<PAGE>
As filed with the Securities and Exchange Commission on October 23, 1998
Registration No. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMNICORDER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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<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.)
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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)
----------------------
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Copies to:
<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
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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>
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<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share (2) Price (1)(2)(3) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share............................ 1,265,000 shares $ 10 $12,650,000 $3,731.75
=================================================================================================================================
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(1) Includes 165,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Includes shares of Common Stock issuable pursuant to warrants granted to
the Underwriter. The warrants entitle the Underwriter to purchase a number of
shares of Common Stock equal to 10% of the aggregate number of shares of Common
Stock issued in the Offering. These warrants are exercisable at 120% of the
public offering issue price.
----------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
Initial Public Offering
Prospectus
OMNICORDER TECHNOLOGIES, INC. [LOGO]
1,100,000 Shares of Common Stock
[$ ] 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 .
The Offering
Per Share Total
--------- -----
Omnicorder Technologies,
Inc. provides advanced
Public Price......... screening services and
Underwriter clinical information for
Discount............ the early detection and
Proceeds to Company.. management of breast
cancer and other diseases.
Proposed Trading Symbol:
NASDAQ SmallCap MarketSM - OCTI
Pacific Coast Stock Exchange -
We currently anticipate that the initial public offering price will range
between $8.00 and $10.00 per share.
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 is our initial public offering, and no public market currently exists for
our shares. The offering price may not reflect the market price of our shares
after the offering.
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.
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.[left margin-in
red]
CAMBRIDGE CAPITAL, LLC [STOCK LOGO TO COME]
October ___, 1998
<PAGE>
The Front Wave of Health Technology
Photo Female
Of + Silhouette
Camera
= Colored Picture
Of Digital Breast
"The Company believes that the Omnicorder 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."
[COMPANY LOGO]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information and financial statements,
including accompanying notes, appearing elsewhere in this Prospectus.
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.
We will provide, free of charge and upon written or oral request of
anyone receiving this Prospectus, a copy of any of the information that was
incorporated by reference in the Prospectus (not including exhibits, unless the
exhibits are themselves specifically incorporated by reference). Such requests
should be directed to Omnicorder Technologies, Inc. at its address listed at the
end of this Summary, Attn: Investor Relations.
1
<PAGE>
The Company
Omnicorder Technologies, Inc. (the "Company") 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. The Company's initial endeavor,
using a patented technology called Dynamic Area Telethermometry ("DAT(TM)"),
provides a painless, non-contact, radiation-free screening and diagnostic
service for the early detection and management of breast cancer. The Company
believes that the DAT technology will provide physicians with increased
diagnostic capability, thus reducing the number of unnecessary surgical biopsies
and mistaken diagnoses.
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.
2
<PAGE>
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.
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 10% to 20% of
post-menopausal women who have cancer.
3
<PAGE>
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.
The Company believes DAT has significant advantages over x-ray
mammography and other existing breast cancer screening modalities, including:
o earlier detection of breast cancer.
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 physiological changes in a woman's breasts caused by
cancer, utilizing new patented infrared sensor technology provided under
exclusive license to the Company by the Lockheed Martin Corporation and the
California Technology Institute's Jet Propulsion
4
<PAGE>
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. As discussed later in
this Prospectus, these capabilities are critical in observing the physiological
changes which DAT analyzes to detect cancerous tumors.
The data collected will be analyzed utilizing DAT methods and software,
which was invented by Professor Michael Anbar. The DAT technology is patented
and under exclusive license to the Company. Professor Anbar is one of the
world's foremost authorities on biomedical applications of infrared imaging.
During the DAT screening examination, 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
the Company's proprietary software which will interpret the data according to
the diagnostic principles of DAT. The Company believes the DAT System can detect
minute disease related physiological changes in the breasts which occur as a
result of the release of nitric oxide by breast cancer cells.
5
<PAGE>
DAT. The results of this analysis will be provided to the patient's doctor. The
examination is anticipated to take less than 10 minutes.
The Company 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 of 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 the Company.
o maintenance, service and upgrades
The Company intends to sell regional licenses to market the DAT System
to large healthcare provider organizations which will, in turn, deliver the
Company's breast cancer screening service through their network of primary and
specialist physicians. The Company will provide the DAT System for a 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.
6
<PAGE>
The Company anticipates that the fee to the patient for an initial
screening examination will be approximately $50.00-$75.00. The Company 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. The Company 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. The Company will then request
FDA approval for marketing the DAT System as a stand-alone diagnostic tool, a
process anticipated to take two years from the time the Company receives FDA
clearance to market its service as an adjunct to existing diagnostic methods.
The Company 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. The Company 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
7
<PAGE>
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 the
Company .....................
Common Stock Outstanding
after the Offering (1).......
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 Small Cap Market
Symbol......................... [OCTI]
- -------------
(1) Does not include (i) 190,667 shares of common stock reserved for
issuance upon the exercise of outstanding warrants at an exercise price
of $3.40 per share (ii) 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 (iii) 250,000 shares of common
stock reserved for issuance pursuant to outstanding warrants ("Bridge
Warrants"), exercisable at $6.00 per share (iv) 44,000 shares of
Common Stock reserved for issuance upon vesting as per the Caltech
License Agreement and (v) any additional shares which may be issuable
pursuant to anti-dilution provisions of certain outstanding securities.
See "Certain Relationships and Related Transactions" and "Shares
Eligible for Future Sale". Unless otherwise indicated, the information
in this Prospectus does not give effect to the exercise of the
Underwriters' over-allotment option.
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.
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
8
<PAGE>
(inception) through December 31, 1997 are derived from the Company'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 the Company 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.
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<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
----------- ----------- -----------
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
</TABLE>
9
<PAGE>
(1) The as adjusted balance sheet data as of September 30, 1998 gives effect
to (i) the sale of the Shares offered hereby at an assumed initial
offering price of $9.00 per share and the application of the net proceeds
received therefrom; and (ii) 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."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should consider carefully the following factors, in
addition to the other information included in this Prospectus, before purchasing
any of the shares offered hereby.
Development Stage; Continuing Operating Losses. The Company was
incorporated in February 1997 and is in the development stage. As such, the
Company is subject to all of the business risks associated with a new
enterprise, including constraints on the Company's resources, lack of
established banking, supplier and distribution relationships and uncertainties
regarding product development and future revenues.
Since its inception, the Company 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. The Company has not derived any revenue from operations and has
incurred losses since inception, of approximately $918,000 through September 30,
1998, all of which has been funded by equity and debt financing. The Company
does not anticipate deriving any revenue
10
<PAGE>
from operations until such time as the DAT System is available for commercial
delivery as an adjunct to existing diagnostic methods, which is expected to
occur in the 4th calendar quarter of 1999. The Company 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."
The Company's ability to operate its business successfully will depend on
a variety of factors, some of which are outside the Company's 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 technologies.
o the actual and perceived efficacy of the DAT System.
o the Company's ability to maintain a constant supply of infrared
cameras and other components utilized in the DAT System.
The likelihood of success of the Company 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
11
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whether the Company will successfully implement its business objectives or that
the Company will achieve profitability.
Dependence 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 the Company'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. The Company 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 the Company's business, financial condition and
results of operations would be materially and adversely affected. In such event,
the Company 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
12
<PAGE>
use the DAT System or any other products or services developed by the Company.
The degree and rate of acceptance and market penetration which the Company
achieves will depend on many variables including, but not limited to,
establishing acceptance of DAT within the medical community by demonstrating its
clinical safety, efficacy and cost advantages as compared with existing cancer
detection technologies. Similar risks may confront other products or services
developed by the Company in the future. Failure of the Company's products or
services to gain market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations. See "BUSINESS
- - Competition."
The Company anticipates that a substantial period of time may be required
to convince caregivers that DAT is an effective adjunct 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 the Company's attempt to receive FDA approval to use
the DAT System as a stand-alone method of diagnosis (see "RISK FACTORS
Government Regulation" below). While the Company 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
13
<PAGE>
of DAT 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.
Significant Capital Requirements; Need for Additional Financing. The
Company's capital requirements in connection with its product development and
marketing activities will be significant. The Company will be dependent upon the
proceeds of the Offering to fund its development and initial commercialization
activities, including the 3,000 women field test recently begun. The Company
believes, but there can be no assurance, that the proceeds of the Offering will
be sufficient to fund the Company's operating requirements for a period of
approximately 24 months after the closing of the Offering. See "USE OF
PROCEEDS."
The Company'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 the Company'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 the Company, or at all.
14
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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
the Company's ability to incur additional indebtedness. The failure of the
Company 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 the Company's business, financial condition and results of operations.
Technology Development Incomplete. The Company has not yet completed
development of all components of the DAT System. Specifically, development of
the Company's diagnostic software, and the integration of components of the
infrared camera are still in progress. The Company 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, the Company is currently negotiating a license with a
third party for its information network software. See "BUSINESS - Information
Network." The Company requires an information network to allow physicians and
medical centers designated by the Company to communicate with respect to
analysis of test results of screening 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 the Company secures
a license for the network software, a process that is underway, but not yet
complete. The Company estimates that this integration will take approximately
six to nine months from the time the Company obtains a license for the required
network software. The Company 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."
Limited Marketing Experience; Limited Personnel. The Company currently has
limited marketing experience and limited financial, personnel and other
resources to undertake the extensive marketing activities necessary to market
the DAT System. The Company'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. The Company 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 the Company 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."
15
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Government Regulation; No Assurance of Regulatory Approvals. The Company's
products and manufacturing activities are subject to extensive government
regulation, both in the United States and abroad (see "BUSINESS - Government
Regulation"). The manufacture, packaging, labeling, advertising, promotion,
distribution, and sale of the Company's products are subject to regulation by
numerous national and local governmental agencies in the United States and other
countries.
In the United States, the U.S. Food and Drug Administration (FDA)
regulates the Company's products under the Federal Food, Drug, and Cosmetic Act
(FDC Act) and regulations promulgated thereunder. The Company's products are
also subject to regulation by, among others, the U.S. Department of Agriculture
and the Environmental Protection Agency. Advertising and other forms of
promotion and methods of marketing of the Company's products are subject to
regulation by the U.S. Federal Trade Commission (FTC), which regulates these
activities under the Federal Trade Commission Act (FTC Act). The manufacture,
labeling, and advertising of the Company's products are also regulated by
various state and local agencies as well as those of each foreign country to
which the Company distributes 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:
16
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(i) Telethermographic systems and their components and accessories are
currently classified as Class I devices that require a premarket notification
under Section 510(k) of the the Federal Food, Drug and Cosmetic Act (FFDC ACT),
when they are intended for "adjunctive 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, i.e., primary means of diagnostic screening for breast cancer,
such devices are classified as Class III devices requiring an Approved Premarket
Approval application (PMA) before marketing.
The Company hopes to obtain 510(k) market clearance from the FDA to
market the DAT System as an adjunct to existing breast cancer screening
modalities. In order to obtain clearance for marketing under section 510(k), the
FDA must be able to conclude that the Company's device is substantially
equivalent to a legally marketed device. The FDA may require additional data to
support making a substantial equivalence determination, and there is no
assurance that the FDA will find the Company's device substantially equivalent.
If the FDA finds that the device is not substantially equivalent, a
risk based classification designation may be pursued 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 not substantially equivalent letter or if,
after a risk based classification, the FDA determines that a class III
designation is appropriate, a PMA will be required to be approved before the
device may be marketed. The process of obtaining a PMA is lengthy, expensive,
and uncertain and typically requires, among other things, extensive clinical
data from a well-controlled clinical trial.
17
<PAGE>
(ii) In addition, for devices cleared for marketing under Section
510(k) the FDC 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 PMA
process require approved supplements for device changes that affect safety or
effectiveness. Manufacturers are responsible for making the initial
determination regarding whether or not changes require subsequent submissions
and approvals or clearances. At the administrative level, 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 the company that changes to a device do not require FDA review and
clearance or approval.
In the event FDA were to require the filing of a new 510(k)
notification, a PMA, or a PMA supplement for a change, the Company would be
prohibited from marketing the modified DAT System until the FDA reviews and
clears or approves the new 510(k) notification, PMA, or PMA supplement. The
Company anticipates that changes to the DAT System will be necessary in
connection with the ramping up of the Company's production cycle, and on an
ongoing basis. Some or all of these changes may require FDA 510(k) clearance or
PMA approval. Failure to obtain timely or any clearance or approval for
marketing of the Company's medical devices could have a material adverse effect
on the Company's business, financial condition and results of operations.
(iii) The FDA also requires that manufacturing conform to strict
quality assurance standards required by Good Manufacturing Practices ("GMP")
regulations. A new set of regulations, called
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the Quality Systems Regulations, went into effect June 1, 1997. The regulations
require that medical device manufacturers comply with various requirements,
including those pertaining to design controls, purchasing controls, organization
and personnel, buildings, environmental control, cleaning and sanitation,
equipment and calibration of equipment, purchasing and acceptance of supplies,
components and services, 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. GMP requirements are enforced via
periodic FDA inspections of device facilities. The Company believes, but there
can be no assurance, that the Company and its suppliers will attain and maintain
compliance with these standards. Further, any changes in manufacturing
facilities or methods may require a PMA supplement or a new premarket
notification submission under Section 510(k).
(iv) FDA's law and regulations additionally require Medical Device Reports
to the agency of device-related deaths, serious injuries, and malfunctions, the
recurrence of which would likely cause death or serious injury. These reports
can cause 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, icluding class actions. Medical Device Reports, depending
upon their significance, could have a material adverse effect on the Company's
ability to market its products.
(v) In addition, the nature of marketing claims the Company 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 FDC Act. Noncompliance with
any applicable FDA requirements can result in, among other things, PMA
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
cost of any devices manufactured or sold by the Company. Any of these sanctions
may have a material adverse effect on the Company's business, financial
condition, and results of operations,
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and could materially adversely affect the Company's ability to successfully
market its products.
(vi) The Company's advertising of its products also is subject to
regulation by the FTC under the FTC Act. Section 5 of the FTC Act prohibits
unfair methods of competition and unfair or deceptive acts or practices in or
affecting commerce. Section 12 of the FTC Act provides that the dissemination or
the causing to be disseminated of any false advertisement pertaining to medical
devices is an unfair or deceptive act or practice. Under the FTC'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. Failure to adequately substantiate claims may
be considered either as a deceptive or unfair practice. Pursuant to this FTC
requirement, the Company is required to have adequate substantiation for all
advertising claims made about its products. The type of substantiation necessary
will be dependent upon the product claims made.
The FTC has a variety of processes and remedies available to it for
enforcement, both administratively and judicially, including compulsory process
authority, cease and desist orders, and injunctions. FTC enforcement could
result in orders requiring, among other things, limits on advertising, consumer
redress, divestiture of assets, rescission of contracts, and such other
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relief as may be deemed necessary. Violation of such orders could result in
substantial financial or other penalties. Any such action by the FTC could
materially, adversely affect the Company's ability to successfully market its
products.
(vii) In markets outside the United States, prior to commencing operations
or marketing its products, the Company may be required to obtain approvals,
licenses, or certifications from a country's ministry of health or comparable
agency. The Company 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 the Company's products are sold.
The Company 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 the Company.
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Dependence on Third Party Manufacturers. The Company has used third
parties to manufacture and deliver the infrared cameras and other components
used in field tests, and it intends to continue to
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do so for the DAT System and any other products which the Company may seek to
develop. Such third parties must adhere to the current GMP 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 the Company depends for the manufacture of the DAT System will
be able to comply with the GMP 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 PMA application approval for
the DAT System, which failure could have a material adverse effect on the
Company'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 the Company 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. The Company would also then have to seek
alternative suppliers. If that happens, there can be no assurance that the
Company will be able to readily enter into alternative supply arrangements at
commercially acceptable rates, if at all.
While the Company believes it has located adequate sources of supply for
all components of the DAT system, there can be no
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assurance that such sources will be able to maintain supply of all components as
required by the Company. If the Company 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. The Company's dependence on third
parties for the manufacture of its products may adversely affect the Company's
profit margins and its ability to develop and deliver its products on a timely
and competitive basis. See "BUSINESS - Supplies."
Patents and Proprietary Information. The Company, in accordance with the
Professor 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 have been disallowed by the U.S.
patent office due to potential conflicts with prior art. The claims have been
resubmitted, with the appropriate supporting documentation, for reconsideration
by the patent office. There can be no assurance that the pending or issued
patents will provide meaningful protection from competition. The Company'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
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confidentiality agreement. There can be no assurance that the Company's
confidentiality agreements and other safeguards will protect its proprietary
information and trade secrets or provide adequate remedies for the Company 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 the Company 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 the Company 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. The Company 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 the Company's products or require
licenses and the payment of royalties by the Company, although the Company has
no information indicating that these circumstances exist. It is possible that
after the patents that the Company 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
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and/or design embodied in the DAT System and seek to compete with the Company.
If that should occur, the Company 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 the Company will be able to do
so. Although to date no claims have been brought against the Company alleging
that the DAT System infringes the intellectual property rights of others, and
the Company is not aware of any such claims or potential claims, there can be no
assurance that such claims will not be made against the Company 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, the Company 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 the Company
becomes involved in such litigation, it may require the expenditure of
significant Company resources, and if such a claim were successful, the
Company's business, financial condition and results of operations could be
materially adversely affected.
Competition. The Company 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
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technologies aimed at the same market niche as DAT, and there may be others of
which the Company is unaware (see "BUSINESS - Competition"). The Company's
potential competitors may succeed in developing products that are more effective
or less costly (or both) than the Company's products, and such competitors may
also prove to be more successful than the Company in manufacturing, marketing,
and sales. Some of the Company's potential competitors may be large,
well-financed and established companies that have greater resources than the
Company, and, therefore, may be better able than the Company to compete for a
share of the market even in areas in which the Company may have superior
technology. See "BUSINESS - Competition."
The Company also competes with existing diagnostic alternatives, most
notably x-ray mammography (see "RISK FACTORS - Uncertainty of Market
Acceptance"). Significant barriers to the Company's success are posed by these
existing alternatives. See "BUSINESS - Competition".
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, the ability of the
Company 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.
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There can be no assurance that the Company's competitors will not develop
technologies or products that render the DAT System obsolete or less marketable.
It is also possible that the Company will not be able to successfully enhance
its proposed products or technology or adapt them satisfactorily to changing
market conditions.
Dependence on Qualified Personnel. The success of the Company 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 the Company's operations. The
Company has obtained $4,000,000 of key person life insurance on Mr. Fauci,
although 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 the Company believes that he
has been and will continue to be an important resource for the Company, the
Company does not believe that the loss of Professor Anbar's services would
materially, adversely affect the Company. The Company believes that since
Professor Anbar has published his work, has transferred or licensed all relevant
intellectual property rights to the Company and is substantially delegating the
development of the DAT System to other Company personnel, the loss of his
services may delay the commercialization of the DAT System, but for a period the
Company anticipates would be no more than six
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months. The Company has not obtained key-man insurance on Professor Anbar and
has no plans to do so.
The success of the Company is also dependent upon its ability to hire and
retain additional qualified scientific, sales, marketing and managerial
personnel. The Company will only have limited personnel as of the close of the
Offering. See "MANAGEMENT." The Company 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 the Company's industry, and there can be no assurance
that the Company will be able to attract and retain qualified personnel.
Uncertainties Regarding Third-Party Reimbursement and Health Care Reform.
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. There can be no assurance that third-party reimbursement
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will be available for the DAT System or that any part of the cost of services
provided by the DAT System will be covered by such reimbursement. During the
past several years, the major third-party payors for hospital services have
substantially revised their payment methods to contain health care costs. The
Company 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 the Company believes that licensed services which
incorporate the DAT System will be widely reimbursed by third-party payors in
the future, the Company 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 the Company's growth.
Risk of Product Liability Claims. The nature of the Company's products may
expose the Company to product liability risks. Although the Company has obtained
$2,000,000 of product liability insurance coverage and plans to obtain at least
$5,000,000 of such coverage before sales of licensed services which incorporate
the DAT System begin, such insurance is becoming increasingly expensive. There
can be no assurance that such insurance will provide adequate coverage against
product liability
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claims. In addition, certain of the Company's key license agreements require
such coverage to be maintained once the Company begins selling licensed
services. While no product liability claims are pending or threatened against
the Company to date, a successful product liability claim against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition or results of operations.
Limitation of Liability and Indemnification. The Company's Certificate of
Incorporation limits, to the maximum extent permitted by the Delaware General
Corporation Law ("Delaware Law"), the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, 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 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
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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 rescission, for a director's breach of the duty
of care.
The Company may enter into indemnification agreements with its directors
and officers which may require the Company, 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 directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company 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.
Absence of Prior Public Market; Possible Volatility of Stock Price;
Determination of Offering Price. Prior to the Offering, there has been no public
market for the Common Stock. Although the
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Company has applied for listing of the shares of Common Stock offered hereby on
the Nasdaq Small Cap Market (see "No Assurance of Continued Nasdaq Listing"
below), there can be no assurance that an active trading market will develop or
be maintained. 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.
The initial public offering price for the shares of Common Stock offered
hereby will be determined by negotiations between the Company 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
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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 the
Company operates.
o the assessment of the Company's management.
o the past and present operations of the Company.
o the prospects for future earnings of the Company.
o the present state of the Company's 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.
A decline in the trading price of the Common Stock could also impact
negatively upon the Company's ability to raise additional equity capital in the
future.
Possible Anti-Takeover Effects of Delaware Law. The Company 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
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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 the
Company's stockholders and also could limit the price certain investors might be
willing to pay in the future for shares of Common Stock of the Company.
Availability of Preferred Stock for Issuance. In addition to authorized
shares of Common Stock, the Company's Certificate of Incorporation, authorizes
the issuance of up to 1,000,000 shares of Preferred Stock. The Board of
Directors of the Company 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. The Company has
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certain restrictions on its ability to issue securities, including the 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, the Company's founder, will beneficially own _____% of the outstanding
Common Stock. As a result, Mr. Fauci will be able to effectively control
virtually all matters requiring approval by the stockholders of the Company,
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 the five current directors of the Company. See "MANAGEMENT" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Shares Eligible for Future Sale. Upon completion of this Offering, the
Company will have __________ shares of Common Stock outstanding (______ shares
if the Underwriters' over-allotment option is exercised in full). The ______
shares offered hereby (______ 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
"Affiliates" of the Company, as such term is defined in Rule 144 promulgated
under the Securities Act. The outstanding shares of Common Stock prior to the
Offering are
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"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 the Company, 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.
The Company and each of the stockholders of the Company, 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 of the
Company, 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 the stockholders of the Company prior to the Offering, including shares of
Common Stock issuable pursuant to warrants and
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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 the Company'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 the Company'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) the Company 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, for a maximum of three times. 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, if the Company issues
Common Stock, or securities convertible into Common Stock, at a price of less
than $3.40. The number of shares would be that amount which such
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persons would have received had they purchased shares of Common Stock at such
lower price, using the same dollar amount of their initial investment.
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, 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 not exercisable until 12
months after the Offering. 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 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.
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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 the Company's expense.
No Assurance of Nasdaq Small Cap 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 Small Cap 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. The Company 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
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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 the Company will continue to satisfy
the requirements for maintaining a Nasdaq Small Cap listing. If the Company'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 the Company
would be required to again comply with the initial listing requirements to be
relisted on Nasdaq.
If the Company 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
the Company satisfied certain net asset and revenue tests, the Company's
securities would become subject to certain "penny stock" rules promulgated by
the Securities and Exchange Commission. 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
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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. The Company 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."
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
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adverse impact on its ability to market the securities offered hereby as well as
the development and maintenance of a trading market for the Company's securities
following the Offering. Cambridge intends to make a market in the Company'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 the Company's Common Stock and
the ability of purchasers in the Offering to resell their shares. The officers
and directors of the Company do not have a material relationship with Cambridge.
See "UNDERWRITING."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of an
estimated 1,100,000 shares of Common Stock offered hereby (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, legal,
accounting, printing and other estimated expenses of the Offering payable by the
Company.
The Company anticipates using the net proceeds of $8,213,000 from the
Offering as follows. If the overallotment option is
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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.
The foregoing represents the Company'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, the Company will have broad
discretion as to the application of a significant portion of the net proceeds.
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.
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<PAGE>
The following table sets forth the short-term debt and the total
capitalization of the Company (i) as of September 30, 1998, and (ii) 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>
Short-term debt $ 125,000 $
------------ -----------
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
----------- ----------
Total capitalization including short-term debt $ 829,048 $8,169,131
----------- ----------
</TABLE>
(1) The as adjusted information as of September 30, 1998 gives effect to (i)
the sale of the Shares offered hereby at an assumed initial offering
price of $9.00 per share and the application of net proceeds received
therefrom; and (ii) 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 (i) 190,667 shares of Common Stock reserved for issuance
upon the exercise of outstanding warrants at an exercise price of $3.40
per share; (ii) 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; (iii) 250,000 shares of Common Stock reserved
45
<PAGE>
for issuance pursuant to outstanding warrants, exercisable at $6.00 per
share; (iv) 44,000 shares of Common Stock reserved for issuance upon
vesting as per the Caltech license agreement; and (v) 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
The Company 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 the Company's Board of Directors of such factors as it deems
relevant at the time and the restrictions imposed by the terms of the Company'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, the Company will have no debt
obligations that impose restrictions on the payment of dividends. However, the
Board of Directors believes that the future earnings of the Company, if any,
should be retained for the development of the Company's business.
DILUTION
Purchasers of the Shares 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
46
<PAGE>
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, the Company had a
net tangible book value (total tangible assets less total liabilities) of
$704,048, or approximately $.30 per share of Common Stock. Without taking into
account any other changes in such net tangible book value of the Company 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, the net
tangible book value of the Company 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>
<CAPTION>
<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>
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<PAGE>
The following table summarizes, as of September 30, 1998, the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by existing stockholders and
by new investors 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 the
Company):
<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: (i) 190,667 shares of Common
Stock issuable upon the exercise of outstanding warrants at an exercise price of
$3.40 per share; (ii) 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;
(iii) 250,000 shares of Common Stock issuable pursuant to outstanding warrants,
exercisable at $6.00 per share; (iv) 44,000 shares of Common Stock reserved
for issuance upon vesting as per the Caltech License Agreement; and (v) 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."
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 the
Company's results of operations and financial condition.
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<PAGE>
The discussion should be read in conjunction with the Financial Statements of
the Company 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. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Overview
The Company 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. The
Company has not generated any revenues to date and has incurred substantial
operating losses from these business development activities. The Company 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
The Company's cumulative net losses since inception are attributable to
the fact that the Company 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 and related party legal expenses
primarily consist of legal, accounting and an officer's salary. Research and
development expenses principally consists of funding of research and development
to the Company's founding scientist and a license for technology from Caltech.
In connection with the acquisition of the exclusive license to exploit infrared
detection technology from Caltech, the Company 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).
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<PAGE>
Liquidity and Capital Resources
The Company is in the development stage and currently has no sources of
revenue. At December 31, 1997, the Company 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. The Company 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, the Company 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, the Company sold an aggregate of $750,000 of its 10%
Exchangeable Senior Bridge Notes (the "Bridge Notes") and 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 the Company fails
to deliver to 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 the Underwriter is not willing to complete the
Company's IPO at a price of at least $8 per share, and the Company 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 Warrants would
be 125,000. The maturity of the Bridge Notes can also be extended to
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<PAGE>
September 30, 1999, if the Underwriter is not willing to complete the Company's
IPO at a price of at least $9 per share and the Company 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 the
Company, if they agree to defer the Company's 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 the Company's research and development, general and
administrative and legal expenses and capital expenditures. The Company's
capital requirements in connection with its product development and marketing
activities will be significant. The Company 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. However, there can be no assurance that the
Company 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.
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<PAGE>
Should the Company 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 the Company, or at all. Additional equity financing or equipment
lease or other debt financing, if available, may include restrictive covenants,
including financial maintenance covenants restricting the Company's ability to
incur additional indebtedness and to pay dividends. The failure of the Company
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 the
Company's business, financial condition and results of operations.
Year 2000 Compliance Program
The Company has implemented a Year 2000 program to ensure that the Company and
the Company's vendors' and business partners' computer systems and applications
will function properly beyond 1999. The Company 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.
The Company has received verbal assurance from those vendors and business
partners that they and their respective suppliers are Year 2000 compliant.
Although the Company believes all of its systems are and will be Year 2000
compliant, there can be no assurances that all of the Company's vendors' and
business partners' systems will be Year 2000 compliant. The Company's cost to
comply with the Year 2000 initiative is not expected to be material.
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, the Company 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,
52
<PAGE>
under exclusive license to the Company, combined with the Company'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 the Company at major medical centers throughout the country, the results of
which will then be provided to the physician.
The Company will rely upon various intellectual property to deliver its
breast cancer screening and diagnostic services. The Company 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, the method used to analyze data collected by the infrared cameras
to determine the likelihood of cancerous tissue in the breast and surrounding
areas. The Company is the exclusive licensee of the Anbar Patent for all
applications worldwide. See "The Anbar License Agreement" below.
53
<PAGE>
The Company will also utilize infrared detector technology under exclusive
licenses from the California Institute of Technology's Jet Propulsion Laboratory
and the Lockheed Martin Corporation, respectively. See the "Caltech License
Agreement" and the "Lockheed Martin License Agreement" below.
The Company is negotiating a license for certain software from a third
party. This software is intended to manage the data collected throughout the
Company's network of participating healthcare centers. This highly secure,
mission critical network, will be designed to transmit encrypted information
over the Internet or intranet. The Company believes that if this license is not
successfully negotiated, alternatives are available to effect the required
functions of this software. See "Information Network", below. See also "RISK
FACTORS - Technology Development Incomplete".
The Company believes DAT has significant advantages over x-ray mammography
and other existing breast cancer screening modalities, including:
o earlier detection of breast cancer.
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).
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<PAGE>
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.
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.
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<PAGE>
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.
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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(degree)) 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.
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.
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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 the Company'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, the Company 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, the Company 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.
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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
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<PAGE>
breast tissue. This detector technology, which the Company subsequently licensed
for certain medical 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. See "Licensing and Patents - The Caltech License
Agreement" below.
How DAT Will Be Delivered to the Public
The Company 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, surgeons and
oncologists) and select primary care providers. The DAT System will consist of
an infrared camera, a
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customized computer workstation and other associated hardware, the Company's
proprietary analysis software and the training necessary to utilize DAT as a
screening and diagnostic technique.
The Company 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 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 DAT services 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 the property of the Company. The Company will maintain and upgrade
the hardware and software as part of the license agreement.
The Company anticipates that the cost to the patient of the initial
screening examination will be $50-$75. The Company 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.
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The Patient Encounter
The Company believes that, in addition to the anticipated superior
detection capabilities, a strong advantage of DAT will be the enhanced patient
experience. The Company believes that the quality of the patient's experience
will lead to greater participation in early breast cancer screening. The Company
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. DAT 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. If the DAT System indicates a possible area of
concern, primary care physicians may, in their discretion, forward the results
for
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analysis to a regional medical center which the Company has designated as a "DAT
Center of Excellence". The results will be transmitted through the Company's
information distribution network. See "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
The Company 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 DAT compared with x-ray mammography and other modalities. The
study is expected to be completed by October, 1999.
In late 1997 and early 1998, the Company 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, DAT determined that cancer existed in patients that were deemed
negative by screening with x-ray mammography, and DAT's
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assessment in these cases was confirmed by biopsy. The Company believes that the
recently commenced 3,000 women field test will establish DAT's efficacy as an
adjunct tool to reduce the rate of false positives and thereby reduce
unnecessary biopsies. Additional clinical tests will be necessary in connection
with the Company's PMA application, to be filed with the FDA to permit the
Company to market DAT on a stand-alone basis. See "Government Regulation" below.
Licensing and Patents
The acquisition and licensing of intellectual property integral to the DAT
System is a critical aspect of the Company's strategy. The Company 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 - The Company entered into an agreement in May,
1998 (the "Caltech License Agreement) with the California Institute of
Technology's Jet Propulsion Laboratory ("Caltech") pursuant to which the Company
was granted the exclusive license 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
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Caltech Technology was originally developed for earth/space science and weapon
systems applications, by the joint effort of:
o The Jet Propulsion Laboratory.
o Center for Space Microelectronics Technology.
o National Aeronautic and Space Administration ("NASA") Office of
Space Access and Technology.
o Ballistic Missile Defense Organization/Innovative Science and
Technology Office.
Under its agreement with Caltech, the Company has acquired an exclusive
license for the worldwide use of the Caltech Technology in the field of
detection of infrared radiation from tissue, organs and organ systems (the
"Field") for commercial medical applications.
The Caltech License Agreement provides the Company with the rights to
enter into agreements to exploit the Caltech Technology worldwide in the Field,
on an exclusive basis, subject to payment of certain royalties for (i) revenues
received by the Company from licensed products and services, but not including
revenues from sublicenses; and (ii) revenues received by the Company from
sublicenses other than (i) those from related companies for the sale of licensed
products and services; and (ii) 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 the
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Company'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 the Company terminates the Caltech License
Agreement prior to the dates set forth above.
The Company is required to use reasonable commercial efforts to exploit
the Caltech Technology. The Company must pay Caltech a minimum royalty of
$10,000 per year as a condition of this license, commencing in the period May 1,
1999 - May 1, 2000. The Company is entitled to manufacture cameras utilizing the
Caltech Technology in a manner of the Company's choosing.
The Lockheed Martin License Agreement - The Company entered into an
exclusive license agreement with the Lockheed Martin Corporation on September
18, 1998 (the "Lockheed Martin License Agreement"). Pursuant to this agreement,
the Company 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"). The EQWIP technology
is protected by a patent owned by Lockheed Martin Corporation. The Company also
has been licensed the same rights
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with respect to patent filings on the Lockheed Martin technology in Canada,
Norway, Japan, France, Germany and Great Britain. In order to maintain
exclusivity, the Company 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 the Company's
installed base of diagnostic equipment and required levels of royalty generating
installations. However, the Company does not believe that a loss of exclusivity
under this Agreement would result in a material adverse effect on the Company.
The Company must also utilize the Lockheed Martin technology in at least 10% of
its DAT System installations as a condition of continuation of the license.
The Company has agreed to pay Lockheed Martin Corporation a royalty on
revenues it derives from utilization of the EQWIP technology. The Company has
also agreed to license back to Lockheed Martin Corporation any improvements the
Company makes to the EQWIP technology for uses in which the Company does not
retain exclusivity. Under certain conditions, the Company may sublicense its
rights to develop specific territories and markets to third-parties, subject to
consent of Lockheed Martin Corporation. The Company is entitled to exclusively
utilize any improvements to the EQWIP technology developed by Lockheed Martin
Corporation. The Company is permitted to employ a manufacturer of its choosing
to manufacture cameras incorporating the EQWIP technology.
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The Anbar License Agreement - In March 1997, the Company entered into an
option agreement with Professor Michael Anbar ("Anbar") pursuant to which the
Company 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 the Company achieved the requisite financing which was
necessary to execute the Anbar License Agreement. In March 1998, the Company
funded the required research budget and released 440,000 shares of previously
reserved Common Stock to Professor Anbar. The Company was also assigned certain
related pending patents. Pursuant to the Anbar License Agreement, the Company is
obligated to pay Professor Anbar a royalty for each DAT System installed at a
client site.
The Company funded a research and development budget which is being used
by Professor Anbar to support the Company'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 the
Company and to
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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 the Company 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 the Company (see "MANAGEMENT
Employment Agreements"). As of September 30, 1998, approximately $256,000 of the
research budget is remaining which is expected to be utilized over the next
4 months. All intellectual property or devices or discoveries arising out of
this research will become the sole property of the Company.
Information Network
The Company is negotiating a software license agreement with a third
party, pursuant to which the Company 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. The Company 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, the
Company anticipates that it may form the basis of a general purpose electronic
patient record and may open an additional field of commercial endeavor for
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the Company at a future date. The Company believes that if this license is not
successfully negotiated, alternatives are available to effect the required
functions of this software.
Government Regulation
FDA Regulations. The Company's products and manufacturing activities are
subject to regulation by the FDA and by state, local, and foreign authorities.
Pursuant to the FDC Act and the 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 PMA.
The Company 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
screening service to existing FDA cleared or approved screening methods. If a
510(k) clearance is granted, the Company will then begin marketing the DAT
System as an adjunctive modality. In parallel, the Company intends to commence
PMA clinical trials to demonstrate the safety and effectiveness of the DAT
System as a stand-alone breast cancer screening modality. The PMA process is
discussed below. There can
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be no assurance that the Company will receive 510(k) clearance to market the DAT
System as an adjunctive diagnostic screening system under either Section 510(k)
of the FDC Act or approval to market DAT as a stand-alone diagnostic screening
system under the PMA process.
The Company intends to submit for 510(k) clearance in 1999 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 DAT substantially equivalent to a
predicate device as an adjunctive diagnostic screening device, thus permitting
the device to be marketed, the Company intends to use the field test to help
promote the sale of the DAT System. However, the FDA may request additional
information to demonstrate substantial equivalence, including clinical
information. If the agency requests clinical data, the Company anticipates
submitting the results of the field test to the FDA. When additional information
is submitted to FDA, the agency will often restart the submission review clock.
This is particularly true when the additional information includes clinical
data.
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 and adherence to the FDA's CGMP 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.
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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.
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 PMA. 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 PMA approval requirement. The FDA may
determine that a proposed device is not substantially equivalent to a legally
marketed device, in which case a PMA will be required to market the device,
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.
A PMA 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 for which the FDA
has called for
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PMAs. A PMA 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
one pathway 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 ("IDE") 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, without FDA approval. However, the FDA can challenge an IRB
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 IDE may not
be commercialized, e.g., promoted as safe or effective, sold for profit or used
beyond legitimate research needs.
The FDC 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.
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Supplements for approved PMA 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 pursuant to an approved PMA,
the manufacturer must obtain FDA approval of a supplement to the PMA prior to
marketing the modified device.
Breast cancer screening devices that use infrared detection
instrumentation (such as that used in the DAT System) intended to be used by
physicians as an adjunct 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 are currently classified as Class III devices, requiring an
approved PMA before marketing.
The FDC Act requires device manufacturers to comply with CGMP 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;
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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 the Company 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 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 FDC Act.
The Company's product advertising is also subject to regulation by the FTC
under the FTC Act, which prohibits unfair methods of competition and unfair or
deceptive acts or 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 FTC's "substantiation doctrine," an
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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.
Products for export are subject to foreign countries' import requirements
and the FDA's exporting requirements. The introduction of the Company's products
in foreign markets may subject the Company 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, the Company
must also comply with United States laws governing the export of products
regulated by the FDA. Devices that have obtained 510(k) clearance or PMA
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 a CPE, 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 CGMPS at the time of the last FDA inspection.
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Under the FDA Export Reform and Enhancement Act of 1996, an unapproved
Class III device, a device subject to an IDE, 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 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 CGMP 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 PMA
would be required to market the product in the United States is to satisfy the
following requirements (found in Section 801(e)(2)): (i) the device accords to
the specifications of the foreign purchaser, (ii) the device is not in conflict
with the laws of the country to which it is intended for export, (iii) the
device is labeled that it is intended for export; (iv) the device is not sold or
offered for sale in domestic commerce, and (v) 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
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permit export to countries where marketing authorization from a listed
country or authority under Section 802(b)(1)(A) is not obtained.
The failure of the Company to comply with applicable FDA regulatory
requirements could result in, among other things, PMA 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 FTC 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. FTC 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 FTC could materially
adversely affect the Company's ability to successfully market its products.
Franchising. As noted above (see "BUSINESS - How DAT Will Be Delivered to
the Public"), the Company 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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The Company'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 the
registration of the Company 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 the Company and its management, the
terms of the license being offered, the Company'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 the Company to attract licensees and influence
their determination to enter into license agreements with the Company; the
registration of all employees or third parties who may or will be involved in
the offer and granting of the Company's licenses; and, which laws, rules and
regulations will circumscribe the representations which the Company and its
representatives may make when offering licenses.
Further, certain franchise and/or business opportunity laws will govern
aspects of the Company's relationships with its licensees, including (without
limitation): the circumstances under which a license granted by the Company may
or may not be terminated; the circumstances under which a license granted by the
Company must, or need not be, renewed; limitations on the number of licenses
which
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the Company may grant within any geographic area; prohibitions on the Company
discriminating among similarly situated licensees; and, under certain such laws,
a requirement that the Company repurchase certain equipment and supplies from
licensees upon termination or non-renewal of their licenses. The Company
believes, but there can be no assurance, that such laws and regulations will not
materially adversely impact the Company's business as currently contemplated.
The Company intends to fully comply with all federal and state franchise
and/or "business opportunity" laws, rules and regulations which may or will
apply to the Company'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. The Company
believes, but there can be no assurance, that the Company 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 the
Company from granting any licenses in any or all franchise and/or business
opportunity law jurisdictions; significant fines and other civil penalties;
imprisonment; seizure
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of all funds acquired by the Company 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 the
Company'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 the Company actual and punitive damages; rescission; restitution;
and, attorneys' fees. Under some of these laws, treble damages may be awarded to
licensees. Should the Company 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 the Company's business, financial
condition and/or results of operations.
Competition
The DAT System will be compared with existing screening and diagnostic
modalities to first determine its efficacy as an adjunct to existing modalities
and, eventually, as a stand-alone modality. 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
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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:
(i) 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.
(ii) 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.
(iii) 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."
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(iv) 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.
(v) 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. The Company believes, however,
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that these other companies employ less effective technologies than the DAT
System.
One such company is planning to provide services using older, and in the
Company's opinion, less sophisticated and effective single detector or shortwave
infrared focal plane array infrared hardware. Shortwave (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 the
Company's but, in the Company's opinion, relies on methods of analysis that are
more likely to produce inaccurate results due to the subjective nature of the
data analysis. The Company believes that this company's methodology may infringe
upon the Anbar Patent, but the Company 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 the Company 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
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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 PMA 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 the Company, such 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 PMA
to market its device as an adjunct. This company has not begun marketing its
technology.
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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 PMA before being marketed in the U.S. There are efforts being
made to market this process in Europe.
The Company 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> <C>
X-Ray Mammography $100 Widely available and 1) High operator dependence; 2)
accepted Fear of 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) Better intensive procedure; 3) Limit use
than x-ray with dense to diagnostic applications.
breast tissue.
- -----------------------------------------------------------------------------------------------------------------------------
MRI $800+ 1) No radiation; 2) No 1) High operator dependence;
breast compression; 3) 2) Time intensive procedure;
Potentially more 3) Limit use to diagnostic
sensitive and specific applications; 4) Limited to
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)
breast compression. high false positive rate.
- -----------------------------------------------------------------------------------------------------------------------------
Laser $100-$200 1) No ionizing 1) High operator dependence; 2)
Transillumination radiation; 2) No Relies on structural defects
breast compression. similar to x-ray mammography; 3)
Experimental.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
=============================================================================================================================
Modality Cost/Test Pros Cons
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
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
diagnosis applications.
=============================================================================================================================
</TABLE>
Marketing
The Company's marketing strategy is geared towards taking advantage of
current healthcare trends and is intended to be implemented in two distinct
phases: (i) the Pilot Phase, which the Company expects to be completed within
approximately 12 months after the Offering; and (ii) 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.
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The Company believes that the DAT System will reduce overall
costs of healthcare delivery by (i) reducing the screening fee
(versus x-ray mammography); (ii) reducing false positives, thereby
reducing the costs entailed in unnecessary surgical biopsies; and
(iii) 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. The Company 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. A recent trend in healthcare has managed care plans
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
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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. The Company believes the DAT System's advantages will
address the dissatisfaction with older technologies because
of its enhanced detection capabilities and more favorable
patient experience.
Pilot Phase
The Pilot Phase of the Company's marketing strategy will consist of the
beta testing of the DAT System at six well-recognized institutional healthcare
providers as part of a 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
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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, the Company will attempt to solicit the beta-site health centers to
become regional licensees. Data created during the Pilot Phase will be the
foundation for the Rollout Phase as discussed below.
During the Pilot Phase, the Company will focus its efforts on utilizing
traditional broad-based media to disseminate news related to the utilization of
DAT 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 DAT 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.
Rollout Phase
During the Rollout Phase, the Company 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
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<PAGE>
and sales campaign. The Company intends to focus on the Northeast initially with
expansion to major population centers in the United States.
The Company 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 the Company's overview and mission, product
and service descriptions, business model and benefits to participating
organizations.
The Company intends to contact managed care organizations affiliated with
its regional licensees to secure reimbursement agreements. The Company will
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.
The Company 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, the Company expects it will earn an endorsement from one or more of
these organizations.
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The Company 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, the Company intends to address consumers through a variety of
approaches. The Company's Internet site will be a primary source for consumer
information. A public relations campaign will be employed 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
The Company 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. The
Company may focus on other applications after its efforts to commercialize DAT
for breast cancer screening and management.
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Suppliers
The Company will utilize infrared cameras which will be custom
manufactured by various suppliers. The Company has identified at least two such
suppliers which it believes will be in a position to satisfy the Company's
anticipated requirements for infrared cameras. The Company will also require
network software which it is currently negotiating a license to procure. See
"RISK FACTORS - Technology Development Incomplete". The Company 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, the Company 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.
Facilities
The Company's principal offices are located at 25 E. Loop Road, Stony
Brook, New York 11790. Such offices are leased by the Company under a one-year
lease from the Long Island High Technology Incubator, commencing February 1,
1998. The lease includes office
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space, conference rooms and other areas and shared office services. Annual rent
payments are $1,750 for the first year. The Company 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 the Company's knowledge,
threatened against the Company.
Available Information
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2 (as amended, the "Registration Statement")
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,
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<PAGE>
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement (including the exhibits thereto) filed by
the Company 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. The website address is
http://www.sec.gov.
The Company has applied to have the Common Stock approved for quotation on
the NASDAQ Small Cap Market and the Registration Statement and such reports,
proxy and information statements and other information concerning the Company
may also be inspected at the offices of the NASDAQ Small Cap Market located at
1735 K Street, N.W., Washington, D.C. 20006 and The Pacific Stock Exchange
located at 301 Pine Street, San Francisco, California 94104.
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Upon the effectiveness of the Registration Statement, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") 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. The Company
prepares its financial statements using year ended December 31. The Company
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. The Company'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.
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <S>
Mark A. Fauci 39 Chairman of the Board of Directors,
President and Chief Executive Officer
Paul C. Rabbiner 63 Director, Interim Vice President,
Sales
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <S>
Irving Price 64 Director
James Hayward 45 Director
Richard A. Lippe 60 Director
Michael Anbar 71 Founding Scientist,
Research and Development Consultant
Kevin McQuade 51 Chief Financial Officer*
Tamara R. Rusoff 43 Vice President, Education and
Communication*
Dennise Fantuzzi 43 Vice President, Marketing*
- ------------
* Upon completion of the Offering
</TABLE>
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 the founder of the Company and, since its
incorporation in 1997, has served as the Company's President, Chief Executive
Officer 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
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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.
Paul C. Rabbiner. Mr. Rabbiner has been a director of the Company since
January 1998, and has also been the Interim Vice President, Sales of the Company
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 thrust was in the application of inhalation and
rehabilitation equipment to the homecare and handicapped markets, and he served
as 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.
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Irving Price. Mr. Price has been a director of the Company 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 the Company 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.
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In 1990, he founded Collaborative Laboratories, Inc. ("CLI"), a contract
research and manufacturing biotechnology company. Dr. Hayward currently serves
as this company'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, 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.
Richard A. Lippe. Mr. Lippe has been a director of the Company since
January 1998. Mr. Lippe has been a practicing attorney in
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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., the
Company's law firm. Meltzer, Lippe 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 Collaborative Laboratories, Inc., a privately
held 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.
Kevin McQuade. Mr. McQuade is expected to be the Chief Financial Officer
of the Company as of the close of the Offering. From 1994 to September 1998, Mr.
McQuade was the Chief Financial Officer of Sensar Inc., a leading start-up
biometric identification technology company. Before that 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
subsidiary of Security Pacific, a Wall Street financial institution with $450
million in revenues. 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 Dickenson University.
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Michael Anbar, Ph.D. Professor Anbar is the Company's Founding Scientist.
He has been providing research and development expertise through the UB
Foundation, under a grant from the Company. See "The Anbar License Agreement"
and "MANAGEMENT." 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 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 the Company's Vice
President, Education and Communications, as of the close of
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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 the Vice President of
Marketing of the Company, 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
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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 intended to be comprised of
Messrs. Lippe, Price and the Company'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 is responsible for recommending
to the Board of
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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
The Company 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 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 the Company with expert advice and
guidance pertaining to the development, testing and deployment of the Company's
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
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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 the Company 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>
Long-Term Compensation
----------------------
Awards Payouts
------ -------
Annual 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>
Employment Agreements
On December 31, 1997, Mark A. Fauci, the Company's President and Chief
Executive Officer, entered into an employment agreement with the Company (the
"Fauci Agreement"). Pursuant to the Fauci Agreement, the Company 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 the Company receives an aggregate of $2.25 Million
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<PAGE>
of equity financing. The increase in salary to $180,000 will be effective as of
the closing of the Offering.
The Company has also entered into an agreement with Professor Anbar, the
Company's Vice President, Research and Development, with respect to his
employment. The Company 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 the Company, 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.
If Professor Anbar chooses not to resign from S.U.N.Y. Buffalo, the
Company intends to negotiate an agreement with S.U.N.Y. Buffalo to provide for
the continued furnishing of Professor Anbar's services to the Company. It is
anticipated that this agreement would require the Company to compensate S.U.N.Y.
Buffalo at a cost no greater than if Professor Anbar were to be employed under
the aforementioned employment agreement.
The Company 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 the Company. 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 purchase of equipment and supplies. The Amara Consulting Agreement will
terminate, prior to March 1999, if Professor
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Anbar resigns from S.U.N.Y. Buffalo and commences his employment relationship
with the Company. 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.
Stock Option Plan
In April 1998, the Company adopted the 1998 Stock Option Plan. The purpose
of the 1998 Stock Option Plan is to enable the Company 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. The Company
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 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.
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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 the Company ("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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock of the Company as of ___________, 1998 by (i) each person or entity known
by the Company to beneficially own 5% or more of the outstanding shares of
Common Stock, (ii) each of the Company's directors and officers, and (iii) all
directors and executive officers of the Company as a group. The information as
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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
- ------------------- ------------------- ------------ --------
<S> <C> <C> <C>
Mark Fauci 1,672,000 70.9% _____%
Michael Anbar 440,000 18.7% _____%
Meltzer, Lippe, Goldstein, 125,400(2) 5.0% _____%
Wolf & Schlissel, P.C.
Paul Rabbiner 42,533(3) 1.8% _____%
Irving Price 26,400(4) 1.2% _____%
Richard Lippe 191,400(5) 7.5% _____%
All directors and executive 1,932,333 71.1% _____%
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
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<PAGE>
$3.40 per share, presently exercisable for a period of 10
years.
DESCRIPTION OF SECURITIES
Common Stock
As of September __, 1998, 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 the Company 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 _______ 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 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 the
Company, the holders of Common Stock are entitled to share ratably in all
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<PAGE>
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 the Company's initial private
placement in late 1997 and early 1998, holding in the aggregate of 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, if the
Company issues Common Stock, or securities convertible into Common Stock, at a
price of less than $3.40. 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 the Company'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 the Company has no present
plans to issue any such shares. In the event that the Board of Directors
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<PAGE>
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. Upon liquidation, dissolution or winding up of
the Company, or upon events such as a merger or sale of the Company'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
the Company.
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
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<PAGE>
control of the Company through the acquisition of shares of Common Stock.
The Company also has certain options and warrants outstanding.
See "SHARES ELIGIBLE FOR FUTURE SALE."
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
Continental Stock Transfer and Trust Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, the Company issued a warrant to Richard A. Lippe, a
director of the Company. Mr. Lippe is a shareholder and officer of 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 for
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<PAGE>
the deferral of legal fees. 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 (as to $337,500 worth
of such securities) and February 15, 2004 (as to $90,000 worth of such
securities). As of September 1998, the warrants are exercisable into 125,400
shares of the Company's Common Stock at an exercise price of $3.40 per share.
The Company has also entered into employment and consulting agreements
with Messrs. Fauci and Anbar (and his affiliate, Amara, Inc.). See "MANAGEMENT -
Employment Agreements."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public trading market for the
Common Stock of the Company. Upon completion of the Offering the Company will
have a total of _________ shares of Common Stock outstanding (_____________
shares if the Underwriters' over-allotment option is exercised in full). Of
these shares, the ___________ shares of Common Stock offered hereby (_________
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 the Company. The
remaining 2,358,397 shares of Common Stock outstanding are "restricted shares"
as that term is
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<PAGE>
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, the Company's officers and directors and
all other stockholders of the Company (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
Common Stock of the Company, or any securities convertible into, exercisable, or
exchangeable for, any shares of Common Stock of the Company 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 the
116
<PAGE>
Company's Common Stock is no less than 160% of the initial public offering price
for thirty consecutive trading days.
In April 1998, the Company'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. 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
117
<PAGE>
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.
Investors in the Company'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 Forms S-4 or S-8) the Company has filed, 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 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 private
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 not exercisable until 12 months after the Offering.
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.
118
<PAGE>
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
The number of record holders of the Company's Common Stock is 22.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company 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,
119
<PAGE>
unless exercised), if any of such shares of Common Stock are purchased. The
Company 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 the Company 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.
The Company 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.
120
<PAGE>
The shareholders of the Company have agreed to certain "lock-up"
arrangements with respect to their shares without the prior consent
of Cambridge. See "SHARES ELIGIBLE FOR FUTURE SALE."
The Company 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 the Company at the closing of the Offering. The Company 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.
Prior to the Offering, Cambridge acted as a placement agent in connection
with two private placements of The Company's securities. See "SHARES ELIGIBLE
FOR FUTURE SALE".
In connection with the Offering, the Company has agreed to grant to
Cambridge warrants to purchase such number of shares of Common Stock equal to
10% of the number of shares sold in the Offering (the "Underwriter's Warrants").
The Underwriter's Warrants, which warrants (and the underlying shares of Common
Stock) are being registered pursuant to the Registration Statement filed with
respect to the Common Stock offered hereby, 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,
the Company will on one occasion
121
<PAGE>
register the shares underlying the Underwriter's Warrants at the expense of the
Company. In addition, the Company will include as a piggy-back registration, for
a period of seven years, the shares of Common Stock underlying the Underwriter's
Warrants at the expense of the Company in any registration statement filed with
the Securities and Exchange Commission (other than a Form S-4 or S-8).
For a period of thirty months from the closing of the Offering, Cambridge
will be granted a right of first refusal to act as investment banker with
respect to all (i) equity or debt offerings by the Company or any subsidiaries,
whether public or private, and (ii) transactions relating to (x) the purchase or
sale of stock or substantial assets by or to the Company 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, the
Company 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
the Company makes, using stock as the medium of
122
<PAGE>
payment, which are completed at a per share price of no less than twice the
initial public offering price per share.
The Company 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 from the closing 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 the Underwriters. 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.
123
<PAGE>
In connection with the Offering, Cambridge (and selling group members) may
engage in passive market making transactions in the Common Stock on the Nasdaq
Small Cap Market in accordance with Rule 103 of Regulation M under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
For factors considered in the determination of the offering price, see
"RISK FACTORS - Absence of Prior Public Market;"
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other matters
will be passed on for the Company by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, N.Y. ("MLG"). MLG has an ownership interest in the
Company 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 the Company and has an ownership interest in the Company 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.
124
<PAGE>
Certain legal matters with respect to franchising law and regulations,
appearing in the section "BUSINESS - Government Regulation - Franchising" will
be passed on for the Company 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 the Company 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.
125
<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>
Deficit
Accumulated
During the Total
Number of Par Additional Development Subscription Stockholders'
Shares Value Paid-in-capital Stage Receivable Equity
-------- -------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founder 1,672,000 $ 16,720 $ (15,070) $ 1,650
Sale of common stock, net of expenses of $35,164 58,665 587 $ 164,243 -- 164,830
Issuance of common stock warrants
to related party for legal services -- -- 50,000 -- 50,000
Sale of common stock warrant to related party -- -- 40,000 (30,000) 10,000
Net loss -- -- -- $ (143,516) -- (143,516)
----------- -------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 1,730,665 17,307 254,243 (143,516) (45,070) 82,964
----------- -------- ----------- ----------- ----------- -----------
Issuance of common stock to founder (Note 12) 440,000 4,400 4,400
Sale of common stock, net of expenses
of $62,900 143,732 1,437 425,658 -- -- 427,095
Issuance of common stock for research
and development 44,000 440 149,560 -- -- 150,000
Issuance of common stock warrants
to related parties for legal services -- -- 34,000 -- -- 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 -- -- 750,000
Net loss -- -- -- (774,411) -- (774,411)
----------- -------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 (unaudited) 2,358,397 $ 23,584 $ 1,613,461 $ (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., (the "Company"), 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. The Company expects
its revenues to be generated from the sale of regional licenses to provider
networks to use the Company's breast cancer screening technology. The
Company expects to derive other revenue from encounter or
screening/diagnosis fees.
To date the Company has not generated revenues. The Company'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
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 30, 1998 the Company 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.
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, the Company'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 the Company, 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)
- --------------------------------------------------------------------------------
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
The Company 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. The Company
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, the Company 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
The Company 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.
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)
- --------------------------------------------------------------------------------
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
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 the Company 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 the Company.
3. Liquidity and Business Risks
The Company is in the development stage and currently has no sources of
revenue. At December 31, 1997, the Company 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. The
Company has funded its operations since inception through the use of cash
obtained principally from third party financings. The Company's success
depends upon many factors including its ability to obtain additional
financing. The Company 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 the Company will be successful in obtaining
additional financing or that it will be successful in further developing
and commercializing the DAT system and related services.
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)
- --------------------------------------------------------------------------------
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
======= =======
5. Deferred Charges
Deferred charges consists of the following at September 30, 1998:
Deferred financing costs relating to Bridge Notes, net $122,917
of accumulated amortization of $24,583
Deferred costs of proposed public offering 84,000
--------
$206,917
========
6. Accrued Expenses
Accrued expenses included the following:
December 31, September 30,
1997 1998
------------ -------------
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
======= =======
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)
- --------------------------------------------------------------------------------
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:
December 31, September 30,
1997 1998
------------ -------------
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-
========= =========
The Company 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. The Company'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, the Company 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, the Company 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, the Company issued warrants
("Bridge Warrants") to purchase 250,000 shares of common stock at an
exercise price of $6 per share. The Bridge Notes are convertible, at the
Company'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 the Company 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.
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)
- --------------------------------------------------------------------------------
9. Stockholders' Equity
Initial capitalization and founders shares
In February 1997 and March 1998 the Company 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
The Company has entered into a non-binding term sheet with an underwriter
with respect to a proposed initial public offering of the Company's common
stock. There is no assurance that such offering will be consummated. The
Company expects to offer approximately 1,100,000 shares of the Company's
common stock at an approximate price of $9 per share. In addition the
Company 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. The
Company 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, the Company amended its articles 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, the Company amended its articles of incorporation to increase the
number of its authorized shares of common stock to 10,000,000 shares.
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 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 a two years after their initial
investment, if the Company issues common stock, or convertible securities
at a share price of less than $3.40. 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 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.
Warrants
In 1997 and 1998, the Company received $40,000 from the sale of a stock
warrant, to a director of the Company who is a partner at the Company's law
firm. This warrant entitles the holder to purchase up to $180,000 of any
securities the Company 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 the Company's common stock. These
warrants were not exercisable for the securities issued in the Bridge
Financing discussed in Note 8.
In 1997 and 1998, the Company issued warrants to its legal counsel, a law
firm in which a director of the Company is a partner, in consideration for
the deferral of payment of legal fees. The warrant entitles the Company's
legal counsel to purchase up to $427,500 of any securities sold by the
Company 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 the Company' common stock at an exercise price of $3.40
per share. These warrants were not
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)
- --------------------------------------------------------------------------------
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
The Company has incurred legal fees to a law firm in which a Director of
the Company is a Partner 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.
The Company 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, the Company entered into an agreement with the related
party law firm in connection with a proposed initial public offering. The
Company is obligated to pay the law firm a fixed fee of $150,000 relating
to the proposed IPO discussed in Note 9.
11. Stock Option Plan
In 1998, the Company 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 the
Company 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.
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>
Options 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>
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)
- --------------------------------------------------------------------------------
In April 1998, non-qualified options to purchase 39,600 shares of the
Company'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 the Company, the founding
shareholders entered into an agreement pursuant to which the Company 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, the Company funded the required research budget and in March 1998,
released 440,000 shares of previously reserved common stock to one of the
founders. The Company recorded the issuance of these shares at the
historical cost of the technology transferred.
The license, as amended, required the Company to fund future research and
development costs in the amount of $495,000. The Company funded the first
$110,000 of this obligation in late 1997 with the balance paid in March
1998. The Company also entered into a consulting agreement with a company
controlled by a stockholder of the Company. Under the terms of the
agreement the Company 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. The Company satisfied this
entire obligation with a one-time $50,000 payment which is included in the
$495,000 discussed above. The Company 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, the Company entered into an agreement with the
California Institute of Technology ("Caltech") which grants the Company the
right to acquire an exclusive license to exploit Caltech's infrared
radiation detection technology in the field of detection of infrared
radiation for commercial medical applications. In addition, the Company has
the right to sublicense this technology. The Company is obligated to pay
Caltech a royalty based on revenues derived from licensed products and
services and revenues derived from sublicenses. The Company has agreed to
issue Caltech, 88,000 shares of common stock. In May 1998, the Company
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. The Company may
elect to terminate the agreement at any time without being obligated to
issue any of the remaining unissued shares.
While in effect, the agreement requires that the Company 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. The Company 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 January 31, 1999.
The Lockheed Martin License Agreement
The Company entered into an exclusive license agreement with Lockheed
Martin Corporation ("Lockheed") on September 18, 1998. Pursuant to this
agreement, the Company 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, the Company is subject to a number of
milestones it must meet relating to royalty generation, development of
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)
- --------------------------------------------------------------------------------
markets and territories, utilization of the EQWIP technology in certain
percentages of the Company's installed base of diagnostic equipment and
required levels of royalty generating installations. However, the Company
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.
The Company has also agreed to license back to Lockheed any improvements
the Company makes to the EQWIP technology for applications in which the
Company does not retain exclusivity. Under certain conditions, the Company
may sublicense its rights to develop specific territories and markets to
third-parties, subject to consent of Lockheed. The Company is entitled to
utilize any improvements to the EQWIP technology developed by Lockheed. The
Company is permitted to utilize a manufacturer of its choosing to
manufacture cameras utilizing the EQWIP technology.
13. Commitments and Contingencies
Obligations under operating lease
The Company is not obligated under any material operating leases.
Employment agreement
In December 1997, the Company entered into an employment contract with its
Chief Executive Officer. In connection with the contract, the Company is
contractually obligated to pay approximately $90,000 per year commencing
January 1, 1998 for a four year period. In the event the Company 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 the Company receives at least $2.25 million of
financing.
Capital expenditures
As of September 30, 1998, the Company has agreed to purchase medical
equipment for approximately $470,000.
F-15
<PAGE>
Table of Contents
Prospectus Summary...........................................................
Risk Factors.................................................................
Use Of Proceeds..............................................................
Capitalization...............................................................
Dividend Policy..............................................................
Dilution.....................................................................
Management's Discussion and Analysis of
Financial Condition and Results of Operation...........................
Business.....................................................................
Management...................................................................
Security Ownership Of Certain Beneficial
Owners And Management..................................................
Description of Securities....................................................
Certain Relationships And Related Transactions...............................
Shares Eligible for Future Sale..............................................
Underwriting.................................................................
Legal Matters................................................................
Experts......................................................................
Index to Financial Statements.............................................F-1
[Until ____________, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.] Insert on back cover of printed prospectus
only!
<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 3,760
Federal Taxes
State Taxes and Fees
Transfer Agents' Fees
Printing and Engraving 70,000
Legal Fees 150,000
Accounting Fees 90,000
Listing Fees
---------
Total:
II-1
<PAGE>
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 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 (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
II-2
<PAGE>
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 dilution
and 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-3
<PAGE>
The Private Placement was exempt from State and Federal registration
pursuant to 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 for a
five (5) year period. 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
II-4
<PAGE>
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.
II-5
<PAGE>
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, 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.
II-6
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit
(1) (i) Underwriting Agreement
(ii) Selected Dealers Agreement
(iii) Underwriters Warrant Agreement
(2)
(3) (i) Certificate of Incorporation
(ii) By-laws
(4)
(5) Opinion re: legality*
(6)
(7)
(8)
(9)
(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
(11.1) Computation of basic and diluted net loss per common share
(23.2) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
- --------------------------------------------------------
* To be filed by amendment
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
II-7
<PAGE>
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-8
<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 on Form SB- 2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the County of
Nassau, State of New York, on October 20, 1998.
(Registrant) OMNICORDER TECHNOLOGIES, INC.
--------------------------------
By (Signature
and Title) s/ Mark A. Fauci
--------------------------------
Mark A. Fauci, President,
Chief Executive Officer and
Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
(Signature) s/Richard Lippe
---------------------------
(Title) Director
(Date) October 20, 1998
(Signature) s/Mark Fauci
---------------------------
(Title) Director, President & Chief
Executive Officer
(Date) October 20, 1998
(Signature) s/Jim Hayward
---------------------------
(Title) Director
(Date) October 20, 1998
II-9
<PAGE>
(Signature) s/Irving Price
---------------------------
(Title) Director
(Date) October 20, 1998
(Signature) s/Paul Rabbiner
---------------------------
(Title) Director & Interim Vice
President, Sales
(Date) October 20, 1998
II-10
<PAGE>
EXHIBIT INDEX
Index to Exhibits
Exhibit
(1) (i) Underwriting Agreement
(ii) Selected Dealers Agreement
(iii) Underwriters Warrant Agreement
(2)
(3) (i) Certificate of Incorporation
(ii) By-laws
(4)
(5) Opinion re: legality*
(6)
(7)
(8)
(9)
(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
(11.1) Computation of basic and diluted net loss per common share
(23.2) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
- --------------------------------------------------------
* To be filed by amendment
<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.
-5-
<PAGE>
(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.
-6-
<PAGE>
(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.
-7-
<PAGE>
(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,
-8-
<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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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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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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 applicable jurisdictions, is validly
existing as a corporation in good standing under the laws of
its jurisdiction, (B) 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, except where the failure to be so qualified and in
good standing has no material adverse effect on the Company,
and (C) except as dislosed 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 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 disclosed in the Prospectus, 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;
ii) 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, 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
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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 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. 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;
iv) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the
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<PAGE>
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 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 threatened against (or circumstances
that may give rise to the same), 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), (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) no statute or regulation or legal or
governmental proceeding required to be described in the
Prospectus is not described as required; and (E) 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 (or any basis thereof
known to such counsel) 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;
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,
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<PAGE>
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 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, or (C) to such counsel's
knowledge, except as disclosed pursuant to item (ix) below,
any statute, judgement, 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;
vii) 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 (other than such as may be required under Blue Sky laws,
as to which no opinion need be 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;
viii) 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
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<PAGE>
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; 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, in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation;
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 Preliminary Prospectus or 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
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<PAGE>
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).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of the rules and regulations of the United
States Food and Drug Administration 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 the applicable laws; (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 [ ], or other counsel
acceptable to the Underwriter and counsel to 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 [ ], 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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.
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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>
[_________] Shares
OMNICORDER TECHNOLOGIES, INC.
Common Stock
SELECTED DEALERS AGREEMENT
Garden City, New York
[________], 1998
Dear Sir or Madam:
SECTION 1. Purchase of Shares by Underwriter. We, the
Underwriter named in the enclosed Prospectus (the "Underwriter"), have agreed to
purchase from Omnicorder Technologies, Inc. (the "Company"), a Delaware
corporation, an aggregate of [_________] shares of the Common Stock, $0.01 par
value ("Common Stock"), of the Company an aggregate of [___________] shares of
Common Stock, and the Underwriter has been granted an option by the Company to
purchase all or part of an additional [________] shares of the Common Stock,
subject to the terms of an agreement (the "Underwriting Agreement") among the
Underwriter and the Company. Such [__________] shares and such aggregate of
[____________] shares of the Common Stock (collectively referred to as the
"Shares") are described in the Prospectus, additional copies of which will be
supplied in reasonable quantities upon request to us.
SECTION 2. Offering to Selected Dealers. (a) The Underwriter
is offering a portion of the Shares to certain dealers (the "Selected Dealers")
as principals, subject to the terms and conditions hereof and of the
Underwriting Agreement and to modification or cancellation of the offering
without notice, at the public offering price set forth on the cover page of the
Prospectus (the "Offering Price"), less a concession not exceeding [$_______]
per share for each Share (the "Selling Concession"). The Offering Price may be
changed at any time or from time to time in our discretion without notice to the
extent permitted by applicable laws, rules and regulations. Shares purchased by
the Underwriter and not sold to the Selected Dealers as aforesaid may be sold by
the Underwriter, who has agreed with respect to the sale of the Shares to be
bound by the terms and provisions of this Agreement. The Underwriter may be
included among the Selected Dealers.
(b) The offering of a portion of the Shares to Selected
Dealers may be made on the basis of reservations or allotments against
subscriptions. We are advising you by telegram of the method and terms of the
offering. Acceptance of any
<PAGE>
reserved Shares received by us, at the offices of Cambridge Capital, LLC, 1225
Franklin Avenue, Garden City, New York 11530, Attention: Syndicate Department,
after the time specified therefor in the telegrams and any application for
additional shares will be subject to rejection in whole or in part. The offering
may be withdrawn by us at any time without notice and the right is reserved to
reject any subscription in whole or in part. Any offering or invitation to you
pursuant to the terms hereof is conditioned on your being qualified under
applicable securities laws, if any, to act as a dealer or broker in securities.
(c) Any Selected Dealer may buy Shares from or sell Shares to
any other Selected Dealer at the Offering Price, less all or any part of a
concession not exceeding the Reallowance (which term is hereinafter defined).
(d) The Selling Concession payable to you for the Shares
purchased and paid for by you may be held by us as a deposit for your account
and will be payable after the termination of this Agreement, except that we
shall have the right to cancel the Selling Concession in respect of any Shares
(including Shares which may have been issued on transfer of or in exchange for
such first mentioned Shares) delivered to you which we may purchase or contract
to purchase for our account at or below the Offering Price prior to the
termination of this Agreement, or which may be delivered against purchase
contracts made prior to termination of this Agreement at or below the Offering
Price, and, in addition, we may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
SECTION 3. Offering to Public by Selected Dealers. (a) Subject
to the terms hereof, you may reoffer the Shares purchased by you in conformity
with the terms of offering set forth in the Prospectus and at the Offering Price
immediately upon receipt of telegraphic release by us. Without our approval, the
Shares shall not be offered or sold by you below the Offering Price before the
termination of this Agreement, except that a concession not exceeding [$_______]
(the "Reallowance") for each Share may be allowed by you to dealers who are
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") or to foreign dealers who are not eligible for membership in the
NASD and who have agreed not to sell the shares of Common Stock (i) to
purchasers in, or to persons who are nationals of the United States of America,
and (ii) except in compliance with the NASD Interpretation with respect to Free
Riding and Withholding of the NASD as to sales outside the United States.
(b) You agree to advise us from time to time upon request,
prior to the termination of this Agreement, of the amount of Shares purchased by
you hereunder remaining unsold, and to sell to us such amount of any unsold
Shares as we may designate, at the Offering Price, less an amount determined by
us not in excess of the Selling Concession.
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(c) Neither you nor any other person is, or has been,
authorized by the Company or us to give any information or to make any
representations in connection with the sale of the Shares other than those
contained in the Prospectus.
SECTION 4. Payment and Delivery. Payment for the Shares which
you shall have agreed to purchase shall be made by you on such date and at such
time as we may advise you, at the offices of Cambridge Capital, LLC, 1225
Franklin Avenue, Garden City, New York 11530, by immediately available funds to
our order, against delivery of such Shares. Delivery instructions must be in our
hands at said address at such time as we request. Additional Shares confirmed to
you shall be delivered on such date or dates as we shall advise you.
Notwithstanding the foregoing, payment for and delivery of Shares purchased by
you hereunder will be made through the facilities of The Depository Trust
Company, if you are a member, unless you have otherwise notified us prior to the
date specified in our telex or telegram to you, or, if you are not a member,
settlement may be through a correspondent who is a member pursuant to
instructions you may send to us prior to such specified date.
SECTION 5. Blue Sky Matters. We shall not have any obligation
or responsibility with respect to the right of any dealer to sell the Shares in
any jurisdiction, notwithstanding any information which may be furnished as to
the jurisdictions under the securities laws of which it is believed the Shares
may be sold.
SECTION 6. Termination. This Agreement shall terminate at the
close of business 30 days after the date hereof, but may be extended for a
period or periods not exceeding in the aggregate 30 days, as we may determine.
We may terminate this Agreement at any time without notice. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportion of
any transfer tax or any liability which may be asserted or assessed against us
of Selected Dealers based upon the claim that the Selected Dealers or any of
them constitute a partnership, association, unincorporated business or other
separate entity.
SECTION 7. Stabilization. You represent that you have not
effected and will not effect any transaction in violation of the provisions of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), applicable to
this offering, and you agree that you will not, until the completion of the
distribution by you of the Shares which you acquired pursuant to this Agreement,
bid for, purchase, sell or deal in, or attempt to induce others to purchase,
Shares, except (i) as provided for in this Agreement and the Underwriting
Agreement or as otherwise provided to us and (ii) in brokerage transactions not
involving solicitation of the customer's order.
SECTION 8. Obligations of Selected Dealers. (a) Your
acceptance hereof will constitute an obligation on your part to purchase, upon
the terms and conditions hereof, the number of Shares reserved for and accepted
by you (including
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any Shares subscribed for and allotted to you) and to perform and observe all of
the terms and conditions hereof.
(b) In acting as a Selected Dealer under this Agreement and in
offering and selling Shares hereunder, you agree to comply with all applicable
rules of the Securities Act of 1933, as amended (the "1933 Act"), the 1934 Act
and all applicable state securities laws. You represent that you are familiar
with Rule l5c2-8 under the 1934 Act relating to the distribution of preliminary
and final prospectuses and agree that you will comply therewith. In addition,
you are familiar with the requirements of the NASD Conduct Rules and agree to
comply with the requirements in such Rules as applicable to you.
(c) You are not authorized to act as agent for the Underwriter
in offering Shares to the public or otherwise. Nothing contained herein shall
constitute the Selected Dealers a partnership, association, unincorporated
business or other separate entity, or shall constitute the Selected Dealers, or
any of them, partners with us.
SECTION 9. Position of the Underwriter. We shall have full
authority to take such action as we may deem advisable in respect of all matters
pertaining to the offering or arising hereunder. We shall not be under any
liability to you, except for our own lack of good faith, obligations expressly
assumed in this Agreement and any liabilities arising under the 1933 Act. No
obligations not expressly assumed by us in this Agreement shall be implied
hereby or inferred herefrom.
SECTION 10. Notices. All communications from you shall be
addressed to Cambridge Capital, LLC, 1225 Franklin Avenue, Garden City, New
York, 11530, Attention: Syndicate Department. Any notice from us to you shall be
deemed to have been duly given if mailed or telegraphed to you at the address at
which this letter is mailed.
SECTION 11. Reports. You agree to furnish us, for statistical
purposes and with the understanding that we will not make the same public, a
report, in such form as we may request, showing the number of Shares sold by you
in each jurisdiction and showing the distribution of the purchasers classified
by the number of Shares purchased, but no such report shall require you to
inform us of the names of any purchaser of any of the Shares from you.
SECTION 12. Applicable Law. This Agreement will be governed by
and construed in accordance with the laws of the State of New York.
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Please confirm this Agreement by signing and returning at once
the duplicate copy enclosed herewith.
Very truly yours,
CAMBRIDGE CAPITAL, LLC
By:
------------------------------
Name:
Title:
Accepted and Agreed to:
By:
--------------------------------
Name:
Title:
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CAMBRIDGE CAPITAL, LLC
1225 Franklin Avenue
Garden City, New York 11530
Dear Sir or Madam:
The undersigned hereby confirms its agreement to purchase
Shares referred to in the foregoing Selected Dealers Agreement, subject to your
acceptance or rejection in whole or in part in case of a subscription in excess
of any reservation, and acknowledges that such purchase and any purchase of
additional Shares made during the term of said Agreement are subject to all the
applicable terms and conditions set forth in said Agreement, and agrees to take
up and pay for such Shares at the price and upon the terms and conditions stated
in said Agreement.
The undersigned hereby confirms that (a) it is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") and, in connection with the sale of such Shares, it agrees to comply
with Rule 2740 of the NASD Conduct Rules (formerly Section 24 of Article III of
the Rules of Fair Practice of the NASD) and to obtain a written agreement
similar to this clause (a) or to the succeeding clause (b) from any person to
whom it grants a selling concession, discount or other allowance, or (b) it is a
foreign bank, dealer or institution not eligible for such membership and agrees
(i) to conform to the NASD Conduct Rules (formerly the Rules of Fair Practice of
the NASD) in making sales to purchasers outside of the United States as though
it were a member of the NASD, including, without limitation, NASD's
Interpretation with Respect to Free-Riding and Withholding, the provisions of
Rules 2730, 2740 and 2750 of such Conduct Rules (formerly Sections 8, 24 and 36
of such Rules of Fair Practice) and Rule 2420 (formerly Section 25) of such
Conduct Rules as that Rule applies to a nonmember broker-dealer in a foreign
country and (ii) not to offer or sell any of such Shares in the United States or
to persons it has reason to believe are citizens or residents of the United
States.
The undersigned hereby acknowledges receipt of the Prospectus
relating to such Shares, and confirms that, in agreeing to purchase such Shares,
it has relied on said Prospectus and not on any other statement whatsoever,
written or oral.
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The undersigned further confirms that copies of the latest
preliminary prospectus with respect to such Shares have been mailed, at least
two days prior to the date hereof, to all persons to whom it is presently
expected it will sell such Shares and that, if it expects to mail a confirmation
of any such sale to any person by airmail, said preliminary prospectus has been
sent to such person by airmail.
Dated:_________________, 1998
--------------------------------
By:
------------------------------
Name:
Title:
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<PAGE>
UNDERWRITER'S WARRANT AGREEMENT
- --------------------------------------------------------------------------------
OMNICORDER TECHNOLOGIES, INC.
AND
CAMBRIDGE CAPITAL, LLC
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of ____________, 1999
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<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ___________, 1999
among OMNICORDER TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
CAMBRIDGE CAPITAL, LLC (hereinafter referred to as "Holder" or "Underwriter").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to Underwriter or its
designees warrants ("Warrants") to purchase up to an aggregate of [_________]
shares of common stock, par value $.01 per share, of the Company ("Common
Stock"); and
WHEREAS, Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among
Underwriter and the Company to act as Underwriter in connection with the
Company's proposed public offering of up to [____________] shares of Common
Stock at a public price of [$______] per share of Common Stock (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to Underwriter in consideration for, and as part of
Underwriter's compensation in connection with the Public Offering;
NOW, THEREFORE, in consideration of the premises, the payment
by Underwriter to the Company of an aggregate of [$___________], the agreements
herein set forth and other good and valuable consideration, hereby acknowledged,
the parties hereto agree as follows:
<PAGE>
1. Grant. Cambridge Capital, LLC is hereby granted the right
to purchase, at any time from ___________, 2000, until 5:30 P.M., New York time,
on ___________, 2004, up to an aggregate of ___________ shares of Common Stock
(the "Underwriter's Shares") at an initial exercise price (subject to adjustment
as provided in Section 8 hereof) equal to 120% of the initial public offering
price of the shares of Common Stock or [$______] per share of Common Stock
subject to the terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement. Except as set forth
herein, the Underwriter's Shares issuable upon exercise of the Warrants are in
all respects identical to the shares of Common Stock being purchased by
Underwriter for resale to the public pursuant to the terms and provisions of the
Underwriting Agreement.
3. Exercise of Warrant.
ss. 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock set forth in Section 1
hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with a duly executed copy of the
annexed Form of Election to Purchase, together with payment of the Exercise
Price (as hereinafter defined) for the shares of Common Stock purchased at the
Company's principal offices in Stony Brook, New York (presently
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located at 25 E. Loop Road) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase all
or part of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel such Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
ss. 3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, a Holder of Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of Shares equal to the product of (x) the number of Shares as to
which the Warrants are being exercised multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 below) of the
Shares less the Exercise Price and the denominator of which is such Market
Price. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date which the form of election attached hereto is
deemed to have been sent to the Company pursuant to Section 12 hereof ("Notice
Date") or (ii) as the average of the
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Market Prices for each of the five trading days preceding the Notice Date,
whichever of (i) or (ii) is greater.
ss. 3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq Small Cap Market
("NSCM"), or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted by NSCM, the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through NSCM, or any similar organization if NSCM is no longer reporting such
information, or if the Common Stock is not quoted on NSCM, as determined in good
faith by resolution of the Board of Directors of the Company, based on the best
information available to it.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within three (3) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
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<PAGE>
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, except to officers
or partners of the Underwriter.
6. Exercise Price.
ss. 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be as set forth in Section 1 hereof. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
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<PAGE>
ss. 6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
ss. 7.1 Registration Under the Securities Act of 1933.
The Shares, and any of the other securities issuable upon
exercise of the Warrants have been registered under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Company's Registration Statement on Form
SB-2 (Registration No. ____________) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are hereby incorporated by reference.
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<PAGE>
Unless a registration statement relating to the shares underlying the
warrants ("the Warrants Securities") is in effect at the time of exercise
thereof, any certificates representing Warrant Securities issued shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available. (b)
ss. 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring seven (7) years from the date hereof, the
Company proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-8) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Holder and to all other Holder(s) of the Warrants
and/or the Warrant Securities, if not previously sold pursuant
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<PAGE>
to this Section 7, of its intention to do so. If the Underwriters or other
Holder(s) of the Warrants and/or Warrant Securities notify the Company within
twenty-five (25) days after receipt of any such notice of its or their desire to
include any such securities in such proposed registration statement, the Company
shall afford the Underwriter and such Holder(s) of the Warrants and/or Warrant
Securities the opportunity to have any such Warrant Securities registered under
such registration statement (sometimes referred to herein as the "Piggyback
Registration"). In the event that the underwriter managing the registration of
shares referred to in this paragraph 7.2 shall determine that some or all of the
Warrant Securities cannot be accomodated in such registration without adversely
affecting the offering of shares in such registration, the Company need not
include such Warrant Securities in such registration.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
ss. 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring 7 years
from the date hereof, the Holder of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants), not previously sold pursuant to this
Section 7, shall have the right (which right is in addition to the registration
rights under Section 7.1 or 7.2 hereof), exercisable by written notice to the
Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement on Form S-3 or other suitable form and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Underwriter and Holder, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of Warrant Securities
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<PAGE>
for the period necessary for such Holders to effect the proposed sale or other
disposition of the applicable Warrants and/or Warrant Securities.
(b) The Company covenants and agrees to (x) give written
notice of any registration request under this Section 7.3 by any Holder to all
other registered Holder of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request and (y)
include all the Warrant Securities, not previously sold pursuant to this Section
7, in such registration statement unless it receives notification from a Holder
within five (5) days following the Company's notification of registration that
such Holder does not want its Warrant Securities to be included in the
registration statement.
(c) Notwithstanding anything to the contrary contained
herein, if the Company shall not have filed a registration statement for the
Warrant Securities within
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the time period specified in Section 7.4(a) hereof pursuant to the written
notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants
and/or Warrant Securities, the Company shall, upon the written notice of
election of a Majority of the Holders of the Warrants and/or Warrant Securities,
offer to repurchase (i) any and all Warrant Securities at the higher of the
Market Price per share of Common Stock on (x) the date of the notice sent
pursuant to Section 7.3(a) or (y) the expiration of the period specified in
Section 7.4(a) and (ii) any and all Warrants at such Market Price less the
Exercise Price of such Warrant. Nothing herein shall be deemed to imply that the
obligation of the Company set forth in the previous sentence shall be triggered
if the registration statement is not declared effective by the SEC as long as
the Company has complied with paragraph 7.4(a). Such repurchase, if elected by
the Underwriter, shall be in immediately available funds and shall close within
two (2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).]
ss. 7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.1 or 7.2 or 7.3 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested; provided, however, that the Company shall not be
required to conduct an audit or prepare audited financial statements outside its
normal cycle and compliance with the request shall be delayed until such time as
the Company is otherwise required by law to complete its audit and prepare such
financial statements.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.1(b), 7.2 and 7.3(a) hereof including, without limitation, the
Company's legal and accounting fees,
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printing expenses and blue sky fees and expenses. If the Company shall fail to
comply with the provisions of Section 7.4(a), the Company shall, in addition to
any other equitable or other relief available to the Holder(s), be liable for
any or all incidental or special damages sustained by the Holder(s) requesting
registration of their Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by a majority in interest of the
Holder(s), provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify Underwriter contained in Section 7(a) of the
Underwriting Agreement, except that the representation set forth in the last
clause of Section (1)(s) thereunder shall not be required.
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(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holder, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7(b) of
the Underwriting Agreement pursuant to which Underwriter has agreed to indemnify
the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the filing of any
registration statement or the effectiveness thereof.
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(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(h) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the
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Company and between the Commission and the Company's counsel or auditors and all
reasonable memoranda relating to discussions with the Commission or its staff
with respect to the registration statement and permit each Holder and
underwriters to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder or underwriter shall reasonably
request.
(j) Unless the Company chooses to effect a required
registration hereunder on Form S-3, in the event of a demand for registration
under paragraph 7.3(a), the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Underwriter. Such agreement shall be satisfactory
in form and substance to the Company, each Holder and such managing underwriter,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holder shall be parties to any
underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter shall also be made to and for the benefit of such Holder.
Such Holder shall not be required to make any representations or warranties to
or agreements with the
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Company or the underwriter except as they may relate to such Holder and their
intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean a
percentage in excess of fifty percent (50%) of the then outstanding Warrant
Securities (treating all such securities as fully exercised for Shares for
purposes of such calculation) that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
ss. 8.1 Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
ss. 8.2 Stock Dividends and Distributions. In case the Company
shall pay a dividend in, or make a distribution without payment of, shares of
Common Stock or of the Company's capital stock convertible into Common Stock, to
the holders of Common Stock, the Exercise Price shall forthwith be
proportionately decreased. An adjustment made pursuant to this Section 8.2 shall
be made as of the record date for the subject stock dividend or distribution.
ss. 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall
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be adjusted to the nearest whole number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Securities issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
ss. 8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
ss. 8.5 Merger or Consolidation. In case of any consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
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Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
ss. 8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants to Underwriter
or the shares of Common Stock issued upon the exercise of the Warrants;
or
(b) If the amount of said adjustment shall be less than two
cents ($0.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least two cents ($0.02) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon
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surrender and cancellation of the Warrants, if mutilated, the Company will make
and deliver a new Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed on a
National Securities Exchange and/or quoted on NSCM.
12. Notices to Warrant Holder. Nothing contained in this
Agreement shall be construed as conferring upon the Holder the right to vote or
to consent or to
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receive notice as a stockholder in respect of any meetings of stockholder for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holder of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of such events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholder entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case
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may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holder.
14. Supplements and Amendments. The Company and Underwriter
may from time to time supplement or amend this Agreement without the approval of
any holder of Warrant Certificates (other than Underwriter) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Underwriter may deem necessary or desirable and which the Company and
Underwriter deem shall not adversely affect the interests of the Holder of
Warrant Certificates. Any other amendment or supplement shall require consent of
the Company and holders of a majority in interest of Warrant Securities.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder and their respective successors and assigns hereunder.
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<PAGE>
16. Termination. This Agreement shall terminate at the close
of business on __________, 2006. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on ___________, 2010.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of law.
The Company, Underwriter and the Holders hereby agree that any
action, proceeding or claim against any of them arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, Underwriter and
the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, Underwriter and the Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their
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<PAGE>
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
18. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
19. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
20. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and Underwriter and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
Underwriter and any other registered Holders of Warrant Certificates or Warrant
Securities.
21. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
OMNICORDER TECHNOLOGIES, INC.
By:
-------------------------------
Name:
Title:
Attest:
Secretary
CAMBRIDGE CAPITAL, LLC
By:
-------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, , 2004
No. W- Warrants to Purchase
Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of Warrants to purchase initially, at any time
from __________, 2000 until 5:30 p.m. New York time on __________, 2004
("Expiration Date"), up to _________ fully-paid and non-assessable shares of
common stock, par value $.01 per share ("Common Stock") of OMNICORDER
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), (one share of Common
Stock referred to individually as a "Security" and collectively as the
"Securities") at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____ per share of Common Stock upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of __________, 1999 between the Company,
CAMBRIDGE CAPITAL, LLC (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company, unless otherwise set forth in the
Warrant Agreement.
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<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holder (the words "holder" or "holders" meaning the registered
holder or registered holders) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of __________, 1998
OMNICORDER TECHNOLOGIES, INC.
[SEAL]
By:
-------------------------------
Name:
Title:
Attest:
Secretary
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<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
__________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Omnicorder
Technologies, Inc. in the amount of $____, all in accordance with the terms of
Section 3.1 of the Underwriter's Warrant Agreement dated as of __________ __,
1998 between Omnicorder Technologies, Inc. and Cambridge Capital, LLC. The
undersigned requests that a certificate for such securities be registered in the
name of whose address is and that such Certificate be delivered to whose address
is .
Dated:
Signature (Signature must conform in
all respects to name of holder as
specified on the face of the Warrant
Certificate.)
(Insert Social Security or Other Identifying Number
of Holder)
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<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and
transfer unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other Identifying
Number of Assignor)
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<PAGE>
Exhibit 3(i)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OMNICORDER TECHNOLOGIES INC.
-------------------------------------------
Adopted in accordance with Sections 242 & 245
of the General Corporation Law of Delaware
--------------------------------------------
OMNICORDER TECHNOLOGIES INC., a Delaware corporation whose original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on February 7, 1997, acting pursuant to Sections 242 & 245 of the
General Corporation Law of Delaware, does hereby certify as follows:
The Certificate of Incorporation of the Corporation, is hereby amended
and restated to read in its entirety as follows:
FIRST:--The name of this Corporation is OMNICORDER
TECHNOLOGIES INC. (hereinafter referred to as the "Corporation").
SECOND.--Its registered office in the State of Delaware is located at 9
East Loockerman Street, City of Dover, County of Kent, State of Delaware, 19901.
The Registered Agent in charge thereof is National Registered Agents, Inc.
THIRD.--The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH.--The aggregate number of shares of stock which the Corporation
shall have authority to issue and the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions upon, each class or
series of stock shall be as follows:
Section 1. Number. The total number of shares which the
Corporation shall have authority to issue is Eleven Million
(11,000,000) shares.
<PAGE>
Section 2. Designation of Classes. The authorized shares of
the Corporation shall be divided into the following classes:
(a) Common Stock, consisting of Ten Million
(10,000,000) shares, $.01 par value (hereinafter
referred to as the "Common Stock"); and
(b) Preferred Stock, consisting of One Million
(1,000,000) shares, $.01 par value (hereinafter
referred to as the "Preferred Stock"), issuable by
the Board of Directors, from time to time, in one or
more series.
The Board of Directors is authorized to fix before issuance of
such Preferred Stock, the voting powers, if any, the designations, relative
rights, preferences and limitations applicable to each series, including but not
limited to dividend rates, conditions and time of accrual and payment, dividend
preferences, if any, whether dividends shall be cumulative, conversion and
redemption rights, sinking fund provisions and liquidation preferences. With
respect to dividends, redemption and liquidation, any particular series of
Preferred Stock may rank junior to, on a parity with or senior to any other
series of Preferred Stock. The Board of Directors is empowered to authorize the
issuance of the Preferred Stock at such time or times, to such persons, and for
such consideration as it may deem desirable, without further action by
shareholders, unless otherwise required by law.
FIFTH:--Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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<PAGE>
SIXTH:--A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
SEVENTH:--The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
EIGHTH:-- The bylaws of the Corporation may be adopted, amended or
repealed by its board of directors. Nothing contained in this Article shall
divest the stockholders of the Corporation of their power, nor limit their
power, to adopt, amend or repeal such bylaws.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its President on this 19th day of October, 1998, who affirms under
penalties of perjury that this Certificate is the act and deed of the
Corporation and that the facts stated herein are true.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
-----------------------------------
Mark A. Fauci, President
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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 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 for adoption 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.
2
<PAGE>
(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
3
<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
4
<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
5
<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
shall 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(c) of the General Corporation Law of
Delaware.
2.13 Inspectors of Election. Before any meeting of stockholders, the
Board of Directors may 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 shall be either one (1) or three (3).
If inspectors are appointed at a meeting pursuant to the request of one (1) or
more stockholders or proxies, then the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. 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, the
Certificate of Incorporation or these Bylaws. 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. Subject to the rights of the holders of any
series of Preferred Stock, no director shall be removed without cause. Subject
to any limitations imposed by law or the Certificate of Incorporation, the Board
of Directors, or any individual director, may be removed from office at any time
with 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 twenty-four hours before such
meeting. If by facsimile transmission, such notice shall be deemed adequately
delivered when the notice is transmitted at least twelve hours before such
meeting. If by telephone or by hand delivery, the notice shall be given at least
twelve 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 amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in Section 151(a) of the
General Corporation Law of the State of Delaware, fix any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation).
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 and
subject to the provisions of 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 or the Chief Financial
Officer 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
names and residences of the directors and officers 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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Exhibit 10(i)(a)
OPTION AGREEMENT TO PURCHASE EXCLUSIVE
LICENSE TO USE PATENT RIGHTS
This option agreement (the "AGREEMENT") is between OmniCorder Technologies, Inc.
of 541 South Ocean Avenue, Patchogue, New York, 11772, hereinafter called
SPONSOR, and Michael Anbar of 145 Deer Run Road, Amherst, New York 14221,
hereinafter called SCIENTIST is as follows:
In consideration of good and valuable services, including extensive efforts by
SPONSOR to market the technology of Dynamic Area Telethermometry, and the
consideration of One Dollar ($1.00), paid to SCIENTIST, receipt of which is
hereby acknowledged, SCIENTIST hereby gives and grants to SPONSOR, and assigns,
the exclusive option, to license on an exclusive basis, U.S. PATENT application
#08/368,161, filed January 3, 1995 entitled "Detection of cancerous lesions by
their effect on the periodic modulation of perfusion in the surrounding
tissues", hereinafter called PATENT.
The option is given on the following terms and conditions:
ONE: PRICE AND TERMS OF PAYMENT:
The purchase price for the exclusive license to use PATENT and all proprietary
rights therein or based thereon and all uses and products and benefits therein
and derived therefrom (the "LICENSE") shall be Three Hundred Shares (or, Twenty
Percent) of SPONSOR'S Common Stock which will be transferred to the SCIENTIST
upon the exercise of this AGREEMENT, and SPONSOR shall pay SCIENTIST a Royalty
Fee of $300 for each complete DAT Breast Cancer Screening System installed at a
client site, in perpetuity, paid annually on February 1st each year, for the
systems installed the previous year.
TWO: OTHER GOOD AND VALUABLE CONSIDERATIONS:
The payment by the SPONSOR to the SCIENTIST, upon the execution of this
AGREEMENT to purchase the LICENSE, of the good and valuable considerations as
set forth in this paragraph are conditional as herein described.
1. The SPONSOR shall provide the UB Foundation with a research grant, (the
"GRANT") of five hundred and fifty thousand dollars ($550,000) to be used
for the single purpose of research related to Dynamic Area Telethermometry
and its use in breast cancer detection. The GRANT will be deposited in
escrow with an Escrow Agent mutually acceptable to both SPONSOR and
SCIENTIST at the time of the transfer of LICENSE. The Escrow Agent will
transfer the GRANT to the UB Foundation upon the delivery, by the UB
Foundation of; (i) research proposal describing the project schedule and
budget, and naming the SCIENTIST as the Principal Investigator with whom
the control of the GRANT resides; (ii) written approval by the U.B.
Foundation and which stipulates that all discovery, inventions, techniques,
processes, formulas, apparatus or patents arising out of the research
conducted under the GRANT are the sole property of the SPONSOR and that,
(iii) and further stipulates that in the event of the resignation or
termination ("TERMINATION") of the SCIENTIST from the State University of
New York at Buffalo ("S.U.N.Y.") and severance of his relationship with the
UB Foundation, any unused portions of the GRANT will be transferred
directly to the SCIENTIST to continue the same research; (iv) in the event
of the death or incapacitation or unwillingness ("INCAPACITY") of SCIENTIST
all unused portions of the GRANT will be returned to the SPONSOR. The GRANT
shall be held in escrow for a period not to exceed six months, (the
"TERM"). If, due to INCAPACITY the SCIENTIST does not accept the GRANT by
the end of the TERM ("GRANT REFUSAL"), the GRANT may be declared withdrawn
by the submission of a letter by the SPONSOR at which time the Escrow Agent
will refund the GRANT to the SPONSOR. In the event of GRANT REFUSAL or
INCAPACITY, withdrawal of the GRANT after the end of the TERM may occur at
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any time and shall be at the sole discretion of the SPONSOR and doing so
shall not, in anyway, affect the validity of the transfer of the LICENSE to
the SPONSOR or the SPONSOR's ownership of the LICENSE.
2. The SPONSOR shall provide the SCIENTIST with the use, at the earliest
possible date, but within 12 months following the exercise of this OPTION,
and for the period of the GRANT, of an infrared camera manufactured by
"Amber Company" which utilizes a Quantum Well Infrared Photodetector
developed by the "Jet Propulsion Laboratory" in Pasadena CA, or a device
with substantially the same performance specifications ("DEVICE"). The
SPONSOR will make every effort to make the DEVICE available to the
SCIENTIST at the earliest date. In the event of TERMINATION or GRANT
REFUSAL or INCAPACITY the SPONSOR shall be relieved of the requirements of
this paragraph, which shall not, in any way, affect the validity of the
transfer of the LICENSE to the SPONSOR or the SPONSOR's ownership of the
LICENSE.
3. The SPONSOR shall provide the SCIENTIST's company, AMARA, Inc., with a
consulting contract, the duration of which shall be 12 months. The
conditions of the consulting contract shall provide for (i) up to fifty-two
(52) person-days of employment at a rate of five hundred dollars ($500) per
person-day; (ii) travel related expenses not to exceed twenty five thousand
dollars ($25,000); (iii) and an equipment and supplies budget of $50,000.
In the event of TERMINATION or GRANT REFUSAL or INCAPACITY or refusal by
AMARA Inc. to accept this consulting contract, the SPONSOR shall be
relieved of the requirements of this paragraph which, shall not, in anyway,
affect the validity of the transfer of the LICENSE to the SPONSOR or the
SPONSOR's ownership of the LICENSE.
4. SPONSOR shall elect SCIENTIST as a member of its Board of Directors in a
manner consistent with the Bylaws of the SPONSOR and the Laws of Delaware.
If, due to INCAPACITY, the SCIENTIST does not accept the position as a
member of the SPONSOR's Board of Directors, the transfer of the LICENSE to
the SPONSOR or the SPONSOR's ownership of the LICENSE shall not, in anyway,
be affected.
5. Upon the resignation of the SCIENTIST from the State University of New York
at Buffalo (S.U.N.Y.) SPONSOR shall offer an employment contract
("CONTRACT") to SCIENTIST with the title and responsibilities of Vice
President of Research and Development and Chief Scientific Officer and
SPONSOR shall provide the SCIENTIST; (i) with monetary compensation at a
rate approximately equivalent to that is being provided to him by S.U.N.Y.;
(ii) with an employment benefits package consistent with that received by
all other senior executives employed by SPONSOR; (iii) with the right to
pursue other professional activities, so long as said activities do not
inhibit or interfere with his responsibilities as an employee or Board of
Directors member. In any event, these other professional activities shall
not consume more than thirty percent of SCIENTIST's normal workweek; (iv)
with this CONTRACT having a duration of not less than five years. In the
event that SCIENTIST becomes an employee of SPONSOR before the consumption
of all GRANT funds, all unexpended GRANT funds will be applied to the
research budget of SPONSOR's Research and Development Department of which
SCIENTIST will head under this CONTRACT. The INCAPACITY of the SCIENTIST to
accept the CONTRACT as described herein, shall not, in any way, affect the
validity of the transfer of the LICENSE to the SPONSOR or the SPONSOR's
ownership of the LICENSE.
THREE: LICENSE TERMINATION
If SPONSOR violates any of the terms of this AGREEMENT or in the event of
Abandonment of LICENSE, as specifically defined in Section "FOUR", or does not
provide any required payments within 60 days written notice from the SCIENTIST
that such payments are due, the LICENSE shall terminate and all rights therein
shall revert to SCIENTIST. The SPONSOR shall, thereafter, have no rights in the
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PATENT or proprietary rights therein or based thereon. In this event, SCIENTIST
will abide, respect, comply and uphold any and all sub-licensing agreements made
between any and all third parties. SCIENTIST will retain any and all funds
received pursuant to this AGREEMENT as compensation.
FOUR: ABANDONMENT OF LICENSE
For the purposes of this agreement and for provision of LICENSE termination as
set forth in Section THREE, LICENSE will be considered in the state of
Abandonment by the SPONSOR if all of the following conditions apply: (i) SPONSOR
fails to pay SCIENTIST a royalty fee for more than 18 months; (ii) SPONSOR fails
to enter into any negotiation with the purpose of selling, marketing, promoting
or sub-licensing LICENSE for more than 18 months; (iii) SPONSOR fails to expend
any time, money or resources to sell or promote the LICENSE for more than 18
months; (iv) SPONSOR fails to expend any time, money or resources to improve or
enhance the LICENSE or the products derived from the LICENSE for more than 18
months.
FIVE: PERIOD OF AGREEMENT AND EXTENSION
This AGREEMENT may be exercised by giving notice thereof to SCIENTIST, at 145
Deer Run road, Amherst, New York, 14221, at any time during the primary period
from the date of this instrument until 12 o'clock a.m. June 27, 1997; or during
the extension period, if the AGREEMENT is extended, as herein provided, until 12
o'clock a.m. March 27, 1998. The OPTION may be so extended by SPONSOR giving
SCIENTIST written notice of extension prior to the TERMINATION of the primary
period, and paying to SCIENTIST at the time of notice, the additional
consideration of One Hundred Thousand ($100,000) Dollars.
SIX: EXECUTIVE OF EFFECTUAL TRANSFER
If the AGREEMENT is exercised, SCIENTIST will, within 10 days after the delivery
to him of the notice of exercise and the placement of funds in the escrow
account pursuant to paragraph TWO, execute effectual transfer of the above
LICENSE. This assignment will take place at the earliest possible date. The
SPONSOR shall pay all customary and reasonable fees associated with the LICENSE
agreement. The LICENSE rights conveyed shall be free and clear of all liens,
encumbrances and restrictions.
SEVEN: NOTICES
Any notice hereunder shall be given in writing to the party for whom it is
intended in person or by registered mail at the following address, or such
future address as may be designated in writing to the SCIENTIST, at the address
set forth above, to the SPONSOR at: 541 South Ocean Avenue, Patchogue, New York
11772.
EIGHT: ASSIGNMENT AND SUCCESSION
This AGREEMENT and the contract resulting from the exercise thereof shall bind
and inure to the benefit of the heirs, administrators, executors, successors,
and assigns of the respective parties except for those "Other Good and Valuable
Considerations" set forth in Section "TWO", which are not transferable. All
other rights of purchase hereunder may be assigned without restriction except as
provided for in Section "NINE".
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NINE: SUB-LICENSING
SPONSOR has the right to sub-license the LICENSE to any and all parties freely
and without restriction except when the sub-license agreement with the third
party permits:
(i) a selling price of a regional sub-license agreement between SPONSOR and a
third party of less than an amount equal to the total population within the
region, covered by this sub-license, multiplied by $0.10; (ii) the transaction
fee, to be received by the SPONSOR from either the third party or the subject or
patient, for each cancer screening test, is less than $1.00. In either case the
SPONSOR must have the approval of the SCIENTIST prior to entering into the
sub-license agreement with the third party. The provisions of Section "NINE" are
not transferable to the SCIENTIST's heirs, administrators, executors, successors
and assigns. In the event of the death or incapacity of the SCIENTIST, the
SPONSOR shall be immediately relieved of any restriction or limits set forth in
Section "NINE".
TEN: RIGHT OF SCIENTIST TO INSPECT BOOKS AND RECORDS
SCIENTIST shall be provided the opportunity to annually inspect the books and
records of the SPONSOR for the purpose of confirming SPONSOR's compliance with
the provisions set forth in Sections "ONE" and "NINE". This inspection shall
occur at the offices of the SPONSOR and at the expense of the SCIENTIST.
ELEVEN:
If any provision if this AGREEMENT is held to be illegal, invalid, or
unenforceable under present or future state or federal laws or rules and
regulations promulgated thereunder effective during the term hereof, such
provisions shall be fully severable, and this AGREEMENT shall be construed and
enforced as if such illegal, invalid, or unenforceable provisions had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provisions or by its severance herefrom. Furthermore, the parties
hereto agree to negotiate in good faith to modify and amend this AGREEMENT, so
as to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be illegal, invalid or
unenforceable.
TWELVE:
SCIENTIST warrants that he believes that he is the owner of the PATENT rights
and has the right to enter into this AGREEMENT without any breach of his
obligations to others.
Each party shall hold harmless and indemnify the other party against any and all
claims, judgments, costs, awards, expenses (including reasonable attorneys'
fees) and liabilities of every
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kind arising from execution and performance as a result of that execution of
this AGREEMENT.
Each party will pay its own expenses, including attorneys fees, related to this
AGREEMENT.
Executed in duplicate on March 19, 1997
/S/ Michael Anbar (Signature of SCIENTIST)
- ----------------------------
/S/ Mark A. Fauci (Signature of SPONSOR)
- ----------------------------
5
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Exhibit 10(i)(b)
AMENDMENT
In consideration of good and valuable services, including extensive efforts by
SPONSOR to market the technology of Dynamic Area Telethermometry, and the
consideration of One Dollar ($1.00), paid to SCIENTIST, receipt of which is
hereby acknowledged, SCIENTIST and SPONSOR hereby agree to amend and restate
certain sections of SECTION TWO and all of SECTION FIVE as follows:
TWO: OTHER GOOD AND VALUABLE CONSIDERATIONS:
2. The SPONSOR shall provide the SCIENTIST with the use, at the earliest
possible date, but within 12 months following the exercise of this OPTION,
and for the period of the GRANT, of an infrared camera manufactured by
"Amber Company" which utilizes a Quantum Well Infrared Photodetector
developed by the "Jet Propulsion Laboratory" in Pasadena, CA, or a devise
with substantially the same performance specifications ("DEVICE"). The
SPONSOR will make every effort to make the DEVICE available to the
SCIENTIST at the earliest date. The title to the camera will be transferred
to AMARA Inc. after a period of one year with the understanding that the
camera will be used for research purposes only but not for applications in
the area of breast cancer, melanoma, or diabetes. In the event of
TERMINATION or GRANT REFUSAL or INCAPACITY the SPONSOR shall be relieved of
the requirements of this paragraph, which shall not, in anyway, affect the
validity of the transfer of the LICENSE to the SPONSOR or the SPONSOR's
ownership of the LICENSE.
5. Upon the resignation of the SCIENTIST from the State University of New York
at Buffalo (S.U.N.Y.) SPONSOR shall offer an employment contract
("CONTRACT") to SCIENTIST with the title and responsibilities of Vice
President of Research and Development and Chief Scientific Officer and
SPONSOR shall provide the SCIENTIST; (i) with monetary compensation at a
gross monthly rate of $14,000. This figure shall be inclusive of all
payroll and benefit related expenses; (ii) with the right to pursue other
professional activities, so long as said activities do not inhibit or
interfere with his responsibilities as an employee or Board of Directors
member. In any event, these other professional activities shall not consume
more than forty percent of SCIENTIST's normal workweek and will not be
conducted in the area of breast cancer, melanoma or diabetes; (iii) with
this CONTRACT having a duration of not less than five years. In the event
that SCIENTIST becomes an employee of SPONSOR before the consumption of all
GRANT funds, all unexpended GRANT funds will be applied to the research
budget of SPONSOR's Research and Development Department of which SCIENTIST
will head under this CONTRACT. The INCAPACITY of the SCIENTIST to accept
the CONTRACT as described herein, shall not, in any way, affect the
validity of the transfer of the LICENSE to the SPONSOR or the SPONSOR's
ownership of the LICENSE.
FIVE: PERIOD OF AGREEMENT AND EXTENSION:
This AGREEMENT may be exercised by giving notice thereof to SCIENTIST, at 145
Deer Run Road, Amherst, New York, 14221, at any time during the primary period
from the date of this instrument until 12 o'clock am, Oct. 15, 1997. If SPONSOR
provides a $10,000 grant to the UB Foundation under the terms described in
Section TWO paragraph 1 this agreement will remain in effect until 12 o'clock
am, Dec. 31, 1997.
The OPTION may also be extended until March 27, 1998 by SPONSOR giving SCIENTIST
written notice of extension prior to the TERMINATION of the primary period, and
paying to SCIENTIST at the time of notice, the additional consideration of One
Hundred Thousand Dollars ($100,000).
Executed in duplicate on September 13, 1997.
/s/ Michael Anbar (Signature of SCIENTIST)
------------------------------------------
/s/ Mark A. Fauci (Signature of SPONSOR)
------------------------------------------
Mark A. Fauci
President and CEO, OmniCorder Technologies, Inc.
<PAGE>
Exhibit 10(i)(c)
OmniCorder 25 East Loop Road, Stony Brook, NY 11790
Technologies, Inc. Tel. 516-444-6499
Fax 516-444-8825
March 19, 1998
Dr. Michael Anbar Ph.D.
145 Deer Run Road
Amherst, New York 14221
Dear Michael,
By way of this letter I am confirming OmniCorder Technologies' ("OCT")
intention to immediately exercise the option entitled "Option Agreement to
Purchase Exclusive License to Use Patent Rights" (the "Option Agreement")
originally executed on March 19, 1997. As we discussed, OCT will be transferring
funds to the UB Foundation in the amount of $300,000 (three hundred thousand
dollars). The March 3rd letter to OCT from Edward Schneider of the U.B.
Foundation satisfies the requirements of Section 2; Paragraph 1; Subparagraphs
(i), (ii), and (iii) and dispenses with the need described in Section 2:
Paragraph 1 for an escrow agent. However, the letter requires that you do not
use University Facilities to conduct this research and it is understood that you
will not use University Facilities to conduct this OCT sponsored research at any
time so as not to create any claims of ownership of any intellectual property or
products arising out of it by the University of Buffalo or the UB Foundation.
An additional $35,000 (thirty-five thousand dollars) will be made
payable to Sisters Hospital in Buffalo New York, which will be serving as your
primary R&D site as soon as we receive documentation from them indicating that
they are ready, willing, and able to function as a site for this research, will
match OCT's funding with a $35,000 contribution to your research project, and
will waive any rights of ownership as stipulated in the Option Agreement in the
aforementioned Section 2; Paragraph 1. I'm also enclosing with this letter a
check in the amount of $50,000 (fifty thousand dollars) made payable to AMARA
Inc.
Added to previous funds provided to the UB Foundation, these new funds
will make a total of $495,000 (four hundred and ninety five thousand dollars)
provided by OCT to fund your research using Dynamic Area Telethermometry. As we
recently agreed verbally these funds will completely satisfy Section 2
Paragraphs One and Three in the Option Agreement, which refer to funding
requirements in order to exercise the Option Agreement.
You also know that we are presently building an infrared camera being
manufactured by SE-IR Corp., which utilizes a quantum well photodetector
developed by Lockheed Martin Corporation. The delivery of this camera, which we
expect in the next few weeks, will satisfy Section 2 Paragraph 2 of the Option
Agreement. As agreed in the last amendment to the original Option Agreement,
OTC will transfer title of this camera to you one year following exercise of the
Option Agreement. The detector in this camera, which is on loan to OCT from
Lockheed Martin, will either be purchased or replaced with similar detector by
that time.
The attorneys will be sending three documents, which when executed by
you, will effect the transfer to you of the equivalent of twenty percent of
OCT's equity, as calculated prior to the investment made by new investors (or
200,000 shares of stock in OCT). This will satisfy the conditions set forth in
Section 1 of the Agreement.
I would very much like you to accept a seat on the Board of Directors
of OCT, but I understand the reasons for you not doing so at this time. I hope
you'll be able to participate on the board in an unofficial capacity and
possibly consider accepting the board seat at some later date. You acknowledge
that the board seat has been offered, as required in Section 2 Paragraph 4, and
that you have decided to decline it. Finally, we are prepared, at your request,
to provide you with an employment contract upon your resignation from the State
University of New York at Buffalo, as stipulated in Section 2 Paragraph 5.
<PAGE>
Upon your acceptance of the terms described in this letter, the
execution of the three stock transfer related agreements mentioned above, the
receipt of the $300,000 check by the UB Foundation made payable to them, the
receipt by you of the $50,000 check made payable to AMARA, and the issuance of
the Company's stock to you, the License transfer as described in Section 6 of
the Option Agreement shall be considered fully effected. We don't anticipate the
need to exercise a more formal agreement unless required by a funding source, in
which case you will agree to exercise that agreement which will be based upon
the same terms described in the Option Agreement and this letter.
Sincerely,
/s/ Mark A. Fauci
-------------------------
Mark A. Fauci
President and CEO
Accepted and Agreed:
/s/ Michael Anbar March 20, 1998
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Michael Anbar Date
<PAGE>
Exhibit 10(ii)(a)
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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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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<PAGE>
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 Separatley 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(ii)(b)
OMNICORDER TECHNOLOGIES, INC.
25 East Loop Road
Stony Brook, New York 11790
California Institute of Technology
1200 East California Boulevard
Pasadena, California 91125
Attn: Lawrence Gilbert, Director
Office of Technology Transfer
Re: Option Agreement dated August 27, 1997 and
accompanying License Agreement (the "License
Agreement") by and between the California
Institute of Technology ("Caltech") and
Omnicorder Technologies, Inc. ("OCT")
-------------------------------------
Dear Mr. Gilbert:
As per our prior discussions, this will confirm our agreement that in
order to promote OCT's ability to quickly ramp up production of its infrared
detector sensors, and to optimize the use of other technologies on an ongoing
basis in combination with the technology licensed from Caltech under the License
Agreement, all of which is intended to promote the generation of revenue to OCT
and license fees to Caltech, it is hereby agreed as follows:
(i) OCT may utilize infrared radiation detector technologies
and processes developed by parties other than Caltech ("Other
Technologies") in combination with those licensed from Caltech to the
extent that OCT may incorporate the Other Technologies into its
infrared radiation detector sensors. It is agreed that such
incorporation shall not be deemed to constitute OCT having marketed
products or services utilizing infrared detection technology other than
that covered by Licensed Products for any application in the Field, all
as defined in and set forth in the fourth sentence of Paragraph 5.1 of
the License Agreement. Therefore, such incorporation of Other
Technologies shall not render the License from Caltech non-exclusive
with respect to any application in the Field;
(ii) to the extent OCT chooses to incorporate such Other
Technologies into its detector sensors, it is understood and agreed
that the sale or sublicensing of such Other Technologies will not
constitute the sale or sublicensing of a "Combination Product" under
paragraph 3.3 of the License Agreement, and thus all revenues derived
from such sales or licensing shall be deemed under the License
Agreement to be derived solely from technology licensed by Caltech for
the purpose of calculating royalties due Caltech under paragraph 3.1
of the License Agreement. To the extent such sensors are combined with
other products, however, paragraph 3.3 shall continue to apply.
In all other respects, the provisions of the License Agreement shall
remain the same.
Please sign this letter on behalf of Caltech to indicate its agreement
to the foregoing. This letter may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute a single
instrument.
Dated: May 24, 1998 Omnicorder Technologies, Inc.
By: /s/ Mark A. Fauci
---------------------------
Mark A. Fauci, President
Agreed and Acknowledged:
California Institute of Technology
By: /s/ Lawrence Gilbert
---------------------------------
Lawrence Gilbert, Director
Office of Technology Transfer
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Exhibit 10(iii)
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.
17 of 20
<PAGE>
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
- ----------------------------------- ------------------------------------
Title: SR VP - CFO Title: President and CEO
Date: 9/29/98 Date: 9/18/98
18 of 20
<PAGE>
EXHIBIT I
Omitted. Filed separately with the Commission.
19 of 20
<PAGE>
EXHIBIT II
Omitted. Filed separately with the Commission.
20 of 20
<PAGE>
Exhibit 10(iv)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made this 31st day of December, 1997, 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 MARK FAUCI, an individual residing at 541 S. Ocean Avenue,
Patchogue, New York 11772 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive as President and
Chief Executive 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
President and Chief Executive 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 a
full time 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 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
term of the Executive's employment under this Agreement shall be for a period
beginning on January 1, 1998 (the "Engagement Date") and ending four years
thereafter (such period or, if the Executive's employment hereunder is earlier
terminated, such shorter period, being hereinafter called the "Employment
Term").
-1-
<PAGE>
3. Duties and Authority.
(a) Duties. The Executive shall be employed as President and Chief
Executive 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 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. The 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 President and Chief Executive
Officer, in the operation of the Company's business, subject to the supervision
and authority of the Board.
4. Salary.
(a) Salary. In consideration for the services of the Executive rendered
to the Company hereunder, the Company shall pay the Executive a salary at an
annual rate of $90,000 during the Employment Term, payable in regular intervals
in accordance with the Company's payroll practices, subject to upward adjustment
as the Board or the compensation committee thereof may deem appropriate. In the
event the Company receives equity financing of $2.25 million from inception, the
salary will be increased to $135,000 per annum. On January 1, 1999, the salary
will be increased to $180,000 per annum assuming that the $2.25 million equity
raise has been achieved. In the event the $2.25 million equity raise is
completed only after January 1, 1999, Mr. Fauci's salary will be increased to
$180,000 at that time of such completion. The Executive shall also be eligible
for annual bonuses, as the Board or the compensation committee thereof may deem
appropriate. Upon termination of this Agreement, except if the Company attempts
-2-
<PAGE>
to terminate this Agreement without 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.
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, 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 Engagement Date;
(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 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 applicable on and after the Engagement
Date; and
(f) An automobile lease or purchase allowance (including
insurance) not to exceed $600.00 per month; excess mileage charges on a lease
will be paid separately by the Company.
-3-
<PAGE>
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.
(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
-4-
<PAGE>
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 relating to any of the foregoing or any physical property
of the Company or any of its Affiliates.
-5-
<PAGE>
(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
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.
-6-
<PAGE>
(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
-7-
<PAGE>
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 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 the Executive all salary and benefits paid to him in the year preceding his
termination, during the one year period following such termination (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
-8-
<PAGE>
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, 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.
-9-
<PAGE>
(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 Mr. Fauci is terminated during the
Employment Term without "Cause," the Company will pay to Mr. Fauci 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 Mr. Fauci is terminated for
"Cause," he will be bound by the non-competition agreement, but will not be paid
any amounts with respect to the one-year period after the termination of his
employment;
(iii) if Mr. Fauci leaves voluntarily before the end
of the four-year Employment Term, but is not terminated by the
Company, the Company will not pay Mr. Fauci any amounts, but Mr.
Fauci will still be bound by the non-competition agreement for the
one-year period after his departure;
(iv) if Mr. Fauci finishes his initial four-year
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 the agreement is renewed for subsequent
terms, the above terms shall apply as if each renewal term was the
original Employment Term."
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<PAGE>
9. Non-Assignability. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive, 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
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 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.
-11-
<PAGE>
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 $2 Million
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. 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/ Allan Granberd
--------------------------------
Secretary
/s/ Mark A. Fauci
--------------------------------
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<PAGE>
OmniCorder Technologies, Inc. Exhibit 11.1
Computation of net loss per common share
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Weighted
Period from February 7, 1997 (inception) Common Days Average
through December 31, 1997 Shares Outstanding Shares
<S> <C> <C> <C>
Common stock issued to founder 1,672,000 327 1,672,000
Issuance of common stock 58,665 64 11,482
----------- --------- ----------
Weighted average shares used in
per share computation 1,683,482
==========
Net loss for the period from February 7, 1997
(inception) through December 31, 1997 $ (143,516)
Basic and diluted net loss per common share $ (.09)
==========
Nine months ended September 30, 1998
Common stock outstanding at January 1, 1998 1,730,666 1,730,665
Common stock issued to founder 440,000 210 317,509
Issuances of common stock 95,332 231 80,666
13,200 223 10,782
29,334 210 22,565
5,866 169 3,631
44,000 143 23,048
----------- ----------
187,732 140,692
Weighted average shares used in per share
computation 2,188,866
==========
Net loss for the nine months ended
September 30, 1998 (774,411)
Basic and diluted net loss per common share $ (.35)
==========
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
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
- ------------------------------
PricewaterhouseCoopers LLP
Melville, New York
October 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 SEP-30-1998
<PERIOD-START> FEB-07-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 76,351 479,468
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 90,000 255,753
<PP&E> 3,580 56,938
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 169,931 999,076
<CURRENT-LIABILITIES> 86,967 295,028
<BONDS> 0 0
0 0
0 0
<COMMON> 17,307 23,584
<OTHER-SE> 65,657 680,464
<TOTAL-LIABILITY-AND-EQUITY> 82,964 704,048
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 143,516 643,161
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 131,250
<INCOME-PRETAX> (143,516) (774,411)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (143,516) (774,411)
<EPS-PRIMARY> (0.09) (0.35)
<EPS-DILUTED> (0.09) (0.35)
</TABLE>
