UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
_______________
FORM 10-K
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003 or |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____. |
Commission File No. 000-30109
LUMINEX CORPORATION
DELAWARE | 74-2747608 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS | 78727 | |
(Address of principal executive offices) | (Zip Code) |
(512) 219-8020
(Registrants 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, PAR VALUE $0.001
RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK, PAR VALUE $0.001
(TITLE OF CLASS)
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes x No o
Based on the closing sale price of common stock on The Nasdaq Stock Market on March 10, 2004, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $236,658,682. Excludes an aggregate of 2,882,688 shares of common stock held by officers and directors.
There were 30,562,066 shares of the Companys Common Stock, par value $.001 per share, outstanding on March 9, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2004 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
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PART I | |||||
Item 1.
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Business | 1 | ||||
Item 2.
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Properties | 18 | ||||
Item 3.
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Legal Proceedings | 18 | ||||
Item 4.
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Submission of Matters to a Vote of Security Holders | 18 | ||||
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Executive and Other Officers and Related Information | 19 | ||||
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PART II | |||||
Item 5.
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Market for the Registrants Common Equity and Related Stockholder Matters | 21 | ||||
Item 6.
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Selected Consolidated Financial Data | 22 | ||||
Item 7.
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Managements Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||
Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk | 32 | ||||
Item 8.
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Financial Statements and Supplementary Data | 33 | ||||
Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 53 | ||||
Item 9A.
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Disclosure Controls and Procedures | 53 | ||||
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PART III | |||||
Item 10.
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Directors and Executive Officers of the Registrant | 54 | ||||
Item 11.
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Executive Compensation | 54 | ||||
Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 54 | ||||
Item 13.
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Certain Relationships and Related Transactions | 55 | ||||
Item 14.
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Principle Accountant Fees and Services | 55 | ||||
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PART IV | |||||
Item 15.
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Exhibits, Financial Statement Schedules and Reports on Form 8-K | 56 | ||||
Signatures and Certifications | S-1 |
Safe Harbor Cautionary Statement
All statements in this report that do not discuss past results are forward-looking statements. Generally, the words believe, expect, intend, estimate, anticipate, will and similar expressions identify forward-looking statements. All statements which address our outlook for our businesses and their respective markets, such as projections of future performance, statements of managements plans and objectives, forecasts of market trends and other matters are forward-looking statements. It is important to note that our actual results or performance could differ materially from those projected in such forward-looking statements. Forward-looking statements are based on managements current expectations and are therefore subject to certain risks and uncertainties, including those discussed under the section titled Risk Factors included in this Annual Report on Form 10-K. Specific uncertainties which could cause our actual results to differ materially from those projected include risks and uncertainties relating to market demand and acceptance of Luminexs products, the dependence on strategic partners for development, commercialization and distribution of products, fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, our ability to scale-up manufacturing operations, potential shortages of components, competition, regulatory compliance and the timing of regulatory approvals, the ability of the Company and its partners to adequately service the installed base of Luminex 100 Systems and any modification of the Companys operating plan in response to its recent evaluation of its business and continued search for a new chief executive officer. We expressly disclaim any intent, obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Annual Report on Form 10-K to reflect any change in our expectations with regard to such statements or any change in events, conditions or circumstances on which any such statements are based.
Luminex® and xMAP® are trademarks of Luminex Corporation. This report also refers to trademarks, service marks and trade names of other organizations.
ii
PART I.
ITEM 1. BUSINESS
Overview
Luminex Corporation manufactures and markets products incorporating a
proprietary technology that advances and simplifies biological testing for the
life sciences industry. The life sciences industry depends on a broad range of
tests, called bioassays, to perform diagnostic tests, discover and develop new
drugs and identify genes. Our xMAP technology allows our Luminex 100 System to
simultaneously perform up to 100 bioassays on a single drop of fluid by reading
biological tests taking place on the surface of microscopic polystyrene beads
called microspheres. xMAP technology combines this miniaturized liquid array
bioassay capability with small lasers, digital signal processors and
proprietary software to create a system offering advantages in speed,
precision, flexibility and cost. Our xMAP technology is currently being used
within various segments of the life sciences industry which includes the fields
of drug discovery and development, clinical diagnostics, genetic analysis,
protein analysis and biomedical research.
Luminex was incorporated in May 1995 and began commercial production of
our Luminex 100 System in 1999. Our shares of common stock are traded on The
Nasdaq Stock Market under the symbol LMNX.
Luminex is incorporated in the State of Delaware, our principal executive
offices are located at 12212 Technology Blvd., Austin, Texas 78727, and our
telephone number is (512) 219-8020.
Industry Background
The life sciences industry uses bioassays to detect the presence of
certain biochemicals, proteins or genes in a sample. Drug discovery, genetic
analysis, pharmacogenomics, clinical diagnostics and general biomedical
research all use bioassays. For example, bioassays can be used to:
The life sciences user either purchases bioassays in the form of off-the-shelf
kits, develops them internally or utilizes a customized service to meet their
specific needs. Although it is important to note that our xMAP technology is
relevant to only a subset of the total life sciences market, industry reports
estimated the total global market for tools and consumables used in drug
discovery and development, clinical diagnostics and biomedical research to have
been approximately $35 billion in 2002 and was expected to grow at an annual
rate of approximately 7%. Based on estimates contained in our strategic
consulting study, the key segments Luminex is focused on represent a market of
approximately $2.3 billion (or 7% of the above total life sciences market) with
an annual growth rate of 15%.
1
The table below briefly describes the key bioassay technologies in the
life sciences industry:
Our XMAP Technology
Our xMAP technology has been designed to provide a testing platform that
can perform a wide range of bioassays in a cost-effective manner. The key
features of xMAP technology include the following:
2
Our xMAP technology combines existing biological testing techniques with
advanced digital signal processing and proprietary software. With our
technology, discrete bioassays are performed on the surface of color-coded
microspheres. These microspheres are read in a compact analyzer that utilizes
lasers and high-speed digital signal processing to simultaneously identify the
bioassay and measure its result.
Polystyrene microspheres, approximately 5.6 microns in diameter, are a
fundamental component of the xMAP technology. We purchase undyed microspheres
and, in a proprietary process, dye them with varying intensities of a red and a
near infrared dye to achieve up to 100 distinct colors. The specific dye
proportions permit each color-coded microsphere to be readily identified based
on its distinctive fluorescent signature. Our customers create bioassays by
attaching different biochemical reactants to each distinctly colored
microsphere set. The microsphere sets can then be combined in test panels as
required by the user, with a current maximum of 100 tests per panel.
To perform a bioassay using xMAP technology, a researcher attaches
biochemicals, or reagents, to one or more sets of color-coded microspheres,
which are then mixed with a test sample. This mixture is injected into the xMAP
analyzer, where the microspheres pass single-file in a fluid stream through two
laser beams. The first laser excites the internal dyes that are used to
identify the color of the microsphere and the test being performed on the
surface of the microsphere. The second laser excites a third fluorescent dye
that is used to quantify the result of the bioassay taking place. Our
proprietary optics, digital signal processors and software record the
fluorescent signature of each microsphere and compare the results to the known
identity of that color-coded microsphere set. The results are analyzed and
displayed in real-time with data stored on the computer database for reference,
evaluation and analysis.
Business Strategy
Our
primary goal continues to be the establishment of our xMAP technology
as the industry standard for performing bioassays. To achieve this goal, we
have implemented and are pursuing the following strategies:
3
Products
Instruments
Luminex 100. The Luminex 100 is a compact analyzer that integrates
fluidics, optics and digital signal processing to perform up to 100 bioassays
simultaneously in a single tube or well of a microtiter plate using only a
small amount of sample. By combining small diode lasers with digital signal
processors and microcontrollers, the Luminex 100 performs rapid, multi-analyte
profiles under the control of a Windows®-based personal computer and our
proprietary software.
We also offer two peripheral components for the Luminex 100 the XY
Platform and the Luminex Sheath Delivery System (Luminex SD). The XY Platform
complements the Luminex 100 by automating the sequential positioning of each
well of a microtiter plate, permitting up to 9,600 unattended tests per plate
to be performed in less than an hour. The Luminex SD is a pressurized,
external pump delivery system that enhances the delivery of sheath fluid to the
Luminex 100 by pumping sheath fluid from an external bulk reservoir, enabling
the Luminex 100 to operate for up to 24 hours without switching to a new
reservoir of sheath fluid.
Luminex
HTS
TM
(High-Throughput System). The customized, high-throughput
version of our xMAP analyzer, the Luminex HTS, is interfaced with an automated
liquid handler. The Luminex HTS utilizes a high pressure flow system, which
produces a flow rate approximately ten times greater than the flow rate of the
Luminex 100. The Luminex HTS can also be connected to robotic systems that
deliver 96 and 384 well plates to the Luminex 100, allowing integration into
automated test centers. The Luminex HTS was market released in the second half
of 2003. Because of the customized nature of the Luminex HTS, it is only
produced after receipt of an order.
Total instrument revenue for 2003, 2002 and 2001 was $15.6 million, $6.5
million and $15.4 million, respectively; or 59%, 50% and 73% of total revenue,
respectively.
Consumables
Microspheres. Our xMAP Systems use polystyrene microspheres that are
approximately 5.6 microns in diameter. We dye the microspheres in sets with
varying intensities of a red and a near infrared dye to achieve up to 100
distinct color sets. Each microsphere can carry the reagents of an enzymatic,
genetic or immunologic bioassay. In addition to microspheres, consumables also
include sheath fluid.
FlexMap microspheres. In January 2003, the Company introduced a universal
array microsphere. This microsphere-based product is designed for conducting
genotyping and other DNA-based experiments in the life sciences markets using
our xMAP technology. When used in conjunction with our multiplexing technology,
the universal array microspheres are designed to simplify the genotyping assay
development process and increase assay flexibility. The universal array
microspheres may be used in customized end-user identified single nucleotide
polymorphisms (SNPs) or in pre-defined kits developed by our strategic
partners.
Total consumable revenue for the years ended December 31, 2003, 2002 and
2001 was $6.1 million, $4.3 million and $4.0 million respectively; or 23%, 33%
and 19% of total revenue, respectively.
Marketing/Sales and Business Development
Our sales and marketing strategy is intended to expand the installed base
and utilization of xMAP Systems and generate recurring revenues from royalties
on bioassay kits and testing services developed or performed by others that use
our technology, as well as from the sale of microspheres and other consumables.
The key element of our sales and marketing strategy is a strategic partner
program with life sciences companies that will develop applications or perform
testing using our technology platforms and distribute our systems to their
customers.
4
We continue to use strategic partners as our primary distribution channel
and we will continue to pursue new partnerships that intend to focus on
applications within our key segments. Some of our strategic partners develop
application-specific bioassay kits for use on our systems that they sell to
their customers generating royalties for us. Certain strategic partners also
perform testing services for third parties using our technology that also
result in royalties for us. Other strategic partners also buy our products,
including xMAP Systems and consumables, and then resell those products to their
customers. As of December 31, 2003, we had 19 strategic partners who had
released commercialized products utilizing the Luminex platform and were
submitting royalties. Of such 19 strategic partners, 10 companies principally
serve the clinical diagnostics market and 9 companies principally serve the
research market. These strategic partners constituted 63% of the Companys
revenues for 2003. We also believe our strategic partners provide us with
complementary capabilities in product development, regulatory expertise and
sales and marketing. By leveraging our strategic partners bioassay testing
competencies, customer relationships and distribution channels, we believe that
we can achieve rapid market penetration without a direct sales force.
We also serve as the original equipment manufacturer (OEM) for certain
strategic partners that choose to sell our xMAP Systems under their own
branding and marketing efforts.
Customers
At December 31, 2003, we had sold a total of 1,919 Luminex 100 Systems
since inception in the life sciences industry. For the three years ended
December 31, 2003, 2002 and 2001, foreign sales to customers were $8.0 million,
$2.7 million and $2.3 million, respectively, representing 31%, 21% and 11%,
respectively, of our total product revenues for such periods. In 2003, four
customers each accounted for more than 10% of our total revenues. Bio-Rad
Laboratories, Inc. accounted for 16%, 16% and 13% of our total revenues in
2003, 2002 and 2001, respectively. Biomedical Diagnostics, One Lambda, Inc.
and MiraiBio Inc. accounted for 12%, 11% and 10%, respectively in 2003. In
2001, another customer accounted for 16% of our total revenues. Although no
other customer accounted for more than 10% of our total revenues in 2003, 2002
or 2001, a total of three customers constituted approximately 30% of total
revenues in 2002. The loss of any of these customers could have a material
adverse effect on our business, financial condition and results of operation.
Technical Operations
Our Technical Operations Group provides technical support to our
customers, our strategic partners and their customers. Most of the Companys
technical operations personnel are either biologists or biochemists and have
extensive experience in academic, industrial and commercial settings. Cross
training is a major focus, empowering group members to solve problems outside
their primary assignment.
Technical Support
Our in-house technical support department assists users primarily through
a toll-free hotline, facsimile and e-mail communications. We recently added a
web-based support interface that provides 24/7 worldwide access to common
technical support activities. Personnel assist our strategic partners and
customers with product orders, software, hardware, system implementation and
development of their bioassays. A comprehensive software and database system is
utilized to track customer interactions, follow trends and measure utilization.
The information is categorized and presented to management for weekly and
monthly review.
In addition to resolving customer problems, our technical support group
also attends trade shows and visits customers to solicit feedback.
Training
Through our training group, we offer comprehensive programs in basic
system training, advanced assay development, instrument field service and
technical support functions. For larger customers who have many users, such as
our strategic partners, training may be performed on-site at their locations.
5
Field Service
We have field service personnel based across the United States in areas of
significant system concentration. In addition, to support the increasing
number of installed systems, we have entered into agreements with
third-party
service providers at both the domestic and international levels. We intend to
base additional field service personnel in both the United States and Europe
and pursue additional third-party service provider agreements, as required, in
order to ensure responsive and cost-effective support of our customers
worldwide. In addition, several of our strategic partners provide their own
field service support. As we continue to expand our installed base, we believe
a strong, reliable, efficient field service organization is crucial to building
a high level of customer satisfaction.
Technical Applications
In order to allow customers to expedite the production of bioassays for
use on our systems, we have formed a technical applications group, based in
Austin, Texas, that includes experienced biological scientists. This group
works closely with our customers and strategic partners in their development of
bioassays with the ultimate goal of faster adoption and commercialization.
Research and Development
Our research and development program is devoted to advancing the
capabilities of our xMAP technology to further penetrate the life sciences
industry. In addition, we are collaborating with other companies and academic
institutions to increase the breadth of xMAP applications. Our current research
and development projects include:
6
Manufacturing
The Company has approximately 18,000 square feet of manufacturing
facilities located at the Companys principal executive offices in Austin,
Texas. In 2002, we successfully completed the registration of our quality
management system to the ISO 9001:2000 standard, which is an internationally
recognized standard for quality management systems. Subsequent audits by the
registrar have been and will continue to be carried out at six-month intervals
to ensure we are maintaining our system in compliance with ISO standards.
Instruments
Contract manufacturers assemble certain components of our xMAP System. The
remaining assembly and manufacturing of our system is performed at our facility
in Austin, Texas. The quality control and quality assurance protocols are all
performed at our facility. Parts and component assemblies that comprise our
xMAP System are obtained from a number of sources. We have identified
alternate sources of supply for several of our strategic parts and component
assemblies. Specifically, we recently qualified an alternate supplier for the
production of the type of laser currently used in our xMAP System. While we
currently believe that we will be able to satisfy our forecasted demand for
strategic parts and component assemblies during 2004, the failure to find
alternative suppliers in the event of a supply failure at any of our current
vendors at reasonably comparable prices could have a material adverse effect on
our business, financial condition and results of operations. Additionally, we
have entered into supply agreements with most of our suppliers of strategic
parts and component subassemblies to help ensure component availability,
flexible purchasing terms and legal protections with respect to the purchase of
such components.
Microspheres
We dye polystyrene microspheres using a proprietary method in our Austin,
Texas manufacturing facility in large lots with ten intensities of a red and a
near infrared dye to produce 100 distinctly colored microsphere sets. We
currently use one supplier for polystyrene microspheres, which we purchase in
accordance with a newly executed supply agreement. We believe this agreement
will help ensure component availability, flexible purchasing terms and basic
legal protections with respect to the purchase of such components. While we
believe the microspheres will continue to be available from our supplier in
quantities sufficient to meet our production needs, we have in-house
manufacturing capabilities along with other potential suppliers that could
provide microspheres for us if given sufficient lead-time to manufacture the
microspheres to our specifications.
Competition
We designed our xMAP technology for use by customers across the various
segments of the life sciences industry. For this reason, much of our current
competition is from existing technologies that perform many of the same
applications as our xMAP technology. Our competition includes companies
marketing conventional testing products based on established technologies such
as ELISA, Mass Spectrometry, Gels, biochips and flow-based technologies as well
as companies developing their own advanced testing technologies. Most of our
competitors are larger than we are and can commit significantly greater
resources to their competitive efforts.
The pharmaceutical industry is the largest market for the genomic, protein
and high-throughput screening applications of the xMAP technology. In each
application area, Luminex faces a different set of competitors. Genomic and
protein testing can be performed by products available from Affymetrix Inc.,
Applied Biosystems, a business group of Applera Corporation, Becton Dickinson
Company, Illumina Inc., Meso Scale Discovery, a division of Meso Scale
Diagnostics LLC, Perkin-Elmer Life Sciences, a business unit of PerkinElmer,
Inc., and Sequenom, Inc., among others. In high-throughput screening, among
others, Molecular Devices Corp, IGEN Corporation, Amersham Biosciences and
Aurora BioSciences Corporation offer products competitive with ours.
7
The clinical laboratory market is dominated by several very large
competitors. These include Abbott Laboratories, Bayer Corporation, Beckman
Coulter, Inc., Johnson & Johnson and Roche Bioscience, a division of F.
Hoffmann-La Roche Ltd., among others. These companies have technologies that
can perform a variety of established assays. These companies also offer
integrated systems and laboratory automation that are designed to meet the need
for improved work efficiencies in the clinical laboratory.
Competition within the biomedical research market is even more fragmented
than that within the pharmaceutical industry. There are hundreds of suppliers
to this market including Amersham Pharmacia Biotech, Applied Biosystems, an
operating division of Applera Corporation., Becton Dickinson Company, Perkin
Elmer Life Sciences and Zeptosens AG. Any company in this field is a potential
competitor with us.
Intellectual Property
To establish and protect our proprietary technologies and products, we
rely on a combination of patent, copyright, trademark and trade secrets laws
and confidentiality agreements.
We have implemented a patent strategy designed to maximize our
intellectual property rights. For core intellectual property, we are pursuing
patent coverage in the United States and those foreign countries that
correspond to the majority of our anticipated customer base. We currently own
19 issued patents in the United States. In addition, our patent portfolio
includes 47 other pending patent applications in the United States and their
corresponding international and foreign counterparts in major industrial
markets. Our patents and pending claims provide, or will provide, protection
for systems and technologies that allow real time multiplexed analytical
techniques for the detection and quantification of many analytes from a single
sample. We also hold a patent covering the precision-dyeing process that we use
to dye our microspheres. We have been granted a patent on our Zero Dead Time
sampling architecture, which uses digital over-sampling to measure the area of a
fluorescence pulse instead of peak detection, giving increased sensitivity
with no lost events. Other issued patents and pending patent applications cover
specific aspects and applications of our xMAP technology and on-going molecular
research. However, as a result of a procedural omission, we are unable to
pursue a patent application in Japan corresponding to our U.S. patent for
real-time multiplexing techniques.
The source code for our proprietary software is protected as a trade
secret and/or as a copyrighted work. Aspects of this software also are covered
by an issued patent.
We also rely on trade secret protection of our intellectual property. We
attempt to protect our trade secrets by entering into confidentiality
agreements with strategic partners, third parties, employees and consultants.
Our employees and third-party consultants also sign agreements requiring that
they assign to us their interests in inventions and original works of
expression and any corresponding patents and copyrights arising from their work
for us.
Government Regulation
Food and Drug Administration
The Food and Drug Administration regulates medical devices pursuant to
various statutes, including the Federal Food, Drug and Cosmetic Act as amended
and supplemented by the Medical Device Amendments of 1976, the Safe Medical
Devices Act of 1990, the Medical Device Amendments of 1992, the FDA Export
Reform and Enhancement Act of 1996, the FDA Modernization Act of 1997, the
Public Health, Security and Bioterrorism Preparedness and Response Act of 2002
and the Medical Device User Fee and Modernization Act of 2002. Medical devices,
as defined by statute, include instruments, machines, in vitro reagents or
other similar or related articles, including any component, part or accessory
of such articles that are intended for use in the diagnosis of disease or other
condition or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the human body. The FDA
classifies medical devices intended for human use into three classes. For Class
I devices, general controls (for example, labeling and good manufacturing
practices) are sufficient to provide reasonable assurance of safety and
effectiveness. Class II devices are products where general controls are not
sufficient to provide reasonable assurance of safety and effectiveness and for
which there is sufficient information to establish
8
special controls (for example, guidelines and patient registries). Class
III devices are purported or represented to be used to support or sustain human
life, are for a use that is of substantial importance in preventing impairment
of human health, or where the device presents a potential unreasonable risk of
illness or injury.
We manufacture a version of the Luminex 100 the Luminex 100 Integrated
System (IS) for use with diagnostic assay kits that are expected to become
available through our strategic partners. For FDA purposes, the Luminex 100 IS
is considered a component of our partners kit products. Depending on the
particular kits regulatory classification into Class I, II or III and its
intended use, kits manufactured by our strategic partners that are used in
conjunction with our technology may be subject to FDA clearance or approval
before they can be marketed and sold. After incorporating the Luminex 100 IS
into their products, our strategic partners are required to make various
premarket submissions such as premarket approval applications, premarket
notifications and/or investigational device exemption applications to the FDA
for their products and are required to comply with numerous requirements and
restrictions prior to clearance or approval of the applications. There can be
no assurance that the FDA will file, clear or approve our strategic partners
submissions.
In 2000, we submitted a device master file (DMF) with information about
the Luminex 100 IS to the FDA. Our strategic partners can reference the DMF in
their premarket submissions. In 2001, FDA reviewed our DMF while reviewing one
of our strategic partners submissions, and asked questions of the Company
about the content of the DMF. It is possible that the FDA may ask questions
about our DMF each time one of our strategic partners submits an application to
the FDA referencing our DMF. Although we intend to respond to the FDAs
questions in a timely fashion, there can be no assurance that our responses
will be acceptable to the FDA.
Our products use lasers to identify the bioassays and measure their
results. Therefore, we are required to ensure that our products comply with FDA
regulations pertaining to the performance of laser products. These regulations
are intended to ensure the safety of laser products by establishing standards
to prevent exposure to excess levels of laser radiation. There can be no
assurance that the FDA will agree with our interpretation and implementation of
these regulations.
We, and our strategic partners, may be subject to periodic inspection by
the FDA for, among other things, compliance with the FDAs current good
manufacturing practice regulations. These regulations, also known as the
Quality System Regulations, govern the methods used in, and the facilities and
controls used for, the design, manufacture, packaging and servicing of all
finished medical devices intended for human use. Additionally, our strategic
partners may be subject to other premarket and postmarket controls such as
labeling, complaint handling, medical device reporting and corrections and
removals reporting and record keeping requirements. If the FDA has evidence
demonstrating that a company is not in compliance with applicable regulations,
it can detain or seize products, request or, in certain circumstances, require
a recall, impose operating restrictions, enjoin future violations and assess
civil and criminal penalties against the company, its officers or its
employees, and can recommend criminal prosecution to the Department of Justice.
Other regulatory agencies may have similar powers.
Medical device laws and regulations are also in effect in many countries
outside of the United States. These range from comprehensive preapproval
requirements for medical products to simpler requests for product data or
certification. The number and scope of these requirements are increasing. There
can be no assurance that we, and our strategic partners, will be able to obtain
any approvals that may be required to market xMAP products outside the United
States.
Failure by us, or our strategic partners, to comply with applicable
federal, state and foreign medical product laws and regulations would likely
have a material adverse effect on our business. In addition, federal, state and
foreign regulations regarding the manufacture and sale of medical devices and
components of such devices are subject to future changes. We cannot predict
what impact, if any, such changes might have on our business, but any such
change could have a material impact.
9
European IVD Directive
The European Unions regulation of in vitro medical devices is under Council
Directive 98/79 of 27 October 1998 (Directive), as implemented in the EU member
states.
The principle behind the Directive is that no in vitro device or accessory may
be placed on the market or put into service unless it satisfies the essential
requirements set forth in the Directive. Devices considered to meet the
essential requirements must bear the CE marking of conformity when they are
placed on the market. The responsibility for placing the CE marking on the
device lies with the manufacturer. A manufacturer placing devices on the market
in its name is required to notify its national competent authorities.
Luminex Corporation has declared that the LX100 IS is classified as a
self-declaration device and is in conformity with Article 1, Article 9, Annex I
(Essential Requirements), and Annex III, and the additional provisions of
Council Directive IVDD 98/79/EC. However, there can be no assurance that the
EU member states will agree with our interpretation and implementation of these
regulations. As the European marketplace continues to be material to our
operations, failure by the Company or its strategic partners to comply with the
Directive could have a material adverse effect on our business.
Environmental
We are subject to stringent and complex federal, state and local laws and
regulations relating to the protection of human health and the environment. In
the course of our business, we are involved in the handling, storage and
disposal of certain chemicals and biohazards. The laws and regulations
applicable to our operations include provisions that regulate the discharge of
materials into the environment. Some of these environmental laws and
regulations impose strict liability, rendering a party liable without regard
to negligence or fault on the part of such party. Such environmental laws and
regulations may expose us to liability for environmental contamination,
including remediation costs, natural resource damages and other damages as a
result of the conduct of, or conditions caused by, us or others, or for acts
that were in compliance with all applicable laws at the time such acts were
performed. In addition, where contamination may be present, it is not uncommon
for neighboring landowners and other third parties to file claims for personal
injury, property damage and recovery of response costs. Although it is our
policy to use generally accepted operating and disposal practices in accordance
with applicable environmental laws and regulations, hazardous substances or
wastes may have been disposed or released on, under or from properties owned,
leased or operated by us or on, under or from other locations where such
substances or wastes have been taken for disposal. These properties may be
subject to investigation, remediation and monitoring requirements under
federal, state and local environmental laws and regulations. We believe that
our operations are in substantial compliance with applicable environmental laws
and regulations. However, failure to comply with these environmental laws and
regulations may result in the imposition of administrative, civil and criminal
penalties or other liabilities. We do not believe that we have been required to
expend material amounts in connection with our efforts to comply with
environmental requirements or that compliance with such requirements will have
a material adverse effect upon our capital expenditures, results of operations
or competitive position. Because the requirements imposed by such laws and
regulations may frequently change and new environmental laws and regulations
may be adopted, we are unable to predict the cost of compliance with such
requirements in the future, or the effect of such laws on our capital
expenditures, results of operations or competitive position. Moreover, the
modification or interpretation of existing environmental laws or regulations,
the more vigorous enforcement of existing environmental laws or regulations, or
the adoption of new environmental laws or regulations may also negatively
impact our strategic partners, which in turn could have a material adverse
effect on us and other similarly situated component companies.
Employees
As of March 9, 2004, we had a total of 132 employees as compared with 115
employees as of December 31, 2002. None of our employees are represented by a
collective bargaining agreement, and we have not experienced any work stoppage.
We believe that relations with our employees are good.
10
Available Information
Our website address is
www.luminexcorp.com
. Our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, are available free of charge
through our website as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange
Commission.
RISK FACTORS
We have a history of losses and an accumulated deficit of approximately $80.3
million as of December 31, 2003.
We have incurred significant net losses since our inception, including
losses of $4.2 million for year ended December 31, 2003, $24.9 million in 2002
and $15.7 million in 2001. At December 31, 2003, we had an accumulated deficit
of approximately $80.3 million. To achieve profitability, we will need to
generate and sustain substantially higher revenue while achieving reasonable
cost and expense levels. If we fail to achieve profitability within the time
frame expected by securities analysts or investors, the market price of our
common stock will likely decline. Furthermore, as we continue to incur losses
and utilize cash to support operations, we further decrease the cash available
to the Company. As of December 31, 2003, cash and cash equivalents totaled
$39.5 million, a decrease of $1.0 million from $40.5 million at December 31,
2002. We do not know when or if we will become profitable. If we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or an annual basis.
If our technology and products do not become widely used in the life sciences
industry, it is unlikely that we will ever become profitable.
Life sciences companies have historically conducted biological tests using
a variety of technologies, including bead-based analysis. However, compared to
certain other technologies, our xMAP technology is relatively new and unproven,
and the use of our technology by life sciences companies is limited. The
commercial success of our technology will depend upon its widespread adoption
as a method to perform bioassays. In order to be successful, we must convince
potential customers to utilize our system instead of competing technologies.
Market acceptance will depend on many factors, including our ability to:
Because of these and other factors, our products may not gain sufficient market
acceptance to achieve profitability.
Our success depends largely on the establishment of meaningful and successful
relationships with our strategic partners. Currently, a limited number of
strategic partners constitute a majority of our revenue and the loss of any one
partner could have a material adverse effect on the Company.
The development and commercialization of our xMAP technology is highly
dependent on our ability to establish successful strategic relationships with a
number of partners. As of December 31, 2003, we had 19 strategic partners who
were paying royalties and had either commercialized products using the Luminex
platform or were reselling our products. Furthermore, for the year ended
December 31, 2003, four customers individually represented greater than 10% of
the Companys revenue and collectively represented 49% of the Companys
revenue. In addition, we had seven customers who individually represented 5% or
more of our total revenue and collectively represented 68% of our total revenue
for the year ended December 31, 2003. For comparative purposes, we had two
customers with individual revenue greater than 10% of our total revenue and
collectively representing 26% of our total revenue for the year ended December
31, 2002. The loss of any of our significant strategic partners, or any of our
significant
11
customers, would have a material adverse effect on our growth and future
results of operations. Delays in implementation, delays in obtaining regulatory
approval, changes in strategy or the financial difficulty of our strategic
partners for any reason could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we have entered into non-exclusive relationships with most of
our existing strategic partners. The lack of exclusivity could deter existing
strategic partners from commercializing xMap technology and may deter new
strategic partners from entering into agreements with Luminex.
Our ability to enter into agreements with additional strategic partners
depends in part on convincing them that our technology can help achieve and
accelerate their goals or efforts. We will expend substantial funds and
management efforts with no assurance that any additional strategic
relationships will result. We cannot assure you that we will be able to
negotiate additional strategic agreements in the future on acceptable terms, if
at all, or that current or future strategic partners will not pursue or develop
alternative technologies either on their own or in collaboration with others.
Some of the companies we are targeting as strategic partners offer products
competitive with our xMAP technology, which may hinder or prevent strategic
relationships. Termination of strategic relationships, or the failure to enter
into a sufficient number of additional agreements on favorable terms, could
reduce sales of our products, lower margins on our products and limit the
creation of market demand and acceptance.
The vast majority of our future revenues will come from sales of our
systems, from the development and sale of bioassay kits utilizing our
technology by our strategic partners and from use of our technology by our
strategic partners in performing services offered to third parties. We believe
that our strategic partners will have economic incentives to develop and market
these products, but we cannot predict future sales and royalty revenues because
most of our existing strategic partner agreements do not include minimum
purchase requirements or royalty commitments. In addition, we do not have the
right or ability to provide incentives to our strategic partners sales
personnel to sell products based on xMAP technology or to control the timing of
the release of products by our strategic partners. The amount of these revenues
will depend on a variety of factors that are outside our control, including the
amount and timing of resources that current and future strategic partners
devote to develop and market products incorporating our technology. Further,
the development and marketing of certain bioassay kits will require our
strategic partners to obtain governmental approvals, which could delay or
prevent their commercialization efforts. If our current or future strategic
partners do not successfully develop and market products based on our
technology and obtain necessary government approvals, our revenues from product
sales and royalties will be significantly reduced.
Our limited operating history and reliance on strategic partners to market our
products makes forecasting difficult.
Because of our limited operating history, it is difficult to accurately
forecast future operating results. Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are, and will
continue to be, fixed in the short-term. The level of our revenues will depend
upon the rate and timing of the adoption of our technology as a method to
perform bioassays. Due to our limited operating history, predicting this timing
and rate of adoption is difficult.
In addition, we currently anticipate that the vast majority of future
sales of our products and products incorporating our technology will be made by
our strategic partners. For the following reasons, estimating the timing and
amount of sales of these products that may be made by our strategic partners is
particularly difficult:
12
The life sciences industry is highly competitive and subject to rapid
technological change and we may not have the resources necessary to
successfully compete.
We compete with companies in the United States and abroad that are engaged
in the development and production of similar products. We will continue to face
intense competition from existing competitors, as well as other companies
seeking to develop new technologies. Many of our competitors have access to
greater financial, technical, scientific, research, marketing, sales,
distribution, service and other resources than we do. These companies may
develop technologies that are superior alternatives to our technologies or may
be more effective at commercializing their technologies in products.
The life sciences industry is characterized by rapid and continuous
technological innovation. We may need to develop new technologies for our
products to remain competitive. One or more of our current or future
competitors could render our present or future products obsolete or
uneconomical by technological advances. In addition, the introduction or
announcement of new products by us or by others could result in a delay of or
decrease in sales of existing products, as customers evaluate these new
products. Our future success will depend on our ability to compete effectively
against current technologies, as well as to respond effectively to
technological advances.
Our success depends on our ability to service and support our products directly
or in collaboration with our strategic partners.
To the extent that the Company or its strategic partners fail to maintain
a high level, quantity or quality of the service and support for xMAP products,
there is a risk that the perceived quality of our xMAP products will be
diminished in the marketplace. Likewise, Luminex may fail to provide the
level, quantity or quality of service expected by the marketplace. This could
result in slower adoption rates and lower than anticipated utilization of xMAP
products causing a material adverse affect on our business.
Our success will depend on our ability to attract and to retain our management
and staff.
We are actively seeking a new Chief Executive Officer and have been
engaged in this process since the fourth quarter of 2002. Thomas W. Erickson
was hired in September 2002 to serve as Interim President and Chief Executive
Officer while the Management Evaluation and Search Committee sought a new chief
executive officer. Mr. Erickson is currently under contract with us through
June 30, 2004 and upon hiring a new chief executive officer, his agreement is
cancellable with ten days notice by Luminex. In the fall of 2002, we engaged a
nationally known search firm to assist the board of directors in selecting a
new chief executive officer and since September 2003, the Company has had two
search firms engaged in the search. The results of the strategic study
completed in 2003 coupled with a refinement and focus of efforts have
provided a more concise framework from which to identify qualified candidates.
Although no assurances can be given, we are actively engaged in the search
process and currently anticipate we will hire a new chief executive officer in
2004 and hope to do so promptly.
We depend on the principal members of our management and scientific staff,
including our research and development, technical support, technical service
and sales staff. The loss of services of key members of management could delay
or reduce our product development, sales and technical support efforts. In
addition, recruiting and retaining qualified scientific and other personnel to
perform research and development, technical support, technical service and
sales work will be critical to our success. There is a shortage in our industry
of
13
qualified management and scientific personnel, and competition for these
individuals is intense. There can be no assurance that we will be able to
attract additional and retain existing personnel necessary to achieve our
business objectives.
We expect our operating results to continue to fluctuate significantly from
quarter to quarter.
The sale of bioassay testing devices typically involves a significant
technical evaluation and commitment of capital by customers. Accordingly, the
sales cycle associated with our products typically is lengthy and subject to a
number of significant risks, including customers budgetary constraints,
regulatory approval and internal acceptance reviews that are beyond our
control. As a result of this lengthy and unpredictable sales cycle, our
operating results have historically fluctuated significantly from quarter to
quarter. We expect this trend to continue for the foreseeable future.
The vast majority of our system sales are made to our strategic partners.
Our partners typically purchase instruments in three phases during their
commercialization cycle: first, instruments necessary to support internal assay
development; second, instruments for sales force demonstrations; and finally,
instruments for resale to their customers. As a result, most of our system
placements are highly dependent on the commercialization timetables of our
strategic partners and can fluctuate from quarter to quarter as our strategic
partners move from phase to phase. We expect this trend to continue for the
foreseeable future.
We have only produced our products in limited quantities and we may experience
problems in scaling up our manufacturing operations or delays or component
shortages that could limit the growth of our revenue.
To date, we have produced our products in limited quantities compared to
the quantities necessary to achieve desired revenue growth. We may not be able
to produce sufficient quantities or maintain consistency between differing lots
of consumables. If we encounter difficulties in scaling up our manufacturing
operations as a result of, among other things, quality control and quality
assurance and availability of component and raw material supplies, we will
likely experience reduced sales of our products, increased repair or
re-engineering costs due to product returns and defects and increased expenses
due to switching to alternate suppliers, any of which would reduce our revenues
and gross margins.
We presently outsource certain aspects of the assembly of our systems to
contract manufacturers. We have non-cancellable purchase requirements with
certain of our components suppliers which require us to take delivery of a
minimum number of component parts for our products or the cost per unit will
increase, which would adversely impact our gross margin. We are not otherwise
committed to scheduled purchase requirements. However, because of a long
lead-time to delivery, we are required to place orders for a variety of items
well in advance of scheduled production runs. The effort to manage our
inventory, coupled with increasing sales during 2003, placed a constraint on
our ability to adequately and timely produce systems for sale. We recently
increased our flexibility to purchase strategic components within shorter lead
times by entering into supply agreements with the suppliers of these
components. We have taken steps to increase our manufacturing capacity,
primarily by increasing the size of our component orders, in response to the
increase in demand for our systems. While we attempt to match our parts
inventory and production capabilities to estimates of marketplace demand, to
the extent system orders materially vary from our estimates, we may experience
continued constraints in our systems production and delivery capacity, which
could adversely impact revenue in a given fiscal period. Should the Companys
need for raw materials and components used in production continue to
fluctuate, we could incur additional costs associated with either expediting or
postponing delivery of those materials.
We have recently added a new primary supplier for a key component of our
product line that resulted in an increase in our standard cost. The supplier
may not be able to produce sufficient quantities or to maintain the consistency
in quality of the other supplier and we may not be able to offset the increased
component cost through a price increase, any of which would reduce our revenues
and gross margins. In addition, certain key components of our product line are
currently purchased from a limited number of outside sources and may only be
available through a limited number of providers. We do not have agreements with
all of our suppliers. Our reliance on our suppliers and contract manufacturers
exposes us to risks including:
14
Consequently, in the event that supplies of components or work performed by any
of our assemblers are delayed or interrupted for any reason, our ability to
produce and supply our products could be impaired.
Because we receive revenues principally from life sciences companies, the
capital spending policies of these entities have a significant effect on the
demand for our products.
Our customers include clinical diagnostic, pharmaceutical,
biotechnological, chemical and industrial companies, and the capital spending
policies of these companies can have a significant effect on the demand for our
products. These policies are based on a wide variety of factors, including
governmental regulation or price controls, the resources available for
purchasing research equipment, the spending priorities among various types of
analytical equipment and the policies regarding capital expenditures during
recessionary periods. Any decrease in capital spending by life sciences
companies could cause our revenues to decline. As a result, we are subject to
significant volatility in revenue. Therefore, our operating results can be
materially affected (negatively and positively) by the spending policies and
priorities of our customers.
The intellectual property rights we rely upon to protect the technology
underlying our products may not be adequate to maintain market exclusivity.
Inadequate intellectual property protection could enable third parties to
exploit our technology or use very similar technology and could reduce our
ability to distinguish our products in the market.
Our success will depend on our ability to obtain, protect and enforce
patents on our technology and to protect our trade secrets. Any patents we own
may not afford full protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed or
invalidated. In addition, our current and future patent applications may not
result in the issuance of patents in the United States or foreign countries.
Competitors may develop products that are not covered by our patents. Further,
there is a substantial backlog of patent applications at the U.S. Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years.
We have obtained 19 patents in the United States and one in Japan directed
to various aspects and applications of our technology. We have 24 pending
applications in the United States and 17 in foreign jurisdictions. In Japan,
due to a procedural omission, we are unable to obtain patent protection for our
method of real time detection and quantification of multiple analytes from a
single sample similar to the protection we have obtained in the United States.
Although we are pursuing patent protection in Japan for other aspects of our
technology, we may not be able to prevent competitors from developing and
marketing technologies similar to our xMAP technology in Japan.
We require our employees, consultants, strategic partners and other third
parties to execute confidentiality agreements. Our employees and third-party
consultants also sign agreements requiring that they assign to us their
interests in inventions and original expressions and any corresponding patents
and copyrights arising from their work for us. In addition, the Company has
implemented a patent process to file new patent applications on its key
technology. However, we cannot guarantee that these agreements or this patent
process will provide us with adequate protection against improper use of our
intellectual property or disclosure of confidential information. In addition,
in some situations, these agreements may conflict with, or be subject to, the
rights of third parties with whom our employees, consultants or advisors have
prior employment or consulting relationships. Further, others may independently
develop substantially equivalent proprietary technology and techniques, or
otherwise gain access
15
to our trade secrets. Our failure to protect our proprietary information
and techniques may inhibit or limit our ability to exclude certain competitors
from the market.
In order to protect or enforce our patent rights, we may have to initiate
legal proceedings against third parties, such as infringement suits or
interference proceedings. These legal proceedings could be expensive, take
significant time and divert managements attention from other business
concerns. If we lose, we may lose the benefit of some of our intellectual
property rights, the loss of which may inhibit or preclude our ability to
exclude certain competitors from the market. We also may provoke these third
parties to assert claims against us. The patent position of companies like ours
generally is highly uncertain, involves complex legal and factual questions,
and has recently been the subject of much litigation. No consistent policy has
emerged from the U.S. Patent and Trademark Office or the courts regarding the
breadth of claims allowed or the degree of protection afforded under patents
like ours.
Our success will depend partly on our ability to operate without infringing on
or misappropriating the proprietary rights of others.
We may be sued for infringing on the intellectual property rights of
others. In addition, we may find it necessary, if threatened, to initiate a
lawsuit seeking a declaration from a court that we do not infringe on the
proprietary rights of others or that their rights are invalid or unenforceable.
Intellectual property litigation is costly, and, even if we prevail, the cost
of such litigation could affect our profitability. Furthermore, litigation is
time consuming and could divert management attention and resources away from
our business. If we do not prevail in any litigation, we may have to pay
damages and could be required to stop the infringing activity or obtain a
license. Any required license may not be available to us on acceptable terms,
if at all. Moreover, some licenses may be nonexclusive, and therefore, our
competitors may have access to the same technology licensed to us. If we fail
to obtain a required license or are unable to design around a patent, we may be
unable to sell some of our products, which could have a material adverse affect
on our business, financial condition and results of operations.
We are aware of a European patent granted to Dr. Ioannis Tripatzis, which
covers certain testing agents and certain methods of their use. Dr. Tripatzis
has publicly stated his belief that his European patent covers aspects of our
technology if practiced in Europe. This European patent expires in November
2004. We cannot assure you that a dispute with Dr. Tripatzis will not arise
involving our European activities or that any dispute with him will be resolved
in our favor.
If we fail to comply with the extensive government regulations that affect our
business, we could be subject to enforcement actions, injunctions, and civil
and criminal penalties that could delay or prevent marketing of our products.
The testing, production, labeling, distribution and marketing of our
products for some purposes and products based on our technology expected to be
produced by our strategic partners are subject to governmental regulation by
the Food and Drug Administration in the United States and by similar agencies
in other countries. Some of our products and products based on our technology
expected to be produced by our strategic partners for in vitro diagnostic
purposes are subject to approval or clearance by the FDA prior to marketing for
commercial use. To date, only four strategic partners have obtained such
approvals or clearances. The process of obtaining necessary FDA clearances or
approvals can be time-consuming, expensive and uncertain. Further, clearance or
approval may place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed. In addition, we are also
required to comply with FDA requirements relating to laser safety.
Approved or cleared products are subject to continuing FDA requirements
relating to, among others, quality control and quality assurance, maintenance
of records and documentation, adverse event and other reporting, and labeling
and promotion of medical devices. Our inability, or the inability of our
strategic partners, to obtain required regulatory approval or clearance on a
timely or acceptable basis could harm our business. In addition, failure to
comply with applicable regulatory requirements could subject us or our
strategic partners to enforcement action, including product seizures, recalls,
withdrawal of clearances or approvals, restrictions on or injunctions against
marketing our products or products based on our technology, and civil and
criminal penalties.
Medical device laws and regulations are also in effect in many countries
outside the United States. These range from comprehensive device approval
requirements for some or all of our medical device products to requests for
16
product data or certifications. The number and scope of these requirements
are increasing. Failure to comply with applicable federal, state and foreign
medical device laws and regulations may harm our business, financial condition
and results of operations. We are also subject to a variety of other laws and
regulations relating to, among other things, environmental protection and work
place safety.
Our strategic partners and customers expect our organization to operate on
an established quality management system compliant with FDA quality system
regulations and industry standards, the Council Directive 98/79 of 27 October
1998 (Directive) as implemented nationally in the EU member states and
industry standards, such as ISO 9000. We became ISO 9001:2000 certified in
March 2002 and self-declared our LX100 IS device is in conformity with Article
1, Article 9, Annex I (Essential Requirements), and Annex III, and the
additional provisions of Council Directive IVDD 98/79/EC as of December 7,
2003. Subsequent audits are carried out at six month intervals to ensure we
maintain our system in substantial compliance with ISO standards. Failure to
maintain compliance with FDA and EU regulations and ISO registration and other
medical device laws could reduce our competitive advantage in the markets in
which we compete and also decrease satisfaction and confidence levels with our
partners.
If we become subject to product liability claims, we may be required to pay
damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of human diagnostic and
therapeutic products. While we believe that we are reasonably insured against
these risks and we have indemnity protections in our supplier agreements, there
can be no assurance that we will be able to obtain insurance in amounts or
scope sufficient to provide us with adequate coverage against all potential
liabilities. A product liability claim in excess of our insurance coverage or
claim that is outside or exceeds our indemnity protections in our supplier
agreements or a recall of one of our products would have to be paid out of our
cash reserves.
If third-party payors increasingly restrict payments for healthcare expenses or
fail to adequately pay for multi-analyte testing, we may experience reduced
sales, which would hurt our business and our business prospects.
Third-party payors, such as government entities, health maintenance
organizations and private insurers, are restricting payments for healthcare.
These restrictions may decrease demand for our products and the price we can
charge. Increasingly, Medicaid and other third-party payors are challenging the
prices charged for medical services, including clinical diagnostic tests. They
are also attempting to contain costs by limiting coverage and the reimbursement
level of tests and other healthcare products. Without adequate coverage and
reimbursement, consumer demand for tests will decrease. Decreased demand could
cause sales of our products, and sales and services by our strategic partners,
to fall. In addition, decreased demand could place pressure on us, or our
strategic partners, to lower prices on these products or services, resulting in
lower margins. Reduced sales or margins by us, or our strategic partners, would
hurt our business, profitability and business prospects.
Our operating results may be affected by current economic and political
conditions.
With the current events in the Middle East and continuing concern for
future terrorist attacks, there exist many economic and political
uncertainties. These uncertainties could adversely affect our business and
revenues in the short or long term in ways that cannot presently be predicted.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue
to be highly volatile and subject to wide fluctuations in price. This
volatility is in response to various factors, many of which are beyond our
control, including:
17
In addition, the stock market in general, and The Nasdaq Stock Market and
the market for technology companies in particular, has experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further,
there has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a companys
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs,
potential liabilities and the diversion of managements attention and
resources.
Anti-takeover provisions in our certificate of incorporation, bylaws and
stockholder rights plan and Delaware law could make a third party acquisition
of us difficult.
Our certificate of incorporation, bylaws and stockholder rights plan
contain provisions that could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. We are
also subject to certain provisions of Delaware law that could delay, deter or
prevent a change in control of us. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative
facilities are currently located in approximately 75,000 square feet of leased
space in Austin, Texas pursuant to a lease agreement which expires July 31,
2010. In late 2002, we reduced our aggregate space in our Austin facilities
from approximately 98,000 square feet. We believe that these facilities are
adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
Executive Officers and Related Information
G. Walter Loewenbaum II
, Chairman of the Board of Directors and beneficial
owner of approximately 6.1% of the Companys outstanding common stock (as of
March 9, 2004), provides advice and assistance to the Companys senior
management team with respect to financial and strategic matters and general
business operations of the Company on a regular basis. Mr. Loewenbaum, although
not an executive officer, maintains an office at the Companys offices in
Austin, Texas and receives compensation for his services as Chairman of the
Board of Directors.
Thomas W. Erickson.
Mr. Erickson has served as the Companys Interim
President and Chief Executive Officer since September 2002. Prior to joining
Luminex, he was Interim President and Chief Executive Officer and a management
consultant to Omega Healthcare Investors, Inc. (NYSE:OHI) from 2000 to 2002.
In addition, Mr. Erickson was Co-Founder, President and Chief Executive Officer
for CareSelect Group, Inc., a physician practice management company from 1994
to 2001 and has served as President and Chief Executive Officer of ECG
Ventures, Inc, a venture capital company from 1987 to present. Earlier in his
career, Mr. Erickson held several management positions at American Hospital
Supply Corporation. He currently is Chairman of the Board of LifeCare
Hospitals, Inc. Mr. Erickson received a B.B.A. from the University of Iowa and
an M.B.A. from Southern Methodist University.
Harriss T. Currie.
Mr. Currie was elected as the VP, Finance, Treasurer
and Chief Financial Officer in October of 2003. Since joining the Company in
November of 1998, Mr. Currie has served in the capacity of Controller,
Treasurer and Acting Chief Financial Officer. Prior to joining us, he was
employed as the Chief Financial Officer, Secretary and Treasurer of SpectraCell
Laboratories from 1993 to 1998 where he also served as Vice President of
Finance for two subsidiary companies. Mr. Currie earned his B.B.A. from
Southwestern University in 1986 and his M.B.A. in Finance and Marketing from
The University of Texas at Austin in 1992. Prior to returning to school for his
M.B.A., Mr. Currie was a certified public accountant with Deloitte & Touche
LLP.
James W. Jacobson, Ph.D.
Dr. Jacobson joined Luminex Corporation in May
1998, and he currently serves as Vice President, Research & Development. From
1994 to 1998, Dr. Jacobson was Laboratory Director at Cytastar Laboratories,
Virus Reference Laboratories and SpectraCell Laboratories in Houston, Texas.
Following post-doctoral work at North Carolina State University and Duke
University, he was a faculty member in the Department of Biology, University of
Houston, Houston, Texas. Dr. Jacobson received the Ph.D. degree in 1986 from
Washington University in Saint Louis, Missouri.
Randel S. Marfin.
Mr. Marfin joined the Company in June 1998, and
currently serves as Vice President, Marketing/Sales and Business Development.
Prior to joining us, he worked for three years at SpectraCell Laboratories,
Inc., most recently as Vice President of Sales and Marketing where he was
responsible for business development, acquisitions, strategic planning and
sales and marketing. From 1990 to 1998, he served as General Manager of Texas
for both Damon Clinical Laboratories and Nichols Institute. In addition, Mr.
Marfin held sales management and business development positions for Damon
Clinical Laboratories and MPC Labs. Mr. Marfin graduated from the University of
Houston in 1986 with a B.S. in Biochemistry and Biophysics and served in the
United States Air Force.
19
Oliver H. Meek.
Mr. Meek has served as Vice President, Manufacturing since
February 2000. During the 17 years prior to joining Luminex, Mr. Meek was
employed at Abbott Laboratories. While at Abbott, he held various management
positions in the area of Technical Product Development, Reagent and Instrument
Manufacturing and Quality. Prior to joining Abbott Laboratories, he was the
Technical Liaison for AMF Biological and Diagnostics Company. Mr. Meek
graduated from The University of Texas at Austin in 1979 with a B.A. degree in
Biology and is a Certified Quality Engineer.
David S. Reiter.
Mr. Reiter has served as the Companys Vice President,
General Counsel and Corporate Secretary since October 2003. Prior to becoming
General Counsel for Luminex, Mr. Reiter was in private practice with the firm
of
Phillips & Reiter, PLLC
, which provides outsourced general counsel services
for technology companies. Before co-founding the firm, Mr. Reiter was Vice
President and General Counsel for 724 Solutions Inc., a provider of mobile
commerce software solutions and applications (NASDAQ: SVNX). Earlier in his
career, Mr. Reiter served as senior counsel for Compaq Computer Corporation,
supporting the Worldwide Sales & Services, Supply Chain Management and Consumer
Products Group during his tenure. Mr. Reiter is a graduate of the University
of Southern California (Juris Doctorate/Master of International Relations),
University of Sheffield, UK (MBA) and the University of Notre Dame (BA). Mr.
Reiter is a member of the Texas Bar and is the chair of the Subcommittee on Law
Department Management for the American Bar Association.
The Management Evaluation and Search Committee, with the assistance of two
recruiting firms, continues its search for a chief executive officer of the
Company. In addition, the Management Evaluation and Search Committee continues
to evaluate the Companys organizational structure and need for other changes
and/or additions to the management team.
20
measure the attraction, or affinity, between a chemical compound and a
disease target for drug discovery and development;
assist physicians in prescribing the appropriate drug therapy to match
the patients unique genetic makeup, a process known as
pharmacogenomics;
detect genetic variations, such as single nucleotide polymorphisms; or
measure the presence and quantity of biochemicals in blood to assist
physicians in diagnosing, treating or monitoring disease conditions.
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KEY TECHNOLOGIES
DESCRIPTION
MARKETS SERVED
High-density arrays of DNA fragments
attached to a flat glass or silicon surface
Biomedical research
Automated test-tube based platform
Clinical diagnostics
Physical separation of analyses for
visualization
Clinical
diagnostics and
biomedical research
Low-density arrays of DNA fragments
attached to a flat glass or silicon surface
Biomedical research
Miniaturized liquid handling system on
a chip
Biomedical research
Plastic trays with discrete wells in which
assays are fixed
Drug discovery,
clinical
diagnostics and
biomedical research
Multi-analyte/multi-format
xMAP technology has been designed to simultaneously perform up to 100
distinct bioassays in a single tube or well of a microtiter plate
using only a small amount of sample. Moreover, unlike most existing
technologies that are capable of performing only one type of bioassay,
xMAP can perform enzymatic, genetic and immunologic tests on the same
instrumentation platform.
Flexibility/scalability
xMAP technology allows flexibility in customizing test panels. Panels can be
modified to include new bioassays in the same tube by adding additional
microsphere sets. It is also scalable, meaning that there is no change in
the manufacturing process or the required labor, whether producing a small
or large number of microsphere-based tests.
Throughput
Our technologys current ability to perform up to 100 tests in a single tube
with only a small amount of sample permits efficient use for high-throughput
applications.
Ease of use
Most xMAP bioassays are simple to perform. A test sample is added to a
solution containing microspheres that have been coated with reagents. The
solution is then processed through our xMAP System which incorporates
proprietary software to automate data acquisition and analysis in real-time.
Low cost
We have designed our xMAP Systems to be relatively inexpensive for our
customers to utilize. In addition, microsphere-based bioassays are
inexpensive compared to other technologies such as biochips.
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Focus on key market segments validated in our strategic study
We will continue to focus our commercialization efforts through strategic
partners on large sectors of the life sciences industry where Luminex
believes it has distinct competitive advantages over existing and emerging
technologies. We define strategic partners as companies in the life sciences
industry that either develop and distribute assays and tests on xMap
technology or may only distribute our xMap Systems and consumables. With our
partners support, we have targeted major pharmaceutical companies, large
clinical laboratories, research institutions and major medical institutions
for our principal marketing efforts. We believe these customers provide the
greatest opportunity for maximizing the use of xMAP technology and that
continued adoption by these industry leaders will promote wider market
acceptance.
Continue to develop strategic partnerships that are focused on the
priority segments
We intend to broaden and accelerate market acceptance of xMAP technology by
continuing to enter into development, marketing and distribution strategic
partnerships with leaders in the life sciences industry that we believe can
convert core product lines to, and develop new applications within, their key
segments on the Luminex platform. By leveraging our strategic partners
market positions and utilizing their distribution channels and marketing
infrastructure, we believe we can continue to expand our installed base.
Currently, we have 19 strategic partners who have released commercialized
products utilizing the Luminex platform and are submitting royalties. These
19 strategic partners accounted for approximately 63% of our total revenue in
2003 and all of our strategic partners represented 91% of our total revenue.
Develop next generation products
Our research and development group is pursuing projects intended to advance
our xMAP technology. We are also collaborating with industry participants and
biomedical research institutions to develop additional xMAP products.
In the spring of 2003, we completed the strategic study with a consulting
firm with extensive experience in the life sciences industry. The results of
the study provided valuable information regarding market opportunities and
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market size for key segments where we believe the Company has distinct
competitive advantage over existing and emerging technologies. Although we
have not disclosed the specific markets, we have dedicated our primary
efforts towards these markets and will continue to employ a partnership
driven business model focused on these key segments and selectively
pursue
opportunities for incremental revenue in other segments.
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Consumable development
We continue to develop components of a consumables stream to support and
enhance our existing product lines. These include calibrators, controls and
microspheres with additional performance characteristics.
Mixed sample measurement of cells and beads
We are examining the utility of xMAP technology for blending bead-based
assays for soluble analytes with simultaneous cellular analysis of complex
biological samples.
Expanding our multiple testing capabilities
Our current bead utilizes three common chemistries for the immobilization of
assays on its surface. While these chemistries are well accepted in the
industry, it is desirable to expand our bead chemistry capability to enhance
market penetration and adoption. We continue to work on other surface
chemistries to provide optimal performance in broader application areas.
Automation
We are collaborating with our strategic partners and others to provide
automation solutions that will integrate our various xMAP instruments with
sample handling equipment and laboratory information systems to increase
bioassay throughput and operational efficiencies.
Software
We are focusing software development efforts on providing the underlying
architecture for system functionality that will also facilitate development
of custom software applications. Our Software Developer Kit provides a
straightforward platform for our strategic partners and their customers to
rapidly develop their own user interface software packages.
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Enhancing bioassay performance and operational efficiencies
Our scientists and hardware and software engineers continually dedicate
efforts to further enhance xMAP in the areas of assay performance, such as
sensitivity, precision and ruggedness, and operational efficiencies. We are
actively collecting market and customer requirements that will allow us to
provide optimal features and benefits in current and future products.
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convince prospective strategic partners and customers that our technology is an attractive alternative to other
technologies for pharmaceutical, research, clinical and biomedical testing and analysis;
manufacture products in sufficient quantities with acceptable quality and at an acceptable cost; and
place and service sufficient quantities of our products, including the ability to provide the level of service required in
the mainstream clinical diagnostics market segment.
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We have no control over the timing or extent of product development,
marketing or sale of our products by our strategic partners.
Most of our strategic partners are not committed to minimum purchase
commitments and we do not control the incentives provided by our
strategic partners to their sales personnel.
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A significant number of our strategic partners intend to produce
clinical diagnostic applications that may need to be approved by the
Food and Drug Administration, or other regulatory bodies in
jurisdictions outside of the United States.
Certain strategic partners may have unique requirements for their
applications and systems. Assisting the various strategic partners may
strain our research and development and manufacturing resources. To
the extent that we are not able to timely assist our strategic
partners, the commercialization of their products will likely be
delayed.
Certain strategic partners may fail to deliver products that satisfy
market requirements or such products may fail to operate properly.
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the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with the Company
could terminate their services at any time without penalty;
the potential inability of our suppliers to obtain required components;
the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or
assemblers; and
increases in prices of raw materials and key components.
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general economic conditions and interest rates;
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instability in the United States and other financial markets and the possibility of war, other armed hostilities or further
acts of terrorism in the United States or elsewhere;
actual or anticipated variations in quarterly operating results from historical results or estimates of results prepared by
securities analysts;
announcements of technological innovations or new products or services by us or our competitors;
changes in financial estimates by securities analysts;
conditions or trends in the life science, biotechnology and pharmaceutical industries;
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel; and
sales of our common stock.
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Name
Age
Position
59
Chairman of the Board
53
Interim President and Chief Executive Officer
42
Chief Financial Officer, Vice President, Finance and Treasurer
49
Vice President, Research and Development
47
Vice President, Marketing/Sales and Business Development
52
Vice President, Manufacturing
37
Vice President, General Counsel and Corporate Secretary
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PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded on The Nasdaq Stock Market under the symbol
LMNX.
The following table sets forth the range of high and low sale prices on
The Nasdaq Stock Market for each quarter during 2002 and 2003.
Holders
As of March 9, 2003, we had 210 holders of record of our common stock.
Because many of our shares are held by brokers and other institutions on behalf
of stockholders, we are unable to estimate the total number of beneficial
stockholders represented by these record holders.
Dividends
We have never declared or paid cash dividends on our common stock and,
while this policy is subject to periodic review by our board of directors, we
currently intend to retain any earnings for use in our business and do not
anticipate paying cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
During the fourth quarter of 2003, we issued 76,800 shares of common stock
pursuant to the exercise of options granted to our directors, employees and
consultants pursuant to our 1996 Stock Option Plan for exercise prices ranging
from $3.92 to $5.88 per share. These shares were issued in reliance upon the
exemption from the registration requirements of the Securities Act of 1933 set
forth in Section 4(2) or Rule 701 thereof
21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with Managements Discussion and Analysis of Financial Condition and Results
of Operation and other financial data included elsewhere in this Annual Report
on Form 10-K. The consolidated statement of operations data for the years ended
December 31, 2003, 2002 and 2001 and the consolidated balance sheet data at
December 31, 2003 and 2002 are derived from the audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. The
consolidated statement of operations data for the years ended December 31, 2000
and 1999 and the consolidated balance sheet data at December 31, 2001, 2000 and
1999 are derived from audited consolidated financial statements not included in
this Annual Report on Form 10-K.
22
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements and the accompanying Notes included below in
Item 8 and Risk Factors included above in Item 1 of this Annual Report on
Form 10-K.
Overview
Our financial and operational improvement for the year ended December 31,
2003 was influenced by several significant factors: (i) a focus in 2003 on
supporting our partners in their commercial and development endeavors and the
elimination of our direct sales force, (ii) expense control primarily resulting
from the sale of our Rules-Based Medicine research and development project (RBM)
and the fourth quarter 2002 restructure, (iii) a strengthening of our
contractual relationships with our partners and suppliers, and (iv) completion
of the strategic study in the spring of 2003.
Beginning with the restructuring in 2002 and continuing throughout 2003,
we changed from a dual focus of partner assistance and direct sales to one of
only partner assistance. Our strategy of increasing the assistance we provided
to our partners in their commercial and development endeavors coupled with the
discontinuation of our direct sales efforts enabled our partners to focus on
commercialization and avert concerns that we were going to compete directly
with them. We believe that this adjustment coupled with the
maturation of our technology in the marketplace contributed significantly to the
growth that we experienced during 2003. Our top five customers in 2002
contributed $5.9 million in total revenue and primarily as a result of this
change, contributed $11.5 million for 2003. Additionally, several partners who
were relatively insignificant contributors in 2002 increased their collective
contribution over tenfold to $7.6 million for 2003.
In
September of 2002, we sold our RBM research and development project resulting in a 15
person reduction in headcount. For all of the year ended December 31, 2002 we
expended approximately $1.8 million on the RBM project, none of which repeated
during 2003. Additionally, in the fourth quarter of 2002, we reduced our
headcount by a further 35 employees, restructured the organizational hierarchy
and reduced our leased occupancy footage. Total costs of the reorganization
were approximately $2.3 million, all incurred in the fourth quarter of 2002 and
none of which repeated during 2003. Furthermore, based on an impairment
evaluation of the Rules-Based Medicine, Inc. investment at December 31, 2002,
we determined that the investment should be fully impaired at a cost of
approximately $1.6 million. These items combined resulted in a reduction in
the net loss by approximately $5.7 million in 2003 relative to 2002.
A significant amount of effort was expended during 2003 both solidifying
our contractual relationships with our partners and putting supply agreements
in place with key suppliers. As the commercialization efforts of our partners
increased throughout the year and opportunities were afforded to modify the
contracts with them we strengthened our contractual positions by including
minimum purchase requirements. These requirements served to encourage our
partners allocation of resources to development and commercialization of the
technology and enhance our ability to predict revenue patterns. Secondly, we
were able to execute supplier agreements with our key suppliers to ensure a
flexible supply of raw materials to better meet our demands, while limiting our
exposure to supply failures. We also identified alternate supply sources for
several key components.
In addition to these operational measures, we completed the strategic
study commenced in the fall of 2002. The results of the study provided
valuable information regarding target market opportunities and the size of
those market segments. We have focused our resources and adjusted our
strategies and tactics towards the identified segments, which should provide
growth opportunities for the Company.
The result of the aforementioned factors have all contributed
significantly to our bottom line improvement for 2003. For the years ended
December 31, 2003, 2002 and 2001, we had net losses of $4.2 million, $24.9
million and $15.7 million, respectively. We currently expect to continue
experiencing quarterly net losses and anticipate that our quarterly results of
operations will continue to fluctuate for the foreseeable future as a result of
several factors, including the risks discussed in this Report under the heading
Risk Factors. Our limited operating history, customer concentration and
continued fluctuations in buying patterns of our strategic partners make
accurate predictions of future operations difficult.
23
Our ability to achieve sustained profitability continues to depend upon
our ability to establish meaningful and successful strategic partnership
arrangements with companies that will develop and market products incorporating
our technology and market and distribute our systems and consumables. Strategic
partners will develop application-specific bioassay kits for use on our systems
that they will sell to their customers generating royalties for us. Strategic
partners may also perform testing services for third parties using our
technology that will result in royalties for us. Some strategic partners will
also buy our products and then resell those products to their customers. At
December 31, 2003, we had 19 strategic partners who had either released
commercialized products based on the Luminex platform or were redistributing
our products and were reporting royalties. These 19 strategic partners
constituted 63% of total revenues for 2003.
Finally, we completed 2003 without hiring a successor to Tom Erickson, our
interim chief executive officer. We believe Mr. Erickson has been and
continues to be an effective leader in focusing our management team on
fundamental improvements to our Companys strategy and operations. In
September 2003, the Company engaged a second search firm to assist in the
search for a new chief executive officer. The results of the strategic study
completed in the spring of 2003 coupled with a refinement of focus of efforts
should provide a more concise framework from which to identify qualified
candidates. We currently anticipate we will hire a new chief executive officer
in 2004 and hope to do so promptly.
Critical Accounting Policies and Estimates
Revenue on sales of our products is recognized when persuasive evidence of
an agreement exists, delivery has occurred, the fee is fixed and determinable
and collectibility is probable. Generally, these criteria are met at the time
our product is shipped. If the criteria for revenue recognition are not met at
the time of shipment, the revenue is deferred until all criteria are met.
Royalty revenue is generated when a partner sells products incorporating our
technology, provides testing services to third parties using our technology or
resells our consumables. Royalty revenue is recognized as it is reported to us
by our partners. We also sell extended service contracts for maintenance and
support of our products. Revenue for service contracts is recognized ratably
over the term of the agreement.
Total deferred revenue as of December 31, 2003 was $4.6 million and
consisted of (i) unamortized license fees for non-exclusive licenses and patent
rights to certain Luminex technologies in the amount of $2.6 million, (ii)
upfront payments from strategic partners to be used for the purchase of
products or to be applied towards future royalty payments in the amount of $1.1
million, (iii) unamortized revenue related to extended service contracts in the
amount of $778,000 and (iv) payments received for sales to customers with
rights of return that had not yet expired in the amount of $142,000. Upfront
payments from our strategic partners are nonrefundable and will be recognized
as revenue as our strategic partners purchase products or apply such amounts
against royalty payments. Nonrefundable license fees are amortized into revenue
over the estimated life of the license agreements.
Inventories are valued at the lower of cost or market value and have been
reduced by an allowance for excess and obsolete inventories. At December 31,
2003, there were two major components of the allowance for excess and obsolete
inventory. First, the Company has a specific reserve for inventory components
that we no longer use in the manufacture of our systems. Second, we have a
reserve against slow moving items for potential obsolescence. The total
estimated allowance is reviewed on a regular basis and adjusted based on
managements review of inventories on hand compared to estimated future usage
and sales. The Company believes that its inventory is properly valued based on
current market conditions.
We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in product quality programs and
processes, our warranty obligation is affected by product failure rates,
material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service
delivery costs differ from our estimates, revisions to the estimated warranty
liability would be required.
We continuously monitor collections and payments from our customers and
maintain allowances for doubtful accounts based upon our historical experience
and any specific customer collection issues that we have identified. While such
credit losses historically have been within our expectations, there can be no
assurance that we will continue to experience the same level of credit losses
that we have in the past. A significant change in the liquidity or financial
position of any one of our significant customers, or a deterioration in the
economic environment, in
24
general, could have a material adverse impact on the collectibility of our
accounts receivable and our future operating results, including a reduction in
future revenues and additional allowances for doubtful accounts.
Results of Operations
The following table sets forth the percentage of net sales of certain
items in the Statements of Operations. The financial information and the
discussion below should be read in conjunction with the consolidated financial
statements and notes thereto.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Revenue.
Total revenue increased to $26.3 million in 2003 from $13.0
million in 2002 primarily as a result of increased system and consumable sales.
A breakdown of the revenue for the years ended December 31, 2003 and 2002 is
as follows:
25
System and peripheral component sales increased to $15.6 million in 2003
from $6.5 million in 2002. System placements increased to 655 in 2003 from 254
in 2002 bringing the installed base of systems to 1,919 as of December 31,
2003. The increase in system placements is primarily the result of commercial
launches by several of our partners and an intensification of efforts by other
partners that were previously commercial. Additionally, we believe the
elimination of our direct sales force and assistance to our partners in their
development and commercialization efforts allayed fears of direct competition
with us. For the year ended December 31, 2003 four of our partners
individually accounted for 10% or greater of total system placements and
collectively accounted for 66% of our 655 Luminex 100 System sales (435 of 655
systems).
Consumable sales, comprised of microspheres and sheath fluid, increased to
$6.1 million in 2003 from $4.3 million in 2002. The increase is primarily the
result of the increased installed base of commercial Luminex Systems as
compared to the prior year. During the year, we had 17 bulk purchases totaling
approximately $3.2 million as compared with 8 bulk purchases totaling
approximately $1.9 million in 2002. We define bulk purchases as purchases of
microspheres or sheath fluid by an individual strategic partner in a single
quarter that in the aggregate are more than $100,000.
Royalty revenue increased to $1.4 million in 2003 from $631,000 in 2002.
This increase is attributable to increased sales of royalty bearing commercial
products by our partners and an increase in the commercial base of Luminex
Systems as compared to the prior year. For the year ended December 31, 2003,
we had 19 commercial partners report royalties as compared with 15 for the year
ended December 31, 2002. The 15 partners for whom we recognized $631,000 of
royalties in 2002 represented approximately $1.3 million of the 2003 royalties,
an increase of approximately 113% over their prior year payments. Four of our
partners reported royalties totaling approximately $892,000, or 64% of the
total royalties for 2003.
Service contracts, comprised of extended warranty contracts earned ratable
over the term of the agreement, increased to $1.1 million in 2003 from $795,000
in 2002. This increase is attributable to the increased sales of extended
warranty contracts, which is a result of the increase in the commercial base of
Luminex Systems as compared to the prior year.
Other revenues, comprised of training revenue, shipping revenue,
miscellaneous parts sales, amortized license fees and other special project
revenue, increased to $2.1 million in 2003 from $761,000 in 2002. This
increase is primarily the result of increased miscellaneous part sales to our
partners that perform service work on Luminex Systems that are outside the
Companys standard one-year warranty period.
Gross Margin Percentage
. Gross margin (gross profit as a percentage of
total revenue) increased to 37% in 2003 from 21% in 2002. This increase is
primarily attributable to two factors: (i) reductions in our fixed costs as
part of the restructuring efforts undertaken by the Company in 2002 and the
allocation of our remaining fixed costs over a higher revenue base and (ii)
gross margin in 2002 was adversely affected by the inclusion of costs
associated with the cancellation or delay of inventory items no longer used in
production and a charge taken to allow for slow moving inventory. Our
production schedule was adjusted during that period to reflect a lower expected
rate of system orders.
Operating Expenses.
Operating expenses decreased to $16.3 million in 2003
from $26.8 million in 2002 as a result of the one-time business restructuring
charge of $2.3 million incurred in 2002, the elimination of expenses related to
RBM as of September 2002 of $1.8 million and reduced operations costs following the business
restructuring. A breakdown of operating expenses for the years ended December
31, 2003 and 2002 is as follows:
26
Research and development expenses decreased to $3.2 million in 2003 from
$6.2 million in 2002. The decrease was primarily attributable to the effects
of our restructuring efforts in the fourth quarter of 2002 and to the
elimination of expenditures related to RBM as of September 2002. RBM research
and development expenses totaled approximately $1.8 million in 2002. Specific
components contributing to this net decrease, exclusive of the elimination of
RBM expenditures in 2002, were a reduction in research and development
personnel costs of $994,000 and a reduction in professional fees of $169,000.
Selling, general and administrative expenses decreased to $13.1 million in
2003 from 18.3 million in 2002. The decrease was primarily attributable to our
restructuring and cost control efforts and included reduced personnel costs of
approximately $1.6 million, a decrease in stock compensation expense of $2.1
million, reductions in travel, entertainment and marketing expenses of $857,000
and other reductions of approximately $600,000. Stock compensation expense of
$2.3 million in 2002 was primarily related to the sale of our RBM business
unit.
The business restructuring charges taken during the fourth quarter of 2002
totaled $2.3 million and were comprised of: (i) approximately $1.4 million in
personnel related costs associated with the reduction in force and (ii)
approximately $900,000 associated with the early termination of a real estate
lease for expansion space no longer needed for our operations. In connection
with the lease termination, we reduced our leased space in Austin, Texas from
98,000 to 75,000 square feet. Future savings, as a result of the business
restructuring, are anticipated to be approximately $2.4 million per year in
personnel related costs and approximately $230,000 per year through 2010 in
facility related expenditures. During 2003, we incurred cash expenditures
totaling approximately $1.7 million and non-cash and other charges of
approximately $172,000 related to our business restructuring. As of December
31, 2003, the Company has completed the business restructuring plan and no
other expenditures are expected.
Non-recurring Items.
There were non-recurring items related to settlement
of litigation in 2003 and to impairment of our Rules-Based Medicine, Inc.
investment in 2002.
As a result of a procedural omission, the Company is unable to pursue a
patent in Japan, which corresponds to some of the Companys issued U.S. patents
related to the Companys method of real time detection and quantification of
multiple analytes from a single sample. On January 31, 2000, the Company filed
a lawsuit in Travis County, Texas state district court alleging negligence and
breach of contract on the part of former patent counsel. On March 7, 2003, the
parties executed a full, final and complete release regarding such action,
without an admission of liability or wrongdoing on the part of the defendants.
As consideration in connection with the settlement and release, the Company
received approximately $1.8 million, net of legal and related costs and
expenses. As a result, this was a one time benefit that further reduced the
net loss for 2003.
On September 5, 2002, the Company transferred assets related to RBM,
consisting of cash, property and equipment with a fair value of approximately
$1.6 million, to Rules Based Medicine, Inc., a newly formed company headed by
the Companys former chairman, chief executive officer and co-founder. The
Company periodically analyzed its strategic investment for impairment
considered other than temporary. In performing its analysis on this strategic
investment, the Company first evaluated whether general market conditions which
reflect prospects for the economy as a whole, or specific information
pertaining to the investments industry or the individual entity, indicated
that a decline in value that is other than temporary had occurred. Then the
Company considered specific factors, including the financial condition and
near-term prospects of the investment, any specific events that may affect the
investee company, and the intent and ability of the Company to retain the
investment for a period of time sufficient to allow for any anticipated
recovery in market value. At December 31, 2002, based upon current estimates of
future cash flow, current market conditions and current profitability, the
Company made the decision to
27
permanently impair the strategic investment. As a result of this decision,
the Company recognized $1.6 million in impairment charges for the year ended
December 31, 2002, and such amount is recorded as Impairment of investment in
the Consolidated Statements of Operations.
Net Loss.
The net loss decreased to $4.2 million in 2003 from $24.9
million in 2002. The decrease in net loss in 2003 is primarily attributable to
the increase in revenue, the increase in gross margin percentage, the decrease
in operating expenses discussed above, the proceeds from settlement of
litigation in 2003 without the investment impairment charge taken in 2002.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Revenue.
Revenue decreased to $13.0 million in 2002 from $20.9 million in
2001 primarily as a result of decreases in instrumentation revenue.
Instrumentation revenue decreased from $15.4 million in 2001 to $6.5 million in
2002, a decrease of $8.9 million or 58%. The decrease in instrumentation
revenue was primarily attributable to slower than anticipated commercial
rollouts by our partners that became commercial in the last half of 2001.
Because of the unanticipated slowness of the commercialization process, our
partners were not required to replenish inventory as quickly resulting in
reduced system sales. The following table summarizes the number of system sales
for 2002 compared with 2001:
Consumable sales increased to $4.3 million in 2002 from $4.0 million in
2001, an increase of $300,000 or 8%. Consumable sales, exclusive of large
purchases by a strategic partner during 2001 that did not recur at the same
rate in 2002, increased to $3.9 million in 2002 from $3.3 million in 2001, an
increase of 17% The increase in consumable sales largely was attributable to
the increase in the installed base of instruments.
Service contract revenue increased during 2002 to $795,000 from $176,000
during 2001. The increase is attributable to an increased number of systems
under contract in 2002 as compared to the prior year period. We began to sell
extended service contracts in 2001. The increase is attributable to an increase in the
commercial base of Luminex Systems as compared to the prior year. During the
year ended December 31, 2002, we sold approximately 170 extended service
contracts as compared with approximately 125 in 2001.
We recognized royalty revenue of $631,000 during 2002 as compared with
$128,000 during 2001. Total royalty bearing sales comprised approximately $10.5
million during 2002 as compared with royalty bearing sales of approximately
$2.1 million during 2001. The increase is attributable to an increase in the commercial base
of Luminex Systems as compared to the prior year. For the year ended December
31, 2002 we had 14 commercial partners submit royalties as compared with eight
for the year ended December 31, 2001.
Other revenue decreased to $760,000 in 2002 from $814,000 in 2001.
Included in other revenue are shipping charges, training revenue and other
miscellaneous sales. The decrease was primarily a result of a decrease in
shipping revenue as a result of the lower number of system shipments during
2002.
28
Grant revenue was $0 in 2002 as compared to $492,000 in 2001. On July 1,
2001 we permanently withdrew from our grant arrangement, and no further grant
revenue is anticipated.
A breakdown of total revenue for the years ended December 31, 2002 and
2001 is as follows (in thousands):
Gross Profit.
Gross profit decreased by 58% to $2.7 million in 2002 from
$6.3 million in 2001. Gross margin (gross profit as a percentage of total
revenue) decreased to 21% for the year ended December 31, 2002 from 30% for the
year ended December 31, 2001. The decrease in gross margin was primarily
attributable to: (i) an increase in raw material and component costs, (ii)
overcapacity in our manufacturing facility in 2002 as a result of the lower
than expected demand and (iii) an inventory obsolescence reserve taken in 2002
of approximately $600,000.
Research and Development Expense.
Research and development expenses
decreased 25% to $6.2 million in 2002 from $8.3 million in 2001. During 2002,
RBM research and development expenses increased to $1.8 million from $1.0
million in 2001. Exclusive of RBM, research and development expenses for 2002
were $4.4 million compared with $7.3 million in 2001. The decrease in 2002 was
primarily attributable to: (i) the completion of several initiatives related to
new product developments during the latter half of 2001 and (ii) the
elimination of expenditures related to the grant from the National Institute of
Standards and Technology at June 30, 2001. Specific components contributing to
this net decrease during 2002 were reductions of direct materials and
consumable supplies of $1.2 million and a reduction in research and development
personnel costs of $850,000 resulting primarily from the September 2002 sale of
RBM.
Selling, General and Administrative Expense.
Selling, general and
administrative expenses increased by $1.8 million to $18.3 million in 2002 from
$16.5 million in 2001, an increase of 11%. The following table provides a
breakdown of the major components of selling, general and administrative
expenses for the years ended December 31, 2002 and 2001 (in thousands):
The increase was attributable to: (i) an increase in personnel costs of
approximately $750,000 primarily due to an overall headcount increase over
2001, (ii) a net increase in stock compensation expense of approximately $1.5
million and (iii) an increase in corporate insurance and taxes of approximately
$500,000. In 2002, stock compensation expense included approximately $1.6
million associated with the restructuring of stock options for employees
leaving the Company in connection with the sale of RBM and approximately
$630,000 for options issued to non-employees performing services for the
Company. The overall increase was offset by a decrease in legal and
29
professional fees of approximately $700,000 and a decrease in other
operating expenses of approximately $280,000. Other selling, general and
administrative expenses include travel costs, depreciation and amortization,
facilities costs, marketing costs and other miscellaneous expenditures.
Business Restructuring Charges.
The business restructuring charges taken
during the fourth quarter of 2002 totaled $2.3 million and were comprised of:
(i) approximately $1.4 million in personnel related costs associated with the
reduction in force and (ii) approximately $900,000 associated with the early
termination of a real estate lease for expansion space no longer needed for our
operations. In connection with the lease termination, we reduced our leased
space in Austin, Texas from 98,000 to 75,000 square feet. Future savings, as a
result of the business restructuring, are anticipated to be approximately $2.4
million per year in personnel related costs and approximately $230,000 per year
through 2010 in facility related expenditures. During 2002, we incurred cash
expenditures totaling approximately $364,000 and non-cash charges of
approximately $136,000 related to our business restructuring.
Other Income, net.
Other income decreased by $2.1 million to $735,000 in
2002 from $2.8 million in 2001. The decrease was primarily attributable to a
decrease in the average investment yields in 2002 compared with 2001 and a
reduction in the cash and short-term investment balances.
Income Taxes.
As of December 31, 2002, we had federal net operating loss
carryforwards of approximately $87 million and federal research tax credit
carryforwards of approximately $1.5 million. The federal net operating loss and
credit carryforwards begin to expire in 2010, if not utilized. Utilization of
the federal net operating losses and credit carryforwards will be limited by
the change of ownership provisions contained in Section 382 of the Internal
Revenue Code.
Quarterly Results
The following table sets forth certain quarterly financial data for the
periods indicated (in thousands, except per share data).
30
Liquidity and Capital Resources
At December 31, 2003, our cash and working capital positions were
essentially unchanged as we held cash and cash equivalents of $39.5 million and
had working capital of $45.5 million, as compared with $40.5 million and $45.3
million, respectively, at December 31, 2002. We have funded our operations to
date primarily through the issuance of equity securities. Our cash reserves are
held directly or indirectly in a variety of short-term, interest-bearing
instruments, including obligations of the United States government or agencies
thereof and U.S. corporate debt securities.
Cash used in operations was $3.7 million in 2003, compared with $9.3
million in 2002. The reduction in net cash used in operations, in conjunction
with a $4.2 million net loss in 2003, primarily reflects a decrease in net
inventory of $1.6 million and depreciation and amortization expense of $1.1
million offset by an increase in accounts receivable of $2.8 million.
Purchases of property and equipment in 2003 totaled $325,000 compared with $1.1
million in 2002.
In the first quarter of 2003, we settled a pending lawsuit and entered
into a full, final and complete release with the defendant, without an
admission of liability or wrongdoing on the part of the defendants. As
consideration for the settlement and release, the Company received
approximately $1.8 million, net of legal and related costs and expenses. This
cash infusion coupled with receipt of $3.2 million in option exercise proceeds
helped offset losses from operations. Additionally, we received approximately
$1.2 million in nonrefundable license fees from strategic partners during 2003.
These license fees are amortized into income over the life of the agreement.
We have non-cancellable purchase commitments with certain of our component
suppliers. Should our production requirements fall below the level of our
commitments, we could be required to take delivery of inventory for which we
have no immediate need or incur an increased cost per unit going forward. We
are not otherwise committed to scheduled purchase requirements. However,
because of a long lead-time to delivery, we are required to place orders for a
variety of items well in advance of scheduled production runs. The effort to manage our inventory, coupled with
sales during 2003, placed a constraint on our ability
to adequately and timely produce systems for sale. We have taken steps to increase our manufacturing
capacity, primarily by increasing the size of our component orders, in response
to the increase in demand for our systems. While we attempt to match our parts
inventory and production capabilities to estimates of marketplace demand, to
the extent system orders materially vary from our estimates, we may experience
continued constraints in our systems production and delivery capacity, which
could adversely impact revenue in a given fiscal period. Should the Companys
need for raw materials and components used in production continue to fluctuate,
we could incur additional costs associated with either expediting or postponing
delivery of those materials.
The following table summarizes our contractual obligations as of December
31, 2003 and the anticipated effect of these obligations on our liquidity in
future years (in thousands):
31
Our future capital requirements will depend on a number of factors,
including our success in developing and expanding markets for our products,
payments under possible future strategic arrangements, continued progress of
our research and development of potential products, the timing and outcome of
regulatory approvals, the costs involved in preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims and other intellectual
property rights, the need to acquire licenses to new technology and the status
of competitive products. Additionally, actions taken based on recommendations
from our strategic consulting study could result in expenditures not currently
contemplated in our estimates for 2004. We believe, however, that our existing
cash and cash equivalents are sufficient to fund our current operating expenses
and capital requirements through 2004. Based upon our current
operational structure, management anticipates total cash use for 2004 to be
approximately $2.0 to $7.0 million, giving us an anticipated balance at
December 31, 2004 of $32 to $37 million. This range of net cash reduction
of is primarily dependent upon the loss from operations during 2004 offset by
proceeds (if any) from option exercises throughout the year.
We have no credit facility or other committed sources of capital. To the
extent capital resources are insufficient to meet future capital requirements,
we will have to raise additional funds to continue the development of our
technologies and to fund operations. There can be no assurance that debt or
equity capital will be available on favorable terms, if at all. To the extent
that additional capital is raised through the sale of equity or convertible
debt securities, the issuance of those securities could result in dilution to
our stockholders. Moreover, incurring debt financing could result in a
substantial portion of our operating cash flow being dedicated to the payment
of principal and interest on such indebtedness, could render us more vulnerable
to competitive pressures and economic downturns and could impose restrictions
on our operations. If adequate funds are not available, we may be required to
curtail operations significantly or to obtain funds through entering into
agreements on potentially unattractive terms.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income received on our cash balances is sensitive to changes
in the general level of domestic interest rates, particularly since our
investments are in instruments that meet the definition of cash equivalents and
are held to maturity. A 25 basis point fluctuation from average investment
returns at December 31, 2003 would yield an approximate 25% variance in overall
investment return. Due to the nature of our investments, we have
concluded that there is no material market risk exposure. All payments for our
products, including sales to foreign customers, are required to be made in U.S.
dollars; therefore, we do not engage in any foreign currency hedging
activities. Accordingly, our foreign currency market risk is limited.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
33
Report of Independent Auditors
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of Luminex
Corporation (the Company) as of December 31, 2003 and 2002, and the related
consolidated statements of operations, cash flows, and stockholders equity for
each of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of Luminex
Corporation as of December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
34
LUMINEX CORPORATION
See the accompanying notes.
35
LUMINEX CORPORATION
See the accompanying notes.
36
LUMINEX CORPORATION
See the accompanying notes.
37
LUMINEX CORPORATION
See the accompanying notes.
38
LUMINEX CORPORATION
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Luminex Corporation (the Company), a Delaware corporation, designs,
develops, manufactures, markets, services and supplies proprietary molecular
measurement and analysis systems (the xMAP System) capable of performing
multiple tests on a single patient sample.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual amounts and results could differ from
those estimates, and such differences could be material to the financial
statements.
Cash Equivalents
Cash equivalents consist of cash deposits and investments with original
maturities of three months or less when purchased.
Short-Term Investments
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
the Companys short-term investments are classified as held-to-maturity since
the Company has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and discounts to maturity. The cost of these investments, adjusted for
amortization, approximates fair value. Such amortization is included in
interest income. Interest on securities classified as held-to-maturity is also
included in other income.
The Company had no short-term investments as of December 31, 2003 or 2002.
Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash and cash
equivalents approximate fair value due to the short-term nature of the
instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of short-term investments and trade
receivables. The Companys short-term investments consist of investments in
high credit quality financial institutions and corporate issuers.
The Company provides credit, in the normal course of business, to a number
of its customers geographically dispersed primarily throughout the U.S. The
Company attempts to limit its credit risk by performing ongoing credit
evaluations of its customers and maintaining adequate allowances for potential
credit losses and does not require collateral.
39
One customer accounted for 16%, 16% and 13% of the Companys total
revenues in 2003, 2002 and 2001, respectively. In 2003, three other customers
accounted for 12%, 11% and 10% of the Companys total revenues. An additional
customer accounted for 16% of the Companys total revenues in 2001. No other
customer accounted for more than 10% of total revenues in 2003, 2002 or 2001.
Inventories
Inventories, consisting primarily of raw materials and purchased
components, are stated at the lower of cost or market. The Company routinely
assesses its on-hand inventory for timely identification and measurement of
obsolete, slow-moving or otherwise impaired inventory.
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for
amortization and depreciation. Property and equipment are generally amortized
or depreciated on a straight-line basis over the useful lives of the assets,
which range from two to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the remaining term of the lease or the
estimated useful life of the improvements.
Software Costs
The Company capitalizes eligible software development costs for internally
used software incurred subsequent to completion of the preliminary project
stage, pursuant to the American Institute of Certified Public Accountants
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. After all substantial testing
and deployment is completed and software is ready for its intended use,
development costs are amortized over the shorter of the expected useful life of
the software or five years.
The Company had no capitalized internal use software as of December 31,
2003 or 2002.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets in accordance with SFAS No.
144, Accounting for the Impairment of Long-Lived Assets. Long-lived assets
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that their net book value may not be
recoverable. When such factors and circumstances exist, the Company compares
the projected undiscounted future cash flows associated with the related asset
or group of assets over their estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets and is recorded in the period in
which the determination was made.
Revenue Recognition and Allowance For Doubtful Accounts
Revenue from sales of the Companys products are recognized when
persuasive evidence of an agreement exists, delivery of the product has
occurred, the fee is fixed and determinable and collectibility is probable.
Generally, these criteria are met at the time the product is shipped. If the
criteria for revenue recognition are not met at the time of shipment, the
revenue is deferred until all criteria are met. Revenues from royalties related
to agreements with strategic partners are recognized when such amounts are
reported to the Company. Revenue from extended service agreements are deferred
and recognized ratably over the term of the agreement.
In accordance with the terms of a federal grant in which the Company
participated, grant revenue was recognized as research expenses relating to the
grant were incurred, provided that the amounts received were not refundable if
the research was not successful. On July 1, 2001, we permanently withdrew from
our grant arrangement and no further grant revenue is anticipated.
Amounts billed or collected in excess of revenue recognized are recorded
as deferred revenue.
We continuously monitor collections and payments from our customers and
maintain allowances for doubtful accounts based upon our historical experience
and any specific customer collection issues that have been identified.
40
While such credit losses have historically been within our expectations, there can be
no assurance that we will continue to experience the same level of credit
losses that we have in the past. A significant change in the liquidity or
financial position of any one of our customers, or a deterioration in the
economic environment, in general, could have a material adverse impact on the
collectibility of our accounts receivable and our future operating results,
including a reduction in future revenues and additional allowances for doubtful
accounts.
Warranty Programs
We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in product quality programs and
processes, our warranty obligation is affected by product failure rates,
material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service
delivery costs differ from our estimates, revisions to the estimated warranty
liability would be required.
Research and Development Costs
Research and development costs are expensed in the period incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses
were not significant for any of the years presented.
Incentive Compensation
Management incentive plans are tied to various financial performance
metrics. Bonus accruals made throughout the year related to the various
incentive plans are based on managements best estimate of the achievement of
the specific financial metrics. Adjustments to the accruals are made on a
quarterly basis as forecasts of financial performance are updated. At year-end,
the accruals are adjusted to reflect the actual results achieved.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the
liability method whereby deferred tax assets and liabilities are determined
based on differences between the basis for financial reporting purposes and the
tax bases of such assets and liabilities, and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Net Loss Per Share
SFAS No. 128, Earnings Per Share prescribes standards for computing net
income (loss) per share. Basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Potentially dilutive securities composed of incremental
common shares issuable upon the exercise of stock options and warrants, and
common shares issuable on conversion of preferred stock, were excluded from
historical diluted loss per share because of their anti-dilutive effect.
Stock-Based Compensation
SFAS No. 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options. As allowed by
SFAS No. 123, the Company has elected to continue to account for its employee
stock-based compensation using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25).
41
SFAS No. 123 allows companies to estimate the pro forma fair value of
their stock-based compensation using a generally recognized option pricing
model and provide those results in the form of footnote disclosure. The fair
value of each option grant was estimated using the Black Scholes Option-Pricing
model based on the date of grant and the following weighted average assumptions
at December 31:
For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the options vesting periods. Because, for pro forma
purposes, the estimated fair value of the Companys employee stock options is
treated as if amortized to expense over the options vesting period, the
effects of applying SFAS No. 123 for pro forma disclosure are not necessarily
indicative of future amounts (in thousands, except per share amounts):
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, this option valuation model requires
the input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in managements opinion, the Black-Scholes model does not necessarily provide a
reliable single measure of the fair value of its employee stock options.
Segment Reporting
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, requires the use of a management approach in identifying the
business segments of an enterprise. Management has determined that the Company
operates in one business segment.
Reclassification
Certain prior year amounts have been reclassified to conform to current
year presentation.
42
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
The following table summarizes the changes in the allowance for doubtful
accounts (in thousands):
NOTE 3 INVENTORY, NET
Inventory consisted of the following at December 31 (in thousands):
The Company has non-cancellable purchase commitments with certain of its
component suppliers in the amount of approximately $7.8 million for 2004.
Should production requirements fall below the level of the Companys
commitments, the Company could be required to take delivery of inventory for
which it has no immediate need or incur an increased cost per unit going
forward.
43
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in
thousands):
NOTE 5 NOTES RECEIVABLE RELATED PARTIES
Notes Receivable Related Parties consisted of the following at December
31 (in thousands):
Notes Receivable Related Parties at December 31, 2003 consisted of a
note from one former officer of the Company.
During 2001, in connection with the relocation and employment of a former
officer, the Company received a promissory note in the amount of $400,000,
secured by mortgaged real property. On each of October 2, 2001 and 2002,
according to the terms of the note, $50,000 of principal was forgiven.
Effective January 1, 2003, the officer left the employment of the Company and
consistent with the terms of the promissory note, an additional $100,000 was
forgiven on that date. The additional $100,000 charge was taken as part of the
fourth quarter 2002 business restructuring charge discussed in Note 7 below and
is reflected in the carrying value of the note at December 31, 2002. The
promissory note is non-interest bearing and is due on or before May 9, 2011.
During 2000, in connection with the relocation and employment of an
officer, the Company received a promissory note in the amount of $38,500. The
note is interest bearing and was due on or before February 25, 2003. Subsequent
to December 31, 2002, the note plus accrued interest was repaid in its entirety
by the officer.
Imputed Interest Discount on Notes Receivable Related Party is the
discount derived from imputing an interest rate of 10% on the outstanding
balance during the life of the note. This discount is amortized over the life
of the note and recognized as interest income. The current balance is the
unamortized portion remaining.
44
NOTE 6 OTHER ASSETS
Other assets consisted of the following at December 31, (in thousands):
In March 2001, the Company entered into an agreement that provides the Company
with a license to commercialize products incorporating certain patented
technology. Under the terms of the agreement, the Company made $800,000 in
milestone payments through December 31, 2003 and has agreed to make additional
payments of $200,000 in the aggregate upon the achievement of additional
milestones. In addition, the Company will make royalty payments based on sales
of the developed products incorporating the licensed technology. The costs of
the technology rights acquired were capitalized and are being amortized on a
straight-line basis over their estimated useful lives of five to fifteen years.
For the years ended December 31, 2003 and 2002, the Company recognized
amortization expense related to the amortization of these acquired technology
rights of approximately $78,000 and $40,000, respectively. Future amortization
expense will be $81,000 in 2004, $81,000 in 2005, $81,000 in 2006, $70,000 in
2007, $55,000 in 2008 and $419,000 thereafter.
NOTE 7 BUSINESS RESTRUCTURING COSTS
In November 2002, the Companys management approved a business
restructuring plan to reduce headcount and infrastructure. The Company recorded
approximately $2.3 million in business restructuring charges. Components of
business restructuring charges and the remaining accruals as of December 31,
2003 were as follows (in thousands):
Employee separation costs, which included severance, related payroll
taxes, outplacement and other benefits, owed to approximately 35 terminated
employees, totaled approximately $1.4 million during 2002. Employee groups
impacted by the restructuring include personnel in positions throughout the
sales, marketing, research and development and general and administrative
functions. During 2002, we incurred cash expenditures totaling approximately
$364,000 related to employee separation costs. During 2003, we incurred cash
expenditures totaling approximately $865,000 and other charges of approximately
$72,000 related to employee separation costs. We
45
incurred a non-cash charge of $100,000 related to forgiving a portion of a note receivable
from a former officer of the Company.
Facility restructuring costs associated with early termination of a real
estate lease for expansion space no longer needed for our operations totaled
$928,000 in 2002. During 2002, we incurred non-cash expenditures totaling
approximately $136,000 related to facility restructuring costs. During 2003,
we incurred cash expenditures totaling approximately $792,000 related to
facility restructuring costs.
As of December 31, 2003, the Company has completed the business
restructuring plan and no other expenditures are expected.
NOTE 8 ACCRUED WARRANTY COSTS
Sales of the Companys xMap Systems are subject to a warranty. XMap
System warranties typically extend for a period of twelve months from the date
of installation. The Company estimates the amount of warranty claims on sold
product that may be incurred based on current and historical data and includes
this reserve in accrued liabilities. The actual warranty expense could differ
from the estimates made by the Company based on product performance. Warranty
expenses are evaluated and adjusted periodically. Warranty expenses and
accruals for the year ended December 31, 2003 were as follows (in thousands):
NOTE 9 IMPAIRMENT OF INVESTMENT
On September 5, 2002, the Company transferred assets related to RBM,
consisting of cash, property and equipment with a fair value of approximately
$1.6 million, to Rules Based Medicine, Inc., a newly formed company headed by
the Companys former chairman, chief executive officer and co-founder. The
Company periodically analyzed its strategic investment for impairment
considered other than temporary. In performing its analysis on this strategic
investment, the Company first evaluated whether general market conditions which
reflect prospects for the economy as a whole, or specific information
pertaining to the investments industry or the individual entity, indicated
that a decline in value that is other than temporary had occurred. Then the
Company considered specific factors, including the financial condition and
near-term prospects of the investment, any specific events that may affect the
investee company, and the intent and ability of the Company to retain the
investment for a period of time sufficient to allow for any anticipated
recovery in market value. At December 31, 2002, based upon current estimates of
future cash flow, current market conditions and current profitability, the
Company made the decision to permanently impair the strategic investment. As a
result of this decision, the Company recognized $1.6 million in impairment
charges for the year ended December 31, 2002, and such amount is recorded as
Impairment of investment in the Consolidated Statements of Operations.
NOTE 10 INCOME TAXES
As of December 31, 2003, the Company had federal net operating loss
carryforwards of approximately $87.4 million and research and development
credit carryforwards of approximately $1.6 million that will begin to expire in
2010 if not utilized prior to that time.
Current federal income tax laws impose substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
ownership change, as defined by such laws, of a corporation. The Companys
utilization of the net operating losses and tax credits generated prior to 2000
will be subject to an annual limitation due to an ownership change resulting
from the sales of equity securities.
46
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax liabilities and assets as of December 31 are as
follows (in thousands):
The Company has established a valuation allowance equal to the net
deferred tax assets due to uncertainties regarding the realization of deferred
tax assets based on the Companys lack of earnings history. The valuation
allowance increased by approximately $2.2 million during 2003, primarily due to
operations. Approximately $10.9 million of the valuation allowance relates to
tax benefits for stock option deductions included in the net operating loss
carryforward, which when realized, will be allocated directly to contributed
capital to the extent the benefits exceed amounts attributable to deferred
stock compensation expense.
The Companys provision (benefit) for income taxes attributable to
continuing operations differs from the expected tax expense (benefit) amount
computed by applying the statutory federal income tax rate of 34% to income
(loss) before income taxes as a result of the following:
NOTE 11 NET LOSS PER SHARE
The Company has excluded all outstanding stock options, outstanding
warrants to purchase stock and shares subject to repurchase from the
calculation of diluted loss per common share because all such securities are
anti-dilutive for all applicable periods presented. The total number of shares
excluded from the calculations of diluted net loss per share, prior to
application of the treasury stock method for options, was 2,242,816,
1,966,671 and 3,967,020 for the years ended December 31, 2003, 2002 and 2001,
respectively. Such securities, had they been dilutive, would have been
included in the computations of diluted net loss per share.
47
NOTE 12 STOCKHOLDERS EQUITY
Preferred Stock
The Companys Board of Directors has the authority to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the Companys stockholders. At December 31, 2003 and 2002, there
was no preferred stock issued and outstanding.
Stockholders Rights Plan
On June 20, 2001, the Companys Board of Directors declared a dividend of
one right for each outstanding share of the Companys common stock to
stockholders of record at the close of business on July 2, 2001. Each right
entitles the registered holder to purchase from the Company a unit consisting
of one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.001 per share, at a purchase price of $100 per fractional
share, subject to adjustment. The rights are not currently exercisable and will
become exercisable only in the event a person or group acquires beneficial
ownership of 20 percent or more of common stock. The rights expire on June 20,
2011.
Warrants
There were approximately 294,000 warrants exercised in 2002. At December
31, 2003, the Company had no outstanding warrants.
NOTE 13 COMPREHENSIVE LOSS
In accordance with the disclosure requirements of SFAS No. 130, Reporting
Comprehensive Income, the Companys comprehensive loss is comprised of net
loss and foreign currency translation. Comprehensive loss for the years ended
December 31, 2003 and 2002 was approximately $4.2 million and $24.4 million,
respectively.
NOTE 14 EMPLOYEE BENEFIT PLANS
Stock Option Plans
Under the Companys 1996 Stock Option Plan (the 1996 Plan), the 2000
Long-Term Incentive Plan (the 2000 Plan) and the 2001 Broad-Based Stock
Option Plan (the 2001 Plan), certain employees, non-employees and
non-employee directors have been granted options to purchase shares of common
stock. The stock options generally vest in installments over a multi-year
period and expire either five or ten years after the date of grant. Since
approval of the 2000 Plan in February 2000, no further option shares are
authorized for issuance under the 1996 Plan. At December 31, 2003, there were
options for approximately 461,000 shares of common stock outstanding under the
1996 Plan.
The 2000 Plan allows the Company to grant a variety of incentive awards to
key employees, directors and consultants of the Company. A maximum of 3.6
million shares of common stock were authorized for issuance under the 2000 Plan
and can be awarded in the form of non-qualified stock options, stock
appreciation rights, restricted stock and other stock-based awards. A total of
approximately 865,000 shares are authorized and available for future issuance
as of December 31, 2003. To date, approximately 75,000 shares have been issued
pursuant to option exercises under this plan. At December 31, 2003, there were
options for approximately 2.6 million shares of common stock outstanding under
the 2000 Plan.
The 2001 Plan allows the Company to grant non-qualified stock options to
employees and consultants of the Company. Directors and officers of the Company
are not eligible to participate in the 2001 Plan or to receive grants
thereunder. The number of shares of the Companys common stock authorized for
issuance under the 2001 Plan, is determined by calculating 5% of the maximum
number of all issued and outstanding shares of the common stock plus all shares
of the common stock which may be directly issuable upon the exercise, exchange
or conversion of
48
any outstanding rights, warrants, options or other derivative
securities convertible into shares of common stock. As of December 31, 2003,
the maximum number of shares authorized for issuance under the 2001 Plan was
approximately 1.7 million. A total of approximately 642,000 shares are
authorized and available for future issuance as of December 31, 2003. To date,
approximately 29,000 shares have been issued pursuant to option exercises under
this plan. At December 31, 2003, there were options for approximately 1.1
million shares of common stock outstanding under the 2001 Plan.
The 1996 Plan, the 2000 Plan and 2001 Plan are administered by the
Compensation Committee of the Board of Directors which has the authority to
determine the terms and conditions under which options will be granted,
including the number of shares, option price, vesting schedule and term. Under
certain circumstances, the Company may repurchase previously granted options or
shares issued upon the exercise of a previously granted option.
During the years ended December 31, 2003, 2002 and 2001, the Company
recorded deferred stock compensation expense of $240,000, $2.4 million and
$886,000 in connection with certain stock options and restricted stock granted.
The amounts represent the difference between the exercise price of stock option
grants and the deemed fair value of the common stock at the time of such grants
amortized over the vesting period of the grant or, for restricted stock, the
fair value of the shares at the time of issuance amortized over the vesting
period. During 2000, the Company granted options to purchase 255,000 shares of
common stock with an exercise price of $11.76 per share and fair value of
$17.00 per share. During 2002, the Company subsequently recaptured
approximately $488,000 of unrecognized deferred stock compensation related to
this issuance upon the departure as an employee of the option holder. The
Company recorded approximately $240,000, $630,000 and $0 of stock compensation
expense related to option issuances during the year to certain non-employees
performing services for the Company during 2003, 2002 and 2001, respectively.
At September 5, 2002, the Company recognized stock compensation expense of
approximately $1.6 million in connection with the modification of the terms of
stock options. In connection with the RBM transaction, the Company agreed to
extend the exercise period of fully vested options held by former employees who
resigned from the Company to join Rules-Based Medicine, Inc. for the lesser of
two years or the stated expiration date of such options. All deferred
compensation amounts are being amortized over the vesting periods of the
applicable options resulting in amortization of $0, $135,000, and $481,000 in
2003, 2002 and 2001, respectively. There was no unamortized deferred stock
compensation at December 31, 2003.
A summary of the changes in stock options and warrants is as follows:
49
The following table summarizes outstanding and exercisable options at December 31, 2003:
Total exercisable options as of December 31, 2003, 2002 and 2001 were
2,444,854, 2,932,889 and 2,270,727, respectively.
Reserved Shares of Common Stock
At December 31, 2003 and 2002, the Company had reserved 4,142,018 and
3,845,666 shares of common stock, respectively, for the conversion of
options.
Employee Savings Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan
authorized by section 401(k) of the Internal Revenue Code. In accordance with
the 401(k) plan, all employees are eligible to participate in the plan on the
first day of the month following the commencement of full time employment. For
2003, 2002 and 2001, each employee could contribute a percentage of
compensation up to a maximum of $12,000, $11,000 and $10,500 per year,
respectively, with the Company matching 50% of each employees contributions.
The Companys contributions for 2003, 2002 and 2001 were $242,000, $292,000 and
$294,000, respectively.
Restricted Stock Awards
Restricted stock awards may be granted at the discretion of the Board of
Directors under the 2000 Plan in connection with the hiring or retention of key
employees and are subject to certain conditions. Restrictions expire at certain
dates after the grant date in accordance with specific provisions in the
employees agreement. During the year ended December 31, 2000, the Company
awarded 15,000 shares of restricted common stock, which had a fair value at the
date of grant of $566,250. Compensation under this restricted stock award was
charged to expense over the restriction period and amounted to $0, $63,000 and
$425,000 in 2003, 2002 and 2001, respectively. As of December 31, 2003, the
Company had no deferred stock compensation relating to this or any other
restricted stock award.
50
NOTE 15 COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company has operating leases related primarily to its office
facilities. Rental expense for these operating leases for the years 2003, 2002
and 2001 totaled approximately $810,000, $813,000 and $736,000, respectively.
Minimum annual rental commitments as of December 31, 2003 under
non-cancellable leases for each of the next five years and in the aggregate
were as follows (in thousands):
These non-cancellable lease commitments include certain rent escalation
provisions which have been included in the minimum annual rental commitments
shown above. These amounts are recorded on a straight-line basis over
the life of the lease.
Non-Cancellable Purchase Commitments
As of December 31, 2003 the Company had approximately $7.8 million in
purchase commitments with several of its inventory suppliers. These commitments
require delivery of minimum amounts of components throughout 2004. None of the
Companys current commitments extend past 2004.
NOTE 16 GUARANTEES
The terms and conditions of the Companys development and supply and
license agreements with its strategic partners generally provide for a limited
indemnification of such partners, arising from the sale of Luminex Systems and
consumables, against losses, expenses and liabilities resulting from
third-party claims based on an alleged infringement on an intellectual property
right of such third party. The terms of such indemnification provisions
generally limit the scope of and remedies for such indemnification obligations.
To date, the Company has not had to reimburse any of its strategic partners for
any losses arising from such indemnification obligations.
NOTE 17 RELATED PARTY TRANSACTIONS
During 2001, in connection with the relocation and employment of a former
officer, the Company received a promissory note in the amount of $400,000,
secured by mortgaged real property. On each of October 2, 2001 and 2002,
according to the terms of the note, $50,000 of principal was forgiven.
Effective January 1, 2003, the officer left the employment of the Company and
consistent with the terms of the promissory note, an additional $100,000 was
forgiven on that date. The additional $100,000 charge was taken as part of the
fourth quarter 2002 business restructuring charge and is reflected in the
carrying value of the note at December 31, 2002. The promissory note is
non-interest bearing and is due on or before May 9, 2011.
During 2000, in connection with the relocation and employment of an
officer, the Company received a promissory note in the amount of $38,500. The
note is interest bearing and was due on or before February 25, 2003. Subsequent
to December 31, 2002, the note plus accrued interest was repaid in its entirety
by the officer.
51
NOTE 18 JOINT VENTURE RESEARCH ARRANGEMENT
The Company, along with a joint venture partner, was granted a special
assistance award in October 1998, by the National Institute of Standards and
Technology to conduct liquid array technology development. The government grant
was reinstated July 1, 2000 with a new joint venture partner after being
temporarily suspended in September 1999 when the prior joint venture partner
withdrew due to a change in its business strategy. Effective July 1, 2001, the
Company permanently withdrew from the arrangement, and no future grant revenue
is expected. The Company incurred expenses related to liquid array development
activities totaling $0, $0 and $591,000 and recognized grant revenues of $0,
$0 and $492,000 during 2003, 2002 and 2001, respectively.
NOTE 19 GEOGRAPHIC INFORMATION
We operate in one business segment, biological testing in the life
sciences industry. The table below provides information regarding product
revenues from our sales to customers within the United States and in foreign
countries for the years ended December 31 (in thousands):
NOTE 20 SETTLEMENT OF LITIGATION
As a result of a procedural omission, the Company is unable to pursue a
patent in Japan, which corresponds to some of the Companys issued U.S. patents
related to the Companys method of real time detection and quantification of
multiple analytes from a single sample. On January 31, 2000, the Company filed
a lawsuit in Travis County, Texas state district court alleging negligence and
breach of contract on the part of the defendants in this matter. On March 7,
2003, the parties executed a full, final and complete release regarding such
action, without an admission of liability or wrongdoing on the part of the
defendants. As consideration in connection with the settlement and release, the
Company received approximately $1.8 million, net of legal and related costs and
expenses.
NOTE 21 RECENT
ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation 46,
Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51
(FIN 46). FIN 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entitys expected losses, receives a
majority of the entitys expected residual returns, or both, as a result of
ownership, contractual or other interests in the entity. Currently, entities
are generally consolidated by an enterprise when it has a controlling financial
interest through ownership of a majority voting interest in the entity. The
consolidation requirements of FIN 46 apply to variable interest entities
created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after
March
15, 2004. The Company does not believe the full adoption of FIN 46 will have
any effect on its financial position or results of operations.
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures, as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934 (the Exchange
Act), which are designed to ensure that information required to
be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and that such information
is accumulated and communicated to our management, including our interim Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. We carried out an evaluation, under
the supervision and with the participation of our management, including our
interim Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedure as of the end of the period covered by this report. Based on the
evaluation of these disclosure controls and procedures, the interim Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective.
53
2002
High
Low
$
18.35
$
11.95
$
11.51
$
5.38
$
8.10
$
4.26
$
7.81
$
3.50
2003
High
Low
$
5.50
$
3.90
$
7.25
$
4.47
$
7.53
$
4.50
$
10.80
$
6.65
Table of Contents
Year Ended December 31,
2003
2002
2001
2000
1999
(In thousands, except per share data)
$
26,292
$
13,008
$
20,939
$
8,570
$
3,112
9,830
2,683
6,323
3,230
1,940
(6,475
)
(24,117
)
(18,484
)
(16,372
)
(9,486
)
(4,209
)
(24,934
)
(15,685
)
(12,474
)
(9,202
)
(3,406
)
$
(4,209
)
$
(24,934
)
$
(15,685
)
$
(12,474
)
$
(12,608
)
$
(0.14
)
$
(0.85
)
$
(0.55
)
$
(0.52
)
$
(0.96
)
29,814
29,275
28,330
23,828
13,151
At December 31,
2003
2002
2001
2000
1999
(In thousands)
$
39,480
$
40,482
$
34,930
$
7,106
$
4,083
16,122
66,521
4,929
45,522
45,321
63,018
76,779
10,426
53,294
53,623
72,073
83,668
12,566
44,835
45,571
67,255
78,688
11,195
Table of Contents
Table of Contents
Table of Contents
Year Ended December 31,
2003
2002
2001
100
%
100
%
98
%
0
%
0
%
2
%
100
%
100
%
100
%
63
%
79
%
70
%
37
%
21
%
30
%
12
%
48
%
40
%
50
%
141
%
79
%
0
%
18
%
0
%
62
%
206
%
118
%
(25
)%
(185
)%
(88
)%
2
%
6
%
13
%
7
%
0
%
0
%
0
%
(12
)%
0
%
(16
)%
(192
)%
(75
)%
Year Ended December 31,
2003
2002
Variance
$
26,292
$
13,008
$
13,284
37
%
21
%
16
%
$
16,305
$
26,800
$
(10,495
)
$
(4,209
)
$
(24,934
)
$
20,725
Table of Contents
Year ended December 31,
2003
2002
$
15,577
$
6,524
6,078
4,297
1,400
631
1,132
795
2,105
761
$
26,292
$
13,008
Table of Contents
Year ended December 31,
2003
2002
$
3,207
$
6,181
13,098
18,290
2,329
$
16,305
$
26,800
Table of Contents
Year Ended December 31,
2002
2001
Variance
$
13,008
$
20,939
$
(7,931
)
21
%
30
%
(9
)%
$
26,800
$
24,807
$
1,993
$
(24,934
)
$
(15,685
)
$
(9,249
)
Year Ended December 31,
2002
2001
254
621
1
6
Table of Contents
Year Ended December 31,
2002
2001
$
6,525
$
15,354
4,297
3,975
795
176
631
128
760
814
492
$
13,008
$
20,939
Year Ended December 31,
2002
2001
$
7,416
$
6,666
2,012
2,707
2,364
861
1,605
1,119
4,893
5,174
$
18,290
$
16,527
Table of Contents
Quarter Ended
March 31,
June 30,
September 30,
December 31,
2003
2003
2003
2003
$
5,102
$
5,642
$
7,119
$
8,429
1,480
1,937
2,844
3,569
(2,856
)
(1,995
)
(854
)
(770
)
(906
)
(1,899
)
(761
)
(643
)
(0.03
)
(0.06
)
(0.03
)
(0.02
)
Quarter Ended
March 31,
June 30,
September 30,
December 31,
2002
2002
2002
2002
$
2,287
$
3,177
$
3,582
$
3,962
292
529
613
1,249
(6,844
)
(6,424
)
(5,844
)
(5,005
)
(6,624
)
(6,242
)
(5,676
)
(6,392
)
(0.23
)
(0.21
)
(0.19
)
(0.22
)
Table of Contents
2004
2005
2006
2007
2008
Thereafter
Total
$
770
$
794
$
806
$
824
$
833
$
1,147
$
5,174
7,828
7,828
$
8,598
$
794
$
806
$
824
$
833
$
1,147
$
13,002
(1)
Purchase obligations do not extend beyond a year, however, we would expect future years to have purchase
commitments which will arise in the ordinary course of business and will generally increase or decrease
according to increases or decreases, respectively, in overall sales volume.
Table of Contents
Table of Contents
PAGE
34
35
36
37
38
39
Table of Contents
of Luminex Corporation
Austin, Texas
January 21, 2004
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
2003
2002
$
39,480
$
40,482
5,227
2,460
5,178
6,764
43
839
730
50,724
50,479
1,657
2,397
92
75
821
672
$
53,294
$
53,623
$
1,767
$
1,080
2,128
3,107
1,307
971
5,202
5,158
3,257
2,894
8,459
8,052
30
29
125,169
121,702
(74
)
(79
)
(80,290
)
(76,081
)
44,835
45,571
$
53,294
$
53,623
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
2003
2002
2001
$
26,292
$
13,008
$
20,447
492
26,292
13,008
20,939
16,462
10,325
14,616
9,830
2,683
6,323
3,207
6,181
8,280
13,098
18,290
16,527
2,329
16,305
26,800
24,807
(6,475
)
(24,117
)
(18,484
)
426
735
2,799
1,840
(1,552
)
$
(4,209
)
$
(24,934
)
$
(15,685
)
$
(0.14
)
$
(0.85
)
$
(0.55
)
29,814
29,275
28,330
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2003
2002
2001
$
(4,209
)
$
(24,934
)
$
(15,685
)
1,101
1,532
1,544
240
2,362
886
(17
)
(20
)
146
150
50
6
216
18
1,552
10
(12
)
(2,767
)
4,786
(4,161
)
1,586
1,984
(6,340
)
(86
)
(159
)
1,125
687
(1,082
)
(578
)
(979
)
1,106
1,327
699
3,210
(911
)
(3,729
)
(9,309
)
(22,579
)
16,122
50,399
(325
)
(1,099
)
(2,362
)
(1,100
)
26
125
(250
)
(75
)
(600
)
43
(400
)
(506
)
13,973
47,037
3,228
968
3,365
3,228
968
3,365
5
(80
)
1
(1,002
)
5,552
27,824
40,482
34,930
7,106
$
39,480
$
40,482
$
34,930
$
$
1,597
$
$
$
452
$
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except share amounts)
Common Stock
Accumulated
Additional
Other
Deferred
Total
Number of
Paid-In
Comprehensive
Stock
Accumulated
Stockholders
Shares
Amount
Capital
Income/(Loss)
Compensation
Deficit
Equity
27,586,050
$
28
$
115,651
$
$
(1,529
)
$
(35,462
)
$
78,688
1,123,487
1
3,364
3,365
78,768
(20
)
20
425
425
461
461
(15,685
)
(15,685
)
1
1
28,788,305
29
118,995
1
(623
)
(51,147
)
67,255
376,949
950
950
293,964
17
17
(487
)
487
2,227
73
2,300
63
63
(24,934
)
(24,934
)
(80
)
(80
)
29,459,218
29
121,702
(79
)
(76,081
)
45,571
841,839
1
3,227
3,228
240
240
(4,209
)
(4,209
)
5
5
30,301,057
$
30
$
125,169
$
(74
)
$
$
(80,290
)
$
44,835
Table of Contents
Table of Contents
Table of Contents
Table of Contents
2003
2002
2001
0.0
%
0.0
%
0.0
%
0.9
1.0
0.9
5.0
%
5.0
%
5.0
%
10 yrs
10 yrs
10 yrs
$
4.86
$
4.11
$
16.44
Year Ended December 31,
2003
2002
2001
$
(4,209
)
$
(24,934
)
$
(15,685
)
1,732
886
(5,697
)
(9,473
)
(12,226
)
$
(9,906
)
$
(32,675
)
$
(27,025
)
$
(0.14
)
$
(0.85
)
$
(0.55
)
$
(0.33
)
$
(1.12
)
$
(0.95
)
Table of Contents
2003
2002
$
5,567
$
2,860
(340
)
(400
)
$
5,227
$
2,460
$
70
616
(186
)
500
218
(334
)
16
400
(58
)
(3
)
1
$
340
2003
2002
$
4,035
$
6,995
2,004
304
249
965
6,288
8,264
(1,110
)
(1,500
)
$
5,178
$
6,764
Table of Contents
2003
2002
$
2,806
$
2,676
870
875
1,004
990
1,665
1,523
325
325
6,670
6,389
(5,013
)
(3,992
)
$
1,657
$
2,397
2003
2002
$
200
$
243
(108
)
(125
)
92
118
(43
)
$
92
$
75
Table of Contents
2003
2002
$
787
$
615
115
112
902
727
(81
)
(55
)
$
821
$
672
Employee
Facility
Separation Costs
Restructuring Costs
Totals
$
1,401
$
928
$
2,329
(364
)
(364
)
(136
)
(136
)
1,037
792
1,829
(865
)
(792
)
(1,657
)
(100
)
(100
)
(72
)
(72
)
$
$
$
Table of Contents
$
312
(514
)
677
$
475
Table of Contents
2003
2002
$
1,674
$
1,225
295
271
1,297
1,353
33,974
32,212
1,637
1,637
38,877
36,698
(38,714
)
(36,493
)
163
205
(163
)
(205
)
(163
)
(205
)
$
$
Year Ended December 31,
2003
2002
2001
(34.0
)%
(34.0
)%
(34.0
)%
(3.0
)%
(3.0
)%
(3.0
)%
0.1
%
0.2
%
0.3
%
(3.5
)%
(0.5
)%
(3.4
)%
0.0
%
0.0
%
0.3
%
40.4
%
37.3
%
39.8
%
0.0
%
0.0
%
0.0
%
Table of Contents
Table of Contents
Range of Exercise
Weighted Average
Shares
Prices
Exercise Price
4,442,646
$
0.49 - $44.61
$
9.71
1,064,097
$
12.81 - $30.82
$
18.24
(1,123,487
)
$
0.49 - $44.61
$
2.99
(80,480
)
$
5.88 - $28.00
$
16.73
4,302,776
$
0.49 - $44.61
$
13.48
1,029,500
$
4.11 - $18.00
$
7.61
(376,949
)
$
0.49 - $13.05
$
2.51
(1,109,661
)
$
5.88 - $44.61
$
16.96
3,845,666
$
1.96 - $41.75
$
11.97
1,729,000
$
4.00 - $10.55
$
5.59
(841,839
)
$
1.96 - $6.52
$
3.83
(590,809
)
$
3.92 - $41.75
$
18.00
4,142,018
$
3.92 - $35.63
$
10.10
Table of Contents
Options Outstanding
Options Exercisable
Weighted Average
Number
Remaining
Weighted Average
Number Exercisable
Weighted Average
Exercise Price
Outstanding
Contractual Life
Exercise Price
and Vested
Exercise Price
354,400
0.39 years
$
3.92
354,400
$
3.92
902,000
9.20 years
$
4.67
116,000
$
4.59
1,118,502
8.10 years
$
5.85
561,166
$
6.15
1,170,526
7.10 years
$
13.02
829,621
$
14.56
596,590
5.28 years
$
24.24
583,667
$
24.30
4,142,018
6.99 years
$
10.10
2,444,854
$
12.94
Table of Contents
$
770
794
806
824
833
1,147
$
5,174
Table of Contents
2003
2002
2001
$
18,243
$
10,313
$
18,142
7,020
2,383
1,590
433
30
75
596
282
640
$
26,292
$
13,008
$
20,447
Table of Contents
Table of Contents
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning our directors, audit
committee, and audit committee financial experts, code of ethics and compliance
with Section 16(a) of the Exchange Act is incorporated by reference to
information under the caption Proposal 1 Election of Directors and to the
information under the caption Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive proxy statement for our 2004 annual meeting of
stockholders to be held on or about May 20, 2004 (the Proxy Statement). Our
Proxy Statement will be filed with the Securities and Exchange Commission not
later than April 29, 2004.
Pursuant to General Instruction G(3), certain information with respect to
our executive officers is set forth under the caption Executive Officers and
Related Information in Item 4 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference
to the sections entitled Executive Compensation and Related Information
contained in our Proxy Statement for our 2004 annual meeting of stockholders,
to be held on or about May 20, 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning the security ownership of certain beneficial owners
and management is incorporated by reference to the section entitled Security
Ownership of Certain Beneficial Owners and Management contained in our Proxy
Statement for our 2004 annual meeting of stockholders, to be held on or about
May 20, 2004.
Equity Compensation Plan Information
The following table sets forth, as of December 31, 2003, certain
information with respect to shares of the Companys common stock authorized for
issuance under the Companys equity compensation plans.
54
2001 Broad-Based Stock Option Plan
In February 2001, our Board of Directors approved the 2001 Plan, a
non-stockholder approved plan, for grants of stock options to employees who are
not directors or officers of the Company. Options may be granted to such
employees at not less than 100% of the fair market value of the common stock on
the date of grant. The options become exercisable in whole or in such
installments as determined by the Board of Directors and generally expire 10
years after the grant date. For addition information regarding the Companys
2001 Plan, see Note 14 of Notes to Consolidated Financial Statements.
Certain information required under this Item is incorporated by reference
to information under the caption Security Ownership of Certain Beneficial
Owners and Management in our Proxy Statement for our 2004 annual meeting of
stockholders to be held on or about May 20, 2004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by the Item concerning certain relationships is
incorporated by reference to the section entitled Certain Relationships and
Related Party Transactions contained in our Proxy Statement for our 2004
annual meeting of stockholders to be held on or about May 20, 2004.
ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES
Information required by the Item concerning principle accountant fees and
services is incorporated by reference to the section entitled Principle
Accountant Fees and Services contained in our Proxy Statement for our 2004
annual meeting of stockholders to be held on or about May 20, 2004.
55
Number of Securities Remaining
Available for Future Issuance
Number of Securities to
Weighted-Average
Under Equity Compensation Plans
be Issued Upon Exercise
Exercise Price of
(Excluding Securities Reflected
Plan Category
of Outstanding Options
Outstanding Options
in Column (A))
(A)
(B)
(C)
3,091,362
$
10.75
864,982
1,050,656
$
8.20
642,041
4,142,018
$
10.10
1,507,023
(1)
The number of shares of the Companys common stock authorized for
issuance under the 2001 Plan, is determined by calculating 5% of the
maximum number of all issued and outstanding shares of the common stock
plus all shares of the common stock which may be directly issuable upon
the exercise, exchange or conversion of any outstanding rights, warrants,
options or other derivative securities convertible into shares of common
stock.
Table of Contents
Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
56
57
58
(1)
Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item
8 of this report.
(2)
Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or in the notes thereto.
(3)
Exhibits:
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
Asset Purchase Agreement, effective as of September 5, 2002, by and
among Rules-Based Medicine, Inc., Luminex Corporation and RBM
Acquisition, Inc. (Pursuant to Item 601(b)(2) of Regulation S-K, the
schedules to this agreement are omitted, but will be provided
supplementally to the Commission upon request) (Previously filed as
an Exhibit to the Companys Current Report on Form 8-K dated
September 5, 2002).
Restated Certificate of Incorporation of the Company (Previously
filed as an Exhibit to the Companys Registration Statement on Form
S-1 (File No. 333-96317), filed February 7, 2000, as amended).
Amended and Restated Bylaws of the Company (Previously filed as an
Exhibit to the Companys Registration Statement on Form S-1 (File No.
333-96317), filed February 7, 2000, as amended).
Rights Agreement dated as of June 21, 2001 between Luminex
Corporation and Mellon Investor Services, LLC, as Rights Agent which
includes as Exhibit A the form of Certificate of Designations of
Series A Junior Participating Preferred Stock setting forth the terms
of the Series A Junior Participating Preferred Stock, as Exhibit B
the form of Rights Certificate and as Exhibit C the Summary of Rights
(Previously filed as Exhibit 4 to the Companys Current Report on
Form 8-K dated June 20, 2001).
1996 Stock Option Plan of the Company, as amended (Previously filed
as an Exhibit to the Companys Registration Statement on Form S-1
(File No. 333-96317), filed February 7, 2000, as amended).
Form of Stock Option Agreement for the 1996 Stock Option Plan
(Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended).
Form of Incentive Stock Option Agreement for the 1996 Stock Option
Plan (Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended).
2000 Long-Term Incentive Plan of the Company, as amended (Previously
filed as an Exhibit to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002).
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive
Plan (Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended).
2001 Broad-Based Stock Option Plan of the Company (Previously filed
as an Exhibit to the Companys
Table of Contents
Annual Report on Form 10-K for the fiscal year ended December 30, 2001).
Form of Option Grant Certificate for the 2001 Broad-Based Stock
Option Plan (Previously filed as an Exhibit to the Companys Annual
Report on Form 10-K for the fiscal year ended December 30, 2001).
Development and Supply Agreement dated as of March 19, 1999 by and
between the Company and Bio-Rad Laboratories, Inc. (Previously filed
as an Exhibit to the Companys Registration Statement on Form S-1
(File No. 333-96317), filed February 7, 2000, as amended).
Amendment to Development and Supply Agreement dated as of January 13,
2000 by and between the Company and Bio-Rad Laboratories, Inc.
(Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended).
Second Amendment to Development and Supply Agreement dated as of June
12, 2000 by and between the Company and Bio-Rad Laboratories, Inc.
(Previously filed as an Exhibit to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
Distribution, Development and Supply Agreement dated as of August 6,
2001 by and between the Company and Miraibio, Inc (Previously filed
as an Exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended December 30, 2001).
Agreement for Electronic Manufacturing Services dated as of January
1, 2000 by and between the Company and Sanmina Corporation
(Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended).
Form of Amended and Restated Employment Agreement between the Company
and each of Randel S. Marfin, James W. Jacobson, Ph.D. and Oliver H.
Meek (Previously filed as an Exhibit to the Companys Quarterly
Report on Form 10-Q for the period ended June 30, 2002).
Management Services Agreement, effective as of August 12, 2002, by
and between Luminex Corporation and Thomas W. Erickson (Previously
filed as an Exhibit to the Companys Current Report on Form 8-K dated
September 5, 2002).
First Amendment to Management Services Agreement by and between
Luminex Corporation and Thomas W. Erickson, dated March 1, 2003.
(Previously filed as an Exhibit to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2002).
Second Amendment to Management Services Agreement by and between
Luminex Corporation and Thomas W. Erickson, dated September 1, 2003
(Previously filed as an Exhibit to the Companys Quarterly Report of
Form 10-Q for the quarterly period ending June 30, 2003).
Amendment to Second Amendment to Management Services Agreement by and
between Luminex Corporation and Thomas W. Erickson (Previously filed
as an Exhibit to the Companys Quarterly Report of Form 10-Q for the
quarterly period ending September 30, 2003).
Third Amendment to Management Services Agreement by and between
Luminex Corporation and Thomas W. Erickson, dated December 11, 2003.
Fourth Amendment to Management Services Agreement by and between
Luminex Corporation and Thomas W. Erickson, dated March 12, 2004.
Consultant Agreement, effective as of September 5, 2002, by and
between Mark B. Chandler, Ph.D. and Luminex Corporation (Previously
filed as an Exhibit to the Companys Current Report on Form 8-K dated
September 5, 2002).
Form of Indemnification Agreement dated May 22, 2002 between the
Company and each of the directors and officers of the Company
(Previously filed as an Exhibit to the Companys Quarterly Report on
Form 10-Q for the period ended June 30, 2002).
Table of Contents
Lease Agreement between Aetna Life Insurance Company, as Landlord,
and Luminex Corporation, as Tenant, dated October 19, 2001
(Previously filed as an Exhibit to the Companys Form 10-Q for the
quarterly period ended September 30, 2001).
First Amendment to Lease Agreement between Aetna Life Insurance
Company, as Landlord, and Luminex Corporation as Tenant, dated July
25, 2002. (Previously filed as an Exhibit to the Companys Quarterly
Report on Form 10-Q for the period ended June 30, 2002).
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and
Luminex Corporation, as Tenant, dated January 27, 2003 (Previously
filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2003).
Sublease Agreement dated as of May 2, 2002 by and between the Company
and American Innovations, Ltd., for facilities situated at 12112
Technology Boulevard, Austin, Texas 78727 (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the period
ended June 30, 2002).
Employment Agreement, effective as of October 1, 2003, by and between
Luminex Corporation and Harriss T. Currie.
Employment Agreement effective as of October 1, 2003, by and between
Luminex Corporation and David S. Reiter.
Subsidiaries of the Company.
Consent of Independent Auditors.
Power of Attorney (incorporated in the signature page of this report).
Certification by CEO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#
Management contract or compensatory plan or arrangement.
+
Confidential treatment requested for certain portions of this
Exhibit pursuant to Rule 406 promulgated under the Securities Act and Rule
24b-2 promulgated under the Securities Exchange Act, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b)
Reports on Form 8-K:
A Current Report on Form 8-K, reported in Item 12., was furnished on
October 22, 2003 relating to the Companys October 22, 2003 press release
announcing the Companys financial results for the third quarter ended
September 30, 2003.
(c)
See Exhibits listed under Item 14(a)(3).
Table of Contents
SIGNATURES
Pursuant to the requirements of the 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, on March 12, 2004.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Thomas W. Erickson and Harriss T.
Currie, each his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
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.
S-1
S-2
LUMINEX CORPORATION
By:
/s/ Thomas W. Erickson
Thomas W. Erickson
Interim President and Chief
Executive Officer
SIGNATURES
TITLE
DATE
/s/ Thomas W. Erickson
Thomas W. Erickson
Interim President and
Chief Executive Officer
March 12, 2004
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer and Treasurer
(Principal Financial Officer)
March 12, 2004
/s/ Kristi M. Richburg
Kristi M. Richburg
Controller
(Principal Accounting Officer)
March 12, 2004
/s/ C. Thomas Caskey, M.D.
C. Thomas Caskey, M.D.
Director
March 12, 2004
/s/ Robert J. Cresci
Robert J. Cresci
Director
March 12, 2004
/s/ Fred C. Goad, Jr.
Fred C. Goad, Jr.
Director
March 12, 2004
/s/ Laurence E. Hirsch
Laurence E. Hirsch
Director
March 12, 2004
/s/ Jim D. Kever
Jim D. Kever
Director
March 12, 2004
Table of Contents
SIGNATURES
TITLE
DATE
/s/ G. Walter Loewenbaum II
G. Walter Loewenbaum II
Chairman of the Board of Directors
Director
March 12, 2004
/s/ Kevin M. McNamara
Kevin M. McNamara
Director
March 12, 2004
William L. Roper, M.D.
Director
March 12, 2004
EXHIBIT 10.18
THIRD AMENDMENT TO THE
MANAGEMENT SERVICES AGREEMENT
THIS THIRD AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT dated August 12, 2002 is entered into and effective this 11th day of December, 2003 by and between Luminex Corporation, a Delaware corporation (the "Company") and Thomas W. Erickson ("Erickson").
WHEREAS, the Company and Erickson desire to continue the management services delivered pursuant to the Management Services Agreement dated August 12, 2002 (the "Agreement").
NOW, THEREFORE, the parties execute this Third Amendment to the Agreement:
1. The substantive terms, covenants and agreements shall continue for a Term from January 1, 2004 through March 31, 2004.
2. Cash compensation shall continue at the same rate for Erickson's services hereunder.
3. An additional option grant of 37,500 shares of the Company's common stock shall be granted on the date of this agreement pursuant to the terms and conditions of the Option Agreement to be executed simultaneously herewith, in the form attached hereto as Exhibit A (the "Option Agreement"). Notwithstanding the foregoing, the exercise price per share shall be equal to the closing sale price on the date of grant and vesting shall occur in one third increments on the last day of each month of January through March, 2004, all as set forth in the Option Agreement.
All other terms of the Agreement shall continue and all capitalized terms not otherwise defined will have such meaning as set forth in the Agreement.
IN WITNESS WHEREOF, this Third Amendment is executed by the parties as of the effective date set forth above.
LUMINEX CORPORATION
By: /s/ Harriss T. Currie ------------------------------ Title: Chief Financial Officer /s/ Thomas W. Erickson ------------------------------ Thomas W. Erickson |
Luminex Confidential
EXHIBIT 10.19
FOURTH AMENDMENT TO THE
MANAGEMENT SERVICES AGREEMENT
THIS FOURTH AMENDMENT TO THE MANAGEMENT SERVICES AGREEMENT dated August 12, 2002 is entered into and effective this 12th day of March, 2004 by and between Luminex Corporation, a Delaware corporation (the "Company") and Thomas W. Erickson ("Erickson").
WHEREAS, the Company and Erickson desire to continue the management services delivered pursuant to the Management Services Agreement dated August 12, 2002 (the "Agreement").
NOW, THEREFORE, the parties execute this Fourth Amendment to the Agreement:
1. The substantive terms, covenants and agreements shall continue for a Term from April 1 through June 30, 2004. Notwithstanding any other term of the Agreement, the Company shall be permitted to terminate this Agreement upon ten (10) days prior written notice in the event the Company hires a full-time Chief Executive Officer.
2. Cash compensation shall continue at the same rate for Erickson's services hereunder.
3. An additional option grant of 37,500 shares of the Company's common stock shall be granted on the date of this agreement pursuant to the terms and conditions of the Option Agreement to be executed simultaneously herewith, in the form attached hereto as Exhibit A (the "Option Agreement"). Notwithstanding the foregoing, the exercise price per share shall be equal to the closing sale price on the date of grant and vesting shall occur in one third increments on the last day of each month of April through June, 2004, all as set forth in the Option Agreement.
All other terms of the Agreement shall continue and all capitalized terms not otherwise defined will have such meaning as set forth in the Agreement.
IN WITNESS WHEREOF, this Fourth Amendment is executed by the parties as of the effective date set forth above.
LUMINEX CORPORATION Thomas W. Erickson By: /s/ Harriss T. Currie /s/ Thomas W. Erickson -------------------------------- ----------------------------------- |
Title: Chief Financial Officer
Luminex Confidential
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of October 1, 2003 (the "Effective Date") by and between LUMINEX CORPORATION, a Delaware corporation ("Luminex") and HARRISS T. CURRIE ("Executive").
RECITAL
WHEREAS, Executive is to be employed as the Vice President - Finance, Chief Financial Officer and Treasurer of Luminex;
WHEREAS, Luminex and Executive wish to document the terms of the employment of Executive in such capacity; and
WHEREAS, Executive has represented to Luminex and Luminex has relied on Executive's representation that the execution of this Agreement by Executive, and the provision of services by Executive to Luminex as contemplated in this Agreement, will not conflict with, or cause Executive or any other person or entity to be in breach of, (i) any other contract to which Executive is a party or (ii) any duty which Executive may owe to any other person or entity.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DUTIES.
1.1 Duties. During the term of this Agreement (including all renewal periods, if any, the "Term"), Executive agrees to be employed by and to serve Luminex as Vice President - Finance, Chief Financial Officer and Treasurer and Luminex agrees to employ and retain Executive in such capacity subject to the provisions of this Agreement. Executive shall have such powers, authority and duties, and shall render such services of executive and administrative character, or act in such other capacity for Luminex, as the Chief Executive Officer or the Board of Directors of Luminex (the "Board") shall from time to time lawfully direct and Executive shall report directly to the Chief Executive Officer of Luminex. Executive shall devote all of his business time, energy, and skill to the business of Luminex.
2. TERM AND TERMINATION.
2.1 Term. Subject to Section 2.2, the term of employment of Executive by Luminex shall be one (1) year commencing on the Effective Date and shall thereafter automatically renew for successive additional one-year terms unless either party provides the other with written notice of its intent not to renew this Agreement at least sixty (60) days prior to the end of the Term (unless terminated earlier pursuant to the provisions of this Agreement).
2.2 Termination of Employment.
2.2.1 Termination For Cause. "Termination For Cause" shall mean the termination by Luminex of Executive's employment with Luminex as the result of Executive's material fraud upon Luminex or Executive's continued material breach of this Agreement after receipt of written notice from Luminex specifying such breach and failure by Executive to cure such breach within fifteen (15) days from receipt of such notice. Executive's inability to perform his obligations under this Agreement despite his best efforts as a result of a permanent or temporary disability (as evidenced by a written determination from a physician selected by Executive and reasonably acceptable to Luminex) shall not result in a Termination For Cause. In the event that Executive fails to cure the breach within the fifteen (15) day cure period, the termination shall be effective as of the date that Luminex notifies Executive of his termination following the expiration of the fifteen (15) day cure period. Upon any Termination For Cause, Executive shall be paid the Accrued Obligations (defined below) within three (3) business days following the effective date of termination.
2.2.2 Termination Other Than For Cause. "Termination
Other Than For Cause" shall mean (i) termination by Luminex of Executive's
employment with Luminex for any reason other than Termination For Cause,
Termination by Reason of Death, Termination by Reason of Incapacity or
Termination Upon Expiration of Agreement or (ii) termination by Executive upon
constructive termination of Executive's employment with Luminex by reason of (A)
a reduction in Executive's Base Salary (defined below); (B) a reduction in
Executive's title from Vice President - Finance, Chief Financial Officer and
Treasurer of Luminex (whether by reason of Executive's removal from any of such
offices or Luminex's failure to reappoint Executive to any of such offices); (C)
a Material Diminution (defined below); (D) a requirement that Executive change
his principal place of business to a location that is outside the Office Area
(defined below), or (E) Luminex's continued material breach of this Agreement
after receipt of written notice from Executive specifying such breach and
failure by Luminex to cure such breach within fifteen (15) days from receipt of
such notice. Termination Other Than For Cause may be effected by Luminex at any
time by providing Executive with written notice of such termination. The
termination shall be effective as of the date of the notice or such later date
as may be determined by Luminex. Executive may also effect a Termination Other
Than For Cause upon written notice to Luminex at any time any of the conditions
for constructive termination set forth in clause (ii) above (including without
limitation, if applicable, the expiration of the cure period) have been met.
Upon any Termination Other Than For Cause, Executive shall be paid (i) within
three (3) business days following the effective date of termination the amount
of the Accrued Obligations and (ii) all severance compensation provided in
Section 4.1. For purposes of this Agreement, "Material Diminution" means a
material diminution by Luminex of Executive's duties, powers, authority,
functions or responsibilities without Executive's consent, such that Executive
is left with such duties, powers, authority, functions and responsibilities
(when viewed in the aggregate) that are materially diminished compared to both
(i) those duties, powers, authority, functions and responsibilities conferred
upon Executive at the Effective Date and (ii) those duties, powers, authority,
functions and responsibilities that are most typically conferred upon the chief
financial officer of companies having revenues comparable to Luminex (based on
the revenues of Luminex at the time of determination). Luminex and Executive
agree
that in the event there is an ambiguity with respect to the interpretation or application of the definition of "Material Diminution", such ambiguity shall be resolved according to the reasonable interpretation of such definition most favorable to Luminex. For purposes of this Agreement, "Office Area" means the geographical area within a 40 mile radius of Luminex's current principal office at 12212 Technology Blvd., Austin, Texas.
2.2.3 Actual Voluntary Termination. "Actual Voluntary Termination" shall mean termination by Executive of Executive's employment with Luminex for any reason other than Termination For Cause, Termination Other Than For Cause, Termination by Reason of Death or Termination by Reason of Incapacity. In the event of an Actual Voluntary Termination, Executive shall be paid within three (3) business days following the effective date of termination the amount of the Accrued Obligations.
2.2.4 Termination by Reason of Incapacity. If, during the Term, Executive shall become Permanently Disabled (defined below), Luminex may terminate Executive's employment with Luminex effective on the earliest date permitted under applicable law, if any, and such termination shall be deemed "Termination by Reason of Incapacity". Upon termination of employment under this Section, Executive shall be paid (i) within three (3) business days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.2. As used herein, Executive shall be deemed "Permanently Disabled" if Executive is (i) collecting long-term disability payments under a long-term disability plan established for the benefit of Luminex's employees or executives generally or a reasonably similar plan or (ii) if, and only if, no such long-term disability plan is in effect at the time of determination, a physician selected by Luminex and reasonably acceptable to Executive makes a written determination that Executive is unable to perform his obligations under this Agreement despite his best efforts by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuing period of not less than 12 months.
2.2.5 Termination by Reason of Death. In the event of Executive's death during the Term, Executive's employment with Luminex shall be deemed to have terminated as of the date on which his death occurs and the estate of Executive shall be paid (i) within fifteen (15) days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.3.
2.2.6 Termination Upon Expiration of Agreement. In the event that Luminex refuses for any reason to extend this Agreement by giving written notice at least 60 days prior to the initial or any renewal period as set forth in Section 2.1, Executive shall be paid (i) within three (3) business days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.4. In the event that Executive refuses for any reason (except as otherwise provided herein) to extend this Agreement by giving written notice at least 60 days prior to the initial or any renewal period as set forth in Section 2.1, the termination shall be deemed an Actual Voluntary Termination.
2.2.7 Termination of Relationship with Affiliated Entities. Unless agreed by Luminex (or a subsidiary thereof) and Executive in a separate written agreement (other than corporate minutes, resolutions, charter documents, bylaws and partnership agreements), upon the termination of Executive's employment with Luminex for any reason, Executive shall tender a written resignation of any positions he may have with Luminex and any and all of Luminex's direct and indirect subsidiaries.
2.2.8 Definition of Accrued Obligations. As used in this Agreement, "Accrued Obligations" means all accrued but unpaid salary, accrued but unpaid vacation, sick leave, and similar pay (all determined in accordance with Luminex's policies then in effect), and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all to the date of termination.
3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 Base Salary. As payment for the services to be rendered by
Executive as provided in Section 1 and subject to the terms and conditions of
Section 2, Luminex agrees to pay to Executive a "Base Salary" at the rate of
$210,000 per annum (or such greater amount as may be determined from time to
time by the Board or the Compensation Committee thereof) payable in accordance
with the then-current payroll policies of Luminex.
3.2 Bonuses. Executive may be eligible to receive a bonus each year in an amount up to 50% (or such higher percentage as may be determined from time to time by the Board or the Compensation Committee thereof) of Executive's Base Salary during the Term and any extensions hereof, with the actual amount of any such bonus to be determined in the sole discretion of the Board. The Board is under no obligation to declare, and Luminex is under no obligation to pay, any bonus to Executive under the terms of this Agreement. In the event Executive and Luminex are parties to a written agreement or plan executed by both Luminex and Executive that governs bonus arrangements, and the provisions thereof conflict with this Section 3.2, the terms of such other written agreement or plan shall supersede this Section 3.2.
3.3 Change in Control. In the event that both (i) a Change in Control (defined below) of Luminex occurs during the Term and (ii) Executive's employment with Luminex (or, as applicable, its successor in interest) terminates for any reason (including without limitation an Actual Voluntary Termination by Executive) at any time within six (6) months following the occurrence of the Change in Control of Luminex, in lieu of any Severance Compensation then owed or that otherwise would be owed in the future to Executive under Section 4 of this Agreement, Luminex (or its successor in interest) shall pay Executive both the Accrued Obligations and a lump sum payment (the "Change in Control Payment") in an aggregate amount equal to the sum of (i) the Bonus Amount (defined below), plus (ii) an amount equal to Executive's annual Base Salary (at the highest rate in effect during the period beginning six months immediately prior to the effective date of the Change of Control through the date of termination) within three (3) business days after the termination of Executive's employment. In the interest of clarity, Luminex and Executive agree that, upon the termination of Executive's employment at any time within six (6) months following the occurrence of the Change in Control
of Luminex, the provisions of Sections 4.1, 4.2, 4.3, 4.4, and 4.6 shall automatically be deemed null and void and shall not apply with respect to any termination of Executive's employment (whether such termination is effected in connection with the Change in Control of Luminex or at any time in the future following the Change in Control of Luminex), and under no circumstances shall Luminex ever be obligated to pay Executive both a Change in Control Payment and Severance Compensation under Section 4. For purposes of this Agreement, a "Change in Control" of Luminex shall be deemed to have occurred if, after the date of this Agreement:
(A) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than an Approved Person (as defined below)) becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a majority or more of the then outstanding Common Stock of Luminex ("Common Stock") (such Person, an "Acquiring Person"); or
(B) Luminex merges or consolidates with any other corporation or other entity, in each case other than a merger or consolidation which results in the voting securities of Luminex outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the combined voting power of the voting securities of Luminex or such surviving entity outstanding immediately after such merger or consolidation; or
(C) Luminex sells or disposes of all or substantially all of Luminex's assets in one transaction or a series of related transactions; or
(D) Luminex files a periodic or current report or proxy statement with the Securities and Exchange Commission (the "SEC") disclosing that a "change in control" (as such term is used in Item 1 of Form 8-K promulgated by the SEC) of Luminex has occurred; or
(E) If, as a result of nominations made by a person or group other than the Board of Directors of Luminex, individuals who prior to such nominations constitute the Directors of Luminex cease for any reason to constitute at least a majority thereof within the two year period following such nominations.
As used in this Agreement, "Approved Person" means (1) an employee benefit plan of Luminex (or a trustee or other fiduciary holding securities for such a plan), or (2) a corporation owned, directly or indirectly, by the stockholders of Luminex in substantially the same proportions as their ownership of stock of Luminex, or (3) a Person not less than a majority of whose voting securities are Beneficially Owned by Luminex after giving effect to the transaction.
As used in this Agreement, "Bonus Amount" means the annual bonus (if any) received or to be received by Executive under Section 3.2 in respect of the then most recently completed calendar year, or if no determination concerning bonuses has been made for the most recently completed calendar year, then the annual bonus (if any) for the previous calendar year.
Any options ("Options") granted (including without limitation Options
that may be granted in the future) and restricted stock ("Restricted Stock")
issued (including without limitation Restricted Stock that may be issued in the
future) to Executive pursuant to any incentive plan of Luminex shall immediately
vest upon a Change in Control. Luminex shall take no action to facilitate a
transaction involving a Change in Control, including without limitation
redemption of any rights issued pursuant to any rights agreement, unless it has
taken such action as may be necessary to ensure that Executive has the
opportunity to exercise all Options he may then hold, and obtain certificates
containing no restrictive legends in respect of any Restricted Stock he may then
hold, at a time and in a manner that shall give Executive the opportunity to
sell or exchange the securities of Luminex acquired upon exercise of his Options
and upon receipt of unrestricted certificates for shares of Common Stock in
respect of his Restricted Stock, if any (collectively, the "Acquired
Securities"), at the earliest time and in the most advantageous manner any
holder of the same class of securities as the Acquired Securities is able to
sell or exchange such securities in connection with such Change in Control.
Luminex acknowledges that its covenants in the preceding sentence (the
"Covenants") are reasonable and necessary in order to protect the legitimate
interests of Luminex in maintaining Executive as one of its employees and that
any violation of the Covenants by Luminex would result in irreparable injuries
to Executive, and Luminex therefore acknowledges that in the event of any
violation of the Covenants by Luminex or its directors, officers or employees,
or any of their respective agents, Executive shall be entitled to obtain from
any court of competent jurisdiction temporary, preliminary and permanent
injunctive relief in order to (i) obtain specific performance of the Covenants,
(ii) obtain specific performance of the exercise of his Options, delivery of
certificates containing no restrictive legends in respect of his Restricted
Stock and the sale or exchange of the Acquired Securities in the advantageous
manner contemplated above or (iii) prevent violation of the Covenants; provided
nothing in this Agreement shall be deemed to prejudice Executive's rights to
damages for violation of the Covenants. In the event that the terms of any
separate written agreement concerning Options granted or Restricted Stock issued
to Executive conflict with the terms of this paragraph, the terms of this
paragraph shall control.
3.4 Additional Benefits. During the Term, Executive shall be entitled to the following fringe benefits:
3.4.1 Benefits and Vacation. Executive shall be eligible to participate in such of Luminex's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of Luminex. A termination or expiration of this Agreement for any reason or for no reason shall not affect any rights which Executive may have pursuant to any agreement, policy, plan, program or arrangement of Luminex providing Executive benefits (including under any stock option agreement or bonus plan or agreement which may exist), which rights shall be governed by the terms thereof. Executive shall be entitled to three (3) weeks paid vacation each calendar year (prorated for partial years). Unless approved in advance by the Board or a committee thereof, accrued vacation not taken in any applicable period shall not be carried forward or used in any subsequent period.
3.4.2 Reimbursement for Expenses.
3.4.2.1 Incidental Expenses. Luminex shall reimburse Executive for reasonable and properly documented out-of-pocket business and/or entertainment expenses incurred by Executive in connection with his duties under this Agreement. Any such expenses shall be submitted by Executive to Luminex on a periodic basis and will be paid in accordance with standard Luminex policies and procedures.
3.4.2.2 Moving Expenses. In the event of the relocation of Luminex's headquarters to a location that is outside the Office Area and Executive elects to relocate, Luminex shall (i) reimburse Executive for any reasonable, out-of-pocket and adequately documented moving expenses incurred by Executive in connection with the transfer of his residence and (ii) pay to an Executive an amount of cash reasonably calculated by Luminex to negate adverse income tax consequences to Executive of the foregoing reimbursement.
4. SEVERANCE COMPENSATION.
4.1 Severance Compensation in the Event of a Termination Other Than For Cause. In the event Executive's employment is terminated as a result of a Termination Other Than for Cause, Executive shall be paid (subject to Section 4.6) the Severance Compensation (defined below).
4.2 Severance Compensation for Termination by Reason of Incapacity. In the event Executive's employment is terminated as a result of a Termination by Reason of Incapacity, Executive shall be paid (subject to Section 4.6) the difference of (i) the Severance Compensation less (ii) any payment or payments received by Executive during the twelve (12) month period from the time of termination under any long-term disability plan in effect that provides benefits to Executive.
4.3 Severance Compensation for Termination by Reason of Death. In the event Executive's employment is terminated as a result of Executive's death, the estate of Executive shall be paid the Severance Compensation.
4.4 Severance Compensation In the Event Of A Failure Of Luminex To Renew This Agreement. In the event Luminex fails or otherwise refuses for any reason to extend this Agreement beyond the Term and any extensions thereof, Executive shall be paid (subject to Section 4.6) the Severance Compensation.
4.5 No Severance Compensation Upon Other Termination. In the event of an Actual Voluntary Termination or Termination For Cause, Executive shall not be paid any severance compensation.
4.6 Conditions to Payment; Sole Remedy. Executive shall not be entitled to receive any compensation or other payment pursuant to Sections 4.1, 4.2 or 4.4 unless Executive shall have executed and delivered to Luminex a release substantially in the form attached hereto
as Exhibit "A" and, provided Luminex has also signed such release within two (2) business days of execution and delivery by Executive, all revocation and waiting periods applicable to such release have expired (if Luminex fails to sign such release, then such revocation and waiting periods shall not apply). In addition, in the event that Executive breaches any of the restrictive covenants set forth in Article 5 at any time, Luminex shall be entitled to discontinue any compensation or other payments pursuant to Sections 4.1, 4.2 or 4.4 (provided, however, that if it is finally determined by a court of competent jurisdiction or an arbitrator that Luminex asserted in bad faith that Executive breached any of the restrictive covenants set forth in Article 5, the payments of the Severance Compensation shall be extended for two months for each calendar month that payments were delayed. The compensation to be paid to Executive pursuant to Sections 4.1, 4.2, 4.3 or 4.4 shall represent the sole and exclusive remedy of Executive in connection with the termination of his employment and this Agreement upon a Termination Other Than for Cause, a Termination by Reason of Incapacity, a termination in connection with Executive's death, or a refusal by Luminex to extend this Agreement beyond the Term and any extensions thereof.
4.7 Definition of Severance Compensation. As used in this Agreement, "Severance Compensation" means an amount equal to the sum of (i) the Bonus Amount plus (ii) an amount equal to Executive's annual Base Salary (at the highest rate in effect for the six month period immediately prior to the date of termination), paid in semi-monthly installments for a period of twelve (12) months from the date of termination. In addition, as part of the Severance Compensation, Luminex also shall pay (until the earlier of (A) the first annual anniversary of the termination of this Agreement or (B) the date that Executive is eligible to be covered under a comparable or more favorable health plan of another Person) (i) COBRA payments in respect of the continuation of health benefits for Executive, his spouse and his children and (ii) payments to fund dental coverage for Executive, his spouse and his children comparable to the dental coverage that they would have received if Executive had continued as an employee of Luminex.
5. PROTECTION OF LUMINEX.
5.1 Non-Competition. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive agrees that during Executive's employment with Luminex and for a period of one year following termination of employment, whether such termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not compete directly or indirectly in any way with the business of Luminex anywhere in the world where Luminex conducted business during the Term. For purposes of this Agreement, "compete directly or indirectly in any way with the business of Luminex" means to become an employee, consultant, advisor, manager, member, director of or beneficially own more than three percent of any individual, company or entity that competes with Luminex in the Core Business (defined below) at the time of determination. Executive agrees that the assertion or existence of any claim by Executive against Luminex shall not be a defense to the enforcement of this paragraph by injunction or otherwise. As used in this Agreement, "Core Business" means the development, manufacturing and/or marketing of biological testing technologies with applications in the life-sciences industry.
5.2 Nonsolicitation. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive agrees that, for a period of one (1) year subsequent to the termination of Executive's employment with Luminex, whether such termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not recruit, hire, or attempt to recruit or hire, directly or by assisting others, any other employees of Luminex, nor shall Executive contact or communicate with any other employees of Luminex for the purpose of inducing other employees to terminate their employment with Luminex. For purposes of this covenant, "other employees of Luminex" shall refer to employees who are still actively employed by, or doing business with, Luminex or a subsidiary of Luminex at the time of the attempted recruiting or hiring.
5.3 Remedies. Due to the irreparable and continuing nature of the injury which would result from a breach of the covenants described in Sections 5.1 and 5.2, Executive agrees that Luminex may, in addition to any remedy which Luminex may have at law or in equity, apply to any court of competent jurisdiction for the entry of an immediate order to restrain or enjoin the breach of this covenant and to otherwise specifically enforce the provisions of the covenants set forth in Sections 5.1 and 5.2.
5.4 Acknowledgment. Executive acknowledges and agrees that the restrictions set forth above are ancillary to an otherwise enforceable agreement and supported by independent valuable consideration as required by TEX. BUS. & COMM. CODE ANN. Section 15.50. Executive further acknowledges and agrees that the limitations as to time, geographical area, and scope of activity to be restrained by Sections 5.1 and 5.2 are reasonable and acceptable to Executive, and do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests of Luminex.
5.5 Reformation and Severance. If a judicial determination is made that any of the provisions of the above restriction constitutes an unreasonable or otherwise unenforceable
restriction against Executive, it shall be rendered void only to the extent that such judicial determination finds such provisions to be unreasonable or otherwise unenforceable. In this regard, the parties hereby agree that any judicial authority construing this Agreement shall be empowered to sever any portion of the prohibited business activity from the coverage of this restriction and to apply the restriction to the remaining portion of the business activities not so severed by such judicial authority. Moreover, notwithstanding the fact that any provisions of this restriction are determined by a court not to be specifically enforceable through injunctive relief, Luminex shall nevertheless be entitled to seek to recover monetary damages as a result of the breach of any provision which is not reformed by a court. The time period during which the restrictions shall apply shall be tolled and suspended as to Executive for a period equal to the aggregate quantity of time during which Executive violates such prohibitions in any respect.
5.6 Confidential Information and Trade Secrets. As used herein, "Confidential Information" means any data or information that is important, competitively sensitive, and not generally known by the public or persons involved in the biological testing or life sciences industries, including, but not limited to, Luminex's business plans, Prospective Customers, training manuals, proprietary software, product development plans, bidding and pricing procedures, market plans and strategies, projections, internal performance statistics, financial data, confidential personnel information concerning employees of Luminex, operational or administrative plans, policy manuals, and terms and conditions of contracts and agreements. The term "Confidential Information" shall not apply to information which is (i) already in Executive's possession (unless such information was obtained by Executive from Luminex in the course of Executive's employment by Luminex); (ii) received by Executive from a third party with, to Executive's knowledge, no restriction on disclosure or (iii) required to be disclosed by any applicable law or by an order of a court of competent jurisdiction.
Executive recognizes and acknowledges that the Confidential Information constitutes valuable, special and unique assets of Luminex and its affiliates. Except as required to perform Executive's duties as an Executive of Luminex, until such time as they cease to be Confidential Information through no act of Executive in violation of this Agreement, Executive will not use or disclose any Confidential Information of Luminex. Upon the request of Luminex and, in any event, upon the termination of this Agreement for any reason, Executive will surrender to Luminex (i) all memoranda, notes, records, drawings, manuals or other documents pertaining to Luminex's business including all copies and/or reproductions thereof and (ii) all materials involving any Confidential Information of Luminex.
5.7 Preservation of Luminex Property. Executive acknowledges that from time to time in the course of employment with Luminex, Executive has had the opportunity to inspect and use certain property of Luminex, both tangible and intangible, including but not limited to files, records, documents, drawings, specifications, lists, equipment, graphics, designs, and similar items relating to the business of Luminex. Executive acknowledges and agrees that all such property, including but not limited to any and all copies thereof, whether prepared by Executive or otherwise in the possession of Executive, are and shall remain the exclusive property of Luminex, that Executive shall have no right or proprietary interest in such property
and that Executive will safeguard and return to Luminex all such property upon the earlier of (i) Luminex's request and (ii) the termination of Executive's employment with Luminex.
5.8 Assignment of Inventions to Luminex. All computer software, compilations, programs, improvements, inventions, notes, copyrightable works, and opportunities for additional Luminex business, made, fixed, conceived, or acquired by Executive during the Term are exclusively owned by Luminex, are Luminex's works for hire, and fully assigned to Luminex including without limitation all rights to renewals, extensions, causes of action, reproduce, prepare derivative works, distribute, display, perform, transfer, make, use and sell and may never be copied, used, or disclosed without Luminex's express written consent. Executive will sign on request any documents affirming the same for any particular item.
5.9 Notice to Subsequent Employers. Executive agrees that, prior to commencing any new employment in the Core Business within twelve months after the termination of this Agreement, Executive will furnish the new employer with a copy of this Agreement. Executive also agrees that Luminex may advise any new or prospective employer of the existence and terms of this Agreement and furnish the employer with a copy of this Agreement.
6. DISCLOSURE OF INVESTMENTS. Commencing upon Executive's execution of this Agreement and at all times during the Term, Executive shall keep the Board informed in writing of the nature and extent of Executive's investments, stock holdings, or retention as a director, advisor or any similar interest in any business or enterprise involved in the Core Business other than Luminex; provided, however, that Executive shall not be required to disclose any such investments or stock holdings that constitute less than 1% of such entity's total obligations or total voting power.
7. ARBITRATION.
7.1 Exclusive Remedy. Arbitration shall be the sole and exclusive remedy for resolving any claim or dispute which cannot be mutually resolved between the parties to this Agreement with the exception of disputes arising out of Executive's obligations under Article 5 or disputes arising out of Luminex's obligations under the last paragraph of Section 3.3, which are not subject to this arbitration provision; provided however, that the parties hereto agree that they may bring action in any court of competent jurisdiction to enforce any award granted pursuant to arbitration or to otherwise enforce this Article 7. This includes, but is not limited to, termination, interpretation or application of this Agreement or any other agreement or policy of Luminex, any claim of violation of law relating to the employment relationship, including, without limitation, any claim of employment discrimination or sexual harassment, or harassment based on any other prohibited basis, or any claim by Luminex against Executive. This Agreement is a waiver of the right to trial by a jury or court.
7.2 Limitations. The request for arbitration must be made within one (1) year from the date of the occurrence giving rise to the dispute or claim; or, in the event of a statutory claim, the time set forth by statute.
7.3 Rules and Procedures. The arbitration will be conducted under the rules and procedures for arbitration of employment disputes of the American Arbitration Association. The arbitration shall take place in Austin, Texas unless the parties mutually agree to another location.
7.4 Arbitrator's Authority. Upon finding that a claim is meritorious or in favor of one of the parties to the dispute, the arbitrator or arbitrators shall have the authority to order legal and equitable remedies appropriate as permitted by law.
7.5 Expenses. Costs of obtaining and paying the arbiter and the costs associated with conducting the arbitration, including obtaining a facility to be used during the arbitration, shall be paid by Luminex. Other costs of the arbitration or any litigation associated with any dispute arising under or in connection with this Agreement including, without limitation, reasonable attorneys' and experts' fees and expenses of Luminex and the Executive shall be borne by the party incurring such expense unless the arbiter or court of law, as the case may be, awards costs to one of the parties.
8. MISCELLANEOUS.
8.1 Waiver. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof.
8.2 Entire Agreement; Modifications. Except as otherwise provided herein, this Agreement represents the sole, entire, and complete understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Executive from Luminex. All modifications to the Agreement must be in writing and signed by both Executive and Luminex.
8.3 Notices. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three business days after mailing or one business day after transmission of a facsimile (with confirmation of receipt) to the respective persons named below:
If to Luminex: Luminex Corporation. 12212 Technology Blvd. Austin, Texas 78727 Fax: (512) 219-5195 Attn: President -12- |
With a copy to Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Fax: (214) 953-5822 Attn: Michael E. Taten If to Executive: Harriss T. Currie 8121 Endeavor Circle Austin, Texas 78726 |
Any party may change such party's address for notices by notice duly given pursuant to this Section 8.3.
8.4 Headings. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement.
8.5 Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. Subject in all respects to Section 7 generally and Section 7.3 in particular, any dispute arising out of or relating to this Agreement may be brought in a court of competent jurisdiction located in Austin, Texas, and both of the parties to this Agreement irrevocably submit to the exclusive jurisdiction of such courts in any such dispute, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the dispute shall be heard and determined only in any such court, and agrees not to bring any dispute arising out of or relating to this Agreement in any other court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement among the parties irrevocably to waive any objections to venue or to convenience of forum. Process in any dispute may be served on any party anywhere in the world.
8.6 Severability. Should any court of competent jurisdiction determine that any provision of this Agreement is illegal or unenforceable to any extent, such provision shall be enforced to the extent permissible and all other provisions of this Agreement shall continue to be enforceable to the extent possible.
8.7 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement.
8.8 Assignment. Neither this Agreement nor any duties or obligations hereunder may be assigned by either party without the other party's prior written consent; provided, however, that Luminex may assign this Agreement to either (i) a wholly-owned subsidiary of Luminex (provided, however, that such assignment shall not relieve Luminex of its obligations hereunder) or (ii) a Person acquiring substantially all of Luminex's assets if such acquisition would constitute a Change in Control.
8.9 Withholding. All compensation and benefits payable to Executive hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LUMINEX CORPORATION
By: /s/ Thomas W. Erickson ----------------------------------- EXECUTIVE /s/ Harriss T. Currie --------------------------------------- Harriss T. Currie |
EXHIBIT "A"
GENERAL RELEASE AGREEMENT
THIS GENERAL RELEASE AGREEMENT (this "Agreement") dated as of the______ __________ day of ____________, _____________________ [FILL IN EFFECTIVE DATE OF TERMINATION PURSUANT TO THE EMPLOYMENT AGREEMENT] (the "Effective Date"), is by and between Harriss T. Currie ("Executive") and Luminex Corporation ("Luminex").
WHEREAS, Executive's employment with Luminex has terminated pursuant to that certain Employment Agreement dated as of October 1, 2003 (the "Employment Agreement");
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Termination of Employment. Executive and Luminex hereby agree that Executive's employment with Luminex has terminated pursuant to Section _____ [FILL IN APPLICABLE SECTION] of the Employment Agreement effective as of the Effective Date. To the extent he continues to hold any such positions or directorships, Executive hereby resigns all positions and directorships he holds with Luminex and any and all of Luminex's subsidiaries and affiliates.
2. Release by Executive. Executive, on his own behalf and on behalf of the Executive Released Parties (defined below), hereby irrevocably and unconditionally releases and forever discharges Luminex, its respective subsidiaries and other affiliated and their respective agents, employees, representatives, officers, directors, stockholders, trustees and attorneys, past and present, and the heirs, successors and assigns of all of the foregoing (collectively, the "Released Parties") from any and all debts, liabilities, claims, demands, actions or causes of action, suits, judgments or controversies of any kind whatsoever (except as set forth below) arising from Executive's relationship (including without limitation as a stockholder) to, employment with or service as an employee, officer, director, or manager of Luminex or its subsidiaries and affiliates (collectively, the "Claims") against the Released Parties, that now exist or that may arise in the future out of any matter, transaction or event occurring prior to or on the Effective Date, including without limitation, any claims of breach of contract or for severance or other termination pay (except as set forth in Section 4 below), or claims of harassment or discrimination (for example, on the basis of age, sex, race, handicap, disability, religion, color or national origin) under any federal, state or local law, rule or regulation, including, but not limited to the Age Discrimination in Employment Act of 1967, 29 U.S.C. Section 621, et seq. Except as set forth below, Executive further agrees not to file or bring any claim, suit, civil action, complaint, arbitration or administrative action (any of the foregoing, an "Action") in any city, state or federal court or agency or arbitration tribunal with respect to any Claim against any of the Released Parties or (except as may be required by law) assist any other person or entity with any Action against any of the Released Parties. Notwithstanding anything to the contrary contained
in this Agreement, Executive does not release any of the Released Parties and shall not be prohibited from filing or bringing an Action with respect to any right Executive otherwise may have now or in the future to (i) receive distributions or dividends made in respect of Luminex's capital stock or (ii) be indemnified by Luminex under the Certificate of Incorporation or Bylaws of Luminex (as the same are currently in effect), any resolution adopted by the Board of Directors of Luminex, or any other separate written agreement or instrument requiring Luminex to indemnify Executive or (iii) receive workers' compensation claims or (iv) receive Accrued Obligations (as such term is defined in the Employment Agreement) or (v) receive Severance Compensation (as such term is defined in the Employment Agreement) or (vi) stock, options, and other equity-based compensation that vested prior to the Effective Date or that vests subsequent to the Effective Date pursuant to the Employment Agreement or an applicable Luminex long-term incentive plan (which stock, options or other equity-based compensation shall be governed by the terms and provisions of the applicable written agreement(s) or instrument(s) and/or the applicable Luminex incentive plan) or (vii) vested benefits payable under retirement and other employee benefit plans covering Executive (which benefits shall be governed by the terms and provisions of the applicable plan).
3. Release by Luminex. Luminex, on its own behalf and on behalf of the Released Parties, hereby irrevocably and unconditionally releases and forever discharges Executive and his heirs, successors and assigns (collectively, the "Executive Released Parties") from any and all Claims against the Executive Released Parties, that now exist or that may arise in the future. Except as set forth below, Luminex further agrees not to file or bring any Action in any city, state or federal court or agency or arbitration tribunal with respect to any Claim against any of the Executive Released Parties or (except as may be required by law) assist any other person or entity with any Action against any of the Executive Released Parties. Notwithstanding anything to the contrary contained in this Agreement, Luminex does not release any of the Executive Released Parties and shall not be prohibited from filing or bringing an Action with respect to (i) a breach by Executive after the Effective Date of any of Executive's obligations under the Employment Agreement that by their terms survive termination of the Employment Agreement, including without limitation the provisions of Article 5 of the Employment Agreement, or (ii) in connection with any claim for indemnification by Executive, any obligation or burden of proof applicable to Executive that is a condition to Executive's right to be indemnified by Luminex under the Certificate of Incorporation or Bylaws of Luminex (as the same are currently in effect), any resolution adopted by the Board of Directors of Luminex, or any other separate written agreement or instrument requiring Luminex to indemnify Executive or (iii) any Claims that arise out of any criminal or fraudulent activity, willful misconduct or gross negligence of Executive.
4. Severance Compensation. In consideration of Executive's execution of this Agreement, Executive shall be entitled to receive from Luminex the Severance Compensation under one of Section 4.1, 4.2 or 4.4 in the Employment Agreement. Executive acknowledges that no other promise or agreements of any kind have been made to Executive or with Executive by any person or entity whatsoever to cause Executive to sign this Agreement. Executive further acknowledges and agrees that the Severance Compensation, together with any other payments or benefits that may be due under the terms of the Employment Agreement, shall constitute full accord and satisfaction of all obligations, including without limitation any and all severance
obligations, in connection with Executive's employment. Executive would not be entitled to receive the Severance Compensation but for Executive's execution of this Agreement.
5. Disclaimer of Liability. Executive acknowledges that this Agreement shall not in any way be construed as an admission by Executive or any of the Released Parties of any wrongful or illegal act against the other or any other person, and that Executive and the Released Parties expressly disclaim any liability of any nature whatsoever arising from or related to the subject of this Agreement.
6. COMPETENCY. EXECUTIVE ACKNOWLEDGES THE FOLLOWING:
a. THAT HE FULLY COMPREHENDS AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT AND THEIR LEGAL EFFECTS;
b. THAT HE IS COMPETENT TO EXECUTE THIS AGREEMENT;
c. THAT IT IS EXECUTED KNOWINGLY AND VOLUNTARILY AND WITHOUT RELIANCE UPON ANY STATEMENT OR REPRESENTATION OF ANY RELEASED PARTY OR ITS REPRESENTATIVES;
d. THAT HE HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT AND THAT HE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS CHOICE REGARDING THIS AGREEMENT;
e. THAT EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE THIS AGREEMENT IS EXECUTED;
f. THAT EXECUTIVE WAIVES RIGHTS OR CLAIMS UNDER THIS AGREEMENT ONLY IN EXCHANGE FOR CONSIDERATION IN ADDITION TO ANYTHING OF VALUE TO WHICH THE EXECUTIVE WAS ALREADY ENTITLED;
g. [THAT HE HAS BEEN PROVIDED THE MATERIALS REGARDING THE CLASS, UNIT, OR GROUP OF INDIVIDUALS ELIGIBLE FOR THIS COMPENSATION AND THE TIME LIMITS APPLICABLE TO SUCH PROGRAM;] [This clause to be included if required by or advisable under applicable law.]
h. [THAT HE HAS BEEN PROVIDED THE JOB TITLES AND AGES OF ALL INDIVIDUALS ELIGIBLE OR SELECTED FOR THE PROGRAM AND THE AGES OF ALL INDIVIDUALS IN THE SAME JOB CLASSIFICATION OR ORGANIZATIONAL UNIT WHO ARE NOT ELIGIBLE OR SELECTED FOR THE PROGRAM;] [This clause to be included if required by or advisable under applicable law.]
i. THAT HE HAS HAD A PERIOD OF AT LEAST 21 DAYS [or 45 days, if required by or advisable under applicable law] WITHIN WHICH TO CONSIDER THIS AGREEMENT;
j. THAT FOR A PERIOD OF SEVEN DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT, EXECUTIVE MAY REVOKE THIS AGREEMENT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN-DAY PERIOD HAS EXPIRED OR SUCH LATER DATE AS PROVIDED FOR HEREIN.
7. Parties in Interest. This Agreement is for the benefit of the Released Parties and shall be binding upon Executive and his representatives and heirs.
8. Governing Law. This Agreement and the rights and obligations of Executive hereunder shall be governed by and construed and enforced in accordance with the substantive laws of the State of Texas.
9. Amendment. This Agreement may not be clarified, modified, changed or amended except in writing and signed by Executive and Luminex or a successor-in-interest of Luminex.
10. Non-disparagement. Executive agrees that he will refrain from speaking ill of or making any disparaging comment about Luminex or Luminex's management, other employees or contractors, following the termination of his employment except as may be necessary or advisable, in the reasonable judgment of Executive, to enforce his rights under this Agreement, enforce claims arising after the Effective Date and not released in this Agreement, or defend a legal action brought against Executive by any of the Released Party. Luminex agrees that it will refrain from speaking ill of or making any disparaging comment about Executive following the termination of his employment except as may be necessary or advisable, in the reasonable judgment of Luminex, to (i) to enforce its rights under the Employment Agreement or this Agreement not released in this Agreement or (ii) defend a legal action brought against any of the Released Parties by Executive or (iii) comply with applicable securities laws or protect Luminex from potential liability.
11. Enforcement of Laws. Nothing in this Agreement affects the rights and responsibilities of the Equal Employment Opportunity Commission (the "Commission") to enforce the anti-discrimination laws, and this waiver does not affect Executive's right to file a charge or participate in an investigation or proceeding with the Commission. However, Executive waives any rights or claims, known or unknown, to participate in any recovery under any proceeding or investigation by the Commission or any state or local commission concerned with the enforcement of anti-discrimination laws
12. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable provision, and there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LUMINEX CORPORATION
EXECUTIVE
Harriss T. Currie, individually
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of October 1, 2003 (the "Effective Date") by and between LUMINEX CORPORATION, a Delaware corporation ("Luminex") and DAVID S. REITER ("Executive").
RECITAL
WHEREAS, Executive is to be employed as the Vice President, General Counsel and Corporate Secretary of Luminex;
WHEREAS, Luminex and Executive wish to document the terms of the employment of Executive in such capacity; and
WHEREAS, Executive has represented to Luminex and Luminex has relied on Executive's representation that the execution of this Agreement by Executive, and the provision of services by Executive to Luminex as contemplated in this Agreement, will not conflict with, or cause Executive or any other person or entity to be in breach of, (i) any other contract to which Executive is a party or (ii) any duty which Executive may owe to any other person or entity.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DUTIES.
1.1 Duties. During the term of this Agreement (including all renewal periods, if any, the "Term"), Executive agrees to be employed by and to serve Luminex as Vice President, General Counsel and Corporate Secretary and Luminex agrees to employ and retain Executive in such capacity subject to the provisions of this Agreement. Executive shall have such powers, authority and duties, and shall render such services of executive and administrative character, or act in such other capacity for Luminex, as the Chief Executive Officer or the Board of Directors of Luminex (the "Board") shall from time to time lawfully direct and Executive shall report directly to the Chief Executive Officer of Luminex. Executive shall devote all of his business time, energy, and skill to the business of Luminex; provided, however, that Executive shall be permitted to continue his administrative and marketing responsibilities on behalf of Phillips & Reiter, PLLC, but only to the extent such activities neither (i) conflict with Executive's obligations set forth under this Agreement nor (ii) detract from Executive's contribution to Luminex as a full-time employee or Executive's responsibilities and duties as Vice President, General Counsel and Corporate Secretary of Luminex. Luminex and Executive agree that, in the event any dispute should arise between Luminex and Executive in respect of the exception
articulated in the immediately preceding sentence, the preceding sentence shall be construed in the manner most favorable to Luminex.
1.2 Special Provisions Regarding Part Time Employment. Notwithstanding anything to the contrary contained in Section 1.1 or elsewhere in this Agreement, during the period (the "Part Time Period") commencing on the Effective Date and ending on January 15, 2004, Executive shall be obligated to work only four days each week.
2. TERM AND TERMINATION.
2.1 Term. Subject to Section 2.2, the term of employment of Executive by Luminex shall be one (1) year commencing on the Effective Date and shall thereafter automatically renew for successive additional one-year terms unless either party provides the other with written notice of its intent not to renew this Agreement at least sixty (60) days prior to the end of the Term (unless terminated earlier pursuant to the provisions of this Agreement).
2.2 Termination of Employment.
2.2.1 Termination For Cause. "Termination For Cause" shall mean the termination by Luminex of Executive's employment with Luminex as the result of Executive's material fraud upon Luminex or Executive's continued material breach of this Agreement after receipt of written notice from Luminex specifying such breach and failure by Executive to cure such breach within fifteen (15) days from receipt of such notice. Executive's inability to perform his obligations under this Agreement despite his best efforts as a result of a permanent or temporary disability (as evidenced by a written determination from a physician chosen by Executive and reasonably acceptable to Luminex) shall not result in a Termination For Cause. In the event that Executive fails to cure the breach within the fifteen (15) day cure period, the termination shall be effective as of the date that Luminex notifies Executive of his termination following the expiration of the fifteen (15) day cure period. Upon any Termination For Cause, Executive shall be paid the Accrued Obligations (defined below) within three (3) business days following the effective date of termination.
2.2.2 Termination Other Than For Cause. "Termination Other Than For Cause" shall mean (i) termination by Luminex of Executive's employment with Luminex for any reason other than Termination For Cause, Termination by Reason of Death, Termination by Reason of Incapacity or Termination Upon Expiration of Agreement or (ii) termination by Executive upon constructive termination of Executive's employment with Luminex by reason of (A) a reduction in Executive's Base Salary (defined below); (B) a reduction in Executive's title from Vice President, General Counsel and Corporate Secretary of Luminex (whether by reason of Executive's removal from any of such offices or Luminex's failure to reappoint Executive to any of such offices); (C) a Material Diminution (defined below); (D) a requirement that Executive change his principal place of business to a location that is outside the Office Area (defined below), or (E) Luminex's continued material breach of this Agreement after receipt of written notice from Executive specifying such breach and failure by Luminex to cure such breach within fifteen (15) days from receipt of such notice. Termination Other Than For Cause
may be effected by Luminex at any time by providing Executive with written
notice of such termination. The termination shall be effective as of the date of
the notice or such later date as may be determined by Luminex. Executive may
also effect a Termination Other Than For Cause upon written notice to Luminex at
any time any of the conditions for constructive termination set forth in clause
(ii) above (including without limitation, if applicable, the expiration of the
cure period) have been met. Upon any Termination Other Than For Cause, Executive
shall be paid (i) within three (3) business days following the effective date of
termination the amount of the Accrued Obligations and (ii) all severance
compensation provided in Section 4.1. For purposes of this Agreement, "Material
Diminution" means a material diminution by Luminex of Executive's duties,
powers, authority, functions or responsibilities without Executive's consent,
such that Executive is left with such duties, powers, authority, functions and
responsibilities (when viewed in the aggregate) that are materially diminished
compared to both (i) those duties, powers, authority, functions and
responsibilities conferred upon Executive at the Effective Date and (ii) those
duties, powers, authority, functions and responsibilities that are most
typically conferred upon the employee general counsel of companies having both
(i) an employee general counsel and (ii) revenues comparable to Luminex (based
on the revenues of Luminex at the time of determination). Luminex and Executive
agree that in the event there is an ambiguity with respect to the interpretation
or application of the definition of "Material Diminution", such ambiguity shall
be resolved according to the reasonable interpretation of such definition most
favorable to Luminex. For purposes of this Agreement, "Office Area" means the
geographical area within a 40 mile radius of Luminex's current principal office
at 12212 Technology Blvd., Austin, Texas.
2.2.3 Actual Voluntary Termination. "Actual Voluntary Termination" shall mean termination by Executive of Executive's employment with Luminex for any reason other than Termination For Cause, Termination Other Than For Cause, Termination by Reason of Death or Termination by Reason of Incapacity. In the event of an Actual Voluntary Termination, Executive shall be paid within three (3) business days following the effective date of termination the amount of the Accrued Obligations.
2.2.4 Termination by Reason of Incapacity. If, during the Term, Executive shall become Permanently Disabled (defined below), Luminex may terminate Executive's employment with Luminex effective on the earliest date permitted under applicable law, if any, and such termination shall be deemed "Termination by Reason of Incapacity". Upon termination of employment under this Section, Executive shall be paid (i) within three (3) business days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.2. As used herein, Executive shall be deemed "Permanently Disabled" if Executive is (i) collecting long-term disability payments under a long-term disability plan established for the benefit of Luminex's employees or executives generally or a reasonably similar plan or (ii) if, and only if, no such long-term disability plan is in effect at the time of determination, a physician selected by Luminex and reasonably acceptable to Executive makes a written determination that Executive is unable to perform his obligations under this Agreement despite his best efforts by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuing period of not less than 12 months.
2.2.5 Termination by Reason of Death. In the event of Executive's death during the Term, Executive's employment with Luminex shall be deemed to have terminated as of the date on which his death occurs and the estate of Executive shall be paid (i) within fifteen (15) days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.3.
2.2.6 Termination Upon Expiration of Agreement. In the event that Luminex refuses for any reason to extend this Agreement by giving written notice at least 60 days prior to the initial or any renewal period as set forth in Section 2.1, Executive shall be paid (i) within three (3) business days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.4. In the event that Executive refuses for any reason (except as otherwise provided herein) to extend this Agreement by giving written notice at least 60 days prior to the initial or any renewal period as set forth in Section 2.1, the termination shall be deemed an Actual Voluntary Termination.
2.2.7 Termination of Relationship with Affiliated Entities. Unless agreed by Luminex (or a subsidiary thereof) and Executive in a separate written agreement (other than corporate minutes, resolutions, charter documents, bylaws and partnership agreements), upon the termination of Executive's employment with Luminex for any reason, Executive shall tender a written resignation of any positions he may have with Luminex and any and all of Luminex's direct and indirect subsidiaries.
2.2.8 Definition of Accrued Obligations. As used in this Agreement, "Accrued Obligations" means all accrued but unpaid salary, accrued but unpaid vacation, sick leave, and similar pay (all determined in accordance with Luminex's policies then in effect), and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all to the date of termination.
3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 Base Salary. As payment for the services to be rendered by Executive as provided in Section 1 and subject to the terms and conditions of Section 2, Luminex agrees to pay to Executive a "Base Salary" at the rate of $15,000 per month during the Part Time Period and thereafter at the rate of $210,000 per annum (or such greater amount as may be determined from time to time by the Board or the Compensation Committee thereof) payable in accordance with the then-current payroll policies of Luminex.
3.2 Bonuses. Executive may be eligible to receive a bonus each year (provided, however, that Executive shall not be eligible to receive a bonus in respect of the year ended December 31, 2003) in an amount up to 50% (or such higher percentage as may be determined from time to time by the Board or the Compensation Committee thereof) of Executive's Base Salary during the Term and any extensions hereof, with the actual amount of any such bonus to be determined in the sole discretion of the Board. The Board is under no obligation to declare, and Luminex is under no obligation to pay, any bonus to Executive under the terms of this Agreement. In the event Executive and Luminex are parties to a written
agreement or plan executed by both Luminex and Executive that governs bonus arrangements, and the provisions thereof conflict with this Section 3.2, the terms of such other written agreement or plan shall supersede this Section 3.2.
3.3 Change in Control. In the event that both (i) a Change in Control (defined below) of Luminex occurs during the Term and (ii) Executive's employment with Luminex (or, as applicable, its successor in interest) terminates for any reason (including without limitation an Actual Voluntary Termination by Executive) at any time within six (6) months following the occurrence of the Change in Control of Luminex, in lieu of any Severance Compensation then owed or that otherwise would be owed in the future to Executive under Section 4 of this Agreement, Luminex (or its successor in interest) shall pay Executive both the Accrued Obligations and a lump sum payment (the "Change in Control Payment") in an aggregate amount equal to the sum of (i) the Bonus Amount (defined below), plus (ii) an amount equal to Executive's annual Base Salary (at the highest rate in effect during the period beginning six months immediately prior to the effective date of the Change of Control through the date of termination) within three (3) business days after the termination of Executive's employment. In the interest of clarity, Luminex and Executive agree that, upon the termination of Executive's employment at any time within six (6) months following the occurrence of the Change in Control of Luminex, the provisions of Sections 4.1, 4.2, 4.3, 4.4, and 4.6 shall automatically be deemed null and void and shall not apply with respect to any termination of Executive's employment (whether such termination is effected in connection with the Change in Control of Luminex or at any time in the future following the Change in Control of Luminex), and under no circumstances shall Luminex ever be obligated to pay Executive both a Change in Control Payment and Severance Compensation under Section 4. For purposes of this Agreement, a "Change in Control" of Luminex shall be deemed to have occurred if, after the date of this Agreement:
(A) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than an Approved Person (as defined below)) becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a majority or more of the then outstanding Common Stock of Luminex ("Common Stock") (such Person, an "Acquiring Person"); or
(B) Luminex merges or consolidates with any other corporation or other entity, in each case other than a merger or consolidation which results in the voting securities of Luminex outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the combined voting power of the voting securities of Luminex or such surviving entity outstanding immediately after such merger or consolidation; or
(C) Luminex sells or disposes of all or substantially all of Luminex's assets in one transaction or a series of related transactions; or
(D) Luminex files a periodic or current report or proxy statement with the Securities and Exchange Commission (the "SEC") disclosing that a "change in control" (as such term is used in Item 1 of Form 8-K promulgated by the SEC) of Luminex has occurred; or
(E) If, as a result of nominations made by a person or group other than the Board of Directors of Luminex, individuals who prior to such nominations constitute the Directors of Luminex cease for any reason to constitute at least a majority thereof within the two year period following such nominations.
As used in this Agreement, "Approved Person" means (1) an employee benefit plan of Luminex (or a trustee or other fiduciary holding securities for such a plan), or (2) a corporation owned, directly or indirectly, by the stockholders of Luminex in substantially the same proportions as their ownership of stock of Luminex, or (3) a Person not less than a majority of whose voting securities are Beneficially Owned by Luminex after giving effect to the transaction.
As used in this Agreement, "Bonus Amount" means the annual bonus (if any) received or to be received by Executive under Section 3.2 in respect of the then most recently completed calendar year, or if no determination concerning bonuses has been made for the most recently completed calendar year, then the annual bonus (if any) for the previous calendar year.
Any options ("Options") granted (including without limitation Options
that may be granted in the future) and restricted stock ("Restricted Stock")
issued (including without limitation Restricted Stock that may be issued in the
future) to Executive pursuant to any incentive plan of Luminex shall immediately
vest upon a Change in Control. Luminex shall take no action to facilitate a
transaction involving a Change in Control, including without limitation
redemption of any rights issued pursuant to any rights agreement, unless it has
taken such action as may be necessary to ensure that Executive has the
opportunity to exercise all Options he may then hold, and obtain certificates
containing no restrictive legends in respect of any Restricted Stock he may then
hold, at a time and in a manner that shall give Executive the opportunity to
sell or exchange the securities of Luminex acquired upon exercise of his Options
and upon receipt of unrestricted certificates for shares of Common Stock in
respect of his Restricted Stock, if any (collectively, the "Acquired
Securities"), at the earliest time and in the most advantageous manner any
holder of the same class of securities as the Acquired Securities is able to
sell or exchange such securities in connection with such Change in Control.
Luminex acknowledges that its covenants in the preceding sentence (the
"Covenants") are reasonable and necessary in order to protect the legitimate
interests of Luminex in maintaining Executive as one of its employees and that
any violation of the Covenants by Luminex would result in irreparable injuries
to Executive, and Luminex therefore acknowledges that in the event of any
violation of the Covenants by Luminex or its directors, officers or employees,
or any of their respective agents, Executive shall be entitled to obtain from
any court of competent jurisdiction temporary, preliminary and permanent
injunctive relief in order to (i) obtain specific performance of the Covenants,
(ii) obtain specific performance of the exercise of his Options, delivery of
certificates containing no restrictive legends in respect of his Restricted
Stock and the sale or exchange of the Acquired Securities in the advantageous
manner contemplated above or (iii) prevent violation of the Covenants; provided
nothing in this Agreement shall be deemed to prejudice Executive's rights to
damages for violation of the Covenants. In the event that the terms of any
separate written agreement concerning Options granted or Restricted Stock issued
to Executive conflict with the terms of this paragraph, the terms of this
paragraph shall control.
3.4 Additional Benefits. During the Term, Executive shall be entitled to the following fringe benefits:
3.4.1 Benefits and Vacation. Executive shall be eligible to participate in such of Luminex's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of Luminex. A termination or expiration of this Agreement for any reason or for no reason shall not affect any rights which Executive may have pursuant to any agreement, policy, plan, program or arrangement of Luminex providing Executive benefits (including under any stock option agreement or bonus plan or agreement which may exist), which rights shall be governed by the terms thereof. Executive shall be entitled to three (3) weeks paid vacation each calendar year (prorated for partial years), except that Executive shall not be entitled to any vacation during the Part Time Period. Unless approved in advance by the Board or a committee thereof, accrued vacation not taken in any applicable period shall not be carried forward or used in any subsequent period.
3.4.2 Reimbursement for Expenses.
3.4.2.1 Incidental Expenses. Luminex shall reimburse Executive for reasonable and properly documented out-of-pocket business and/or entertainment expenses incurred by Executive in connection with his duties under this Agreement. Any such expenses shall be submitted by Executive to Luminex on a periodic basis and will be paid in accordance with standard Luminex policies and procedures.
3.4.2.2 Moving Expenses. In the event of the relocation of Luminex's headquarters to a location that is outside the Office Area and Executive elects to relocate, Luminex shall (i) reimburse Executive for any reasonable, out-of-pocket and adequately documented moving expenses incurred by Executive in connection with the transfer of his residence and (ii) pay to an Executive an amount of cash reasonably calculated by Luminex to negate adverse income tax consequences to Executive of the foregoing reimbursement.
4. SEVERANCE COMPENSATION.
4.1 Severance Compensation in the Event of a Termination Other Than For Cause. In the event Executive's employment is terminated as a result of a Termination Other Than for Cause, Executive shall be paid (subject to Section 4.6) the Severance Compensation (defined below).
4.2 Severance Compensation for Termination by Reason of Incapacity. In the event Executive's employment is terminated as a result of a Termination by Reason of Incapacity, Executive shall be paid (subject to Section 4.6) the difference of (i) the Severance Compensation less (ii) any payment or payments received by Executive during the twelve (12) month period from the time of termination under any long-term disability plan in effect that provides benefits to Executive.
4.3 Severance Compensation for Termination by Reason of Death. In the event Executive's employment is terminated as a result of Executive's death, the estate of Executive shall be paid the Severance Compensation.
4.4 Severance Compensation In the Event Of A Failure Of Luminex To Renew This Agreement. In the event Luminex fails or otherwise refuses for any reason to extend this Agreement beyond the Term and any extensions thereof, Executive shall be paid (subject to Section 4.6) the Severance Compensation.
4.5 No Severance Compensation Upon Other Termination. In the event of an Actual Voluntary Termination or Termination For Cause, Executive shall not be paid any severance compensation.
4.6 Conditions to Payment; Sole Remedy. Executive shall not be entitled to receive any compensation or other payment pursuant to Sections 4.1, 4.2 or 4.4 unless Executive shall have executed and delivered to Luminex a release substantially in the form attached hereto as Exhibit "A" and, provided Luminex has also signed such release within two (2) business days of execution and delivery by Executive, all revocation and waiting periods applicable to such release have expired (if Luminex fails to sign such release, then such revocation and waiting periods shall not apply). In addition, in the event that Executive breaches any of the restrictive covenants set forth in Article 5 at any time, Luminex shall be entitled to discontinue any compensation or other payments pursuant to Sections 4.1, 4.2 or 4.4 (provided, however, that if it is finally determined by a court of competent jurisdiction or an arbitrator that Luminex asserted in bad faith that Executive breached any of the restrictive covenants set forth in Article 5, the payments of the Severance Compensation shall be extended for two months for each calendar month that payments were delayed. The compensation to be paid to Executive pursuant to Sections 4.1, 4.2, 4.3 or 4.4 shall represent the sole and exclusive remedy of Executive in connection with the termination of his employment and this Agreement upon a Termination Other Than for Cause, a Termination by Reason of Incapacity, a termination in connection with Executive's death, or a refusal by Luminex to extend this Agreement beyond the Term and any extensions thereof.
4.7 Definition of Severance Compensation. As used in this Agreement, "Severance Compensation" means an amount equal to the sum of (i) the Bonus Amount plus (ii) an amount equal to Executive's annual Base Salary (at the highest rate in effect for the six month period immediately prior to the date of termination), paid in semi-monthly installments for a period of twelve (12) months from the date of termination. In addition, as part of the Severance Compensation, Luminex also shall pay (until the earlier of (A) the first annual anniversary of the termination of this Agreement or (B) the date that Executive is eligible to be covered under a comparable or more favorable health plan of another Person) (i) COBRA payments in respect of the continuation of health benefits for Executive, his spouse and his children and (ii) payments to fund dental coverage for Executive, his spouse and his children comparable to the dental coverage that they would have received if Executive had continued as an employee of Luminex.
5. PROTECTION OF LUMINEX.
5.1 Non-Competition. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive agrees that during Executive's employment with Luminex and for a period of one year following termination of employment, whether such termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not compete directly or indirectly in any way with the business of Luminex anywhere in the world where Luminex conducted business during the Term. For purposes of this Agreement, "compete directly or indirectly in any way with the business of Luminex" means to become an employee, consultant, advisor, manager, member, director of or beneficially own more than three percent of any individual, company or entity that competes with Luminex in the Core Business (defined below) at the time of determination. Executive agrees that the assertion or existence of any claim by Executive against Luminex shall not be a defense to the enforcement of this paragraph by injunction or otherwise. As used in this Agreement, "Core Business" means the development, manufacturing and/or marketing of biological testing technologies with applications in the life-sciences industry.
5.2 Nonsolicitation. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive agrees that, for a period of one (1) year subsequent to the termination of Executive's employment with Luminex, whether such termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not recruit, hire, or attempt to recruit or hire, directly or by assisting others, any other employees of Luminex, nor shall Executive contact or communicate with any other employees of Luminex for the purpose of inducing other employees to terminate their employment with Luminex. For purposes of this covenant, "other employees of Luminex" shall refer to employees who are still actively employed by, or doing business with, Luminex or a subsidiary of Luminex at the time of the attempted recruiting or hiring.
5.3 Remedies. Due to the irreparable and continuing nature of the injury which would result from a breach of the covenants described in Sections 5.1 and 5.2, Executive agrees that Luminex may, in addition to any remedy which Luminex may have at law or in equity, apply to any court of competent jurisdiction for the entry of an immediate order to restrain or enjoin the breach of this covenant and to otherwise specifically enforce the provisions of the covenants set forth in Sections 5.1 and 5.2.
5.4 Acknowledgment. Executive acknowledges and agrees that the restrictions set forth above are ancillary to an otherwise enforceable agreement and supported by independent valuable consideration as required by
TEX. BUS. & COMM. CODE ANN. Section 15.50. Executive further acknowledges and agrees that the limitations as to time, geographical area, and scope of activity to be restrained by Sections 5.1 and 5.2 are reasonable and acceptable to Executive, and do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests of Luminex.
5.5 Reformation and Severance. If a judicial determination is made that any of the provisions of the above restriction constitutes an unreasonable or otherwise unenforceable
restriction against Executive, it shall be rendered void only to the extent that such judicial determination finds such provisions to be unreasonable or otherwise unenforceable. In this regard, the parties hereby agree that any judicial authority construing this Agreement shall be empowered to sever any portion of the prohibited business activity from the coverage of this restriction and to apply the restriction to the remaining portion of the business activities not so severed by such judicial authority. Moreover, notwithstanding the fact that any provisions of this restriction are determined by a court not to be specifically enforceable through injunctive relief, Luminex shall nevertheless be entitled to seek to recover monetary damages as a result of the breach of any provision which is not reformed by a court. The time period during which the restrictions shall apply shall be tolled and suspended as to Executive for a period equal to the aggregate quantity of time during which Executive violates such prohibitions in any respect.
5.6 Confidential Information and Trade Secrets. As used herein, "Confidential Information" means any data or information that is important, competitively sensitive, and not generally known by the public or persons involved in the biological testing or life sciences industries, including, but not limited to, Luminex's business plans, Prospective Customers, training manuals, proprietary software, product development plans, bidding and pricing procedures, market plans and strategies, projections, internal performance statistics, financial data, confidential personnel information concerning employees of Luminex, operational or administrative plans, policy manuals, and terms and conditions of contracts and agreements. The term "Confidential Information" shall not apply to information which is (i) already in Executive's possession (unless such information was obtained by Executive from Luminex in the course of Executive's employment by Luminex); (ii) received by Executive from a third party with, to Executive's knowledge, no restriction on disclosure or (iii) required to be disclosed by any applicable law or by an order of a court of competent jurisdiction.
Executive recognizes and acknowledges that the Confidential Information constitutes valuable, special and unique assets of Luminex and its affiliates. Except as required to perform Executive's duties as an Executive of Luminex, until such time as they cease to be Confidential Information through no act of Executive in violation of this Agreement, Executive will not use or disclose any Confidential Information of Luminex. Upon the request of Luminex and, in any event, upon the termination of this Agreement for any reason, Executive will surrender to Luminex (i) all memoranda, notes, records, drawings, manuals or other documents pertaining to Luminex's business including all copies and/or reproductions thereof and (ii) all materials involving any Confidential Information of Luminex.
5.7 Preservation of Luminex Property. Executive acknowledges that from time to time in the course of employment with Luminex, Executive has had the opportunity to inspect and use certain property of Luminex, both tangible and intangible, including but not limited to files, records, documents, drawings, specifications, lists, equipment, graphics, designs, and similar items relating to the business of Luminex. Executive acknowledges and agrees that all such property, including but not limited to any and all copies thereof, whether prepared by Executive or otherwise in the possession of Executive, are and shall remain the exclusive property of Luminex, that Executive shall have no right or proprietary interest in such property
and that Executive will safeguard and return to Luminex all such property upon the earlier of (i) Luminex's request and (ii) the termination of Executive's employment with Luminex.
5.8 Assignment of Inventions to Luminex. All computer software, compilations, programs, improvements, inventions, notes, copyrightable works, and opportunities for additional Luminex business, made, fixed, conceived, or acquired by Executive during the Term are exclusively owned by Luminex, are Luminex's works for hire, and fully assigned to Luminex including without limitation all rights to renewals, extensions, causes of action, reproduce, prepare derivative works, distribute, display, perform, transfer, make, use and sell and may never be copied, used, or disclosed without Luminex's express written consent. Executive will sign on request any documents affirming the same for any particular item.
5.9 Notice to Subsequent Employers. Executive agrees that, prior to commencing any new employment in the Core Business within twelve months after the termination of this Agreement, Executive will furnish the new employer with a copy of this Agreement. Executive also agrees that Luminex may advise any new or prospective employer of the existence and terms of this Agreement and furnish the employer with a copy of this Agreement.
6. DISCLOSURE OF INVESTMENTS. Commencing upon Executive's execution of this Agreement and at all times during the Term, Executive shall keep the Board informed in writing of the nature and extent of Executive's investments, stock holdings, or retention as a director, advisor or any similar interest in any business or enterprise involved in the Core Business other than Luminex; provided, however, that Executive shall not be required to disclose any such investments or stock holdings that constitute less than 1% of such entity's total obligations or total voting power.
7. ARBITRATION.
7.1 Exclusive Remedy. Arbitration shall be the sole and exclusive remedy for resolving any claim or dispute which cannot be mutually resolved between the parties to this Agreement with the exception of disputes arising out of Executive's obligations under Article 5 or disputes arising out of Luminex's obligations under the last paragraph of Section 3.3, which are not subject to this arbitration provision; provided however, that the parties hereto agree that they may bring action in any court of competent jurisdiction to enforce any award granted pursuant to arbitration or to otherwise enforce this Article 7. This includes, but is not limited to, termination, interpretation or application of this Agreement or any other agreement or policy of Luminex, any claim of violation of law relating to the employment relationship, including, without limitation, any claim of employment discrimination or sexual harassment, or harassment based on any other prohibited basis, or any claim by Luminex against Executive. This Agreement is a waiver of the right to trial by a jury or court.
7.2 Limitations. The request for arbitration must be made within one (1) year from the date of the occurrence giving rise to the dispute or claim; or, in the event of a statutory claim, the time set forth by statute.
7.3 Rules and Procedures. The arbitration will be conducted under the rules and procedures for arbitration of employment disputes of the American Arbitration Association. The arbitration shall take place in Austin, Texas unless the parties mutually agree to another location.
7.4 Arbitrator's Authority. Upon finding that a claim is meritorious or in favor of one of the parties to the dispute, the arbitrator or arbitrators shall have the authority to order legal and equitable remedies appropriate as permitted by law.
7.5 Expenses. Costs of obtaining and paying the arbiter and the costs associated with conducting the arbitration, including obtaining a facility to be used during the arbitration, shall be paid by Luminex. Other costs of the arbitration or any litigation associated with any dispute arising under or in connection with this Agreement including, without limitation, reasonable attorneys' and experts' fees and expenses of Luminex and the Executive shall be borne by the party incurring such expense unless the arbiter or court of law, as the case may be, awards costs to one of the parties.
8. MISCELLANEOUS.
8.1 Waiver. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof.
8.2 Entire Agreement; Modifications. Except as otherwise provided herein, this Agreement represents the sole, entire, and complete understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Executive from Luminex. All modifications to the Agreement must be in writing and signed by both Executive and Luminex.
8.3 Notices. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three business days after mailing or one business day after transmission of a facsimile (with confirmation of receipt) to the respective persons named below:
If to Luminex: Luminex Corporation. 12212 Technology Blvd. Austin, Texas 78727 Fax: (512) 219-5195 Attn: President -12- |
With a copy to Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Fax: (214) 953-5822 Attn: Michael E. Taten If to Executive: David S. Reiter 9413 Savannah Ridge Drive Austin, Texas 78726 |
Any party may change such party's address for notices by notice duly given pursuant to this Section 8.3.
8.4 Headings. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement.
8.5 Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. Subject in all respects to Section 7 generally and Section 7.3 in particular, any dispute arising out of or relating to this Agreement may be brought in a court of competent jurisdiction located in Austin, Texas, and both of the parties to this Agreement irrevocably submit to the exclusive jurisdiction of such courts in any such dispute, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the dispute shall be heard and determined only in any such court, and agrees not to bring any dispute arising out of or relating to this Agreement in any other court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement among the parties irrevocably to waive any objections to venue or to convenience of forum. Process in any dispute may be served on any party anywhere in the world.
8.6 Severability. Should any court of competent jurisdiction determine that any provision of this Agreement is illegal or unenforceable to any extent, such provision shall be enforced to the extent permissible and all other provisions of this Agreement shall continue to be enforceable to the extent possible.
8.7 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement.
8.8 Assignment. Neither this Agreement nor any duties or obligations hereunder may be assigned by either party without the other party's prior written consent; provided, however, that Luminex may assign this Agreement to either (i) a wholly-owned subsidiary of Luminex (provided, however, that such assignment shall not relieve Luminex of its obligations hereunder) or (ii) a Person acquiring substantially all of Luminex's assets if such acquisition would constitute a Change in Control.
8.9 Withholding. All compensation and benefits payable to Executive hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LUMINEX CORPORATION
By: /s/ Thomas W. Erickson ------------------------------------- EXECUTIVE /s/ David S. Reiter ----------------------------------------- David S. Reiter |
EXHIBIT "A"
GENERAL RELEASE AGREEMENT
THIS GENERAL RELEASE AGREEMENT (this "Agreement") dated as of the day of , _____________ __________, _______________ [FILL IN EFFECTIVE DATE OF TERMINATION PURSUANT TO THE EMPLOYMENT AGREEMENT] (the "Effective Date"), is by and between David S. Reiter ("Executive") and Luminex Corporation ("Luminex").
WHEREAS, Executive's employment with Luminex has terminated pursuant to that certain Employment Agreement dated as of October 1, 2003 (the "Employment Agreement");
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Termination of Employment. Executive and Luminex hereby agree that Executive's employment with Luminex has terminated pursuant to Section _____ [FILL IN APPLICABLE SECTION] of the Employment Agreement effective as of the Effective Date. To the extent he continues to hold any such positions or directorships, Executive hereby resigns all positions and directorships he holds with Luminex and any and all of Luminex's subsidiaries and affiliates.
2. Release by Executive. Executive, on his own behalf and on behalf of the Executive Released Parties (defined below), hereby irrevocably and unconditionally releases and forever discharges Luminex, its respective subsidiaries and other affiliated and their respective agents, employees, representatives, officers, directors, stockholders, trustees and attorneys, past and present, and the heirs, successors and assigns of all of the foregoing (collectively, the "Released Parties") from any and all debts, liabilities, claims, demands, actions or causes of action, suits, judgments or controversies of any kind whatsoever (except as set forth below) arising from Executive's relationship (including without limitation as a stockholder) to, employment with or service as an employee, officer, director, or manager of Luminex or its subsidiaries and affiliates (collectively, the "Claims") against the Released Parties, that now exist or that may arise in the future out of any matter, transaction or event occurring prior to or on the Effective Date, including without limitation, any claims of breach of contract or for severance or other termination pay (except as set forth in Section 4 below), or claims of harassment or discrimination (for example, on the basis of age, sex, race, handicap, disability, religion, color or national origin) under any federal, state or local law, rule or regulation, including, but not limited to the Age Discrimination in Employment Act of 1967, 29 U.S.C. Section 621, et seq. Except as set forth below, Executive further agrees not to file or bring any claim, suit, civil action, complaint, arbitration or administrative action (any of the foregoing, an "Action") in any city, state or federal court or agency or arbitration tribunal with respect to any Claim against any of the Released Parties or (except as may be required by law) assist any other person or entity with any Action against any of the Released Parties. Notwithstanding anything to the contrary contained
in this Agreement, Executive does not release any of the Released Parties and shall not be prohibited from filing or bringing an Action with respect to any right Executive otherwise may have now or in the future to (i) receive distributions or dividends made in respect of Luminex's capital stock or (ii) be indemnified by Luminex under the Certificate of Incorporation or Bylaws of Luminex (as the same are currently in effect), any resolution adopted by the Board of Directors of Luminex, or any other separate written agreement or instrument requiring Luminex to indemnify Executive or (iii) receive workers' compensation claims or (iv) receive Accrued Obligations (as such term is defined in the Employment Agreement) or (v) receive Severance Compensation (as such term is defined in the Employment Agreement) or (vi) stock, options, and other equity-based compensation that vested prior to the Effective Date or that vests subsequent to the Effective Date pursuant to the Employment Agreement or an applicable Luminex long-term incentive plan (which stock, options or other equity-based compensation shall be governed by the terms and provisions of the applicable written agreement(s) or instrument(s) and/or the applicable Luminex incentive plan) or (vii) vested benefits payable under retirement and other employee benefit plans covering Executive (which benefits shall be governed by the terms and provisions of the applicable plan).
3. Release by Luminex. Luminex, on its own behalf and on behalf of the Released Parties, hereby irrevocably and unconditionally releases and forever discharges Executive and his heirs, successors and assigns (collectively, the "Executive Released Parties") from any and all Claims against the Executive Released Parties, that now exist or that may arise in the future. Except as set forth below, Luminex further agrees not to file or bring any Action in any city, state or federal court or agency or arbitration tribunal with respect to any Claim against any of the Executive Released Parties or (except as may be required by law) assist any other person or entity with any Action against any of the Executive Released Parties. Notwithstanding anything to the contrary contained in this Agreement, Luminex does not release any of the Executive Released Parties and shall not be prohibited from filing or bringing an Action with respect to (i) a breach by Executive after the Effective Date of any of Executive's obligations under the Employment Agreement that by their terms survive termination of the Employment Agreement, including without limitation the provisions of Article 5 of the Employment Agreement, or (ii) in connection with any claim for indemnification by Executive, any obligation or burden of proof applicable to Executive that is a condition to Executive's right to be indemnified by Luminex under the Certificate of Incorporation or Bylaws of Luminex (as the same are currently in effect), any resolution adopted by the Board of Directors of Luminex, or any other separate written agreement or instrument requiring Luminex to indemnify Executive or (iii) any Claims that arise out of any criminal or fraudulent activity, willful misconduct or gross negligence of Executive.
4. Severance Compensation. In consideration of Executive's execution of this Agreement, Executive shall be entitled to receive from Luminex the Severance Compensation under one of Section 4.1, 4.2 or 4.4 in the Employment Agreement. Executive acknowledges that no other promise or agreements of any kind have been made to Executive or with Executive by any person or entity whatsoever to cause Executive to sign this Agreement. Executive further acknowledges and agrees that the Severance Compensation, together with any other payments or benefits that may be due under the terms of the Employment Agreement, shall constitute full accord and satisfaction of all obligations, including without limitation any and all severance
obligations, in connection with Executive's employment. Executive would not be entitled to receive the Severance Compensation but for Executive's execution of this Agreement.
5. Disclaimer of Liability. Executive acknowledges that this Agreement shall not in any way be construed as an admission by Executive or any of the Released Parties of any wrongful or illegal act against the other or any other person, and that Executive and the Released Parties expressly disclaim any liability of any nature whatsoever arising from or related to the subject of this Agreement.
6. COMPETENCY. EXECUTIVE ACKNOWLEDGES THE FOLLOWING:
a. THAT HE FULLY COMPREHENDS AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT AND THEIR LEGAL EFFECTS;
b. THAT HE IS COMPETENT TO EXECUTE THIS AGREEMENT;
c. THAT IT IS EXECUTED KNOWINGLY AND VOLUNTARILY AND WITHOUT RELIANCE UPON ANY STATEMENT OR REPRESENTATION OF ANY RELEASED PARTY OR ITS REPRESENTATIVES;
d. THAT HE HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT AND THAT HE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS CHOICE REGARDING THIS AGREEMENT;
e. THAT EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE THIS AGREEMENT IS EXECUTED;
f. THAT EXECUTIVE WAIVES RIGHTS OR CLAIMS UNDER THIS AGREEMENT ONLY IN EXCHANGE FOR CONSIDERATION IN ADDITION TO ANYTHING OF VALUE TO WHICH THE EXECUTIVE WAS ALREADY ENTITLED;
g. [THAT HE HAS BEEN PROVIDED THE MATERIALS REGARDING THE CLASS, UNIT, OR GROUP OF INDIVIDUALS ELIGIBLE FOR THIS COMPENSATION AND THE TIME LIMITS APPLICABLE TO SUCH PROGRAM;] [This clause to be included if required by or advisable under applicable law.]
h. [THAT HE HAS BEEN PROVIDED THE JOB TITLES AND AGES OF ALL INDIVIDUALS ELIGIBLE OR SELECTED FOR THE PROGRAM AND THE AGES OF ALL INDIVIDUALS IN THE SAME JOB CLASSIFICATION OR ORGANIZATIONAL UNIT WHO ARE NOT ELIGIBLE OR SELECTED FOR THE PROGRAM;] [This clause to be included if required by or advisable under applicable law.]
i. THAT HE HAS HAD A PERIOD OF AT LEAST 21 DAYS [or 45 days, if required by or advisable under applicable law] WITHIN WHICH TO CONSIDER THIS AGREEMENT;
j. THAT FOR A PERIOD OF SEVEN DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT, EXECUTIVE MAY REVOKE THIS AGREEMENT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN-DAY PERIOD HAS EXPIRED OR SUCH LATER DATE AS PROVIDED FOR HEREIN.
7. Parties in Interest. This Agreement is for the benefit of the Released Parties and shall be binding upon Executive and his representatives and heirs.
8. Governing Law. This Agreement and the rights and obligations of Executive hereunder shall be governed by and construed and enforced in accordance with the substantive laws of the State of Texas.
9. Amendment. This Agreement may not be clarified, modified, changed or amended except in writing and signed by Executive and Luminex or a successor-in-interest of Luminex.
10. Non-disparagement. Executive agrees that he will refrain from speaking ill of or making any disparaging comment about Luminex or Luminex's management, other employees or contractors, following the termination of his employment except as may be necessary or advisable, in the reasonable judgment of Executive, to enforce his rights under this Agreement, enforce claims arising after the Effective Date and not released in this Agreement, or defend a legal action brought against Executive by any of the Released Party. Luminex agrees that it will refrain from speaking ill of or making any disparaging comment about Executive following the termination of his employment except as may be necessary or advisable, in the reasonable judgment of Luminex, to (i) to enforce its rights under the Employment Agreement or this Agreement not released in this Agreement or (ii) defend a legal action brought against any of the Released Parties by Executive or (iii) comply with applicable securities laws or protect Luminex from potential liability.
11. Enforcement of Laws. Nothing in this Agreement affects the rights and responsibilities of the Equal Employment Opportunity Commission (the "Commission") to enforce the anti-discrimination laws, and this waiver does not affect Executive's right to file a charge or participate in an investigation or proceeding with the Commission. However, Executive waives any rights or claims, known or unknown, to participate in any recovery under any proceeding or investigation by the Commission or any state or local commission concerned with the enforcement of anti-discrimination laws
12. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable provision, and there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LUMINEX CORPORATION
EXECUTIVE
David S. Reiter, individually
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Luminex Project, Inc., a Delaware corporation (formerly known as Rules-Based
Medicine, Inc.)
Luminex International, Inc., a Delaware corporation
Luminex B.V., a Dutch Private Limited Liability Company
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-46686) pertaining to the 2000 Long-Term Incentive Plan of Luminex Corporation and in the Registration Statement (Form S-8 No. 333-87918) pertaining to the 2001 Broad-Based Stock Option Plan of Luminex Corporation of our report dated January 21, 2004, with respect to the consolidated financial statements of Luminex Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 2003.
/s/ Ernst & Young LLP Austin, Texas March 9, 2004 |
Exhibit 31.1
CERTIFICATION
I, Thomas W. Erickson, certify that:
1. I have reviewed this annual report on Form 10-K of Luminex Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant's ability to record, process, summarize and report financial information and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004 By: /s/ Thomas W. Erickson -------------------------------- Thomas W. Erickson Interim President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Harriss T. Currie, certify that:
1. I have reviewed this annual report on Form 10-K of Luminex Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant's ability to record, process, summarize and report financial information and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004 By: /s/ Harriss T. Currie ------------------------------------- Harriss T. Currie Chief Financial Officer and Treasurer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Luminex Corporation (the "Company") on Form 10-K for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas W. Erickson, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Thomas W. Erickson --------------------------- Thomas W. Erickson Interim President and Chief Executive Officer March 12, 2004 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Luminex Corporation (the "Company") on Form 10-K for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harriss T. Currie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Harriss T. Currie -------------------------- Harriss T. Currie Chief Financial Officer March 12, 2004 |