<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-45921
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IMPATH INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3459685
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
521 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(800) 447-8881
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ANU D. SAAD, PH.D.
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
IMPATH INC.
521 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(800) 447-8881
----------------
COPIES TO:
JOHN J. BUTLER, ESQ. JI HOON HONG, ESQ.
ANDREW J. BECK, ESQ. SHEARMAN & STERLING
HAYTHE & CURLEY 599 LEXINGTON AVENUE
237 PARK AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10017 (212) 848-4000
(212) 880-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] Not applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] Not applicable.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated February 17, 1998
PROSPECTUS
2,000,000 SHARES
[IMPATH LOGO]
Common Stock
------------
All of the 2,000,000 shares of Common Stock offered hereby (this "Offering")
are being sold by IMPATH Inc. ("IMPATH" or the "Company"). The Company's Common
Stock is quoted on the Nasdaq National Market under the symbol "IMPH." On
February 13, 1998, the last reported sale price for the Company's Common Stock
on the Nasdaq National Market was $34.00. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
- --------------------------------------------------------------------------------
Total (3).......................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of this Offering payable by the Company, estimated
at $ .
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be $
and the Proceeds to Company will be $ . See "Underwriting."
-----------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through
the offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or
about March , 1998.
-----------
UBS SECURITIES VOLPE BROWN WHELAN & COMPANY
March , 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-3 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Common Stock offered hereby (as amended and supplemented, the
"Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information pertaining to the Company and the shares of Common
Stock offered hereby, reference is made to such Registration Statement,
including the exhibits filed therewith. All of these documents may be
inspected without charge at the Public Reference Section of the principal
office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies may be obtained by mail from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov that contains the Registration
Statement and the exhibits thereto. The statements contained in this
Prospectus concerning any contract or document are not necessarily complete;
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
of such exhibit.
----------------
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent accountants for each fiscal year
and quarterly reports for the first three fiscal quarters of each year
containing unaudited summary financial information.
----------------
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the Public Reference Section of the
principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices at
Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of such materials may be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding the Company. The Common
Stock of the Company is traded on the Nasdaq National Market and, in
accordance therewith, the Company files reports, proxy statements and other
information with The Nasdaq Stock Market, Inc.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto, contained
elsewhere, or incorporated by reference, in this Prospectus. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Prospectus. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
release publicly the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Except as
otherwise specified, all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option. See "Underwriting." Certain terms
relating to the Company's business which are used in this Prospectus are
explained in the Glossary included herein.
THE COMPANY
IMPATH is a leader in providing critical information essential for making
medically optimal and cost-effective cancer management decisions for individual
cancer patients. The Company is focused exclusively on the analysis of cancer,
combining advanced technologies and medical expertise to provide patient-
specific diagnostic, prognostic and treatment information to physicians
involved in the treatment of cancer. With expected medical cost increases
attributable to the growth in the number of cancer patients and the high cost
of new therapies, the Company anticipates significant and growing demand for
cancer management information. IMPATH has established its leadership and
reputation through its extensive expertise, its integration of technological
advances, its emphasis on customer service and education and the cost-
effectiveness of its services.
The market for cancer diagnosis, prognosis and treatment is significant and
growing. After heart disease, cancer is the leading cause of death in the
United States. Approximately eight million Americans alive today have been
diagnosed with cancer (excluding certain skin cancers). According to the
American Cancer Society, the estimated number of cancer cases diagnosed
annually in the United States (excluding certain skin cancers) grew from
approximately 530,000 in 1963 to approximately 1.4 million in 1997, an increase
of 164%. The growth in the number of cancer cases in the United States is
expected to accelerate as the leading edge of the "baby boom" population
approaches 55 years of age, the age at which the incidence of cancer begins to
rise sharply. Earlier diagnosis and better information have led to more
effective treatment and have increased the five-year survival rate of cancer
patients from 39% in 1963 to approximately 56% in 1997.
IMPATH's primary customers are the pathology departments of small- to medium-
sized community hospitals (100 to 500 beds), where most cancer is diagnosed.
These hospitals generally do not perform their own sophisticated cancer
analysis because the low case volume per hospital does not justify establishing
and maintaining the required technological capabilities, facilities and expert
medical staff. Furthermore, health care providers increasingly are being
organized into managed care networks which emphasize cost containment. IMPATH
believes that these networks increasingly will outsource sophisticated cancer
analysis in order to optimize patient care and control costs. In addition, the
care of cancer patients increasingly is being performed in outpatient
facilities, representing a shift from traditional, hospital-based care. These
facilities generally do not have the expertise and resources to provide the
information necessary for optimal cancer management.
3
<PAGE>
IMPATH believes that it currently performs more specialized analyses for
difficult to diagnose cancer cases than any other institution in the world. The
Company also believes that it is the leader in providing comprehensive patient-
specific prognostic information for cancer. For example, IMPATH provided
patient-specific prognostic information on over 20% of all breast cancer cases
in the U.S. in 1997. The Company's fastest growing business is the analysis of
lymphomas and leukemias, with IMPATH analyzing 12,464 of such cases in 1997,
representing an increase of 122% over 1996. Lymphoma/leukemia analysis
represents an area in which IMPATH's expertise and utilization of sophisticated
technologies are integrated to provide information for optimal disease
management.
The Company believes that its integration of patient-specific information
will be essential to a growing list of cancer diagnoses, most notably prostate,
colon, lung and bladder cancer. Furthermore, as an increased understanding of
the molecular basis of cancer leads to the development of new evaluation
methods and therapeutic tools, IMPATH expects that the information it provides
will become increasingly significant in optimizing the management of all phases
of cancer, including cancer predisposition, diagnosis, prognosis, treatment
determination and patient follow-up.
The Company believes that there are significant opportunities for increased
penetration of the cancer information market. IMPATH's goal is to be the
comprehensive information resource to the cancer care community. IMPATH has a
growing cancer database consisting of information on over 300,000 cases (the
largest database of diagnostic and prognostic cancer information in the world);
more than 85,000 of these cases were added in 1997 alone. The Company believes
that this database, along with IMPATH's strategy of linking patient-specific
information with clinical outcomes, will provide a powerful platform for
establishing optimal treatment pathways for patients with cancer.
The Company's revenues were $37.1 million in 1997, representing revenue
growth of 69% over 1996. In fact, the 1997 fiscal year was IMPATH's eighth
consecutive year of annual revenue growth in excess of 40%. Moreover, the
fourth quarter of 1997 represented IMPATH's sixteenth consecutive quarter of
record revenues. Income from operations and net income for 1997 were $5.8
million and $3.6 million, respectively, an increase of 119% and 78% over 1996.
The Company is a Delaware corporation with executive offices at 521 West 57th
Street, New York, New York 10019, and its telephone number at that address is
(800) 447-8881.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.............. 2,000,000 shares
Common Stock Outstanding after
this Offering.................... 7,485,346 shares(1)
Use of Proceeds................... The Company intends to use the net proceeds
of this Offering to fund selected
acquisitions and joint ventures, to fund
the continued development and expansion of
its diagnostic and prognostic database, to
increase the Company's working capital to
fund anticipated growth and for general
corporate purposes.
Nasdaq National Market Symbol..... IMPH
</TABLE>
- --------
(1) Based on the number of shares outstanding as of January 31, 1998. Excludes
873,900 shares issuable pursuant to stock options granted under the
Company's 1989 Stock Option Plan and the Company's 1997 Long Term Incentive
Plan and 2,013 shares reserved for issuance upon the exercise of
outstanding warrants.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Total revenues..................... $ 7,042 $10,014 $14,714 $21,965 $37,063
Salaries and related costs........ 4,162 4,682 6,830 9,432 15,056
Selling, general and administra-
tive............................. 3,805 4,351 6,863 9,895 16,222
------- ------- ------- ------- -------
Total operating expenses........... 7,967 9,033 13,693 19,327 31,278
------- ------- ------- ------- -------
Income (loss) from operations...... (925) 981 1,021 2,638 5,785
Other income (expense)............. 2 (15) 22 1,030 716
------- ------- ------- ------- -------
Income (loss) before income tax ex-
pense............................. (923) 966 1,043 3,668 6,501
Income tax expense................. 19 98 -- 1,621 2,852
------- ------- ------- ------- -------
Net income (loss).................. (942) 868 1,043 2,047 3,649
------- ------- ------- ------- -------
Accrued dividends on Preferred
Stock(1).......................... (371) (427) (478) (82) --
------- ------- ------- ------- -------
Net income (loss) available to com-
mon stockholders.................. $(1,313) $ 441 $ 565 $ 1,965 $ 3,649
======= ======= ======= ======= =======
Per common and common equivalent
share:
Basic:
Net income per common share(1).. $ 0.36 $ 0.41 $ 0.68
======= ======= =======
Weighted average common and com-
mon equivalent shares outstand-
ing(2)......................... 2,921 4,961 5,398
======= ======= =======
Dilutive:
Net income per common share as-
suming dilution(1)............. $ 0.31 $ 0.38 $ 0.63
======= ======= =======
Weighted average common and com-
mon equivalent shares outstand-
ing assuming dilution(2)....... 3,371 5,404 5,809
======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SELECTED OPERATING DA-
TA:
Number of cases reported........... 24,812 33,618 43,287 55,539 87,884
Number of hospitals served......... 959 1,021 1,118 1,360 1,670
Number of oncology practices
served............................ -- -- -- -- 141
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $21,951 $ 85,611
Total assets............................................. 46,342 110,002
Long-term liabilities, net of current portion............ 2,726 2,726
Total stockholders' equity............................... 38,309 101,969
</TABLE>
- --------
(1) Reflects dividends accrued on the Company's preferred stock, $.01 par value
per share ("Preferred Stock"). Dividends earned prior to February 10, 1995
were forgiven in conjunction with the issuance of the Company's Series D 8%
Convertible Participating Preferred Stock, $.01 par value per share
("Series D Preferred Stock"). Dividends accrued from February 10, 1995 in
the amount of $560,000 were paid and ceased to accrue upon conversion of
all of the outstanding Preferred Stock on February 26, 1996.
(2) Weighted average shares outstanding give effect to the conversion of all of
the outstanding shares of Preferred Stock into shares of Common Stock in
accordance with the terms thereof on February 26, 1996 and reflect the 1-
for-2.8218735 reverse split of the outstanding shares of Common Stock.
(3) As adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained, or incorporated by reference, in this Prospectus. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Prospectus.
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company has experienced significant growth as total revenues have
increased at an average annual growth rate of approximately 50% between 1993
and 1997. The Company's continued growth of case volume, addition of new
technologies and expansion into the outpatient market have placed and may
continue to place significant demands on the Company's technical services,
support operations, sales and administrative personnel and other resources. To
manage this growth effectively, the Company will be required to continue to
improve its operational, financial and management information systems,
procedures and controls, and to hire and train new executive, scientific and
other personnel without adversely affecting the quality of the Company's
services. There can be no assurance that the Company will be able to continue
to manage its growth successfully, and any failure to do so could have a
material adverse effect on the Company's business and financial performance.
There also can be no assurance that the Company will be able to maintain its
historical rate of growth. See "Business--Company Strategy."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's objective is to become the leading provider of a broad range
of cancer management information services, including diagnostic and prognostic
analyses. To date, the Company's business has consisted primarily of providing
patient-specific diagnostic and prognostic information based upon the testing
of tissue specimens and the customized analysis of test results. The Company
intends to pursue strategic acquisitions if such acquisitions further aspects
of the Company's strategic objective outlined above. To the extent that the
Company's strategy is dependent upon acquisitions, there can be no assurance
that suitable acquisition candidates will be identified by the Company in the
future, that, if required, suitable financing for any such acquisitions can be
obtained by the Company, or that any such acquisitions will occur. If the
Company successfully completes a strategic acquisition or acquisitions, the
financial performance of the Company will be subject to various risks
associated with the acquisition of businesses, including the financial impact
of expenses associated with the integration of such businesses. In addition,
if the businesses acquired operate outside of the United States, such
operations would be subject to the risks normally associated with foreign
operations, including, but not limited to, currency fluctuations and the
modification or introduction of governmental policies with potentially adverse
effects. There can be no assurance that such acquisitions will not have an
adverse effect on the business operations or profitability of the Company. See
"Business--Company Strategy."
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is dependent upon the efforts of its executive officers, key
employees and medical professionals. The loss of the services of one or more
members of its senior management or one or more medical professionals could
impede the achievement of the Company's development objectives. In addition,
the Company's growth strategy will require additional skill and expertise, the
addition of new management personnel and the development of additional
expertise by existing management personnel. The loss of, or failure to
recruit, scientific, technical and managerial personnel could have a material
adverse effect on the Company. See "Business--Employees" and "Management."
7
<PAGE>
REIMBURSEMENT
The Company typically bills third-party payors, such as private insurance
plans, managed care plans and governmental programs (i.e., Medicare), as well
as hospitals, for its services. Although these third-party payors currently
generate higher reimbursement rates per case, they are increasingly
negotiating prices with the goal of lowering unit reimbursement rates. The
Company expects these pricing pressures to cause reduced pricing on average
for tests in future periods.
In 1995, 1996 and 1997, approximately 24%, 25% and 25%, respectively, of the
Company's net revenues for diagnostic and prognostic services were derived
from analyses performed for beneficiaries under the Medicare program. The
Company accepts Medicare reimbursement as payment in full for its services,
subject to applicable co-payments and deductibles. Medicare may retroactively
audit and review its payments to the Company, and may determine that certain
payments for services must be returned. Significant disapprovals of payment
for any of the Company's services by various carriers, including Medicare,
private insurance and managed care networks, reductions or delays in the
establishment of reimbursement rates, and carrier limitations on the coverage
of the Company's services could have a material adverse effect on the
Company's future revenues. The services furnished by the Company are
characterized for the purposes of the Medicare program as physician pathology
services. See "Business--Reimbursement."
Any future changes in government and other third-party payor reimbursement
which may come about as a result of enactment of health care reform or of
deficit-reduction legislation will also be likely to continue the downward
pressure on prices, and make the market for cancer analytical services more
competitive. Because of the uncertainties about the nature, content and timing
of any reform initiative, the Company is currently unable to predict the
ultimate impact thereof on the Company.
GOVERNMENT REGULATION
As a provider of health-care-related services, the Company is subject to
extensive and frequently changing federal, state and local regulations
governing licensure, billing, financial relationships, referrals, conduct of
operations, purchases of existing businesses, cost-containment, direct
employment of licensed professionals by business corporations and other
aspects of the Company's business relationships. Federal and state
certification and licensure programs establish standards for the day-to-day
operation of facilities such as the Company's. Compliance with such standards
is verified by periodic inspections and requires participation in proficiency
testing programs. No assurances can be given that the Company's facilities
will pass all future inspections conducted to ensure compliance with federal
or any other applicable licensure or certification laws. See "Business--
Government Regulation--Laboratory Licensure."
Existing federal laws governing federal health care programs, including
Medicare, as well as some state laws, regulate certain aspects of the
relationship between health care providers, including the Company, and their
referral sources, including physicians, hospitals and other facilities. The
Social Security Act, and the anti-kickback and self-referral rules thereunder,
prohibit providers and others from soliciting, offering, receiving or paying,
directly or indirectly, any remuneration in return for either making a
referral for a service or item which is covered under any federal health care
program (including Medicare), or ordering any such covered service or item and
prohibit physicians, subject to certain exceptions, from making such referrals
to certain entities in which they have an investment interest or with which
they have a compensation arrangement. Violation of these prohibitions is
punishable by disallowance of submitted claims, civil monetary and criminal
penalties and exclusion from the Medicare and other federally financed
programs. See "Business--Government Regulation--Anti-Kickback/Self-Referral
Regulations."
The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as the Company,
from practicing medicine (including pathology) and from employing physicians
to practice medicine (including pathology). The Company believes its current
8
<PAGE>
and planned activities do not constitute fee-splitting or violate any
prohibition against the corporate practice of medicine. However, there can be
no assurance that future interpretations of such laws will not require
structural or organizational modifications of the Company's existing business.
See "Business--Government Regulation--Fee-Splitting; Corporate Practice of
Medicine."
COMPETITION
The Company provides services in a segment of the health care industry that
is highly fragmented and extremely competitive. The Company's actual or
potential competitors include large university or teaching hospitals; large
clinical laboratories that have substantially greater financial, marketing,
logistical and laboratory resources than the Company; special purpose
laboratories that have limited test offerings and a highly focused product and
marketing strategy; and the Company's customers or potential customers who may
choose to perform services similar to those performed by the Company. It is
anticipated that competition will continue to increase due to such factors as
the perceived potential for commercial applications of biotechnology and the
continued availability of investment capital and government funding for
cancer-related research. There can be no assurance that competition in
existing or new markets will not have a material adverse effect on the
Company's operating results. Changes in the regulatory environment in which
the Company operates could also affect the basis for competition and could
thereby have a material adverse effect on the Company's operating results. See
"Business--Competition," "--Reimbursement" and "--Government Regulation."
ACCESS TO NEW TECHNOLOGIES; LACK OF PROPRIETARY TECHNOLOGY
To date, the Company has not engaged in the development or patenting of its
own technologies for use in the analytical services it provides, and access to
new technologies developed by third parties has been an important element in
the Company's current business as well as the Company's long-term strategy. If
the Company's access to critical technologies were substantially diminished,
the Company's business could be adversely affected. See "Business--Competitive
Advantages of IMPATH--Comprehensive Technology Integration" and "--
Technologies."
In addition, the Company currently relies on certain technologies which are
not patentable or proprietary and are therefore available to the Company's
competitors. Furthermore, the Company relies on certain proprietary trade
secrets and know-how, which are not patentable. Although the Company has taken
steps to protect its unpatented trade secrets and know-how, principally
through the use of confidentiality agreements with its employees, there can be
no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known or be independently developed or
discovered by competitors. If the Company's trade secrets become known or are
independently developed or discovered by competitors, it could have a material
adverse effect on the Company.
RISKS ASSOCIATED WITH DEVELOPMENT OF DATABASE
The confidentiality of patient medical records is subject to substantial
regulation by the state and federal governments. State and federal laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Legislation governing the dissemination and use of
medical record information is continually being proposed at both the state and
federal levels. For example, the Health Insurance Portability and
Accountability Act of 1996 requires the U.S. Secretary of Health and Human
Services to recommend legislation or to promulgate regulations governing
privacy standards for individually identifiable health information. Additional
legislation may require that holders or users of confidential patient medical
information implement measures to maintain the security of such information
and may regulate the dissemination of even anonymous patient information.
Physicians and other persons providing patient information to the Company are
also required to comply with these laws and regulations. If a patient's
privacy is violated, or if the Company is found to have violated any state or
federal statute or regulation with regard to the confidentiality,
dissemination or use of patient medical
9
<PAGE>
information, the Company could be liable for damages, or for fines or
penalties. The Company believes that it is in material compliance with all
applicable state and federal laws and regulations governing the
confidentiality, dissemination and use of medical record information. However,
there can be no assurance that differing interpretations of existing laws and
regulations or the adoption of new laws and regulations would not have a
material adverse effect on the ability of the Company to obtain or use patient
information which, in turn, could have a material adverse effect on the
Company's plans to develop and market its cancer information database. The
Company intends to continue to monitor and review the interpretation and
enactment of laws and regulations which impact the Company's plans to develop
and market its cancer information database. In addition, the American Medical
Association (the "AMA") has issued a Current Opinion to the effect that a
physician who does not obtain a patient's consent to the disclosure of the
patient's medical record information violates the AMA's ethical standards.
While the AMA's Current Opinions are not law, they may influence the
willingness of physicians to obtain patient consents or to disclose patient
medical information to the Company and thus could have a material adverse
effect on the Company's plans to develop and market its cancer information
database.
RISKS ASSOCIATED WITH ESTABLISHING JOINT VENTURES
The Company plans to pursue strategic partnerships and joint ventures with
oncology networks, hospital groups, managed care companies and
biopharmaceutical and large pharmaceutical companies, primarily for the
purposes of expanding IMPATH's diagnostic and prognostic database,
participating in the development of new cancer therapies and demonstrating to
the medical community the importance of the services provided by IMPATH. There
can be no assurance that the Company will be able to negotiate acceptable
partnership or joint venture arrangements or that such arrangements will be
successful or that potential partners will not pursue alternative means of
developing treatments for cancer. No assurance can be given that the Company's
joint venture partners will be able to obtain regulatory approval for any new
treatments, that any such new treatments if so approved will be commercialized
successfully or that the Company will realize any revenues in connection with
such arrangements. Although the Company believes that other parties to joint
ventures generally have an economic motivation to perform their contractual
responsibilities, their devotion of resources to such activities will not be
within the control of the Company. Depending on the Company's obligations in
such joint ventures, the termination or cancellation of such arrangements
could also adversely affect the Company's financial condition and results of
operations. In addition, if such joint ventures operate outside of the United
States or if the Company enters into a joint venture with a foreign partner,
the joint venture's operations could be subject to the risks associated with
foreign operations, including, but not limited to, currency fluctuations and
the modification or introduction of governmental policies with potentially
adverse effects. See "Business--Company Strategy."
RISK OF LIABILITY; ADEQUACY OF INSURANCE COVERAGE
The marketing and sale of health care services could expose the Company to
the risk of certain types of litigation, including medical malpractice.
Damages assessed in connection with, and the costs of defending, any legal
action could be substantial. Although the Company is presently covered by
general liability insurance in the amount of $6.0 million per occurrence and
$7.0 million in the aggregate and has obtained professional liability
insurance in the amount of $6.0 million per occurrence and $8.0 million in the
aggregate for the Company's Medical Directors and other physicians, there can
be no assurance that insurance coverage will provide sufficient funds to
satisfy any judgments which, in the future, may be entered against the Company
or that liability insurance in such amounts will be available or affordable in
the future. In addition, there can be no assurance that all of the activities
encompassed within the Company's business are covered under the Company's
policies. The Company's liability insurance covers claims relating to the
handling and disposal of medical specimens and infectious and hazardous waste,
except in the event of malfeasance or fraud by the Company. Furthermore, there
can be no assurance that the Company will have other resources sufficient to
satisfy any liability or litigation expenses that may result from any
uninsured or underinsured claims. Moreover, although the Company maintains
personal
10
<PAGE>
property and business interruption insurance and has taken what it believes to
be adequate safeguards, the catastrophic loss of the Company's tissue library
could have a material adverse effect on the continued development of its
database in a manner which would not be fully compensated by insurance.
ANTI-TAKEOVER MEASURES
The Company's certificate of incorporation authorizes the Company to issue
preferred stock, the terms of which may be fixed by the Board of Directors. No
shares of preferred stock are currently outstanding. Such provisions could
have the effect of delaying, deferring or preventing a change of control of
the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
There has been a history of significant volatility in the market prices for
shares of companies engaged in the health care and biotechnology fields, and
it may be expected that the market price of the shares of Common Stock offered
hereby may be highly volatile. Factors such as fluctuations in the Company's
quarterly revenues and operating results, announcements of technological
innovations or new analytical services by the Company or its competitors, and
changes in third-party reimbursement and governmental regulation may have a
significant effect on the market price of the Common Stock. See "Price Range
of Common Stock."
DIVIDENDS
The Company does not currently pay dividends on its Common Stock and does
not anticipate paying any dividends in the foreseeable future. It is
anticipated that the terms of any future debt financings may restrict the
payment of dividends. See "Dividend Policy."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering, assuming an offering
price of $34.00 per share, after deducting the estimated underwriting discount
and offering expenses payable by the Company, are approximately $63.7 million
(approximately $73.3 million if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use the net proceeds of this Offering to fund
selected acquisitions and joint ventures, to fund the continued development
and expansion of its diagnostic and prognostic database, to increase the
Company's working capital to fund anticipated growth and for general corporate
purposes. No portion of the proceeds of this Offering has been allocated to
any specific acquisition nor has the Company entered into any agreements or
letters of intent with respect to any future acquisitions. See "Business--
Company Strategy."
Pending the uses outlined above, the Company intends to invest the net
proceeds of this Offering in investment-grade interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "IMPH." The following table sets forth the range of high and low bid
prices per share for the Common Stock for the period from February 21, 1996
(the first day the Common Stock was publicly traded) through February 9, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996
First Quarter (beginning February 21, 1996).................. $15 3/4 $12 3/4
Second Quarter............................................... 18 14
Third Quarter................................................ 17 3/4 10 3/4
Fourth Quarter............................................... 18 3/4 10 1/2
FISCAL 1997
First Quarter................................................ 20 7/8 15 3/4
Second Quarter............................................... 27 5/8 17 1/4
Third Quarter................................................ 32 1/2 21 7/8
Fourth Quarter............................................... 34 5/8 22 1/2
FISCAL 1998
First Quarter (through February 13, 1998).................... 37 1/4 29 3/4
</TABLE>
On February 13, 1998, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $34.00.
As of January 31, 1998, there were approximately 58 record holders of the
Common Stock.
12
<PAGE>
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying dividends in the foreseeable future. It is the present
policy of the Company's Board of Directors to retain earnings, if any, to
finance the expansion of the Company's business. The payment of dividends in
the future will depend on the results of operations, financial condition,
capital expenditure plans and other cash obligations of the Company and will
be at the sole discretion of the Board of Directors. In addition, certain
provisions of future indebtedness of the Company may prohibit or limit the
Company's ability to pay dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1997, and as adjusted to reflect the sale of the 2,000,000
shares of Common Stock offered hereby at an assumed public offering price of
$34.00 per share (after deducting the estimated underwriting discount and
expenses of this Offering payable by the Company). This table should be read
in conjunction with the consolidated financial statements of the Company, the
notes thereto and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities, net of current portion............. $ 2,726 $ 2,726
Stockholders' equity:
Common Stock, $.005 par value. Authorized 20,000,000
shares; 5,451,739 shares outstanding; 7,451,739 shares
outstanding, as adjusted(1)............................ 27 37
Additional paid-in capital.............................. 33,894 97,544
Retained earnings....................................... 5,148 5,148
Unrealized net depreciation of marketable securities.... (84) (84)
Deferred compensation................................... (676) (676)
------- --------
Total stockholders' equity................................ 38,309 101,969
------- --------
Total capitalization.................................... $41,035 $104,695
======= ========
</TABLE>
- --------
(1) Excludes 878,176 shares of Common Stock reserved for issuance under the
Company's 1989 Stock Option Plan and the Company's 1997 Long Term
Incentive Plan and 31,345 shares reserved for issuance upon the exercise
of outstanding warrants.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and operating
data of the Company as of December 31 in each of 1993 through 1997 and for
each of the years in the five-year period ended December 31, 1997. The
consolidated statement of operations and consolidated balance sheet data have
been derived from the Company's consolidated financial statements, which have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants. Such consolidated balance sheets as of December 31, 1996 and 1997
and statements of operations for each of the years in the three-year period
ended December 31, 1997 and the notes thereto are included elsewhere in this
Prospectus. The historical consolidated financial data should be read in
conjunction with and are qualified in their entirety by reference to the
consolidated financial statements of the Company and the related notes thereto
included, or incorporated by reference, in this Prospectus and to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Total revenues..................... $ 7,042 $10,014 $14,714 $21,965 $37,063
Salaries and related costs....... 4,162 4,682 6,830 9,432 15,056
Selling, general and administra-
tive............................ 3,805 4,351 6,863 9,895 16,222
------- ------- ------- ------- -------
Total operating expenses........... 7,967 9,033 13,693 19,327 31,278
------- ------- ------- ------- -------
Income (loss) from operations...... (925) 981 1,021 2,638 5,785
Other income (expense)............. 2 (15) 22 1,030 716
------- ------- ------- ------- -------
Income (loss) before income tax ex-
pense............................. (923) 966 1,043 3,668 6,501
Income tax expense................. 19 98 -- 1,621 2,852
------- ------- ------- ------- -------
Net income (loss).................. (942) 868 1,043 2,047 3,649
Accrued dividends on Preferred
Stock(1).......................... (371) (427) (478) (82) --
------- ------- ------- ------- -------
Net income (loss) available to com-
mon
stockholders...................... $(1,313) $ 441 $ 565 $ 1,965 $ 3,649
======= ======= ======= ======= =======
Per common and common equivalent
share:
Basic:
Net income per common share(1).. $ 0.36 $ 0.41 $ 0.68
======= ======= =======
Weighted average common and
common equivalent shares
outstanding(2)................. 2,921 4,961 5,398
======= ======= =======
Dilutive:
Net income per common share
assuming dilution(1)........... $ 0.31 $ 0.38 $ 0.63
======= ======= =======
Weighted average common and
common equivalent shares
outstanding assuming
dilution(2).................... 3,371 5,404 5,809
======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SELECTED OPERATING DA-
TA:
Number of cases reported........... 24,812 33,618 43,287 55,539 87,884
Number of hospitals served......... 959 1,021 1,118 1,360 1,670
Number of oncology practices
served............................ -- -- -- -- 141
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------ ------- ----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $1,736 $2,500 $3,622 $30,768 $21,951 $ 85,611
Total assets............ 3,152 4,144 9,261 37,581 46,342 110,002
Long-term liabilities,
net of current por-
tion................... 124 249 1,130 1,430 2,726 2,726
Redeemable preferred
stock.................. 5,979 6,407 -- -- -- --
Total stockholders'
equity (deficiency).... (3,741) (3,266) 5,655 33,638 38,309 101,969
</TABLE>
- --------
(1) Reflects dividends accrued on the Preferred Stock. Dividends accrued prior
to February 10, 1995 were forgiven in conjunction with the issuance of
Series D Preferred Stock. Dividends accrued from February 10, 1995 in the
amount of $560,000 were paid and ceased to accrue upon conversion of the
Preferred Stock on February 26, 1996.
(2) Weighted average shares outstanding give effect to the conversion of the
outstanding shares of Preferred Stock into shares of Common Stock in
accordance with the terms thereof on February 26, 1996 and reflect the 1-
for-2.8218735 reverse split of the outstanding shares of Common Stock.
(3) As adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered hereby and the application of the net proceeds therefrom. See "Use
of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto appearing elsewhere, or incorporated by reference, in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
below and in "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
IMPATH was founded in 1988 and has become a leader in providing critical
information essential for making medically optimal and cost-effective cancer
management decisions for individual cancer patients. The Company is focused
exclusively on the analysis of cancer, combining advanced technologies and
medical expertise to provide patient-specific diagnostic, prognostic and
treatment information to physicians involved in the treatment of cancer. With
expected medical cost increases attributable to the growth in the number of
cancer patients and the high cost of new therapies, the Company anticipates
significant and growing demand for cancer management information. IMPATH has
established its leadership and reputation through its extensive expertise, its
integration of technological advances, its emphasis on customer service and
education and the cost-effectiveness of its services.
The Company's revenues, which have increased an average of approximately 50%
annually since 1993, have been derived from performing specialized cancer
analyses for which IMPATH typically bills various third-party payors, such as
private insurance plans, managed care plans and governmental programs (e.g.,
Medicare), as well as hospitals and individual patients. Over the last few
years, the Company has experienced increased pressures on reimbursement and
expects such pressures to cause reduced unit pricing for diagnostic and
prognostic analyses in future periods. Despite those pressures, the Company
has experienced increasing average reimbursement trends due to changes in its
services and payor mix and application of new technologies. See "Risk
Factors--Reimbursement" and "Business--Reimbursement."
The following table sets forth the percentages of total revenues represented
by certain items reflected in the Company's consolidated statements of
operations. The Company's business generally has been unaffected by
seasonality, except for slower growth in revenues during the third quarter of
its fiscal year due to reduced summertime activity.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Total revenues................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries and related costs.................... 46.4 42.9 40.6
Selling, general and administrative........... 46.7 45.1 43.8
-------- -------- --------
Total operating expenses....................... 93.1 88.0 84.4
Operating income............................... 6.9 12.0 15.6
Net income..................................... 7.1 9.3 9.8
</TABLE>
16
<PAGE>
RECENT ACQUISITIONS
IMPATH has successfully completed the acquisition and integration of several
complementary regional businesses which have added to the breadth and depth of
its technological expertise and services. In January 1997, IMPATH-HDC, Inc., a
wholly owned subsidiary of the Company, acquired a cancer testing facility
from Oncogenetics, Inc. ("Oncogenetics"), which expanded IMPATH's business
into new growth areas in oncology, such as molecular and cytogenetic testing
for cancer. In February 1997, the Company purchased certain assets of the
oncology division of Immunodiagnostic Laboratories, Inc. ("Immunodiagnostic").
In September 1997, IMPATH acquired certain assets of the GenCare division of
Bio Reference Laboratories Inc. ("GenCare"), a New Jersey-based cancer
laboratory specializing in tissue-based testing and tumor marker analyses. In
October 1997, IMPATH purchased certain assets of Aeron Biotechnology, Inc.
("Aeron"), a California-based cancer testing facility specializing in breast
cancer prognostic analysis. Additionally, the Company acquired Aeron's tissue
bank containing more than 56,000 analyzed cases, many of which have detailed
historical registry data and corresponding outcomes information.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The Company's total revenues in 1997 and 1996 were $37.1 million and $22.0
million, respectively, representing an increase of $15.1 million, or 68.7%, in
1997. This growth was primarily due to a 58% increase in case volume resulting
from increased sales and marketing activities and to the successful
integration of the Company's acquisitions of certain assets of Oncogenetics,
Immunodiagnostic, GenCare and Aeron. In addition, revenue realization per case
increased as a result of product mix changes towards cases which yield higher
reimbursement rates and payor mix shifts away from direct hospital billing
towards private insurance.
Salaries and related costs in 1997 and 1996 were $15.1 million and $9.4
million, respectively, representing an increase of $5.7 million, or 59.6%, in
1997. This increase was primarily due to direct personnel costs associated
with existing product case volume growth as well as the Company's acquisitions
during 1997. As a percentage of total revenues, salaries and related costs
decreased to 40.6% in 1997 from 42.9% in 1996.
Selling, general and administrative expenses in 1997 and 1996 were $16.2
million and $9.9 million, respectively, representing an increase of $6.3
million, or 63.9%, in 1997. This increase was due to an increase in bad debt
expense of approximately $2.0 million associated with higher revenues, as well
as a payor mix shift from direct hospital billings to private insurance
resulting in higher revenues and patient co-payments that generate higher bad
debt. The Company also incurred $1.5 million in additional selling, general
and administrative expenses associated with the Company's Arizona-based cancer
cytogenetics testing facility which was acquired from Oncogenetics in January
1997. In addition, the Company incurred over $1.4 million in incremental
supply and courier costs due to increased volume and the logistics required to
service the Company's rapidly growing oncology office-based business.
Depreciation and amortization costs increased approximately $734,000 primarily
due to additional capital expenditures, goodwill amortization associated with
the Company's acquisitions and amortization of third-party development costs
for the outcomes database. The Company also incurred higher travel-related
expenses and professional fees associated with expanded sales, marketing and
investor relations activities. As a percentage of total revenues, selling,
general and administrative expenses decreased to 43.8% in 1997 compared to
45.1% in 1996.
Income from operations in 1997 and 1996 was $5.8 million and $2.6 million,
respectively, representing an increase of $3.2 million, or 119.3%, in 1997.
The 1997 figure reflects increased Company operating margins from its core
diagnostic and prognostic services. As a percentage of total revenues, income
from operations increased to 15.6% in 1997 from 12.0% in 1996.
17
<PAGE>
Other income, net for 1997 and 1996 was $716,000 and $1.0 million,
respectively, representing a decrease of approximately $300,000 in 1997. This
decrease was the result of lower interest income resulting from the use of the
Company's cash and cash equivalents in order to fund the Company's expansion
and database development activities.
The tax provision for 1997 of approximately $2.9 million reflects federal,
state and local income tax expense. The 44% effective tax rate is consistent
with the 1996 rate.
Net income in 1997 and 1996 was $3.6 million and $2.0 million, respectively,
representing an increase of $1.6 million, or 78.2%, in 1997 which was due to
the factors described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company's total revenues in 1996 and 1995 were $22.0 million and $14.7
million, respectively, representing an increase of $7.3 million, or 49.3%, in
1996. This growth was primarily attributable to a 28.3% increase in case
volume resulting from increased sales and marketing activities. In addition,
revenue realization per case increased due to payor mix and product mix
changes toward cases that carry a higher reimbursement rate.
Salaries and related costs in 1996 and 1995 were $9.4 million and $6.8
million, respectively, representing an increase of $2.6 million, or 38.1%, in
1996. This increase was primarily attributable to a 32.5% increase in
personnel headcount associated with case volume growth as well as personnel
costs incurred in connection with the Company's expansion. As a percentage of
total revenues, salaries and related costs decreased to 42.9% in 1996 from
46.4% in 1995.
Selling, general and administrative expenses in 1996 and 1995 were $9.9
million and $6.9 million, respectively, representing an increase of $3.0
million, or 44.2%, in 1996. The primary component of this increase was an
increase in bad debt expense of approximately $854,000 associated with
increased revenues, specifically generated from third-party billing. Third-
party revenues have historically had a higher bad debt rate than institutional
revenues. Case volume growth necessitated an increase of $387,000 in
laboratory supplies and consulting fees and a $268,000 increase in automobile
and courier expenses. In addition, rent expense and depreciation and
amortization costs increased $277,000 and $391,000, respectively, due to the
establishment of the Company's California facility and the development of new
clinical and billing operating systems. Additional depreciation costs also
resulted from the Company's expansion and database development activities. The
Company also incurred an additional $283,000 in higher travel and marketing
costs associated with its expanded sales, marketing and investor relations
activities. As a percentage of total revenues, selling, general and
administrative expenses decreased to 45.1% in 1996 from 46.7% in 1995.
Income from operations in 1996 and 1995 was $2.6 million and $1.0 million,
respectively, representing an increase of $1.6 million, or 158.4%, in 1996.
The 1996 figure reflects the effect on operating income of increased revenue
growth and a decrease in operating expenses as a percentage of revenue from
93.1% in 1995 to 88.0% in 1996.
Other income, net for 1996 and 1995 was $1.0 million and $22,000,
respectively, representing an increase of approximately $1.0 million in 1996.
The increase was the result of income generated from trading gains on
marketable securities using the proceeds of the Company's initial public
offering of Common Stock in February 1996, partially offset by increased
interest expense due to additional capital lease obligations.
The tax provision for 1996 of approximately $1.6 million reflects federal,
state and local income tax expense. For 1995, the Company utilized its
remaining net operating losses and recorded deferred tax
18
<PAGE>
assets to the extent of taxes that it had expected to pay on estimated 1995
taxable earnings. Management believes that realization of such deferred tax
assets was more likely than not. As such, it estimated its annual effective
tax rate for 1995 to be zero.
As a result, net income in 1996 and 1995 was $2.0 million and $1.0 million,
respectively, representing an increase of $1.0 million, or 96.3%, in 1996. As
a percentage of total revenues, net income increased to 9.3% in 1996 from 7.1%
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has raised approximately $32.5 million of
capital through the initial public offering of Common Stock and private
placements of Preferred Stock, all of which was converted into Common Stock at
the closing of the initial public offering in February 1996. The Company's
working capital and capital expenditure needs have increased and are expected
to continue to increase as the Company expands its existing facilities and
pursues its growth strategy. See "Business--Company Strategy."
The Company's cash and cash equivalent balances at December 31, 1997 and
1996 were $325,000 and $942,000, respectively, representing a decrease of
$617,000 in 1997. The Company also had approximately $14.0 million invested in
a portfolio of investment-grade fixed-income securities at December 31, 1997.
For 1997, net cash generated from operating activities was approximately
$8.4 million. This was the result of cash inflows from the sale of marketable
trading securities of $7.6 million and the Company's net income, partially
offset by increases in accounts receivable, net of allowance for bad debt
provisions of $4.4 million due to rapid sales growth. The Company also reduced
its accounts payable and accrued expenses by $382,000.
During 1997, the Company used approximately $6.2 million of cash to fund its
growth strategy through the acquisition of certain assets of Oncogenetics,
Immunodiagnostic, GenCare and Aeron. See "--Recent Acquisitions." In addition,
the Company had capital expenditures of $4.1 million during 1997, primarily
related to the development of the Company's clinical and billing systems.
The Company received approximately $515,000 during 1997 through the issuance
of Common Stock upon the exercise of incentive stock options and warrants. The
Company used approximately $1.1 million to satisfy its capital lease
obligations.
In November 1997, the Company renewed its line of credit at an aggregate
amount of $2.5 million. Borrowing under the line will bear interest at the
prime rate. The availability of a $10.0 million replacement line of credit,
which was approved in November 1997 and will bear interest at LIBOR plus
2.25%, is subject to the execution of such additional documentation as the
lender may request. As of December 31, 1997, the Company had not drawn on the
line of credit.
The Company's growth strategy is anticipated to be financed through the net
proceeds from this Offering, its current cash resources and existing third-
party credit facilities. The Company believes the combination of these sources
will be sufficient to fund its operations and to satisfy the Company's cash
requirements for the next 12 months and the foreseeable future. There may be
circumstances, however, that would accelerate the Company's use of proceeds
from this Offering. If this occurs, the Company may, from time to time, incur
additional indebtedness or issue, in public or private transactions, equity or
debt securities. However, there can be no assurance that suitable debt or
equity financing will be available to the Company.
19
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation and changing prices on the Company has been
primarily limited to salary, laboratory and operating supplies and rent
increases and has not been material to date to the Company's operations. In
the future, the Company may not be able to raise the prices for its cases by
an amount sufficient to cover the cost of inflation, although the Company is
responding to these concerns by attempting to increase the volume and adjust
the product mix of its business.
YEAR 2000
The Company is in the final stages of the installation of newly developed
clinical and billing information systems which address year 2000 issues. The
Company does not expect the amounts required to be expended over the next
three years in connection with year 2000 compliance issues to have a material
effect on its financial position or results of operations.
20
<PAGE>
BUSINESS
OVERVIEW
IMPATH is a leader in providing critical information essential for making
medically optimal and cost-effective cancer management decisions for
individual cancer patients. The Company is focused exclusively on the analysis
of cancer, combining advanced technologies and medical expertise to provide
patient-specific diagnostic, prognostic and treatment information to
physicians involved in the treatment of cancer.
IMPATH believes that it currently performs more specialized analyses for
difficult to diagnose cancer cases than any other institution in the world.
The Company also believes that it is the leader in providing comprehensive
patient-specific prognostic information for cancer. For example, IMPATH
provided patient-specific prognostic information on over 20% of all breast
cancer cases in the U.S. in 1997. The Company's fastest growing business is
the analysis of lymphomas and leukemias, with IMPATH analyzing 12,464 of such
cases in 1997, representing an increase of 122% over 1996. Lymphoma/leukemia
analysis represents an area in which IMPATH's expertise and utilization of
sophisticated technologies are integrated to provide information for optimal
disease management.
The Company believes that its integration of patient-specific information
will be essential to a growing list of cancer diagnoses, most notably
prostate, colon, lung and bladder cancer. Furthermore, as an increased
understanding of the molecular basis of cancer leads to the development of new
evaluation methods and therapeutic tools, IMPATH expects that the information
it provides will become increasingly significant in optimizing the management
of all phases of cancer, including cancer predisposition, diagnosis,
prognosis, treatment determination and patient follow-up.
The Company believes that there are significant opportunities for increased
penetration of the cancer information market. IMPATH's goal is to be the
comprehensive information resource to the cancer care community. IMPATH has a
growing cancer database consisting of information on over 300,000 cases (the
largest database of diagnostic and prognostic cancer information in the
world); more than 85,000 of these cases were added in 1997 alone. The Company
believes that this database, along with IMPATH's strategy of linking patient-
specific information with clinical outcomes, will provide a powerful platform
for establishing optimal treatment pathways for patients with cancer.
The Company's revenues were $37.1 million in 1997, representing revenue
growth of 69% over 1996. In fact, the 1997 fiscal year was IMPATH's eighth
consecutive year of annual revenue growth in excess of 40%. Moreover, the
fourth quarter of 1997 represented IMPATH's sixteenth consecutive quarter of
record revenues. Income from operations and net income for 1997 were $5.8
million and $3.6 million, respectively, an increase of 119% and 78% over 1996.
CANCER INFORMATION MARKET
The market for cancer diagnosis, prognosis and treatment is significant and
growing. After heart disease, cancer is the leading cause of death in the
United States. Approximately eight million Americans alive today have been
diagnosed with cancer (excluding certain skin cancers). According to the
American Cancer Society, the estimated number of cancer cases diagnosed
annually in the United States (excluding certain skin cancers) grew from
approximately 530,000 in 1963 to approximately 1.4 million in 1997, an
increase of 164%. The growth in the number of cancer cases in the United
States is expected to accelerate as the leading edge of the "baby boom"
population approaches 55 years of age, the age at which the incidence of
cancer begins to rise sharply. Earlier diagnosis and better information have
led to more effective treatment and have increased the five-year survival rate
of cancer patients from 39% in 1963 to approximately 56% in 1997.
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The National Cancer Institute estimates that the direct medical costs
associated with cancer will be approximately $37 billion in 1998. The Company
believes that these costs will increase rapidly as a result of the growth in
the number of cancer patients and the high cost of new therapies. Thus, the
Company anticipates that the demand for information regarding cancer and
cancer management will continue to increase.
The diagnosis, prognosis, treatment determination and follow-up of cancer
are extremely complex processes which require a multidisciplinary approach.
Among the key specialties involved in cancer management are pathology (for
diagnosis), surgery (for diagnosis and treatment), oncology (for treatment and
follow-up), radiology (for diagnosis and follow-up) and radiation oncology
(for treatment), as well as a number of other specialties for which cancer is
important, such as urology and gynecology.
IMPATH's potential market includes all physicians involved in the diagnosis
and treatment of cancer in the United States. This includes approximately
16,000 pathologists and more than 7,000 oncologists (excluding radiation
oncologists), as well as other specialists who treat cancer, such as surgeons
and gynecologists. Historically, pathologists have been the focus of the
Company's marketing efforts because they are responsible for providing the
information from which most cancer management decisions flow.
IMPATH's primary customers are the pathology departments of small- to
medium-sized community hospitals (100 to 500 beds), where most cancer is
diagnosed. Based upon statistics compiled by the American Hospital
Association, IMPATH believes that there are approximately 2,550 hospitals
which are potential users of IMPATH's services. These hospitals generally do
not perform their own sophisticated cancer analyses because the low case
volume per hospital does not justify establishing and maintaining the required
technological capabilities, facilities and expert medical staff.
Furthermore, health care providers increasingly are being organized into
managed care networks which emphasize cost containment. IMPATH believes that
these networks increasingly will outsource sophisticated cancer analysis in
order to optimize patient care and control costs. The care of the cancer
patient increasingly is being performed in outpatient settings, representing a
shift from traditional, hospital-based care. Certain evaluations, surgical
procedures and systemic treatments (e.g., chemotherapy) are now being
performed at outpatient facilities, and most patient follow-up is being
performed in outpatient settings rather than hospitals. These outpatient
facilities generally do not have the expertise and resources to provide the
information necessary for optimal cancer management.
In order to make optimal cancer management decisions, providers and payors
require information about the specific characteristics of a patient's cancer
(e.g., how aggressive it is and how it can best be treated). In the past,
patients have been treated based upon information gathered on entire classes
of disease rather than on the individual's cancer. With the development of new
targeted cancer therapies, patient-specific information has become critical to
cancer treatment decisions.
COMPETITIVE ADVANTAGES OF IMPATH
IMPATH pioneered the marketing of patient-specific diagnostic and prognostic
information to medical professionals involved in cancer management. The
Company believes that it now performs more analyses of difficult to diagnose
cancer cases than any other institution in the world and that it is the leader
in providing comprehensive patient-specific prognostic information for cancer.
IMPATH has established its leadership and reputation in the cancer information
market through its extensive expertise, its integration of technological
advances, its emphasis on customer service and education and the cost-
effectiveness of its services. IMPATH believes that these factors, which
cannot be duplicated without substantial investments of time and capital,
provide it with significant advantages over existing and potential
competitors. In addition, as the value of the information provided by IMPATH
becomes more widely recognized among the participants in the cancer management
market, IMPATH expects its role in all phases of this market to become even
more important.
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Expertise. IMPATH specializes in cancer tests that require a level of
medical knowledge and technical expertise not found in the average community
hospital and not readily accessible in academic medical centers. IMPATH
believes that its medical staff has more experience in providing comprehensive
tissue-based diagnostic and prognostic analyses of cancer than virtually any
other group of practitioners. IMPATH currently receives an average of 360
cases per day. The experience derived from such a volume of cases leads to
superior professional and technical expertise. This expertise is reflected in
IMPATH's database of more than 300,000 cancer cases analyzed to date, with
more than 85,000 cases added during 1997 alone. The Company is linking these
data to outcomes and cost information in order to demonstrate the value of
IMPATH's services to payors and to provide new cancer information services to
providers, payors, biopharmaceutical and large pharmaceutical companies and
clinical research organizations. See "--Company Strategy."
Comprehensive Technology Integration. IMPATH provides a comprehensive range
of cancer analyses using sophisticated technologies, including
immunohistochemistry, image analysis and flow cytometry, cytogenetics,
molecular pathology and serum analysis. These analyses are integrated through
in-house technical and medical expertise to provide a single source for
optimal patient-specific diagnostic, prognostic and treatment information,
which is not available from clinical laboratories, hospitals or academic
centers. In the past decade, many new evaluation methods and treatment
regimens have been developed as a result of the increased understanding of the
cellular and molecular biology of cancer. As new therapies targeting cancers
with specific biological characteristics emerge, IMPATH believes that the
demand for cancer information services that identify such characteristics will
increase substantially. IMPATH intends to continue to integrate technological
advances rapidly and effectively to meet this demand. See "--Technologies."
Customer Service and Education. IMPATH's medical staff and customer service
representatives emphasize quality of service, accuracy of results and speed of
turnaround. The medical staff provides frequent expert consultation and
generally returns results within 48 hours of receipt of a specimen. By
contrast, academic medical centers often require approximately 14 days to
return results and typically provide little consultation. In addition,
IMPATH's sales force focuses on educating clients as to the benefits of the
Company's services in managing cancer. In contrast, the sales forces of most
clinical laboratory companies market hundreds of disparate, cancer and non-
cancer test services, and IMPATH believes that sales personnel at these
companies have limited familiarity with the individual cancer tests offered.
Many academic institutions, which perform some of the same analyses as the
Company, typically do not have substantial marketing or customer service
resources, and the pathology laboratories at large regional hospitals are
generally dedicated to servicing only their affiliated physicians. The success
of IMPATH's focus on customer service and education is demonstrated not only
by the Company's rapidly growing case volume, but by the fact that IMPATH's
case volume from its long-term customers continues to grow. See "--Sales and
Marketing."
Cost-Effectiveness. IMPATH provides physicians with diagnostic and
prognostic information necessary to determine the medically optimal therapy
for each patient's specific cancer. As a result, incorrect or unnecessary
treatments can often be avoided, along with the associated trauma, risk and
cost, and appropriate therapies can be implemented on a timely basis. In
addition, because of its high case volume, IMPATH benefits from significant
economies of scale which enable the Company to provide hospitals with a
valuable, cost-effective and expeditious alternative to establishing and
maintaining in-house pathology laboratories. IMPATH also believes that it
provides managed care networks and other payors with a source of sophisticated
cancer analyses which optimize patient care while controlling costs.
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COMPANY STRATEGY
IMPATH's objective is to be the leading cancer information company and the
comprehensive resource for integrating all aspects of the management of cancer
information. The Company is pursuing the following strategies to achieve its
objective:
Increase market penetration of diagnostic and prognostic services. IMPATH
believes that it has a significant opportunity to continue to increase its
revenues and case volume from existing clients as well as through new
relationships with hospitals, physicians and payors. The Company intends to
continue to grow its core business by increasing the number of cases received
from existing clients, continuing to incorporate new technologies and
expanding the services it offers to the oncology outpatient market. Case
volume for 1994 was 33,618; in 1997 that figure increased to 87,884,
representing an average annual growth rate of 38.5%. In part as a result of
the more complex analyses per case required to assess tumor activity, the
Company's average revenue realization per case has increased as well. The
average revenue realization per case (excluding cytogenetic analyses) has
increased from approximately $298 in 1994 to approximately $422 in 1997,
representing an average annual increase of 12.3%.
Managed care networks represent an important business opportunity for the
Company because, in many cases, unnecessary treatment can be avoided and
significant cost savings can be achieved through the relatively inexpensive
services provided by the Company. An IMPATH case analysis typically costs
between $300 and $1,200 and contains information which can be critical for
physicians to avoid ineffective courses of therapy costing many thousands of
dollars. The Company intends to expand its presence in managed care by
aggressively marketing the cost-effectiveness and clinical benefits of its
services and assisting managed care companies in developing cancer treatment
protocols.
In order to implement this strategy, the Company intends to continue to
identify and incorporate new technologies and scientific developments and to
recruit and train medical, scientific, customer service and sales personnel to
meet the demands of its expanding business.
Pursue strategic acquisitions and alliances. The Company has successfully
completed the acquisition and integration of several complementary regional
businesses which have added to the breadth and depth of its technological
expertise and services, and believes that there are other similar acquisition
candidates, including companies with significant national and international
presences. The Company intends to continue to pursue selective acquisitions of
companies that will enhance its cancer management information database. These
acquisitions also may include companies involved in health care information
services and companies that have expertise in the evaluation of medical data
and cost analysis.
The Company also continues to target alliances that will broaden its
information services capabilities. IMPATH has entered into a joint venture,
IMPATH Registry L.L.C., with Medical Registry Services, Inc., a leading
developer of cancer registry software, to develop new software products for
oncologists and pathologists to evaluate and select optimal patient-specific
treatment pathways based on diagnostic and prognostic information.
Expand and enhance database. IMPATH believes that it has one of the most
significant knowledge bases related to the diagnosis, prognosis and treatment
of cancer. With more than 300,000 analyzed cases to date, IMPATH is rapidly
incorporating the diagnostic and prognostic information generated from the
analysis of these cases into its cancer information database. In over 1,200
cases, the linked data corresponding to patient treatment regimens and
outcomes are incorporated into the database. IMPATH expects to continue to
link data obtained from diagnostic and prognostic analyses with therapy
choices and patient outcomes. The cancer database represents a comprehensive
resource for the management and treatment of certain cancers. In addition, as
the Company integrates cost information related to patient care into its
database, the Company believes that the database will become increasingly
valuable to the managed care industry. The Company intends to continue to
expand and enhance its database through
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internal analysis and through strategic partnerships and joint ventures with
oncology networks, hospital groups, managed care companies and
biopharmaceutical and large pharmaceutical companies.
Provide information to the biopharmaceutical industry. IMPATH believes that
its resources will be valuable to the biopharmaceutical industry for
evaluating existing and emerging diagnostic and prognostic indicators for
targeted cancer therapies. The data would also permit a comparison of
development-stage therapeutics with existing therapies, from an effectiveness
and cost perspective. IMPATH's cancer database should also be a valuable
resource for pre-clinical drug development, where potential drug therapies are
screened and evaluated for specificity and potential market size.
Target international expansion. IMPATH believes that foreign markets
represent a significant opportunity for the Company to expand its cancer
information business. A principal focus of the Company's international
strategy will be selective acquisitions of established businesses providing
services similar to those provided by the Company. IMPATH also intends to
pursue this opportunity by partnering with international physician oncology
networks and hospital groups. These efforts initially will focus primarily on
select markets in Europe and South America and, once these relationships are
established, would expand into Southeast Asia, Japan, Canada and Australia.
These regions represent areas where sophisticated treatment technologies are
currently in use and which the Company believes would benefit from IMPATH's
services.
IMPATH'S ROLE IN THE CANCER MANAGEMENT PATHWAY
The management of cancer involves a series of distinct steps which must be
integrated in order to define a therapeutic strategy. At each step,
information critical to the decision-making process must be obtained in order
to make the optimal decision. Traditionally, the type of information applied
to the decision-making process has been limited, and related not to an
individual's cancer, but rather to an entire class of disease. IMPATH's core
business is providing, through the use of integrated advanced technology,
information unique to a particular patient with cancer.
IMPATH concentrates on the use of advanced technologies to address many of
the shortcomings of traditional methods of cancer assessment. The Company
believes that its services will be critical to the efficient coordination and
optimal implementation of all phases of the cancer management pathway.
Predisposition. In the large majority of cancers, genetic defects occur in
the course of an individual's life that may lead to the development of cancer.
However, in some cases an individual has an inherited predisposition for
developing certain types of cancer. It is possible that the genes responsible
for this inheritance pattern may be identified prior to the overt
manifestation of that cancer. In fact, it is believed that as many as 5% of
certain types of cancers are based at least in part on an inherited
predisposition. IMPATH currently possesses the technological expertise to
detect genetic defects associated with predisposition to certain cancers.
While very few predisposition genes have been identified to date (for example,
genes responsible for the inherited forms of breast cancer, ovarian cancer,
colon cancer and retinoblastoma), this is a very active area of research. As
these genes are identified, IMPATH will be in the position to screen for these
types of inheritable cancers.
Diagnosis. IMPATH's core diagnostic analyses provide information regarding
tumors that are difficult to diagnose using conventional pathology procedures.
Although most tumors can be diagnosed based on visual examination by the
pathologist, as many as 15% (180,000 per year in the U.S. alone) of all
cancers defy specific classification by this method. This may result in
treatment decisions that are approximated, incorrect or ineffective leading to
unnecessary treatment, complications and increased cost. Traditionally, the
therapeutic approach to a patient with cancer has been based on a purely
morphological assessment of the origin of the cancer and the extent of spread,
i.e., the tumor's appearance under the microscope (for example, does it look
like colon cancer?) and the tumor's presence in various metastatic sites (such
as regional lymph nodes and bone marrow). While this type of
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morphological assessment is well accepted, it has serious and critical
limitations. Specifically, morphological assessment is able to provide very
little information about the biological aggressiveness of an individual's
cancer and can provide virtually no meaningful information regarding the
treatment to which the patient's specific cancer will respond. IMPATH has
shown that in a majority of cases which defy standard classification, the use
of advanced technologies and the medical expertise provided by IMPATH lead to
an accurate diagnosis, thus ensuring optimization of therapy, greater
predictability of outcome, increased survival and decreased overall costs.
Prognostic Assessment. IMPATH's prognostic tests provide information to
pathologists and oncologists regarding the aggressiveness of a tumor. The
increase in knowledge of tumor biology and the development of new technologies
have made it increasingly important to determine the aggressiveness of an
individual cancer in order to treat that cancer more rationally. One breast
cancer may have a low biological aggressiveness, and may therefore have a very
low propensity to recur, while another breast cancer (which appears identical
under the microscope) may be very aggressive. These tumors should be treated
very differently, but may not be if these differences are not identified. For
example, post-surgical systemic treatment, such as chemotherapy, for a cancer
that has a very low rate of recurrence produces limited beneficial effects,
and may only expose the patient to the morbidity and expense of such
treatment. On the other hand, an aggressive cancer should be treated
aggressively at the earliest possible time in order to achieve maximal
therapeutic benefit. IMPATH's prognostic expertise differentiates such
difficult cases, providing the oncologist with the critical information
necessary to treat patients effectively and to reduce morbidity and costs.
Treatment Determination. Traditionally, therapeutic approaches to cancer
have been based solely on the diagnosis and stage (or extent) of disease. For
example, a patient with breast cancer is treated with a particular combination
of chemotherapeutic drugs not because it is known that the cancer in question
is likely to respond, but rather because a certain proportion of other breast
cancers have responded in the past to similar treatment. In an increasing
number of cancer cases, IMPATH provides information that can help to predict
the specific types of therapy to which a particular tumor will, or will not,
respond. For example, in the case of breast cancer, IMPATH provides critical
information for the determination of likely patient responses to specific
therapies (e.g., hormonal treatment and chemotherapy) before such therapies
are administered. This type of information is becoming increasingly available
for other types of tumors as well. Thus, therapies that are most likely to be
beneficial can be instituted at the earliest possible time, when the impact
will be the greatest. In addition, therapies which will have little effect can
be avoided, thus decreasing morbidity and expense and accelerating the
implementation of appropriate treatment. The Company believes that this type
of patient-specific information will become essential for optimal cancer
management.
Treatment Follow-up. Once a cancer has been diagnosed, assessed and treated,
the patient must often undergo many years of follow-up care involving multiple
patient contacts and repeat analyses. This care not only provides for the
treatment of therapeutic complications (often resulting from inappropriate
therapy due to inaccurate diagnosis and insufficient assessment) but is
designed to determine, at the earliest possible time, if a patient has
suffered a recurrence. IMPATH has the expertise to provide highly sensitive
patient monitoring in an increasing number of cancers. For example, the
Company is able to establish whether or not certain types of lymphomas have
recurred prior to their detection by any standard method, even sensitive
microscopic analysis. The identification of tumor recurrence at the earliest
possible time increases the likelihood of a beneficial therapeutic response.
TECHNOLOGIES
Recent advances in immunology, biochemistry and molecular biology have
created new tools with tremendous potential in the management of cancer
patients. IMPATH specializes in cancer tests that require a sophisticated
level of medical knowledge and technical expertise that is beyond the
capability of pathology laboratories in the average community hospital. In
fact, the expertise required to develop and maintain a high quality immuno-
and molecular pathology laboratory is found in a relatively small
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number of top level academic institutions. Furthermore, even the most
sophisticated medical centers perform only a small fraction of the tests that
IMPATH performs every day. This is extremely important, as increased
experience generally leads to superior professional and technical expertise.
The average community hospital pathologist does not see a substantial volume
or range of cases and, therefore, very rarely has the experience to choose the
correct testing methodology and to evaluate the data, or the technical support
to achieve high quality results. Even when these technologies exist at
academic medical centers, they typically exist in different departments (e.g.,
pathology, genetics and molecular biology). The Company believes that there is
usually no integration of information by these different departments, making
it more difficult for the referring physician to diagnose and provide optimal
treatment for a patient's specific cancer.
IMPATH addresses these issues by virtue of its extensive experience in
applying and performing analyses and by the background and expertise of its
medical staff. IMPATH currently receives an average of 360 cases a day.
Because of IMPATH's significant case volume, its professionals have been able
to expand their considerable experience, and have been able to develop
individual areas of expertise. IMPATH's consultants and in-house staff include
internationally known experts in immuno- and molecular pathology and highly
experienced technologists.
IMPATH continues to identify and incorporate sophisticated technologies and
analyses, consistent with the Company's goal of remaining at the forefront of
scientific advances in cancer analysis. IMPATH integrates these technologies
in order to provide comprehensive cancer information critical for optimal
cancer management. Importantly, these techniques also allow for the
identification of patients who will not benefit from certain types of therapy,
thus avoiding the cost, pain and side effects of unnecessary treatment.
The following chart summarizes the Company's use of technologies in its
analyses of cancer:
<TABLE>
<CAPTION>
FLOW
CYTOMETRY
CATEGORY OF ANALYSIS AND
AND IMMUNOHISTO- IMAGE MOLECULAR SERUM
TYPE OF CANCER CHEMISTRY ANALYSIS PATHOLOGY CYTOGENETICS ANALYSIS
-------------------- ------------ --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Predisposition.......... X
Diagnosis:
Difficult to Diagnose
Cancers............... X
Lymphoma/Leukemia...... X X X X
Prognosis/Treatment De-
termination:
Breast................. X X X
Lymphoma/Leukemia...... X X X X
Prostate............... X X X
Other (e.g., Colon,
Bladder, Ovarian)..... X X X
Follow-up:
Breast................. X X
Lymphoma/Leukemia...... X X
Prostate............... X X
Other (e.g., Colon,
Bladder, Ovarian)..... X X
</TABLE>
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Immunohistochemistry
Immunohistochemistry (IHC) is a technique wherein a monoclonal antibody is
used to identify disease-specific cellular antigens. A primary antibody to an
antigen of interest is incubated with test tissue sections followed by a
secondary antibody complex. If the antigen is present in tissue, the primary
antibody binds and the antigen-antibody reaction can be visually detected by a
color product. Because cell antigens are not absolutely tissue- or tumor-
specific, the immunopathologist must use panels of antibodies to construct a
"fingerprint" for identification. Immunohistochemistry is superior to standard
biochemical assays because it provides faster results, can be used on smaller
tissue samples, has less stringent requirements for specimen storage, and,
most importantly, predicts outcomes more accurately.
Flow Cytometry and Image Analysis
Various components of tumor cells can be quantified by flow cytometry and/or
image analysis. In flow cytometry, a cell sample is stained with appropriate
fluorochromes and passed through a flow chamber designed to align the stream
of cells so that they are individually struck by a focused laser beam. The
scattered light and fluorescent emissions are separated according to
wavelength by appropriate filters and mirrors and directed to detectors which
convert the emissions into electronic signals that are analyzed and stored for
future display by a computer. The data are displayed on a graph of frequency
(number of cells versus fluorescent energy) for a single parameter analysis or
as a scattergraph for a multi-parameter evaluation. The fluorochromes used to
stain cells in flow cytometry include compounds that bind to DNA and/or RNA,
but fluoresce at different wavelengths for each, or that can attach to
antibodies against cell surface antibodies. In image analysis, a pathologist
selects the area of the specimen to be examined, and a computerized instrument
using a microscope and camera then measures various components of tumor cells
based on staining intensity.
Molecular Pathology
The next generation of commercial diagnostic and prognostic testing is
generally expected to be based on molecular biology, since a disease or
condition may be associated with the presence of an abnormality in DNA or RNA.
A specimen may be tested for a particular disease or condition by finding and
marking this abnormality. Currently, the use of molecular pathology is
confined predominantly to academic centers. However, IMPATH already performs a
wide range of molecular pathology analyses, including in situ hybridization
(ISH). Similar to IHC except that a DNA probe is used rather than a monoclonal
antibody, in situ hybridization employs recombinant DNA technology with
labeled probes to locate and identify nucleic acid sequences within cells.
IMPATH also uses a DNA-based technology called Southern blotting that detects
genetic rearrangements that confirm abnormalities known to be present in
certain tumors. More recently, fluorescence has been used to label probes,
replacing the historical use of radioactive isotopes, in a technique called
fluorescence in situ hybridization (FISH). Another promising molecular
pathology technique already in use at IMPATH is the amplification of specific
DNA sequences by thermal cycling and subsequent electrophoresis, the most
sensitive method of detecting alteration in DNA.
Cytogenetics
Cytogenetic analysis evaluates the genetic changes that occur at the
chromosome level. Humans have 23 pairs of chromosomes, or 46 individual
chromosomes in every cell. Cytogenetic methods provide for the identification
of each individual chromosome using DNA-specific staining techniques to
produce the unique band pattern that is characteristic of each chromosome,
providing for the identification of chromosomal abnormalities like balanced
translocations, deletions and gene amplifications that are consistently
associated with certain cancers. The analysis involves the utilization of
fresh cells obtained from blood, bone marrow or tissue specimens which have
been cultured to enhance cell growth and division. The cells are then
harvested and prepared in such a manner that the chromosomes and the distinct
patterns of each can be seen through a microscope. The identification of
chromosome changes
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has become extremely useful in the diagnosis and prognostic assessment of
lymphomas, leukemias, soft tissue cancers (sarcomas) and pediatric cancers.
The scope of this technology is expected to expand to carcinomas (such as
colon, lung and prostate cancer) in the near future.
Serum Analysis
Blood serum markers are proteins circulating in the blood which are produced
in excess by malignant tumors. These serum proteins serve as an indicator of
tumor regression (decreased presence of markers) or tumor progression
(increased presence of markers). Because these proteins are present in minute
amounts, the technology required for detection relied, until recently, on an
immunochemical procedure involving the use of radioactive isotopes. Now,
however, a new generation of non-radioactive techniques is available to detect
blood serum markers employing, among other methods, chemiluminescence--a novel
system based on emitted light as an indicator of activity. IMPATH intends to
use its newly acquired serum technology to assist oncologists in patient
follow-up. For example, by monitoring levels of certain known markers, the
Company can help to confirm remission or the recurrence of ovarian and
prostate cancers.
CANCER MANAGEMENT THROUGH INFORMATION
Optimal management of cancer means the best outcome at the lowest possible
cost. At each step along a management pathway, the best choice is not
necessarily the lowest cost alternative, but one which leads to the best
outcome at the lowest overall cost. A patient with cancer has many treatment
options, at widely varying costs, ranging for example from no further
intervention to expensive experimental procedures such as bone marrow/stem
cell transplants; however, the choice of a more expensive option may lead to a
better outcome with fewer recurrences. This not only optimizes patient benefit
(an obvious advantage as health care will be increasingly evaluated on the
basis of outcome) but can actually lead to lower overall cost; the cost of
treating recurrent disease is generally far greater than initial post-surgical
interventions. Thus, outcomes and cost-effectiveness should be synergistic,
and not mutually exclusive. The key to cost-effectiveness is choosing the most
appropriate management pathway for the individual patient. This can only be
done through the use of information derived from a patient's tumor that
defines its biological uniqueness, and allows for identification of the most
appropriate therapeutic options.
Finally, cancer management is not static; approaches that represent current
best practices may well be added to or modified by new developments, a process
that has tremendous impetus in research institutions and biopharmaceutical
companies.
With more than 300,000 analyzed cases to date, IMPATH is rapidly
incorporating the diagnostic and prognostic information generated from its
analyses of cases into its cancer database. The demographics of these cases
are: 151,500 breast cancer prognostics and treatment profiles; 91,500 complex
cancer diagnoses; 41,500 lymphoma and leukemia classifications; and 37,500
analyses of other cancers (e.g., prostate, bladder, uterine).
In order to provide high quality and cost-effective cancer care, oncology
practices are consolidating into comprehensive coordinated cancer treatment
groups and managed care organizations are increasing their presence in the
oncology marketplace. IMPATH believes that it can provide these groups with
information that is critical in providing such care. IMPATH also believes that
the information it provides will become increasingly important to these groups
as the Company develops its outcomes-oriented database to provide information
for the optimal, cost-effective utilization of resources.
IMPATH believes that the use of its services will have two fundamental
impacts on cancer management: (1) optimization of patient-specific care, and
(2) the cost-effective delivery of that care. As a result, IMPATH expects to
become an increasingly significant factor in helping to establish quality
standards for these cancer management groups. IMPATH believes that it is well
positioned to become a vital component in the integrated management of cancer.
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APPLICATIONS OF IMPATH'S CANCER INFORMATION SERVICES
Presented below are examples of how the information provided by IMPATH can
be critical to optimal cancer management.
Breast Cancer Management--Risk Assessment and Evaluation of Therapeutic
Options
Breast cancer is the most common cancer in women in the United States.
Annually, more than 180,000 cases are diagnosed and over 44,000 women die of
this disease. While the incidence of breast cancer has been increasing, the
number of deaths resulting from this disease has been slowly but steadily
decreasing. It is now widely recognized that earlier detection (by mammography
and self examination) has played a significant role in decreased mortality.
However, a significant advancement in the management of breast cancer has been
the development of technologies that provide patient-specific information that
allows oncologists to optimize treatment for each individual woman's cancer.
Traditional analysis of breast cancer only assesses a patient based on what
a tumor has already done, i.e., its current size and whether it has
metastasized to regional lymph nodes. This approach does not provide
information specific to the individual patient, but can only assess how
populations of patients will fare. This approach to providing therapy in
breast cancer has traditionally been based on how breast cancer generally
responds to a particular regimen, and not the potential of a particular tumor
to respond to such therapy.
IMPATH's approach to breast cancer analysis is based on providing the most
patient-specific information possible through the use of sophisticated
technology. IMPATH provides information in two fundamental areas, from which
virtually all post-surgical management decisions can be based.
Risk Assessment. IMPATH provides information necessary to determine the
aggressiveness of a tumor, not based on an assessment of the current state of
the tumor, but rather on the specific cellular and molecular changes that take
place in that individual tumor. This information is critical for optimal
cancer management. For example, a patient with a tumor that has a very high
likelihood of producing overt metastases must be treated rapidly and
aggressively. On the other hand, a patient with a tumor that has very little
chance of developing metastasis is not likely to benefit from aggressive
systemic treatment, and may only suffer the complications and cost of such
treatment.
Assessment of Therapeutic Options. IMPATH uses some of the most significant
advances in the understanding of cancer to assess more accurately the
likelihood of response (or lack of responsiveness) of a tumor to a particular
type of systemic therapy. This allows for better, more cost-effective cancer
management, as patients can now be treated with the type of therapy to which
they are most likely to respond, and can avoid treatments to which they are
unlikely to respond.
Selected examples of how IMPATH assesses risk and therapeutic options are
set forth below:
Hormone Receptors. The presence of estrogen and progesterone receptors in
breast cancer identifies women who are more likely to respond to hormonal
manipulation of the tumor, a commonly used therapy. This important test is now
required by the American College of Surgeons. The hormonal receptor status, as
examined by IHC, has been shown to be better correlated with clinical outcome
than standard biochemical assays. Furthermore, smaller tumor specimens,
including fine needle aspirates (FNAs), which are obtained through a less
invasive, less painful and less costly procedure, can only be effectively
examined by IHC.
Oncogene Analyses. The Her-2/neu oncogene identifies tumors that are more
biologically aggressive and therefore require more intensive treatment. The
Her-2/neu oncogene may also identify breast cancers that are resistant to
certain types of chemotherapy.
Cell Proliferation/DNA Ploidy Analysis. Proliferative rate and ploidy have
been well documented as important prognostic indicators in many cancers,
including breast cancer and colon cancer. The ploidy compares the DNA content
of a tumor cell with that of a normal cell. The proliferative rate measures
the
30
<PAGE>
percentage of cells that are actively dividing. High proliferative rates and
abnormal DNA content have been strongly correlated with faster progression and
earlier recurrences. Using image analysis and flow cytometry, the DNA of the
tumor can be examined by IMPATH using tissue specimens, FNAs and other cell
specimens. IHC can also be used visually to evaluate cell proliferation.
Detection of Occult Bone Marrow and Lymph Node Micrometastases. The single
most reliable indicator of outcomes in most cancers is whether or not a tumor
has spread (metastasized). However, in many cases the conventional pathologic
examination is unable to detect tumor spread, even in patients who will
eventually suffer tumor metastases. The basis for the development of cancer
metastases is the presence of the undetected spread of tumor. Technology
developed by IMPATH's founders allows for the detection of the microscopic
spread of cancer prior to detection by conventional methods, including
sensitive microscopic examination. The detection of lymph node and bone marrow
micrometastases identifies patients at greatest risk for developing overt
metastatic disease and may identify those who will most benefit from
aggressive adjuvant chemotherapy. Furthermore, identifying those patients who
do not have lymph node (or bone marrow) micrometastases may indicate those who
will not require such therapy, and who thus can be spared the pain, side
effects and substantial costs of chemotherapy. IMPATH believes that it is one
of a limited number of companies currently offering tests for the detection of
micrometastases, and that the detection of occult lymph node and bone marrow
micrometastases will be important in identifying the risk of developing overt
metastases for a wide variety of cancers, including breast, lung, colon and
prostate cancer. Furthermore, in patients undergoing high-dose chemotherapy
followed by stem cell transplants from one location to another within the
patient's body, a correct assessment of tumor cells in the patient's bone
marrow may be important to evaluate accurately the response to therapy and to
avoid reinfusing a patient with cancerous cells.
Because of its unique approach to breast cancer, IMPATH believes that it is
the leader in providing the most comprehensive prognostic information
essential to the management of breast cancer. The Company provided patient-
specific prognostic information on over 20% of all such cases in the U.S. in
1997, more than 30% of cases diagnosed in the New York metropolitan area and
over 35% of cases diagnosed in Florida, the Company's largest markets. The
Company's specialized expertise in breast cancer has not only allowed it to
play a significant role in optimizing patient-specific breast cancer treatment
nationwide but has also allowed it to be well positioned to develop the most
comprehensive outcomes-focused database in breast cancer.
Lymphoma/Leukemia Management--Integration of Technology in Overall Cancer
Management
The value of IMPATH's integrated approach to providing cancer information is
demonstrated in the clinical management of hematopoietic malignancies, such as
lymphomas and leukemias, particularly as scientific advances improve our
understanding of these diseases. The clinical management of hematopoietic
malignancies requires a comprehensive approach that includes analysis by
hematopathologists and the use of advanced diagnostic and prognostic
technology. Most community hospitals do not have hematopathologists or the
technologies required for such analyses. The Company employs four
hematopathologists and uses molecular and cellular technology to diagnose and
classify these hematopoietic malignancies. Using the information from an
IMPATH analysis, a physician can tailor therapy to optimize the outcome for a
patient. These same technologies are applied to evaluate a patient's response
to therapy, and to evaluate the progression or remission of the disease.
Lymphoma. The clinical significance of IMPATH's diagnostic technology is
illustrated by the fact that during 1997, of the over 9,589 suspected lymphoma
cases sent to IMPATH for analysis, more than 12% were found to be an infection
or inflammation rather than cancer. Prior to the development of certain
technologies used by IMPATH, such cases may have been misdiagnosed as cancer.
In the cases identified by IMPATH as not being cancer, patients who were
suspected of having a hematopoietic malignancy were spared the trauma, risk
and cost associated with unnecessary treatment. Of the cases sent to IMPATH in
1997 that were in fact lymphomas, the technology applied by the Company
permitted an assignment of the "grade" of the lymphoma, a process recommended
by the International Lymphoma Study Group
31
<PAGE>
(1994). The grading of lymphomas is an important process that influences the
treatment decisions of physicians and can result in better outcomes for a
lymphoma patient.
Leukemia. Similar to lymphomas, leukemias represent a type of cancer where
the classification and grading of the disease provides critical information
that influences the selection of therapy, predicts the response to therapy and
indicates the likely outcomes for the patient. The characteristics that
distinguish the various types of leukemias can be identified by the technology
employed by IMPATH. For example, in many cases, chromosome abnormalities
identified by this technology permit the unequivocal assignment of the disease
to a particular class of leukemia. As new biological characteristics
associated with leukemia classes continue to be identified, the Company
believes that it is well positioned to incorporate into its analyses
additional tests to detect these characteristics.
Management of Other Cancers
Diagnostic, prognostic and therapeutic information is being integrated
increasingly into the management of other cancers. As medical research
progresses and as increasing numbers of treatment options evolve, IMPATH
believes that its expertise will play an increasing role in the decision
making processes for all cancers.
For example, prostate cancer, like breast cancer, is a disease that is
responsive to hormonal manipulation. As in the case of estrogen receptors in
breast cancer, the presence of androgen receptors in prostate cancer can now
be evaluated. IMPATH believes that this information will become increasingly
important in the treatment and management of prostate cancer. The growth rate
of the tumor is also critical; for instance, a 50-year old man with a rapidly
growing cancer must be treated differently than a 90-year old man with a very
slow-growing prostate cancer. IMPATH provides this information for prostate
and other cancers, including breast, colon and bladder cancers.
The determination of patient-specific characteristics in optimizing therapy
is becoming essential as more outcomes-related biological determinants are
defined. Important examples of this are mutations in tumor suppressor genes
and oncogenes (such as Her-2/neu). The presence of these mutations in a
patient with specific types of tumors (e.g., bladder, breast or colon)
identifies the biological aggressiveness of that individual's tumor. Other
characteristics help to establish the responsiveness to therapy. For example,
if a patient's cancer has the multi-drug resistance (MDR) receptor, his/her
tumor will be unresponsive to many forms of drug therapy including, for
example, taxol therapy for ovarian and other cancers.
Furthermore, the most significant problem in treating cancer is the
accurate, early assessment of disease dissemination, i.e., metastases. IMPATH
has a special expertise in identifying the presence of lymph node and bone
marrow micrometastases, often earlier than practitioners using conventional
methods. This analysis is now useful in the correct staging of prostate, colon
or lung cancers and increasingly in other types of cancers.
Information that establishes the biological aggressiveness of an
individual's tumor and predicts response to therapy for that particular
patient is crucial to optimizing outcome for that patient. IMPATH believes
that its expertise in this area, as well as its access to increasing numbers
of cancer specimens, will allow it to continue to expand its comprehensive
database for predicting outcomes in various types of cancer. The Company
believes that this database will be increasingly important to the medically
optimal and cost-effective management of the cancer patient.
SALES AND MARKETING
Sales Force. As of December 31, 1997, the Company's sales force consisted of
34 employees, including a Senior Vice President, Sales and Marketing, a
National Sales Manager, three full-time Regional Managers and 29 sales
representatives. The IMPATH sales force consists of highly trained individuals
with extensive scientific backgrounds and successful sales records with health
care companies. The sales force
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<PAGE>
focuses on educating clients as to the benefits of the Company's services in
managing cancer. IMPATH believes that the technical and clinical knowledge of
its sales force distinguishes it from other companies.
Marketing Support. IMPATH supports its sales force with extensive customer
service and marketing programs. Due to the technical and scientific complexity
of IMPATH's business, the Company has established a strong interactive
relationship with its clients. This relationship serves to increase the
reliance of the client on IMPATH and is a significant tool for encouraging
business growth within the current customer base. The marketing process
emphasizes educating physicians regarding the development of new technologies
and the value of the information provided by IMPATH.
Customer Service. The Company emphasizes customer service, including the
provision of a comprehensive detailed report to the referring physician after
each analysis is completed. These reports serve to educate pathologists and
clinicians, many of whom may not be familiar with the analyses performed by
IMPATH, as well as to provide authoritative support for the accuracy and
validity of such analyses. In general, the Company returns its completed
analysis and report to the referring physician or clinician within 48 hours of
receipt of the tissue specimen, compared with approximately 14 days for
academic institutions. Further, the Company's medical staff provides frequent
expert consultation. The Company also employs several customer service
representatives, who are responsible for inquiries made by referring
physicians and provide support for the Company's sales staff. The success of
IMPATH's focus on customer service and education is demonstrated not only by
the Company's rapidly growing case volume, but by the fact that IMPATH's case
volume from its long-term customers continues to grow.
COMPETITION
The Company provides services in a segment of the health care industry that
is highly fragmented and extremely competitive. The Company's actual or
potential competitors include large university or teaching hospitals; large
clinical laboratories that have substantially greater financial, marketing and
logistical resources than the Company; special purpose clinical laboratories
that have limited test offerings and a highly focused product and marketing
strategy; and the Company's customers or potential customers who may choose to
perform services similar to those performed by the Company. It is anticipated
that competition will continue to increase due to such factors as the
perceived potential for commercial applications of biotechnology and the
continued availability of investment capital and government funding for
cancer-related research. There are several large clinical laboratory companies
which market a broad range of services nationally, and which have
substantially greater financial, selling, logistical and laboratory resources
than the Company. In addition, management has identified a number of
specialized clinical laboratories in the U.S. which have test offerings which
are less comprehensive than those of IMPATH and highly focused product and
marketing strategies.
REIMBURSEMENT
The Company typically bills third-party payors, such as private insurance
plans, managed care plans and Medicare, as well as hospitals, for its
services.
During 1995, 1996 and 1997, the Company received the following estimated
percentages of its total revenues for diagnostic and prognostic services from
the respective payors identified below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
PAYOR 1995 1996 1997
----- ------- ------- -------
<S> <C> <C> <C>
Hospitals........................................ 43% 37% 26%
Private Insurance/Managed Care................... 29 35 44
Medicare......................................... 24 25 25
Individual Patients.............................. 4 3 5
------- ------- -------
Total.......................................... 100% 100% 100%
======= ======= =======
</TABLE>
For a discussion of the changes in these percentages in 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
33
<PAGE>
Medicare is a federal health insurance program that provides health
insurance coverage for certain disabled persons, for persons aged 65 and older
and for certain persons with end-stage renal disease. Medicaid is the state-
administered and state- and federally-funded program for certain low-income
individuals. To date, the Company has derived no revenues from the Medicaid
program. As a participating provider, the Company bills Medicare for covered
services and accepts Medicare reimbursement as payment in full for its
services, subject to applicable co-payments and deductibles.
Revenues from analyses performed for other patients are derived principally
from other third-party payors, including commercial insurers, Blue Cross/Blue
Shield plans, health maintenance and preferred provider organizations and from
hospitals (who in turn usually bill any third-party payors or patients). With
respect to third-party payors, management has elected, to date, not to accept
reimbursement rates set by such non-governmental third-party payors as payment
in full. With respect to hospitals, management negotiates the terms of the
transaction applicable to each arrangement.
The Company currently receives Medicare reimbursement through three Medicare
carriers. Reimbursement rates for some services of the type or similar to the
type performed by the Company have been established by Medicare and some other
third-party payors, but have not been established for all services or by all
carriers with respect to any particular service. Most carriers, including
Medicare, do not cover services they determine to be experimental or
investigational, or otherwise not reasonable and necessary for diagnosis or
treatment. However, a formal coverage determination is made with respect to
relatively few new procedures. When such determinations do occur for Medicare
purposes, they most commonly are made by the local Medicare carrier which
processes claims for reimbursement within the carrier's geographic
jurisdiction. Medicare may retroactively audit and review its payments to the
Company, and may determine that certain payments for services must be
returned. With respect to other third-party payors, a positive coverage
determination, or reimbursement without such determination, by one or more
third-party payors does not assure reimbursement by other third-party payors.
Significant disapprovals of payment for any of the Company's services by
various carriers, reductions or delays in the establishment of reimbursement
rates, and carrier limitations on the coverage of the Company's services or
the use of the Company as a service provider could have a material adverse
effect on the Company's future revenues.
The services furnished by the Company are characterized for the purposes of
the Medicare program as physician pathology services. As of January 1, 1992,
all physician services, including pathology services, have been reimbursed by
Medicare based on a new methodology known as the resource-based relative value
scale ("RBRVS"), which was phased in over a four-year period. A Final Notice
updating the RBRVS payment methodology, published November 25, 1992, as well
as updates issued subsequently, have not had any significant effect on the
Company's reimbursement rates. Under the Balanced Budget Act of 1997, Congress
revised the RBRVS system to use a single conversion factor, rather than the
previous three, and to change the manner in which fees are updated. The
Company cannot predict what the potential impact of the change to the RBRVS
system will be on the Company's future Medicare reimbursement.
QUALITY ASSURANCE
IMPATH engages in a number of quality control procedures, many of which the
Company believes exceed industry norms. For instance, the Company does not buy
untested commercially available reagent test kits. Instead, each of IMPATH's
reagents is selected from various suppliers based on an exhaustive in-house
test of purity, batch-to-batch variability, potency and performance. IMPATH
believes that its quality review procedures are superior to other centers
performing similar analyses. In addition, the quality assurance program of the
Company's facilities includes close attention to the Company's Standard
Operating Procedures, continuing education and technical training of
technologists, statistical quality control of all analytical processes,
instrument maintenance, and regular inspection by governmental
34
<PAGE>
agencies and the College of American Pathologists (the "CAP"). The CAP is an
independent non-governmental organization of board-certified pathologists
which offers an accreditation program to which facilities can voluntarily
subscribe. The CAP accreditation program involves both periodic inspections of
the Company's facilities and participation in the CAP's proficiency testing
program for all categories in which its facilities seek to attain or maintain
accreditation. The Company's facilities are CAP accredited, certified by
Medicare, licensed by New York State, the City of New York and the States of
California and Arizona and licensed under the Clinical Laboratories
Improvement Act of 1967 ("CLIA"). The Company believes it has obtained all
licenses and permits required to operate its facilities. IMPATH follows the
quality control and quality assurance procedures established by CLIA, the CAP
and various New York State, California, Arizona and New York City agencies.
The Company's New York and California facilities are supervised by medical
directors whose qualifications meet all regulatory requirements. The Company's
Arizona facility is supervised by a laboratory director whose qualifications
meet all regulatory requirements governing the cytogenetics testing which is
performed at the facility. The primary role of the Company's medical directors
and laboratory director is to ensure the accuracy and quality of the Company's
analyses. As a further quality assurance procedure, the Company periodically
undergoes peer review with third-party facilities, including Norris Cancer
Center and Memorial Sloan-Kettering Cancer Center. In peer review,
particularly challenging diagnostic cases are referred by the Company to these
cancer centers for verification of antibody tests and IMPATH's diagnostic
conclusions. The results of these consultations are tabulated and discussed at
monthly quality assurance meetings at the Company's offices.
The Company also participates in a number of proficiency testing programs
under which, in general, the testing body submits pre-tested samples to a
facility in order to measure the facility's results against the known
proficiency test value. The proficiency programs are conducted by groups such
as the CAP and state and federal government regulatory agencies.
GOVERNMENT REGULATION
As a provider of health care related services, the Company is currently
subject to extensive and frequently changing federal, state and local
regulations governing licensure, billing, financial relationships, referrals,
conduct of operations, purchases of existing businesses, cost containment,
direct employment of licensed professionals by business corporations and other
aspects of the Company's business relationships. The various types of
regulatory activity affect the Company's business either by controlling its
growth, restricting licensure of the business entity or by controlling the
reimbursement for services provided.
Laboratory Licensure. The Company's facilities are certified or licensed
under the federal Medicare program and CLIA, as amended by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA '88"). Licensure is
maintained under the clinical laboratory licensure laws of New York,
California and Arizona, where the Company's facilities are located. The
Company believes it has obtained all material laboratory licenses required for
its operations. In addition, the California facility is licensed by the
federal Nuclear Regulatory Commission and all three facilities are accredited
by the CAP.
The federal and state certification and licensure programs establish
standards for the day-to-day operation of facilities, including, but not
limited to, personnel and quality control. Compliance with such standards is
verified by periodic inspections by inspectors employed by federal or state
regulatory agencies. The Health Care Financing Administration conducts an on-
site survey every two years. In addition, federal regulatory authorities
require participation in a proficiency testing program approved by the
Department of Health and Human Services ("HHS") for each of the specialties
and subspecialties for which a facility seeks approval from Medicare and
licensure under CLIA '88 requires participation in proficiency testing
programs which involve actual testing of specimens by the facility that have
been prepared by an entity running an approved program for testing.
35
<PAGE>
The Final Rule implementing CLIA '88, published by HHS on February 28, 1992,
became effective September 1, 1992. This Final Rule covers all laboratories in
the United States, including the Company's facilities. The Company has
reviewed the Final Rule (and subsequent revisions thereto), including, among
other things, the rule's requirements regarding facility administration,
participation in proficiency testing, patient test management (including
patient preparation, proper specimen collection, identification, preservation,
transportation, processing and result reporting), quality control, quality
assurance and personnel, for the types of analyses undertaken by the Company,
and believes that it complies with these requirements. However, no assurances
can be given that the Company's facilities will pass all future inspections
conducted to ensure compliance with CLIA '88 or with any other applicable
licensure or certification laws.
Anti-Kickback/Self-Referral Regulations. The Social Security Act imposes
criminal penalties and exclusions from federal health care programs (including
Medicare) upon persons who make or receive kickbacks, bribes or rebates in
connection with a federal health care program (including Medicare). The anti-
kickback rules prohibit providers and others from soliciting, offering,
receiving or paying, directly or indirectly, any remuneration in return for
either making a referral for a service or item covered by a federal health
care program (including Medicare) or ordering any such covered service or
item. In order to provide guidance with respect to the anti-kickback rules,
the Office of the Inspector General ("OIG") issued final regulations outlining
certain "safe harbor" practices, which although potentially capable of
inducing prohibited referrals, would not be prohibited if all applicable
requirements are met. A relationship which fails to satisfy a safe harbor is
not necessarily illegal, but could be scrutinized on a case-by-case basis. In
February 1997, the OIG issued an interim rule regarding its recently mandated
proposals for accepting and issuing advisory opinions on the anti-kickback
rules.
Because the anti-kickback rules have been broadly interpreted, they could
limit the manner in which the Company conducts its business. The Company
believes that it currently complies with the anti-kickback rules in planning
its activities, and believes that its activities, even if not within a safe
harbor, do not violate the anti-kickback statute. However, no assurance can be
given regarding compliance in any particular factual situation. Exclusion of
the Company from the Medicare program could result in a significant loss of
reimbursement and have a significant adverse effect on the Company.
Under another provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship
with an entity furnishing clinical laboratory services (including pathology
services) may not, subject to certain exceptions, refer clinical laboratory
analyses for Medicare patients to that entity. Similarly, facilities may not
bill Medicare or any other party for services furnished pursuant to a
prohibited referral. Violation of these provisions may result in disallowance
of Medicare claims for the affected analysis services, as well as the
imposition of civil monetary penalties and program exclusion. Under the Stark
law and the regulations implementing the law, a physician may make payments to
a clinical laboratory in exchange for the facility's provision of clinical
laboratory services and continue to refer Medicare patients to that
laboratory, without the payments meeting any particular pricing standards. The
Final Rule does make clear, however, that supplies or services, other than
clinical laboratory services, purchased by a physician from a clinical
laboratory must be at fair market value.
A number of states, including New York and California, have enacted
prohibitions similar to the Stark law covering referrals of non-Medicare as
well as Medicare business. These rules are very restrictive, prohibit
submission of claims for payment for prohibited referrals and provide for the
imposition of civil monetary and criminal penalties. The Company has no
prohibited relationships with any of its referrers. However, the Company is
unable to predict how these laws may be applied in the future, or whether the
federal government or states in which the Company operates will enact more
restrictive legislation or restrictions that could under certain circumstances
impact the Company's operations.
Any exclusion or suspension from participation in the Medicare program, any
loss of licensure or accreditation, or any inability to obtain any required
license or permit, whether arising from any action by
36
<PAGE>
HHS, any state or any other regulatory authority, would have a material
adverse effect on the Company's business. Any significant civil monetary or
criminal penalty resulting from such proceedings could have a material adverse
effect on the Company.
Fee-Splitting; Corporate Practice of Medicine. The laws of many states
prohibit physicians from sharing professional fees with non-physicians and
prohibit non-physician entities, such as the Company, from practicing medicine
(including pathology) and from employing physicians to practice medicine
(including pathology). The laws in most states regarding the corporate
practice of medicine have been subjected to limited judicial and regulatory
interpretation. The Company believes its current and planned activities do not
constitute fee-splitting or violate any prohibition against the corporate
practice of medicine. However, there can be no assurance that future
interpretations of such laws will not require structural or organizational
modifications of the Company's existing business. In addition, statutes in
certain states in which the Company does not currently operate could require
the Company to modify its structure.
Food and Drug Administration. The Food and Drug Administration ("FDA")
regulates certain monoclonal antibodies purchased by the Company but does not
currently regulate the analytical services which are the Company's principal
business. However, the FDA is currently reviewing issues concerning the use of
monoclonal antibodies for analytical services and the decisions the FDA
ultimately makes could impact the Company.
Other. Certain federal and state laws govern the handling and disposal of
medical specimens, infectious and hazardous wastes and radioactive materials.
Failure to comply could subject an entity covered by these laws to fines,
criminal penalties and/or other enforcement actions.
Pursuant to the Occupational Safety and Health Act, facilities have a
general duty to provide a workplace to their employees that is safe from
hazard. Over the past few years, the Occupational Safety and Health
Administration ("OSHA") has issued rules relevant to certain hazards that are
found in facilities such as the Company's. Failure to comply with these
regulations, other applicable OSHA rules or with the general duty to provide a
safe work place could subject an employer, including a facility employer such
as the Company, to substantial fines and penalties.
INSURANCE
The Company is presently covered by general liability insurance in the
amount of $6.0 million per occurrence and $7.0 million in the aggregate and
has obtained professional liability insurance in the amount of $6.0 million
per occurrence and $8.0 million in the aggregate for the Company's Medical
Directors and other physicians. The Company's liability insurance covers
claims relating to the handling and disposal of medical specimens and
infectious and hazardous waste, except in the event of malfeasance or fraud by
the Company. Management believes that these amounts and types of coverage are
adequate to protect the Company and its property against material loss.
EMPLOYEES
As of December 31, 1997, the Company had 249 full-time and 39 permanent
part-time employees, of which 52 were management, administrative and clerical
personnel, 43 were engaged primarily in marketing and sales activities and 193
were engaged in laboratory and related operations. None of the Company's
employees is covered by collective bargaining agreements. The Company believes
its employee relations are good.
FACILITIES
The Company's main facility and executive offices are located at 521 West
57th Street, New York, New York, where the Company leases approximately 28,700
square feet of space under a 12 1/2-year lease
37
<PAGE>
expiring in November 2009. The lease provides for minimum aggregate annual
rental payments of approximately $344,000. The Company is also required to pay
for repairs, property taxes and insurance relating to this facility.
The Company's California facility and offices are located at 5230 Pacific
Concourse Drive, Los Angeles, California, where the Company has entered into a
lease expiring November 2000 for approximately 16,400 square feet of space.
This facility commenced operations in December 1995. The lease provides for
minimum annual rental payments of approximately $281,000. The Company is also
required to pay for repairs, property taxes and insurance relating to this
facility.
The Company's Arizona facility and offices are located at 810 E. Hammond
Avenue, Phoenix, Arizona, where the Company leases approximately 11,200 square
feet of space under a lease which expires September 2006. The Company
commenced operations at this facility in January 1997, when it completed the
acquisition of certain assets of Oncogenetics, Inc. The lease provides for
minimum annual rental payments of approximately $70,000. The Company is also
responsible for all maintenance, property taxes and insurance relating to the
facility.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers, key employees and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Anu D. Saad, Ph.D.(1)........... President, Chief Executive Officer and
41 Director
John P. Gandolfo................ 37 Executive Vice President, Chief Operating
Officer and Chief Financial Officer
Moacyr DaSilva, M.D............. 40 Medical Director, Western Division
Bruce C. Horten, M.D............ 54 Medical Director, Eastern Division
Richard P. Adelson.............. 32 Senior Vice President, Sales and Marketing
Susan L. Gammon, Ph.D........... 37 Vice President, Product Development
Craig K. Trask.................. 37 Vice President, Strategic Development
John L. Cassis(1)(2)(3)......... 49 Chairman of the Board
Richard J. Cote, M.D.(1)........ 43 Director
Richard Kessler(2)(3)........... 67 Director
Joseph A. Mollica, Ph.D.(3)..... 57 Director
Marcel Rozencweig, M.D. ........ 52 Director
David B. Snow, Jr.(2)........... 43 Director
</TABLE>
- --------
(1)Member of the Nominating Committee.
(2)Member of the Compensation Committee.
(3)Member of the Audit Committee.
The following is a brief summary of the business experience of each of the
executive officers, key employees and directors of the Company:
Dr. Saad has been the President and Chief Executive Officer of the Company
since October 1993. Prior to that, she was the Company's Scientific Director
and Director of Business Development. Before joining the Company in 1990, Dr.
Saad was Assistant Professor of Cell Biology and Anatomy at Cornell University
Medical College/New York Hospital. Dr. Saad has published extensively and is
the recipient of many awards, including from the National Institute of Health,
Muscular Dystrophy Association, Andrew W. Mellon Foundation, Charles H. Revson
Foundation, Inc. and the American Cancer Society. Dr. Saad received her
Bachelor's Degree in Biology from the University of Pennsylvania and her Ph.D.
in Developmental Biology from the University of Chicago. Dr. Saad has been a
director of the Company since 1993.
Mr. Gandolfo has been Executive Vice President and Chief Financial Officer
of the Company since April 1994 and Chief Operating Officer of the Company
since November 1995. From 1987 through March 1994, Mr. Gandolfo served as
Controller, Senior Vice President and Chief Financial Officer of Medical
Resources Inc., a publicly held medical diagnostic imaging management company.
Mr. Gandolfo was employed at the accounting firm of Price Waterhouse from 1982
to 1986, and at Dow Jones Telerate, Inc. in 1987. Mr. Gandolfo is a Certified
Public Accountant and received his Bachelor's Degree in Economics and Business
Administration from Rutgers University.
Dr. DaSilva has been Medical Director, Western Division of the Company since
January 1998. Dr. DaSilva served as Associate Medical Director, Eastern
Division of the Company from August 1994 through December 1997. Prior to
joining the Company, Dr. DaSilva was Attending Pathologist and Chief of
Cytopathology at Lenox Hill Hospital, New York. He is Attending Clinical
Professor of Pathology at New
39
<PAGE>
York University and Adjunct Assistant Professor of Pathology at Cornell
Medical College. Dr. DaSilva's area of expertise is surgical pathology with
emphasis on gastrointestinal, pulmonary and head and neck pathology. Dr.
DaSilva received his M.D. from the Universidade Federal do Rio Grande do Sul
Brazil.
Dr. Horten has been Medical Director, Eastern Division of the Company since
December 1993. Dr. Horten has been a member of the pathology staffs at the
University of California at San Francisco, Memorial Sloan-Kettering Cancer
Center and most recently at Lenox Hill Hospital. He continues to serve as a
consultant at Lenox Hill Hospital and an instructor in pathology at Cornell
University Medical College. Dr. Horten received his anatomic pathology
training at Cornell University Medical College/New York Hospital, his clinical
pathology training at the University of California at San Francisco and
completed a neuropathology fellowship with Lucien Rubinstein at Stanford
University. Dr. Horten received his Bachelor's Degree in Chemistry from Drew
University and his M.D. from Duke University.
Mr. Adelson has been Senior Vice President, Sales and Marketing of the
Company since February 1998. From August 1996 through January 1998, he was
Vice President, Sales of IMPATH. He was Director of Sales of the Company from
August 1994 through August 1996. From January 1992 through August 1994, Mr.
Adelson served the Company as District and Regional Sales Manager for the
New York Metro Region. Prior to joining IMPATH, Mr. Adelson was a Sales
Representative for Surgipath Medical Industries, Inc., a medical equipment
company. Mr. Adelson received his Bachelor's Degree in Biology from the State
University of New York at Albany and studied at the Harvard School of Dental
Medicine.
Dr. Gammon has been Vice President, Product Development of the Company since
September 1997. From October 1996 through August 1997, she was the Company's
Director of Product Development. Prior to October 1996, Dr. Gammon was the
Business Development Manager for the Northwest European Division of the
Pharmacia Biosensor Division of Pharmacia & Upjohn Inc. Dr. Gammon's work has
focused on the application of molecular biology to developing technologies in
the biotechnology and pharmaceutical industries. She has published a number of
articles on the genetic and biochemical basis of human disease. As Vice
President of Product Development, she is also leading the development of
IMPATH's patient-specific outcomes database. Dr. Gammon received her
Bachelor's Degree and Ph.D. in Microbiology and Molecular Genetics from
University of California at Los Angeles and her M.B.A. from City University of
London Business School.
Mr. Trask has been Vice President, Strategic Development of the Company
since joining IMPATH in September 1996. He has over 14 years experience
selling clinical laboratory services for Damon Corporation and Unilab
Corporation. As Sales Manager, and later Contracts Manager, for Damon, Mr.
Trask worked closely with the managed care industry. In 1993, he became
Director of Business Development for Unilab. In September 1996, Mr. Trask left
Unilab in the position of Vice President. He received his Bachelor's Degree
from California State University at Fullerton.
Mr. Cassis has been the Chairman of the Board of Directors of the Company
since 1993. Mr. Cassis has been a partner in Hambro Health International, Inc.
since 1994. Prior to that, he was a director of Salomon Brothers Inc, where he
co-founded Salomon Brothers Venture Capital in 1986 and headed it from 1990 to
1994. From 1976 to 1981, he was a Managing Director of Ardshiel Associates
Inc., a merchant bank. In 1972, Mr. Cassis was employed by Johnson & Johnson
where he founded the J&J Development Corp., that firm's venture capital arm,
and was J&J's Manager of Acquisitions. Mr. Cassis is currently on the Boards
of Directors of Healthtech Services Inc. and Ilex Oncology Inc., and is
Chairman of the Board of Directors of Dome Imaging Systems, Inc. Mr. Cassis
received his Bachelor's Degree and M.B.A. from Harvard University. Mr. Cassis
has been a director of the Company since 1991.
Dr. Cote was one of the founders of IMPATH and is the Company's principal
scientific and strategic consultant. Dr. Cote is Attending Pathologist at the
Kenneth J. Norris Cancer Center and an Associate Professor of Pathology and
Urology at the University of Southern California. He was trained at the
University of Michigan, Cornell University Medical College/New York Hospital
and Memorial Sloan-Kettering Cancer Center. Dr. Cote holds patents on
monoclonal antibody technology and is a leader in the developmental use of
monoclonal antibodies in cancer diagnosis and prognosis. Dr. Cote is also
known
40
<PAGE>
for his work in breast, prostate and bladder cancers and in the
immunopathological analysis of cancer. Dr. Cote has been or is on the
Scientific Advisory Boards of Johnson & Johnson, Neoprobe Corporation and
Chromavision Medical Systems, Inc., and is a consultant to various national
and international organizations, such as the National Cancer Institute. Dr.
Cote graduated Phi Beta Kappa from the University of California with
Bachelor's Degrees in Biology and Chemistry. He received his M.D. from the
University of Chicago Pritzker School of Medicine. Dr. Cote has been a
director of the Company since 1988.
Mr. Kessler is a private investor and is President of Empire City Capital
Corporation and President and Managing Partner of various closely held
corporations and partnerships with a broad base of investments. Mr. Kessler
received his Bachelor's Degree in Economics from Colgate University. Mr.
Kessler has been a director of the Company since 1991.
Dr. Mollica is the Chairman and Chief Executive Officer of Pharmacopeia,
Inc., a Princeton, New Jersey-based company engaged in the field of research
to discover low molecular weight drug compounds using combinatorial chemistry
and automated high throughput screening. Prior to joining Pharmacopeia, Dr.
Mollica was President and Chief Executive Officer of DuPont Merck
Pharmaceutical Company. He also served as Vice President, Medical Products for
DuPont, and Senior Vice President of Ciba-Geigy Corp. Dr. Mollica is currently
on the Boards of Directors of Pharmacopeia, Inc., Neurocrine Biosciences,
Inc., USP, Inc. and the Biotechnology Council of New Jersey. He received his
Bachelor's Degree in Pharmaceutical Chemistry from the University of Rhode
Island and his Master's Degree and Ph.D. in Pharmaceutical and Physical
Chemistry from the University of Wisconsin. Dr. Mollica has been a director of
the Company since 1995.
Dr. Rozencweig has been the Vice President, Strategic & Scientific
Evaluation of the Pharmaceutical Group of Bristol-Myers Squibb Company
("Bristol-Myers") since 1996. From 1983 to 1996, Dr. Rozencweig was Vice
President, Infectious Diseases and Oncology at the Pharmaceutical Research
Institute of Bristol-Myers. Dr. Rozencweig is well known for his work in
medical oncology, new drug development and clinical trial methodology. At
Bristol-Myers, he played a prominent role in the clinical development and
registration strategies of many new anticancer agents and pioneered the
regulatory approach to accelerated approval of new drugs for the treatment of
life-threatening diseases. Dr. Rozencweig has also worked at the National
Cancer Institute of the Jules Bordet Institute and has been a consultant to
the German government for the appropriation of federal resources for cancer
research in Germany. Dr. Rozencweig received his M.D. from the Free University
of Brussels. Dr. Rosencweig has been a director of the Company since August
1997.
Mr. Snow has been the Executive Vice President of Oxford Health Plans, Inc.
since 1993. He is responsible for the Medical Delivery Systems, Medical
Management and Government Programs for the managed health care company, and is
the President of several Oxford subsidiaries. From 1988 through 1992, Mr. Snow
was co-founder and President of Managed Healthcare Systems, Inc. ("MHS"), a
managed health care company committed to the development and operation of
Medicaid managed care programs. Prior to founding MHS, Mr. Snow worked for
U.S. Healthcare Inc. as Chief Operating Officer and subsequently President of
its subsidiary, Health Maintenance Organization of New Jersey, Inc. Mr. Snow
received his Bachelor's Degree in Economics from Bates College and his Masters
Degree in Health Care Administration from Duke University. Mr. Snow has been a
director of the Company since 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, an Audit Committee and
a Nominating Committee. The members of the Compensation Committee are John L.
Cassis, Richard Kessler and David B. Snow, Jr. The Compensation Committee
makes recommendations to the full Board as to the compensation of senior
management, administers the Company's 1989 Stock Option Plan and the Company's
1997 Long Term Incentive Plan and determines the persons who are to receive
options and the number of shares subject to each option.
41
<PAGE>
The members of the Audit Committee are John L. Cassis, Richard Kessler and
Joseph A. Mollica, Ph.D. The Audit Committee acts as a liaison between the
Board and the independent accountants and annually recommends to the Board the
appointment of the independent accountants. The Audit Committee reviews with
the independent accountants the planning and scope of the audits of the
financial statements, the results of those audits and the adequacy of internal
accounting controls and monitors other corporate and financial policies.
The members of the Nominating Committee are John L. Cassis, Richard J. Cote,
M.D. and Anu D. Saad, Ph.D. The Nominating Committee recommends to the Board
of Directors nominees for election as directors of the Company.
SCIENTIFIC CONSULTANTS
The Company has consulting agreements with a number of scientists (the
"Consultants") with expertise in the Company's core services and technologies
who are consulted from time to time by the Company. The Consultants assist the
Company in identifying new technologies which may be useful in the Company's
business.
The current Consultants are as follows:
Richard J. Cote, M.D. Director and Consulting Immunologist. Dr. Cote's
background is described under "--Executive Officers, Key Employees and
Directors of the Company."
Carlos Cordon-Cardo, M.D., Ph.D. Consulting Immunobiologist and Molecular
Biologist. Dr. Cordon-Cardo was one of the founders of IMPATH. He currently is
Director, Division of Molecular Pathology at Memorial Sloan-Kettering Cancer
Center where he is an Associate Member. Dr. Cordon-Cardo is also Associate
Professor of Pathology at Cornell University Medical College. He is recognized
for his work in tumor biology and the molecular analysis of human cancers,
mainly in the area of bladder and prostatic carcinomas, melanoma and soft
tissue sarcomas. Dr. Cordon-Cardo has worked extensively on oncogenes, tumor
suppressor genes and multi-drug resistance receptors as they relate to the
diagnosis and prognosis of human neoplasms. Dr. Cordon-Cardo received his M.D.
from the Autonomous University of Barcelona, School of Medicine, and his Ph.D.
in Cell Biology and Genetics from Cornell University Medical College.
Juan Rosai, M.D. Consulting Pathologist. Dr. Rosai is the James Ewing Alumni
Chairman of Pathology at Memorial Sloan-Kettering Cancer Center and Professor
of Pathology at Cornell University. Previously, he was Professor of Pathology
and Director of Anatomic Pathology, Department of Pathology, Yale University
School of Medicine. Dr. Rosai is internationally recognized in the field of
tumor pathology, particularly in the fields of thyroid, mediastinal and
vascular tumors. Dr. Rosai received his M.D. from the University of Buenos
Aires, Argentina.
Charles L. Hitchcock, M.D., Ph.D. Consulting Pathologist for Flow and Image
Cytometry. Dr. Hitchcock is an Assistant Professor of Pathology at The Ohio
State University and The Arthur G. James Cancer Hospital and Research
Institute. He was trained at the University of Florida, and previously was the
Director of the Flow Cytometry Laboratory, Department of Cellular Pathology,
at the Armed Forces Institute of Pathology. Dr. Hitchcock is recognized for
his work in flow cytometric analyses. Dr. Hitchcock received his M.D. and
Ph.D. in anatomy from The Ohio State University.
Clive R. Taylor, M.D., Ph.D. Consulting Pathologist. Dr. Taylor is a
Professor of Pathology at the University of Southern California, and has been
Chairman of the Department of Pathology and Laboratory Medicine at the
University of Southern California since 1984. Dr. Taylor received his M.D.
from the University of Cambridge, England and his Ph.D. in the area of
immunopathology of lymphomas and Hodgkin's disease from the University of
Oxford. His doctoral thesis represented the first application of
immunohistologic techniques to human tissues for routine diagnostic use. Dr.
Taylor has more than 200
42
<PAGE>
published peer review articles in the fields of lymphoma, leukemia and
immunohistochemical and molecular diagnosis and with Dr. Cote publishes the
leading text in this area. Dr. Taylor holds a number of patents in the field
of monoclonal antibodies and has been responsible, together with Dr. Shan-Rong
Shi, for the further development of antigen retrieval and standardization in
the field of immunohistochemistry. Dr. Taylor is a member of the editorial
board of several journals and is the President of the Association of Pathology
Chairs and the President of the Biological Stain Commission, which provides
for standardization of biological dyes used in histochemical stains in the
United States.
The Consultants are reimbursed for their expenses, receive cash compensation
in connection with their service and have been issued options to purchase
shares of Common Stock. The Consultants have been granted stock options to
purchase a total of 195,880 shares at a weighted average exercise price of
$12.35 per share. The Consultants are all employed by, or have consulting
agreements with, entities other than the Company, some of which may compete
with the Company. The Consultants are expected to devote only a small portion
of their time to the business of the Company, although no specific time
commitment has been established. They are not expected to participate actively
in the Company's affairs or in the development of the Company's technology.
Certain of the institutions with which the Consultants are affiliated may
adopt new regulations or policies that limit the ability of the Consultants to
render services to the Company, which could adversely affect the Company to
the extent that the Company is pursuing development in areas of such
Consultants' expertise. To the extent the Consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially adversely affected.
Any inventions or processes independently discovered by the Consultants will
likely not become the property of the Company and will probably remain the
property of such persons or of such persons' employers. In addition, the
institutions with which the Consultants are affiliated may make available the
research services of their personnel, including the Consultants, to
competitors of the Company pursuant to sponsored research agreements. The
Company requires the Consultants to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside
the Company. However, no assurance can be given that competitors of the
Company will not gain access to trade secrets and other proprietary
information developed by the Company and disclosed to the Consultants.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 1997, and after giving effect
to this Offering, by (i) each person who is known by the Company to own
beneficially more than five percent of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Company's five most highly compensated
executive officers and (iv) all executive officers and directors as a group.
Except as otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. To the Company's knowledge, there
have been no significant changes in stock ownership or control of the Company
since December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP (1)
-----------------
SHARES OF
COMMON STOCK PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BENEFICIALLY (1) OFFERING OFFERING
- ------------------------------------ ---------------------- -------- --------
<S> <C> <C> <C>
Pilgrim Baxter & Associates, Ltd. 344,700 6.3% 4.6%
(2)..................................
825 Duportail Road
Wayne, Pennsylvania 19087
Anu D. Saad, Ph.D. (3)................ 170,778 3.1 2.3
John P. Gandolfo (4).................. 26,706 * *
Moacyr DaSilva, M.D. (5).............. 7,670 * *
Bruce C. Horten, M.D. (6)............. 11,444 * *
Richard P. Adelson (7)................ 13,391 * *
John L. Cassis (8).................... 14,071 * *
Richard J. Cote, M.D. (9)............. 104,115 1.9 1.4
Richard Kessler (10).................. 133,223 2.4 1.8
Joseph A. Mollica, Ph.D. (11)......... 8,269 * *
Marcel Rozencweig, M.D. (12).......... 1,772 * *
David B. Snow, Jr. (13)............... 8,269 * *
All directors and executive officers
as a group (11 persons) (3), (4),
(5), (6), (7), (8), (9), (10), (11),
(12), (13)........................... 499,708 8.8 6.5
</TABLE>
- --------
* Less than one percent.
(1) Amounts and percentages include outstanding warrants or options which are
exercisable within 60 days after December 31, 1997.
(2) This information is based upon a Report on Schedule 13G filed by this
stockholder with the Securities and Exchange Commission.
(3) Includes 103,134 shares issuable pursuant to currently exercisable stock
options and 532 shares issuable pursuant to currently exercisable
warrants.
(4) Includes 18,360 shares issuable pursuant to currently exercisable stock
options and 213 shares issuable pursuant to currently exercisable
warrants.
(5) Consists of 7,670 shares issuable pursuant to currently exercisable stock
options.
(6) Includes 10,444 shares issuable pursuant to currently exercisable stock
options.
(7) Includes 10,341 shares issuable pursuant to currently exercisable stock
options.
(8) Includes 8,269 shares issuable pursuant to currently exercisable stock
options and 5,000 shares held by Tower Hall Profit Sharing Trust for the
benefit of Mr. Cassis. Does not include shares beneficially owned by
Cross Atlantic Partners K/S, CAP/Hambro, L.P. or CAP/Hambro, Inc., which
shares may be deemed to be beneficially owned by Mr. Cassis. Mr. Cassis
disclaims any such beneficial ownership.
(9) Includes 47,024 shares issuable pursuant to currently exercisable stock
options.
(10) Includes 8,860 shares issuable pursuant to currently exercisable stock
options.
(11) Consists of 8,269 shares issuable pursuant to currently exercisable stock
options.
(12) Consists of 1,772 shares issuable pursuant to currently exercisable stock
options.
(13) Consists of 8,269 shares issuable pursuant to currently exercisable stock
options.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement dated as
of the date hereof (the "Underwriting Agreement"), among the Company and the
Underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Volpe Brown Whelan & Company, LLC are acting as representatives (the
"Representatives"), the Underwriters have severally agreed to purchase from
the Company, the following respective numbers of shares of Common Stock set
forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
UBS Securities LLC
Volpe Brown Whelan & Company, LLC
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions precedent, including the absence of any material
adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any of such shares are
purchased.
The Representatives have advised the Company that they propose to offer the
shares of Common Stock directly to the public at the offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less
a commission not exceeding $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After this Offering, the offering price and other selling terms
may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters to the extent the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company's executive officers, key employees and directors, who
collectively hold an aggregate of shares of Common Stock and options and
warrants to purchase an aggregate of shares of Common Stock, have agreed
that, without the written consent of UBS Securities LLC, they will not,
directly or indirectly, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock for a period of 90 days from the date of this
Prospectus, subject to certain limited exceptions. The Company has agreed
that, for a period of 90 days from the date of this Prospectus, it will not,
without the written consent of UBS Securities LLC, directly or indirectly,
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities, convertible into or exchangeable for shares of Common
Stock, subject to limited exceptions.
45
<PAGE>
The Underwriters have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in this Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market.
A "stabilizing bid" is a bid for the purchase of Common Stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
Common Stock. A "syndicate covering transaction" is the bid for or the
purchase of the Common Stock on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with this Offering. A
"penalty bid" is an arrangement permitting UBS Securities LLC, as managing
underwriter, to reclaim the selling concession otherwise accruing to a
syndicate member in connection with this Offering if the Common Stock
originally sold by such syndicate member is purchased in a syndicate covering
transaction and has therefore not been effectively placed by such syndicate
member. The Underwriters have advised the Company that such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Haythe & Curley, 237 Park Avenue, New York, New York 10017.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for the Underwriters by Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022.
EXPERTS
The financial statements of IMPATH Inc. as of December 31, 1995, 1996 and
1997 and for each of the years in the four-year period ended December 31,
1997, included herein or incorporated by reference herein, have been included
herein or incorporated by reference herein, in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere, or incorporated by reference, herein, and upon the authority of
said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997 and the description of the Common
Stock contained in the Company's Registration Statement on Form 8-A, as
amended, all of which have been filed by the Company with the Commission, are
incorporated by reference in this Prospectus.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this Offering shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or oral request
of any such person, a copy of any of the above documents. Such requests should
be addressed to the Director of Investor Relations, IMPATH Inc., 521 West 57th
Street, New York, New York 10019 (Telephone: 800-447-8881).
46
<PAGE>
GLOSSARY
Adjuvant Chemotherapy: Therapeutic drugs used to inhibit and destroy cancer
cells in addition to conventional treatment (e.g., surgery).
Antibody: A protein molecule produced by the immune system that specifically
binds with an antigen.
Antigen: Any of a variety of materials that induce the body's immune system to
produce antibodies.
Cancer: A generic term for any kind of malignant tumor.
Clinical: Pertaining to the sign, symptoms and course of a disease.
Diagnosis: The process for deciding what disease is present.
DNA: Deoxyribonucleic acid. The biochemical constituents of genes in
chromosomes.
Electrophoresis: A method of analysis in which chemicals, usually proteins,
are separated one from another by their respective electrical charges.
Fine Needle Aspirate or FNA: Specimen acquired through insertion of a thin
needle into a lesion whereby cells are withdrawn using negative pressure.
Flow Cytometry: Method of analysis used to examine the staining of single cell
suspensions by focusing a laser beam on each cell and measuring the emitted
fluorescence.
Fluorochrome: Fluorescent light generated by excitation and emission of light
of specific wavelengths using molecules with fluorescent properties.
Hematopathologist: A pathologist specializing in the study of hematolymphoid
diseases, including hematopoietic malignancies.
Hematopoietic Malignancies: Cancer of the blood, lymph nodes, bone marrow and
related structures.
Her-2/neu: Oncoprotein (product of an oncogene); overexpression is a negative
prognostic and predictive indicator in certain cancers (primarily breast
cancer).
Hormone: A chemical substance produced by an organ which has a specific
regulatory effect on the activity of organs.
Immunohistochemistry or IHC: Technique that uses antibodies to identify and
mark antigens expressed by cells in tissues using specific enzymes (e.g.,
peroxidase alkaline phosphatase).
In Situ Hybridization: Use of labeled fragments of DNA (probes) that can bind
(hybridize) to specific, complementary sequences.
Lymph Nodes: Nodular structures scattered along the path of lymphatics. They
produce and store white blood cells and filter harmful substances out of
the system. They are often the first site of cancer metastases.
Lymphoma: Any neoplasm of lymphoid tissue origin.
Marker: A characteristic of any cell or cellular structure (e.g., a gene,
chromosome or enzyme).
Metastases: The spread of cancerous cells from the primary site of the
disease.
Micrometastases: Presence of a small number of tumor cells, particularly in
the lymph nodes and bone marrow, not readily detected by microscopic
examination.
47
<PAGE>
Monoclonal Antibody: An antibody produced by a single clone of cells
comprising a single species of antibody molecules. Reacts with only one
antigen (epitope).
Mutation: An event which changes the structure of DNA in chromosomes;
mutations can often be seen in cancer cells.
Neoplasm: The uncontrolled growth of cells resulting in a mass (tumor); often
refers to cancer.
Nucleic Acid Sequences: A family of substances of large molecular weight,
found in chromosomes, nucleoli, mitochondria and cytoplasm of all cells.
Occult Tumor: Clinically unidentified primary tumor with recognized
metastases.
Oncogene: Abnormal genes derived from proto-oncogenes (normal counterparts);
are associated with many cancers.
Oncology: The study of cancer.
Pathology: That branch of medicine which studies essential nature of disease,
especially the structural and functional changes in tissues and organs of
the body which cause or are caused by disease.
Ploidy: The number of chromosomal sets.
Prognostic: Referring to potential outcome of a disease.
Proliferation: Cell cycle kinetics, reproduction or multiplication of a cell.
Reagent: A substance used to detect, measure or react with another substance.
Receptor: A protein which specifically binds to another and mediates the
biological activity of the other.
Recombinant DNA: DNA resulting from the insertion into the chain, by chemical
or biological means, of a sequence of DNA (in whole or partial) not
originally in that chain.
RNA: Ribonucleic acid. A nucleic acid found in all living cells and one of the
major chemical constituents of nucleoli and ribosomes; involved in the
transmission of genetic information from DNA to proteins.
Sarcoma: A malignant neoplasm derived from connective tissues.
Scattergraph: A density graph of flow cytometry data where individual cells
are displayed as positive or negative for two antigens. The graph is
divided by x and y axes to define positive and negative. The density of
dots, color warmth and intensity is proportional to the number of cells per
unit area.
Serum: Fluid component of blood (noncellular).
Southern Blotting: A technique in which DNA is fragmented, electrophoresed and
reacted with labelled fragments of DNA (probes).
Specimen: Material sent in for evaluation, either tissue or cell suspensions
(i.e., body fluids).
Staining: To apply reagents to cells in order to impart color to specific
components.
Stem Cell Transplant: Progenitor (precursor) cells used for the bone marrow
rejuvenation.
Taxol: A chemotherapeutic agent (derived from the bark of the yew tree) having
broad anti-tumor activity.
Thermal Cycling: Cyclical heating and cooling in the presence of target DNA
and specific DNA primers.
Tumor: A swelling or enlargement; a growth or neoplasm, often referring to
cancer.
Tumor Suppressor Gene: A gene involved in the normal growth regulation of
cells. Abnormalities (mutations) of tumor suppressor genes are associated
with the cause and progression of cancer based on abnormal cell growth.
48
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997...................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors IMPATH Inc.:
We have audited the accompanying consolidated balance sheets of IMPATH Inc.
and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IMPATH
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 6, 1998
F-2
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 941,903 $ 325,285
Marketable securities, at market value............. 23,395,398 13,952,148
Accounts receivable, net of allowance for doubtful
accounts of $2,732,041 in 1996 and $4,760,117 in
1997.............................................. 7,059,812 11,948,229
Prepaid expenses................................... 152,846 276,073
Deferred tax assets, net........................... 1,359,285 53,427
Other current assets............................... 371,753 703,753
----------- -----------
Total current assets........................... 33,280,997 27,258,915
Fixed assets, less accumulated depreciation and
amortization........................................ 3,391,965 10,475,575
Deposits and other assets............................ 98,878 334,167
Intangible assets, net of accumulated amortization of
$22,431 in 1996 and $383,534 in 1997................ 809,542 8,273,636
----------- -----------
Total assets................................... $37,581,382 $46,342,293
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations....... $ 704,399 $ 1,222,281
Current portion of note payable.................... -- 700,000
Accounts payable................................... 742,020 956,648
Construction payments payable...................... -- 1,542,199
Income taxes payable............................... 692,193 158,094
Accrued expenses................................... 374,761 728,353
----------- -----------
Total current liabilities...................... 2,513,373 5,307,575
----------- -----------
Capital lease obligations, net of current portion.... 1,430,104 2,451,587
Note payable, net of current portion................. -- 274,000
Stockholders' equity:
Common stock, $.005 par value. Authorized
20,000,000 shares; 5,322,286 and 5,458,827 shares
issued in 1996 and 1997, respectively; 5,315,198
and 5,451,739 shares outstanding in 1996 and 1997,
respectively...................................... 26,611 27,294
Additional paid-in capital......................... 32,357,260 33,893,774
Retained earnings.................................. 1,498,878 5,148,077
Unrealized net depreciation of marketable
securities........................................ -- (83,881)
----------- -----------
33,882,749 38,985,264
Less:
Cost of 7,088 shares of common stock held in
treasury........................................ (100) (100)
Notes receivable from stockholders............... (28,421) --
Deferred compensation............................ (216,323) (676,033)
----------- -----------
Commitments and Contingencies
Total stockholders' equity..................... 33,637,905 38,309,131
----------- -----------
Total liabilities and stockholders' equity..... $37,581,382 $46,342,293
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net diagnostic and prognostic
services............................. $14,578,326 $21,755,193 $36,821,738
Contract laboratory services.......... 135,238 210,270 241,743
----------- ----------- -----------
Total revenues...................... 14,713,564 21,965,463 37,063,481
----------- ----------- -----------
Operating expenses:
Salaries and related costs............ 6,830,210 9,432,397 15,056,221
Selling, general and administrative... 6,862,503 9,895,084 16,222,332
----------- ----------- -----------
Total operating expenses............ 13,692,713 19,327,481 31,278,553
----------- ----------- -----------
Income from operations.............. 1,020,851 2,637,982 5,784,928
Interest income......................... 102,711 506,086 677,109
Interest expense........................ (80,373) (224,112) (339,903)
Gains on marketable securities, net..... -- 747,903 379,001
----------- ----------- -----------
Income before income tax expense.... 1,043,189 3,667,859 6,501,135
Income tax expense...................... -- 1,620,309 2,851,936
----------- ----------- -----------
Net income.......................... 1,043,189 2,047,550 3,649,199
Accrued dividends on preferred stock.... (478,000) (82,346) --
----------- ----------- -----------
Net income available to common
stockholders........................... $ 565,189 $ 1,965,204 $ 3,649,199
=========== =========== ===========
Per common and common equivalent share:
Basic:
Net income per common share........... $ 0.36 $ 0.41 $ 0.68
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding........ 2,921,000 4,961,000 5,398,000
=========== =========== ===========
Dilutive:
Net income per common share--assuming
dilution............................. $ 0.31 $ 0.38 $ 0.63
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding--
assuming dilution.................... 3,371,000 5,404,000 5,809,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE ADDITIONAL (ACCUMULATED NOTES
COMMON STOCK PREFERRED STOCK PAID-IN DEFICIT) UNREALIZED NET RECEIVABLE
----------------- ----------------------- CAPITAL RETAINED DEPRECIATION TREASURY FROM
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) EARNINGS OF SECURITIES STOCK STOCKHOLDERS
--------- ------- ---------- ----------- ------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............ 439,113 $ 2,195 -- $ -- $(1,676,111) $(1,591,861) $ -- $(100) $ --
Common shares
issued upon
exercise of
stock options... 6,443 33 -- -- 6,122 -- -- -- --
Common shares
issued as
compensation for
services
rendered........ 9,451 47 -- -- 23,959 -- -- -- --
Preferred stock
issuance........ -- -- 1,612,904 1,911,879 -- -- -- -- (33,085)
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (46,808) -- -- -- --
Restructuring of
redeemable
preferred stock
in conjunction
with Series D
preferred stock
issuance........ -- -- 5,579,820 4,653,406 1,799,909 -- -- -- --
Accrual of
preferred stock
dividends....... -- -- -- -- (478,000) -- -- -- --
Compensation
associated with
issuance of
options......... -- -- -- -- 382,376 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- --
Repayments of
loans to
stockholders.... -- -- -- -- -- -- -- -- 1,750
Net income for
the year ended
December 31, 1995.. -- -- -- -- -- 1,043,189 -- -- --
--------- ------- ---------- ----------- ----------- ----------- ----- ----- -------
Balance at
December 31,
1995............ 455,007 2,275 7,192,724 6,565,285 11,447 (548,672) -- (100) (31,335)
Common shares
issued upon
exercise of
stock options... 75,846 379 -- -- 124,302 -- -- -- --
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (82,346) -- -- -- --
Conversion of
redeemable
preferred stock
into common
stock........... 2,548,933 12,745 (7,192,724) (6,565,285) 6,552,540 -- -- -- --
Common shares
issued in the
initial public
offering........ 2,242,500 11,212 -- -- 25,726,054 -- -- -- --
Compensation
associated with
issuance of
options to non-
employees....... -- -- -- -- 25,263 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- --
Repayment of
loans to
stockholders.... -- -- -- -- -- -- -- -- 2,914
Net income for
the year ended
December 31, 1996.. -- -- -- -- -- 2,047,550 -- -- --
--------- ------- ---------- ----------- ----------- ----------- ----- ----- -------
Balance at
December 31,
1996............ 5,322,286 26,611 -- -- 32,357,260 1,498,878 -- (100) (28,421)
<CAPTION>
DEFERRED
COMPEN-
SATION TOTAL
--------- ------------
<S> <C> <C>
Balance at
December 31,
1994............ $ -- $(3,265,877)
Common shares
issued upon
exercise of
stock options... -- 6,155
Common shares
issued as
compensation for
services
rendered........ -- 24,006
Preferred stock
issuance........ -- 1,878,794
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- (46,808)
Restructuring of
redeemable
preferred stock
in conjunction
with Series D
preferred stock
issuance........ -- 6,453,315
Accrual of
preferred stock
dividends....... -- (478,000)
Compensation
associated with
issuance of
options......... (382,376) --
Amortization of
deferred
compensation.... 38,469 38,469
Repayments of
loans to
stockholders.... -- 1,750
Net income for
the year ended
December 31, 1995.. -- 1,043,189
--------- ------------
Balance at
December 31,
1995............ (343,907) 5,654,993
Common shares
issued upon
exercise of
stock options... -- 124,681
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- (82,346)
Conversion of
redeemable
preferred stock
into common
stock........... -- --
Common shares
issued in the
initial public
offering........ -- 25,737,266
Compensation
associated with
issuance of
options to non-
employees....... -- 25,263
Amortization of
deferred
compensation.... 127,584 127,584
Repayment of
loans to
stockholders.... -- 2,914
Net income for
the year ended
December 31, 1996.. -- 2,047,550
--------- ------------
Balance at
December 31,
1996............ (216,323) 33,637,905
</TABLE>
(Continued)
F-5
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE ADDITIONAL (ACCUMULATED NOTES
COMMON STOCK PREFERRED STOCK PAID-IN DEFICIT) UNREALIZED NET RECEIVABLE DEFERRED
----------------- ----------------- CAPITAL RETAINED DEPRECIATION TREASURY FROM COMPEN-
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) EARNINGS OF SECURITIES STOCK STOCKHOLDERS SATION
--------- ------- ------- -------- ------------ ------------ -------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 5,322,286 $26,611 -- $ -- $32,357,260 $1,498,878 $ -- $(100) $(28,421) $(216,323)
Common shares
issued upon
exercise of
stock options... 125,357 627 -- -- 474,862 -- -- -- -- --
Common shares
issued upon
exercise of
warrant......... 11,184 56 -- -- 39,086 -- -- -- -- --
Compensation
associated with
issuance of
options to non-
employees....... -- -- -- -- 679,752 -- -- -- -- (679,752)
Issuance of
options related
to Immunopath
acquisition..... -- -- -- -- 191,218 -- -- -- -- --
Tax benefit
related to stock
option
exercises....... -- -- -- -- 171,531 -- -- -- -- --
Repayment of
officer loans... -- -- -- -- -- -- -- -- 28,421 --
Amortization of
deferred
compensation.... -- -- -- -- (19,935) -- -- -- -- 220,042
Change in
unrealized net
depreciation of
securities...... -- -- -- -- -- -- (83,881) -- -- --
Net income for
the year ended
December 31,
1997............ -- -- -- -- -- 3,649,199 -- -- -- --
--------- ------- ------ -------- ----------- ---------- -------- ----- -------- ---------
Balance at
December 31,
1997............ 5,458,827 $27,294 -- $ -- $33,893,774 $5,148,077 $(83,881) $(100) $ -- $(676,033)
========= ======= ====== ======== =========== ========== ======== ===== ======== =========
<CAPTION>
TOTAL
------------
<S> <C>
Balance at
December 31,
1996............ $33,637,905
Common shares
issued upon
exercise of
stock options... 475,489
Common shares
issued upon
exercise of
warrant......... 39,142
Compensation
associated with
issuance of
options to non-
employees....... --
Issuance of
options related
to Immunopath
acquisition..... 191,218
Tax benefit
related to stock
option
exercises....... 171,531
Repayment of
officer loans... 28,421
Amortization of
deferred
compensation.... 200,107
Change in
unrealized net
depreciation of
securities...... (83,881)
Net income for
the year ended
December 31,
1997............ 3,649,199
------------
Balance at
December 31,
1997............ $38,309,131
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 1,043,189 $ 2,047,550 $3,649,199
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 395,901 786,852 1,521,251
Provision for uncollectible accounts
receivable............................ 1,580,733 2,434,511 4,390,581
Non-cash compensation.................. 38,469 152,847 200,107
Deferred tax benefit................... (505,000) (854,285) 1,305,858
Changes in assets and liabilities (net
of the effects of acquisitions):
Increase in accounts receivable....... (2,812,333) (5,686,947) (8,803,998)
Increase in prepaid expenses and other
current assets....................... (150,254) (251,238) (455,227)
Increase in deposits and other
assets............................... (30,833) (18,917) (235,289)
(Increase) decrease in marketable
securities........................... -- (23,395,398) 7,569,853
Increase (decrease) in accounts
payable/accrued expenses............. 891,634 (381,951) (381,729)
Increase (decrease) in income taxes
payable.............................. 63,401 613,778 (362,568)
----------- ----------- ----------
Total adjustments..................... (528,282) (26,600,748) 4,748,839
----------- ----------- ----------
Net cash provided by (used in) operating
activities.............................. 514,907 (24,553,198) 8,398,038
----------- ----------- ----------
Cash flows from investing activities:
Purchases of marketable securities...... -- -- (1,122,368)
Sales/maturities of marketable
securities............................. -- -- 2,911,884
Acquisitions of businesses.............. (19,955) (800,000) (6,185,030)
Capital expenditures.................... (737,239) (434,324) (4,063,195)
----------- ----------- ----------
Net cash used in investing activities.... (757,194) (1,234,324) (8,458,709)
----------- ----------- ----------
Cash flows from financing activities:
Issuance of common stock................ 30,161 25,861,947 514,631
(Increase) decrease in registration
costs.................................. (746,462) 746,462 --
Issuance of preferred stock............. 1,911,879 -- --
Payment of dividends on preferred
stock.................................. -- (560,346) --
Proceeds from bank loan................. 300,000 -- --
Repayments of bank loan................. (164,667) (283,333) --
Payments of capital lease obligations... (159,911) (550,914) (1,098,999)
Issuance of loans to stockholders....... (33,085) -- --
Repayments of loans to stockholders..... 1,750 2,914 28,421
----------- ----------- ----------
Net cash provided by (used in) financing
activities.............................. 1,139,665 25,216,730 (555,947)
----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents............................. 897,378 (570,792) (616,618)
Cash and cash equivalents at beginning of
year.................................... 615,317 1,512,695 941,903
----------- ----------- ----------
Cash and cash equivalents at end of
year.................................... $ 1,512,695 $ 941,903 $ 325,285
=========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for income
taxes.................................. $ 441,599 $ 1,941,013 $1,771,044
=========== =========== ==========
Cash paid during the period for
interest............................... $ 80,373 $ 224,112 $ 339,963
=========== =========== ==========
Fixed assets acquired pursuant to
capital leases......................... $ 1,121,979 $ 1,417,569 $2,638,364
=========== =========== ==========
Note payable related to acquisition of
business............................... $ -- $ -- $ 974,000
=========== =========== ==========
Accrual of dividends on preferred
stock.................................. $ 524,808 $ 82,346 $ --
=========== =========== ==========
Forgiveness of dividends on preferred
stock.................................. $ 1,799,909 $ -- $ --
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
IMPATH Inc. (the "Company") was incorporated on March 1, 1988 under the laws
of the State of Delaware. The Company was organized for the purpose of
establishing a specialized facility dedicated to the use of the most
sophisticated technologies to provide diagnostic and prognostic information
to physicians specializing in cancer. The Company conducts these analyses by
utilizing immunohistochemistry, flow cytometry and image analysis, molecular
pathology, cytogenetics and serum analysis technologies. The Company's
affiliates include IMPATH-HDC, Inc., a wholly-owned subsidiary which comprises
the Company's cytogenetics testing facility; IMPATH Information Services,
Inc., a wholly-owned subsidiary, and a 50%-owned limited liability company,
IMPATH Registry L.L.C. IMPATH Information Services, Inc. and IMPATH Registry
L.L.C. will facilitate the Company's ongoing effort to link its diagnostic and
prognostic information to patient outcomes data and provide referring
physicians with patient-specific treatment pathways. The consolidated
financial statements include the accounts of all the majority-owned
subsidiaries. All intercompany balances have been eliminated in consolidation.
The Company's revenues are derived through:
Diagnostic and prognostic analytical services to hospitals, medical
centers, clinical laboratories and physicians; and
Monoclonal antibody and molecular probe characterization services to
biotechnology companies and other researchers.
The Company submits its invoices for diagnostic and prognostic analytical
services to its clients, primary and secondary insurers, or individual
patients. The Company does not require collateral from its clients as security
for payment of its invoices.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Cash equivalents consist principally of money market funds at December 31,
1996 and 1997. For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
(b) Marketable Securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115 through September 30, 1997 the Company's investments (consisting primarily
of government and corporate fixed income securities) were classified as
trading securities and were stated at fair market value at each balance sheet
date with unrealized gains, net, in the amount of $80,720 for the year ended
December 31, 1996 (and unrealized gains, net, of $404,970 for the nine-month
period ended September 30, 1997) reported in the accompanying consolidated
statements of operations. Effective October 1, 1997, due to a change in the
Company's investment strategy, the portfolio of securities are now considered
available for sale as prescribed by SFAS No. 115. As a result, unrealized
depreciation since October 1, 1997 is recorded as a separate component of
stockholders' equity, net of related deferred taxes.
(c) Fixed Assets
Fixed assets are stated at cost. Depreciation of furniture, fixtures,
laboratory equipment and personal computers is provided over their estimated
useful lives (which range from three to seven years) using the straight-line
method, and leasehold improvements are being amortized over the shorter of the
related lease term or the lives of the improvements using the straight-line
method.
F-8
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Software development costs represent external costs capitalized for software
developed to meet the specific needs of the Company. These costs are being
amortized over a five- to seven-year period using the straight-line method.
(d) Revenue Recognition
Revenues are recognized on an accrual basis as earned at such time as the
Company has completed performance of its diagnostic or prognostic services.
Revenue is reported at the estimated net realizable amounts from patients,
third-party and government payors, and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with certain
payors. Retroactive adjustments are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods as
final settlements are determined.
Laws and regulations related to government programs are complex and subject
to interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation.
(e) Intangible Assets
The excess of cost over net assets acquired (goodwill) is being amortized on
a straight-line basis over a period of up to fifteen years. Other acquired
intangibles, the majority being customer lists, are being amortized over their
estimated useful lives of between seven to fifteen years.
(f) Income Taxes
Income taxes are provided pursuant to the asset and liability method as
described in SFAS No. 109. SFAS No. 109 requires that the Company recognize
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the consolidated financial statements or
tax returns. Under SFAS No. 109, deferred tax assets and liabilities are
determined on the basis of the difference between the tax basis of assets and
liabilities and their respective financial reporting amounts ("temporary
differences") at enacted tax rates in effect for the years in which the
differences are expected to reverse.
(g) Concentration of Credit Risks
The Company invests its cash, cash equivalents and marketable securities in
deposits with money market funds of major U.S. financial institutions, and
fixed income securities. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. To date,
the Company has not experienced any significant losses on its cash, cash
equivalents and marketable securities.
(h) Equity Security Transactions
From inception through the Company's initial public offering in February
1996 (the "IPO"), the Board of Directors had established the fair value of
common shares, Series A, B, C and D mandatorily redeemable convertible
preferred stock, stock options and warrants based on facts and circumstances
existing at the dates such equity transactions occurred, including the price
at which equity instruments were sold to independent third parties. Subsequent
to the IPO, fair market value of equity instruments is determined based on the
quoted market price of the Company's stock.
F-9
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(i) Stock-Based Compensation
In accordance with SFAS No. 123,"Accounting for Stock-Based Compensation,"
the Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25,"Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the market price of the Company's stock at the date
of grant over the amount an employee must pay to acquire the stock. Such
amounts are amortized over the respective vesting periods of the option grant.
The Company uses the fair value-based method of accounting for stock-based
compensation to non-employees. Under the fair value-based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the vesting period.
(j) Net Income Per Common Share
SFAS No. 128, "Earnings per Share," which became effective in 1997, requires
presentation of two calculations of earnings per common share. "Basic"
earnings per common share equal net income divided by weighted average common
shares outstanding during the period. "Dilutive" earnings per common share
equal net income divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options and
warrants were exercised. Common stock equivalents that are anti-dilutive are
excluded from net income per common share. All prior period amounts have been
restated to reflect these calculations.
The calculation of shares used in computing net income per common share for
both the basic and dilutive calculations has included all series of
mandatorily redeemable preferred stock assuming conversion into shares of
common stock from their respective original dates of issuance. For periods
prior to the Company's IPO, net income per common share--assuming dilution is
based on the weighted average number of shares of common stock outstanding
including common equivalent shares from stock options and warrants. All stock
options and warrants issued during the one-year period prior to the IPO at
prices below the anticipated IPO price are presumed to have been issued in
contemplation of the IPO and have been included in the calculation of net
income per common share as if they were outstanding for all periods presented.
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share (net income as reported is the numerator
in each calculation):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding... 372,000 4,536,000 5,398,000
Effect of assumed conversion of preferred
stock....................................... 2,549,000 425,000 --
--------- --------- ---------
Weighted average common and common equivalent
shares outstanding.......................... 2,921,000 4,961,000 5,398,000
Effect of dilutive securities--options....... 450,000 443,000 411,000
--------- --------- ---------
Weighted average common and common equivalent
shares outstanding--assuming dilution....... 3,371,000 5,404,000 5,809,000
========= ========= =========
</TABLE>
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-10
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(l) Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." The statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. There
was no material effect on the financial statements in 1996 or 1997 related to
this statement.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107,"Disclosure about Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, income taxes payable, note payable, capital lease
obligations and accrued expenses approximate fair value because of the short
maturity of those instruments. Fair values of investments in marketable
securities are based on quoted market prices.
(4) BUSINESS AND CREDIT CONCENTRATIONS
Accounts receivable, by payor class, as a percentage of total net
receivables at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare......................................................... 24% 17%
Commercial insurance............................................. 37 42
Hospitals, clinics and other institutions........................ 31 24
Patients......................................................... 8 17
--- ---
100% 100%
=== ===
</TABLE>
(5) FIXED ASSETS
At December 31, 1996 and 1997, fixed assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Personal computers................................... $ 775,895 $ 2,150,760
Software development costs........................... 1,106,653 3,937,576
Furniture, fixtures and laboratory equipment......... 2,361,093 3,402,770
Leasehold improvements............................... 720,915 764,202
Construction in progress............................. -- 2,953,006
---------- -----------
4,964,556 13,208,314
Less accumulated depreciation and amortization....... 1,572,591 2,732,739
---------- -----------
$3,391,965 $10,475,575
========== ===========
</TABLE>
Included in the above at December 31, 1996 and 1997 are gross assets under
capital leases of approximately $2,894,477 and $5,532,841, respectively, and
the related accumulated amortization at such dates is approximately $921,200
and $1,500,515, respectively.
F-11
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) ACQUISITIONS
In May 1995, the Company acquired the assets and assumed certain liabilities
of OncoCare, a serum analysis facility located in California, for a total
purchase price of $20,000 plus assumed liabilities of $73,000. The acquisition
resulted in goodwill of $31,973. The results of operations of OncoCare are
included in the accompanying consolidated financial statements from the date
of acquisition.
In October 1996, the Company entered into an agreement with Oncogenetics
Inc. to purchase customer lists pertaining to its diagnostic and prognostic
cancer business for a sum of $800,000. In conjunction with this purchase the
Company obtained the option to purchase the cytogenetics business of the
seller for $1, plus assumption of a $750,000 note payable (which was paid just
after the transaction). The option was exercised in January 1997.
In February 1997, the Company purchased certain assets of Immunodiagnostic
Laboratories, Inc. ("Immunodiagnostic"), which operates an oncology division
specializing in sophisticated cancer analytical assays, in order to provide
diagnostic and prognostic information to pathologists, oncologists and others
specializing in cancer. The purchase price included an initial payment at
closing of $425,000 plus the issuance of options to purchase 20,000 shares of
the Company's common stock at $17.44 per share (estimated value of $191,218).
In September 1997, the Company acquired certain assets of GenCare for an
initial payment of $4,600,000. GenCare is a New Jersey-based cancer laboratory
specializing in tissue-based testing and tumor marker analyses.
In October 1997, the Company purchased certain assets of Aeron
Biotechnology, Inc. ("Aeron"), a California-based cancer testing facility
specializing in breast cancer prognostic analysis. The purchase price for
Aeron included an initial payment of $376,000 made at closing. Additionally,
the Company paid $180,000 for certain other assets owned by Aeron.
The acquisitions of Immunodiagnostic, GenCare and Aeron all have an
individual contingent purchase price arrangement based on the future operating
results of the respective business. Such payments will range from $974,000 to
$1,890,000 and bear interest at 9% per annum. The Company has recorded the
minimum amount in notes payable on the accompanying December 31, 1997
consolidated balance sheet.
The aggregate acquisitions in 1997 were all treated as purchases with the
results of operations of each transaction being included in the consolidated
results from the respective acquisition date. The incremental operating
results were not material to the results of operation of the Company. The
purchase prices represented primarily payments for customer lists, which are
included in intangible assets on the accompanying December 31, 1997
consolidated balance sheet and will be amortized over periods of up to fifteen
years.
(7) ACCRUED EXPENSES
Accrued expenses are comprised of the following as of December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Salaries and related costs................................ $230,099 $345,000
Other accrued expenses.................................... 144,662 383,353
-------- --------
$374,761 $728,353
======== ========
</TABLE>
F-12
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INDEBTEDNESS AND FINANCING COMMITMENTS
On September 21, 1995, the Company entered into a $300,000 term loan which
was repaid in 1996. The Company maintains a line of credit with The Chase
Manhattan Bank in the aggregate amount of $2,500,000, which bears interest at
the prime rate and expires on June 30, 1998. The Company has been approved for
a $10,000,000 replacement line of credit, subject to completion of certain
documentation requirements of the bank. Borrowings, if any, would bear
interest at LIBOR plus 2.25%. As of December 31, 1996 and 1997, there were no
amounts outstanding under the line of credit.
(9) STOCKHOLDERS' EQUITY
(a) Common Stock
On October 13, 1995, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with an initial public offering. Such
offering was consummated on February 26, 1996 for a total of 2,242,500 common
shares at an offering price of $13 per share. The net proceeds to the Company
amounted to approximately $25,737,000.
(b) Preferred Stock
Effective February 10, 1995, the Company sold 1,612,904 shares of its 8%
Series D Convertible Participating Preferred Stock and warrants to purchase
42,529 shares of its common stock at $3.50 per share for an aggregate sales
price of $2,000,000 (before issuance costs). The warrants are exercisable for
a period of six years. In 1997, 11,184 of such warrants were exercised and in
January 1998 another 29,331 were exercised. No value was ascribed to these
warrants for financial reporting purposes as the Company believes such amount
would not be material to the accompanying consolidated financial statements.
The holders of this preferred stock had the right to convert their shares into
shares of common stock, subject to certain adjustments. Concurrent with the
issuance of the 8% Series D Convertible Participating Preferred Stock and
common stock warrants, the terms of the outstanding Series A, B and C
Redeemable Preferred Stock were revised, resulting in the elimination of all
previously existing redemption rights, elimination of all previously accrued
dividends in the amount of $1,799,909 and a change in the future dividend rate
from 9% to 8%.
In June 1988 and March 1990, the Company sold 1,776,318 and 100,000 shares,
respectively, of its Series A 9% Convertible Preferred Stock (subsequently
amended to 8%) with a par value of $.01 per share for $1,350,000 (before
issuance costs) and $76,000, respectively.
In March 1990, the Company issued 668,182 shares of its Series B 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $587,998 (before issuance costs).
In March 1991, the Company issued 1,638,887 shares of its Series C 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $1,475,000 (before issuance costs).
In June and July 1993, the Company issued 1,396,433 additional shares of its
Series C 9% Convertible Preferred Stock (subsequently amended to 8%) for an
aggregate consideration of $1,256,789.
Upon the consummation of the Company's IPO on February 26, 1996, all
preferred shares were converted into 2,548,933 shares of common stock and all
accrued dividends commencing February 10, 1995, totaling approximately
$560,000, were paid.
(c) Stock Option Plans
In February 1989, the Company adopted (and subsequently amended) a Stock
Option Plan (the "Plan") which provides for granting to certain key employees
of the Company, directors and
F-13
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consultants, options to purchase up to 884,688 shares of common stock. Options
granted are exercisable over a period not to exceed ten years and generally
vest over five years.
In August 1995, four directors were granted options to purchase a total of
42,528 shares of common stock at an exercise price of $3.50 per share under
the Company's Stock Option Plan, which vest ratably over 36 months. Management
of the Company estimated the fair market value of the underlying common stock
to be approximately $8.00 per share and, accordingly, recorded deferred
compensation of $191,000, which amount is being amortized ratably over the
vesting period. In October 1995, three additional directors were granted
options to purchase a total of 31,896 shares of common stock at an exercise
price of $3.50 per share, which vest ratably over 36 months.
Management of the Company estimated fair market value of the underlying
common stock to be approximately $9.50 per share and, accordingly, recorded
deferred compensation of $191,000, which amount is being amortized ratably
over the vesting period.
In April 1997, the Company adopted the IMPATH Inc. 1997 Long-Term Incentive
Plan (the "Incentive Plan"), which provides for granting to certain key
employees of the Company, directors and consultants, options to purchase up to
300,000 shares of common stock. Options granted are exercisable over a period
not to exceed ten years and generally vest over four years. Options to
purchase 79,000 shares were granted under the Incentive Plan in 1997 to
consultants, resulting in $679,752 of compensation expense which will be
amortized over the vesting period of the options.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which was adopted by the Company in 1996. The Company has elected not to
implement the fair value based accounting method for employee stock options,
but has elected to disclose the pro forma net income and earnings per share as
if such method had been used to account for stock-based compensation cost as
described in the Statement.
The per share weighted-average fair value of stock options granted during
1996 and 1997 was $8.10 and $14.88, respectively, on the dates of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996--expected dividend yield 0%, risk-free interest rate of
6.5%, expected volatility of 60% and an expected life of 7 years; 1997--
expected dividend yield 0%, risk- free interest rate of 7.0%, expected
volatility of 60% and an expected life of 7 years.
The Company applies APB Opinion No. 25 in accounting for its options and,
accordingly, no compensation cost has been recognized for its stock options
issued at exercise prices equal to the fair market value of the stock on the
grant date, with the exception of certain stock options issued in 1996 and
1997 to nonemployees as previously described.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C> <C>
Net income................................ As reported $2,047,550 $3,649,199
Pro forma $1,903,858 $3,211,328
Net income per share--assuming dilution... As reported $ 0.38 $ 0.63
Pro forma $ 0.37 $ 0.55
</TABLE>
F-14
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income reflects only options granted in 1995 through 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 is not considered.
The following is a summary of option activity during the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE
UNDER PRICE EXERCISE
OPTIONS RANGE ($) PRICE ($)
-------- ------------ ---------
<S> <C> <C> <C>
Options outstanding at
December 31, 1994...... 429,886 $ 0.28-3.50 $1.98
Granted................. 126,692 3.50-8.00 4.21
Exercised............... (6,444) 0.56-3.50 0.96
Canceled................ (16,777) 0.56-3.50 0.56
--------
Options outstanding at
December 31, 1995...... 533,357 0.28-8.00 2.57
Granted................. 247,077 11.13-18.38 14.05
Exercised............... (75,846) 0.28-13.00 1.66
Canceled................ (14,962) 2.15-13.00 5.62
--------
Options outstanding at
December 31, 1996...... 689,626 0.28-18.38 6.72
Granted................. 342,612 17.25-31.38 23.12
Exercised............... (125,357) 0.28-25.25 3.84
Canceled................ (28,705) 2.54-25.25 16.53
--------
Options outstanding at
December 31, 1997...... 878,176 0.28-31.38 13.21
======== ============ =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUT- REMAINING AVERAGE EXERCIS- AVERAGE
EXERCISE STANDING AT CONTRACTUAL EXERCISE ABLE AT EXERCISE
PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
------------ ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 0.28-0.34 43,886 1.97 years $0.28 43,886 $0.28
0.56 2,837 3.31 years 0.56 2,837 0.56
2.12- 3.50 271,137 6.50 years 2.95 204,809 2.85
8.00-12.63 50,563 8.38 years 10.49 12,375 9.63
13.00-13.75 112,827 8.06 years 13.07 40,562 13.05
16.75-18.38 116,494 8.89 years 17.19 26,377 17.19
18.50-24.75 106,732 9.31 years 19.33 17,231 19.13
26.88 162,500 9.97 years 26.88 -- --
27.25-31.38 11,200 9.64 years 29.80 842 29.03
------- -------
0.28-31.38 878,176 348,919
============ ======= =======
</TABLE>
At December 31, 1997, the Company had 939,348 shares reserved for options
and warrants outstanding, as well as future option grants.
F-15
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) 401(K) RETIREMENT SAVINGS PLAN
Effective June 1, 1995, the Company adopted the IMPATH Inc. 401(k)
Retirement Savings Plan (the "Plan") benefiting certain employees. Employees
who are over the age of 21 and have completed six months of service are
eligible for voluntary participation in the Plan. Employees may contribute 1%
to 20% of their total salaries on a before tax basis, and the Company will
match up to 25% of the first 4% of employee contributions. Plan participants
who were employees as of June 1, 1995 are 100% vested in all contributions.
Any employees hired subsequent to June 1, 1995 are 100% vested in their own
contributions and will become vested in employer contributions over a three-
year period. Employer contributions for the year ended December 31, 1996 and
1997 were $50,990 and $70,439, respectively.
(11) INCOME TAXES
The components of the provision for income taxes for 1995, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 463,000 $1,566,987 $ 972,484
State and local........................ 321,000 907,607 573,594
Benefit of operating loss
carryforwards......................... (279,000) -- --
--------- ---------- ----------
505,000 2,474,594 1,546,078
--------- ---------- ----------
Deferred:
Federal................................ (298,000) (541,047) 1,015,667
State and local........................ (207,000) (313,238) 290,191
--------- ---------- ----------
(505,000) (854,285) 1,305,858
--------- ---------- ----------
$ -- $1,620,309 $2,851,936
========= ========== ==========
</TABLE>
Net deferred tax assets at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Allowance for doubtful accounts........................ $1,229,418 $ --
Deferred compensation.................................. 68,782 169,882
Depreciation........................................... 34,495 263,359
All other.............................................. 26,590 (379,814)
---------- ---------
1,359,285 53,427
Less: Valuation allowance.............................. -- --
---------- ---------
Deferred tax assets, net............................... $1,359,285 $ 53,427
========== =========
</TABLE>
Management of the Company believes that it is more likely than not that
future tax benefits will be realized as a result of the recent operating
performance of the Company.
F-16
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the Federal statutory income tax rate to the effective
tax rate for the years ended December 31, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate....................... 34.0% 34.0% 34.0%
State and local taxes, net of Federal income tax
benefit................................................ 20.3 10.7 10.2
Change in valuation allowance........................... (50.7) (2.3) --
Other................................................... (3.6) 1.8 (0.3)
----- ---- ----
0.0% 44.2% 43.9%
===== ==== ====
</TABLE>
(12) LEASES
The Company utilizes laboratory and office facilities and leases equipment
pursuant to the terms of operating and capital leases, which expire through
2009 (certain leases expiring in 1999 are cancelable at the Company's option).
The present value of future minimum lease payments (including those
cancelable at the Company's option and subject to increases in the Consumer
Price Index and real estate taxes) for the capital leases and the future
minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ---------- ----------
<S> <C> <C>
1998.................................................. $1,133,640 $1,542,039
1999.................................................. 1,030,562 1,241,827
2000.................................................. 886,320 985,702
2001.................................................. 591,925 512,158
2002.................................................. 465,432 --
Thereafter............................................ 3,009,239 --
---------- ----------
$7,117,118 4,281,726
========== ----------
Less amount representing interest..................... (607,858)
----------
Present value of minimum lease payments............... 3,673,868
Less current portion.................................. (1,222,281)
----------
$2,451,587
==========
</TABLE>
For the years 1995, 1996 and 1997, rent expense totaled $472,499, $749,168
and $1,169,763, respectively.
(13) RELATED PARTY TRANSACTIONS
The Company paid $93,112 and $128,329 in the years ended December 31, 1996
and 1997, respectively, to a Director who also performs certain consulting
services to the Company.
(14) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions in the normal course of
business, some of which seek monetary damages. The Company believes any
ultimate liability associated with these contingencies would not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Certain executive officers of the Company have entered into agreements which
provide severance of up to one year's salary in the event of termination
without cause.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been autho-
rized by the Company or any of the Underwriters. This Prospectus does not con-
stitute an offer to sell or a solicitation of an offer to buy any of the secu-
rities offered hereby by anyone in any jurisdiction in which such offer or so-
licitation is not authorized or in which the person making such offer or so-
licitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
of this Prospectus or that there has been no change in the affairs of the Com-
pany since such date.
---------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Selected Consolidated Financial and Operating Data....................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 21
Management............................................................... 39
Principal Stockholders................................................... 44
Underwriting............................................................. 45
Legal Matters............................................................ 46
Experts.................................................................. 46
Incorporation of Certain Documents by Reference.......................... 46
Glossary................................................................. 47
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
[IMPATH LOGO]
Common Stock
-----------------
PROSPECTUS
March , 1998
-----------------
UBS Securities
Volpe Brown Whelan & Company
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the distribution
of the securities being registered hereunder.
<TABLE>
<S> <C>
S.E.C. registration fee*........................................ $ 24,612
NASD filing fee*................................................ 8,622
NASDAQ-NMS listing fee*......................................... 17,500
Accounting fees and expenses.................................... 100,000
Legal fees and expenses......................................... 275,000
Printing and engraving expenses................................. 65,000
Blue sky fees and expenses...................................... 10,000
Miscellaneous expenses.......................................... 99,266
--------
Total......................................................... $600,000
========
</TABLE>
- --------
*Actual fee
ITEM 16. EXHIBITS.
The Exhibits required to be filed as part of this Registration Statement are
listed in the attached Index to Exhibits.
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON THE 13TH DAY OF
FEBRUARY, 1998.
IMPATH Inc.
By: _________________________________
John P. Gandolfo
Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President, Chief
/s/ Anu D. Saad* Executive Officer February 13,
- ------------------------------------- and Director 1998
ANU D. SAAD, PH.D.
Executive Vice
President, Chief February 13,
- ------------------------------------- Operating Officer, 1998
JOHN P. GANDOLFO Chief Financial
Officer and
Principal
Accounting Officer
Chairman of the
/s/ John L. Cassis* Board and Director February 13,
- ------------------------------------- 1998
JOHN L. CASSIS
Director
/s/ Richard J. Cote* February 13,
- ------------------------------------- 1998
RICHARD J. COTE, M.D.
II-2
<PAGE>
SIGNATURE TITLE DATE
/s/ Richard Kessler* Director
- ------------------------------------- February 13,
RICHARD KESSLER 1998
/s/ Joseph A. Mollica* Director
- ------------------------------------- February 13,
JOSEPH A. MOLLICA, PH.D. 1998
/s/ Marcel Rozencweig* Director
- ------------------------------------- February 13,
MARCEL ROZENCWEIG, M.D. 1998
Director February ,
- ------------------------------------- 1998
DAVID B. SNOW, JR.
*By_____________________________
JOHN P. GANDOLFO
ATTORNEY-IN-FACT
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NO.
------- -------------------- ----------
<C> <S> <C>
1 Form of Underwriting Agreement.............................
5 Opinion of Haythe & Curley.................................
23.1 Consent of KPMG Peat Marwick LLP...........................
23.2 Consent of Haythe & Curley (contained in Exhibit 5)
24+ Power of Attorney
27+ Financial Data Schedule
</TABLE>
- --------
+ Previously filed.
<PAGE>
2,000,000 Shares
IMPATH INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
____________ __, 1998
UBS Securities LLC
Volpe Brown Whelan & Company, LLC
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
IMPATH INC., a Delaware corporation (the "Company"), proposes to issue and
sell 2,000,000 shares (the "Firm Shares") of its authorized but unissued Common
Stock, $.005 par value per share (the "Common Stock"), to the several
underwriters listed on Schedule A to this Agreement (collectively, the
----------
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement on Form S-3 (File No.
333-[ ]) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of
<PAGE>
2
final prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus containing all
Rule 430A Information (as hereinafter defined) will be filed by the Company with
the Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean such
registration statement (including all exhibits and financial statements and all
documents incorporated by reference therein) at the time such registration
statement becomes or became effective and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as hereinafter
defined), shall also mean such registration statement as so amended; provided,
however, that such term shall include all Rule 430A Information deemed to be
included in such registration statement at the time such registration statement
becomes effective as provided by Rule 430A of the Rules and Regulations and
shall also mean any registration statement filed pursuant to Rule 462(b) of the
Rules and Regulations with respect to the Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no filing pursuant to Rule
424(b) of the Rules and Regulations is required, shall mean the form of final
prospectus included in the Registration Statement at the time such registration
statement becomes effective. The term "Rule 430A Information" means information
with respect to the Shares and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule 430A of
the Rules and Regulations. The term "Offering Memorandum" as used in this
Agreement shall mean the Offering Memorandum consisting of the Prospectus and a
Canadian wrap-around used in connection with the offering of the Shares in
Canada. In this Agreement, any documents, descriptions or statements described,
included, set forth, referred to or contained in the Registration Statement, the
Offering Memorandum or the Prospectus shall include any such documents,
descriptions and statements incorporated therein by reference.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) The Company has met all the requirements for filing the Registration
Statement on Form S-3. The Commission has not issued, and the Company has no
notice of, any order of the Commission preventing or suspending the use of
any Preliminary Prospectus, nor has the Commission instituted proceedings for
that purpose, and each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Act and the
Rules and Regulations. When the Registration Statement became or becomes, as
the case may be, effective
<PAGE>
3
(the "Effective Date") and at all times subsequent thereto up to and at the
Closing Date (as hereinafter defined), any later date on which any Option
Shares are to be purchased (the "Option Closing Date") and when any post-
effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, (i)
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all statements which are
required to be stated therein by, and complied and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a
material fact or omitted or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
The foregoing representations and warranties in this section 2(a) do not
apply to any statements or omissions made in reliance on and in conformity
with the information contained in the section of the Prospectus entitled
"Underwriting" (except for the _____ paragraphs thereof) and the
information in the last paragraph on the front cover page of the
Prospectus. The Company has not distributed, and will not distribute, any
offering material in connection with the offering or sale of the Shares
other than the Registration Statement, the Preliminary Prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(b) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full power and authority (corporate and otherwise) to own, lease and
operate its properties and conduct its business as described in the
Registration Statement. The Company is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, including, but not limited to [New York,
California, Arizona, Florida and New Jersey], except where the failure to
so qualify would not, individually or in the aggregate, have a material
adverse effect on the business, properties, financial condition or results
of operations of the Company and its Subsidiaries (as hereinafter defined)
taken as a whole (a "Material Adverse Effect"); and no proceedings have
been instituted or, to the best knowledge of the Company, threatened in any
such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification, which if
successful would, individually or in the aggregate, have a Material Adverse
Effect. The Company has no subsidiaries (as defined in the Rules and
Regulations) other than IMPATH-HDC, Inc., a Delaware corporation, wholly
owned by the Company, IMPATH Information Services, Inc., a Delaware
corporation, wholly owned by the Company and IMPATH Registry L.L.C., a
Delaware limited liability company, 50% owned by the Company (collectively,
the "Subsidiaries"). Other than the Subsidiaries, the Company does not own,
directly or indirectly, any shares of stock or any other equity or long-
term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete
<PAGE>
4
and correct copies of the certificates of incorporation and of the
bylaws of the Company and the Subsidiaries and all amendments thereto have
been delivered to the Representatives, and except as set forth in the
exhibits to the Registration Statement no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or the Option
Closing Date. Each Subsidiary has been duly organized and is validly
existing as a corporation or a limited liability company, as the case may
be, in good standing under the laws of the jurisdiction of its
organization, with full power and authority (corporate and otherwise) to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement. Each Subsidiary is duly qualified
to do business as a foreign corporation or a foreign limited liability
company, as the case may be, in good standing in each jurisdiction where
the ownership or leasing of the properties or the conduct of its business
requires such qualification, except where the failure to so qualify would
not have a Material Adverse Effect. All of the outstanding shares of
capital stock of each Subsidiary which is a corporation or all of the
outstanding limited liability company interests of each Subsidiary which is
a limited liability company, as the case may be, (i) have been duly
authorized and validly issued, (ii) in the case of each Subsidiary which is
a corporation, are fully paid and non-assessable and (iii) except as
otherwise described in this Section 1(b), are owned by the Company subject
to no security interest, other encumbrance or adverse claims. No options,
warrants or other rights to purchase, agreements or other obligation to
issue or other rights to convert any obligation into shares of capital
stock or ownership interests in the Subsidiaries are outstanding.
(c) The Company has full power and authority (corporate and otherwise) to
enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement on the part of the
Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable laws or equitable principles and except as enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting creditors' rights generally or
by general equitable principles. The performance of this Agreement by the
Company and the consummation by the Company of the transactions herein
contemplated will not result in a breach or violation of, or imposition of
any lien, charge or encumbrance upon any assets or property of the Company
or any Subsidiary pursuant to, any of the terms and provisions of, or
constitute a default under, (i) any indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, or any lease, contract or other agreement or instrument to
which the Company or any Subsidiary is a party or by which its properties
are bound, or (ii) the certificate of incorporation or bylaws or other
organization documents, as applicable, of the Company or any Subsidiary or
(iii) any law, order, rule, regulation, writ, injunction or decree of any
court or governmental agency or body to which the Company or any Subsidiary
is subject.
<PAGE>
5
The Company is not required to obtain or make (as the case may be) any
consent, approval, authorization, order, designation or filing by or with
any court or regulatory, administrative or other governmental agency or
body as a requirement for the execution and delivery of this Agreement or
the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or under state securities or blue
sky ("Blue Sky") laws or under the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") or under applicable
Canadian securities law.
(d) There is not pending or, to the best of the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against
the Company or its Subsidiaries or any of their respective officers or any
of their respective properties, assets or rights before any court or
governmental agency or body or otherwise which might, individually or in
the aggregate, result in a Material Adverse Effect or have a material
adverse effect on the properties, assets or rights of the Company or any
Subsidiary, or materially adversely affect or prevent consummation of the
transactions contemplated hereby. There are no statutes, rules,
regulations, agreements, contracts, leases or documents that are required
to be described in the Prospectus, or to be filed or incorporated by
reference as exhibits to the Registration Statement by the Act or by the
Rules and Regulations that have not been accurately described in all
material respects in the Prospectus or filed or incorporated by reference
as exhibits to the Registration Statement.
(e) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
were not issued in violation of any preemptive right, resale right, right
of first refusal or similar right. The authorized and outstanding capital
stock of the Company conforms in all material respects to the description
thereof contained (including, such description incorporated by reference)
in the Registration Statement, the Offering Memorandum and the Prospectus
(and such description correctly states the substance of the provisions of
the instruments defining the capital stock of the Company). The Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be
duly and validly issued and fully paid and nonassessable. Except as set
forth in the Prospectus and the Offering Memorandum, no preemptive right,
co-sale right, right of first refusal or other similar rights of
securityholders exists with respect to any of the Shares or the issue and
sale thereof other than those that have been expressly waived prior to the
date hereof. No holder of securities of the Company has the right to cause
the Company to include such holder's securities in the Registration
Statement[, except for any such rights which have been effectively waived].
No further approval or authorization of any security holder, the Board of
Directors of the Company or any duly appointed committee
<PAGE>
6
thereof or others is required for the issuance and sale or transfer of the
Shares, except as may be required under the Act, the Exchange Act or under
state securities or Blue Sky laws. Except as disclosed in or contemplated
by the Prospectus, the Offering Memorandum and the financial statements of
the Company and the related notes thereto, included in the Prospectus and
the Offering Memorandum, the Company does not have outstanding any options
or warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock options, warrants and
other plans or arrangements, and the options, warrants or other rights
granted and exercised thereunder, set forth in the Prospectus and the
Offering Memorandum accurately and fairly presents, in all material
respects, the information required to be shown with respect to such plans,
arrangements, options, warrants and rights.
(f) KPMG Peat Marwick LLP (the "Accountants") who have examined the
financial statements, together with the related schedules and notes, of the
Company filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus and the Offering Memorandum, are
independent public accountants within the meaning of the Act and the Rules
and Regulations. The financial statements of the Company, together with the
related schedules and notes, forming part of the Registration Statement,
Offering Memorandum and the Prospectus, fairly present the financial
position and the results of operations of the Company at the respective
dates and for the respective periods to which they apply. All financial
statements, together with the related schedules and notes, filed with the
Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in
the United States consistently applied throughout the periods involved
except as may be otherwise stated in the Registration Statement. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the financial statements
presented therein. No other financial statements or schedules are required
by the Act or the Rules and Regulations to be included in the Registration
Statement.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement, the Offering Memorandum and the Prospectus,
there has not been (i) any material adverse change, or any development
which, in the Company's reasonable judgment, is likely to cause a material
adverse change, in the business, properties or assets described or referred
to in the Registration Statement, or the results of operations, condition
(financial or otherwise), business or operations of the Company and its
Subsidiaries taken as a whole, (ii) any transaction which is material to
the Company or its
<PAGE>
7
Subsidiaries, except transactions in the ordinary course of business, (iii)
any obligation, direct or contingent, which is material to the Company and
its Subsidiaries taken as a whole, incurred by the Company or its
Subsidiaries, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness
of the Company or its Subsidiaries or (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company.
Neither the Company nor its Subsidiaries has any material contingent
obligation which is not disclosed in the Registration Statement.
(h) Except as set forth in the Prospectus and the Offering Memorandum,
(i) the Company and each Subsidiary have good and marketable title to all
material properties and assets described in the Prospectus and the Offering
Memorandum as owned by them, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction,
(ii) the agreements to which the Company or any Subsidiary is a party
described in the Prospectus and the Offering Memorandum are valid
agreements in full force and effect on the date hereof, enforceable against
the Company or such Subsidiary in accordance with their terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and, to the
best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or default under any of such agreements
and (iii) the Company and each Subsidiary have valid and enforceable leases
for the properties described in the Prospectus and the Offering Memorandum
as leased by it, and such leases conform in all material respects to the
description thereof, if any, set forth in the Registration Statement.
(i) [TO BE REVIEWED FOR REFERENCE TO RELEVANT GOVERNMENT AGENCIES AND
CERTIFICATES/LICENSES] The Company and each Subsidiary now hold and at the
Closing Date and any later Option Closing Date, as the case may be, will
hold, all licenses, certificates, approvals and permits from all state,
United States, foreign and other regulatory authorities, including, but not
limited to, the United States Health Care Financing Administration (the
"HFCA"), the United States Food and Drug Administration (the "FDA") and any
foreign regulatory authorities performing functions similar to their
respective functions, that are material to the conduct of the business of
the Company (as such business is currently conducted), including but not
limited to, the certification or license under the federal Medicare
program, the Clinical Laboratories Improvement Act of 1967, as amended, and
the College of American Pathologist, except for such licenses,
certificates, approvals and permits the failure of which to hold would not
have a Material Adverse Effect), all of which are valid and in full force
and effect (and there is no proceeding pending or, to the knowledge of the
Company, threatened which may cause any such license, certificate, approval
or permit to be withdrawn, cancelled, suspended or not renewed). Neither
the Company nor any Subsidiary is in violation of its certificate of
incorporation or bylaws or other organization documents, or, except for
defaults or violations which would not, individually or in the aggregate,
have a Material Adverse Effect, in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any
<PAGE>
8
contract, indenture, mortgage, loan agreement, joint venture or other
agreement or instrument to which it is a party or by which it or any of its
properties are bound, or in violation of any law, order, rule, regulation,
writ, injunction or decree of any court or governmental agency or body,
including, but not limited to, the HFCA or the FDA. All of the descriptions
set forth in the Registration Statement, the Offering Memorandum and
Prospectus of the legal and governmental proceedings by or before the HFCA,
the FDA or any other federal, foreign, state or local government body
exercising comparable authority are true, complete and accurate in all
material respects.
(j) The Company and each Subsidiary have filed on a timely basis all
necessary federal, state and foreign income, franchise and other tax
returns and has paid all taxes shown thereon as due, and the Company has no
knowledge of any tax deficiency which has been or might be asserted against
the Company or any Subsidiary which might have a Material Adverse Effect.
All material tax liabilities are adequately provided for within the
financial statements of the Company.
(k) The Company and its Subsidiaries maintain insurance by insurers of
recognized financial responsibility of the types and in the amounts
adequate for their business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering clinical trial liability, product liability
and real and personal property owned or leased against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. Neither the
Company nor any Subsidiary has been refused any insurance coverage sought
or applied for, and neither the Company nor any Subsidiary has reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(l) Neither the Company nor its Subsidiaries are involved in any labor
dispute or disturbance nor, to the knowledge of the Company, is any such
dispute or disturbance threatened.
(m) Except as described in the Prospectus and the Offering Memorandum,
the Company and each Subsidiary own or possess adequate licenses or other
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, tradenames,
copyrights, manufacturing processes, formulae, trade secrets, know-how,
franchises, and other material intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of their
businesses as conducted and as proposed to be conducted as described in the
Prospectus and the Offering Memorandum. [The Company has no knowledge of
any facts which would preclude it from having rights to its patent
applications referenced in the Prospectus and the Offering Memorandum.] The
Company has no knowledge
<PAGE>
9
that it or any Subsidiary lacks or will be unable to obtain any rights or
licenses to use any of the Intellectual Property necessary to conduct the
business now conducted or proposed to be conducted by it as described in
the Prospectus and the Offering Memorandum, except as described in the
Prospectus and the Offering Memorandum. The Prospectus and the Offering
Memorandum fairly and accurately describe the Company's rights with respect
to the Intellectual Property. The Company has not received any notice of
infringement or of conflict with rights or claims of others with respect to
any Intellectual Property. The Company is not aware of any patents of
others which are infringed upon by potential products or processes referred
to in the Prospectus and the Offering Memorandum in such a manner as to
materially and adversely affect the Company and its Subsidiaries taken as a
whole, except as described in the Prospectus and the Offering Memorandum.
(n) The Company and each Subsidiary are conducting their businesses in
compliance with all of the laws, rules and regulations of the jurisdictions
in which it is conducting business, including, but not limited to, the
laws, rules and regulations administered or promulgated by the HFCA or the
FDA.
(o) The Company is not an "investment company," or a "promoter" or
"principal underwriter" for a registered investment company, as such terms
are defined in the Investment Company Act of 1940, as amended.
(p) Neither the Company nor any of its Subsidiaries has incurred any
liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(q) The Company and each of its Subsidiaries is (i) in compliance with
any and all applicable United States, state and local environmental laws,
rules, regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and
safety, the environment or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of it under applicable Environmental
Laws to conduct its business as currently conducted, and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permit licenses or other approvals would not,
individually or in the aggregate, have a Material Adverse Effect. No
action, proceeding, revocation proceeding, writ, injunction or claim is
pending or threatened relating to the Environmental Laws or to the
Company's or its Subsidiaries' activities involving Hazardous Materials.
"Hazardous Materials" means any material or substance (i) that is
prohibited or regulated by any environmental law, rule, regulation, order,
treaty, statute or code promulgated by any governmental authority, or any
amendment or
<PAGE>
10
modification thereto, or (ii) that has been designated or
regulated by any governmental authority as radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment.
(r) Neither the Company nor any of its Subsidiaries has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or its Subsidiaries' properties or former
properties, except where such use, manufacture, transportation or storage
is in compliance with Environmental Laws. No Hazardous Materials have been
treated or disposed of on any of the Company's or its Subsidiaries
properties or on properties formerly owned or leased by the Company or any
Subsidiary during the time of such ownership or lease, except in compliance
with Environmental Laws. No spills, discharges, releases, deposits,
emplacements, leaks or disposal of any Hazardous Materials have occurred on
or under or have emanated from any of the Company's or its Subsidiaries'
properties or former properties.
(s) Neither the Company nor any of its Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any foreign, United States
or state governmental officer or official, or other person charged with
similar public of quasi-public duties, other than payments required or
permitted by the laws of the United States.
(t) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The Shares have been duly authorized for quotation on the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System ("Nasdaq National Market"). The Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the Nasdaq National Market, nor has the Company received
any notification that the Commission or the Nasdaq National Market is
contemplating terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates has taken, and at the Closing Date and at any later
Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly,
any action which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of sale or
resale of the Shares.
(v) The Company has timely and properly filed with the Commission and the
NASD all reports and other documents required to have been filed by it with
the Commission or the NASD, and such reports and documents, when they were
filed with the Commission or the NASD, conformed in all material respects
to the requirements of the Act, the Rules and Regulations, the Exchange
Act, the rules and
<PAGE>
11
regulations of the Commission thereunder, and the rules
and regulations of the NASD, as applicable, and none of such reports or
documents contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. True and complete copies of all such
reports and other documents have been delivered to you.
(w) There are no transfer taxes or other similar fees or charges under
federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance and sale of the Shares by the Company.
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters ("Underwriters' Counsel") in
connection with the offering of the Shares shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
Firm Shares to the several Underwriters, and each of the Underwriters agrees to
purchase from the Company the respective aggregate number of Firm Shares set
forth opposite its name on Schedule A, plus such additional number of
----------
Firm Shares which such Underwriter may become obligated to purchase pursuant to
Section 3(b) hereof. The price at which such Firm Shares shall be sold by the
Company and purchased by the several Underwriters shall be $_____ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
----------
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 10 hereof) to purchase and pay for the
number of Shares agreed to be purchased by such Underwriter or Underwriters, the
non-defaulting Underwriters shall have the right within twenty-four (24) hours
after such default to purchase, or procure one or more other Underwriters to
purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth, all
or any part of the Shares which such defaulting Underwriter or Underwriters
agreed to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such Shares and portion, the number of Shares
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis (as adjusted
by you in such manner as you deem advisable to avoid fractional shares) to
absorb the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters
<PAGE>
12
shall not be obligated to purchase the Shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
Shares exceeds 10% of the total number of Shares which all Underwriters agreed
to purchase hereunder. If the total number of Shares which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company shall have
the right, within twenty-four (24) hours next succeeding the 24-hour period
referred to above, to make arrangements with other underwriters or purchasers
reasonably satisfactory to you for purchase of such Shares and portion on the
terms herein set forth. In any such case, either you or the Company shall have
the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Offering Memorandum and the Prospectus or any
other documents or arrangements may be made. If the aggregate number of Shares
which the defaulting Underwriter or Underwriters agreed to purchase exceeds 10%
of the total number of Shares which all Underwriters agreed to purchase
hereunder, and if neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase all or any portion of
the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Shares, and payment therefor,
shall be made as provided in Section 5 hereof. Each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, the exact number of shares to be
adjusted by you in such manner as you deem advisable to avoid fractional shares.
<PAGE>
13
4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering of the Shares in the United States by the
Underwriters shall be as set forth in the Prospectus. The terms of the private
placement of the Shares in Canada by the Underwriters shall be as set forth in
the Offering Memorandum. The Underwriters may from time to time change the
public offering and private placement prices after the closing of the public
offering and the private placement, respectively, and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) You, on behalf of the Underwriters, represent and warrant that (i) the
information set forth in the last paragraph on the front cover page and
paragraph __ under the caption "Underwriting" in the Registration Statement, the
Offering Memorandum any Preliminary Prospectus and the Prospectus relating to
the Shares (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, the Offering Memorandum any Preliminary
Prospectus, and the Prospectus, and that the statements made therein are correct
and do not omit to state any material fact required to be stated therein or
necessary to make the statements made therein in light of the circumstances
under which they were made not misleading, and (ii) the Underwriters have not
distributed and will not distribute prior to the Closing Date or on any Option
Closing Date, as the case may be, any of offering material in connection with
the offering and sale of the shares other than the Preliminary Prospectus, the
Prospectus, the Registration Statement, the Offering Memorandum and other
materials permitted by the Act and applicable Canadian securities law.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Option Shares (if the
option granted pursuant to Section 3(c) hereof shall have been exercised not
later than 1:00 p.m., New York City time, on the date at least two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022 at 9:00
a.m., New York City time, on the [third] business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such [third] business day, as shall be agreed upon in writing by the
Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof shall be exercised
after 1:00 p.m., New York City time, on the date two business days preceding the
Closing Date, and on or before the 30th day after the date of this Agreement,
delivery of certificates for the Option Shares, and payment therefor, shall be
made at the office of Shearman & Sterling, 599 Lexington Avenue, New York, New
York 10022 at 9:00 a.m., New York City time, on the third business day after the
exercise of such option.
<PAGE>
14
(c) Payment for the Shares purchased from the Company shall be made to the
Company or its order, by [either a same day funds check or] Federal Funds [or
other immediately available funds] wire transfer. Such payment shall be made
upon delivery of certificates for the Shares to you for the respective accounts
of the several Underwriters against receipt therefor signed by you. Certificates
for the Shares to be delivered to you shall be registered in such name or names
and shall be in such denominations as you may request at least three business
days before the Closing Date, in the case of the Firm Shares, and at least two
business days prior to the Option Closing Date, in the case of the Option
Shares. Such certificates will be made available to the Underwriters for
inspection, checking and packaging at a location in New York, New York,
designated by the Underwriters not less than one full business day prior to the
Closing Date or, in the case of the Option Shares, by 3:00 p.m., New York time,
on the business day preceding the Option Closing Date.
[It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for the Shares to be purchased by any Underwriter whose [check] [payment] shall
not have been received by you on the Closing Date or any later Option Closing
Date. Any such payment by you shall not relieve such Underwriter from any of
its obligations hereunder.]
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly
after it shall receive notice thereof, of the time when the Registration
Statement or any subsequent amendment to the Registration Statement has
become effective or any supplement to the Prospectus has been filed. If the
Company omitted information from the Registration Statement at the time it
was originally declared effective in reliance upon Rule 430A(a), the
Company will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective
which is declared effective by the Commission. If for any reason the filing
of the final form of Prospectus is required under Rule 424(b)(3) of the
Rules and Regulations, it will provide evidence satisfactory to you that
the Prospectus contains such information and has been filed with the
Commission within the time period prescribed. The Company will notify you
promptly of any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional
information. Promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
the Prospectus which, in the reasonable opinion of Underwriters' Counsel,
may be necessary or advisable in connection with the
<PAGE>
15
distribution of the Shares by the Underwriters. The Company will promptly
prepare and file with the Commission, and promptly notify you of the filing
of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions,
if, at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event shall have occurred as a result of which
the Prospectus or any other prospectus relating to the Shares as then in
effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. In case
any Underwriter is required to deliver a prospectus within the nine-month
period referred to in Section 10(a)(3) of the Act in connection with the
sale of the Shares, the Company will prepare promptly upon request, but at
the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act. The Company will file no amendment or supplement to the
Registration Statement or the Prospectus that shall not previously have
been submitted to you a reasonable time prior to the proposed filing
thereof or to which you shall reasonably object in writing or which is not
in compliance with the Act and Rules and Regulations or the provisions of
this Agreement.
(b) The Company will advise you, promptly after it shall receive notice
or obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the initiation or threat of any proceeding
for that purpose; and it will promptly use its best efforts to prevent the
issuance of any such stop order or to obtain its withdrawal at the earliest
possible moment if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to qualify the
Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of
the Shares, except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation, or
to execute a general consent to service of process in any jurisdiction, or
to make any undertaking with respect to the conduct of its business. In
each jurisdiction in which the Shares shall have been qualified, the
Company will make and file such statements, reports and other documents in
each year as are or may be reasonably required by the laws of such
jurisdictions so as to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to you, as soon as available, copies of the
Registration Statement (three of which will be signed and which will
include all exhibits), each Preliminary Prospectus, the Prospectus, the
Offering Memorandum and any amendments or supplements to such documents,
including any prospectus
<PAGE>
16
prepared to permit compliance with Section 10(a)(3) of the Act, all in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its stockholders as soon
as practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of
the effective date of the Registration Statement, an earnings statement
(which will be in reasonable detail but need not be audited) complying with
the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve-month period beginning after the
effective date of the Registration Statement, and will advise you in
writing when such statement has been made available.
(f) During a period of five years after the date hereof, the Company, as
soon as practicable after the end of each respective period, will furnish
to its stockholders annual reports (including financial statements audited
by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the
first three quarters of the fiscal year, and will, upon request, furnish to
you and the other several Underwriters hereunder (i) concurrently with
making such reports available to its stockholders, statements of operations
of the Company for each of the first three quarters in the form made
available to the Company's stockholders; (ii) concurrently with the
furnishing thereof to its stockholders, a balance sheet of the Company as
of the end of such fiscal year, together with statements of operations, of
stockholders' equity and of cash flow of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of nationally
recognized independent certified public accountants; (iii) concurrently
with the furnishing of such reports to its stockholders, copies of all
reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to
or filed with the Commission, any securities exchange or the Nasdaq
National Market by the Company (except for documents for which confidential
treatment is requested); and (v) every material press release and every
material news item or article in respect of the Company or its affairs
which was generally released to stockholders or prepared for general
release by the Company. During such five-year period, if the Company shall
have any active subsidiaries, the foregoing financial statements shall be
on a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(g) Prior to or simultaneously with the execution and delivery of this
Agreement, the Company will obtain agreement substantially in the form
provided on Appendix A hereto from each officer and director of the Company
----------
and each beneficial owner of the Company's Common Stock listed on
Schedule B hereto, providing that such person will not, for a period of 90
----------
days after the date of the Prospectus, without the prior written consent of
UBS Securities LLC, directly or indirectly, offer to sell,
<PAGE>
17
sell, hypothecate, contract to sell, grant any option to purchase, or
otherwise dispose of, any shares of Common Stock beneficially owned as of
the date such lockup agreement is executed (including, without limitation,
shares of Common Stock which may be deemed to be beneficially owned in
accordance with the Rules and Regulations and shares of Common Stock which
may be issued upon exercise of a stock option or warrant) or any securities
convertible into or exercisable or exchangeable for such Common Stock,
except (a) by operation of law or (b) pursuant to a bona fide gift to any
person or other entity which agrees in writing to be bound by this
restriction. Each such person or entity shall also agree and consent to the
entry of stop transfer instructions with the Company's transfer agent
against the transfer of shares of Common Stock held by such person or
entity, except in compliance with the foregoing restriction.
(h) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with the prior written consent
of UBS Securities LLC, file a registration statement covering any of its
shares of capital stock, except that one or more registration statements on
Form S-8 may be filed at any time following the effective date of the
Registration Statement.
(i) The Company shall not, during the 90 days following the effective
date of the Registration Statement, except with the prior written consent
of UBS Securities LLC, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any options, rights or warrants with respect to shares of
Common Stock, or any securities convertible into or exchangeable for Common
Stock, other than (i) the sale of Shares hereunder, (ii) the grant of
options or the issuance of shares of Common Stock under the 1989 Stock
Option Plan dated as of _______ and 1997 Long Term Incentive Plan dated
as of _____________, (iii) the issuance of shares of Common Stock upon
exercise of the currently outstanding options or warrants described in the
Registration Statement.
(j) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be
the same entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market.
(m) The Company is familiar with the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such
a manner so as to ensure that
<PAGE>
18
the Company was not and will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(n) If at any time during the 180-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above consult with you in good faith regarding the necessity of
disseminating a press release or other public statement responding to or
commenting on such rumor, publication or event and, if the Company in its
reasonable judgment determines that such a press release or other public
statement is appropriate, the substance of any press release or other
public statement.
7. EXPENSES. The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), the
Offering Memorandum (including fees relating to the filing of reports in
Canada), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the reproduction of this Agreement, the Preliminary
Blue Sky Memoranda and any Supplemental Blue Sky Memoranda and any
instruments related to any of the foregoing; the issuance and delivery of
the Shares hereunder to the several Underwriters, including transfer taxes,
if any; the cost of all stock certificates representing the Shares and
Transfer Agents' and Registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), the Offering Memorandum, Preliminary Prospectuses and the
Prospectus, and any amendments or supplements to any of the foregoing; NASD
filing fees and expenses incident to securing any required review and the
cost of qualifying the Shares under the laws of such jurisdictions within
the United States as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings
and Blue Sky qualifications); listing application fees of the Nasdaq
National Market; and all other expenses directly incurred by the Company in
connection with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company to perform
any agreement on its part to be performed hereunder or to fulfill any
condition of the
<PAGE>
19
Underwriters' obligations hereunder, the Company will, in addition to
paying the expenses described in clause (a) above, reimburse the several
Underwriters for all out-of-pocket expenses (including reasonable fees and
disbursements of Underwriters' Counsel) incurred by the Underwriters in
reviewing the Registration Statement and the Prospectus and in preparing
the Offering Memorandum and in otherwise investigating, preparing to market
or marketing the Shares. The Company will in no event be liable to any of
the several Underwriters for any loss of anticipated profits from the sale
by them of the Shares.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Shares, as provided herein, shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later Option Closing Date, as the case may be, of the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
9:00 a.m., New York City time, on the date following the date of this
Agreement, or such later time or date as shall be consented to in writing
by you. If the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) and Rule 430A of the Rules and
Regulations, the Prospectus shall have been filed in the manner and within
the time period required by Rule 424(b) and Rule 430A of the Rules and
Regulations. No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been initiated or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement, the Offering Memorandum
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing Date and
on any later Option Closing Date, as the case may be, the opinions of
Haythe & Curley, counsel to the Company, dated the Closing Date or such
later Option Closing Date, in the forms attached hereto on Appendix B,
----------
addressed to the Underwriters and with reproduced copies of signed
counterparts thereof for each of the Representatives.
<PAGE>
20
(d) You shall have received from Shearman & Sterling, Underwriters'
Counsel, an opinion or opinions, dated the Closing Date or on any later
Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to
this Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents
as it may have reasonably requested for the purpose of enabling it to pass
upon such matters.
(e) You have received, concurrently with the execution of this Agreement, a
"comfort" letter (herein called the "Original Letter") from the Accountants
addressed to the Company and the Underwriters confirming that it is an
independent certified public accountant with respect to the Company within
the meaning of the Act and the Rules and Regulations thereunder and in form
and substance satisfactory to you, containing statements and information of
the type ordinarily included in accountants' "comfort" letters to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus, and
shall have received on the Closing Date and on any later Option Closing Date,
as the case may be, a bring-down "comfort" letter from the Accountants
addressed to the Company and the Underwriters, dated the Closing Date or such
later Option Closing Date, as the case may be, confirming that it is an
independent certified public accountant with respect to the Company within
the meaning of the Act and the Rules and Regulations thereunder and based
upon the procedures described in the Original Letter, but carried out to a
date not more than three days prior to the Closing Date or any such later
Option Closing Date, as the case may be, (i) confirming that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later Option Closing Date, as the case may be; and (ii)
setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter that are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or
to reflect the availability of more recent financial statements, data or
information. The bring-down comfort letter shall not disclose any change, or
any development involving a prospective change, in or affecting the business
or properties of the Company or any Subsidiary which, in your reasonable
judgment, makes it impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus and the Offering
Memorandum. In addition, you shall have received from the Accountants a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent it deemed necessary in establishing the
scope of its latest examination of the Company's financial statements, did
not disclose any weaknesses in internal controls that it considered to be
material weaknesses. All such letters shall be in a form reasonably
satisfactory to the Representatives and Underwriters' Counsel.
<PAGE>
21
(f) You shall have received on the Closing Date and on any later Option
Closing Date, as the case may be, a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date or such later
date, as the case may be, to the effect that as of such date (and you shall
be satisfied that as of such date):
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the Closing Date or any
later Option Closing Date, as the case may be; and the Company has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to the Closing Date or
any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become effective under the Act and
no stop order suspending the effectiveness of the Registration Statement
or preventing or suspending the use of the Prospectus has been issued, and
no proceedings for that purpose have been instituted or are pending or, to
the best of their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration Statement and the
Prospectus; and, when the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to
be included therein or necessary to make the statements therein not
misleading; and when the Registration Statement became effective, and at
all times subsequent thereto up to the delivery of such certificate, none
of the Registration Statement, the Prospectus or the Offering Memorandum
or any amendment or supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and,
since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus
or the Offering Memorandum that has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement, the Offering Memorandum and the Prospectus,
there has not been (A) any material adverse change in the properties or
assets described or referred to in the Registration Statement, the
Offering Memorandum and the Prospectus or in the condition (financial or
otherwise), operations, business or prospects of the Company and its
Subsidiaries, (B) any transaction which is material to the Company and its
Subsidiaries, except transactions entered into in the ordinary course of
business, (C) any obligation, direct or contingent, incurred by the
Company or
<PAGE>
22
its Subsidiaries, which is material to the Company and its Subsidiaries
taken as a whole, (D) any change in the capital stock or outstanding
indebtedness of the Company or its Subsidiaries which is material to the
Company and its Subsidiaries taken as a whole or (E) any dividend or
distribution of any kind declared, paid or made on the capital stock of
the Company.
(g) The Company shall have furnished to you such further certificates and
documents as you shall reasonably request as to the accuracy of the
representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have been approved
for designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in compliance
with the provisions hereof only if they are reasonably satisfactory to
Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the Company agrees to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise, and the Company agrees to reimburse each such Underwriter and
controlling person for any legal or other out-of-pocket expenses (including,
except as otherwise hereinafter provided, reasonable fees and disbursements of
counsel) incurred by the respective indemnified parties in connection with
defending against any such losses, claims, damages or liabilities or in
connection with any investigation or inquiry of, or other proceeding which may
be brought against, the respective indemnified parties, in each case arising out
of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the Prospectus
as part thereof and any 462(b) registration statement) or in the Offering
Memorandum or any post-effective amendment thereto (including any 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or in the Offering Memorandum or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that
<PAGE>
23
(1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission is contained in the section of the Prospectus
entitled "Underwriting" (except for the ____ paragraphs thereof) or the last
paragraph of text on the cover page of the Prospectus, and (2) the indemnity
agreement contained in this paragraph (a) with respect to any Preliminary
Prospectus or Offering Memorandum shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented or, in the case of purchasers resident in
Ontario, Canada, the revised Offering Memorandum) was not sent or delivered to
such person [(excluding any documents incorporated therein by reference)] and
the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented or, in the case of purchasers resident in Ontario,
Canada, the revised Offering Memorandum) unless the failure is the result of
noncompliance by the Company with paragraph (a) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its executive officers, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or in the Offering Memorandum or any post-effective amendment thereto
(including any 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or in the Offering Memorandum or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that in the cases of clauses (i) and (ii) above, such
<PAGE>
24
statement or omission is contained in the Section of the Prospectus entitled
"Underwriting" (except for the ____ paragraph thereof) or the last paragraph on
the cover page of the Prospectus or in the section of the Offering Memorandum
entitled "Representations by Purchasers". The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 9 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against it, in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (a "Notice") of such service or notification to the party or
parties from whom indemnification may be sought hereunder. No indemnification
provided for in such paragraphs shall be available to any party who shall fail
so to give the Notice if the party to whom such Notice was not given was unaware
of the action, suit, investigation, inquiry or proceeding to which the Notice
would have related and was prejudiced by the failure to give the Notice, but the
omission so to notify such indemnifying party or parties of any such service or
notification shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of such indemnity agreement. Any indemnifying party
shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who
<PAGE>
25
controls any Underwriter within the meaning of Section 15 of the Act, and (b)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act. If, within a reasonable time after receipt of the
Notice, an indemnifying party gives a Notice of Defense and the counsel chosen
by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 9 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 9, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to in
paragraph (a) or (b) of this Section 9 (i) in such proportion as is appropriate
to reflect the relative benefits received by each indemnifying party from the
offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other, shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Shares received
by the Company and the total underwriting discount received by the Underwriters,
as set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Shares. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the
<PAGE>
26
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation to defend or defense against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a summons
or other initial legal process upon it in any action instituted against it in
respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 9).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act, or in the Offering Memorandum as required by Canadian securities law.
<PAGE>
27
10. TERMINATION. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect,
=
regardless of whether or not such loss shall have been insured, or (iv) if there
shall have been a material adverse change in the general political or economic
conditions or financial markets in the United States as in the judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representatives, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement , the Offering Memorandum and the Prospectus,
there shall have occurred any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or the business affairs, management, or
business prospects of the Company, whether or not arising in the ordinary course
of business, or (vii) if any foreign, federal or state statute, regulation, rule
or order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise promulgated which in the judgment of the
Representatives materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or trading in the
Common Stock shall have been suspended, or (viii) there shall have occurred a
material adverse decline in the value of securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or
(ix) action shall be taken by any foreign, federal, state or local government or
agency in respect of its monetary or fiscal affairs which, in the judgment of
the Representatives, has a material adverse effect on the securities markets in
the United States. If this Agreement shall be terminated in accordance with
this Section 10, there shall be no liability of the Company to the Underwriters
and no liability of the Underwriters to the Company; provided, however, that in
the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters from all costs or expenses incident to the performance
of the obligations of the Company under this Agreement, including all costs and
expenses referred to in Section 7.
<PAGE>
28
If you elect to terminate this Agreement as provided in this Section 10, the
Company shall be notified promptly by you by telephone, telecopy or telegram,
confirmed by letter.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section 9 of this Agreement,
the Company hereby agrees to reimburse on a quarterly basis the Underwriters for
all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 9 of this Agreement,
the Underwriters hereby agree to reimburse on a quarterly basis the Company for
all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of Section 9 hereof, the several parties (in addition to the Company
and the several Underwriters) indemnified under the provisions of said Section
9, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as such
purchaser, of any of the Shares from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or
<PAGE>
29
delivered to UBS Securities LLC, 299 Park Avenue, New York, NY 10171, Attention:
Mr. Richard Messina; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 521 West 57th Street, New York, New York 10019,
Attention: President. All notices given by telegraph shall be promptly confirmed
by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
<PAGE>
Please sign and return to the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
IMPATH INC.
By: ______________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
UBS SECURITIES LLC
VOLPE BROWN WHELAN & COMPANY, LLC
By: UBS SECURITIES LLC
By: ______________________________
Name:
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
----------
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
------------ ---------
UBS Securities LLC.................................
Volpe Brown Whelan & Company, LLC..................
Total
---------
=========
<PAGE>
SCHEDULE B
List of Stockholders
<PAGE>
APPENDIX A
----------
FORM OF LOCK-UP AGREEMENT
-------------------------
____________ , 1998
UBS Securities LLC
Volpe Brown Whelan & Company, LLC
As Representatives of the several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, New York 10171
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), among IMPATH INC., a
Delaware corporation (the "Company"), and each of the Representatives, on behalf
of themselves and a group of the Underwriters named therein, relating to an
underwritten public offering of Common Stock, $.005 par value per share (the
"Common Stock"), of the Company. Capitalized terms used but not defined herein
have the meanings given to them in the Underwriting Agreement.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned agrees not to offer, sell or otherwise
dispose of any shares of Common Stock of the Company beneficially owned by the
undersigned, any options, warrants or any rights to acquire shares of Common
Stock or any securities exchangeable for or convertible into shares of Common
Stock for a period of 90 days following the day on which the Underwriting
Agreement is executed without the prior written consent of UBS Securities LLC.
A-1
<PAGE>
If for any reason the Underwriting Agreement shall be terminated prior to the
Closing Date, the agreement set forth above shall likewise be terminated.
Very truly yours,
By: _________________________________
Name:
Address:
A-2
<PAGE>
APPENDIX B
----------
Opinion of Counsel to the Company
---------------------------------
Haythe & Curley shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Delaware;
(B) The Company has the power and authority (corporate and otherwise)
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus, except where the
failure to have such power and authority would not have a Material Adverse
Effect; the Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions in which the ownership or leasing
of its properties or the conduct of its business requires such qualification,
including, but not limited to, the State[s] of New York, [California, Arizona,
Florida and New Jersey], except where the failure to so qualify would not,
individually or in the aggregate, have a Material Adverse Effect; and no
proceedings have been instituted or, to the best knowledge of the Company,
threatened in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification, which if
successful would, individually or in the aggregate, have a Material Adverse
Effect.
(C) Other than the Subsidiaries, the Company does not own or control,
directly or indirectly, any corporation, partnership, joint venture, association
or other entity. Each Subsidiary has been duly organized and is validly
existing as a corporation or a limited liability company, as the case may be, in
good standing under the laws of the jurisdiction of its organization, with full
power and authority (corporate and otherwise) to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation or a foreign limited liability company, as the case may be, in good
standing in each jurisdiction where the ownership or leasing of the properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a Material Adverse Effect. All of the
outstanding shares of capital stock of each Subsidiary which is a corporation or
all of the outstanding limited liability company interests of each Subsidiary
which is a limited liability company, as the case may be, (i) have been duly
authorized and validly issued, (ii) in the case of each Subsidiary which is a
corporation, are fully paid and non-assessable and (iii) except as otherwise
described in this Section 1(b), are owned by the Company, in each case subject
to no security interest, other encumbrance or adverse claim; to the best of such
counsel's knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligation into shares of capital stock or ownership interests in the
Subsidiaries are outstanding;
(D) The authorized capital stock of the Company consists of __ shares
of Common Stock, of which there are outstanding __ shares (including the Firm
Shares plus the
B-1
<PAGE>
number of Option Shares issued on the date hereof); the authorized shares of the
Company's capital stock have been duly authorized; the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(E) The Shares to be issued by the Company pursuant to the
Underwriting Agreement have been duly authorized and will be, upon issuance and
delivery against payment therefor in accordance with the terms hereof, validly
issued, fully paid and nonassessable, and, to the knowledge of such counsel, the
shareholders of the Company do not have any preemptive right, co-sale right,
registration right, right of first refusal or other similar right, which rights
have not previously been waived, in connection with the purchase or sale of any
of the Shares;
(F) The Company has full power and authority (corporate and
otherwise)to enter into the Underwriting Agreement and to issue, sell and
deliver to the Underwriters the Firm Shares or the Option Shares, as the case
may be, to be issued and sold by it hereunder;
(G) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms (standard exceptions
permitted);
(H) The Company has met all the requirements for filing the
Registration Statement on Form S-3. The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act; any
required filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules and Regulations has been made in the manner and within the
time period required by such Rule 424(b);
(I) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements and financial data included therein, as to which such counsel need
express no opinion), comply as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations and to such
counsel's knowledge, there are no agreements, contracts, leases or documents of
a character required to be described in, or filed as an exhibit to, the
Registration Statement which are not described or filed as required by the Act
and the applicable Rules and Regulations;
(J) The terms and provisions of the capital stock of the Company
conform to the description thereof contained (including, such description
incorporated by reference) in
B-2
<PAGE>
the Registration Statement and the Prospectus and the form of certificate
evidencing the Common Stock complies with the applicable provisions of Delaware
law;
(K) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Delaware General
Corporation Law and the description of the certificate of incorporation and
bylaws are accurate and fairly and correctly present the information required to
be presented by the Act or the Rules and Regulations in all material respects;
and such counsel does not know of any statutes, rules or regulations required to
be described in the Registration Statement or the Prospectus that are not
described or referred to therein as required;
(L) The statements (i) under the caption "Description of Capital
Stock" in the Registration Statement on Form 8-A filed with the Commission, as
amended on February 10, 1998, and incorporated in the Prospectus by reference
(ii) under the caption [reference to Description of 1989 Stock Option Plans and
1997 Long Term Incentive Plan] [in the Annual Report on Form 10-K for the fiscal
year ended December 31, 1997] and incorporated in the Prospectus by reference],
(iii) under the caption "Management - Committees of the Board of Directors" in
the Prospectus and (iv) ["Certain Transactions"], insofar as such statements
constitute a summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present, in all material respects,
the information called for with respect to such documents and matters; provided
that such counsel shall be entitled to rely on representations of the Company
with respect to certain factual matters contained in such statements, and
provided further that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such representations
are not true and correct in all material respects;
(M) Such counsel has read the description of the Company's business in
the Prospectus and the statements in the Prospectus under the captions "Risk
Factors - Reimbursement," "Risk Factors - Government Regulation," "Business -
Reimbursement," "Business - Quality Assuarance" and "Business - Government
Regulation" [other regulatory sections] (the "Regulatory Portion") and, to the
best of such counsel's knowledge, (i) the statements included in the Regulatory
Portion, insofar as such statements summarize provisions of applicable
Regulatory statutes and regulations, are accurate in all material respects and
(ii) the Regulatory statutes and regulations summarized in the Regulatory
Portion are the Regulatory statutes and regulations that are material to the
Company's business as described in the Prospectus;
(N) The information required to be set forth in the Registration
Statement in answer to Item 10 (insofar as it relates to such counsel) of Form
S-3 is to the best of such counsel's knowledge accurately and adequately set
forth therein in all material respects or no response is required with respect
to such Item;
(O) The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions therein contemplated do not
and will
B-3
<PAGE>
not (a) conflict with or result in a breach of any of the terms or provisions of
or, constitute a default under, the certificate of incorporation or bylaws of
the Company or any Subsidiary, any agreement or document filed as an exhibit to
the Registration Statement, or any statute, rule or regulation applicable to the
Company (except that no opinion need to be expressed with respect to compliance
with federal and state securities laws) or (b) to the knowledge of such counsel,
result in the creation or imposition of any lien or encumbrance upon any of the
assets of the Company or any Subsidiary pursuant to the terms or provisions of,
or result in a breach or violation of any of the terms or provisions of, or
constitute a default or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement, other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which its property is bound or
(c) to the knowledge of such counsel, conflict with or result in a violation or
breach of, or constitute a default under, any applicable license, authorization,
approval, permit, judgment, franchise, order, writ or decree of any court or
governmental agency or body;
(P) The Company has all licenses, permits, consents, orders, approvals
and authorizations of any federal, state or foreign government authority or
other regulatory authority that are necessary to conduct its business as
described in the Registration Statement and the Prospectus, including, without
limitation, FDA and HFCA, except where failure to have such licenses, permits,
consents, orders, approvals and authorizations would not have a Material Adverse
Effect;
(Q) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of the Underwriting
Agreement by the Company and the consummation of the transactions therein
contemplated, except such as may have been obtained under the Act, the Exchange
Act, and the Rules and Regulations or such as may be required under state
securities or Blue Sky laws or by the bylaws and rules of the NASD in connection
with the purchase and distribution of the Shares by the Underwriters;
(R) Each of the Company and its Subsidiaries is not in violation of
its respective certificate of incorporation or bylaws or other organization
documents, and to the best of such counsel's knowledge, neither the Company nor
any Subsidiary is in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument by which it or any of its properties may be bound or
affected, except where such default would not, individually or in the aggregate,
have a Material Adverse Effect, and, to the best of such counsel's knowledge,
each of the Company and its Subsidiaries is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance would not have a
Material Adverse Effect;
(S) To the best of such counsel's knowledge, there are no pending or
threatened actions, suits, claims, proceedings or investigations that, if
successful, would have
B-4
<PAGE>
a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause not
to be renewed any existing license, certificate, registration, approval or
permit, known to such counsel, from any state, federal, or regulatory authority
that is material to the conduct of the business of the Company or any Subsidiary
as presently conducted, or that is of a character otherwise required to be
disclosed in the Registration Statement or the Prospectus under the Act or the
applicable Rules and Regulations;
(T) To the best of such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of shares of Common Stock
or other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement;
(U) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
and
(V) The Company is not and will not, upon consummation of the
transactions contemplated by the Underwriting Agreement, be an "investment
company," or a "promoter" or "principal underwriter" for, a "registered
investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements and financial data contained
therein, as to which such counsel need express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or at
the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement or the Prospectus (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under,which they were made, not misleading.
Counsel rendering the foregoing may rely [(i) as to questions of law
not involving the laws of the State of New York, the United States or the
General Corporation Law of the State of Delaware upon opinions of local counsel,
and (ii)] as to questions of fact
B-5
<PAGE>
upon representations or certificates of officers of the Company and of
governmental officials, as the case may be, in which case its opinion is to
state that it is so doing and that it has no actual knowledge of any material
misstatement or inaccuracy in such opinions, representations or certificates,
and that they believe that they and the Underwriters are justified in relying on
such opinions or certificates. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
B-6
<PAGE>
[Letterhead of Haythe & Curley]
EXHIBIT 5
February 10, 1998
IMPATH Inc.
521 West 57th Street
New York, New York 10019
Dear Sirs:
We have acted as counsel for IMPATH Inc., a Delaware corporation (the
"Company"), in connection with the registration statement on Form S-3 (the
"Registration Statement"), filed by the Company on the date hereof under the
Securities Act of 1933, as amended, with respect to (i) 2,000,000 shares (the
"Firm Shares") of common stock, $.005 par value (the "Common Stock"), of the
Company to be issued and sold to a group of underwriters (the "Underwriters")
represented by UBS Securities LLC and Volpe Brown Whelan & Company, LLC, as set
forth in the Registration Statement and (ii) 300,000 shares (the "Over-Allotment
Shares") of Common Stock issuable upon exercise of the Underwriters' over-
allotment option, as set forth in the Underwriting Agreement to be entered into
between the Company and the Underwriters (the Firm Shares and the Over-Allotment
Shares being hereinafter collectively referred to as the "Shares").
In connection with the Registration Statement, we have examined such
records and documents and such questions of law as we have deemed necessary or
appropriate for the purposes of this opinion. On the basis of such examination,
we advise you that in our opinion the Shares have been duly and validly
authorized and, when issued and paid for in accordance with resolutions duly
adopted by the board of directors of the Company, will be duly and validly
issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Haythe & Curley
<PAGE>
EXHIBIT 23.1
The Board of Directors IMPATH Inc.
We consent to the use of our reports included herein (or incorporated herein
by reference) and to the reference to our firm under the heading "Experts" in
the Prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 13, 1998
