<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
REGISTRATION NO. 333-2968
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIGENE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
2835
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1536128
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
2301-B BROADBIRCH DRIVE
SILVER SPRING, MARYLAND 20904
TELEPHONE (301) 470-6500
FAX (301) 470-6496
(ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
------------------
MR. CHARLES M. FLEISCHMAN
EXECUTIVE VICE PRESIDENT
DIGENE CORPORATION
2301-B BROADBIRCH DRIVE
SILVER SPRING, MARYLAND 20904
TELEPHONE (301) 470-6500
FAX (301) 470-6496
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF AGENT FOR SERVICE)
------------------
Copies to:
MORRIS CHESTON, JR., ESQ.
BALLARD SPAHR ANDREWS & INGERSOLL
1735 MARKET STREET
51ST FLOOR
PHILADELPHIA, PA 19103-7599
(215) 665-8500
(215) 864-8999 (FAX)
ALEXANDER D. LYNCH, ESQ.
BROBECK, PHLEGER & HARRISON LLP
1301 AVENUE OF THE AMERICAS
30TH FLOOR
NEW YORK, NY 10019
(212) 581-1600
(212) 586-7878 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, 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. / /
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
DIGENE CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION PROSPECTUS HEADING OR LOCATION
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........ Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front Cover Page; Outside Back
Cover Page; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............... Outside Front Cover Page; Underwriting
6. Dilution...................................... Risk Factors; Dilution
7. Selling Security Holders...................... Not Applicable
8. Plan of Distribution.......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered.... Outside Front Cover Page; Dividend
Policy; Description of Capital Stock
10. Interests of Named Experts and Counsel........ Not Applicable
11. Information with Respect to the Registrant.... Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Dilution; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Additional Information; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Not Applicable
</TABLE>
<PAGE> 3
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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
PROSPECTUS
Subject to Completion, dated May 21, 1996
3,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
All of the 3,000,000 shares of Common Stock offered hereby are being sold
by Digene Corporation ("Digene" or the "Company"). Prior to this Offering there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The shares of
Common Stock have been approved for quotation on the Nasdaq National Market,
subject to official notice of issuance, under the symbol "DIGE."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 6.
---------------------------
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.
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<TABLE>
<CAPTION>
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<S> <C> <C> <C>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<CAPTION>
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<S> <C> <C> <C>
Per Share............................. $ $ $
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Total(3).............................. $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 450,000 additional shares of
Common Stock on the same terms and conditions 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 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
, 1996.
---------------------------
UBS SECURITIES LLC MONTGOMERY SECURITIES
, 1996
<PAGE> 4
DIGENE'S HYBRID CAPTURE(TM) HPV DNA TEST
DIGENE'S HPV DNA TEST:
- -Identifies the presence of HPV, the primary cause of cervical cancer
- -Enables cost-effective follow-up of equivocal Pap smears
- -Provides accurate, easily interpreted results
- -Reduces likelihood of Pap smear results misinterpreted as normal (false
negative)
- -Predicts development of disease
EQUIVOCAL PAP SMEARS
The Company's HPV DNA test is approved by the FDA for the follow-up screening
of women with equivocal (inconclusive) Pap smears.
PRIMARY SCREENING - U.S.*
Primary cervical cancer screening using the Company's HPV DNA test in
conjunction with the Pap smear has the potential to reduce false negative Pap
smear results and improve the accuracy of cervical cancer diagnoses.
PRIMARY SCREENING - REST OF THE WORLD*
HPV DNA testing can be used as an effective primary cervical cancer screen in
many parts of the world where Pap smears are not widely used or are
unavailable.
* The Company's Hybrid Capture HPV DNA test has been approved by the FDA for
the follow-up screening of women with equivocal Pap smears. The Company intends
to submit a pre-market approval ("PMA") supplement for use of its HPV test as a
primary cervical cancer screening test in the United States, either in
conjunction with or separate from Pap smear testing. There can be no assurance
that the FDA will grant approval of such a PMA supplement in a timely manner,
if at all, or that the FDA will not require the submission of additional
information, data, or a PMA application. The Company also intends to market its
HPV test outside the United States as a primary screen for cervical cancer
either in conjunction with or separate from Pap smear testing. Such exports
will require FDA approval and will necessitate the submission of certain
information to the FDA. There can be no assurance that the FDA will grant
approval of such exports on a timely basis, if at all.
[SILHOUETTE OF A WOMAN]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
CERVICAL CANCER SCREENING - PAP SMEAR
FOLLOW-UP TESTING AND TREATMENT OF WOMEN IS BASED ON THE CLASSIFICATION OF THE
PAP SMEAR RESULT. LIMITATIONS OF PAP SMEAR SCREENING INCLUDE:
- - Pap smears are difficult to interpret
- - Equivocal Pap smears lead to unnecessary, costly intervention
- - False negative diagnoses
- - Limited predictive value
- - Limited availability of Pap smear screening outside the United States
---------------------------
TOTAL PAP SMEARS
50 MILLION*
---------------------------
/ | \
/ | \
/ | \
90% 7% 3%
/ | \
/ | \
---------- ------------- ------------
Normal Pap Equivocal Pap Abnormal Pap
Smears Smears Smears
45 million 3.5 million 1.5 million
---------- ------------- ------------
| | |
| | |
---------------- --------------------------
Annual Pap Smear Colposcopy/Biopsy/Ablation
---------------- --------------------------
* Estimated annual Pap smear tests in the United States
Women with normal Pap smears typically require no follow-up beyond continuation
with annual Pap smear testing. In general, women with abnormal Pap smears and
many women with equivocal Pap smears are recommended to undergo colposcopy
(visual examination of the cervix with the aid of a colposcope), biopsy and, if
necessary, ablation (surgical removal of the suspected lesion).
<PAGE> 6
DIGENE'S SOLUTION: DETECT THE PRIMARY CAUSE OF CERVICAL CANCER
PATIENT MANAGEMENT OF EQUIVOCAL PAP SMEARS USING DIGENE'S HPV DNA TEST
Many women with equivocal Pap smears are treated as if they had abnormal Pap
smears even though only an estimated 25 - 35% of these women actually have
cervical disease. The Company's HPV test is a rapid and non-invasive method to
classify women with equivocal Pap smear results as normal or abnormal, thereby
reducing unnecessary and costly intervention.
--------------------------
Equivocal Pap Smears
--------------------------
|
|
--------------------------
Hybrid Capture
HPV DNA Test
--------------------------
/\
/ \
/ \
/ \
/ \
-------- --------
HPV HPV
Negative Positive
-------- --------
| |
| |
---------------------------- --------------------------
Repeat Pap Smear in 6 Months Colposcopy/Biopsy/Ablation
---------------------------- --------------------------
PRIMARY SCREENING WITH DIGENE'S HPV DNA TEST
The Company believes that, subject to regulatory approvals, Digene's HPV DNA
test could be used in conjunction with the Pap smear for primary cervical
cancer screening, resulting in more accurate diagnosis of cervical disease and
reducing the number of false negatives associated with Pap smears.
-------------------------
Combined HPV DNA/
Pap Smear Screening
-------------------------
/\
/ \
/ \
/ \
------------ ------------
HPV Negative HPV Positive
and Normal or
Pap Smear Pap Positive
------------ ------------
| |
| |
------------ ----------------
Routine Focus Healthcare
Follow-up Resources
------------ ----------------
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." 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 under "Risk
Factors."
THE COMPANY
Digene develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human diseases. The Company's products
are designed to help improve clinical outcomes and reduce the overall cost of
disease management. Digene's lead product, the Hybrid Capture HPV DNA test,
detects the presence of human papillomavirus ("HPV"), the primary cause of
cervical cancer, which is the second most common cancer among women worldwide.
The Company's HPV test for the follow-up screening of women with equivocal Pap
smears is the first HPV test to have been approved for marketing in the United
States by the U.S. Food and Drug Administration (the "FDA"). The Company's
objective is to establish its HPV test as the new standard of care for cervical
cancer screening.
Virtually all cervical cancer is preventable if detected in the
precancerous stage. To enable the early detection of cervical cancer,
gynecologists typically recommend annual Pap smear tests. More than 50 million
Pap smears are performed annually in the United States, and the Company believes
that an equivalent number are performed in the rest of the world. Although the
Pap smear has been successful in reducing deaths due to cervical cancer in the
United States, Pap smears have significant limitations. These limitations
include a substantial number of Pap smears which yield inconclusive results
("equivocal" Pap smears) or which are misinterpreted as normal ("false
negatives"). Many women with equivocal Pap smears are treated as if they have
abnormal Pap smears even though only an estimated 25% to 35% of these women
actually have cervical disease. As a result, many women with equivocal Pap
smears undergo unnecessary, invasive and expensive follow-up procedures. False
negative diagnoses may result in the failure to detect cervical cancer at an
early stage. The resultant delays in treatment may allow the disease to progress
further, thereby increasing the need for invasive and costly treatments,
reducing the efficacy of available therapies and reducing the likelihood of
patient survival.
The Company's HPV test is a rapid, accurate, objective and non-invasive
method to screen women for the presence of HPV. Clinical studies indicate that
Digene's HPV test is capable of detecting cervical disease in up to 92% of the
cases in which cervical disease is present. This represents a significant
improvement over the Pap smear's estimated sensitivity of 60% to 80%. In
addition, studies indicate that when used in conjunction with Pap smear testing,
the Company's HPV test can detect 95% to 100% of high grade lesions and
virtually all instances of cervical cancer. The Company believes that the
sensitivity of its HPV test has the potential to significantly reduce the number
of false negative diagnoses. In addition, the Company believes that testing for
HPV has considerable predictive value. In one study, approximately 80% of women
with a history of normal Pap smears who tested positive for cancer-causing types
of HPV developed clinically significant cervical lesions within four years. The
Company incorporates proprietary DNA sequences for certain HPV types into its
HPV test. The Company believes that for a competing HPV test to be commercially
viable, it must be able to detect the HPV types for which the Company has
non-exclusive proprietary rights covering the DNA sequences.
The Company has recently commenced marketing its HPV test for the follow-up
screening of the approximately 3.5 million women in the United States each year
with equivocal Pap smears. By testing these women for the presence of
cancer-causing types of HPV, clinicians will be able to identify those women who
are most at risk for having or developing cervical disease at a fraction of the
cost of most other follow-up procedures. Only those women who test positive for
cancer-causing types of HPV would go on to receive more costly and invasive
follow-up procedures. The Company intends to seek FDA approval in the future to
market its HPV test as a primary cervical cancer screen either in conjunction
with or separate from Pap smear testing.
The Company currently markets its HPV test through distributors in the
United Kingdom, Germany, France, Spain, Italy and Brazil. In many countries
outside the United States, Pap smears are not widely used or are unavailable.
The Company intends to seek regulatory approval to market its HPV test
internationally as a primary cervical cancer screening test either in
conjunction with or separate from Pap smear testing.
The Company is also developing a test to detect the presence of
cytomegalovirus ("CMV"). CMV infection is a serious and growing health care
problem. Active CMV infection causes blindness in many AIDS patients and is a
major cause of infection and mortality in organ transplant recipients. An
estimated $1 billion is spent annually in the United States on the prevention
and treatment of CMV-related diseases. All of the
3
<PAGE> 8
current methods available to detect the presence of CMV have significant
limitations. The Company's Hybrid Capture CMV DNA test provides clinicians with
an accurate and timely means of diagnosing and monitoring CMV infection. The
Company is currently conducting clinical trials of its CMV test at The Mayo
Clinic and The Cleveland Clinic. The Company expects to complete these trials in
the third quarter of 1996 and submit a 510(k) premarket notification to the FDA
by the end of 1996. There can be no assurance that the Company will receive such
clearance.
The key elements of the Company's business strategy include (i)
establishing HPV testing as the new standard of care for cervical cancer
screening by working closely with clinical reference laboratories, third-party
payors and health care providers; (ii) focusing the Company's initial marketing
efforts on the use of its HPV test for the follow-up screening of women with
equivocal Pap smears; (iii) expanding the Company's sales and marketing
capabilities; (iv) pursuing strategic alliances to increase market acceptance of
its products and to expand marketing efforts; and (v) capitalizing on its core
technology and expertise to develop a wide range of DNA diagnostic and
monitoring tests.
The basis for the Company's HPV and CMV tests is its proprietary Hybrid
Capture technology. The Company believes that its Hybrid Capture system is a
significant improvement over existing technologies because of its specificity,
shortened processing time, ease of use and greater accuracy. The Company is also
using its Hybrid Capture technology as a platform to develop a wide range of DNA
diagnostic and monitoring tests for blood viruses, sexually transmitted diseases
and opportunistic infections.
Digene was incorporated under Delaware law in 1987, succeeding to the
business of a partnership organized in 1985. The Company's principal executive
office is located at 2301-B Broadbirch Drive, Silver Spring, Maryland 20904, and
its telephone number is (301) 470-6500.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Risk factors of this Offering include uncertainty of market
acceptance, dependence on a single product, limited sales and marketing
experience, dependence on third-party reimbursement, limited manufacturing
experience, the Company's limited relevant operating history, history of
operating losses and uncertain profitability, and competition. See "Risk
Factors."
THE OFFERING
Common Stock Offered................ 3,000,000 shares
Common Stock Outstanding after this
Offering............................ 11,276,408 shares(1)
Use of Proceeds..................... To expand sales and marketing, to fund
increased research and development
including clinical trials, to repay
certain indebtedness, to provide
working capital, and to fund other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol....... DIGE
- ---------------
(1) Excludes 2,699,210 shares of Common Stock issuable upon exercise of stock
options outstanding at March 31, 1996, at a weighted average exercise price
of $4.10 per share. An additional 776,087 shares of Common Stock are
reserved for issuance under the Company's stock option plans. See
"Capitalization" and "Management -- Stock Option Plans."
4
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $ 4,765 $ 5,294 $ 6,162 $4,453 $ 4,757
Cost of product sales.......................... 2,698 2,464 2,652 1,842 2,132
Gross margin on product sales.................. 1,926 2,303 2,761 2,007 2,332
Total operating expenses....................... 3,752 3,957 4,806 3,369 4,308
Loss from operations........................... (1,685) (1,127) (1,296) (758) (1,683)
Net loss....................................... (1,917) (1,433) (1,514) (940) (1,707)
Pro forma net loss per share(1)(2)............. (.18) (.20)
Pro forma weighted average shares
outstanding(1)(2)............................ 8,217 8,477
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 1,395 $ 2,333 $ 32,505
Long-term debt, less current maturities................ 2,666 2,666 158
Redeemable Convertible Preferred Stock................. 14,063 -- --
Accumulated deficit.................................... (18,404) (18,404) (18,404)
Total stockholders' equity (deficit)................... (14,697) 304 32,984
</TABLE>
- ------------------------------
(1) Pro forma to give effect to (i) the one-for-1.4 reverse stock split to be
effected prior to the completion of this Offering (the "Recapitalization"),
(ii) the issuance of 70,436 shares of Common Stock pursuant to warrants
exercised after March 31, 1996, and (iii) the automatic conversion, upon the
completion of this Offering, of all outstanding shares of Redeemable
Convertible Preferred Stock (including shares issued after March 31, 1996
pursuant to a stock purchase agreement with an affiliate of International
Murex Technologies Corporation (together with its affiliates, "Murex")) into
7,831,197 shares of Common Stock. See "Certain Transactions."
(2) Computed on the basis described in Note 2 of Notes to Financial Statements.
(3) Adjusted to give effect to reflect the sale of 3,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00
per share and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
------------------------------
Unless otherwise indicated, all information in this Prospectus (i) assumes
the Underwriters' over-allotment option is not exercised, (ii) reflects the
Recapitalization, (iii) reflects the conversion of all outstanding shares of
Redeemable Convertible Preferred Stock into 7,831,197 shares of Common Stock
upon the completion of this Offering, and (iv) reflects the filing of an Amended
and Restated Certificate of Incorporation of the Company which, among other
things, increases the number of authorized shares of Common Stock and authorizes
1,000,000 shares of undesignated Preferred Stock.
"Digene" is a registered trademark of the Company. The Company has applied
to register "Hybrid Capture" as a trademark. This Prospectus also includes
trademarks and trade names of companies other than the Company.
5
<PAGE> 10
RISK FACTORS
Prospective investors should consider carefully the following risk factors,
in addition to the other information presented in this Prospectus, before
purchasing the shares of Common Stock offered hereby.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has incurred substantial operating losses since inception and,
at March 31, 1996, had an accumulated deficit of approximately $18.4 million.
Such losses have resulted principally from expenses associated with the
Company's research and development programs, the clinical trials conducted in
connection with the Company's HPV test for use in the follow-up screening of
women with equivocal Pap smears and the preparation of the related premarket
approval ("PMA") application for submission to the FDA. The Company expects such
operating losses to continue for the foreseeable future as it continues its
product development efforts, expands its marketing and sales activities and
scales up its manufacturing operations. The Company's ability to achieve
profitability is dependent upon its ability to successfully manufacture, market
and sell its HPV test for the follow-up screening of women with equivocal Pap
smears. There can be no assurance that the Company will ever be able to
successfully commercialize its HPV test or that profitability will ever be
achieved. The operating results of the Company have fluctuated significantly in
the past on an annual and quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success depends upon the acceptance by the medical community,
including third-party payors, clinical laboratories, health care providers and
patients, of HPV testing as a clinically useful and cost-effective method of
detecting cervical disease. There can be no assurance that the medical community
will accept the use of HPV testing. Furthermore, the Company's growth and
success will depend upon market acceptance by the medical community of the
Company's HPV test for the follow-up screening of women with equivocal Pap
smears as a clinically useful and cost-effective alternative to well-established
follow-up procedures, such as Pap smear retesting, colposcopy and biopsy, which
are widely accepted and have a long history of use. There can be no assurance
that HPV testing, in general, or the Company's HPV test for the follow-up
screening of women with equivocal Pap smears, in particular, will achieve market
acceptance on a timely basis, or at all. Additionally, there can be no assurance
that the Company's HPV test will be accepted in any markets outside the United
States due to the influence of established medical practices, lack of education
about cervical cancer, and other social and economic factors beyond the
Company's control. Failure of the Company's HPV test to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
DEPENDENCE ON A SINGLE PRODUCT
The Company's HPV test is expected to account for substantially all of the
Company's revenues for the foreseeable future. The Company's long-term success
will depend, in significant part, on the market acceptance of HPV testing as a
clinically useful and cost-effective method of detecting cervical disease, the
successful commercialization of the Company's HPV test for the follow-up
screening of women with equivocal Pap smears, and the ability to obtain
regulatory approval for marketing the HPV test as a primary cervical cancer
screen either in conjunction with or separate from Pap smear testing. Failure to
gain market acceptance for the Company's HPV test for its approved indications
would have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITED RELEVANT OPERATING HISTORY
Although the Company's HPV test for the follow-up screening of women with
equivocal Pap smears was introduced for research purposes in Europe in fiscal
1992 and first shipped as an FDA-approved product in
6
<PAGE> 11
November 1995, most of the Company's historical revenues have been obtained from
sales of products or product lines, or other sources, that have been
discontinued or are not expected to produce material revenues in the future.
Consequently, the Company has a limited relevant operating history upon which an
evaluation of its prospects can be based. The Company's prospects, therefore,
must be considered in light of the risks, expenses and difficulties associated
with introducing a new product in the evolving, heavily regulated, medical
diagnostics and biotechnology industries, which are characterized by an
increasing number of entrants, intense competition and a high rate of failure.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
LIMITED SALES AND MARKETING EXPERIENCE
In order to effectively market the Company's HPV test for the follow-up
screening of women with equivocal Pap smears in the United States and Canada,
the Company must substantially increase its direct sales force. The Company has
limited experience in selling its HPV test for its approved indications, and no
assurance can be given that such a marketing and sales organization can be
successfully established or that the Company's direct sales force will succeed
in promoting the Company's HPV test for the follow-up screening of women with
equivocal Pap smears to third-party payors, clinical laboratories and health
care providers. In addition, due to limited market awareness of the Company's
HPV test for its approved indications, the Company believes that the marketing
effort will be a lengthy process, requiring the Company to educate the medical
community regarding the clinical utility and cost-effectiveness of HPV testing,
in general, and the Company's HPV test, in particular. The Company intends to
use a network of distributors to market and sell its HPV test for its approved
indications abroad. The Company also intends to market its HPV test as a primary
cervical cancer screening test in international markets, either in conjunction
with or separate from Pap smear testing. Such exports may require regulatory
approvals from various countries, will require FDA approval and will necessitate
the submission of certain information and data to the FDA. In addition, the
Company intends to submit a PMA supplement for the use of its HPV test as a
primary cervical cancer screening test in the United States either in
conjunction with or separate from Pap smear testing. There can be no assurance
that the FDA will grant approval of such exports or grant approval of such PMA
supplement, if filed, in a timely manner, if at all, or that the FDA will not
require the submission of additional information, data or a PMA application.
There can be no assurance that the Company will be able to recruit and retain
skilled sales, marketing, service or support personnel, that agreements with
foreign distributors will be available on terms commercially reasonable to the
Company, or at all, or that the Company's marketing and sales efforts will be
successful. Failure to successfully establish a marketing and sales
organization, whether directly or through third parties, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's marketing success in the United States and abroad also
will depend on whether it can gain required regulatory approvals, successfully
demonstrate the clinical utility and cost-effectiveness of HPV testing, in
general, and the Company's HPV test for the follow-up screening of women with
equivocal Pap smears, in particular, further develop a direct sales capability,
and establish arrangements with distributors and marketing partners. Failure by
the Company to successfully market its products would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Marketing and Sales" and "-- Government Regulation."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Successful sales of the Company's HPV test for the follow-up screening of
women with equivocal Pap smears in the United States and other markets will
depend, in part, on the availability of adequate reimbursement from third-party
payors such as government entities, managed care organizations and private
insurance plans. There is significant uncertainty concerning third-party
reimbursement for the use of any medical test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that the use of the Company's HPV test for
the follow-up screening of women with equivocal Pap smears is clinically useful
and cost-effective, not experimental or investigational, medically necessary and
appropriate for the specific patient. Since reimbursement approval is required
from each payor individually, seeking such approvals is a time consuming and
costly process which requires the Company to provide scientific and clinical
support for the use of the Company's HPV test for its
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approved indications to each payor separately. There can be no assurance that
third-party reimbursement will be consistently available for the Company's HPV
test for its approved indications or any of the Company's other products that
may be developed or that such third-party reimbursement will be adequate.
Federal and state governmental agencies are increasingly considering limiting
health care expenditures. For example, the United States Congress is currently
considering various proposals to significantly reduce Medicaid and Medicare
expenditures. Such proposals, if enacted, could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, third-party payors are increasingly limiting reimbursement coverage
for medical diagnostic products and in many instances are exerting pressure on
medical suppliers to lower their prices. Outside the United States, the Company
relies on a network of distributors to establish reimbursement from third-party
payors in their respective territories. Accordingly, the establishment of
reimbursement from third party payors in such countries is outside the Company's
control. Health care reimbursement systems vary from country to country and,
accordingly, there can be no assurance that third-party reimbursement will be
available for the Company's products under any other reimbursement system. Lack
of or inadequate reimbursement by governmental and other third-party payors for
the Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."
COMPETITION
The medical diagnostics and biotechnology industries are subject to intense
competition. The Company's competitors in the United States and abroad are
numerous and include, among others, diagnostics, health care, pharmaceutical and
biotechnology companies. Among the Company's major competitors in the market for
DNA-probe diagnostics are Roche, Abbott Laboratories, Chiron and GenProbe. Other
companies, including large pharmaceutical and biotechnology companies, may enter
the market for DNA-probe diagnostics. In addition, Oncor, Inc. has recently
announced that it has received notification from the FDA that its HPV test is
approvable by the FDA, subject to certain conditions. Potential competitors may
be able to develop technologies that are as effective as, or more effective or
easier to interpret than those offered by the Company, which would render the
Company's products noncompetitive or obsolete. Moreover, many of the Company's
existing and potential competitors have substantially greater financial,
marketing, sales, distribution and technological resources than the Company.
Such existing and potential competitors may be in the process of seeking FDA
approval for their respective HPV tests or may also enjoy substantial advantages
over the Company in terms of research and development expertise, experience in
conducting clinical trials, experience in regulatory matters, manufacturing
efficiency, name recognition, sales and marketing expertise and distribution
channels. Many of these companies may have established third-party reimbursement
for their products. In marketing its HPV test for the follow-up screening of
women with equivocal Pap smears, the Company also will compete with
well-established follow-up procedures, such as Pap smear retesting, colposcopy
and biopsy, which are widely accepted and have a long history of use.
Additionally, in the event the Company is able to gain FDA and other applicable
regulatory approvals to market its HPV test as a primary cervical cancer
screening test, it will compete against the Pap smear, which is widely accepted
as an inexpensive and, with regular use, adequate screening test for cervical
cancer. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competition will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Competition."
RISKS INHERENT IN INTERNATIONAL TRANSACTIONS
The Company plans to sell its HPV test for the follow-up screening of women
with equivocal Pap smears and any future products to customers both in the
United States and abroad, particularly in Germany. International sales and
operations may be limited or disrupted by the imposition of government controls,
export license requirements, economic and political instability, price controls,
trade restrictions, and changes in tariffs or difficulties with foreign
distributors. Foreign regulatory agencies often establish product standards
different from those in the United States and any inability to obtain or
maintain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's international business operations. Additionally,
the Company's business, financial condition and results of operations may be
materially and
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adversely affected by fluctuations in currency exchange rates as well as
increases in duty rates and difficulties in obtaining required licenses and
permits. There can be no assurance that the Company will be able to successfully
commercialize its HPV test or any future products in any foreign market. In
addition, the laws of some countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States.
The Company intends to use a network of distributors to market and sell its
HPV test abroad. The Company's distributors are responsible for obtaining
regulatory approvals and establishing reimbursement from third-party payors in
their respective territories. Generally, the extent and complexity of regulation
of medical products is increasing worldwide, with regulation in some countries
already nearly as exhaustive as that in the United States. The Company
anticipates that this trend will continue, and that the cost and time required
to obtain approval to market in any given country will increase, with no
assurance that such approval will be obtained. The Company's inability to obtain
regulatory approval for its products in foreign countries would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Marketing and Sales -- International Markets" and
"-- Government Regulation."
The Company intends to market its HPV test outside the United States as a
primary cervical cancer screening test in conjunction with or separate from Pap
smear testing. Such exports may require regulatory approvals from various
countries, will require FDA approval and will necessitate the submission of
certain information and data to the FDA. There can be no assurance that the FDA
will grant approval of such exports in a timely manner, if at all, or that the
FDA will not require submission of additional information or data. See
"Business -- Government Regulation."
LIMITED MANUFACTURING EXPERIENCE
The Company has limited commercial-scale manufacturing experience and
capabilities and it is anticipated that the Company will be required to scale up
its manufacturing capabilities. There can be no assurance that the Company will
be able to recruit and retain skilled manufacturing personnel to establish
sufficient manufacturing capability and capacity or manufacture the Company's
HPV test for its approved indications in a timely manner, at a cost or in
quantities necessary to make them commercially viable, or in a manner which
ensures product quality.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
Certain key components of the Company's HPV test are currently provided to
the Company, on a purchase-order basis, by single sources. The Company does not
have long-term supply contracts with any of such suppliers. The Company has not
arranged alternative supply sources. In the event that the Company is unable to
obtain sufficient quantities of such components on commercially reasonable
terms, or in a timely manner, the Company would not be able to manufacture its
products on a timely and cost-competitive basis which would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if any of the components of the Company's HPV test are
no longer available in the marketplace, the Company may be forced to further
develop its technology to incorporate alternate components. The incorporation of
new components into the Company's HPV test may require the Company to file a PMA
supplement. There can be no assurance that such development would be successful
or that, if developed by the Company or licensed from third parties, such
alternative components would receive FDA approval on a timely basis, or at all.
See "Business -- Government Regulation."
DEPENDENCE ON A MAJOR CUSTOMER
For the fiscal year ended June 30, 1995, approximately 30.8% of the
Company's product sales were to Murex. Murex will beneficially own approximately
6.5% of the Company's outstanding shares of Common Stock after this Offering
(approximately 6.3% if the Underwriters' over-allotment option is exercised in
full). The Company has an exclusive distribution agreement with Murex for sales
of certain of the Company's products, including its HPV test, in certain
countries, and a co-exclusive distribution agreement with Murex for sales of its
CMV test worldwide. Consequently, the Company expects that sales to Murex will
continue to constitute a significant portion of total sales for the foreseeable
future. The loss of Murex as a customer, a significant decrease in product
shipments to or an inability to collect receivables from Murex or any other
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adverse change in the Company's relationship with Murex could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Certain Transactions."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets, and operate without infringing the proprietary
rights of other parties. Because of the substantial length of time and expense
associated with bringing new products through development to the marketplace,
the biotechnology industry places considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. There can be no assurance that patent applications to which the
Company holds rights will result in the issuance of patents, that any patents
issued or licensed to the Company will not be challenged and held to be invalid,
or that present or future patents will provide commercially significant
protection to the Company's present or future technologies, products, or
processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information not
covered by patents to which the Company owns rights or obtain access to the
Company's know-how or that others will not be issued patents which may prevent
the sale of one or more of the Company's products, or require licensing and the
payment of significant fees or royalties by the Company to third parties in
order to enable the Company to conduct its business. There can be no assurance
that such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any attempt
to redesign its products or processes to avoid infringement. The Company's
failure to obtain these licenses or to redesign its products or processes would
have a material adverse effect on the Company's business, financial condition
and results of operations. Legal standards relating to the scope of claims and
the validity of patents in the biotechnology field are still evolving, and no
assurance can be given as to the degree of protection any patents issued to or
licensed by the Company will not be infringed by the products of others. The
Company has received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of its Hybrid Capture technology. The
Company believes that the patents of others to which these inquiries relate are
either not infringed by the Company's Hybrid Capture technology or are invalid.
There can be no assurance that the Company will not be subject to further claims
that its technology, including its Hybrid Capture technology, or its products,
infringe the patents or proprietary rights of third parties. Defense and
prosecution of patent claims can be expensive and time consuming, regardless of
whether the outcome is favorable to the Company, and can result in the diversion
of substantial financial, management, and other resources from the Company's
other activities. An adverse outcome could subject the Company to significant
liability to third parties, require the Company to obtain licenses from third
parties, or require the Company to cease any related research and development
activities or product sales. In addition, the laws of certain countries may not
protect the Company's intellectual property. No assurance can be given that any
licenses required under any such third-party patents or proprietary rights would
be made available on commercially reasonable terms, if at all.
The Company's success is also dependent upon the skill, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure, and in most cases, assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. See "Business -- Licenses, Patents and
Proprietary Rights."
GOVERNMENT REGULATION
The Company's current and any future products are and will be subject to
extensive regulation by the FDA and, in some instances, by foreign governments.
Pursuant to the Federal Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder (the "FDC Act"), the FDA regulates the
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or
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premarket approval for devices, withdrawal of marketing approvals and criminal
prosecution. The FDA also has the authority to request repair, replacement or
refund of the cost of any device manufactured or distributed by the Company.
In April 1995, the Company obtained a PMA for its HPV test to detect the
presence of HPV in women with equivocal Pap smears. The Company intends to
submit a PMA supplement to obtain market approval for use of its HPV test as a
primary cervical cancer screening test either in conjunction with or separate
from Pap smear testing. The Company anticipates that a substantial amount of
clinical data will be required to support the PMA supplement. There can be no
assurance that the data the Company submits will be adequate to support the use
of the HPV test as a primary cervical cancer screening test. Moreover, there can
be no assurance that the FDA will grant approval of a PMA supplement for use of
the HPV test as a primary cervical cancer screening test in a timely manner, if
at all, or that the FDA will not require the submission of additional
information, data or a PMA application. Failure to obtain FDA approval for the
HPV test as a primary cervical cancer screening test would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company intends to export its HPV test as a primary cervical
cancer screening test prior to obtaining FDA approval for this use in the United
States. Such exports may require regulatory approvals from various countries,
will require FDA approval and will necessitate the submission of certain
information and data to the FDA. There can be no assurance that the FDA will
grant approval of such exports, and failure on the part of the Company to obtain
such approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company believes that its CMV test can be cleared to market through the
510(k) notification process. Nevertheless, the Company understands that the FDA
will likely subject the submission to a "Tier 3" level of review, which includes
close scrutiny of the clinical data in support of the submission. The Company
also understands that the FDA may seek an advisory committee review and
recommendation concerning the safety and efficacy of the product. There can be
no assurance that, once a 510(k) notification is submitted for the CMV test, the
FDA will grant clearance in a timely manner, if at all, or that the FDA will not
require the submission of additional clinical data or a PMA application.
The Company currently sells various viral and bacterial tests on a research
use only ("RUO") basis. Failure of the Company or recipients of the Company's
RUO devices to comply with the user certification requirements and other
regulatory limitations placed on the distribution and use of RUO devices could
result in enforcement action by the FDA that would adversely affect the
Company's ability to distribute the tests prior to obtaining FDA clearance or
approval for the products.
The FDA product clearance process is unpredictable and uncertain, and no
assurance can be given that the necessary approvals or clearances will be
granted on a timely basis, or at all. Delays in receipt of, or a failure to
receive, such approvals or clearances, or the loss of any previously received
approvals or clearances, could have a material adverse effect on the business,
financial condition and results of operations of the Company.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.
The FDC Act requires devices to be manufactured in accordance with good
manufacturing practices ("GMPs") which impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. Noncompliance with GMPs can result in, among other
things, fines, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
approvals and criminal prosecution. The FDA also has proposed changes to the
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GMPs regulations which, if finalized, would likely increase the cost of
compliance with the requirements. Any failure by the Company to comply with GMP
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
IMPACT OF CHANGES IN HEALTH CARE INDUSTRY
The health care industry is undergoing fundamental change in the United
States as a result of economic, political and regulatory influences. There
exists a powerful trend toward managed care that is motivated by the desire to
reduce the overall costs of health care. Reform could conceivably result in a
reduction in the recommended frequency of the Pap smear test, for example, or
limitations on reimbursement based on test frequency, either of which could
inhibit demand for the Company's HPV test for the follow-up screening of women
with equivocal Pap smears and could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
anticipates that the health care industry, particularly insurance companies and
other third-party payors, will continue to promote cost containment measures and
alternative health care delivery systems, and that public and political debate
of these issues likely will continue. The Company cannot predict which reforms
will be proposed or adopted by the health care industry or government or the
effect that such proposals or adoption may have on the Company's business,
financial condition and results of operations. There can be no assurance that
health care reform initiatives will not have a material adverse effect on the
Company's business, financial condition and results of operations.
TECHNOLOGICAL OBSOLESCENCE; UNCERTAINTIES RELATING TO PRODUCT DEVELOPMENT
The medical diagnostics segment of the biotechnology industry is
characterized by rapid product development and technological advancement. The
Company's products, including its HPV test, could be rendered noncompetitive or
obsolete by competing products of, or technological advancement made by, the
Company's current or potential competitors, or otherwise. There can be no
assurance that the Company will be able to respond to such competing products or
technological advancements through the development and introduction of new
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, product development
involves a high degree of risk. There can be no assurance that the Company's new
product development efforts will result in any commercially viable or successful
products. The Company has a number of product candidates in various early stages
of development. These product candidates will require substantial additional
investment, laboratory development, clinical testing and FDA approval prior to
their commercialization. The Company's inability to successfully develop these
product candidates, including development relating to the use of the Company's
HPV test as a primary cervical cancer screening test, or achieve market
acceptance of such products would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Research and Development."
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company is highly dependent on the principal members of its management
team, the loss of whose services might impede achievement of the Company's
strategic objectives. The Company's success will depend on its ability to retain
key employees and to attract additional qualified employees. Competition for
such personnel is intense, and there can be no assurance that the Company will
be able to retain existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain personnel in key positions, such inability would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
POTENTIAL INADEQUACY OF PRODUCT LIABILITY INSURANCE
The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of the Company's HPV test for its
approved indications and other products developed by the Company. There can be
no assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The Company currently maintains product
liability insurance coverage of
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$1,000,000 per occurrence, and $3,000,000 in the aggregate. There can be no
assurance, however, that this coverage will be adequate to protect the Company
against future product liability claims or that product liability insurance will
be available to the Company in the future on commercially reasonable terms, if
at all. Furthermore, there can be no assurance that the Company will be able to
avoid significant product liability claims and the attendant adverse publicity.
Consequently, a product liability claim or other claim with respect to uninsured
or underinsured liabilities could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Product Liability."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture the Company's products. Any failure by the Company to control the
use, disposal, removal or storage of hazardous chemicals or toxic substances
could subject the Company to significant liabilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial public
offering price will be determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which the
Common Stock of the Company will trade after this Offering. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like that of the common
stock of many other medical diagnostics and biotechnology companies, is likely
to be highly volatile. Factors such as announcements of technological
innovations or new products by the Company or its competitors, clinical trial
results relating to or regulatory approvals or disapprovals of the Company's or
competitors' product candidates, government regulation, health care legislation,
developments or disputes concerning patent or other proprietary rights of the
Company or its competitors, including litigation, fluctuations in the Company's
operating results and market conditions for health care stocks and biotechnology
stocks in general could have a significant impact on the future price of the
Common Stock. In addition, the stock market has experienced from time to time
extreme price and volume fluctuations that may be unrelated to the operating
performance of particular companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this Offering or the prospect of such sales could adversely affect the market
price of the Common Stock and may have a material adverse effect on the
Company's ability to raise any necessary capital to fund its future operations.
Upon completion of this Offering, the Company will have 11,276,408 shares of
Common Stock outstanding. The 3,000,000 shares offered hereby will be freely
tradeable without restrictions or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except for any shares held by
"affiliates" of the Company within the meaning of the Securities Act which will
be subject to the resale limitations of Rule 144 promulgated under the
Securities Act ("Rule 144"). The remaining 8,276,408 shares are "restricted"
securities that may be sold only if registered under the Securities Act, or sold
in accordance with an applicable exemption from registration, such as Rule 144.
The officers and directors of the Company, each person known by the Company to
beneficially own more than 5% of the Common Stock and certain other
stockholders, who together hold 8,024,112 shares of Common Stock, and options to
purchase an additional 2,387,157 shares of Common Stock, have agreed not to
sell, directly or indirectly, any Common Stock without the prior written consent
of UBS Securities LLC for a period of 180 days from the date of this Prospectus
(the "Lock-up Agreements"). An aggregate of
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201,482 shares of Common Stock that have been held for more than three years and
are not subject to Lock-up Agreements will be eligible for immediate sale in the
public market after this Offering under Rule 144(k) promulgated under the
Securities Act ("Rule 144(k)"), unless such shares are held by "affiliates" of
the Company. An additional 37,644 shares of Common Stock that have been held for
more than two years will be eligible for sale in the public market commencing 90
days after this Offering, subject to compliance with Rule 144. Commencing on the
expiration of the Lock-up Agreements, an additional 7,015,141 shares of Common
Stock will be eligible for sale in the public market subject to compliance with
Rule 144. In addition, an aggregate of 131,592 shares of Common Stock issuable
upon the exercise of outstanding stock options will be eligible for sale in the
public market under Rule 701 promulgated under the Securities Act ("Rule 701")
commencing 90 days after the date of this Prospectus, and the remaining
1,978,261 shares of Common Stock issuable upon the exercise of outstanding stock
options subject to Lock-up Agreements will be eligible for sale under Rule 701
commencing on the 181st day after the date of this Prospectus. In addition,
holders of 6,389,861 shares of Common Stock will be entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price of the Common Stock. In addition, any demand of such holders to
include such shares in Company-initiated registration statements could have an
adverse effect on the Company's ability to raise needed capital. See "Shares
Eligible for Future Sale."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, expand
its sales and marketing activities and scale up its manufacturing. The Company
expects that its existing capital resources, together with the net proceeds of
this Offering and the interest earned thereon, will be adequate to fund the
Company's operations through 1998. No assurance can be given that there will be
no change in the Company that would consume a significant amount of its
available resources before that time. The Company's future capital requirements
and the adequacy of available funds will depend on numerous factors, including
the successful commercialization of its HPV test, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies and clinical trials, the cost and timing of manufacturing
scale-up, the development of effective sales and marketing activities, the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of its products. To
the extent that funds generated from the Company's operations, together with its
existing capital resources and the proceeds of this Offering and the interest
earned thereon, are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. The terms and prices of any equity or debt
financings may be significantly more favorable than those of the Common Stock
sold in this Offering. The Company does not have any committed sources of
additional financing, and there can be no assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CONTROL BY MANAGEMENT
The Company's President and Executive Vice President will beneficially own
an aggregate of approximately 48.1% of the Company's outstanding shares of
Common Stock after this Offering (approximately 46.4% if the Underwriters'
over-allotment option is exercised in full). As a result, these officers, acting
together, will effectively control the election of directors and matters
requiring approval by the Company's
14
<PAGE> 19
stockholders. The current composition of the Board of Directors of the Company
is effectively determined under agreements between the Company and certain of
its existing stockholders. See "Certain Transactions" and "Principal
Stockholders."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without further action
by the stockholders, to issue from time to time, up to 1,000,000 shares of
Preferred Stock in one or more classes or series, and to fix the rights and
preferences of such Preferred Stock. The Company's Certificate of Incorporation
also provides for staggered terms for members of the Board of Directors. The
Company is subject to provisions of Delaware corporate law which, subject to
certain exceptions, will prohibit the Company from engaging in any "business
combination" with a person who, together with affiliates and associates, owns
15% or more of the Company's Common Stock (an "Interested Stockholder") for a
period of three years following the date that such person became an Interested
Stockholder, unless the business combination is approved in a prescribed manner.
Additionally, the Bylaws of the Company establish an advance notice procedure
for stockholder proposals and for nominating candidates for election as
directors. These provisions of Delaware law and of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying, deterring or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over market price and may adversely affect the market
price, and the voting and other rights of the holders, of the Common Stock. See
"Management -- Delaware Law and Certain Provisions of the Bylaws" and
"Description of Capital Stock."
DILUTION
Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution in the net tangible book value from the initial public
offering price. See "Dilution."
NO DIVIDENDS
The Company has not paid cash dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
15
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share are estimated to be $32,680,000 ($37,702,000 assuming the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company expects to use the net proceeds of this Offering to expand its
sales and marketing activities, to fund increased research and development,
including clinical trials, to provide working capital and to fund general
corporate purposes. The Company also expects to use approximately $2.6 million
of the net proceeds to repay the principal of and interest accrued on
indebtedness owed to Life Technologies, Inc. ("LTI"). The indebtedness, which
was incurred in connection with the purchase of a division of LTI by the Company
in 1990 and is secured by substantially all assets of the Company, including
patents, is payable in annual and semiannual installments through June 30, 2003,
and bears interest at the rate of 8.0% per annum. The Company may also use a
portion of the net proceeds for the acquisition of businesses, products and
technologies that are complementary to those of the Company, although no such
acquisitions are currently being negotiated and no portion of the net proceeds
has been allocated for any specific acquisition. The amounts and timing of
expenditures for each purpose will depend on a number of factors, including
market acceptance of HPV testing, in general, and the Company's HPV test, in
particular, the progress of the Company's research and development and
regulatory affairs activities, the results of clinical trials, the timing of
regulatory actions, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other proprietary rights, the
success of manufacturing scale-up and the availability of third-party
reimbursement. Pending such uses, the Company intends to invest the net proceeds
in interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends with respect to its
capital stock. The Company currently intends to retain any future earnings to
fund its operations and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth, at March 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Recapitalization, the issuance of 70,436 shares of
Common Stock pursuant to warrants exercised after March 31, 1996 and the
conversion of all outstanding shares of Redeemable Convertible Preferred Stock
(including shares issued to Murex after March 31, 1996) into Common Stock upon
the completion of this Offering, as well as (iii) the pro forma capitalization
of the Company as adjusted to reflect the sale by the Company of 3,000,000
shares of Common Stock in this Offering (at an assumed initial public offering
price of $12.00 per share) and the application by the Company of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current maturities...................... $ 2,666 $ 2,666 $ 158
Redeemable Convertible Preferred Stock....................... 14,063 -- --
Stockholders' equity (deficit):
Preferred stock, par value $0.10 per share; 1,000,000
shares authorized; no shares issued and outstanding on
an actual, pro forma or pro forma as adjusted basis... -- -- --
Common stock, par value $0.01 per share; 50,000,000
shares authorized; 374,775 shares issued and
outstanding on an actual basis; 8,276,408 shares
issued and outstanding on a pro forma basis; and
11,276,408 shares issued and outstanding on a pro
forma as adjusted basis(1)............................ 4 83 113
Additional paid-in capital................................... 3,703 18,625 51,275
Accumulated deficit.......................................... (18,404) (18,404) (18,404)
-------- --------- -----------
Total stockholders' equity (deficit).................... (14,697) 304 32,984
-------- --------- -----------
Total capitalization............................... $ 2,032 $ 2,970 $ 33,142
======== ======== =========
</TABLE>
- ---------------
(1) Excludes 2,699,210 shares of Common Stock reserved for issuance pursuant to
options outstanding at March 31, 1996 at a weighted average exercise price
of $4.10 per share. An additional 776,087 shares of Common Stock are
reserved for issuance under the Company's stock option plans. See
"Capitalization" and "Management -- Stock Option Plans."
17
<PAGE> 22
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996 was
$183,000, or $0.02 per share after giving effect to the Recapitalization, the
issuance of 70,436 shares of Common Stock pursuant to warrants exercised after
March 31, 1996, and the conversion of all outstanding shares of Redeemable
Convertible Preferred Stock (including shares issued to Murex after March 31,
1996) into Common Stock upon the completion of this Offering. After giving
effect to the receipt of $32,680,000, representing the estimated net proceeds to
be received by the Company (assuming an initial public offering price of $12.00
per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company), the pro forma net tangible
book value of the Company at March 31, 1996 would have been $32,863,000, or
$2.91 per share. This represents an immediate increase in net tangible book
value of $2.89 per share to existing stockholders and an immediate dilution of
$9.09 per share to purchasers in this Offering. "Net tangible book value"
represents the amount of tangible assets of the Company less total liabilities.
Dilution represents the difference between the amount per share paid by
investors in this Offering and the pro forma net tangible book value per share
upon completion of this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $12.00
Pro forma net tangible book value per share at March 31, 1996... $0.02
Increase in book value per share attributable to new
investors...................................................... 2.89
-----
Pro forma net tangible book value per share after this Offering...... 2.91
------
Dilution per share to new investors (1).............................. $ 9.09
======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, then the
dilution to new investors will be $8.77 per share.
The following table sets forth at March 31, 1996, on a pro forma basis, the
differences between the existing stockholders and new investors in this Offering
(at an assumed initial public offering price of $12.00 per share) with respect
to the number of shares of such stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors assuming an initial public offering
price of $12.00 per share, before deducting underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 8,276,408 73.4% $18,709,000 34.2% $ 2.26
New investors.................... 3,000,000 26.6 36,000,000 65.8 12.00
---------- ------- ----------- ------- -------------
Total.................. 11,276,408 100.0% $54,709,000 100.0% $ 4.85
========= ===== ========== ===== ==========
</TABLE>
The calculation of pro forma net tangible book value and the other
computations above assumes no exercise of outstanding options. At March 31,
1996, 2,699,210 shares of Common Stock were issuable upon exercise of
outstanding stock options at a weighted average exercise price of $4.10 per
share. To the extent the outstanding options are exercised, there will be
further dilution to new investors. See "Capitalization" and "Management -- Stock
Option Plans."
18
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
Statements of Operations for the fiscal years ended June 30, 1993, 1994 and 1995
and with respect to the Company's Balance Sheets at June 30, 1994 and 1995 are
derived from the audited Financial Statements of the Company which are included
elsewhere in this Prospectus and are qualified by reference to such Financial
Statements and the related Notes thereto. Statements of Operations data for the
fiscal years ended June 30, 1991 and 1992 and Balance Sheet data at June 30,
1991, 1992 and 1993 are derived from Financial Statements of the Company not
included herein. The selected financial data at March 31, 1996 and for the nine
months ended March 31, 1995 and 1996 are derived from unaudited Financial
Statements included elsewhere in this Prospectus. The unaudited Financial
Statements include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for the fair presentation of
its financial position and the results of its operations for those periods.
Operating results for the nine months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1996. The selected financial data set forth below is qualified in its
entirety by, and should be read in conjunction with the Financial Statements,
the related Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED MARCH
JUNE 30, 31,
----------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................ $ 2,562 $ 4,665 $ 4,624 $ 4,767 $ 5,413 $ 3,849 $ 4,464
Research and development contracts........... -- -- 141 527 749 604 293
------- ------- ------- ------- ------- ----------- -----------
Total revenues............................. 2,562 4,665 4,765 5,294 6,162 4,453 4,757
Cost of product sales.......................... 1,332 2,552 2,698 2,464 2,652 1,842 2,132
------- ------- ------- ------- ------- ----------- -----------
Gross margin on product sales.................. 1,230 2,113 1,926 2,303 2,761 2,007 2,332
Other costs and expenses:
Research and development..................... 891 933 1,047 1,103 1,856 1,227 1,767
Selling and marketing........................ 694 1,288 1,194 1,398 1,375 918 1,263
General and administrative..................... 3,096 1,835 1,162 1,191 1,245 982 1,018
Amortization of intangible assets............ 524 772 349 265 330 242 260
------- ------- ------- ------- ------- ----------- -----------
Total operating expenses................... 5,205 4,828 3,752 3,957 4,806 3,369 4,308
------- ------- ------- ------- ------- ----------- -----------
Loss from operations........................... (3,975) (2,715) (1,685) (1,127) (1,296) (758) (1,683)
Other income (expense)......................... 139 104 67 (13) 14 13 115
Interest expense............................... (154) (311) (299) (293) (232) (195) (139)
------- ------- ------- ------- ------- ----------- -----------
Net loss....................................... $(3,990) $(2,922) $(1,917) $(1,433) $(1,514) $ (940) $(1,707)
======= ======= ======= ======= ======= =========== ===========
Net loss per share(1).......................... (2.35) (3.61) $ (2.34) $ (1.69) $ (1.78) $ (1.11) $ (2.00)
======= ======= ======= ======= ======= =========== ===========
Weighted average shares outstanding(1)......... 1,698 810 818 847 850 850 853
Pro forma net loss per share(1)(2)............. $ (.18) $ (.20)
====== ========
Pro forma weighted average shares
outstanding(1)(2)............................ 8,217 8,447
====== ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------
AT MARCH 31,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 1,598 $ 1,827 $ 1,854 $ 2,195 $ 2,107 $ 1,395
Total assets........................................ 4,937 4,935 4,308 4,307 4,485 3,921
Long-term debt, less current maturities............. 3,243 3,165 3,100 3,005 2,812 2,666
Redeemable Convertible Preferred Stock.............. 6,296 8,732 10,276 11,768 13,115 14,063
Accumulated deficit................................. (8,912) (11,834) (13,750) (15,184) (16,698) (18,404)
Total stockholders' equity (deficit)................ (5,227) (8,147) (10,058) (11,490) (13,004) (14,697)
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Pro forma to give effect to (i) the Recapitalization, the issuance of 70,436
shares of Common Stock pursuant to warrants exercised after March 31, 1996,
and (ii) the automatic conversion, upon the completion of this Offering, of
all outstanding shares of Redeemable Convertible Preferred Stock (including
shares issued to Murex after March 31, 1996) into Common Stock.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere 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."
OVERVIEW
The Company develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human disease. The Company was founded in
1985 and originally focused on the development of research diagnostic products.
In July 1990, the Company began the development of clinical diagnostic tests. In
December 1990, the Company acquired the molecular diagnostics division of LTI,
including its DNA tests which relied on the use of radioactive probes (the "LTI
Acquisition"). In the five years following the LTI Acquisition, the Company
continued to market radioactive DNA probe tests, including a radioactive HPV
test, but directed its primary research and development efforts towards its non-
radioactive Hybrid Capture DNA tests. The Company introduced its HPV test and
Hepatitis B virus ("HBV") DNA tests utilizing the chemiluminescent Hybrid
Capture system for research purposes in Europe in fiscal 1992. In 1995, the
Company obtained FDA approval for its Hybrid Capture HPV test for the follow-up
screening of women with equivocal Pap smears and commenced shipment of the test
in November 1995. The Company ceased production of its radioactive product line
in December 1995. The Company based its decision to discontinue its radioactive
product line on the perceived advantages of its non-radioactive Hybrid Capture
technology, particularly in terms of shelf life and ease of use. The Company
believes that its decision to discontinue production of its radioactive product
line will not have a material adverse effect on its results of operations. To
facilitate sales of its Hybrid Capture products, the Company also sells
luminometers and related equipment, which it purchases from third-party
manufacturers. The Company receives additional revenues for performing certain
research and development services under contract with third parties, primarily
Murex. Contract research and development activities are billed on a cost
reimbursable basis. See "Certain Transactions."
Since inception, the Company has incurred substantial operating losses,
principally from expenses associated with the Company's research and development
programs, the clinical trials conducted in connection with the Company's HPV
test for use in the follow-up screening of women with equivocal Pap smears and
the preparation of the related PMA application for submission to the FDA. The
Company expects such operating losses to continue for the foreseeable future as
it continues its product development efforts, expands its marketing and sales
activities and scales up its manufacturing operations. The Company's ability to
achieve profitability is dependent upon its ability to successfully manufacture,
market and sell its HPV test for the follow-up screening of women with equivocal
Pap smears. There can be no assurance that the Company will be able to
successfully commercialize its HPV test or that profitability will ever be
achieved. The operating results of the Company have fluctuated significantly in
the past on an annual and a quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended March 31, 1996 to Nine Months Ended March 31,
1995
Product sales increased to $4,464,000 for the nine months ended March 31,
1996 from $3,849,000 for the same period in 1995. The increase was due,
primarily, to increased sales of its Hybrid Capture tests. Sales of the
Company's radioactive DNA tests, which were discontinued in December 1995,
remained relatively constant for the two periods. The Company anticipates that
sales of its HPV test will account for a substantial portion of its product
sales in the foreseeable future.
20
<PAGE> 25
Cost of product sales increased to $2,132,000 for the nine months ended
March 31, 1996 from $1,842,000 for the same period in 1995 due to increased
sales volume, but remained constant as a percentage of product sales. Gross
margins may vary between periods depending on product mix, primarily because
certain products, such as luminometers and related equipment, typically have
lower profit margins than the Company's diagnostic tests. The Company expects
gross margins to increase in the future due to improved overhead absorption and
manufacturing efficiencies.
Research and development contract revenue decreased to $293,000 for the
nine months ended March 31, 1996 from $604,000 for the same period in 1995 due
to a decrease in contract development services relating to its CMV test,
performed under the Company's development agreement with Murex. See "Certain
Transactions."
Research and development expense increased to $1,767,000 for the nine
months ended March 31, 1996 from $1,227,000 for the same period in 1995 due to
increased personnel costs associated with the development of new products
utilizing the Company's Hybrid Capture technology. The Company expects to
increase its expenditures for research and development to fund the development
of additional tests using the Hybrid Capture technology and to improve the
sensitivity and ease of use of the Company's Hybrid Capture technology. See
"Business -- Research and Development."
Selling and marketing expense increased to $1,263,000 for the nine months
ended March 31, 1996 from $918,000 for the same period in 1995 due to increased
personnel costs resulting from the addition of marketing personnel to support
the Hybrid Capture product line, and increased sales commissions as a result of
higher sales volume. Sales personnel receive a salary plus commissions based
upon the attainment of certain sales levels. The Company expects selling and
marketing expense to increase as it expands its advertising and promotional
activities and increases its marketing and sales force, principally for the
commercialization of its HPV test in the United States and Canada.
General and administrative expense increased to $1,018,000 for the nine
months ended March 31, 1996 from $982,000 for the same period in 1995, largely
due to cost of living increases in salaries. The Company also expects that its
general and administrative expense will increase as a result of increased
personnel costs and professional fees associated with being a publicly held
company.
Amortization of intangible assets increased to $260,000 for the nine months
ended March 31, 1996 from $242,000 for the same period in 1995, primarily due to
the amortization of capitalized costs related to the installation of the
Company's management information system.
Interest expense decreased to $139,000 for the nine months ended March 31,
1996 from $195,000 for the same period in 1995, due primarily to a reduction in
the interest rate on the note issued by the Company in connection with the LTI
Acquisition (the "LTI Note").
Comparison of Fiscal Year Ended June 30, 1995 to Fiscal Year Ended June 30,
1994
Product sales increased to $5,413,000 in fiscal 1995 from $4,767,000 in
fiscal 1994. The increase was due, primarily, to increased sales volume to
European distributors of the Company's Hybrid Capture tests and, to a lesser
extent, to increased sales of luminometers.
Cost of product sales increased to $2,652,000 in fiscal 1995 from
$2,464,000 in fiscal 1994 due to increased sales volume. Cost of product sales
decreased as a percentage of product sales due to improved overhead absorption
and manufacturing efficiencies, which improvement was offset, in part, by an
increase in lower margin sales of luminometers.
Research and development contract revenue increased to $749,000 in fiscal
1995 from $527,000 in fiscal 1994. The increase was due to contract services,
primarily relating to the development of the Company's CMV test, performed under
the Company's contract with Murex. See "Certain Transactions."
Research and development expense increased to $1,856,000 in fiscal 1995
from $1,103,000 in fiscal 1994. Most of the increase was due to internal
development efforts relating to the Company's core technologies as
21
<PAGE> 26
well as contract development services relating to the Company's CMV test,
performed under the Company's development agreement with Murex. See "Certain
Transactions."
Selling and marketing expense decreased slightly to $1,375,000 in fiscal
1995 from $1,398,000 in fiscal 1994.
General and administrative expense increased to $1,245,000 in fiscal 1995
from $1,191,000 in fiscal 1994 as a result of cost of living increases in
salaries.
Amortization of intangible assets increased to $330,000 in fiscal 1995 from
$265,000 in fiscal 1994 primarily as a result of the amortization of certain
capitalized costs related to the installation of the Company's management
information system.
Interest expense decreased to $232,000 in fiscal 1995 from $293,000 in
fiscal 1994 due to a negotiated reduction in interest on the LTI Note.
Comparison of Fiscal Year Ended June 30, 1994 to Fiscal Year Ended June 30,
1993
Product sales increased to $4,767,000 in fiscal 1994 from $4,624,000 in
fiscal 1993 due to an increase in European sales of Hybrid Capture tests, which
were partially offset by a decrease in luminometer and related equipment sales.
Cost of product sales decreased to $2,464,000 in fiscal 1994 from
$2,698,000 in fiscal 1993. As a percentage of product sales, such costs
decreased because of improved manufacturing efficiency and decreased sales of
lower margin products such as luminometers and related equipment.
Research and development contract revenue increased to $527,000 in fiscal
1994 from $141,000 in fiscal 1993 primarily due to services performed under a
laboratory testing and supply subcontract for the National Cancer Institute
("NCI").
Research and development expense increased to $1,103,000 in fiscal 1994
from $1,047,000 in fiscal 1993 as a result of cost of living increases in
salaries for research and development personnel.
Selling and marketing expense increased to $1,398,000 in fiscal 1994 from
$1,194,000 in fiscal 1993 due to the launch of a product designed solely for use
in laboratory research and a radioactive DNA probe test, which was subsequently
discontinued.
General and administrative expense increased to $1,191,000 in fiscal 1994
from $1,162,000, in fiscal 1993 as a result of cost of living increases in
salaries.
Amortization of intangible assets decreased to $265,000 in fiscal 1994 from
$349,000 in fiscal 1993 due to the expiration in 1993 of non-compete agreements
and other intangible assets related to the LTI Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of approximately $18.4 million at
March 31, 1996. The Company has funded its operations primarily through private
placements of equity securities. At March 31, 1996, the Company had cash, cash
equivalents and short-term investments aggregating approximately $479,000.
Short-term investments of $75,000 are restricted under a collateral agreement
related to leasehold improvements. Net cash used in the Company's operating
activities was $1,203,000 for the nine months ended March 31, 1996.
Capital expenditures for the fiscal year ended June 30, 1995 were $246,000.
The Company anticipates making total capital expenditures of $250,000 for the
fiscal year ending June 30, 1996, primarily for automation and manufacturing
scale-up. The Company anticipates making capital expenditures of $500,000, also
for automation and manufacturing scale-up, in the fiscal year ending June 30,
1997.
The Company does not have any bank financing arrangements. The Company's
indebtedness consists primarily of the LTI Note, which had an outstanding
principal amount of $2,569,000 at March 31, 1996. The LTI Note was issued in
connection with the LTI Acquisition. During fiscal 1995, the Company and LTI
22
<PAGE> 27
agreed to reduce the applicable interest rate on the LTI Note from 10% to 8%.
Principal on the LTI Note is payable in semiannual installments ranging from
$27,624 at June 30, 1995 to $36,352 at December 31, 1998, followed by five
annual installments of $474,093, beginning June 30, 1999. The note is secured by
certain assets of the Company. The Company intends to repay the LTI Note with
the net proceeds of this Offering. See "Use of Proceeds."
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, expand
its sales and marketing activities and scale up its manufacturing. The Company
expects that its existing capital resources, together with the net proceeds of
this Offering and the interest earned thereon, will be adequate to fund the
Company's operations through 1998. No assurance can be given that there will be
no change in the Company that would consume a significant amount of its
available resources before that time. The Company's future capital requirements
and the adequacy of available funds will depend on numerous factors, including
the successful commercialization of its HPV test, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies and clinical trials, the cost and timing of manufacturing
scale-up, the development of effective sales and marketing activities, the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of its products. To
the extent that funds generated from the Company's operations, together with its
existing capital resources and the proceeds of this Offering and the interest
earned thereon, are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. The terms and prices of any equity or debt
financings may be significantly more favorable than those of the Common Stock
sold in this Offering. The Company does not have any committed sources of
additional financing, and there can be no assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected.
23
<PAGE> 28
BUSINESS
THE COMPANY
The Company develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human diseases. The Company's products
are designed to help improve clinical outcomes and reduce the overall cost of
disease management. The Company's lead product, the Hybrid Capture HPV DNA test,
detects the presence of HPV, the primary cause of cervical cancer which is the
second most common cancer among women worldwide. The Company's HPV test for the
follow-up screening of women with equivocal Pap smears is the first HPV test to
have been approved for marketing in the United States by the FDA. The Company's
objective is to establish its HPV test as the new standard of care for cervical
cancer screening.
The Company is also developing a test to detect the presence of CMV. The
basis for the Company's HPV and CMV tests is its proprietary Hybrid Capture
technology. The Company is also using its Hybrid Capture technology as a
platform to develop a wide range of DNA diagnostic and monitoring tests for
blood viruses, sexually transmitted diseases and opportunistic infections.
The key elements of the Company's business strategy include (i)
establishing HPV testing as the new standard of care for cervical cancer
screening by working closely with clinical reference laboratories, third-party
payors and health care providers; (ii) focusing the Company's initial marketing
efforts on the use of its HPV test for the follow-up screening of equivocal Pap
smears; (iii) expanding the Company's sales and marketing capabilities; (iv)
pursuing strategic alliances to increase market acceptance of its products and
to expand marketing efforts; and (v) capitalizing on its core technology and
expertise to develop a wide range of DNA diagnostic and monitoring tests.
CERVICAL CANCER
Cervical cancer is the second most common cancer among women worldwide,
with approximately 440,000 new cases reported annually. The American Cancer
Society estimates that approximately 15,800 new cases of invasive cervical
cancer and 65,000 cases of carcinoma in situ, a precancerous condition, were
diagnosed in the United States in 1995. If detected in the precancerous stage,
virtually all cervical cancer is preventable. The treatment of cervical cancer
after it reaches the invasive stage may require chemotherapy, radiation
treatment or surgery, including hysterectomy. These forms of treatment are
difficult and expensive, and are often unsuccessful.
HPV Infection and Cervical Cancer
HPV is the primary cause of cervical cancer. Recent studies have
demonstrated that at least 93% of cervical cancers and high-grade cervical
lesions contain one or more cancer-causing types of HPV. Moreover, it has been
shown that women without cervical disease who test positive for one or more of
the cancer-causing HPV types have a high probability of developing cervical
lesions over time. A recent prospective study conducted by NCI on 21,000 women
with a history of normal cervical cytologic examinations (Pap smears) found that
approximately 80% of those who tested positive for cancer-causing types of HPV
developed clinically significant cervical lesions within four years.
Pap Smear Testing
To enable the early detection of cervical cancer, gynecologists typically
recommend annual screening examinations. The standard screening method in the
United States and in other major industrialized countries is the Pap smear test,
in which a sample of cervical cells is examined under a microscope. Pap smears
have been the principal means of cervical cancer screening in the United States
since the 1940s. More than 50 million Pap smears are performed annually in the
United States, and the Company believes that an equivalent number are performed
in the rest of the world. Each Pap smear is classified according to the Bethesda
System for Reporting Cervical/Vaginal Cytologic Diagnoses into one of five
categories: (1) Negative, (2) Atypical Squamous Cells of Undetermined
Significance ("ASCUS"); (3) Low Grade Squamous
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Intraepithelial Lesions ("LSIL"); (4) High Grade Squamous Intraepithelial
Lesions ("HSIL"); and (5) Carcinoma. For purposes of this Prospectus, negative
Pap smear results are referred to as "normal;" ASCUS, as "equivocal;" and LSIL,
HSIL and Carcinoma, as "abnormal." An equivocal classification is given to Pap
smear results that cannot be definitely classified as either normal or abnormal.
The estimated percentage of Pap smears classified in each category annually is
set forth below.
CLASSIFICATION OF PAP SMEARS IN THE UNITED STATES
<TABLE>
<S> <C> <C>
TOTAL PAP SMEARS:
50 MILLION
NORMAL PAP SMEARS: EQUIVOCAL PAP SMEARS: ABNORMAL PAP SMEARS:
45 MILLION 3.5 MILLION 1.5 MILLION
90% 7% 3%
</TABLE>
Follow-up testing and treatment is based on the classification of the Pap
smear result. Women with normal Pap smears typically require no follow-up beyond
continuation with annual Pap smear testing. In general, women with abnormal Pap
smears undergo a colposcopic examination (visual examination of the cervix with
the aid of a colposcope). Most of these women also undergo biopsy at the time of
colposcopy, and many go on to have any suspected lesions ablated (physically
removed with a scalpel or cauterizing instrument). Many women with equivocal Pap
smears are treated as if they have abnormal Pap smears, even though only an
estimated 25% to 35% of these women actually have cervical disease.
Problems With the Pap Smear
Although the Pap smear has been successful in reducing deaths due to
cervical cancer in the United States, Pap smears have significant limitations,
including the following:
Equivocal Pap Smears Lead to Unnecessary, Costly Intervention. Each
year in the United States, approximately 3.5 million Pap smears are classified
as equivocal. It is estimated that 65% to 75% of the women with equivocal Pap
smears do not have cervical disease. However, women with equivocal Pap smears
often undergo colposcopy and biopsy and, in certain cases, ablation. These
invasive procedures cost approximately $300, $100 and $500, respectively, and
result in significant physical and emotional stress.
Pap Smears are Difficult to Interpret. Screening and interpreting Pap
smears is a highly subjective, complex and tedious task. The screening process
requires intense visual review through a microscope of a large volume of slides
containing cervical cells. A Pap smear may contain only a small number of
abnormal cells among 50,000 to 300,000 normal cells. The subjective nature of
this screening process often leads to equivocal test results. In addition, the
difficulty and tediousness of the screening process and the limitations of the
visual review result in a large number of Pap smears which are misinterpreted as
normal ("false negatives").
False Negative Diagnoses. Pap smears fail to identify cervical disease
in a significant number of women. The sensitivity of Pap smears is estimated to
be 60% to 80%, which means that 20% to 40% of cervical disease is not detected
by Pap smear testing. False negatives may result in delayed treatment for
cervical lesions and may result in the failure to detect cervical cancer at an
early stage. The resultant delays in treatment may allow the disease to progress
further, thereby increasing the need for invasive and costly treatments,
reducing the efficacy of available therapies and reducing the likelihood of
patient survival. False
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<PAGE> 30
negative diagnoses present a particular health risk for women who do not
undergo routine Pap smear testing at recommended time intervals.
Pap Smears Have Limited Predictive Value. The Pap smear is not
designed, and is unable, to detect the presence of HPV, the primary cause of
cervical cancer. Consequently, Pap smears do not allow the clinician to identify
women with no overt signs of cervical disease but who are infected with
cancer-causing types of HPV and are therefore highly likely to develop cervical
cancer or advanced cervical lesions in the future.
Limited Availability of Pap Smear Screening. In many countries, Pap
smears are not widely used or are unavailable. Extensive cervical disease
screening programs using the Pap smear require large numbers of
cytotechnologists and sophisticated laboratory procedures. Properly trained
cytotechnologists and adequate laboratory facilities are often unavailable in
developing countries.
THE DIGENE SOLUTION
Digene manufactures and markets the first FDA-approved test to detect
cancer-causing types of HPV. The Company's HPV test allows physicians to
identify women who are most at risk of having or developing cervical disease and
cervical cancer. The Company's HPV test consists of biological reagents (RNA
probes, antibodies and detection reagents) and other components, consisting of
polystyrene tubes and packaging materials, and can be interpreted using standard
laboratory equipment. The Company believes that the key benefits provided by its
HPV test include the following:
Enables Cost-Effective Follow-up Screening of Equivocal Pap
Smears. Digene's HPV test enables clinicians to, in effect, classify equivocal
Pap smears as either normal or abnormal. The Company's test detects and measures
the presence of cancer-causing types of HPV, thereby allowing the clinician to
identify women who are most at risk of having or developing cervical disease and
cervical cancer, at a fraction of the cost of colposcopy, biopsy or ablation.
The Company believes that the use of its HPV test for the follow-up screening of
women with equivocal Pap smears will improve the ability to accurately screen
for cervical cancer, reduce the need for costly and invasive follow-up
procedures, and provide health care cost savings.
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Under Digene's recommended follow-up protocol, women with equivocal Pap
smears undergo the Company's HPV test to determine the presence of
cancer-causing HPV types. Only those patients testing positive for
cancer-causing types of HPV undergo colposcopy, biopsy and, when necessary,
ablation, while those testing negative return for a repeat Pap smear in six
months. The Company's test may be performed on clinical samples taken at the
same time as the Pap smear and stored until needed, thus eliminating the need
for a return visit to the physician's office. The following diagram outlines the
use of the Company's HPV test for the follow-up screening of women with
equivocal Pap smears.
FOLLOW-UP SCREENING OF EQUIVOCAL PAP SMEARS WITH HPV TESTING
<TABLE>
<S> <C> <C>
TOTAL PAP SMEARS:
NORMAL PAP SMEARS: EQUIVOCAL PAP SMEARS: ABNORMAL PAP SMEARS:
90% 7% 3%
HYBRID CAPTURE HPV
TEST
HPV NEGATIVE:REPEAT PAP HPV POSITIVE: PROCEED TO
SMEAR IN 6 MONTHS COLPOSCOPY/BIOPSY/ABLATION
</TABLE>
Provides Accurate, Easily Interpreted Results. Clinical studies conducted
by the Company indicate that the Company's HPV test is highly sensitive and
highly specific for the detection of cervical disease. Such clinical studies
indicated that Digene's HPV test is capable of detecting cervical disease in up
to 92% of the cases in which cervical disease is present. This represents a
significant improvement over the Pap smear's estimated sensitivity of 60% to
80%. The results generated by the Company's HPV test are objective, providing a
clear determination of the presence of cancer-causing types of HPV, and are easy
to interpret, reducing the need for highly trained cytotechnologists.
Reduces Likelihood of False Negatives. The high level of sensitivity of
the Company's HPV test should increase the possibility that precancerous
cervical lesions will be detected. Studies indicate that when used in
conjunction with Pap smear testing, the Company's HPV test can detect 95% to
100% of high grade lesions and virtually all instances of cervical cancer. The
Company believes that by reducing the number of false negatives, many cases of
precancerous cervical disease will be detected at earlier stages, when the
available therapies are more effective and the survival rates are higher.
Predicts Development of Disease. The Company believes that testing for the
presence of cancer-causing types of HPV has considerable predictive value. In
one study, approximately 80% of women with a history of normal Pap smears who
tested positive for cancer-causing types of HPV developed clinically significant
cervical lesions within four years. The Company's HPV test is the first
FDA-approved test for the detection of cancer-causing types of HPV.
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The Company holds issued patents relating to the detection of four HPV
types and has licenses to issued patents and patent applications covering five
additional HPV types. The Company's HPV test for the follow-up screening of
women with equivocal Pap smears utilizes DNA sequences for seven of these HPV
types. The Company believes that for a competing HPV test to be commercially
viable, it must be able to detect the HPV types for which the Company has
non-exclusive proprietary rights covering the DNA sequences. For a more detailed
discussion of the Company's intellectual property position and the risks
associated with it, see "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights" and "Business -- Licenses, Patents and Proprietary
Information."
CYTOMEGALOVIRUS (CMV) TESTING
CMV infection is a serious and growing health care problem. Active CMV
infection causes blindness in many AIDS patients and is a major cause of
infection and mortality in organ transplant recipients. It is estimated that 95%
of AIDS patients will ultimately suffer from active CMV infection. In 20% to 40%
of AIDS patients, CMV infects the retina, causing blindness. Organ transplant
recipients, because they are deliberately immunosuppressed to lessen the
probability of organ rejection, are also susceptible to CMV infection.
Approximately 60% of organ transplant patients develop active CMV infection
during the first twelve weeks after transplantation.
An estimated $1 billion is spent annually in the United States on the
prevention and treatment of CMV-related diseases. The drugs available to treat
CMV infection are both toxic and expensive and, ideally, should be administered
only when active CMV infection has been definitively identified. Annual costs
for these drugs are estimated to be between $37,000 and $115,000 per patient per
year. Nevertheless, because of the difficulty in detecting the virus with
currently available technology and the serious consequences of CMV infection,
antiviral therapy is often prescribed as a prophylactic measure. Additionally,
because current testing methods do not allow quantification, and therefore
effective monitoring, of CMV infection, physicians often prescribe unnecessarily
large doses of anti-viral drugs.
Current CMV Tests
All of the current methods available to detect the presence of CMV have
significant limitations. Conventional tissue culture methods have a low level of
sensitivity, can take up to 28 days to produce a definitive answer, are labor
intensive and because of the time required, are not useful for patient
monitoring. Rapid culture methods can provide results within one or two days,
but have a low level of sensitivity. Antigen tests can detect active CMV
infection and are highly sensitive. They are, however, complex and labor
intensive and have limited reliability. Additionally, antibody tests, which are
commonly used to detect viruses such as HIV, are of limited utility in detecting
CMV, since most healthy adults have antibodies against CMV.
The Digene CMV Solution
The Company is developing its Hybrid Capture CMV DNA test to provide
clinicians with an accurate and timely means of diagnosing and monitoring CMV
infection. The Company's CMV test can quantify the amount of CMV present in a
serum or tissue sample. This information allows physicians to track therapeutic
efficacy. Studies have shown that the Company's CMV test is capable of detecting
CMV infection in 94% of the cases in which it is present. Digene's CMV test can
be performed by relatively unskilled laboratory technicians using standard
clinical laboratory equipment with same day results.
Digene is currently conducting clinical trials of its CMV test at The Mayo
Clinic and The Cleveland Clinic. The Company expects to complete these trials
during the third quarter of 1996 and submit a 510(k) premarket notification to
the FDA by the end of 1996. There can be no assurance that, once a 510(k)
notification is submitted for the Company's CMV test, the FDA will grant
clearance in a timely manner, if at all, or will not require the submission of
additional clinical data or a PMA application. See "-- Government Regulation."
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BUSINESS STRATEGY
The Company's principal objective is to successfully commercialize its HPV
test. The Company has achieved the following milestones:
- received FDA approval for its HPV test in 1995 for the follow-up
screening of women with equivocal Pap smears
- achieved acceptance by all major clinical reference laboratories
throughout the United States
- validated the clinical utility of the HPV test through peer reviewed
publications in prominent medical journals
- established reimbursement by many third-party payors
The Company intends to build on these accomplishments in order to commercialize
its HPV test. In addition, the Company intends to continue to develop its CMV
test and other Hybrid Capture tests. The key components of the Company's
strategy are as follows:
Establish HPV Testing as the New Standard of Care. The Company is focused
on establishing its HPV test as the new standard of care for cervical cancer
screening. In order to achieve this objective, the Company is working closely
with clinical reference laboratories, third-party payors, health care providers
and institutions, and their affiliated physicians who influence the introduction
and acceptance of new tests. The Company has supported and participated in more
than a dozen major multi-center trials, including an ongoing $21 million NCI
study designed to establish the clinical utility and the cost-effectiveness of
HPV screening of women with equivocal or low-grade Pap smears. The Company
believes that the adoption of the Company's HPV test by managed care
organizations is critical for establishing the Company's HPV test as the new
standard of care for cervical cancer screening. Accordingly, the Company is
working with a number of managed care organizations, including Kaiser Permanente
(the largest health maintenance organization in the United States) and Omnia, a
provider of gynecological services to managed care organizations, to demonstrate
the clinical utility and cost-effectiveness of the Company's HPV test.
Focus Initially on Equivocal Pap Smears. The Company believes that there
is a need for a rapid, accurate, objective and non-invasive method to screen
women with equivocal Pap smears and that the Company's FDA-approved HPV test
presents an immediate market opportunity. Women with equivocal Pap smears often
undergo colposcopy, biopsy and, in certain cases, ablation, which cost
approximately $300, $100 and $500, respectively. The Company believes that the
use of its HPV test for the follow-up screening of women with equivocal Pap
smears will improve the ability to accurately screen for cervical disease and
reduce the need for costly and invasive follow-up procedures. As a result, the
Company will initially focus its marketing and sales efforts on gaining market
acceptance for the Company's test for the follow-up screening of women with
equivocal Pap smears.
Establish HPV Test as a Primary Screen in Conjunction With Pap Smears. The
Company intends to submit a PMA supplement for use of its HPV test as a primary
cervical cancer screening test in the United States either in conjunction with
or separate from Pap smear testing. The Company believes that if used routinely
in conjunction with Pap smears, its HPV test could result in more accurate
diagnosis of precancerous cervical disease and reduce the number of false
negatives associated with Pap smears. There can be no assurance that the FDA
will grant approval of such a PMA supplement in a timely manner, if at all, or
that the FDA will not require the submission of additional information, data or
a PMA application. See "Risk Factors -- Government Regulation."
Expand Sales and Marketing. The Company has established a limited direct
sales force in the United States and Canada, and a network of distributors in
Europe, South America and Asia. The Company intends to expand its sales and
marketing efforts in its existing markets and to expand into additional markets
as opportunities arise. In addition, the Company intends to enter into joint
marketing arrangements with clinical reference laboratories having large sales
forces which have the ability to market the Company's products directly to
gynecologists and other primary care physicians. The Company believes these
marketing efforts, along with the Company's marketing efforts, will encourage
physicians to request the Company's HPV test as a regular part of their cervical
cancer screening protocol. The Company also believes that educating physicians
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<PAGE> 34
on the benefits of the Company's HPV test will be an effective method to achieve
market penetration, and it intends to launch marketing and sales campaigns
designed to increase product awareness through educational and promotional
programs.
Pursue Strategic Alliances. The Company intends to pursue strategic
alliances with other manufacturers of medical diagnostic products,
pharmaceutical companies and clinical reference laboratories in order to
increase market acceptance of its products and to expand its marketing efforts.
The Company is pursuing co-marketing and distribution agreements with clinical
testing laboratories and large multinational diagnostic companies and is also
pursuing collaborations with clinical testing laboratories for the development
of new diagnostic tests. The Company may seek strategic alliances with
pharmaceutical companies for the co-promotion of the Company's viral diagnostic
tests that are under development with antiviral drugs as a complete therapeutic
package.
Capitalize on Core Technology and Expertise. The Company believes that its
proprietary Hybrid Capture technology is a significant improvement over current
DNA diagnostic testing methods. The Company intends to use its proprietary
technology platform to develop a wide range of DNA diagnostic tests for blood
viruses, sexually transmitted diseases and opportunistic infections. Research
and development programs include efforts to continuously improve the sensitivity
and reliability of its tests, further simplify assays, and apply the Hybrid
Capture technology to the development of products for the early detection and
management of other diseases. The Company is developing a next generation format
which is designed to allow simultaneous testing for multiple sexually
transmitted diseases from a single patient sample.
MARKETING AND SALES
The Company currently sells its products in the United States and Canada to
clinical reference and hospital laboratories through its direct sales force. In
Europe, South America and Asia, the Company's products are sold through a
network of distributors.
United States Market
The Company's HPV test for the follow-up screening of women with equivocal
Pap smears is offered by substantially all major clinical reference laboratories
throughout the United States. The Company expects to increase its four person
sales force to approximately 30 persons by 1998 to market its HPV test and its
other products, directly and indirectly, to (i) the more than 4,000 laboratories
in the United States, (ii) insurers, managed care organizations and other
third-party payors and (iii) the approximately 30,000 gynecologists and other
clinicians who perform Pap smears.
The Company has active marketing programs directed at the managed care
market and the fee-for-service market. In managed care, the Company is working
with Kaiser Permanente on a study involving 40,000 women which the Company
believes will demonstrate the clinical utility and cost effectiveness of the
Company's HPV test in a managed care setting. In the fee-for-service market, the
Company intends to create demand through joint marketing programs with clinical
reference laboratories. The Company also plans to market directly to physicians
by providing educational and promotional materials, and by making presentations
at continuing education programs and medical meetings. The Company also plans to
develop educational programs and advertising directed at women. Finally, the
Company intends to market directly to insurers and managed care organizations
with the goal of establishing uniform reimbursement for HPV testing.
International Markets
The Company currently sells its products outside the United States through
a network of distributors. The Company intends to enter into additional
marketing and distribution agreements with multinational corporate partners and
may establish direct sales forces in certain countries, if demand warrants. A
substantial portion of the Company's international marketing activities are
performed by, or in conjunction with, the Company's distribution partners. In
addition, distribution partners are responsible for obtaining regulatory
approvals and establishing reimbursement from third-party payors in their
respective territories. See "Risk Factors -- Risks Inherent in International
Transactions."
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<PAGE> 35
The Company expects to tailor its marketing efforts to the circumstances of
each country to encourage local authorities and industry opinion leaders to
accept HPV testing as the standard of care for cervical cancer screening. The
Company is working closely with EUROGIN (the European Research Organization on
Genital Infection and Neoplasia), the Imperial Cancer Research Foundation of the
United Kingdom and other leading research groups to accelerate the
implementation of HPV testing by focusing opinion leaders, clinicians and public
health officials on the benefits of HPV testing.
The Company currently markets its DNA tests through distributors in, among
other countries, the United Kingdom, Germany, France, Spain, Italy and Brazil.
Revenues from export sales were $1,860,000, $2,286,000 and $3,295,000 in fiscal
1993, 1994 and 1995, respectively.
TECHNOLOGY
The Company's Hybrid Capture technology offers a rapid, accurate,
easy-to-use detection system that can be performed in any laboratory setting
with standard laboratory equipment. The following diagram illustrates the key
elements of the Hybrid Capture system:
[DIAGRAM IS DESCRIBED BELOW]
DIAGRAM 1
The Company's Hybrid Capture technology uses RNA probes to bind specific
DNA sequences, which creates DNA:RNA hybrids that can be detected with
chemiluminescent materials. To perform a test using the Hybrid Capture system,
the test sample is mixed with RNA probes. Complementary DNA sequences in the
sample(1) immediately bind to the RNA, creating DNA:RNA hybrids(2). The DNA:RNA
hybrids are then captured on the surface of a specially coated polystyrene
tube(3). All remaining DNA and specimen contaminants are removed by washing the
tube. Captured hybrids are then reacted with the Company's proprietary signal
amplification system, which uses antibodies to detect any DNA:RNA hybrids bound
to the tube(4). If DNA:RNA hybrids from the specimen are present on the surface
of the tube, light is emitted,
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<PAGE> 36
signaling a positive test result(5). The amount of DNA present in the sample can
be rapidly and accurately quantified using standard laboratory luminometers. The
entire test can be completed in four to six hours.
The Company believes that its Hybrid Capture system is a significant
improvement over other existing technologies because of its specificity,
shortened processing time, ease of use, greater accuracy, and ability to
quantify viral and bacterial load. The Company is also using its Hybrid Capture
technology as a platform to develop a wide range of DNA diagnostic and
monitoring tests for blood viruses, sexually transmitted diseases and
opportunistic infections.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are designed to (i) refine
and expand the Company's core technology and (ii) apply its core technology to
additional blood viruses, sexually transmitted diseases and opportunistic
infections.
The Company's principal research and development program relates to the
improvement of the sensitivity and ease of interpretation of its Hybrid Capture
technology. In an effort to automate its Hybrid Capture technology in order to
further simplify and shorten test processing, the Company is developing, among
other things, a microtiter plate which, subject to FDA approval, will replace
the polystyrene tubes as a standard component in its tests. In addition, the
Company is developing a proprietary target amplification system, designed to be
coupled with the Hybrid Capture technology, that may permit enhanced clinical
sensitivity for detecting particular viruses and bacteria.
Future intended applications of the Company's technology include the
detection of additional sexually transmitted diseases ("STDs") and blood
viruses. The Company is developing a test designed to detect, from a single
specimen, HPV and other STDs such as chlamydia, gonorrhea and herpes. Additional
blood virus tests that the Company is developing include quantitative DNA or RNA
measures for HIV and HBV. The Company also intends to begin a pilot program in
the area of genomics (the study of gene sequences) in an effort to develop
products, using its Hybrid Capture technology, for the early detection and
management of genetic disease and cancer.
At February 29, 1996, the Company had 30 employees engaged in research and
development. Company-sponsored research and development expenditures in fiscal
1993, 1994 and 1995 were approximately $906,000, $576,000 and $1,107,000,
respectively. In addition to Company-sponsored research and development, the
Company performs research and development through contracts with third parties,
such as Murex. See "Certain Transactions." For a discussion of certain risks
associated with product development, see "Risk Factors -- Technological
Obsolescence; Uncertainties Relating to Product Development" and "-- Government
Regulation."
COMPETITION
The medical diagnostics and biotechnology industries are subject to intense
competition. The Company's competitors in the United States and abroad are
numerous and include, among others, diagnostic, health care, pharmaceutical and
biotechnology companies. Among the Company's major competitors in the market for
DNA-probe diagnostics are Roche, Abbott Laboratories, Chiron and GenProbe. Other
companies, including large pharmaceutical and biotechnology companies, may enter
the market for DNA-probe diagnostics.
Oncor, Inc. has recently announced that it has received notification from
the FDA that its HPV test is approvable by the FDA, subject to certain
conditions. Although the Company believes its HPV test has commercial advantages
over the competing test, Oncor, Inc. and other competitors and potential
competitors may be able to develop technologies that are as effective as, or
more effective or easier to interpret than, those offered by the Company, which
would render the Company's products noncompetitive or obsolete. Moreover, many
of the Company's existing and potential competitors have substantially greater
financial, marketing, sales, distribution and technological resources than the
Company. Such existing and potential competitors may be in the process of
seeking FDA approval for their respective HPV tests or may also enjoy
substantial advantages over the Company in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and distribution channels. In addition, many of these companies have
established third-
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party reimbursement for their products. Accordingly, there can be no assurance
that the Company will be able to compete effectively against such potential
competitors.
In marketing its HPV test for the follow-up screening of women with
equivocal Pap smears, the Company will compete with well-established follow-up
procedures, such as Pap smear retesting, colposcopy and biopsy. These procedures
are widely accepted and have a long history of use, and there can be no
assurance that HPV testing, in general, or the Company's HPV test for the
follow-up screening of women with equivocal Pap smears, in particular, will be
able to gain market acceptance on a timely basis, or at all.
Subject to FDA and other applicable regulatory approvals, the Company plans
to market its HPV test as a primary cervical cancer screening test. In doing so,
the Company will compete against the Pap smear, which is the only widely used
primary cervical cancer screening test. Although the Company believes the Pap
smear has significant limitations, it has a long history of use and is widely
accepted as an inexpensive and, with regular screening, adequate screening test
for cervical cancer. Additionally, technological advancements designed to
improve quality control over sample collection and preservation, and to reduce
the Pap smear test's susceptibility to human error, may serve to increase
physician reliance on the Pap smear and solidify its market acceptance. Further,
if marketed as an adjunct to the Pap smear test for initial screening in the
United States and Canada, the Company's HPV test may be seen as adding
unnecessary expense to the accepted cervical cancer screening methodology.
Consequently, there is no assurance that the Company's HPV test will be able to
attain market acceptance as a screening test on a timely basis, or at all. See
"Risk Factors -- Competition" and "-- Government Regulation."
The Company believes the primary competitive factors in the market for
DNA-probe diagnostics are clinical performance and reliability, ease of use,
cost, proprietary position, regulatory approvals and availability of
reimbursement.
GOVERNMENT REGULATION
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA, and, in some instances, by foreign
governments. Pursuant to the FDC Act, the FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recalls or seizures of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
In the United States, medical devices and diagnostics are classified into
one of three classes (class I, II or III), on the basis of the controls deemed
necessary by the FDA to reasonably assure their safety and effectiveness. Under
FDA regulations, class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to GMPs), and class II devices
are subject to general and special controls (for example, performance standards,
postmarket surveillance, patient registries and FDA guidelines). Generally,
class III devices are those which must receive a PMA by the FDA to ensure their
safety and effectiveness (for example, life-sustaining, life-supporting and
implantable devices, or new devices which have not been found substantially
equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
generally must obtain marketing clearance through the filing of either a 510(k)
notification or a PMA application. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed class I or II medical device or to a class III
medical device for which the FDA has not called for a PMA. It generally takes
from four to twelve months from submission to obtain a 510(k) clearance, but it
may take longer. The FDA may determine that a proposed device is not
substantially equivalent to a legally marketed device or that additional
information or data is needed before a substantial equivalence determination can
be made, either of which could delay market introduction of a new product. A
request for additional data may require that clinical studies of the device's
safety and efficacy be performed. Additionally, modifications or enhancements
that could significantly affect the safety or efficacy of
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the device or that constitute a major change to the intended use of the device
will require new 510(k) submissions.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device or if it is a class
III device for which the FDA has called for a PMA. A PMA application must be
supported by valid scientific evidence, including preclinical and clinical trial
data, to demonstrate the safety and effectiveness of the device. The PMA
application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, a detailed description of the methods, facilities and controls used
to manufacture the device in addition to device labeling and advertising
literature.
If a PMA application is accepted for filing, the FDA begins an in-depth
review of the submission. FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may take
significantly longer. The PMA review process includes an inspection of the
manufacturer's facilities to ensure that the facilities are in compliance with
the applicable GMP requirements. In addition, an advisory committee made up of
clinicians and/or other appropriate experts is typically convened to evaluate
the application and make recommendations to the FDA as to whether the device
should be approved. The PMA process can be expensive, uncertain and lengthy, and
a number of devices for which FDA approval has been sought by other companies
have never been approved for marketing.
Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA to support the proposed
change.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements,
including FDA approval of investigations, provided the testing meets certain
exemption criteria. IVD manufacturers must also establish distribution controls
to assure that IVDs distributed for the purpose of conducting clinical
investigations are used only for that purpose. Pursuant to current FDA policy,
manufacturers of IVDs labeled for investigational use only ("IUO") or RUO are
encouraged by the FDA to establish a certification program under which
investigational IVDs are distributed to or utilized only by individuals,
laboratories, or health care facilities that have provided the manufacturer with
a written certification of compliance indicating that the IUO or RUO product
will be restricted in use and will, among other things, meet institutional
review board and informed consent requirements.
Export of products subject to the 510(k) notification requirements, but not
yet cleared to market, are permitted with FDA authorization provided certain
requirements are met. Unapproved products subject to the PMA requirements must
be approved by the FDA for export. To obtain FDA export approval certain
requirements must be met and information must be provided to the FDA, including,
with some exceptions, documentation demonstrating that the product is approved
for import into the country to which it is to be exported and, in some
instances, safety data for the devices. There can be no assurance that the FDA
will grant export approval when such approval is necessary or that countries to
which the devices are to be exported will approve the devices for import.
Failure on the part of the Company to obtain export approvals when required,
could significantly delay and impair the Company's ability to export its devices
and could have a material adverse effect on the Company.
In April 1995 the Company obtained a PMA for its HPV test to detect the
presence of HPV in women with equivocal Pap smears. The Company intends to
submit a PMA supplement to obtain market approval for use of its HPV test as a
primary cervical cancer screening test either in conjunction with or separate
from Pap smear testing. The Company anticipates that a substantial amount of
clinical data will be required to support the PMA supplement. There can be no
assurance that the data the Company submits will be adequate to support the use
of the HPV test as a primary cervical cancer screening test. Moreover, there can
be no assurance that the FDA will grant approval of a PMA supplement for use of
the HPV test as a primary cervical cancer screening test in a timely manner, if
at all, or that the FDA will not require the submission of additional
information, data or a PMA application. Failure to obtain FDA approval for the
HPV test as a
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primary cervical cancer screening test could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company intends to export its HPV test for use in primary cervical
cancer screening prior to obtaining FDA approval for this use in the United
States. Such exports may require regulatory approvals from various countries,
will require FDA approval and will necessitate the submission of certain
information and data to the FDA. There can be no assurance that the FDA will
grant approval of such exports, and failure on the part of the Company to obtain
such approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company intends to submit a 510(k) notification for its Hybrid Capture
CMV DNA test by the end of 1996. The Company is currently collecting clinical
data on the test's safety and effectiveness to submit to the FDA in connection
with a 510(k) notification. Based on discussions to date with the FDA, the
Company believes that its CMV test can be cleared to market through the 510(k)
notification process; however, the Company understands that the FDA will likely
subject the submission to a "Tier 3" level of review, which includes close
scrutiny of the clinical data and product performance. The FDA will require
substantial clinical data in support of the submission and may seek an advisory
committee review and recommendation concerning the safety and effectiveness of
the test. There can be no assurance that, once a 510(k) notification is
submitted for the CMV test, the FDA will grant clearance in a timely manner, if
at all, or will not require the submission of additional clinical data or a PMA
application.
The Company has developed viral and bacterial tests that it distributes in
the United States on a RUO basis. Failure of the Company or recipients of the
Company's RUO devices to comply with the regulatory limitations on the
distribution and use of RUO devices could result in enforcement action by the
FDA that would adversely affect the Company's ability to distribute the tests
prior to obtaining FDA clearance or approval for them.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and are
subject to periodic inspections by the FDA and certain state agencies. The FDC
Act requires devices to be manufactured in accordance with GMP regulations,
which impose certain procedural and documentation requirements upon the Company
with respect to manufacturing and quality assurance activities.
The FDA actively enforces regulations prohibiting the promotion of devices
for unapproved uses and the promotion of devices for which premarket clearance
or approval has not been obtained. Failure to comply with these requirements can
result in regulatory enforcement action by the FDA and possible limitations on
the promotion of the Company's products.
The Company and its products are subject to a variety of state laws and
regulations in those states and localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. Manufacturers are
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company.
The introduction of the Company's developmental stage test products in
foreign markets will also subject the Company to foreign regulatory clearances,
which may impose additional substantial costs and burdens. International sales
of medical devices are subject to the regulatory requirements of each country.
The regulatory review process varies from country to country and many countries
also impose product standards, packaging requirements, labeling requirements and
import restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements.
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The approval by the FDA and foreign government authorities is unpredictable
and uncertain, and no assurance can be given that the necessary approvals or
clearances will be granted on a timely basis or at all. Delays in receipt of, or
a failure to receive, such approvals or clearances could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.
The FDC Act requires devices to be manufactured in accordance with GMPs
which impose certain procedural and documentation requirements upon the Company
with respect to manufacturing and quality assurance activities. Noncompliance
with GMPs can result in, among other things, fines, injunctions, civil
penalties, recalls or seizures of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing approvals, and criminal
prosecutions. The FDA also has proposed changes to the GMPs regulations which,
if finalized, would likely increase the cost of compliance with the
requirements. Any failure by the Company to comply with GMP requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations.
LICENSES, PATENTS AND PROPRIETARY INFORMATION
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets, and operate without infringing the proprietary
rights of other parties. Because of the substantial length of time and expense
associated with bringing new products through development to the marketplace,
the biotechnology industry places considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. Despite these precautions, it may be possible for unauthorized
third parties to utilize the Company's technology or to obtain and use
information that the Company regards as proprietary. The laws of some countries
do not protect the Company's proprietary rights in its technologies, products
and processes to the same extent as do the laws of the United States.
The Company holds four issued U.S. patents relating to HPV types 35, 43, 44
and 56. These patents expire in 2007. The Company has also filed corresponding
foreign patent applications in certain countries. The patents relating to HPV
types 35, 43 and 56 have been licensed to Institut Pasteur (see Cross License
discussion below). In addition, the Company is the exclusive, worldwide licensee
of (i) a U.S. patent application and certain corresponding foreign patents and
patent applications relating to HPV type 52 and a U.S. patent and certain
corresponding foreign patents relating to the use of the L1 gene sequence to
detect specific HPV types (see Georgetown License discussion below) as well as
(ii) certain trade secrets relating to HPV type 58 (see Kanebo License
discussion below).
Through a cross license with Institut Pasteur (the "Cross License"), the
Company has obtained a worldwide license to U.S. patents and patent applications
and corresponding foreign patent applications relating to HPV types 39 and 42
and foreign patents and applications relating to HPV type 33. In return, the
Company has granted to Institut Pasteur a worldwide license to its three U.S.
patents and corresponding foreign patents and applications relating to HPV types
35, 43 and 56. The Company has granted Institut Pasteur the right to extend the
scope of the Cross License to include the U.S. patent and corresponding patent
applications relating to HPV type 44 at such time as Institut Pasteur shall have
discovered and developed an additional HPV type which is equivalent in value to
HPV type 44. In return for such an extension, the Company will receive a license
to the new HPV type discovered and developed by Institut Pasteur. The Cross
License is co-exclusive, except that Institut Pasteur has sublicensed its rights
to Beckman Instruments, Diagnostic Pasteur, and their affiliates, and the
Company has sublicensed its rights on a non-exclusive basis to Toray Fuji
Bionics, and its affiliates, for use outside North America and certain countries
in Western Europe. Beckman Instruments currently manufactures products
incorporating HPV types 33 and 35, which it sells to
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Oncor, Inc., for use in Oncor, Inc.'s HPV test. See "Business -- Competition."
There can be no assurance that a sublicensee will not use its rights under the
Cross License to develop additional products or services that compete with the
Company's products. The Company believes that the Cross License terminates on
the last to expire of the underlying patent rights. Any prior termination of the
Cross License could have a material adverse effect on the Company's business,
financial condition and results of operations.
Through a license with Georgetown University (the "Georgetown License"),
the Company has obtained exclusive, worldwide rights to a U.S. patent
application and corresponding foreign patents and patent applications relating
to HPV type 52 and to a U.S. patent and corresponding foreign patents relating
to the use of the L1 gene sequence to detect specific HPV types. Unless
terminated earlier, the Georgetown License will terminate upon the last to
expire of the licensed patent rights. All of the issued foreign patents relating
to HPV type 52 and the L1 related patent will expire in 2008. The Company is
obligated to make certain royalty payments to Georgetown University based on the
percentage of net sales of products incorporating the licensed technologies.
Through a license with Kanebo, Ltd. (the "Kanebo License"), the Company has
obtained exclusive, worldwide rights (except for Japan where Kanebo, Ltd.
retained the right to grant a non-exclusive sublicense to Toray Industries,
Inc.) to a foreign patent application relating to HPV type 58. Unless terminated
earlier, the Kanebo License expires on the later to occur of January 1, 2010 or
the expiration of any patent relating to HPV type 58. The Company is obligated
to make certain royalty payments to Kanebo, Ltd. based on a percentage of net
sales of products incorporating or using HPV type 58. The Company will be
required to obtain FDA approval in order to utilize HPV type 58 as part of its
HPV test, and there can be no assurance that the Company will be successful in
obtaining the required FDA approval. See "Risk Factors -- Government Regulation"
and "Business -- Government Regulation."
The Company has filed a U.S. patent application relating to certain aspects
of its Hybrid Capture technology. The Company has also filed U.S. patent
applications in the areas of direct DNA probe labeling, signal amplification and
biotin-avidin probe chemistry and its continuous amplification reaction ("CAR")
amplification method. The inventions claimed by these applications may be used
in the Company's DNA probes and any patents that issue from such applications
may provide some ancillary protection for certain aspects of the Company's
products. Under current law, patent applications in the United States are
maintained in secrecy until patents are issued and patent applications in
foreign countries are maintained in secrecy for a period of time after filing.
There can be no assurance that a U.S. patent or any foreign patents relating to
the Company's Hybrid Capture technology will be issued to the Company on a
timely basis, or at all.
The Company has received inquiries regarding possible patent infringements
relating to, among other things, certain aspects of its Hybrid Capture
technology. The Company believes that the patents of others to which these
inquiries relate are either not infringed by the Company's Hybrid Capture
technology or are invalid. However, there can be no assurance that the Company
will not be subject to further claims that its technology, including its Hybrid
Capture technology, or its products infringe the patents or proprietary rights
of third parties. The defense of any such claims, if made, could be time
consuming and expensive, even if the outcome is favorable. An adverse outcome
could subject the Company to significant liabilities to third parties, require
the Company to obtain licenses from third parties, or require the Company to
cease sales of related products. No assurance can be given that any licenses
required under any such third party patents or proprietary rights would be made
available or commercially reasonable terms, if at all.
No assurance can be given that the U.S. Patent and Trademark Office or any
foreign patent office will grant patent protection for the subject matter of any
pending patent applications, or that present or future patents will provide
commercially significant protection to the Company's present or future
technologies, products, or processes. Furthermore, no assurance can be given
that others will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not be issued patents that
may prevent the sale of one or more of the Company's products, or require
licensing and the payment of significant fees or royalties by the Company to
third parties in order to enable the Company to conduct its business. There can
be no
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assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products or
processes would have a material adverse effect on the Company's business,
financial condition and results of operations. Legal standards relating to the
scope of claims and the validity of patents in the biotechnology field are still
evolving, and no assurance can be given as to the degree of protection any
patents issued to or licensed by the Company will not be infringed by the
products of others. Defense and prosecution of patent claims can be expensive
and time consuming, regardless of whether the outcome is favorable to the
Company, and can result in the diversion of substantial resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties, or require the Company to cease any related research and
development activities or product sales. In addition, the laws of certain
countries may not protect the Company's intellectual property.
The Company's success is also dependent upon the skill, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors, and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and, in most cases, assignment to the Company of their ideas,
developments, discoveries, and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how, or other proprietary information in the event of any
unauthorized use or disclosure. See "Risk Factors -- Uncertainty Regarding
Patents and Proprietary Rights."
Substantially all of the Company's assets, including its patents and
proprietary rights, are pledged to secure the LTI Note, which is expected to be
repaid with a portion of the proceeds of this Offering. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
THIRD-PARTY REIMBURSEMENT
Hospitals, physicians and other health care providers rely on third-party
payors, such as government entities, managed care organizations and private
insurance plans, to reimburse the costs and fees associated with the use of
diagnostic tests, such as the Company's HPV test for the follow-up screening of
women with equivocal Pap smears. Successful sales of the Company's HPV test for
the follow-up screening of women with equivocal Pap smears in the United States
and other markets will depend, in part, on the availability of adequate
reimbursement from third-party payors such as government entities, managed care
organizations and private insurance plans. There is significant uncertainty
concerning third-party reimbursement for the use of any medical test
incorporating new technology. Reimbursement by a third-party payor may depend on
a number of factors, including the payor's determination that the use of the
Company's HPV test for the follow-up screening of women with equivocal Pap
smears is clinically useful and cost-effective, not experimental or
investigational, medically necessary and appropriate for the specific patient.
Since reimbursement approval is required from each payor individually, seeking
such approvals is a time consuming and costly process which requires the Company
to provide scientific and clinical support for the use of the Company's HPV test
for its approved indications to each payor separately. There can be no assurance
that third-party reimbursement will be consistently available for the Company's
HPV test for its approved indications or any of the Company's other products
that may be developed or that such third-party reimbursement will be adequate.
Federal and state governmental agencies are increasingly considering limiting
health care expenditures. For example, the United States Congress is currently
considering various proposals to significantly reduce Medicaid and Medicare
expenditures. Such proposals, if enacted, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Outside the United States, the Company relies on a network of distributors
to establish reimbursement from third-party payors in their respective
territories. The Company's distributors have established reimbursement for the
HPV test in Germany and Brazil. Accordingly, the establishment of reimbursement
from third-party payors in such countries is outside the Company's control.
Health care reimbursement systems vary
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from country to country and, accordingly, there can be no assurance that
third-party reimbursement will be made available for the Company's products
under any other reimbursement system.
Third-party payors are increasingly limiting reimbursement coverage for
medical diagnostic products and in many instances are exerting significant
pressure on medical suppliers to lower their prices. Lack of or inadequate
reimbursement by governmental and other third-party payors for the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations.
MANUFACTURING
Manufacturing of the Company's products involves the combination of more
than 200 biological reagents, inorganic and organic reagents and kit components
(such as vials and packaging material) into finished test kits. Biological
reagents include RNA probes, antibodies and detection reagents. These reagents
are manufactured in the Company's manufacturing facility in Beltsville,
Maryland. Kit components, inorganic and organic reagents and other reagents and
materials that are classified as low-complexity components are generally
purchased from outside vendors and processed into finished reagents and test
products. The Company believes it has sufficient manufacturing capacity to
expand production for the foreseeable future. The Company has established a
quality control program, including a set of standard manufacturing and
documentation procedures intended to ensure that, where required, the Company's
products are manufactured in accordance with GMP. See "Risk Factors -- Limited
Manufacturing Experience," "-- Government Regulation" and "-- Dependence on
Single Source Suppliers."
PRODUCT LIABILITY
The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of the Company's HPV test for its
approved indications and other products developed by the Company. There can be
no assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The Company currently maintains product
liability insurance coverage of $1,000,000 per occurrence, and $5,000,000 in the
aggregate. There can be no assurance, however, that this coverage will be
adequate to protect the Company against future product liability claims or that
product liability insurance will be available to the Company in the future on
commercially reasonable terms, if at all. Furthermore, there can be no assurance
that the Company will be able to avoid significant product liability claims and
the attendant adverse publicity. Consequently, a product liability claim or
other claim with respect to uninsured or underinsured liabilities could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect on
the Company's business, financial condition and results of operations.
EMPLOYEES
At February 29, 1996, the Company employed 81 persons, including 30 in
research and development, 28 in manufacturing, including quality assurance, 13
in sales and marketing and 10 in accounting, finance, administration and
clinical studies. The Company is not subject to any collective bargaining
agreements and believes that its relationship with its employees is good.
FACILITIES
The Company's executive office and research and development facility is
located in Silver Spring, Maryland. The lease on this 9,286-square-foot facility
will terminate on December 31, 1998, subject to renewal at the Company's option.
In addition, the Company has a 19,780-square-foot manufacturing facility in
Beltsville, Maryland. The lease on this facility expires on July 31, 1998, and
can be renewed by the Company for an additional five-year period.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The following table sets forth certain information with respect to each of
the directors and executive officers, and a member of senior management, of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------ ---- --------------------------------------------------------
<S> <C> <C>
Evan Jones (1)................ 39 President, Chief Executive Officer and Chairman of the
Board of Directors
Charles M. Fleischman (1)..... 38 Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Director
Attila D. Lorincz, Ph.D.(1)... 41 Vice President, Research and Development, and Scientific
Director
Deborah J. Oronzio (1)........ 44 Vice President, Marketing
Joseph P. Slattery (1)........ 31 Controller
Jeanmarie P. Curley........... 35 Director of Manufacturing
John J. Whitehead (2)......... 50 Director
Joseph M. Migliara (2)........ 51 Director
</TABLE>
- ---------------
(1) Executive Officer
(2) Member of Audit and Compensation Committees
Mr. Jones has served as President and Chief Executive Officer since Armonk
Partners acquired a controlling interest in the Company in July 1990, and has
served as Chairman of the Board of Directors since September 1995. From 1988 to
September 1990, Mr. Jones served as President and a director of Neomorphics,
Inc., a company specializing in transplantation technologies. Between 1987 and
1990, he was first an associate and then a partner with the CW Group, a health
care venture capital firm. From 1983 to 1987, Mr. Jones was employed by
Perkin-Elmer Corporation, a biotechnology supply company, ultimately serving as
Worldwide Biotechnology Marketing Manager. From 1977 to 1981, Mr. Jones was
employed by Technicon Corporation and National Health Laboratories, where he was
involved in clinical chemistry and hematology testing. He received a B.A. in
Biochemistry from the University of Colorado and an M.B.A. from The Wharton
School at the University of Pennsylvania. Mr. Jones is a step-brother of Mr.
Whitehead.
Mr. Fleischman has served as Executive Vice President and a director since
July 1990, Chief Operating Officer since September 1995 and Chief Financial
Officer since March 1996. Mr. Fleischman was named to the position of Executive
Vice President after Armonk Partners acquired a controlling interest in the
Company in July 1990. From March 1987 to August 1990, Mr. Fleischman served as
an Associate Director at Furman Selz Incorporated, an investment banking firm.
Beginning in 1987, he was employed by Swergold Chefitz Incorporated, which
became the health care division of Furman Selz in 1989. Prior thereto, he
co-founded Intercapital Brokers, Ltd., London, England, an interest rate and
cross-currency brokerage firm, and Kidder Reports, Inc., an interest rate risk
management arbitrage consulting firm. Mr. Fleischman received an A.B. in History
from Harvard University and an M.B.A. from The Wharton School at the University
of Pennsylvania.
Dr. Lorincz has served as Vice President, Research and Development, and
Scientific Director since the LTI Acquisition in December 1990. Prior to joining
the Company, he was Scientific Director, Corporate Research, at LTI from 1984 to
1990. Dr. Lorincz received his Ph.D. in Genetics from Trinity College, Dublin,
Ireland. His research career includes postdoctoral fellowships at the University
of California. He also serves on a number of advisory committees and is an
Adjunct Associate Professor in the Georgetown University Medical School
Department of Pathology.
Ms. Oronzio has served as Vice President, Marketing since March 1996 and
from August 1991 to March 1996 served as Director of Sales and Marketing. From
1987 until joining the Company, she was International Product Manager, AIDS and
Hepatitis Systems, at Pharmacia Diagnostics, Inc., a biomedical products
company. From 1980 to 1987, she held both product management and technical
positions at Becton Dickinson & Company, a biomedical products company. Ms.
Oronzio is a registered medical technologist and
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has received a B.S. in Medical Technology from Neumann College and an M.A.S. in
Management from The Johns Hopkins University.
Mr. Slattery has served as Controller since February 1996. From March 1995
to February 1996, Mr. Slattery was Director, Business Management, for I-NET,
Inc., a computer services company. From April 1994 to March 1995, he was the
Managing Principal of Payne, Slattery and Company, a management consulting firm.
From October 1992 to April 1994, Mr. Slattery was Treasurer and Vice President,
Finance and Accounting, for Telos Corporation, a computer hardware and services
company. From August 1992 to October 1992, Mr. Slattery was self employed as a
management consultant. From March 1992 to August 1992, Mr. Slattery was a
consultant with Argus Management, a management consulting firm. From October
1989 to February 1992, he was employed in various capacities by KPMG Peat
Marwick, and from May 1987 to September 1989 he served in various capacities at
Ernst & Young LLP. Mr. Slattery received a B.S. in Accounting from Bentley
College and is a certified public accountant.
Ms. Curley has served as Director of Manufacturing since the LTI
Acquisition in December 1990. Prior to joining the Company, she had been
Production Manager at LTI since 1987. Prior thereto, Ms. Curley was a Research
Assistant at Rockefeller University and a Development Chemist in the Clinical
Diagnostics Division of E.I. du Pont de Nemours. Ms. Curley received a B.S. in
Chemistry from Dickinson College.
Mr. Whitehead has served as a director of the Company since February 1992.
Since 1993, Mr. Whitehead has been a partner of Whitehead Partners, a private
investment company. From 1986 to 1993, Mr. Whitehead was the Chief Executive
Officer of TDS Healthcare Systems Corporation, a hospital information systems
company. Prior to that, he held numerous positions at Technicon Corporation,
including President of its Diagnostic Systems Division and Senior Vice President
of Research and Development. Mr. Whitehead received a B.S. in Biology and
Chemistry from Williams College and did graduate work in biochemistry at Case
Western Reserve University School of Medicine. He is a director emeritus of
i-STAT Corporation, a medical device company, and a director of the Whitehead
Institute for Biomedical Research at the Massachusetts Institute of Technology.
Mr. Whitehead is a step-brother of Mr. Jones.
Mr. Migliara has served as a director of the Company since October 1992.
Since 1980, he has been President of Migliara/Kaplan Associates
("Migliara/Kaplan"), a marketing research firm that conducts primary research in
the biomedical, diagnostics and pharmaceutical markets. Before founding
Migliara/Kaplan in 1980, he was a marketing executive with Becton Dickinson &
Company, a biomedical products company. Mr. Migliara received a B.S. in
Economics from The Wharton School at the University of Pennsylvania and an
M.B.A. from Fairleigh Dickinson University. He is a past president of the
Biomedical Marketing Association.
BOARD OF DIRECTORS
In accordance with the terms of the Company's Certificate of Incorporation
to be effective upon the completion of this Offering, the Board of Directors of
the Company (the "Board") will be divided into three classes, denominated Class
I, Class II and Class III, with members of each Class holding office for
staggered three-year terms. Mr. Whitehead is a Class I director whose term
expires at the 1997 annual meeting of stockholders, Messrs. Fleischman and
Migliara are Class II directors whose terms expire at the 1998 annual meeting of
stockholders, and Mr. Jones is a Class III director whose term expires at the
1999 annual meeting of stockholders (in all cases subject to the election and
qualification of their successors or to their earlier death, resignation or
removal). At each annual stockholder meeting commencing with the 1997 annual
meeting, the successors to the directors whose terms expire are elected to serve
from the time of their election and qualification until the third annual meeting
of stockholders following their election or until a successor has been duly
elected and qualified.
The Audit Committee of the Board was established in March 1996 and reviews,
acts on and reports to the Board with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company.
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<PAGE> 46
The Compensation Committee of the Board was established in March 1996 and
determines the salaries and incentive compensation of the officers of the
Company and provides recommendations for the salaries and incentive compensation
of the other employees and the consultants of the Company. The Compensation
Committee also administers various incentive compensation, stock and benefit
plans.
Mr. Migliara has been appointed to serve on the Board of the Company
pursuant to an agreement with the Company. Following this Offering, Mr. Migliara
will continue to serve on the Board under the agreement. The Company has entered
into an agreement with Armonk Partners and Murex concerning the composition of
the Board. Messrs. Jones, Fleischman and Whitehead are expected to serve on the
Board as the nominees of Armonk Partners under the agreement. Murex has not
designated a nominee under the agreement. See "Certain Transactions."
As soon as possible after the date of this Prospectus, the Company intends
to appoint two independent members to the Board. The Company anticipates that
such independent directors will serve on the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently and in the foreseeable future will not receive a
fee for attending Board or committee meetings, but are reimbursed for expenses
incurred in connection with performing their respective duties as directors of
the Company. Additionally, non-employee directors are entitled to be granted
options under the Digene Corporation Omnibus Plan as compensation for serving on
the Board. See "-- Stock Option Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Whitehead and
Migliara. The Compensation Committee determines the salaries and incentive
compensation of the officers of the Company and provides recommendations for the
salaries and incentive compensation of the other employees and consultants of
the Company. Neither Messrs. Whitehead nor Migliara was an officer or employee
of the Company during fiscal 1995 or any prior year. Mr. Migliara is President
of Migliara/Kaplan, a consultant of the Company, and was appointed to serve on
the Board pursuant to an agreement between Migliara/Kaplan and the Company.
Prior to March 1996, the Board was responsible for issues concerning
compensation. See "Certain Transactions" for a further discussion of the
relationship between the Company and Migliara/Kaplan.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
awarded to, earned by or paid for services rendered to the Company by (i) the
Company's Chief Executive Officer and (ii) all of the other executive officers
of the Company who received compensation in excess of $100,000 in the fiscal
year ended June 30, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY
------------------------------------------------------------------- ---- --------
<S> <C> <C>
Evan Jones
President and Chief Executive Officer............................ 1995 $148,750
Charles M. Fleischman
Executive Vice President, Chief Operating Officer and
Chief Financial Officer.......................................... 1995 148,750
Attila D. Lorincz, Ph.D.
Vice President, Research and Development, and Scientific
Director......................................................... 1995 136,250
</TABLE>
42
<PAGE> 47
STOCK OPTION INFORMATION
No options were granted to, or exercised by, the Named Executive Officers
in fiscal 1995. The following table sets forth, for each of the Named Executive
Officers, certain information concerning the value of unexercised options at
June 30, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Evan Jones..................... 288,331 125,954 $ 3,308,157 $ 1,373,888
Charles M. Fleischman.......... 288,331 125,954 3,308,157 1,373,888
Attila D. Lorincz, Ph.D........ 103,569 75,001 1,158,481 786,860
</TABLE>
--------------------
(1) There was no public trading market for the Common Stock at June 30,
1995. Accordingly, these values have been calculated on the basis of
the assumed initial offering price of $12.00 per share, less the
applicable exercise price, multiplied by the number of shares
underlying such options.
STOCK OPTION PLANS
In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers and other employees of
the Company may receive (i) options to purchase Common Stock, including
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options that do not so
qualify, (ii) restricted stock, (iii) unrestricted stock or (iv) stock
appreciation rights. The Omnibus Plan is administered by the Compensation
Committee, which has the discretion to determine the number and purchase price
of shares subject to each award, and other applicable terms and conditions,
including a grant's vesting schedule. The term of an option may not be more than
ten years from the grant date, or five years from the grant date in the case of
an incentive stock option granted to a 10% stockholder. Options granted under
the Omnibus Plan generally terminate three months after an optionee ceases to be
employed by the Company (twelve months in the case of death or disability),
unless otherwise provided in the related option agreement or extended by the
Compensation Committee. A total of 1,700,000 shares have been reserved for
issuance under the Omnibus Plan. On March 27, 1996, the Compensation Committee
granted incentive stock options to purchase an aggregate of 248,627 shares of
Common Stock and non-qualified stock options to purchase 103,858 shares of
Common Stock to various employees under the Omnibus Plan, in each case at an
exercise price of $9.35 per share. Additionally, on March 27, 1996, Messrs.
Jones and Fleischman were each granted non-qualified options to purchase 269,514
shares of Common Stock at an exercise price of $9.35 per share and incentive
stock options to purchase 16,200 shares of Common Stock at an exercise price of
$10.285 per share under the Omnibus Plan. Options granted in March 1996 are
scheduled to vest as to 60%, 20% and 20% of the underlying shares in February
1999, 2000 and 2001, respectively. Such options will expire ten years from the
grant date, except for options granted to Messrs. Jones and Fleishman, which
will expire five years from the grant date. An additional 776,087 shares were
available for issuance under the Omnibus Plan at March 31, 1996.
The Omnibus Plan also provides that each year, immediately following the
Company's annual meeting of stockholders, each non-employee director who will
continue to serve as a director after the meeting will automatically be granted
options to purchase 5,000 shares of Common Stock. The exercise price for such
options will be equal to the fair market value of a share of Common Stock on the
grant date. All of such options will be immediately exercisable and will expire
ten years from the grant date.
Under prior stock option plans, the Company was authorized to grant both
incentive stock options and non-qualified stock options to key employees,
directors or consultants of the Company. At March 31, 1996, the Company had
outstanding under such plans and other prior grants, options to purchase an
aggregate of 1,775,297 shares. The Board has determined not to grant additional
options under any such plans.
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<PAGE> 48
EMPLOYMENT CONTRACTS
Prior to the completion of this Offering, the Company intends to enter into
employment agreements with each of Messrs. Jones and Fleischman, which will have
substantially identical provisions (each individual an "Executive" and
collectively, "Executives"). Pursuant to the agreements, Messrs. Jones and
Fleischman will each be entitled to receive minimum base salaries of $171,500
per year, plus annual bonuses equal to 25% of base salary. The agreements will
require the Executives to devote their full time, attention and energies to the
Company's business. The agreements will contain restrictive covenants pursuant
to which the Executives will agree not to compete with the Company for a period
of one year following termination of employment. The agreements will also
prohibit disclosure of the Company's trade secrets. There can be no assurance
that any of these provisions, if violated, would be enforceable by the Company.
The agreements will provide that, if an Executive is terminated without
"justifiable cause" (as defined), then such Executive will be entitled to
receive (i) the amount of the base salary for a period of twelve months
following termination as otherwise would be due if such Executive was employed
by the Company, shall be immediately due and payable upon termination; (ii)
bonus accrued to the date of termination and (iii) all other benefits accrued on
or prior to the expiration date of the agreement. In addition, any outstanding
stock, incentive stock options or equivalents will be accelerated and vested
immediately upon termination. Messrs. Jones' and Fleischman's employment
agreements will expire on December 31, 1999.
The Company has entered into a similar employment agreement with Dr.
Lorincz, pursuant to which Dr. Lorincz is entitled to receive a minimum base
salary of $115,000 per year. The agreement provides that, if Dr. Lorincz is
terminated without "justifiable cause" (as defined), then he will be entitled to
receive (i) the amount of the base salary remaining due and payable from the
date of termination for a period of twelve months, payable as it otherwise would
be due if he were employed by the Company, such payments to cease if he accepts
employment at another company or ceases to work cooperatively with the Company;
and (ii) all of the compensation accruing on or prior to the expiration date of
the agreement. In addition, any outstanding stock, incentive stock options or
equivalents that would have vested in the ordinary course of events until
termination, plus an additional three months after the date of termination, will
be accelerated and vested immediately upon termination. Dr. Lorincz's employment
agreement will expire on December 31, 1996.
KEY-PERSON LIFE INSURANCE
The Company maintains and is the sole beneficiary of $1 million key-person
life insurance policies on the lives of each of Messrs. Jones and Fleischman,
and Dr. Lorincz.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS AND INDEMNIFICATION
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
provide that, except to the extent prohibited by the Delaware General
Corporation Law, its directors shall not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty as
directors of the Company. Under Delaware law, the directors have a fiduciary
duty to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available. In addition, each
director will continue to be subject to liability under Delaware law for breach
of the directors' duty of loyalty to the Company or its stockholders, for acts
or omissions which are not in good faith or involving intentional misconduct,
for knowing violations of law, for actions leading to improper personal benefit
to the director, and for payment of dividends or approval of stock repurchases
or redemptions that are prohibited by Delaware law. This provision also does not
affect the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. In addition, the Company
expects to obtain liability insurance for its officers and directors prior to
the completion of this Offering.
The Certificate also provides that the Company shall indemnify, to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law,
all of its present and former officers and directors, and any party serving or
agreeing to serve as an officer, director, or trustee of any entity at the
Company's request, in connection with any civil, criminal, administrative or
investigative proceeding threatened, pending or
44
<PAGE> 49
completed against such party by reason of their serving or agreeing to serve in
such capacity. Indemnification by the Company includes payment of expenses in
defense of the indemnified party in an action or proceeding in advance of final
disposition thereof if the indemnified party first undertakes to repay the
Company upon an ultimate determination that the indemnified party was not
entitled to indemnification by the Company according to the terms set forth in
the Certificate. The Certificate also requires Board approval as a precondition
to any indemnification by the Company for proceedings instituted by the
indemnified party. The rights to indemnification provided in the Certificate do
not preclude the exercise of any other indemnification rights by any party
pursuant to any law, agreement, or vote of the stockholders or the disinterested
directors of the Company.
Section 145 of the Delaware General Corporation Law generally allows the
Company to indemnify the parties described in the preceding paragraph for all
expenses (including attorneys' fees), judgments, fines, and amounts in
settlement actually paid and reasonably incurred in connection with any
proceedings so long as such party acted in good faith and in a manner reasonably
believed to be in or not opposed to the Company's best interests and, with
respect to any criminal proceedings, if such party had no reasonable cause to
believe his or her conduct to be unlawful. Indemnification may only be made by
the Company if the applicable standard of conduct set forth in Section 145 has
been met by the indemnified party upon a determination made (1) by the Board by
a majority vote of directors who are not parties to such proceedings, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
45
<PAGE> 50
CERTAIN TRANSACTIONS
In February 1996, the Company and Murex entered into a Distribution
Agreement granting Murex the exclusive right to distribute certain of the
Company's products, including the HPV test, in most of Europe, Africa and
certain countries in the Middle East. Pursuant to the agreement, Murex has
agreed to use its best efforts to distribute and support the products, to
maintain a qualified sales force, to provide technical support for the products,
to comply with the Company's packaging and delivery requirements, and to assist
the Company in protecting its proprietary rights in the products. The Company is
required to use reasonable efforts to deliver products ordered by Murex, to
provide current promotional materials and to assist Murex in making sales
presentations. The agreement has a five-year term, subject to automatic renewal
for successive one-year terms. One year after the effective date of the
agreement, however, the Company will have the right to terminate the agreement
with respect to particular countries, subject to Murex's right to continue to
distribute products within any such country on a co-exclusive basis during a
"wind-down" period of up to two years.
In May 1994, the Company sold 333,333 shares of Redeemable Convertible
Preferred Stock to Murex for an aggregate purchase price of $999,999. Murex also
received warrants to purchase up to 297,619 shares of Common Stock at an
exercise price per share escalating from $4.20 on June 1, 1994 to $6.65 on
February 1, 1996. The sale was subject to the execution of a Stock Purchase
Agreement and a 1994 Development and License Agreement between the Company and
Murex. Under the terms of the 1994 Stock Purchase Agreement, Murex placed
$2,000,000 in escrow to purchase 666,667 additional shares of Redeemable
Convertible Preferred Stock, with net proceeds to be used, generally, for
mutually approved research and development projects under the 1994 Development
and License Agreement. During fiscal 1995 and 1996, $1,215,000 and $785,000 was
released from escrow to fund the purchase by Murex of 405,000 and 261,667
shares, respectively, of Redeemable Convertible Preferred Stock. No amounts
remain in escrow. The 1,000,000 shares of Redeemable Convertible Preferred Stock
held by Murex will be automatically converted into 714,285 shares of Common
Stock upon completion of this Offering. On April 15, 1996, Murex exercised
warrants to purchase 22,555 shares of Common Stock for an aggregate purchase
price of $150,000. The remainder of Murex's warrants expired on such date.
Under the 1994 Development and License Agreement, Murex agreed to fund the
Company's DNA probe product development efforts for particular applications on a
cost-reimbursement basis, generally through May 2004. The Company and Murex will
hold co-exclusive distribution licenses to market any products developed
pursuant to the agreement. The Company is required to supply, and Murex is
required to purchase from the Company, all of Murex's requirements for any
products developed under the agreement. To date, no products have been developed
under the 1994 Development and Licensing Agreement.
In May 1994, in conjunction with Murex's purchase of the Redeemable
Convertible Preferred Stock, the Company, Murex and Armonk Partners entered into
a shareholders agreement (the "Shareholders Agreement"). Pursuant to the
Shareholders Agreement, so long as Murex owns at least 5% of the issued and
outstanding capital stock of the Company, subject to certain exceptions, upon
the completion of an initial public offering, the Company agrees to nominate,
and Armonk agrees to exercise its vote in favor of, the minimum number of
Murex's designees necessary to give Murex a proportionate representation on the
Board equal to its proportionate ownership of capital stock. Likewise, the
Company agrees to nominate, and Murex agrees to exercise its vote in favor of,
the minimum number of Armonk's designees necessary to give Armonk a
proportionate representation on the Board equal to its proportionate ownership
of capital stock. Murex has not designated a nominee under the agreement. See
"Management -- Board of Directors." The Shareholders Agreement terminates on the
first anniversary of the effectiveness of this Offering.
In April 1993, the Company and Murex entered into a Development and License
Agreement pursuant to which Murex agreed to fund the Company's DNA probe product
development programs for certain applications through April 2003, subject to
extension. The Company and Murex hold co-exclusive distribution licenses to
market any products developed under the agreement. Murex is required to provide
certain minimum amounts of development funding for the Company over the first
five years of the agreement in order to maintain exclusive rights to fund the
development of specified projects. The Company is required to supply, and Murex
is required to purchase from the Company, all of Murex's requirements for
products developed
46
<PAGE> 51
pursuant to the agreement. To date, the Company's CMV test is the only product
that has been developed under the agreement.
In May 1992, the Company and Murex entered into a Distribution Agreement,
whereby the Company granted to Murex the exclusive right to distribute the
Company's HBV DNA assays in specified countries in the European Community and
the co-exclusive right (meaning that the Company may also distribute its
products) to distribute the Company's HBV DNA test (for the detection of the
hepatitis B virus) in Africa. The agreement was amended in May 1993 to expand
Murex's exclusive distribution right to also include certain countries in
Eastern Europe and in the Middle East.
During the fiscal years ended June 30, 1993, 1994 and 1995, product sales
to Murex were $1,075,000, $1,023,000 and $1,665,000, accounting for 23.2%, 21.5%
and 30.8% of product sales, respectively. In fiscal 1993, 1994 and 1995, Murex
paid $0, $485,000 and $606,000, respectively, to the Company under agreements
relating to research and development.
In May 1992, the Company entered into a five-year agreement with Joseph
Migliara, Harris Kaplan, Migliara/Kaplan and Valley Partners (a partnership
organized by Messrs. Migliara and Kaplan). Pursuant to the agreement, Mr.
Migliara agreed to join the Board and Migliara/Kaplan agreed to serve as a
strategic advisor to the Company. The Company agreed to grant to Migliara/Kaplan
options to purchase an aggregate of 178,571 shares of Common Stock. The
agreement also contains non-compete and confidentiality provisions.
In connection with this Offering, the Company expects to enter into a
registration rights agreement with Armonk Partners, Murex, Messrs. Jones and
Fleishman, Dr. Lorincz and certain other stockholders who will hold in the
aggregate approximately 7,901,670 shares of Common Stock upon completion of this
Offering. The agreement will become effective upon completion of this Offering.
See "Description of Capital Stock -- Registration Rights."
For information regarding employment agreements with Named Executive
Officers, see "Management -- Employment Agreements." For information regarding
compensation of directors, see "Management -- Director Compensation." For
information regarding options granted to executive officers, see
"Management -- Stock Option Plans."
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the Common Stock offered hereby by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer, and
(iii) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
-------------------------------
NUMBER OF SHARES PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- -------------------------------------------------- --------------------- -------------- -------------
<S> <C> <C> <C>
Armonk Partners (2)............................... 4,989,110 60.3% 44.2%
Murex Diagnostics Corporation (3)................. 736,840 8.9 6.5
Evan Jones (4).................................... 5,388,387 62.3 46.3
Charles M. Fleischman (5)......................... 5,381,800 62.3 46.2
Attila D. Lorincz, Ph.D (6)....................... 168,621 2.0 1.5
John J. Whitehead (7)............................. 17,857 * *
Joseph M. Migliara (8)............................ 178,571 2.1 1.6
All executive officers and directors as a group
(7 persons) (9)................................. 6,164,934 65.7 49.8
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "Commission"). Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days of the date of this Prospectus are deemed outstanding for
computing the percentage beneficially owned by such holder but are not
deemed outstanding for purposes of computing the percentage beneficially
owned by any other person. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed above, based
on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable, and that there are no other affiliations among the stockholders
listed in the table.
(2) The general partners of Armonk Partners are Messrs. Jones and Fleischman.
The address for Armonk Partners is 2301-B Broadbirch Drive, Silver Spring,
Maryland 20904.
(3) The address for Murex Diagnostics Corporation is 2nd Floor, Trident House,
Bridgetown, St. Michael, Barbados. Murex Diagnostics Corporation is an
affiliate of International Murex Technologies Corporation. See "Certain
Transactions."
(4) Includes (i) 4,989,110 shares owned by Armonk Partners, as to which Mr.
Jones shares voting and investment power as a general partner, (ii) 14,682
shares owned by Mr. Jones' wife, as to which shares Mr. Jones disclaims
beneficial ownership, and (iii)367,916 shares issuable upon exercise of
stock options. The address for Mr. Jones is 2301-B Broadbirch Drive, Silver
Spring, Maryland 20904.
(5) Includes (i) 4,989,110 shares owned by Armonk Partners, as to which Mr.
Fleischman shares voting and investment power as a general partner, (ii)
16,679 shares held in trust for the benefit of Mr. Fleischman's minor
children, as to which Mr. Fleischman disclaims beneficial ownership, and
(iii) 367,916 shares issuable upon exercise of stock options. The address
for Mr. Fleischman is 2301-B Broadbirch Drive, Silver Spring, Maryland
20904.
(6) Includes (i) 16,679 shares owned jointly with Dr. Lorincz's wife, pursuant
to which Dr. Lorincz shares voting and investment power, and (ii) 151,188
shares issuable upon exercise of stock options.
(7) Represents 17,857 shares issuable upon exercise of stock options. Mr.
Whitehead is a limited partner in Armonk Partners and he does not have
voting or investment power with respect to the shares held by Armonk
Partners.
(8) Represents 178,571 shares issuable upon exercise of stock options held by
Valley Partners. See "Certain Transactions."
(9) See Notes (4) through (8).
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.01 per
share, and 1,000,000 shares of undesignated Preferred Stock, par value $0.10 per
share.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
and Bylaws, both as amended and restated immediately prior to the completion of
this Offering and both of which are included as exhibits to the Registration
Statement on Form S-1 (including all schedules, exhibits and amendments thereto,
the "Registration Statement"), and by the provisions of applicable law.
COMMON STOCK
The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
stockholders. At a meeting of stockholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which by express provision of law a different vote is required. There is no
cumulative voting with respect to the election of directors or any other matter.
The holders of Common Stock have no preemptive rights to purchase capital
stock from the Company and have no rights to convert their Common Stock into any
other securities. All outstanding shares of Common Stock are, and the shares
offered hereby, when issued and paid for, will be, validly issued, fully paid
and nonassessable.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board may declare out of assets legally available therefor, when and if
so declared. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities.
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board and will depend, among other things, upon the
Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. The Company has never paid any dividends. It is
the current intention of the Company to retain any future earnings to fund the
Company's operations and, therefore, the Company does not anticipate paying any
cash dividends in the foreseeable future. See "Dividend Policy."
Prior to this Offering, there were 8,276,408 shares of Common Stock
outstanding (after giving effect to the conversion of all outstanding shares of
Redeemable Convertible Preferred Stock into Common Stock) held of record by 185
stockholders, and options to purchase an aggregate of 2,699,210 shares of Common
Stock were also outstanding. See "Management -- Stock Option Plans."
PREFERRED STOCK
The Board has the authority, without further action by the stockholders, to
issue from time to time up to 1,000,000 shares of Preferred Stock in one or more
classes or series, and to fix the designation, preferences, powers, and
relative, participation, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Board, without stockholder approval, can from time to time issue
Preferred Stock with voting, conversion and other rights which would adversely
affect the voting power and other rights of the holders of Common Stock.
Preferred Stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of the Company or to make removal of management more
difficult. Such issuance could have the effect of decreasing the market price of
the Common Stock. The issuance of the Preferred Stock may have the effect of
delaying, deterring or preventing a change in control of the Company without any
further action by the stockholders. While the Company may consider from time to
time the issuance of Preferred Stock in
49
<PAGE> 54
connection with corporate collaborations or other transactions, the Company has
no present plans to issue shares of Preferred Stock.
REGISTRATION RIGHTS
Upon completion of this Offering, certain stockholders, including Armonk
Partners, Murex, Messrs. Jones and Fleischman and Dr. Lorincz, who will hold an
aggregate of 6,139,674 shares of Common Stock upon the completion of this
Offering) and the holders of 70,436 shares of Common Stock (collectively, the
"Holders"), will be entitled to certain rights with respect to the registration
of the Common Stock under the Securities Act. Pursuant to the terms of these
registration rights, except for registrations relating to employee benefit
plans, mergers, acquisitions or similar transactions, or registrations that do
not permit secondary sales, the Company is required to notify each Holder of
each decision by the Company to file a registration statement. Upon receipt of
such notice, a Holder may request to include certain of the Holder's shares of
Common Stock in the Company's registration, subject to the determination of the
managing underwriters that inclusion will not interfere with the offering. The
Company has granted similar registration rights, covering a total of 250,187
shares of Common Stock, to a certain institutional investor.
In addition to the above rights, under certain circumstances and subject to
certain limitations, the Holders of 51% of the Common Stock benefitting from
registration rights can require the Company to use its best efforts to prepare
and file a registration statement covering such shares. If the Company is
entitled to register shares on Form S-3, under certain circumstances and subject
to certain limitations, the Holders can require the Company to use its best
efforts to cause the Holders' shares of Common Stock to be registered on Form
S-3 (or any successor form). The right of the Holders to request the Company to
file a registration statement on Form S-3 is available to the Holders no more
than twice during any consecutive twelve-month period.
The Company generally is required to bear the expenses relating to the sale
of shares under registrations contemplated by the registration rights, except
for underwriting fees and discounts. The Company also is obligated to indemnify
the stockholders whose shares are included in any of the Company's registrations
against certain losses and liabilities, including certain liabilities under the
Securities Act and state securities laws.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE BYLAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
publicly held Delaware corporation from engaging in any "business combination"
with any "interested stockholder" for a period of three years following the date
of the transaction in which such stockholder became an interested stockholder,
unless either (i) prior to the date such person becomes an interested
stockholder, the Board approves either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time of
the consummation of such transaction, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are directors
and also officers and (b) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to the date such person becomes an interested stockholder, the
business combination is approved by the Board and authorized at an annual or
special meeting of stockholders, not by written consent, by the affirmative vote
of at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger, asset sale,
or other transaction resulting in a financial benefit to such interested
stockholder. For purposes of Section 203, "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of the corporation's voting stock.
The Bylaws of the Company establish an advance notice procedure for
stockholder proposals to be brought before a meeting of stockholders of the
Company and for nominations by stockholders of candidates for election as
directors at an annual meeting or a special meeting at which directors are to be
elected. Subject
50
<PAGE> 55
to any other applicable requirements, only such business may be conducted at a
meeting of stockholders as has been brought before the meeting by, or at the
direction of, the Board or by a stockholder who has given to the Secretary of
the Company timely written notice, in proper form, of the stockholder's
intention to bring that business before the meeting. The presiding officer at
such meeting has the authority to make such determinations. Only persons who are
selected and recommended by the Board or by a committee of the Board designated
to make nominations, or who are nominated by a stockholder who has given timely
written notice, in proper form, to the Secretary of the Company prior to a
meeting at which directors are to be elected, will be eligible for election as
directors of the Company.
To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of the Company not later than 120
days in advance of the anniversary date of the Company's proxy statement for the
previous year's annual meeting or, in the case of special meetings, at the close
of business on the tenth day following the date on which notice of such meeting
is first given to stockholders.
The notice of any stockholder proposal or nomination for election as a
director must set forth the various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on the Company's books (if they so appear) and the class and number
of shares of the Company's capital stock that are beneficially owned by them.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is StockTrans, Inc.
51
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Company's
securities. Following this Offering, the Company cannot predict the effect, if
any, that market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by existing stockholders of substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices for
the Common Stock. The Company's executive officers, directors, employees and
certain other stockholders have agreed they will not sell or otherwise dispose
of any shares of Common Stock beneficially owned by them for a period of 180
days after the date of this Prospectus without the prior written consent of UBS
Securities LLC.
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this Offering or the prospect of such sales could adversely affect the market
price of the Common Stock and may have a material adverse effect on the
Company's ability to raise any necessary capital to fund its future operations.
Upon completion of this Offering, the Company will have 11,276,408 shares of
Common Stock outstanding. The 3,000,000 shares offered hereby will be freely
tradeable without restrictions or further registration under the Securities Act,
except for any shares held by "affiliates" of the Company within the meaning of
the Securities Act, which will be subject to the resale limitations of Rule 144.
The remaining 8,276,408 shares are "restricted" securities that may be sold only
if registered under the Securities Act, or sold in accordance with an applicable
exemption from registration, such as Rule 144. The officers and directors of the
Company, each person known by the Company to beneficially own more than 5% of
the Common Stock and certain other stockholders, who together hold 8,024,112
shares of Common Stock and options to purchase an additional 2,387,157 shares of
Common Stock, have agreed not to sell, directly or indirectly, any Common Stock
without the prior written consent of UBS Securities LLC for a period of 180 days
from the date of this Prospectus. An aggregate of 201,482 shares of Common Stock
that have been held for more than three years and are not subject to Lock-up
Agreements will be eligible for immediate sale in the public market after this
Offering under Rule 144(k), unless such shares are held by "affiliates" of the
Company. An additional 37,644 shares of Common Stock that have been held for
more than two years will be eligible for sale in the public market commencing 90
days after this Offering, subject to compliance with Rule 144. Commencing on the
expiration of the Lock-up Agreements, an additional 7,015,141 shares of Common
Stock will be eligible for sale in the public market subject to compliance with
Rule 144. In addition, an aggregate of 131,592 shares of Common Stock issuable
upon the exercise of outstanding stock options will be eligible for sale in the
public market under Rule 701 commencing 90 days after the date of this
Prospectus, and the remaining 1,978,261 shares of Common Stock issuable upon the
exercise of outstanding stock options subject to Lock-up Agreements will be
eligible for sale under Rule 701 commencing on the 181st day after the date of
this Prospectus. In addition, holders of 6,389,861 shares of Common Stock will
be entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price of the Company's Common Stock. In addition,
any demand of such holders to include such shares in Company initiated
registration statements could have an adverse effect on the Company's ability to
raise needed capital.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of "restricted" shares
beneficially owned by such stockholder for at least two years that does not
exceed the greater of (i) one percent of the then-outstanding shares of Common
Stock (approximately 112,764 shares of Common Stock immediately after this
Offering) or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company during the
90 days preceding a sale by such person, and who has beneficially owned the
shares proposed to be sold for at least three years, is entitled to sell such
shares without restriction.
52
<PAGE> 57
The Commission has proposed certain amendments to Rule 144 that would
reduce by one year the holding periods required for shares subject to Rule 144
and Rule 144(k) to become eligible for resale in the public market. This
proposal, if adopted, would substantially increase the number of shares of
Common Stock eligible for immediate resale following the expiration of the
Lock-up Agreements described above. No assurance can be given concerning whether
or when the proposal will be adopted by the Commission.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of this Offering will be
entitled to resell such shares 90 days after the effective date of this Offering
in reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.
53
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Montgomery Securities are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
UBS Securities LLC................................................
Montgomery Securities.............................................
---
Total
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters 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 if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company that the Underwriters 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 concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
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, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise such options, 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.
The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own an aggregate of 8,024,112 shares of Common
Stock outstanding prior to this Offering have agreed that they will not, without
the prior written consent of UBS Securities LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options to acquire shares of Common Stock
or securities exchangeable for or convertible into shares of Common Stock owned
by them for a period of 180 days after the date of this Prospectus. The Company
has agreed that it will not, without the prior written consent of UBS Securities
LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus, except that the Company may grant additional options under
its stock option plans or issue shares upon the exercise of outstanding stock
options.
54
<PAGE> 59
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations among the Company and the Representatives. Factors to be
considered in determining the initial public offering price, in addition to
prevailing market and economic conditions, are certain financial information of
the Company, the history of, and the prospects for, the Company and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present state of the Company's development and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. The estimated initial public
offering price range set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this Offering at or above the initial offering price.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
Certain legal matters relating to this Offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The financial statements of Digene Corporation (formerly Digene
Diagnostics, Inc.) at June 30, 1994 and 1995, and for each of the three fiscal
years in the period ended June 30, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and have been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or any other document filed as an exhibit to the
Registration Statement are not necessarily complete, and, in each such instance,
reference is made to the copy of the contract or document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference thereto. The Registration Statement may be inspected without
charge at the principal office of the Commission in Washington, D.C., and copies
of all or any part of the Registration Statement may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
55
<PAGE> 60
DIGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS
DIGENE CORPORATION
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Financial Statements:
Balance Sheets as of June 30, 1994 and 1995 and March 31, 1996 (unaudited)....... F-3
Statements of Operations for the fiscal years ended June 30, 1993, 1994 and 1995
and for the nine months ended March 31, 1995 and 1996 (unaudited)............... F-4
Statements of Stockholders' Deficit for the fiscal years ended June 30, 1993,
1994 and 1995 and for the nine months ended March 31, 1995 and 1996
(unaudited)..................................................................... F-5
Statements of Cash Flows for the fiscal years ended June 30, 1993, 1994 and 1995
and for the nine months ended March 31, 1995 and 1996 (unaudited)............... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Digene Corporation
We have audited the accompanying balance sheets of Digene Corporation
(formerly Digene Diagnostics, Inc.) as of June 30, 1994 and 1995, and the
related statements of operations, stockholders' deficit, and cash flows for each
of the three years in the period ended June 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digene Corporation (formerly
Digene Diagnostics, Inc.) at June 30, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Vienna, Virginia
March 22, 1996, except Note 15, as to which the date is
May 20, 1996
F-2
<PAGE> 62
DIGENE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996 (NOTE 14)
------------ ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,014,956 $ 1,142,266 $ 403,503
Short-term investment (Note 8)........ 75,000 75,000 75,000
Accounts receivable, less allowance of
$55,000, $51,000 and $61,000 at
June 30, 1994 and 1995 and March
31, 1996, respectively............. 799,789 1,128,158 1,211,437
Inventories (Note 4).................. 928,119 989,315 1,292,187
Prepaid expenses and other current
assets............................. 86,722 71,159 81,295
------------ ------------ ------------
Total current assets...................... 2,904,586 3,405,898 3,063,422
Property and equipment, net (Note 5)...... 832,024 732,059 679,333
Intangible assets, net (Note 6)........... 516,306 286,915 120,665
Deposits.................................. 53,720 60,440 57,631
------------ ------------ ------------
Total assets.............................. $ 4,306,636 $ 4,485,312 $ 3,921,051
============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable...................... $ 335,534 $ 722,569 $ 1,015,711
Accrued expenses...................... 272,338 371,065 480,864
Current maturities of long-term debt
(Note 8)........................... 101,710 205,695 171,691
------------ ------------ ------------
Total current liabilities................. 709,582 1,299,329 1,668,266
Accrued rent (Note 9)..................... 223,002 183,776 155,212
Deferred rent............................. 91,625 78,810 66,420
Long-term debt, less current maturities
(Note 8)................................ 3,004,623 2,812,490 2,665,577
Commitments (Notes 9 and 13)
Redeemable Convertible Preferred Stock,
$0.10 par value; 13,000,000 shares
authorized; 10,094,907, 10,543,907 and
10,807,157 shares issued and outstanding
at June 30, 1994 and 1995 and March 31,
1996, respectively; liquidation
preference of $20,707,582 at March 31,
1996 (Note 10).......................... 11,767,942 13,114,942 14,062,942 $ --
Stockholders' deficit:
Common stock, $0.01 par value,
50,000,000 shares authorized,
368,338, 368,356 and 374,775 shares
issued and outstanding at June 30,
1994 and 1995 and March 31, 1996,
respectively (8,276,408 pro forma
shares)............................ 3,683 3,684 3,748 82,764
Additional paid-in capital............ 3,690,013 3,690,025 3,703,461 18,625,861
Accumulated deficit................... (15,183,834) (16,697,744) (18,404,575) (18,404,575)
------------ ------------ ------------ --------------
Total stockholders' deficit............... (11,490,138) (13,004,035) (14,697,366) $ 304,050
------------ ------------ ------------ ==============
Total liabilities and stockholders'
deficit................................. $ 4,306,636 $ 4,485,312 $ 3,921,051
============= ============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
DIGENE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED
----------------------------------------- MARCH 31,
1993 1994 1995 --------------------------
----------- ----------- ----------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............. $ 4,624,240 $ 4,766,803 $ 5,413,370 $ 3,849,204 $ 4,464,394
Research and development
contracts............... 140,652 527,467 749,217 603,711 293,067
----------- ----------- ----------- ----------- -----------
Total revenues................. 4,764,892 5,294,270 6,162,587 4,452,915 4,757,461
Costs and expenses:
Cost of product sales..... 2,697,655 2,463,564 2,652,091 1,842,119 2,132,762
Research and
development............. 1,047,285 1,102,945 1,855,988 1,227,032 1,766,852
Selling and marketing..... 1,193,639 1,398,280 1,375,496 917,666 1,262,688
General and
administrative.......... 1,161,858 1,191,314 1,245,128 982,226 1,018,462
Amortization of intangible
assets.................. 348,833 264,882 330,164 241,460 259,629
----------- ----------- ----------- ----------- -----------
Loss from operations........... (1,684,378) (1,126,715) (1,296,280) (757,588) (1,682,932)
Other income (expense)......... 67,179 (13,191) 14,446 12,711 115,232
Interest expense............... (299,428) (293,533) (232,076) (194,838) (139,131)
----------- ----------- ----------- ----------- -----------
Net loss....................... $(1,916,627) $(1,433,439) $(1,513,910) $ (939,715) $(1,706,831)
========== ========== ========== ========= ==========
Net loss per share............. $ (2.34) $ (1.69) $ (1.78) $ (1.11) $ (2.00)
========== ========== ========== ========= ==========
Weighted average shares
outstanding.................. 817,984 847,488 849,924 849,924 852,602
========== ========== ========== ========= ==========
Pro forma net loss per share... $ (.18) $ (.20)
========== ==========
Pro forma weighted average
shares outstanding........... 8,217,151 8,447,295
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
DIGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992............. 331,100 $3,311 $3,683,208 $(11,833,768) $ (8,147,249)
Exercise of Common Stock options..... 29,286 293 5,417 -- 5,710
Net loss............................. -- -- -- (1,916,627) (1,916,627)
------- ------ ---------- ------------ -------------
Balance at June 30, 1993............. 360,386 3,604 3,688,625 (13,750,395) (10,058,166)
Exercise of Common Stock options..... 7,952 79 1,388 -- 1,467
Net loss............................. -- -- -- (1,433,439) (1,433,439)
------- ------ ---------- ------------ -------------
Balance at June 30, 1994............. 368,338 3,683 3,690,013 (15,183,834) (11,490,138)
Exercise of Common Stock options..... 18 1 12 -- 13
Net loss............................. -- -- -- (1,513,910) (1,513,910)
------- ------ ---------- ------------ -------------
Balance at June 30, 1995............. 368,356 3,684 3,690,025 (16,697,744) (13,004,035)
Exercise of Common Stock options..... 6,419 64 13,436 -- 13,500
Net loss............................. -- -- -- (1,706,831) (1,706,831)
------- ------ ---------- ------------ -------------
Balance at March 31, 1996
(unaudited)........................ 374,775 $3,748 $3,703,461 $(18,404,575) $ (14,697,366)
======= ====== ========= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
DIGENE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED
----------------------------------------- MARCH 31,
1993 1994 1995 -------------------------
----------- ----------- ----------- 1995 1996
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................... $(1,916,627) $(1,433,439) $(1,513,910) $ (939,715) $(1,706,831)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization of property
and
equipment............... 305,250 311,686 346,401 242,799 275,492
Amortization of intangible
assets.................. 348,833 264,882 330,164 241,460 259,629
Changes in operating
assets and liabilities:
Accounts
receivable......... 204,269 80,286 (328,369) (328,880) (83,279)
Inventories.......... 3,536 188,325 (61,196) (264,063) (302,872)
Prepaid expenses and
other current
assets............. (45,864) 26,266 15,563 2,734 (10,136)
Deposits............. 14,367 (4,956) (6,720) (6,720) 2,809
Accounts payable..... (116,113) 51,136 387,035 155,574 293,142
Accrued expenses..... 42,036 6,130 98,727 35,292 109,799
Accrued rent......... (79,871) (35,329) (39,226) (28,888) (28,564)
Deferred rent........ 10,618 12,054 (12,815) 9,041 (12,390)
Deferred revenue..... (31,250) -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in operating
activities................... (1,260,816) (532,959) (784,346) (881,366) (1,203,201)
INVESTING ACTIVITIES
Capital expenditures........... (107,308) (129,709) (246,436) (209,498) (222,766)
Additions to intangible
assets....................... (1,617) (42,553) (100,773) (72,617) (93,379)
----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities................... (108,925) (172,262) (347,209) (282,115) (316,145)
FINANCING ACTIVITIES
Proceeds from issuance of
Redeemable Convertible
Preferred Stock.............. 1,544,197 1,492,206 1,347,000 807,000 948,000
Exercise of Common Stock
options...................... 5,710 1,467 13 13 13,500
Principal repayments on
long-term debt............... (86,432) (95,124) (88,148) (93,863) (180,917)
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities................... 1,463,475 1,398,549 1,258,865 713,150 780,583
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents......... 93,734 693,328 127,310 (450,331) (738,763)
Cash and cash equivalents at
beginning of period.......... 227,894 321,628 1,014,956 1,014,956 1,142,266
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at
end of period................ $ 321,628 $ 1,014,956 $ 1,142,266 $ 564,625 $ 403,503
========== ========== ========== ========= ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid.................. $ 321,000 $ 312,000 $ 172,000 $ 7,000 $ 6,000
========== ========== ========== ========= ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
1. ORGANIZATION AND NATURE OF OPERATIONS
Digene Corporation (the "Company"), (formerly Digene Diagnostics, Inc.),
was incorporated in the state of Delaware in 1987. The Company develops,
manufactures and markets DNA testing systems for the screening, monitoring and
diagnosis of human diseases. The Company's products are designed to help improve
clinical outcomes and reduce the overall cost of disease management. The
Company's lead product, the Hybrid Capture HPV DNA test, detects the presence of
human papillomavirus ("HPV"), the primary cause of cervical cancer, the second
most common cancer among women worldwide. The Company's HPV test for the
follow-up screening of women with equivocal Pap smears is the only HPV test
approved for marketing in the United States by the Food and Drug Administration
(the "FDA"). The Company's objective is to establish its HPV test as the new
standard of care for cervical cancer screening.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On March 29, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the initial public offering (the
"IPO") of 3,000,000 shares of the Company's Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents, which are stated at cost, consist of highly liquid
investments with original maturities of three months or less.
SHORT-TERM INVESTMENT
The short-term investment is stated at cost, which as of June 30, 1994 and
1995 and March 31, 1996 approximates market, and consists of a certificate of
deposit with an original maturity of one year.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of goods. Revenue
from research and development contracts is recognized as research and
development activities are performed. Cash received in advance of services being
performed is deferred until the related revenue has been earned.
SIGNIFICANT CUSTOMERS
For the years ended June 30, 1993, 1994 and 1995 and the nine month periods
ended March 31, 1995 and 1996, the Company generated 23%, 29%, 38%, 33% and 40%,
respectively, of total revenue from a single customer who is also a preferred
stockholder. Export product sales accounted for approximately 39% in 1993, 43%
in 1994 and 53% in 1995 and 46% and 48% for the nine months ended March 31, 1995
and 1996, respectively, of total revenue.
F-7
<PAGE> 67
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Export sales consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
YEAR ENDED JUNE 30 31
------------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Europe................................ $1,623,014 $1,931,395 $2,660,767 $1,683,944 $1,895,858
Pacific Rim........................... 196,604 264,581 295,398 204,902 215,203
Other................................. 40,812 89,566 339,252 146,890 194,444
--------- --------- --------- --------- ---------
Total export sales.................... $1,860,430 $2,285,542 $3,295,417 $2,035,736 $2,305,505
========== ========== ========== ========== ==========
</TABLE>
RESEARCH AND DEVELOPMENT
The Company expenses its research and development costs as incurred.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
NET LOSS PER SHARE
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of Securities and Exchange Commission Staff Accounting Bulletin No.
83, Redeemable Convertible Preferred Stock, Common Stock and options and
warrants to purchase Common Stock issued at prices below the initial public
offering price during the twelve months immediately preceding the contemplated
initial filing of the registration statement relating to the IPO, have been
included in the computation of net loss per share as if they were outstanding
for all periods presented (using the treasury method assuming repurchase of
Common Stock at the estimated IPO price). Other shares issuable upon the
exercise of stock options and warrants or conversion of Redeemable Convertible
Preferred Stock have been excluded from the computation because the effect of
their inclusion would be antidilutive. Subsequent to the Company's IPO, stock
options and warrants under the treasury stock method will be included to the
extent they are dilutive. Weighted average shares used to calculate pro forma
net loss per share for the year ended June 30, 1995 and the nine months ended
March 31, 1996 differs from the weighted average on a historical basis due to
the inclusion of the shares of Common Stock resulting from the assumed
conversion, at the beginning of the applicable period, of Redeemable Convertible
Preferred Stock as contemplated by the IPO (See Notes 14 and 15).
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's June 30, 1997 financial statements. SFAS No. 123 allows companies to
account for stock-based compensation under either the new provisions of SFAS No.
123 or under the provisions of APB No. 25, but requires pro forma disclosures in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company intends to continue accounting for
its stock-based compensation in accordance with the provisions of APB No. 25. As
such, the adoption of SFAS No. 123 will not impact the financial condition or
the results of operations of the Company.
F-8
<PAGE> 68
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996.
3. RESEARCH AND DEVELOPMENT AGREEMENTS
In April 1993, the Company entered into a Development and License Agreement
(the "1993 Agreement") with International Murex Technologies Limited ("IMTC").
Under the terms of the 1993 Agreement, IMTC funded certain of the Company's DNA
probe product development programs on a dollar for dollar cost reimbursement
basis. IMTC and the Company hold a co-exclusive license to market the products
developed under the 1993 Agreement.
In May 1994, the Company entered into an additional Development and License
Agreement (the "1994 Agreement") with IMTC . Under the terms of the 1994
Agreement, IMTC purchased 333,333 shares of the Company's Redeemable Convertible
Preferred Stock and placed $2 million in escrow to purchase 666,667 additional
shares of the Company's Redeemable Convertible Preferred Stock, over the term of
the 1994 Agreement. Generally, amounts released from escrow were used to fund
mutually approved research and development projects on a dollar for dollar cost
reimbursement basis (See Note 10). As funding was released from escrow, shares
of the Company's Redeemable Convertible Preferred Stock were issued. During the
year ended June 30, 1995 and the nine months ended March 31, 1996, $1,215,000
and $315,000, respectively, were released from the escrow and accordingly, the
Company issued 405,000 and 105,000 shares, respectively, of Redeemable
Convertible Preferred Stock. As of June 30, 1995 and March 31, 1996, an
independent third party held $785,000 and $470,000, respectively, in escrow for
the Company's future research and development projects. IMTC holds a license
that is co-exclusive (with the Company) to market products developed under the
1994 Agreement.
4. INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Finished goods................................... $ 268,659 $ 312,366 $ 516,791
Work in process.................................. 502,552 624,307 697,241
Raw materials.................................... 356,908 188,158 328,155
---------- ---------- ----------
1,128,119 1,124,831 1,542,187
Obsolescence reserve............................. (200,000) (135,516) (250,000)
---------- ---------- ----------
$ 928,119 $ 989,315 $1,292,187
========= ========= =========
</TABLE>
F-9
<PAGE> 69
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
5. PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost and depreciated or amortized using the straight-line method over the
estimated useful lives of three to ten years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Furniture, fixtures and office equipment...... $ 501,175 $ 578,336 $ 651,342
Machinery and equipment....................... 1,001,062 1,142,736 1,282,711
Leasehold improvements........................ 637,032 664,633 664,633
----------- ----------- -----------
2,139,269 2,385,705 2,598,686
Accumulated depreciation and amortization..... (1,307,245) (1,653,646) (1,919,353)
----------- ----------- -----------
$ 832,024 $ 732,059 $ 679,333
========== ========== ==========
</TABLE>
6. INTANGIBLE ASSETS
Patent application costs are expensed as incurred. Noncompetition
agreements are amortized on a straight-line basis over their respective terms,
generally two to six years. Goodwill, which resulted from the acquisition of the
Molecular Diagnostics Division of Life Technologies, Inc. ("LTI") in December
1990, is being amortized using the straight-line method over five years.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Noncompetition agreements...................... $1,087,349 $ 1,087,349 $ 1,087,349
Goodwill and other intangibles................. 297,273 398,046 491,425
---------- ----------- -----------
1,384,622 1,485,395 1,578,774
Accumulated amortization....................... (868,316) (1,198,480) (1,458,109)
---------- ----------- -----------
$ 516,306 $ 286,915 $ 120,665
========= ========== ==========
</TABLE>
7. INCOME TAXES
The Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards.............. $ 4,096,000 $ 4,032,000 $ 4,033,000
Research and development credits.............. 393,000 488,000 534,000
Other......................................... 1,574,000 2,252,000 2,924,000
----------- ----------- -----------
Deferred tax assets........................... 6,063,000 6,772,000 7,491,000
Valuation allowance........................... (6,063,000) (6,772,000) (7,491,000)
----------- ----------- -----------
Net deferred tax assets....................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
F-10
<PAGE> 70
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
7. INCOME TAXES (CONTINUED)
At June 30, 1995 and March 31, 1996, the Company had tax net operating loss
carryforwards for income tax purposes of approximately $10,081,000 and
$10,082,000, respectively. At June 30, 1995 and March 31, 1996, the Company also
had research and development credit carryforwards of approximately $488,000 and
$534,000, respectively. In 1990, the Company experienced a change in ownership
pursuant to Section 382 of the Internal Revenue Code, which will cause the
utilization of pre-change losses and credits to be limited. Subject to this
limitation, the Company's net operating loss carryforwards and tax credits
expire, if unused, at various dates from 2003 through 2008.
8. LONG-TERM DEBT
Long-term debt consists of follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
10% secured note payable to LTI.................. $2,625,000 $ -- $ --
8% secured note payable to LTI................... -- 2,625,000 2,568,647
Amounts due to former stockholders, net of
unamortized discount........................... 365,519 289,514 186,852
Note payable to lessor........................... 115,814 93,956 76,227
Other............................................ -- 9,715 5,542
---------- ---------- ----------
3,106,333 3,018,185 2,837,268
Current maturities of long-term debt............. (101,710) (205,695) (171,691)
---------- ---------- ----------
Long-term debt, less current maturities.......... $3,004,623 $2,812,490 $2,665,577
========= ========= =========
</TABLE>
The secured note payable to LTI was issued in conjunction with the
Company's acquisition of LTI's Molecular Diagnostics Division in December 1990.
During 1995, a 10% secured note payable was canceled and an 8% secured note
payable was issued. Interest is payable semiannually. Principal is payable in
eight semi-annual installments ranging from $27,624 to $36,352, with the first
payment made on June 30, 1995, followed by five annual installments of $474,093,
beginning June 30, 1999. The note is secured by certain assets of the Company.
Amounts due to former stockholders, related to repurchases of Common Stock
during 1991, are noninterest-bearing, but have been discounted at 8.74%. Payment
is due in seven equal annual installments beginning July 1991.
The note payable to lessor represents the financing of a portion of
leasehold improvements made by the lessor under terms of the lease agreement for
the Company's headquarters and research and development facility (Note 9). The
note, originally for $200,000, is repayable through December 1998 in 114 equal
monthly installments of $2,616 in principal plus interest at 9%. A $75,000
certificate of deposit held by the Company is assigned to the lessor as
collateral for the lease obligation (Note 2).
F-11
<PAGE> 71
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
8. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt outstanding at June 30, 1995 are as
follows:
<TABLE>
<S> <C>
1996............................................ $ 205,695
1997............................................ 190,540
1998............................................ 199,841
1999............................................ 525,737
2000............................................ 474,093
Thereafter...................................... 1,422,279
----------
$3,018,185
=========
</TABLE>
9. LEASE COMMITMENTS
The Company occupies a facility serving as its corporate headquarters and
research and development facility. The lease agreement for this facility
terminates on December 31, 1998, but provides for a five-year renewal at the
Company's option. Under the lease agreement, no rent was due during the period
of construction and the initial period of occupancy. The total minimum lease
obligation is being expensed over the term of the lease obligation on a
straight-line basis, with expense in excess of cash outlays recorded as deferred
rent. The lessor agreed to make approximately $372,000 of improvements to the
facility at the Company's expense, paid for in cash of $172,000 and a note
payable for $200,000 (Note 8). The minimum annual base rentals are subject to an
annual increase of 30% of the increase in the Consumer Price Index.
The Company's production operations are in a manufacturing and office
facility. The related lease agreement terminates in July 1998, but is renewable
at the Company's option for an additional five-year period. The total minimum
lease obligation is being expensed over the term of the lease on a straight-line
basis, with the expense in excess of cash outlays recorded as deferred rent.
Future minimum rental commitments under these lease agreements, including
where applicable the Company's pro rata share of insurance, real estate taxes
and common area operating expenses, are as follows as of June 30, 1995:
<TABLE>
<S> <C>
1996............................................ $ 360,760
1997............................................ 360,760
1998............................................ 360,760
1999............................................ 114,061
----------
$1,196,341
=========
</TABLE>
Rent expense under these leases was $348,144, $366,616, $380,804, $323,800
and $319,632, for the years ended June 30, 1993, 1994 and 1995 and for the nine
months ended March 31, 1995 and 1996, respectively.
Remaining lease payments, net of anticipated sublease income of
approximately $380,000, for facilities vacated as a result of the relocation and
consolidation, described above, were accrued in 1992. The remaining accrual at
March 31, 1996 is $155,212.
F-12
<PAGE> 72
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Shares of Redeemable Convertible Preferred Stock consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
SERIES 1994 1995 1996
----------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
1990..................................... 6,919,109 6,919,109 6,919,109
1991..................................... 2,842,465 2,842,465 2,842,465
1994..................................... 333,333 782,333 1,045,583
---------- ---------- ------------
10,094,907 10,543,907 10,807,157
========= ========= ==========
</TABLE>
Holders of 1990 and 1991 Series Redeemable Convertible Preferred Stock are
to receive dividends of approximately $0.0728 per share before dividends can be
paid to any holder of Common Stock. Any additional dividends would be paid in
equivalent per-share amounts to holders of Preferred and Common Stock. Dividends
are payable only if declared by the Company's Board of Directors. Such 1990 and
1991 Series Preferred Stock have a liquidation preference of $1.80 per share
(plus any declared but unpaid dividends) and would share ratably with other
holders of Preferred and Common Stock in any available assets exceeding its
liquidation preference.
The 1990 and 1991 Series Redeemable Convertible Preferred Stock
automatically converts into Common Stock (at the then applicable conversion
rate) in the event of a public offering of Common Stock in which the Company
receives gross proceeds of at least $10 million. If the Company sells additional
shares of Common or Preferred Stock, holders of the Preferred Stock have the
right (with certain exceptions) to purchase a pro-rata portion of the additional
shares. Voting rights for the Preferred Stock are equal to those of the number
of shares of Common Stock into which the Preferred Stock is convertible. At the
request of holders of at least 50% of the outstanding Preferred Stock and to the
extent there are retained earnings, the Company must repurchase, for $1.80 per
share, 25% of the outstanding Preferred Stock during January of 1997 through
2000. Holders of Preferred Stock also may, under certain circumstances, require
the Company to register with the Securities and Exchange Commission the shares
of Common Stock into which the Preferred Stock is convertible.
In May 1994, the Company sold 333,333 shares of 1994 Series Redeemable
Convertible Preferred Stock to IMTC for proceeds of $999,999. The sale was
subject to a Stock Purchase Agreement and a 1994 Development and Licensing
Agreement between the Company and IMTC. Pursuant to the Stock Purchase
Agreement, IMTC placed $2,000,000 in escrow for the purchase of an additional
666,667 shares of 1994 Series Preferred Stock (see Note 3). During the year
ended June 30, 1995 and the nine months ended March 31, 1996, $1,215,000 and
$315,000, respectively, was released from the escrow account to purchase 405,000
and 105,000 shares, respectively, of the Company's Preferred Stock and to fund
mutually approved research and development projects.
The 1994 Series Preferred Stock has terms and conditions substantially
identical to those described for the 1990 and 1991 Series Preferred Stock,
except that the liquidation preference is $3.00 per share for the 1994 Series
Preferred Stock.
11. COMMON STOCK OPTIONS AND WARRANTS
The Company has adopted Stock Option Plans (the "Option Plans") under which
1,737,536 shares of Common Stock were reserved for issuance upon exercise of
options granted to employees, officers and consultants of the Company. The
Option Plans provide for grants of stock options to employees (including
officers and employee directors), directors and consultants of the Company. The
Option Plans were previously
F-13
<PAGE> 73
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
11. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
administered by the Board of Directors and presently are being administered by
the Compensation Committee, which determines recipients and types of awards to
be granted, including the exercise price, number of shares subject to the award
and the exercisability thereof. The terms of stock options granted under the
Option Plans may not exceed ten years. The exercise price of options granted
under the Option Plans, as determined by the Compensation Committee,
approximates fair value.
The Company has also granted 37,761 options to purchase Common Stock to
outside consultants.
In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers or other employees of
the Company may receive options to purchase Common Stock. The Omnibus Plan is
administered by the Compensation Committee. 1,700,000 shares have been reserved
for issuance under the Omnibus Plan. On March 27, 1996, the Compensation
Committee granted incentive stock options to purchase an aggregate of 923,913
shares of Common Stock to various employees under the Omnibus Plan, at exercise
prices of $9.35 to $10.285 per share.
Common stock options activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Outstanding at June 30, 1993..................................... 1,556,028
Granted..................................................... 284,689
Exercised................................................... (7,952)
Canceled or expired......................................... (54,452)
---------
Outstanding at June 30, 1994..................................... 1,778,313
Granted..................................................... 57,372
Exercised................................................... (18)
Canceled or expired......................................... (82,456)
---------
Outstanding at June 30, 1995..................................... 1,753,211
Granted..................................................... 987,033
Exercised................................................... (6,428)
Canceled or expired......................................... (34,606)
---------
Outstanding at March 31, 1996.................................... 2,699,210
========
Exercisable at March 31, 1996.................................... 1,382,055
========
</TABLE>
Exercise prices range from $0.028 to $10.285 per share. The options
generally vest on a time-based schedule over a period of three to six years.
In conjunction with the sale of 1994 Series Preferred Stock, the Company
has issued Common Stock purchase warrants which provide for certain
anti-dilution adjustment rights for shares underlying these warrants. The
warrants expire on the earlier of 15 days following the Company's initial filing
for an IPO or April 30, 1996. As of March 31, 1996, there were 235,886 Common
Stock purchase warrants outstanding which were exercisable at $6.65 per share.
RESERVE FOR ISSUANCE
The Company has reserved approximately 11,542,380 shares of Common Stock as
of March 31, 1996 for issuance upon conversion of the 1990, 1991 and 1994 Series
Preferred Stock, exercise of common stock
F-14
<PAGE> 74
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
11. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
purchase warrants, exercise of Common Stock options and issuance of 1994 Series
Preferred Stock to IMTC in conjunction with the 1994 Development and Licensing
Agreement (See Note 3).
12. RETIREMENT PLAN
Effective January 1, 1994, the Company adopted a 401(k) Profit Sharing Plan
(the "Plan"). The Plan, which covers all employees who have completed six months
of service, stipulates that employees may elect an amount between 1% and 15% of
their total compensation to contribute to the Plan. Employee contributions are
subject to Internal Revenue Service limitations. All employees who have
completed 1,000 hours of service during the plan year and are employed by the
Company on the last day of the plan year are eligible to share in discretionary
Company contributions. Employees vest in employer contributions over five years.
No contributions were made by the Company during the years ended June 30, 1993,
1994 and 1995 and the nine months ended March 31, 1995 and 1996.
13. OTHER COMMITMENTS
The Company's access to various probes, diagnostic techniques and a key
product component were acquired under agreements requiring the Company to pay
future royalties based upon specified percentages of applicable future gross
sales. None of the royalty commitments have had, or are expected to have in the
future, a materially adverse impact on the Company's financial position or the
results of operations.
Under terms of the agreement covering the acquisition of the Molecular
Diagnostics Division of LTI, the Company will make additional payments to LTI
contingent on sales levels for most of the acquired operations' products. The
payments extend through May 31, 1997 and will be at a rate of 2.5% on certain
products and 5% on other products, for sales in excess of $4 million per year.
No contingent payments were owed during the years ended June 30, 1993, 1994, and
1995 and the nine months ended March 31, 1995 and 1996.
14. PRO FORMA INFORMATION
The financial statements include pro forma information as of March 31, 1996
to reflect, upon the completion of the Company's IPO, the conversion of all
outstanding shares of Series 1990, Series 1991, and Series 1994 Preferred Stock
into shares of Common Stock on a 0.71 for 1 basis, the exercise of 70,436
warrants to purchase Common Stock, and the issuance of 156,667 shares of Series
1994 Preferred Stock to IMTC, in accordance with the 1994 Agreement, described
in Note 3.
15. SUBSEQUENT EVENTS
COMMON STOCK
On April 15, 1996, the holders of the Common Stock purchase warrants
elected to purchase 70,436 shares of Common Stock at an exercise price of $6.65
per share. As a result of this warrant exercise, the Company received net
proceeds of $468,474. The remaining unexercised warrants expired on April 15,
1996.
On April 15, 1996, pursuant to the 1994 agreement with IMTC described in
Note 3, the remaining amount of $470,000 held in escrow was released and
accordingly, the Company issued 156,667 shares of Redeemable Convertible
Preferred Stock.
On May 6, 1996, the Board of Directors approved a 1 for 1.4 reverse stock
split of the Company's Common Stock, which will become effective on May 20,
1996. All references in the accompanying financial
F-15
<PAGE> 75
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)
15. SUBSEQUENT EVENTS (CONTINUED)
statements to the number of shares of Common Stock and per-share amounts have
been restated to reflect the split.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Immediately upon completion of the IPO, all outstanding shares of 1990,
1991 and 1994 Series Preferred Stock will convert into shares of Common Stock on
a 0.71 for 1 basis.
F-16
<PAGE> 76
ENABLING TECHNOLOGY PLATFORM - HYBRID CAPTURE(TM)
DNA SCREENING AND MONITORING
[DIAGRAM IS DESCRIBED BELOW]
The Company's Hybrid Capture technology uses RNA probes to bind specific DNA
sequences which creates hybrid DNA:RNA molecules that can be detected with
chemiluminescent materials.
To perform a test using the Hybrid Capture system, the test sample is mixed
with RNA probes. Complementary DNA sequences in the sample (1) immediately bind
to the RNA, creating DNA:RNA hybrids (2). The DNA:RNA hybrids are then captured
on the surface of a specially coated polysterene tube (3). All remaining DNA
and specimen contaminants are removed by washing the tube. Captured hybrids are
then reacted with the Company's proprietary signal amplification system, which
uses antibodies to detect any DNA:RNA hybrids bound to the tube (4). If DNA:RNA
hybrids from the specimen are present on the surface of the tube, light is
emitted, signaling a positive test result (5). The amount of DNA present in the
sample can be rapidly and accurately quantified using standard laboratory
luminometers.
The entire test is completed in 4 to 6 hours.
<PAGE> 77
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of
Financial Condition and Results of
Operations.......................... 20
Business.............................. 24
Management............................ 40
Certain Transactions.................. 46
Principal Stockholders................ 48
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 55
Additional Information................ 55
Index to Financial Statements......... F-1
</TABLE>
---------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
3,000,000 SHARES
(DIGENE LOGO)
COMMON STOCK
---------------------------
Prospectus
, 1996
---------------------------
UBS SECURITIES LLC
MONTGOMERY SECURITIES
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Company in
connection with the issuance and distribution of the securities being registered
hereby other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 15,466
NASD filing fee................................................... 4,985
NASDAQ listing fee................................................ 50,000
Transfer agent's fee and expenses*................................ 5,000
Accounting fees and expenses*..................................... 125,000
Legal fees and expenses*.......................................... 400,000
"Blue Sky" fees and expenses (including legal fees)*.............. 15,000
Costs of printing and engraving*.................................. 165,000
Miscellaneous*.................................................... 19,549
--------
Total*....................................................... $800,000
========
</TABLE>
-----------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
When filed, the Company's Amended and Restated Certificate of Incorporation
will provide that the Company shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time ("Section 145"), indemnify all persons whom it may indemnify
pursuant thereto. In addition, the Company's Amended and Restated Certificate of
Incorporation will eliminate personal liability of its directors to the fullest
extent permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
(including attorneys' fees) actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are fairly
and reasonably entitled to indemnification for such expenses despite such
adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
The Underwriting Agreement (to be filed as Exhibit 1.1 to an amendment to
this Registration Statement) provides that the Underwriters severally and not
jointly will indemnify and hold harmless the
II-1
<PAGE> 79
Company and each director, officer or controlling person of the Company from and
against any liability caused by any statement or omission in the Registration
Statement or Prospectus based upon information furnished to the Company by the
Underwriters for use therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as hereinafter set forth, there have been no sales of unregistered
securities by the Company within the past three years.
From September 1995 through December 1995, 158,250 shares of Series 1994
Redeemable Convertible Preferred Stock were sold to certain existing
stockholders and certain new investors at a price per share of $4.00. In July of
1994, 44,000 shares of Series 1994 Redeemable Convertible Preferred Stock were
sold to certain existing stockholders and certain new investors at a price per
share of $3.00. During the period May 1994 through April 1996, 1,000,000 shares
of Series 1994 Redeemable Convertible Preferred Stock were sold to International
Murex Technologies Limited at a price of $3.00 per share under the terms of a
Stock Purchase Agreement.
In connection with sales of Series 1994 Redeemable Convertible Preferred
Stock, the Company granted each purchaser warrants to purchase Common Stock up
to an amount equal to 41.67% of their investment in Series 1994 Redeemable
Convertible Preferred Stock at a price per-share escalating from $4.20 in May
1994 to $6.65 in February 1996. In April 1996, pursuant to the exercise of such
warrants, the Company issued 70,436 shares of Common Stock for $6.65 per share,
to certain existing stockholders. (Amounts in this paragraph are adjusted to
reflect the one-for-1.4 reverse split of the Common Stock to be effected prior
to completion of the Offering.)
From January 1994 through May 1994, 164,189 shares of Series 1991
Redeemable Convertible Preferred Stock were sold for cash to certain existing
stockholders and certain new investors at a price of $3.00 per share. During
April and May of 1993, 46,751 shares of Series 1991 Redeemable Convertible
Preferred Stock were sold to certain existing stockholders and certain new
investors at a price per share of $1.50, of which 12,695 were sold for cash and
34,056 were issued in lieu of compensation.
In each of the transactions described above, the securities were not
registered under the Securities Act in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. The factors that
assured the availability of that exemption for each such transaction included
the sophistication of the offerees and the purchasers, their access to material
information, the disclosures actually made to them by the Company and the
absence of any general solicitation or advertising.
Since January 1993, the Company has issued options to certain employees,
directors, consultants and others to purchase an aggregate of approximately
1,323,118 shares of the Company's Common Stock at an approximate weighted
average exercise price of $7.42 per share. Between August 1993 and October 1995,
five employees exercised options to purchase an aggregate of 42,970 shares at
prices ranging from $.03 to $2.10 per share. These transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act and Rule 701
promulgated under the Securities Act. (Amounts in this paragraph are adjusted to
reflect the one-for-1.4 reverse split of the Common Stock to be effected prior
to completion of the Offering.)
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Bylaws of the Company.
4.1** Form of Common Stock certificate.
5.1* Opinion of Ballard Spahr Andrews & Ingersoll.
10.1** 1987 Stock Option Plan.
10.2** 1989 Special Employee Stock Option Plan.
</TABLE>
II-2
<PAGE> 80
<TABLE>
<S> <C>
10.3** 1990 Stock Option Plan.
10.4** 1991-A Stock Option Plan.
10.5** 1991-B Stock Option Plan.
10.6** 1996 Omnibus Plan.
10.7** Form of Employment Agreement between the Company and Evan Jones.
10.8** Form of Employment Agreement between the Company and Charles M. Fleischman.
10.9** Employment Agreement dated February 1, 1991, as amended, between the Company and
Attila D. Lorincz, Ph.D.
10.10** Letter Agreement dated May 1, 1992 among the Company, Joseph Migliara, Harris
Kaplan, Migliara/Kaplan Associates and Valley Partners.
10.11** Lease Agreement dated January 13, 1988 between the Company and West Farm Associates
Limited Partnership.
10.12** Lease Agreement dated June 20, 1991 between the Company and Murkirk Manor Associates
Limited Partnership.
10.13** Distribution Agreement dated May 19, 1992 between the Company and International
Murex Technologies Corporation, as amended, May 26, 1993.
10.14** License Agreement dated September 1, 1995 between the Company and Institut Pasteur.
10.15** Cross-License, Inc. Agreement dated April 1, 1990 among Life Technologies, Inc. and
Institut Pasteur.
10.16** License Agreement dated December 1, 1983 between Bethesda Research Laboratories, a
division of Life Technologies, Inc., and Georgetown University.
10.17** Stock Purchase Agreement dated September 26, 1988 between the Company and Mitsubishi
PetroChemical Company, Limited.
10.18** License Agreement dated December 19, 1990 between the Company and Life Technologies,
Inc.
10.19** Stock Purchase Agreement dated May 31, 1994 between the Company and International
Murex Technologies Limited ("IMTL").
10.20** Escrow Agreement dated May 31, 1994 among the Company, IMTL and Reid & Priest, as
Escrow Agent.
10.21** Development and License Agreement dated April 14, 1993 between the Company and
International Murex Technologies Corporation ("IMTC").
10.22** Development and License Agreement dated May 31, 1994 between the Company and IMTC.
10.23** Common Stock Purchase Warrant of IMTL
10.24** Form of Common Stock Purchase Warrant
10.25** Shareholders' Agreement dated May 31, 1994 among the Company, IMTL and Armonk
Partners.
10.26 Form of Registration Rights Agreement dated , 1996, between the
Company, Armonk Partners, IMTL and certain other stockholders.
10.27** Distribution Agreement dated as of February 28, 1996 between the Company and Murex
Biotech Limited (confidential treatment has been requested for certain portions of
this agreement).
10.28** License Agreement dated September 27, 1995 between the Company and Kanebo, Ltd.
11.1** Statement Re: Computation of Per Share Loss
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1 to this
Registration Statement).
24.1** Power of Attorney
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule I -- Valuation and Qualifying Accounts and Reserves
II-3
<PAGE> 81
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C., on May 21, 1996.
DIGENE CORPORATION
By /s/ EVAN JONES
------------------------------------
EVAN JONES
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -------------
<C> <S> <C>
/s/ EVAN JONES President and Chief Executive May 21, 1996
- ------------------------------------------ Officer (principal executive
EVAN JONES officer) and Chairman
Executive Vice President, Chief May 21, 1996
/s/ CHARLES M. FLEISCHMAN* Operating Officer, Chief
- ------------------------------------------ Financial Officer and Director
CHARLES M. FLEISCHMAN (principal financial officer)
/s/ JOSEPH P. SLATTERY* Controller (principal accounting May 21, 1996
- ------------------------------------------ officer)
JOSEPH P. SLATTERY
/s/ JOHN J. WHITEHEAD* Director May 21, 1996
- ------------------------------------------
JOHN J. WHITEHEAD
/s/ JOSEPH M. MIGLIARA* Director May 21, 1996
- ------------------------------------------
JOSEPH M. MIGLIARA
* By: /s/ EVAN JONES
- ------------------------------------------
EVAN JONES
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 83
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Digene Corporation
We have audited the financial statements of Digene Corporation(formerly
Digene Diagnostics, Inc.) as of June 30, 1994 and 1995, and for each of the
three years in the period ended June 30, 1995, and have issued our report
thereon dated March 22, 1996 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed in
Item 16(b) of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Vienna, Virginia
March 22, 1996
<PAGE> 84
SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
CLASSIFICATION PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
- ---------------------------------------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1994.................... $ 54 $ 6 $ (5)(1) $ 55
Year ended June 30, 1995.................... 55 15 (19)(1) 51
Nine months ended March 31, 1996............ 51 10 -- 61
Reserve for inventory obsolescence:
Year ended June 30, 1994.................... $155 $145 $ -- $ 200
Year ended June 30, 1995.................... 200 63 (128)(2) 135
Nine months ended March 31, 1996............ 135 115 -- 250
</TABLE>
- ---------------
(1) Write off of accounts receivable.
(2) Write off of obsolete inventory.
S-1
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement. ............................................
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company. ...................................................................
3.2 Form of Amended and Restated Bylaws of the Company. ........................
4.1** Form of Common Stock certificate. ..........................................
5.1 Opinion of Ballard Spahr Andrews & Ingersoll. ..............................
10.1** 1987 Stock Option Plan. ....................................................
10.2** 1989 Special Employee Stock Option Plan. ...................................
10.3** 1990 Stock Option Plan. ....................................................
10.4** 1991-A Stock Option Plan. ..................................................
10.5** 1991-B Stock Option Plan. ..................................................
10.6** 1996 Omnibus Plan. .........................................................
10.7** Form of Employment Agreement between the Company and Evan Jones. ...........
10.8** Form of Employment Agreement between the Company and Charles M.
Fleischman. ................................................................
10.9** Employment Agreement dated February 1, 1991, as amended, between the Company
and Attila D. Lorincz, Ph.D. ...............................................
10.10** Letter Agreement dated May 1, 1992 among the Company, Joseph Migliara,
Harris Kaplan, Migliara/Kaplan Associates and Valley Partners. .............
10.11** Lease Agreement dated January 13, 1988 between the Company and West Farm
Associates Limited Partnership. ............................................
10.12** Lease Agreement dated June 20, 1991 between the Company and Murkirk Manor
Associates Limited Partnership. ............................................
10.13** Distribution Agreement dated May 19, 1992 between the Company and
International Murex Technologies Corporation, as amended, May 26, 1993. ....
10.14** License Agreement dated September 1, 1995 between the Company and Institut
Pasteur. ...................................................................
10.15** Cross-License, Inc. Agreement dated April 1, 1990 among Life Technologies,
Inc. and Institut Pasteur. .................................................
10.16** License Agreement dated December 1, 1983 between Bethesda Research
Laboratories, a division of Life Technologies, Inc., and Georgetown
University. ................................................................
10.17** Stock Purchase Agreement dated September 26, 1988 between the Company and
Mitsubishi PetroChemical Company, Limited. .................................
10.18** License Agreement dated December 19, 1990 between the Company and Life
Technologies, Inc. .........................................................
10.19** Stock Purchase Agreement dated May 31, 1994 between the Company and
International Murex Technologies Limited ("IMTL"). .........................
10.20** Escrow Agreement dated May 31, 1994 among the Company, IMTL and Reid &
Priest, as Escrow Agent. ...................................................
10.21** Development and License Agreement dated April 14, 1993 between the Company
and International Murex Technologies Corporation ("IMTC"). .................
10.22** Development and License Agreement dated May 31, 1994 between the Company and
IMTC. ......................................................................
10.23** Common Stock Purchase Warrant of IMTL.......................................
10.24** Form of Common Stock Purchase Warrant.......................................
10.25** Shareholders' Agreement dated May 31, 1994 among the Company, IMTL and
Armonk Partners. ...........................................................
10.26 Form of Registration Rights Agreement dated , 1996,
between the Company, Armonk Partners, IMTL and certain other
stockholders. ..............................................................
10.27** Distribution Agreement dated as of February 28, 1996 between the Company and
Murex Biotech Limited (confidential treatment has been requested for certain
portions of this agreement). ...............................................
10.28** License Agreement dated September 27, 1995 between the Company and Kanebo,
Ltd.........................................................................
11.1** Statement Re: Computation of Per Share Loss.................................
23.1 Consent of Ernst & Young LLP................................................
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1 to
this Registration Statement). ..............................................
24.1** Power of Attorney ..........................................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
3,000,000 Shares
DIGENE CORPORATION
Common Stock
Form Of
UNDERWRITING AGREEMENT
____________ __, 1996
UBS Securities LLC
Montgomery Securities
As Representatives of the Several Underwriters
named in Schedule A hereto
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Digene Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell 3,000,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock, $0.01 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 450,000 additional shares of Common
Stock (the "Option Shares") on the terms and for the purposes set forth in
Section 2(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. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants as follows:
(a) A registration statement on Form S-1 (File No. 333-2968)
including a prospectus relating to the Shares, and each amendment thereto, has
been prepared by the Company in conformity in all material respects 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; and such abbreviated registration statements pursuant to Rule
462(b) of the Rules and Regulations as may have been required prior to the date
hereof (each an "Abbreviated Registration Statement") have been similarly
prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement including a prospectus
relating to the Shares and such Abbreviated Registration Statements as may
hereinafter be required. Copies of such registration statement including a
prospectus relating to the Shares, and each amendment thereto, and of any
<PAGE> 2
Abbreviated Registration Statements have been delivered to you in such
quantities as you have requested for each of the Underwriters. If such
registration statement has not been declared effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to be declared effective will be filed
promptly by the Company with the Commission. If such registration statement
has been declared effective, a final prospectus containing all Rule 430A
Information (as hereinafter defined), or, if UBS Securities LLC, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, a term sheet including the information required pursuant
to Rule 434 of the Rules and Regulations will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the time prescribed by the Rules and Regulations.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement (including all exhibits, schedules and
financial statements thereto) 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, shall include
the information deemed to be a part of the Registration Statement as of the
time it became effective pursuant to Rule 434(d) of the Rules and Regulations,
and shall also mean any Abbreviated Registration Statement filed with respect
to the Shares. The term "Preliminary Prospectus" shall mean any 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 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 in connection with the offering of the Shares in Canada.
(b) The Company has not received, and has no notice of,
any stop order suspending the effectiveness of the Registration Statement or
any order preventing or suspending the use of any Preliminary Prospectus, or
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 and, as of its date, did
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as hereinafter defined), any later date on which 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
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by, and will
comply in all material respects 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, will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
2
<PAGE> 3
foregoing representations and warranties in this section 1(b) 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 paragraph numbers 2 and 6 thereof) and the information in the last
paragraph on the front cover page of the Prospectus or to statements in or
omissions from the Registration Statement, the Offering Memorandum or the
Prospectus made in reliance upon and in conformity with information furnished
to the Company in writing by any Underwriter through the Representatives
expressly for use in the Registration Statement, the Offering Memorandum or the
Prospectus. The Company has not distributed any offering material in
connection with the offering or sale of the Shares other than the Registration
Statement, the Preliminary Prospectus, the Prospectus, the Offering Memorandum
or any other materials, if any, permitted by the Act or the Rules and
Regulations.
(c) 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 corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement
and the Offering Memorandum. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to so qualify or be in good
standing would not have a material adverse effect on the business, business
prospects, properties, operations, condition (financial or otherwise) or
results of operations of the Company (a "Material Adverse Effect"). The
Company has no subsidiaries (as defined in the Rules and Regulations) and 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 and correct copies of the certificate of incorporation and of the
bylaws of the Company 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, if later, the Option Closing Date.
(d) 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 indemnification hereunder may be limited by applicable
laws, equitable principles or public policy and except as enforcement hereof
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. The Company is not (i) in violation of its
certificate of incorporation or bylaws, or (ii) 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, which default
would have a Material Adverse Effect, or (iii) in default in the performance or
observance of any 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, which default would have a Material Adverse
Effect, or (iv) in violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court or governmental agency or body to
which the Company is subject, including, but not limited to, the United States
Food and Drug Administration (the "FDA"). 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 any of the terms and
provisions of, or constitute a default under, (i) the certificate of
incorporation or bylaws of the Company, or (ii) 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 is a party or by which its properties
3
<PAGE> 4
are bound, which default would have a Material Adverse Effect on the Company,
or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any court or governmental agency or body to which the Company is subject.
The Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or declaration of or filing by or
with any court or regulatory, administrative or other governmental agency or
body as a requirement for 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"), state
securities or blue sky ("Blue Sky") laws, the rules and regulations of the
National Association of Securities Dealers, Inc. (the "NASD") or under
applicable Canadian Securities laws.
(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 or subject to 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 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,
and will be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. Except as set forth in the
Prospectus, no preemptive right, co-sale right, registration 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 further approval or
authorization of any securityholder, the Board of Directors or any duly
appointed committee thereof or others is required for the issuance and sale of
the Shares, except as may be required under the Act, the Exchange Act or
foreign or state securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the Offering Memorandum, and the financial
statements 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 option and other plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
and the Offering Memorandum accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(f) 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 any of its officers or any of its properties, assets or
rights before any court or governmental agency or body or otherwise which might
result in a Material Adverse Effect, have a material adverse effect on the
Company's properties, assets or rights, prevent consummation of the
transactions contemplated hereby, or which is required to be disclosed in the
Registration Statement, the Offering Memorandum or Prospectus and is not so
disclosed. There are no statutes, rules, regulations, agreements, contracts,
leases or documents that are required to be described in the Prospectus and the
Offering Memorandum, or to be filed as exhibits to the Registration Statement
by the Act or by the Rules and Regulations that have not been accurately
described in the Prospectus and the Offering Memorandum or filed as exhibits to
the Registration Statement.
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<PAGE> 5
(g) Ernst & Young LLP (the "Accountants"), which has
examined the financial statements of the Company, together with the related
schedules and notes thereto filed with the Commission as a part of the
Registration Statement, 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 thereto forming part of
the Registration Statement, the 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, the Offering Memorandum
and the Prospectus have been prepared in accordance with generally accepted
accounting principles as in effect in the United States consistently applied
throughout the periods involved ("GAAP") except as may be otherwise stated in
the Registration Statement, the Offering Memorandum and the Prospectus. The
selected and summary financial and statistical data included in the
Registration Statement, the Offering Memorandum and the Prospectus 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 and the Offering Memorandum.
(h) 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 in the
business, business prospects, properties, operations, condition (financial or
otherwise) or results of operations or any development which is likely to have
a Material Adverse Effect, (ii) any transaction which is material to the
Company, except transactions in the ordinary course of business, (iii) any
obligation, direct or contingent, which is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
other than the exercise of options which were outstanding prior to the date of
the Prospectus, or (v) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company. The Company has no material
contingent obligations which are not disclosed in the Registration Statement
and the Offering Memorandum.
(i) Except as set forth in the Prospectus and the
Offering Memorandum, (i) the Company has good and marketable title to all
material properties and assets described in the Prospectus and the Offering
Memorandum as owned by it, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, (ii)
the agreements described in the Prospectus and the Offering Memorandum to which
the Company is a party are valid agreements, enforceable by and against the
Company 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 has 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.
Except as set forth in the Registration Statement, the Offering Memorandum and
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted in the
foreseeable future.
(j) The Company now holds 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 FDA and any
5
<PAGE> 6
foreign regulatory authorities performing functions similar to those performed
by the FDA, that are material to the conduct of the business of the Company,
except for such licenses, consents, certificates, orders, 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 best knowledge of the Company, threatened which may cause
any such license, consent, certificate, order, approval or permit to be
withdrawn, cancelled, suspended or not renewed). All of the descriptions in
the Registration Statement, the Offering Memorandum and Prospectus of the legal
and governmental proceedings by or before the FDA or any foreign, state or
local government body exercising comparable authority are true, complete and
accurate in all material respects. The Company is in compliance in all
material respects will all applicable FDA, state and local, rules, regulations,
guidelines and policies, including, without limitation, applicable FDA, state
and local rules, regulations and policies relating to good manufacturing
practice and good laboratory practice.
(k) The Company has 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 which might
have a Material Adverse Effect. All tax liabilities are adequately provided
for within the financial statements of the Company.
(l) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts adequate
for its 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.
(m) The Company is not involved in any labor dispute or
disturbance nor, to the best knowledge of the Company, is any such dispute or
disturbance threatened. No collective bargaining agreement exists with any of
the Company's employees and, to the best knowledge of the Company, no such
agreement is imminent.
(n) The Company owns or possesses valid and enforceable
licenses or other rights to use all patents, patent applications, patent
rights, inventions, 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") used in the conduct of its
business as currently conducted and as proposed to be conducted as described in
the Prospectus and the Offering Memorandum. The Company has no knowledge that
it lacks or will be unable to obtain or retain 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,
except as described in the Prospectus and the Offering Memorandum. To the best
knowledge of the Company, none of the patents owned by the Company are
unenforceable or invalid. The Company has not received any notice of, and has
no knowledge of, any infringement or conflict with asserted rights or claims of
others with respect to any Intellectual Property or the Company's products,
processes or technologies which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, might have a Material Adverse
Effect on the Company. The Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any Intellectual Property. The Company has
duly and properly filed or caused to be filed with the United States Patent and
Trademark Office (the "PTO") and applicable foreign and international patent
authorities all patent applications described or referred to in the Prospectus,
and believes it has complied in all material
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<PAGE> 7
respects with the PTO's duty of candor and disclosure for each of the United
States patent applications described or referred to in the Prospectus and the
Offering Memorandum. The Company has no knowledge of any facts which would
preclude the grant of a patent from each of the patent applications described
or referred to in the Prospectus and the Offering Memorandum. The Company has
clear title to its patents and patent applications described or referred to in
the Prospectus and the Offering Memorandum, free and clear of any pledges,
liens, security interests, charges, encumbrances, claims, equitable interests,
or restrictions. The Prospectus fairly and accurately describes in all
material respects the Company's rights with respect to the Intellectual
Property.
(o) The Company is not, and will not invest the proceeds
in a manner which will result in the Company being required to be qualified as,
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) The Company has not 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 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, singly 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 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 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. The Company has not engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's 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 properties or on properties formerly owned or leased by
the Company 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 properties or former
properties during the time of the Company's ownership or lease thereof and the
Company is not aware of any spills, discharges, releases, deposits,
emplacements, leaks or disposal of any Hazardous Materials that have occurred
on or under or have emanated from any of the Company's properties or former
properties prior to the Company's ownership or lease thereof.
(r) The Company has not 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
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<PAGE> 8
or official, or other person charged with similar public or quasi-public
duties, other than payments required or not prohibited by the laws of the
United States.
(s) 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 (the "Nasdaq National Market"). The Company has
taken no action designed to terminate, 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 quotation.
(t) Neither the Company nor, to its best 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 best
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.
(u) The Company has obtained agreements from each
beneficial owner of the Company's Common Stock listed on Schedule B to this
Agreement providing that such person will not, for a period of 180 days after
the date of the Prospectus, without the prior written consent of UBS Securities
LLC, directly or indirectly, offer to sell, 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 was
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. Furthermore, such person has also agreed and consented to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the shares of Common Stock held by such person except
in compliance with this restriction. The Company has provided to counsel for
the Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder. The
Company has provided to counsel for the Underwriters true, accurate and
complete copies of all of the agreements pursuant to which its officers,
directors and stockholders have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently existing
or hereafter effected without the prior written consent of UBS Securities LLC.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
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<PAGE> 9
any of them that are required to be disclosed in the Registration Statement,
the Offering Memorandum and the Prospectus that are not so disclosed.
(x) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(y) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True
and complete copies of all such reports and other documents have been delivered
to you or your counsel.
2. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties
and covenants herein contained, and subject to the terms and conditions herein
set forth, the Company shall issue and sell the Firm Shares to the several
Underwriters, and each of the Underwriters shall 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 2(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 2, 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 9 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 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 twenty-four (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 4 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 4 in order
that any necessary changes in the Registration Statement, the Offering
Memorandum, the Prospectus or
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<PAGE> 10
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 twenty-four (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 4 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.
3. OFFERING BY UNDERWRITERS.
(a) The terms of the initial 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 initial 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 the information contained in the section of the Prospectus
entitled "Underwriting" (except for paragraphs 2 and 6 thereof) 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 any Option Closing Date, as the case may be, any 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, the Rules and Regulations thereunder
and applicable to Canadian securities laws.
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4. 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 2(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 Brobeck, Phleger & Harrison LLP, 1301 Avenue of
the Americas, New York, New York 10019 (or at a location as otherwise agreed to
by the parties) at 9:00 a.m., New York City time, on the third or fourth
business day after the date of this Agreement unless otherwise permitted by the
Commission pursuant to Rule 15c6-1 of the Exchange Act, or at such time on such
other day, not later than seven full business days after such third or fourth
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 2(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 Brobeck, Phleger & Harrison
LLP, 1301 Avenue of the Americas, New York, New York 10019 (or at a location as
otherwise agreed to by the partners) at 9:00 a.m., New York City time, on the
third business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company
shall be made to the Company or its order by wire transfer of Federal funds to
the account specified by the Company or by one or more certified or official
bank check or checks in same day funds. 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 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 Shares to be purchased by any Underwriter whose check 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.
5. 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; the Company will use its best
efforts to cause any Abbreviated Registration Statement as may be required
subsequent to the date the Registration Statement is declared effective to
become effective as promptly as possible; the Company will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration Statement
or any Abbreviated 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
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<PAGE> 12
declared effective in reliance upon Rule 430A(a) of the Rules and Regulations,
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 the Company files a term sheet pursuant to
Rule 434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the term sheet meeting the requirements of Rule 434(b)
or (c), as applicable, of the Rules and Regulations, has been filed, within the
time prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations. If for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, the Company 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 Prospectus which, in the opinion
of counsel to the several Underwriters (the "Underwriters' Counsel"), may be
necessary or advisable in connection with the 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
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 the offer 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
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<PAGE> 13
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 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
forty-fifth (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 (12) 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 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) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, 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 Company's stock option
plans or stock purchase plan, as the case may be, or (iii) the issuance of
shares of Common Stock upon exercise of the currently outstanding options or
warrants described in the Registration Statement.
(h) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, file a registration
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<PAGE> 14
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 covering the registration of the
option plans described in the Prospectus.
(i) 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.
(j) 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.
(k) The Company will use its best efforts to maintain
listing of its shares of Common Stock on the Nasdaq National Market.
(l) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(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 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
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.
6. 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
Agreement Among Underwriters, the Selected Dealer 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 corporate, patent and
regulatory 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
14
<PAGE> 15
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 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.
7. 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 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
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 (i) Ballard Spahr Andrews & Ingersoll, corporate counsel to the
Company, (ii) Pennie & Edmonds, patent counsel to the Company, and (iii) Hogan
and Hartson, L.L.P., regulatory counsel to the Company, dated the Closing Date
or such later Option Closing Date, in the forms attached hereto on Appendix A,
Appendix B and Appendix C, respectively, addressed to the Underwriters and with
reproduced copies of signed counterparts thereof for each of the
Representatives.
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<PAGE> 16
(d) You shall have received from Brobeck, Phleger &
Harrison LLP, 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 shall have received on the Closing Date and on
any later Option Closing Date, as the case may be, a 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
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the Rules and Regulations thereunder and
based upon the procedures described in its letter delivered to you concurrently
with the execution of this Agreement (herein called 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 letter shall not disclose any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company which, in your reasonable judgment, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. In addition, you shall have received from
the Accountants a letter, dated August, 1995, 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 their counsel.
(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, 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, the Offering Memorandum and the
Prospectus, when the Registration Statement became effective
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<PAGE> 17
and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement, the Offering
Memorandum 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 Offering Memorandum or the
Prospectus 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 Registration Statement, Prospectus or 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, (B) any transaction which is material to the
Company, except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent,
incurred by the Company, which is material to the Company, (D)
any change in the capital stock or outstanding indebtedness of
the Company which is material to the Company, (E) any dividend
or distribution of any kind declared, paid or made on the
capital stock of the Company or (F) any loss or damage
(whether or not insured) to the property of the Company which
has been sustained or will have been sustained which has a
Material Adverse Effect on 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 quotation 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.
8. 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
17
<PAGE> 18
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 breach of any representation, warranty, agreement or
covenant of the Company contained in this Agreement, (ii) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement (including the Prospectus as part thereof and any Abbreviated
Registration Statement or in the Offering Memorandum or any post-effective
amendment thereto (including any Abbreviated 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
(iii) 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 (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
paragraphs 2 and 6 thereof) or the last paragraph of text on the cover page of
the Prospectus or arises out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company be any Underwriter through the
Representatives expressly for use in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), 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 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 5 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 1 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 and not jointly, 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 breach
of any representation, warranty, agreement or covenant of such Underwriter
contained in this Agreement, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
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<PAGE> 19
(including the Prospectus as part thereof and any Abbreviated Registration
Statement or in the Offering Memorandum or any post-effective amendment thereto
(including any Abbreviated 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 (iii) 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 (ii) and
(iii) above, such statement or omission is contained in the Section of the
Prospectus entitled "Underwriting" (except for paragraphs 2 and 6 thereof) or
the last paragraph on the cover page of the Prospectus or arises out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto). 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 8 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
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<PAGE> 20
expenses of more than one separate firm (in addition to any local counsel) for
all of the Underwriters and each person, if any, who 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 8 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 8
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 8, 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 8 (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 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
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<PAGE> 21
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 8).
(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 8 and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
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.
9. 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, including,
without limitation, any material adverse change in the financial condition,
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, whether or not arising
in the ordinary course of business, 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 sole 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
21
<PAGE> 22
national emergency which, in the judgment of the Representatives, adversely
affects the marketability of the Shares, or (vi) 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 (vii)
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 (viii) 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 9, 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 6.
If you elect to terminate this Agreement as provided in this Section
9, the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
10. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section
8 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 8 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 10 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
8 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 8 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 10 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.
11. 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 8 hereof, the several parties (in
addition to the Company and the several Underwriters) indemnified under the
provisions of said Section 8, 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
22
<PAGE> 23
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.
12. 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 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,
2301-B Broadbirch Drive, Silver Spring, Maryland 20904 Attention: Mr. Charles
M. Fleischman. All notices given by telegraph shall be promptly confirmed by
letter.
13. 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.
[INTENTIONALLY LEFT BLANK]
23
<PAGE> 24
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,
DIGENE CORPORATION
By:
------------------------------
Mr. Evan Jones
President and Chief Executive Officer
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
MONTGOMERY SECURITIES
By: UBS SECURITIES LLC
By:
------------------------------
Name:
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
24
<PAGE> 25
SCHEDULE A
UNDERWRITERS
<TABLE>
<CAPTION>
<S> <C>
Number of
Shares
to be
Underwriters Purchased
------------ ---------
UBS Securities LLC.................................
Montgomery Securities..............................
Total [ ]
==========
</TABLE>
<PAGE> 26
SCHEDULE B
Lock-Up Agreements
26
<PAGE> 27
APPENDIX A
OPINION OF COUNSEL TO THE COMPANY
Ballard Spahr Andrews & Ingersoll shall opine to the effect that:
I. Digene Corporation (the "Company") has been duly incorporated and is
validly existing as a corporation, and is in good standing under, the
laws of the State of Delaware;
II. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business substantially as
described in the Prospectus and the Company is duly qualified to do
business as a foreign corporation and is in good standing in Maryland.
III. The Company has full power and authority (corporate and otherwise) to
enter into the Underwriting Agreement and to perform the transactions
contemplated thereby, including, without limitation, the power and
authority to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be;
IV. 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 except as rights
to indemnification or contribution may be limited by applicable laws
or equitable principles and 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;
V. 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 or subject to any preemptive right,
resale right, right of first refusal or similar right known to such
counsel;
VI. The form of certificate evidencing the Common Stock complies with the
applicable provisions of Delaware law;
VII. The Shares to be issued by the Company pursuant to the Underwriting
Agreement have been duly authorized for issuance and sale to the
Underwriters pursuant to the Underwriting Agreement and, when issued
and delivered by the Company against payment therefor in accordance
with the terms of the Underwriting Agreement, will be duly and validly
issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, and, to the knowledge of such counsel, not in
violation of any preemptive right, co-sale right, right of first
refusal or other similar right;
VIII. 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) and any required filing of an abbreviated
registration statement pursuant to Rule 462(b)
<PAGE> 28
of the Rules and Regulations has been made in the manner and within
the time period required by such Rule 462(b);
IX. The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the
financial statements (including the notes and schedules) and financial
and statistical data derived therefrom, 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 the best of 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 by the Act
and the applicable Rules and Regulations which are not described or
filed as required;
X. The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations (other than the statements
under the captions "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights," "Risk Factors -- Government Regulation,"
"Business -- Licenses, Patents and Proprietary Rights" and "Business
-- Government Regulation," as to which such counsel need express no
opinion), including the Delaware corporation law and the description
of the certificate of incorporation and bylaws of the Company, are
accurate in all material respects and fairly present the information
required to be presented by the Act or the Rules and Regulations; 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
(except that such counsel need express no opinion with respect to
statutes, rules or regulations relating to patents or United States
Food and Drug Administration regulatory matters);
XI. The statements under the captions "Risk Factors - Shares Eligible for
Future Sale," "Management - Stock Option Plans," "Management -
Employment Contracts," "Management - Compensation Committee Interlocks
and Insider Participation," "Certain Transactions," and "Description
of Capital Stock" in the Prospectus and Item 15 in the Registration
Statement, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate
summaries and fairly present, in all material respects, the
information called for with respect to such documents and matters;
XII. The information required to be set forth in the Registration Statement
in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 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 Items;
XIII. The Company is not (a) in violation of its certificate of
incorporation or bylaws, or (b) to the best knowledge of such counsel,
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 contract, indenture,
mortgage, loan agreement, joint venture or other agreement or
instrument which is filed as an exhibit to the Registration Statement
or (c) to the best knowledge of such counsel, in violation of any
writ, injunction, judgment or decree of any court or governmental
agency or body to which the Company is subject;
XIV. The execution, delivery and performance of the Underwriting Agreement
and the consummation of the transactions therein contemplated do not
and will 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, any agreement or document
filed as an
28
<PAGE> 29
exhibit to the Registration Statement, or any statute, rule or
regulation applicable to the Company (except that such counsel need
express no opinion with respect to statutes, rules or regulations
relating to patents or United States Food and Drug Administration
regulatory matters) or (b) to the best knowledge of such counsel,
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, 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 is a party or by which its properties are bound
which breach or violation would have a material adverse effect on the
business, business prospects, properties, operations, condition
(financial or otherwise) or results of operations of the Company (a
"Material Adverse Effect"), or (c) to the best knowledge of such
counsel, conflict with or result in a violation or breach of any law,
order, rule, regulation, writ, injunction, judgment or decree of any
court or governmental agency or body to which the Company is subject
(except that no opinion need to be expressed with respect to
compliance with state securities or "Blue Sky" laws), which violation
or breach would have a Material Adverse Effect;
XV. To the best knowledge of such counsel, the Company has all licenses,
consents, certificates, orders, approvals and permits of any federal,
state, local or foreign government authority that are necessary to
conduct its business substantially as described in the Registration
Statement and the Prospectus, except where failure to have such
licenses, consents, certificates, orders, approvals and permits would
not have a Material Adverse Effect (except that such counsel need
express no opinion with respect to statutes, rules or regulations
relating to patents or United States Food and Drug Administration
regulatory matters);
XVI. No consent, approval, authorization, order, designation or declaration
of or filing by or with any court or regulatory, administrative or
other governmental agency or body 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, under
foreign or state securities or Blue Sky laws or under the rules and
regulations of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters;
XVII. To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations against the
Company or any of its officers or any of its properties, assets or
rights before any court of governmental agency or body or otherwise;
XVIII. To 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.
XIX. 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;
29
<PAGE> 30
XX. The Company is not qualified as 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 (including notes and
schedules) and financial and statistical data derived therefrom, 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 [Pennsylvania], 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 upon representations or certificates
of officers of the Company, governmental officials and other persons, 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.
30
<PAGE> 31
APPENDIX B
OPINION OF PATENT COUNSEL TO THE COMPANY
Pennie & Edmonds shall indicate that they served as special counsel to
the Company, with respect to patents and proprietary rights, and shall opine to
the effect that:
I. To the best of such counsel's knowledge, the statements in the
Prospectus relating to United States patent and licensing matters
under the captions "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights" and "Business," and other references in the
Prospectus to United States patent and licensing matters, insofar as
such statements constitute a summary of legal matters, documents, or
proceedings, are accurate and present fairly the information purported
to be shown;
II. To the best of such counsel's knowledge, the statements in the
Prospectus relating to United States patent and licensing matters
under the captions "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights" and "Business," and other references in the
Prospectus to United States patent and licensing matters, do not
contain an untrue statement of material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
A-1
<PAGE> 32
APPENDIX C
OPINION OF REGULATORY COUNSEL TO THE COMPANY
Hogan & Hartson L.L.P. shall indicate that they served as special
United States Food and Drug Administration regulatory counsel to the Company,
with respect to government regulation, and shall opine that:
I. The statements in the Prospectus under the captions "Risk Factors --
Government Regulation," and "Business -- Government Regulation," and
other references in the Prospectus to those matters described in such
sections, insofar as such statements purport to summarize applicable
provisions of the Food, Drugs and Cosmetics Act and the regulations
promulgated thereunder, are accurate summaries in all material
respects of the provisions purported to be summarized under such
captions in the Prospectus; and
II. No facts have come to such counsel's attention which causes such
counsel to believe that the statements in the Prospectus under the
captions "Risk Factors -- Government Regulation," and "Business --
Government Regulation," and other references in the Prospectus to
those matters described in such sections, insofar as such statements
relate to FDA regulatory matters, at the time the Registration
Statement became effective, 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, or as of the date hereof contains an untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they
have not independently verified the accuracy and completeness of such
representations.
A-2
<PAGE> 1
214342.004(B&F)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIGENE CORPORATION
Digene Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Digene Corporation. The
Corporation was originally incorporated under the name Digene Diagnostics,
Inc., and the original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on September 10,
1987.
2. This Amended and Restated Certificate of Incorporation restates
and integrates, and also further amends, the provisions of the Certificate of
Incorporation of the Corporation, as heretofore amended or supplemented. This
Amended and Restated Certificate of Incorporation was proposed by the Board of
Directors of the Corporation in the manner and by the vote prescribed by
Section 242 of the General Corporation Law of the State of Delaware (the
"DGCL"). This Amended and Restated Certificate of Incorporation was adopted by
the stockholders of the Corporation in the manner and by the vote prescribed by
Section 242 of the DGCL by a written consent in accordance with Section 228(a)
of the DGCL. Written notice of the taking of this corporate action by the
stockholders without a meeting by less than unanimous written consent has been
given to those stockholders who did not consent in writing, in accordance with
Section 228(d) of the DGCL. The text of the Certificate of Incorporation, as
heretofore amended or supplemented, is hereby restated and amended to read in
its entirety as follows:
FIRST. The name of the Corporation is Digene Corporation.
SECOND. The location of the registered office of the Corporation in
the State of Delaware is at 1013 Centre Road, City of Wilmington, County of New
Castle 19805. The registered agent at this address is Corporation Service
Company.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
FOURTH. The aggregate number of shares which the Corporation shall
have the authority to issue and the class and the par value per share are as
follows:
<PAGE> 2
<TABLE>
<CAPTION>
PAR VALUE
CLASS SHARES PER SHARE
----- ------ ---------
<S> <C> <C>
Common Stock 50,000,000 $.01
Preferred Stock 1,000,000 $.10
</TABLE>
The number of authorized shares of any such class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote, voting together as a class.
The relative rights, preferences, and limitations of the shares of
each class shall be as follows:
(a) Common Stock.
(1) Voting. The holders of Common Stock shall be
entitled to vote on all matters to be voted upon by stockholders as may be
specifically required by law or in the Corporation's Bylaws, including the
election of directors. Each holder of Common Stock shall be entitled to one
vote per share.
(2) Dividends. Subject to all of the rights of
the holders of Preferred Stock, dividends may be paid on the shares of Common
Stock out of the assets of the Corporation legally available for the payment of
such dividends, as and when appropriately declared by the Board of Directors.
(b) Preferred Stock.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to provide for the
issuance of the shares of Preferred Stock in classes or series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
class or series, and to fix the designation, powers, preferences and rights of
the shares of each such class or series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each class or
series shall include, but not be limited to, determination of the following:
(1) The number of shares constituting that class or
series and the distinctive designation of that class or series;
(2) The dividend rate on the shares of that class or
series, whether dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of dividends on
shares of that class or series;
- 2 -
<PAGE> 3
(3) Whether that class or series shall have voting
rights, in addition to the voting rights provided by law, and, if so, the terms
of such voting rights;
(4) Whether that class or series shall have
conversion privileges, and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(5) Whether or not the shares of that class or series
shall be redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(6) Whether that series shall have a sinking fund
for the redemption or purchase of shares of that class or series, and, if so,
the terms and amount of such sinking fund;
(7) The rights of the shares of that class or series
in the event of voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, and the relative rights of priority, if any, of payment of
shares of that class or series; and
(8) Any other relative rights, preferences and
limitations of that class or series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all classes or series
of Preferred Stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.
FIFTH. (a) The Board of Directors shall be divided, with respect to
the terms for which they severally hold office, into three classes, as nearly
equal in number as possible, one class to hold office initially for a term
expiring at the next succeeding annual meeting of stockholders ("Class I"),
another class to hold office initially for a term expiring at the second
succeeding annual meeting of stockholders ("Class II") and another class to
hold office initially for a term expiring at the third succeeding annual
meeting of stockholders ("Class III"), with the members of each class to hold
office until their successors are duly elected and qualified. At each annual
meeting of the stockholders of the Corporation, the successors to the class of
directors whose term expires at such meeting shall be elected to hold office
expiring at the annual meeting of stockholders held in the third year following
the year of their election.
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<PAGE> 4
(b) The number of directors of the Corporation initially
shall be four, which number may be increased or decreased pursuant to the
Bylaws of the Corporation. The names and class of the directors who shall
serve as directors until their successors are duly elected and qualify are:
<TABLE>
<CAPTION>
NAME CLASS
---- -----
<S> <C>
John J. Whitehead Class I
Charles M. Fleischman Class II
Joseph M. Migliara Class II
Evan Jones Class III
</TABLE>
SIXTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
(a) Election of directors need not be by written ballot.
(b) The Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Except to the extent that the DGCL prohibits the elimination
or limitation of liability of directors for breaches of fiduciary duty, no
director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or
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<PAGE> 5
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment.
NINTH. (a) Each person who was or is a party or is threatened to be
made a party to or is involved in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in Section (b) of this Article NINTH, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article NINTH
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article NINTH
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) If a claim under Section (a) of this Article NINTH is not
paid in full by the Corporation within thirty days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in
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<PAGE> 6
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
providing such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense,
to protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any such expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the DGCL.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Evan Jones, its
President, and attested to by Charles M. Fleischman, its Secretary, as of this
_____ day of May, 1996.
DIGENE CORPORATION
By:
-------------------------------
Evan Jones, President
ATTEST:
By:
--------------------------------------
Charles M. Fleischman, Secretary
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<PAGE> 1
216576.004(B&F)
AMENDED AND RESTATED
BYLAWS
OF
DIGENE CORPORATION
(A DELAWARE CORPORATION)
----------------------
ARTICLE I
OFFICES
1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be as stated in the Certificate of Incorporation
or at such other location in the State of Delaware to which the registered
office shall be changed by action of the Board of Directors.
2. ADDITIONAL OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation certifying the number of shares owned by him in the Corporation.
If such certificate is countersigned by a transfer agent other than the
Corporation or its employee or by a registrar other than the Corporation or its
employee, any or all signatures on the certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
<PAGE> 2
The Corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed. The Board of Directors, in its sole discretion and as a condition
precedent to the issuance thereof, may require the owner of any lost, stolen,
or destroyed certificate, or his legal representative, to give the Corporation
a bond sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall
not be required to, issue fractions of a share. In lieu thereof, it shall
either pay in cash the fair value of fractions of a share, as determined by the
Board of Directors, to those entitled thereto or issue scrip or fractional
warrants in registered or bearer form over the manual or facsimile signature of
an officer of the Corporation or of its agent, exchangeable as therein provided
for full shares, but such scrip or fractional warrants shall not entitle the
holder to any rights of a shareholder except as therein provided. Such scrip
or fractional warrants may be issued subject to the condition that the same
shall become void if not exchanged for certificates representing full shares of
stock before a specified date, or subject to the condition that the shares of
stock for which such scrip or fractional warrants are exchangeable may be sold
by the Corporation and the proceeds thereof distributed to the holders of such
scrip or fractional warrants, or subject to any other conditions which the
Board of Directors may determine.
3. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the Corporation shall be
made on the stock ledger of the Corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Upon receipt of proper
transfer instructions from the registered owner of uncertificated shares, such
uncertificated shares shall be cancelled and issuance of new equivalent
uncertificated shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
Corporation.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to or dissent
from any corporate action in writing without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other
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<PAGE> 3
lawful action, the directors may fix, in advance, a date as the record date for
any such determination of stockholders. Such date shall not be more than sixty
days nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed, the record
date for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to consent to
corporate action shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of the meetings of stockholders are recorded; the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. When a determination of stockholders of record
entitled to notice of or to vote at any meeting of stockholders has been made
as provided in this paragraph, such determination shall apply to any
adjournment thereof; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock"
or "shares of stock" or "stockholder" or "stockholders" refers to an
outstanding share or shares of stock and to a holder or holders of record of
outstanding shares of stock when the Corporation is authorized to issue only
one class of shares of stock, and said reference is also intended to include
any outstanding share or shares of stock and any holder or holders of record of
outstanding shares of stock of any class upon which or upon whom the
Certificate of Incorporation confers such rights where there are two or more
classes or series of shares of stock or upon which or upon whom the General
Corporation Law of the State of Delaware ("DGCL") confers such rights
notwithstanding that the Certificate of Incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the Certificate of Incorporation.
6. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date
and at the time fixed, from time to time, by the directors. A special meeting
shall be held on the date and at the time as shall be designated from time to
time by the directors and stated in the notice of the meeting.
(b) PLACE. Annual meetings and special meetings shall be
held at such place, within or without the State of Delaware, as the directors
may, from time to time, fix.
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<PAGE> 4
Whenever the directors shall fail to fix such place, the meeting shall be held
at the registered office of the Corporation in the State of Delaware.
(c) CALL. Annual meetings may be called by the directors
or by any officer instructed by the directors to call the meeting. Special
meetings of the stockholders, for any purpose or purposes, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may be called by
the President and shall be called by the President or Secretary at the request
in writing of a majority of the Board of Directors, or at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the Corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
(d) NOTICE OR WAIVER OF NOTICE. Written notice of all
meetings shall be given, stating the place, date, and hour of the meeting and
stating the place within the city or other municipality or community at which
the list of stockholders of the Corporation may be examined. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. A copy of the notice of any meeting shall be given,
personally or by mail, not less than ten days nor more than sixty days before
the date of the meeting, unless the lapse of the prescribed period of time
shall have been waived, and directed to each stockholder at his record address
or at such other address which he may have furnished by request in writing to
the Secretary of the Corporation. Notice by mail shall be deemed to be given
when deposited in the United States mail, postage prepaid. If a meeting is
adjourned to another time, not more than thirty days hence, and/or to another
place, and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the
adjourned meeting. Notice need not be given to any stockholder who submits a
written waiver of notice by him before or after the time stated therein.
Attendance of a person at a meeting of stockholders shall constitute a waiver
of notice of such meeting, except when the stockholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
(e) STOCKHOLDER LIST. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city or other municipality or community where the meeting is
to be held, which place shall be specified in the notice of the meeting, or if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The
stock ledger shall
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<PAGE> 5
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by this section or the books of the
Corporation, or to vote at any meeting of stockholders.
(f) CONDUCT OF MEETING. Meetings of the stockholders
shall be presided over by one of the following officers in the order of
seniority and if present and acting -- the Chairman of the Board, the
Vice-Chairman of the Board, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman of the meeting to
be chosen by the stockholders. The order of business and all other matters of
procedure at every meeting of the stockholders shall be determined by such
presiding individual. The Secretary of the Corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present, the Chairman of the
meeting shall appoint a secretary of the meeting. Business transacted at any
special meeting shall be limited to the purposes stated in the notice of such
meeting.
(g) PROXY REPRESENTATION. As set forth in the DGCL,
every stockholder may authorize another person or persons to act for him by
proxy in all matters in which a stockholder is entitled to participate, whether
by waiving notice of any meeting, voting or participating at a meeting, or
expressing consent or dissent without a meeting. No proxy shall be voted or
acted upon after three years from its date, unless such proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
(h) INSPECTORS AND JUDGES. The Board of Directors, in
advance of any meeting, shall appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment thereof and to make a written report thereof. The Board of
Directors may designate one or more persons as alternate inspectors or judges
to replace any inspector or judge who fails to act. If an inspector or judge
is not appointed, the person presiding at the meeting shall appoint one or more
inspectors or judges to act at the meeting. Each inspector or judge, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector or judge at such meeting with
strict impartiality and according to the best of his ability. The inspectors
or judges shall (i) determine the number of shares of stock outstanding and the
voting power of each, (ii) determine the shares of stock represented at the
meeting, (iii) determine the existence of a quorum, (iv) determine the validity
and effect of proxies, (v) receive votes, ballots or consents, (vi) hear,
determine and retain for a reasonable period of record of the disposition of
any challenges made to any determination by the inspectors, (vii) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and (viii) do such acts as are proper to
conduct the election or vote with fairness to all stockholders. The inspectors
or judges may appoint or retain other persons or entities to assist the
inspectors or judges in the performance of their duties.
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<PAGE> 6
(i) QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at a meeting of stockholders
for the transaction of any business, except as provided by statute or in the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
(j) VOTING. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of statute
or the Certificate of Incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question. Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of stock having voting power held by such
stockholder. Notwithstanding the foregoing, in the election of directors, a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors shall so
elect. In the election of directors, voting need not be by ballot. Voting by
ballot shall not be required for any other corporate action except as otherwise
provided by the DGCL.
(k) STOCKHOLDER PROPOSALS. To be properly brought before
an annual meeting of stockholders, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements for business to be properly brought before an annual meeting by a
stockholder pursuant to clause (c) of the preceding sentence, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be given, either by
personal delivery or by U.S. mail, postage prepaid, or by a nationally
recognized overnight courier service to the Secretary of the Corporation not
later than 120 days in advance of the anniversary date of the Corporation's
proxy statement for the Corporation's annual meeting of stockholders in the
previous calendar year. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before
the annual meeting (including the specific proposal to be presented) and the
reasons for conducting such business at the annual meeting, (ii) the name and
record address of the stockholder proposing such business, (iii) the class and
number of shares of the Corporation that are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
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<PAGE> 7
In the event that a stockholder attempts to bring business
before an annual meeting without complying with the provisions of this section,
the chairman of the meeting shall declare to the meeting that the business was
not properly brought before the meeting in accordance with the foregoing
procedures, and such business shall not be transacted. The chairman of any
annual meeting, for good cause shown and with proper regard for the orderly
conduct of business at the meeting, may waive in whole or in part the operation
of this section.
No business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this section; provided, however,
that nothing in this section shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken
at any annual or special meeting of stockholders of the Corporation, or any
action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
Corporation shall be managed by the Board of Directors of the Corporation,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
these Bylaws directed or required to be exercised or done by the stockholders.
The use of the phrase "whole Board" herein refers to the number of directors
which the Corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The Board of Directors shall consist of not less than one nor more
than ten persons. The number of directors constituting the whole Board may be
increased or decreased from time to time by action of the Board of Directors.
3. ELECTION AND TERM. Classes of directors shall be elected at
the annual meeting of stockholders pursuant to the terms set forth in the
Certificate of Incorporation and these Bylaws. Any director may resign at any
time upon prior written notice to the Corporation.
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<PAGE> 8
Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors
then in office, though less than a quorum, or by the sole remaining director.
In the case of newly created directorships, the class of each new directorship
shall be set by a majority of the directors then in office, though less than a
quorum. If there are no directors in office, then an election of directors may
be held in the manner provided by statute. If, at the time of filling any
vacancy or newly created directorship, the directors then in office shall
constitute less than a majority of the whole Board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
shares at the time outstanding having the right to vote for such directors,
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office. Directors who are elected to fill vacancies and newly created
directorships shall hold office until the next election of the class for which
such directors shall have been chosen, and until their successors shall be
elected and qualified.
4. NOMINATION OF DIRECTORS. Nominations for the election of
directors shall be made by the Board of Directors or a committee appointed by
the Board of Directors or by any stockholder entitled to vote in the election
of directors generally. However, any stockholder entitled to vote in the
election of directors generally may nominate one or more persons for election
as directors at a meeting only if written notice of such stockholder's intent
to make such nomination or nominations has been given, either by personal
delivery or by U.S. mail, postage prepaid, to the Secretary of the Corporation
not later than (a) with respect to an election to be held at an annual meeting
of stockholders, 120 days in advance of the anniversary date of the
Corporation's proxy statement for the Corporation's annual meeting of
stockholders in the previous calendar year, and (b) with respect to an election
to be held at a special meeting of stockholders for the election of directors,
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders. Each notice shall set forth: (i)
the name and address under which the stockholder who intends to make the
nomination appears on the Corporation's books and the name and address of the
person or persons to be nominated; (ii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by the stockholder and
a representation that the stockholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (iii)
a description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (v) the consent of each nominee to serve as a director of the Corporation
if so elected. The Chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
The Chairman of any such meeting, for good cause shown and with proper regard
for the orderly conduct of business at the meeting, may waive in whole or in
part the operation of this paragraph.
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<PAGE> 9
5. MEETINGS.
(a) TIME. The Board of Directors may hold regular
meetings at such time as the Board shall fix, except that the first meeting of
a Board with newly elected members shall be held as soon after the election as
the directors may conveniently assemble.
(b) PLACE. Meetings shall be held at such place within
or without the State of Delaware.
(c) CALL. No call shall be required for regular meetings
for which the time and place have been fixed. Special meetings may be called
by or at the direction of the Chairman of the Board, the Vice-Chairman of the
Board, if any, or the President, or of a majority of the directors in office.
(d) NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice
shall be required for regular meetings for which the time and place have been
fixed. Written, oral, or any other mode of notice of the time and place shall
be given for special meetings. Notice given by telephone, telegram or similar
means shall be delivered not less than twenty-four hours prior to the meeting.
Notice given by U.S. mail shall be delivered not less than four days prior to
the meeting. The notice of any special meeting need not specify the purpose of
the meeting. Any requirement of furnishing a notice of a special meeting shall
be waived by any director who signs a written waiver of such notice before or
after the time stated therein or who attends such special meeting.
(e) QUORUM AND ACTION. A majority of the whole Board
shall constitute a quorum, except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of the
whole Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place without notice other
than announcement at the meeting, until a quorum is present. Except where the
DGCL may require a greater number, the act of the Board shall be the act by the
affirmative vote of a majority of the directors present at a meeting, a quorum
being present.
(f) CHAIRMAN OF THE MEETING. The Chairman of the Board,
if any and if present and acting, shall preside at all meetings. Otherwise,
the President, if any and if present and acting, or any other director chosen
by the Board, shall preside.
6. REMOVAL OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any director or the entire Board
of Directors may be removed, only for cause, by the holders of a majority of
shares entitled to vote at an election of directors.
7. ACTION IN WRITING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board or
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<PAGE> 10
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
8. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority to amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the Board of Directors as provided
in Section 151(a) of the DGCL, fix the designations and any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, to recommend
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or to amend the Bylaws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
9. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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<PAGE> 11
10. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
1. ELECTIONS; NUMBER; QUALIFICATIONS. The officers of the
Corporation shall be elected by the Board of Directors, and shall include a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary,
one or more Assistant Secretaries, a Treasurer and such other officers as the
Board of Directors shall choose. The Board of Directors may, by resolution,
create, increase, reduce or eliminate the number of offices to be filled by
vice presidents, assistant vice presidents, assistant secretaries or assistant
treasurers. The Board of Directors may choose such other officers and appoint
such agents as it shall deem necessary who shall hold office for such terms and
shall exercise such powers and perform such duties as the Board shall
determine. Any two or more offices may be held by the same individual.
2. ELECTION AND TERMINATION. The officers of the Corporation
shall be chosen by the Board of Directors at the annual meeting of the Board
following the annual meeting of stockholders or as soon thereafter as
conveniently possible. Each officer shall hold office until his successor
shall have been chosen and shall have qualified or until his earlier
resignation or removal. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
3. SALARIES. The salaries of all corporate officers and agents
shall be fixed from time to time as may be authorized by the Board of
Directors. No officer shall be prevented from receiving such salary by reason
of being a director.
4. (a) CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the directors and committees of directors at
which he is present. He shall perform such other duties as otherwise set forth
in these Bylaws or as may be designated by the Board of Directors.
(b) PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall, in general, supervise, manage
and control all of the business and affairs of the Corporation. He shall
preside at all meetings of stockholders, and in the absence of the
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<PAGE> 12
Chairman of the Board at all meetings of directors and committees of directors
at which he is present. He may sign with the Secretary or any other officer of
the Corporation thereunto authorized by the Board of Directors, any deeds,
bonds, mortgages, contracts or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof has been expressly delegated by these Bylaws or by the Board of
Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. He shall perform such other duties
as usually pertain to the office or may be designated by the Board of
Directors.
(c) VICE PRESIDENT. Any Vice President shall perform
such duties as from time to time may be assigned to him by the Board of
Directors or the President. In the absence of the President or in the event of
his inability or refusal to act, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated by
the Board of Directors, or in the absence of any designation, then in the order
of their election) shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President.
(d) THE SECRETARY AND ASSISTANT SECRETARIES. The
Secretary or Assistant Secretaries shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all proceedings of
the meetings of the stockholders and directors in the minute book of the
Corporation. He shall cause all notices to be duly given in accordance with
the provisions of these Bylaws and as required by law, and shall perform such
other duties as may be prescribed by the Board of Directors or President, under
whose supervision he shall be. He shall see that the lists, books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed. He shall have charge and custody of the seal of the
Corporation, and he, or an assistant secretary, shall have authority to affix
the same to any instrument requiring it and when as affixed, it may be attested
by his signature.
(e) THE TREASURER AND ASSISTANT TREASURERS. The
Treasurer and Assistant Treasurers shall have the custody of the corporate
funds and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors, and shall
render a report and account of the transactions of the Corporation and of the
financial condition of the Corporation whenever so required by the Board of
Directors.
5. RESIGNATIONS; REMOVAL; FILLING OF VACANCIES. Any officer may
resign at any time by giving notice of such resignation to the Board of
Directors, the Chairman of the Board or President or the Secretary of the
Corporation. Unless otherwise specified in such notice, such resignation shall
be effective upon receipt of such notice by the Board of Directors or such
officer. Any officer may be removed at any time, either for or without cause,
by action of the Board of Directors. Any vacancy in any office may be filled
at any time by action of the Board of Directors.
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<PAGE> 13
6. BONDING. Except as otherwise provided in the Certificate of
Incorporation or the Bylaws, none of the officers, assistant officers or other
employees, agents or representatives of the Corporation shall be required to
give bond unless the Board of Directors shall in its discretion require any
such bond or bonds. Any bond so required shall be payable to the Corporation
in such amount and with such conditions and security as the Board of Directors
may require.
ARTICLE V
INSTRUMENTS, DEPOSITS, CHECKS, PROXIES
1. EXECUTION OF INSTRUMENTS. The Chairman of the Board,
President or any Vice President may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation, subject to
the control of the Board of Directors. The Board of Directors may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute and deliver any instrument in the name and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances.
2. DEPOSITS. Funds of the Corporation may be deposited from time
to time to the credit of the Corporation with such depositories as may be
selected by the Board of Directors or by any committee, officer or officers,
agent or agents of the Corporation to whom such power may be delegated from
time to time by the Board of Directors.
3. CHECKS, DRAFTS, ETC. All checks, bills of exchange and other
orders for payment of money, promissory notes, acceptances or other evidences
of indebtedness are to be signed by such officer or officers, employee or
employees, agent or agents of the Corporation, and in such manner, as are
authorized by resolution of the Board of Directors, or are authorized by any
committee, officer or officers, employee or employees, of the Corporation to
whom such power is delegated from time to time by the Board of Directors. To
the extent authorized by the Board of Directors such signature or signatures
may be facsimiles.
4. PROXIES. Proxies to vote with respect to shares of stock of
other Corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
President or any Vice President, or by any other person or persons thereunto
authorized by the Board of Directors.
ARTICLE VI
DIVIDENDS
1. DECLARATION. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash,
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<PAGE> 14
in property, or in shares of the capital stock, subject to the provisions of
the Certificate of Incorporation.
2. RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE VII
MISCELLANEOUS
1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
2. NOTICES.
(a) Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram.
(b) Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
3. AMENDMENT OF BYLAWS. These Bylaws may be altered, amended or
repealed from time to time, and new Bylaws may be made and adopted by action of
the stockholders or by action of the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors (if notice of
such alteration, amendment, repeal or adoption of new Bylaws be contained in
the notice of such special meeting).
4. SEAL. The corporate seal shall be a flat-faced circular die
and shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware."
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<PAGE> 1
May 20, 1996
Digene Corporation
2301-B Broadbirch Drive
Silver Spring, Maryland 20904
RE: DIGENE CORPORATION -
REGISTRATION STATEMENT ON FORM S-1
(REGISTRATION NO. 333-2968)
Gentlemen:
We have acted as counsel to Digene Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement, as amended to the date hereof, filed on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") in connection with the registration under the Securities Act of
1933, as amended, of 3,450,000 shares (including up to 450,000 shares of Common
Stock subject to an over-allotment option granted by the Company to the
underwriters) of the Company's common stock, $.01 par value per share (the
"Common Stock"), being sold by the Company.
We are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the proposed authorization, issuance
and sale of the Common Stock. In this connection, we have examined and relied
upon such corporate records and other documents, instruments and certificates
and have made such other investigation as we deemed appropriate as the basis
for the opinion set forth below. In our examination, we have assumed legal
capacity of all natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of documents submitted to us as certified, conformed or
photostatic copies and the authenticity of such original documents.
The opinion expressed below is based on the assumption that
the Registration Statement will become effective.
<PAGE> 2
Digene Corporation
May 20, 1996
Page 2
Based upon the foregoing, we are of the opinion that the
shares of Common Stock to be sold by the Company have been duly authorized and,
when issued, delivered and paid for in accordance with the terms of the
Underwriting Agreement, the form of which is filed as Exhibit 1.1 to the
Registration Statement, and upon satisfaction of all conditions contained
therein, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit
5.1 to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part thereof.
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE> 1
EXHIBIT 10.26
DIGENE CORPORATION
Registration Rights Agreement
This Agreement, dated as of April _, 1996, is entered into by and
among Digene Corporation, a Delaware corporation (the "Company"), and the
stockholders listed on the signature pages hereto, together with such other
stockholders of the Company as may hereafter become parties to this agreement
by their execution and delivery to the Company of the Counterpart and
Acknowledgement in the form attached hereto as Exhibit A (collectively, the
"Holders").
WHEREAS, a Certificate of Amendment, filed with the Secretary of State
of the State of Delaware (the "Delaware Secretary of State") on November 5,
1991, sets forth certain registration rights relating to the shares of 8%
Redeemable Convertible Preferred Stock, $.10 par value per share (the "8%
Preferred Stock"), of the Company;
WHEREAS, a Certificate of Designations, filed with the Delaware
Secretary of State on November 5, 1991, sets forth certain registration rights
relating to the shares of 1991 Series Redeemable Convertible Preferred Stock,
$10 par value per share (the "1991 Preferred Stock"), of the Company;
WHEREAS, a Certificate of Designation, filed with the Delaware
Secretary of State on May 31, 1994, sets forth certain registration rights
relating to the shares of 1994 Series Redeemable Convertible Preferred Stock,
$.10 par value per share (the "1994 Preferred Stock," and, collectively with
the 8% Preferred Stock and the 1991 Preferred Stock, the "Preferred Stock"), of
the Company;
WHEREAS, upon completion of the Company's initial public offering
pursuant to a Registration Statement on Form S-1 (Reg. No. 333-2968) filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Securities Act") (the "Offering"), all outstanding shares of
Preferred Stock will be converted into shares of the Company's Common Stock,
$.01 par value per share (the "Common Stock");
WHEREAS, pursuant to the terms of Common Stock Purchase Warrants (the
"Warrants") issued in connection with the sale of the 1994 Preferred Stock, the
holders of such warrants were granted registration rights upon the same terms
and subject to the same conditions as the registration rights granted to the
holders of the 1994 Preferred Stock;
<PAGE> 2
WHEREAS, it is the desire of the Company to amend and restate its
Certificate of Incorporation, and to exclude the terms of the aforementioned
registration rights for the Preferred Stock from the text of the Amended and
Restated Certificate of Incorporation to be filed with the Delaware Secretary
of State;
WHEREAS, the holders of a majority of the outstanding shares of the
Common Stock and each series of the Preferred Stock have approved the Amended
and Restated Certificate of Incorporation; and
WHEREAS, as a condition to their approval of the Amended and Restated
Certificate of Incorporation, the holders of a majority of the outstanding
shares of each series of Preferred Stock have required that registration rights
similar to those conveyed pursuant to the Certificate of Amendment and the
Certificates of Designations for the Preferred Stock be set forth in the
Agreement.
NOW THEREFORE, in consideration of the premises, the mutual
promises and covenants contained in this Agreement, and for other valuable
consideration, the receipt and sufficiency of which is acknowledged by all of
the parties hereto, the parties hereto agree as follows:
1. Certain definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Conversion Shares" shall mean the shares of Common Stock issued upon
mandatory conversion of the Preferred Stock into Common Stock upon completion
of the Offering.
"Stock" shall mean with respect to any Holder the Conversion Shares
and the Warrant Shares, and any Common Stock issued as a dividend or
distribution thereon or in substitution therefor; provided that no security
shall be deemed to be Stock (i) at any time after it first becomes eligible for
immediate resale pursuant to subsection (k) of Rule 144 promulgated under the
Securities Act, as such rule may from time to time be amended or supplemented
("Rule 144"), unless subsequent to such time the Company's action or omission
causes Rule 144(k) to be unavailable in a proposed sale of such security and
(ii) at any time after it has been sold pursuant to an effective registration
statement filed under the Securities Act, or pursuant to any other public
offering or any Transfer under Rule 144.
"Transfer" shall mean any pledge, sale, assignment, gift or other
transfer of any Stock or any interest therein, whether or not such transfer
would constitute a "sale," as such term is defined in Section 2(3) of the
Securities Act.
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<PAGE> 3
"Underwriter" shall mean each person who is or may be deemed an
"underwriter," as that term is defined in Section 2(11) of the Securities Act,
in respect of securities which shall have been registered by the Company under
the Securities Act pursuant to any of the provisions of this Agreement.
"Warrant Shares" shall mean the shares of Common Stock which were
issued upon exercise of the Warrants.
2. Incidental Registration. If the Company, for itself or for
the holders of any of its securities, shall at any time or times determine to
register under the Securities Act any shares of its capital stock or other
securities, and such registration is other than:
(a) the registration of an offer and sale of securities
to employees of, or other persons providing services to, the Company, pursuant
to any employee or similar benefit plan, registered on Form S-8 or a comparable
form; or
(b) a registration relating to a merger, acquisition or
other transaction of the type described in Rule 145 under the Securities Act,
as such rule may from time to time be amended or supplemented ("Rule 145"), or
in any comparable rule, and registered on Form S-4 or on some similar form; or
(c) a registration on any registration form which does
not permit secondary sales;
the company will notify each Holder in each case of that determination at least
25 days prior to the filing of such registration statement. In that event, upon
the written request of a Holder, received by the Company within 15 days after
the mailing of the notice by the Company, the Company shall cause the Stock
specified by such Holder to be included in such registration statement as soon
as practicable after receiving the request from that Holder. Notwithstanding
the foregoing, the Company shall not be obligated to include any stock held by
a Holder in any such registration statement if, in the opinion of counsel to
the Company reasonably acceptable to holders of a majority of the Stock
requested to be registered therein, exemptions from registration are available
under which all shares requested to be registered can be sold within 60 days
after the date of receipt of such notice.
3. Required Registration.
(a) If at any time the Holder(s) of at least 51% of the
aggregate of the then-outstanding Stock shall notify the Company in writing
that such Holder(s) intend(s) to offer or cause to be offered for sale at least
33-1/3% or more of such
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<PAGE> 4
then-unregistered shares of Stock held by such Holder(s) or such amount of
Stock having, in the reasonable judgment of such Holder(s), probable gross
proceeds of at least $5,000,000 to the Holders and shall request the Company to
cause such Stock to be registered under the Securities Act, the Company shall
prepare and file a registration statement covering such Stock as soon as
practicable after receipt of such notice; provided, however, that the Company,
in preparing a registration statement pursuant to a notification under this
Section 3, may reasonably delay such preparation for the minimum time
reasonably necessary (x) in order for its independent certified public
accountants to prepare any financial data, including interim financial data,
which is required to be included in such registration statement, or (y) if such
notice is received on or after the 30th day following the beginning of the
Company's fourth fiscal quarter. The rights provided under this Section 3
shall be in addition to the rights of the Holders provided under Section 2
hereof, and shall be available to Holders on not more than one occasion for all
Holders.
(b) No such request pursuant to Section 3(a) shall be
made, or if made shall be effective, during the period commencing with the date
of notice, if any, by the Company under Section 2 of an intention to register
its securities and ending on the earlier of (x) three months after either the
effective date of such registration or the abandonment by the Company of its
intention to register such securities or (y) 120 days after such notice. The
registration right granted pursuant to Section 3(a) shall be deemed to have
been used only upon such registration statement becoming and remaining
effective in accordance with the provisions hereof. Anything contained herein
to the contrary notwithstanding, with respect to the registration requested
pursuant to Section 3(a), the Company may, in its discretion, include in any
such registration any authorized but unissued shares of Common Stock for sale
by the Company or by other Holders. The Company shall have the privilege of
postponing action under this Section 3 for a reasonable period of time (not
exceeding 90 days) on not more than one occasion if the filing of such
registration statement would, in the opinion of the Board of Directors of the
Company, adversely affect a material financing project or a material proposed
or pending acquisition, merger or other similar corporate event to which the
Company is or expects to be a party, but such registration shall not be further
delayed by virtue of Section 3(a).
(c) In the event of an underwritten public offering
pursuant to this Section 3, the Company shall select the managing
Underwriter(s).
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<PAGE> 5
4. Registrations on Form S-3.
(a) If (i) a Holder or Holders of at least 25% of the
aggregate of the then-outstanding Stock request in writing (such request
specifying that it is being made pursuant to this Section 4) that the Company
file a registration statement on Form S-3 (or any successor form to Form S-3,
regardless of its designation) for a public offering of shares of Stock and
(ii) the Company is a registrant entitled to use Form S-3 to register such
shares, then the Company shall use its best efforts to cause such shares to be
registered on Form S-3 (or any successor form to Form S-3).
(b) The right of Holders to request the Company to file a
registration statement on Form S-3 shall be available to Holders no more than
twice during any consecutive twelve-month period, provided that such
registrations shall have become effective, and shall be supplemental to any
other registration rights.
5. Condition of Obligations to Register Stock. The obligations
of the Company under this Agreement to cause a registration statement to be
filed or to cause Stock to be included in a registration statement shall not
arise until the Holder shall have provided such information and shall have
executed such customary documents as may reasonably be required in connection
with such registration.
6. Registration Procedures. At any time at which the Company may
be required by the provisions of this Agreement to register any Stock, the
Company shall, as promptly as possible:
(a) Prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Stock and cause such
registration statement to become and remain effective.
(b) Prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
necessary to keep such registration statement effective until the earlier of
(x) the date which is 120 days after the date on which such registration
statement shall become effective or, unless the Securities Act requires
otherwise, (y) the date as of which all the Stock covered by such registration
statement has been sold. Additionally, the Company shall exercise its best
efforts to maintain the effectiveness for up to one year of any registration
statement covering Stock pursuant to this Agreement, or such earlier date as of
which all the Stock covered by such registration statement has been sold.
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<PAGE> 6
(c) Furnish to each Holder, in conformity with the
requirements of the Securities Act, such number of copies of the prospectus
contained in such registration statement, including each preliminary
prospectus, and, such other documents as such Holder may reasonably request in
order to facilitate the disposition of the stock owned by such Holder.
(d) Use reasonable efforts to register or qualify the
Stock covered by such registration statement under the securities or Blue Sky
laws of such jurisdictions as each Holder shall reasonably request, and do any
and all other acts and things which may be necessary or reasonably advisable to
enable such Holder to consummate the disposition of the Stock owned by such
Holder in such jurisdictions during the period provided for under this Section
6(d), provided that the Company will not be required to (x) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction.
(e) Notify each Holder of any Stock covered by such
registration statement, at any time when a prospectus relating to such
registration statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made. After so notifying each
Holder and securing such approvals as may be necessary, the Company shall
promptly prepare and furnish to each Holder such reasonable number of copies of
any supplement to or amendment of such prospectus as may be necessary so that
thereafter such prospectus shall not include any untrue statement of a material
fact or omit to state a material fact which is required to be stated therein or
which is necessary to make the statements therein not misleading in the light
of the circumstances under which they were made.
(f) Provide an institutional transfer agent for the Stock
on or before the effective date of the first registration of any Stock.
(g) Promptly notify all selling Holders of any stop order
or similar proceeding initiated by state or federal regulatory bodies and
promptly take all steps necessary to remove such stop order or similar
proceeding.
-6-
<PAGE> 7
7. Description and Allocation of Expenses. All expenses which
are incurred by the Company in complying with any of the foregoing provisions
of this Agreement and which are incidental to or required by any registration,
including, among others, all federal and state registration fees, all
qualification and filing fees, all printing expenses, all fees and
disbursements of counsel for the Company, and all fees and expenses of
accountants for the Company, are collectively referred to as "Registration
Expenses." "Registration Expenses" shall also include the reasonable fees, plus
disbursements, of one law firm which is reasonably satisfactory to the Company
and which is selected by the Holders who are requesting such registration (and
who hold a majority of the shares of Stock to be registered) but shall not
include Underwriters' fees and discounts. If the Company is required by the
provisions of this Agreement to effect the registration of any shares of Stock
under the Securities Act, the Company shall bear all Registration Expenses
incurred in connection with the registration pursuant to Section 3(a) and all
registrations pursuant to Sections 2 and 4.
8. Indemnification; Underwriting Agreements. In the event the
Company registers under the Securities Act any shares of Stock held by a
Holder:
(a) The Company agrees to indemnify and hold harmless
such Holder, and each person, if any, who controls such Holder within the
meaning of the Securities Act, against any and all liability or expense,
including attorneys' fees, arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact in any related
registration statement, prospectus, offering circular, notification or other
document furnished or authorized by the Company, or (ii) any omission or
alleged omission of any material fact required to be stated therein or
necessary to make the statements therein not misleading, unless any such actual
or alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by any such Holder
specifically for use in connection with the preparation of the registration
statement, prospectus, offering circular, notification or other document.
(b) The obligations of the Company under Sections 2, 3
and 4 above are subject to the following conditions:
(i) Each Holder whose Stock is to be included in
any registration or qualification referred to in this Agreement shall agree, in
writing, prior to the filing of such registration or filing, to indemnify and
hold harmless (x) the Company, (y) each person, if any, who controls the
Company within the meaning of the Securities Act, and (z) the officers and
directors of the Company, against any and all liability or
-7-
<PAGE> 8
expense, including attorneys' fees, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact in any related
registration statement, prospectus, offering circular, notification or other
document furnished or authorized by the Company, or upon any omission or
alleged omission of any material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to actual or alleged statements or omissions made in reliance upon
information furnished in writing by or on behalf of such Holder specifically
for inclusion therein.
(ii) If such registration or qualification relates
to an offering which is to be underwritten, each such Holder shall enter into
an underwriting agreement in usual and standard form (including provisions with
respect to indemnification and contribution) respecting such offering,
(iii) Each Holder whose Stock is to be included in
any registration referred to in this Agreement shall complete and execute all
questionnaires, powers of attorney and other documents and furnish all
information to the Company as is necessary to effect such registration.
(iv) No Holder(s) may include any Stock in any
underwriting incident to a registration effected pursuant to Section 2, 3 or 4
if any securities are being registered by the Company for sale in such
underwriting, unless the Underwriter(s) managing the offering shall determine
and advise in writing that such inclusion will not interfere with the
successful marketing of the underwritten securities. In the event that the
number of shares of Stock which may be included in any such registration is
limited by the managing Underwriter(s), the number of shares of Stock to be
included in the registration statement shall be limited to the quantity which
the Underwriters believe will not interfere with the success of the
underwriting, and the shares of Stock to be included in the registration
statement shall be apportioned pro rata among the Holders of such Stock
according to the total amount of Stock specified by each Holder in such
Holder's notice concerning Stock to be included in the registration statement.
Notwithstanding anything to the contrary in this Subsection (iv), a Holder may
include in the registration statement the total amount of such Stock specified
by such Holder in such Holder's notice.
The agreement of any Holder to so indemnify the Company under
this Section 8 shall be limited to an amount equal to the amount received by
such Holder upon the sale of the Stock pursuant to such registration statement.
(c) A party requesting indemnification pursuant to this
Section 8 (the "Indemnified Party") shall promptly
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<PAGE> 9
furnish notice of such request to the party who is required to indemnify the
Indemnified Party (the "Indemnifying Party"). Such notice shall in no event be
given more than 30 days following commencement of any suit or proceeding, or
the making of a formal claim, with respect to which such indemnification is
sought. Any indemnification agreement furnished pursuant to the provisions of
this Section 8 shall permit a party who would otherwise be an Indemnifying
Party under this Section 8 not to be required to so indemnify the other party
if, for any settlement of any action or claim relating to a loss, liability or
expense, such settlement is effected without the consent of such would-be
Indemnifying Party; but if such settlement is effected with the consent of such
Indemnifying Party, or if there shall be final judgment for the plaintiff in
any such action, such Indemnifying Party shall agree to indemnify and hold
harmless the Indemnified Party from and against any loss, liability or expense
by reason of such settlement or judgment. All such indemnification agreements
shall further require that the Indemnifying Party be afforded a reasonable
opportunity to participate in the defense of any such suit or proceeding and
that any Indemnified Party be reimbursed for attorneys' fees and similar
expenses as such fees and expenses are incurred during the pendency of such
claims or proceedings.
9. Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of the Company will bind and inure to the benefit of
the successors and assigns of the Company whether so expressed or not. The
provisions of this Agreement which are for the benefit of Holders are
nontransferable, except that such provisions shall inure to the benefit of any
subsequent transferee of Stock who duly executes and deliver to the Company a
Counterpart and Acknowledgement in the form attached hereto as Exhibit A.
10. Effectiveness: Condition Precedent. This Agreement shall
become effective immediately upon completion of the Offering, and the
completion of the offering shall be a condition precedent to the effectiveness
of the Agreement.
11. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
(i) two business days after being sent by registered or certified mail, return
receipt requested, postage prepaid or (ii) one business day after being sent
via a reputable nationwide overnight courier service guaranteeing next business
day delivery, in each case to the intended recipient as set forth below:
-9-
<PAGE> 10
If to the Company, at 2301-B Broadbirch Drive, Silver Spring,
Maryland 20904, Attention: President;
If to a Holder, at his or its address set forth in the
Company's stock ledger.
Any party may give any notice, request, consent or other
communication under this Agreement using any other means including, without
limitation, personal delivery, messenger services, telecopy, first class mail
or electronic mail), but no such notice, request, consent or other
communication shall be deemed to have been duly given unless and until it is
actually received by the party for whom it is intended.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least a majority of the Stock. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
term, condition or provision unless specifically provided in the terms of such
waiver or exception.
(d) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
(e) Severability . The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Delaware
(without reference to the conflicts of law provisions thereof).
Executed as of the date first written above.
DIGENE CORPORATION
By:
-------------------------------------
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<PAGE> 11
HOLDERS:
Armonk Partners
By:
--------------------------------------
Its:
-------------------------------------
International Murex Technologies Limited
By:
--------------------------------------
Its:
-------------------------------------
-11-
<PAGE> 12
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
COUNTERPART AND ACKNOWLEDGEMENT
TO: DIGENE CORPORATION
RE: The Registration Rights Agreement (the "Agreement") dated as of April
_, 1996 by and among Digene Corporation, Armonk Partners,
International Murex Technologies Limited and certain other Holders (as
defined in the Agreement)
The undersigned hereby agrees to be bound by the terms of the
Agreement as a party to the Agreement, and shall be entitled to all benefits of
a Holder pursuant to the Agreement, as fully and effectively as though the
undersigned had executed a counterpart of the Agreement together with the other
parties to the Agreement. The undersigned hereby acknowledges having received
and reviewed a copy of the Agreement.
DATED this day of , 1996.
------------ ----------------
HOLDER
Signature:
------------------------------
Print Name:
-----------------------------
-12-
<PAGE> 1
EXHIBIT 23.1
CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 22, 1996, (except Note 15, as to which the
date is May 20, 1996), in Amendment No. 3 to the Registration Statement (on Form
S-1) and related Prospectus of Digene Corporation (formerly Digene Diagnostics,
Inc.) for the registration of 3,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Vienna, Virginia
May 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF JUNE 30, 1994 AND 1995 AND
MARCH 31, 1996, AND FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND FOR THE
NINE MONTHS ENDED MARCH 31, 1995 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1996
<PERIOD-START> JUL-01-1994 JUL-01-1995
<PERIOD-END> JUN-30-1995 MAR-31-1996
<CASH> 1,142,266 403,503
<SECURITIES> 75,000 75,000
<RECEIVABLES> 1,128,158 1,211,437
<ALLOWANCES> 51,000 61,000
<INVENTORY> 989,315 1,292,187
<CURRENT-ASSETS> 3,405,898 3,063,422
<PP&E> 732,059 679,333
<DEPRECIATION> 1,653,646 1,919,353
<TOTAL-ASSETS> 4,485,312 3,921,051
<CURRENT-LIABILITIES> 1,299,329 1,668,266
<BONDS> 0 0
13,114,942 14,062,942
0 0
<COMMON> 3,684 3,748
<OTHER-SE> (13,007,719) (14,701,114)
<TOTAL-LIABILITY-AND-EQUITY> 4,485,312 3,921,051
<SALES> 5,413,370 4,464,394
<TOTAL-REVENUES> 6,162,587 4,757,461
<CGS> 2,652,091 2,132,762
<TOTAL-COSTS> 2,652,091 2,132,762
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 15,000 10,000
<INTEREST-EXPENSE> 232,076 139,131
<INCOME-PRETAX> (1,513,910) (1,706,831)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,513,910) (1,706,831)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,513,910) (1,706,831)
<EPS-PRIMARY> (1.78) (2.00)
<EPS-DILUTED> 0 0
</TABLE>
