SUPPLY AGREEMENT ---------------------------- This Agreement is made and entered into as of this 30th day of September, 1994 (the "Effective Date") by and between HOLOGIC, INC. ("HOLOGIC"), a Delaware corporation with a principal place of business at 590 Lincoln Street, Waltham, Massachusetts 02154, and SEREX, INC. ("SEREX"), a New Jersey corporation with a principal place of business at 230 West Passaic Street, Maywood, New Jersey 07607. WHEREAS, SEREX has developed a proprietary technology that has applications for diagnostic test strip markers; and WHEREAS, HOLOGIC is in the business of developing and marketing diagnostic products applicable to osteoporosis and bone metabolism; and WHEREAS, HOLOGIC and SEREX wish to cooperate in the development and production of a product that uses SEREX's proprietary technology to assess and quantify bone turnover and WHEREAS, SEREX is willing to grant, and HOLOGIC desires to obtain, exclusive rights and licenses in the product resulting from their cooperation; NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS The following terms as used in this Agreement shall have the meanings specified below: (a) The term "TEST" shall mean a urine-activated test strip marker that uses the proprietary Serex Antibody Release Assay (SARA) immuno-diagnostic technology to assess bone turnover, and any IMPROVEMENT thereof. (b) The term "READER" shall mean one or more reader devices that are capable of analyzing and displaying the result produced by the use of a TEST and any IMPROVEMENT thereof. -1- (c) The term "PRODUCT" shall mean the TEST and the READER. (d) The term "IMPROVEMENT" shall mean any modification or addition to the TEST or READER that improves the cost, accuracy, precision, or processing speed of such TEST or READER. (e) The term "PROJECT" shall mean the joint undertaking of HOLOGIC and SEREX to develop, conduct clinical trials of, gain regulatory approval for, manufacture, market and sell the PRODUCT. (f) The term "PATENTS" shall mean the patent, if any, issued in connection with U.S. Patent Application # 08192778, and any patent application filed in the United States or elsewhere with respect to the PRODUCT and any patent issued thereon. (g) The term "INTELLECTUAL PROPERTY" shall mean the PATENTS and all trade secrets and other know-how relating to the design, development, and manufacture of the PRODUCT. 2. ROLE OF THE PARTIES IN COOPERATION 2.1 The parties jointly will devise specifications for the function, application, utilization, accuracy, and cost of the PRODUCT. 2.2 SEREX will conduct the development of the TEST and supervise the development of the READER to satisfy the agreed specifications. 2.3 HOLOGIC will design, negotiate, and conduct clinical trials of the PRODUCT and will bear the cost of such clinical trials. SEREX will cooperate with HOLOGIC and provide technical assistance to effect clinical trials of the PRODUCT. 2.4 HOLOGIC will file for and use diligent efforts to obtain approval from the Food and Drug Administration ("FDA") and any other relevant regulatory authority in the United States and elsewhere in the world where HOLOGIC intends to market and sell the PRODUCT. Regulatory approvals will be issued in the name of HOLOGIC, which will bear the cost of obtaining such approvals. SEREX will cooperate with HOLOGIC and provide technical assistance to secure regulatory approvals of the TEST. 2.5 On or before October 1st of each year following FDA approval, HOLOGIC shall deliver to SEREX a marketing forecast for the following calendar year, including the estimated number of TESTS HOLOGIC anticipates purchasing during such period and any delivery requirements HOLOGIC anticipates imposing. Within thirty (30) days following receipt of such forecast, SEREX shall notify -2- HOLOGIC whether it has the capacity to manufacture and deliver the estimated number of TESTS. 2.6 At HOLOGIC's request from time to time, SEREX will manufacture the TESTS and design and procure the packaging for the PRODUCT. While HOLOGIC has a present intention to have SEREX manufacture the TESTS provided SEREX can meet the quality, quantity and delivery requirements of HOLOGIC, HOLOGIC, subject to the provisions of Section 8 hereof, reserves to itself, in its sole and absolute discretion, the right to purchase TESTS from third party manufacturers. 2.7 HOLOGIC will market, distribute and sell the PRODUCT worldwide. 3. CONDUCT OF THE DEVELOPMENT 3.1 It is agreed by both parties hereto that the development of the PRODUCT under this Agreement will be conducted through mutually agreed steps and according to a mutually agreed schedule. Within sixty (60) days after the Effective Date, SEREX will deliver to HOLOGIC a detailed development plan based on the proposal set forth in HOLOGIC's letter to SEREX dated June 24, 1994, a copy of which is attached hereto as Appendix A. The proposed plan shall include estimated costs, performance targets, a monthly budget and a schedule for development of the PRODUCT. In the event that HOLOGIC does not agree with the plan as proposed, the parties shall use their best efforts to develop a development plan with mutually agreeable terms. The development plan, as finally agreed to by the parties, shall be referred to in this Agreement as the "Plan." 3.2 SEREX will use its best efforts to complete the development of each step as scheduled in the Plan. In the event that SEREX does not complete a step as set forth in the Plan or according to the schedule in the Plan, SEREX may propose a revised Plan, provided that SEREX shall agree to bear all costs and expenses arising from delays or deviance from the original Plan. HOLOGIC may accept or reject a proposed revised Plan at its sole discretion. 3.3 SEREX will assign [ * ] persons to work full-time in the development of the PRODUCT, and will provide all necessary materials, facilities, equipment and other resources to support such personnel. The persons assigned to the PROJECT may change from time to time, provided that the persons assigned at any one time shall have the knowledge and skills appropriate to the portion of the PROJECT on which they are working. -3- 3.4 Judith Fitzpatrick, Ph.D., founder and Chief Science Officer of SEREX, shall serve as PROJECT Manager and agrees to devote whatever portion of her professional efforts are necessary to ensure that the PROJECT proceeds according to the Plan. In the event that Dr. Fitzpatrick fails to devote adequate time and attention to the PROJECT, as determined by HOLOGIC in the reasonable exercise of its discretion, or if Dr. Fitzpatrick ceases to be actively involved in the PROJECT or in SEREX's business generally, HOLOGIC, in the sole exercise of its discretion and at its own expense, may select and appoint a manager to oversee the conduct and completion of the PROJECT. 3.5 Not less than sixty (60) days prior to the projected date of completion of SEREX's development of the PRODUCT, as estimated by the parties from time to time, HOLOGIC shall deliver to SEREX a plan for the clinical trials of the PRODUCT. The proposed plan shall include a description of the manner in which the trials will be conducted, as well as an estimated schedule for such trials. HOLOGIC agrees to use its best efforts to conduct the clinical trials substantially in accordance with the proposed plan. 3.6 At least fifteen (15) days prior to submitting any filing to the FDA or any other regulatory authority pursuant to Section 2.4, above, HOLOGIC shall, prior to submission to the FDA, provide copies of the proposed filings (together with English translations thereof, where necessary) to SEREX for review and comment. The final form and contents of any such filing shall be determined by HOLOGIC in the sole exercise of its discretion. 4. COSTS AND EXPENSES 4.1 HOLOGIC shall reimburse SEREX for the expenses incurred by SEREX to develop the PRODUCT, not to exceed the sum of [ * ] for any one month; provided, however, that the maximum amount of expenses for which reimbursement is required shall be reduced to [ * ] per month upon the commencement of clinical trials of the TEST (as confirmed by first patient enrollment) and shall be reduced to [ * ] upon the first commercial sale of the PRODUCT. As used herein, the term "expenses" shall mean expenses incurred in connection with this Agreement (even if incurred prior to the Effective Date), salaries and benefits allocable to the portion of any employee's time spent on the PROJECT, costs of materials, travel costs specifically related to the PROJECT, and costs of maintaining and operating laboratory and other facilities used for the PROJECT. The term "expenses" shall not include any attorneys fees or -4- other legal expenses incurred by SEREX in connection with the negotiation, execution, or enforcement of this Agreement. 4.2 Reimbursement required pursuant to Section 4.1 shall be provided as follows: a. HOLOGIC shall pay SEREX the sum of [ * ] upon the execution of this Agreement; b. HOLOGIC shall pay SEREX the sum of [ * ] ninety (90) days after the Effective Date; c. HOLOGIC shall pay SEREX the lesser of SEREX's projected expenses for the then-current calendar quarter or [ * ] ([ * ], after the commencement of clinical trials of the TEST) on or before the one hundred eightieth day following the Effective Date and on or before the same day of each third month thereafter, but in no event sooner than five (5) days after HOLOGIC's receipt of SEREX's most recent monthly report due pursuant to Section 6.1, below, in each case minus any amount by which the previous payment exceeded the actual expenses incurred by SEREX. 5. OPTION TO ADD THIRD PARTY For a period of ninety (90) days after the Effective Date, HOLOGIC reserves the right, and SEREX grants HOLOGIC the option, to identify a third party to assist in and expedite biochemical research for development of the TESTS. If HOLOGIC identifies such a third party and the identified party is acceptable to SEREX (such acceptance not to be unreasonably withheld or delayed), then HOLOGIC, SEREX, and the third party shall use their best efforts to negotiate their respective rights and obligations in the development of the PRODUCT, which negotiation may result in the execution of an agreement mutually acceptable to both parties that modifies or supersedes this Agreement. 6. REPORTS AND MEETINGS 6.1 The PROJECT Manager shall conduct a formal PROJECT review not less frequently than once per month. On or before the 15th of each month, SEREX will furnish a written report to HOLOGIC that describes the progress of the development effort as of the end of the preceding calendar month, including the status of the PRODUCT, the actual costs incurred to date, the proposed -5- work for the next one- and three-month periods, the projected costs of the next one- and three-month periods, and any other information reasonably requested by HOLOGIC. 6.2 SEREX shall keep true and accurate records, files, and books of account containing all the data reasonably required for the full computation and verification of costs and expenses to be reimbursed under this Agreement or of income on which reimbursement of amounts due under Section 13.8, if applicable, are to be computed. Such materials shall be retained for a period of at least 5 years following the end of the fiscal year to which they relate. SEREX's books of account shall be maintained in accordance with generally accepted accounting principles consistently applied. SEREX shall permit the reasonable inspection and copying of such records, files, and books of account by HOLOGIC or its representatives during regular business hours at SEREX's regular place of business, provided that HOLOGIC shall give SEREX at least 7 days prior written notice of its election to inspect such records, files, and books of account. Fees and expenses incurred in connection with such inspections (including, but not limited to, professional fees and expenses paid to accountants or other examiners retained by HOLOGIC and the cost of copying records, files, and books of account) shall be borne by HOLOGIC, unless such inspection shall reveal that an error in the amount of five percent (5%) or more of the aggregate amount of expenses for any month was made, in which case the fees and expenses incurred in connection with the inspection during which such error was discovered shall be borne by SEREX. 6.3 HOLOGIC and SEREX shall meet at least once every three months, or more frequently as the need may arise, at such times and places as mutually agreed in order to render the technical cooperation most effective and desirable to both parties. 7. LICENSING AND DISTRIBUTION 7.1 SEREX hereby grants HOLOGIC the exclusive right and license, with the right to grant sublicenses to others, to use the INTELLECTUAL PROPERTY to manufacture, market, sell, and distribute the PRODUCT worldwide, in all markets and for all applications, directly or through such contractors, agents, distributors, licensees, sublicenses or representatives as HOLOGIC may appoint. -6- 7.2 In the event that SEREX conceives a new product (not including an IMPROVEMENT) with applications in bone metabolism, SEREX shall provide HOLOGIC with a description of such product and with all information available to SEREX regarding the design, development, application of, or market for such product. If HOLOGIC notifies SEREX of its interest in such product within thirty (30) days following receipt of such information, the parties shall negotiate in good faith the terms of an agreement governing the development and distribution of such product. In the event that SEREX and HOLOGIC do not agree to the terms of such an agreement within ninety (90) days following HOLOGIC's notice of its interest to SEREX, SEREX may, at its option, negotiate a development and distribution agreement with another party, provided that SEREX may not enter into an agreement with any third party on more favorable terms to such third party than SEREX has offered to HOLOGIC. 7.3 To maintain its exclusive rights pursuant to Section 7.1, HOLOGIC is required to purchase from SEREX or any third party manufacturer, in the aggregate, at least the minimum number of TESTS specified below in the [ * ] commencing 90 days after the issuance of a patent on the application filed pursuant to Section 10.2, below: (a) [ * ] - [ * ] TESTS (b) [ * ] - [ * ] TESTS (c) [ * ] - [ * ] TESTS (d) [ * ] - [ * ] TESTS (e) [ * ] - [ * ] TESTS If HOLOGIC fails to purchase the minimum number of TESTS for any year, then SEREX may elect, upon sixty (60) days advance notice to HOLOGIC (which notice must be given within ninety (90) days following the end of such year), to make HOLOGIC's license and distribution rights nonexclusive, unless HOLOGIC, within such 60-day period, agrees to pay SEREX an amount equal to the difference between the amount actually paid pursuant to Section 8 and the amount that would have been payable if HOLOGIC had purchased the minimum number of TESTS. 8. PAYMENTS 8.1 In consideration of the rights granted to HOLOGIC under this Agreement, HOLOGIC shall pay SEREX for each TEST purchased, whether from SEREX or a third party manufacturer, according to the following schedule: -7- (a) [ * ] TESTS purchased, [ * ] per TEST (b) [ * ] TESTS purchased, [ * ] per TEST; (c) [ * ] or more TESTS purchased, the lesser of [ * ] per TEST or manufacturing cost plus [ * ] [ * ] per TEST, provided that, for any year in which HOLOGIC purchases [ * ] TESTS or more, the price of all TESTS purchased shall be computed in accordance with subparagraph (c), above. 8.2 In the event that HOLOGIC exercises its right to purchase the TESTS from a third party manufacturer, as set forth in Section 2.6 hereof, the payment due to SEREX shall be reduced by the amount paid to the third party, provided that, in the event that SEREX had the capacity to produce at least the number of TESTS HOLOGIC notified SEREX it planned to purchase during the year (as provided in Section 2.5 of this Agreement), the amount due to SEREX shall not be reduced pursuant to this paragraph below the following amounts: (a) [ * ] on the first [ * ] TESTS, provided subparagraph (b) does not apply; (b) [ * ] on all TESTS in excess of [ * ] and on all TESTS purchased in a year in which HOLOGIC purchases [ * ] TESTS or more. Payments, if any, required to be made by HOLOGIC to SEREX pursuant to this Section 8.2 shall be made quarterly together with the report to be submitted to SEREX under Section 8.6 hereof. 8.3 In the event that HOLOGIC is entitled to a refund as a result of the recalculation of the payments pursuant to Section 8.1 or 8.2(b) in a year in which more than [ * ] TESTS are purchased, such refund shall be credited against payments next due from HOLOGIC, provided that, at HOLOGIC's option, SEREX shall make a cash payment to HOLOGIC with respect to -8- any refund not applied within six (6) months from the date first due to HOLOGIC. 8.4 The payments specified in Section 8.1(a) and (b) and the [ * ] maximum payment specified in Section 8.1(c) may be adjusted one year after FDA approval for marketing of the PRODUCT is obtained, to reflect the change between the value of the Consumer Price Index at the time FDA approval was granted and the value of said Index one year later, provided that that the above-referenced payments shall not be increased or decreased by more that [ * ] of the original prices. 8.5 The "manufacturing cost" of the TESTS, for purposes of determining the price due to SEREX pursuant to Section 8.1(c), shall be SEREX's direct costs of materials and personnel expended on the fabrication, quality control, and FDA documentation of the TESTS, plus a pro rata portion of SEREX's manufacturing overhead based on the portion of SEREX's manufacturing resources allocated to the manufacture of the TESTS, as confirmed by independent audit. 8.6 HOLOGIC shall keep true and accurate records, files, and books of account containing all the data reasonably required for the determination and verification of the number of TESTS purchased by it, on which the amount due to SEREX under Section 8.2 hereof is to be computed, and shall submit a report to SEREX within 45 days after the end of any calendar quarter in which HOLOGIC purchases TESTS from a third party manufacturer, which report shall set forth the number of TESTS purchased and a calculation of payments due SEREX under Section 8.2. Such materials shall be retained for a period of at least 5 years following the end of the fiscal year to which they relate. HOLOGIC's books of account shall be maintained in accordance with generally accepted accounting principles consistently applied. HOLOGIC shall permit the reasonable inspection and copying of such records, files, and books of account by SEREX or its representatives during regular business hours at HOLOGIC's regular place of business, provided that SEREX shall give HOLOGIC at least 7 days prior written notice of its election to inspect such records, files, and books of account. Fees and expenses incurred in connection with such inspections (including, but not limited to, professional fees and expenses paid to accountants or other examiners retained by SEREX and the cost of copying records, files, and books of -9- account) shall be borne by SEREX, unless such inspection shall reveal that an error in the amount of five percent (5%) or more of the aggregate amount paid to SEREX in any quarter was made, in which case the fees and expenses incurred in connection with the inspection during which such error was discovered shall be borne by HOLOGIC. 9. CONFIDENTIALITY 9.1 Each party shall hold in strict confidence and shall cause each of its officers, directors, employees, and agents to hold in strict confidence any and all proprietary information that may be disclosed to such party by the other party, which information shall be identified by the disclosing party as being confidential, in writing, at the time of the disclosure or, in the event the disclosure is made orally, within thirty (30) days thereafter. 9.2 Each party understands that the obligation of nondisclosure set forth in Section 9.1 above shall not apply to any information that: (a) at the time of the disclosure, is freely available to the general public or that has been identically disclosed in published literature or patents, provided that no combination of features shall be deemed to be within this exception merely because its component features are freely available to the general public or have been disclosed in published literature or patents, but only if the combination itself and its principles of operation are freely available to the general public or disclosed in published literature or patents; (b) is or has become generally known to the public through no fault of the receiving party, (c) the receiving party can reasonably show is already known to it or independently developed by it, (d) is received by the receiving party without restriction from a third party who has a right to disclose the same, (e) is required to be disclosed by a government authority or by order of a court of competent jurisdiction, provided that such disclosure is subject to all applicable governmental and judicial protection available for like material, or -10- (f) is approved for release to a third party by the prior written authorization of the disclosing party. 9.3 Each party will take whatever action is necessary or appropriate to ensure that its employees, officers, and directors comply with the provisions of this Section 9 both during and after the time they serve in such capacities. In the event that any such individual makes an unpermitted disclosure of any confidential information hereunder, the party with which such individual is affiliated shall promptly take whatever action is necessary or appropriate to minimize the adverse effect of such disclosure. 9.4 The parties understand and agree that any breach of the obligation of confidentiality expressed in this Section 9 may cause irreparable damage to the business and property of the nondisclosing party. In the event of any such breach or of the substantial likelihood that such a breach will occur, the disclosing party understands that the other party may take legal action, including seeking injunctive relief, to protect its interests and property. The disclosing party hereby consents to the entry of an injunction in such circumstances to enjoin the disclosure. 9.5 Notwithstanding the foregoing provisions of this Section 9, each party may disclose to a third party to be engaged in the PROJECT for such party any information of the other party to the extent that such information is necessary for such third party's involvement, provided, however, that prior to any such disclosure, the third party shall have executed a confidentiality agreement, substantially in the form attached hereto in Appendix B, agreeing to maintain the confidentiality of such information. 10. INTELLECTUAL PROPERTY RIGHTS 10.1 Ownership of the INTELLECTUAL PROPERTY shall reside with the party employing the employee or agent who creates or invents the property in connection with the development contemplated hereunder; provided however, that if an invention or device shall have been jointly made by the employees or agents of both HOLOGIC and SEREX, then HOLOGIC and SEREX shall jointly own any INTELLECTUAL PROPERTY associated with such joint invention or device. 10.2 SEREX agrees to file an application for a United States patent on the Serex Antibody Release Assay immuno-diagnostic technology as it applies to osteoporosis within six (6) months following the Effective Date. -11- 10.3 All expenses and charges necessary for filing applications for registration and maintenance fees of any intellectual property right shall be borne by the party that owns such intellectual property right. All such expenses and charges arising in connection with any intellectual property right to be jointly owned by HOLOGIC and SEREX shall be equally borne by HOLOGIC and SEREX. Notwithstanding the preceding sentence and except as agreed by SEREX pursuant to Section 10.2, above, neither party shall be obligated to apply for registration of any intellectual property right owned, in whole or in part, by it if such party determines, in the reasonable exercise of its business judgment, that such registration is not necessary or would not be cost effective. If the party owning such rights (the "OWNER") elects not to register an intellectual property right, and the other party (the "ASSIGNEE") would have exclusive or nonexclusive license to exercise the inventions or devices to which such rights pertain, the ASSIGNEE, at its own expense, may register such intellectual property rights in the OWNER's name in such countries as it deems necessary or appropriate and the OWNER will assign its rights in such registration to the ASSIGNEE. No assignment pursuant to this provision shall negate or otherwise limit the ASSIGNEE's obligation, if any otherwise exists, to pay royalties to the OWNER with respect to the intellectual property rights that are the subject of the assigned registration nor shall any such assignment negate or otherwise limit the OWNER's rights to use such intellectual property rights. 10.4 The name "Hologic" or HOLOGIC's trademark may be used in connection with the PRODUCT only with advance written consent of HOLOGIC and, if so used, creates and confers no right in such name or trademark upon SEREX. 11. INDEMNIFICATION 11.1 HOLOGIC agrees to indemnify and hold SEREX and its officers, directors, employees, licensees, and agents harmless from and against any liabilities, costs, or other damages (including reasonable attorneys fees and litigation costs, regardless of outcome) arising out of a breach of one or more of HOLOGIC's representations or warranties expressed in Section 15 of this Agreement, provided SEREX shall have taken reasonable actions to minimize such liabilities, costs, or other damages and provided, further, that SEREX has complied with the procedures set forth in subsection 11.4, below. HOLOGIC shall use its best efforts to have SEREX identified as a third party -12- beneficiary of any contractual right to indemnification that HOLOGIC secures from a third party manufacturer of the PRODUCT. 11.2 SEREX agrees to indemnify and hold HOLOGIC and its officers, directors, employees, licensees, and agents harmless from and against any liabilities, costs, or other damages (including reasonable attorneys fees and litigation costs, regardless of outcome) arising out of the design, manufacture by SEREX, use, or sale of the PRODUCT or of any improvements or alterations thereto, provided that no such damages are the result of a use, application, or written warranty authorized by HOLOGIC without the knowledge of SEREX, or from a breach of any one or more of SEREX's representations or warranties expressed in Section 15 of this Agreement, provided HOLOGIC shall have taken reasonable actions to minimize such liabilities, costs, or other damages and provided, further, that HOLOGIC has complied with the procedures set forth in subsection 11.4, below. 11.3 Each party (the "Indemnifying Party") agrees to indemnify and hold the other party (the "Indemnified Party") and such other party's officers, directors, employees, licensees, and agents harmless from and against any liabilities, costs, or other damages (including reasonable attorneys fees and litigation costs, regardless of outcome) arising out of the infringement of any third party's intellectual property rights by the intellectual property owned by the Indemnifying Party, provided the Indemnified Party shall have taken reasonable actions to minimize such liabilities, costs, and other damages and provided, further, that the Indemnified Party has complied with the procedures set forth in subsection 11.4, below. 11.4 If any claim, action, or other legal proceeding is asserted against a party for which such party may have a right to indemnification pursuant to this Section 11, such party (the "Indemnified Party") shall give the other party (the "Indemnifying Party") prompt written notice of such claim or proceeding and the Indemnifying Party may elect to control the defense to or settlement of such dispute. In the event that the Indemnified Party cannot reasonably anticipate that the Indemnifying Party will receive notice of such claim or proceeding at least 20 days prior to the date by which any action needs to be taken to preserve and protect the parties' rights, the Indemnified Party shall take such action on behalf of the Indemnifying Party. The Indemnified Party shall cooperate with the Indemnifying Party in any defense -13- or settlement made by the Indemnifying Party. The Indemnified Party shall not enter into any settlement agreement or other voluntary resolution of any such claim or proceeding without obtaining the Indemnifying Party's prior written consent thereto. 12. INFRINGEMENT 12.1 If HOLOGIC or SEREX becomes aware that any INTELLECTUAL PROPERTY is being or may be infringed by a third party, the party who learns of or suspects such infringement shall promptly notify the other party thereof. SEREX may at its own expense prosecute any action it deems necessary to protect the rights of each of the parties to the PRODUCT under this Agreement. If, upon inquiry by HOLOGIC, SEREX does not initiate any such action or confirm that it intends to do so promptly and in a timely fashion, HOLOGIC may initiate such an action in its own behalf. If either party initiates an action pursuant to this Section 12 and recovers damages or lost profits or both as a result thereof, the recovering party may retain the entire amount of such recovery. 12.2 In any action prosecuted, defended, or resolved by either party pursuant to this Section 12, the other party shall provide such assistance as may be reasonably necessary or appropriate and shall be entitled to noncontrolling participation at its own expense, through counsel of its own selection. 13. TERM AND TERMINATION 13.1 This Agreement shall remain in effect from the date first written above until the first anniversary of the Effective Date that occurs after the expiration of all PATENTS or until terminated by mutual agreement of the parties or otherwise as provided by law or as permitted in this Section 13. 13.2 This Agreement may be terminated by HOLOGIC, without cause, effective on a date stated in a notice of termination given to SEREX by HOLOGIC. If HOLOGIC terminates this Agreement pursuant to this Section 13.2 and such termination takes place after the expiration of the 90-day option period specified in Section 5 of this Agreement, HOLOGIC shall pay SEREX's development expenses for the PROJECT for the three (3) months following the date of HOLOGIC's notice of termination. If HOLOGIC terminates the Agreement pursuant to this Section 13.2 after the first commercial sale of the PRODUCT -14- in the United States, the effective date of termination shall be at least ninety (90) days after the date on which notice of termination is given. 13.3 This Agreement may be terminated by either party for material defaults of the other party, effective immediately upon giving notice of such termination to the other party, provided that (i) the terminating party shall have given the defaulting party notice of the occurrence and nature of the default at least thirty (30) days prior to the notice of termination and (ii) the defaulting party shall have failed to cure the default during such 30-day period and shall have failed to initiate action during such 30-day period that is reasonably calculated to cure the default as promptly as practical. 13.4 This Agreement may be terminated by either party, effective immediately upon giving notice to the other party, in the event that (i) proceedings are instituted by such other party in bankruptcy, reorganization, receivership, or dissolution; or (ii) proceedings are instituted against such other party in bankruptcy, reorganization, receivership, or dissolution and such proceedings have not been dismissed or otherwise terminated within sixty (60) days following the date they were initiated; or (iii) such other party is generally unable to pay its debts as they come due in the ordinary course of business or makes an assignment for the benefit of creditors. 13.5 This Agreement may be terminated by HOLOGIC, effective immediately upon giving notice to SEREX, in the event that (i) the PROJECT deviates materially and adversely from the Plan, provided that HOLOGIC has given SEREX at least 30 days' prior notice of its intention to terminate hereunder and SEREX has not, during such 30 days, either satisfied HOLOGIC that the PROJECT is proceeding in accordance with the Plan or proposed a revised Plan that is acceptable to HOLOGIC; or (ii) a United States patent is not issued to SEREX pursuant to U.S. Patent Application # 08192778 within one (1) year following the Effective Date. 13.6 In the event of termination by HOLOGIC pursuant to Section 13.4, HOLOGIC may, in the sole exercise of its discretion, elect to purchase all of SEREX's rights in the PRODUCT, including all intellectual property rights relating to processes, devices, know-how, technology, formulae, or other components of the PRODUCT (but not including the Serex Antibody Release Assay technology or other technology developed by SEREX and documented prior to the Effective Date ("Existing Technology")) and to purchase a perpetual, -15- nonexclusive license to use the Existing Technology to complete the development and commercialization of the PRODUCT (including manufacturing, marketing, distributing, selling, and using the PRODUCT). In the event that HOLOGIC exercises its rights pursuant to this Section 13.6, HOLOGIC shall pay SEREX the amount of [ * ] in cash or, at HOLOGIC's option, in unregistered shares of HOLOGIC's common stock, which shares shall be subject to a limited right of registration under the same terms as are set forth in Section 7.12 of the "Preferred Stock Purchase Agreement" dated as of September 30, 1994 between HOLOGIC and SEREX. SEREX shall execute such bills of sale, assignments, representations regarding compliance with state and federal securities laws, and other documents as HOLOGIC shall reasonably request. 13.7 In the event that HOLOGIC terminates this Agreement pursuant to Section 13.3, 13.4 (provided HOLOGIC does not elect to exercise its rights pursuant to Section 13.6), or 13.5, SEREX shall reimburse HOLOGIC for [ * ] of the amounts paid by HOLOGIC pursuant to Section 4 of this Agreement by remitting to HOLOGIC, at the end of each calendar quarter, [ * ]of the net sales, royalties, license fees, and other income derived from the PRODUCT or any device, process, know-how, technology, or other item developed in the course of the PROJECT. 13.8 Notwithstanding anything to the contrary contained in this Agreement, HOLOGIC may continue to market, distribute, and sell PRODUCT then in inventory or for which purchase orders have been issued, for a period of ninety (90) days following the effective date of termination of this Agreement. 13.9 Sections 9, 10, 11, 13, 16, and 17 shall survive termination of this Agreement. In the event that HOLOGIC terminates this Agreement and is entitled to reimbursement from SEREX pursuant to Section 13.7, Section 6.2 shall also survive termination of this Agreement. 14. INVOLVEMENT OF THIRD PARTIES Following the option period set forth in Section 5, either party may retain the services of one or more third parties to assist it in the performance of its obligations under this Agreement, provided that the party to this Agreement retains ultimate responsibility for the full and satisfactory performance of its obligations hereunder. 15. WARRANTIES AND REPRESENTATIONS -16- 15.1 SEREX hereby represents and warrants to HOLOGIC that: (a) it is the sole owner of all right, title, and interest in and to the Serex Antibody Release Assay technology and any other Existing Technology to be used in connection with the PROJECT, free and clear of any liens or encumbrances, and has no actual knowledge of any conflicting patents, patent applications, or proprietary rights of any third parties; (b) it has the full authority to enter into this Agreement without the prior consent, concurrence, or other authorization of any court, agency, or other third party; (c) the undersigned officer has the full authority and approval of the Board of Directors of SEREX to enter into this Agreement; and (d) this Agreement does not violate the terms of any agreement, order, stipulation, understanding, or other arrangement to which it is subject or by which it is bound. SEREX gives no warranty or representation, express or implied, except as specifically stated herein. 15.2 HOLOGIC hereby represents and warrants to SEREX that: (a) it has the full authority to enter into this Agreement without the prior consent, concurrence, or other authorization of any court, agency, or other third party; (b) the undersigned officer has the full authority and approval of the Board of Directors of HOLOGIC to enter into this Agreement; and (c) this Agreement does not violate the terms of any agreement, order, stipulation, understanding, or other arrangement to which it is subject or by which it is bound. HOLOGIC gives no warranty or representation, express or implied, except as specifically stated herein. 16. LIMITATIONS ON LIABILITY Except as expressly provided in Section 11, neither party shall be liable to the other party under any theory of liability (including negligence) for any indirect, special or consequential damages of any kind, or for any lost -17- profits or opportunities, even if the party that might be liable was advised of the possibility of such damage. 17. INSURANCE SEREX shall procure and maintain, at its sole cost and expense, liability insurance with a reputable and financially sound insurance carrier or carriers against liability and claims for injuries to persons (including injuries resulting in death) and property damage in a combined single limit of not less than $1,000,000.00 per occurrence, and any additional insurance as may be required by applicable laws or regulations, and shall furnish to HOLOGIC written certificates obtained from each insurance carrier showing that insurance has been procured and is properly maintained, that the premiums therefor are paid, and specifying the name of the insurance carrier, the policy number or numbers, and the expiration date or dates. At least thirty (30) days prior written notice of any cancellation or modification of any such policy shall be given to HOLOGIC. 18. SERIOUS INJURIES; PRODUCT RECALL; CORRECTIVE ACTION 18.1 Each party shall advise the other, by confirmed facsimile, within twenty-four (24) hours after the notifying party becomes aware of any serious injury from the use or malfunction of the PRODUCT. The notifying party shall include in the notification all information known to it, including (but not limited to) the name, address, and telephone number of the person or entity that purchased the PRODUCT in question, the name, address, and telephone number of the patient (if different), and the lot or serial number of the TEST or READER involved in the incident, as appropriate. 18.2 If either party believes that a recall of any PRODUCT is necessary or appropriate, it will promptly notify the other party. The parties will then discuss reasonably and in good faith whether such recall is necessary or appropriate (unless such recall is required by law) and the manner in which any agreed or required recall shall be conducted. If a recall is not required by law and the parties cannot agree whether or not the recall is necessary or appropriate, either party may elect to conduct the recall in question. The parties shall cooperate with each other in conducting any recall pursuant to this Section. All out-of-pocket costs of a required or agreed recall, except the printing and mailing costs incurred to notify customers of such recall, shall be borne by SEREX. All costs of a recall to which the parties have not -18- agreed shall be borne by the party that elects to conduct the recall, provided that, if a court of competent jurisdiction determines that any PRODUCTS recalled by HOLOGIC were defective or in violation of any applicable law, SEREX shall reimburse HOLOGIC for all reasonable out-of-pocket costs and expenses of such recall (except for the mailing and printing costs incurred to notify customers of such recall). HOLOGIC shall maintain complete and accurate records of all PRODUCTS sold by it, for such periods as are required by law. Nothing contained in this Section 18 shall be construed to modify or limit the legal obligations of either party with respect to any recall that is required by law. 18.3 In the event that any governmental agency having jurisdiction shall request or order any corrective action with respect to any PRODUCTS, including (but not limited to) any recall, customer notice, restriction, change, market action, or any modification of the PRODUCT, and the cause or basis of such corrective action is primarily attributable to a condition, fact, or action that constitutes a breach by SEREX of any of its warranties, representations, obligations, or covenants contained herein or that SEREX knew or should have known would require such corrective action, then SEREX shall be liable for, and shall pay or reimburse HOLOGIC for, all costs incurred by HOLOGIC as a result of such action, including the replacement cost of any PRODUCT affected thereby. 19. FORCE MAJEURE Neither party shall be responsible for failure or delay to comply with this Agreement, if such failure or delay is caused by fire, flood, strikes, labor disputes or other industrial disturbances, unavoidable accidents, war, riots, civil commotion, embargoes, prohibition of exportation, governmental direction, intervention of civil, naval, or military authorities, or any other causes beyond the control of the party. In such case, performance by such party of this Agreement, other than the obligation to make payments, shall be suspended without liability to the extent performance is affected and for the period of delay reasonably attributable to such causes, including, without limitation, time for recovery from such causes. 20. ASSIGNMENT Prior to the first commercial sale of the PRODUCT in the United States, neither party may assign its rights (through contractual assignment, merger, -19- consolidation, sale of assets, stock or otherwise), or delegate its obligations under this Agreement to a third party, unless the assigning or delegating party obtains the prior written consent of the other party to this Agreement (which consent shall not be unreasonably withheld or delayed). Notwithstanding the foregoing and without the consent of SEREX, HOLOGIC may assign any and all rights and delegate any and all duties under this Agreement at any time during the term of this Agreement to (a) an entity that is owned or controlled by HOLOGIC or by the person or persons who own or control HOLOGIC or that owns or controls HOLOGIC or (b) the purchaser of all or substantially all of HOLOGIC's business relating to bone metabolism diagnostic products. SEREX shall be provided with prompt written notice of any such permitted assignment or delegation by HOLOGIC. Any assignment, delegation, sale, or other transfer by either party other than as expressly permitted in this Section 20 shall be null and void. 21. DISPUTE RESOLUTION 21.1 The parties shall attempt in good faith to resolve all disputes that may arise during the term of this Agreement or thereafter promptly by negotiation between executives who possess the authority to settle such dispute. Either party may give the other written notice of any dispute not resolved in the ordinary course of business. Within fifteen (15) days after delivery of the notice, the receiving party shall forward a written response to the disputing party. The notice and the response shall include (a) a brief statement of each party's position, and (b) the name and title of the executive who will represent that party in negotiations. Within thirty (30) days after delivery of the disputing party's notice, the executives of both parties shall meet at a mutually acceptable time and place, and again thereafter as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. All reasonable requests for information by one party to the other will be honored. All negotiations pursuant to this Section are confidential and shall be treated as compromise and settlement negotiations for evidentiary purposes. 21.2 If the dispute has not been resolved within sixty (60) days after delivery of the disputing party's notice, the dispute shall be submitted to arbitration under the then prevailing rules of the American Arbitration -20- Association for commercial arbitration. The place of arbitration shall be Boston, Massachusetts. The award of arbitration shall be final and binding. 22. COMPLIANCE WITH LAWS; GOVERNING LAW 22.1 The parties agree to conduct their efforts pursuant to this Agreement in compliance with all applicable statutory and regulatory requirements, including making information available to each other that is required in order to comply with the parties' respective regulatory reporting requirements. The parties agree to comply with all health registration laws, regulations, and orders applicable to the development, manufacture, marketing, distribution, and sale of the PRODUCT. 22.2 This agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to any conflicts of laws provisions. 23. NOTICE Any notice or other communication required or permitted under this Agreement shall be sufficiently given, unless specifically required to be given in some other manner pursuant to the terms of this Agreement, if (a) delivered by hand; or (b) sent by Federal Express or other overnight carrier; or (c) sent by telecopier, subject to confirmation of receipt; or (d) sent postage pre-paid by first class registered or certified mail, return receipt requested, addressed to the intended recipient as follows: If to HOLOGIC, to: HOLOGIC, Inc. 590 Lincoln Street Waltham, Massachusetts 02154 Fax # (617) 890-8031 Attention: Mr. Joel B. Weinstein Vice President, New Business Development If to SEREX, to: Serex, Inc. 230 West Passaic Street Maywood, New Jersey 07607 Fax # (201) 368-7850 Attention: Sam A. Martin Chief Executive Officer -21- or to other such address as shall be furnished in writing and received by the other party prior to the giving of applicable notice or communication. All notices shall be deemed to have been received on the actual date of receipt or three days after given as provided above, whichever is sooner. 24. PUBLIC ANNOUNCEMENTS; ADVERTISEMENTS Public announcements of the execution of this Agreement, the development or commercialization of the PRODUCT, or any other aspect of the PROJECT or of the parties' collaboration pursuant to this Agreement may be made by either party, subject to the approval of the other party (which approval shall not be unreasonably withheld or delayed). Advertisements of the PRODUCT may be made only by HOLOGIC, subject to the approval of SEREX (which approval shall not be unreasonably withheld or delayed). The party seeking to publish an announcement or advertisement shall provide a copy of the text of such announcement or advertisement to the other party at least five days prior to the scheduled publication thereof; if the receiving party does not deliver to the publishing party, within said five-day period, written notice of its objections thereto, the receiving party shall be deemed to have approved such advertisement or announcement. 25. PARTIAL INVALIDITY Both parties hereto agree that invalidity or unenforceability of any of the provisions, in part or in whole, of this Agreement shall not in any way affect the validity or enforceability of any other parts or provisions hereof except those which are an integral part of or are otherwise clearly inseparable from such invalid or unenforceable part or provision. 26. ENTIRE AGREEMENT AND MODIFICATION This Agreement is the final expression of the entire and only agreement of both parties with respect to the subject matter covered in this Agreement and supersedes all prior oral and written agreements, negotiations, commitments and representations with respect thereto. This Agreement cannot be modified except in writing by mutual agreement signed by duly authorized representatives of both parties hereto. 27. COUNTERPARTS This Agreement may be executed in separate counterparts, each of which shall be deemed an original and, when executed, separately or together, shall -22- constitute a single original instrument, effective in the same manner as if the parties hereto had executed one and the same instrument. -23- IN WITNESS WHEREOF, both parties hereto have caused this Agreement to be executed under seal as of the date first written above. HOLOGIC, INC. SEREX, INC. By: ___________________________ By: ____________________________ Print Name: ___________________ Print Name: ____________________ Title: ________________________ Title: _________________________ -24- EX-11.01 6 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Hologic, Inc. and Subsidiaries Statement RE: Computation of Earnings Per Share
Fiscal years ended PRIMARY: September 25, September 24, September 30, 1993 1994 1995 Net income (loss) ($1,774,840) $2,995,177 $1,869,519 ============ ========== ========== Weighted average number of common shares outstanding 3,930,068 3,963,583 4,061,535 Common Stock equivalents outstanding pursuant to treasury stock method 0 231,331 314,345 ------------ ---------- ---------- Weighted average number of common and common equivalent shares outstanding 3,930,068 4,194,914 4,375,880 ============ ========== ========== Per share amount ($.45) $.71 $.43 ====== ==== ==== FULLY DILUTED: Net income - $2,995,177 $1,869,519 ============ ========== ========== Weighted average number of common shares outstanding 3,963,583 4,061,535 Common Stock equivalents outstanding pursuant to treasury stock method - 378,227 513,891 ------------ ---------- ---------- Weighted average number of common and common equivalent shares outstanding - 4,341,810 4,575,426 ============ ========== ========== Per share amount - $.69 $.41 ====== ==== ====
EX-24.01 7 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 24.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10K, into the Company's previously filed Registration Statement File Nos.33-35191 and 33-47830. Arthur Andersen LLP Boston, Massachusetts December 20, 1995 -----END PRIVACY-ENHANCED MESSAGE-----