COOPERATION AND PROJECT FUNDING AGREEMENT

EXHIBIT 10.19



COOPERATION AND PROJECT FUNDING AGREEMENT











Agreement made this 16 day of July 1995, by and





The ISRAEL-UNITED STATES BINATIONAL INDUSTRIAL RESEARCH AND DEVELOPMENT FOUNDATION, a legal entity created by Agreement between the Government of the State of Israel and the Government of the United States of America, and promulgated into law by the Israeli Knesset in 1978 under the title of the Law of the BINATIONAL INDUSTRIAL RESEARCH AND DEVELOPMENT FOUNDATION, effective May 18th, 1977, (hereinafter referred to as the "Foundation"),



AND,



Applied Imaging Ltd.



Applied Imaging Corporation



severally and jointly (hereinafter collectively referred to as the "Proposer" and separately as the "Participants").





WHEREAS the Foundation has been established under an Agreement between the Government of the State of Israel and the Government of the United States of America to promote and support joint nondefense industrial research and development activities of mutual benefit to Israel and the United States, and



WHEREAS the Proposer has heretofore submitted to the Foundation a proposal (hereinafter the "Proposal"), entitled "Fetal Cell in Maternal Blood (FCMB) Program" and on the basis of said Proposal has applied to the Foundation for certain funding assistance for the development of the products therein described (and hereinafter referred to collectively as the "Innovation"), and



WHEREAS the Foundation has examined and duly approved the Proposal and is willing to provide certain funding for the implementation of the Proposal on the terms and conditions hereinafter set forth;





Now therefore the parties hereto agree as follows:



A. GENERAL A.1. The preamble to this Agreement shall be deemed an integral part



A.2 The Participants shall be bound and obliged jointly and severally, as

herein provided.



A.3. The Executive Director of the Foundation is empowered by its Board of

Governors to execute this Agreement and to perform all acts under the

terms hereof on behalf of the Foundation.



A.4. The following document is incorporated by reference and made a part of

this Agreement:

The Proposal, dated the 17th day of April, 1995, as stamped with

the Foundation's approval of the 7th day of June, 1995.

Nonetheless should any provision of said Proposal be inconsistent

with any other provision of this Agreement, the provisions

otherwise set forth in this document shall control.



A.5. The following document is referenced, and is incorporated by reference

only as portions may be specifically referred to and incorporated

hereafter:

BIRD Foundation Procedures Handbook 1994.



B. PROJECT FINANCING B.1. The Foundation hereby agrees to fund, by Conditional Grant, the

implementation of the Proposal in the maximum sum of $543,152 or 50%

of the actual expenditures on the project, as contemplated in the

Approved Project Budget set forth in Annex A hereto, whichever is

less, and at the times and as may otherwise be set forth in Annex B



B.1.1. The percentage of the actual expenditures on the project which the

Foundation provides shall hereinafter be described as the

"Foundation's pro rata share".



B.2. The Proposer shall provide in timely fashion all budgetary funds in

excess of those provided hereunder by the Foundation.



B.3. Proposer shall make payments to the Foundation based on Gross Sales

derived from the sale, leasing or other marketing or commercial

exploitation of the Innovation, including service or maintenance

contracts, commencing with the first such commercial transaction. In

recognition of the expenses incurred by the Proposer in the

development of the fetal cell system prior to the effective date of

this Agreement, the basis for repayments to the Foundation shall be

25% of the Gross Sales, hereinafter defined as Adjusted Gross Sales.'

Such payments shall be made on the following basis: a) The Conditional

Grant referred to in Sub.Sec.B.1. above (plus any other sums actually

awarded to the Proposer by the Foundation in connection with the

subject matter of the Proposal ("Other Sums")) shall be repaid in U.S.

Dollars at the rate of 2 1/2% of the first year's Adjusted Gross

Sales, and, in succeeding years, at the rate of 5% of the Adjusted

Gross Sales until 100% of the Conditional Grant and Other Sums has

been repaid, whereupon the repayment rate shall decrease to 2 1/2% of

the Adjusted Gross Sales, such repayments to be in equivalent dollars

valued at time of repayment. The rate of change of value shall be that

designated in Annex C hereto. b) When the Proposer shall have repaid

the following maximum percentages in equivalent dollars valued at the

time of repayment (Annex C) of the Conditional Grant and Other Sums in

any of the following years following the first commercial transaction,





no additional payments to the Foundation on account of the Conditional

Grant and Other Sums shall be required.





Years Following Maximum Percentage of

First Commercial Conditional Grant and

Transaction Other Sums to be Repaid



1 116

2 124

3 132

4 141

5 148

6 and more 150





Notwithstanding the above provisions of this Sub.Sec.B.3., Proposer

shall not be required to make payments to the Foundation in excess of

$50,000 in the first year of sales, commencing with the first such

commercial transaction, any additional amount which might otherwise

have been due to be carried forward to the following year, nor shall

the Proposer be required to make payments to the Foundation in excess

of $275,000 in the first two years of sales, any additional amount

which might otherwise have been due to be carried over to the

following year, nor shall Proposer be required to make payments to the

Foundation in excess of $550,000 in the first three-years of sales,

any additional amount which might otherwise have been due to be

carried over to the next year, nor shall the Proposer be required to

make payments to the Foundation in excess of $750,000 in the first

four years of sales, any additional amount which might otherwise have

been due to be carried over to the following year, until all repayment

obligations have been satisfied.



B.3.1. The term "Adjusted Gross Sales" shall include all specific export

incentives or bonuses paid the Proposer on account of sale of the

Innovation for export, but shall not include sums paid for commissions

brokerage value added and sales taxes on the sale of the finished

product, or transportation and associated insurance costs, if same

have been included in the Adjusted Gross Sales price.



B.3.2. The Innovation shall be deemed to have been sold, marketed or

otherwise commercially exploited if the Innovation, or any

improvement, modification or extension of it is put to the benefit of

a third party, whether directly or indirectly, and whether standing

alone or incorporated into or cojoined with other hardware or

processes, and for which benefit the said third party gives something

of value. This provision shall not apply to transactions between the

Participants or between the Participants and their parents or

subsidiaries. Should such parent or subsidiary resell the Innovation

separately identified or incorporated in a system, the sales price

shall be the price to third parties from the parent or subsidiary

making the sale, such sales price being defined by the same criteria

as sales are defined for purposes of "Adjusted Gross Sales" in

Sub.Sec.B.3.1. above.



If the Innovation is a part of a product sold, marketed or otherwise

commercially exploited, the sales price for purposes of payments

according to Sub.Sec.B.3. shall be the sales price of that product

multiplied by a factor whose numerator is the manufacturing cost of

the Innovation and whose denominator is the manufacturing cost of the

product. If there shall have been established a market price for the

Innovation, such price shall be the basis for payments according to

Sub.Sec.B.3., notwithstanding the incorporation of the Innovation in

another product.



B.4. All payments due the Foundation shall be calculated on a semiannual

calendar basis, and statements, consistent with generally accepted

accounting procedures and with the standard accounting procedures of

the Participant and signed by an officer of the Participant, rendered

with payment in and within 90 calendar days following the end of each

semiannual period. Payments to the Foundation per Sub.Sec.B.3. shall

commence at the end of the semiannual period during which the first

sale was made. All late payments shall bear interest at 1% more than

the average prime rate prevailing at the Chase Manhattan Bank, N.Y.C.

during the period from the date payment was due until actually made.



B.5. Should any portion of the technology or Innovation developed in whole

or in part under this Agreement be sold outright to a third party,

one-half of all proceeds of the sale shall be applied as received

until there has been full repayment to the Foundation of a sum equal

to the percentage indicated in Sub.Sec.B.3.b) hereto of the

Conditional Grant and Other Sums actually received by Proposer

hereunder, in equivalent dollars valued at time of repayment (Annex

C). Payments due and not made following receipt of proceeds shall bear

interest at 1% more than the average prime rate prevailing at Chase

Manhattan Bank, N.Y.C.



B.6. License agreements involving patented inventions or technology

developed in whole or in part during this Foundation-supported project

shall be subject to Annex F.



C. CONDUCT OF THE PROJECT C.1. The Proposer agrees to do the work set out in the Proposal in

accordance with good standards relevant to such undertakings, and

shall expend funds received hereunder only in accordance with such

Proposal and the requirements of this Agreement.



C.2. The Proposer agrees to comply with the Program Plan for the Innovation

as set forth in Annex D hereto.



C.3. The Proposer hereby appoints Dr. Yaron Lapidot as Israel Project

Manager and Dr Alex Saunders as U.S. Project Manager for the

implementation of the project during the period of this Agreement and

in accordance with the Program Plan, Annex D.



C.4. The Proposer shall not make substantial transfers of funds from one

budget item to another, change key personnel or their duties and

responsibilities or diminish their time allocated to the proposed work

hereunder without prior written approval by the Foundation, which

approval shall not be unreasonably withheld.



C.4.1. Should any key person be absent from his work or should such absence

be expected, for 90 days or more, or should there be any significant

reduction in the total personnel force assigned the project under the

Proposal, the Proposer shall forthwith notify the Foundation.



D. REPORTING REQUIREMENTS D.1. The Proposer shall submit to the Foundation, in writing, the following

reports:

a. interim fiscal and technical reports within 30 days following the

expiration of the first eight-month period;

b. final fiscal and technical reports within 60 days following

termination of this Agreement.



D.1.1. Such reports shall be in form and substance as provided in Formats for

Technical and Fiscal Reports, BIRD Foundation Procedures Handbook

1994, Sections IV.A. and B.



D.2. Proposer shall provide, at its expense, briefings on the progress of

the work hereunder within 45 days following request by the Foundation.

Such briefings shall accord with the form and depth as the Foundation

may reasonably request.



E. PUBLICATIONS E.1. In any publication in scientific or technical journals of data or

other information derived from the work hereunder, or any publication

related to the work, but not including product literature or manuals,

the support of the Foundation shall be acknowledged.



E.2. To the extent so required to permit the Foundation free dissemination

of such publications or information which the Foundation is privileged

to disseminate subject to the limitation of Sec. F. below, the

Proposer shall be deemed hereby to waive any claim with respect to

such dissemination for infringement of any Copyright it may have or

may obtain.



E.3. The Proposer shall furnish to the Foundation two (2) copies of all

publications resulting from Foundation-supported work as soon as

possible after publication.







F. PROPRIETARY INFORMATION

Proprietary information, clearly identified as such, submitted to the

Foundation in the Proposal, in any report or verbally, or obtained by

Foundation personnel observation pursuant to any request or briefing,

shall be treated by the Foundation as confidential. At the request of

Proposer or either Participant, a confidential disclosure agreement

may separately be entered into by the parties.



Nothing contained in the foregoing shall restrict the right of the

Foundation to make public the fact of the Foundation's support for the

project, and the identification of the Participants therein. The

details of any such publication, however, shall be subject to approval

by the Participants.



G. PATENTS AND ROYALTIES G. 1. If Proposer or either of the Participants elects to apply for letters

patent on any or all inventions resulting in whole or in part from

performance of Foundation-supported activity, such applicant shall, at

his own expense, so apply in the United States and in Israel, and in

such other countries and at such times as he may deem appropriate.



G.2. Unless Proposer or either Participant is making payments to the

Foundation under Sec. B or Annex F hereto, a Participant who retains

rights in an invention and who obtains a patent thereon in accordance

with Sub.Sec.G.1., shall pay to the Foundation a royalty as set forth

in Annex E hereto, on sales of any product embodying the invention or

any product made by practicing the invention. The Foundation's rights

hereunder shall apply whenever such patents are obtained and shall

survive termination of this Agreement.



H. RIGHTS OF THE GOVERNMENTS OF ISRAEL AND THE UNITED STATES H.1. Regardless of the patent rights acquired by Participants by mutual

agreement or pursuant to Sub.Sec.G.1., the Governments of Israel and

of the United States shall each have a nonexclusive, irrevocable,

royalty-free license to make or have made, to use or have used, and to

sell or have sold any such invention specified, throughout the world

for all governmental purposes: provided, however, that in any

contracting situation involving an invention made under this

Agreement, the Government of Israel shall give preference to the

Participant retaining the entire right, title, and interest in the

invention in Israel, and provided that "governmental purposes" shall

not include manufacture of such invention where it is commercially

available at reasonable prices.





Notwithstanding the foregoing, except for military purposes or in

emergency situations, neither the Government of Israel nor the

Government of the United States, nor the Foundation, shall have the

right to sell or otherwise dispose of in any third country any product

incorporating an invention or made by practicing an invention without

the prior written permission of the Participant which has acquired the

entire right and interest in the invention in third countries. Such

Participant shall not withhold permission where appropriate royalties

are paid by the Foundation or government(s) concerned.



H.2. In addition to the patent rights specified in Sub.Sec.H.1., the

Foundation reserves for itself and the Governments of Israel and the

United States the right to use the Innovation, technical information,

data and know-how arising out of, or developed under, this Agreement

for any noncommercial purpose, and without charge.



H.3. In order that the rights of the Foundation and the Governments of

Israel and the United States described herein shall be exercisable,

the Participants agree that any component, element or other part of

the system described as the "Innovation" in the Preamble to this

Agreement, whose use is necessary to the full enjoyment of the

Innovation, will be made available, at reasonable prices, by the

Participants either as a commercially purchasable item, or by special

arrangement, and will be sold to the Foundation and/or the Government

of Israel and/or the Government of the United States, also at

reasonable prices.



H.4. Notwithstanding the above provisions of this Sec. H., it is understood

and agreed that, so long as any software that comprises part or all of

the Innovation is marketed by Proposer, by either Participant, or by

others with the rights to market such software, neither the Government

of Israel nor the Government of the United States shall have the right

to obtain a license to use such software unless the license fee

normally imposed in the ordinary course of business by either the

Participants or by others with the rights to market such software is

paid, and the standard license agreement is executed.



H.5. The rights of the governments of Israel and the United States shall

not extend to intellectual property and work performed prior to the

initiation of this grant and/or to intellectual property and work

performed outside the scope of this grant.



I. REVOCATION OF AGREEMENT I.1. The Foundation may revoke any award, in whole or in part, for cause as

defined in the laws of the State of California.



I.2. Upon receipt of notice of revocation for cause, the Proposer may cure

the default in and within thirty calendar days after the date of

receipt of the notice.



I.3. Notwithstanding any other provision in this Agreement to the contrary,

the Foundation shall not be obliged to provide any further funding

after notice until and unless the said default is cured and so

demonstrated to the reasonable satisfaction of the Foundation.



I.4. Should the Agreement terminate for reason of cause, in addition to the

Foundation's rights under Sub.Sec.1.5., the Foundation and the

Governments of Israel and the United States shall be entitled to all

its rights pursuant to Sec.H. as may have vested on the date when all

sums due the Foundation under Sub.Sec.1.5. are fully paid.



I.5. If the Foundation shall revoke as aforesaid, all funds given Proposer

per Sub.Sec.B.1. above shall become due immediately without need for

demand. Such funds which do not, by terms of this Agreement, bear

interest, shall be repaid with interest at 1 % more





than the average prime rate prevailing at Chase Manhattan Bank,

N.Y.C., from date of notice of revocation.



I.6. The Proposer may not terminate this Agreement or abandon the project

without the prior written consent of the Foundation, which consent

shall not be unreasonably withheld.



I.7. If upon termination of this Agreement for any reason, the entire

budgeted sum has not been expended, the Proposer shall forthwith

return to the Foundation its pro rata share of such unexpended

portion. If not repaid forthwith, such sum shall bear interest as per

Sec. 1.5.



J. SURVIVAL OF PROVISIONS

Notwithstanding revocation or other termination of this Agreement, the

following provisions shall survive termination of this Agreement:

Sections B., D., E., F., G., H., 1.4., 1.5., 1.7., K., L., N., Annex

C, Annex E and Annex F.



K. FINANCIAL RECORDS K. 1. The Proposer shall maintain business and financial records and books

of account for the work hereunder separate and apart from other

business records of the Proposer. Such books and records shall be in

usual and accepted form.



K.2. Books and records of the work hereunder shall show Proposer's

contribution. Upon request by the Foundation, the Proposer shall

provide evidence of his compliance hereunder.



K.3. The Foundation may examine, or cause to be examined, the financial

books, vouchers, records and any other documents of the Proposer

relating to this Agreement at reasonable times and intervals during

the term of this Agreement and for a period of one (1) year following

termination, or for so long as payments per Sub.Sec.B.3.,

Sub.Sec.B.5., or Annex F, or of patent royalties are due, or may

become due the Foundation, whichever shall be the later.



L. SUITS AGAINST THE FOUNDATION L. 1. The Proposer shall defend all suits brought against the Foundation,

its officers or personnel, indemnify them for all liabilities and

costs and otherwise hold them harmless on account of any and all

claims, actions, suits, proceedings and the like arising out of, or

connected with or resulting from the performance of this Agreement by

the Proposer, or from the manufacture, sales, distribution or use by

the Proposer of the Innovation, whether brought by Proposer or its

personnel or by third parties.



L.2. The Proposer agrees that persons employed by it in connection with the

research project shall be deemed to be solely its own employees and

that no relationship of master and servant shall be created between

such employees and the Foundation, either for purposes of tort

liability, social benefits, or for any other purpose. The Proposer

shall indemnify the Foundation and hold it harmless from court costs

and legal fees, and for any payment which the Foundation may be

obliged to make on a cause of action based upon an employee-employer

relationship as aforesaid.



M. MISCELLANEOUS CONDITIONS M.1. The Foundation makes no representation, by virtue of its funding the

work hereunder, or receiving any payments or royalties as a result of

this Agreement, as to the safety, value or utility of the Innovation

or the work undertaken, nor shall the fact of participation of the

Foundation, its funding or exercise of its rights hereunder be





deemed an endorsement of the Innovation or of the Proposer, nor shall

the name of the Foundation be used for any commercial purpose or be

publicized in any way by the Proposer except within the strict limits

of this Agreement.



M.2. The Proposer may not assign this Agreement or any of the work

undertaken pursuant to it without the prior written consent of the

Foundation, which consent shall not be unreasonably withheld.



M.3. This Agreement shall be construed under the laws of the State of

California. The forum for the resolution of any dispute arising from

this Agreement shall be the State of Israel or Washington, D.C. in the

U.S., as the moving party may elect. Execution of this Agreement shall

be taken as submission to the forum selected pu ...