<PAGE>
As filed with the Securities and Exchange Commission on February 11, 1999
Registration No. 333-66093
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT No. 3
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMNICORDER TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware (8099-02-01) (11-3386214)
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>
---------------------
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
---------------------
Mark A. Fauci
Chairman, President and Chief Executive Officer
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Name, address, including zip code and telephone number, including area code of
agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Richard A. Lippe, Esq.
Allan Grauberd, Esq. Benjamin M. Polk, Esq.
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. Whitman Breed Abbott & Morgan LLP
190 Willis Avenue 200 Park Avenue
Mineola, New York 11501 New York, New York 10166
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1)(3) Per Share (2) Price (1)(2)(3) Registration Fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ......................... 1,362,500 shares $10 $13,820,000 $ 3,841.96
=================================================================================================================
</TABLE>
(1) Includes 165,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Includes shares of Common Stock issuable pursuant to warrants granted to
the Underwriter. The warrants entitle the Underwriter to purchase 97,500
shares of Common Stock. These warrants are exercisable at 120% of the
public offering issue price. The shares issuable pursuant to these
warrants have, for fee calculation purposes only, an assumed issuance
price of $12 per share.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion dated February , 1999
Prospectus
[GRAPHIC OMITTED]
1,100,000 Shares of Common Stock
[$ ] per share
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on Page 7.
The Offering
Per Share Total
----------- ------
OmniCorder Technologies
Inc. provides advanced
Public Price .................... screening services and
Underwriter clinical information
Discount ....................... for the early detection
Proceeds to OmniCorder .......... and management of
breast cancer and other
diseases.
Proposed Trading Symbol:
NASDAQ SmallCap MarketSM -- OCTI
We currently anticipate that the initial public offering price will range
between $8.00 and $10.00 per share. No public market currently exists for our
shares. We have granted Cambridge Capital, LLC, who will act as the principal
underwriter, an over-allotment option to buy up to [ ] ______ additional
shares.
This offering is a "firm commitment" underwriting. This means that all offered
shares must be purchased by the principal underwriter subject to certain
conditions.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
[GRAPHIC OMITTED]
February ___, 1999
<PAGE>
4 Digital Images Stylized Artwork of Rocket, Photo of Examination
of Breasts Satellite and Computer Chips of Female
OmniCorder Technologies, Inc.
The Front Wave of Health Technology
Applying Space and Defense Technology to the
Detection and Management of Breast Cancer
OmniCorder believes its system will accurately detect, in 5-10 minutes,
breast cancer tumors substantially earlier and more accurately than present
methods. The system can be deployed in any physician's office and requires no
physical contact.
<PAGE>
PROSPECTUS SUMMARY
The following summarizes certain information in this prospectus. The more
detailed description elsewhere in the prospectus governs the matters discussed
in this summary.
The Company
Omnicorder Technologies Inc., a Delaware corporation, is a development
stage company incorporated in February 1997 to engage in the business of
providing innovative screening services and clinical information for the early
detection and management of breast cancer and other diseases. OmniCorder's
initial endeavor, using a patented technology called Dynamic Area
Telethermometry or DATTM, provides a painless, non-contact, radiation-free
screening and diagnostic service for the early detection and management of
breast cancer. OmniCorder believes that the DAT technology will provide
physicians with increased diagnostic capability, thus reducing the number of
mistaken diagnoses and unnecessary biopsies, a surgical procedure in which
tissue is removed from the breast to determine if cancer is present.
Recent statistics published by the American Cancer Society show that 1 in
9 women in the United States will develop breast cancer over their lifetime.
Early detection of cancerous tumors is the key factor in reducing mortality
rates among women who develop breast cancer. Currently, the most popular
methods for early detection of breast cancer include breast self-examination,
breast examination by a physician and x-ray mammography. While breast
self-examination and breast examination by a physician are recommended by the
American Cancer Society, generally these methods tend to detect cancer at a
more advanced stage, often requiring more invasive treatment and resulting in
higher mortality rates.
After breast examination, x-ray mammography is the most common method of
clinical detection and diagnosis. However, x-ray mammography has various
drawbacks:
o it relies on the detection of the presence of a calcified mass, which
generally forms 3-7 years after a tumor has been growing.
o approximately 70% false positive diagnoses; in other words, 70% of women
diagnosed with a positive x-ray mammography finding will undergo a
surgical biopsy which will indicate that the x-ray finding was wrong.
o x-ray mammography will not detect cancer in 25% to 45% of pre-menopausal
women who have cancer and in 10% to 20% of post-menopausal women who have
cancer.
o x-ray mammography can be a physically uncomfortable and intrusive
process.
o x-ray mammography requires irradiation of the breast which, over time,
can increase the risk of cancer.
OmniCorder believes DAT has significant advantages over x-ray mammography
and other existing breast cancer screening modalities, including:
o reliance upon detection of changes in blood flow distribution
characteristics in the breasts, which occur early in a tumor's growth,
rather than reliance on the detection of a calcified mass.
o a significant reduction of false positives which in turn will reduce the
number of surgical biopsies.
o a significant reduction of false negatives.
o elimination of risks posed by x-ray irradiation of the breast as well as
elimination of discomfort, pain and/or bruising which occurs during the
breast compression procedure used for x-ray mammography.
o an approximate 25% to 50% cost-reduction per examination when compared
with x-ray mammography.
3
<PAGE>
DAT detects changes in blood flow distribution characteristics in a
woman's breasts caused by cancer, utilizing new patented infrared sensor
technology provided under exclusive license for specific biomedical
applications to OmniCorder by the Lockheed Martin Corporation and the
California Institute of Technology's Jet Propulsion Laboratory. The data
collected by this sensor technology will be analyzed utilizing DAT methods and
software, which were invented by Professor Michael Anbar. The DAT technology is
patented and under exclusive license to OmniCorder. Professor Anbar is one of
the world's foremost authorities on biomedical applications of infrared
imaging.
During the DAT screening examination, which is anticipated to take less
than 10 minutes, the patient is positioned in front of a custom-designed camera
which records infrared light that is passively emitted from the body. The data
collected by the camera is then analyzed using OmniCorder's proprietary
software which processes the data according to the diagnostic principles of
DAT. The results of this analysis are provided to the patient's doctor for
interpretation.
OmniCorder intends to make its service available in both specialists'
offices, such as radiologists, surgeons and oncologists, and select primary
care providers' offices. The healthcare provider will be furnished with the
following components, constituting the DAT System.
o a custom built infrared camera, computer workstation and related
hardware.
o proprietary diagnostic software.
o a secure information distribution network.
o comprehensive training provided by OmniCorder.
o maintenance, service and upgrades
OmniCorder intends to sell regional licenses to market the DAT System to
large healthcare provider organizations which will, in turn, deliver its breast
cancer screening and diagnostic service through their network of primary and
specialist physicians. OmniCorder will also generate revenues by charging
patients examination fees.
The device to be employed in the DAT System requires clearance from the
United States Food and Drug Administration or FDA, before it can be marketed.
OmniCorder intends to initially rely on a type of FDA clearance to market
adjunct (supplementary) diagnostic devices which it hopes to obtain by mid-1999.
This type of clearance allows companies to market devices that are used
together with an existing approved method. OmniCorder will then request FDA
approval for marketing the DAT System as a stand- alone device, i.e., a sole
diagnostic screening tool for detection of breast cancer. This process is
anticipated to take two years from the time OmniCorder receives FDA clearance
to market its service as an adjunct (supplement) to existing diagnostic
methods.
OmniCorder has not realized any revenues to date or marketed any products
or services to date. The DAT System's development is substantially complete.
The DAT System is currently being utilized in a 3,000 women field test. This
field test is being 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. Other sites
anticipated to participate in the field test include the State University of
New York at Stony Brook, The Strang Cancer Prevention Center in New York City,
Dana Farber Medical Center and Memorial Sloan-Kettering Hospital in New York
City, and possibly others.
4
<PAGE>
The Offering
Common Stock offered by
OmniCorder.............. 1,100,000 shares, without giving effect to the
Underwriter's over-allotment option. See
"Underwriting".
Common Stock outstanding
after the Offering...... 3,458,397 shares, without giving effect to shares
issuable pursuant to warrants and options. See
"Capitalization."
Use of Proceeds.......... To fund research and development, sales and
marketing, purchase of capital equipment, for
working capital and general corporate purposes and
for repayment of Bridge Notes. 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.
Proposed Nasdaq SmallCap
Market Symbol........... OCTI
- -------------
OmniCorder's principal offices are located at 25 E. Loop Road, Stony Brook, NY
11790-3350. Its telephone number is (516) 444-6499.
5
<PAGE>
Summary Financial Data
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto, included elsewhere
in this prospectus. The statement of operations data for the period from
February 7, 1997 (inception) through December 31, 1997 are derived from
OmniCorder's audited Financial Statements included elsewhere in this
prospectus. The statement of operations data for the period from February 7,
1997 (inception) through September 30, 1997 and the nine months ended September
30, 1998 and the balance sheet data at September 30, 1998 have been derived
from unaudited financial statements and include all adjustments (consisting of
only normal recurring adjustments) that OmniCorder considers necessary for a
fair statement of the results for such interim periods. The operating results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year or for any future period.
The as adjusted balance sheet data as of September 30, 1998 gives effect
to:
o the sale of the shares of common stock offered hereby at an assumed
initial offering price of $9.00 per share and the application of the net
proceeds received therefrom; and
o 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."
<TABLE>
<CAPTION>
Period from Period from
February 7, 1997 February 7, 1997 Nine months
(inception) through (inception) through ended
December 31, September 30, September 30,
--------------------- --------------------- --------------
1997 1997 1998
<S> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
Research and development ...................... $ 20,000 $ 11,600 $ 338,647
General and administrative .................... 42,069 34,079 207,349
Related party legal expense ................... 81,447 29,332 97,165
----------- ---------- -----------
Total operating expenses ..................... 143,516 75,011 643,161
Loss from operations ............................ (143,516) (75,011) (643,161)
Interest expense ................................ -- -- 131,250
----------- ---------- -----------
Net loss ...................................... $ (143,516) $ (75,011) $ (774,411)
----------- ---------- -----------
Basic and diluted net loss per common share ..... $ (0.09) $ (0.04) $ (0.35)
----------- ---------- -----------
Weighted average shares used in per share
computation (see Note 2 of Notes to
Financial Statements .......................... 1,683,482 1,672,000 2,188,866
----------- ---------- -----------
</TABLE>
September 30, 1998
Actual As Adjusted
------------ -------------
Balance Sheet Data:
Cash ......................... $ 479,468 $ 8,140,468
Working capital .............. 440,193 8,103,276
Total assets ................. 999,076 8,537,159
Total debt ................... 125,000 --
Total liabilities ............ 295,028 170,028
Stockholders' equity ......... 704,048 8,367,131
6
<PAGE>
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following factors, in
addition to the other information included in this prospectus, before
purchasing any of the shares offered hereby.
OmniCorder is an early stage company and has yet to prove it can operate as
a successful business. OmniCorder was incorporated in February 1997 and is in
the development stage. As such, it is subject to all of the business risks
associated with a new enterprise, including constraints on its resources, lack
of established banking, supplier and distribution relationships and
uncertainties regarding product development and future revenues.
Since its inception, OmniCorder has engaged in research and development
activities, raising capital, negotiating various license agreements, and has
conducted a limited field test of the DAT System. Omnicorder is currently
conducting a 3,000 women field test of the DAT System. OmniCorder has not
derived any revenue from operations and has incurred losses since inception, of
approximately $918,000 through September 30, 1998, all of which have been
funded by equity and debt financing. OmniCorder does not anticipate deriving
any revenue from operations until such time as the DAT System is available for
commercial delivery as an adjunct (supplement) to existing diagnostic methods,
which is expected to occur in the 4th calendar quarter of 1999. OmniCorder
anticipates incurring significant costs in connection with bringing the DAT
System to market.
OmniCorder's ability to operate its business successfully will depend on a
variety of factors, some of which are outside its control, including:
o physician and/or consumer preferences.
o the application of regulatory requirements of the FDA and similar
regulatory requirements.
o competition from existing and newly developed alternative screening and
diagnostic technologies.
o the actual and perceived efficacy of the DAT System.
o OmniCorder's ability to maintain a constant supply of infrared cameras
and other components utilized in the DAT System.
The likelihood of OmniCorder's success must be considered in light of the
expenses, difficulties and delays frequently encountered in connection with the
formation and early phase of operation of a new business and the competitive
environment in which it will operate. There can be no assurance regarding when
or whether OmniCorder will successfully implement its business objectives or
that it will achieve profitability.
OmniCorder needs to successfully sell or license the DAT System in order
to generate revenue. The sale of services which incorporate the DAT System,
together with regional licenses to provide the DAT System for breast cancer
applications, will be OmniCorder's principal proposed revenue sources for at
least the first two years from the closing of the offering. These services have
not yet been commercially introduced. OmniCorder has conducted a limited field
test, and is currently conducting a 3,000 women field test of the DAT System.
There can be no assurance that the DAT System will be effective or that it will
be more effective than competing services and/or technologies, that it will be
capable of being delivered in commercial quantities at acceptable costs or that
the DAT System will be successfully marketed. If the DAT System is not
successfully commercialized for breast cancer applications, it is likely that
OmniCorder's business, financial condition and results of operations would be
materially and adversely affected. In such event, OmniCorder would have to seek
out other commercial endeavors for the DAT System, including its use in the
diagnosis of other diseases; however, there can be no assurance that such
endeavors would be successful.
OmniCorder's ability to generate revenues depends on whether health care
providers adopt the DAT System as a tool to detect breast cancer. There can be
no assurance that physicians or the medical community in general will accept
and use the DAT System or any other products or services developed by
OmniCorder. The degree and rate of acceptance and market penetration which
OmniCorder achieves will depend on many variables including, but not limited
to, establishing acceptance of the DAT System within the medical community by
demonstrating its clinical safety, efficacy and cost advantages as compared
with existing cancer detection
7
<PAGE>
technologies. Similar risks may confront other products or services Omnicorder
develops in the future. Failure of OmniCorder's products or services to gain
market acceptance will have a material adverse effect on OmniCorder's business,
financial condition and results of operations.
OmniCorder anticipates that a substantial period of time may be required
to convince caregivers that the DAT System is an effective adjunct (or
supplement) to x-ray mammography, the current dominant screening method. This
process may be further affected by the tremendous investment that has been made
in x-ray mammography equipment and the interests of other entities which
participate financially in the provision of x-ray mammography to the public.
More significant opposition may be encountered with respect to OmniCorder's
attempt to receive FDA approval to use the DAT System as a stand-alone device,
i.e., a sole diagnostic screening tool for the detection of breast cancer.
While OmniCorder believes that FDA approval to market the DAT System as a
stand-alone method will be dependent on the merits of clinical trials, it is
conceivable that even with such approval, acceptance of the DAT System as a
stand-alone method may be difficult to achieve because of resistance in the
medical community fostered by the entrenchment of x-ray mammography.
OmniCorder may need to raise additional funds before it becomes
profitable; additional financing may dilute your interest in OmniCorder.
OmniCorder's capital requirements in connection with its product development
and marketing activities will be significant. OmniCorder will be dependent upon
the proceeds of this offering to fund its development and initial
commercialization activities, including the 3,000 women field test recently
begun. OmniCorder believes, but there can be no assurance, that the proceeds of
the offering will be sufficient to fund its operating requirements for a period
of approximately 24 months after the closing of the offering.
OmniCorder's future liquidity and capital funding requirements will depend
on numerous factors, including:
o the results of clinical studies.
o the extent to which the DAT System gains market acceptance.
o the costs and timing of commencement and expansion of sales.
o OmniCorder's marketing and manufacturing activities.
o competition to the DAT System.
There can be no assurance that additional capital will be available on
terms acceptable to OmniCorder, or at all. Furthermore, any additional equity
financing will be dilutive to stockholders, and debt financing or equipment
lease financing, if available, may include restrictive covenants, including
financial maintenance covenants, restricting OmniCorder's ability to incur
additional indebtedness. OmniCorder's failure to raise capital, or engage in
equipment lease financing or other debt financing on acceptable terms when
needed, could have a material adverse effect on its business, financial
condition and results of operations.
OmniCorder has not fully developed an effective sales force to market the
DAT System. OmniCorder currently has limited marketing experience and limited
financial, personnel and other resources to undertake the extensive marketing
activities necessary to market the DAT System. OmniCorder's ability to generate
revenue from the licensing of the DAT System will be dependent upon, among
other things, its ability to manage an effective sales organization. OmniCorder
will need to develop a sales force and a marketing group with technical
expertise to coordinate marketing efforts. In addition, there can be no
assurance that OmniCorder will be able to market its products or services
effectively through an in-house sales force, independent sales representatives,
through arrangements with an outside sales force, or through strategic
partners.
OmniCorder does not have required FDA approval to market the DAT System and
must continue to comply with FDA and other regulatory standards. OmniCorder's
products and manufacturing activities are subject to extensive government
regulation, both in the United States and abroad. The manufacture, packaging,
labeling, advertising, promotion, distribution, and sale of OmniCorder's
products are subject to regulation by numerous national and local governmental
agencies in the United States and other countries. Failure to comply with these
regulations or inability to obtain required approvals will impair OmniCorder's
ability to market the DAT System.
In the United States, the U.S. Food and Drug Administration regulates
OmniCorder's products under the Federal Food, Drug, and Cosmetic Act and
regulations promulgated thereunder. Advertising and other
8
<PAGE>
forms of promotion and methods of marketing of OmniCorder's products are
subject to regulation by the U.S. Federal Trade Commission, which regulates
these activities under the Federal Trade Commission Act. The manufacture,
labeling, and advertising of OmniCorder's products are also regulated by
various other Federal, state and local agencies as well as those of each
foreign country to which OmniCorder may in the future distribute its products.
See "Business -- Government Regulation" for a description of various regulatory
issues and an explanation of the terms used below. The risks associated with
these regulatory issues include the following:
(a) Need for FDA clearance or approval to market the DAT System -- Breast
cancer screening devices that use infrared instrumentation, such as the DAT
System, and their components and accessories are currently classified as Class
I devices that require clearance under Section 510(k) of the the federal Food,
Drug and Cosmetic Act, when they are intended for "adjunctive [supplemental to
an existing approved method such as x-ray mammography] diagnostic screening for
detection of breast cancer or other uses . . . .", under 21 C.F.R.
884.2980(a)(2). If used as a stand-alone device, i.e., a sole diagnostic
screening tool for detection of breast cancer, such devices are classified as
Class III devices requiring an approved Premarket Approval application before
marketing.
OmniCorder hopes to obtain 510(k) market clearance from the FDA by
mid-1999 to market the DAT System for adjunctive (supplemental) diagnostic
screening for detection of breast cancer. OmniCorder filed its 510(k)
application on February 1, 1999. In order to obtain clearance for marketing
under section 510(k), the FDA must be able to conclude that OmniCorder's device
is substantially equivalent to a legally marketed device. The FDA may require
additional data to support making such a determination, and there is no
assurance that the FDA will find OmniCorder's device substantially equivalent
or that the timing of such determination will be consistent with OmniCorder's
plans or expectations. In case the FDA determines OmniCorder's device is not
substantially equivalent to a legally marketed device, an approved premarket
approval application will be required to market the product unless OmniCorder
timely asks the FDA to make a "risk based" classification and the FDA
determines that premarket approval is not required.
(b) Need for FDA approval for certain changes to the DAT System -- Devices
cleared for marketing under Section 510(k) of the Food, Drug and Cosmetic Act
and regulations require manufacturers to obtain new 510(k) clearances to
continue marketing 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 PMA approved devices that affect
safety or effectiveness require supplemental approval. OmniCorder may require
such changes in connection with the ramping up of its production cycle. If such
changes are made, there is no assurance the FDA will approve them.
(c) Required compliance with certain manufacturing regulations -- The FDA
also requires that manufacturing conform to strict quality assurance standards
required by Good Manufacturing Practices regulations. A new set of regulations,
called the Quality Systems Regulations, went into effect June 1, 1997. These
regulations require that medical device manufacturers comply with various
requirements. Good Manufacturing Practices requirements are enforced via
periodic FDA inspections of device facilities. OmniCorder believes, but there
can be no assurance, that it and its suppliers will attain and maintain
compliance with these standards. Further, any changes in manufacturing
facilities or methods may require a Premarket Approval supplement or a new
premarket notification submission under Section 510(k).
(d) Reporting requirements -- FDA law and regulations additionally require
that certain "Medical Device Reports" be submitted to the agency to report
device-related deaths, serious injuries, and malfunctions, the recurrence of
which would likely cause death or serious injury. These reports can cause the
FDA to take various regulatory actions. Medical Device Reports are publicly
available and, depending upon their significance, could form the basis of a
private tort action or FDA enforcement action. These occurrences could have a
material adverse effect on OmniCorder's ability to market its products.
(e) Restrictions on labeling and advertising -- The nature of marketing
claims OmniCorder will be permitted to make in labeling or advertising
regarding the DAT System is limited to those specified in an FDA clearance or
approval and claims beyond those cleared or approved will constitute violation
of the Food, Drug and Cosmetic Act. Noncompliance with any applicable FDA
requirements can result in various sanctions which could have a material
adverse effect on OmniCorder's business, financial condition, and results of
operations, and could materially adversely affect OmniCorder's ability to
successfully market its products.
9
<PAGE>
(f) Foreign permits and requirements -- In markets outside the United
States, prior to commencing operations or marketing its products, OmniCorder
may be required to obtain approvals, licenses, or certifications from a
country's ministry of health or comparable agency and comply with FDA export
requirements.
OmniCorder cannot predict the nature or effect of any changes in the above
laws, rules, regulations or administrative interpretations of same.
OmniCorder requires third parties which it does not control to manufacture
components of the DAT System; if those third parties are unavailable or
unqualified, marketing of the DAT System will be adversely impacted. OmniCorder
has used third parties to manufacture and deliver the infrared cameras and
other components used in field tests, and it intends to continue to do so for
the DAT System and any other products which OmniCorder may seek to develop.
Such third parties must adhere to the current Good Manufacturing Practices
regulations enforced by the FDA through its facilities inspection program and
such third-parties' facilities are subject to FDA inspection. There can be no
assurance that third parties on which OmniCorder depends for the manufacture of
the DAT System will be able to comply with Good Manufacturing Practices
regulations when a required FDA inspection occurs or will be able to maintain
such compliance. Such a failure to comply could significantly delay the FDA's
510(k) clearance or Premarket Approval for the DAT System, which failure could
have a material adverse effect on OmniCorder's business, financial condition
and results of operations.
The qualification of additional or replacement suppliers for certain
components or services is a lengthy process. If OmniCorder encounters delays or
difficulties with its third-party suppliers in producing, packaging or
distributing the DAT System, market introduction and subsequent sales of the
DAT System may be adversely affected. OmniCorder would also then have to seek
alternative suppliers. If that happens, there can be no assurance that
OmniCorder will be able to readily enter into alternative supply arrangements
at commercially acceptable rates, if at all.
While OmniCorder believes it has located adequate sources of supply for
all components of the DAT system, there can be no assurance that such sources
will be able to maintain a supply of all components as required by OmniCorder.
If OmniCorder is unable to obtain or retain qualified third-party manufacturers
on commercially acceptable terms, it may not be able to commercialize the DAT
System as planned. OmniCorder's dependence on third parties for the manufacture
of its products may adversely affect its profit margins and its ability to
develop and deliver its products on a timely and competitive basis.
Third parties may appropriate or attempt to duplicate OmniCorder's
intellectual property in order to compete with it; third parties may also claim
OmniCorder's intellectual property infringes on their patents which could
interfere with OmniCorder's ability to market the DAT System. OmniCorder, in
accordance with the Anbar License Agreement, the Caltech License Agreement and
the Lockheed Martin License Agreement holds exclusive rights to certain
biomedical applications of issued and pending patents. These issued and pending
patents cover the DAT System as a device for use in the early detection and
management of breast cancer and other diseases. There is no guarantee that the
pending patents will issue, and if they do, which claims, if any, will be
allowed by the United States Patent Office. Some of the Caltech patent claims
initially submitted had been disallowed by the U.S. patent office due to
potential conflicts with prior art. These claims have been resubmitted, with
the appropriate supporting documentation, for reconsideration by the patent
office, and Omnicorder has been advised by counsel to Caltech that these claims
will be allowed by the United States Patent Office. There can be no assurance
that the pending or issued patents will provide meaningful protection from
competition. OmniCorder's policy is to protect its technology by, among other
things, obtaining patent rights for technology that it considers important to
the development of its business, utilizing other proprietary methods and
know-how in association with its technology and requiring each employee and key
consultant to execute a confidentiality agreement. There can be no assurance
that OmniCorder's confidentiality agreements and other safeguards will protect
its proprietary information and trade secrets or provide adequate remedies for
OmniCorder in the event of unauthorized use or disclosure of such information,
or that others will not be able independently to develop such information.
In addition, if OmniCorder becomes involved in litigation to enforce its
intellectual property rights, such litigation can be a lengthy and costly
process causing diversion of effort and resources by OmniCorder and its
management with no guarantee of success. One company, which has not yet
received FDA approval to market its product, is employing a methodology which
may infringe on the Anbar Patent. OmniCorder has not yet determined whether it
will take legal action with respect to this possible infringement.
10
<PAGE>
Other companies may have been or will be issued patents for similar
technologies that may prevent the licensing of OmniCorder's products or require
licenses and the payment of royalties by OmniCorder, although OmniCorder has no
information indicating that these circumstances exist. It is possible that
after the patents that OmniCorder owns or controls expire, which will not occur
in the United States for 16 years in the case of the
Anbar Patent, and 14 years in the case of the patent licensed under the
Lockheed Martin Agreement, other companies, may adopt the concept and/or design
embodied in the DAT System and seek to compete with OmniCorder. If that should
occur, OmniCorder would have to rely on name recognition, product acceptance,
quality control, additional patent protection, if any, and the effectiveness of
its distribution and marketing in order to compete successfully, and there can
be no assurance that OmniCorder will be able to do so.
Although to date no claims have been brought against OmniCorder alleging
that the DAT System infringes the intellectual property rights of others, and
OmniCorder is not aware of any such claims or potential claims, there can be no
assurance that such claims will not be made against OmniCorder or its third
party licensors in the future, or that, if made, such claims will not be
successful. Further, even an issued patent may, under exceptional
circumstances, be set aside or nullified. In addition to any potential monetary
liability for damages, OmniCorder could be required to obtain and pay for a
license in order to continue to manufacture or market the DAT System or could
be enjoined from making or selling the DAT System if such a license were not
made available on acceptable terms. If OmniCorder becomes involved in such
litigation, it may require the expenditure of significant resources and if such
a claim were successful, OmniCorder's business, financial condition and results
of operations could be materially adversely affected.
Existing and newly developed technologies may compete with the DAT System.
OmniCorder is not aware of any devices currently on the market which will be
capable of competing directly with the DAT System, although several new
companies are developing technologies aimed at the same market niche as the DAT
System, and there may be others of which OmniCorder is unaware. OmniCorder's
potential competitors may succeed in developing products that are more
effective or less costly (or both) than OmniCorder's products, and such
competitors may also prove to be more successful than OmniCorder in
manufacturing, marketing, and sales. Some of OmniCorder's potential competitors
may be large, well-financed and established companies that have greater
resources, and, therefore, may be better able than OmniCorder to compete for a
share of the market even in areas in which OmniCorder may have superior
technology.
OmniCorder also competes with existing diagnostic alternatives, most
notably x-ray mammography. Significant barriers to OmniCorder's success are
posed by these existing alternatives. See "Business -- Competition".
Rapid changes in technology may require OmniCorder to put substantial
efforts into enhancements and improvements to the DAT System in order to remain
competitive. The market for high technology disease detection and monitoring
devices, such as the DAT System, is characterized by rapid changes and evolving
industry standards, often resulting in product obsolescence or short product
life cycles. Accordingly, OmniCorder's ability to compete will depend on its
ability to introduce the DAT System to the marketplace in a timely manner, and
to enhance and improve it. There can be no assurance that OmniCorder's
competitors will not develop technologies or products that render the DAT
System obsolete or less marketable. It is also possible that OmniCorder will
not be able to successfully enhance its products or technology or adapt them
satisfactorily to changing market conditions.
The loss of Mr. Fauci's services could hurt OmniCorder's chances for
success. The success of OmniCorder is dependent on the continued efforts of its
founder, Mark Fauci. The loss of Mr. Fauci's services could have a material
adverse effect on OmniCorder's operations. OmniCorder and Mr. Fauci have
entered into a long term employment agreement. OmniCorder has obtained
$4,000,000 of key person life insurance on Mr. Fauci. There can be no assurance
that this coverage will be maintained at reasonable cost. Mr. Fauci is 39 years
old and in good health. See "Management -- Employment Agreements".
While Professor Anbar invented DAT, and while OmniCorder believes that he
has been and will continue to be an important resource for it, OmniCorder
believes that the loss of Professor Anbar's services would not have a material
adverse effect on it. OmniCorder believes that since Professor Anbar has
published his work, has transferred or licensed all relevant intellectual
property rights to OmniCorder and is substantially delegating
11
<PAGE>
the development of the DAT System to other OmniCorder personnel, the loss of his
services may delay the commercialization of the DAT System, but for a period
OmniCorder anticipates would be no more than six months. OmniCorder has not
obtained key-man insurance on Professor Anbar and has no plans to do so.
OmniCorder's ability to succeed is dependent on its ability to hire and
retain qualified personnel who may be heavily in demand by other companies.
OmniCorder's success is also dependent upon its ability to hire and
retain additional qualified scientific, sales, marketing and managerial
personnel. OmniCorder will only have limited personnel as of the close of the
offering. OmniCorder intends to utilize a variety of recruitment channels to
locate qualified personnel and to offer appropriate compensation packages to
attract and retain such personnel. Competition for such personnel is intense in
OmniCorder's industry, and there can be no assurance that OmniCorder will be
able to attract and retain qualified personnel.
Third-parties such as health insurance companies may not reimburse
OmniCorder for the cost of patient examination fees; those people who depend on
insurance to pay their health care costs may not use the DAT System for this
reason. There can be no assurance that third-party reimbursement will be
available for the cost of services provided by the DAT System. Hospitals,
medical clinics and physicians' offices that provide breast cancer screening
and diagnostic services generally rely on third-party reimbursements, such as
those provided by Medicare, Medicaid and private health insurance plans, to pay
for some or all of the costs of such services. The policies of these entities
vary greatly in their reimbursement practices. Whether a particular procedure
qualifies for third-party reimbursement depends upon many factors including the
safety and effectiveness of the procedure. Reimbursement may be denied if a
medical device is experimental or is used for a non-approved purpose. During
the past several years, the major third-party payors for hospital services have
substantially revised their payment methods to contain health care costs.
OmniCorder believes that the current pressures for medical cost containment
have resulted in uncertainty in the healthcare industry with respect to federal
and state reimbursement programs. Reimbursement standards and rates may change
in the future. Although OmniCorder believes that licensed services which
incorporate the DAT System will be widely reimbursed by third-party payors in
the future, OmniCorder believes that its services will be affordably priced and
will be utilized irrespective of third party reimbursements. However, the
failure of users of the DAT System to obtain adequate reimbursement from
third-party payors may significantly impede OmniCorder's growth.
Product liability claims may cause OmniCorder to pay damages to third
parties. The nature of OmniCorder's products may expose it to product liability
risks. Although OmniCorder has obtained $5,000,000 of product liability
insurance coverage, such insurance is becoming increasingly expensive. There
can be no assurance that such insurance will provide adequate coverage against
product liability claims. In addition, certain of OmniCorder's key license
agreements require such coverage to be maintained once it begins selling
licensed services. While no product liability claims are pending or threatened
against it to date, a successful product liability claim against OmniCorder in
excess of its insurance coverage could have a material adverse effect on its
business, financial condition or results of operations.
Prior to the public offering, there has been no active trading market, in
OmniCorder's shares; if an active trading market is not developed and
maintained for OmniCorder's shares, investors may find it difficult to resell
their shares and the price they can obtain for their OmniCorder shares may be
lower. Although OmniCorder's shares have been approved for listing on the
Nasdaq SmallCap Market, subject to issuance of the shares in the offering,
there can be no assurance that an active trading market will develop or be
maintained in Omnicorder's shares. An active trading market is one in which
there are many willing buyers and sellers. If such a market is not maintained,
it will be more difficult to sell large amounts of stock, the spread between
the price a market maker will pay for the stock, as opposed to what it will
sell it for, may, be larger and the price investors may obtain when they sell
their shares may be lower than would be the case in an active market. Failure
to maintain an active trading market may therefore adversely impact an
investor's ability to resell shares purchased in the offering.
The market prices for securities of medical technology companies like
OmniCorder have historically been subject to wide price swings, which could
cause a decline in the trading price of OmniCorder's common stock. Factors that
could cause the market price of OmniCorder's common stock to fluctuate
substantially include but are not limited to:
o future technological innovations and new commercial products in breast
cancer screening.
o results of clinical testing of OmniCorder's DAT System.
12
<PAGE>
o changes in FDA regulations applicable to OmniCorder.
o litigation and public concerns as to product safety with devices such as
the DAT System.
o period-to-period fluctuations in OmniCorder's financial performance.
o fluctuations in securities markets.
Such price changes may not be related to OmniCorder's operating
performance. A decline in the trading price of OmniCorder's common stock could
also impact negatively upon OmniCorder's ability to raise additional equity
capital in the future.
Mark Fauci controls enough stock to determine OmniCorder's policies and
other stockholders will generally not be able to control these policies. After
giving effect to the offering, Mark Fauci, OmniCorder's founder, will
beneficially own approximately 48% of the outstanding common stock. As a result,
Mr. Fauci will be able to effectively control virtually all matters requiring
approval by OmniCorder's stockholders, including amendments of the certificate
of incorporation, the approval of mergers or similar transactions and elections
of all directors. In addition, Mr. Fauci is one of OmniCorder's six current
directors.
Failure to maintain OmniCorder's Nasdaq SmallCap listing may adversely
impact investors' ability to resell their shares and the prices they may be
able to obtain for their shares. OmniCorder's shares have been approved for
listing on the Nasdaq SmallCap Market, subject to issuance of the shares in the
offering. The Board of Governors of the National Association of Securities
Dealers, Inc. requires OmniCorder to meet certain standards for the initial
listing and continued listing of its shares on the Nasdaq SmallCap Market. The
standards for initial listing require, among other things, that an issuer have
net tangible assets of $4,000,000; that the minimum bid price for the listed
securities be $4.00 per share; that there be a minimum of 300 "round lot"
holders; that the minimum market value of the public float (the shares held by
non-insiders) be at least $5,000,000; that the public float be at least
1,000,000 shares; and that there be at least three market makers for the
issuer's securities.
The maintenance standards require, among other things, that OmniCorder
will continue to 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 OmniCorder's "public float" be at least $1,000,000;
that OmniCorder's public float be at least 500,000 shares; and that there be at
least two market makers for OmniCorder's securities. Nasdaq may also impose
qualitative standards on OmniCorder for continued listing.
A deficiency in either the market value of the public float or the bid
price maintenance standard will be deemed to exist if OmniCorder fails the
individual stated requirement for thirty consecutive trading days, with a
90-day cure period. There can be no assurance that OmniCorder will continue to
satisfy the requirements for maintaining a Nasdaq SmallCap listing. If
OmniCorder's securities were to be excluded from Nasdaq because it failed to
meet any of the above standards for continued listing, the prices of such
securities and the ability of holders to sell them would be adversely affected,
and OmniCorder would be required to again comply with the initial listing
requirements to be relisted on Nasdaq.
A drop in the trading price of OmniCorder's shares may adversely impact
the ability of investors to resell their shares and the price they may be able
to obtain for them. If OmniCorder is unable to satisfy Nasdaq's maintenance
requirements and the price per share of its common stock were to drop below
$5.00, then unless OmniCorder satisfied certain net asset and revenue tests,
its securities would become subject to certain "penny stock" rules promulgated
by the Securities and Exchange Commission. The application of these rules to
OmniCorder's common stock may adversely impact both the ability of investors to
resell their shares (liquidity) and the market price of these shares. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Securities and Exchange Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination of suitability of the investor purchasing the
penny stock.
13
<PAGE>
The price investors pay for their shares is higher than the per share
value of OmniCorder's net assets and is also higher than the price paid by
earlier investors and founders of OmniCorder. Purchasers of the common stock
offered hereby will suffer immediate and substantial dilution of $6.58 in the
net tangible book value per share of the common stock from the initial public
offering price. Further, existing stockholders, including the founders,
purchased or were issued their shares at an average price of $.29 per share,
compared to an expected public offering price of $9.00 per share. See
"Dilution."
Lack of experience of the underwriter may cause the price of OmniCorder's
shares to fluctuate greatly and may negatively affect the ability of investors
to resell shares. While the principals of Cambridge have had prior experience
in firm commitment underwriting and underwriting syndicates at other brokerage
firms, Cambridge, which commenced operations in 1996, has not acted as an
underwriter, in a public offering of securities. Cambridge's lack of experience
may have an adverse impact on its ability to market the securities offered
hereby as well as the development and maintenance of a trading market for
OmniCorder's securities following the offering. Cambridge intends to make a
market in OmniCorder's securities. Cambridge's inexperience may result in its
inability to correctly utilize overallotment, stabilization and market
maintenance strategies that more experienced underwriters utilize to assist in
maintaining orderly trading markets. This may adversely affect the price of
OmniCorder's common stock and the ability of purchasers in the offering to
resell their shares. OmniCorder's officers and directors do not have a material
relationship with Cambridge.
14
<PAGE>
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.
USE OF PROCEEDS
The net proceeds to be received by OmniCorder from the sale of an
estimated 1,100,000 shares of common stock offered hereby at $9 per share (the
mid-point of the range designated on the cover page of this prospectus) are
estimated to be $8,411,000 ($9,732,650, if the Underwriter's over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions, and an estimated $400,000 of legal, accounting, printing and other
estimated expenses of the offering payable by OmniCorder.
OmniCorder anticipates using the net proceeds of $8,411,000 from the
offering as follows. If the overallotment option is exercised, the increased
amount of proceeds will be allocated to working capital:
<TABLE>
<CAPTION>
Amount Percentage
------------- -----------
<S> <C> <C>
Research and Development ..................................................... $2,000,000 23.78%
Use in Sales and Marketing ................................................... $2,078,000 24.71%
Capital Equipment, principally components of the DAT System such as
cameras, computers and other associated hardware and software ............... $1,580,000 18.78%
General and Administrative Expenses and Working Capital ...................... $2,003,000 23.81%
Repayment of debt incurred in connection with a bridge financing completed
in August, 1998, excluding accrued interest thereon. The proceeds of this
financing were used to pay for certain capital equipment, legal and profes-
sional expenses in connection with financing activities and for working
capital ..................................................................... $ 750,000 8.92%
Total ........................................................................ $8,411,000 100.00%
</TABLE>
The foregoing represents OmniCorder's best estimate of its allocation of
net proceeds from the sale of shares of common stock offered hereby based on
the current state of its business operations, its current plans and current
economic and industry conditions and is subject to reallocation among the
categories listed above or to new categories. Accordingly, OmniCorder will have
broad discretion as to the application of a significant portion of the net
proceeds.
15
<PAGE>
CAPITALIZATION
Unless otherwise indicated, the information in this prospectus assumes
that all references to common stock share amounts and prices per share are
calculated after giving effect to a 2.2 to 1 stock split, which occurred in
August 1998.
The following table sets forth OmniCorder's short-term debt and total
capitalization (a) as of September 30, 1998, and (b) as adjusted to give effect
to the consummation of the offering at an assumed initial public offering price
of $9.00 per share and the application of the estimated net proceeds therefrom,
after deducting the underwriting discounts and commissions and estimated
offering expenses. The table should be read in conjunction with the Financial
Statements, including the Notes thereto, appearing elsewhere in this
prospectus.
The as adjusted information as of September 30, 1998 gives effect to:
o the sale of the shares of common stock offered hereby at an assumed
initial offering price of $9.00 per share and the application of net
proceeds received therefrom; and
o 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.
The as adjusted information as of September 30, 1998 does not include:
o 190,667 shares of common stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $3.40 per share;
o 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;
o 250,000 shares of common stock reserved for issuance pursuant to
outstanding warrants, exercisable at $6.00 per share;
o 44,000 shares of common stock reserved for issuance upon vesting as per
the Caltech License Agreement (see "Business -- Licensing and Patents");
o 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."
<TABLE>
<CAPTION>
September 30, 1998
As
Actual Adjusted
<S> <C> <C>
Stockholders' equity
preferred stock; $.01 par value, 1,000,000 shares authorized, no shares
outstanding
common stock; $.01 par value, 10,000,000 shares authorized; 2,358,397
shares issued and outstanding-actual; 3,458,397 shares issued and
outstanding-as adjusted .............................................. $ 23,584 $ 34,584
Additional paid-in capital ............................................ 1,613,461 10,013,461
Deficit accumulated during the development stage ...................... (917,927) (1,665,844)
Subscription receivable ............................................... (15,070) (15,070)
--------- ------------
Total stockholders' equity ......................................... 704,048 8,367,131
--------- ------------
Total capitalization ............................................... 704,048 8,367,131
--------- ------------
</TABLE>
16
<PAGE>
DIVIDEND POLICY
OmniCorder has not paid any dividends on its common stock since its
inception and does not intend to pay any dividends on its common stock in the
foreseeable future. The payment of any dividends in the future will depend on
the evaluation by OmniCorder's Board of Directors of such factors as it deems
relevant at the time and the restrictions imposed by the terms of OmniCorder's
debt obligations, if any. As of the closing of the offering, after application
of $750,000 of proceeds of the offering to repay debt incurred in connection
with a bridge financing completed in August 1998, OmniCorder will have no debt
obligations that impose restrictions on the payment of dividends. However, the
Board of Directors believes that OmniCorder's future earnings, if any, should
be retained for the development of its business.
DILUTION
Purchasers of the shares of common stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
investment. The difference between the initial public offering price per share
of common stock and the net tangible book value per share of common stock after
this offering constitutes the dilution per share of common stock to investors
in this offering. Net tangible book value per share is determined by dividing
the net tangible book value (total tangible assets less total liabilities) by
the number of outstanding shares of common stock. As of September 30, 1998,
OmniCorder had a net tangible book value of $704,048, or approximately $.30 per
share of common stock. Without taking into account any other changes in
OmniCorder's net tangible book value after September 30, 1998, other than to
give effect to the sale of all of the shares offered hereby at an assumed
initial public price of $9.00 per share, and the receipt and application of the
estimated net proceeds therefrom, OmniCorder's net tangible book value on
September 30, 1998 would have been $8,367,131, or approximately $2.42 per
share, which represents an immediate increase in the net tangible book value of
approximately $2.12 per share to existing stockholders and an immediate
dilution of $6.58 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $ 9.00
Net tangible book value per share as of September 30, 1998 ......... $ .30
Increase per share attributable to this offering ................... $ 2.12
-------
Net tangible book value per share after this offering ................. $ 2.42
-------
Dilution per share to new investors ................................... $ 6.58
-------
</TABLE>
17
<PAGE>
The following table summarizes, as of September 30, 1998, the number of
shares of common stock purchased from OmniCorder, the total consideration paid
to OmniCorder and the average price per share paid by existing stockholders and
by new investors purchasing the shares offered hereby at an assumed initial
public offering price of $9.00 per share before deducting underwriting
discounts and commissions and estimated offering expenses payable by
OmniCorder. This table does not include the following:
o 190,667 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $3.40 per share;
o 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;
o 250,000 shares of common stock issuable pursuant to outstanding warrants,
exercisable at $6.00 per share;
o 44,000 shares of common stock reserved for issuance upon vesting as per
the Caltech License Agreement; and
o 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."
<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 ......................... 3,458,397 100% $10,590,000 100%
--------- ---- ----------- ----
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of
OmniCorder's results of operations and financial condition.
The discussion should be read in conjunction with OmniCorder's Financial
Statements and Notes thereto appearing elsewhere in this prospectus. The
Management Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements that involve risks and
uncertainties. OmniCorder's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Overview
OmniCorder is a development stage company and since February 1997
("inception"), has devoted itself to raising capital, negotiating technology
licenses and other agreements, conducting field tests of the DAT system and
negotiating employment contracts with current and future employees. OmniCorder
has not generated any revenues to date and has incurred substantial operating
losses from these business development activities. OmniCorder expects to incur
significant costs relating to all of its operations in the future in order to
develop, test and market its products and services.
Period from February 7, 1997 (inception) through September 30, 1998
Results of Operations
OmniCorder's cumulative net losses since inception are attributable to the
fact that it has not derived any revenue from operations to offset its business
development expenses.
Operating Expenses. Operating expenses since inception have amounted to
$786,677. General and administrative expenses (approximately $249,000) and
related party legal expenses (approximately $179,000) primarily consist of
legal, accounting and an officer's salary. Research and development expenses
(approximately $359,000) principally consists of funding of research and
development to OmniCorder's chief scientist and a license for technology from
Caltech. In connection with the acquisition from Caltech of its exclusive
license to exploit infrared detection technology for certain applications,
OmniCorder issued 44,000 shares of its common stock. The value of the shares
issued ($149,600) was charged to results of operations as in-process research
and development.
Interest expense. Interest expense since inception consists of $125,000
resulting from the amortization of debt discount and accrued interest on the
Bridge Notes (as defined below).
Liquidity and Capital Resources
OmniCorder is in the development stage and currently has no sources of
revenue. In addition, the report of independent accountants on OmniCorder's
financial statements as of and for the period from inception through December
31, 1997 contains an explanatory paragraph regarding an uncertainty with
respect to the ability of OmniCorder to continue as a going concern. At
December 31, 1997, OmniCorder had a deficit accumulated during the development
stage of $143,516 ($917,927) at September 30, 1998. Such accumulated losses
have resulted principally from costs incurred in research and development and
from general and administrative expenses. OmniCorder funded its operations
since inception through the use of cash obtained principally from third party
financing, receiving gross proceeds of approximately $1,480,000, through
September 30, 1998.
Since inception, OmniCorder has sold an aggregate of 202,396 shares of its
common stock in a private placement for approximately $626,000, net of related
expenses (the "Private Placement").
In August 1998, OmniCorder sold an aggregate of $750,000 of its 10%
Exchangeable Senior Bridge Notes (the "Bridge Notes") and warrants ("Bridge
Warrants") to purchase up to 250,000 shares of common stock,
19
<PAGE>
receiving net proceeds of $602,500. The Bridge Notes are payable upon the
earlier of February 28, 1999 (subject to extension by one day for each day
after November 30, 1998 that OmniCorder fails to deliver to Cambridge a
preliminary prospectus for its initial public offering (the "IPO")), or the
closing of its IPO. The preliminary prospectus was delivered on December 15,
1998, thus causing the maturity date of the bridge notes to be the earlier of
March 15, 1999 or the closing of the IPO. Interest will be paid in one balloon
payment at maturity. The Bridge Notes can be converted into common stock at a
price of $3.40 per share if Cambridge is unable to complete OmniCorder's IPO at
a price of at least $8 per share, and OmniCorder decides not to proceed with an
IPO. If the Bridge Notes are converted into common stock, the aggregate number
of shares issuable upon exercise pursuant to the Bridge Warrants would be
125,000. The maturity of the Bridge Notes can also be extended to September 30,
1999, if Cambridge is unable to complete OmniCorder's IPO at a price of at
least $9 per share and OmniCorder chooses not to complete the IPO. The maturity
of the Bridge Notes can also be extended to the earlier of September 30, 1999,
or the closing of the IPO upon consent of Cambridge and OmniCorder, if they
agree to defer the IPO to a date no later than September 30, 1999.
The net proceeds from the Private Placement and the sale of the Bridge
Notes were used to fund OmniCorder's research and development (approximately
$359,000), general and administrative (approximately $249,000) and legal
expenses (approximately $179,000) and capital expenditures (approximately
$57,000). OmniCorder's capital requirements in connection with its product
development and marketing activities will be significant. OmniCorder will be
dependent on the proceeds of the proposed offering of its common stock to
complete the development of the DAT system and to bring the DAT System to
market. Management believes that cash of $479,468 as of September 30, 1998,
combined with anticipated net proceeds from the proposed offering, will be
sufficient to support its operations for a period of 24 months after the
offering. Management expects OmniCorder to generate revenue from the
commercialization of the DAT system through license fees and patient encounter
fees within approximately 12 months after the offering, assuming OmniCorder
timely receives 510(k) clearance, which it expects to obtain in mid-1999.
However, there can be no assurance that OmniCorder will be successful in
completing the proposed offering or obtaining other additional financing or
that it will be successful in commercializing the DAT System and related
services, or that it will timely receive required FDA clearance.
Should OmniCorder experience delays in generating revenues from the DAT
System, additional capital may be required. There can be no assurance that
additional capital will be available on terms acceptable to OmniCorder, or at
all. Additional equity financing or equipment lease or other debt financing, if
available, may include restrictive covenants, including financial maintenance
covenants restricting OmniCorder's ability to incur additional indebtedness and
to pay dividends. OmniCorder's failure to raise capital, or engage in equipment
lease financing or other debt financing on acceptable terms when needed, could
have a material adverse effect on its business, financial condition and results
of operations.
Year 2000 Compliance Program
OmniCorder has implemented a Year 2000 program to ensure that OmniCorder
and its vendors' and business partners' computer systems and applications will
function properly beyond 1999. OmniCorder has identified vendor and business
partner software with which it electronically interacts, or from which it
purchases supplies, and has requested Year 2000 compliance certifications.
OmniCorder has received verbal assurance from those vendors and business
partners that they and their respective suppliers are Year 2000 compliant.
Although OmniCorder believes all of its systems are and will be Year 2000
compliant, there can be no assurances that all of OmniCorder's vendors' and
business partners' systems will be Year 2000 compliant. OmniCorder's cost to
comply with the Year 2000 initiative is not expected to be material.
20
<PAGE>
BUSINESS
Introduction
Omnicorder, a Delaware corporation, is a development stage company,
incorporated in 1997 to engage in the business of providing innovative
screening services and clinical information for the early detection and
management of breast cancer and other diseases. To date, OmniCorder has focused
its business on the development of a new technique for the detection of breast
cancer. This technique uses new patented sensor and diagnostic technology,
under exclusive license to OmniCorder, combined with OmniCorder's proprietary
diagnostic software, to precisely measure the variation in tissue physiology
which occurs in the presence of cancer. The data collected during a five-ten
minute examination period is analyzed using a patented process known as Dynamic
Area Telethermometry(TM) or "DAT," which was developed by Professor Michael
Anbar, one of the world's foremost authorities on biomedical applications of
infrared imaging. The information derived by this process will be analyzed
either in the physician's office or at information processing centers
maintained by OmniCorder at major medical centers throughout the country, the
results of which will then be provided to the physician.
OmniCorder will rely upon various intellectual property to deliver its
breast cancer screening and diagnostic services. OmniCorder will principally
rely on a patent issued to Professor Michael Anbar relating to the detection of
cancerous lesions and three related pending patents. The issued patent and the
three related pending patents represent the diagnostic aspect of DAT, i.e., the
method used to analyze data collected by the infrared cameras to determine the
likelihood of cancerous tissue in the breast and surrounding areas. OmniCorder
is the exclusive licensee of the Anbar Patent for all applications worldwide.
See "Business -- Licensing and Patents -- The Anbar License Agreement" below.
OmniCorder will also utilize infrared detector technology under exclusive
licenses for certain biomedical applications from the California Institute of
Technology's Jet Propulsion Laboratory and the Lockheed Martin Corporation,
respectively. See the "Business -- Licensing and Patents -- Caltech License
Agreement" and the "Lockheed Martin License Agreement" below.
OmniCorder is negotiating a license for certain software from a third
party. This software is intended to manage the data collected throughout
OmniCorder's network of participating healthcare centers. This highly secure
network will be designed to transmit encrypted information over the Internet or
an intranet. OmniCorder believes that if this license is not successfully
negotiated, alternatives are available to effect the required functions of this
software. See "Business -- Information Network," below.
OmniCorder believes DAT has significant advantages over x-ray mammography
and other existing breast cancer screening modalities, including:
o reliance upon detection of changes in blood flow distribution
characteristics in the breasts, which occur early in a tumor's growth,
rather than reliance upon detection of a calcified mass which generally
forms 3-7 years after a tumor has been growing.
o a significant reduction of false positives i.e, an indication by a
screening modality of the existence of cancer when none in present, thus
eliminating a large number of unnecessary surgical procedures known as
biopsies in which tissue is removed by a needle or scalpel from the breast
for pathological examination.
o a significant reduction of false negative readings i.e., an indication by
a screening modality that no cancer is present when cancer is present.
o elimination of risks posed by irradiation of the breast in x-ray
mammography, as well as elimination of discomfort, pain and/or bruising
which can occur during the breast compression procedure used for x-ray
mammography.
o an approximate 25% to 50% cost-reduction per examination when compared
with x-ray mammography. See "DAT's Efficacy" below.
21
<PAGE>
The Current Incidence of Breast Cancer
The American Cancer Society has published recent statistics showing that 1
in 9 women in the United States alone will develop breast cancer over their
lifetime. The American Cancer Society estimates that in 1998 some 178,700 new
cases of breast cancer will be diagnosed among women in the United States. An
estimated 1,600 cases will be diagnosed among men. Breast cancer is the second
leading cause of cancer death in women, exceeded only by lung cancer. It is the
leading cause of cancer death among women aged 40 to 55. The American Cancer
Society estimates that, in 1998, there will be about 43,900 deaths from breast
cancer in the United States.
Early detection of breast cancer can dramatically lower mortality rates
and prolong life expectancy. Standard screening tests for early detection of
breast cancer currently include breast self-examination, breast examination by
a physician ("palpation"), and x-ray mammography.
The American Cancer Society recommends that women older than age 40
undergo a palpation examination annually and that women aged 20 to 40 years
have a palpation examination every 3 years. Unfortunately, by the time cancer
is detected by palpation, the disease has often progressed to a very advanced
stage requiring highly invasive treatment and resulting in high mortality
rates.
It is estimated that there are approximately 200 million women at risk for
breast cancer, in the U.S. and Europe alone, who could benefit from x-ray
mammography screening. However, only 25% to 35% of women make regular use of
this screening modality. Reasons for this include the discomfort or pain
associated with the procedure and fear of the effects of x-ray exposure. In
addition, there is growing awareness among women that, beyond the pain and risk
associated with x-ray mammography, the procedure does not always have high
reliability.
X-ray mammography generally attains sensitivity rates of 80% to 90% in
women who do not have dense breast tissue, generally, post-menopausal women who
are not receiving estrogen-related therapy, which means 10 to 20 women out of
100 in this group with cancer will receive a false negative test result. In
pre-menopausal women, who generally have more dense breast tissue, sensitivity
rates of x-ray mammography are 55% to 75%, which means that x-ray mammography
will not detect cancer in 25 to 45 women out of 100 in this group.
X-ray mammography will very often indicate the presence of cancer when
there is no cancer present (a false positive). A positive finding on an x-ray
mammogram has a predictive value of less than 30%. This means that fewer than 3
in every 10 biopsies done to confirm or rule out malignancy (cancerous breast
tissue) for suspicious lesions detected in a mammogram will confirm malignancy.
Therefore, more than 7 out of 10 of these surgical procedures could have been
avoided if a more accurate screening method were used.
What is DAT and how does it Search for Cancer
In 1995, Professor Michael Anbar patented the DAT method for the detection
of cancer, which was the culmination of years of research pertaining to the
biochemical behavior of cancerous lesions. The key component of Professor
Anbar's theory is a chemical called nitric oxide ("NO"). NO is a fundamental
chemical messenger which causes dilation of blood vessels. Until recently,
little was known about the existence or behavior of this chemical. Professor
Anbar was one of the first scientists to demonstrate the existence of native NO
in humans and other mammals. Later, other scientists described the mechanism by
which NO causes vasodilation. In 1998, these scientists were awarded the Nobel
Prize for their work describing this mechanism. The understanding of how the NO
mechanism works has many implications for commercial medical products. For
example, the discovery of this mechanism led to the development of Viagra, an
impotency drug. Professor Anbar incorporated the understanding of the NO
mechanism in the DAT methodology.
DAT is based upon the following principles:
o All objects with a temperature above absolute zero (-459.69 F o ) emit
black body radiation in the form of infrared radiation.
o In living organisms, black body radiation emission is a function of
regulation of tissue blood supply.
o Regulation of blood supply is manifested by thermoregulation.
22
<PAGE>
o Thermoregulation is an essential physiological function and in normal
tissue is controlled by the autonomic nervous system.
o The autonomic nervous system regulates body temperature by controlling
the distribution of blood, which is the primary heat exchange medium.
o Early in the development of cancerous tissue, a locally active
biochemical called Nitric Oxide is released by the cancerous tissue.
Nitric oxide interferes with the normal autonomic nervous system control
of the blood vessels of the surrounding tissue.
o DAT differentiates between normal tissue behavior and the abnormal
behavior exhibited by tissue surrounding cancerous growths which are under
the control of nitric oxide generated by cancer cells.
From 1995 to 1998, Professor Anbar developed a set of algorithms (a
mathematical model) which forms the basis of OmniCorder's proprietary
diagnostic software. This software, based on the above algorithms, was designed
to enable the DAT System to analyze infrared emissions to detect the presence
of cancer.
DAT, in theory, detects a process which occurs early in the life cycle of
a cancer. X-ray mammography relies upon the presence of a mass, which it can
only detect later in the cycle of tumorous growths, 3-7 years, on average,
after a tumor begins to grow. Because of this, OmniCorder believes that the
principles on which DAT is based are more conducive to detecting cancer at an
earlier stage of its development. In addition, because the biochemical process
DAT detects is generated, in theory, only by cancer, and not by non-cancerous
masses, OmniCorder believes DAT will be a more reliable indicator of the
presence of cancer than x-ray mammography. Earlier, more accurate detection of
breast cancer will significantly increase the chances for effective treatment.
Evolution of DAT Sensor Technology
DAT has its roots in a rudimentary heat detection technique known as
thermography, developed in the 1970s. Thermography generally refers to the use
of infrared sensitive instruments or materials to detect the emission of
infrared radiation. The simplest form of this technique used to detect breast
cancer is contact thermography which works by placing temperature sensitive
material in physical contact with a woman's breasts. The detection of
variations in the color of the material is intended to highlight "hot spots"
which could indicate the presence of cancer. This technique, however, can only
detect differences in temperature of 2.0 degrees centigrade or greater.
Non-contact, static camera detectors were developed later which provided
an increase in temperature sensitivity. Cameras were also developed which began
to allow for multiple "frames" of data to be received and analyzed. The
development of the capability to analyze multiple "frames" of data, with
greater temperature sensitivity, allowed for observation of smaller temperature
changes in breast tissue over a period of time.
However, it was not until 1996 when the California Institute of
Technology's Jet Propulsion Laboratory developed a new camera technology known
as QWIP (Quantum Well Infrared Photodetectors), that it became possible to
detect minute temperature changes in breast tissue. This detector technology,
which OmniCorder subsequently licensed for certain biomedical applications on
an exclusive basis, permits a much higher sensitivity of measurement for
changes in the temperature of breast tissue. The sensitivity of this detector
technology, combined with the increased speed of data collection made possible
by newly advanced camera technology, have together achieved a threshold which,
for the first time, makes the DAT diagnostic process possible. This detector
technology, originally developed for the Department of Defense's Ballistic
Missile Defense Initiative (sometimes referred to as "Star Wars"), is 50 times
more sensitive than previously available infrared detectors, and it can collect
data ten times more rapidly than the best of previously available technology.
These capabilities enable DAT to analyze temperature variations at over 100
frames per second and measure temperature differences of .001 degrees
centigrade, a 2,000 times improvement in temperature sensitivity over contact
thermography, an early version of a "heat-sensitive" screening tool. See
"Business -- Licensing and Patents -- The Caltech License Agreement" below.
How the DAT System Will Be Delivered to the Public
OmniCorder expects that DAT will be made available to the general public
by providing the necessary combination of hardware, software and training
comprising the DAT System to both specialists, such as
23
<PAGE>
radiologists, surgeons and oncologists, and select primary care providers. The
DAT System will consist of an infrared camera, a customized computer
workstation and other associated hardware, OmniCorder's proprietary analysis
software and the training necessary to utilize the DAT System as a screening
and diagnostic technique.
OmniCorder intends to sell both exclusive and non-exclusive regional
licenses for which the Provider Partner, generally hospitals, medical centers,
health networks, clinics and group medical practices, will pay a one-time
licensing fee. The licensing fee will depend on the specifications of the
license, but will generally be $1.50 per person in the region, for the
exclusive right, over a period of five years, to deliver the DAT System to that
region. Lower fees will be charged for non-exclusive licenses. The license fee
is anticipated to range from $500,000 to $1,500,000 depending on the population
of the region and the terms of the license. All of the hardware and software
provided as part of the DAT System, the cost of which will be included as part
of the license fee, will remain OmniCorder's property. OmniCorder will maintain
and upgrade the hardware and software as part of the license agreement.
OmniCorder anticipates that the cost to the patient of the initial
screening examination will be $50-$75. OmniCorder will receive, from the
provider, approximately 50% of this amount for each screening examination. The
balance of the fee will be retained by the provider. These fees may vary. By
comparison, the average cost of an x-ray mammogram is approximately $100.
The Patient Encounter
OmniCorder believes that, in addition to its anticipated superior
detection capabilities, a strong advantage of the DAT System will be the
enhanced patient experience. OmniCorder believes that the quality of the
patient's experience will lead to greater participation in early breast cancer
screening. OmniCorder believes that many women are reluctant to utilize x-ray
mammography due to the pain or discomfort associated with it and their fear of
x-ray radiation exposure. X-ray mammography requires a woman's breast to be
compressed between two glass plates. This compression frequently causes
discomfort, pain and/or bruising. In addition, each time a woman is exposed to
x-rays in this manner, her risk of contracting cancer is increased.
In contrast, the DAT examination does not require x-ray or other type of
radiation. The DAT System relies on collecting information from infrared rays
passively emitted from a woman's body. The process requires no breast
compression and, in fact, is entirely non-contact. The partially disrobed woman
is positioned with her chest in the field of view of the camera, 2-3 feet from
the lens, and the camera begins to collect data for approximately 1 minute. The
collected data is then analyzed in the physician's offices and the results are
anticipated to be available within a few minutes for the physician to
interpret. If the results generated by the DAT System indicate a possible area
of concern, primary care physicians may, in their discretion, forward the
results for analysis to a regional medical center which OmniCorder has
designated as a "DAT Center of Excellence". The results will be transmitted
through OmniCorder's information distribution network, or other confidential
means of communication. See "Business -- Information Network" below. Medical
specialists at these DAT Centers of Excellence will then review the results and
discuss their interpretation with the primary care physician.
DAT's Efficacy
The development of the DAT System is substantially complete. OmniCorder
commenced, in September 1998, field trials that will test approximately 3,000
women for the presence of breast cancer. The testing is designed to validate
the efficacy of the DAT System generally, and specifically, the efficacy of the
DAT System compared with x-ray mammography and other modalities. The study is
expected to be completed by October, 1999.
In late 1997 and early 1998, OmniCorder conducted a limited study with 34
women comparing DAT to classic static (non-dynamic) thermal studies and other
accepted clinical methods, including x-ray mammography. The study was conducted
at the State University of New York at Buffalo using the first prototype system
which is substantially less sensitive than the current improved prototype. The
results of this limited field trial indicated that the DAT System exhibited
fewer false positives than static thermography (4 versus 21). In addition, in 3
out of 34 cases, the DAT System determined that cancer existed in patients that
were deemed negative by screening with x-ray mammography, and the DAT System's
assessment in these cases was confirmed by biopsy. OmniCorder believes that the
3,000 women field test currently being conducted will establish the DAT
System's efficacy as an adjunctive (supplemental) diagnostic screening method
for the detection of breast cancer. Additional
24
<PAGE>
clinical tests will be necessary in connection with OmniCorder's Premarket
Approval application, to be filed with the FDA to permit OmniCorder to market
the DAT System on a stand-alone basis, i.e., one that does not need to be used
together with an existing approved method. See "Business -- Government
Regulation" below.
Licensing and Patents
The acquisition and licensing of intellectual property integral to the DAT
System is a critical aspect of OmniCorder's strategy. OmniCorder controls,
through exclusive licensing agreements, the patents that protect the core
diagnostic software and detection technology and other intellectual property
upon which the DAT System is based. The principal agreements are as follows:
Caltech License Agreement -- OmniCorder entered into an agreement in May,
1998, based on an option granted in September, 1997 (the "Caltech License
Agreement") with the California Institute of Technology's Jet Propulsion
Laboratory ("Caltech") pursuant to which OmniCorder was granted the exclusive
license in the Field (as defined below) to exploit infrared radiation detection
technology as embodied in certain pending patents and any U.S. or foreign
patents or patent applications issuing therefrom relating to Quantum Well
Infrared Photodetectors or "QWIP" (the "Caltech Technology"). The Caltech
Technology was originally developed for earth/space science and weapon systems
applications, by the joint effort of:
o The Jet Propulsion Laboratory.
o The Center for Space Microelectronics Technology.
o The National Aeronautic and Space Administration Office of Space Access and
Technology.
o The Ballistic Missile Defense Organization/Innovative Science and Technology
Office.
Under its agreement with Caltech, OmniCorder has acquired an exclusive
license for the worldwide use of the Caltech Technology in the field of
detection of passively emitted infrared radiation from tissue, organs and organ
systems for the generation of temperature related images (the "Field") for
commercial medical and veterinary applications.
The Caltech License Agreement provides OmniCorder with the rights to enter
into agreements, including sublicenses, to exploit the Caltech Technology
worldwide in the Field, on an exclusive basis, subject to payment of certain
royalties for:
o revenues received by OmniCorder from licensed products and services, but not
including revenues from sublicenses; and
o revenues received by OmniCorder from sublicenses other than those from
related companies for the sale of licensed products and services, and those
derived from the exclusive or nonexclusive regional licenses to health care
providers. In exchange for this license, Caltech was issued 44,000 shares of
OmniCorder's common stock. An additional 22,000 shares will be issued on
each of the first and second anniversaries of the Caltech License Agreement
(May 11, 1999 and May 11, 2000) unless OmniCorder terminates the Caltech
License Agreement prior to the dates set forth above.
OmniCorder is required to use reasonable commercial efforts to exploit the
Caltech Technology. Under certain circumstances, Caltech may permit other
parties to exploit the Caltech Technology, for specific applications or
markets, if Omnicorder is not exploiting the specific application or market,
and chooses not to do so after notification by Caltech that a third party is
ready to do so. OmniCorder must pay Caltech a minimum royalty of $10,000 per
year as a condition of this license, commencing in the period May 11, 1999 -
May 11, 2000. OmniCorder is entitled to manufacture cameras utilizing the
Caltech Technology in a manner of OmniCorder's choosing.
Lockheed Martin License Agreement -- OmniCorder entered into an exclusive
license agreement with the Lockheed Martin Corporation on September 18, 1998.
Pursuant to this agreement, OmniCorder was granted an exclusive, worldwide
license to exploit all biomedical applications of certain enhanced infrared
detector technologies known as Enhanced Quantum Well Infrared Photodetectors
("EQWIP"). These technologies enhance
25
<PAGE>
the sensitivity of the Caltech Technology. The EQWIP technology is protected by
a patent owned by Lockheed Martin Corporation. OmniCorder also has been
licensed the same rights with respect to patent filings on the Lockheed Martin
technology in Canada, Norway, Japan, France, Germany and Great Britain. In
order to maintain exclusivity, OmniCorder is subject to a number of milestones
it must meet relating to royalty generation, development of markets and
territories, utilization of the EQWIP technology in certain percentages of
OmniCorder's installed base of diagnostic equipment and required levels of
royalty generating installations. However, OmniCorder does not believe that a
loss of exclusivity under this Agreement would result in a material adverse
effect on it. Under certain circumstances, Lockheed Martin may permit other
parties to exploit the Lockheed Martin technology for specific applications or
markets, if Omnicorder is not exploiting the specific application or market,
and chooses not to do so after notification by Lockheed Martin that a third
party is ready to do so. OmniCorder must also utilize the Lockheed Martin
technology in at least 10% of its DAT System installations as a condition of
continuation of the license.
OmniCorder has agreed to pay Lockheed Martin Corporation a royalty on
revenues it derives from utilization of the EQWIP technology. OmniCorder has
also agreed to license back to Lockheed Martin Corporation any improvements it
makes to the EQWIP technology for uses in which OmniCorder does not retain
exclusivity. Under certain conditions, OmniCorder may sublicense its rights to
develop specific territories and markets to third-parties, subject to consent
of Lockheed Martin Corporation. OmniCorder is entitled to exclusively utilize
any improvements to the EQWIP technology developed by Lockheed Martin
Corporation. OmniCorder is permitted to employ a manufacturer of its choosing
to manufacture cameras incorporating the EQWIP technology.
Anbar License Agreement -- In March 1997, OmniCorder entered into an
option agreement with Professor Michael Anbar pursuant to which it could
acquire the exclusive worldwide right to exploit the Anbar Patent, subject to
certain research funding requirements being met. The Anbar Patent is entitled
"Detection of cancerous lesions by their effect on the periodic modulation of
perfusion on the surrounding tissue." This patent describes the disease related
physiological processes which occur in the presence of cancerous tumors, as
well as the method by which DAT analyzes radiation emitted by tissue
surrounding cancerous tumors.
In February 1998 OmniCorder achieved the requisite financing which was
necessary to execute the Anbar License Agreement. In March 1998, OmniCorder
funded the required research budget and released 440,000 shares of previously
reserved common stock to Professor Anbar. OmniCorder was also assigned certain
related pending patents. Pursuant to the Anbar License Agreement, OmniCorder is
obligated to pay Professor Anbar a royalty of $300 for each DAT System
installed at a client site.
OmniCorder funded a research and development budget which is being used by
Professor Anbar to support OmniCorder's activities, with respect to the DAT
System, through the UB Foundation at the State University of New York at
Buffalo ("S.U.N.Y. Buffalo"). The arrangement was structured to minimize costs
to OmniCorder and to provide for an accredited academic environment in which to
conduct the research. The original budget consisted of a cash grant of
$550,000, any residuals of which revert to OmniCorder upon Anbar's resignation
from S.U.N.Y. Buffalo and the use of a research camera device. This grant was
reduced to $495,000 inclusive of $100,000 previously provided by OmniCorder
(see "Management -- Employment Agreements"). As of September 30, 1998,
approximately $256,000 of the research budget is remaining which is expected to
be utilized by March 1999. All intellectual property or devices or discoveries
arising out of this research are OmniCorder's sole property.
Information Network
OmniCorder is negotiating a software license agreement with a third party,
pursuant to which it and participating healthcare providers will be able to
collect, distribute and process comparative case histories on patients who have
been analyzed by the DAT System. The software is designed to enable the
delivery of relevant information by highly secure, encrypted transmissions over
the Internet or an intranet. OmniCorder will pay royalties to the licensor
under this agreement. While this information distribution network is intended
to
26
<PAGE>
support the delivery of the DAT System initially, OmniCorder anticipates that
it may form the basis of a general purpose electronic patient record and may
open an additional field of commercial endeavor for OmniCorder at a future
date. OmniCorder believes that if this license is not successfully negotiated,
alternatives are available to effect the required functions of this software.
OmniCorder anticipates that this software will not be utilized in the initial
commercialization of the DAT System, but rather after the DAT System has
established a substantial user base. Until this network is deployed, other
readily available confidential means of communication will be utilized to
transmit relevant information between healthcare providers and medical centers
designated by OmniCorder.
Government Regulation
FDA Regulation. OmniCorder's products and manufacturing activities are
subject to regulation by the FDA and by other federal, state, local, and
foreign authorities. Pursuant to the Food, Drug and Cosmetic Act and the
regulations promulgated thereunder, the FDA regulates the development, clinical
testing, manufacture, packaging, labeling, storage, distribution and promotion
of medical devices. Before a new device can be introduced into the market, the
manufacturer must generally obtain marketing clearance through a 510(k)
notification or approval through a Premarket Approval.
OmniCorder believes, but there can be no assurance that the DAT System
should receive 510(k) clearance under Section 510(k) which would permit the DAT
System to be used as an adjunct (supplemental) screening/diagnostic service to
existing FDA cleared or approved screening/diagnostic methods. If a 510(k)
clearance is granted, OmniCorder will then begin marketing the DAT System as an
adjunctive (supplemental) method for the screening and diagnosis of breast
cancer. In parallel, OmniCorder intends to commence Premarket Approval clinical
trials to demonstrate the safety and effectiveness of the DAT System as a
stand-alone breast cancer screening modality, i.e., one that does not need to
be used together with an existing approved method. The Premarket Approval
process is discussed below. There can be no assurance that OmniCorder will
receive 510(k) clearance to market the DAT System as an adjunctive
(supplemental) system under either Section 510(k) of the Food, Drug and
Cosmetic Act or approval to market the DAT System as a stand-alone diagnostic
screening system under the Premarket Approval process or as to the timing of
the grant of any such approvals. See "Risk Factors -- OmniCorder does not yet
have required FDA approval to market the DAT System and must continue to comply
with FDA and other regulatory standards."
OmniCorder submitted its 510(k) for the DAT System on February 1, 1999.
The average total time for clearance is between 90-120 days. OmniCorder is
currently conducting a 3,000 women field test intended for completion by the
fourth quarter of 1999. If the FDA finds the DAT System substantially
equivalent to an existing legally marketed device, thus permitting it to be
marketed as an adjunct (supplemental) screening/diagnostic device, OmniCorder
intends to use the field test to help promote the sale of the DAT System as an
adjunct (supplemental) method for the screening and diagnosis of breast cancer.
However, the FDA may request additional information to demonstrate substantial
equivalence, including clinical information. If the agency requests clinical
data, OmniCorder anticipates submitting the results of the field test to the
FDA. When additional information is submitted to the FDA, the agency will often
restart the submission review clock. This is particularly true when the
additional information includes clinical data.
Classification of Medical Devices. In the United States, medical devices
intended for human use are classified into three categories, Class I, II, or
III, on the basis of the controls deemed reasonably necessary by the FDA to
assure their safety and effectiveness. Class I devices are subject to general
controls, for example, labeling, premarket notification under Section 510(k),
unless exempt, and adherence to the FDA's Good Manufacturing Practices
regulations. Class II devices are subject to general and special controls, for
example, performance standards, postmarket surveillance, patient registries,
and FDA guidelines. Class III is the most stringent regulatory category for
medical devices. Class III devices are those which are subject to premarket
approval requirements and are intended to require, or must require, an FDA
approval of their safety and effectiveness prior to marketing.
Class III devices include, for example, devices which are life-sustaining,
life-supporting or implantable devices, or new devices which have not been
found substantially equivalent to legally marketed devices.
Breast cancer screening devices that use infrared detection
instrumentation, such as that used in the DAT System, which are intended to be
used by physicians as an adjunct (supplement) to other established clinical
27
<PAGE>
detection methods for breast disease, are currently classified as Class I
devices, requiring clearances under Section 510(k) before marketing. Such
devices that are intended for stand-alone use, i.e., for use as a sole
diagnostic screening tool for detection of breast cancer, are classified as
Class III devices, requiring Premarket Approval before marketing.
510(k) Clearance. The FDA will clear a device under section 510(k) if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or II medical device, or to a Class
III medical device for which the FDA has not yet called for a Premarket
Approval application. Commercial distribution of a device for which a 510(k)
notification is required can begin only after the FDA issues an order that the
device is substantially equivalent to a device that is legally marketed and not
subject to a Premarket Approval requirement. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device,
in which case a Premarket Approval will be required to market the device,
unless additional information can be submitted to support a substantial
equivalence determination, or the FDA, pursuant to a request from a 510(k)
submitter, makes a risk based determination that a not substantially equivalent
device can be classified into Class I or II. An FDA request for additional data
could require that clinical studies of the device's safety and effectiveness be
performed.
Premarket Approval. A Premarket Approval application must be filed and
approved before a device can be marketed if a proposed device is not
substantially equivalent to a legally marketed device or if it is a pre-
amendments Class III device, i.e., a device in commercial distribution prior to
May 28, 1976, for which the FDA has called for Premarket Approvals. A Premarket
Approval application must be supported by valid scientific evidence, which
typically includes extensive data, including pre-clinical and clinical trial
data, to demonstrate the safety and effectiveness of the device.
Notwithstanding the 510(k) and Premarket Approval pathways to the marketplace,
if human clinical trials of a device are required, and the device presents a
"significant risk," the sponsor, usually the manufacturer or the distributor of
a device, must obtain FDA approval of an Investigational Device Exemption
application prior to commencing human clinical trials. If the device is an
"non-significant risk" device under the FDA's regulations, i.e., it is not a
"significant risk" device, a sponsor may begin clinical trials after obtaining
approval, based on the study and related matters, by one or more Institutional
Review Boards, who are in compliance with 21 C.F.R. Part 56, which contains the
regulatory requirements for Institutional Review Boards, without FDA approval.
However, the FDA can challenge an Institutional Review Board determination to
permit such a study and require agency approval of investigational device
clinical research. Sponsors of clinical trials are permitted to charge for
devices distributed in the course of a study provided such charges do not
exceed recovery of the costs of manufacture, research, development and
handling. However, devices for distribution under an Investigative Device
Exemption may not be commercialized, i.e., promoted as safe or effective, sold
for profit or used beyond legitimate research needs.
Changes in Approved Devices. The Food, Drug and Cosmetic Act requires
device manufacturers to obtain new FDA 510(k) clearance when there is a major
change or modification in the intended use of a legally marketed device or a
change or modification, including product enhancements, and, in some cases,
manufacturing changes, to a legally marketed device that could significantly
affect its safety or effectiveness. Supplements for approved Premarket Approval
devices are required for device changes, including some manufacturing changes,
that affect safety or effectiveness. For devices marketed pursuant to 510(k)
determinations of substantial equivalence, the manufacturer must obtain FDA
clearance of a new 510(k) notification prior to marketing the modified device;
for devices marketed with Premarket Approval, the manufacturer must obtain FDA
approval of a supplement to the Premarket Approval prior to marketing the
modified device.
Good Manufacturing Practices and Reporting. The Food, Drug and Cosmetic
Act requires device manufacturers to comply with Good Manufacturing Practices
regulations. A new set of regulations, called the Quality Systems Regulations,
went into effect June 1, 1997. The regulations require that medical device
manufacturers comply with various quality control requirements pertaining to
design controls, purchasing contracts, organization and personnel, including
device and manufacturing process design, buildings, environmental control,
cleaning and sanitation; equipment and calibration of equipment; medical device
components; manufacturing specifications and processes; reprocessing of
devices; labeling and packaging; in-process and finished device inspection and
acceptance; device failure investigations; and recordkeeping requirements
including complaint
28
<PAGE>
files. The FDA enforces these requirements through periodic inspections of
medical device manufacturing facilities. In addition, a set of regulations
known as the Medical Device Reporting regulation obligates manufacturers to
inform the FDA whenever information reasonably suggests that one of its devices
may have caused or contributed to death or serious injury, or when one of its
devices malfunction and, if the malfunction were to recur, the device would be
likely to cause or contribute to a death or serious injury.
Labeling and Advertising. Labeling and promotional activities are also
subject to scrutiny by the FDA. Among other things, labeling is violative of
the law if it is false or misleading in any respect or it fails to contain
adequate directions for use. Moreover, any labeling claims that exceed the
representations either approved or cleared by the FDA will violate the Food,
Drug and Cosmetic Act.
OmniCorder's product advertising is also subject to regulation by the
Federal Trade Commission under the Federal Trade Commission Act, which
prohibits unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce, as well as unfair or deceptive practices
such as the dissemination of any false advertisement pertaining to medical
devices. Under the Federal Trade Commission's "substantiation doctrine," an
advertiser is required to have a "reasonable basis" for all product claims at
the time the claims are first used in advertising or other promotions.
Export Requirements. Products for export are subject to foreign countries'
import requirements and the FDA's exporting requirements. The introduction of
OmniCorder's products in foreign markets may subject it to foreign regulatory
clearances, which may impose additional substantial costs and burdens. The
regulatory review process varies from country to country. Many countries impose
product standards, packaging and labeling requirements and import restrictions
on devices. In addition, each country has its own tariff regulations, duties,
and tax requirements.
In addition to the import requirements of foreign countries, OmniCorder
must also comply with United States laws governing the export of products
regulated by the FDA. Devices that have obtained 510(k) clearance or Premarket
Approval and comply with the law in all other respects may be exported without
further FDA authorization. However, foreign countries often require, among
other things, an FDA certificate for products for export ("CPE"). To obtain
this certificate, the device manufacturer must certify to the FDA that the
product has been granted clearance or approval in the United States and that
the manufacturing facilities appeared to be in compliance with Good
Manufacturing Practices regulations at the time of the last FDA inspection.
Under the FDA Export Reform and Enhancement Act of 1996, an unapproved
Class III device, a device subject to an Investigative Device Exemption, or a
banned device may be exported to any country if the product complies with the
laws of that country and has valid marketing authorization in one of the
following countries or authorities: Australia, Canada, Israel, Japan, New
Zealand, Switzerland, South Africa, the European Union, or a country in the
European Economic Community ("EEC") if the device is marketed in an EEC county
or authorized for general marketing in the EEC. The FDA is authorized to add
countries to this list in the future. Further, a device may be exported under
this provision only if, among other things, it is not adulterated, accords to
the specifications of the foreign purchaser, complies with the laws of the
importing country, is labeled for export, is manufactured in substantial
compliance with Good Manufacturing Practices regulations or recognized
international standards, is not sold in the United States, and meets other
conditions.
Another pathway to export an unapproved Class III device for which a
Premarket Approval would be required to market the product in the United States
is to satisfy the following requirements:
o the device accords to the specifications of the foreign purchaser;
o the device is not in conflict with the laws of the country to which it
is intended for export;
o the device is labeled that it is intended for export;
o the device is not sold or offered for sale in domestic commerce; and
o the FDA determines that the exportation of the device is not contrary to
the public health and has the approval of the country to which it is
intended for export. Compliance with these requirements will permit
export to countries where marketing authorization from a listed country
or authority is not obtained.
29
<PAGE>
Fines and Penalties for Noncompliance. OmniCorder's failure to comply with
applicable FDA regulatory requirements could result in, among other things,
Premarket Approval withdrawal, recission of a 510(k) clearance, injunctions,
product withdrawals, voluntary or mandatory patient/physician notifications,
recalls, product seizures, civil penalties, fines, and criminal prosecutions.
In addition, the Federal Trade Commission has a variety of processes and
remedies available to it for enforcement, both administratively and judicially,
including compulsory process, cease and desist orders, and injunctions. Federal
Trade Commission enforcement can result in orders requiring, among other
things, limits on advertising, corrective advertising, consumer redress,
divestiture of assets, rescission of contracts, and such other relief as may be
deemed necessary. Violation of such orders could result in substantial
financial or other penalties. Any such action by the FDA or the Federal Trade
Commission could materially adversely affect OmniCorder's ability to
successfully market its products.
Franchising. As noted above, OmniCorder intends to bring the DAT System to
the market through a series of exclusive and non-exclusive regional licenses
through which licensees (generally hospitals, medical centers, health networks,
clinics and group medical practices) will pay a licensing fee in return for a
limited license to use (but not acquire) all of the hardware and software which
constitute a part of the DAT System (see "Business -- How DAT Will Be Delivered
to the Public").
OmniCorder's distributional program may or will fall within the embrace of
federal and state franchise and/or "business opportunity" laws, rules and
regulations. These laws, rules and regulations variously require OmniCorder's
registration as a franchisor/licensor/business opportunity grantor; the
preparation, registration and dissemination to prospective licensees of an
offering circular which, among other things, will set forth in detail the
background and experience of OmniCorder and its management, the terms of the
license being offered, OmniCorder's financial statements, and any contracts
which may or will be entered into with licensees during the course of the
license relationship; the filing of all advertising, promotional and marketing
materials utilized by OmniCorder to attract licensees and influence their
determination to enter into license agreements with OmniCorder; the
registration of all employees or third parties who may or will be involved in
the offer and granting of OmniCorder's licenses. These laws, rules and
regulations, to the extent applicable, will circumscribe the representations
which OmniCorder and its representatives may make when offering licenses.
Further, certain franchise and/or business opportunity laws will govern
aspects of OmniCorder's relationships with its licensees, including (without
limitation): the circumstances under which a license granted by OmniCorder may
or may not be terminated; the circumstances under which a license granted by
OmniCorder must, or need not be, renewed; limitations on the number of licenses
which OmniCorder may grant within any geographic area; prohibitions on
OmniCorder discriminating among similarly situated licensees; and, under
certain such laws, a requirement that OmniCorder repurchase certain equipment
and supplies from licensees upon termination or non-renewal of their licenses.
OmniCorder believes, but there can be no assurance, that such laws and
regulations will not materially adversely impact OmniCorder's business as
currently contemplated.
OmniCorder intends to fully comply with all federal and state franchise
and/or "business opportunity" laws, rules and regulations which may or will
apply to OmniCorder's distributional program. The process of obtaining
franchise and/or business opportunity law registrations nationwide typically is
accomplished within three (3) months following the submission of registration
applications to the various franchise-regulating authorities, and will require
the expenditure of funds both for counsel and registration fees. OmniCorder
believes, but there can be no assurance, that OmniCorder can secure and
maintain in effect all necessary franchise and/or business opportunity
registrations required by law.
Noncompliance with these franchise and/or business opportunity laws can
result in, without limitation, government prosecutions (criminal and/or civil)
seeking, without limitation, injunctions or "stop orders" prohibiting
OmniCorder from granting any licenses in any or all franchise and/or business
opportunity law jurisdictions; significant fines and other civil penalties;
imprisonment; seizure of all funds acquired by OmniCorder through the sale of
licenses other than in compliance with law, along with all other funds with
which such license funds have been commingled; and, civil prosecutions seeking
restitution for OmniCorder's licensees and/or rescission of their license
agreements. Further, in the event of non-compliance, certain franchise and/or
business opportunity laws confer upon licensees private rights of action
through which they may seek to recover from OmniCorder actual and punitive
damages; rescission; restitution; and, attorneys' fees. Under some of these
laws, treble damages may be awarded to licensees. Should OmniCorder fail to
comply in all respects with the requirements of federal and state franchise
laws, rules, regulations such that the foregoing public and private remedies
are sought and obtained, then this may or will have a material adverse effect
on OmniCorder's business, financial condition and results of operations.
30
<PAGE>
Competition
The DAT System will be compared with existing screening and diagnostic
modalities to first determine its efficacy as an adjunct (supplement) to
existing methods and, eventually, as a stand-alone (sole) tool for the
diagnostic screening of breast cancer. A screening modality is one which tests
a large number of women with no prior suspicion of disease. Important features
of an effective screening technology include low cost and speed of the test
procedure. Diagnostic modalities are used to detect disease in patients for
which there is a suspicion of the existence of disease. A diagnostic test can
be substantially more expensive and labor intensive than a screening test and
still be considered a cost-effective procedure. The DAT System is designed to
be both a screening and a diagnostic modality. The principal existing
modalities are as follows:
o 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.
o 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.
o 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 -- OmniCorder's
ability to generate revenues depends on whether health care providers
adopt the DAT System as a tool to detect breast cancer."
o 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.
o 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.
31
<PAGE>
A number of companies utilizing different technologies have emerged
recently and are attempting to exploit the weaknesses of established screening
modalities. OmniCorder believes, however, that these other companies employ
less effective technologies than the DAT System.
One such company is planning to provide services using older, and in
OmniCorder's opinion, less sophisticated and effective detector technology
which is prone to environmental interference, unlike technology utilized by
OmniCorder. Because this method collects images over time, the methodology is
similar to OmniCorder's but, in management's opinion, relies on methods of
analysis that are more likely to produce inaccurate results due to the
subjective nature of the data analysis. OmniCorder believes that this company's
methodology may infringe upon the Anbar Patent, but OmniCorder has not
determined whether it will take legal action with respect to this possible
infringement. This company has not yet received FDA approval for marketing its
product.
Another company markets a breast cancer screening technology involving
early heat detection technology, which OmniCorder believes detects a tumor only
in an advanced stage, after it is a palpable lump. Its advantage over x-ray
mammography is that it does not use radiation or breast compression. This
technology is at least twenty-five years old (its U.S. patent expired in
February 1997) and represents the type of subjective and non-repeatable
applications of early static thermography which are generally deemed
ineffective by the American Medical Association and many clinicians and
scientists. Despite these weaknesses, this company has recently begun
distribution of its product under 510(k) market clearance.
A third company utilizes a method which targets the same calcified
structure as x-ray mammography, and involves subjective analysis of image data,
which makes it unlikely to provide better results than the x-ray method. It has
an advantage, over x-ray, however, in that it does not use ionizing radiation
and does not require breast compression. This company requires a Premarket
Approval as an adjunct modality before it can begin to market its product.
A fourth company is a recent start-up. According to the information
available to OmniCorder, this company's method requires breast compression
followed by laser illumination. This makes the method very similar to the
method described in the above paragraph but with the addition of breast
compression, which may or may not impact efficacy. This company will require a
Premarket Approval to market its device as an adjunct. This company has not
begun marketing its technology.
Another company has recently developed a technique for detecting breast
cancer by measuring the changes which occur in the skin surface's electrical
resistance. This technique does not require ionizing radiation or breast
compression. The method is also operator intensive and dependent on the
operator's skills. It will require a Premarket Approval before being marketed
in the U.S. There are efforts being made to market this process in Europe.
32
<PAGE>
OmniCorder believes that a comparison of the benefits and detriment of the
above modalities can be illustrated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Modality Cost/Test Pros Cons
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
X-Ray Mammography $ 100 o Widely available and o High operator dependence;
accepted. o Fear of ionizing radiation;
o Breast compression;
o High false positive rate;
o Significant false negative rate, especially
among younger women;
o Limited to hospitals and large clinics due
to the expense of the infrastructure
requirements.
- -----------------------------------------------------------------------------------------------------------------
Ultrasound $150-$200 o No radiation; o High operator dependence;
o No breast compression; o Time intensive procedure;
o Better than x-ray with o Limit use to diagnostic applications.
dense breast tissue.
- -----------------------------------------------------------------------------------------------------------------
MRI $ 800+ o No radiation; o High operator dependence;
o No breast compression; o Time intensive procedure;
o Potentially more o Limit use to diagnostic applications;
sensitive and specific o Limited to hospitals and specialty clinics
than x-ray. due to the expense of the equipment and
infrastructure requirements.
- -----------------------------------------------------------------------------------------------------------------
Thermography $ 50-$100 o No radiation; o High operator dependence;
o No breast compression. o High false positive rate.
- -----------------------------------------------------------------------------------------------------------------
Laser $100-$200 o No ionizing radiation; o High operator dependence;
Transillumination o No breast compression. o Relies on structural defects similar to
x-ray mammography;
o Experimental.
- -----------------------------------------------------------------------------------------------------------------
Skin Surface $100-$200 o No radiation; o High operator dependence;
Electropotential o No breast compression. o Time intensive procedure;
o Limit use to diagnostic applications;
o Experimental.
- -----------------------------------------------------------------------------------------------------------------
Dynamic Area $ 50-$75 o No radiation; o Experimental.
Telethermometry o No breast compression;
(DAT) o Expected higher
sensitivity;
o Expected higher
specificity than x-ray;
o Not a time intensive
procedure (only 5-10
minutes);
o Expected to be effective
in both screening and
diagnostic applications.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Marketing
OmniCorder's marketing strategy is geared towards taking advantage of
current healthcare trends and is intended to be implemented in two distinct
phases:
o the Pilot Phase, which OmniCorder expects to be completed within
approximately 9 months after the offering; and
o the Rollout Phase, which follows the Pilot Phase.
Trends in the Healthcare Industry
In general, the two forces driving the healthcare market are the desire to
reduce costs and the public's demand for the most technologically advanced
healthcare. These forces have created the following trends:
o Increasing costs of delivered services. Although the double digit
increases in healthcare expenditures seen in the late 1980s and early
1990s have moderated, healthcare costs continue to rise at a rate greater
than the Consumer Price Index.
OmniCorder believes that the DAT System will reduce overall costs of
breast cancer screening and diagnosis by:
o reducing the screening fee (versus x-ray mammography);
o reducing false positives, thereby reducing the costs entailed in
unnecessary surgical biopsies; and
o reducing false negatives, resulting in earlier detection, and associated
reduction in cost of treatment (as well as improved patient outcome).
o Quantifiable Information. Quantifiable information yielding sufficient
proof of adequate early detection is a critical component of preventive
care. 58.7% of consumers are enrolled in a managed care plan and 83.3% of
managed care plans report the use of disease management programs.
Quantifiable data, demonstrating the efficacy of a disease detection
program, are a critical component in a managed care plan's adopting a
screening service as part of a disease management program. OmniCorder
believes that it will be able to quantify the increased accuracy of the
DAT System versus other screening modalities, thus permitting managed care
plans to incorporate the DAT System into their disease detection programs.
o Risk Shifting. In a recent trend in the healthcare industry managed care
plans are shifting more risk onto physicians and hospitals for the cost of
patient care. This risk shifting is being implemented by a process known as
capitation, in which physicians and hospitals are required by the managed
care plan to absorb all costs relating to a patient's care for a fixed
price, as opposed to billing on a per service basis. The DAT System, by
increasing early detection capabilities, is intended to be promoted as a
risk reduction tool for physicians and hospitals participating in managed
care plans.
o Increased Information to Consumers. The Internet and other media sources
have created a much more educated healthcare consumer. The increased
awareness brought about by the greater availability of information has
driven the demand for new technologies for both diagnosis and treatment of
disease, as the limitations of older technologies become more widely known.
OmniCorder believes the DAT System's advantages will address the
dissatisfaction with older technologies because of its enhanced detection
capabilities and more favorable patient experience.
Pilot Phase
The Pilot Phase of OmniCorder's marketing strategy will consist of the
beta testing of the DAT System at up to six well-recognized institutional
healthcare providers as part of the 3,000 women field test currently underway.
These centers include the State University of New York at Buffalo affiliated
hospitals/Millard Fillmore Hospitals and Buffalo General Hospital, and are
anticipated to include The State University of New York at Stony Brook, The
Strang Cancer Center in New York City, Dana Farber Medical Center, the Memorial
Sloan-Kettering Hospital in New York City and others. In parallel with this
field test, OmniCorder will attempt to solicit the beta-site health centers to
become regional licensees. Data collected during the Pilot Phase will be the
foundation for the Rollout Phase as discussed below.
34
<PAGE>
During the Pilot Phase, OmniCorder will focus its efforts on utilizing
traditional broad-based media to disseminate news related to the utilization of
the DAT System at the beta-sites.
In addition, during this Phase, the focus on primary caregivers, such as
physicians and nurses, will be education oriented, disseminating the results of
the beta-testing and information regarding the DAT System generally. This
information will be disseminated primarily through direct mail, Internet and
small informational peer-to-peer gatherings. The objective during the Pilot
Phase will be to facilitate referrals from physicians to potential regional
licensees and to build awareness of the DAT System.
Rollout Phase
During the Rollout Phase, OmniCorder intends to disseminate the data
collected and analyzed during the Pilot Phase. This data will be the foundation
for a science-based, education oriented marketing and sales campaign.
OmniCorder intends to focus on the Northeast initially with expansion to major
population centers in the United States.
OmniCorder intends to initiate direct selling efforts with integrated
healthcare delivery networks, with the goal of securing additional regional
license agreements. These providers will be furnished with documentation and
graphic presentations to communicate OmniCorder's overview and mission, product
and service descriptions, business model and benefits to participating
organizations.
OmniCorder intends to contact managed care organizations affiliated with
its regional licensees to secure reimbursement agreements. OmniCorder intends
to employ cost-benefit analysis to demonstrate the advantages of the DAT System
compared with other diagnostic methods, to convince managed care organizations
to cover the cost of this screening.
OmniCorder intends to build relationships with professional and consumer
healthcare organizations, such as the American Cancer Society, the American
Medical Association, the Karen Komen Society and the "One in Nine" Society. A
press kit will be developed and distributed in order to establish contact with
these organizations and to explore information-sharing opportunities.
Ultimately, OmniCorder expects it will earn an endorsement from one or more of
these organizations.
OmniCorder intends to disseminate information to physicians through direct
selling efforts, primarily through direct mail, a feature-rich Internet site
and informational gatherings. Outreach efforts will be made in conjunction with
regional licensees to secure the participation of physicians in the delivery of
the DAT System.
Finally, OmniCorder intends to address consumers through a variety of
approaches. OmniCorder's Internet site will be a primary source for consumer
information. OmniCorder intends to employ a public relations campaign through
advertisement in premier women's magazines with articles placed in key issues
(particularly emphasizing breast cancer awareness). Additionally, consumer
health related websites will be contacted and opportunities for education and
information sharing explored, with the objective to promote awareness among
consumers of the DAT System.
Other DAT Applications
OmniCorder believes that DAT technology may have additional applications
beyond breast cancer, such as in the detection of melanoma and diabetes. These
applications may provide additional opportunities for commercialization.
OmniCorder may focus on other applications after its efforts to commercialize
DAT for breast cancer screening and management.
Suppliers
OmniCorder utilizes infrared cameras which are custom manufactured by
various suppliers. OmniCorder has identified at least two such suppliers which
it believes will be in a position to satisfy its anticipated requirements for
infrared cameras. OmniCorder will also utilize network software which it is
currently negotiating a license to procure. OmniCorder anticipates that any
other required supplies and components will be readily available and will not
require high-cost specialty design and production.
Employees
As of closing of the offering, OmniCorder expects to employ eight
employees and retain four outside consultants, six of whom are anticipated to
be officers. None of the employees are represented by a collective bargaining
agreement and management believes it has good relations with its employees.
35
<PAGE>
Facilities
OmniCorder's principal offices are located at 25 E. Loop Road, Stony
Brook, New York 11790. Such offices are leased by OmniCorder under a one-year
lease from the Long Island High Technology Incubator, commencing February 1,
1998. The lease includes office space, conference rooms and other areas and
shared office services. Annual rent payments are $1,750 for the first year.
OmniCorder is currently negotiating a lease for additional premises of
approximately 1,500 square feet located in Long Island and Manhattan. The
offices will be connected to each other and other communications networks by
fiber-optic cable, and with total rent payments of approximately $30,000 per
year.
Legal Proceedings
There are no legal proceedings pending or, to OmniCorder management's
knowledge, threatened against OmniCorder.
Available Information
OmniCorder has filed with the Securities and Exchange Commission in
Washington, D.C. a registration statement on Form SB-2 of which this prospectus
is a part under the Securities Act with respect to the common stock offered
hereby. This prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this prospectus as to the contents
of any contract, agreement or other document are summaries of the material
terms of such contract, agreement or other document. With respect to each such
contract, agreement or other document filed as an exhibit to the registration
statement, reference is made to the exhibit for a more complete description of
the matter involved. The registration statement (including the exhibits
thereto) filed by OmniCorder with the commission may be inspected and copied at
the public reference facilities maintained by the commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 (1800-SEC-0330)
and will also be available for inspection and copying at the regional offices
of the commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The commission also maintains a
website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the commission,
including the registration statement and exhibits. The website address is
http://www.sec.gov.
Upon the effectiveness of the registration statement, OmniCorder will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended and, in accordance therewith, will file reports, proxy and
information statements and other information with the commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the addresses set forth above. OmniCorder prepares its financial
statements using year ended December 31. OmniCorder intends to furnish its
shareholders with annual reports containing consolidated financial statements
audited by its independent certified public accountants and with quarterly
reports containing unaudited condensed consolidated financial statements for
each of the first three quarters of each fiscal year.
Omnicorder is a Delaware corporation incorporated in February 1997.
OmniCorder's principal executive offices are located at 25 E. Loop Road, Stony
Brook, New York 11790-3350 and its telephone number is (516) 444-6499.
36
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ----- --------------------------------------------------------
<S> <C> <C>
Mark A. Fauci ............. 39 Chairman of the Board of Directors, President and Chief
Executive Officer
Kevin McQuade ............. 50 Director, Chief Financial Officer
Paul C. Rabbiner .......... 63 Director, Interim Vice President, Sales
Irving Price .............. 64 Director
James Hayward ............. 45 Director
Richard A. Lippe .......... 60 Director
Michael Anbar ............. 71 Chief Scientist, Research and Development Consultant
Tamara R. Rusoff .......... 43 Vice President, Education and Communication*
Denise Fantuzzi ........... 43 Vice President, Marketing*
</TABLE>
- ------------
* Upon completion of the offering
The period served and the business experience of each of the directors and
executive officers is set forth below:
Mark A. Fauci. Mr. Fauci is OmniCorder's founder and, since its
incorporation in 1997, has served as its President, Chief Executive Officer,
Chief Financial Officer (until November, 1998) and Chairman of the Board. From
1994 to 1997, he was employed by Reuters Health Information Services, a Reuters
owned start-up Company. Mr. Fauci headed new business development and was
responsible for building strategic relationships in the U.S. and Europe, for
developing strategic technical and business plans and for maintaining key
contacts and relationships in the health-care industry. His earlier position at
Reuters included Director of Technical Strategic Planning for Network
Operations. In this role he was responsible for all network architecture design
and development decisions. Prior to joining Reuters, he served as the President
of E.C.A., Inc. from 1991 to 1994, a consulting firm specializing in the field
of computer aided design and digital imaging systems. Mr. Fauci also has seven
years of experience as an engineer at Standard Microsystems Corporation,
working in the research, development and manufacture of integrated systems,
utilizing the same processes found in state-of-the-art infrared imaging
component manufacturing. Mr. Fauci holds a B.S. in Science from the State
University of New York at Stony Brook and an MBA from Dowling College.
Kevin McQuade. Mr. McQuade was appointed Chief Financial Officer and a
director of OmniCorder in December 1998. From 1994 to 1998, Mr. McQuade was the
Chief Financial Officer of Sensar Inc., a leading start-up biometric
identification technology company. From 1993-1994 he served as Executive Vice
President and Chief Financial Officer of the Princeton Stanford Group, a
technology advisory institution to the investment and financial community. From
1984 to 1993, he was Chief Financial Officer of the Sequor Group, Inc., a Wall
Street financial institution with $450 million in revenues, which was a
subsidiary of Security Pacific, a national bank. From 1977 to 1984, Mr. McQuade
was Vice President of Financial Planning for Citicorp Diners Club and Treasurer
of Diners' Club International. He holds a B.S. in accounting from St. Peter's
College and an MBA in finance from Fairleigh Dickinson University.
Paul C. Rabbiner. Mr. Rabbiner has been a director of OmniCorder since
January 1998, and has also been its Interim Vice President, Sales since
September 1998. Mr. Rabbiner, since 1993, has acted as a consultant to
corporations involved in varied aspects of the medical industry. From 1990 to
1993, he served as group Executive Vice President and Vice President of Manual
Products for Fortress Scientific, a privately held multinational manufacturer
of mobility products. From 1987 to 1992, Mr. Rabbiner served as the President
of Neurologix Systems, Ltd., a manufacturer and distributor of electronic
medical equipment. Between 1985 and 1989, he also served as the President of
Rabson Medical Sales, Ltd, a manufacturer representative to the durable
rehabilitation and medical equipment field. He was a co-founder of Medco
Surgical Supply Company, whose main market
37
<PAGE>
thrust was in the application of inhalation and rehabilitation equipment to the
homecare and handicapped markets, and he served as its President from 1957 to
1982. That company was then sold to National Medical Enterprises, where Mr.
Rabbiner served as a consultant from 1982-1984. Mr. Rabbiner has co-published a
book entitled "Positioning Clients with Central Nervous System Deficits" which
is used as a text book in some physical therapy schools.
Irving Price. Mr. Price has been a director of OmniCorder since January
1998. Since 1989 he has owned his own investment management firm, Priority
Investment Management, where he manages individual portfolios, trusts and
estates. In 1987 he was a financial analyst for N.Y. City Council, Finance
Division. Since 1959, Mr. Price has worked as a securities analyst and pension
fund and portfolio manager for various investment management firms such as Dean
Witter Reynolds (now Morgan Stanley-Dean Witter), Bache Halsey Stuart (now
Prudential Securities), Shields Asset Management, and Hutton Investment
Management (now Salomon Smith Barney). During this time, he managed corporate
and union portfolios involving pensions, profit sharing and welfare funds.
Mr. Price is a member of the New York Society of Security Analysts. He
holds a BS in business from Baruch College and a MBA in Financing and
Investments from New York University.
James Hayward. Dr. Hayward has been a director of OmniCorder since
September 1998. Dr. Hayward is a recognized authority on the applications of
liposomes in medicine and industry, with more than 50 patents and original
publications to his credit. He has extensive experience in start-up companies,
in development and marketing of non-regulated biotechnology product
applications, and in the development of drug-delivery technologies for a wide
range of medical applications.
In 1990, he founded Collaborative Laboratories, Inc. ("CLI"), a contract
research and manufacturing biotechnology company. Dr. Hayward currently serves
as CLI'S President, Chief Executive Officer and as a Director, and is its
principal stockholder. CLI later became a subsidiary of The Collaborative
Group, Ltd., a privately held holding company which Dr. Hayward founded in
1997, where he serves as a Director and Chief Executive Officer and is its
principal stockholder.
Dr. Hayward was responsible for product development at the Estee Lauder
Companies from 1984 to 1989, where he served as Director of Research Worldwide.
He holds an adjunct faculty position at S.U.N.Y. Stony Brook in Molecular
Biology and is an Honorary Fellow at the University of London. Dr. Hayward
serves on the boards of the Center for Biotechnology at S.U.N.Y. Stony Brook -
Council on Biotechnology, the Long Island Association, the Stony Brook
Foundation, the Research Foundation of the State of New York, and the New York
Biotechnology Association. He has received the "Best Paper of the Year Award"
from the Society of Cosmetic Chemists for the last 4 years. Dr. Hayward
received his doctorate in Molecular Biology and Biophysics from S.U.N.Y. at
Stony Brook.
Richard A. Lippe. Mr. Lippe has been a director of OmniCorder since
January 1998. Mr. Lippe has been a practicing attorney in the State of New York
since 1964. He has been a stockholder and officer, for the past 20 years, of
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., OmniCorder'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 the Collaborative Group, Ltd., a privately held holding
company of a contract research and manufacturing biotechnology company. He is
also the Managing Trustee of The Keene Asbestos Liquidating Trust. Mr. Lippe is
a graduate of Tufts University and holds a J.D. from the University of
Pennsylvania Law School.
Michael Anbar, Ph.D. Professor Anbar is OmniCorder's Chief Scientist. He
has been providing research and development expertise through the UB
Foundation, under a grant from OmniCorder. 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
38
<PAGE>
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. See "Business -- Licenses and Patents -- Anbar
License Agreement; and Management -- Employment Agreements."
Tamara R. Rusoff. Ms. Rusoff is expected to be OmniCorder's Vice
President, Education and Communications, as of the close of the offering. She
currently provides educational programming for physicians as a freelance
consultant for Physicians World Communications Group, a private medical and
healthcare communication company. From 1996 through 1997, Ms. Rusoff served as
the Vice President of the Technological Solutions Division at Robert A. Becker
Agency, where she managed the accounts of Bristol-Myers Squibb and Rhone Polenc
Rorer. Prior to that, between 1994 to 1995, Ms. Rusoff worked with Reuters
Health Information Services, a Reuters owned start-up company, where she served
in various capacities, including Senior Manager of Meetings and Conventions.
From 1989 through 1994, she was the Vice President of Program Development at
Triclinica Communications, where she supervised a team of six in designing,
developing and producing educational meetings, symposia, monographs, journal
articles and a variety of promotional materials and events for Amgen, Inc. 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.
Denise Fantuzzi. Ms. Fantuzzi is expected to be OmniCorder's Vice
President of Marketing, as of the close of the offering. Since 1997, Ms.
Fantuzzi has owned a consulting business which prepares and presents strategic
and tactical marketing plans, business plans and provides guidance on
organizational development issues. From 1996 to 1997, Ms. Fantuzzi served as
the Vice President, Business Development for Multum Information Services, Inc.,
which designs and develops intelligent software components for the healthcare
industry. While at Multum, Ms. Fantuzzi was responsible for overall sales and
marketing efforts. From 1994 to 1996, she was the Senior Vice President, Sales
and Marketing, for Reuters Health Information Services, Inc., where she served
on an Executive Committee and on a Senior Management Team. Ms. Fantuzzi holds a
BS in Business Administration from Temple University.
Compensation of Directors
Non-employee Directors currently receive no compensation for their
services, but may be reimbursed for certain expenses in connection with
attendance at board and committee meetings. All non-employee directors as of
April, 1998 Messrs. Rabbiner, Price, Lippe, each received options to purchase
13,200 shares each, at an exercise price of $3.40 per share. The Board intends
to compensate directors with annual stock option grants on an ongoing basis.
Audit Committee
The Board of Directors intends to have a standing Audit Committee, as of
the close of the offering. The Audit Committee is expected to be comprised of
Messrs. Lippe, Price and OmniCorder's Chief Financial Officer. The Audit
Committee will assist the Board of Directors in exercising its fiduciary
responsibilities for oversight of audit and related matters, including
corporate accounting, reporting and control practices. It will be responsible
for recommending to the Board of Directors the independent auditors for the
following year. The Audit Committee intends to meet periodically with
management, financial personnel and the independent auditors to review internal
accounting controls and auditing and financial reporting matters.
Scientific Advisory Board
OmniCorder has established an independent Scientific Advisory Board 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
39
<PAGE>
Sloan-Kettering (since 1986), Cornell University Medical College (since 1981),
The Rockefeller University (since 1981) The Royal Marsden Hospital and
Institute (1978-1980) and Charing Cross Hospital (1976-1978). He was trained in
London, England at the University of London and later at the University of the
State of New York.
The purpose of the Scientific Advisory Board is to provide OmniCorder with
expert advice and guidance pertaining to the development, testing and
deployment of the DAT System and will consist of surgeons, radiologists,
oncologists and primary care physicians. The Scientific Advisory Board 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 Scientific
Advisory Board will consist of six members and may be increased or decreased
from time to time. It is anticipated that members of the Scientific Advisory
Board will be compensated with per meeting stipends of $1,000 to $1,500 and
with grants of stock options from time to time.
Remuneration of Executive Officers-Summary Compensation Table
The following table discloses compensation paid by OmniCorder for the
services of Mark A. Fauci, its Chief Executive Officer, who was the only
officer for the fiscal year ended December 31, 1997. Compensation for 1997
relates solely to the two months of November and December. For the period prior
to November 1997, Mr. Fauci did not receive any compensation as the operations
of OmniCorder as well as the services he rendered to OmniCorder during this
period were insignificant.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- ----------------------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- ------------------------------ ------ ---------- ------- -------------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark A. Fauci, 1997 $13,800 -- -- -- -- -- --
Director, President and Chief
Executive Officer
</TABLE>
Employment Agreements
On December 31, 1997, Mark A. Fauci, OmniCorder's President and Chief
Executive Officer, entered into an employment agreement with OmniCorder (the
"Fauci Agreement"). Pursuant to the Fauci Agreement, OmniCorder is
contractually obligated to pay Mr. Fauci $90,000 per year commencing January 1,
1998 for a four year period. In the event that OmniCorder receives equity
financing of $2.25 Million or more, Mr. Fauci's salary will be increased to
$135,000 per annum and to $180,000 per annum on the later of January 1, 1999 or
the date that OmniCorder receives an aggregate of $2.25 Million of equity
financing. The increase in salary to $180,000 will be effective as of the
closing of the offering.
In March, 1997, OmniCorder entered into an agreement with Professor Anbar,
OmniCorder's Vice President, Research and Development, with respect to his
possible future employment. OmniCorder has agreed to provide Professor Anbar
with a five-year employment contract following his resignation or retirement
from S.U.N.Y. Buffalo. His employment contract will provide a level of
compensation of salary and benefits equal to what he is receiving from S.U.N.Y.
Buffalo at the time of his resignation, capped at a total of $168,000 per
annum. Anbar, during his employment, has the right to devote time to other
activities, not inconsistent with his duties to OmniCorder, provided he does
not perform activities relating to treatment of breast cancer, melanoma or
diabetes and that those activities do not exceed 40% of his working hours.
While Professor Anbar continues to be employed at S.U.N.Y. Buffalo,
OmniCorder will pay S.U.N.Y. Buffalo;
o 90% of Professor Anbar's salary;
o an additional 29% of this amount for benefits and payroll costs; and
o an additional 10% of this amount to be applied to overhead costs.
Professor Anbar will continue to devote a major portion of his time to
OmniCorder's research and development activities. OmniCorder's annual
expenditure under this arrangement is approximately $210,000, commencing
as of November 1, 1998. In addition, OmniCorder will pay Professor Anbar
an additional $26,000 per annum while the arrangement with S.U.N.Y.
Buffalo is in effect.
OmniCorder entered into a consulting agreement in March, 1997 with Amara,
Inc., a corporation wholly-owned by Professor Anbar, for a 12 month period
expiring in March, 1999, but only during the period prior to
40
<PAGE>
Anbar's employment by OmniCorder. The Consulting Agreement provided Amara with
a maximum of 52 days of consulting at a rate of $500 per day, for a total
potential expenditure of $26,000 with travel expenses not to exceed $25,000 and
equipment and supplies expenses not to exceed $50,000. All of such fees were
reduced to a one time payment of $50,000 which was utilized for the purchase of
equipment and supplies. The Amara Consulting Agreement will terminate, prior to
March 1999, if Professor Anbar resigns from S.U.N.Y. Buffalo and commences his
employment relationship with OmniCorder. Professor Anbar has the option to
acquire title to a research camera in March, 1999 provided that the camera is
used for non-competitive basic research only.
As of October 1, 1998, OmniCorder entered into an employment agreement
with Kevin McQuade, its Chief Financial Officer. This agreement provides Mr.
McQuade with a $60,000 per annum salary, increasing to $120,000 at the close of
the offering. Mr. McQuade is to be granted options, as of the close of the
offering, to purchase 100,000 shares of common stock, exercisable at the same
price per share as the initial public offering price per share. Mr. McQuade may
also be granted bonus options to purchase an additional 50,000 shares of common
stock if the common stock trades at a price of at least $22 per share for a
period of 10 consecutive trading days. These options would be granted at the
exercise price of $22 per share. An additional grant of options to purchase an
additional 50,000 shares of common stock at an exercise price of $45 per share
is provided for if the common stock trades at a price of at least $45 per share
for 10 consecutive trading days. All of the options are subject to vesting in
installments over periods of at least three years from date of grant.
Stock Option Plan
In April 1998, OmniCorder adopted the 1998 Stock Option Plan. The purpose
of the 1998 Stock Option Plan is to enable OmniCorder to attract, retain and
motivate key employees, directors, and on occasion, consultants, by providing
them with stock options. Options granted under the 1998 Stock Option Plan may
be either incentive stock options, as defined in Section 422A of the Internal
Revenue Code of 1986, as amended, or non-qualified stock options. OmniCorder
has reserved 400,000 shares of common stock for issuance under the 1998 Stock
Option Plan. As of the date of this prospectus, options for an aggregate of
39,600 shares of common stock have been granted to three non-employee directors
under the 1998 Stock Option Plan, at an exercise price of $3.40 per share,
which was equivalent to the fair market value of the shares in April 1998, the
date of the grant.
The 1998 Stock Option Plan will be administered by the Board of Directors.
The Board has the power to determine the terms of any options granted
thereunder, including the exercise price, the number of shares subject to the
option, and conditions of exercise. Options granted under the 1998 Stock Option
Plan are generally not transferable, and each option is generally exercisable
during the lifetime of the optionee only by such optionee. The exercise price
of all incentive stock options granted under the 1998 Stock Option Plan must be
at least equal to the fair market value of the shares of common stock on the
date of the grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of stock of OmniCorder ("10%
Owners"), the exercise price of any incentive stock option granted must be
equal to at least 110% of the fair market value on the grant date. The term of
all incentive stock options under the 1998 Stock Option Plan may not exceed ten
years, or five years in the case of 10% Owners. The specific terms of each
option grant are approved by the Board of Directors and are reflected in a
written stock option agreement.
Limitation of Liability and Indemnification.
OmniCorder's certificate of incorporation limits, to the maximum extent
permitted by the Delaware General Corporation Law, the personal liability of
directors for monetary damages for breach of their fiduciary duties as
directors, and provides that OmniCorder shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest
extent permitted by law. Section 145 of the Delaware law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful. Delaware law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of OmniCorder's certificate of incorporation have no effect on the availability
of equitable remedies, such as injunction or rescission, for a director's
breach of the duty of care.
41
<PAGE>
OmniCorder may enter into indemnification agreements with its directors
and officers which may require it, among other things, to indemnify such
directors and officers against liabilities that may arise by reason of their
status or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for OmniCorder's directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, OmniCorder has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of OmniCorder's
common stock as of the date of this prospectus by:
o each person or entity known by OmniCorder to beneficially own 5% or more
of the outstanding shares of common stock;
o each of OmniCorder's directors and officers; and
o all directors and executive officers of OmniCorder as a group. The
information as to each person or entity has been furnished by that person
or entity. The information does not include shares issuable pursuant to
outstanding warrants or options, except those held by the named
individual, and assumes no exercise of the Underwriter's over-allotment
option.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
----------------------
Name and Address of Shares Beneficially Before After
Beneficial Owner Owned Offering Offering
- ----------------------------- ------------------------------ ---------- ---------
<S> <C> <C> <C>
Mark Fauci 1,672,000 70.9% 48.3%
Michael Anbar 440,000 18.7% 12.7%
Meltzer, Lippe, Goldstein, 125,400(1) 5.0% 3.5%
Wolf & Schlissel, P.C.
Paul Rabbiner 42,533(2) 1.8% 1.2%
Irving Price 26,400(3) 1.1% 0.8%
Richard Lippe 191,400(4) 7.5% 5.2%
Kevin McQuade(5) -- -- --
James Hayward -- -- --
All directors and executive 1,932,333(2)(3)(4) 75.0% 52.6%
officers as a group
</TABLE>
- ------------
(1) 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).
(2) 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.
(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 16,667 shares of common
stock at $6.00 per share, exercisable for a four-year term commencing
August 31, 1999.
(4) Includes 125,400 shares of common stock issuable pursuant to warrants
registered to Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., a law
firm in which Mr. Lippe is a shareholder and officer. Mr. Lippe disclaims
beneficial ownership as to these shares. Also includes 52,800 shares of
common stock issuable pursuant to a warrant registered to Mr. Lippe at an
exercise price of $3.40 per share, currently exercisable until January 6,
2004, and an option to purchase up to 13,200 shares of common stock at an
exercise price of $3.40 per share, presently exercisable for a period of
10 years.
(5) Does not include options to be granted pursuant to Mr. McQuade's employment
agreement, the grant of which is contingent upon the closing of the
Offering. See "Management -- Employment Agreements."
DESCRIPTION OF SECURITIES
Common Stock
As of the date of this prospectus, after giving effect to a 2.2:1 stock
split which occurred in August 1998, there were 2,358,397 shares of common
stock outstanding, which were held of record by 22 stockholders, and
43
<PAGE>
480,267 shares of common stock issuable pursuant to outstanding options and
warrants, 44,000 shares of common stock reserved for issuance to a licensor of
intellectual property utilized by OmniCorder and 360,400 shares of common stock
reserved for issuance pursuant to the 1998 Stock Option Plan. Cambridge will
also be issued the Underwriter's Warrants after the offering. The Board of
Directors is authorized to issue up to 10,000,000 shares of common stock. There
will be 3,458,397 shares of common stock outstanding after giving effect to the
sale of the shares of common stock offered hereby. The holders of common stock
are entitled to one vote per share on all matters to be voted upon by the
stockholders. The holders of common stock 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. In the event of a
liquidation, dissolution or winding up of OmniCorder, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable.
Persons who purchased common stock in OmniCorder's initial private
placement in late 1997 and early 1998, holding in the aggregate 202,396 shares
of common stock, were granted the right to receive additional shares of common
stock for a period of two years after their initial purchase (December,
1997--April, 1998), if OmniCorder issues common stock, or securities
convertible into common stock, at a price of less than $3.40 per share. The
number of shares would be that amount which such persons would have received
had they purchased shares of common stock at such lower price, using the same
dollar amount of their initial investment.
Preferred Stock
The Board of Directors is authorized by OmniCorder's certificate of
incorporation to authorize and issue up to 1,000,000 shares of preferred stock,
$.01 par value, in one or more series. No shares of preferred stock have been
authorized for issuance by the Board of Directors and OmniCorder has no present
plans to issue any such shares. In the event that the Board of Directors does
issue preferred stock, it may exercise its discretion in establishing the terms
of the preferred stock. In the exercise of such discretion, the Board of
Directors may determine the voting rights, if any, of the series of preferred
stock being issued, which would include the right to vote separately or as a
single class with the common stock and/or other series of preferred stock; to
have more or less voting power per share than that possessed by the common
stock or other series of preferred stock, and to vote on certain specified
matters presented to the shareholders or on all such matters or upon the
occurrence of any specified event or condition. Rules and regulations of the
Nasdaq SmallCap Market where OmniCorder has applied for listing, restrict an
issuer's ability to issue preferred stock with voting rights different than
those of holders of common stock. Upon liquidation, dissolution or winding up
of OmniCorder, or upon events such as a merger or sale of OmniCorder's assets,
the holders of preferred stock may be entitled to receive preferential cash
distributions fixed by the Board of Directors when creating the particular
series thereof before the holders of the common stock are entitled to receive
anything. Preferred stock authorized by the Board of Directors could be
redeemable or convertible into shares of any other class or series of stock of
OmniCorder.
The issuance of preferred stock by the Board of Directors could adversely
affect the rights of holders of shares of common stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of preferred stock could be used to discourage or prevent efforts to
acquire control of OmniCorder through the acquisition of shares of common
stock.
OmniCorder also has certain options and warrants outstanding. See "Shares
Eligible for Future Sale."
Possible Anti-Takeover Effects of Delaware Law.
OmniCorder is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner or unless the
interested stockholder acquires at least 85% of the corporation's voting stock,
excluding shares held by certain designated stockholders, in the transaction in
which it becomes an interested stockholder. A "business combination" includes
mergers, asset sales and other transactions resulting in financial benefit to
the
44
<PAGE>
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the previous three years did own, 15% or more of the corporation's
voting stock. This provision of the Delaware law could delay and make more
difficult a business combination even if the business combination would be
beneficial, in the short term, to the interests of OmniCorder's stockholders
and also could limit the price certain investors might be willing to pay in the
future for shares of OmniCorder's common stock.
Transfer Agent and Registrar
The transfer agent and registrar for OmniCorder's common stock is
Continental Stock Transfer and Trust Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, OmniCorder issued a warrant to Richard A. Lippe, a
director, and received proceeds of $40,000. Mr. Lippe is a shareholder and
officer of OmniCorder's legal counsel. Under the terms of the warrant, Mr.
Lippe was granted the right to purchase up to $180,000 worth of any securities
OmniCorder issues in a private offering (except the August 1998 bridge
financing) through January 6, 2004, on the same terms and conditions as the
securities issued. As of September 1998, the warrant is exercisable into 52,800
shares of OmniCorder's common stock at an exercise price of $3.40 per share, as
that is the price at which shares of common stock were issued in OnmiCorder's
private offering completed in early 1998, the only private offering completed
to date, other than the August 1998 bridge financing.
Pursuant to an agreement entered into in August, 1997, OmniCorder issued
warrants to Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., its legal
counsel, in consideration for the deferral of legal fees. The warrants entitle
Meltzer, Lippe to purchase up to $427,500 worth of any securities sold by
OmniCorder in a private offering (except the August 1998 bridge financing) on
the same terms and conditions as the securities issued in a private offering,
through January 6, 2004 (as to $337,500 worth of such securities) and February
15, 2004 (as to $90,000 worth of such securities). As of September 30, 1998,
the warrants are exercisable into 125,400 shares of OmniCorder's common stock
at an exercise price of $3.40 per share, for the reasons discussed above with
respect to the warrant in favor of Richard A. Lippe.
During the period of February 7, 1997 to December 31, 1997, OmniCorder
incurred $116,617 in legal fees to Meltzer, Lippe and an additional $232,919
for the nine months ending September 30, 1998. These amounts include the value
of the aforementioned warrants. In addition, OmniCorder has agreed to pay
Meltzer, Lippe a fixed fee of $150,000 for legal services rendered in
connection with the offering.
OmniCorder has also entered into employment and consulting agreements with
Messrs. Fauci, McQuade and Anbar (and his affiliate, Amara, Inc.) and a license
agreement with Professor Anbar. See "Management -- Employment Agreements." See
"Business -- Licensing and Patents."
The warrants issued to Richard Lippe and Meltzer Lippe, the Anbar License
Agreement (including its employment provisions), and the Amara Consulting
Agreement were all entered into prior to December 31, 1997, when OmniCorder had
no independent directors.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public trading market for
OmniCorder's common stock. Upon completion of the offering, OmniCorder will
have a total of 3,458,397 shares of common stock outstanding (3,623,397 shares
if the Underwriters' over-allotment option is exercised in full). Of these
shares, the 1,100,000 shares of common stock offered hereby (1,265,000 shares
if the Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, by persons other than affiliates of OmniCorder. The remaining
2,358,397 shares of common stock outstanding are "restricted shares" as that
term is defined by Rule 144 promulgated under the Securities Act of 1933. Under
Rule 144, 1,672,000 shares held by Mark Fauci are currently eligible for sale
(subject to volume and other limitations of Rule 144, as discussed below) and
the balance of the shares outstanding prior to the offering will become
eligible for sale by March, 1999.
45
<PAGE>
Pursuant to lock-up agreements, OmniCorder's officers and directors and
all other stockholders (who in the aggregate hold 2,358,397 shares of common
stock upon the completion of this offering) and all holders of outstanding
options and warrants, exercisable for a total of 480,267 shares of common
stock, have agreed that they will not directly or indirectly, offer, sell,
grant any option to purchase or otherwise sell or dispose of any shares of
OmniCorder's common stock, or any securities convertible into, exercisable, or
exchangeable for, any shares of OmniCorder's common stock without the prior
written consent of Cambridge for a period ranging from 6 months to 24 months
from the date of this prospectus; however, Mr. Fauci and Professor Anbar may
sell 17,500 shares of common stock each, without the consent of Cambridge, at
any time, subject to the limitations of Rule 144 as set forth below. Additional
sales, in the aggregate of 117,500 shares, by any director or employee who
receives shares pursuant to the 1998 Stock Option Plan, will be allowed without
consent of Cambridge, provided that no less than twelve months have passed
since the initial public offering and the bid price for OmniCorder's common
stock is no less than 160% of the initial public offering price for thirty
consecutive trading days.
In April 1998, OmniCorder's Board of Directors adopted the 1998 Stock
Option Plan, which reserved 400,000 shares of common stock to be issued
pursuant to this plan. As of September 1998, options to purchase a total of
39,600 shares of common stock were issued under the plan with an exercise price
of $3.40 per share, the then fair market value of such shares at the date of
grant. All of such options are currently exercisable for a period of ten years.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year is entitled to sell, within any three month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the issuer's common stock or the average weekly trading volume during
the four calendar weeks preceding such sale, provided that certain public
information about the issuer as required by Rule 144 is then available and the
seller complies with certain other requirements. A person who is not an
affiliate (generally an affiliate is an officer, director or holder of 10% or
more of a corporation's outstanding shares), and has not been an affiliate
within three months prior to sale, and has beneficially owned the restricted
securities for at least two years, is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. 2,155,797 of the
2,358,397 shares of common stock outstanding prior to the offering are held by
affiliates, and are thus subject to continuing volume limitations described
above.
Investors in OmniCorder's private placement completed in early 1998 (the
"Private Placement") were granted certain registration rights. These rights
will enable these investors to "piggy-back" the registration of their shares,
aggregating 202,396 shares of common stock, to any other registration statement
(except for this registration statement and except for registration statements
on Forms S-4 or S-8) OmniCorder will file, if market conditions permit. No
shares owned by stockholders are being sold in the offering. These investors
are also entitled to request registration on an abbreviated form known as Form
S-3, which will generally be available for use by OmniCorder one year after the
offering, and the investors may request registration on Form S-3 once every six
months.
Investors holding warrants received in a recently completed bridge
financing entitling them to purchase in the aggregate up to 250,000 shares of
common stock, hold similar rights to those of investors in the Private
Placement, except that the Form S-3 rights can be exercised a maximum of three
times. These warrants are exercisable for a four year term commencing August
31, 1999. These warrants also have "weighted average" anti-dilution protection
for issuance of common stock or securities convertible into common stock at
less than $6.00 per share. These investors have agreed that they will not sell,
transfer or dispose of these warrants or any shares of OmniCorder's common stock
for at least 24 months after the offering without Cambridge's consent, and
Cambridge has agreed that it will not permit any sale, transfer or other
disposition by these investors under any circumstances for at least 12 months
following the offering.
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
underwriter's warrants it receives in connection with the offering. See
"Underwriting."
46
<PAGE>
Sales of substantial amounts of common stock (including shares issued upon
the exercise of outstanding warrants and options) in the public market after
the offering or the prospect of such sales could adversely affect the market
price of the common stock and may have a material adverse effect on
OmniCorder's ability to raise any necessary capital to fund its future
operations.
Holders
OmniCorder's common stock is held by 22 holders of record, prior to the
offering.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement,
OmniCorder has agreed to sell to Cambridge, and Cambridge has agreed to
purchase from OmniCorder, ______ shares of common stock at the initial public
offering price less underwriting discounts and commissions set forth on the
cover page of this prospectus.
The underwriting agreement provides that the obligations of Cambridge are
subject to certain conditions and that Cambridge is committed to purchase all
the shares of common stock offered hereby (other than those covered by
Cambridge's overallotment option, unless exercised), if any of such shares of
common stock are purchased. OmniCorder has agreed to indemnify Cambridge
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments Cambridge may be required to make in respect
thereof.
Cambridge has advised OmniCorder that it proposes initially to offer the
common stock directly to the public at the initial public offering price set
forth on the cover page of this prospectus and that it may allow certain
dealers who are members of the National Association of Securities Dealers, Inc.
(the "NASD") a selling concession not in excess of $____ per share of common
stock.
Pursuant to the underwriting agreement, Cambridge shall purchase the
shares of common stock offered hereby at a discount equaling 8% of the public
offering price. OmniCorder shall pay Cambridge a non-accountable expense equal
to 3% of the gross proceeds of the offering, of which $25,000 has been paid to
date.
OmniCorder has granted to Cambridge an option, exercisable not later than
45 days after the effective date of this prospectus, to purchase up to a
maximum of ---- additional shares of common stock, equal to 15% of the shares
to be sold in the offering, solely to cover overallotments, if any, at the
initial public offering price set forth on the cover page hereof, less the
underwriting discount set forth on the cover page hereof.
OmniCorder's shareholders have agreed to certain "lock-up" arrangements
with respect to their shares without the prior consent of Cambridge. See
"Shares Eligible for Future Sale."
Prior to the offering, Cambridge acted as a placement agent in connection
with the two previously completed private placements of OmniCorder's
securities. See "Shares Eligible for Future Sale."
In connection with the offering, OmniCorder has agreed to grant to
Cambridge warrants to purchase 97,500 shares of common stock, (the
"Underwriter's Warrants"). The shares of common stock underlying the
Underwriter's Warrants, are being registered pursuant to the Registration
Statement filed with respect to the common stock offered hereby. The
Underwriter's Warrants will provide for an exercise price equal to 120% of the
initial public offering price set forth herein.
The Underwriter's Warrants shall be exercisable at any time during a
period of four (4) years commencing one (1) year after their issuance. During
the first year after their issuance, the Underwriter's Warrants shall not be
sold, transferred, assigned, pledged or hypothecated by any person, except that
the transfer of any such Underwriter's Warrants by operation of law or by
reason of reorganization of OmniCorder shall not be prohibited, and, such
Underwriter's Warrants may be transferred among the officers or partners of
Cambridge so long as all securities transferred or received remain subject to
the restrictions specified in this paragraph for the remainder of the first
year after issuance thereof.
47
<PAGE>
Upon the written request of the holders of a majority of the Underwriter's
Warrants and the shares of common stock underlying the Underwriter's Warrants,
OmniCorder will on one occasion register the shares of common stock underlying
the Underwriter's Warrants at its expense. In addition, OmniCorder will include
as a piggy-back registration, for a period of seven years, the shares of common
stock underlying the Underwriter's Warrants at its expense in any registration
statement filed with the Securities and Exchange Commission (other than this
registration statement and other than a registration statement on Forms S-4 or
S-8).
For a period of two years following the closing of the offering,
OmniCorder has agreed not to sell or issue any shares of capital stock or any
options, rights or warrants with respect to any shares of capital stock without
the prior written consent of Cambridge, except in connection with the 1998
Stock Option Plan referenced above. Such negative covenants shall not apply in
connection with financings of at least $20,000,000 which are completed at no
less than twice the initial public offering price per share or for acquisitions
OmniCorder makes, using stock as the medium of payment, which are completed at
a per share price of no less than twice the initial public offering price per
share.
OmniCorder has agreed to nominate and support the election of one designee
of Cambridge as a member of the Board of Directors if such board consists of
eight or less directors, or two designees if the board consists of more than
eight directors, for a period of two years after the closing of the offering.
Cambridge will appoint its designee after the close of the offering.
Certain persons participating in the offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock,
including purchases of the common stock to stabilize its market price and
purchases of the common stock to cover some or all of a short position in the
common stock maintained by Cambridge. In addition, Cambridge may impose
"penalty bids" for a period of up to 60 days after the closing of the offering
under contractual arrangements with certain dealers participating in the
offering, whereby Cambridge may reclaim from such dealers, for Cambridge's
account, the selling concessions with respect to the common stock that is
distributed in the offering, but subsequently purchased for Cambridge's account
in the open market. Any of the transactions described in this paragraph may
result in the maintenance of the trading price of the common stock at a level
above that which might otherwise prevail.
In connection with the offering, Cambridge (and selling group members) may
engage in passive market making transactions in the common stock on the Nasdaq
SmallCap Market in accordance with Rule 103 of Regulation M under the
Securities Act of 1933 and the Securities Exchange Act of 1934. Cambridge will
not sell shares in the offering by exercising discretionary authority over
accounts as to which it has this authority.
The initial public offering price for the shares of common stock offered
hereby will be determined by negotiations between OmniCorder and Cambridge, the
principal underwriter of the offering, and may bear no relationship to the price
at which the common stock may trade after completion of the offering. Factors
which may be considered in determining the initial public offering price
include but are not limited to:
o the information set forth in this prospectus and otherwise available to
Cambridge.
o the history of and the prospects for the industry in which OmniCorder
operates.
o the assessment of OmniCorder's management.
o OmniCorder's past and present operations.
o OmniCorder's prospects for future earnings.
o OmniCorder's present state of development.
o the general condition of the securities markets at the time of the
offering.
o the recent market prices of and the demand for publicly traded common
stock of generally comparable companies.
48
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby and certain other matters
will be passed on for OmniCorder by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, N.Y. Meltzer, Lippe has an ownership interest in
OmniCorder consisting of a warrant to purchase up to 125,400 shares of common
stock. Richard A. Lippe, an officer and stockholder of such firm, is a director
of OmniCorder and has an ownership interest in OmniCorder consisting of a
warrant to purchase up to 52,800 shares of common stock, and a director's stock
option to purchase up to 13,200 shares of common stock. See "Security Ownership
of Certain Beneficial Owners and Management."
Certain legal matters will be passed on for Cambridge by Whitman Breed
Abbott & Morgan LLP, New York, N.Y.
Certain legal matters with respect to franchising law and regulations,
appearing in the section "Business -- Government Regulation -- Franchising"
will be passed on for OmniCorder by Kaufmann, Fiener, Yamin, Gildin & Robbins
LLP, New York, N.Y.
Certain legal matters with respect to FDA law and regulations appearing in
sections entitled "Risk Factors -- OmniCorder does not yet have required FDA
approval to market the DAT System and must continue to comply with FDA and
other regulatory standards" and "Business -- Government Regulation: FDA
Regulations", will be passed on for OmniCorder by Hale and Dorr LLP,
Washington, D.C.
EXPERTS
The financial statements as of December 31, 1997 and for the period from
February 7, 1997 (inception) through December 31, 1997 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
Report of Independent Accountants ........................................................ F-2
Balance Sheet as of December 31, 1997 and September 30, 1998 (unaudited) ................. F-3
Statement of Operations for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited) ......... F-4
Statement of Changes in Stockholders' Equity for the period from February 7, 1997
(inception) through December 31, 1997 and the nine months ended September 30, 1998
(unaudited) ............................................................................. F-5
Statement of Cash Flows for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited).......... F-6
Notes to the Financial Statements ........................................................ F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
OmniCorder Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of OmniCorder
Technologies, Inc. (a development stage enterprise) at December 31, 1997, and
the results of its operations and its cash flows for the period from February
7, 1997 (inception) through December 31, 1997 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company is a development stage enterprise, which has only a
limited and unprofitable operating history. Such factors, among others, raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Melville, New York
October 19, 1998
F-2
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash ............................................................... $ 76,351 $ 479,468
Prepaid research and development (Note 12) ......................... 90,000 255,753
---------- ----------
Total current assets ............................................ 166,351 735,221
Property and equipment, net ........................................... 3,580 56,938
Deferred charges, net ................................................. -- 206,917
---------- ----------
Total assets .................................................... $ 169,931 $ 999,076
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses .............................. $ 21,408 $ 45,649
Accounts payable to related party .................................. 65,559 124,379
Bridge notes payable, net of unamortized discount of $625,000 ...... -- 125,000
---------- ----------
Total liabilities ............................................... 86,967 295,028
Stockholders' equity
Preferred stock; $.01 par value; 1,000,000 shares authorized; no shares
outstanding .......................................................... -- --
Common stock; $.01 par value; 10,000,000 shares authorized;
1,730,665 and 2,358,397 shares issued and outstanding at December
31, 1997 and September 30, 1998, respectively ..................... 17,307 23,584
Additional paid-in-capital ............................................ 254,243 1,613,461
Deficit accumulated during the development stage ...................... (143,516) (917,927)
Subscriptions receivable .............................................. (45,070) (15,070)
---------- ----------
Total stockholders' equity ...................................... 82,964 704,048
---------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity ...................... $ 169,931 $ 999,076
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
Cumulative
For the period For the period for the period
from February 7, from February 7, from February 7,
1997 (inception) 1997 (inception) Nine months 1997 (inception)
through through ended through
December 31, September 30, September 30, September 30,
1997 1997 1998 1998
------------------ ------------------ --------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating expense:
Research and development ............ $ 20,000 $ 11,600 $ 338,647 $ 358,647
General and administrative .......... 42,069 34,079 207,349 249,418
Related party legal expense ......... 81,447 29,332 97,165 178,612
----------- ---------- ----------- -----------
Total operating expenses .......... 143,516 75,011 643,161 786,677
----------- ---------- ----------- -----------
Operating loss ....................... (143,516) (75,011) (643,161) (786,677)
Interest expense ..................... -- -- 131,250 131,250
----------- ---------- ----------- -----------
Net loss ............................. $ (143,516) $ (75,011) $ (774,411) $ (917,927)
=========== ========== =========== ===========
Basic and diluted net loss
per share ........................... $ (.09) $ (.04) $ (.35)
=========== ========== ===========
Weighted average number of
shares outstanding .................. 1,683,482 1,672,000 2,188,866
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Number of Par Additional
Shares Value Paid-in-capital
----------- ----------- -----------------
<S> <C> <C> <C>
Issuance of common stock to
founder ................................ 1,672,000 $ 16,720
Sale of common stock, net of
expenses of $35,164 .................... 58,665 587 $ 164,243
Issuance of common stock warrants
to related party for legal services -- -- 50,000
Sale of common stock warrant to
related party .......................... -- -- 40,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at December 31, 1997 ............ 1,730,665 17,307 254,243
--------- -------- -----------
Issuance of common stock to
founder (Note 12) ...................... 440,000 4,400
Sale of common stock, net of
expenses of $62,900 .................... 143,732 1,437 425,658
Issuance of common stock for
research and development ............... 44,000 440 149,560
Issuance of common stock warrants
to related parties for legal
services ............................... -- -- 34,000
Cash received from sale of
common stock warrant ................... -- -- --
Issuance of common stock warrants
in connection with sale of Bridge
Notes .................................. -- -- 750,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at September 30, 1998
(unaudited) ............................ 2,358,397 $ 23,584 $ 1,613,461
--------- -------- -----------
<CAPTION>
Deficit
Accumulated
During the Total
Development Subscription Stockholders'
Stage Receivable Equity
--------------- -------------- --------------
<S> <C> <C> <C>
Issuance of common stock to
founder ................................ $ (15,070) $ 1,650
Sale of common stock, net of
expenses of $35,164 .................... -- 164,830
Issuance of common stock warrants
to related party for legal services -- 50,000
Sale of common stock warrant to
related party .......................... (30,000) 10,000
Net loss ................................ $ (143,516) -- (143,516)
----------- ---------- ----------
Balance at December 31, 1997 ............ (143,516) (45,070) 82,964
----------- ---------- ----------
Issuance of common stock to
founder (Note 12) ...................... 4,400
Sale of common stock, net of
expenses of $62,900 .................... -- -- 427,095
Issuance of common stock for
research and development ............... -- -- 150,000
Issuance of common stock warrants
to related parties for legal
services ............................... -- -- 34,000
Cash received from sale of
common stock warrant ................... -- 30,000 30,000
Issuance of common stock warrants
in connection with sale of Bridge
Notes .................................. -- -- 750,000
Net loss ................................ (774,411) -- (774,411)
----------- ---------- ----------
Balance at September 30, 1998
(unaudited) ............................ $ (917,927) $ (15,070) $ 704,048
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Cash Flow
<TABLE>
<CAPTION>
Cumulative
For the period For the period for the period
from February 7, from February 7, from February 7,
1997 1997 1997
(inception) (inception) Nine months (inception)
through through ended through
December 31, September 30, September 30, September 30,
1997 1997 1998 1998
------------------ ------------------ --------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss ........................................ $ (143,516) $ (75,011) $ (774,411) $ (917,927)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation ................................. -- -- 6,326 6,326
Warrants issued to a related party for
legal services .............................. 35,000 25,500 16,000 51,000
Common stock issued for research and
development ................................. -- -- 154,400 154,400
Amortization of original issue discount -- -- 125,000 125,000
Amortization of deferred financing
costs ....................................... -- -- 24,583 24,583
Changes in operating assets and liabilities:
Prepaid research and development ............... (90,000) -- (165,753) (255,753)
Accounts payable and accrued expenses .......... 86,967 72,802 83,061 170,028
---------- --------- ---------- ----------
Net cash (used in) provided by
operating activities ........................ (111,549) 23,291 (530,794) (642,343)
---------- --------- ---------- ----------
Cash flows from investing activities
Capital expenditures ........................... (3,580) -- (59,684) (63,264)
---------- --------- ---------- ----------
Net cash (used in) investing activities . (3,580) -- (59,684) (63,264)
---------- --------- ---------- ----------
Cash flows from financing activities
Proceeds from issuances of common
stock, net ................................... 181,480 1,500 445,095 626,575
Proceeds from issuance of common stock
warrants ..................................... 10,000 -- 30,000 40,000
Deferred financing costs ....................... -- (20,170) -- --
Proceeds from Bridge notes, net ................ -- -- 602,500 602,500
Deferred cost of proposed public offering -- -- (84,000) (84,000)
---------- --------- ---------- ----------
Net cash provided by (used in)
financing activities ........................ 191,480 (18,670) 993,595 1,185,075
---------- --------- ---------- ----------
Net increase in cash ............................ 76,351 4,621 403,117 479,468
Cash at beginning of period ..................... -- -- 76,351 --
---------- --------- ---------- ----------
Cash at end of period ........................... $ 76,351 $ 4,621 $ 479,468 $ 479,468
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
1 Organization and Business
OmniCorder Technologies Inc., ("OmniCorder"), was incorporated in Delaware
on February 7, 1997, to exploit its core breast cancer screening technology -
Dynamic Area Telethermometry ("DAT"). DAT is intended to provide a painless,
non-contact, radiation-free screening and diagnostic service for the early
detection and management of breast cancer. OmniCorder expects its revenues to
be generated from the sale of regional licenses to provider networks to use
OmniCorder's breast cancer screening technology. OmniCorder expects to derive
other revenue from encounter or screening/diagnosis fees.
To date OmniCorder has not generated revenues. OmniCorder's primary
activities since inception have been research and development of its
technology, negotiating strategic alliances and other agreements and raising
capital.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
OmniCorder considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 30, 1998 OmniCorder had cash balances at a major commercial bank in
excess of federally insured amounts.
Fixed assets
Fixed assets are recorded at cost and depreciated, using the straight-line
method, over the estimated useful lives of the related assets, which is
generally five years.
Research and development
Research and development costs have been charged to operations as
incurred.
Patents
Patent costs have been charged to operations as incurred as their
realizability was uncertain. These costs are included in research and
development.
Restatement and reclassification for stock split
In August 1998, OmniCorder's Board of Directors approved a 2.2 for 1 stock
split on all common stock. All share and per share amounts affecting net loss
per share, weighted average number of common shares outstanding, common stock
issued and outstanding, additional paid-in-capital and all other stock
transactions presented in these financial statements have been restated to
reflect the 2.2 for 1 stock split.
Interim financial information (unaudited)
The interim financial data at and for the period ended September 30, 1998,
for the period from February 7, 1997 (inception) through September 30, 1997 and
for the cumulative amounts from inception is unaudited; however, in the opinion
of OmniCorder, interim data includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. Results for the interim period are not necessarily indicative
of results to be expected for the full fiscal year.
F-7
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Use of estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make reasonable
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying value of cash, accounts payable, accrued expenses and Bridge
Notes payable approximates fair value due to the relatively short maturity of
these instruments.
Income taxes
OmniCorder follows the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities.
Accounting for stock-based compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair value based
method of accounting for stock-based compensation plans. OmniCorder has chosen
to adopt the disclosure requirements of SFAS 123, and to record stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, OmniCorder
has not recognized compensation expense with respect to such awards because the
exercise price of options granted to employees has approximated the fair market
value of the common stock at the respective grant dates.
Net loss per common share
OmniCorder adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") effective December 1997.
Basic net loss per common share is computed by dividing net loss to common
shareholders for the period by the sum of the weighted average number of shares
of common stock issued and outstanding. Diluted earnings per share is computed
by dividing net loss for the period by the sum of the weighted average number
of shares of common stock issued and outstanding, increased to include the
number of common shares that would have been issued if all outstanding stock
options, and stock warrants were converted. Diluted common shares are based on
the most advantageous convertible rate or exercise price available to the
security holder.
At December 31, 1997 and September 30, 1998 outstanding options and
warrants to purchase 152,065 and 478,725 shares of common stock, respectively,
with exercise prices ranging from $3.40 to $6.00 could potentially dilute basic
earnings per share in the future but have not been included in the computation
of diluted net loss per share because to do so would be antidilutive for the
periods presented.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130")
On June 30, 1997, the FASB issued SFAS 130. This statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of
F-8
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
general-purpose financial statements. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS 130 did not have a
material impact on OmniCorder as comprehensive net loss was the same as net
loss.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133")
In June 1998, the FASB issued SFAS 133. This statement established
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The effect of the adoption of this statement is
not expected to have a significant impact on OmniCorder.
3. Liquidity and Business Risks
OmniCorder is in the development stage and currently has no sources of
revenue. At December 31, 1997, OmniCorder had a deficit accumulated during the
development stage of $143,516 ($917,927 at September 30, 1998). Such
accumulated losses have resulted principally from costs incurred in research
and development and from general and administrative expenses. OmniCorder has
funded its operations since inception through the use of cash obtained
principally from third party financings. OmniCorder's success depends upon many
factors including its ability to obtain additional financing. OmniCorder is
currently pursuing an initial public offering of its common stock (see Note 9),
in order to obtain the additional financing necessary to complete the
development of the DAT system and to bring the DAT system to market. Management
believes that cash of $479,468 as of September 30, 1998, combined with
anticipated net proceeds from the proposed initial public offering, will be
sufficient to support its operations for 24 months from the closing of the
offering. However, there can be no assurance that OmniCorder will be successful
in obtaining additional financing or that it will be successful in further
developing and commercializing the DAT system and related services.
4. Property and Equipment
December 31, September 30,
1997 1998
-------------- --------------
Computer equipment ..................... $ 3,580 $17,930
Medical equipment ...................... -- 45,334
------- -------
3,580 63,264
Less: accumulated depreciation ......... -- 6,326
------- -------
$ 3,580 $56,938
======= =======
F-9
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
5. Deferred Charges
Deferred charges consists of the following at September 30, 1998:
<TABLE>
<S> <C>
Deferred financing costs relating to Bridge Notes, net $122,917 of accumulated
amortization of $24,583 ..................................................... $122,917
Deferred costs of proposed public offering ................................... 84,000
--------
$206,917
========
</TABLE>
6. Accrued Expenses
Accrued expenses included the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Compensation and related benefits ......... $ 6,423 $ 4,450
Consulting and professional fees .......... 10,000 29,335
Interest .................................. -- 6,250
Other ..................................... 4,985 5,614
------- -------
$21,408 $45,649
======= =======
</TABLE>
7. Income Taxes
The tax effect of temporary differences and carryforwards that give rise
to significant portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards ......... $ 21,000 $ 333,000
Start-up costs ........................... 32,000 27,000
--------- ----------
53,000 360,000
Valuation allowance ...................... (53,000) (360,000)
--------- ----------
Net deferred tax asset ................. $ -0- $ -0-
========= ==========
</TABLE>
OmniCorder has recorded a full valuation allowance against its deferred
tax assets since management believes that based upon the available objective
evidence it is not more likely than not that assets will not be realized.
OmniCorder's effective tax rate differs from the federal statutory rate as a
result of the change in the valuation allowance.
As of December 31, 1997 and September 30, 1998, OmniCorder has net
operating loss carryforwards of $53,000 and $883,000, respectively, available
to offset future taxable income. These carryforwards will expire at various
dates through 2018, subject to certain limitations.
8. Bridge Financing
On August 31, 1998, OmniCorder sold an aggregate of $750,000 of 10%
Exchangeable Senior Bridge Notes ("Bridge Notes") to accredited investors. The
net proceeds of the Bridge Notes were approximately $602,500 after offering
costs. The Bridge Notes are payable at the earlier of the closing of an initial
public offering ("IPO") or February 28, 1999, subject to extension to September
30, 1999 under certain circumstances. Accrued interest is payable in a balloon
payment upon the maturity of the Bridge Notes. In connection with the Bridge
Notes, OmniCorder issued warrants ("Bridge Warrants") to purchase up to 250,000
shares of common stock
F-10
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
8. Bridge Financing -- (Continued)
at an exercise price of $6 per share. These warrants were issued on August 31,
1998, expire 5 years thereafter, and are exercisable for a four year period
commencing August 31, 1999. The Bridge Notes are convertible, at OmniCorder's
option, to common stock at a conversion price of $3.40 if the underwriter is
unable to complete the IPO at a share price of at least $8.00 and OmniCorder
chooses not to complete the IPO. If the Bridge Notes are converted into common
stock, the aggregate number of shares issuable upon exercise of the Bridge
Warrants would be 125,000 shares. Included in the Bridge Financing is $150,000
of Bridge Notes and 50,000 warrants with related parties.
All of the gross proceeds from the Bridge financing have been allocated to
the Bridge Warrants based on their estimated fair value which resulted in
$750,000 of original issue discount and a corresponding amount of additional
paid-in-capital. The discount is being amortized over the six month term of the
Bridge Notes and the amortization through September 30, 1998 totaled $125,000.
9. Stockholders' Equity
Initial capitalization and founders shares. In February 1997 and March
1998, OmniCorder issued to its founders 1,672,000 and 440,000 shares of common
stock, respectively, for consideration of $16,720 and the rights to technology
transferred to the Company, respectively (see Note 12).
Proposed public offering
OmniCorder has entered into a non-binding term sheet with an underwriter
with respect to a proposed initial public offering of its common stock. There
is no assurance that such offering will be consummated. OmniCorder expects to
offer approximately 1,100,000 shares of the its common stock at an approximate
price of $9 per share. In addition OmniCorder will issue to the underwriter,
warrants to purchase shares of common stock equal to 10% of the number of
shares offered in the public offering. The warrants will be exercisable at any
time during a period of four years commencing on the first anniversary date of
their issuance at a price equal to 120% of the initial public offering price of
the shares. OmniCorder also entered into a 30 month consulting agreement with
the underwriter for a total cost of $60,000 which will be paid out of the
proceeds of the proposed public offering.
Change in authorized number of shares
Effective November 10, 1997, OmniCorder amended its certificate of
incorporation to increase the number of its authorized shares of common and
preferred stock to 2,000,000 and 1,000,000 shares, respectively. In August
1998, OmniCorder amended its certificate of incorporation to increase the
number of its authorized shares of common stock to 10,000,000 shares.
Private placement
In October 1997, OmniCorder commenced a private placement of shares of
common stock at a price of $3.40 per share. OmniCorder has sold 58,665 and
143,732 shares through December 31, 1997 and September 30, 1998 respectively.
The stockholders were granted the right to receive additional shares of common
stock, for a period of two years after their initial investment (December,
1997--April, 1998), if OmniCorder issues common stock, or convertible
securities at a share price of less than $3.40 per share. The number of
additional shares would be that amount which such holders would have received
had they purchased shares of common stock at such lower price, using the same
dollar amount of their initial investment. The placement agent received a
commission of 5% of the aggregate purchase price of the common stock it placed,
and was granted warrants to purchase 12,467 shares of common stock, at an
exercise price of $3.40 per share. These warrants have a five year term.
F-11
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
9. Stockholders' Equity -- (Continued)
Warrants
In 1997 and 1998, OmniCorder received $40,000 from the sale of a stock
warrant, to a director of OmniCorder who is a partner at OmniCorder's law firm.
This warrant entitles the holder to purchase up to $180,000 of any securities
OmniCorder may issue through January 6, 2004, on the same terms and conditions
as those issued. At December 31, 1997 and September 30, 1998, the warrant was
exercisable at an exercise price of $3.40 per share into approximately 52,800
shares of OmniCorder's common stock. These warrants were not exercisable for
the securities issued in the Bridge Financing discussed in Note 8.
In 1997 and 1998, OmniCorder issued warrants to its legal counsel, a law
firm in which a director of OmniCorder is a partner, in consideration for the
deferral of payment of legal fees. The warrant entitles OmniCorder's legal
counsel to purchase up to $427,500 of any securities sold by OmniCorder to
outside investors at the same prices as sold to such investors through January
6, 2004 (as to $337,500 worth of such securities) and through February 15, 2004
(as to $90,000 worth of such securities). As of September 30, 1998, the warrant
would be exercisable into approximately 125,400 shares of OmniCorder's common
stock at an exercise price of $3.40 per share. These warrants were not
exercisable for the securities issued in the bridge financing discussed in Note
8. The estimated fair value of the warrants was $84,000, of which $35,000 and
$16,000 was charged to general and administrative expense and $15,000 and
$18,000 was charged to equity (for costs associated with the raising of
capital), for the period February 7, 1997 (inception) to December 31, 1997 and
the nine months ended September 30, 1998, respectively.
10. Related Party Transactions
OmniCorder has incurred legal fees to a law firm in which a director of
OmniCorder is a shareholder in the amount of $116,617 and $232,919 for the
period from February 7, 1997 (inception) through December 31, 1997 and for the
nine months ended September 30, 1998, respectively.
OmniCorder has an accounts payable balance with the related party law firm
in the amount of $65,559 and $124,379 at December 31, 1997 and September 30,
1998, respectively.
In September 1998, OmniCorder entered into an agreement with the related
party law firm for legal services to be rendered in connection with a proposed
initial public offering. OmniCorder is obligated to pay the law firm a fixed
fee of $150,000 relating to the proposed initial public offering discussed in
Note 9.
11. Stock Option Plan
In 1998, OmniCorder adopted a stock option plan under which it may grant
qualified and nonqualified options to purchase up to 400,000 shares of common
stock to employees and consultants. Qualified options shall be exercisable for
a period of up to ten years from the date of the grant at no less than the fair
value on the date of the grant. The term of such options shall be five years
from the date of grant for stockholders who own more than ten percent of the
voting power of all classes of stock of OmniCorder at the date of grant, and
shall be exercisable at no less than 110% of fair value on the date of grant
for such holders.
F-12
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
11. Stock Option Plan -- (Continued)
A summary of activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
Options Exercise
Available Shares Price
for under per
Grant Option Share
----------- -------- ---------
<S> <C> <C> <C>
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>
In April 1998, non-qualified options to purchase 39,600 shares of
OmniCorder's common stock at an exercise price of $3.40 per share were issued
to certain Directors.
12. License Agreements
Technology License Agreement -- In 1997 and in connection with the
formation of OmniCorder, the founding stockholders entered into an agreement
pursuant to which OmniCorder could acquire the exclusive worldwide right to
exploit technology related to the detection of cancerous lesions by their
effect on the periodic modification of perfusion in the surrounding tissues
(the "Technology"). In February 1998, OmniCorder funded the required research
budget and in March 1998, released 440,000 shares of previously reserved common
stock to one of the founders. OmniCorder recorded the issuance of these shares
at the historical cost of the technology transferred.
The license, as amended, required OmniCorder to fund future research and
development costs in the amount of $495,000. Unused funds, if any, are required
to be returned to OmniCorder in the event the chief scientist resigns from his
current position with a University which employs the chief scientist.
OmniCorder funded the first $110,000 of this obligation in late 1997 with the
balance paid in March 1998. OmniCorder also entered into a consulting agreement
with a company controlled by OmniCorder's founding scientist. Under the terms
of the agreement OmniCorder is contractually obligated to pay a maximum of
$26,000 for consulting services; $25,000 for travel; and $50,000 for research
supplies for a twelve month period. OmniCorder satisfied this entire obligation
with a one-time $50,000 payment which is included in the $495,000 discussed
above. OmniCorder will also be obligated to pay a royalty to the stockholder
for each installed device. The stockholder has the option to acquire title to a
research camera in March 1999 provided that the camera is used for
non-competitive basic research only.
Caltech License Agreement
In September 1997, OmniCorder entered into an agreement with the
California Institute of Technology ("Caltech") which grants OmniCorder the
right to acquire an exclusive license to exploit Caltech's infrared radiation
detection technology in the field of detection of passive infrared radiation
for certain commercial medical applications. In addition, OmniCorder has the
right to sublicense this technology. OmniCorder is obligated to pay Caltech a
royalty based on revenues derived from licensed products and services and
revenues derived from sublicenses. OmniCorder has agreed to issue Caltech,
88,000 shares of common stock. In May 1998 OmniCorder exercised its right to
acquire the aforementioned license, and issued 44,000 shares of common stock to
Caltech and will be required to issue an additional 22,000 shares on the first
and second anniversary dates of the agreement, May 1999 and May 2000,
respectively. OmniCorder may elect to terminate the agreement at any time
without being obligated to issue any of the remaining unissued shares.
F-13
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
12. License Agreements -- (Continued)
While in effect, the agreement requires that OmniCorder pay 50% of all
attorney fees in connection with preparation, filing and prosecution, issuance
and maintenance of the licensed patent rights in the United States. OmniCorder
is also obligated to pay 100% of patent costs in foreign jurisdiction. The
license agreement may be canceled at Caltech's option if it has not received
minimum license fees of $10,000 in any one year period commencing May 11, 1999.
The Lockheed Martin License Agreement
OmniCorder entered into an exclusive license agreement with Lockheed
Martin Corporation ("Lockheed") on September 18, 1998. Pursuant to this
agreement, OmniCorder was given the exclusive license to exploit, worldwide,
all biomedical applications of certain enhanced infrared detector technologies
know as Enhanced Quantum Well Infrared Photodetectors ("EQWIP"). The EQWIP
technology is protected by a patent owned by Lockheed. In order to maintain
exclusivity, OmniCorder is subject to a number of milestones it must meet
relating to royalty generation, development of markets and territories,
utilization of the EQWIP technology in certain percentages of OmniCorder's
installed base of diagnostic equipment and required levels of royalty
generating installations. However, OmniCorder does not believe that the loss of
exclusivity under the Lockheed Agreement will have a material adverse affect on
its business, financial condition or results from operations.
OmniCorder has also agreed to license back to Lockheed any improvements it
makes to the EQWIP technology for applications in which OmniCorder does not
retain exclusivity. Under certain conditions, OmniCorder may sublicense its
rights to develop specific territories and markets to third-parties, subject to
consent of Lockheed. OmniCorder is entitled to utilize any improvements to the
EQWIP technology developed by Lockheed. OmniCorder is permitted to utilize a
manufacturer of its choosing to manufacture cameras utilizing the EQWIP
technology.
13. Commitments and Contingencies
Obligations under operating lease
OmniCorder is not obligated under any material operating leases.
Employment agreement
In December 1997, OmniCorder entered into an employment contract with its
Chief Executive Officer. In connection with the contract, OmniCorder is
contractually obligated to pay approximately $90,000 per year commencing
January 1, 1998 for a four year period. In the event OmniCorder has received
equity financing of at least $2.25 million, the salary will be increased to
$135,000 per annum and to $180,000 per annum on the later of January 1, 1999 or
the date OmniCorder receives at least $2.25 million of financing.
Capital expenditures
As of September 30, 1998, OmniCorder has agreed to purchase medical
equipment for approximately $470,000.
Subsequent Events
As of October 1, 1998, OmniCorder entered into an agreement with its chief
financial officer. In connection with the agreement, OmniCorder is obligated to
pay $60,000 per year initially, for a maximum six month term, increasing to
$120,000 per year upon the close of the Offering. In addition, the Chief
Financial Officer is to be granted options to purchase 100,000 shares of common
stock at the same price per share as the offering price
F-14
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited with respect to the nine months ended September 30, 1998)
-- (Continued)
13. Commitments and Contingencies -- (Continued)
in OmniCorder's initial public offering. In addition, subject to OmniCorder's
common stock achieving a trading price of at least $22 per share for at least
10 consecutive trading days, and at least $45 per share for 10 consecutive
trading days, respectively, the chief financial officer will be granted
additional bonus options to purchase 50,000 shares of common stock at an
exercise price of $22.00 per share (if the first threshold is achieved) and
another 50,000 shares of common stock at an exercise price of $45.00 per share
(if the second threshold is achieved), respectively.
As of November 1, 1998, OmniCorder entered into an arrangement with the
University which employs its Chief Scientist. In connection with this
arrangement, OmniCorder will pay the University 90% of its Chief Scientist's
salary, and an additional 39% of this amount for benefits, payroll and overhead
costs. The aggregate consideration payable pursuant to these arrangements is
approximately $210,000 per year. While this arrangement is in effect,
OmniCorder will also pay its Chief Scientist $26,000 per year.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS
Page
---------
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use Of Proceeds ............................ 15
Capitalization ............................. 16
Dividend Policy ............................ 17
Dilution ................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 19
Business ................................... 21
Management ................................. 37
Security Ownership Of Certain Beneficial
Owners And Management ................... 43
Description of Securities .................. 43
Certain Relationships And Related
Transactions ............................ 45
Shares Eligible for Future Sale ............ 45
Underwriting ............................... 47
Legal Matters .............................. 49
Experts .................................... 49
Index to Financial Statements .............. F-1
-------------------------
Until -------------------------- , (25 days from the date of this
prospectus) all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,100,000 Shares
[GRAPHIC OMITTED]
Common Stock
-----------------------------------
PROSPECTUS
-----------------------------------
[GRAPHIC OMITTED]
1225 Franklin Ave.
Garden City, NY 11530
Telephone: (516) 877-5400
Fax: (516) 877-5577
February , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Part II--INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Statement of expenses of the Offering (other than underwriting discounts
and commissions):
Expense Amount
- ---------------------------------------- -----------
Registration Fees ............... $ 3,842
Transfer Agents' Fees ........... 10,000
Printing and Engraving .......... 120,000
Legal Fees ...................... 150,000
Accounting Fees ................. 106,000
Listing Fees .................... 10,000
--------
Total: ....................... $399,842
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides that
the Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. Section 145
of the Delaware Law provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he was a director,
officer, employee or agent of the corporation or was serving at the request of
the corporation, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a director's
duty of care, and the provisions of the Company's Certificate of Incorporation
have no effect on the availability of equitable remedies, such as injunction or
recision, for a director's breach of the duty of care. The Company's
Certificate of Incorporation provides that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware Law.
RECENT SALES OF UNREGISTERED SECURITIES
October 1997 Private Placement (the "Private Placement")
In October 1997, the Company commenced a private placement of shares of
Common Stock at a price of $3.40 per share. The Company sold 202,396 shares of
its Common Stock in the Private Placement to 19 accredited investors, receiving
gross proceeds of $690,000. The investors were individuals, including two
OmniCorder directors, Irving Price and Paul Rabbiner. The principal underwriter
of the Private Placement was Cambridge which received a commission of 5% of the
aggregate purchase price of the $425,000 of Common Stock it placed in the
Private Placement, and was granted a warrant to purchase shares of Common Stock
equal to ten percent (10%) of the number of shares of stock it placed, subject
to adjustments for certain events including, but not limited to stock
dividends, stock splits, reclassification or mergers. As of February 1998,
Cambridge was granted 12,467 warrants which are exercisable for five years from
the date of issuance at an exercise price of $3.40 per share of Common Stock.
II-1
<PAGE>
The Private Placement was exempt from State and Federal registration
pursuant to Rule 506 of Regulation D, and section 4(2) of the Securities Act of
1933.
August 1998 Bridge Financing
On August 31, 1998, the Company sold an aggregate of $750,000 of 10%
Exchangeable Senior Bridge Notes ("Notes") and Warrants to 15 accredited
investors (the "Bridge Financing"). The investors were individuals, including
two OmniCorder directors Paul Rabbiner and Irving Price. Under the terms of the
Bridge Financing, the Notes will be payable upon the earlier of February 28,
1999, or the closing of the Offering, subject to extension by one day for each
day after November 30, 1998 the Company does not deliver to Cambridge a
preliminary prospectus relating to the Offering. The principal underwriter of
the Bridge Financing was Cambridge and it received a commission of 10% of the
aggregate purchase price of the Notes, in addition to a non-accountable expense
allowance equal to 3% of such aggregate purchase price. Interest will be paid
in one balloon payment at maturity. The Note holders also received a warrant
entitling them to purchase one share of Common Stock at a price of $6 for each
$3 of Notes purchased. The warrants have a five year term, which commenced
August 31, 1998 and are exercisable in a four year period commencing August 31,
1999. A total of up to 250,000 shares of Common Stock are issuable pursuant to
these warrants. The Notes provide that they can be converted to Common Stock at
price of $3.40 per share if Cambridge is not willing to complete the Company's
initial public offering at a price of at least $8 per share and the Company
decides not to proceed with an initial public offering. If the Notes are
converted to Common Stock, the number of shares issuable pursuant to the
warrants are reduced to 125,000 shares. The maturity of the Notes can also be
extended to September 30, 1999, if Cambridge is not willing to complete the
Company's initial public offering at a price of at least $9 per share. The
maturity of the Notes can also be extended to the earlier of September 30,
1999, or the closing of the Offering upon consent of Cambridge and the Company,
if they agree to defer the Company's initial public offering to a date no later
than September 30, 1999.
The Bridge Financing was exempt from State and Federal registration
pursuant to Section 4(2) of the Securities Act of 1933 and under Rule 506 of
Regulation D, promulgated under the Securities Act of 1933.
Warrants and Options to Purchase Common Stock
In December 1997, the Company issued a warrant to Richard A. Lippe, a
director of the Company, who is a stockholder and officer at the Company's
legal counsel, and received proceeds of $40,000. Under the terms of the
warrant, Mr. Lippe was granted the right to purchase up to $180,000 worth of
any securities the Company issues in a private offering, on the same terms and
conditions as the securities issued, through January 6, 2004, except those
securities issued in the August 1998 Bridge Financing. 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, the only other private offering completed
to date (other then the August 1998 Bridge Financing).
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 OmniCorder in a private offering on
the same terms and conditions as the securities issued in a private offering,
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, the only other private offering
completed to date, aside from the August 1998 Bridge Financing.
In April 1998, the Company issued options to purchase 13,200 shares of
Common Stock to each of its non-employee directors at the time, or an aggregate
of options to purchase up to 39,600 shares of Common Stock. The options are
exercisable for a term of 10 years at a price of $3.40 per share.
In February 1998, the Company issued to Cambridge warrants to purchase up
to 12,467 shares of Common Stock at an exercise price of $3.40 per share,
exercisable for a five year term. These warrants were issued as compensation to
Cambridge for placing $425,000 of shares of Common Stock in the Private
Placement.
All of the above options and warrants were issued pursuant to an exemption
under Section 4(2) of the Securities Act. All persons to whom such securities
were issued were accredited investors.
II-2
<PAGE>
EXHIBITS
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
- ------------
<S> <C> <C>
(1) (i) Underwriting Agreement**
(ii) Selected Dealers Agreement**
(iii) Underwriters Warrant Agreement**
(3) (i) Certificate of Incorporation**
(ii) By-laws**
(4) Specimen Common Stock Certificate**
(5) Form of Opinion re: legality**
(10) Material Contracts
(i)(a) Anbar License Agreement**
(i)(b) Amendment to Anbar License Agreement**
(i)(c) Exercise of Anbar License Agreement**
(ii)(a) Caltech License Agreement***
(ii)(b) Amendment to Caltech License Agreement**
(iii) Lockheed Martin License Agreement***
(iv) Mark Fauci Employment Agreement**
(v) Kevin McQuade Employment Agreement**
(vi) Agreement with S.U.N.Y. Buffalo with respect to services provided by Professor Anbar**
(vii) Warrant in favor of Richard A. Lippe, dated December 15, 1997**
(viii)(a) Warrant in favor of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., dated December 15,
1997**
(b) Warrant in favor of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., dated February 15,
1998**
(11.1) Computation of basic and diluted net loss per common share**
(23.2) Consent of PricewaterhouseCoopers LLP
(23.3) Consent of Meltzer, Lippe, Goldstein, Wolf & Schlissel, PC. (included in Exhibit 5)**
(27) Financial Data Schedule**
</TABLE>
- ------------
** Previously filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
UNDERTAKINGS
The Company will provide to the Underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company, the issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing of Amendment No. 3 to its registration
statement on Form SB-2 and authorizes this amendment to its registration
statement to be signed on its behalf by the undersigned, in the County of
Nassau, State of New York, on February 11, 1999.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
-----------------------------------
Mark A. Fauci, President, and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amended registration statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ Mark Fauci Director, President & Chief February 11, 1999
- ----------------------------- Executive Officer
Mark Fauci
/s/ Kevin McQuade Director, Chief Financial Officer February 11, 1999
- -----------------------------
Kevin McQuade
/s/ Paul Rabbiner Director & Interim Vice February 11, 1999
- ----------------------------- President, Sales
Paul Rabbiner
/s/ Irving Price Director February 11, 1999
- -----------------------------
Irving Price
Director February 11, 1999
- -----------------------------
Jim Hayward
/s/ Richard Lippe Director February 11, 1999
- -----------------------------
Richard Lippe
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
- ------------
<S> <C> <C>
(1) (i) Underwriting Agreement**
(ii) Selected Dealers Agreement**
(iii) Underwriters Warrant Agreement**
(3) (i) Certificate of Incorporation**
(ii) By-laws**
(4) Specimen Common Stock Certificate**
(5) Form of Opinion re: legality**
(10) Material Contracts
(i)(a) Anbar License Agreement**
(i)(b) Amendment to Anbar License Agreement**
(i)(c) Exercise of Anbar License Agreement**
(ii)(a) Caltech License Agreement***
(ii)(b) Amendment to Caltech License Agreement**
(iii) Lockheed Martin License Agreement***
(iv) Mark Fauci Employment Agreement**
(v) Kevin McQuade Employment Agreement**
(vi) Agreement with S.U.N.Y. Buffalo with respect to services provided by Professor Anbar**
(vii) Warrant in favor of Richard A. Lippe, dated December 15, 1997**
(viii)(a) Warrant in favor of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., dated December 15,
1997**
(b) Warrant in favor of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., dated February 15,
1998**
(11.1) Computation of basic and diluted net loss per common share**
(23.2) Consent of PricewaterhouseCoopers LLP
(23.3) Consent of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. (included in Exhibit 5)**
(27) Financial Data Schedule**
</TABLE>
- ------------
** Previously Filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
<PAGE>
Exhibit 10(ii)(a)
Confidential treatment requested as to portions of this exhibit. These portions
filed separately with the Commission.
Caltech/OmniCorder Technologies, Inc.
License Agreement
This License Agreement is effective as of the 11th day of May, 1998
(the "Effective Date"), between California Institute of Technology, 1200 East
California Boulevard, Pasadena, CA 91125 ("Caltech") and OmniCorder
Technologies, Inc. ("OCT"), a Delaware Corporation, having a principal place of
business at 541 South Ocean Ave., Patchogue, NY 11772 ("Licensee").
WHEREAS, Caltech, through its Jet Propulsion Laboratory (JPL), has been
engaged in research on Quantum-Well Infrared Photodector Devices, that was
conducted for the United States Government under Contract NAS7-1260 between
Caltech and the U.S. National Aeronautics and Space Administration (NASA); and
WHEREAS, Caltech warrants that it controls and is the sole owner by
assignment of the inventions and software listed in Exhibit A attached hereto
(the "Inventions") and related patent rights, subject to certain rights of the
United States Government; and
WHEREAS, Licensee is a start-up company engaged in manufacture and sale
of products and services in the Field; and
WHEREAS, Licensee is desirous of obtaining, and Caltech wishes to grant
to Licensee, an exclusive license within the Field to Licensed Patent Rights and
a nonexclusive license to the Technology as defined in Paragraphs 1.4 and 1.5 of
this License Agreement.
-1-
<PAGE>
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
-2-
<PAGE>
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.
-3-
<PAGE>
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,
-4-
<PAGE>
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.
-5-
<PAGE>
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
-6-
<PAGE>
are manufactured and sold by or for Licensee or a Related Company prior to
expiration of any directly related patent, Licensee shall pay Caltech:
(a) Omitted. Filed separately with the Commission. of Net
Revenues from the sale of Licensed Products or Licensed Services
by Licensee or Related Company, but this shall not apply to
revenues derived from Sublicenses; and
(b) Omitted. Filed separately with the Commission. of the
royalties or other revenues Licensee or Related Company received
from Sublicensees other than related companies for the sale of
Licensed Products or Licensed Services. Such royalties or other
revenues specifically shall not include (a) payments made by a
Sublicensee in consideration of equity or debt securities of
Licensee; (b) payments made by a Sublicensee to support research
activities to be undertaken by Licensee or Related Company; (c)
payments made upon the achievement by Licensee or Related Company
of specified milestones or benchmarks relating to the development
of Licensed Products; (d) pilot studies; (e) performance-based
milestones; (f) the license or Sublicense of any intellectual
property other than Licensed Patent Rights or Technology; (g)
reimbursement for patent or other expenses, or (h) the exclusive
or nonexclusive regional license from Licensee to health care
providers for the application of clinical screening and/or
diagnosis, utilizing Licensee's proprietary technology alone or
in combination with Licensed Products or Licensed Services.
3.3 In the event that products are sold in the form of Combination
Products containing one or more active ingredients or components, other than
Licensed Products, Net Revenues for such Combination Products will be calculated
on a worldwide basis by multiplying actual net sales of such combination
products by the fraction A/(A+B) where A is the average invoice price during the
period of the Licensed Product when sold separately, and B is the average
invoice price of any other active component or components in the combination
when sold separately by Licensee, a Related Company, or a Sublicensee. If the
-7-
<PAGE>
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.
-8-
<PAGE>
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
-9-
<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 [provisions regarding exclusivity have been omitted and filed
separately with the Commission]
-10-
<PAGE>
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.
-11-
<PAGE>
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
-12-
<PAGE>
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.
-13-
<PAGE>
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
-14-
<PAGE>
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.
-15-
<PAGE>
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.
-16-
<PAGE>
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
-17-
<PAGE>
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.
-18-
<PAGE>
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
-19-
<PAGE>
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
-20-
<PAGE>
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.
-21-
<PAGE>
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.
-22-
<PAGE>
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])
-23-
<PAGE>
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
- -------------------------------------------
-24-
<PAGE>
EXHIBIT A
Omitted. Filed separately with the Commission.
<PAGE>
Exhibit 10(iii)
Confidential treatment requested as to portions of this exhibit. These portions
filed separately with the Commission.
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (hereinafter "Agreement") is entered
into by and between Lockheed Martin Corporation a Delaware corporation acting
through its Vought Systems (the "LICENSOR"), having its principal place of
business at PO Box 650003, Dallas, Texas and OmniCorder Technologies, Inc. (the
"LICENSEE"), a corporation organized under the laws of Delaware and having a
principal place of business at 25 Loop Road, Stony Brook, New York 11790 as of
the 29 day of September 1998 (hereinafter "Effective Date").
WITNESSETH:
WHEREAS, the LICENSOR is the owner of the Subject Technology as defined
below; and
WHEREAS, the LICENSOR is willing to grant to the LICENSEE a royalty
bearing, worldwide, exclusive license to practice the Subject Technology in
certain Fields as defined below on the terms, and subject to the conditions, set
forth herein; and
WHEREAS, LICENSEE desires to obtain said exclusive license to practice
the Subject Technology on said terms and conditions.
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto expressly agree as follows:
1. DEFINITIONS AS USED HEREIN
1.1 "Subject Technology" shall mean the technology, know-how, methods,
inventions and confidential information related to LICENSOR's Enhanced Quantum
Well Infrared Photodetectors (EQWIPs) which were designed, developed and
invented by LICENSOR as of the Effective Date. The term Subject Technology shall
include U.S. Patent Number 5,539,206 entitled "Enhanced Quantum Well Infrared
Photodetector" by Thomas R. Schimert issued July 23, 1996, and all inventions
described or claimed therein, together with all patent, or like protection on
said inventions that have or may in the future be granted, whether in the United
States of America or any other country, and all substitutions for and divisions,
continuations, continuations-in-part, renewals, reissues, extensions and the
like on said applications and patents. The term Subject Technology shall also
include any improvement technology, know-how, methods, inventions, patent
applications, patents and maskworks made or obtained by LICENSOR in connection
with the EQWIPs, their materials or structure, LICENSOR's ongoing Advanced EQWIP
Project and any LICENSOR follow-on Projects thereto, so long as this Agreement
is in full force and effect. Subject Technology shall not include any
technology, know-how, methods, inventions, patent applications, patents,
maskworks or confidential information developed by any division, subsidiary or
Affiliate of Lockheed Martin Corporation other than Vought Systems.
1 of 20
<PAGE>
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
2 of 20
<PAGE>
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.
3 of 20
<PAGE>
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 [Provisions regarding exclusivity have been omitted and filed separately
with the Commission]
4 of 20
<PAGE>
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.
5 of 20
<PAGE>
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.
6 of 20
<PAGE>
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.
7 of 20
<PAGE>
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.
8 of 20
<PAGE>
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
9 of 20
<PAGE>
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
10 of 20
<PAGE>
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.
11 of 20
<PAGE>
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
12 of 20
<PAGE>
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
13 of 20
<PAGE>
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
14 of 20
<PAGE>
(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.
15 of 20
<PAGE>
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,
16 of 20
<PAGE>
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 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to Registration Statement on Form SB-2 of our report dated
October 19, 1998 relating to the financial statements of Omnicorder
Technologies, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Melville, New York
February 11, 1999
