<PAGE>
As filed with the Securities and Exchange Commission on December 9, 1998
Registration No. 333-66093
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT No. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMNICORDER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware (8099-02-01) (11-3386214)
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>
---------------------
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
---------------------
Mark A. Fauci
Chairman, President and Chief Executive Officer
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Name, address, including zip code and telephone number, including area code of
agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Richard A. Lippe, Esq.
Allan Grauberd, Esq. Benjamin M. Polk, Esq.
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. Whitman Breed Abbott & Morgan LLP
190 Willis Avenue 200 Park Avenue
Mineola, New York 11501 New York, New York 10166
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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,
check the following box: / /
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1)(3) Per Share (2) Price (1)(2)(3) Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ......................... 1,391,500 shares $10 $14,168,000 $ 3,938.70
=================================================================================================================
</TABLE>
(1) Includes 165,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Includes shares of Common Stock issuable pursuant to warrants granted to
the Underwriter. The warrants entitle the Underwriter to purchase a number
of shares of Common Stock equal to 10% of the aggregate number of shares
of Common Stock issued in the Offering. These warrants are exercisable at
120% of the public offering issue price. The shares issuable pursuant to
these warrants have, for fee calculation purposes only, an assumed
issuance price of $12 per share.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion dated December 10, 1998
Prospectus
[GRAPHIC OMITTED]
1,100,000 Shares of Common Stock
[$ ] per share
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
if You Can Afford a Complete Loss. See "RISK FACTORS" Beginning on Page 7.
The Offering
<TABLE>
<CAPTION>
Per Share Total
----------- ------
<S> <C> <C> <C>
OmniCorder Technologies,
Public Price .................... Inc. provides advanced
Underwriter screening services and
clinical information for the early detection and
Discount ....................... management of breast cancer
Proceeds to OmniCorder .......... and other diseases.
</TABLE>
Proposed Trading Symbol:
NASDAQ SmallCap MarketSM -- OCTI
Pacific Exchange -- OCT
We currently anticipate that the initial public offering price will range
between $8.00 and $10.00 per share. No public market currently exists for our
shares. The offering price may not reflect the market price of our shares after
the offering. We have granted Cambridge Capital, LLC, who will act as the
principal underwriter, an over-allotment option to buy up to [ ] ______
additional shares, equal to 15% of the number of shares sold in this offering,
at the underwriter discount per share, for a period of 45 days from the date
that this Prospectus becomes effective.
This Offering is a "firm commitment" underwriting. This means that all
1,100,000 shares must be purchased by the principal underwriter (subject to
certain conditions) if it purchases any of the shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
[GRAPHIC OMITTED]
January ___, 1999
<PAGE>
4 Digital Images Stylized Artwork of Rocket, Photo of Examination
of Breasts Satellite and Computer Chips of Female
OmniCorder Technologies, Inc.
The Front Wave of Health Technology
Applying Space and Defense Technology to the
Detection and Management of Breast Cancer
OmniCorder believes its system will accurately detect, in 5-10 minutes,
breast cancer tumors substantially earlier and more accurately than present
methods. The system can be deployed in any physician's office and requires no
physical contact.
<PAGE>
PROSPECTUS SUMMARY
The following summarizes certain information in this Prospectus. The more
detailed description elsewhere in the Prospectus governs the matters discussed
in this summary.
The Company
Omnicorder Technologies, Inc. ("OmniCorder") is a development stage
company incorporated in 1997 to engage in the business of providing innovative
screening services and clinical information for the early detection and
management of breast cancer and other diseases. OmniCorder's initial endeavor,
using a patented technology called Dynamic Area Telethermometry ("DATTM"),
provides a painless, non-contact, radiation-free screening and diagnostic
service for the early detection and management of breast cancer. OmniCorder
believes that the DAT technology will provide physicians with increased
diagnostic capability, thus reducing the number of mistaken diagnoses and
unnecessary biopsies (a surgical procedure in which tissue is removed from the
breast to determine if cancer is present).
Recent statistics published by the American Cancer Society show that 1 in
9 women in the United States will develop breast cancer over their lifetime.
The American Cancer Society also estimates that in 1998 some 178,700 new cases
of breast cancer will be diagnosed among women in the United States. An
estimated 1,600 cases will be diagnosed among men. Breast cancer is the second
leading cause of cancer death in women, exceeded only by lung cancer. It is the
leading cause of cancer death among women aged 40 to 55. The American Cancer
Society estimates that, in 1998, there will be about 43,900 deaths from breast
cancer in the United States.
Early detection of cancerous tumors is the key factor in reducing
mortality rates among women who develop breast cancer. Currently, the most
popular methods for early detection of breast cancer include breast
self-examination, breast examination by a physician and x-ray mammography.
While breast self-examination and breast examination by a physician are
recommended by the American Cancer Society, generally these methods tend to
detect cancer at a more advanced stage, often requiring more invasive treatment
and resulting in higher mortality rates.
After breast examination, x-ray mammography is the most common method of
clinical detection and diagnosis. However, x-ray mammography has various
drawbacks:
o it relies on the detection of the presence of a calcified mass, which
generally forms 3-7 years after a tumor has been growing.
o approximately 70% false positive diagnoses; in other words, 70% of women
diagnosed with a positive x-ray mammography finding will undergo a
surgical biopsy which will indicate that the x-ray finding was wrong.
o x-ray mammography will not detect cancer in 25% to 45% of pre-menopausal
women who have cancer and in 10% to 20% of post-menopausal women who have
cancer.
o x-ray mammography can be a physically uncomfortable and intrusive
process.
o x-ray mammography requires irradiation of the breast which, over time,
can increase the risk of cancer.
OmniCorder believes DAT has significant advantages over x-ray mammography
and other existing breast cancer screening modalities, including:
3
<PAGE>
o reliance upon detection of changes in blood flow distribution
characteristics in the breasts, which occur early in a tumor's growth,
rather than reliance on the detection of a calcified mass.
o a significant reduction of false positives which in turn will reduce the
number of surgical biopsies.
o a significant reduction of false negatives.
o elimination of risks posed by x-ray irradiation of the breast as well as
elimination of discomfort, pain and/or bruising which occurs during the
breast compression procedure used for x-ray mammography.
o an approximate 25% to 50% cost-reduction per examination when compared
with x-ray mammography.
DAT detects changes in blood flow distribution chacteristics in a woman's
breasts caused by cancer, utilizing new patented infrared sensor technology
provided under exclusive license for specific biomedical applications to
OmniCorder by the Lockheed Martin Corporation and the California Institute of
Technology's Jet Propulsion Laboratory. This detector technology, originally
developed for the Department of Defense's Ballistic Missile Defense Initiative
(sometimes referred to as "Star Wars"), is 50 times more sensitive than
previously available infrared detectors, and it can collect data ten times more
rapidly than the best of previously available technology. These capabilities
enable DAT to analyze temperature variations with cameras operating at over 100
frames per second and measure temperature differences of .001 degrees
centigrade, a 2,000 times improvement in temperature sensitivity over contact
thermography, an early version of a "heat sensitive" screening tool. As
discussed later in this Prospectus, these capabilities are critical in
observing the changes which DAT analyzes to detect cancerous tumors.
The data collected will be analyzed utilizing DAT methods and software,
which were invented by Professor Michael Anbar. The DAT technology is patented
and under exclusive license to OmniCorder. Professor Anbar is one of the
world's foremost authorities on biomedical applications of infrared imaging.
During the DAT screening examination, which is anticipated to take less
than 10 minutes, the patient is positioned in front of a custom-designed camera
which records infrared light that is passively emitted from the body. The data
collected by the camera is then analyzed using OmniCorder's proprietary
software which processes the data according to the diagnostic principles of
DAT. The results of this analysis are provided to the patient's doctor for
interpretation. OmniCorder believes DAT can detect minute disease related
changes in the breasts which occur as a result of the release of nitric oxide
by breast cancer cells.
<PAGE>
OmniCorder intends to make its service available in both specialists'
offices (radiologists, surgeons and oncologists) and select primary care
providers' offices. The healthcare provider will be furnished with the
following components (the "DAT System")
o a custom built infrared camera, computer workstation and related hardware.
o proprietary diagnostic software.
o a secure information distribution network.
o comprehensive training provided by OmniCorder.
o maintenance, service and upgrades
OmniCorder intends to sell regional licenses to market the DAT System to
large healthcare provider organizations which will, in turn, deliver its breast
cancer screening and diagnostic service through their network of primary and
specialist physicians. OmniCorder will provide the DAT System for a one-time
license fee, which it estimates will range from $500,000 to $1,500,000,
depending on the population of the region and the terms of the license. This
license fee will include the cost to the licensee of the components of the DAT
System.
4
<PAGE>
OmniCorder anticipates that the fee to the patient for an initial
screening examination will be approximately $50.00-$75.00. OmniCorder will
receive a fee of approximately 50% of this amount from the provider for each
initial screening examination. The balance of the examination fee will be
retained by the provider. These fees may vary.
The device to be employed in the DAT System requires clearance from the
United States Food and Drug Administration (the "FDA") before it can be
marketed. OmniCorder intends to initially rely on a type of FDA clearance to
market adjunct (supplementary) diagnostic devices which it hopes to obtain by
mid-1999. This type of clearance allows companies to market devices that are
used together with an existing approved method. OmniCorder will then request
FDA approval for marketing the DAT System as a stand- alone device, i.e., a
sole diagnostic screening tool for detection of breast cancer. This process is
anticipated to take two years from the time OmniCorder receives FDA clearance
to market its service as an adjunct (supplement) to existing diagnostic
methods.
OmniCorder has not realized any revenues to date or marketed any products
or services to date, and some components of its technology are still under
development. OmniCorder has recently begun a 3,000 women field test which is
anticipated to be conducted at leading hospitals and universities, including
hospitals affiliated with the State University of New York at Buffalo --
Millard Fillmore Hospitals and Buffalo General Hospital, the State University
of New York at Stony Brook, The Strang Cancer Prevention Center in New York
City, Dana Farber Medical Center and Memorial Sloan-Kettering Hospital in New
York City, and possibly others.
The Offering
Common Stock offered by
OmniCorder.............. 1,100,000 shares, without giving effect to the
Underwriter's over-allotment option. See
"UNDERWRITING".
Common Stock outstanding
after the Offering...... 3,458,397 shares, without giving effect to shares
issuable pursuant to warrants and options. See
"CAPITALIZATION."
Use of Proceeds.......... To fund research and development, repayment of
Bridge Notes, purchase of capital equipment and for
working capital and general corporate purposes. See
"Use of Proceeds."
Risk Factors
and Dilution............. An investment in the shares of common stock offered
hereby involves a high degree of risk and immediate
and substantial dilution. Prospective investors
should carefully consider the matters set forth
under the captions "RISK FACTORS" and "DILUTION."
Proposed Nasdaq SmallCap
Market Symbol........... OCTI
Proposed Pacific
Exchange Symbol......... OCT
- -------------
OmniCorder Technologies, Inc.'s principal offices are located at 25 E. Loop
Road, Stony Brook, NY 11790-3350. Its telephone number is (516) 444-6499.
5
<PAGE>
Summary Financial Data
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto, included elsewhere
in this Prospectus. The statement of operations data for the period from
February 7, 1997 (inception) through December 31, 1997 are derived from
OmniCorder's audited Financial Statements included elsewhere in this
Prospectus. The statement of operations data for the period from February 7,
1997 (inception) through September 30, 1997 and the nine months ended September
30, 1998 and the balance sheet data at September 30, 1998 have been derived
from unaudited financial statements and include all adjustments (consisting of
only normal recurring adjustments) that OmniCorder considers necessary for a
fair statement of the results for such interim periods. The operating results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year or for any future period.
<TABLE>
<CAPTION>
Period from Period from
February 7, 1997 February 7, 1997 Nine months
(inception) through (inception) through ended
December 31, September 30, September 30,
--------------------- --------------------- --------------
1997 1997 1998
<S> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
Research and development ...................... $ 20,000 $ 11,600 $ 338,647
General and administrative .................... 42,069 34,079 207,349
Related party legal expense ................... 81,447 29,332 97,165
----------- ---------- -----------
Total operating expenses ..................... 143,516 75,011 643,161
Loss from operations ............................ (143,516) (75,011) (643,161)
Interest expense ................................ -- -- 131,250
----------- ---------- -----------
Net loss ...................................... $ (143,516) $ (75,011) $ (744,411)
----------- ---------- -----------
Basic and diluted net loss per common share ..... $ (0.09) $ (0.04) $ (0.35)
----------- ---------- -----------
Weighted average shares used in per share
computation (see Note 2 of Notes to
Financial Statements .......................... 1,683,482 1,672,000 2,188,866
----------- ---------- -----------
</TABLE>
September 30, 1998
Actual As Adjusted (1)
------------ -----------------
Balance Sheet Data:
Cash ......................... $ 479,468 $ 7,942,468
Working capital .............. 440,193 7,905,276
Total assets ................. 999,076 8,339,159
Total debt ................... 125,000 --
Total liabilities ............ 295,028 170,028
Stockholders' equity ......... 704,048 8,169,131
- -------------
(1) The as adjusted balance sheet data as of September 30, 1998 gives effect to
(a) the sale of the shares of common stock offered hereby at an assumed
initial offering price of $9.00 per share and the application of the net
proceeds received therefrom; and (b) the repayment of the Bridge Notes and
the related effect of the write-off of $625,000 of unamortized debt
discount and $122,917 of unamortized debt issuance costs incurred in
connection with the Bridge Financing. See "SHARES ELIGIBLE FOR FUTURE SALE
and "USE OF PROCEEDS."
6
<PAGE>
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following factors, in
addition to the other information included in this Prospectus, before
purchasing any of the shares offered hereby.
Risks Associated with OmniCorder's Development Stage and its Losses to
Date. OmniCorder was incorporated in February 1997 and is in the development
stage. As such, it is subject to all of the business risks associated with a
new enterprise, including constraints on its resources, lack of established
banking, supplier and distribution relationships and uncertainties regarding
product development and future revenues.
Since its inception, OmniCorder has engaged in research and development
activities, raising capital, negotiating various license agreements (see
"BUSINESS -- Licensing and Patents"), and has conducted a limited field test of
the DAT System. OmniCorder has not derived any revenue from operations and has
incurred losses since inception, of approximately $918,000 through September
30, 1998, all of which have been funded by equity and debt financing.
OmniCorder does not anticipate deriving any revenue from operations until such
time as the DAT System is available for commercial delivery as an adjunct
(supplement) to existing diagnostic methods, which is expected to occur in the
4th calendar quarter of 1999. OmniCorder anticipates incurring significant
costs in connection with bringing the DAT System to market. See "BUSINESS" and
"RISK FACTORS -- Significant Capital Requirements; Need for Additional
Financing," below.
OmniCorder's ability to operate its business successfully will depend on a
variety of factors, some of which are outside its control, including:
o physician and/or consumer preferences.
o the application of regulatory requirements of the FDA and similar
regulatory requirements.
o competition from existing and newly developed alternative screening and
diagnostic technologies.
o the actual and perceived efficacy of the DAT System.
o OmniCorder's ability to maintain a constant supply of infrared cameras
and other components utilized in the DAT System.
The likelihood of OmniCorder's success must be considered in light of the
expenses, difficulties and delays frequently encountered in connection with the
formation and early phase of operation of a new business and the competitive
environment in which it will operate. There can be no assurance regarding when
or whether OmniCorder will successfully implement its business objectives or
that it will achieve profitability.
OmniCorder is Substantially Dependent Upon Successful Commercialization of
the DAT System. The sale of services which incorporate the DAT System, together
with regional licenses to provide the DAT System for breast cancer
applications, will be OmniCorder's principal proposed revenue sources for at
least the first two years from the closing of the Offering. These services have
not yet been commercially introduced. OmniCorder has only conducted limited
field tests to date. See "BUSINESS -- DAT's Efficacy." There can be no
assurance that the DAT System will be effective or that it will be more
effective than competing services and/or technologies, that it will be capable
of being delivered in commercial quantities at acceptable costs or that the DAT
System will be successfully marketed. If the DAT System is not successfully
commercialized for breast cancer applications, it is likely that OmniCorder's
business, financial condition and results of operations would be materially and
adversely affected. In such event, OmniCorder would have to seek out other
commercial endeavors for the DAT System, including its use in the diagnosis of
other diseases; however, there can be no assurance that such endeavors would be
successful. See "BUSINESS -- Other DAT Applications."
Uncertainty of Market Acceptance. There can be no assurance that
physicians or the medical community in general will accept and use the DAT
System or any other products or services developed by OmniCorder. The degree
and rate of acceptance and market penetration which OmniCorder achieves will
depend on many variables including, but not limited to, establishing acceptance
of the DAT System within the medical community by demonstrating its clinical
safety, efficacy and cost advantages as compared with existing cancer detection
7
<PAGE>
technologies. Similar risks may confront other products or services Omnicorder
develops in the future. Failure of OmniCorder's products or services to gain
market acceptance will have a material adverse effect on OmniCorder's business,
financial condition and results of operations. See "BUSINESS -- Competition."
OmniCorder anticipates that a substantial period of time may be required
to convince caregivers that the DAT System is an effective adjunct (or
supplement) to x-ray mammography, the current dominant screening method. This
process may be further affected by the tremendous investment that has been made
in x-ray mammography equipment and the interests of other entities which
participate financially in the provision of x-ray mammography to the public.
More significant opposition may be encountered with respect to OmniCorder's
attempt to receive FDA approval to use the DAT System as a stand-alone device,
i.e., a sole diagnostic screening tool for the detection of breast cancer.
While OmniCorder believes that FDA approval to market the DAT System as a
stand-alone method will be dependent on the merits of clinical trials, it is
conceivable that even with such approval, acceptance of the DAT System as a
stand-alone method may be difficult to achieve because of resistance in the
medical community fostered by the entrenchment of x-ray mammography. See "RISK
FACTORS -- Government Regulation; No Assurance of Regulatory Approvals" below.
Significant Capital Requirements; Need for Additional Financing.
OmniCorder's capital requirements in connection with its product development
and marketing activities will be significant. OmniCorder will be dependent upon
the proceeds of this offering (the "Offering") to fund its development and
initial commercialization activities, including the 3,000 women field test
recently begun. OmniCorder believes, but there can be no assurance, that the
proceeds of the Offering will be sufficient to fund its operating requirements
for a period of approximately 24 months after the closing of the Offering. See
"USE OF PROCEEDS."
OmniCorder's future liquidity and capital funding requirements will depend
on numerous factors, including:
o the results of clinical studies.
o the extent to which the DAT System gains market acceptance.
o the costs and timing of commencement and expansion of sales.
o OmniCorder's marketing and manufacturing activities.
o competition to the DAT System.
There can be no assurance that additional capital will be available on
terms acceptable to OmniCorder, or at all. Furthermore, any additional equity
financing will be dilutive to stockholders, and debt financing or equipment
lease financing, if available, may include restrictive covenants, including
financial maintenance covenants, restricting OmniCorder's ability to incur
additional indebtedness. OmniCorder's failure to raise capital, or engage in
equipment lease financing or other debt financing on acceptable terms when
needed, could have a material adverse effect on its business, financial
condition and results of operations.
OmniCorder has not Completed Development of Certain Components of its DAT
System. OmniCorder has not yet completed development of all components of the
DAT System. Specifically, development of OmniCorder's diagnostic software, and
the integration of components of the infrared camera are still in progress.
OmniCorder anticipates, but there can be no assurance, that this development
will be completed in six to nine months. Any development effort, however, is
subject to unanticipated challenges that may alter anticipated development
schedules.
In addition, OmniCorder is currently negotiating a license with a third
party for its information network software. OmniCorder requires an information
network to allow physicians and medical centers designated by OmniCorder to
communicate with respect to analysis of test results of patient examinations.
The integration of this network software with the diagnostic software of the
DAT System will require several months of development, which can only commence
once OmniCorder secures a license for the network software, a process that is
underway, but not yet complete. OmniCorder estimates that this integration will
take approximately six to nine months from the time it obtains a license for
the required network software. OmniCorder believes that, if the current
agreement it is negotiating to procure network software is not successfully
completed, it will be able to readily find alternative sources or be able to
develop the required software with its own personnel, but either alternative
may cause several months delay in the commercialization of the DAT System. See
"BUSINESS -- Information Network."
8
<PAGE>
Limited Marketing Experience; Limited Personnel. OmniCorder currently has
limited marketing experience and limited financial, personnel and other
resources to undertake the extensive marketing activities necessary to market
the DAT System. OmniCorder's ability to generate revenue from the licensing of
the DAT System will be dependent upon, among other things, its ability to
manage an effective sales organization. OmniCorder will need to develop a sales
force and a marketing group with technical expertise to coordinate marketing
efforts. In addition, there can be no assurance that OmniCorder will be able to
market its products or services effectively through an in-house sales force,
independent sales representatives, through arrangements with an outside sales
force, or through strategic partners. See "BUSINESS -- Marketing" and
"MANAGEMENT."
Government Regulation; No Assurance of Regulatory Approvals. OmniCorder's
products and manufacturing activities are subject to extensive government
regulation, both in the United States and abroad. The manufacture, packaging,
labeling, advertising, promotion, distribution, and sale of OmniCorder's
products are subject to regulation by numerous national and local governmental
agencies in the United States and other countries. Failure to comply with these
regulations or inability to obtain required approvals will impair OmniCorder's
ability to market the DAT System. See "BUSINESS -- Government Regulation".
In the United States, the U.S. Food and Drug Administration ("FDA")
regulates OmniCorder's products under the Federal Food, Drug, and Cosmetic Act
and regulations promulgated thereunder. Advertising and other forms of
promotion and methods of marketing of OmniCorder's products are subject to
regulation by the U.S. Federal Trade Commission, which regulates these
activities under the Federal Trade Commission Act. The manufacture, labeling,
and advertising of OmniCorder's products are also regulated by various other
Federal, state and local agencies as well as those of each foreign country to
which OmniCorder may in the future distribute its products. See "BUSINESS --
Government Regulation" for a description of various regulatory issues and an
explanation of the terms used below. The risks associated with these regulatory
issues include the following:
(a) Need for FDA Approval to Market the DAT System -- Breast cancer
screening devices that use infrared instrumentation, such as the DAT System,
and their components and accessories are currently classified as Class I
devices that require clearance under Section 510(k) of the the federal Food,
Drug and Cosmetic Act, when they are intended for "adjunctive [supplemental to
an existing approved method such as x-ray mammography] diagnostic screening for
detection of breast cancer or other uses . . . .", under 21 C.F.R.
884.2980(a)(2). If used as a stand-alone device, i.e., a sole diagnostic
screening tool for detection of breast cancer, such devices are classified as
Class III devices requiring an approved Premarket Approval application before
marketing.
OmniCorder hopes to obtain 510(k) market clearance from the FDA by
mid-1999 to market the DAT System for adjunctive (supplemental) diagnostic
screening for detection of breast cancer. In order to obtain clearance for
marketing under section 510(k), the FDA must be able to conclude that
OmniCorder's device is substantially equivalent to a legally marketed device.
The FDA may require additional data to support making such a determination, and
there is no assurance that the FDA will find OmniCorder's device substantially
equivalent or that the timing of such determination will be consistent with
OmniCorder's plans or expectations.
If the FDA finds that OmniCorder's device is not substantially equivalent,
OmniCorder may ask the FDA to make a "risk based classification designation" to
place the device into class I or class II. However, if a timely request is not
made for a risk based classification after receipt of a determination from the
FDA that OmniCorder's device is not substantially equivalent or if, after a
risk based classification request, the FDA determines that a class III
designation is appropriate, a Premarket Approval applicaton will be required to
be approved before the device may be marketed. The process of obtaining a
Premarket Approval is lengthy, expensive, and uncertain and typically requires,
among other things, extensive clinical data from a well-controlled clinical
trial.
(b) Need for FDA Approval for Certain Changes to the DAT System -- For
devices cleared for marketing under Section 510(k), the Food, Drug and Cosmetic
Act and regulations require manufacturers to obtain new FDA 510(k) clearances
for devices when, among other things, there is a major change in the intended
use or a change to the design, material, composition, energy source, or
manufacture of a legally marketed device that could significantly affect its
safety or effectiveness. Changes to approved devices under the Premarket
Approval process require supplemental approvals for device changes that affect
safety or effectiveness. Manufacturers are
9
<PAGE>
responsible for making the initial determination regarding whether or not
changes require subsequent submissions and approvals or clearances. At the
administrative level, the FDA has the final say of whether an additional
clearance or approval is necessary for changes to devices, and there can be no
assurance that the agency will agree with a decision by OmniCorder that changes
to the DAT System do not require FDA review and clearance or approval.
In the event the FDA were to require the filing of a new 510(k)
notification, a Premarket Approval, or a Premarket Approval supplement for a
change, OmniCorder would be prohibited from marketing the modified DAT System
until the FDA reviews and clears or approves the new 510(k) notification,
Premarket Approval, or Premarket Approval supplement. OmniCorder anticipates
that changes to the DAT System will be necessary in connection with the ramping
up of its production cycle, and on an ongoing basis. Some or all of these
changes may require FDA 510(k) clearance or Premarket Approval. Failure to
obtain timely or any clearance or approval for marketing of the DAT System
could have a material adverse effect on OmniCorder's business, financial
condition and results of operations.
(c) Required Compliance with Certain Manufacturing Regulations -- The FDA
also requires that manufacturing conform to strict quality assurance standards
required by Good Manufacturing Practices regulations. A new set of regulations,
called the Quality Systems Regulations, went into effect June 1, 1997. These
regulations require that medical device manufacturers comply with various
requirements. Good Manufacturing Practices requirements are enforced via
periodic FDA inspections of device facilities. OmniCorder believes, but there
can be no assurance, that it and its suppliers will attain and maintain
compliance with these standards. Further, any changes in manufacturing
facilities or methods may require a Premarket Approval supplement or a new
premarket notification submission under Section 510(k). See "BUSINESS --
Government Regulation -- FDA Regulation -- Good Manufacturing Practices and
Reporting."
(d) Reporting Requirements -- FDA law and regulations additionally require
that certain "Medical Device Reports" be submitted to the agency to report
device-related deaths, serious injuries, and malfunctions, the recurrence of
which would likely cause death or serious injury. These reports can cause the
FDA to take various regulatory actions, including inspections, recalls, and
patient/physician notifications. Medical Device Reports are a major information
input to the FDA and often the basis of agency enforcement action. Because such
reports are publicly available they can also become a basis of private tort
suits, including class actions. Medical Device Reports, depending upon their
significance, could have a material adverse effect on OmniCorder's ability to
market its products.
(e) Restrictions on Labeling and Advertising -- The nature of marketing
claims OmniCorder will be permitted to make in labeling or advertising
regarding the DAT System is limited to those specified in an FDA clearance or
approval and claims beyond those cleared or approved will constitute violation
of the Food, Drug and Cosmetic Act. Noncompliance with any applicable FDA
requirements can result in, among other things, Premarket Approval withdrawal,
recisson of a premarket notification clearance, voluntary or mandatory recall,
voluntary or mandatory patient or physician notification, seizure of products,
fines, injunctions, and/or civil and criminal penalties. The FDA also has the
authority to request repair, replacement, or refund of the purchase price of
any devices manufactured or sold by OmniCorder. Any of these sanctions may have
a material adverse effect on OmniCorder's business, financial condition, and
results of operations, and could materially adversely affect OmniCorder's
ability to successfully market its products.
OmniCorder's advertising of its products also is subject to regulation by
the Federal Trade Commission under the Federal Trade Commission Act. Section 5
of the Federal Trade Commission Act prohibits unfair methods of competition and
unfair or deceptive acts or practices in or affecting commerce. Failure to
comply with these laws and regulations would subject OmniCorder to a variety of
enforcement actions, fines, penalties and other remedies. See "BUSINESS --
Government Regulation -- FDA Regulation -- Labeling and Advertising; Fines and
Penalties for Noncompliance.
(f) Foreign Permits and Requirements -- In markets outside the United
States, prior to commencing operations or marketing its products, OmniCorder
may be required to obtain approvals, licenses, or certifications from a
country's ministry of health or comparable agency and comply with FDA export
requirements. See "BUSINESS -- Government Regulation -- FDA Regulation --
Export Requirements. OmniCorder must also comply with product labeling and
packaging regulations that vary from country to country. These activities are
also subject to regulation by various agencies of the countries, states, and
other localities in which OmniCorder's products may be sold.
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OmniCorder cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. Any or all such requirements could
have a material adverse effect on OmniCorder.
Dependence on Third Party Manufacturers. OmniCorder has used third parties
to manufacture and deliver the infrared cameras and other components used in
field tests, and it intends to continue to do so for the DAT System and any
other products which OmniCorder may seek to develop. Such third parties must
adhere to the current Good Manufacturing Practices regulations enforced by the
FDA through its facilities inspection program and such third-parties'
facilities are subject to FDA inspection. There can be no assurance that third
parties on which OmniCorder depends for the manufacture of the DAT System will
be able to comply with Good Manufacturing Practices regulations when a required
FDA inspection occurs or will be able to maintain such compliance. Such a
failure to comply could significantly delay the FDA's 510(k) clearance or
Premarket Approval for the DAT System, which failure could have a material
adverse effect on OmniCorder's business, financial condition and results of
operations. See "BUSINESS -- Government Regulation."
The qualification of additional or replacement suppliers for certain
components or services is a lengthy process. If OmniCorder encounters delays or
difficulties with its third-party suppliers in producing, packaging or
distributing the DAT System, market introduction and subsequent sales of the
DAT System may be adversely affected. OmniCorder would also then have to seek
alternative suppliers. If that happens, there can be no assurance that
OmniCorder will be able to readily enter into alternative supply arrangements
at commercially acceptable rates, if at all.
While OmniCorder believes it has located adequate sources of supply for
all components of the DAT system, there can be no assurance that such sources
will be able to maintain a supply of all components as required by OmniCorder.
If OmniCorder is unable to obtain or retain qualified third-party manufacturers
on commercially acceptable terms, it may not be able to commercialize the DAT
System as planned. OmniCorder's dependence on third parties for the manufacture
of its products may adversely affect its profit margins and its ability to
develop and deliver its products on a timely and competitive basis. See
"BUSINESS -- Suppliers."
Patents and Proprietary Information. OmniCorder, in accordance with the
Anbar License Agreement, the Caltech License Agreement and the Lockheed Martin
License Agreement (see "BUSINESS -- Licensing and Patents"), holds exclusive
rights to certain biomedical applications of issued and pending patents. These
issued and pending patents cover the DAT System as a device for use in the
early detection and management of breast cancer and other diseases. There is no
guarantee that the pending patents will issue, and if they do, which claims, if
any, will be allowed by the United States Patent Office. Some of the Caltech
patent claims initially submitted had been disallowed by the U.S. patent office
due to potential conflicts with prior art. These claims have been resubmitted,
with the appropriate supporting documentation, for reconsideration by the
patent office, and Omnicorder has been advised by counsel to Caltech that these
claims will be allowed by the United States Patent Office. There can be no
assurance that the pending or issued patents will provide meaningful protection
from competition. OmniCorder's policy is to protect its technology by, among
other things, obtaining patent rights for technology that it considers
important to the development of its business, utilizing other proprietary
methods and know-how in association with its technology and requiring each
employee and key consultant to execute a confidentiality agreement. There can
be no assurance that OmniCorder's confidentiality agreements and other
safeguards will protect its proprietary information and trade secrets or
provide adequate remedies for OmniCorder in the event of unauthorized use or
disclosure of such information, or that others will not be able independently
to develop such information.
In addition, if OmniCorder becomes involved in litigation to enforce its
intellectual property rights, such litigation can be a lengthy and costly
process causing diversion of effort and resources by OmniCorder and its
management with no guarantee of success. One company, which has not yet
received FDA approval to market its product, is employing a methodology which
may infringe on the Anbar Patent. OmniCorder has not yet determined whether it
will take legal action with respect to this possible infringement. See
"BUSINESS -- Competition."
Other companies may have been or will be issued patents for similar
technologies that may prevent the licensing of OmniCorder's products or require
licenses and the payment of royalties by OmniCorder, although
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OmniCorder has no information indicating that these circumstances exist. It is
possible that after the patents that OmniCorder owns or controls expire, which
will not occur in the United States for 16 years in the case of the Anbar
Patent, and 14 years in the case of the patent licensed under the Lockheed
Martin Agreement, other companies, may adopt the concept and/or design embodied
in the DAT System and seek to compete with OmniCorder. If that should occur,
OmniCorder would have to rely on name recognition, product acceptance, quality
control, additional patent protection, if any, and the effectiveness of its
distribution and marketing in order to compete successfully, and there can be
no assurance that OmniCorder will be able to do so. Although to date no claims
have been brought against OmniCorder alleging that the DAT System infringes the
intellectual property rights of others, and OmniCorder is not aware of any such
claims or potential claims, there can be no assurance that such claims will not
be made against OmniCorder in the future, or that, if made, such claims will
not be successful. Further, even an issued patent may, under exceptional
circumstances, be set aside or nullified. In addition to any potential monetary
liability for damages, OmniCorder could be required to obtain and pay for a
license in order to continue to manufacture or market the DAT System or could
be enjoined from making or selling the DAT System if such a license were not
made available on acceptable terms. If OmniCorder becomes involved in such
litigation, it may require the expenditure of significant resources and if such
a claim were successful, OmniCorder's business, financial condition and results
of operations could be materially adversely affected.
Existing and Newly Developed Technologies may Compete with the DAT System.
OmniCorder is not aware of any devices currently on the market which will be
capable of competing directly with the DAT System, although several new
companies are developing technologies aimed at the same market niche as the DAT
System, and there may be others of which OmniCorder is unaware. OmniCorder's
potential competitors may succeed in developing products that are more
effective or less costly (or both) than OmniCorder's products, and such
competitors may also prove to be more successful than OmniCorder in
manufacturing, marketing, and sales. Some of OmniCorder's potential competitors
may be large, well-financed and established companies that have greater
resources, and, therefore, may be better able than OmniCorder to compete for a
share of the market even in areas in which OmniCorder may have superior
technology. See "BUSINESS -- Competition."
OmniCorder also competes with existing diagnostic alternatives, most
notably x-ray mammography. Significant barriers to OmniCorder's success are
posed by these existing alternatives. See "BUSINESS -- Competition"; "RISK
FACTORS -- Uncertainty of Market Acceptance".
Risk of Technological Obsolescence. The market for high technology disease
detection and monitoring devices, such as the DAT System, is characterized by
rapid changes and evolving industry standards, often resulting in product
obsolescence or short product life cycles. Accordingly, OmniCorder's ability to
compete will depend on its ability to introduce the DAT System to the
marketplace in a timely manner, and to enhance and improve it. There can be no
assurance that OmniCorder's competitors will not develop technologies or
products that render the DAT System obsolete or less marketable. It is also
possible that OmniCorder will not be able to successfully enhance its proposed
products or technology or adapt them satisfactorily to changing market
conditions.
Dependence on Mark Fauci, OmniCorder's Founder. The success of OmniCorder
is dependent on the continued efforts of its founder, Mark Fauci. The loss of
Mr. Fauci's services could have a material adverse effect on OmniCorder's
operations. OmniCorder has applied for, and has been advised that it will be
able to obtain, $4,000,000 of key person life insurance on Mr. Fauci, though
the policy has not yet issued. There can be no assurance that this coverage
will be maintained at reasonable cost. Mr. Fauci is 39 years old and in good
health.
While Professor Anbar invented DAT, and while OmniCorder believes that he
has been and will continue to be an important resource for it, OmniCorder
believes that the loss of Professor Anbar's services would not have a material
adverse effect on it. OmniCorder believes that since Professor Anbar has
published his work, has transferred or licensed all relevant intellectual
property rights to OmniCorder and is substantially delegating the development
of the DAT System to other OmniCorder personnel, the loss of his services may
delay the commercialization of the DAT System, but for a period OmniCorder
anticipates would be no more than six months. OmniCorder has not obtained
key-man insurance on Professor Anbar and has no plans to do so.
Need to Hire Additional Qualified Personnel. OmniCorder's success is also
dependent upon its ability to hire and retain additional qualified scientific,
sales, marketing and managerial personnel. OmniCorder will only
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have limited personnel as of the close of the Offering. See "MANAGEMENT."
OmniCorder intends to utilize a variety of recruitment channels to locate
qualified personnel and to offer appropriate compensation packages to attract
and retain such personnel. Competition for such personnel is intense in
OmniCorder's industry, and there can be no assurance that OmniCorder will be
able to attract and retain qualified personnel.
Uncertainties Regarding Third-Party Reimbursement of Patient Examination
Fees. There can be no assurance that third-party reimbursement will be
available for the cost of services provided by the DAT System. Hospitals,
medical clinics and physicians' offices that provide breast cancer screening
and diagnostic services generally rely on third-party reimbursements, such as
those provided by Medicare, Medicaid and private health insurance plans, to pay
for some or all of the costs of such services. The policies of these entities
vary greatly in their reimbursement practices. Whether a particular procedure
qualifies for third-party reimbursement depends upon many factors including the
safety and effectiveness of the procedure. Reimbursement may be denied if a
medical device is experimental or is used for a non-approved purpose. During
the past several years, the major third-party payors for hospital services have
substantially revised their payment methods to contain health care costs.
OmniCorder believes that the current pressures for medical cost containment
have resulted in uncertainty in the healthcare industry with respect to federal
and state reimbursement programs. Reimbursement standards and rates may change
in the future. Although OmniCorder believes that licensed services which
incorporate the DAT System will be widely reimbursed by third-party payors in
the future, OmniCorder believes that its services will be affordably priced and
will be utilized irrespective of third party reimbursements. However, the
failure of users of the DAT System to obtain adequate reimbursement from
third-party payors may significantly impede OmniCorder's growth.
Risk of Product Liability Claims. The nature of OmniCorder's products may
expose it to product liability risks. Although OmniCorder has obtained
$5,000,000 of product liability insurance coverage, such insurance is becoming
increasingly expensive. There can be no assurance that such insurance will
provide adequate coverage against product liability claims. In addition,
certain of OmniCorder's key license agreements require such coverage to be
maintained once it begins selling licensed services. While no product liability
claims are pending or threatened against it to date, a successful product
liability claim against OmniCorder in excess of its insurance coverage could
have a material adverse effect on its business, financial condition or results
of operations.
Limitation of Liability and Indemnification. OmniCorder's certificate of
incorporation limits, to the maximum extent permitted by the Delaware General
Corporation Law, the personal liability of directors for monetary damages for
breach of their fiduciary duties as directors, and provides that OmniCorder
shall indemnify its officers and directors and may indemnify its employees and
other agents to the fullest extent permitted by law. Section 145 of the
Delaware law provides that a corporation may indemnify a director, officer,
employee or agent made or threatened to be made a party to an action by reason
of the fact that he was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually and reasonably incurred in connection with such action if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if he had no reasonable cause to believe his conduct was
unlawful. Delaware law does not permit a corporation to eliminate a director's
duty of care, and the provisions of OmniCorder's certificate of incorporation
have no effect on the availability of equitable remedies, such as injunction or
rescission, for a director's breach of the duty of care.
OmniCorder may enter into indemnification agreements with its directors
and officers which may require it, among other things, to indemnify such
directors and officers against liabilities that may arise by reason of their
status or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for OmniCorder's directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, OmniCorder has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
No Liquid Trading Market. Prior to the Offering, there has been no public
market for the common stock. Although OmniCorder has applied for listing of the
shares of common stock offered hereby on the Nasdaq
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SmallCap Market (see "RISK FACTORS -- No Assurance of Nasdaq SmallCap Listing"
below), there can be no assurance that an active trading market will develop or
be maintained. Failure to maintain an active trading market may adversely
impact an investor's ability to resell shares purchased in the Offering.
Volatility of Trading Price -- The market prices for securities of medical
technology companies have historically been volatile. Factors that could cause
the market price of the common stock to fluctuate substantially include but are
not limited to:
o future technological innovations.
o new commercial products.
o results of clinical testing.
o changes in regulation.
o litigation and public concerns as to product safety.
o period-to-period fluctuations in financial performance.
o fluctuations in securities markets.
Such price changes have often been unrelated to the operating performance
of the affected companies. These broad market fluctuations may adversely affect
the market price of the common stock. A decline in the trading price of the
common stock could also impact negatively upon OmniCorder's ability to raise
additional equity capital in the future.
Negotiated Public Offering Price. The initial public offering price for
the shares of common stock offered hereby will be determined by negotiations
between OmniCorder and Cambridge Capital, LLC ("Cambridge"), the principal
underwriter of the Offering (see "UNDERWRITING") and may bear no relationship
to the price at which the common stock may trade after completion of the
Offering. Factors which may be considered in determining the initial public
offering price include but are not limited to:
o the information set forth in this Prospectus and otherwise available to
Cambridge.
o the history of and the prospects for the industry in which OmniCorder
operates.
o the assessment of OmniCorder's management.
o OmniCorder's past and present operations.
o OmniCorder's the prospects for future earnings.
o OmniCorder's present state of development.
o the general condition of the securities markets at the time of the
Offering.
o the recent market prices of and the demand for publicly traded common
stock of generally comparable companies.
Possible Anti-Takeover Effects of Delaware Law. OmniCorder is subject to
the provisions of Section 203 of the General Corporation Law of the State of
Delaware. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquires at least 85% of the corporation's voting stock (excluding
shares held by certain designated stockholders) in the transaction in which it
becomes an interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the previous three years did own, 15% or more of the corporation's
voting stock. This provision of the Delaware law could delay and make more
difficult a business combination even if the business combination would be
beneficial, in the short term, to the interests of OmniCorder's stockholders
and also could limit the price certain investors might be willing to pay in the
future for shares of OmniCorder's common stock.
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Availability of Preferred Stock for Issuance. In addition to authorized
shares of common stock, OmniCorder's certificate of incorporation, authorizes
the issuance of up to 1,000,000 shares of preferred stock. OmniCorder's Board
of Directors may at any time determine to issue shares of preferred stock with
rights and preferences to be set by the Board of Directors in its sole
discretion. The rights and preferences of any such preferred stock may be
superior to those of the common stock and thus may adversely affect the rights
of the holders of common stock. OmniCorder has certain restrictions on its
ability to issue securities, including any shares of preferred stock, for a
period of 24 months after the Offering without the consent of Cambridge. See
"UNDERWRITING" and "DESCRIPTION OF SECURITIES -- Preferred Stock."
Control of Founding Stockholder. After giving effect to the Offering, Mark
Fauci, OmniCorder's founder, will beneficially own approximately 48% of the
outstanding common stock. As a result, Mr. Fauci will be able to effectively
control virtually all matters requiring approval by OmniCorder's stockholders,
including amendments of the certificate of incorporation, the approval of
mergers or similar transactions and elections of all directors. In addition,
Mr. Fauci is one of OmniCorder's six current directors. See "MANAGEMENT" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Shares Eligible for Future Sale. Upon completion of this Offering,
OmniCorder will have 3,458,397 shares of common stock outstanding (3,623,397
shares if the Underwriters' over-allotment option is exercised in full). The
1,100,000 shares offered hereby (1,265,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, except for any
shares purchased by OmniCorder's "Affiliates", as such term is defined in Rule
144 promulgated under the Securities Act. The outstanding shares of common
stock prior to the Offering are "restricted securities" within the meaning of
Rule 144. Restricted securities may only be sold in private transactions or
pursuant to Rule 144. See "SHARES ELIGIBLE FOR FUTURE SALE." In addition, an
aggregate of 480,267 shares are issuable upon the exercise of outstanding stock
options and warrants, 44,000 shares are reserved for issuance to a licensor of
intellectual property utilized by OmniCorder, and 360,400 shares of common
stock are reserved for issuance under the 1998 Stock Option Plan (as defined
below). All of such shares will be restricted securities when issued, unless
registered.
OmniCorder and each of its stockholders, as well as all holders of options
or warrants to purchase common stock have agreed that they will not, without
prior written consent of Cambridge, directly or indirectly, offer, sell,
pledge, grant any option to purchase, or otherwise sell or dispose of any
shares of common stock or any other securities convertible into, or exercisable
for shares of common stock or other similar securities, which they owned prior
to the Offering, for a period ranging between six months and two years after
the Offering. Cambridge may, in its sole discretion, at any time and without
prior notice, permit resale of all or any portion of the shares of common stock
subject to such agreements. In any event, subject to registration rights
discussed below, the shares of common stock owned by OmniCorder's stockholders
prior to the Offering, including shares of common stock issuable pursuant to
warrants and options, may only be sold in accordance with the restrictions of
Rule 144. See "SHARES ELIGIBLE FOR FUTURE SALE." Sales of substantial amounts
of common stock (including shares issued upon the exercise of outstanding
warrants and options) in the public market after the 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 OmniCorder's ability to raise any
necessary capital to fund its future operations. Cambridge will also receive
Underwriter's warrants upon completion of the Offering. See "UNDERWRITING."
Investors in OmniCorder's private placement completed in early 1998 (the
"Private Placement") were granted certain registration rights. These rights
will enable these investors to "piggy-back" the registration of their shares,
aggregating 202,396 shares of common stock, to any other registration statement
(except on Forms S-4 or S-8) OmniCorder has filed, if market conditions permit.
The Private Placement investors are also entitled to request registration on an
abbreviated form known as Form S-3, which will generally be available one year
after the Offering, and those investors may request registration on Form S-3
once every six months. The Private Placement investors were granted the right
to receive additional shares of common stock for a period of two years after
their initial purchase (December 1997-April 1998), if OmniCorder issues common
stock, or securities convertible into common stock, at a price of less than
$3.40 per share. The number of shares would be that amount which such persons
would have received had they purchased shares of common stock at such lower
price, using the same dollar amount of their initial investment.
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Investors holding warrants they received in a bridge financing completed
in August 1998, entitling them to purchase in the aggregate up to 250,000
shares of common stock at a price of $6.00 per share, hold similar rights to
those of investors in the Private Placement, except that their right to request
registration on Form S-3 can be exercised a maximum of three times. These
warrants are exercisable for a four year term commencing August 31, 1999. These
warrants also have "weighted average" anti-dilution protection for issuance of
common stock or securities convertible into common stock at less than $6.00 per
share.
Cambridge currently has the right to purchase 12,467 shares of common
stock, at $3.40 per share, for a five year term which began in February 1998,
pursuant to currently exercisable warrants which it received for its efforts in
the Private Placement. Cambridge is entitled to "piggy-back" registration
rights with respect to the shares underlying these warrants. See "SHARES
ELIGIBLE FOR FUTURE SALE," Cambridge will also have registration rights with
respect to Underwriter's Warrants and underlying shares of common stock it
receives in connection with the Offering. See "UNDERWRITING."
No shares or shares underlying warrants or options outstanding prior to
the Offering are being registered in the Offering. See "UNDERWRITING."
Generally, registration of shares pursuant to the above specified
registration rights agreements are at OmniCorder's expense.
No Assurance of Nasdaq SmallCap Listing. The Board of Governors of the
National Association of Securities Dealers, Inc. has established certain
standards for the initial listing and continued listing of a security on the
Nasdaq SmallCap Market. The standards for initial listing require, among other
things, that an issuer have net tangible assets of $4,000,000; that the minimum
bid price for the listed securities be $4.00 per share; that there be a minimum
of 300 "round lot" holders; that the minimum market value of the public float
(the shares held by non-insiders) be at least $5,000,000; that the public float
be at least 1,000,000 shares; and that there be at least three market makers
for the issuer's securities. OmniCorder believes, but there can be no
assurance, that it will meet these standards upon completion of the Offering.
The maintenance standards require, among other things, that an issuer have
net tangible assets of at least $2,000,000; that the minimum bid price for the
listed securities be at least $1.00 per share; that the minimum market value of
the "public float" be at least $1,000,000; that the public float be at least
500,000 shares; and that there be at least two market makers for the issuer's
securities.
A deficiency in either the market value of the public float or the bid
price maintenance standard will be deemed to exist if the issuer fails the
individual stated requirement for thirty consecutive trading days, with a
90-day cure period. There can be no assurance that OmniCorder will continue to
satisfy the requirements for maintaining a Nasdaq SmallCap listing. If
OmniCorder's securities were to be excluded from Nasdaq, the prices of such
securities and the ability of holders to sell them would be adversely affected,
and OmniCorder would be required to again comply with the initial listing
requirements to be relisted on Nasdaq.
Risk of Low Priced Shares. If OmniCorder is unable to satisfy Nasdaq's
maintenance requirements and the price per share of its common stock were to
drop below $5.00, then unless OmniCorder satisfied certain net asset and
revenue tests, its securities would become subject to certain "penny stock"
rules promulgated by the Securities and Exchange Commission. The application of
these rules to OmniCorder's common stock may adversely impact both the ability
of investors to resell their shares (liquidity) and the market price of these
shares. The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination of suitability of the investor purchasing
the penny stock.
No Dividends. OmniCorder has never declared or paid any cash dividends on
its common stock and does not intend to pay any cash dividends in the
foreseeable future. See "DIVIDEND POLICY."
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Dilution. Purchasers of the common stock offered hereby will suffer
immediate and substantial dilution of $6.64 in the net tangible book value per
share of the common stock from the initial public offering price. See
"DILUTION."
Lack of Experience of the Underwriter. While the principals of Cambridge
have had prior experience in firm commitment underwriting and underwriting
syndicates at other brokerage firms, Cambridge, which commenced operations in
1996, has not acted as an underwriter, in a public offering of securities.
Cambridge's lack of experience may have an adverse impact on its ability to
market the securities offered hereby as well as the development and maintenance
of a trading market for OmniCorder's securities following the Offering.
Cambridge intends to make a market in OmniCorder's securities. Cambridge's
inexperience may result in its inability to correctly utilize overallotment,
stabilization and market maintenance strategies that more experienced
underwriters utilize to assist in maintaining orderly trading markets. This may
adversely affect the price of OmniCorder's common stock and the ability of
purchasers in the Offering to resell their shares. OmniCorder's officers and
directors of do not have a material relationship with Cambridge. See
"UNDERWRITING."
Risks Associated with Forward Looking Statements. This Prospectus contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "may," "will," "anticipate," "believe,"
"estimate" or "continue" or other variations and comparable terminology. The
statements in "RISK FACTORS" are cautionary statements. They identify important
factors, with respect to forward-looking statements, that could cause actual
results to differ materially from those forecasted in such statements.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by OmniCorder from the sale of an
estimated 1,100,000 shares of common stock offered hereby at $9 per share (the
mid-point of the range designated on the cover page of this Prospectus) are
estimated to be $8,213,000 ($9,504,950, if the Underwriter's over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions, and an estimated $400,000 of legal, accounting, printing and other
estimated expenses of the Offering payable by OmniCorder.
OmniCorder anticipates using the net proceeds of $8,213,000 from the
Offering as follows. If the overallotment option is exercised, the increased
amount of proceeds will be allocated to working capital:
o $750,000 to pay off debt incurred in connection with a bridge financing
completed in August, 1998, excluding accrued interest thereon.
o $2,000,000 for Research and Development.
o $1,880,000 for use in Sales and Marketing.
o $2,003,000 for General and Administrative Expenses and Working Capital.
o $1,580,000 for Capital Equipment, principally components of the DAT System
such as cameras, computers and other associated hardware and software.
The foregoing represents OmniCorder's best estimate of its allocation of
net proceeds from the sale of shares of common stock offered hereby based on
the current state of its business operations, its current plans and current
economic and industry conditions and is subject to reallocation among the
categories listed above or to new categories. Accordingly, OmniCorder will have
broad discretion as to the application of a significant portion of the net
proceeds.
18
<PAGE>
CAPITALIZATION
Unless otherwise indicated, the information in this Prospectus assumes
that all references to common stock share amounts and prices per share are
calculated after giving effect to a 2.2 to 1 stock split, which occurred in
August 1998.
The following table sets forth OmniCorder's short-term debt and total
capitalization (a) as of September 30, 1998, and (b) as adjusted to give effect
to the consummation of the Offering at an assumed initial public offering price
of $9.00 per share and the application of the estimated net proceeds therefrom,
after deducting the underwriting discounts and commissions and estimated
offering expenses. The table should be read in conjunction with the Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
As
Actual Adjusted(1)
<S> <C> <C>
Stockholders' equity
preferred stock; $.01 par value, 1,000,000 shares authorized, no shares
outstanding
common stock; $.01 par value, 10,000,000 shares authorized; 2,358,397
shares issued and outstanding-actual; 3,458,397 shares issued and
outstanding-as adjusted(2) ........................................ $ 23,584 $ 34,584
Additional paid-in capital ............................................ 1,613,461 9,815,461
Deficit accumulated during the development stage ...................... (917,927) (1,665,844)
Subscription receivable ............................................... (15,070) (15,070)
---------- -----------
Total stockholders' equity ......................................... 704,048 8,169,131
---------- -----------
Total capitalization ............................................... 704,048 8,169,131
---------- -----------
</TABLE>
- ------------
(1) The as adjusted information as of September 30, 1998 gives effect to (a)
the sale of the shares of common stock offered hereby at an assumed
initial offering price of $9.00 per share and the application of net
proceeds received therefrom; and (b) the repayment of the Bridge Notes and
the related effect of the write-off of $625,000 of unamortized debt
discount and $122,917 of unamortized debt issuance costs incurred in
connection with the Bridge Notes.
(2) Does not include (a) 190,667 shares of common stock reserved for issuance
upon the exercise of outstanding warrants at an exercise price of $3.40
per share; (b) 400,000 shares of common stock reserved for issuance upon
exercise of stock options granted or to be granted under the 1998 Stock
Option Plan of which options to purchase 39,600 shares of common stock
were outstanding and exercisable at September 30, 1998 at an exercise
price of $3.40 per share; (c) 250,000 shares of common stock reserved for
issuance pursuant to outstanding warrants, exercisable at $6.00 per share;
(d) 44,000 shares of common stock reserved for issuance upon vesting as
per the Caltech License Agreement (see "BUSINESS -- Licensing and
Patents"); and (e) shares that may be issuable pursuant to anti-dilution
provisions of certain outstanding securities. To the extent that these
warrants or options are exercised, there will be further dilution to new
investors. See "DESCRIPTION OF SECURITIES," "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" and "SHARES ELIGIBLE FOR FUTURE SALE."
DIVIDEND POLICY
OmniCorder has not paid any dividends on its common stock since its
inception and does not intend to pay any dividends on its common stock in the
foreseeable future. The payment of any dividends in the future will depend on
the evaluation by OmniCorder's Board of Directors of such factors as it deems
relevant at the time and the restrictions imposed by the terms of OmniCorder's
debt obligations, if any. As of the closing of the Offering, after application
of $750,000 of proceeds of the Offering to repay debt incurred in connection
with a bridge financing completed in August 1998, OmniCorder will have no debt
obligations that impose restrictions on the payment of dividends. However, the
Board of Directors believes that OmniCorder's future earnings, if any, should
be retained for the development of its business.
19
<PAGE>
DILUTION
Purchasers of the shares of common stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
investment. The difference between the initial public offering price per share
of common stock and the net tangible book value per share of common stock after
this Offering constitutes the dilution per share of common stock to investors
in this Offering. Net tangible book value per share is determined by dividing
the net tangible book value (total tangible assets less total liabilities) by
the number of outstanding shares of common stock. As of September 30, 1998,
OmniCorder had a net tangible book value of $704,048, or approximately $.30 per
share of common stock. Without taking into account any other changes in
OmniCorder's net tangible book value after September 30, 1998, other than to
give effect to the sale of all of the shares offered hereby at an assumed
initial public price of $9.00 per share, and the receipt and application of the
estimated net proceeds therefrom, OmniCorder's net tangible book value on
September 30, 1998 would have been $8,169,131, or approximately $2.36 per
share, which represents an immediate increase in the net tangible book value of
approximately $2.06 per share to existing stockholders and an immediate
dilution of $6.64 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $ 9.00
Net tangible book value per share as of September 30, 1998 ......... $ .30
Increase per share attributable to this Offering ................... $ 2.06
-------
Net tangible book value per share after this Offering ................. $ 2.36
-------
Dilution per share to new investors ................................... $ 6.64
-------
</TABLE>
The following table summarizes, as of September 30, 1998, the number of
shares of common stock purchased from OmniCorder, the total consideration paid
to OmniCorder and the average price per share paid by existing stockholders and
by new investors purchasing the shares offered hereby at an assumed initial
public offering price of $9.00 per share (before deducting underwriting
discounts and commissions and estimated offering expenses payable by
OmniCorder):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
----------------------- -------------------------- --------------
Number Percent Amount Percent Per Share
----------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 2,358,397 68.2% $ 690,000 6.5% $ .29
New Investors ................. 1,100,000 31.8% 9,900,000 93.5% 9.00
--------- ---- ----------- ---- -------
Total(1) ...................... 3,458,397 100% $10,590,000 100%
--------- ---- ----------- ----
</TABLE>
- ------------
(1) This table does not include the following: (a) 190,667 shares of common
stock issuable upon the exercise of outstanding warrants at an exercise price
of $3.40 per share; (b) 400,000 shares of common stock reserved for issuance
upon exercise of stock options granted or to be granted under the 1998 Stock
Option Plan of which options to purchase 39,600 shares of common stock were
outstanding and exercisable at September 30, 1998 at an exercise price of $3.40
per share; (c) 250,000 shares of common stock issuable pursuant to outstanding
warrants, exercisable at $6.00 per share; (d) 44,000 shares of common stock
reserved for issuance upon vesting as per the Caltech License Agreement; and
(e) shares that may be issuable pursuant to anti-dilution provisions of certain
outstanding securities. To the extent that these warrants or options are
exercised, there will be further dilution to new investors. See "DESCRIPTION OF
SECURITIES," "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "SHARES
ELIGIBLE FOR FUTURE SALE."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of
OmniCorder's results of operations and financial condition.
The discussion should be read in conjunction with OmniCorder's Financial
Statements and Notes thereto appearing elsewhere in this prospectus. The
Management Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements that involve risks and
uncertainties. OmniCorder'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
OmniCorder is a development stage company and since February 1997
("inception"), has devoted itself to raising capital, negotiating technology
licenses and other agreements, conducting a limited field test of the DAT
system and negotiating employment contracts with current and future employees.
OmniCorder has not generated any revenues to date and has incurred substantial
operating losses from these business development activities. OmniCorder expects
to incur significant costs relating to all of its operations in the future in
order to develop, test and market its products and services.
Period from February 7, 1997 (inception) through September 30, 1998
Results of Operations
OmniCorder's cumulative net losses since inception are attributable to the
fact that it has not derived any revenue from operations to offset its business
development expenses.
Operating Expenses. Operating expenses since inception have amounted to
$786,677. General and administrative expenses (approximately $249,000) and
related party legal expenses (approximately $179,000) primarily consist of
legal, accounting and an officer's salary. Research and development expenses
(approximately $359,000) principally consists of funding of research and
development to OmniCorder's chief scientist and a license for technology from
Caltech. In connection with the acquisition from Caltech of its exclusive
license to exploit infrared detection technology for certain applications,
OmniCorder issued 44,000 shares of its common stock. The value of the shares
issued ($149,600) was charged to results of operations as in-process research
and development.
Interest expense. Interest expense since inception consists of $125,000
resulting from the amortization of debt discount and accrued interest on the
Bridge Notes (as defined below).
Liquidity and Capital Resources
OmniCorder is in the development stage and currently has no sources of
revenue. In addition, the report of independent accountants on OmniCorder's
financial statements as of and for the period from inception through December
31, 1997 contains an explanatory paragraph regarding an uncertainty with
respect to the ability of OmniCorder to continue as a going concern. At
December 31, 1997, OmniCorder had a deficit accumulated during the development
stage of $143,516 ($917,927) at September 30, 1998. Such accumulated losses
have resulted principally from costs incurred in research and development and
from general and administrative expenses. OmniCorder funded its operations
since inception through the use of cash obtained principally from third party
financing, receiving gross proceeds of approximately $1,480,000, through
September 30, 1998.
Since inception, OmniCorder has sold an aggregate of 202,396 shares of its
common stock in a private placement for approximately $626,000, net of related
expenses (the "Private Placement").
In August 1998, OmniCorder sold an aggregate of $750,000 of its 10%
Exchangeable Senior Bridge Notes (the "Bridge Notes") and warrants ("Bridge
Warrants") to purchase up to 250,000 shares of common stock, receiving net
proceeds of $602,500. The Bridge Notes will be payable upon the earlier of
February 28, 1999 (subject to extension by one day for each day after November
30, 1998 that OmniCorder fails to deliver to
21
<PAGE>
Cambridge a preliminary prospectus for its initial public offering (the
"IPO")), or the closing of its IPO. Interest will be paid in one balloon
payment at maturity. The Bridge Notes can be converted into common stock at a
price of $3.40 per share if Cambridge is unable to complete OmniCorder's IPO at
a price of at least $8 per share, and OmniCorder decides not to proceed with an
IPO. If the Bridge Notes are converted into common stock, the aggregate number
of shares issuable upon exercise pursuant to the Bridge Warrants would be
125,000. The maturity of the Bridge Notes can also be extended to September 30,
1999, if Cambridge is unable to complete OmniCorder's IPO at a price of at
least $9 per share and OmniCorder chooses not to complete the IPO. The maturity
of the Bridge Notes can also be extended to the earlier of September 30, 1999,
or the closing of the IPO upon consent of Cambridge and OmniCorder, if they
agree to defer the IPO to a date no later than September 30, 1999.
The net proceeds from the Private Placement and the sale of the Bridge
Notes were used to fund OmniCorder's research and development (approximately
$359,000), general and administrative (approximately $249,000) and legal
expenses (approximately $179,000) and capital expenditures (approximately
$57,000). OmniCorder's capital requirements in connection with its product
development and marketing activities will be significant. OmniCorder will be
dependent on the proceeds of the proposed Offering of its common stock to
complete the development of the DAT system and to bring the DAT System to
market. Management believes that cash of $479,468 as of September 30, 1998,
combined with anticipated net proceeds from the proposed Offering, will be
sufficient to support its operations for a period of 24 months after the
Offering. Management expects OmniCorder to generate revenue from the
commercialization of the DAT system (through license fees and patient encounter
fees) within approximately 12 months after the Offering, assuming OmniCorder
timely receives 510(k) clearance, which it expects to obtain in mid-1999.
However, there can be no assurance that OmniCorder will be successful in
completing the proposed Offering or obtaining other additional financing or
that it will be successful in further developing and commercializing the DAT
System and related services, or that it will timely receive required FDA
clearance.
Should OmniCorder experience delays in further developing the DAT System
or in generating revenues therefrom, additional capital may be required. There
can be no assurance that additional capital will be available on terms
acceptable to OmniCorder, or at all. Additional equity financing or equipment
lease or other debt financing, if available, may include restrictive covenants,
including financial maintenance covenants restricting OmniCorder's ability to
incur additional indebtedness and to pay dividends. OmniCorder's failure to
raise capital, or engage in equipment lease financing or other debt financing
on acceptable terms when needed, could have a material adverse effect on its
business, financial condition and results of operations.
Year 2000 Compliance Program
OmniCorder has implemented a Year 2000 program to ensure that OmniCorder
and its vendors' and business partners' computer systems and applications will
function properly beyond 1999. OmniCorder has identified vendor and business
partner software with which it electronically interacts, or from which it
purchases supplies, and has requested Year 2000 compliance certifications.
OmniCorder has received verbal assurance from those vendors and business
partners that they and their respective suppliers are Year 2000 compliant.
Although OmniCorder believes all of its systems are and will be Year 2000
compliant, there can be no assurances that all of OmniCorder's vendors' and
business partners' systems will be Year 2000 compliant. OmniCorder's cost to
comply with the Year 2000 initiative is not expected to be material.
22
<PAGE>
BUSINESS
Introduction
Omnicorder Technologies, Inc., a Delaware corporation, is a development
stage company, incorporated in 1997 to engage in the business of providing
innovative screening services and clinical information for the early detection
and management of breast cancer and other diseases. To date, OmniCorder has
focused its business on the development of a new technique for the detection of
breast cancer. This technique uses new patented sensor and diagnostic
technology, under exclusive license to OmniCorder, combined with OmniCorder's
proprietary diagnostic software, to precisely measure the variation in tissue
physiology which occurs in the presence of cancer. The data collected during a
five-ten minute examination period is analyzed using a patented process known
as Dynamic Area Telethermometry(TM) or "DAT," which was developed by Professor
Michael Anbar, one of the world's foremost authorities on biomedical
applications of infrared imaging. The information derived by this process will
be analyzed either in the physician's office or at information processing
centers maintained by OmniCorder at major medical centers throughout the
country, the results of which will then be provided to the physician.
OmniCorder will rely upon various intellectual property to deliver its
breast cancer screening and diagnostic services. OmniCorder will principally
rely on a patent issued to Professor Michael Anbar relating to the detection of
cancerous lesions and three related pending patents. The issued patent (the
"Anbar Patent") and the three related pending patents represent the diagnostic
aspect of DAT, i.e., the method used to analyze data collected by the infrared
cameras to determine the likelihood of cancerous tissue in the breast and
surrounding areas. OmniCorder is the exclusive licensee of the Anbar Patent for
all applications worldwide. See "BUSINESS -- Licensing and Patents -- The Anbar
License Agreement" below.
OmniCorder will also utilize infrared detector technology under exclusive
licenses for certain biomedical applications from the California Institute of
Technology's Jet Propulsion Laboratory and the Lockheed Martin Corporation,
respectively. See the "BUSINESS -- Licensing and Patents -- Caltech License
Agreement" and the "Lockheed Martin License Agreement" below.
OmniCorder is negotiating a license for certain software from a third
party. This software is intended to manage the data collected throughout
OmniCorder's network of participating healthcare centers. This highly secure,
mission critical network, will be designed to transmit encrypted information
over the Internet or an intranet. OmniCorder believes that if this license is
not successfully negotiated, alternatives are available to effect the required
functions of this software. See "BUSINESS -- Information Network," below. See
also "RISK FACTORS -- OmniCorder has not Completed Development of Certain
Components of its DAT System."
OmniCorder believes DAT has significant advantages over x-ray mammography
and other existing breast cancer screening modalities, including:
o reliance upon detection of changes in blood flow distribution
characteristics in the breasts, which occur early in a tumor's growth,
rather than reliance upon detection of a calcified mass which generally
forms 3-7 years after a tumor has been growing.
o a significant reduction of false positives i.e, an indication by a
screening modality of the existence of cancer when none in present, thus
eliminating a large number of unnecessary surgical procedures known as
biopsies in which tissue is removed by a needle or scalpel from the breast
for pathological examination.
o a significant reduction of false negative readings i.e., an indication by
a screening modality that no cancer is present when cancer is present.
o elimination of risks posed by irradiation of the breast in x-ray
mammography, as well as elimination of discomfort, pain and/or bruising
which can occur during the breast compression procedure used for x-ray
mammography.
o an approximate 25% to 50% cost-reduction per examination when compared
with x-ray mammography. See "DAT's Efficacy" below.
23
<PAGE>
The Current Incidence of Breast Cancer
The American Cancer Society has published recent statistics showing that 1
in 9 women in the United States alone will develop breast cancer over their
lifetime. The American Cancer Society estimates that in 1998 some 178,700 new
cases of breast cancer will be diagnosed among women in the United States. An
estimated 1,600 cases will be diagnosed among men. Breast cancer is the second
leading cause of cancer death in women, exceeded only by lung cancer. It is the
leading cause of cancer death among women aged 40 to 55. The American Cancer
Society estimates that, in 1998, there will be about 43,900 deaths from breast
cancer in the United States.
Early detection of breast cancer can dramatically lower mortality rates
and prolong life expectancy. Standard screening tests for early detection of
breast cancer currently include breast self-examination, breast examination by
a physician ("palpation"), and x-ray mammography.
The American Cancer Society recommends that women older than age 40
undergo a palpation examination annually and that women aged 20 to 40 years
have a palpation examination every 3 years. Unfortunately, by the time cancer
is detected by palpation, the disease has often progressed to a very advanced
stage requiring highly invasive treatment and resulting in high mortality
rates.
It is estimated that there are approximately 200 million women at risk for
breast cancer, in the U.S. and Europe alone, who could benefit from x-ray
mammography screening. However, only 25% to 35% of women make regular use of
this screening modality. Reasons for this include the discomfort or pain
associated with the procedure and fear of the effects of x-ray exposure. In
addition, there is growing awareness among women that, beyond the pain and risk
associated with x-ray mammography, the procedure does not always have high
reliability.
X-ray mammography generally attains sensitivity rates of 80% to 90% in
women who do not have dense breast tissue (generally, post-menopausal women who
are not receiving estrogen-related therapy), which means 10 to 20 women out of
100 in this group with cancer will receive a false negative test result. In
pre-menopausal women (who generally have more dense breast tissue), sensitivity
rates of x-ray mammography are 55% to 75%, which means that x-ray mammography
will not detect cancer in 25 to 45 women out of 100 in this group.
X-ray mammography will very often indicate the presence of cancer when
there is no cancer present (a false positive). A positive finding on an x-ray
mammogram has a predictive value of less than 30%. This means that fewer than 3
in every 10 biopsies done to confirm or rule out malignancy (cancerous breast
tissue) for suspicious lesions detected in a mammogram will confirm malignancy.
Therefore, more than 7 out of 10 of these surgical procedures could have been
avoided if a more accurate screening modality were used.
What is DAT and how does it Search for Cancer
In 1995, Professor Michael Anbar patented the DAT method for the detection
of cancer, which was the culmination of years of research pertaining to the
biochemical behavior of cancerous lesions. The key component of Professor
Anbar's theory is a chemical called nitric oxide ("NO"). NO is a fundamental
chemical messenger which causes dilation of blood vessels. Until recently,
little was known about the existence or behavior of this chemical. Professor
Anbar was one of the first scientists to demonstrate the existence of native NO
in humans and other mammals. Later, other scientists described the mechanism by
which NO causes vasodilation. In 1998, these scientists were awarded the Nobel
Prize for their work describing this mechanism. The understanding of how the NO
mechanism works has many implications for commercial medical products. For
example, the discovery of this mechanism led to the development of Viagra (an
impotency drug). Professor Anbar incorporated the understanding of the NO
mechanism in the DAT methodology.
DAT is based upon the following principles:
o All objects with a temperature above absolute zero (-459.69 F o ) emit
black body radiation in the form of infrared radiation.
o In living organisms, black body radiation emission is a function of
regulation of tissue blood supply.
o Regulation of blood supply is manifested by thermoregulation.
24
<PAGE>
o Thermoregulation is an essential physiological function and in normal
tissue is controlled by the autonomic nervous system.
o The autonomic nervous system regulates body temperature by controlling
the distribution of blood, which is the primary heat exchange medium.
o Early in the development of cancerous tissue, a locally active
biochemical called Nitric Oxide is released by the cancerous tissue.
Nitric oxide interferes with the normal autonomic nervous system control
of the blood vessels of the surrounding tissue.
o DAT differentiates between normal tissue behavior and the abnormal
behavior exhibited by tissue surrounding cancerous growths which are under
the control of nitric oxide generated by cancer cells.
From 1995 to 1998, Professor Anbar developed a set of algorithms (a
mathematical model) which forms the basis of OmniCorder's proprietary
diagnostic software. This software, based on the above algorithms, was designed
to enable the DAT System to analyze infrared emissions to detect the presence
of cancer.
DAT, in theory, detects a process which occurs early in the life cycle of
a cancer. X-ray mammography relies upon the presence of a mass, which it can
only detect later in the cycle of tumorous growths (3-7 years, on average,
after a tumor begins to grow). Because of this, OmniCorder believes that the
principles on which DAT is based are more conducive to detecting cancer at an
earlier stage of its development. In addition, because the biochemical process
DAT detects is generated, in theory, only by cancer, and not by non-cancerous
masses, OmniCorder believes DAT will be a more reliable indicator of the
presence of cancer than x-ray mammography. Earlier, more accurate detection of
breast cancer will significantly increase the chances for effective treatment.
Evolution of DAT Sensor Technology
DAT has its roots in a rudimentary heat detection technique known as
thermography, developed in the 1970s. Thermography generally refers to the use
of infrared sensitive instruments or materials to detect the emission of
infrared radiation. The simplest form of this technique used to detect breast
cancer is contact thermography which works by placing temperature sensitive
material in physical contact with a woman's breasts. The detection of
variations in the color of the material is intended to highlight "hot spots"
which could indicate the presence of cancer. This technique, however, can only
detect differences in temperature of 2.0 degrees centigrade or greater.
Non-contact, static camera detectors were developed later which provided
an increase in temperature sensitivity. Cameras were also developed which began
to allow for multiple "frames" of data to be received and analyzed. The
development of the capability to analyze multiple "frames" of data, with
greater temperature sensitivity, allowed for observation of smaller temperature
changes in breast tissue over a period of time.
However, it was not until 1996 when the California Institute of
Technology's Jet Propulsion Laboratory developed a new camera technology known
as QWIP (Quantum Well Infrared Photodetectors), that it became possible to
detect minute temperature changes in breast tissue. This detector technology,
which OmniCorder subsequently licensed for certain biomedical applications on
an exclusive basis, permits a much higher sensitivity of measurement for
changes in the temperature of breast tissue. The sensitivity of this detector
technology, combined with the increased speed of data collection made possible
by newly advanced camera technology, have together achieved a threshold which,
for the first time, makes the DAT diagnostic process possible. This detector
technology, originally developed for the Department of Defense's Ballistic
Missile Defense Initiative (sometimes referred to as "Star Wars"), is 50 times
more sensitive than previously available infrared detectors, and it can collect
data ten times more rapidly than the best of previously available technology.
These capabilities enable DAT to analyze temperature variations at over 100
frames per second and measure temperature differences of .001 degrees
centigrade, a 2,000 times improvement in temperature sensitivity over contact
thermography, an early version of a "heat-sensitive" screening tool. See
"BUSINESS -- Licensing and Patents -- The Caltech License Agreement" below.
How the DAT System Will Be Delivered to the Public
OmniCorder expects that DAT will be made available to the general public
by providing the necessary combination of hardware, software and training
comprising the DAT System to both specialists (radiologists,
25
<PAGE>
surgeons and oncologists) and select primary care providers. The DAT System
will consist of an infrared camera, a customized computer workstation and other
associated hardware, OmniCorder's proprietary analysis software and the
training necessary to utilize the DAT System as a screening and diagnostic
technique.
OmniCorder intends to sell both exclusive and non-exclusive regional
licenses for which the Provider Partner (generally hospitals, medical centers,
health networks, clinics and group medical practices) will pay a one-time
licensing fee. The licensing fee will depend on the specifications of the
license, but will generally be $1.50 per person in the region, for the
exclusive right, over a period of five years, to deliver the DAT System to that
region. Lower fees will be charged for non-exclusive licenses. The license fee
is anticipated to range from $500,000 to $1,500,000 depending on the population
of the region and the terms of the license. All of the hardware and software
provided as part of the DAT System, the cost of which will be included as part
of the license fee, will remain OmniCorder's property. OmniCorder will maintain
and upgrade the hardware and software as part of the license agreement.
OmniCorder anticipates that the cost to the patient of the initial
screening examination will be $50-$75. OmniCorder will receive, from the
provider, approximately 50% of this amount for each screening examination. The
balance of the fee will be retained by the provider. These fees may vary. By
comparison, the average cost of an x-ray mammogram is approximately $100.
The Patient Encounter
OmniCorder believes that, in addition to its anticipated superior
detection capabilities, a strong advantage of the DAT System will be the
enhanced patient experience. OmniCorder believes that the quality of the
patient's experience will lead to greater participation in early breast cancer
screening. OmniCorder believes that many women are reluctant to utilize x-ray
mammography due to the pain or discomfort associated with it and their fear of
x-ray radiation exposure. X-ray mammography requires a woman's breast to be
compressed between two glass plates. This compression frequently causes
discomfort, pain and/or bruising. In addition, each time a woman is exposed to
x-rays in this manner, her risk of contracting cancer is increased.
In contrast, the DAT examination does not require x-ray or other type of
radiation. The DAT System relies on collecting information from infrared rays
passively emitted from a woman's body. The process requires no breast
compression and, in fact, is entirely non-contact. The partially disrobed woman
is positioned with her chest in the field of view of the camera (2-3 feet from
the lens) and the camera begins to collect data for approximately 1 minute. The
collected data is then analyzed in the physician's offices and the results are
anticipated to be available within a few minutes for the physician to
interpret. If the results generated by the DAT System indicate a possible area
of concern, primary care physicians may, in their discretion, forward the
results for analysis to a regional medical center which OmniCorder has
designated as a "DAT Center of Excellence". The results will be transmitted
through OmniCorder's information distribution network. See "BUSINESS --
Information Network" below. Medical specialists at these DAT Centers of
Excellence will then review the results and discuss their interpretation with
the primary care physician.
DAT's Efficacy
OmniCorder commenced, in September 1998, field trials that will test
approximately 3,000 women for the presence of breast cancer. The testing is
designed to validate the efficacy of the DAT System generally, and
specifically, the efficacy of the DAT System compared with x-ray mammography
and other modalities. The study is expected to be completed by October, 1999.
In late 1997 and early 1998, OmniCorder conducted a limited study with 34
women comparing DAT to classic static (non-dynamic) thermal studies and other
accepted clinical methods, including x-ray mammography. The study was conducted
at the State University of New York at Buffalo using the first prototype system
which is substantially less sensitive than the current improved prototype. The
results of this limited field trial indicated that the DAT System exhibited
fewer false positives than static thermography (4 versus 21). In addition, in 3
out of 34 cases, the DAT System determined that cancer existed in patients that
were deemed negative by screening with x-ray mammography, and the DAT System's
assessment in these cases was confirmed by biopsy. OmniCorder believes that the
recently commenced 3,000 women field test will establish the DAT System's
efficacy as
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an adjunctive (supplemental) diagnostic screening method for the detection of
breast cancer. Additional clinical tests will be necessary in connection with
OmniCorder's Premarket Approval application, to be filed with the FDA to permit
OmniCorder to market the DAT System on a stand-alone basis, i.e., one that does
not need to be used together with an existing approved method. See "BUSINESS --
Government Regulation" below.
Licensing and Patents
The acquisition and licensing of intellectual property integral to the DAT
System is a critical aspect of OmniCorder's strategy. OmniCorder controls,
through exclusive licensing agreements, the patents that protect the core
diagnostic software and detection technology and other intellectual property
upon which the DAT System is based. The principal agreements are as follows:
Caltech License Agreement -- OmniCorder entered into an agreement in May,
1998, based on an option granted in September, 1997 (the "Caltech License
Agreement") with the California Institute of Technology's Jet Propulsion
Laboratory ("Caltech") pursuant to which OmniCorder was granted the exclusive
license in the Field (as defined below) to exploit infrared radiation detection
technology as embodied in certain pending patents and any U.S. or foreign
patents or patent applications issuing therefrom relating to Quantum Well
Infrared Photodetectors or "QWIP" (the "Caltech Technology"). The Caltech
Technology was originally developed for earth/space science and weapon systems
applications, by the joint effort of:
o The Jet Propulsion Laboratory.
o The Center for Space Microelectronics Technology.
o The National Aeronautic and Space Administration ("NASA") Office of Space
Access and Technology.
o The Ballistic Missile Defense Organization/Innovative Science and Technology
Office.
Under its agreement with Caltech, OmniCorder has acquired an exclusive
license for the worldwide use of the Caltech Technology in the field of
detection of passively emitted infrared radiation from tissue, organs and organ
systems for the generation of temperature related images (the "Field") for
commercial medical and veterinary applications.
The Caltech License Agreement provides OmniCorder with the rights to enter
into agreements, including sublicenses, to exploit the Caltech Technology
worldwide in the Field, on an exclusive basis, subject to payment of certain
royalties for (a) revenues received by OmniCorder from licensed products and
services, but not including revenues from sublicenses; and (b) revenues
received by OmniCorder from sublicenses other than (x) those from related
companies for the sale of licensed products and services; and (y) those derived
from the exclusive or nonexclusive regional licenses to health care providers.
In exchange for this license, Caltech was issued 44,000 shares of OmniCorder's
common stock. An additional 22,000 shares will be issued on each of the first
and second anniversaries of the Caltech License Agreement (May 11, 1999 and May
11, 2000) unless OmniCorder terminates the Caltech License Agreement prior to
the dates set forth above.
OmniCorder is required to use reasonable commercial efforts to exploit the
Caltech Technology. OmniCorder's ability to maintain exclusivity for specific
applications is tied to its ability to respond to opportunities for commercial
exploitation of the Caltech Technology. OmniCorder must pay Caltech a minimum
royalty of $10,000 per year as a condition of this license, commencing in the
period May 11, 1999 - May 11, 2000. OmniCorder is entitled to manufacture
cameras utilizing the Caltech Technology in a manner of OmniCorder's choosing.
Lockheed Martin License Agreement -- OmniCorder entered into an exclusive
license agreement with the Lockheed Martin Corporation on September 18, 1998
(the "Lockheed Martin License Agreement"). Pursuant to this agreement,
OmniCorder was granted an exclusive, worldwide license to exploit all
biomedical applications of certain enhanced infrared detector technologies
known as Enhanced Quantum Well Infrared Photodetectors ("EQWIP"). These
technologies enhance the sensitivity of the Caltech Technology. The EQWIP
technology is protected by a patent owned by Lockheed Martin Corporation.
OmniCorder also has been licensed the same rights with respect to patent
filings on the Lockheed Martin technology in Canada, Norway, Japan, France,
Germany and Great Britain. In order to maintain exclusivity, OmniCorder is
subject to a number of milestones it
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must meet relating to royalty generation, development of markets and
territories, utilization of the EQWIP technology in certain percentages of
OmniCorder's installed base of diagnostic equipment and required levels of
royalty generating installations. However, OmniCorder does not believe that a
loss of exclusivity under this Agreement would result in a material adverse
effect on it. OmniCorder must also utilize the Lockheed Martin technology in at
least 10% of its DAT System installations as a condition of continuation of the
license.
OmniCorder has agreed to pay Lockheed Martin Corporation a royalty on
revenues it derives from utilization of the EQWIP technology. OmniCorder has
also agreed to license back to Lockheed Martin Corporation any improvements it
makes to the EQWIP technology for uses in which OmniCorder does not retain
exclusivity. Under certain conditions, OmniCorder may sublicense its rights to
develop specific territories and markets to third-parties, subject to consent
of Lockheed Martin Corporation. OmniCorder is entitled to exclusively utilize
any improvements to the EQWIP technology developed by Lockheed Martin
Corporation. OmniCorder is permitted to employ a manufacturer of its choosing
to manufacture cameras incorporating the EQWIP technology.
Anbar License Agreement -- In March 1997, OmniCorder entered into an
option agreement with Professor Michael Anbar pursuant to which it could
acquire the exclusive worldwide right to exploit the Anbar Patent (the "Anbar
License Agreement"), subject to certain research funding requirements being
met. The Anbar Patent is entitled "Detection of cancerous lesions by their
effect on the periodic modulation of perfusion on the surrounding tissue." This
patent describes the disease related physiological processes which occur in the
presence of cancerous tumors, as well as the method by which DAT analyzes
radiation emitted by tissue surrounding cancerous tumors.
In February 1998 OmniCorder achieved the requisite financing which was
necessary to execute the Anbar License Agreement. In March 1998, OmniCorder
funded the required research budget and released 440,000 shares of previously
reserved common stock to Professor Anbar. OmniCorder was also assigned certain
related pending patents. Pursuant to the Anbar License Agreement, OmniCorder is
obligated to pay Professor Anbar a royalty of $300 for each DAT System
installed at a client site.
OmniCorder funded a research and development budget which is being used by
Professor Anbar to support OmniCorder's activities, with respect to the DAT
System, through the UB Foundation at the State University of New York at
Buffalo ("S.U.N.Y. Buffalo"). The arrangement was structured to minimize costs
to OmniCorder and to provide for an accredited academic environment in which to
conduct the research. The original budget consisted of (i) a cash grant of
$550,000, any residuals of which revert to OmniCorder upon Anbar's resignation
from S.U.N.Y. Buffalo; and (ii) the use of a research camera device. This grant
was reduced to $495,000 inclusive of $100,000 previously provided by OmniCorder
(see "MANAGEMENT -- Employment Agreements"). As of September 30, 1998,
approximately $256,000 of the research budget is remaining which is expected to
be utilized by March 1999. All intellectual property or devices or discoveries
arising out of this research are OmniCorder's sole property.
Information Network
OmniCorder is negotiating a software license agreement with a third party,
pursuant to which it and participating healthcare providers will be able to
collect, distribute and process comparative case histories on patients who have
been analyzed by the DAT System. The software is designed to enable the
delivery of relevant information by highly secure, encrypted transmissions over
the Internet or an intranet. OmniCorder will pay royalties to the licensor
under this agreement. While this information distribution network is intended
to support the delivery of the DAT System initially, OmniCorder anticipates
that it may form the basis of a general purpose electronic patient record and
may open an additional field of commercial endeavor for OmniCorder at a future
date. OmniCorder believes that if this license is not successfully negotiated,
alternatives are available to effect the required functions of this software.
See "RISK FACTORS -- OmniCorder has not Completed Development of Certain
Components of its DAT System."
Government Regulation
FDA Regulation. OmniCorder's products and manufacturing activities are
subject to regulation by the FDA and by other federal, state, local, and
foreign authorities. Pursuant to the Food, Drug and Cosmetic Act and the
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regulations promulgated thereunder, the FDA regulates the development, clinical
testing, manufacture, packaging, labeling, storage, distribution and promotion
of medical devices. Before a new device can be introduced into the market, the
manufacturer must generally obtain marketing clearance through a 510(k)
notification or approval through a Premarket Approval.
OmniCorder believes, but there can be no assurance (see "RISK FACTORS --
Government Regulation"), that the DAT System should receive 510(k) clearance
under Section 510(k) which would permit the DAT System to be used as an adjunct
(supplemental) screening/diagnostic service to existing FDA cleared or approved
screening/diagnostic methods. If a 510(k) clearance is granted, OmniCorder will
then begin marketing the DAT System as an adjunctive (supplemental) method for
the screening and diagnosis of breast cancer. In parallel, OmniCorder intends
to commence Premarket Approval clinical trials to demonstrate the safety and
effectiveness of the DAT System as a stand-alone breast cancer screening
modality, i.e., one that does not need to be used together with an existing
approved method. The Premarket Approval process is discussed below. There can
be no assurance that OmniCorder will receive 510(k) clearance to market the DAT
System as an adjunctive (supplemental) system under either Section 510(k) of
the Food, Drug and Cosmetic Act or approval to market the DAT System as a
stand-alone diagnostic screening system under the Premarket Approval process or
as to the timing of the grant of any such approvals. See "RISK FACTORS --
Government Regulation; No Assurance of Regulatory Approvals."
OmniCorder intends to submit its 510(k) for the DAT System in early 1999
(average total time for clearance is between 90-120 days) and also intends to
conduct a 3,000 women field test intended for completion by the fourth quarter
of that year. If the FDA finds the DAT System substantially equivalent to an
existing legally marketed device, thus permitting it to be marketed as an
adjunct (supplemental) screening/diagnostic device. OmniCorder intends to use
the field test to help promote the sale of the DAT System as an adjunct
(supplemental) method for the screening and diagnosis of breast cancer.
However, the FDA may request additional information to demonstrate substantial
equivalence, including clinical information. If the agency requests clinical
data, OmniCorder anticipates submitting the results of the field test to the
FDA. When additional information is submitted to the FDA, the agency will often
restart the submission review clock. This is particularly true when the
additional information includes clinical data.
Classification of Medical Devices. In the United States, medical devices
intended for human use are classified into three categories (Class I, II, or
III), on the basis of the controls deemed reasonably necessary by the FDA to
assure their safety and effectiveness. Class I devices are subject to general
controls, for example, labeling, premarket notification under Section 510(k)
(unless exempt) and adherence to the FDA's Good Manufacturing Practices
regulations. Class II devices are subject to general and special controls (for
example, performance standards, postmarket surveillance, patient registries,
and FDA guidelines). Class III is the most stringent regulatory category for
medical devices. Class III devices are those which are subject to premarket
approval requirements and are intended to require, or must require, an FDA
approval of their safety and effectiveness prior to marketing.
Class III devices include, for example, devices which are life-sustaining,
life-supporting or implantable devices, or new devices which have not been
found substantially equivalent to legally marketed devices.
Breast cancer screening devices that use infrared detection
instrumentation, such as that used in the DAT System, which are intended to be
used by physicians as an adjunct (supplement) to other established clinical
detection methods for breast disease, are currently classified as Class I
devices, requiring clearances under Section 510(k) before marketing. Such
devices that are intended for stand-alone use, i.e., for use as a sole
diagnostic screening tool for detection of breast cancer, are classified as
Class III devices, requiring Premarket Approval before marketing.
510(k) Clearance. The FDA will clear a device under section 510(k) 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 yet called for a Premarket
Approval application. Commercial distribution of a device for which a 510(k)
notification is required can begin only after the FDA issues an order that the
device is substantially equivalent to a device that is legally marketed and not
subject to a Premarket Approval requirement. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device,
in which case a Premarket Approval will be required to market the device,
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unless additional information can be submitted to support a substantial
equivalence determination, or the FDA, pursuant to a request from a 510(k)
submitter, makes a risk based determination that a not substantially equivalent
device can be classified into Class I or II. An FDA request for additional data
could require that clinical studies of the device's safety and effectiveness be
performed.
Premarket Approval. A Premarket Approval application must be filed and
approved before a device can be marketed if a proposed device is not
substantially equivalent to a legally marketed device or if it is a pre-
amendments Class III device, i.e., a device in commercial distribution prior to
May 28, 1976, for which the FDA has called for Premarket Approvals. A Premarket
Approval application must be supported by valid scientific evidence, which
typically includes extensive data, including pre-clinical and clinical trial
data, to demonstrate the safety and effectiveness of the device.
Notwithstanding the 510(k) and Premarket Approval pathways to the marketplace,
if human clinical trials of a device are required, and the device presents a
"significant risk," the sponsor (usually the manufacturer or the distributor of
a device) must obtain FDA approval of an Investigational Device Exemption
application prior to commencing human clinical trials. If the device is an
"non-significant risk" device under the FDA's regulations, i.e., it is not a
"significant risk" device, a sponsor may begin clinical trials after obtaining
approval, based on the study and related matters, by one or more Institutional
Review Boards, who are in compliance with 21 C.F.R. Part 56, which contains the
regulatory requirements for Institutional Review Boards, without FDA approval.
However, the FDA can challenge an Institutional Review Board determination to
permit such a study and require agency approval of investigational device
clinical research. Sponsors of clinical trials are permitted to charge for
devices distributed in the course of a study provided such charges do not
exceed recovery of the costs of manufacture, research, development and
handling. However, devices for distribution under an Investigative Device
Exemption may not be commercialized, i.e., promoted as safe or effective, sold
for profit or used beyond legitimate research needs.
Changes in Approved Devices. The Food, Drug and Cosmetic Act requires
device manufacturers to obtain new FDA 510(k) clearance when there is a major
change or modification in the intended use of a legally marketed device or a
change or modification, including product enhancements (and, in some cases,
manufacturing changes), to a legally marketed device that could significantly
affect its safety or effectiveness. Supplements for approved Premarket Approval
devices are required for device changes (including some manufacturing changes)
that affect safety or effectiveness. For devices marketed pursuant to 510(k)
determinations of substantial equivalence, the manufacturer must obtain FDA
clearance of a new 510(k) notification prior to marketing the modified device;
for devices marketed with Premarket Approval, the manufacturer must obtain FDA
approval of a supplement to the Premarket Approval prior to marketing the
modified device.
Good Manufacturing Practices and Reporting. The Food, Drug and Cosmetic
Act requires device manufacturers to comply with Good Manufacturing Practices
regulations. A new set of regulations, called the Quality Systems Regulations,
went into effect June 1, 1997. The regulations require that medical device
manufacturers comply with various quality control requirements pertaining to
design controls, purchasing contracts, organization and personnel, including
device and manufacturing process design, buildings, environmental control,
cleaning and sanitation; equipment and calibration of equipment; medical device
components; manufacturing specifications and processes; reprocessing of
devices; labeling and packaging; in-process and finished device inspection and
acceptance; device failure investigations; and recordkeeping requirements
including complaint files. The FDA enforces these requirements through periodic
inspections of medical device manufacturing facilities. In addition, a set of
regulations known as the Medical Device Reporting regulation obligates
manufacturers to inform the FDA whenever information reasonably suggests that
one of its devices may have caused or contributed to death or serious injury,
or when one of its devices malfunction and, if the malfunction were to recur,
the device would be likely to cause or contribute to a death or serious injury.
Labeling and Advertising. Labeling and promotional activities are also
subject to scrutiny by the FDA. Among other things, labeling is violative of
the law if it is false or misleading in any respect or it fails to contain
adequate directions for use. Moreover, any labeling claims that exceed the
representations either approved or cleared by the FDA will violate the Food,
Drug and Cosmetic Act.
OmniCorder's product advertising is also subject to regulation by the
Federal Trade Commission under the Federal Trade Commission Act, which
prohibits unfair methods of competition and unfair or deceptive acts or
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practices in or affecting commerce, as well as unfair or deceptive practices
such as the dissemination of any false advertisement pertaining to medical
devices. Under the Federal Trade Commission's "substantiation doctrine," an
advertiser is required to have a "reasonable basis" for all product claims at
the time the claims are first used in advertising or other promotions.
Export Requirements. Products for export are subject to foreign countries'
import requirements and the FDA's exporting requirements. The introduction of
OmniCorder's products in foreign markets may subject it to foreign regulatory
clearances, which may impose additional substantial costs and burdens. The
regulatory review process varies from country to country. Many countries impose
product standards, packaging and labeling requirements and import restrictions
on devices. In addition, each country has its own tariff regulations, duties,
and tax requirements.
In addition to the import requirements of foreign countries, OmniCorder
must also comply with United States laws governing the export of products
regulated by the FDA. Devices that have obtained 510(k) clearance or Premarket
Approval and comply with the law in all other respects may be exported without
further FDA authorization. However, foreign countries often require, among
other things, an FDA certificate for products for export ("CPE"). To obtain
this certificate, the device manufacturer must certify to the FDA that the
product has been granted clearance or approval in the United States and that
the manufacturing facilities appeared to be in compliance with Good
Manufacturing Practices regulations at the time of the last FDA inspection.
Under the FDA Export Reform and Enhancement Act of 1996, an unapproved
Class III device, a device subject to an Investigative Device Exemption, or a
banned device may be exported to any country if the product complies with the
laws of that country and has valid marketing authorization in one of the
following countries or authorities: Australia, Canada, Israel, Japan, New
Zealand, Switzerland, South Africa, the European Union, or a country in the
European Economic Community ("EEC") if the device is marketed in an EEC county
or authorized for general marketing in the EEC. The FDA is authorized to add
countries to this list in the future. Further, a device may be exported under
this provision only if, among other things, it is not adulterated, accords to
the specifications of the foreign purchaser, complies with the laws of the
importing country, is labeled for export, is manufactured in substantial
compliance with Good Manufacturing Practices regulations or recognized
international standards, is not sold in the United States, and meets other
conditions.
Another pathway to export an unapproved Class III device for which a
Premarket Approval would be required to market the product in the United States
is to satisfy the following requirements: (a) the device accords to the
specifications of the foreign purchaser, (b) the device is not in conflict with
the laws of the country to which it is intended for export, (c) the device is
labeled that it is intended for export; (d) the device is not sold or offered
for sale in domestic commerce, and (e) the FDA determines that the exportation
of the device is not contrary to the public health and has the approval of the
country to which it is intended for export. Compliance with these requirements
will permit export to countries where marketing authorization from a listed
country or authority is not obtained.
Fines and Penalties for Noncompliance. OmniCorder's failure to comply with
applicable FDA regulatory requirements could result in, among other things,
Premarket Approval withdrawal, recission of a 510(k) clearance, injunctions,
product withdrawals, voluntary or mandatory patient/physician notifications,
recalls, product seizures, civil penalties, fines, and criminal prosecutions.
In addition, the Federal Trade Commission has a variety of processes and
remedies available to it for enforcement, both administratively and judicially,
including compulsory process, cease and desist orders, and injunctions. Federal
Trade Commission enforcement can result in orders requiring, among other
things, limits on advertising, corrective advertising, consumer redress,
divestiture of assets, rescission of contracts, and such other relief as may be
deemed necessary. Violation of such orders could result in substantial
financial or other penalties. Any such action by the FDA or the Federal Trade
Commission could materially adversely affect OmniCorder's ability to
successfully market its products.
Franchising. As noted above (see "BUSINESS -- How DAT Will Be Delivered to
the Public"), OmniCorder intends to bring the DAT System to the market through
a series of exclusive and non-exclusive regional licenses through which
licensees (generally hospitals, medical centers, health networks, clinics and
group medical practices) will pay a licensing fee in return for a limited
license to use (but not acquire) all of the hardware and software which
constitute a part of the DAT System.
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OmniCorder's distributional program may or will fall within the embrace of
federal and state franchise and/or "business opportunity" laws, rules and
regulations. These laws, rules and regulations variously require OmniCorder's
registration as a franchisor/licensor/business opportunity grantor; the
preparation, registration and dissemination to prospective licensees of an
offering circular which, among other things, will set forth in detail the
background and experience of OmniCorder and its management, the terms of the
license being offered, OmniCorder's financial statements, and any contracts
which may or will be entered into with licensees during the course of the
license relationship; the filing of all advertising, promotional and marketing
materials utilized by OmniCorder to attract licensees and influence their
determination to enter into license agreements with OmniCorder; the
registration of all employees or third parties who may or will be involved in
the offer and granting of OmniCorder's licenses. These laws, rules and
regulations, to the extent applicable, will circumscribe the representations
which OmniCorder and its representatives may make when offering licenses.
Further, certain franchise and/or business opportunity laws will govern
aspects of OmniCorder's relationships with its licensees, including (without
limitation): the circumstances under which a license granted by OmniCorder may
or may not be terminated; the circumstances under which a license granted by
OmniCorder must, or need not be, renewed; limitations on the number of licenses
which OmniCorder may grant within any geographic area; prohibitions on
OmniCorder discriminating among similarly situated licensees; and, under
certain such laws, a requirement that OmniCorder repurchase certain equipment
and supplies from licensees upon termination or non-renewal of their licenses.
OmniCorder believes, but there can be no assurance, that such laws and
regulations will not materially adversely impact OmniCorder's business as
currently contemplated.
OmniCorder intends to fully comply with all federal and state franchise
and/or "business opportunity" laws, rules and regulations which may or will
apply to OmniCorder's distributional program. The process of obtaining
franchise and/or business opportunity law registrations nationwide typically is
accomplished within three (3) months following the submission of registration
applications to the various franchise-regulating authorities, and will require
the expenditure of funds both for counsel and registration fees. OmniCorder
believes, but there can be no assurance, that OmniCorder can secure and
maintain in effect all necessary franchise and/or business opportunity
registrations required by law.
Noncompliance with these franchise and/or business opportunity laws can
result in, without limitation, government prosecutions (criminal and/or civil)
seeking, without limitation, injunctions or "stop orders" prohibiting
OmniCorder from granting any licenses in any or all franchise and/or business
opportunity law jurisdictions; significant fines and other civil penalties;
imprisonment; seizure of all funds acquired by OmniCorder through the sale of
licenses other than in compliance with law (along with all other funds with
which such license funds have been commingled); and, civil prosecutions seeking
restitution for OmniCorder's licensees and/or rescission of their license
agreements. Further, in the event of non-compliance, certain franchise and/or
business opportunity laws confer upon licensees private rights of action
through which they may seek to recover from OmniCorder actual and punitive
damages; rescission; restitution; and, attorneys' fees. Under some of these
laws, treble damages may be awarded to licensees. Should OmniCorder fail to
comply in all respects with the requirements of federal and state franchise
laws, rules, regulations such that the foregoing public and private remedies
are sought and obtained, then this may or will have a material adverse effect
on OmniCorder's business, financial condition and results of operations.
Competition
The DAT System will be compared with existing screening and diagnostic
modalities to first determine its efficacy as an adjunct (supplement) to
existing methods and, eventually, as a stand-alone (sole) tool for the
diagnostic screening of breast cancer. A screening modality is one which tests
a large number of women with no prior suspicion of disease. Important features
of an effective screening technology include low cost and speed of the test
procedure. Diagnostic modalities are used to detect disease in patients for
which there is a suspicion of the existence of disease. A diagnostic test can
be substantially more expensive and labor intensive than a screening test and
still be considered a cost-effective procedure. The DAT System is designed to
be both a screening and a diagnostic modality. The principal existing
modalities are as follows:
(a) Self examination. Self examination of breast performed by patient
can only detect palpable lumps and is limited by the relative abilities of
the woman performing the examination.
(b) Palpation. Palpation is a physical examination of the breast by a
physician. Palpation can generally only detect palpable lumps, which
indicates an advanced stage of cancer.
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(c) X-Ray Mammography. X-ray mammography is the most prevalent screening
method currently in use in the United States for the detection of breast
cancer, aside from self examination and palpation. Its efficacy is based
upon its ability to detect calcified masses which, in certain cases, can
indicate the presence of breast cancer. X-ray mammography requires x-ray
irradiation of the breast as well as the often painful physical pressing of
the breast between two glass plates in order to obtain the necessary
images. Despite the above inadequacies, and despite the very substantial
questions about the ability of x-ray mammography to effectively detect
breast cancer in many circumstances (especially in younger women with dense
breast tissue), its current popularity is such that any new modality will
be measured against it. The average x-ray mammography screening examination
costs approximately $100. See "RISK FACTORS -- Uncertainty of Market
Acceptance."
(d) Ultrasound. Ultrasound complements mammography and in some female
age groups it images better than mammography because it defines dense
breasts and cystic breasts effectively. Ultrasound, like x-ray mammography,
detects calcified masses and cysts. An ultrasonic transducer (probe)
utilizes sonic beams reflected by varying breast tissue types and sends
reflected echoes to a capture device in the transducer for conversion into
a digitized image of the breast. Complete assessment and diagnosis requires
a diagnostic mammogram in conjunction with the ultrasound study. A typical
ultrasound study costs approximately $200. The entire diagnostic procedure,
which also requires an x-ray mammogram, costs approximately $300.
(e) Magnetic Resonance Imaging. MRI records axial views of the body as
it passes through a tunnel-like device or rings, housing a powerful
magnetic field and surface radio frequency ("RF") coils. MRI detects
different tissue characteristics and changes in blood distribution, by
observing the effects of a magnetic field on the body's tissue. MRI is
expensive compared to standard film-screen mammography (in excess of $800)
and its use is generally limited to precisely identifying the location of
tumors detected by other screening modalities for the purpose of biopsy or
excision.
A number of companies utilizing different technologies have emerged
recently and are attempting to exploit the weaknesses of established screening
modalities. OmniCorder believes, however, that these other companies employ
less effective technologies than the DAT System.
One such company is planning to provide services using older, and in
OmniCorder's opinion, less sophisticated and effective single detector or
midwave infrared focal plane array infrared hardware. Midwave (3-5 micron)
infrared imaging is prone to environmental interference, unlike QWIP
technology. Because this method collects images over time, the methodology is
similar to OmniCorder's but, in management's opinion, relies on methods of
analysis that are more likely to produce inaccurate results due to the
subjective nature of the data analysis. OmniCorder believes that this company's
methodology may infringe upon the Anbar Patent, but OmniCorder has not
determined whether it will take legal action with respect to this possible
infringement. This company has not yet received FDA approval for marketing its
product.
Another company markets a breast cancer screening technology involving
traditional contact thermography technology, which OmniCorder believes detects
a tumor only in an advanced stage, after it is a palpable lump. Its advantage
over x-ray mammography is that it does not use radiation or breast compression.
This technology is at least twenty-five years old (its U.S. patent expired in
February 1997) and represents the type of subjective and non-repeatable
applications of early static thermography which are generally deemed
ineffective by the American Medical Association and many clinicians and
scientists. Despite these weaknesses, this company has recently begun
distribution of its product under 510(k) market clearance.
A third company utilizes a method which is a variation on an older method
known as transillumination. This method targets the same calcified structure as
x-ray mammography, and involves subjective analysis of image data, which makes
it unlikely to provide better results than the x-ray method. It has an
advantage, over x-ray, however, in that it does not use ionizing radiation and
does not require breast compression. This company requires a Premarket Approval
as an adjunct modality before it can begin to market its product.
A fourth company is a recent start-up. According to the information
available to OmniCorder, this company's method requires breast compression
followed by infrared laser transillumination. This makes the method very
similar to the transillumination method described above, but with the addition
of breast compression, which may or may not impact efficacy. The FDA's concerns
regarding exposure to infrared lasers and transillumination, as described in
connection with the previous company, apply here as well. This company will
require a Premarket Approval to market its device as an adjunct. This company
has not begun marketing its technology.
33
<PAGE>
Another company has recently developed a technique for detecting breast
cancer by measuring the changes which occur in skin surface electropotential.
This technique does not require ionizing radiation or breast compression. The
method is also operator intensive and dependent on the operator's skills. It
will require a Premarket Approval before being marketed in the U.S. There are
efforts being made to market this process in Europe.
OmniCorder believes that a comparison of the benefits and detriment of the
above modalities can be illustrated as follows:
<TABLE>
<CAPTION>
Modality Cost/Test Pros Cons
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
X-Ray Mammography $ 100 Widely available and 1) High operator dependence; 2) Fear of
accepted ionizing radiation; 3) Breast compression;
4) High false positive rate; 5) Significant
false negative rate, especially among
younger women; 6) Limited to hospitals
and large clinics due to the expense of the
infrastructure requirements.
- ---------------------------------------------------------------------------------------------------------------
Ultrasound $150-$200 1) No radiation; 2) No 1) High operator dependence; 2) Time
breast compression; 3) intensive procedure; 3) Limit use to
Better than x-ray with diagnostic applications.
dense breast tissue.
- ---------------------------------------------------------------------------------------------------------------
MRI $ 800+ 1) No radiation; 2) No 1) High operator dependence; 2) Time
breast compression; 3) intensive procedure; 3) Limit use to
Potentially more sensitive diagnostic applications; 4) Limited to
and specific than x-ray. hospitals and specialty clinics due to
the expense of the equipment and
infrastructure requirements.
- ---------------------------------------------------------------------------------------------------------------
Thermography $ 50-$100 1) No radiation; 2) No 1) High operator dependence; 2) high false
breast compression. positive rate.
- ---------------------------------------------------------------------------------------------------------------
Laser $100-$200 1) No ionizing radiation; 1) High operator dependence; 2) Relies on
Transillumination 2) No breast compression. structural defects similar to x-ray
mammography; 3) Experimental.
- ---------------------------------------------------------------------------------------------------------------
Skin Surface $100-$200 1) No radiation; 2) No 1) High operator dependence; 2) Time
Electropotential breast compression. intensive procedure; 3) Limit use to
diagnostic applications; 4) Experimental.
- ---------------------------------------------------------------------------------------------------------------
Dynamic Area $ 50-$75 1) No radiation; 2) No 1) Experimental.
Telethermometry breast compression; 3)
(DAT) Expected higher
sensitivity; 4) Expected
higher specificity than
x-ray; 5) Not a time
intensive procedure (only
5-10 minutes); 6)
Expected to be effective
in both screening and
diagnostic applications.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Marketing
OmniCorder's marketing strategy is geared towards taking advantage of
current healthcare trends and is intended to be implemented in two distinct
phases: (a) the Pilot Phase, which OmniCorder expects to be completed within
approximately 9-12 months after the Offering; and (b) the Rollout Phase, which
follows the Pilot Phase.
Trends in the Healthcare Industry
In general, the two forces driving the healthcare market are the desire to
reduce costs and the public's demand for the most technologically advanced
healthcare. These forces have created the following trends:
o Increasing costs of delivered services. Although the double digit
increases in healthcare expenditures seen in the late 1980s and early
1990s have moderated, healthcare costs continue to rise at a rate greater
than the Consumer Price Index.
OmniCorder believes that the DAT System will reduce overall costs of
breast cancer screening and diagnosis by (a) reducing the screening fee (versus
x-ray mammography); (b) reducing false positives, thereby reducing the costs
entailed in unnecessary surgical biopsies; and (c) reducing false negatives,
resulting in earlier detection, and associated reduction in cost of treatment
(as well as improved patient outcome).
o Quantifiable Information. Quantifiable information yielding sufficient
proof of adequate early detection is a critical component of preventive
care. 58.7% of consumers are enrolled in a managed care plan and 83.3% of
managed care plans report the use of disease management programs.
Quantifiable data, demonstrating the efficacy of a disease detection
program, are a critical component in a managed care plan's adopting a
screening service as part of a disease management program. OmniCorder
believes that it will be able to quantify the increased accuracy of the
DAT System versus other screening modalities, thus permitting managed care
plans to incorporate the DAT System into their disease detection programs.
o Risk Shifting. In a recent trend in the healthcare industry managed care
plans are shifting more risk onto physicians and hospitals for the cost of
patient care. This risk shifting is being implemented by a process known
as capitation, in which physicians and hospitals are required by the
managed care plan to absorb all costs relating to a patient's care for a
fixed price, as opposed to billing on a per service basis. The DAT System,
by increasing early detection capabilities, is intended to be promoted as
a risk reduction tool for physicians and hospitals participating in
managed care plans.
o Increased Information to Consumers. The Internet and other media sources
have created a much more educated healthcare consumer. The increased
awareness brought about by the greater availability of information has
driven the demand for new technologies for both diagnosis and treatment of
disease, as the limitations of older technologies become more widely
known. OmniCorder believes the DAT System's advantages will address the
dissatisfaction with older technologies because of its enhanced detection
capabilities and more favorable patient experience.
<PAGE>
Pilot Phase
The Pilot Phase of OmniCorder's marketing strategy will consist of the
beta testing of the DAT System at six well-recognized institutional healthcare
providers as part of the recently begun 3,000 women field test. These centers
are intended to include the State University of New York at Buffalo affiliated
hospitals/Millard Fillmore Hospitals and Buffalo General Hospital, The State
University of New York at Stony Brook, The Strang Cancer Center in New York
City, the Memorial Sloan-Kettering Hospital in New York City and others. In
parallel with this field pilot, OmniCorder will attempt to solicit the
beta-site health centers to become regional licensees. Data collected during
the Pilot Phase will be the foundation for the Rollout Phase as discussed
below.
During the Pilot Phase, OmniCorder will focus its efforts on utilizing
traditional broad-based media to disseminate news related to the utilization of
the DAT System at the beta-sites.
In addition, during this Phase, the focus on primary caregivers, such as
physicians and nurses, will be education oriented, disseminating the results of
the beta-testing and information regarding the DAT System generally. This
information will be disseminated primarily through direct mail, Internet and
small informational peer-to-peer gatherings. The objective during the Pilot
Phase will be to facilitate referrals from physicians to potential regional
licensees and to build awareness of the DAT System.
35
<PAGE>
Rollout Phase
During the Rollout Phase, OmniCorder intends to disseminate the data
collected and analyzed during the Pilot Phase. This data will be the foundation
for a science-based, education oriented marketing and sales campaign.
OmniCorder intends to focus on the Northeast initially with expansion to major
population centers in the United States.
OmniCorder intends to initiate direct selling efforts with integrated
healthcare delivery networks, with the goal of securing additional regional
license agreements. These providers will be furnished with documentation and
graphic presentations to communicate OmniCorder's overview and mission, product
and service descriptions, business model and benefits to participating
organizations.
OmniCorder intends to contact managed care organizations affiliated with
its regional licensees to secure reimbursement agreements. OmniCorder intends
to employ cost-benefit analysis to demonstrate the advantages of the DAT System
compared with other diagnostic methods, to convince managed care organizations
to cover the cost of this screening.
OmniCorder intends to build relationships with professional and consumer
healthcare organizations, such as the American Cancer Society, the American
Medical Association, the Karen Komen Society and the "One in Nine" Society. A
press kit will be developed and distributed in order to establish contact with
these organizations and to explore information-sharing opportunities.
Ultimately, OmniCorder expects it will earn an endorsement from one or more of
these organizations.
OmniCorder intends to diseminate information to physicians through direct
selling efforts, primarily through direct mail, a feature-rich Internet site
and informational gatherings. Outreach efforts will be made in conjunction with
regional licensees to secure the participation of physicians in the delivery of
the DAT System.
Finally, OmniCorder intends to address consumers through a variety of
approaches. OmniCorder's Internet site will be a primary source for consumer
information. OmniCorder intends to employ a public relations campaign through
advertisement in premier women's magazines with articles placed in key issues
(particularly emphasizing breast cancer awareness). Additionally, consumer
health related websites will be contacted and opportunities for education and
information sharing explored, with the objective to promote awareness among
consumers of the DAT System.
Other DAT Applications
OmniCorder believes that DAT technology may have additional applications
beyond breast cancer, such as in the detection of melanoma and diabetes. These
applications may provide additional opportunities for commercialization.
OmniCorder may focus on other applications after its efforts to commercialize
DAT for breast cancer screening and management.
Suppliers
OmniCorder will utilize infrared cameras which will be custom manufactured
by various suppliers. OmniCorder has identified at least two such suppliers
which it believes will be in a position to satisfy its anticipated requirements
for infrared cameras. OmniCorder will also require network software which it is
currently negotiating a license to procure. See "RISK FACTORS -- OmniCorder has
not Completed Development of Certain Components of its DAT System." OmniCorder
anticipates that any other required supplies and components will be readily
available and will not require high-cost specialty design and production.
Employees
As of closing of the Offering, OmniCorder expects to employ eight
employees and retain four outside consultants, six of whom are anticipated to
be officers. None of the employees are represented by a collective bargaining
agreement and management believes it has good relations with its employees.
36
<PAGE>
Facilities
OmniCorder's principal offices are located at 25 E. Loop Road, Stony
Brook, New York 11790. Such offices are leased by OmniCorder under a one-year
lease from the Long Island High Technology Incubator, commencing February 1,
1998. The lease includes office space, conference rooms and other areas and
shared office services. Annual rent payments are $1,750 for the first year.
OmniCorder is currently negotiating a lease for additional premises of
approximately 1,500 square feet located in Long Island and Manhattan. The
offices will be connected to each other and other communications networks by
fiber-optic cable, and with total rent payments of approximately $30,000 per
year.
Legal Proceedings
There are no legal proceedings pending or, to OmniCorder management's
knowledge, threatened against OmniCorder.
Available Information
OmniCorder has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 of
which this Prospectus is a part under the Securities Act with respect to the
common stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
summaries of the material terms of such contract, agreement or other document.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved. The Registration Statement
(including the exhibits thereto) filed by OmniCorder with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 (1800-SEC-0330) and will also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission, including the Registration Statement and Exhibits. The
website address is http://www.sec.gov.
Upon the effectiveness of the Registration Statement, OmniCorder will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended and, in accordance therewith, will file reports, proxy and
information statements and other information with the Commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the addresses set forth above. OmniCorder prepares its financial
statements using year ended December 31. OmniCorder intends to furnish its
shareholders with annual reports containing consolidated financial statements
audited by its independent certified public accountants and with quarterly
reports containing unaudited condensed consolidated financial statements for
each of the first three quarters of each fiscal year.
Omnicorder Technologies, Inc. is a Delaware corporation incorporated in
February 1997. OmniCorder's principal executive offices are located at 25 E.
Loop Road, Stony Brook, New York 11790-3350 and its telephone number is (516)
444-6499.
37
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ----- --------------------------------------------------------
<S> <C> <C>
Mark A. Fauci ............. 39 Chairman of the Board of Directors, President and Chief
Executive Officer
Kevin McQuade ............. 50 Director, Chief Financial Officer
Paul C. Rabbiner .......... 63 Director, Interim Vice President, Sales
Irving Price .............. 64 Director
James Hayward ............. 45 Director
Richard A. Lippe .......... 60 Director
Michael Anbar ............. 71 Chief Scientist, Research and Development Consultant
Tamara R. Rusoff .......... 43 Vice President, Education and Communication*
Dennise Fantuzzi .......... 43 Vice President, Marketing*
</TABLE>
- ------------
* Upon completion of the Offering
The period served and the business experience of each of the directors and
executive officers is set forth below:
Mark A. Fauci. Mr. Fauci is OmniCorder's founder and, since its
incorporation in 1997, has served as its President, Chief Executive Officer,
Chief Financial Officer (until November, 1998) and Chairman of the Board. From
1994 to 1997, he was employed by Reuters Health Information Services, a Reuters
owned start-up Company. Mr. Fauci headed new business development and was
responsible for building strategic relationships in the U.S. and Europe, for
developing strategic technical and business plans and for maintaining key
contacts and relationships in the health-care industry. His earlier position at
Reuters included Director of Technical Strategic Planning for Network
Operations. In this role he was responsible for all network architecture design
and development decisions. Prior to joining Reuters, he served as the President
of E.C.A., Inc. from 1991 to 1994, a consulting firm specializing in the field
of computer aided design and digital imaging systems. Mr. Fauci also has seven
years of experience as an engineer at Standard Microsystems Corporation,
working in the research, development and manufacture of integrated systems,
utilizing the same processes found in state-of-the-art infrared imaging
component manufacturing. Mr. Fauci holds a B.S. in Science from the State
University of New York at Stony Brook and an MBA from Dowling College.
Kevin McQuade. Mr. McQuade was appointed Chief Financial Officer of
OmniCorder in December 1998. From 1994 to 1998, Mr. McQuade was the Chief
Financial Officer of Sensar Inc., a leading start-up biometric identification
technology company. From 1993-1994 he served as Executive Vice President and
Chief Financial Officer of the Princeton Stanford Group, a technology advisory
institution to the investment and financial community. From 1984 to 1993, he
was Chief Financial Officer of the Sequor Group, Inc., a Wall Street financial
institution with $450 million in revenues, which was a subsidiary of Security
Pacific, a national bank. From 1977 to 1984, Mr. McQuade was Vice President of
Financial Planning for Citicorp Diners Club and Treasurer of Diners' Club
International. He holds a B.S. in accounting from St. Peter's College and an
MBA in finance from Fairliegh Dickinson University.
Paul C. Rabbiner. Mr. Rabbiner has been a director of OmniCorder since
January 1998, and has also been its Interim Vice President, Sales since
September 1998. Mr. Rabbiner, since 1993, has acted as a consultant to
corporations involved in varied aspects of the medical industry. From 1990 to
1993, he served as group Executive Vice President and Vice President of Manual
Products for Fortress Scientific, a privately held multinational manufacturer
of mobility products. From 1987 to 1992, Mr. Rabbiner served as the President
of Neurologix Systems, Ltd., a manufacturer and distributor of electronic
medical equipment. Between 1985 and 1989, he also served as the President of
Rabson Medical Sales, Ltd, a manufacturer representative to the durable
rehabilitation and medical equipment field. He was a co-founder of Medco
Surgical Supply Company, whose main market
38
<PAGE>
thrust was in the application of inhalation and rehabilitation equipment to the
homecare and handicapped markets, and he served as its President from 1957 to
1982. That company was then sold to National Medical Enterprises, where Mr.
Rabbiner served as a consultant from 1982-1984. Mr. Rabbiner has co-published a
book entitled "Positioning Clients with Central Nervous System Deficits" which
is used as a text book in some physical therapy schools.
Irving Price. Mr. Price has been a director of OmniCorder since January
1998. Since 1989 he has owned his own investment management firm, Priority
Investment Management, where he manages individual portfolios, trusts and
estates. In 1987 he was a financial analyst for N.Y. City Council, Finance
Division. Since 1959, Mr. Price has worked as a securities analyst and pension
fund and portfolio manager for various investment management firms such as Dean
Witter Reynolds (now Morgan Stanley-Dean Witter), Bache Halsey Stuart (now
Prudential Securities), Shields Asset Management, and Hutton Investment
Management (now Salomon Smith Barney). During this time, he managed corporate
and union portfolios involving pensions, profit sharing and welfare funds.
Mr. Price is a member of the New York Society of Security Analysts. He
holds a BS in business from Baruch College and a MBA in Financing and
Investments from New York University.
James Hayward. Dr. Hayward has been a director of OmniCorder since
September 1998. Dr. Hayward is a recognized authority on the applications of
liposomes in medicine and industry, with more than 50 patents and original
publications to his credit. He has extensive experience in start-up companies,
in development and marketing of non-regulated biotechnology product
applications, and in the development of drug-delivery technologies for a wide
range of medical applications.
In 1990, he founded Collaborative Laboratories, Inc. ("CLI"), a contract
research and manufacturing biotechnology company. Dr. Hayward currently serves
as CLI'S President, Chief Executive Officer and as a Director, and is its
principal stockholder. CLI later became a subsidiary of The Collaborative
Group, Ltd., a privately held holding company which Dr. Hayward founded in
1997, where he serves as a Director and Chief Executive Officer and is its
principal stockholder.
Dr. Hayward was responsible for product development at the Estee Lauder
Companies from 1984 to 1989, where he served as Director of Research Worldwide.
He holds an adjunct faculty position at S.U.N.Y. Stony Brook in Molecular
Biology and is an Honorary Fellow at the University of London. Dr. Hayward
serves on the boards of the Center for Biotechnology at S.U.N.Y. Stony Brook -
Council on Biotechnology, the Long Island Association, the Stony Brook
Foundation, the Research Foundation of the State of New York, and the New York
Biotechnology Association. He has received the "Best Paper of the Year Award"
from the Society of Cosmetic Chemists for the last 4 years. Dr. Hayward
received his doctorate in Molecular Biology and Biophysics from S.U.N.Y. at
Stony Brook.
<PAGE>
Richard A. Lippe. Mr. Lippe has been a director of OmniCorder since
January 1998. Mr. Lippe has been a practicing attorney in the State of New York
since 1964. He has been a stockholder and officer, for the past 20 years, of
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. ("MLG"), OmniCorder's law
firm. MLG represents many of Long Island's leading high-technology start-up
companies. Mr. Lippe is the Chairman of the Board of Directors of Silicon
Island Equities, LLC, a privately held investment banking firm. He is also a
Director of the Collaborative Group, Ltd., a privately held holding company of
a contract research and manufacturing biotechnology company. He is also the
Managing Trustee of The Keene Asbestos Liquidating Trust. Mr. Lippe is a
graduate of Tufts University and holds a J.D. from the University of
Pennsylvania Law School.
Michael Anbar, Ph.D. Professor Anbar is OmniCorder's Chief Scientist. He
has been providing research and development expertise through the UB
Foundation, under a grant from OmniCorder. See "BUSINESS -- Licenses and
Patents -- Anbar License Agreement" and "MANAGEMENT -- Employment Agreements"
below. Professor Anbar is one of the foremost authorities in the field of
bio-medical applications of infrared systems and is the inventor of Dynamic
Area Telethermometry. He has been a Professor of Biophysics since 1977,
Director of Interdepartmental Clinical Biophysics Group (1991), and a Research
Professor, in the Departments of Ophthalmology (since 1991), Surgery (since
October 1998) and Dental Materials (since 1980) at the State University of New
York at Buffalo. He has held senior faculty positions at Stanford Research
Institute from 1967
39
<PAGE>
to 1977 and State University of New York at Buffalo. He has held the position
of research Professor of biophysics at Roswell Park Cancer Institute from 1979
to date. He is the author of over 270 articles in refereed scientific journals
and five books including "Quantitative & Dynamic Telethermometry in Medical
Diagnosis & Management". He holds eleven patents with three additional patents
pending. He has been the recipient of over $15 million in research grants and
contracts, has industrial experience in ten diverse fields, including medical
diagnostic instrumentation. He has current or past membership in over 35
professional societies and maintains key scientific and industrial contacts in
the U.S., Europe and Asia. He holds an M.S.C. and a Ph.D. in Physical Chemistry
from Hebrew University, Israel.
Tamara R. Rusoff. Ms. Rusoff is expected to be OmniCorder's Vice
President, Education and Communications, as of the close of the Offering. She
currently provides educational programming for physicians as a freelance
consultant for Physicians World Communications Group, a private medical and
healthcare communication company. From 1996 through 1997, Ms. Rusoff served as
the Vice President of the Technological Solutions Division at Robert A. Becker
Agency, where she managed the accounts of Bristol-Myers Squibb and Rhone Polenc
Rorer. Prior to that, between 1994 to 1995, Ms. Rusoff worked with Reuters
Health Information Services, a Reuters owned start-up company, where she served
in various capacities, including Senior Manager of Meetings and Conventions.
From 1989 through 1994, she was the Vice President of Program Development at
Triclinica Communications, where she supervised a team of six in designing,
developing and producing educational meetings, symposia, monographs, journal
articles and a variety of promotional materials and events. Ms. Rusoff is
conversant in six languages and holds a BA in Psychology and a Masters Degree
in Social Work from the University of Minnesota.
Dennise Fantuzzi. Ms. Fantuzzi is expected to be OmniCorder's Vice
President of Marketing, as of the close of the Offering. Since 1997, Ms.
Fantuzzi has owned a consulting business which prepares and presents strategic
and tactical marketing plans, business plans and provides guidance on
organizational development issues. From 1996 to 1997, Ms. Fantuzzi served as
the Vice President, Business Development for Multum Information Services, Inc.,
which designs and develops intelligent software components for the healthcare
industry. While at Multum, Ms. Fantuzzi was responsible for overall sales and
marketing efforts. From 1994 to 1996, she was the Senior Vice President, Sales
and Marketing, for Reuters Health Information Services, Inc., where she served
on an Executive Committee and on a Senior Management Team. Ms. Fantuzzi holds a
BS in Business Administration from Temple University.
Compensation of Directors
Non-employee Directors currently receive no compensation for their
services, but may be reimbursed for certain expenses in connection with
attendance at board and committee meetings. All non-employee directors as of
April, 1998 (Messrs. Rabbiner, Price, Lippe) each received options to purchase
13,200 shares each, at an exercise price of $3.40 per share. The Board intends
to compensate directors with annual stock option grants on an ongoing basis.
Audit Committee
The Board of Directors intends to have a standing Audit Committee, as of
the close of the Offering. The Audit Committee is expected to be comprised of
Messrs. Lippe, Price and OmniCorder's Chief Financial Officer. The Audit
Committee will assist the Board Of Directors in exercising its fiduciary
responsibilities for oversight of audit and related matters, including
corporate accounting, reporting and control practices. It will be responsible
for recommending to the Board of Directors the independent auditors for the
following year. The Audit Committee intends to meet periodically with
management, financial personnel and the independent auditors to review internal
accounting controls and auditing and financial reporting matters.
Scientific Advisory Board
OmniCorder has established an independent Scientific Advisory Board
("SAB") which will be chaired by a leading breast cancer surgeon, Dr. Michael
Osborne. Dr. Osborne is a leading expert, author and lecturer on the subject of
breast cancer. He has been the CEO of The Strang Cancer Prevention Center since
1991. He holds or has held positions in some of the most prominent medical
schools and cancer centers including Memorial
40
<PAGE>
Sloan-Kettering (since 1986), Cornell University Medical College (since 1981),
The Rockefeller University (since 1981) The Royal Marsden Hospital and
Institute (1978-1980) and Charing Cross Hospital (1976-1978). He was trained in
London, England at the University of London and later at the University of the
State of New York.
The purpose of the SAB is to provide OmniCorder with expert advice and
guidance pertaining to the development, testing and deployment of the DAT
System and will consist of surgeons, radiologists, oncologists and primary care
physicians. The SAB will meet several times a year and some of its members will
also participate in the clinical testing of the DAT System. It is anticipated
that the SAB will consist of six members and may be increased or decreased from
time to time. It is anticipated that members of the SAB will be compensated
with per meeting stipends of $1,000 to $1,500 and with grants of stock options
from time to time.
Remuneration of Executive Officers-Summary Compensation Table
The following table discloses compensation paid by OmniCorder for the
services of Mark A. Fauci, its Chief Executive Officer, who was the only
compensated officer for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- ----------------------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- ------------------------------ ------ ---------- ------- -------------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark A. Fauci, 1997 $13,800 -- -- -- -- -- --
Director, President and Chief
Executive Officer
</TABLE>
<PAGE>
Employment Agreements
On December 31, 1997, Mark A. Fauci, OmniCorder's President and Chief
Executive Officer, entered into an employment agreement with OmniCorder (the
"Fauci Agreement"). Pursuant to the Fauci Agreement, OmniCorder is
contractually obligated to pay Mr. Fauci $90,000 per year commencing January 1,
1998 for a four year period. In the event that the Company receives equity
financing of $2.25 Million or more, Mr. Fauci's salary will be increased to
$135,000 per annum and to $180,000 per annum on the later of January 1, 1999 or
the date that OmniCorder receives an aggregate of $2.25 Million of equity
financing. The increase in salary to $180,000 will be effective as of the
closing of the Offering.
In March, 1997, OmniCorder entered into an agreement with Professor Anbar,
OmniCorder's Vice President, Research and Development, with respect to his
possible future employment. OmniCorder has agreed to provide Professor Anbar
with a five-year employment contract following his resignation or retirement
from S.U.N.Y. Buffalo. His employment contract will provide a level of
compensation of salary and benefits equal to what he is receiving from S.U.N.Y.
Buffalo at the time of his resignation, capped at a total of $168,000 per
annum. Anbar, during his employment, has the right to devote time to other
activities, not inconsistent with his duties to OmniCorder, provided he does
not perform activities relating to treatment of breast cancer, melanoma or
diabetes and that those activities do not exceed 40% of his working hours.
While Professor Anbar continues to be employed at S.U.N.Y. Buffalo,
OmniCorder will pay S.U.N.Y. Buffalo (a) 90% of Professor Anbar's salary; (b)
an additional 29% of this amount for benefits and payroll costs and (c) an
additional 10% of this amount to be applied to overhead costs. Professor Anbar
will continue to devote a major portion of his time to OmniCorder's research
and development activities. OmniCorder's annual expenditure under this
arrangement is approximately $210,000, commencing as of November 1, 1998. In
addition, OmniCorder will pay Professor Anbar an additional $26,000 per annum
while the arrangement with S.U.N.Y. Buffalo is in effect.
OmniCorder entered into a consulting agreement in March, 1997 (the "Amara
Consulting Agreement") with Amara, Inc. ("Amara"), a corporation wholly-owned
by Professor Anbar, for a 12 month period expiring in March, 1999, but only
during the period prior to Anbar's employment by OmniCorder. The Consulting
Agreement provided Amara with a maximum of 52 days of consulting at a rate of
$500 per day, for a total potential expenditure of $26,000 with travel expenses
not to exceed $25,000 and equipment and supplies expenses not to exceed
$50,000. All of such fees were reduced to a one time payment of $50,000 which
was utilized for the
41
<PAGE>
purchase of equipment and supplies. The Amara Consulting Agreement will
terminate, prior to March 1999, if Professor Anbar resigns from S.U.N.Y.
Buffalo and commences his employment relationship with OmniCorder. Professor
Anbar has the option to acquire title to a research camera in March, 1999
provided that the camera is used for non-competitive basic research only.
As of October 1, 1998, OmniCorder entered into an employment agreement
with Kevin McQuade, its Chief Financial Officer. This agreement provides Mr.
McQuade with a $60,000 per annum salary, increasing to $120,000 at the close of
the Offering. Mr. McQuade is to be granted options, as of the close of the
Offering, to purchase 100,000 shares of common stock, exercisable at the same
price per share as the initial public offering price per share. Mr. McQuade may
also be granted bonus options to purchase an additional 50,000 shares of common
stock if the common stock trades at a price of at least $22 per share for a
period of 10 consecutive trading days. These options would be granted at the
exercise price of $22 per share. An additional grant of options to purchase an
additional 50,000 shares of common stock at an exercise price of $45 per share
is provided for if the common stock trades at a price of at least $45 per share
for 10 consecutive trading days. All of the options are subject to vesting in
installments over periods of at least three years from date of grant.
Stock Option Plan
In April 1998, OmniCorder adopted the 1998 Stock Option Plan. The purpose
of the 1998 Stock Option Plan is to enable OmniCorder to attract, retain and
motivate key employees, directors, and on occasion, consultants, by providing
them with stock options. Options granted under the 1998 Stock Option Plan may
be either incentive stock options, as defined in Section 422A of the Internal
Revenue Code of 1986, as amended, or non-qualified stock options. OmniCorder
has reserved 400,000 shares of common stock for issuance under the 1998 Stock
Option Plan. As of the date of this Prospectus, options for an aggregate of
39,600 shares of common stock have been granted to three non-employee directors
under the 1998 Stock Option Plan, at an exercise price of $3.40 per share,
which was equivalent to the fair market value of the shares in April 1998, the
date of the grant.
The 1998 Stock Option Plan will be administered by the Board of Directors.
The Board has the power to determine the terms of any options granted
thereunder, including the exercise price, the number of shares subject to the
option, and conditions of exercise. Options granted under the 1998 Stock Option
Plan are generally not transferable, and each option is generally exercisable
during the lifetime of the optionee only by such optionee. The exercise price
of all incentive stock options granted under the 1998 Stock Option Plan must be
at least equal to the fair market value of the shares of common stock on the
date of the grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of stock of OmniCorder ("10%
Owners"), the exercise price of any incentive stock option granted must be
equal to at least 110% of the fair market value on the grant date. The term of
all incentive stock options under the 1998 Stock Option Plan may not exceed ten
years, or five years in the case of 10% Owners. The specific terms of each
option grant are approved by the Board of Directors and are reflected in a
written stock option agreement.
42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of OmniCorder's
common stock as of the date of this Prospectus by (a) each person or entity
known by OmniCorder to beneficially own 5% or more of the outstanding shares of
common stock, (b) each of OmniCorder's directors and officers, and (c) all
directors and executive officers of OmniCorder as a group. The information as
to each person or entity has been furnished by that person or entity.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------------
Name and Address of Shares Beneficially Before After
Beneficial Owner Owned Offering (1) Offering (6)
- ----------------------------- ------------------------------ -------------- -------------
<S> <C> <C> <C>
Mark Fauci 1,672,000 70.9% 48.3%
Michael Anbar 440,000 18.7% 12.7%
Meltzer, Lippe, Goldstein, 125,400(2) 5.0% 3.5%
Wolf & Schlissel, P.C.
Paul Rabbiner 42,533(3) 1.8% 1.2%
Irving Price 26,400(4) 1.2% 0.8%
Richard Lippe 191,400(5) 7.5% 5.2%
All directors and executive 1,932,333(3)(4)(5) 71.1% 52.0%
officers as a group
</TABLE>
- ------------
(1) Does not include shares issuable pursuant to outstanding warrants or
options, except those held by the named individual.
(2) Consists of warrants to purchase 125,400 shares of common stock at an
exercise price of $3.40 per share, currently exercisable until January 6,
2004 (99,000 shares) and February 15, 2004 (26,400 shares).
(3) Includes options to purchase up to 13,200 shares of common stock at an
exercise price of $3.40 per share, currently exercisable for a period of
10 years. Does not include warrants to purchase 33,334 shares of common
stock at $6.00 per share, exercisable for a four-year term commencing
August 31, 1999.
(4) Includes options to purchase up to 13,200 shares of common stock at an
exercise price of $3.40 per share, currently exercisable for a period of
10 years. Does not include warrants to purchase 16,667 shares of common
stock at $6.00 per share, exercisable for a four-year term commencing
August 31, 1999.
(5) Includes 125,400 shares of common stock issuable pursuant to warrants
registered to Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., a law
firm in which Mr. Lippe is a shareholder and officer. Mr. Lippe disclaims
beneficial ownership as to these shares. Also includes 52,800 shares of
common stock issuable pursuant to a warrant registered to Mr. Lippe at an
exercise price of $3.40 per share, currently exercisable until January 6,
2004, and an option to purchase up to 13,200 shares of common stock at an
exercise price of $3.40 per share, presently exercisable for a period of
10 years.
(6) Assumes no exercise of the Underwriter's over-allotment option.
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
As of the date of this Prospectus, after giving effect to a 2.2:1 stock
split which occurred in August 1998, there were 2,358,397 shares of common
stock outstanding, which were held of record by 22 stockholders, and 480,267
shares of common stock issuable pursuant to outstanding options and warrants,
44,000 shares of common stock reserved for issuance to a licensor of
intellectual property utilized by OmniCorder and 360,400 shares of common stock
reserved for issuance pursuant to the 1998 Stock Option Plan. Cambridge will
also be issued the Underwriter's Warrants after the Offering. See
"UNDERWRITING." The Board of Directors is authorized to issue up to 10,000,000
shares of common stock. There will be 3,458,397 shares of common stock
outstanding after giving effect to the sale of the shares of common stock
offered hereby. The holders of common stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. The holders of common
stock
43
<PAGE>
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available for that
purpose. See "DIVIDEND POLICY." In the event of a liquidation, dissolution or
winding up of OmniCorder, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights.
There are no redemption provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
Persons who purchased common stock in OmniCorder's initial private
placement in late 1997 and early 1998, holding in the aggregate 202,396 shares
of common stock, were granted the right to receive additional shares of common
stock for a period of two years after their initial purchase (December,
1997--April, 1998), if OmniCorder issues common stock, or securities
convertible into common stock, at a price of less than $3.40 per share. The
number of shares would be that amount which such persons would have received
had they purchased shares of common stock at such lower price, using the same
dollar amount of their initial investment.
Preferred Stock
The Board of Directors is authorized by OmniCorder's certificate of
incorporation to authorize and issue up to 1,000,000 shares of preferred stock,
$.01 par value, in one or more series. No shares of preferred stock have been
authorized for issuance by the Board of Directors and OmniCorder has no present
plans to issue any such shares. In the event that the Board of Directors does
issue preferred stock, it may exercise its discretion in establishing the terms
of the preferred stock. In the exercise of such discretion, the Board of
Directors may determine the voting rights, if any, of the series of preferred
stock being issued, which would include the right to vote separately or as a
single class with the common stock and/or other series of preferred stock; to
have more or less voting power per share than that possessed by the common
stock or other series of preferred stock, and to vote on certain specified
matters presented to the shareholders or on all such matters or upon the
occurrence of any specified event or condition. Rules and regulations of the
Pacific Exchange and the Nasdaq SmallCap Market where OmniCorder has applied
for listing, restrict an issuer's ability to issue preferred stock with voting
rights different than those of holders of common stock. Upon liquidation,
dissolution or winding up of OmniCorder, or upon events such as a merger or
sale of OmniCorder's assets, the holders of preferred stock may be entitled to
receive preferential cash distributions fixed by the Board of Directors when
creating the particular series thereof before the holders of the common stock
are entitled to receive anything. Preferred stock authorized by the Board of
Directors could be redeemable or convertible into shares of any other class or
series of stock of OmniCorder.
The issuance of preferred stock by the Board of Directors could adversely
affect the rights of holders of shares of common stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of preferred stock could be used to discourage or prevent efforts to
acquire control of OmniCorder through the acquisition of shares of common
stock.
OmniCorder also has certain options and warrants outstanding. See "SHARES
ELIGIBLE FOR FUTURE SALE."
Transfer Agent and Registrar
The transfer agent and registrar for OmniCorder's common stock is
Continental Stock Transfer and Trust Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, OmniCorder issued a warrant to Richard A. Lippe, a
director, and received proceeds of $40,000. Mr. Lippe is a shareholder and
officer of OmniCorder's legal counsel. Under the terms of the warrant, Mr.
Lippe was granted the right to purchase up to $180,000 worth of any securities
OmniCorder issues through January 6, 2004, on the same terms and conditions as
the securities issued. As of September 1998, the warrant is exercisable into
52,800 shares of OmniCorder's common stock at an exercise price of $3.40 per
share.
Pursuant to an agreement entered into in August, 1997, OmniCorder issued
warrants to Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. ("MLG"), its
legal counsel, in consideration for the deferral of legal fees. The
44
<PAGE>
warrants entitle MLG to purchase up to $427,500 worth of any securities sold by
OmniCorder to outside investors at the same prices as sold to such investors
through January 6, 2004 (as to $337,500 worth of such securities) and February
15, 2004 (as to $90,000 worth of such securities). As of September 30, 1998,
the warrants are exercisable into 125,400 shares of OmniCorder's common stock
at an exercise price of $3.40 per share.
During the period of February 7, 1997 to December 31, 1997, OmniCorder
incurred $116,617 in legal fees to MLG and an additional $232,919 for the nine
months ending September 30, 1998. These amounts include the value of the
aforementioned warrants. In addition, OmniCorder has agreed to pay MLG a fixed
fee of $150,000 for legal services rendered in connection with the Offering.
OmniCorder has also entered into employment and consulting agreements with
Messrs. Fauci, McQuade and Anbar (and his affiliate, Amara, Inc.) and a license
agreement with Professor Anbar. See "MANAGEMENT -- Employment Agreements." See
"BUSINESS -- Licensing and Patents."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public trading market for
OmniCorder's common stock. Upon completion of the Offering, OmniCorder will
have a total of 3,458,397 shares of common stock outstanding (3,623,397 shares
if the Underwriters' over-allotment option is exercised in full). Of these
shares, the 1,100,000 shares of common stock offered hereby (1,265,000 shares
if the Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, by persons other than affiliates of OmniCorder. The remaining
2,358,397 shares of common stock outstanding are "restricted shares" as that
term is defined by Rule 144 promulgated under the Securities Act of 1933. Under
Rule 144, 1,672,000 shares held by Mark Fauci are currently eligible for sale
(subject to volume and other limitations of Rule 144, as discussed below) and
the balance of the shares outstanding prior to the Offering will become
eligible for sale by March, 1999.
Pursuant to Lock-Up agreements, OmniCorder's officers and directors and
all other stockholders (who in the aggregate hold 2,358,397 shares of common
stock upon the completion of this Offering) and all holders of outstanding
options and warrants, exercisable for a total of 480,267 shares of common
stock, have agreed that they will not directly or indirectly, offer, sell,
grant any option to purchase or otherwise sell or dispose of any shares of
OmniCorder's common stock, or any securities convertible into, exercisable, or
exchangeable for, any shares of OmniCorder's common stock without the prior
written consent of Cambridge for a period ranging from 6 months to 24 months
from the date of this Prospectus; however, Mr. Fauci and Professor Anbar may
sell 17,500 shares of common stock each, without the consent of Cambridge, at
any time, subject to the limitations of Rule 144 as set forth below. Additional
sales, in the aggregate of 117,500 shares, by any director or employee who
receives shares pursuant to the 1998 Stock Option Plan, will be allowed without
consent of Cambridge, provided that no less than twelve months have passed
since the initial public offering and the bid price for OmniCorder's common
stock is no less than 160% of the initial public offering price for thirty
consecutive trading days.
In April 1998, OmniCorder's Board of Directors adopted the 1998 Stock
Option Plan, which reserved 400,000 shares of common stock to be issued
pursuant to this plan. As of September 1998, options to purchase a total of
39,600 shares of common stock were issued under the plan with an exercise price
of $3.40 per share, the then fair market value of such shares at the date of
grant. All of such options are currently exercisable for a period of ten years.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year is entitled to sell, within any three month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the issuer's common stock or the average weekly trading volume during
the four calendar weeks preceding such sale, provided that certain public
information about the issuer as required by Rule 144 is then available and the
seller complies with certain other requirements. A person who is not an
affiliate (generally an affiliate is an officer, director or holder of 10% or
more of a corporation's outstanding shares), and has not been an affiliate
within three months prior to sale, and has beneficially owned the restricted
securities for at least two years, is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. 2,155,797 of the
2,358,397 shares of common stock outstanding prior to the Offering are held by
affiliates, and are thus subject to continuing volume limitations described
above.
45
<PAGE>
Investors in OmniCorder's private placement completed in early 1998 (the
"Private Placement") were granted certain registration rights. These rights
will enable these investors to "piggy-back" the registration of their shares,
aggregating 202,396 shares of common stock, to any other registration statement
(except for this Registration Statement and except for registration statements
on Forms S-4 or S-8) OmniCorder will file, if market conditions permit. No
shares owned by stockholders are being sold in the Offering. These investors
are also entitled to request registration on an abbreviated form known as Form
S-3, which will generally be available for use by OmniCorder one year after the
Offering, and the investors may request registration on Form S-3 once every six
months.
Investors holding warrants received in a recently completed bridge
financing entitling them to purchase in the aggregate up to 250,000 shares of
common stock, hold similar rights to those of investors in the Private
Placement, except that the Form S-3 rights can be exercised a maximum of three
times. These warrants are exercisable for a four year term commencing August
31, 1999. These warrants also have "weighted average" anti-dilution protection
for issuance of common stock or securities convertible into common stock at
less than $6.00 per share.
Cambridge currently has the right to purchase 12,467 shares of common
stock at $3.40 per share, pursuant to currently exercisable warrants which it
received for its efforts in the Private Placement. Cambridge is entitled to
"piggy-back" registration rights with respect to the shares underlying these
warrants. Cambridge will also have registration rights with respect to the
Underwriter's Warrants it receives in connection with the Offering. See
"UNDERWRITING."
Holders
OmniCorder's common stock is held by 22 holders of record, prior to the
Offering.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
OmniCorder has agreed to sell to Cambridge, and Cambridge has agreed to
purchase from the Company, ------ shares of common stock at the initial
public offering price less underwriting discounts and commissions set forth on
the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of Cambridge are
subject to certain conditions and that Cambridge is committed to purchase all
the shares of common stock offered hereby (other than those covered by
Cambridge's overallotment option, unless exercised), if any of such shares of
common stock are purchased. OmniCorder has agreed to indemnify Cambridge
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments Cambridge may be required to make in respect
thereof.
Cambridge has advised OmniCorder that it proposes initially to offer the
common stock directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and that it may allow certain
dealers who are members of the National Association of Securities Dealers, Inc.
(the "NASD") a selling concession not in excess of $____ per share of common
stock.
Pursuant to the Underwriting Agreement, Cambridge shall purchase the
shares of common stock offered hereby at a discount equaling 10% of the public
offering price.
OmniCorder has granted to Cambridge an option, exercisable not later than
45 days after the effective date of this Prospectus, to purchase up to a
maximum of ---- additional shares of common stock, equal to 15% of the shares
to be sold in the Offering, solely to cover overallotments, if any, at the
initial public offering price set forth on the cover page hereof, less the
underwriting discount set forth on the cover page hereof.
OmniCorder's shareholders have agreed to certain "lock-up" arrangements
with respect to their shares without the prior consent of Cambridge. See
"SHARES ELIGIBLE FOR FUTURE SALE."
OmniCorder has agreed to enter into a consulting agreement with Cambridge,
on the closing of the Offering, having a term of thirty months and providing
for the payment of $60,000 to Cambridge, which amount shall be paid in full by
OmniCorder at the closing of the Offering. OmniCorder shall pay Cambridge a
non-accountable expense equal to 3% of the gross proceeds of the Offering, of
which $25,000 has been paid to date.
46
<PAGE>
Prior to the Offering, Cambridge acted as a placement agent in connection
with the two previously completed private placements of OmniCorder's
securities. See "SHARES ELIGIBLE FOR FUTURE SALE."
In connection with the Offering, OmniCorder has agreed to grant to
Cambridge warrants to purchase a number of shares of common stock equal to 10%
of the number of shares sold in the Offering (the "Underwriter's Warrants").
The shares of common stock underlying the Underwriter's Warrants, are being
registered pursuant to the Registration Statement filed with respect to the
common stock offered hereby. The Underwriter's Warrants shall be exercisable at
any time during a period of four (4) years commencing one year after their
issuance, and provide for an exercise price equal to 120% of the initial public
offering price set forth herein.
Upon the written request of the holders of a majority of the Underwriter's
Warrants and the shares of common stock underlying the Underwriter's Warrants,
OmniCorder will on one occasion register the shares of common stock underlying
the Underwriter's Warrants at its expense. In addition, OmniCorder will include
as a piggy-back registration, for a period of seven years, the shares of common
stock underlying the Underwriter's Warrants at its expense in any registration
statement filed with the Securities and Exchange Commission (other than this
Registration Statement and other than a registration statement on Forms S-4 or
S-8).
For a period of thirty months after the closing of the Offering, Cambridge
will be granted a right of first refusal to act as investment banker with
respect to all (a) equity or debt offerings by OmniCorder or any subsidiaries,
whether public or private, and (b) transactions relating to (x) the purchase or
sale of stock or substantial assets by or to OmniCorder or its subsidiaries, or
(y) any joint venture, corporate reorganization or other transaction utilizing
investment banking services.
For a period of two years following the closing of the Offering,
OmniCorder has agreed not to sell or issue any shares of capital stock or any
options, rights or warrants with respect to any shares of capital stock without
the prior written consent of Cambridge, except in connection with the 1998
Stock Option Plan referenced above. Such negative covenants shall not apply in
connection with financings of at least $20,000,000 which are completed at no
less than twice the initial public offering price per share or for acquisitions
OmniCorder makes, using stock as the medium of payment, which are completed at
a per share price of no less than twice the initial public offering price per
share.
OmniCorder has agreed to nominate and support the election of one designee
of Cambridge as a member of the Board of Directors if such board consists of
eight or less directors, or two designees if the board consists of more than
eight directors, for a period of two years after the closing of the Offering.
Cambridge will appoint its designee after the close of the Offering.
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock,
including purchases of the common stock to stabilize its market price and
purchases of the common stock to cover some or all of a short position in the
common stock maintained by Cambridge. In addition, Cambridge may impose
"penalty bids" for a period of up to 60 days after the closing of the Offering
under contractual arrangements with certain dealers participating in the
Offering, whereby Cambridge may reclaim from such dealers, for Cambridge's
account, the selling concessions with respect to the common stock that is
distributed in the Offering, but subsequently purchased for Cambridge's account
in the open market. Any of the transactions described in this paragraph may
result in the maintenance of the trading price of the common stock at a level
above that which might otherwise prevail.
In connection with the Offering, Cambridge (and selling group members) may
engage in passive market making transactions in the common stock on the Nasdaq
SmallCap Market in accordance with Rule 103 of Regulation M under the
Securities Act of 1933 and the Securities Exchange Act of 1934. Cambridge will
not sell shares in the Offering by exercising discretionary authority over
accounts as to which it has this authority.
For factors considered in the determination of the offering price, see
"RISK FACTORS -- Negotiated Public Offering Price."
LEGAL MATTERS
The validity of the common stock offered hereby and certain other matters
will be passed on for OmniCorder by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, N.Y. ("MLG"). MLG has an ownership
47
<PAGE>
interest in OmniCorder consisting of a warrant to purchase up to 125,400 shares
of common stock. Richard A. Lippe, an officer and stockholder of such firm, is
a director of OmniCorder and has an ownership interest in OmniCorder consisting
of a warrant to purchase up to 52,800 shares of common stock, and a director's
stock option to purchase up to 13,200 shares of common stock. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Certain legal matters will be passed on for Cambridge by Whitman Breed
Abbott & Morgan LLP, New York, N.Y.
Certain legal matters with respect to franchising law and regulations,
appearing in the section "BUSINESS -- Government Regulation -- Franchising"
will be passed on for OmniCorder by Kaufmann, Fiener, Yamin, Gildin & Robbins
LLP, New York, N.Y.
Certain legal matters with respect to FDA law and regulations appearing in
sections entitled "RISK FACTORS -- Government Regulation; No Assurance of
Regulatory Approvals" and "BUSINESS -- Government Regulation: FDA Regulations",
will be passed on for OmniCorder by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The financial statements as of December 31, 1997 and for the period from
February 7, 1997 (inception) through December 31, 1997 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants ........................................................ F-2
Balance Sheet as of December 31, 1997 and September 30, 1998 (unaudited) ................. F-3
Statement of Operations for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited) ......... F-4
Statement of Changes in Stockholders' Equity for the period from February 7, 1997
(inception) through December 31, 1997 and the nine months ended September 30, 1998
(unaudited) ............................................................................. F-5
Statement of Cash Flows for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited) ......... F-6
Notes to the Financial Statements ........................................................ F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
OmniCorder Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of OmniCorder
Technologies, Inc. (a development stage enterprise) at December 31, 1997, and
the results of its operations and its cash flows for the period from February
7, 1997 (inception) through December 31, 1997 in conformity with generally
accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company is a development stage enterprise, which has only a
limited and unprofitable operating history. Such factors, among others, raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Melville, New York
October 19, 1998
F-2
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash ............................................................... $ 76,351 $ 479,468
Prepaid research and development (Note 12) ......................... 90,000 255,753
---------- ----------
Total current assets ............................................ 166,351 735,221
Property and equipment, net ........................................... 3,580 56,938
Deferred charges, net ................................................. -- 206,917
---------- ----------
Total assets .................................................... $ 169,931 $ 999,076
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses .............................. $ 21,408 $ 45,649
Accounts payable to related party .................................. 65,559 124,379
Bridge notes payable, net of unamortized discount of $625,000 ...... -- 125,000
---------- ----------
Total liabilities ............................................... 86,967 295,028
Stockholders' equity
Preferred stock; $.01 par value; 1,000,000 shares authorized; no shares
outstanding .......................................................... -- --
Common stock; $.01 par value; 10,000,000 shares authorized;
1,730,665 and 2,358,397 shares issued and outstanding at December
31, 1997 and September 30, 1998, respectively ........................ 17,307 23,584
Additional paid-in-capital ............................................ 254,243 1,613,461
Deficit accumulated during the development stage ...................... (143,516) (917,927)
Subscriptions receivable .............................................. (45,070) (15,070)
---------- ----------
Total stockholders' equity ...................................... 82,964 704,048
---------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity ...................... $ 169,931 $ 999,076
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
Cumulative
For the period For the period for the period
from February 7, from February 7, from February 7,
1997 (inception) 1997 (inception) Nine months 1997 (inception)
through through ended through
December 31, September 30, September 30, September 30,
1997 1997 1998 1998
------------------ ------------------ --------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating expense:
Research and development ............ $ 20,000 $ 11,600 $ 338,647 $ 358,647
General and administrative .......... 42,069 34,079 207,349 249,418
Related party legal expense ......... 81,447 29,332 97,165 178,612
----------- ---------- ----------- -----------
Total operating expenses .......... 143,516 75,011 643,161 786,677
----------- ---------- ----------- -----------
Operating loss ....................... (143,516) (75,011) (643,161) (786,677)
Interest expense ..................... -- -- 131,250 131,250
----------- ---------- ----------- -----------
Net loss ............................. $ (143,516) $ (75,011) $ (774,411) $ (917,927)
=========== ========== =========== ===========
Basic and diluted net loss
per share ........................... $ (.09) $ (.04) $ (.35)
=========== ========== ===========
Weighted average number of
shares outstanding .................. 1,683,482 1,672,000 2,188,866
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Number of Par Additional
Shares Value Paid-in-capital
----------- ----------- -----------------
<S> <C> <C> <C>
Issuance of common stock to
founder ................................ 1,672,000 $ 16,720
Sale of common stock, net of
expenses of $35,164 .................... 58,665 587 $ 164,243
Issuance of common stock warrants
to related party for legal services -- -- 50,000
Sale of common stock warrant to
related party .......................... -- -- 40,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at December 31, 1997 ............ 1,730,665 17,307 254,243
--------- -------- -----------
Issuance of common stock to
founder (Note 12) ...................... 440,000 4,400
Sale of common stock, net of
expenses of $62,900 .................... 143,732 1,437 425,658
Issuance of common stock for
research and development ............... 44,000 440 149,560
Issuance of common stock warrants
to related parties for legal
services ............................... -- -- 34,000
Cash received from sale of
common stock warrant ................... -- -- --
Issuance of common stock warrants
in connection with sale of Bridge
Notes ................................. -- -- 750,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at September 30, 1998
(unaudited) ............................ 2,358,397 $ 23,584 $ 1,613,461
--------- -------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Development Subscription Stockholders'
Stage Receivable Equity
--------------- -------------- --------------
<S> <C> <C> <C>
Issuance of common stock to
founder ................................ $ (15,070) $ 1,650
Sale of common stock, net of
expenses of $35,164 .................... -- 164,830
Issuance of common stock warrants
to related party for legal services -- 50,000
Sale of common stock warrant to
related party .......................... (30,000) 10,000
Net loss ................................ $ (143,516) -- (143,516)
----------- ---------- ----------
Balance at December 31, 1997 ............ (143,516) (45,070) 82,964
----------- ---------- ----------
Issuance of common stock to
founder (Note 12) ...................... 4,400
Sale of common stock, net of
expenses of $62,900 .................... -- -- 427,095
Issuance of common stock for
research and development ............... -- -- 150,000
Issuance of common stock warrants
to related parties for legal
services ............................... -- -- 34,000
Cash received from sale of
common stock warrant ................... -- 30,000 30,000
Issuance of common stock warrants
in connection with sale of Bridge
Notes ................................. -- -- 750,000
Net loss ................................ (774,411) -- (774,411)
----------- ---------- ----------
Balance at September 30, 1998
(unaudited) ............................ $ (917,927) $ (15,070) $ 704,048
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Cash Flow
<TABLE>
<CAPTION>
Cumulative
For the period For the period for the period
from February 7, from February 7, from February 7,
1997 1997 1997
(inception) (inception) Nine months (inception)
through through ended through
December 31, September 30, September 30, September 30,
1997 1997 1998 1998
------------------ ------------------ --------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss ........................................ $ (143,516) $ (75,011) $ (774,411) $ (917,927)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation ................................. -- -- 6,326 6,326
Warrants issued to a related party for
legal services .............................. 35,000 25,500 16,000 51,000
Common stock issued for research and
development ................................. -- -- 154,400 154,400
Amortization of original issue discount -- -- 125,000 125,000
Amortization of deferred financing
costs ....................................... -- -- 24,583 24,583
Changes in operating assets and liabilities:
Prepaid research and development ............... (90,000) -- (165,753) (255,753)
Accounts payable and accrued expenses .......... 86,967 72,802 83,061 170,028
---------- --------- ---------- ----------
Net cash (used in) provided by
operating activities ........................ (111,549) 23,291 (530,794) (642,343)
---------- --------- ---------- ----------
Cash flows from investing activities
Capital expenditures ........................... (3,580) -- (59,684) (63,264)
---------- --------- ---------- ----------
Net cash (used in) investing activities ...... (3,580) -- (59,684) (63,264)
---------- --------- ---------- ----------
Cash flows from financing activities
Proceeds from issuances of common
stock, net .................................. 181,480 1,500 445,095 626,575
Proceeds from issuance of common stock
warrants .................................... 10,000 -- 30,000 40,000
Deferred financing costs ........................ -- (20,170) -- --
Proceeds from Bridge notes, net ................. -- -- 602,500 602,500
Deferred cost of proposed public offering ....... -- -- (84,000) (84,000)
---------- --------- ---------- ----------
Net cash provided by (used in)
financing activities ........................ 191,480 (18,670) 993,595 1,185,075
---------- --------- ---------- ----------
Net increase in cash ............................ 76,351 4,621 403,117 479,468
Cash at beginning of period ..................... -- -- 76,351 --
---------- --------- ---------- ----------
Cash at end of period ........................... $ 76,351 $ 4,621 $ 479,468 $ 479,468
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
1. Organization and Business
OmniCorder Technologies Inc., ("OmniCorder"), was incorporated in Delaware
on February 7, 1997, to exploit its core breast cancer screening technology -
Dynamic Area Telethermometry ("DAT"). DAT is intended to provide a painless,
non-contact, radiation-free screening and diagnostic service for the early
detection and management of breast cancer. OmniCorder expects its revenues to
be generated from the sale of regional licenses to provider networks to use
OmniCorder's breast cancer screening technology. OmniCorder expects to derive
other revenue from encounter or screening/diagnosis fees.
To date OmniCorder has not generated revenues. OmniCorder's primary
activities since inception have been research and development of its
technology, negotiating strategic alliances and other agreements and raising
capital.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
OmniCorder considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 30, 1998 OmniCorder had cash balances at a major commercial bank in
excess of federally insured amounts.
Fixed assets
Fixed assets are recorded at cost and depreciated, using the straight-line
method, over the estimated useful lives of the related assets, which is
generally five years.
<PAGE>
Research and development
Research and development costs have been charged to operations as
incurred.
Patents
Patent costs have been charged to operations as incurred as their
realizability was uncertain. These costs are included in research and
development.
Restatement and reclassification for stock split
In August 1998, OmniCorder's Board of Directors approved a 2.2 for 1 stock
split on all common stock. All share and per share amounts affecting net loss
per share, weighted average number of common shares outstanding, common stock
issued and outstanding, additional paid-in-capital and all other stock
transactions presented in these financial statements have been restated to
reflect the 2.2 for 1 stock split.
Interim financial information (unaudited)
The interim financial data at and for the period ended September 30, 1998,
for the period from February 7, 1997 (inception) through September 30, 1997 and
for the cumulative amounts from inception is unaudited; however, in the opinion
of OmniCorder, interim data includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. Results for the interim period are not necessarily indicative
of results to be expected for the full fiscal year.
F-7
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Use of estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make reasonable
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying value of cash, accounts payable, accrued expenses and Bridge
Notes payable approximates fair value due to the relatively short maturity of
these instruments.
Income taxes
OmniCorder follows the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities.
Accounting for stock-based compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair value based
method of accounting for stock-based compensation plans. OmniCorder has chosen
to adopt the disclosure requirements of SFAS 123, and to record stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, OmniCorder
has not recognized compensation expense with respect to such awards because the
exercise price of options granted to employees has approximated the fair market
value of the common stock at the respective grant dates.
Net loss per common share
OmniCorder adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") effective December 1997.
Basic net loss per common share is computed by dividing net loss to common
shareholders for the period by the sum of the weighted average number of shares
of common stock issued and outstanding. Diluted earnings per share is computed
by dividing net loss for the period by the sum of the weighted average number
of shares of common stock issued and outstanding, increased to include the
number of common shares that would have been issued if all outstanding stock
options, and stock warrants were converted. Diluted common shares are based on
the most advantageous convertible rate or exercise price available to the
security holder.
At December 31, 1997 and September 30, 1998 outstanding options and
warrants to purchase 152,065 and 478,725 shares of common stock, respectively,
with exercise prices ranging from $3.40 to $6.00 could potentially dilute basic
earnings per share in the future but have not been included in the computation
of diluted net loss per share because to do so would be antidilutive for the
periods presented.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income"
("SFAS 130")
On June 30, 1997, the FASB issued SFAS 130. This statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of
F-8
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
general-purpose financial statements. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS 130 did not have a
material impact on OmniCorder as comprehensive net loss was the same as net
loss.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133")
In June 1998, the FASB issued SFAS 133. This statement established
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The effect of the adoption of this statement is
not expected to have a significant impact on OmniCorder.
3. Liquidity and Business Risks
OmniCorder is in the development stage and currently has no sources of
revenue. At December 31, 1997, OmniCorder had a deficit accumulated during the
development stage of $143,516 ($917,927 at September 30, 1998). Such
accumulated losses have resulted principally from costs incurred in research
and development and from general and administrative expenses. OmniCorder has
funded its operations since inception through the use of cash obtained
principally from third party financings. OmniCorder's success depends upon many
factors including its ability to obtain additional financing. OmniCorder is
currently pursuing an initial public offering of its common stock (see Note 9),
in order to obtain the additional financing necessary to complete the
development of the DAT system and to bring the DAT system to market. Management
believes that cash of $479,468 as of September 30, 1998, combined with
anticipated net proceeds from the proposed initial public offering, will be
sufficient to support its operations for 24 months from the closing of the
offering. However, there can be no assurance that OmniCorder will be successful
in obtaining additional financing or that it will be successful in further
developing and commercializing the DAT system and related services.
4. Property and Equipment
December 31, September 30,
1997 1998
-------------- --------------
Computer equipment ..................... $ 3,580 $17,930
Medical equipment ...................... -- 45,334
------- -------
3,580 63,264
Less: accumulated depreciation ......... -- 6,326
------- -------
$ 3,580 $56,938
======= =======
F-9
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
5. Deferred Charges
Deferred charges consists of the following at September 30, 1998:
<TABLE>
<S> <C>
Deferred financing costs relating to Bridge Notes, net $122,917 of accumulated
amortization of $24,583 ..................................................... $122,917
Deferred costs of proposed public offering ................................... 84,000
--------
$206,917
========
</TABLE>
6. Accrued Expenses
Accrued expenses included the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Compensation and related benefits ......... $ 6,423 $ 4,450
Consulting and professional fees .......... 10,000 29,335
Interest .................................. -- 6,250
Other ..................................... 4,985 5,614
------- -------
$21,408 $45,649
======= =======
</TABLE>
7. Income Taxes
The tax effect of temporary differences and carryforwards that give rise
to significant portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards ......... $ 21,000 $ 333,000
Start-up costs ........................... 32,000 27,000
--------- ----------
53,000 360,000
Valuation allowance ...................... (53,000) (360,000)
--------- ----------
Net deferred tax asset ................. $ -0- $ -0-
========= ==========
</TABLE>
<PAGE>
OmniCorder has recorded a full valuation allowance against its deferred
tax assets since management believes that based upon the available objective
evidence it is not more likely than not that assets will not be realized.
OmniCorder's effective tax rate differs from the federal statutory rate as a
result of the change in the valuation allowance.
As of December 31, 1997 and September 30, 1998, OmniCorder has net
operating loss carryforwards of $53,000 and $883,000, respectively, available
to offset future taxable income. These carryforwards will expire at various
dates through 2018, subject to certain limitations.
8. Bridge Financing
On August 31, 1998, OmniCorder sold an aggregate of $750,000 of 10%
Exchangeable Senior Bridge Notes ("Bridge Notes") to accredited investors. The
net proceeds of the Bridge Notes were approximately $602,500 after offering
costs. The Bridge Notes are payable at the earlier of the closing of an initial
public offering ("IPO") or February 28, 1999, subject to extension to September
30, 1999 under certain circumstances. Accrued interest is payable in a balloon
payment upon the maturity of the Bridge Notes. In connection with the Bridge
Notes, OmniCorder issued warrants ("Bridge Warrants") to purchase up to 250,000
shares of common stock
F-10
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
8. Bridge Financing -- (Continued)
at an exercise price of $6 per share. These warrants were issued on August 31,
1998, expire 5 years thereafter, and are exercisable for a four year period
commencing August 31, 1999. The Bridge Notes are convertible, at OmniCorder's
option, to common stock at a conversion price of $3.40 if the underwriter is
unable to complete the IPO at a share price of at least $8.00 and OmniCorder
chooses not to complete the IPO. If the Bridge Notes are converted into common
stock, the aggregate number of shares issuable upon exercise of the Bridge
Warrants would be 125,000 shares. Included in the Bridge Financing is $150,000
of Bridge Notes and 50,000 warrants with related parties.
All of the gross proceeds from the Bridge financing have been allocated to
the Bridge Warrants based on their estimated fair value which resulted in
$750,000 of original issue discount and a corresponding amount of additional
paid-in-capital. The discount is being amortized over the six month term of the
Bridge Notes and the amortization through September 30, 1998 totaled $125,000.
9. Stockholders' Equity
Initial capitalization and founders shares. In February 1997 and March
1998, OmniCorder issued to its founders 1,672,000 and 440,000 shares of common
stock, respectively, for consideration of $16,720 and the rights to technology
transferred to the Company, respectively (see Note 12).
Proposed public offering
OmniCorder has entered into a non-binding term sheet with an underwriter
with respect to a proposed initial public offering of its common stock. There
is no assurance that such offering will be consummated. OmniCorder expects to
offer approximately 1,100,000 shares of the its common stock at an approximate
price of $9 per share. In addition OmniCorder will issue to the underwriter,
warrants to purchase shares of common stock equal to 10% of the number of
shares offered in the public offering. The warrants will be exercisable at any
time during a period of four years commencing on the first anniversary date of
their issuance at a price equal to 120% of the initial public offering price of
the shares. OmniCorder also entered into a 30 month consulting agreement with
the underwriter for a total cost of $60,000 which will be paid out of the
proceeds of the proposed public offering.
Change in authorized number of shares
Effective November 10, 1997, OmniCorder amended its certificate of
incorporation to increase the number of its authorized shares of common and
preferred stock to 2,000,000 and 1,000,000 shares, respectively. In August
1998, OmniCorder amended its certificate of incorporation to increase the
number of its authorized shares of common stock to 10,000,000 shares.
Private placement
In October 1997, OmniCorder commenced a private placement of shares of
common stock at a price of $3.40 per share. OmniCorder has sold 58,665 and
143,732 shares through December 31, 1997 and September 30, 1998 respectively.
The stockholders were granted the right to receive additional shares of common
stock, for a period of two years after their initial investment (December,
1997--April, 1998), if OmniCorder issues common stock, or convertible
securities at a share price of less than $3.40 per share. The number of
additional shares would be that amount which such holders would have received
had they purchased shares of common stock at such lower price, using the same
dollar amount of their initial investment. The placement agent received a
commission of 5% of the aggregate purchase price of the common stock it placed,
and was granted warrants to purchase 12,467 shares of common stock, at an
exercise price of $3.40 per share. These warrants have a five year term.
F-11
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
9. Stockholders' Equity -- (Continued)
Warrants
In 1997 and 1998, OmniCorder received $40,000 from the sale of a stock
warrant, to a director of OmniCorder who is a partner at OmniCorder's law firm.
This warrant entitles the holder to purchase up to $180,000 of any securities
OmniCorder may issue through January 6, 2004, on the same terms and conditions
as those issued. At December 31, 1997 and September 30, 1998, the warrant was
exercisable at an exercise price of $3.40 per share into approximately 52,800
shares of OmniCorder's common stock. These warrants were not exercisable for
the securities issued in the Bridge Financing discussed in Note 8.
In 1997 and 1998, OmniCorder issued warrants to its legal counsel, a law
firm in which a director of OmniCorder is a partner, in consideration for the
deferral of payment of legal fees. The warrant entitles OmniCorder's legal
counsel to purchase up to $427,500 of any securities sold by OmniCorder to
outside investors at the same prices as sold to such investors through January
6, 2004 (as to $337,500 worth of such securities) and through February 15, 2004
(as to $90,000 worth of such securities). As of September 30, 1998, the warrant
would be exercisable into approximately 125,400 shares of OmniCorder's common
stock at an exercise price of $3.40 per share. These warrants were not
exercisable for the securities issued in the bridge financing discussed in Note
8. The estimated fair value of the warrants was $84,000, of which $35,000 and
$16,000 was charged to general and administrative expense and $15,000 and
$18,000 was charged to equity (for costs associated with the raising of
capital), for the period February 7, 1997 (inception) to December 31, 1997 and
the nine months ended September 30, 1998, respectively.
10. Related Party Transactions
OmniCorder has incurred legal fees to a law firm in which a director of
OmniCorder is a shareholder in the amount of $116,617 and $232,919 for the
period from February 7, 1997 (inception) through December 31, 1997 and for the
nine months ended September 30, 1998, respectively.
OmniCorder has an accounts payable balance with the related party law firm
in the amount of $65,559 and $124,379 at December 31, 1997 and September 30,
1998, respectively.
In September 1998, OmniCorder entered into an agreement with the related
party law firm for legal services to be rendered in connection with a proposed
initial public offering. OmniCorder is obligated to pay the law firm a fixed
fee of $150,000 relating to the proposed initial public offering discussed in
Note 9.
11. Stock Option Plan
In 1998, OmniCorder adopted a stock option plan under which it may grant
qualified and nonqualified options to purchase up to 400,000 shares of common
stock to employees and consultants. Qualified options shall be exercisable for
a period of up to ten years from the date of the grant at no less than the fair
value on the date of the grant. The term of such options shall be five years
from the date of grant for stockholders who own more than ten percent of the
voting power of all classes of stock of OmniCorder at the date of grant, and
shall be exercisable at no less than 110% of fair value on the date of grant
for such holders.
F-12
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
11. Stock Option Plan -- (Continued)
A summary of activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
Options Exercise
Available Shares Price
for under per
Grant Option Share
----------- -------- ---------
<S> <C> <C> <C>
Opotions outstanding at January 1, 1998 ........... -- -- --
Shares authorized ................................. 400,000
Granted ........................................... (39,600) 39,600 $ 3.40
Exercised ......................................... -- -- --
------- ------ ------
Options outstanding at September 30, 1998 ......... 360,400 39,600 $ 3.40
------- ------ ------
Options exercisable at September 30, 1998 ......... 39,600 $ 3.40
======= ======
</TABLE>
In April 1998, non-qualified options to purchase 39,600 shares of
OmniCorder's common stock at an exercise price of $3.40 per share were issued
to certain Directors.
12. License Agreements
Technology License Agreement -- In 1997 and in connection with the
formation of OmniCorder, the founding stockholders entered into an agreement
pursuant to which OmniCorder could acquire the exclusive worldwide right to
exploit technology related to the detection of cancerous lesions by their
effect on the periodic modification of perfusion in the surrounding tissues
(the "Technology"). In February 1998, OmniCorder funded the required research
budget and in March 1998, released 440,000 shares of previously reserved common
stock to one of the founders. OmniCorder recorded the issuance of these shares
at the historical cost of the technology transferred.
The license, as amended, required OmniCorder to fund future research and
development costs in the amount of $495,000. Unused funds, if any, are required
to be returned to OmniCorder in the event the chief scientist resigns from his
current position with a University which employs the chief scientist.
OmniCorder funded the first $110,000 of this obligation in late 1997 with the
balance paid in March 1998. OmniCorder also entered into a consulting agreement
with a company controlled by OmniCorder's founding scientist. Under the terms
of the agreement OmniCorder is contractually obligated to pay a maximum of
$26,000 for consulting services; $25,000 for travel; and $50,000 for research
supplies for a twelve month period. OmniCorder satisfied this entire obligation
with a one-time $50,000 payment which is included in the $495,000 discussed
above. OmniCorder will also be obligated to pay a royalty to the stockholder
for each installed device. The stockholder has the option to acquire title to a
research camera in March 1999 provided that the camera is used for
non-competitive basic research only.
Caltech License Agreement
In September 1997, OmniCorder entered into an agreement with the
California Institute of Technology ("Caltech") which grants OmniCorder the
right to acquire an exclusive license to exploit Caltech's infrared radiation
detection technology in the field of detection of passive infrared radiation
for certain commercial medical applications. In addition, OmniCorder has the
right to sublicense this technology. OmniCorder is obligated to pay Caltech a
royalty based on revenues derived from licensed products and services and
revenues derived from sublicenses. OmniCorder has agreed to issue Caltech,
88,000 shares of common stock. In May 1998 OmniCorder exercised its right to
acquire the aforementioned license, and issued 44,000 shares of common stock to
Caltech and will be required to issue an additional 22,000 shares on the first
and second anniversary dates of the agreement, May 1999 and May 2000,
respectively. OmniCorder may elect to terminate the agreement at any time
without being obligated to issue any of the remaining unissued shares.
F-13
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
12. License Agreements -- (Continued)
While in effect, the agreement requires that OmniCorder pay 50% of all
attorney fees in connection with preparation, filing and prosecution, issuance
and maintenance of the licensed patent rights in the United States. OmniCorder
is also obligated to pay 100% of patent costs in foreign jurisdiction. The
license agreement may be canceled at Caltech's option if it has not received
minimum license fees of $10,000 in any one year period commencing May 11, 1999.
The Lockheed Martin License Agreement
OmniCorder entered into an exclusive license agreement with Lockheed
Martin Corporation ("Lockheed") on September 18, 1998. Pursuant to this
agreement, OmniCorder was given the exclusive license to exploit, worldwide,
all biomedical applications of certain enhanced infrared detector technologies
know as Enhanced Quantum Well Infrared Photodetectors ("EQWIP"). The EQWIP
technology is protected by a patent owned by Lockheed. In order to maintain
exclusivity, OmniCorder is subject to a number of milestones it must meet
relating to royalty generation, development of markets and territories,
utilization of the EQWIP technology in certain percentages of OmniCorder's
installed base of diagnostic equipment and required levels of royalty
generating installations. However, OmniCorder does not believe that the loss of
exclusivity under the Lockheed Agreement will have a material adverse affect on
its business, financial condition or results from operations.
OmniCorder has also agreed to license back to Lockheed any improvements it
makes to the EQWIP technology for applications in which OmniCorder does not
retain exclusivity. Under certain conditions, OmniCorder may sublicense its
rights to develop specific territories and markets to third-parties, subject to
consent of Lockheed. OmniCorder is entitled to utilize any improvements to the
EQWIP technology developed by Lockheed. OmniCorder is permitted to utilize a
manufacturer of its choosing to manufacture cameras utilizing the EQWIP
technology.
13. Commitments and Contingencies
Obligations under operating lease
OmniCorder is not obligated under any material operating leases.
Employment agreement
In December 1997, OmniCorder entered into an employment contract with its
Chief Executive Officer. In connection with the contract, OmniCorder is
contractually obligated to pay approximately $90,000 per year commencing
January 1, 1998 for a four year period. In the event OmniCorder has received
equity financing of at least $2.25 million, the salary will be increased to
$135,000 per annum and to $180,000 per annum on the later of January 1, 1999 or
the date OmniCorder receives at least $2.25 million of financing.
Capital expenditures
As of September 30, 1998, OmniCorder has agreed to purchase medical
equipment for approximately $470,000.
Subsequent Events
As of October 1, 1998, OmniCorder entered into an agreement with its chief
financial officer. In connection with the agreement, OmniCorder is obligated to
pay $60,000 per year initially, for a maximum six month term, increasing to
$120,000 per year upon the close of the Offering. In addition, the Chief
Financial Officer is to be granted options to purchase 100,000 shares of common
stock at the same price per share as the offering price
F-14
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
13. Commitments and Contingencies -- (Continued)
in OmniCorder's initial public offering. In addition, subject to OmniCorder's
common stock achieving a trading price of at least $22 per share for at least
10 consecutive trading days, and at least $45 per share for 10 consecutive
trading days, respectively, the chief financial officer will be granted
additional bonus options to purchase 50,000 shares of common stock at an
exercise price of $22.00 per share (if the first threshold is achieved) and
another 50,000 shares of common stock at an exercise price of $45.00 per share
(if the second threshold is achieved), respectively.
As of November 1, 1998, OmniCorder entered into an arrangement with the
University which employs its Chief Scientist. In connection with this
arrangement, OmniCorder will pay the University 90% of its Chief Scientist's
salary, and an additional 39% of this amount for benefits, payroll and overhead
costs. The aggregate consideration payable pursuant to these arrangements is
approximately $210,000 per year. While this arrangement is in effect,
OmniCorder will also pay its Chief Scientist $26,000 per year.
F-15
<PAGE>
================================================================================
The information in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
--------------------
TABLE OF CONTENTS
PROSPECTUS
Page
---------
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use Of Proceeds ............................ 18
Capitalization ............................. 19
Dividend Policy ............................ 19
Dilution ................................... 20
Management's Discussion and Analysis of
Financial Condition and Results of Opera-
tions ................................... 21
Business ................................... 23
Management ................................. 38
Security Ownership Of Certain Beneficial
Owners And Management ................... 43
Description of Securities .................. 43
Certain Relationships And Related Transac-
tions ................................... 44
Shares Eligible for Future Sale ............ 45
Underwriting ............................... 46
Legal Matters .............................. 47
Experts .................................... 48
Index to Financial Statements .............. F-1
---------------------
Until ________________________ , (25 days from the date of this
prospectus) all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
1,100,000 Shares
[GRAPHIC OMITTED]
Common Stock
------------------
PROSPECTUS
------------------
[GRAPHIC OMITTED]
January , 1999
================================================================================
<PAGE>
Part II--INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Statement of expenses of the Offering (other than underwriting discounts
and commissions):
Expense Amount
------- --------
Registration Fees ............... $ 3,940
Transfer Agents' Fees ........... 10,000
Printing and Engraving .......... 100,000
Legal Fees ...................... 150,000
Accounting Fees ................. 106,000
Listing Fees .................... 30,000
--------
Total: .................... $399,940
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides that
the Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. Section 145
of the Delaware Law provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he was a director,
officer, employee or agent of the corporation or was serving at the request of
the corporation, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if the person acted in good faith and in a
manner the person 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 no reasonable cause to believe the person's conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a director's
duty of care, and the provisions of the Company's Certificate of Incorporation
have no effect on the availability of equitable remedies, such as injunction or
recision, for a director's breach of the duty of care. The Company's
Certificate of Incorporation provides that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware Law.
RECENT SALES OF UNREGISTERED SECURITIES
October 1997 Private Placement (the "Private Placement")
In October 1997, the Company commenced a private placement of shares of
Common Stock at a price of $3.40 per share. The Company sold 202,396 shares of
its Common Stock in the Private Placement to 19 accredited investors, receiving
gross proceeds of $690,000. The principal underwriter of the Private Placement
was Cambridge which received a commission of 5% of the aggregate purchase price
of the $425,000 of Common Stock it placed in the Private Placement, and was
granted a warrant to purchase shares of Common Stock equal to ten percent (10%)
of the number of shares of stock it placed, subject to adjustments for certain
events including, but not limited to stock dividends, stock splits,
reclassification or mergers. As of February 1998, Cambridge was granted 12,467
warrants which are exercisable for five years from the date of issuance at an
exercise price of $3.40 per share of Common Stock.
II-1
<PAGE>
The Private Placement was exempt from State and Federal registration
pursuant to Rule 506 of Regulation D, and section 4(2) of the Securities Act of
1933.
August 1998 Bridge Financing
On August 31, 1998, the Company sold an aggregate of $750,000 of 10%
Exchangeable Senior Bridge Notes ("Notes") and Warrants to 15 accredited
investors (the "Bridge Financing"). Under the terms of the Bridge Financing,
the Notes will be payable upon the earlier of February 28, 1999, or the closing
of the Offering, subject to extension by one day for each day after November
30, 1998 the Company does not deliver to Cambridge a preliminary prospectus
relating to the Offering. The principal underwriter of the Bridge Financing was
Cambridge and it received a commission of 10% of the aggregate purchase price
of the Notes, in addition to a non-accountable expense allowance equal to 3% of
such aggregate purchase price. Interest will be paid in one balloon payment at
maturity. The Note holders also received a warrant entitling them to purchase
one share of Common Stock at a price of $6 for each $3 of Notes purchased. The
warrants have a five year term, which commenced August 31, 1998 and are
exercisable in a four year period commencing August 31, 1999. A total of up to
250,000 shares of Common Stock are issuable pursuant to these warrants. The
Notes provide that they can be converted to Common Stock at price of $3.40 per
share if Cambridge is not willing to complete the Company's initial public
offering at a price of at least $8 per share and the Company decides not to
proceed with an initial public offering. If the Notes are converted to Common
Stock, the number of shares issuable pursuant to the warrants are reduced to
125,000 shares. The maturity of the Notes can also be extended to September 30,
1999, if Cambridge is not willing to complete the Company's initial public
offering at a price of at least $9 per share. The maturity of the Notes can
also be extended to the earlier of September 30, 1999, or the closing of the
Offering upon consent of Cambridge and the Company, if they agree to defer the
Company's initial public offering to a date no later than September 30, 1999.
The Bridge Financing was exempt from State and Federal registration
pursuant to Section 4(2) of the Securities Act of 1933 and under Rule 506 of
Regulation D, promulgated under the Securities Act of 1933.
Warrants and Options to Purchase Common Stock
In December 1997, the Company issued a warrant to Richard A. Lippe, a
director of the Company, who is a stockholder and officer at the Company's
legal counsel, and received proceeds of $40,000. Under the terms of the
warrant, Mr. Lippe was granted the right to purchase up to $180,000 worth of
any securities the Company issues through January 6, 2004. As of September
1998, the warrant is exercisable into 52,800 shares of the Company's Common
Stock at an exercise price of $3.40 per share.
Pursuant to an agreement entered into in August, 1997, the Company issued
warrants to Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. ("MLG"), its
legal counsel, in consideration of the deferral of legal fees. The total amount
of legal fees deferred was $95,000. The warrants entitle MLG to purchase up to
$427,500 worth of any securities sold by the Company to outside investors at
the same prices as sold to such investors through January 6, 2004 (for $337,500
worth of such securities) and February 15, 2004 (for $90,000 worth of such
securities). As of September 1998, the warrants are exercisable for up to
125,400 shares of the Company's Common Stock at an exercise price of $3.40 per
share.
In April 1998, the Company issued options to purchase 13,200 shares of
Common Stock to each of its non-employee directors at the time, or an aggregate
of options to purchase up to 39,600 shares of Common Stock. The options are
exercisable for a term of 10 years at a price of $3.40 per share.
In February 1998, the Company issued to Cambridge warrants to purchase up
to 12,467 shares of Common Stock at an exercise price of $3.40 per share,
exercisable for a five year term. These warrants were issued as compensation to
Cambridge for placing $425,000 of shares of Common Stock in the Private
Placement.
All of the above options and warrants were issued pursuant to an exemption
under Section 4(2) of the Securities Act. All persons to whom such securities
were issued were accredited investors.
II-2
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit
- ------------
(1) (i) Underwriting Agreement
(ii) Selected Dealers Agreement**
(iii) Underwriters Warrant Agreement**
(3) (i) Certificate of Incorporation**
(ii) By-laws
(4) Specimen Common Stock Certificate
(5) Opinion re: legality*
(10) Material Contracts
(i)(a) Anbar License Agreement**
(i)(b) Amendment to Anbar License Agreement**
(i)(c) Exercise of Anbar License Agreement**
(ii)(a) Caltech License Agreement***
(ii)(b) Amendment to Caltech License Agreement**
(iii) Lockheed Martin License Agreement***
(iv) Mark Fauci Employment Agreement**
(v) Kevin McQuade Employment Agreement
(11.1) Computation of basic and diluted net loss per common share**
(23.2) Consent of PricewaterhouseCoopers LLP
(23.3) Consent of Meltzer, Lippe, Goldstein, Wolf & Schlissel, PC.
(included in Exhibit 5)*
(27) Financial Data Schedule**
- ------------
* To be filed by amendment
** Previously filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
UNDERTAKINGS
The Company will provide to the Underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company, the issuer 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 Company of expenses incurred or paid by a
director, officer or controlling person of the Company 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 Company 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing of Amendment No. 1 to its registration
statement on Form SB-2 and authorizes this amendment to its registration
statement to be signed on its behalf by the undersigned, in the County of
Nassau, State of New York, on December 9, 1998.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
-----------------------------------
Mark A. Fauci, President, and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amended registration statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------- ------------------------------------- -----------------
<S> <C> <C>
/s/ Mark Fauci Director, President & Chief December 9, 1998
- ----------------------------- Executive Officer
Mark Fauci
/s/ Kevin McQuade Director, Chief Financial Officer December 9, 1998
- -----------------------------
Kevin McQuade
/s/ Paul Rabbiner Director & Interim Vice December 9, 1998
- ----------------------------- President, Sales
Paul Rabbiner
/s/ Irving Price Director December 9, 1998
- -----------------------------
Irving Price
/s/ Jim Hayward Director December 9, 1998
- -----------------------------
Jim Hayward
/s/ Richard Lippe Director December 9, 1998
- -----------------------------
Richard Lippe
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Index to Exhibits
Exhibit
- ------------
(1) (i) Underwriting Agreement
(ii) Selected Dealers Agreement**
(iii) Underwriters Warrant Agreement**
(3) (i) Certificate of Incorporation**
(ii) By-laws
(4) Specimen Common Stock Certificate
(5) Opinion re: legality*
(10) Material Contracts
(i)(a) Anbar License Agreement**
(i)(b) Amendment to Anbar License Agreement**
(i)(c) Exercise of Anbar License Agreement**
(ii)(a) Caltech License Agreement***
(ii)(b) Amendment to Caltech License Agreement**
(iii) Lockheed Martin License Agreement***
(iv) Mark Fauci Employment Agreement**
(v) Kevin McQuade Employment Agreement
(11.1) Computation of basic and diluted net loss per common share**
(23.2) Consent of PricewaterhouseCoopers LLP
(23.3) Consent of Meltzer, Lippe, Goldstein, Wolf & Schlissel, PC.
(included in Exhibit 5)*
(27) Financial Data Schedule**
- ------------
* To be filed by amendment
** Previously filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
<PAGE>
EXHIBIT 1(i)
1,100,000 Shares of Common Stock,
OMNICORDER TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
Stony Brook, New York
[ ], 1999
CAMBRIDGE CAPITAL, LLC
1225 Franklin Avenue
Suite 102
Garden City, NY 11530
Ladies and Gentlemen:
Omnicorder Technologies, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Cambridge Capital, LLC (the
"Underwriter") 1,100,000 shares (the "Firm Shares") of Common Stock, $[.01] par
value (such class of stock being herein called the "Common Stock"), of the
Company. In addition, the Company will grant to the Underwriter an option to
purchase up to an additional 165,000 shares of Common Stock (the "Option
Shares") for the purpose of covering over-allotments in connection with the sale
of Firm Shares. The Firm Shares and any Option Shares purchased pursuant to this
Underwriting Agreement are herein called "Shares."
The Company also proposes to issue and sell to the Underwriter
warrants (the "Underwriter's Warrants") pursuant to the Underwriter's Warrant
Agreement (the "Underwriter's Warrant Agreement") for the purchase of an
additional aggregate 110,000 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the Underwriter's Warrants are hereinafter referred to
as the "Underwriter's Shares." The Firm Shares, the Option Shares, the
Underwriter's Warrants and the Underwriter's Shares (collectively, hereinafter
referred to as the "Securities") are more fully described in the Registration
Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
<PAGE>
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form SB-2 (No. ), including any
related preliminary prospectus included therein ("Preliminary Prospectus"), for
the registration of the Securities under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations (the "Regulations") of the Commission under the Act. The
Company will promptly file a further amendment to said registration statement in
the form heretofore delivered to the Underwriter, and will not file any other
amendment thereto to which the Underwriter shall have objected to in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or information filed with the Commission pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act") and
incorporated by reference into any part or portion thereof) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus;"
provided, however, that if the Company files any documents with the Commission
pursuant to the 1934 Act after the time that the Registration Statement becomes
effective and before the termination of the offering of Shares by the
Underwriter, the term "Prospectus" shall refer to such Prospectus as
supplemented by the documents so filed from and after the time such documents
are filed with the Commission. For purposes hereof, "Rules and Regulations" mean
the rules and regulations adopted by the Commission under either the Act or the
1934 Act, as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus or any part
of any thereof and no proceedings for a stop order suspending the effectiveness
of the Registration Statement or any of the Company's securities have been
instituted or are pending or to the Company's knowledge, threatened. Each of the
Preliminary Prospectus, Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, Registration Statement or
Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto, the Registration Statement and the
Prospectus (including the information
-2-
<PAGE>
incorporated by reference therein) will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain 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, in light of the circumstances under
which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(d) (i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization. The Company does not own an interest in any
corporation, limited liability company, partnership, trust, joint venture or
other business entity, except as described in the Registration Statement. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. The Company has all requisite corporate power and authority, and the
Company has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus, except as
otherwise expressly disclosed in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all applicable federal, state
and local laws, rules and regulations; and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, prospects, operation, properties,
business or results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal, state and local laws,
rules and regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
(ii) The Company is not party to any joint venture or
partnership agreement ("Joint Venture") except as set forth in the Registration
Statement. Each Joint Venture has all requisite corporate power and authority,
and has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; each Joint
Venture is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and
-3-
<PAGE>
all applicable national and local laws, rules and regulations; and no Joint
Venture has received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, position, prospects,
value, operation, properties, business or results of operations of the Joint
Venture, taken as a whole. The disclosures in the Registration Statement
concerning the effects of national and local laws, rules and regulations on the
Joint Venture business as currently conducted and as contemplated are correct in
all material respects and do not omit to state a material fact necessary to make
the statements contained therein not misleading in light of the circumstances in
which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Underwriter's Warrant Agreement and
as described in the Prospectus. The Securities and all other securities issued
or issuable by the Company conform or, when issued and paid for, will conform,
in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The Securities are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely by reason of being such
holders; all corporate action required to be taken for the authorization, issue
and sale of the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriter will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever.
(f) PricewaterhouseCoopers LLP, the accountants who
have certified the annual financial statements filed and to be filed with the
Commission as part of the Registration Statement, each Preliminary Prospectus
and the Prospectus, are independent public accountants within the meaning of the
Act and the Regulations. The financial statements, including the related notes
and schedules thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, the results
of operations, changes in cash flow, and changes in stockholders' equity, of the
Company at
-4-
<PAGE>
the respective dates and for the respective periods to which they apply and the
pro forma financial information included in the Registration Statement and
Prospectus presents fairly, on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Regulations, consistently
applied throughout the periods involved. There has been no material adverse
change or development in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus, and the outstanding debt, the
property, both tangible and intangible, and the business of the Company conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary of Financial Information,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operation," fairly present, on the basis stated in the
Prospectus, the information set forth therein, have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) The Company (i) has paid all federal, state,
local, and foreign taxes for which it is liable and for which payment is due,
including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986 (the "Code"), and
has furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Underwriter in connection with (i) the
issuance by the Company of the Securities, (ii) the purchase by the Underwriter
of the Securities to be sold by the Company hereunder and the purchase by the
Underwriter of the Underwriter's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement or
the Underwriter's Warrant Agreement, as the case may be, or (iv) resales of the
Shares in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies,
including, but not limited to, general liability, product liability and property
insurance, which insures the Company and its employees against such losses and
risks generally insured against by comparable businesses. The Company (A) has
not failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under the insurance policy or surety bond in a due and timely manner,
(B) does not have any disputes or claims against any underwriter of such
insurance policies or surety bonds or has not failed to pay any premiums due and
payable thereunder, or (C) has not failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would relieve
any insurer of its obligation to satisfy in full any valid claim of the Company.
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(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or, to the best knowledge of the Company,
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of, the Company which (i) questions the
validity of the capital stock of the Company, this Agreement or the
Underwriter's Warrant Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Underwriter's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) except for matters disclosed in the Prospectus, might materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, corporate power
and authority to authorize, issue, deliver and sell the Securities, enter into
this Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and the
Underwriter's Warrant Agreement have each been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement and the
Underwriter's Warrant Agreement constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its terms,
except (i) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification or contribution provisions may be limited under applicable laws
or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Underwriter's Warrant
Agreement, its performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (i)
the certificate of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
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(l) Except as described in the Prospectus, no
consent, approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body, domestic or foreign, is
required for the issuance of the Shares pursuant to the Prospectus and the
Registration Statement, the issuance of the Underwriter's Warrants, the
performance of this Agreement and the Underwriter's Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Shares or the
Underwriter's Warrants, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in connection
with the Underwriter's purchase and distribution of the Shares, and the
Underwriter's Warrants to be sold by the Company hereunder and under the
Underwriter's Warrant Agreement.
(m) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company is a party or by
which it may be bound or to which any of its assets, properties or business may
be subject have been duly and validly authorized, executed and delivered by the
Company, and constitute the legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto on Form SB-2, and there
are no contracts or other documents which are required by the Act to be
described in the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and, except for redacted
portions being filed separately with the Commission, the exhibits which have
been filed are in all material respects complete and correct copies of the
documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any material change in the debt (long or short term) or liabilities or material
adverse change in or affecting the general affairs, management, financial
operations, stockholders' equity or results of operations of the Company.
(o) No material default exists in the due performance
and observance of any term, covenant or condition of any material license,
contract, indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, partnership agreement, note,
loan or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
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(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations,
which are required to be disclosed in the Registration Statement and are not so
disclosed. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company, or any predecessor entity, and none has ever occurred.
No representation question exists respecting the employees of the Company, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists, or is imminent.
(q) Except as described in the Prospectus, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all reporting, disclosure and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(r) Neither the Company nor its officers or
directors, nor any of its employees, stockholders, partners, or affiliates
(within the meaning of the Rules and Regulations) has taken, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the 1934 Act, or otherwise, stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, and
except as disclosed in the Prospectus, none of the patents, patent applications,
trademarks, service marks, service names, trade names and copyrights, and none
of the licenses and rights to the foregoing presently owned or held by the
Company are in dispute or are in any conflict with the right of any other person
or entity. To the best of the Company's knowledge, and except as disclosed in
the Prospectus, the Company (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents, patent
applications, trademarks, service marks, service names, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
(collectively, the "Intellectual Property") without infringing upon or otherwise
acting adversely to the right or claimed right of any person,
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<PAGE>
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, patent application, trademark, service mark, service
name, trade name, copyright, know-how, technology or other intangible asset,
with respect to the use thereof or in connection with the conduct of its
business or otherwise; provided, however, that the Company represents and
warrants that for a period of forty-two (42) months from the Effective Date, if
any claim, cause of action, suit or proceeding (collectively, "Claims") is
brought or instituted alleging that any Intellectual Property utilized by the
Company infringes the rights of any third party, the Company shall indemnify and
hold harmless the Underwriter with respect to any out-of-pocket payments the
Underwriter may incur as a result of such Claims, including but not limited to,
payments incurred in favor of any stockholder of the Company, the party alleging
having suffered the infringement or any other party, as well as payments of all
attorneys' fees and costs in connection therewith.
(t) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or, to the best of the Company's knowledge,
threatened (or circumstances that may give rise to the same) against the Company
which challenges the exclusive rights of the Company with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the conduct
of its business, or which challenge the right of the Company to use any
technology presently used or contemplated to be used in the conduct of its
business.
(u) Except as disclosed in the Prospectus, the
Company owns and has the unrestricted right to use all trade secrets, know-how
(including all other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), inventions, technology, designs, processes,
works of authorship, computer programs and technical data and information
(collectively herein "intellectual property") that are material to the
development, manufacture, operation and sale of all products and services sold
or proposed to be sold by the Company, free and clear of and without violating
any right, lien, or claim of others, including without limitation, former
employers of its employees. The Company is not aware of any such development of
similar or identical trade secrets or technical information by others.
(v) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus, to be owned or leased by it free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects,
or other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus, taxes, lessor's interests and liens for taxes not
yet due and payable.
(w) The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which the Company's
officers and directors, holders of 10% or more of the Company's outstanding
Common Stock as of the date of the Prospectus, the Company's private placement
shareholders and stock option plan optionholders have agreed not to, directly or
indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein (subject to certain
permitted exceptions) for at least six (6) months following the effective date
of the Registration Statement without the prior consent of the Underwriter,
subject to certain permitted exceptions.
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(x) Except as described in the Prospectus under
"Underwriting," there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriter's
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Shares and the Underwriter's Shares have been
approved for listing on The Nasdaq Small Cap Market ("Nasdaq Small Cap Market"),
pending notice of issuance.
(z) The Company nor any of its officers, employees,
agents, or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no
officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Regulations) of any of the foregoing persons or entities has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or
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<PAGE>
services, or (ii) a beneficial interest in any contract or agreement to which
the Company is a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any officer or director of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(bb) Any certificate signed by any officer of the
Company, and delivered to the Underwriter or to Underwriter's Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(cc) The minute books of the Company have been made
available to the Underwriter and contain a complete summary of all meetings and
actions of the directors, stockholders, audit committee, compensation committee
and any other committee of the Board of Directors of the Company, since the time
of its incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(dd) Except and to the extent described in the
Prospectus and except for the Underwriter with respect to the Underwriter's
Warrants, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company.
2. Purchase, Sale and Delivery of the Securities and
Underwriter's Warrants.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, and subject to the terms and
conditions herein set forth the Company agrees to sell to the Underwriter, and
the Underwriter, agrees to purchase from the Company at a price of [$ ] per
share, the Firm Shares.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter, to purchase all or any part of the Option Shares. The option
granted hereby will expire 45 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised on one occasion in whole or in part only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Underwriter to the Company
setting forth the number of Option Shares as to which the Underwriter is
exercising the option and the time and date of payment and delivery for any such
Option Shares. Any such time and date of delivery (the "Option Closing Date")
shall be determined by the
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Underwriter, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to make any
over-allotments. No Option Shares shall be delivered unless the Firm Shares
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery
of certificates for, the Firm Shares shall be made at the offices of Cambridge
Capital, LLC, 1225 Franklin Avenue, Suite 102, Garden City, New York 11530, or
at such other place as shall be agreed upon by the Underwriter and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on [
], 1999 or at such other time and date as shall be agreed upon by the
Underwriter and the Company, but not less than three (3) nor more than ten (10)
full business days after the effective date of the Registration Statement (such
time and date of payment and delivery being herein called the "Closing Date").
In addition, in the event that any or all of the Option Shares are purchased by
the Underwriter, payment of the purchase price for, and delivery of certificates
for, such Option Shares shall be made at the above-mentioned office of the
Underwriter or at such other place as shall be agreed upon by the Underwriter
and the Company on the Option Closing Date as specified in the notice from the
Underwriter to the Company.
(d) Delivery of the certificates for the Firm Shares
and the Option Shares, if any, shall be made to the Underwriter against payment
by the Underwriter, severally and not jointly, of the purchase price for the
Firm Shares and the Option Shares, if any, to the order of the Company for the
Firm Shares and the Option Shares, if any, by New York Clearing House funds. In
the event such option is exercised, the Underwriter shall purchase the Option
Shares. The certificates for the Firm Shares and the Option Shares, if any,
shall be made available to the Underwriter at such office or such other place as
the Underwriter may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the Option
Closing Date, as the case may be.
(e) On the Closing Date, the Company shall issue and
sell to the Underwriters, one or more Underwriter's Warrants at a purchase price
of $.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 110,000 shares of Common Stock. The Underwriter's
Warrants shall be exercisable for a period of four years commencing one year
from the effective date of the Registration Statement at a price equaling one
hundred twenty percent (120%) of the initial public offering price of the Firm
Shares. The Underwriter's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.2 to the Registration
Statement. Payment for the Underwriter's Warrants shall be made by the
Underwriters on the Closing Date.
3. Public Offering of the Shares. As soon after the
Registration Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall, subject to the terms and conditions hereof, make a public
offering of the Firm Shares and such of the Option Shares as it may determine
(other than to residents of or in any jurisdiction in which qualification of the
Shares is required and has not become effective) at the price and upon the
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other terms set forth in the Prospectus. The Underwriter may enter into one or
more agreements as the Underwriter, in its sole discretion, deems advisable with
one or more broker-dealers who shall act as dealers in connection with such
public offering.
4. Covenants and Agreements of the Company.
(a) The Company covenants and agrees with the
Underwriter as follows:
i) The Company shall use its best
efforts to cause the Registration Statement and any
amendments thereto to become effective as promptly as
practicable and will not at any time, whether before
or after the effective date of the Registration
Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any
document under the Act or 1934 Act before termination
of the offering of the Shares by the Underwriter of
which the Underwriter shall not previously have been
advised and furnished with a copy, or to which the
Underwriter shall have objected or which is not in
compliance with the Act, the 1934 Act or the
Regulations.
ii) As soon as the Company is
advised or obtains knowledge thereof, the Company
will advise the Underwriter and confirm the notice in
writing, (i) when the Registration Statement, as
amended, becomes effective, or if the provisions of
Rule 430A promulgated under the Act will be relied
upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any
post-effective amendment to the Registration
Statement becomes effective, (ii) of the issuance by
the Commission of any stop order or of the
initiation, or the threatening, of any proceeding,
suspending the effectiveness of the Registration
Statement or any order preventing or suspending the
use of the Preliminary Prospectus or the Prospectus,
or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of
the issuance by the Commission or by any state
securities commission of any proceedings for the
suspension of the qualification of any of the
Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of
any comments from the Commission; and (v) of any
request by the Commission for any amendment to the
Registration Statement or any amendment or supplement
to the Prospectus or for additional information. If
the Commission or any state securities commission
authority shall enter a stop order or suspend such
qualification at any time, the Company will make
every effort to obtain promptly the lifting of such
order.
iii) The Company shall file the
Prospectus (in form and substance satisfactory to the
Underwriters) or transmit the Prospectus by
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a means reasonably calculated to result in filing
with the Commission pursuant to Rule 424(b)(1) (or,
if applicable and if consented to by the
Underwriters, pursuant to Rule 424(b)(4)) not later
than the Commission's close of business on the
earlier of (i) the second business day following the
execution and delivery of this Agreement and (ii) the
fifteenth business day after the effective date of
the Registration Statement.
iv) The Company will give the
Underwriter notice of its intention to file or
prepare any amendment to the Registration Statement
(including any post-effective amendment) or any
amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for
use by the Underwriter in connection with the
offering of the Securities which differs from the
corresponding prospectus on file at the Commission at
the time the Registration Statement becomes
effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the
Regulations) or any document that will be
incorporated by reference into the Prospectus, and
will furnish the Underwriter with copies of any such
amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which
the Underwriter or Whitman Breed Abbott & Morgan LLP
("Underwriter's Counsel") shall object.
v) The Company shall endeavor in
good faith, in cooperation with the Underwriter, at
or prior to the time the Registration Statement
becomes effective, to qualify the Securities for
offering and sale under the securities laws of such
jurisdictions as the Underwriter may designate to
permit the continuance of sales and dealings therein
for as long as may be necessary to complete the
distribution, and shall make such applications, file
such documents and furnish such information as may be
required for such purpose; provided, however, the
Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to
service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter
agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are
or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
vi) During the time when a
prospectus is required to be delivered under the Act,
the Company shall use all reasonable efforts to
comply with all requirements imposed upon it by the
Act and the 1934 Act, as now and hereafter amended
and by the Regulations, as from time to time in
force, so far as necessary to permit the continuance
of sales of or dealings in the Securities in
accordance with the provisions hereof and
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the Prospectus, or any amendments or supplements
thereto. If at any time when a prospectus relating to
the Securities is required to be delivered under the
Act, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or
Underwriter's Counsel, the Prospectus, as then
amended or supplemented, includes an 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, in light of the
circumstances under which they were made, not
misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be
satisfactory to Underwriter's Counsel, and the
Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and
in such quantities as the Underwriter may request.
vii) As soon as practicable, but in
any event not later than 45 days after the end of the
12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs
(90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the
Company shall make generally available to its
security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Underwriter, an
earnings statement which will be in the detail
required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule
158(a) of the Regulations, which statement need not
be audited unless required by the Act, covering a
period of at least 12 consecutive months after the
effective date of the Registration Statement.
viii) During a period of three (3)
years after the date hereof, the Company will furnish
to its stockholders annual reports (including
financial statements audited by independent public
accountants) and will deliver to the Underwriter:
(a) concurrently with
furnishing any quarterly reports to its
stockholders, statements of operations of
the Company for each quarter in the form
furnished to the Company's stockholders and
certified by the Company's principal
financial or accounting officer;
(b) concurrently with
furnishing such annual reports to its
stockholders, a balance sheet of the Company
as at the end of the preceding fiscal year,
together with the related statements of
operations, stockholders' equity, and cash
flows for
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such fiscal year, accompanied by a copy of
the report thereon of independent certified
public accountants;
(c) as soon as they are
available, copies of all reports (financial
or other) mailed to stockholders;
(d) as soon as they are
available, copies of all reports and
financial statements furnished to or filed
with the Commission, the NASD or any
securities exchange;
(e) every press release and
every material news item or article of
interest to the financial community in
respect of the Company, or its affairs which
was released or prepared by or on behalf of
the Company; and
(f) any additional
information of a public nature concerning
the Company (and any future subsidiary) or
its businesses which the Underwriter may
request.
During such three (3) year period,
if the Company has an active subsidiary, the
foregoing financial statements will be on a
consolidated basis to the extent that the accounts of
the Company and its subsidiary are consolidated, and
will be accompanied by similar financial statements
for any significant subsidiary which is not so
consolidated.
ix) 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.
x) The Company will furnish to the
Underwriter or on the Underwriter's order, without
charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or
post-effective amendments thereto (two of which
copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any
prospectus prepared after the effective date of the
Registration Statement, in each case as soon as
available and in such quantities as the Underwriter
may reasonably request.
xi) From the date of such agreements
through the end of the two year period following the
effective date of the Registration Statement (the
"Effective Date"), the Company shall not, without the
prior consent of the Underwriter, sell, contract or
offer to sell, issue, transfer, assign, pledge,
distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any
shares of Common Stock, other than the Securities
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<PAGE>
pursuant hereto, other than up to [ ] shares of
Common Stock reserved for issuance upon the exercise
of options under the Company's Stock Option Plan as
described in the Prospectus and other than up to [ ]
shares of Common Stock issued in connection with
financings in the minimum aggregate amount of
$20,000,000 completed at no less than (2) two times
the valuation of the Offering or in connection with
acquisitions in which shares of Common Stock
constitute the mode of payment, and such shares are
valued at no less than two (2) times the per share
price of the Offering.
xii) Neither the Company, nor any of
its officers or directors, will take, directly or
indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result
in, stabilization or manipulation of the price of any
securities of the Company.
xiii) The Company shall apply the
net proceeds from the sale of the Securities in the
manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus. Except as
described in the Prospectus, no portion of the net
proceeds will be used, directly or indirectly, to
acquire any securities issued by the Company.
xiv) The Company shall file timely
all such reports, forms or other documents as may be
required from time to time, under the Act, the 1934
Act, and the Rules and Regulations, and all such
reports, forms and documents filed will comply as to
form and substance with the applicable requirements
under the Act, the 1934 Act, and the Rules and
Regulations.
xv) The Company shall furnish to the
Underwriter as early as practicable prior to each of
the date hereof, the Closing Date and the Option
Closing Date, if any, but no later than two (2) full
business days prior thereto, a copy of the latest
available unaudited interim financial statements of
the Company (which in no event shall be as of a date
more than thirty (30) days prior to the date of the
Registration Statement) which have been read by the
Company's independent public accountants, as stated
in their letter to be furnished pursuant to Section
6(l) hereof.
xvi) The Company shall cause the
Common Stock to be quoted on the Nasdaq Small Cap
Market or a National Securities exchange and for a
period of seven (7) years from the date hereof, and
use its best efforts to maintain the Nasdaq Small Cap
Market listing or exchange listing of the Common
Stock to the extent outstanding.
xvii) The Company shall file, within
ten (10) Business Days following the Closing Date,
all documents necessary to register with the Standard
& Poor's Manual and to effect the Company's listing
therein.
xviii) For a period of 18 months
from the Closing Date, the Company shall furnish to
the Underwriter at the Company's sole expense, (i)
upon the Underwriter's request, on a daily basis,
consolidated transfer sheets relating to the Common
Stock, (ii) on a monthly basis, the list of holders
of all of the Company's securities and (iii) a Blue
Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the
Underwriter.
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<PAGE>
xix) Except to the extent required
by law, until the completion of the distribution of
the Shares, and for 25 days thereafter, the Company
shall not, without the prior written consent of the
Underwriter and Underwriter's Counsel, issue,
directly or indirectly, any press release or other
communication or hold any press conference with
respect to the Company or its activities or the
offering contemplated hereby.
xx) The Company shall grant to the
Underwriter a right of first refusal for a period of
thirty (30) months after the Closing Date (the "Right
of First Refusal Period") for any (i) equity or debt
offerings by the Company or any subsidiaries, whether
public or private in which the utilization of
investment banking services has been authorized, and
(ii) transactions relating to (A) the purchase by or
sale to the Company or any subsidiary of stock or
substantially by all the assets, or (B) the formation
of any joint venture, any corporate reorganization or
other transaction utilizing investment banking
services. The Company shall first notify the
Underwriter in writing, during the Right of First
Refusal Period, of its intention to close a
transaction, as described herein, and shall annex
thereto the terms and conditions of another
investment banker, whose services the Company would
otherwise engage but for this provision. Such right
may only be exercised by written notice from the
Underwriter to the effect that it is ready, willing
and able to complete the transaction on the same
terms and conditions as set forth on the Company's
notification, and the Underwriter shall have thirty
(30) days from the date of receipt of the Company's
notification to submit such notice, but shall use its
reasonable best efforts to respond earlier. If the
Underwriter elects not to submit such notice to the
Company within such time period, it shall be deemed
to have waived its right of first refusal with
respect to such transaction.
xxi) For a period of twenty-four
(24) months after the Closing Date, the Underwriter
shall have the right to designate one person to serve
on the Company's Board of Directors in the event that
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the Company's Board of Directors consists of eight or
less directors, and two persons, in the event that
the Company's Board of Directors consists of more
than eight directors. The Company shall nominate and
support the election of such person or persons as
directors of the Company. The Company shall reimburse
such designee(s) for his or her reasonable
out-of-pocket expenses incurred in connection with
his or her attendance of such meetings.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and the Option Closing Date (to the extent not paid at the Closing
Date) all expenses and fees (other than fees of Underwriter's Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Underwriter's Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriter of the Shares and the purchase
by the Underwriter of the Underwriter's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement and,
with respect to the Company, its obligations under the Underwriter's Warrant
Agreement, and (z) resale of the Shares by the Underwriter in connection with
the distribution contemplated hereby, (iv) the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and reasonable
disbursements and reasonable fees of counsel in connection therewith, (v) costs
and expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel or consultant retained, (vi) fees
and expenses of the transfer agent and registrar, (vii) the fees payable to the
Commission and the NASD, and (viii) the fees and expenses incurred in connection
with the listing of the Securities on the Nasdaq Small Cap Market and any other
exchange. Notwithstanding any other provision of this Agreement, whether or not
the offering contemplated hereby is successfully completed, it shall be the
Company's obligation to bear all expenses in connection with the proposed
offering, including, but not limited to, the following: filing fees, printing
and duplicating costs, all postage and mailing expenses with respect to the
transmission of prospectuses, registrar and transfer agent fees, costs and
expenses related to "Tombstone" advertisements, the Company's "road show" and
information meetings and presentation costs, its own counsel and accounting
fees, costs of due diligence investigations,
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<PAGE>
bound volumes, prospectus memorabilia, issue and transfer taxes, if any, and
"Blue Sky" filing fees, counsel fees and expenses. The preceding to the contrary
notwithstanding, nothing herein shall (i) require the Company to pay the fees
for Underwriter's counsel other than fees and disbursements in connection with
"Blue Sky" matters, or (ii) require the Company to pay Underwriter's counsel
with respect to any due diligence investigations.
(b) If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 6 or Section 11, the
Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses (including the fees and disbursements of Underwriter's
Counsel), less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to
the expenses payable pursuant to subsection (a) of this Section 5, it will pay
to the Underwriter on the Closing Date by certified or bank cashier's check or,
at the election of the Underwriter, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to
[___________ dollars] ([$______]), twenty-five thousand dollars ($25,000) of
which has been paid to date.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy in all material respects of each of the representations and warranties
of the Company contained herein as of the date hereof and as of the Closing Date
and Option Closing Date, if any, as if it had been made on and as of the Closing
Date or Option Closing Date, as the case may be; the accuracy on and as of the
Closing Date or Option Closing Date, if any, of the statements of the officers
of the Company made pursuant to the provisions hereof; and the performance by
the Company on and as of the Closing Date and each Option Closing Date, if any,
of their respective covenants and obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall have become
effective not later than 12:00 Noon, New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Underwriter, and, at the Closing Date and Option Closing Date, if any, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which,
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<PAGE>
in the Underwriter's opinion, is material, or omits to state a fact which, in
the Underwriter's opinion, is material and is required to be stated therein or
is necessary to make the statements therein not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter
shall have received from Underwriter's Counsel, such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Underwriter's Warrants, the Registration Statement, the Prospectus and other
related matters as the Underwriter request and Underwriter's Counsel shall have
received such papers and information as they request to enable them to pass upon
such matters.
(d) At Closing Date, the Underwriter shall have
received the favorable opinion of Meltzer, Lippe, Goldstein, Wolf & Schlissel,
P.C., counsel to the Company, dated the Closing Date, addressed to the
Underwriter and in form and substance satisfactory to Underwriter's Counsel, to
the effect that:
(i) the Company (A) has been duly organized and
based upon certificates of good standing or authorization or
the like received from the State of Delaware, is validly
existing as a corporation in good standing under the laws of
the State of Delaware, (B) is duly qualified and in good
standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
licensing, except where the failure to be so qualified and in
good standing is likely to have no material adverse effect on
the Company, and (C) except as disclosed in the Prospectus,
has all requisite corporate power and authority to own and
operate its properties and to carry on its business as set
forth in the Registration Statement and Prospectus; and except
as disclosed in the Prospectus, the Company has obtained any
and all necessary Federal and New York State authorizations,
approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials
and bodies, to own or lease its properties and conduct its
business as described in the Prospectus, the failure to obtain
which is likely to have a material adverse effect on the
Company. Except as disclosed in the Prospectus, and except as
to matters described in item (ix) below, the disclosures in
the Registration Statement concerning the effects of federal,
and New York State laws, rules and regulations on the
Company's business as currently conducted and as contemplated
are correct in all material respects;
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<PAGE>
(ii) to the best of such counsel's knowledge, after
reasonable inquiry, the Company has a duly authorized, issued
and outstanding capitalization as set forth in the Prospectus,
and any amendment or supplement thereto, under
"Capitalization" and "Description of Capital Stock", and, to
the best of such counsel's knowledge, after reasonably
inquiry, is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities,
except for this Agreement, the Underwriter's Warrant Agreement
and as described in the Prospectus. The Securities, and all
other securities issued or issuable by the Company, conform in
all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have, to such counsel's
knowledge, no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation
of the preemptive rights of any holders of any security of the
Company. The Shares, the Underwriter's Warrants and the
Underwriter's Shares to be sold by the Company hereunder and
under the Underwriter's Warrant Agreement are not and will not
be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely in
their capacity as such holders; all corporate action required
to be taken for the authorization, issue and sale of the
Shares, the Underwriter's Warrants and the Underwriter's
Shares has been duly and validly taken, and the certificates
representing the Shares and the Underwriter's Warrants are in
due and proper form. The Underwriter's Warrants constitute
valid and binding obligations of the Company to issue and
sell, upon exercise thereof and payment therefor, the number
and type of securities of the Company called for thereby. Upon
the issuance and delivery, pursuant to this Agreement, and the
Underwriter's Warrant Agreement of the Shares and the
Underwriter's Warrants, respectively, to be sold by the
Company, the Underwriter will acquire good and marketable
title to the Shares and the Underwriter's Warrants free and
clear of any pledge, lien, charge, claim, encumbrance,
security interest, or other restriction or equity of any kind
whatsoever except as stated in the Underwriter's Warrant
Agreement. Other than pursuant to Section 270.2 of the New
York State Tax Law, no transfer tax is payable by or on behalf
of the Underwriter in connection with (A) the issuance by the
Company of the Shares, (B) the purchase by the Underwriter of
the Shares and the Underwriter's Warrants, respectively, from
the Company, (C) the consummation by the Company of any of its
obligations under this Agreement or the Underwriter's Warrant
Agreement, or (D) resales of the Shares in connection with the
distribution contemplated thereby;
(iii) the Registration Statement is effective under
the Act, and, if applicable, filing of all pricing information
has been timely made in the appropriate form under Rule 430A,
and to the knowledge of such counsel, no stop order suspending
the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
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<PAGE>
(iv) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and related notes and other financial and statistical data
included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the
requirements of the Act and the Regulations;
(v) to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required
by the Act to be described in the Registration Statement and
the Prospectus and filed as exhibits to the Registration
Statement other than those described in the Registration
Statement (or required to be filed under the 1934 Act if upon
such filing they would be incorporated, in whole or in part,
by reference therein) and the Prospectus and filed as exhibits
thereto, and except for redacted portions, the exhibits which
have been filed are correct copies of the documents of which
they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which
the Company is a party or by which it is bound, including any
document to which the Company is a party or by which it is
bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material
respects and fairly represent the information required to be
shown by Form SB-2; (C) there is not pending or overtly
threatened against the Company any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters),
domestic or foreign, pending or overtly threatened against, or
involving the properties or business of the Company which (x)
is required to be disclosed in the Registration Statement
which is not so disclosed, (and such proceedings as are
summarized in the Registration Statement are accurately
summarized in all material respects), or (y) questions
the validity of the capital stock of the Company or this
Agreement or the Underwriter's Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; (D) except as to matters
described in item (ix) below, no Federal or New York State
statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as
required; and (E) except as described in the Prospectus, there
is no action, suit or proceeding pending, or threatened,
against or affecting the Company before any court or
arbitrator or governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which
may result in a material adverse change in the condition,
financial or otherwise, or results of operations of the
Company, which could materially adversely affect the present
or prospective ability of the Company to perform its
obligations under this Agreement or the Underwriter's Warrant
Agreement or which in any manner draws into question the
validity or enforceability of this Agreement or the
Underwriter's Warrant Agreement;
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<PAGE>
(vi) the Company has full legal right, power and
authority to enter into each of this Agreement and the
Underwriter's Warrant Agreement and to consummate the
transactions provided for herein and therein; and each of this
Agreement and the Underwriter's Warrant Agreement has been
duly authorized, executed and delivered by the Company. Each
of this Agreement and the Underwriter's Warrant Agreement,
assuming due authorization, execution and delivery by each
other party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in
accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of
the Company's execution or delivery of this Agreement and the
Underwriter's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated
herein or therein, or the conduct of its business as described
in the Registration Statement, the Prospectus and any
amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
certificate of incorporation or by-laws of the Company, (B) to
such counsel's knowledge , any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other
agreement or instrument (collectively, "Obligations") to which
the Company is a party or by which it is or may be bound or to
which any of its respective properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, to the
extent such Obligations or indebtedness are described
generally in the Prospectus or otherwise identified in a
certification by Mr. Fauci, or (C) to such counsel's
knowledge, and without independent investigation, except as to
matters described in item (ix) below, any Federal or New York
State statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the
Company, or any of its activities or properties;
vii) except as described in the Prospectus, no
consent, approval, authorization or order of, and no filing
with, any court, regulatory body, Federal or New York State
agency or other body (other than such as may be required under
Blue Sky laws, as to which no opinion is being rendered) is
required in connection with the issuance of the Shares
pursuant to the Prospectus, the issuance of the Underwriter's
Warrants, the performance of this Agreement and the
Underwriter's Warrant Agreement and the transactions
contemplated hereby and thereby;
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<PAGE>
viii) to counsel's knowledge, and based solely on
such documents and agreements described in the Prospectus or
otherwise identified in a certification by Mr. Fauci, the
Company is not in breach of, or in default under, any term or
provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject
or affected, the breach of which would have a material adverse
effect on the Company ; and the Company is not in violation of
any term or provision of its certificate of incorporation or
by-laws, or to such counsel's knowledge, and without
independent investigation, in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation (except as to matters discussed in (ix) below), a
violation of which would have a material adverse effect on the
Company;
ix) the statements in the Prospectus under the
sections entitled "Risk Factors - Regulation" and "Business
Regulation" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are
correct in all material respects;
x) the Shares and the Underwriter's Shares have been
accepted for listing on the Nasdaq Small Cap Market;
xi) except as described in the Prospectus, no
person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the
Company to file any registration statement or, if filed, to
include any security in such registration statement; and
xii) assuming due execution by the parties thereto
other than the Company, the Lock-Up Agreements are legal,
valid and binding obligations of parties thereto, enforceable
against the party and any subsequent holder of the securities
subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law).
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement and the Prospectus; and related matters were discussed
and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary Prospectus, the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the attention
of such counsel which lead them to believe that either the Registration
Statement or any amendment thereto, at the time such Registration Statement or
amendment became effective or the Prospectus or amendment or supplement thereto
as of the date of such 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 (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
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In rendering such opinion (including, without limitation, as
to the matters described in paragraph (ix) above), such counsel may rely (A) as
to matters involving the application of the laws, rules and regulations of the
United States Food and Drug Administration, state or local laws covering
comparable subject matter, or laws relating to franchising, or laws other than
the laws of the United States and jurisdictions in which they are admitted, to
the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriter's Counsel) of other counsel acceptable to
Underwriter's Counsel, familiar with such applicable laws, rules and
regulations, (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the Underwriter
and they are justified in relying thereon. Such opinion shall also state that
Underwriter's Counsel is entitled to rely thereon.
(e) At the Option Closing Date, if any, the
Underwriter shall have received the favorable opinion of Meltzer, Lippe,
Goldstein, Wolf & Schlissel, P.C., or other counsel acceptable to the
Underwriter and counsel of the Company, dated the Option Closing Date, addressed
to the Underwriter and in form and substance satisfactory to Underwriter's
Counsel confirming as of the Option Closing Date the statements made by Meltzer,
Lippe, Goldstein, Wolf & Schlissel, P.C., or other counsel acceptable to the
Underwriter, in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the
Option Closing Date, if any, Underwriter's Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
(g) Prior to each of the Closing Date and the Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus, which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) the Company shall not have issued any
securities (other than the Securities or options described as outstanding in the
Prospectus); the Company shall not have declared or paid any dividend or made
any distribution in respect of its capital
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stock of any class; and there shall not have been any change in the capital
stock of the Company, or any material change in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or, to the best knowledge of the Company, threatened (or circumstances giving
rise to same) against the Company, or affecting any of its properties or
business before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may reasonably be expected to materially and adversely affect the
business, operations, prospects or financial condition or income of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, to the best knowledge of the Company, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and the Option
Closing Date, if any, the Underwriter shall have received a certificate of the
Company signed by the principal executive officer and by the chief financial or
chief accounting officer of the Company, dated the Closing Date or Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
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 the Option Closing Date, as the case may
be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, after due inquiry, are contemplated or threatened
under the Act;
iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto,
contain all statements and information required to be included
therein, and none of the Registration Statement, the
Prospectus nor any amendment or supplement thereto 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 and neither the
Preliminary Prospectus nor any 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, in light of the circumstances
under which they were made, not misleading; and
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iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and except as disclosed in the Prospectus, (a) the
Company has not incurred up to and including the Closing Date
or the Option Closing Date, as the case may be, other than in
the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (b) the Company has not
paid or declared any dividends or other distributions on its
capital stock; (c) the Company has not entered into any
material transactions not in the ordinary course of business;
(d) there has not been any change in the capital stock of the
Company or any material change in the debt (long or
short-term) of the Company; (e) the Company has not sustained
any material loss or damage to its property or assets, whether
or not insured; (g) there is no litigation which is pending
or, to the best knowledge of the Company, threatened (or
circumstances giving rise to same) against the Company, or any
affiliated party of any of the foregoing, which is required to
be set forth in an amended or supplemented Prospectus which
has not been set forth; and (h) there has occurred no event
required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriter will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the
Underwriter shall have received a letter, dated such date, addressed to the
Underwriter in form and substance satisfactory (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
in all respects to the Underwriter and Underwriter's Counsel, from
PricewaterhouseCoopers LLP;
i) confirming that they are independent public
accountants with respect to the Company within the meaning of
the Act and the applicable Regulations;
ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company
included in the Registration Statement comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Regulations thereunder and
that the Underwriters may rely upon the opinion of
PricewaterhouseCoopers LLP with respect to such financial
statements and supporting schedules included in the
Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim financial statements of the
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Company, a reading of the latest available minutes of the
stockholders and Board of Directors and the various committees
of the Board of Directors of the Company, consultations with
officers and other employees of the Company responsible for
financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements of the Company
included in the Registration Statement, or (B) at a specified
date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock of the Company, any increase in the
long-term debt of the Company, or any decrease in the
stockholders' equity of the Company or any decrease in the net
current assets or net assets of the Company or any material
increase in inventory of the Company as compared with amounts
shown in the [September 30], 1998 balance sheet included in
the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such
change or decrease, and (C) during the period from [October
1], 1998 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was
any decrease in net revenues or net earnings of the Company or
decrease in net earnings per common share of the Company, in
each case as compared with the corresponding period in the
prior year other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement; and
v) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter may
reasonably request.
(k) At the Closing Date and the Option Closing Date,
if any, the Underwriter shall have received from PricewaterhouseCoopers LLP a
letter, dated as of the Closing Date or the Option Closing Date, as the case may
be, to the effect that they reaffirm the
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statements made in the letter furnished pursuant to subsection (j) of this
Section 6 hereof except that the specified date referred to shall be a date not
more than five days prior to the Closing Date or the Option Closing Date, as the
case may be, and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection (j) of this Section 6 with respect to
certain amounts, percentages and financial information as specified by the
Underwriter and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(l) At the Closing Date and Option Closing Date, if
any, the Underwriter shall have received a letter, dated such date, addressed to
the Underwriter in form and substance satisfactory in all respects to the
Underwriter and counsel to the Underwriter, from PricewaterhouseCoopers LLP
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters with respect to financial
information contained in the Registration Statement and the Prospectus.
(m) The Company shall have delivered to the
Underwriter a letter from PricewaterhouseCoopers LLP addressed to the Company
stating that they have not during the immediately preceding two-year period
brought to the attention of the Company's management any "weakness" as defined
in Statement of Auditing Standards No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the Company's internal
controls.
(n) On each of the Closing Date and the Option
Closing Date, if any, there shall have been duly tendered to the Underwriter for
their respective accounts the appropriate number of Shares.
(o) No order suspending the sale of the Securities
in any jurisdiction designated by the Underwriter pursuant to subsection (a)(v)
of Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter, (i) the Underwriter's Warrant
Agreement substantially in the form filed as Exhibit 4.2 to the Registration
Statement in final form and substance satisfactory to the Underwriter, and (ii)
the Underwriter's Warrants in such denominations and to such designees as shall
have been provided to the Company
(q) On or before the Closing Date, the Shares shall
have been duly approved for listing on the Nasdaq Small Cap Market, subject to
official notice of issuance.
(r) On or before the Closing Date, there shall have
been delivered to the Underwriter all of the Lock-up Agreements, in form and
substance satisfactory to Underwriter's Counsel.
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If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Closing Date or the Option Closing Date, as the
case may be, is not so fulfilled, the Underwriter may terminate this Agreement
or, if the Underwriter so elect, it may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) Subject to the provisions of Section 1(s) above,
the Company agrees to indemnify and hold harmless the Underwriter (for purposes
of this Section 7 "Underwriter" shall include the officers, directors, partners,
employees, agents and counsel of the Underwriter, and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the 1934 Act), from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
1934 Act or any other statute or at common law or otherwise or under the laws of
foreign countries, arising out of or based upon (A) any untrue statement or
alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the Nasdaq Small Cap Market or any other securities exchange, (B) the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made), or
(C) any material breach of any representation, warranty, covenant or agreement
of the Company contained herein or in any certificate by or on behalf of the
Company or any of its officers delivered pursuant hereto unless, in the case of
clause (A) or (B) above, such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with respect
to any Underwriter by or on behalf of the Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or any Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of the Company's directors, each of the Company's
officers, and each other person, if any, who controls the Company within the
meaning of the Act, to the same extent as
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the foregoing indemnity from the Company to the Underwriter but only with
respect to any breach of the Underwriter's obligations or representations set
forth in this Underwriting Agreement, statements or omissions or alleged
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by the
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriter
in connection with this Offering. The Company acknowledges that the statements
with respect to the public offering of the Securities set forth under the
heading "Underwriting", the statements set forth in the risk factor entitled
"Lack of Experience of the Underwriter" and the stabilization legend in the
Prospectus have been furnished by the Underwriter expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriter may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action, investigation, inquiry, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for
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all indemnified parties in connection with any one action, investigation,
inquiry, suit or proceeding or separate but similar or related actions,
investigations, inquiries, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances. Anything in this Section 7
to the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, investigation, inquiry,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriter is the indemnified party, the relative benefits
received by the Company, on the one hand, and the Underwriter, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriter hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. 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 the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subdivision
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating
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or defending any such action, claim, investigation, inquiry, suit or proceeding.
Notwithstanding the provisions of this subdivision (d), the Underwriter shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriter hereunder. 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. For purposes of this Section 7, each person,
if any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, as the case
may be, subject in each case to this subparagraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit, inquiry, investigation or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of the Underwriter, the Company, and shall
survive termination of this Agreement or the issuance, sale and delivery of the
Securities to the Underwriter.
9. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Shares to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
10. Termination.
(a) Subject to subsection (b) of this Section 10,
the Underwriter shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or
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international event or act or occurrence has materially disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely disrupt
the financial markets; or (ii) any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Boston Stock Exchange, the Commission or any other
government authority having jurisdiction; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities of
the Company shall have been delisted, on any exchange or in any over-the-counter
market; or (v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (viii) if there
shall have occurred any outbreak or escalation of hostilities or any calamity or
crisis or there shall have been such a material adverse change in the conditions
or prospects of the Company, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere as
in the Underwriter's reasonable judgment would make it inadvisable to proceed
with the offering, sale and/or delivery of the Securities or (ix) if Mark Fauci
and Dr. Michael Anbar shall no longer serve the Company in their present
capacities or in the capacities set forth in the Prospectus.
(b) If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 10(a) the Company shall
promptly reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses other than fees and disbursements of counsel for the
Underwriter. Notwithstanding any contrary provision contained in this
Agreement, if this Agreement shall not be carried out within the time specified
herein, or any extension thereof granted to the Underwriter, by reason of any
failure on the part of the Company to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to Section 6 or Section 11), then the Company shall
promptly reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriter (less amounts previously paid pursuant to Section 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or at the Option Closing Date, as applicable, to sell and deliver
the number of Shares which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
the Option Shares to be purchased on the Option Closing
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<PAGE>
Date, the Underwriter may at the Underwriter's option, by notice from the
Underwriter to the Company, terminate the Underwriter's obligation to purchase
Option Shares from the Company on such date) without any liability on the part
of any non-defaulting party other than pursuant to Section 5, Section 7 and
Section 10 hereof. No action taken pursuant to this Section 11 shall relieve the
Company from liability, if any, in respect of such default.
12. Representations of the Underwriter. The Underwriter is
registered as a broker-dealer with, and is a member in good standing of, the
National Association of Securities Dealers, Inc. and has all legal and
regulatory authority required to enter into this Underwriting Agreement and
perform its obligations hereunder. The Underwriter has all required authority
under its operating agreement to enter into this Underwriting Agreement and
perform its obligations hereunder and the performance of the Underwriter's
obligations hereunder will not cause or result in any material breach of any
agreement to which it is bound or any law or regulation to which it is subject.
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to Cambridge
Capital, LLC, 1225 Franklin Avenue, Suite 102, Garden City, NY 11530, Attention:
Mr. Thomas Rossi, with a copy to Whitman Breed Abbott & Morgan LLP, 200 Park
Avenue, New York, New York 10166, Attention: Benjamin M. Polk, Esq. Notices to
the Company shall be directed to the Company at 25 East Loop Road, Stony Brook,
New York 11790-3350, Attention: Mark Fauci, President, with a copy to Meltzer,
Lippe, Goldstein, Wolf & Schlissel, P.C., 190 Willis Avenue, Mineola, New York
11501 Attention:
Richard A. Lippe, Esq.
14. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from the Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflicts of law principles.
16. Counterparts. This Agreement may be executed (including by
facsimile transmission) in any number of counterparts, each of which shall be
deemed to be an original, and all of which taken together shall be deemed to be
one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Underwriter's Warrant Agreement constitute the entire agreement of the parties
hereto and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in a writing, signed by the Underwriter and the Company.
-36-
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
OMNICORDER TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written.
CAMBRIDGE CAPITAL, LLC
By:
-------------------------------
Name:
Title:
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<PAGE>
Exhibit 3(ii)
RESTATED AND AMENDED BYLAWS
OF
OMNICORDER TECHNOLOGIES
(a Delaware corporation)
ARTICLE 1 - Offices
1.1 Registered Office. The registered office of the
corporation shall be fixed in the Certificate of Incorporation.
1.2 Other 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 2 - Meetings of Stockholders
2.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the principal executive office of the corporation.
2.2 Annual Meeting. Annual meetings of the stockholders shall be held
at such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At the meeting, directors
shall be elected, and any other proper business may be transacted.
2.3 Special Meetings. Special meetings of stockholders may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer or (iii) the Board of Directors, which shall call
such a meeting when directed pursuant to (a) a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships) at the time any such
resolution is presented to the Board of Directors or (b) at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the corporation then issued and outstanding and entitled to vote, on such
date, and at such time as the Board of Directors shall fix.
If a special meeting is called by, or at the request of, any person or
persons other than the Board of Directors pursuant to a resolution of the
directors, the request shall be in writing, specifying the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
<PAGE>
Chairman of the Board of Directors, the Chief Executive Officer, or the
Secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The Board of Directors shall
determine the time and place of such special meeting, which shall be held not
less than thirty-five (35) nor more than one hundred twenty (120) days after the
date of the receipt of the request. Upon determination of the time and place of
the meeting, the officer receiving the request shall cause notice to be given to
the stockholders entitled to vote, in accordance with the provisions of Section
2.4 of these Bylaws. If the notice is not given within sixty (60) days after the
receipt of the request, the person or persons requesting the meeting may set the
time and place of the meeting and give the notice. Nothing contained in this
paragraph shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the Board of Directors may be held.
2.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. The notice of an annual meeting shall state those matters which the
Board of Directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his or her
address as it appears on the records of the corporation. Any previously
scheduled annual or special meeting of stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
2.5 Advance Notice of Stockholder Nominees and Stockholder
Business.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board
of Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving notice provided in this Section 2.5 of these
Bylaws.
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(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to Section 2.5
(A)(1)(c) of these Bylaws, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
70th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 70th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence
of Section 2.5(A)(2) of these Bylaws to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the corporation
is increased and there is no public announcement by the corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by these
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<PAGE>
Bylaws shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the corporation.
(B) Special Meetings of Stockholders.
(1) Nominations of persons for election to the Board
of Directors of the corporation and the proposal of the business to be
considered by the stockholders may be made at a special meeting of stockholders
(a) pursuant to the corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by a request of stockholders calling for the
meeting made in accordance with Section 2.3 of these Bylaws where such request
complies with the notice procedures set forth in this Section 2.5(B) of these
Bylaws.
(2) For nominations or other business to be properly
brought before a special meeting pursuant to Section 2.5(B)(1)(c) of these
Bylaws, the request of stockholders pursuant to which such meeting was called
shall set forth all information required by the fourth sentence of Section
2.5(A)(2) and such other business must otherwise be a proper matter for
stockholder action.
(3) In the event the corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position(s) as specified in the
corporation's notice of meeting, if the stockholder's notice required by Section
2.5(A)(2) of these Bylaws shall be delivered to the Secretary at the principal
executive offices of the corporation not earlier than the close of business on
the 90th day prior to such special meeting and not later than the close of
business on the later of the 70th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.5 of these Bylaws shall be
eligible to be elected at a meeting of stockholders to serve as directors and
only such business shall be considered and transacted at a meeting of
stockholders as shall
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<PAGE>
have been brought before the meeting in accordance with the procedures set forth
in this Section 2.5 of these Bylaws. Except as otherwise provided by law, the
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 2.5 of these Bylaws and, if any proposed nomination or business is
not in compliance with this Section 2.5 of these Bylaws, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.5 of these Bylaws,
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 2.5 of these Bylaws, a stockholder referred to in this Section 2.5 of
these Bylaws shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.5 of these Bylaws. Nothing in Section 2.5 of these
Bylaws shall be deemed to affect any rights (i) of stockholders to request
inclusion of proposals in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
2.6 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy duly authorized, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. Where a separate vote by a class
or classes or series is required, a majority of the stock of each such class or
classes or series issued and outstanding and entitled to vote thereat, present
in person or represented by proxy duly authorized, shall constitute a quorum.
Either (i) the chairman of the meeting or (ii) by vote of the holders of a
majority of the shares represented thereat present in person or represented by
proxy duly authorized, shall have power to adjourn the meeting in accordance
with Section 2.7 of these Bylaws, whether or not there is a quorum.
When a quorum is present at any meeting, the vote of the
holders of a majority of the stock (or, if applicable, any class or classes or
series) 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 the statutes or the Certificate of Incorporation,
a
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<PAGE>
different vote is required, in which case such express provision shall govern
and control the decision of the question. The stockholders present at a duly
called or held meeting at which a quorum is initially present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the stock required to
initially constitute a quorum.
2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another
time and place, unless these Bylaws otherwise require, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) 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.
2.8 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners, and to voting trusts and other voting agreements).
Except as may otherwise be provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. No stockholder will be permitted to
cumulate votes at any election of directors.
2.9 Validation of Meetings; Waiver of Notice; Consent. The transactions
of any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. The waiver of notice or consent or approval need not
specify either the business to be transacted or the purpose of any annual or
special meeting of stockholders. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting. Any stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
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Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 Stockholder Action by Written Consent Without a Meeting.
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 stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent 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.
In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by a consent in writing shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten days after the date on
which such a request is received, adopt a resolution fixing the record date
(unless a record date has previously been fixed by the Board of Directors). If
no record date has been fixed by the Board of Directors pursuant thereto or
otherwise within ten days of the date on which such a request is received, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on which a
signed consent in writing 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 to any officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior
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action by the Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
In the event of the delivery, in the manner provided herein,
to the corporation of the requisite consent or consents in writing to take
corporate action and/or any related revocation or revocations, the corporation
may, if determined by the Board of Directors, engage independent inspectors of
elections for the purpose of promptly performing a ministerial review of the
validity of the consents and revocations. For the purpose of permitting the
inspectors to perform such review, no action by consent in writing without a
meeting shall be effective until such date as the independent inspectors certify
to the corporation that the consents delivered to the corporation in accordance
herewith represent at least the minimum number of votes that would be necessary
to take the corporate action. Nothing contained herein shall in any way be
construed to suggest or imply that the Board of Directors or any stockholder
shall not be entitled to contest the validity of any consent or revocation
thereof, whether before or after such certification by the independent
inspectors, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto, and
the seeking of injunctive relief in such litigation).
Every consent in writing shall bear the date of signature of
each stockholder who signs the consent and no consent in writing shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent in writing delivered in accordance herewith,
a consent or consents in writing signed by a sufficient number of holders to
take such action are delivered to the corporation in the manner prescribed
herein.
2.11. Record Date for Stockholder Notice; Voting; Giving Consents. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days or less than ten (10) days before the
date of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any transfer
of any shares on the books of the corporation after the record date.
If the Board of Directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
7.5 of these Bylaws.
2.12 Proxies. Every person entitled to vote for directors, or on any
other matter, shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware or any successor provision thereto.
2.13 Inspectors of Election. Before any meeting of stockholders, the
Board of Directors shall appoint an inspector or inspectors of election to act
at the meeting or its adjournment. If no inspector of election is so appointed,
then the chairman of the meeting may, and on the request of any stockholder or
stockholder's proxy shall, appoint an inspector or inspectors of election to act
at the meeting. The number of inspectors in such event shall be either one (1)
or three (3). If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in
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anyway arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine the result; and
(f) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
2.14 Organization. The Chairman of the Board of Directors, or if a
Chairman has not been appointed or is absent, the President, or in the absence
of the President, the most senior Vice President present, shall call the meeting
of the stockholders to order, and shall act as chairman of the meeting unless
the Board of Directors shall by resolution prior to such meeting designate
another person as chairman of such meeting. In the absence of the Chairman of
the Board, the President, all of the Vice Presidents or a chairman appointed by
the Board of Directors, the stockholders shall appoint a chairman for such
meeting. The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of any meeting of
stockholders shall determine the order of business and the procedures at the
meeting, including such matters as the regulation of the manner of voting and
the conduct of business. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure. The
Secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the Secretary at any meeting of the
stockholders, the presiding officer may appoint any person to act as secretary
of the meeting.
2.15 List of Stockholders Entitled to Vote. The officer who has charge
of the stock ledger of the corporation shall prepare and make, at least ten (10)
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 (10) days prior to the meeting, either at a place within
the city 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
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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. Such list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE 3 - Directors
3.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, or by
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
3.2 Number; Election; Tenure and Qualification.
The Board of Directors shall consist of one or more members. The
initial number of directors shall be eight (8), and thereafter shall be fixed
from time to time by resolution of the Board of Directors. Each director shall
be elected by the stockholders at the annual meeting and shall hold office until
the next annual meeting and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal. No reduction in the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires. Directors need not be
stockholders of the corporation.
3.3 Resignation and Vacancies. Any director may resign effective on
giving written notice to the Chairman of the Board, the President, the Secretary
or the Board of Directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of one or more directors is
effective at a future time, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so
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elected shall hold office until then next annual meeting of the stockholders and
until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) 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, although less than a quorum, or by a sole
remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily 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 as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.4 Removal of Directors. The Board of Directors, or any individual
director, may be removed from office at any time with or without cause by the
affirmative vote of holders of at least a majority of the voting power of all
the then-outstanding shares of voting stock of the corporation entitled to vote
at an election of directors.
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3.5 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
3.6 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
3.7 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director at his business or residence in
writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, or orally by telephone. If mailed by
first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by telegram, overnight mail or
courier service, such notice shall be deemed adequately delivered when the
telegram is delivered to the telegraph company or the notice is delivered to the
overnight mail or courier service company at least forty-eight hours before such
meeting. If by facsimile transmission, such notice shall be deemed adequately
delivered when the notice is transmitted at least twenty-four hours before such
meeting. If by telephone or by hand delivery, the notice shall be given at least
twenty-four hours prior to the time set for the meeting. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice of such meeting. A meeting
may be held at any time without notice if all the directors are present or if
those not present waive notice of the meeting in accordance with Section 3.11 of
these Bylaws.
3.8 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such 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 participation by such means shall constitute
presence in person at such meeting.
3.9 Quorum. A majority of the authorized number of directors shall
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided,
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however, that in no case shall less than one-third (1/3) of the number of
directors so fixed constitute a quorum.
3.10 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
3.11 Waiver of Notice. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such directors. All such waivers, consents,
and approvals shall be filed with the corporate records or made part of the
minutes of the meeting. A waiver of notice need not specify the purpose of any
regular or special meeting of the Board of Directors.
3.12 Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.13 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given unless the meeting is adjourned for more
than twenty-four (24) hours. If the meeting is adjourned for more than twenty
four (24) hours, then notice of the time and place of the adjourned meeting
shall be given before the adjourned meeting takes place, in the manner specified
in Section 3.7 of these Bylaws, to the directors who were not present at the
time of the adjournment.
3.14 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
3.15 Committees. The Board of Directors may, by resolution passed by a
majority of the authorized number of directors, 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 of the committee
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present at any meeting and not disqualified from voting, whether or not he, she
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 and subject to the provisions of the
General Corporation Law of the State of Delaware, 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 in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
matter expressly required by the General Corporation Law of the State of
Delaware to be submitted to stockholders for approval or (ii) adopting, amending
or repealing any of these Bylaws. Each such committee shall keep minutes and
make such reports as the Board of Directors may from time to time request.
Except as the Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of
Directors.
A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide. Notice of such meetings shall be given to each member of the committee
in the manner provided for in Section 3.7 of these Bylaws. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee.
3.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation of such
service. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.17 Approval of Loans to Officers. The corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiary, including any officer or
employee who is a director of the
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corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation.
ARTICLE 4 - Officers
4.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Chief Financial Officer and such other officers with
such other titles as the Board of Directors shall determine, including a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents and Assistant Secretaries. The Board of Directors may appoint, or may
empower the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board or Directors may from time to time determine.
4.2 Election. The officers of the corporation shall be elected by the
Board of Directors annually at each meeting following the annual meeting of
stockholders.
4.3 Qualification. The President need not be a director. No officer
need be a stockholder. Any two or more offices may be held by the same person.
4.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his or her earlier death,
resignation or removal.
4.5 Resignation and Removal. Any officer may resign by delivering his
or her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Subject to the rights, if any, of any officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the Board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
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4.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Chief
Financial Officer and Secretary. Each such successor shall hold office for the
unexpired term of his or her predecessor and until such successor is elected and
qualified, or until his or her earlier death, resignation or removal.
4.7 Chairman of the Board and Vice Chairman of the Board. If the Board
of Directors appoints a Chairman of the Board, he or she shall, when present,
preside at all meetings of the Board of Directors. He or she shall perform such
duties and possess such powers as are usually vested in the office of the
Chairman of the Board or as may be vested in him by the Board of Directors. If
the Board of Directors appoints a Vice Chairman of the Board, he or she shall,
in the absence or disability of the Chairman of the Board, perform the duties
and exercise the powers of the Chairman of the Board and shall perform such
other duties and possess such other powers as may from time to time be vested in
him by the Board of Directors.
4.8 President. The President shall be the chief operating officer of
the corporation. He or she shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors have general
supervision and control of the business of the corporation. Unless otherwise
provided by the directors, he or she shall preside at all meetings of the
stockholders and of the Board of Directors (except as provided in Section 4.7
above). The President shall perform such other duties and shall have such other
powers as the Board of Directors may from time to time prescribe.
4.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
4.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
Secretary including
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without limitation the duty and power to give notices of all meeting of
stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary. In the absence of
the Secretary or any Assistant Secretary at any meeting of stockholders or
directors, the person presiding at the meeting shall designate a temporary
secretary to keep a record of the meeting.
4.11 Chief Financial Officer. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors. He or she shall disburse the funds of
the corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
4.12 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the Board of Directors or
the stockholders.
4.13 Bonded Officers. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors
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may specify, including without limitation a bond for the faithful performance of
his or her duties and for the restoration to the corporation of all property in
such officer's possession or under such officer's control belonging to the
corporation.
4.14 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 5 - Capital Stock
5.1 Issuance of Stock. Unless otherwise voted by the stockholders (if
the power is provided to the stockholders in the Certificate of Incorporation),
the whole or any part of any unissued balance of the authorized capital stock or
the corporation or the whole or any part of any unissued balance of the
authorized capital stock of the corporation held in its treasury may be issued,
sold, transferred or otherwise disposed of by vote of the Board of Directors in
such manner, for such consideration and on such terms as the Board of Directors
may determine.
5.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Chief
Financial Officer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the 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 or she were such
officer, transfer agent or registrar at the date of issue.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of
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uncertified partly paid shares, the total amount of the consideration to be paid
therefor and the amount paid thereon shall be stated. Upon the declaration of
any dividend on fully paid shares, the corporation shall declare a dividend upon
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
5.3 Transfers. Subject to the restrictions, if any, stated or noted on
the stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these Bylaws.
5.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection or the corporation or any
transfer agent or registrar.
ARTICLE 6 - Indemnification
6.1 Indemnification or Directors, Officers, Employees and other Agents.
The corporation shall indemnify any and all persons it shall have power to
indemnify under the General Corporation Law of Delaware to the extent provided
in the Certificate of Incorporation.
6.2 Insurance. The corporation may purchase and maintain insurance on
behalf of 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 liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under
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the provisions of the General Corporation Law of Delaware.
6.3 Indemnification Contracts. The Board of Directors is authorized to
cause the corporation to enter into indemnification contracts with any director,
officer, employee or agent or the corporation or any person serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
employee benefit plans, providing indemnification rights to such person. Such
rights may be greater than those provided in this Article 6.
ARTICLE 7. General Provisions
7.1 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
7.2 Corporate Seal. The corporate seal shall be in such form
as shall be approved by the Board of Directors.
7.3 Execution of Instruments. The President shall have power to execute
and deliver on behalf and in the name of the corporation any instrument
requiring the signature of an officer of the corporation, except as otherwise
provided in these Bylaws, or where the execution and delivery of such an
instrument shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
7.4 Checks; Drafts; Evidences of Indebtedness. From time to time, the
Board of Directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
7.5 Record Date for Purposes Other than Notice and Voting. For purposes
of determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided by law.
If the Board of Directors does not so fix a record date, then
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the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the Board of Directors adopts the
applicable resolution or the sixtieth (60th) day before the date of that action,
whichever is later.
7.6 Voting of Securities. Except as the directors may otherwise
designate, the President, any Vice President, the Secretary or Chief Financial
Officer may waive notice of, and act as, or appoint any person or persons to act
as, proxy or attorney-in-fact for this corporation (with or without power of
substitution) at, any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
corporation.
7.7 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
7.8 Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the corporation and upon such information, opinions,
reports or statements presented to the corporation by any of the corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
7.9 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
These Bylaws are subject to the provisions of the Certificate of Incorporation
and applicable law.
7.10 Severability. Any determination that any provision of these Bylaws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
7.11 Certification and Inspection of Bylaws. The original or a copy of
these Bylaws, as amended or otherwise altered to date, certified by the
Secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the stockholders of the corporation, at all
reasonable times during office hours.
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ARTICLE 8 - Amendments
The Bylaws may be altered or amended or new Bylaws may be adopted by
the affirmative vote of sixty-six and two-thirds percent 66 2/3% of the voting
power of all of the then-outstanding shares entitled to vote. The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors in the Certificate of Incorporation, to adopt, amend or repeal the
Bylaws.
ARTICLE 9 - Dissolution
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
name of the corporation, the date dissolution was authorized, that the
dissolution was duly authorized under the General Corporation Law of the State
of Delaware, and the names and residences of the directors and officers. Such
certificate shall be executed, acknowledged, and filed and shall become
effective in accordance with Section 103 of the General Corporation law of
Delaware. Upon such certificate's being effective in accordance with Section 103
of the General Corporation Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent becoming effective in accordance
with Section 103 of the General Corporation Law of Delaware, the corporation
shall be dissolved. If the consent is signed by an attorney, then the original
power of attorney or a photocopy thereof shall be attached to and filed with the
consent. The consent filed with the Secretary of State shall have attached to it
the affidavit of the Secretary or some other officer of the corporation stating
that the consent has been signed by or on behalf of all the stockholders
entitled to vote on a dissolution; in addition, there shall be attached to the
consent a certification by the Secretary or some other officer of the
corporation setting forth the names and residences of the directors and officers
of the corporation.
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ARTICLE 10 - Custodian
10.1 Appointment of a Custodian in Certain Cases. The Court of
Chancery, upon application of any stockholder, may appoint one or more persons
to be custodians and, if the corporation is insolvent to be receivers, of and
for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors;
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the Board of Directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve liquidate or
distribute its assets.
10.2 Duties of Custodian. The custodian shall have all the
powers and title of a receiver appointed under Section 291 of the General
Corporation Law of Delaware, but the authority of the custodian shall be to
continue the business of the corporation and not to liquidate its affairs and
distribute its assets, except when the Court of Chancery otherwise orders and
except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General
Corporation Law of Delaware.
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<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER SHARES
- --------- ---------
CO INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------- ---------
-----------------------------------------------------------------------------------
OMNICORDER TECHNOLOGIES INC.
-----------------------------------------------------------------------------------
See Reverse for
Certain Definitions
TOTAL AUTHORIZED ISSUE 11,000,000 SHARES
10,000,000 SHARES PAR VALUE $.01 EACH 1,000,000 SHARES PAR VALUE $.01 EACH
COMMON STOCK AUTHORIZED PREFERRED STOCK AUTHORIZED,
ISSUABLE BY THE BOARD OF DIRECTORS,
FROM TIME TO TIME, IN ONE OR MORE SERIES
This is to Certify that _________________________SPECIMEN _________________ is the owner of
___________________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
OMNICORDER TECHNOLOGIES INC.
transferable on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized officers.
Dated
[SEAL]
- --------------------------------- -------------------------------
Secretary President
</TABLE>
<PAGE>
The following abbreviations when used in the inscription on the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ........ Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list
</TABLE>
For value received ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADRESS INCLUDING POSTAL ZIP CODE OF ASIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- -------------------------------------------------------------------- Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________ 19____
In presence of
__________________________________
________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10(ii)(a)
Confidential Treatment requested as to portions of this exhibit. These portions
filed separately with the Commission.
Caltech/OmniCorder Technologies, Inc.
License Agreement
This License Agreement is effective as of the 11th day of May, 1998
(the "Effective Date"), between California Institute of Technology, 1200 East
California Boulevard, Pasadena, CA 91125 ("Caltech") and OmniCorder
Technologies, Inc. ("OCT"), a Delaware Corporation, having a principal place of
business at 541 South Ocean Ave., Patchogue, NY 11772 ("Licensee").
WHEREAS, Caltech, through its Jet Propulsion Laboratory (JPL), has been
engaged in research on Quantum-Well Infrared Photodector Devices, that was
conducted for the United States Government under Contract NAS7-1260 between
Caltech and the U.S. National Aeronautics and Space Administration (NASA); and
WHEREAS, Caltech warrants that it controls and is the sole owner by
assignment of the inventions and software listed in Exhibit A attached hereto
(the "Inventions") and related patent rights, subject to certain rights of the
United States Government; and
WHEREAS, Licensee is a start-up company engaged in manufacture and sale
of products and services in the Field; and
WHEREAS, Licensee is desirous of obtaining, and Caltech wishes to grant
to Licensee, an exclusive license within the Field to Licensed Patent Rights and
a nonexclusive license to the Technology as defined in Paragraphs 1.4 and 1.5 of
this License Agreement.
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NOW, THEREFORE, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1 "Licensed Products" means any product, device or system which
is covered by, or is made by a process covered by, any valid claim of any
Licensed Patent Rights, or which utilizes the Technology.
1.2 "Licensed Services" means the provision of diagnostic or
screening services utilizing the Licensed Products or which utilizes the
Technology.
1.3 "Deductible Expenses" means the following items of expense
incurred in connection with sales of Licensed Products to the extent paid or
allowed by Licensee or a Related Company and included in accordance with
recognized principles of accounting in the gross sales price billed: (a) sales,
use or turnover taxes; (b) excise taxes, custom duties or consular fees; (c)
transportation, freight, and handling charges, and insurance on shipments to
customers; (d) trade, cash or quantity discounts or rebates to the extent
actually granted; (e) agent fees or commissions; (f) rebates, refunds, and
credits for any rejected or returned Licensed Products or because of retroactive
price reductions, rebates or chargebacks; and (g) uncollected accounts
receivable attributable to sales of Licensed Products.
1.4 "Related Company" means any corporation, limited liability
company or other legal entity directly or indirectly controlled by, or
controlling, or under common control with Licensee or its successors or assigns,
or any successor or assign of such an entity.
1.5 "Licensed Patent Rights" means worldwide rights to the
inventions described and claimed in the patents, patent applications and
invention disclosures listed in Exhibit A attached hereto; any patents which
issue on the applications or disclosures listed in Exhibit A; reissues,
reexaminations, renewals, extensions, divisionals, continuations, and
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continuations-in-part of the foregoing; and any foreign counterparts and any
other forms of protection directed to the inventions covered by the patents,
applications and invention disclosures listed in Exhibit A.
1.6 "Technology" means all documented proprietary information, to
include procedures and techniques (know-how), methods, prototypes, samples,
designs, technical data, drawings and reports owned by Caltech / JPL that may be
useful in the efficient and effective development of Licensed Products and
Licensed Services and which directly relate to the Licensed Patent Rights, but
which are not the subject of the Licensed Patent Rights and which are readily
available from the laboratory of Dr. Sarath D. Gunapala at JPL and provided in a
mutually agreeable form during the period of prosecution of Licensed Patent
Rights. Inventions which are the subject of applications for patents listed in
Exhibit A and which do not issue into patents or Licensed Products which do not
infringe a Valid Claim of Licensed Patent Rights shall be considered to be
Technology.
1.7 "Field" means detection of passively emitted infrared flux or
induced fluorescence from tissue, organs or organ systems for the generation of
images of temperature, emissivity, fluorescence or the modulation of regional
tempeature for commercial medical and veterinary diagnostic applications,
including related commercial devices for research, clinical trials and forensic
applications.
1.8 "Net Revenues" means the aggregate amount received by Licensee
and Related Companies from the sale to unrelated third parties of Licensed
Products or Licensed Services, less Deductible Expenses.
1.9 "Combination Product" means any Licensed Product or Licensed
Services sold in combination with a second discrete product containing one or
more active ingredients or components which are not Licensed Products or
Licensed Services.
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1.10 "Valid Claim" means the claims of issued patents and patent
applications within the Licensed Patent Rights.
1.11 "Sublicensing" means a grant of permission by Licensee to any
third party or entity (not a Related Company) to exploit Licensed Patent Rights
or Technology for applications for which Licensee is not directly engaged in
offering Licensed Products or Licensed Services.
ARTICLE 2. PATENT LICENSE GRANT
2.1 Caltech hereby grants to Licensee:
(a) a worldwide, exclusive royalty-bearing license within the Field
under Licensed Patent Rights to make, have made, import, have
imported, sublicense, have sublicensed, use, have used, sell, and
have sold Licensed Products and Licensed Services; and
(b) a worldwide, nonexclusive royalty-bearing license to the
Technology for the development of Licensed Products and Caltech
agrees that it will not provide any third party rights to
Technology that would allow such third party to commercially
develop Licensed Products in a jurisdiction for which licensee is
paying royalties under 3.2.b.
This license is subject to:
(a) the reservation of Caltech / JPL's right to make, have made,
and use Licensed Products for noncommercial educational and
research purposes, but not for sale or other distribution to third
parties; and
(b) the rights of the U.S. Government under Title 35, United States
Code, Sections 203-204, including but not limited to the grant to
the U.S. Government of a nonexclusive, nontransferable,
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irrevocable, paid-up license to practice or have practiced any
invention conceived or first actually reduced to practice in the
performance of work for or on behalf of the U.S. Government
throughout the world.
This license is not transferable by Licensee except as provided in Paragraph
14.4, but Licensee shall have the right to grant nonexclusive or exclusive
Sublicenses hereunder, provided that:
(a) Licensee shall include all its Sublicensing income in
Licensee's reports to Caltech, as provided in Paragraph 7.2, and
Licensee shall pay royalties thereon to Caltech pursuant to
Paragraph 3.1; and
(b) Licensee shall furnish Caltech within thirty (30) days of the
execution thereof, a true and complete copy of each Sublicense and
any changes or additions thereto.
2.2 The grant of Licensed Patent Rights shall continue, unless
sooner terminated in accordance with the provisions of this Agreement, until the
last of the patents of the Licensed Patent Rights expires. After the last of the
patents of the Licensed Patent Rights expires, Licensee shall retain a paid-up
royalty-free nonexclusive license to the Technology.
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ARTICLE 3. ROYALTIES
3.1 In countries where manufacture, sale, or use of Licensed
Products or the conduct of services is covered by a patent or patent application
and Licensed Products or Licensed Services are manufactured and sold by or for
Licensee or a Related Company, Licensee shall pay Caltech a royalty of:
(a) Omitted. Filed separately with the Commission. Net Revenues
from the sale of Licensed Products or Licensed Services by
Licensee or Related Company, but this shall not apply to revenues
derived from Sublicenses; and
(b) Omitted. Filed separately with the Commission. of the
royalties or other revenues Licensee or Related Company receives
from Sublicenses other than from Related Companies for the sale
of Licensed Products or Licensed Services. Such royalties or
other revenues specifically shall not include (a) payments made
by a Sublicensee in consideration of equity or debt securities of
Licensee; (b) payments made by a Sublicensee to support research
activities to be undertaken by Licensee; (c) payments made upon
the achievement by Licensee and Related Company of specified
milestones or benchmarks relating to the development of Licensed
Products; (d) pilot studies; (e) performance-based milestones;
(f) the license or Sublicense of any intellectual property other
than Technology; (g) reimbursement for patent or other expenses,
or (h) the exclusive or nonexclusive regional license from
Licensee to health care providers for the application of clinical
screening and/or diagnosis, utilizing Licensee's proprietary
technology alone or in combination with a Licensed Product or
Licensed Service.
3.2 In countries where manufacture, sale, or use of Licensed
Products or Licensed Services is not covered by a patent or patent application
but the Licensed Patent Rights or Technology is utilized and Licensed Products
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<PAGE>
are manufactured and sold by or for Licensee or a Related Company prior to
expiration of any directly related patent, Licensee shall pay Caltech:
(a) Omitted. Filed separately with the Commission. of Net
Revenues from the sale of Licensed Products or Licensed Services
by Licensee or Related Company, but this shall not apply to
revenues derived from Sublicenses; and
(b) Omitted. Filed separately with the Commission. of the
royalties or other revenues Licensee or Related Company received
from Sublicensees other than related companies for the sale of
Licensed Products or Licensed Services. Such royalties or other
revenues specifically shall not include (a) payments made by a
Sublicensee in consideration of equity or debt securities of
Licensee; (b) payments made by a Sublicensee to support research
activities to be undertaken by Licensee or Related Company; (c)
payments made upon the achievement by Licensee or Related Company
of specified milestones or benchmarks relating to the development
of Licensed Products; (d) pilot studies; (e) performance-based
milestones; (f) the license or Sublicense of any intellectual
property other than Licensed Patent Rights or Technology; (g)
reimbursement for patent or other expenses, or (h) the exclusive
or nonexclusive regional license from Licensee to health care
providers for the application of clinical screening and/or
diagnosis, utilizing Licensee's proprietary technology alone or
in combination with Licensed Products or Licensed Services.
3.3 In the event that products are sold in the form of Combination
Products containing one or more active ingredients or components, other than
Licensed Products, Net Revenues for such Combination Products will be calculated
on a worldwide basis by multiplying actual net sales of such combination
products by the fraction A/(A+B) where A is the average invoice price during the
period of the Licensed Product when sold separately, and B is the average
invoice price of any other active component or components in the combination
when sold separately by Licensee, a Related Company, or a Sublicensee. If the
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active component(s) in the combination that are not Licensed Products are not
sold separately by Licensee, a Related Company, or a Sublicensee, Net Sales
shall be calculated by multiplying actual net sales of such Combination Products
by the fraction A/C where A is the average invoice price of the Licensed Product
when sold separately and C is the average invoice price of the combination
product. If neither the Licensed Product nor the Combination Product is sold
separately by Licensee, a Related Company, or a Sublicensee, Net Revenues shall
be calculated as above except that A shall be the total manufacturing cost of
Licensed Product and C shall be the total manufacturing cost of the combination.
3.4 If, in any one year period commencing on an anniversary date
of this Agreement after January 31, 1999, Licensee does not pay a minimum of
$10,000.00 in royalties under Paragraphs 3.1 and 3.2, or pay any higher amounts
due thereunder, Caltech shall have the right to terminate this Agreement under
Article 10.1.
3.5 If Licensee or a Related Company is required to make any
payment (including, but not limited to, royalties or other license fees) to one
or more third parties to obtain a license or similar right in the absence of
which it could not legally make, import, use or sell Licensed Products or
Licensed Services in any country, and Licensee provides Caltech with reasonably
satisfactory evidence for such requirement, such third-party payments shall be
fully creditable against royalties owed to Caltech hereunder, provided that in
no one year shall such expenses be credited against more than twenty-five
percent (25%) of royalty payments to Caltech. Any excess such expenses for any
one year may be carried over and creditable against royalties owed in future
years.
3.6 Notwithstanding the provisions of this Article 3, no royalty
shall be payable to Caltech with respect to any sales of Licensed Products or
Licensed Services to the United States Government, or sales made solely to
permit the United States Government to practice or have practiced or use on its
behalf any invention or process covered by Licensed Patent Rights.
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3.7 For the purpose of determining royalties payable under this
Agreement, any royalties or other revenues Licensee receives from Sublicensees
in currencies other than U.S. dollars and any Net Revenues denominated in
currencies other than U.S. dollars shall be converted into U.S. dollars
according to Licensee's reasonable standard internal conversion procedures,
including Licensee's standard internal rates and conversion schedule.
3.8 Any Sublicenses granted by Licensee under the Licensed Patent
Rights shall remain in effect and be assigned to Caltech in the event this
license terminates pursuant to Article 9. Caltech shall assume all the rights
and obligations of Licensee.
ARTICLE 4. LICENSEE EQUITY INTEREST
4.1 Licensee agrees to issue to CALTECH, in consideration of
Licensee's receipt of the intangible property rights granted under this
Agreement, an equity interest in Licensee, or a Related Company that will
develop and sell Licensed Products or Licensed Services, equal to four percent
(4%) of the total equity interest issued upon the initial organization of such
company (prior to any investment by a third party), provided further that said
equity interest shall only vest to Caltech as to the following schedule: 50%
within 30 days of Effective Date; 25% within one year of Effective Date; 25%
within two years of Effective Date. If Licensee terminates this Agreement prior
to the vesting of any installment as specified above, Caltech shall not be
entitled to such interest.
4.2 Caltech agrees that, in the event of any underwritten or public
offering of securities of Licensee or a related company, Caltech shall comply
with and agree to any reasonable restriction on the transfer of equity interest,
or any part thereof, imposed by an underwriter, and shall perform all acts and
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sign all necessary documents required with respect thereto. The provisions of
this Paragraph 4.2 shall survive termination of this Agreement.
ARTICLE 5. DUE DILIGENCE
5.1 Licensee shall have discretion over the commercialization of
Licensed Products and Licensed Services. However, Licensee agrees to use all
reasonable commercial efforts to introduce commercial Licensed Product(s) and
Licensed Services in the United States as soon as practical, consistent with
sound and reasonable business practices and judgments. Licensee shall be deemed
to have satisfied its obligations under this Paragraph if Licensee has an
ongoing and active research program or marketing program, as appropriate,
directed toward production and use of Licensed Products or Licensed Services for
applications in the Field. If Licensee markets products or services utilizing
infrared detection technology other than that covered by Licensed Products for
any application in the Field, then this License shall be reduced to nonexclusive
for such specific application under Paragraph 5.3 of this Agreement. Licensee
agrees to make a good faith effort to Sublicense for any application in the
Field not being commercialized by it. Any such efforts of Licensee's
Sublicensees shall be considered efforts of Licensee for the sole purpose of
determining Licensee's compliance with its obligation under this Paragraph.
5.2 After the first year from the Effective Date, Caltech shall
have the right, no more often than twice each year, to require Licensee to
report to Caltech in writing on its progress in introducing commercial Licensed
Products and Licensed Services in the United States and foreign jurisdictions in
which Licensee has rights to Licensed Patents or Technology.
5.3 Omitted Filed Separately with the Commission.
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ARTICLE 6. INFRINGEMENT BY THIRD PARTY
6.1 Caltech shall protect the Licensed Patent Rights from
infringement and prosecute infringers when, in its sole reasonable judgment,
such action may be reasonably necessary, proper and justified. Notwithstanding
the foregoing, Licensee shall have the right to Sublicense any alleged infringer
pursuant to Paragraph 2.1.
6.2 If Licensee shall have supplied Caltech with evidence of
infringement of Licensed Patent Rights by a third party, Licensee may by notice
request Caltech to take steps to enforce the Licensed Patent Rights. If Licensee
does so, and Caltech does not, within fifteen (15) days of the receipt of such
notice, either (a) cause the infringement to terminate or (b) initiate a legal
action against the infringer, Licensee may, upon notice to Caltech, initiate an
action against the infringer at Licensee's expense, either in Licensee's name or
in Caltech's name if so required by law.
6.3 If a declaratory judgment action alleging invalidity,
unenforceability or infringement of any of the Licensed Patent Rights is brought
against Licensee and/or Caltech, Caltech shall defend same in accordance with
Section 6.1. Licensee shall have sole control of the action if Licensee agrees
to bear all the costs of the action subject to Article 6.8.
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6.4 In the event one party shall carry on a legal action pursuant
to Paragraphs 6.1, 6.2 or 6.3, the other party shall fully cooperate with and
supply all assistance reasonably requested by the party carrying on such action,
including by using its best efforts to have its employees testify when requested
and to make available relevant records, papers, information, samples, specimens,
and the like. A party controlling an action pursuant to Paragraphs 6.2 or 6.3
shall bear the reasonable expenses incurred by said other party in providing
such assistance and cooperation as is requested pursuant to this Paragraph. A
party carrying on such an action shall keep the other party informed of the
progress of such action, and said other party shall be entitled to be
represented by counsel in connection with such action at its own expense. To the
extent not reimbursed by Caltech, Licensee's reasonable and customary expenses
for such action (including attorneys' fees) shall be fully creditable against
royalties owed to Caltech hereunder, provided that in no one year shall such
expenses be credited against more than fifty percent (50%) of royalty payments
to Caltech. Any excess such expenses may be carried over and credited against
royalties owed in future years.
6.5 The party controlling any action referred to in this Article 6
shall have the right to settle any claims, but only upon terms and conditions
that are reasonably acceptable to the other party. Should either party elect to
abandon such an action other than pursuant to a settlement with the alleged
infringer that is reasonably acceptable to the other party, the party
controlling the action shall give timely notice to the other party who, if it so
desires, may continue the action; provided, however, that the sharing of
expenses and any recovery in such suit shall be as agreed upon between the
parties.
6.6 Any amounts paid to a party by third parties as the result of
such an action (such as in satisfaction of a judgment or pursuant to a
settlement) shall first be applied to reimbursement of the unreimbursed expenses
(including attorneys' fees) incurred by either party and then to the payment to
Caltech of any royalties against which were credited expenses of the action in
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accordance with Paragraph 6.4. Any remainder shall be divided between the
parties as follows:
(a) To the extent the amount recovered reflects lost profits of
Licensee, Licensee shall retain the remainder, less the amount of
any royalties that would have been due Caltech on sales of Licensed
Product lost by Licensee as a result of the infringement had
Licensee made such sales, provided that Licensee shall in any event
retain at least seventy percent (70%) of the remainder; and
(b) Caltech shall receive an amount equal to the royalties it would
have received if such sales had been made by Licensee, provided
such amount shall in no event exceed thirty percent (30%) of the
remainder; or
(c) to the extent the amount recovered does not reflect lost
profits, seventy percent (70%) shall be paid to the party
initiating the action and thirty percent (30%) to the other party.
6.7 If an infringement or infringements by third parties of
Licensed Patent Rights is on a scale that significantly affects sales of
Licensed Products, and neither Caltech nor Licensee elect to bring an
infringement suit against the infringers, the royalties hereunder payable by
Licensee pursuant to Article III shall be reduced by twenty-five percent (25%)
of the sums otherwise payable if Licensee presents information to Caltech that
such infringer has refused to enter into a royalty-bearing, Sublicensing
agreement with Licensee on terms reasonably acceptable to Licensee.
6.8 The allowed reductions set forth in Paragraphs 6.4 and 6.7
shall not exceed, in the aggregate, twenty-five percent (25%) of the sums
otherwise payable during any year. Any excess such expenses for any year may be
carried over and creditable against royalties owed in future years.
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ARTICLE 7. BENEFITS OF LITIGATION, EXPIRATION OR ABANDONMENT
7.1 General. In a case where one or more patents or particular
claims thereof within the Licensed Patent Rights expire, or are abandoned, or
are declared invalid or unenforceable or otherwise construed by a court of last
resort or by a lower court from whose decree no appeal is taken, or certiorari
is not granted within the period allowed therefor, then the effect thereof
hereunder shall be:
(a) that such patents or particular claims shall, as of the date of
expiration or abandonment or final decision as the case may be,
cease to be included within the Licensed Patent Rights for the
purpose of this Agreement; and
(b) that such construction so placed upon the Licensed Patent
Rights by the court shall be followed from and after the date of
entry of the decision, and royalties shall thereafter be payable by
Licensee only in accordance with such construction; and
(c) in the event that Licensee challenges the validity of Licensed
Patent Rights, Licensee may not cease paying royalties as of the
date validity of the claims in issue are challenged, but rather may
cease paying royalties as to those claims only after a final
adjudication of invalidity of those claims.
7.2 Adjustment. In the event that any of the contingencies provided
for in Paragraph 7.1 occurs, Caltech agrees to renegotiate in good faith with
Licensee a reasonable royalty rate under the remaining Licensed Patent Rights
which are unexpired and in effect and under which Licensee desires to retain a
License.
ARTICLE 8. RECORDS, REPORTS AND PAYMENTS
8.1 Licensee shall keep records and books of account in respect of
all Licensed Products and conduct of services made and sold by Licensee or
Related Companies under this Agreement and of royalties or other revenues
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Licensee receives from Sublicensees other than Related Companies for the sale of
Licensed Products and Licensed Services. Caltech shall have the right, during
business hours, no more often than annually, to examine, or to have its
designated auditors examine, such records and books provided Caltech gives
Licensee five (5) business days notice. Licensee shall keep the same for at
least three (3) years after it pays Caltech the royalties due for such Licensed
Products and require Related Companies to do the same. Caltech shall not
disclose to any third party any confidential information learned through an
examination of such records and books, nor shall Caltech use any such
information for any purpose other than determining and enforcing its rights
under this Agreement.
8.2 On or before the last day of each February and August for so
long as royalties are payable under this Agreement, Licensee shall render to
Caltech a report in writing, setting forth the number of units of Licensed
Products manufactured and the number of units sold or services delivered during
the preceding semiannual period by Licensee and Related Companies, and the
royalties or other revenues Licensee received from Sublicensees other than
Related Companies during the preceding semiannual period for the sale of
Licensed Products. Each such report shall also set forth an explanation of the
calculation of the royalties payable hereunder and be accompanied by payment of
the royalties shown by said report to be due Caltech. Notwithstanding foregoing,
if (a) Caltech materially breaches this Agreement, and (b) Licensee gives
Caltech written notice of the breach, and (c) Caltech has not cured the breach
by the time a payment is due under this Paragraph, then Licensee may make the
required payment into an interest bearing escrow account to be released when the
breach is cured, less any damages that may be payable to Licensee by virtue of
Caltech's breach.
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ARTICLE 9. PAYMENT OF PATENT COSTS
9.1 Licensee shall, in connection with the preparation, filing, and
prosecution, issuance and maintenance of the Licensed Patent Rights in the
United States:
(a) pay fifty percent (50%) of all attorney fees accrued both prior
to and subsequent to the Effective Date for services performed to
obtain the issuance of the Licensed Patent Rights, and all patent
and government fees for services performed after the issuance of
Licensed Patent Rights; and
(b) pay fifty percent (50%) of all Patent Office maintenance fees.
9.2 Licensee shall, in connection with the preparation, filing,
prosecution, issuance and maintenance of the Licensed Patent Rights in foreign
jurisdictions where Licensee has requested in writing that Caltech apply for,
prosecute or maintain any Licensed Patent Rights:
(a) pay one hundred percent (100%) of all attorney fees accrued
both prior to and subsequent to the Effective Date for services
performed to obtain the issuance of the Licensed Patent Rights, and
all patent and government fees for services performed after the
issuance of Licensed Patent Rights; and
(b) reimburse 100% of all Patent Office maintenance fees;
provided that Licensee shall not be required to reimburse such amounts to the
extent that Caltech has the right to seek reimbursement of such amounts from any
other licensee of the Licensed Patent Rights; and further provided that for each
foreign jurisdiction for which Licensee reimburses any amounts under this
Paragraph 9.2 , Licensee shall receive a credit equal to the full amount of such
reimbursement toward any amounts payable under Article 3 for the sale of
Licensed Products or Licensed Services in that jurisdiction.
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9.3 Payment shall be made to Caltech within thirty (30) days
following receipt by Licensee from Caltech of (a) an invoice covering such fees
and (b) reasonably satisfactory evidence that such fees were paid. To the extent
that Licensee terminates this Agreement pursuant to Paragraph 10.2, Licensee
shall have no further liability under Paragraph 9.1 for fees relating to
applications or patents affected by the termination.
9.4 Caltech shall have the right to apply for, prosecute and
maintain during the term of this Agreement the Licensed Patent Rights and other
rights conferred pursuant to Paragraph 2.1 of this Agreement. The application
filings, prosecution, maintenance and payment of all fees and expenses,
including legal fees, relating to such Licensed Patent Rights shall be the
responsibility of Caltech, provided that Licensee shall reimburse Caltech for
all reasonable fees and expenses, including reasonable legal fees, incurred in
such application filings, prosecution and maintenance under Paragraphs 9.1 and
9.2 of this Agreement. Patent attorneys chosen by Caltech shall handle all
patent filings and prosecutions on behalf of Caltech, provided, however,
Licensee shall be entitled to review and comment upon and approve all actions
undertaken in the prosecution of all patents and applications. If Caltech elects
not to continue the prosecution of any of the Licensed Patent Rights, it shall
so inform Licensee who shall have the right to continue such prosecution at its
own expense. Caltech shall cooperate with Licensee and grant the necessary
parties of appointment to enable Licensee to continue such prosecution.
ARTICLE 10. TERMINATION
10.1 Caltech shall have the right to terminate this Agreement if
Licensee fails to make any payment due hereunder and Licensee continues to fail
to make the payment, either to Caltech directly or by placing any disputed
amount into an interest bearing escrow account to be released when the dispute
is resolved, for a period of sixty (60) days after receiving notice from Caltech
specifying Licensee's failure. Upon any such termination, (a) Licensee and
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Related Companies shall have six (6) months to complete the manufacture of any
Licensed Products that then are work in progress and to sell their inventory of
Licensed Products, provided Licensee pays the applicable royalties in accordance
with Paragraph 8.2, and (b) Caltech shall accept an assignment by Licensee of
any Sublicenses granted by Licensee to entities other than Related Companies,
and any Sublicense so assigned shall remain in full force and effect.
10.2 Licensee shall have the right to terminate this Agreement
either in its entirety or as to any jurisdiction or any part of the Licensed
Patent Rights upon sixty (60) days written notice. If Licensee does so, it shall
submit all required reports and make all required payments in accordance with
Paragraph 8.2.
10.3 No termination of this Agreement shall relieve Licensee of the
liability for payment of any royalty due for Licensed Products or Licensed
Services made prior to the effective date of such termination.
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ARTICLE 11. WARRANTIES AND NEGATION OF WARRANTIES, IMPLIED LICENSES AND AGENCY
11.1 Caltech represents and warrants that it owns all right, title
and interest in and to the Licensed Patent Rights, subject to the license and
march-in rights of the United States Government under Title 35, United States
Code, Sections 203-204.
11.2 Caltech represents and warrants that it has complied with all
of its obligations under Contract NAS7-1260, such as those described in Title
35, United States Code, Section 202, with respect to all of the Licensed Patent
Rights.
11.3 Caltech represents and warrants that it has not granted any
right or interest in any of the Licensed Patent Rights that is inconsistent with
the rights granted to Licensee herein.
11.4 Nothing in this Agreement shall be construed as:
(a) a representation or warranty of Caltech as to the validity or
scope of Licensed Patent Rights or any claim thereof; or
(b) a representation or warranty that any Licensed Product or
Licensed Service is or will be free from infringement of rights of
third parties (except to the extent that Paragraph 11.3 constitutes
a representation and warranty that Licensed Products will not
infringe rights of third parties in the Licensed Patent Rights); or
(c) an obligation to bring or prosecute actions or suits against
third parties for infringement.
11.5 Caltech MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO
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RESPONSIBILITIES WHATEVER WITH RESPECT TO THE USE, SALE, OR OTHER DISPOSITION BY
Licensee OF LICENSED PRODUCT(S).
11.6 Caltech and Licensee are independent parties in this
Agreement. Accordingly, there is no agency relationship between Caltech and
Licensee under this Agreement with respect to any products made or sold, or any
methods used, by Licensee under this Agreement.
ARTICLE 12. ARBITRATION
12.1 Any controversy or claim arising out of or related to this
Agreement, or the breach thereof, shall be settled by arbitration in Los
Angeles, California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
ARTICLE 13. PRODUCT LIABILITY
13.1 Licensee agrees that Caltech shall have no liability to
Licensee or to any purchasers or users of Licensed Products or Licensed Services
made, sold or provided by Licensee for any claims, demands, losses, costs, or
damages suffered by Licensee, or purchasers or users of Licensed Products and
services, or any other party, which may result from personal injury, death, or
property damage related to the manufacture, use, or sale of such Licensed
Products and services ("Claims"). Licensee agrees to defend, indemnify, and hold
harmless Caltech, its trustees, officers, agents, and employees from any such
Claims, demands, losses, costs or damages.
13.2 At such time as Licensee begins to sell or distribute Licensed
Products (other than for the purpose of obtaining regulatory approvals) or
conduct services, Licensee shall at its sole expense, procure and maintain
policies of comprehensive general liability insurance in amounts not less than
$2,000,000 per incident and $2,000,000 in annual aggregate and naming those
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indemnified under Paragraph 13.1 as additional insureds. Such comprehensive
general liability insurance shall provide (a) product liability coverage and (b)
broad form contractual liability coverage for Licensee's indemnification under
Paragraph 13.1. In the event the aforesaid product liability coverage does not
provide for occurrence liability, Licensee shall maintain such comprehensive
general liability insurance for a reasonable period of not less than five (5)
years after it has ceased commercial distribution or use of any Licensed Product
or the conduct of services.
13.3 Licensee shall provide Caltech with written evidence of such
insurance upon request of Caltech. Licensee shall provide Caltech with notice at
least fifteen (15) days prior to any cancellation, non-renewal or material
change in such insurance, to the extent Licensee receives advance notice of such
matters from its insurer. If Licensee does not obtain replacement insurance
providing comparable coverage within sixty (60) days following the date of such
cancellation, non-renewal or material change, Caltech shall have the right to
terminate this Agreement effective at the end of such sixty (60) day period
without any additional waiting period; provided that if Licensee uses reasonable
efforts but is unable to obtain the required insurance at commercially
reasonable rates, Caltech shall not have the right to terminate this Agreement,
and Caltech instead shall cooperate with Licensee to either grant a waiver of
Licensee's obligations under this Article or assist Licensee in identifying a
carrier to provide such insurance or in developing a program for self-insurance
or other alternative measures. This Article 13 shall survive the expiration or
termination of this Agreement.
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ARTICLE 14. MISCELLANEOUS
14.1 Licensee agrees that it shall not use the name of Caltech, or
California Institute of Technology, JPL or Jet Propulsion Laboratory, in any
advertising or publicity material, or make any form of representation or
statement which would constitute an express or implied endorsement by Caltech of
any Licensed Product, and that it shall not authorize others to do so, without
first having obtained written approval from Caltech.
14.2 Licensee agrees to mark the appropriate U.S. patent number or
numbers on all Licensed Products made or sold in the United States, and to
require its Sublicensees to do the same.
14.3 Licensee has the right to disclose that it has an exclusive
License in the Field from Caltech to Licensed Patents (as designated by Caltech
Case Numbers, Patent Titles and Filing Dates for pending patent applications) to
prospective joint venture partners, investors, sublicensees, healthcare provider
companies, and appropriate managers and executives of prospective customers for
Licensed Products and Licensed Services. Licensee agrees to accept all other
information regarding the License Agreement as "Confidential Information" under
the Mutual Confidential Disclosure Agreement of March 5, 1997 and attached to
the License Agreement as Exhibit B.
14.4 This Agreement and the Mutual Confidential Disclosure
Agreement sets forth the complete agreement of the parties concerning the
subject mater hereof. No claimed oral agreement in respect thereto shall be
considered as any part hereof. No waiver of or change in any of the terms hereof
subsequent to the execution hereof claimed to have been made by any
representative of either party shall have any force or effect unless in writing,
signed by duly authorized representatives of the parties.
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14.5 This Agreement shall be binding upon and inure to the benefit
of any successor or assignee of Caltech. This Agreement is not assignable by
Licensee without the prior written consent of Caltech, except that without the
prior written consent of Caltech, any Related Company, or any successor of, or
purchaser of a substantial part of the assets of the business to which this
Agreement pertains, may be assigned and receive the benefits of this Agreement.
Any permitted assignee shall succeed to all of the rights and obligations of
Licensee under this Agreement.
14.6 Licensee agrees that any Licensed Products sold in the United
States by Licensee or its Sublicensees shall be manufactured substantially in
the United States.
14.7 This Agreement is subject in all respects to the laws and
regulations of the United States of America, including the Export Administration
Act of 1979, as amended, and any regulations thereunder.
14.8 This Agreement shall be deemed to have been entered into in
California and shall be construed and enforced in accordance with California
law.
14.9 Any notice or communication required or permitted to be given
or made under this Agreement shall be addressed as follows:
Caltech: Office of Technology Transfer
California Institute of Technology
1200 East California Boulevard (MC 210-85)
Pasadena, California 91125
Facsimile No. (626) 356-2486
Telephone No. (626) 395-3288
E-Mail ([email protected])
Licensee: OmniCorder Technologies, Inc.
541 South Ocean Avenue
Patchogue, NY 11772
Facsimile No. (516) 444-8825
Telephone No. (516) 444-6499
E-Mail ([email protected])
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Either party may notify the other in writing of a change of address or telephone
numbers, in which event any subsequent communication relative to this Agreement
shall be sent to the last said notified address or number. All notices and
communications relating to this Agreement shall be deemed to have been given
when received. This agreement may be executed in counterparts, each of which
shall constitute an original and together, as single binding instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed:
CALIFORNIA INSTITUTE OF TECHNOLOGY (Caltech)
By: /s/ Lawrence Gilbert
- -------------------------------------------
Name: Lawrence Gilbert
Title: Director, Office of Technology Transfer
Date: June 24, 1998
- -------------------------------------------
OMNICORDER TECHNOLOGIES, INC. (Licensee)
By: /s/ Mark A. Fauci
- -------------------------------------------
Name: Mark A. Fauci
Title: President, Chief Executive Officer
Date: June 24, 1998
- -------------------------------------------
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EXHIBIT A
Omitted. Filed separately with the Commission.
<PAGE>
Exhibit 10(iii)
Confidential Treatment requested as to portions of this exhibit. These portions
filed separately with the Commission.
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (hereinafter "Agreement") is entered
into by and between Lockheed Martin Corporation a Delaware corporation acting
through its Vought Systems (the "LICENSOR"), having its principal place of
business at PO Box 650003, Dallas, Texas and OmniCorder Technologies, Inc. (the
"LICENSEE"), a corporation organized under the laws of Delaware and having a
principal place of business at 25 Loop Road, Stony Brook, New York 11790 as of
the 29 day of September 1998 (hereinafter "Effective Date").
WITNESSETH:
WHEREAS, the LICENSOR is the owner of the Subject Technology as defined
below; and
WHEREAS, the LICENSOR is willing to grant to the LICENSEE a royalty
bearing, worldwide, exclusive license to practice the Subject Technology in
certain Fields as defined below on the terms, and subject to the conditions, set
forth herein; and
WHEREAS, LICENSEE desires to obtain said exclusive license to practice
the Subject Technology on said terms and conditions.
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto expressly agree as follows:
1. DEFINITIONS AS USED HEREIN
1.1 "Subject Technology" shall mean the technology, know-how, methods,
inventions and confidential information related to LICENSOR's Enhanced Quantum
Well Infrared Photodetectors (EQWIPs) which were designed, developed and
invented by LICENSOR as of the Effective Date. The term Subject Technology shall
include U.S. Patent Number 5,539,206 entitled "Enhanced Quantum Well Infrared
Photodetector" by Thomas R. Schimert issued July 23, 1996, and all inventions
described or claimed therein, together with all patent, or like protection on
said inventions that have or may in the future be granted, whether in the United
States of America or any other country, and all substitutions for and divisions,
continuations, continuations-in-part, renewals, reissues, extensions and the
like on said applications and patents. The term Subject Technology shall also
include any improvement technology, know-how, methods, inventions, patent
applications, patents and maskworks made or obtained by LICENSOR in connection
with the EQWIPs, their materials or structure, LICENSOR's ongoing Advanced EQWIP
Project and any LICENSOR follow-on Projects thereto, so long as this Agreement
is in full force and effect. Subject Technology shall not include any
technology, know-how, methods, inventions, patent applications, patents,
maskworks or confidential information developed by any division, subsidiary or
Affiliate of Lockheed Martin Corporation other than Vought Systems.
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1.2 "Licensed Products" shall mean and be limited to biomedical equipment that
incorporates or is intended to incorporate one or more EQWIPs or Advanced
EQWIPs, or that in any manner or to any extent incorporates or is intended to
incorporate, utilizes, or is made by the practice of, any of the Subject
Technology or any technology derived from or based upon any of the Subject
Technology, or that is covered in whole or in part by any patent, maskwork or
equivalent protection that is or becomes part of the Subject Technology, whether
or not the equipment is delivered or sold assembled or in kit form.
1.3 "Field" shall mean and be limited to biomedical applications of the Subject
Technology.
1.4 "The Parties" shall mean the LICENSEE and the LICENSOR.
1.5 "Affiliate" shall mean any corporation, partnership, joint venture, or other
entity controlled by, controlling or under common control with a Party. Control
means fifty one percent (51%) or more stock or other equity ownership.
1.6 "QED" shall mean Quantum Epitaxial Designs, Inc., having a place of business
at 119 Technology Drive, Bethlehem, PA 18015.
1.7 "Net Sales Revenue" shall mean the gross amount of monies (or the cash
equivalent of other than cash consideration) actually received by LICENSEE for
any Licensed Products that are sold to End-users, less any, credits and
allowances actually granted on account of rejections, returns or billing errors
and any transportation, shipping insurance, duties or taxes (other than federal
and state income taxes) actually paid. If the compensation is other than cash,
then the Net Sales Revenue shall be the cash equivalent of such other than cash
compensation.
1.8 "Sublicensee" shall mean a biomedical equipment manufacturer in which
LICENSEE has no financial or management interest, that is licensed by LICENSEE
pursuant to this Agreement to perform any of the rights and licenses granted to
LICENSEE in Paragraph 2.1 for which LICENSEE directly or indirectly receives
compensation.
1.9 "Sublicense" shall mean an agreement entered into by LICENSEE and a
Sublicensee which permits such Sublicensee to perform any of the rights or
licenses granted to LICENSEE in Paragraph 2.1 for which LICENSEE directly or
indirectly receives compensation.
1.10 "Sublicensing Revenue" shall mean all fees, royalties and other
compensation paid to LICENSEE by any Sublicensee for performing any rights or
licenses which are subject to this Agreement. If the compensation is other than
cash, then the Sublicensing Revenue shall be the cash equivalent of such other
than cash compensation.
1.11 "End-user" shall mean any person or entity that uses a Licensed Product for
other than manufacturing or test purposes. A Sublicensee shall not be considered
an End-user; however, it is recognized that a single person or entity may be
both a Sublicensee and an End-user.
1.12 "End-user Revenue" shall mean all rent, license, use, royalty, patient
transaction or other fees or income actually received by Licensee for the
license, lease or use of any Licensed Product by an End-user less any, credits
and allowances actually granted on account of rejections, returns or billing
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errors and any duties or taxes (other than federal and state income taxes)
actually paid. If the compensation is other than cash, then the End-user Revenue
shall be the cash equivalent of such other than cash compensation.
1.13 "Relevant Patent" shall mean and include any patent licensed by LICENSOR
hereunder including any patent under paragraph 7.1 which has not been declined
by LICENSEE under paragraph 7.1; U.S. Patent No. 5,539,206 together with all
patent or like protection on the inventions described or claimed therein that
have or may in the future be granted, whether in the United States of America or
any other country, and all substitutions for and divisions, continuations,
continuations-in-part, renewals, reissues, extensions and the like on said
applications and patents shall be deemed to be Relevant Patents.
1.14 "LICENSEE Improvement Technology" shall mean all modifications,
improvements, derivations and additions made by or for LICENSEE (or by or for
any Sublicensee of LICENSEE) to any of the Subject Technology, but only to the
extent that such modifications, improvements, derivations and additions are
incorporated in, or used in the manufacture, fabrication or testing of, any
device, focal plane array or hybrid structure that includes an EQWIP, Advanced
EQWIP or other device or structure, or combination of devices or structures, at
least in part based upon, derived from or covered by any of the Subject
Technology, and may comprise know-how, techniques, methods, manufacturing
processes, materials, designs, structures, maskworks, inventions and patents.
2. GRANT OF LICENSE
2.1 License Grant. The LICENSOR hereby grants to the LICENSEE an exclusive
worldwide, right and license, with the right to grant Sublicenses to others: (i)
to practice the Subject Technology in the Field, (ii) to make, have made and
import Licensed Products in the Field, (iii) to use Licensed Products in the
Field for manufacturing and test purposes, and (iv) to offer for sale, sell,
lease and license Licensed Products for use by End-users in the Field. The right
and license shall be non-assignable except to successors by merger or sale of
substantially all of LICENSEE's assets, or by written permission of LICENSOR,
which permission shall not be unreasonably withheld.
2.2 Nonexclusive Rights Retained by LICENSOR. The grant in Paragraph 2.1 shall
be subject to, restricted by and nonexclusive with respect to practice of the
Subject Technology by the LICENSOR and its Affiliates in the Field for further
research and development purposes only, and for all purposes in any field in
which LICENSEE does not retain an exclusive license hereunder.
3. MARKETING EFFORTS
3.1 Assiduous Marketing by LICENSEE. LICENSEE shall use its reasonable best
efforts to effect assiduously the introduction of Licensed Products into the
commercial market as soon as practicable after the Effective Date. Such efforts
shall include, but not be limited to at all times, marketing the Licensed
Products with at least the same diligence as LICENSEE employs for comparable
products marketed by LICENSEE.
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3.2 Prohibition Against Conflicts. LICENSEE shall not, during the period
commencing on the Effective Date and extending for a period of two (2) years
thereafter ("Startup Period"), acquire or develop any technologies, processes or
products that the use, manufacture, marketing, leasing or sales of which would
in any manner prevent or conflict with LICENSEE's use of its best efforts to
manufacture, market, lease and sell Licensed Products under this Agreement. This
prohibition shall in no manner preclude LICENSEE from acquiring or developing
during the Startup Period any technology or process (i) for use in products that
do not perform equivalent functions to those that could be performed by
biomedical equipment employing the Subject Technology, or (ii) for use in, or in
the manufacture of Licensed Products which are subject to the terms and
conditions of this Agreement including payment of royalties to LICENSOR or (iii)
which constitutes LICENSEE Improvement Technology that is subject to the
provisions of Paragraphs 7.2 and 7.3 hereof.
3.3 Grounds for Termination. Failure by LICENSEE to assiduously market Licensed
Products in accordance with Paragraphs 3.1 and 3.2 shall be grounds for
termination of this Agreement in accordance with Paragraph 10.2.
3.4 Continued Marketing, Sale and Lease of Products. Unless LICENSEE has
converted the exclusive license granted hereunder to a nonexclusive license
under Paragraph 5.3, at least 66% of all revenue derived by LICENSEE from the
manufacture, sale, lease and use of breast cancer screening and diagnosis
equipment, and 33% of all revenue derived by LICENSEE from the manufacture,
sale, lease and use of all biomedical equipment (including breast cancer
screening and diagnosis equipment) incorporating one or more infrared detector
focal plane arrays (collectively "IR-FPA Equipment"), shall employ the Subject
Technology and as such, shall constitute Licensed Products subject to payment of
royalties under paragraph 5.1 of this Agreement. If LICENSEE does not maintain
such level of production, sale, lease and license of Licensed Products, or pay
LICENSOR the same royalties that LICENSEE would have been required to pay if
such levels had been maintained (based on the average revenue received by
LICENSEE for all IR-FPA Equipment, but not less than the Minimum Royalties
specified in Paragraph 5.2), then the exclusive license granted hereunder shall
automatically become nonexclusive.
Notwithstanding the conversion of the license granted hereunder to a
nonexclusive license under this Paragraph or Paragraph 5.3, if the Licensed
Products manufactured, sold, leased and licensed by LICENSEE drops below 10% of
the total IR-FPA Equipment manufactured, sold, leased and licensed by LICENSEE,
LICENSOR shall have the right to terminate this Agreement in accordance with
Paragraph 10.2 if LICENSOR has the opportunity to grant an exclusive license to
a third party for use of the Subject Technology in the Field.
3.5 Omitted. Filed separately with the Commission.
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4. TECHNICAL AND MARKETING ASSISTANCE BY LICENSOR
4.1 LICENSOR shall provide LICENSEE with reasonable technical and engineering
assistance in the design, manufacture and use of EQWIPs for Licensed Products,
subject to the following:
(i) LICENSEE shall reimburse LICENSOR for all reasonable out of pocket
travel costs and other expenses associated with providing technical and
engineering assistance requested by LICENSEE at the rate of 1.33 times
actual costs and expenses (includes LICENSOR overhead); and
(ii) During the one (1) year period commencing on the Effective Date
("Technical Assistance Period") LICENSOR shall provide up to eighty
(80) man-hours of technical and engineering assistance. Other than the
costs and expenses provided for in subparagraph 4.1 (i), the first
forty (40) man-hours of technical and engineering assistance services
shall be provided at no cost to LICENSEE; Omitted. Filed separately
with the Commission.
The rates and limitations for LICENSOR providing technical and engineering
assistance to LICENSEE beyond the Technical Assistance Period shall be
negotiated by the parties in good faith and shall be consistent with LICENSOR's
manpower availability and increased costs, if any, in providing such services.
4.2 Manufacturing Data Package. LICENSOR will provide a complete EQWIP
manufacturing data package to QED, a company licensed by LICENSOR to make EQWIPs
for sale, lease and use outside of the FIELD; however, LICENSEE may purchase
EQWIPs from QED (or other manufacturer) for use in the FIELD under the have made
rights granted to LICENSEE in Paragraph 2.1 of this Agreement. The prices paid
by LICENSEE to QED (or other manufacturer) for any such EQWIPs will not include
any amount for royalties to LICENSOR as all royalties for such transactions
shall be paid by LICENSEE under this Agreement.
4.3 Purchase of Manufacturing Data Package by LICENSEE. In the event LICENSEE
decides to manufacture EQWIPs, or have them manufactured by other than QED,
LICENSOR agrees to furnish LICENSEE, upon written request, a complete up-to-date
manufacturing data package for a fee not to exceed the most favored price
offered by LICENSOR to any other licensee including QED.
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5. PAYMENTS AND REPORTS
5.1 Running Royalty. LICENSEE shall pay the LICENSOR running royalties as
specified in Exhibit I Royalties, attached hereto and made a part hereof by this
reference, for all sales, leases, licenses or other dispositions of Licensed
Products. Such running royalties shall be payable to the LICENSOR as provided in
Paragraph 5.4. No royalty will be paid for sale, lease, license or other
disposition of any equipment that does not include any of the LICENSOR's Subject
Technology or is not otherwise a Licensed Product.
5.2 Minimum Royalties. In the event that the sum of all running royalties paid
on sales and leases under Paragraph 5.1 in any calendar year does not reach the
minimum amount agreed upon for such year, LICENSEE shall pay an additional
amount with the payment due for the period ending December 31 of such year, so
that the total amount paid for such year shall reach the minimum amount agreed
upon for such year, subject to the following:
(i) There shall be no minimum royalties for calendar years 1998;
(ii) The minimum royalties for 1999 and beyond are as specified in
Exhibit II, attached hereto and made a part hereof by this
reference; and
(iii) Running royalty amounts paid in excess of the minimum amount for
any calendar year shall not be applied to offset any shortfall to
the minimum amount for any other year.
5.3 Conversion to Nonexclusive License. LICENSEE may at its sole option, notify
LICENSOR in writing at least thirty (30) days prior to December 31 of any
calendar year, of its intent to convert the right and license granted in
Paragraph 2.1 to a nonexclusive license for all subsequent years; whereupon, the
right and license granted in Paragraph 2.1 shall become nonexclusive on January
31 of the following year, and payment of the minimum amount specified in
Paragraph 5.2 will not be required for such following year and all subsequent
years. Upon receipt of such notice, LICENSOR shall have the immediate right to
grant exclusive or nonexclusive licenses to third parties effective February 1
of such following year, subject to LICENSEE's retention of a nonexclusive
license during the term of this Agreement provided that LICENSEE meets the
minimum 10% requirement specified in Paragraph 3.4.
LICENSEE may reestablish its exclusive right and license at any time during the
term of this Agreement by written notice to LICENSOR of its intent to do so
accompanied by payment to LICENSOR of the full sum of the additional amounts
specified in Paragraph 5.2 for all years in which the minimum amount was not
paid; provided, however, LICENSEE's reestablished exclusive right and license
shall be subject to any and all rights and licenses granted by LICENSOR to third
parties during the period in which LICENSEE retained only a nonexclusive
license.
In addition, LICENSOR shall have the right to convert the exclusive license to a
nonexclusive license if LICENSEE fails to have in place in the Field, the
minimum number of royalty generating installations specified in Exhibit II.
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5.4 Payment of Royalties. Payment of the royalties specified in Paragraphs 5.1
and 5.2 shall be made by the LICENSEE to the LICENSOR within thirty (30) days
after March 31, June 30, September 30 and December 31 of each year during the
term of this Agreement covering the quantity of Licensed Products sold, leased,
licensed or otherwise deployed in the field and the Net Sales Revenue, End-user
Revenue and Sublicensing Revenue received by LICENSEE during the preceding
calendar quarter. After termination or expiration of this Agreement, (i) a final
payment shall be made by LICENSEE covering the whole or partial final calendar
quarter and (ii) LICENSEE shall continue making payments as required under
paragraph 10.5(i). Each quarterly payment shall be accompanied by a written
statement of the quantity of Licensed Products sold during the preceding
quarter, the quantity of Licensed Products leased, licensed or otherwise
deployed in the field (preceding quarterly increment and cumulative total), the
Net Sales Revenue, End-user Revenue and Sublicensing Revenue received by
LICENSEE during such preceding calendar quarter, and the calculation of
royalties due LICENSOR. Such written statements shall be duly signed by an
authorized signatory of LICENSEE.
5.5 Other Payments. Payment to the LICENSOR for the costs, expenses and services
specified in Sections 4 and 9 which are attributable to LICENSEE shall be made
by LICENSEE within thirty (30) days after receipt of LICENSOR's invoice
detailing such costs, expenses and services. Such invoices shall be submitted
for payment no more often than once per month.
5.6 Failure to Make Timely Payment. Should LICENSEE fail to make any payment
whatsoever due and payable to the LICENSOR hereunder, the LICENSOR may, at its
sole option, terminate this Agreement as provided in Paragraph 10.2
5.7 Method of Payment. All payments due hereunder are expressed in and shall be
paid by check payable in United States of America currency, without deduction of
exchange, collection or other charges, to the LICENSOR, or to the account of the
LICENSOR at such bank as the LICENSOR may from time to time designate by notice
to LICENSEE.
5.8 Late Payments to Accrue Interest. In the event that any payment due
hereunder is not made when due, such payment shall accrue interest beginning on
the tenth day following the due date thereof, calculated at the annual rate of
the sum of (a) two percent (2%) plus (b) the prime interest rate quoted by The
Wall Street Journal on the date said payment is due, the interest being
compounded on the last day of each calendar quarter, provided, however, that in
no event shall said annual interest rate exceed the maximum legal interest rate
for corporations. Each such overdue payment, when made, shall be accompanied by
all interest so accrued. Said interest and the payment and acceptance thereof
shall not negate or waive the right of the LICENSOR to seek any other remedy,
legal or equitable, to which it may be entitled because of the delinquency of
any payment.
5.9 Marketing Report. In addition to the statement required in Paragraph 5.4,
LICENSEE shall furnish to the LICENSOR within thirty (30) days after December 31
of each year during the term of this Agreement, a written report signed by the
appropriate LICENSEE officer detailing the actions taken by LICENSEE during the
preceding calendar year to comply with the provisions of Paragraph 3.1.
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6. RECORDS AND INSPECTION
LICENSEE shall maintain or cause to be maintained a true and correct
set of records pertaining to the manufacture, sales, leases, licenses and other
transactions relating to Licensed Products by LICENSEE under this Agreement and
all Net Sales Revenue and End-user Revenue received by LICENSOR with respect
thereto. LICENSEE shall further maintain or cause to be maintained a true and
correct set of records pertaining to any Sublicenses granted hereunder and all
Sublicensing Revenue received by LICENSEE with respect thereto. During the term
of this Agreement and for a period of two (2) years thereafter, LICENSEE agrees
to permit Lockheed Martin Corporation's internal auditors, and/or an independent
accountant selected by the LICENSOR and reasonably acceptable to LICENSEE, at
LICENSOR's sole option and expense, to have access during ordinary business
hours to such LICENSEE records as may reasonably be required by such auditors
and accountant to determine the correctness of any report and/or payment made by
LICENSEE under this Agreement. The cost of any such audit shall be borne by
LICENSOR; provided, however, in the event that the audit reveals an underpayment
of royalties by LICENSEE of more than five percent (5%), the cost of the audit
shall be reimbursed in full by LICENSEE. If audit reveals an underpayment by
LICENSEE of between five percent (5%) and two percent (2%), LICENSEE shall
reimburse fifty percent (50%) of the cost of the audit to LICENSOR. LICENSOR's
auditors and accountant shall maintain in confidence, and shall not disclose to
LICENSOR, any information concerning LICENSEE or its operations or properties
other than information directly relating to the correctness of LICENSEE's
reports and payments under this Agreement.
7. IMPROVEMENTS
7.1 Disclosure of Improvements to LICENSEE. So long as this Agreement is in full
force and effect, LICENSOR shall to the extent of its right to do so, no later
than the time it is completed, built, fully tested and ready for use in
commercial production, disclose to LICENSEE improvements or modifications to the
Subject Technology made by LICENSOR or any third party for or on behalf of
LICENSOR. LICENSOR will also advise LICENSEE of any third party patent that it
is aware might be infringed by use of any such improvements or modifications.
LICENSEE's right and license with respect to such improvements and modifications
shall be the same as LICENSEE has with respect to any other Subject Technology
under paragraph 2.1; provided, however, that LICENSEE shall have the right to
decline a license under any patent issued to LICENSOR covering any such
improvement or modification by giving written notice to LICENSOR, whereupon such
patent shall not be considered a Relevant Patent and LICENSEE shall have no
right or license whatsoever with respect to the Subject Technology covered by
such patent.
7.2 Disclosure of LICENSEE Improvement Technology to LICENSOR. LICENSEE shall to
the extent of its right to do so, no later than the time it is completed, built,
fully tested and ready for use in commercial production, disclose to LICENSOR
all LICENSEE Improvement Technology for use by LICENSOR, its Affiliates and
sublicensees under Paragraph 7.3. LICENSEE will also advise LICENSOR of any
third party patent that it is aware might be infringed by use of any such
LICENSEE Improvement Technology.
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7.3 Grant-Back of Nonexclusive License in LICENSEE Improvement Technology to
LICENSOR. With respect to all LICENSEE Improvement Technology that LICENSEE is
obligated to disclose to LICENSOR under Paragraph 7.2, LICENSEE shall to the
extent of its right to do so, grant, and hereby does grant to the LICENSOR and
its Affiliates, in all cases where, and to the extent that, LICENSEE does not
have or retain an exclusive right and license under this Agreement, a perpetual,
fully paid-up and royalty free nonexclusive, worldwide, right and license to
incorporate such LICENSEE Improvement Technology in products and to practice
such LICENSEE Improvement Technology to make, have made, use, offer for sale,
sell, lease and import products, including the right to grant sublicenses
thereunder. Such cases include and are limited to: (a) the nonexclusive rights
and licenses retained by LICENSOR and its Affiliates under Paragraph 2.2, (b)
the exclusive rights and licenses retained by LICENSOR and its Affiliates with
respect to all uses of the Subject Technology outside of the Field, (c) the
nonexclusive rights and licenses which revert to LICENSOR upon forfeit by
LICENSEE of any of its rights to exclusivity under any of Paragraphs 3.4, 3.5
and 5.3, (d) any rights to exclusivity voluntarily relinquished to LICENSOR by
LICENSEE and, (e) upon the termination of this Agreement, LICENSOR shall have
and retain a non-exclusive right and license in all LICENSEE Improvement
Technology that LICENSOR was, or was entitled to be granted by LICENSEE during
the term of this Agreement. LICENSEE agrees to execute any and all documents
reasonably required by LICENSOR to effectuate the rights and licenses granted to
LICENSOR and its Affiliates hereunder.
7.4 Abandonment by LICENSEE. Prior to intentionally causing "abandonment" or
"cancellation" (as such terms are used in 37CFR 1.135, 37CFR 1.138, 37 CFR 201.7
or like provisions of U.S. or foreign laws or regulations governing inventions,
patents, copyrights and maskworks) of any patent, invention, copyright, maskwork
or other legal right to any LICENSEE Improvement Technology to which LICENSOR is
entitled to a nonexclusive license under Paragraph 7.3, LICENSEE shall to the
extent of its right to do so, transfer and assign the same to LICENSOR; LICENSOR
shall continue to have nonexclusive rights and licenses in all other LICENSEE
Improvement Technology to which LICENSOR is entitled under Paragraph 7.3, and
such rights and licenses shall survive any expiration or termination of this
Agreement. If LICENSEE assigns any rights to LICENSOR prior to termination of
this Agreement, LICENSEE shall have and retain a license in all such assigned
rights of the same scope which LICENSEE has and retains with respect to Subject
Technology under this Agreement.
8. SUBLICENSES
All Sublicenses granted by LICENSEE of its rights hereunder to a
Sublicensee shall be subject to the terms of this License Agreement. LICENSEE
shall obtain prior written approval from the LICENSOR before entering into any
Sublicense with a Sublicensee. LICENSOR's approval shall not be unreasonably
withheld or delayed for any markets or territories that are not readily or fully
penetrable by LICENSEE so long as (i) Omitted. Filed separately with the
Commission. or (ii) despite LICENSOR's share of the Sublicensing Revenue
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being less than the minimum stated in clause (i) LICENSEE agrees to pay LICENSOR
the minimum stated in (i), or (iii) the total Sublicensing Revenue consists of
an up-front fee and LICENSOR is unwilling or unable, within ninety (90) days of
being requested to approve the Sublicense, to find an equivalent Sublicensee
that is willing to pay a higher Sublicensing Revenue. It shall be deemed
reasonable for LICENSOR to withhold it's approval of any Sublicense (i) for any
market or territory that is capable of being readily and fully penetrable by
LICENSEE, or (ii) for which LICENSOR's share of the Sublicensing Revenue does
not fall within clauses (i), (ii) or (iii) of the previous sentence. LICENSEE
shall be responsible for its Sublicensees and shall not grant any rights which
are inconsistent with the rights granted to, and obligations of, LICENSEE
hereunder. Any act or omission of a Sublicensee that would be a breach of this
License Agreement if performed by LICENSEE shall be deemed to be a breach by
LICENSEE of this License Agreement. Each Sublicense shall make LICENSOR a third
party beneficiary with the right to enforce its provisions against unauthorized
disclosure and use of the Subject Technology, audit the Sublicensee's records to
the same scope provided in Section 6 hereof with respect to LICENSEE's records,
and have the Sublicense and royalties assigned to LICENSOR under Paragraph 10.5
(ii). No such Sublicense shall contain any provision that purports to grant any
rights beyond the rights granted to LICENSEE in this License Agreement. LICENSEE
shall give the LICENSOR prompt notification of the identity and address of each
Sublicensee with whom it concludes a Sublicense and shall supply the LICENSOR
with a copy of each such Sublicense.
9. PATENTS AND INFRINGEMENT
9.1 Patent Rights. LICENSOR shall, during the term of this Agreement, pay all
costs and expenses associated with the United States patent identified in
Paragraph 1.1, including maintenance fees. LICENSOR has the option, but not any
obligation, to pay the costs and expenses associated with foreign counterpart
patent applications and patents, and any United States and foreign patents on
improvements made by LICENSOR. In the event that LICENSOR decides not to file
any foreign or improvement patent application, or to discontinue any such patent
application or patent, LICENSOR will provide LICENSEE with reasonable advanced
notice of its intent to do so and an adequate opportunity for LICENSEE to pay
such costs and expenses; provided, however, that LICENSOR shall remain the sole
assignee of all such United States and foreign patents (notwithstanding the fact
that LICENSEE pays such costs and expenses) and all such patents shall remain
subject to any licenses which LICENSOR grants with respect thereto outside of
the Field.
9.2 Marking of Licensed Products. LICENSEE shall mark, and cause any
Sublicensees to mark with a Patent Number label, Licensed Products sold in
countries where a patent covering such Licensed Product, in whole or in part,
has issued.
9.3 Infringement of Patent Rights by Third Parties. With respect to the Subject
Technology, each Party shall promptly inform the other of any known or suspected
infringement of any patent right, or of any misuse, misappropriation, theft or
breach of confidence of any other proprietary right by any third party. So long
as, and to the extent that, this Agreement remains in full force and effect,
LICENSEE shall have the right, but not the obligation, to institute (alone or
jointly with any other licensees of the Subject Technology that desire to
participate) an action for infringement, misuse, misappropriation, theft or
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breach of confidence of the patent or other proprietary rights against such
third party. If LICENSEE fails to bring such an action or proceeding within a
period of three (3) months after receiving notice or otherwise having knowledge
of such infringement, the LICENSOR shall have the right, but not the obligation,
to prosecute at its own expense, any such claim. Should either the LICENSOR or
LICENSEE commence suit under the provisions of this Paragraph 9.3, and
thereafter elects to abandon the same, it shall give timely notice to the other
Party who may, if it so desires, continue prosecution of such action or
proceeding. All recoveries, whether by judgment, award, decree or settlement,
from infringement or misuse of the Subject Technology shall be apportioned as
follows: if LICENSEE brings the action or proceeding, LICENSEE shall first
recover an amount equal to two (2) times the costs and expenses incurred by
LICENSEE directly related to the prosecution of such action or proceeding and
the remainder shall be divided equally between LICENSEE and the LICENSOR, if
LICENSOR brings the action or proceeding, LICENSOR shall be entitled to the
entire amount recovered.
9.4 LICENSOR Consent Required to Settle. LICENSEE shall not settle any action
covered by Paragraph 9.3 without first obtaining the consent of LICENSOR, which
consent will not be unreasonably withheld.
10. TERM AND TERMINATION
10.1 Term. Unless earlier terminated as hereinafter provided, this Agreement
shall extend for the life of U.S. Patent No. 5,539,206 and all other Relevant
Patents that are in full force and effect, and for a period of five (5) years
thereafter. After expiration of such five-year period, LICENSEE shall have a
perpetual, royalty-free license to practice the Subject Technology of the same
scope as LICENSEE had on the date such five-year period expired, and no further
Minimum Annual Royalties or Minimum Royalty Generating Installations shall be
required.
10.2 Termination for Default by LICENSEE. In the event of default or failure by
LICENSEE to perform any of the terms, covenants or provisions of this Agreement,
LICENSEE shall have sixty (60) days after the giving of written notice of such
default by the LICENSOR to correct such default. If any default with respect to
any material obligation is not corrected within the said sixty (60) day period,
the LICENSOR shall have the right, at its option, to cancel and terminate this
Agreement. Failure of the LICENSOR to exercise its right of termination for
non-payment or late payment of royalties or for any other reason shall not be
deemed to be a waiver of any right the LICENSOR might have, nor shall such
failure preclude the LICENSOR from exercising or enforcing said right upon any
subsequent failure by LICENSEE.
10.3 Termination for Insolvency of LICENSEE. The LICENSOR shall have the right,
at its option, to cancel and terminate this Agreement in the event that LICENSEE
shall: (a) become involved in insolvency, dissolution, bankruptcy or
receivership proceedings affecting the operation of its business or (b) make an
assignment of all or substantially all of its assets for the benefit of
creditors, or in the event that (c) a receiver or trustee is appointed for
LICENSEE, if, after the expiration of ninety (90) days following any of the
events enumerated above, LICENSEE shall have been unable to secure a dismissal,
stay or other suspension of such proceedings.
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10.4 Termination by LICENSEE. LICENSEE may terminate this Agreement at any time
giving ninety (90) days prior written notice to LICENSOR.
10.5 LICENSEE Obligations Upon Termination. At the date of any termination of
this Agreement, if pursuant to Paragraph 10.2 upon failure to timely correct any
default by LICENSEE with respect to any material obligation after notice from
LICENSOR, if pursuant to Paragraph 10.3 as of the failure by LICENSEE to secure
a timely dismissal, stay or suspension of the enumerated proceeding and notice
from LICENSOR, or if pursuant to Paragraph 10.4 as of the expiration of ninety
(90) days after notice is given to LICENSOR by LICENSEE (hereinafter the
"Termination Date"), LICENSEE shall:
(i) immediately cease any and all practice of the Subject Technology
and the rights and licenses granted to LICENSEE hereunder, and return
to LICENSOR all tangible copies of the Subject Technology in LICENSEE's
possession; provided, however, that subject to LICENSEE paying and
continuing to pay all running royalties to the LICENSOR in accordance
with Paragraph 5.1 when due, and otherwise complying with the terms of
this Agreement, LICENSEE may (A) sell, lease, license or otherwise
place in the Field any Licensed Products actually in LICENSEE's
possession prior to the Termination Date and (B) continue to collect
End-user Revenue on all such Licensed Products as well as those which
LICENSEE leased, licensed or otherwise placed in the Field prior to the
date of termination;
(ii) transfer and assign to LICENSOR, any and all Sublicenses which may
have been granted by LICENSEE pursuant to the terms hereof; and
(iii) comply with the provisions of 7.2, 7.3 and 7.4.
10.6 Specific Performance of Obligations. LICENSEE warrants, represents and
agrees that damages alone are insufficient as a remedy for any breach of
LICENSEE's obligations under Subparagraphs 7.2, 7.3, 7.4 and 10.5 (ii) and
(iii), and in the event of any such breach, LICENSOR shall be entitled to relief
by specific performance. LICENSOR warrants, represents and agrees that damages
alone are insufficient as a remedy for any breach of LICENSOR's obligations
under Subparagraphs 4.3, 7.1 and 8, and in the event of any such breach,
LICENSOR shall be entitled to relief by specific performance.
10.7 Survival of Obligations. No expiration or termination of this Agreement
shall constitute a termination or a waiver of any rights of either Party against
the other Party accruing at or prior to the time of such termination or
expiration. The obligations of LICENSEE under Paragraphs 5, 6, 7, 15 and this
Section 10 shall survive expiration or termination of this Agreement and the
obligations of LICENSOR under Paragraph 15 and this Paragraph 10 shall survive
expiration or termination of this Agreement.
11. ASSIGNABILITY
This Agreement shall be binding upon and shall inure to the benefit of the
LICENSOR and its assigns and successors in interest, and shall be binding upon
and shall inure to the benefit of LICENSEE and the successor by merger or sale
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of all or substantially all of its assets or businesses to which this Agreement
pertains, but shall not otherwise be assignable or assigned by LICENSEE without
prior written approval by the LICENSOR being first obtained, which approval
shall not be unreasonably withheld.
12. GOVERNMENTAL COMPLIANCE
LICENSEE shall at all times during the term of this Agreement and for so long as
it shall sell Licensed Products comply and cause its Sublicensees to comply with
all laws that may control the import, export, manufacture, use, sale, marketing,
distribution and other commercial exploitation of Licensed Products or any other
activity undertaken pursuant to this Agreement.
13. GOVERNING LAW
This Agreement shall be deemed to be subject to, and have been made under, and
shall be construed and interpreted in accordance with the laws of the State of
Texas, United States of America, without giving effect to the principles of
conflicts of laws. This Agreement is expressly acknowledged to be subject to all
federal laws including but not limited to the Export Administration Act of the
United States of America. No conflict-of-laws rule or law that might refer such
construction and interpretation to the laws of another state, republic, or
country shall be considered.
This Agreement is performable in part in Dallas, Texas and the Parties mutually
agree that personal jurisdiction and venue shall be proper in the state and
federal courts situated in Dallas, Texas and agree that any litigated dispute
will be conducted solely in such courts.
14. ADDRESSES
Any payment, notice or other communication pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such Party by first
class mail, postage prepaid, addressed to it at its address below or as it shall
designate by written notice given to the other Party:
In the case of the LICENSOR: With a copy to:
G. D. Troxel Stephen S. Sadacca
Senior Vice President Legal Department
Lockheed Martin Corporation Lockheed Martin Corporation
Vought Systems Vought Systems
PO Box 650003 Mail Stop PT-28 PO Box 650003 Mail Stop WT-05
Dallas, TX 75265-0003 Dallas, TX 75265-0003
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In the case of LICENSEE:
Mark A. Fauci
President
OmniCorder Technologies, Inc.
25 East Loop Road
Stony Brook, NY 11790
15. ADDITIONAL PROVISIONS
15.1 Use of Party's Name. LICENSEE agrees that it may not use in any way the
name Lockheed Martin or any derivation thereof (except in a factual manner to
confirm the existence of this Agreement and the parties respective rights and
obligations hereunder), or any trademark, logotype or symbol associated with the
LICENSOR, without the prior written consent of the LICENSOR. LICENSOR agrees
that it may not use in any way the name OmniCorder or any derivation thereof
(except in a factual manner to confirm the existence of this Agreement and the
parties respective rights and obligations hereunder), or any trademark, logotype
or symbol associated with the LICENSEE without the prior written consent of the
LICENSOR. If a Party consents to the use of its name or mark in any
advertisement, product circular, catalog, trade show or trade journal, etc., the
other Party shall provide such Party with the proposed text or copy at least
forty five (45) days before publication, distribution or display and such Party
shall have thirty (30) days after receipt of such text or copy to modify the
text, form or content in which its name or mark is used.
15.2 Confidentiality. LICENSEE agrees to maintain the Subject Technology
provided by LICENSOR in strict confidence, and to use the same only in
accordance with this Agreement. Both parties agree to maintain information
related to the other's business in confidence to the extent that the same is
identified as being confidential by the disclosing party at the time of
disclosure and confirmed in writing within thirty (30) days. Such obligation of
confidentiality shall not apply to information which the recipient can
demonstrate: (i) was at the time of disclosure in the public domain; (ii) has
come into the public domain after disclosure through no fault of the recipient
party or in the case of LICENSEE, any Sublicensee of LICENSEE; (iii) was known
to the recipient party prior to disclosure thereof by the disclosing party, as
shown by contemporaneous documentation; (iv) was lawfully disclosed to the
recipient party by a third party which was not under an obligation of confidence
to the disclosing party with respect thereto; (v) which the recipient party can
reasonably demonstrate was independently developed by the recipient party, and
in the case of the LICENSEE, without practice of any of the Subject Technology;
or (vi) which the recipient party shall be compelled to disclose by law or legal
process, provided that such recipient party gave the disclosing party timely
notice and assistance in obtaining a secrecy order covering such disclosure. The
foregoing obligation of confidentiality shall survive termination of this
Agreement.
15.3 Indemnity. Each Party shall notify the other of any claim, lawsuit or other
proceeding related to any Subject Technology or Licensed Product.
15.3.1 LICENSEE agrees that it will defend, indemnify and hold harmless the
LICENSOR, its employees, officers, directors, and agents and each of them
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(the "LICENSOR Indemnified Parties"), from and against any and all claims,
causes of action, lawsuits or other proceedings filed or otherwise
instituted against any of the LICENSOR Indemnified Parties related directly
or indirectly to, or arising out of:
15.3.1.1 Any injuries to persons or property which occur on LICENSEE's
or LICENSOR's premises as a result of the negligence of LICENSEE or
its employees, whether or not such claims, causes of action, lawsuits
or other proceedings and the costs (including attorney's fees) related
thereto, result in part from the negligence of any of the LICENSOR
Indemnified Parties.
15.3.1.2 Any breach of contract, breach of warranty, product
liability, or injury or death to any person or property resulting from
(i) any use or misuse of any of the Subject Technology or of any
Licensed Product made by, for or on behalf of, or imported, offered
for sale, sold or leased by, LICENSEE or any of its Sublicensees, or
by any of its or their suppliers or customers at any tier including,
but not limited to any research, patient testing, diagnostic
interpretation or treatment, or (ii) any design, process, manufacture,
or practice of any of the Subject Technology, or the making, having
made. importing, using, offering for sale, selling or leasing of any
Licensed Products, by LICENSEE or any of its Sublicensees, or by any
of its or their suppliers or customers at any tier; whether or not
such use or misuse, or such design, process, manufacture, or practice
of the Subject Technology was suggested by LICENSOR or is licensed
hereunder, and whether or not even though such claims, causes of
action, lawsuits or other proceedings and the costs (including
attorney's fees) related thereto, result in part from the negligence
of any of the LICENSOR Indemnified Parties. 15.3.1.3 Any act by
LICENSEE or any of its Sublicensees, or any of its or their suppliers
or customers at any tier, resulting in the infringement of any U.S. or
foreign patent or other intellectual property right covering or
alleged to cover (i) any material or process used to make or have made
any Licensed Product, or (ii) any modification, improvement or
addition to, combination with, or structure other than, the EQWIP
structure as described and claimed in LICENSOR's U.S. Patent Number
5,539,206; whether or not such material, process, modification,
improvement, addition, combination or structure was suggested by
LICENSOR or is licensed hereunder. LICENSEE shall not be required to
indemnify LICENSOR for infringement of any U.S. or foreign patent or
other intellectual property right covering or alleged to cover the
exact EQWIP structure as described and claimed in LICENSOR's U.S.
Patent Number 5,539,206; provided, that, LICENSEE does not join
LICENSOR as a party defendant in any claim, cause of action, lawsuit
or other proceeding filed or otherwise instituted against LICENSEE
except as provided in 15.3.2.
LICENSEE assumes full responsibility for all costs and expenses related to
claims, lawsuits and proceedings for which it is obligated to indemnify the
LICENSOR Indemnified Parties hereunder, including, but not limited to, the
payment of all damages, settlements reasonable attorneys' fees and costs of
litigation or other defense. LICENSOR shall cooperate with LICENSEE and
provide LICENSEE with any relevant background information requested by
LICENSEE.
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15.3.2 LICENSOR shall defend, indemnify and hold harmless the LICENSEE, its
employees, officers, directors, and agents and each of them (the "LICENSEE
Indemnified Parties"), with respect to any claims, causes of action,
lawsuits or other proceedings filed or otherwise instituted against the
LICENSEE Indemnified Parties for:
15.3.2.1 Any injuries to persons or property which occur on LICENSOR's
premises solely as the result of the negligence of LICENSOR or its
employees.
15.3.2.2 Any infringement of a U.S. patent that results from the
making, having made, importing, using, selling or leasing by LICENSEE
of EQWIPs that have the exact structure as described and claimed in
the above referenced U.S. Patent Number 5,539,206, but shall not
include any claims, causes of action, lawsuits or other proceedings
filed or otherwise instituted against any LICENSEE Indemnified Parties
for infringement of any other U.S., or any foreign, patent or other
intellectual property right.
LICENSOR assumes full responsibility for all costs and expenses related to
claims, lawsuits and proceedings for which it is obligated to indemnify the
LICENSEE Indemnified Parties hereunder, including, but not limited to, the
payment of all damages, settlements reasonable attorneys' fees and costs of
litigation or other defense. LICENSEE shall cooperate with LICENSOR and
provide LICENSOR with any relevant background information requested by
LICENSOR.
If LICENSOR cannot reasonably obtain the right for LICENSEE to continue to
practice any invention covered by a U.S. patent that LICENSOR is required
to defend LICENSEE against under 15.3.2.2 above, or provide LICENSEE with a
non-infringing alternative, then LICENSEE shall cease all further
manufacture, use, sale, lease and import of the infringing EQWIP structure,
and LICENSOR shall have no further obligation to LICENSEE with respect to
any further infringements; this shall not relieve LICENSOR, however, of any
of its obligations to the LICENSEE Indemnified Parties under 15.3.2.2
resulting from licensed activities performed by LICENSEE prior to
initiation of the claim, lawsuit or proceeding which LICENSOR was obligated
to defend against in.
15.4 Insurance. LICENSEE shall for so long as LICENSEE manufactures, uses or
sells any Licensed Product(s), maintain in full force and effect policies of (i)
worker's compensation and/or employers' liability insurance within statutory
limits, (ii) general liability insurance (with broad form general liability
endorsement) with limits of not less than five million dollars ($5,000,000) per
occurrence with no annual aggregate and (iii) products liability insurance, with
limits of not less than five million dollars ($5,000,000) per occurrence with no
annual aggregate. Such coverage(s) shall be purchased from a carrier or carriers
deemed acceptable to the LICENSOR with no annual aggregate and shall name the
LICENSOR as an additional insured. Upon request by the LICENSOR, LICENSEE shall
provide to the LICENSOR copies of said policies of insurance.
15.5 The LICENSOR's Disclaimers. Neither The LICENSOR, nor any of its officers,
employees, directors, or agents assume any responsibility for the manufacture,
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product specifications, sale or use of the Subject Technology or the Licensed
Products which are manufactured by or sold by LICENSEE or any Sublicensee of
LICENSEE.
15.6 Independent Contractors. The Parties hereby acknowledge and agree that each
is an independent contractor and that neither Party shall be considered to be
the agent, representative, master or servant of the other Party for any purpose
whatsoever, and that neither Party has any authority to enter into a contract,
to assume any obligation or to give warranties or representations on behalf of
the other Party. Nothing in this relationship shall be construed to create a
relationship of joint venture, partnership, fiduciary or other similar
relationship between the Parties.
15.7 DISCLAIMER OF WARRANTY. THE LICENSOR MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES
OF FITNESS OR MERCHANTABILITY, REGARDING OR WITH RESPECT TO THE SUBJECT
TECHNOLOGY OR LICENSED PRODUCTS AND THE LICENSOR MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESSED OR IMPLIED, OF THE VALIDITY OF ANY PATENT ISSUED WITH
RESPECT TO THE SUBJECT TECHNOLOGY OR LICENSED PRODUCTS OR OF THE ENFORCEABILITY
OF ANY PATENTS, OR THAT THE SUBJECT TECHNOLOGY OR LICENSED PRODUCTS ARE OR SHALL
BE FREE FROM INFRINGEMENT OF ANY PATENT OR OTHER RIGHTS OF THIRD PARTIES.
15.8 REPRESENTATIONS OF LICENSEE. THE LICENSEE WARRANTS AND REPRESENTS TO THE
LICENSOR THAT IT HAS EXAMINED THE SUBJECT TECHNOLOGY AND ACCEPTS SUCH TECHNOLOGY
AS-IS, THAT LICENSEE HAS DETERMINED THAT THE LICENSED TECHNOLOGY AS-IS MEETS ALL
OF ITS REQUIREMENTS, THAT RECEIPT OF THE SUBJECT TECHNOLOGY FROM LICENSOR GIVES
LICENSEE A HEAD-START AND OPPORTUNITY TO ADD A NEW PRODUCT TO ITS BUSINESS WHICH
IS CONSIDERED OF SIGNIFICANT VALUE TO LICENSEE AT LEAST EQUAL TO THE ROYALTIES
STATED HEREIN WHETHER OR NOT ANY ADDITIONAL PATENT EVER ISSUES THEREUPON OR ANY
PATENT IS HELD NONINFRINGED, OR THE SUBJECT TECHNOLOGY IS OR BECOMES KNOWN TO
OTHERS OR A PART OF THE PUBLIC DOMAIN. ACCORDINGLY, LICENSEE WARRANTS AND
REPRESENTS TO LICENSOR THAT IT WILL NOT SEEK ANY REDUCTION OF SUCH STATED
ROYALTIES IN THE EVENT THAT NO ADDITIONAL PATENT EVER ISSUES ON THE SUBJECT
TECHNOLOGY OR ANY PATENT IS HELD NONINFRINGED, OR THE SUBJECT TECHNOLOGY IS OR
BECOMES KNOWN TO OTHERS OR A PART OF THE PUBLIC DOMAIN. IN ADDITION, LICENSEE
WARRANTS AND REPRESENTS THAT IT WILL NOT EITHER DIRECTLY OR INDIRECTLY SEEK OR
ASSIST OTHERS IN SEEKING TO INVALIDATE THE ABOVE REFERENCED U.S. PATENT NO.
5,539,206; HOWEVER, IN THE EVENT THAT THE VALIDITY OF SUCH ABOVE REFERENCED U.S.
PATENT IS OTHERWISE CHALLENGED AND IS HELD INVALID, AND NO ADDITIONAL PATENTS
HAVE ISSUED TO LICENSOR COVERING THE SUBJECT TECHNOLOGY OR LICENSED PRODUCTS,
THEN THE ROYALTIES SHALL BE REDUCED IN ACCORDANCE WITH EXHIBIT I. LICENSOR
WARRANTS AND REPRESENTS THAT IT WILL NOT EITHER DIRECTLY OR INDIRECTLY SEEK OR
ASSIST OTHERS IN SEEKING TO INVALIDATE ANY LICENSEE PATENTS UNDER WHICH LICENSOR
HAS A LICENSE PURSUANT TO PARAGRAPH 7.3.
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15.9 Non-Waiver. The Parties covenant and agree that if a Party fails or
neglects for any reason to take advantage of any of the terms provided for the
termination of this Agreement or if a Party, having the right to declare this
Agreement terminated, shall fail to do so, any such failure or neglect by such
Party shall not be a waiver or be deemed or be construed to be a waiver of any
cause for the termination of this Agreement subsequently arising, or as a waiver
of any of the terms, covenants or conditions of this Agreement or of the
performance thereof. None of the terms, covenants and conditions of this
Agreement may be waived by a Party except by its written consent.
15.10 Reformation. All Parties hereby agree that neither Party intends to
violate any public policy, statutory or common law, rule, regulation, treaty or
decision of any government agency or executive body thereof of any country or
community or association of countries; that if any word, sentence, paragraph or
clause or combination thereof of this Agreement is found, by a court or
executive body with judicial powers having jurisdiction over this Agreement or
any of its Parties hereto, in a final unappealed order to be in violation of any
such provision in any country or community or association of countries, such
words, sentences, paragraphs or clauses or combination shall be inoperative in
such country or community or association of countries, and the remainder of this
Agreement shall remain binding upon the Parties hereto.
15.11 Force Majeure. No liability hereunder shall result to a Party by reason of
delay in performance caused by force majeure, that is circumstances beyond the
reasonable control of the Party, including, without limitation, acts of God,
fire, flood, war, civil unrest, labor unrest, or shortage of or inability to
obtain material as equipment.
15.12 Entire Agreement. The terms and conditions herein constitute the entire
agreement between the Parties and shall supersede all previous agreements,
either oral or written, between the Parties hereto with respect to the subject
matter hereof. No agreement of understanding bearing on this Agreement shall be
binding upon either Party hereto unless it shall be in writing and signed by the
duly authorized officer or representative of each of the Parties and shall
expressly refer to this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Agreement in multiple originals by their duly authorized officers and
representatives on the respective dates shown below, but effective as of the
Effective Date.
LICENSOR LICENSEE
LOCKHEED MARTIN CORPORATION OMNICORDER TECHNOLOGIES, INC.
VOUGHT SYSTEMS
by: /s/ by: /s/ Mark A. Fauci
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Title: SR VP - CFO Title: President and CEO
Date: 9/29/98 Date: 9/18/98
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EXHIBIT I
Omitted. Filed separately with the Commission.
19 of 20
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EXHIBIT II
Omitted. Filed separately with the Commission.
20 of 20
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Exhibit 10(v)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of this 1st day of October, 1998, by and
between OMNICORDER TECHNOLOGIES, INC., a Delaware corporation with its principal
place of business at 25 E. Loop Road, Stony Brook, New York 11790 (the
"Company") and Kevin B McQuade, an individual residing at 4 Applewood Drive,
Hopewell, NJ 08525 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive as the Chief
Financial Officer and wishes to acquire and be assured of Executive's continued
services on the terms and conditions hereinafter set forth;
WHEREAS, the Executive desires to be employed by the Company as the
Chief Financial Officer and to perform and to serve the Company on the terms and
conditions hereinafter set forth; and
NOW THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions hereinafter set forth, the Company and the Executive
hereby agree as follows:
1. Employment. The Company hereby employs the Executive to serve as an
executive of the Company, and the Executive hereby accepts such employment with
the Company, for the period set forth in Section 2 hereof. The Executive's
principal place of employment shall be at the Company's offices in Stony Brook,
New York, or at such other location as shall be mutually acceptable to the
Executive and the Company (it being understood that an office in New York,
Nassau or Suffolk County shall be acceptable to the Executive). The Executive
hereby accepts such employment and agrees to undertake the duties and
responsibilities inherent in such position.
2. Term. Unless earlier terminated as provided in this Agreement, the
initial period of employment shall be in a part time capacity in which the
Executive shall dedicate not less than eighty hours per month in the service of
the Company and the term of the Executive's employment under this Agreement
shall be a period beginning as of October 1, 1998 (the "First Engagement Date")
and ending six months thereafter (such period or, if the Executive's employment
hereunder is earlier terminated, such shorter period, being hereinafter called
the "Preliminary Employment Term). Upon the successful completion of financing
within the Preliminary Employment Term which provides minimum net proceeds to
the Company of $4 million, the Executive's capacity shall then change to
full-time. The term of Executive's full-time employment under these
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circumstances shall be a period of twelve months from commencement of full-time
employment (such period or, if the Executive's employment hereunder is earlier
terminated, such shorter period, being hereinafter called the "Employment
Term"). Renewal of this Agreement after the Employment Term shall be subject to
mutual agreement, in writing, of the Company and Executive, entered into within
60 days prior to the end of the Employment Term. If this Agreement is renewed
one or more times, each renewal period shall then be referred to as the
Employment Term.
3. Duties and Authority.
(a) Duties. The Executive shall be employed as the Chief Financial
Officer of the Company, shall faithfully and competently perform such duties at
such times and places and in such manner as the Board may from time to time
reasonably direct. Except or as otherwise may be approved in advance by the
Board, and except during vacation periods and reasonable periods of absence due
to sickness, personal injury, family leave as permitted by law, or other
disability, the Executive shall devote Executive's full time throughout the
Employment Term to the services required of Executive hereunder. Executive shall
render Executive's services exclusively to the Company during the Employment
Term and shall use Executive's best efforts, judgment and energy to improve and
advance the business and interests of the Company in a manner consistent with
the duties of Executive's position.
(b) Authority. The Executive shall have all the usual and
necessary authority, duties and responsibilities of a Chief Financial Officer,
in the operation of the Company's business, subject to the supervision and
authority of the Board.
(c) Board Membership. The Company will use its best efforts to
cause Executive to be appointed as a Director upon the commencement of the
Preliminary Employment Term, and to be nominated as a Director of the Company at
each Annual Meeting of shareholders throughout the Employment Term.
4. Salary
(a) Salary. In consideration of the services the Executive renders
to the Company hereunder, the Company shall pay the Executive a salary at an
annual rate of $60,000 during the Preliminary Employment Term and a salary at an
annual rate of $120,000 during the Employment Term, payable in regular intervals
in accordance with the Company's payroll practices, subject to upward adjustment
as the Board or any compensation committee thereof may deem appropriate. The
Executive shall also be eligible for annual bonuses, as the Board or any
compensation committee thereof may deem appropriate. Upon termination of this
Agreement, except if the Company attempts to terminate this Agreement without
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Cause (as defined in Paragraph 7), payments made pursuant to this section shall
cease; provided, however, that the Executive shall be entitled to payments for
periods or partial periods that occurred prior to the date of termination and
for which the Executive has not yet been paid. In the event the Company
terminates this Agreement without "Cause" as defined in paragraph 7, the Company
will pay as liquidated damages, the balance of Executive's salary and benefits
(excluding stock options not yet granted or vested) for the balance of the
current Employment Term.
Any vacation time not used by Executive during any year of the
Employment Term shall be carried over to succeeding years; however, Executive
will not take in excess of four continuous weeks of vacation utilizing such
carried over vacation time. Payment shall be made to Executive for any unused
vacation time upon the end of the Employment Term.
(b) Withholding, Etc. The payment of any amounts hereunder shall
be subject to income tax, social security and other applicable withholdings.
5. Benefits. During the Employment Term (except as provided in
subparagraph (e) below), the Executive shall be entitled to:
(a) Participate in all executive fringe benefits, pension,
savings, life insurance, disability, stock option, profit sharing, medical,
health or other welfare benefit plans that may be provided by the Company for
its key executives in accordance with the provisions of any such plans, as the
same may be in effect on and after the commencement of the Employment Term.
Executive will be granted stock options, exercisable for a
term of five years from vesting, as of the commencement of the Employment Term,
under the Company's 1998 Stock Option Plan or such other plan as then in effect
(the "Plan") to purchase 100,000 shares of Common Stock at a price per share
equal to the price per share of the Company's initial public offering or the
first financing triggering the commencement of the Employment Term (which, in
the case of securities convertible into, or exercisable for, Common Stock, shall
be equal to such conversion or exercise price), as the case may be. Such grant
will vest in installments as follows: (i) 25% upon the commencement of the
Employment Term; and (ii) 25% on each anniversary thereafter until all options
are vested, provided the Executive is still employed at the time of vesting of
each such installment.
Additionally, the Executive will be granted a bonus of additional
stock options under the Plan to purchase 50,000 shares of Common Stock,
exercisable for a term of five years as further provided below, if the Company's
Common Stock achieves a price of at least $22 per share (as adjusted for stock
splits, stock
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dividends and similar events) for a period of at least ten consecutive trading
days, based on the closing trading price (the "Trading Price") of the Company's
Common Stock, or if same is not reported on any exchange or quotation system on
which the Company's securities trade, then based on the mean between the bid and
ask price on each such trading day. If the Company's securities are not then
listed or traded, then the threshold to trigger the grant and the exercise price
of such options shall be based on the Company's valuation in a private financing
(based on the price per share of Common Stock in such financing, or based upon
the conversion or exercise price of securities convertible into or exercisable
for Common Stock in such financing, as the case may be). The stock options will
be granted with an exercise price equal to $22 per share, as adjusted for stock
splits, stock dividends and similar events. Such options, if granted, will vest
25% on issuance and 25% annually on the anniversary of the grant of the stock
option bonus, provided Executive is employed at each such vesting date. The
exercise period of options granted under each such installment will be for a
five year term commencing on the later of (x) or (y):
(x) is for (i) first installment - 12 months after commencement of the
Employment Term; (ii) second installment - 24 months after commencement of
the Employment Term; (iii) third installment - 36 months after commencement of
the Employment Term; and (iv) fourth installment - 48 months after commencement
of the Employment Term.
(y) is the vesting of each such installment.
A second bonus of additional stock options under the Plan will be
granted to the Executive to purchase 50,000 shares of Common Stock, exercisable
for a term of five years as further provided below, if the Trading Price of the
Company's Common Stock is $45 or more for a period of at least ten consecutive
trading days. If the Company's securities are not then listed or traded, then
the threshold to trigger the grant and the exercise price of such options shall
be based on the Company's valuation in a private financing (again, based on the
per share price of Common Stock in such financing or based on the conversion or
exercise price of securities convertible into or exercisable for Common Stock,
as the case may be). The stock options will be granted at an exercise price of
$45 per share, subject to adjustment for stock splits, stock dividends and
similar events. Such options, if granted, will vest 25% on issuance and 25%
annually on the anniversary of the grant of the stock option bonus, provided
Executive is employed at each such vesting date. The exercise period of each
such installment will be for a five year term commencing on the later of (x) or
(y):
(x) is for (i) first installment - 24 months after commencement of the
Employment Term; (ii) second installment - 36 months after commencement of the
Employment Term; (iii) third installment - 48
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months after commencement of the Employment Term; and (iv) fourth installment -
60 months after commencement of the Employment Term.
(y) is the vesting of each such installment.
The number of shares subject to options and the exercise prices
provided herein shall be appropriately adjusted in the event of stock splits,
stock dividends or similar events.
(b) 20 annual paid vacation days in each year of employment; such
vacation to be taken at a time mutually convenient to Company and the Executive;
(c) 10 days paid sick leave and 2 paid personal days in each year
of employment;
(d) 10 days of paid holidays during each calendar year;
(e) Reimbursement on and after the First Engagement Date for all
reasonable and necessary out-of-pocket business expenses, properly receipted or
otherwise documented, incurred by the Executive in the performance of
Executive's duties hereunder in accordance with the Company's policies.
6. Developments and Confidential Information. The Executive hereby
covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of
research, design, development, production, marketing and servicing with respect
to its business.
(b) The Executive's employment hereunder creates a
relationship of confidence and trust between the Executive and the Company with
respect to certain information pertaining to the business of the Company and its
Affiliates (as hereinafter defined) or pertaining to the business of any client
or customer of the Company or its Affiliates which may be made known to the
Executive by the Company or any of its Affiliates or by any client or customer
of the Company or any of its Affiliates or learned by the Executive during the
period of Executive's employment by the Company.
(c) The Company possesses and will continue to possess
information that has been created, discovered or developed by, or otherwise
become known to it (including, without limitation, information created,
discovered or developed by, or made known to, the Executive during the period of
Executive's employment or arising out of Executive's employment) or in which
property rights have been or may be assigned or otherwise conveyed to the
Company, which information has commercial value in the business in which the
Company is engaged and is treated by the Company as confidential.
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(d) Any and all inventions, products, discoveries,
improvements, processes, manufacturing, marketing and services methods or
techniques, formulae, designs, styles, specifications, data bases, computer
programs (whether in source code or object code), know-how, strategies and data,
whether or not patentable or registrable under copyright or similar statutes,
made, developed or created by the Executive (whether at the request or
suggestion of the Company, any of its Affiliates, or otherwise, whether alone or
in conjunction with others, and whether during regular hours of work or
otherwise) during the period of Executive's employment by the Company which
directly pertain to the business, products, or processes of the Company or any
of its Affiliates (collectively hereinafter referred to as "Developments"), will
be promptly and fully disclosed by the Executive to an appropriate executive
officer of the Company (other than the Executive) without any additional
compensation therefor, including, without limitation, all papers, drawings,
models, data, documents and other material pertaining to or in any way relating
to any Developments made, developed or created by Executive as aforesaid. For
the purposes of this Agreement, the term "Affiliate" or "Affiliates" shall mean
any person, corporation or other entity directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
the purposes of this definition, "control" when used with respect to any person,
corporation or other entity means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
(e) The Executive will keep confidential and will hold for the
Company's sole benefit any Development which is to be the exclusive property of
the Company under this Section 6 for which no patent, copyright, trademark or
other right or protection is issued.
(f) The Executive also agrees that the Executive will not
without the prior approval of the Board (i) use for Executive's benefit or
disclose at any time during Executive's employment by the Company, or
thereafter, except to the extent required by the performance by Executive of
Executive's duties as an executive of the Company, any information known to,
obtained or developed by Executive while in the employ of the Company with
respect to any Developments or with respect to any customers, clients,
suppliers, products, services, prices, executives, financial affairs, or methods
of design, distribution, marketing, service, procurement or manufacture of the
Company or any of its Affiliates, or any confidential matter, except information
which at the time is generally known to the public other than as a result of
disclosure by Executive not permitted hereunder, or (ii) take with Executive
upon leaving the employ of the Company any document or paper
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relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
(g) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6 would be
inadequate and, therefore, agrees that the Company and its Affiliates shall be
entitled to injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its Affiliates from pursuing any other rights and remedies available for
any such breach or threatened breach.
(h) The Executive agrees that upon termination of Executive's
employment by the Company for any reason, the Executive shall forthwith return
to the Company all documents and other property in Executive's possession or
under the Executive's control belonging to the Company or any of its Affiliates.
(i) The Executive represents and warrants that he has
terminated employment with one or more prior employers and that his employment
by the Company and the use by the Company of any skills and knowledge that he
may have, are not in violation of the terms of any contract that he is a party
to or any other applicable provision of the law.
(j) The Executive represents and warrants that his performance
of all the terms of this Agreement and his duties as an employee of the Company
does not now and will not knowingly breach any agreement to keep in confidence
confidential information acquired by him in confidence or in trust prior to his
employment with the Company. The Executive further represents and warrants that
he has not entered into and he will not enter into any agreement either written
or oral in conflict herewith.
(k) Notwithstanding the foregoing, the following will not
constitute confidential information for purposes of this Agreement: (i)
information which is or becomes publicly available other than as a result of
disclosure by the Executive; or (ii) information designated by the Company as no
longer confidential.
(l) The Executive represents and warrants that he has not
brought and will not bring with him to the Company or use in the performance of
his responsibilities at the Company (a) any materials, documents or confidential
information of a former employer which are not generally available to the
public, unless he has obtained written authorization from the former employer
for their possession and use, or (b) any confidential information which he knows
or should have known has been acquired by improper means, or otherwise
misappropriated from another person.
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(m) Without limiting the generality of Section 9 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this Section
6 shall be binding upon the Executive's heirs, successors and legal
representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated:
(i) upon death of the Executive; or
(ii) upon the Executive's inability to perform
Executive's duties on account of disability or incapacity for a period of ninety
(90) or more days, whether or not consecutive, occurring within any period of
twelve (12) consecutive months, such termination to take effect on 30 days prior
written notice from the Company to the Executive. A determination of disability
shall be made by a physician satisfactory to both the Executive and the Company;
provided that if the Executive and the Company do not agree on a physician, they
shall each select a physician and these two together shall select a third
physician, whose determination as to disability shall be binding on all parties;
or
(iii) at any time, for Cause (as hereinafter
defined), such termination to take effect immediately upon written notice from
the Company to the Executive, except in case of subparagraph 7(a)(iv)(3) or (4)
below, in which case termination shall only take effect after Executive has been
given written notice of specifications and a reasonable opportunity to cure any
matter referred to therein and same shall not be cured within such time; or
(iv) upon expiration of the Employment Term.
The following actions, failures or events shall constitute "Cause"
for termination within the meaning of clause (iii) above: (1) conviction of a
felony, (2) acts of dishonesty or moral turpitude constituting fraud or
embezzlement or otherwise materially adversely affecting the business or
properties of the Company and/or its Affiliates, (3) failure by the Executive to
obey the reasonable and lawful orders of the Board of Directors of the Company
or (4) repeated negligence by the Executive in the performance of, or willful
disregard by the Executive, of Executive's obligations hereunder. If the
Executive contests, in good faith, whether termination for "Cause" is proper,
said dispute shall be immediately referred to arbitration in Nassau County, New
York, in accordance with provisions of Paragraph 15. Pending the resolution of
such dispute, Company shall continue to pay Executive his salary and benefits.
Whether Executive must return any of said
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amounts if it is ultimately determined that termination for "Cause" was proper
shall be decided by the Arbitrator.
(b) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law, and except if the Company
terminates Executive's employment without Cause, and except under the
circumstances described in paragraph 8 below, the Company (and its Affiliates)
shall not be obligated to make any payments to the Executive or on Executive's
behalf of whatever kind or nature by reason of the Executive's cessation of
employment, other than (i) such amounts, if any, of Executive's salary and bonus
as shall have accrued and remained unpaid as of the date of said cessation and
(ii) such other amounts which may be then otherwise payable to the Executive
from the Company's benefits plans or reimbursement policies, if any.
8. Non-Competition.
(a) During the period during which Executive is employed
hereunder and, at the Company's option and subject to the Company continuing to
pay (except as provided in subparagraph (c) below) the Executive all salary and
benefits (but not stock options) paid to him in the year preceding his
termination or expiration hereof, during the one year period following such
termination or expiration (the "Non-Competition Period"):
(i) the Executive will not make any statement or
perform any act intended to advance an interest of any existing or prospective
competitor of the Company or any of its Affiliates in any way that will or may
injure an interest of the Company or any of its Affiliates in its relationship
and dealings with existing or potential customers or clients, or solicit or
encourage any other executive of the Company or any of its Affiliates to do any
act that is disloyal to the Company or any of its Affiliates or inconsistent
with the interest of the Company or any of its Affiliate's interests or in
violation of any provision of this Agreement;
(ii) the Executive will not solicit, divert or
take away, or attempt to divert or to take away, the business or patronage of
any of the clients, customers, dealers, distributors, representatives or
accounts, or prospective clients, customers, dealers, distributors,
representatives or accounts, of the Company or its Affiliates which were
contacted, solicited or served by employees of the Company while the Executive
was employed by the Company;
(iii) the Executive will not directly or indirectly
(as a director, stockholder, officer, executive, manager, consultant,
independent contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for,
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participate in or be connected with (i) any business or organization which
engages in competition with the Company or any of its Affiliates in the United
States or any other geographical area where any business is presently carried on
by the Company or any of its Affiliates, or (ii) any business or organization
which engages in competition with the Company or any of its Affiliates in any
geographical area where any business shall be hereafter, during the period of
the Executive's employment by the Company, carried on by the Company or any of
its Affiliates, if such business is being carried on by the Company or any of
its Affiliates in such geographical area during the Non-Competition Period; and
(iv) the Executive will not directly or indirectly
solicit for employment, or advise or recommend to any other person that they
employ or solicit for employment, any employee of the Company or any of its
Affiliates; and
provided, however, that the provisions of this Section 8(a) shall not be deemed
to prohibit the Executive's ownership of not more than five percent (5%) of the
total shares of all classes of stock outstanding of any publicly held company.
(b) (i) The Executive further agrees that the limitations set
forth in this Section 8 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate protection of
the businesses of the Company and its Affiliates. It is understood and agreed
that the covenants made by the Executive in this Section 8 (and in Section 6
hereof) shall survive the expiration or termination of this Agreement.
(ii) The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of this
Section 8 would be inadequate and, therefore, agrees that the Company and any of
its Affiliates shall be entitled to injunctive relief in addition to any other
available rights and remedies in cases of any such breach or threatened breach;
provided, however, that nothing contained herein shall be construed as
prohibiting the Company or any of its Affiliates from pursuing any other rights
and remedies available for any such breach or threatened breach.
(c) (i) in the event the Executive is terminated during the
Employment Term without "Cause," the Company will pay to the Executive his then
current salary and benefits during the one year following such termination in
order to enforce the non-compete agreement;
(ii) in the event the Executive is terminated for
"Cause," he will be bound by the non-competition agreement, but
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will not be paid any amounts with respect to the one-year period after the
termination of his employment;
(iii) if the Executive leaves voluntarily before
the end of the Employment Term, but is not terminated by the Company, the
Company will not pay the Executive any amounts, but the Executive will still be
bound by the non-competition agreement for the one-year period after his
departure;
(iv) if the Executive finishes his initial
Employment Term, he will be paid for his non-compete for the one-year period
after the expiration of the initial term; and
(v) if this agreement is renewed for subsequent
terms, the above terms shall apply as if each renewal term was the original
Employment Term.
9. Non-Assignability. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive, the Executive's beneficiaries,
or legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 9 shall preclude the Executive from
designating a beneficiary to receive any benefit payable hereunder upon the
Executive's death or incapacity.
10. Binding Effect. Without limiting or diminishing the effect of
Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns; except under no circumstances will the provisions
of paragraph 8 be binding upon the Executive's heirs, successors, legal
representatives or assigns.
11. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to the
Company, at the Company's principal place of business, and if to the Executive,
at Executive's home address set forth on the signature hereto, or to such other
address or addresses as either party shall have designated in writing to the
other party hereto.
12. Severability. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Section 6 or
8 hereof is void or constitutes an unreasonable restriction against the
Executive, such provision shall not be rendered void but shall apply to such
extent as such court may judicially determine constitutes a reasonable
restriction under the circumstances. If any part of this Agreement other than
Section 6 or 8 is held by a court of competent jurisdiction to be invalid,
illegible or incapable of being enforced in whole or in
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part by reason of any rule of law or public policy, such part shall be deemed to
be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
13. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
14. Life Insurance. The Executive agrees that any time and from time to
time during the Term, he will, at the request and at the expense of the Company,
cooperate with the Company in obtaining insurance on his life up to $10,000,000
for the benefit of the Company and/or its stockholders. At the request of the
Company, the Executive will take such actions and execute and deliver such
documents that may be reasonably required in connection with the obtaining of
such insurance. The Executive acknowledges that the Company has, and its
stockholders have, an insurable interest in his life.
15. Entire Agreement; Modifications. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
16. Governing Law and Arbitration of Disputes. This Agreement shall be
construed and enforced in accordance with the internal laws of the State of New
York without regard to the conflicts of law principles thereof. Any dispute
arising hereunder shall be settled by arbitration in Nassau County, New York, in
accordance with the rules then obtaining of the American Arbitration Association
("AAA"). One Arbitrator will be chosen by the parties who shall be an attorney
experienced in labor and employment law. If the parties cannot agree on the
identity of the Arbitrator, he will be appointed by the head of the AAA in
Nassau County.
17. Additional Agreements. Executive agrees that upon grant of any
options to purchase the Company's Common Stock, he will sign an underwriter's
lock-up letter in the form attached hereto as Exhibit A, and will otherwise
abide by any restrictions, lock-ups or other limitations applicable to
stockholders generally and required by the Company or any financing source or an
underwriter
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conducting an offering of the Company's securities or in connection with any
other transaction where same may be requested; e.g., a merger, stock swap or
similar transactions.
18. Counterparts. 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.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and
delivered this Agreement as of the day and year first above written.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark Fauci
-----------------------------
MARK FAUCI
/s/ Kevin McQuade
--------------------------------
KEVIN McQUADE
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form SB-2 of our report dated
October 19, 1998 relating to the financial statements of Omnicorder
Technologies, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Melville, New York
December 9, 1998
