<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1999
Registration No. 333-66093
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT No. 2
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMNICORDER TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware (8099-02-01) (11-3386214)
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>
---------------------
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
---------------------
Mark A. Fauci
Chairman, President and Chief Executive Officer
25 East Loop Road
Stony Brook, New York 11790-3350
(516) 444-6499
(Name, address, including zip code and telephone number, including area code of
agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Richard A. Lippe, Esq.
Allan Grauberd, Esq. Benjamin M. Polk, Esq.
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C. Whitman Breed Abbott & Morgan LLP
190 Willis Avenue 200 Park Avenue
Mineola, New York 11501 New York, New York 10166
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / / ----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / ----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1)(3) Per Share (2) Price (1)(2)(3) Registration Fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ......................... 1,391,500 shares $10 $14,168,000 $ 3,938.70
</TABLE>
================================================================================
(1) Includes 165,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) Includes shares of Common Stock issuable pursuant to warrants granted to
the Underwriter. The warrants entitle the Underwriter to purchase a number
of shares of Common Stock equal to 10% of the aggregate number of shares
of Common Stock issued in the Offering. These warrants are exercisable at
120% of the public offering issue price. The shares issuable pursuant to
these warrants have, for fee calculation purposes only, an assumed
issuance price of $12 per share.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion dated January , 1999
Prospectus
[GRAPHIC OMITTED]
1,100,000 Shares of Common Stock
[$ ] 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 for the
Discount ................ early detection and
Proceeds to OmniCorder ... 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, equal to 15% of the number of shares sold in this offering, at the
underwriter discount per share, for a period of 45 days from the date that this
prospectus becomes effective.
This offering is a "firm commitment" underwriting. This means that all 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 ("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 believes DAT can detect minute disease related
changes in the breasts which occur as a result of the release of nitric oxide
by breast cancer cells.
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 (the "DAT System").
o a custom built infrared camera, computer workstation and related
hardware.
o proprietary diagnostic software.
o a secure information distribution network.
o comprehensive training provided by OmniCorder.
o maintenance, service and upgrades
OmniCorder intends to sell regional licenses to market the DAT System to
large healthcare provider organizations which will, in turn, deliver its breast
cancer screening and diagnostic service through their network of primary and
specialist physicians. OmniCorder will provide the DAT System for a one-time
license fee, which it estimates will range from $500,000 to $1,500,000,
depending on the population of the region and the terms of the license. This
license fee will include the cost to the licensee of the components of the DAT
System.
OmniCorder anticipates that the fee to the patient for an initial
screening examination will be approximately $50.00-$75.00. OmniCorder will
receive a fee of approximately 50% of this amount from the provider for each
initial screening examination. The balance of the examination fee will be
retained by the provider. These fees may vary.
The device to be employed in the DAT System requires clearance from the
United States Food and Drug Administration (the "FDA") before it can be
marketed. OmniCorder intends to initially rely on a type of FDA clearance to
market adjunct (supplementary) diagnostic devices which it hopes to obtain by
mid-1999. This type of clearance allows companies to market devices that are
used together with an existing approved method. OmniCorder will then request
FDA approval for marketing the DAT System as a stand- alone device, i.e., a
sole diagnostic screening tool for detection of breast cancer. This process is
anticipated to take two years from the time OmniCorder receives FDA clearance
to market its service as an adjunct (supplement) to existing diagnostic
methods.
OmniCorder has not realized any revenues to date or marketed any products
or services to date. 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) $ (744,411)
----------- ---------- -----------
Basic and diluted net loss per common share ..... $ (0.09) $ (0.04) $ (0.35)
----------- ---------- -----------
Weighted average shares used in per share
computation (see Note 2 of Notes to
Financial Statements .......................... 1,683,482 1,672,000 2,188,866
----------- ---------- -----------
</TABLE>
September 30, 1998
Actual As Adjusted
------------ -------------
Balance Sheet Data:
Cash ......................... $ 479,468 $ 7,942,468
Working capital .............. 440,193 7,905,276
Total assets ................. 999,076 8,339,159
Total debt ................... 125,000 --
Total liabilities ............ 295,028 170,028
Stockholders' equity ......... 704,048 8,169,131
6
<PAGE>
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following factors, in
addition to the other information included in this prospectus, before
purchasing any of the shares offered hereby.
Risks Associated with OmniCorder's Development Stage and its Losses to
Date. OmniCorder was incorporated in February 1997 and is in the development
stage. As such, it is subject to all of the business risks associated with a
new enterprise, including constraints on its resources, lack of established
banking, supplier and distribution relationships and uncertainties regarding
product development and future revenues.
Since its inception, OmniCorder has engaged in research and development
activities, raising capital, negotiating various license agreements, 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. See "Business -- Licensing and Patents" and "Risk Factors --
OmniCorder may need to raise additional funds before it becomes profitable;
Additional Financing may dilute your interest in OmniCorder" below.
OmniCorder's ability to operate its business successfully will depend on a
variety of factors, some of which are outside its control, including:
o physician and/or consumer preferences.
o the application of regulatory requirements of the FDA and similar
regulatory requirements.
o competition from existing and newly developed alternative screening and
diagnostic technologies.
o the actual and perceived efficacy of the DAT System.
o OmniCorder's ability to maintain a constant supply of infrared cameras
and other components utilized in the DAT System.
The likelihood of OmniCorder's success must be considered in light of the
expenses, difficulties and delays frequently encountered in connection with the
formation and early phase of operation of a new business and the competitive
environment in which it will operate. There can be no assurance regarding when
or whether OmniCorder will successfully implement its business objectives or
that it will achieve profitability.
OmniCorder is Substantially Dependent Upon Successful Commercialization of
the DAT System. The sale of services which incorporate the DAT System, together
with regional licenses to provide the DAT System for breast cancer applications,
will be OmniCorder's principal proposed revenue sources for at least the first
two years from the closing of the offering. These services have not yet been
commercially introduced. OmniCorder has 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. See "Business -- DAT's Efficacy -- Other DAT Applications."
Uncertainty of Market Acceptance. There can be no assurance that
physicians or the medical community in general will accept and use the DAT
System or any other products or services developed by OmniCorder. The degree
and rate of acceptance and market penetration which OmniCorder achieves will
depend on many variables including, but not limited to, establishing acceptance
of the DAT System within the medical community by demonstrating its clinical
safety, efficacy and cost advantages as compared with existing cancer detection
7
<PAGE>
technologies. Similar risks may confront other products or services Omnicorder
develops in the future. Failure of OmniCorder's products or services to gain
market acceptance will have a material adverse effect on OmniCorder's business,
financial condition and results of operations. See "Business -- Competition."
OmniCorder anticipates that a substantial period of time may be required
to convince caregivers that the DAT System is an effective adjunct (or
supplement) to x-ray mammography, the current dominant screening method. This
process may be further affected by the tremendous investment that has been made
in x-ray mammography equipment and the interests of other entities which
participate financially in the provision of x-ray mammography to the public.
More significant opposition may be encountered with respect to OmniCorder's
attempt to receive FDA approval to use the DAT System as a stand-alone device,
i.e., a sole diagnostic screening tool for the detection of breast cancer.
While OmniCorder believes that FDA approval to market the DAT System as a
stand-alone method will be dependent on the merits of clinical trials, it is
conceivable that even with such approval, acceptance of the DAT System as a
stand-alone method may be difficult to achieve because of resistance in the
medical community fostered by the entrenchment of x-ray mammography. See "Risk
Factors -- Government Regulation; No Assurance of Regulatory Approvals" below.
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. See "Use of
Proceeds."
OmniCorder's future liquidity and capital funding requirements will depend
on numerous factors, including:
o the results of clinical studies.
o the extent to which the DAT System gains market acceptance.
o the costs and timing of commencement and expansion of sales.
o OmniCorder's marketing and manufacturing activities.
o competition to the DAT System.
There can be no assurance that additional capital will be available on
terms acceptable to OmniCorder, or at all. Furthermore, any additional equity
financing will be dilutive to stockholders, and debt financing or equipment
lease financing, if available, may include restrictive covenants, including
financial maintenance covenants, restricting OmniCorder's ability to incur
additional indebtedness. OmniCorder's failure to raise capital, or engage in
equipment lease financing or other debt financing on acceptable terms when
needed, could have a material adverse effect on its business, financial
condition and results of operations.
Limited Marketing Experience; Limited Personnel. OmniCorder currently has
limited marketing experience and limited financial, personnel and other
resources to undertake the extensive marketing activities necessary to market
the DAT System. OmniCorder's ability to generate revenue from the licensing of
the DAT System will be dependent upon, among other things, its ability to
manage an effective sales organization. OmniCorder will need to develop a sales
force and a marketing group with technical expertise to coordinate marketing
efforts. In addition, there can be no assurance that OmniCorder will be able to
market its products or services effectively through an in-house sales force,
independent sales representatives, through arrangements with an outside sales
force, or through strategic partners. See "Business -- Marketing" and
"Management."
Government Regulation; No Assurance of Regulatory Approvals. OmniCorder's
products and manufacturing activities are subject to extensive government
regulation, both in the United States and abroad. The manufacture, packaging,
labeling, advertising, promotion, distribution, and sale of OmniCorder's
products are subject to regulation by numerous national and local governmental
agencies in the United States and other countries. Failure to comply with these
regulations or inability to obtain required approvals will impair OmniCorder's
ability to market the DAT System. See "Business -- Government Regulation".
8
<PAGE>
In the United States, the U.S. Food and Drug Administration ("FDA")
regulates OmniCorder's products under the Federal Food, Drug, and Cosmetic Act
and regulations promulgated thereunder. Advertising and other forms of
promotion and methods of marketing of OmniCorder's products are subject to
regulation by the U.S. Federal Trade Commission, which regulates these
activities under the Federal Trade Commission Act. The manufacture, labeling,
and advertising of OmniCorder's products are also regulated by various other
Federal, state and local agencies as well as those of each foreign country to
which OmniCorder may in the future distribute its products. See "Business --
Government Regulation" for a description of various regulatory issues and an
explanation of the terms used below. The risks associated with these regulatory
issues include the following:
(a) Need for FDA Approval to Market the DAT System -- Breast cancer
screening devices that use infrared instrumentation, such as the DAT System,
and their components and accessories are currently classified as Class I
devices that require clearance under Section 510(k) of the the federal Food,
Drug and Cosmetic Act, when they are intended for "adjunctive [supplemental to
an existing approved method such as x-ray mammography] diagnostic screening for
detection of breast cancer or other uses . . . .", under 21 C.F.R.
884.2980(a)(2). If used as a stand-alone device, i.e., a sole diagnostic
screening tool for detection of breast cancer, such devices are classified as
Class III devices requiring an approved Premarket Approval application before
marketing.
OmniCorder hopes to obtain 510(k) market clearance from the FDA by
mid-1999 to market the DAT System for adjunctive (supplemental) diagnostic
screening for detection of breast cancer. OmniCorder expects to file its 510(k)
application in early 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.
If the FDA finds that OmniCorder's device is not substantially equivalent,
OmniCorder may ask the FDA to make a "risk based classification designation" to
place the device into class I or class II. However, if a timely request is not
made for a risk based classification after receipt of a determination from the
FDA that OmniCorder's device is not substantially equivalent or if, after a
risk based classification request, the FDA determines that a class III
designation is appropriate, a Premarket Approval application will be required
to be approved before the device may be marketed. The process of obtaining a
Premarket Approval is lengthy, expensive, and uncertain and typically requires,
among other things, extensive clinical data from a well-controlled clinical
trial.
(b) Need for FDA Approval for Certain Changes to the DAT System -- For
devices cleared for marketing under Section 510(k), the Food, Drug and Cosmetic
Act and regulations require manufacturers to obtain new FDA 510(k) clearances
for devices when, among other things, there is a major change in the intended
use or a change to the design, material, composition, energy source, or
manufacture of a legally marketed device that could significantly affect its
safety or effectiveness. Changes to approved devices under the Premarket
Approval process require supplemental approvals for device changes that affect
safety or effectiveness. Manufacturers are responsible for making the initial
determination regarding whether or not changes require subsequent submissions
and approvals or clearances. At the administrative level, the FDA has the final
say of whether an additional clearance or approval is necessary for changes to
devices, and there can be no assurance that the agency will agree with a
decision by OmniCorder that changes to the DAT System do not require FDA review
and clearance or approval.
In the event the FDA were to require the filing of a new 510(k)
notification, a Premarket Approval, or a Premarket Approval supplement for a
change, OmniCorder would be prohibited from marketing the modified DAT System
until the FDA reviews and clears or approves the new 510(k) notification,
Premarket Approval, or Premarket Approval supplement. OmniCorder anticipates
that changes to the DAT System will be necessary in connection with the ramping
up of its production cycle, and on an ongoing basis. Some or all of these
changes may require FDA 510(k) clearance or Premarket Approval. Failure to
obtain timely or any clearance or approval for marketing of the DAT System
could have a material adverse effect on OmniCorder's business, financial
condition and results of operations.
(c) Required Compliance with Certain Manufacturing Regulations -- The FDA
also requires that manufacturing conform to strict quality assurance standards
required by Good Manufacturing Practices regulations. A new set of regulations,
called the Quality Systems Regulations, went into effect June 1, 1997. These
regulations require that medical device manufacturers comply with various
requirements. Good Manufacturing Practices
9
<PAGE>
requirements are enforced via periodic FDA inspections of device facilities.
OmniCorder believes, but there can be no assurance, that it and its suppliers
will attain and maintain compliance with these standards. Further, any changes
in manufacturing facilities or methods may require a Premarket Approval
supplement or a new premarket notification submission under Section 510(k). See
"Business -- Government Regulation -- FDA Regulation -- Good Manufacturing
Practices and Reporting."
(d) Reporting Requirements -- FDA law and regulations additionally require
that certain "Medical Device Reports" be submitted to the agency to report
device-related deaths, serious injuries, and malfunctions, the recurrence of
which would likely cause death or serious injury. These reports can cause the
FDA to take various regulatory actions, including inspections, recalls, and
patient/physician notifications. Medical Device Reports are a major information
input to the FDA and often the basis of agency enforcement action. Because such
reports are publicly available they can also become a basis of private tort
suits, including class actions. Medical Device Reports, depending upon their
significance, could have a material adverse effect on OmniCorder's ability to
market its products.
(e) Restrictions on Labeling and Advertising -- The nature of marketing
claims OmniCorder will be permitted to make in labeling or advertising
regarding the DAT System is limited to those specified in an FDA clearance or
approval and claims beyond those cleared or approved will constitute violation
of the Food, Drug and Cosmetic Act. Noncompliance with any applicable FDA
requirements can result in, among other things, Premarket Approval withdrawal,
rescission of a premarket notification clearance, voluntary or mandatory
recall, voluntary or mandatory patient or physician notification, seizure of
products, fines, injunctions, and/or civil and criminal penalties. The FDA also
has the authority to request repair, replacement, or refund of the purchase
price of any devices manufactured or sold by OmniCorder. Any of these sanctions
may have a material adverse effect on OmniCorder's business, financial
condition, and results of operations, and could materially adversely affect
OmniCorder's ability to successfully market its products.
OmniCorder's advertising of its products also is subject to regulation by
the Federal Trade Commission under the Federal Trade Commission Act. Section 5
of the Federal Trade Commission Act prohibits unfair methods of competition and
unfair or deceptive acts or practices in or affecting commerce. Failure to
comply with these laws and regulations would subject OmniCorder to a variety of
enforcement actions, fines, penalties and other remedies. See "Business --
Government Regulation -- FDA Regulation -- Labeling and Advertising; Fines and
Penalties for Noncompliance.
(f) Foreign Permits and Requirements -- In markets outside the United
States, prior to commencing operations or marketing its products, OmniCorder
may be required to obtain approvals, licenses, or certifications from a
country's ministry of health or comparable agency and comply with FDA export
requirements. OmniCorder must also comply with product labeling and packaging
regulations that vary from country to country. These activities are also
subject to regulation by various agencies of the countries, states, and other
localities in which OmniCorder's products may be sold. See "Business --
Government Regulation -- FDA Regulation -- Export Requirements."
OmniCorder cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. Any or all such requirements could
have a material adverse effect on OmniCorder.
OmniCorder requires third parties which it does not control to manufacture
components of the DAT System. 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
10
<PAGE>
distributing the DAT System, market introduction and subsequent sales of the
DAT System may be adversely affected. OmniCorder would also then have to seek
alternative suppliers. If that happens, there can be no assurance that
OmniCorder will be able to readily enter into alternative supply arrangements
at commercially acceptable rates, if at all.
While OmniCorder believes it has located adequate sources of supply for
all components of the DAT system, there can be no assurance that such sources
will be able to maintain a supply of all components as required by OmniCorder.
If OmniCorder is unable to obtain or retain qualified third-party manufacturers
on commercially acceptable terms, it may not be able to commercialize the DAT
System as planned. OmniCorder's dependence on third parties for the manufacture
of its products may adversely affect its profit margins and its ability to
develop and deliver its products on a timely and competitive basis. See
"Business -- Government Regulation -- Suppliers."
Risks Related to Intellectual Property Infringement and Misappropriation
of Proprietary Information and Trade Secrets. 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.
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. See "Business --
Licensing and Patents -- Competition".
11
<PAGE>
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"; "Risk
Factors -- Uncertainty of Market Acceptance".
Risk of Technological Obsolescence. The market for high technology disease
detection and monitoring devices, such as the DAT System, is characterized by
rapid changes and evolving industry standards, often resulting in product
obsolescence or short product life cycles. Accordingly, OmniCorder's ability to
compete will depend on its ability to introduce the DAT System to the
marketplace in a timely manner, and to enhance and improve it. There can be no
assurance that OmniCorder's competitors will not develop technologies or
products that render the DAT System obsolete or less marketable. It is also
possible that OmniCorder will not be able to successfully enhance its products
or technology or adapt them satisfactorily to changing market conditions.
Dependence on Mark Fauci, OmniCorder's Founder. The success of OmniCorder
is dependent on the continued efforts of its founder, Mark Fauci. The loss of
Mr. Fauci's services could have a material adverse effect on OmniCorder's
operations. OmniCorder 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 the development
of the DAT System to other OmniCorder personnel, the loss of his services may
delay the commercialization of the DAT System, but for a period OmniCorder
anticipates would be no more than six months. OmniCorder has not obtained
key-man insurance on Professor Anbar and has no plans to do so.
Need to Hire Additional Qualified Personnel. OmniCorder's success is also
dependent upon its ability to hire and retain additional qualified scientific,
sales, marketing and managerial personnel. OmniCorder will only 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. See "Management".
Third-Parties may not Reimburse OmniCorder for the cost of Patient
Examination Fees. There can be no assurance that third-party reimbursement will
be available for the cost of services provided by the DAT System. Hospitals,
medical clinics and physicians' offices that provide breast cancer screening
and diagnostic services generally rely on third-party reimbursements, such as
those provided by Medicare, Medicaid and private health insurance plans, to pay
for some or all of the costs of such services. The policies of these entities
vary greatly in their reimbursement practices. Whether a particular procedure
qualifies for third-party reimbursement depends upon many factors including the
safety and effectiveness of the procedure. Reimbursement may be denied if a
medical device is experimental or is used for a non-approved purpose. During
the past several years, the major third-party payors for hospital services have
substantially revised their payment methods to contain health care costs.
OmniCorder believes that the current pressures for medical cost containment
have resulted in uncertainty in the healthcare industry with respect to federal
and state reimbursement programs. Reimbursement standards
12
<PAGE>
and rates may change in the future. Although OmniCorder believes that licensed
services which incorporate the DAT System will be widely reimbursed by
third-party payors in the future, OmniCorder believes that its services will be
affordably priced and will be utilized irrespective of third party
reimbursements. However, the failure of users of the DAT System to obtain
adequate reimbursement from third-party payors may significantly impede
OmniCorder's growth.
Risk of Product Liability Claims. The nature of OmniCorder's products may
expose it to product liability risks. Although OmniCorder has obtained
$5,000,000 of product liability insurance coverage, such insurance is becoming
increasingly expensive. There can be no assurance that such insurance will
provide adequate coverage against product liability claims. In addition,
certain of OmniCorder's key license agreements require such coverage to be
maintained once it begins selling licensed services. While no product liability
claims are pending or threatened against it to date, a successful product
liability claim against OmniCorder in excess of its insurance coverage could
have a material adverse effect on its business, financial condition or results
of operations.
No Liquid Trading Market. Prior to the offering, there has been no public
market for the common stock. Although OmniCorder has applied for listing of the
shares of common stock offered hereby on the Nasdaq SmallCap Market, there can
be no assurance that an active trading market will develop or be maintained.
Failure to maintain an active trading market may adversely impact an investor's
ability to resell shares purchased in the offering. See "Risk Factors -- No
Assurance of Nasdaq SmallCap Listing" below.
Volatility of Trading Price -- The market prices for securities of medical
technology companies have historically been volatile. Factors that could cause
the market price of the common stock to fluctuate substantially include but are
not limited to:
o future technological innovations.
o new commercial products.
o results of clinical testing.
o changes in regulation.
o litigation and public concerns as to product safety.
o period-to-period fluctuations in financial performance.
o fluctuations in securities markets.
Such price changes have often been unrelated to the operating performance
of the affected companies. These broad market fluctuations may adversely affect
the market price of the common stock. A decline in the trading price of the
common stock could also impact negatively upon OmniCorder's ability to raise
additional equity capital in the future.
Negotiated Public Offering Price. The initial public offering price for
the shares of common stock offered hereby will be determined by negotiations
between OmniCorder and Cambridge Capital, LLC ("Cambridge"), the principal
underwriter of the offering and may bear no relationship to the price at which
the common stock may trade after completion of the offering. Factors which may
be considered in determining the initial public offering price include but are
not limited to:
o the information set forth in this prospectus and otherwise available to
Cambridge.
o the history of and the prospects for the industry in which OmniCorder
operates.
o the assessment of OmniCorder's management.
o OmniCorder's past and present operations.
o OmniCorder's the prospects for future earnings.
13
<PAGE>
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.
Availability of Preferred Stock for Issuance. In addition to authorized
shares of common stock, OmniCorder's certificate of incorporation, authorizes
the issuance of up to 1,000,000 shares of preferred stock. OmniCorder's Board
of Directors may at any time determine to issue shares of preferred stock with
rights and preferences to be set by the Board of Directors in its sole
discretion. The rights and preferences of any such preferred stock may be
superior to those of the common stock and thus may adversely affect the rights
of the holders of common stock. OmniCorder has certain restrictions on its
ability to issue securities, including any shares of preferred stock, for a
period of 24 months after the offering without the consent of Cambridge. See
"Underwriting" and "Description of Securities -- Preferred Stock."
Control of Founding Stockholder. After giving effect to the offering, Mark
Fauci, OmniCorder's founder, will beneficially own approximately 48% of the
outstanding common stock. As a result, Mr. Fauci will be able to effectively
control virtually all matters requiring approval by OmniCorder's stockholders,
including amendments of the certificate of incorporation, the approval of
mergers or similar transactions and elections of all directors. In addition,
Mr. Fauci is one of OmniCorder's six current directors. See "Management" and
"Security Ownership Of Certain Beneficial Owners And Management."
Shares Eligible for Future Sale may Depress the Market Price of
OmniCorder's Common Stock and make it more difficult for OmniCorder to Obtain
Additional Financing. Upon completion of this offering, OmniCorder will have
3,458,397 shares of common stock outstanding (3,623,397 shares if the
Underwriters' over-allotment option is exercised in full). The 1,100,000 shares
offered hereby (1,265,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by
OmniCorder's "Affiliates", as such term is defined in Rule 144 promulgated
under the Securities Act. The outstanding shares of common stock prior to the
offering are "restricted securities" within the meaning of Rule 144. Restricted
securities may only be sold in private transactions or pursuant to Rule 144. In
addition, an aggregate of 480,267 shares are issuable upon the exercise of
outstanding stock options and warrants, 44,000 shares are reserved for issuance
to a licensor of intellectual property utilized by OmniCorder, and 360,400
shares of common stock are reserved for issuance under the 1998 Stock Option
Plan (as defined below). All of such shares will be restricted securities when
issued, unless registered.
Sales of substantial amounts of common stock (including shares issued upon
the exercise of outstanding warrants and options) in the public market after
the offering or the prospect of such sales could adversely affect the market
price of the common stock and may have a material adverse effect on
OmniCorder's ability to raise any necessary capital to fund its future
operations. Cambridge will also receive Underwriter's warrants upon completion
of the offering. See "Shares Eligible For Future Sale" and "Underwriting."
No Assurance of Nasdaq SmallCap Listing. The Board of Governors of the
National Association of Securities Dealers, Inc. has established certain
standards for the initial listing and continued listing of a security on the
Nasdaq SmallCap Market. The standards for initial listing require, among other
things, that an issuer have net tangible assets of $4,000,000; that the minimum
bid price for the listed securities be $4.00 per share; that there be a minimum
of 300 "round lot" holders; that the minimum market value of the public float
(the shares held by non-insiders) be at least $5,000,000; that the public float
be at least 1,000,000 shares; and that there be at least three market makers
for the issuer's securities. OmniCorder believes, but there can be no
assurance, that it will meet these standards upon completion of the offering.
The maintenance standards require, among other things, that an issuer have
net tangible assets of at least $2,000,000; that the minimum bid price for the
listed securities be at least $1.00 per share; that the minimum market value of
the "public float" be at least $1,000,000; that the public float be at least
500,000 shares; and that there be at least two market makers for the issuer's
securities. Nasdaq may also impose qualitative standards for initial or
continued listing.
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<PAGE>
A deficiency in either the market value of the public float or the bid
price maintenance standard will be deemed to exist if the issuer fails the
individual stated requirement for thirty consecutive trading days, with a 90-day
cure period. There can be no assurance that OmniCorder will continue to satisfy
the requirements for maintaining a Nasdaq SmallCap listing. If OmniCorder's
securities were to be excluded from Nasdaq, the prices of such securities and
the ability of holders to sell them would be adversely affected, and OmniCorder
would be required to again comply with the initial listing requirements to be
relisted on Nasdaq.
Risk of Low Priced Shares. If OmniCorder is unable to satisfy Nasdaq's
maintenance requirements and the price per share of its common stock were to
drop below $5.00, then unless OmniCorder satisfied certain net asset and
revenue tests, its securities would become subject to certain "penny stock"
rules promulgated by the Securities and Exchange Commission. The application of
these rules to OmniCorder's common stock may adversely impact both the ability
of investors to resell their shares (liquidity) and the market price of these
shares. The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination of suitability of the investor purchasing
the penny stock.
No Dividends. OmniCorder has never declared or paid any cash dividends on
its common stock and does not intend to pay any cash dividends in the
foreseeable future. See "Dividend Policy."
Dilution. Purchasers of the common stock offered hereby will suffer
immediate and substantial dilution of $6.64 in the net tangible book value per
share of the common stock from the initial public offering price. 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. While the principals of Cambridge
have had prior experience in firm commitment underwriting and underwriting
syndicates at other brokerage firms, Cambridge, which commenced operations in
1996, has not acted as an underwriter, in a public offering of securities.
Cambridge's lack of experience may have an adverse impact on its ability to
market the securities offered hereby as well as the development and maintenance
of a trading market for OmniCorder's securities following the offering.
Cambridge intends to make a market in OmniCorder's securities. Cambridge's
inexperience may result in its inability to correctly utilize overallotment,
stabilization and market maintenance strategies that more experienced
underwriters utilize to assist in maintaining orderly trading markets. This may
adversely affect the price of OmniCorder's common stock and the ability of
purchasers in the offering to resell their shares. OmniCorder's officers and
directors of do not have a material relationship with Cambridge. See
"Underwriting."
Risks Associated with Forward Looking Statements. This prospectus contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "may," "will," "anticipate," "believe,"
"estimate" or "continue" or other variations and comparable terminology. The
statements in "Risk Factors" are cautionary statements. They identify important
factors, with respect to forward-looking statements, that could cause actual
results to differ materially from those forecasted in such statements.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by OmniCorder from the sale of an
estimated 1,100,000 shares of common stock offered hereby at $9 per share (the
mid-point of the range designated on the cover page of this prospectus) are
estimated to be $8,213,000 ($9,504,950, if the Underwriter's over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions, and an estimated $400,000 of legal, accounting, printing and other
estimated expenses of the offering payable by OmniCorder.
OmniCorder anticipates using the net proceeds of $8,213,000 from the
offering as follows. If the overallotment option is exercised, the increased
amount of proceeds will be allocated to working capital:
<TABLE>
<CAPTION>
Amount Percentage
------------- -----------
<S> <C> <C>
Research and Development ..................................................... $2,000,000 24.35%
Use in Sales and Marketing ................................................... $1,880,000 22.89%
Capital Equipment, principally components of the DAT System such as
cameras, computers and other associated hardware and software ............... $1,580,000 19.24%
General and Administrative Expenses and Working Capital ...................... $2,003,000 24.39%
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
professional expenses in connection with financing activities and for working
capital ..................................................................... $ 750,000 9.13%
Total ........................................................................ $8,213,000 100.00%
</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.
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<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 9,815,461
Deficit accumulated during the development stage ...................... (917,927) (1,665,844)
Subscription receivable ............................................... (15,070) (15,070)
--------- ------------
Total stockholders' equity ......................................... 704,048 8,169,131
--------- ------------
Total capitalization ............................................... 704,048 8,169,131
--------- ------------
</TABLE>
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<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 $8,169,131, or approximately $2.36 per
share, which represents an immediate increase in the net tangible book value of
approximately $2.06 per share to existing stockholders and an immediate
dilution of $6.64 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $ 9.00
Net tangible book value per share as of September 30, 1998 ......... $ .30
Increase per share attributable to this offering ................... $ 2.06
-------
Net tangible book value per share after this offering ................. $ 2.36
-------
Dilution per share to new investors ................................... $ 6.64
-------
</TABLE>
18
<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>
19
<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 limited 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,
20
<PAGE>
receiving net proceeds of $602,500. The Bridge Notes are be payable upon the
earlier of February 28, 1999 (subject to extension by one day for each day after
November 30, 1998 that OmniCorder fails to deliver to 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.
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<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.
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<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.
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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
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<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
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<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 ("NASA") Office of Space
Access and Technology.
o The Ballistic Missile Defense Organization/Innovative Science and Technology
Office.
Under its agreement with Caltech, OmniCorder has acquired an exclusive
license for the worldwide use of the Caltech Technology in the field of
detection of passively emitted infrared radiation from tissue, organs and organ
systems for the generation of temperature related images (the "Field") for
commercial medical and veterinary applications.
The Caltech License Agreement provides OmniCorder with the rights to enter
into agreements, including sublicenses, to exploit the Caltech Technology
worldwide in the Field, on an exclusive basis, subject to payment of certain
royalties for:
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
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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
27
<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 -- Government Regulation; No
Assurance of Regulatory Approvals."
OmniCorder intends to submit its 510(k) for the DAT System in early 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
28
<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
29
<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.
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<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.
31
<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 -- Uncertainty of
Market Acceptance."
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.
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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.
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<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>
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<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.
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<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.
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<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.
37
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ----- --------------------------------------------------------
<S> <C> <C>
Mark A. Fauci ............. 39 Chairman of the Board of Directors, President and Chief
Executive Officer
Kevin McQuade ............. 50 Director, Chief Financial Officer
Paul C. Rabbiner .......... 63 Director, Interim Vice President, Sales
Irving Price .............. 64 Director
James Hayward ............. 45 Director
Richard A. Lippe .......... 60 Director
Michael Anbar ............. 71 Chief Scientist, Research and Development Consultant
Tamara R. Rusoff .......... 43 Vice President, Education and Communication*
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
38
<PAGE>
thrust was in the application of inhalation and rehabilitation equipment to the
homecare and handicapped markets, and he served as its President from 1957 to
1982. That company was then sold to National Medical Enterprises, where Mr.
Rabbiner served as a consultant from 1982-1984. Mr. Rabbiner has co-published a
book entitled "Positioning Clients with Central Nervous System Deficits" which
is used as a text book in some physical therapy schools.
Irving Price. Mr. Price has been a director of OmniCorder since January
1998. Since 1989 he has owned his own investment management firm, Priority
Investment Management, where he manages individual portfolios, trusts and
estates. In 1987 he was a financial analyst for N.Y. City Council, Finance
Division. Since 1959, Mr. Price has worked as a securities analyst and pension
fund and portfolio manager for various investment management firms such as Dean
Witter Reynolds (now Morgan Stanley-Dean Witter), Bache Halsey Stuart (now
Prudential Securities), Shields Asset Management, and Hutton Investment
Management (now Salomon Smith Barney). During this time, he managed corporate
and union portfolios involving pensions, profit sharing and welfare funds.
Mr. Price is a member of the New York Society of Security Analysts. He
holds a BS in business from Baruch College and a MBA in Financing and
Investments from New York University.
James Hayward. Dr. Hayward has been a director of OmniCorder since
September 1998. Dr. Hayward is a recognized authority on the applications of
liposomes in medicine and industry, with more than 50 patents and original
publications to his credit. He has extensive experience in start-up companies,
in development and marketing of non-regulated biotechnology product
applications, and in the development of drug-delivery technologies for a wide
range of medical applications.
In 1990, he founded Collaborative Laboratories, Inc. ("CLI"), a contract
research and manufacturing biotechnology company. Dr. Hayward currently serves
as CLI'S President, Chief Executive Officer and as a Director, and is its
principal stockholder. CLI later became a subsidiary of The Collaborative
Group, Ltd., a privately held holding company which Dr. Hayward founded in
1997, where he serves as a Director and Chief Executive Officer and is its
principal stockholder.
Dr. Hayward was responsible for product development at the Estee Lauder
Companies from 1984 to 1989, where he served as Director of Research Worldwide.
He holds an adjunct faculty position at S.U.N.Y. Stony Brook in Molecular
Biology and is an Honorary Fellow at the University of London. Dr. Hayward
serves on the boards of the Center for Biotechnology at S.U.N.Y. Stony Brook -
Council on Biotechnology, the Long Island Association, the Stony Brook
Foundation, the Research Foundation of the State of New York, and the New York
Biotechnology Association. He has received the "Best Paper of the Year Award"
from the Society of Cosmetic Chemists for the last 4 years. Dr. Hayward
received his doctorate in Molecular Biology and Biophysics from S.U.N.Y. at
Stony Brook.
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
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<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
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<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
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<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.
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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.
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<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
44
<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
45
<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.
46
<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.
Cambridge currently has the right to purchase 12,467 shares of common
stock at $3.40 per share, pursuant to currently exercisable warrants which it
received for its efforts in the Private Placement. Cambridge is entitled to
"piggy-back" registration rights with respect to the shares underlying these
warrants. Cambridge will also have registration rights with respect to the
Underwriter's Warrants it receives in connection with the offering. See
"Underwriting."
Holders
OmniCorder's common stock is held by 22 holders of record, prior to the
offering.
47
<PAGE>
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 10% of the public
offering price.
OmniCorder has granted to Cambridge an option, exercisable not later than
45 days after the effective date of this prospectus, to purchase up to a
maximum of ---- additional shares of common stock, equal to 15% of the shares
to be sold in the offering, solely to cover overallotments, if any, at the
initial public offering price set forth on the cover page hereof, less the
underwriting discount set forth on the cover page hereof.
OmniCorder's shareholders have agreed to certain "lock-up" arrangements
with respect to their shares without the prior consent of Cambridge. See
"Shares Eligible for Future Sale."
OmniCorder has agreed to enter into a consulting agreement with Cambridge,
on the closing of the offering, having a term of thirty months and providing
for the payment of $60,000 to Cambridge, which amount shall be paid in full by
OmniCorder at the closing of the offering. OmniCorder shall pay Cambridge a
non-accountable expense equal to 3% of the gross proceeds of the offering, of
which $25,000 has been paid to date.
Prior to the offering, Cambridge acted as a placement agent in connection
with the two previously completed private placements of OmniCorder's
securities. See "Shares Eligible for Future Sale."
In connection with the offering, OmniCorder has agreed to grant to
Cambridge warrants to purchase a number of shares of common stock equal to 10%
of the number of shares sold in the offering (the "Underwriter's Warrants").
The shares of common stock underlying the Underwriter's Warrants, are being
registered pursuant to the Registration Statement filed with respect to the
common stock offered hereby. The Underwriter's Warrants shall be exercisable at
any time during a period of four (4) years commencing one year after their
issuance, and provide for an exercise price equal to 120% of the initial public
offering price set forth herein.
Upon the written request of the holders of a majority of the Underwriter's
Warrants and the shares of common stock underlying the Underwriter's Warrants,
OmniCorder will on one occasion register the shares of common stock underlying
the Underwriter's Warrants at its expense. In addition, OmniCorder will include
as a piggy-back registration, for a period of seven years, the shares of common
stock underlying the Underwriter's Warrants at its expense in any registration
statement filed with the Securities and Exchange Commission (other than this
registration statement and other than a registration statement on Forms S-4 or
S-8).
For a period of thirty months after the closing of the offering, Cambridge
will be granted a right of first refusal to act as investment banker with
respect to all:
o equity or debt offerings by OmniCorder or any subsidiaries, whether
public or private; and
o transactions relating to either the purchase or sale of stock or
substantial assets by or to OmniCorder or its subsidiaries, or any joint
venture, corporate reorganization or other transaction utilizing
investment banking services.
48
<PAGE>
For a period of two years following the closing of the offering,
OmniCorder has agreed not to sell or issue any shares of capital stock or any
options, rights or warrants with respect to any shares of capital stock without
the prior written consent of Cambridge, except in connection with the 1998
Stock Option Plan referenced above. Such negative covenants shall not apply in
connection with financings of at least $20,000,000 which are completed at no
less than twice the initial public offering price per share or for acquisitions
OmniCorder makes, using stock as the medium of payment, which are completed at
a per share price of no less than twice the initial public offering price per
share.
OmniCorder has agreed to nominate and support the election of one designee
of Cambridge as a member of the Board of Directors if such board consists of
eight or less directors, or two designees if the board consists of more than
eight directors, for a period of two years after the closing of the offering.
Cambridge will appoint its designee after the close of the offering.
Certain persons participating in the offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock,
including purchases of the common stock to stabilize its market price and
purchases of the common stock to cover some or all of a short position in the
common stock maintained by Cambridge. In addition, Cambridge may impose
"penalty bids" for a period of up to 60 days after the closing of the offering
under contractual arrangements with certain dealers participating in the
offering, whereby Cambridge may reclaim from such dealers, for Cambridge's
account, the selling concessions with respect to the common stock that is
distributed in the offering, but subsequently purchased for Cambridge's account
in the open market. Any of the transactions described in this paragraph may
result in the maintenance of the trading price of the common stock at a level
above that which might otherwise prevail.
In connection with the offering, Cambridge (and selling group members) may
engage in passive market making transactions in the common stock on the Nasdaq
SmallCap Market in accordance with Rule 103 of Regulation M under the
Securities Act of 1933 and the Securities Exchange Act of 1934. Cambridge will
not sell shares in the offering by exercising discretionary authority over
accounts as to which it has this authority.
For factors considered in the determination of the offering price, see
"Risk Factors -- Negotiated Public Offering Price."
LEGAL MATTERS
The validity of the common stock offered hereby and certain other matters
will be passed on for OmniCorder by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, N.Y. 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 -- Government Regulation; No Assurance of
Regulatory Approvals" and "Business -- Government Regulation: FDA Regulations",
will be passed on for OmniCorder by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The financial statements as of December 31, 1997 and for the period from
February 7, 1997 (inception) through December 31, 1997 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
- -------------------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants ........................................................ F-2
Balance Sheet as of December 31, 1997 and September 30, 1998 (unaudited) ................. F-3
Statement of Operations for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited) ......... F-4
Statement of Changes in Stockholders' Equity for the period from February 7, 1997
(inception) through December 31, 1997 and the nine months ended September 30, 1998
(unaudited) ............................................................................. F-5
Statement of Cash Flows for the period from February 7, 1997 (inception) through December
31, 1997, the period from February 7, 1997 (inception) through September 30, 1997
(unaudited), the nine months ended September 30, 1998(unaudited) and cumulative for the
period from February 7, 1997 (inception) through September 30, 1998 (unaudited) ......... F-6
Notes to the Financial Statements ........................................................ F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
OmniCorder Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of OmniCorder
Technologies, Inc. (a development stage enterprise) at December 31, 1997, and
the results of its operations and its cash flows for the period from February
7, 1997 (inception) through December 31, 1997 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company is a development stage enterprise, which has only a
limited and unprofitable operating history. Such factors, among others, raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- -----------------------------------
PricewaterhouseCoopers LLP
Melville, New York
October 19, 1998
F-2
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash ............................................................... $ 76,351 $ 479,468
Prepaid research and development (Note 12) ......................... 90,000 255,753
---------- ----------
Total current assets ............................................ 166,351 735,221
Property and equipment, net ........................................... 3,580 56,938
Deferred charges, net ................................................. -- 206,917
---------- ----------
Total assets .................................................... $ 169,931 $ 999,076
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses .............................. $ 21,408 $ 45,649
Accounts payable to related party .................................. 65,559 124,379
Bridge notes payable, net of unamortized discount of $625,000 ...... -- 125,000
---------- ----------
Total liabilities ............................................... 86,967 295,028
Stockholders' equity
Preferred stock; $.01 par value; 1,000,000 shares authorized; no shares
outstanding .......................................................... -- --
Common stock; $.01 par value; 10,000,000 shares authorized;
1,730,665 and 2,358,397 shares issued and outstanding at December
31, 1997 and September 30, 1998, respectively ........................ 17,307 23,584
Additional paid-in-capital ............................................ 254,243 1,613,461
Deficit accumulated during the development stage ...................... (143,516) (917,927)
Subscriptions receivable .............................................. (45,070) (15,070)
---------- ----------
Total stockholders' equity ...................................... 82,964 704,048
---------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity ...................... $ 169,931 $ 999,076
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
Cumulative
For the period For the period for the period
from February 7, from February 7, from February 7,
1997 (inception) 1997 (inception) Nine months 1997 (inception)
through through ended through
December 31, September 30, September 30, September 30,
1997 1997 1998 1998
------------------ ------------------ --------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating expense:
Research and development ............ $ 20,000 $ 11,600 $ 338,647 $ 358,647
General and administrative .......... 42,069 34,079 207,349 249,418
Related party legal expense ......... 81,447 29,332 97,165 178,612
----------- ---------- ----------- -----------
Total operating expenses .......... 143,516 75,011 643,161 786,677
----------- ---------- ----------- -----------
Operating loss ....................... (143,516) (75,011) (643,161) (786,677)
Interest expense ..................... -- -- 131,250 131,250
----------- ---------- ----------- -----------
Net loss ............................. $ (143,516) $ (75,011) $ (774,411) $ (917,927)
=========== ========== =========== ===========
Basic and diluted net loss
per share ........................... $ (.09) $ (.04) $ (.35)
=========== ========== ===========
Weighted average number of
shares outstanding .................. 1,683,482 1,672,000 2,188,866
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OmniCorder Technologies, Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Number of Par Additional
Shares Value Paid-in-capital
----------- ----------- -----------------
<S> <C> <C> <C>
Issuance of common stock to
founder ................................ 1,672,000 $ 16,720
Sale of common stock, net of
expenses of $35,164 .................... 58,665 587 $ 164,243
Issuance of common stock warrants
to related party for legal services -- -- 50,000
Sale of common stock warrant to
related party .......................... -- -- 40,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at December 31, 1997 ............ 1,730,665 17,307 254,243
--------- -------- -----------
Issuance of common stock to
founder (Note 12) ...................... 440,000 4,400
Sale of common stock, net of
expenses of $62,900 .................... 143,732 1,437 425,658
Issuance of common stock for
research and development ............... 44,000 440 149,560
Issuance of common stock warrants
to related parties for legal
services ............................... -- -- 34,000
Cash received from sale of
common stock warrant ................... -- -- --
Issuance of common stock warrants
in connection with sale of Bridge
Notes .................................. -- -- 750,000
Net loss ................................ -- -- --
--------- -------- -----------
Balance at September 30, 1998
(unaudited) ............................ 2,358,397 $ 23,584 $ 1,613,461
--------- -------- -----------
<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 ............................ 16
Capitalization ............................. 17
Dividend Policy ............................ 18
Dilution ................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 20
Business ................................... 22
Management ................................. 38
Security Ownership Of Certain Beneficial
Owners And Management ................... 44
Description of Securities .................. 44
Certain Relationships And Related
Transactions ............................ 46
Shares Eligible for Future Sale ............ 46
Underwriting ............................... 48
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.
================================================================================
================================================================================
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 ............... $ 3,940
Transfer Agents' Fees ........... 10,000
Printing and Engraving .......... 100,000
Legal Fees ...................... 150,000
Accounting Fees ................. 106,000
Listing Fees .................... 30,000
--------
Total: ...................... $399,940
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides that
the Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. Section 145
of the Delaware Law provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he was a director,
officer, employee or agent of the corporation or was serving at the request of
the corporation, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a director's
duty of care, and the provisions of the Company's Certificate of Incorporation
have no effect on the availability of equitable remedies, such as injunction or
recision, for a director's breach of the duty of care. The Company's
Certificate of Incorporation provides that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware Law.
RECENT SALES OF UNREGISTERED SECURITIES
October 1997 Private Placement (the "Private Placement")
In October 1997, the Company commenced a private placement of shares of
Common Stock at a price of $3.40 per share. The Company sold 202,396 shares of
its Common Stock in the Private Placement to 19 accredited investors, receiving
gross proceeds of $690,000. The 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>
- ------------
* To be filed by amendment
** Previously filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
UNDERTAKINGS
The Company will provide to the Underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company, the issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing of Amendment No. 2 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 January 28, 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 January 28, 1999
- ----------------------------- Executive Officer
Mark Fauci
/s/ Kevin McQuade Director, Chief Financial Officer January 28, 1999
- -----------------------------
Kevin McQuade
/s/ Paul Rabbiner Director & Interim Vice January 28, 1999
- ----------------------------- President, Sales
Paul Rabbiner
/s/ Irving Price Director January 28, 1999
- -----------------------------
Irving Price
Director January 28, 1999
- -----------------------------
Jim Hayward
/s/ Richard Lippe Director January 28, 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>
- ------------
* To be filed by amendment
** Previously Filed
*** Confidential Treatment requested as to portions of this exhibit. These
portions filed separately with the Commission.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER SHARES
- --------- ---------
OCT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------- ---------
-----------------------------------------------------------------------------------
OMNICORDER TECHNOLOGIES INC.
-----------------------------------------------------------------------------------
PAR VALUE $.01 EACH
COMMON STOCK AUTHORIZED CUSIP NO. 68212H 10 3
See Reverse for
Certain Definitions
This is to Certify that
is the owner of
fully paid and non-assessable shares of the above Corporation transferable
on the books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent and Registar.
Witness, the Corporation has caused this Certificate to be signed in facsimile by its duly
authorized officers and a facsimile of its corporate seal to be impressed hereon.
Dated
Counter Signed:
Continental Stock Transfer & Trust Company
Jersey City, New Jersey
By:
-------------------------------
Transfer Agent and Registrar Authorized Officer
[SEAL]
- --------------------------------- -------------------------------
Secretary President
</TABLE>
<PAGE>
The following abbreviations when used in the inscription on the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ........ Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list
</TABLE>
For value received ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- -------------------------------------------------------------------- Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________ 19____
In presence of
__________________________________
________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
[LETTERHEAD OF MLG]
EXHIBIT 5
Form of Opinion to be Issued upon effectiveness of the Registration Statement
January __, 1999
Omnicorder Technologies, Inc.
25 East Loop Road
Stony Brook, New York 11790
Ladies and Gentlemen:
We refer to the Registration Statement on Form SB-2 File No. 333-66093
(the "Registration Statement"), as filed by you with the Securities and Exchange
Commission with respect to the registration under the Securities Act of 1933, as
amended (the "Act"), of ___________ shares (the "Shares"), $.01 par value per
Share, of the common stock of Omnicorder Technologies, Inc. (the "Company") for
issuance and sale by the Company.
We are qualified to practice law in the State of New York. We express
no opinion as to, and, for the purposes of the opinion set forth herein, we have
conducted no investigation of, and do not purport to be qualified to opine on,
any laws other than the laws of the State of New York, the corporate laws of the
State of Delaware and the federal laws of the United States of America.
We have examined such documents as we considered necessary for the
purposes of this opinion. Based on such examination, it is our opinion that the
Shares have been duly authorized, and, upon issuance, will be legally issued,
fully paid and non-assessable under the laws of the State of Delaware (the state
of incorporation of the Company).
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
MELTZER, LIPPE, GOLDSTEIN, WOLF
& SCHLISSEL, P.C.
By:
--------------------------------
<PAGE>
October 29, 1998
Mr. Edward Schneider
Vice President for Finance
University at Buffalo Foundation Inc.
103 Center for Tomorrow
North Campus SUNY
Amherst NY 14260-7400
Dear Mr. Schneider:
The purpose of this letter is to confirm our mutual understanding with respect
to Dr. Michael Anbar's participation as Chief Scientist of OmniCorder
Technologies. As you know we have been supporting his DAT research through a
series of UB Foundation grants. Moving forward we anticipate Dr. Anbar working
very closely with OCT towards it's efforts to develop and commercialize the DAT
technology.
My understanding, through him, is that he discussed with you and Dean Mark
Karwan, Chief Executive Officer of the UB Business Alliance, a program,
facilitated through the UB Foundation, which provides Dr. Anbar the approval to
utilize 90% of his SUNY time for OCT research and development activities. In
return, OCT will transfer to the UB Foundation 90% of Dr. Anbar's SUNY Buffalo
annual salary plus 29% to cover benefits plus an additional 10% to satisfy
overhead costs. These payments will be made to the UB Foundation on a quarterly
basis and all but the 10% overhead payment will be transferred by the UB
Foundation to SUNY Buffalo on OCT's behalf.
In order to memorialize this understanding, please sign below on behalf of the
UB Foundation and have Dean Karwan sign on behalf of SUNY Buffalo. Upon
receiving the signed letter back we will execute the funds transfer to the UB
Foundation. I thank you for your attention to this matter.
/s/ Edward Schneider
- ---------------------------
Edward Schneider Date
/s/ Mark Karwan
- ---------------------------
Mark Karwan Date
Sincerely,
/s/ Mark A. Fauci
--------------------
Mark A. Fauci
<PAGE>
Exhibit 10(vii)
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
December 15, 1997
OMNICORDER TECHNOLOGIES, INC.
In consideration of Forty Thousand ($40,000) Dollars, the
receipt of which is hereby acknowledged by OMNICORDER TECHNOLOGIES, INC., a
Delaware corporation with an address at 25 E. Loop Road, Stony Brook, New York
11790 (the "Company"), RICHARD A. LIPPE or assigns is hereby granted a warrant
to purchase up to $180,000 of the equity and/or debt securities sold by the
Company in any Private Offering (as hereinafter defined) consummated by the
Company upon the same terms such equity and/or debt securities are sold, as more
particularly described in Section 6 hereof. This Warrant shall be exercisable at
any time commencing on the date hereof and ending at 5:00 P.M., New York time,
on January 6, 2004 (the "Term").
Upon surrender of this Warrant, with the annexed Subscription
Form duly executed, together with the payment of the purchase price for the
securities purchased or by means of "cashless exercise" pursuant to Section 1(c)
hereof, at the offices of the Company, the registered holder of this Warrant
("Holder" or "Holders") shall be entitled to receive the securities so
purchased.
1. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable at the option of the Holder hereof, in whole or in part during any
period in which this Warrant may be exercised as set forth above.
(b) In order to exercise this Warrant, the Holder shall
surrender this Warrant, together with a Subscription Form in the form attached
hereto duly executed and, if appropriate, accompanied by cash or by a certified
or official bank check or a wire transfer in payment of the purchase price for
the securities. This Warrant shall be surrendered for exercise at the Company's
principal office.
(c) The Holder of this Warrant shall have the right to
exercise this Warrant, in whole or in part, by means of a "cashless exercise".
For example, if the securities sold in the Private Offering include shares of
common stock, par value $.01 of the Company ("Common Stock"), (or securities
convertible into or exercisable for Common Stock), and if the Current Market
Price (as hereinafter defined) of the Common Stock is greater than the purchase
price for the securities sold in the Private Offering (on a per share
<PAGE>
of Common Stock basis) as of the date of calculation, in lieu of exercising this
Warrant for cash, the Holder may elect to receive such number of shares of
Common Stock (or securities convertible into or exercisable for Common Stock)
equal to the value (as determined below) of this Warrant (or any specified
portion thereof), in which event the Company shall issue to the Holder that
number of shares of Common Stock (or securities convertible into or exercisable
for Common Stock) computed using the following formula:
CS = S x (CMP-EP)
------------
CMP
Where:
CS = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) to be issued to the
Holder;
S = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) purchasable under this
Warrant or, if only a portion of this
Warrant is being exercised, the number of
shares of Common Stock (or securities
convertible into or exercisable for Common
Stock) for which this Warrant is being
exercised;
CMP = the Current Market Price of the share(s) of
Common Stock; and
EP = the purchase price per share of Common
Stock (or securities convertible into or
exercisable for Common Stock) in the Private
Offering.
(d) If this Warrant shall not have been exercised in full, a
new Warrant shall be issued for the number of Shares which have not been
exercised. This Warrant or any portion hereof, when so surrendered, shall be
canceled by or on behalf of the Company.
2. Immediate Exercise. This Warrant shall be immediately
exercisable.
3. Issuance of Securities.
Upon the exercise of this Warrant, the issuance of securities
underlying this Warrant shall be made forthwith (and in any event within five
business days thereafter) without charge to the Holder hereof, including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such securities shall (subject to the provisions of Article
-2-
<PAGE>
4 hereof) be issued in the name of, or in such names as may be directed by, the
Holder hereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such securities in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The securities shall be
executed on behalf of the Company by the manual or facsimile signature of one of
the present or any future Chairman or President of the Company and any present
or future Vice President or Secretary of the Company.
Irrespective of the date of issue of the securities, each person in
whose name any security is issued shall be deemed to have become the holder of
record of the securities represented thereby on the date on which the Warrant
was exercised and payment of the purchase price was tendered as provided herein.
4. Assignment.
The Holder shall have the right and option to transfer and assign this
Warrant (and all rights in connection therewith) to any other person or entity,
provided that such transfer is made in compliance with all applicable securities
laws.
5. [RESERVED]
6. Rights of Exercise; Adjustments.
(a) As used in this Warrant, the term "Private
Offering" shall mean the consummation by the
Company of a private offering of any of its
equity and/or debt securities (including
without limitation a "bridge loan" with a
warrant or other equity instrument). Prior
to consummating a Private Offering, the
Company shall provide written notice to the
Holder of its intention to consummate such
Private Offering, together with all purchase
agreements, offering materials and related
documentation associated with such Private
Offering and the Holder shall have the right
and option, exercisable at any time up until
the end of the Term, to purchase up to an
aggregate value of $180,000 of the equity
and/or debt securities sold in any such
Private Offering, upon the same terms such
equity and/or debt securities are sold. A
"Private Offering" shall not include the
issuance of 200,000 shares reserved for
issuance to Michael Anbar and 40,000 shares
reserved for issuance to the California
Institute of Technology, (y) the issuance of
options or
-3-
<PAGE>
warrants (or the shares of Common Stock
issuable upon exercise thereof) to be
granted to the Company's officers,
directors, consultants or vendors pursuant
to an option plan duly adopted by the Board
of Directors and shareholders of the
Company, and (z) warrants or shares issuable
upon exercise thereof in connection with the
deferral of professional fees owed by the
Company to Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C.
Example 1: The Company issues shares of
Common Stock in a Private Offering at a
purchase price of $2.00 per share of Common
Stock. The holder of this Warrant will have
the right at any time during the Term to
purchase 90,000 shares of Common Stock:
$180,000 = 90,000 shares
--------
$2 per share
Example 2: The Company issues evidence of
its indebtedness together with a warrant to
purchase 1,000 shares of Common Stock at an
exercise price of $2.00 per Share of Common
Stock for each $1,000 principal amount of
indebtedness purchased. The Holder shall
have the right at any time during the Term
to purchase up to $180,000 of the
indebtedness sold and acquire warrants to
purchase 180,000 shares of Common Stock at
an exercise price of $2.00 per Share.
Example 3: The Company issues, as a "unit",
and for aggregate consideration of $3.50,
one share of a series of preferred stock
convertible into Common Stock at an initial
conversion price of $3.50 per share and one
warrant to purchase one share of Common
Stock at an exercise price of $3.50 per
share of Common Stock. The holder of this
Warrant will have the right at any time
during the Term to purchase 51,429 of such
units:
$180,000 = 51,429 units
--------
$3.50 per unit
(b) Unless previously exercised, the Holders
shall have the right to exercise this
Warrant in respect of each Private Offering
effected by the Company.
-4-
<PAGE>
(c) Stock Dividends, Subdivisions, Combinations.
If the Company (i) declares a dividend or
other distribution payable in securities or
(ii) subdivides its outstanding securities
into a larger number or (iii) combines its
outstanding securities into a smaller
number, then this Warrant shall be
proportionately adjusted to protect the
Holder hereof. In case of any consolidation
or merger of the Company with or into any
other corporation, entity or person, or any
other corporate reorganization, in which the
Company shall not be the continuing or
surviving entity of such consolidation,
merger or reorganization, or any
transactions in which in excess of fifty
percent (50%) of the Company's voting power
is transferred, or any sale of all or
substantially all of the assets of the
Company ( any such transaction being
hereinafter referred to as a
"Reorganization"), then, in each case, the
holder of this Warrant, on exercise hereof
at any time after the consummation or
effective date of such Reorganization shall
have the right, at any time during the Term,
to purchase up to $180,000 of such
securities of the surviving corporation to
which the Holder would have been entitled to
receive had it exercised this Warrant
immediately prior to the Reorganization at
the time of such Reorganization and the
right to exercise same shall survive such
Reorganization. The adjustment provided in
this subparagraph (c) shall similarly apply
to successive reorganizations, mergers,
consolidations or dispositions of assets.
(d) Current Market Price. For the purposes
hereof, the "Current Market Price" at any
date of one share of Common Stock shall be
deemed to be the average of the daily
closing prices for the 15 consecutive
business days commencing 20 business days
before the day in question. The closing
price for each day shall be the last
reported sales price regular way or, in case
no such reported sale takes place on such
day, the average of the reported closing bid
and asked prices regular way, in either case
on the principal national securities
exchange on which the Common Stock is listed
or admitted to trading, or if not listed or
admitted to trading on any national
securities exchange, the average of the
highest reported bid and lowest reported
asked prices as furnished by the National
Association of Securities Dealers, Inc.'s
Automated Quotation System, or the nearest
comparable system, or, in the absence of
either, by a reasonable determination of the
Board of Directors of the Company.
-5-
<PAGE>
(e) Notices of Record Date. In the event of (i)
any taking by the Company of a record of the
holders of any class or series of securities
for the purpose of determining the holders
thereof who are entitled to receive any
dividend or other distribution or (ii) any
reclassification or recapitalization of the
capital stock of the Company, any merger or
consolidation of the Company, or any
transfer of all or substantially all of the
property and the assets of the Company to
any other Company, entity, or person, or any
voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
the Company shall mail to the holder of this
Warrant at least twenty (20) days prior to
the record date specified therein, a notice
specifying (i) the date on which any such
record is to be taken for the purpose of
such dividend or distribution and a
description of such dividend or
distribution, (ii) the date on which any
such reorganization, reclassification,
transfer, consolidation, merger,
dissolution, liquidation, or winding up is
expected to become effective, and (iii) the
time, if any is to be fixed, as to when the
holders of record of securities shall be
entitled to exchange their shares of
securities for securities or other property
deliverable upon such reorganization,
reclassification, transfer, consolidation,
merger, dissolution, liquidation, or winding
up.
(f) Issue Taxes. The Company shall pay any and
all issue and other non-income taxes that
may be payable in respect of any issue or
delivery of shares of Common Stock on
exercise of this Warrant.
(g) No Private Offering. If no Private Offering
occurs within one year of the date hereof
(the "One Year Anniversary"), then at the
Holder's option, this Option will be
exercisable, at an aggregate exercise price
of $180,000, for up to a number of shares of
Common Stock equal to 2.344% of the
Company's Common Stock outstanding on the
date of such One Year Anniversary (on a
fully diluted basis giving effect to the
exercise of all outstanding options,
warrants and the conversion to Common Stock
of all securities convertible into Common
Stock, but not giving effect to the exercise
of this Warrant), which is equal to a
pre-money valuation of $7.5 Million. If one
or more Private Offerings occur after the
One Year Anniversary, then this Warrant may
also be exercised based on any such Private
Offering in accordance with the terms of
paragraphs 6(a) and 6(b).
-6-
<PAGE>
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for
new warrants of like tenor and date representing in the aggregate the right to
purchase the same number of securities as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized securities, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof and thereof. The Company covenants and agrees that, upon exercise of this
Warrant, all such securities issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.
9. Registration Rights.
The Company agrees that, following the consummation by the Company of
an initial public offering (an "Initial Public Offering") of any of its
securities under the Securities Act of 1933, as amended (the "Securities Act"),
the Holder of this Warrant shall have unlimited "piggy-back" registration rights
in connection with the registration of the securities issuable upon exercise of
this Warrant. The provisions of this Section 9 shall be embodied in a
Registration Rights Agreement executed by the Company and customary for such
type of transactions. Notwithstanding the foregoing, upon the consummation by
the Company of a Private Offering, the Holder of this Warrant shall be entitled
to receive registration rights substantively similar to the registration rights
received by the investors in any such Private Offering. In addition, the Holder
agrees, if requested by the underwriter of the Company's securities in the
Initial Public Offering, not to sell the securities issuable upon exercise of
this Warrant publicly, for a time period specified by such Underwriter, provided
that each other investor in the Company is similarly required to agree to such
provision with regard to the securities owned by such investor.
-7-
<PAGE>
10. Capitalization.
The Company represents and warrants to the Holder that, immediately
prior to the issuance of this Warrant, (x) 786,666 shares of Common Stock have
been issued and are outstanding, 240,000 shares of Common Stock have been
reserved for issuance and MLG has acquired, or has the rights to acquire, a
warrant to purchase up to $337,500 of the Company's securities.
11. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth on the
first page of this Warrant or to such other address
as the Company may designate by notice to the Holder.
12. Successors.
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. Headings.
The Article and Section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
14. Law Governing.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York without regard to its conflict of
laws principles. The Company hereby irrevocably submits to the exclusive
jurisdiction of any State or Federal Court in Nassau County, State of New York
for the purpose of any suit, action, proceeding or judgment relating to or
arising out of this Warrant.
-8-
<PAGE>
WITNESS the seal of the Company and the signature of its duly
authorized officers.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
--------------------
Name: /s/ Mark A. Fauci
Title: President and CEO
-9-
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
[The undersigned hereby irrevocably elects to exercise the
right to purchase _____ Shares by this Warrant according to the conditions
hereof and herewith makes payment of the Exercise Price of such Shares in full.]
[The undersigned hereby irrevocably elects to exercise the right to receive
_____ Shares pursuant to the "cashless exercise" provisions set forth herein.]
__________________________________
By:_______________________________
__________________________________
Dated: ___________, 19__ ______________________________
Taxpayer Identification Number
-10-
<PAGE>
Exhibit 10(viii)(a)
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
December 15, 1997
OMNICORDER TECHNOLOGIES, INC.
In consideration of the deferral of up to Seventy Five
Thousand ($75,000) Dollars in legal services and other good and valuable
consideration, the receipt of which is hereby acknowledged by OMNICORDER
TECHNOLOGIES, INC., a Delaware corporation with an address at 25 E. Loop Road,
Stony Brook, New York 11790 (the "Company"), MELTZER, LIPPE, GOLDSTEIN, WOLF &
SCHLISSEL, P.C. or assigns is hereby granted a warrant to purchase up to
$337,500 of the equity and/or debt securities sold by the Company in any Private
Offering (as hereinafter defined) consummated by the Company upon the same terms
such equity and/or debt securities are sold, as more particularly described in
Section 6 hereof. This Warrant shall be exercisable at any time commencing on
the date hereof and ending at 5:00 P.M., New York time, on January 6, 2004 (the
"Term").
Upon surrender of this Warrant, with the annexed Subscription
Form duly executed, together with the payment of the purchase price for the
securities purchased or by means of "cashless exercise" pursuant to Section 1(c)
hereof, at the offices of the Company, the registered holder of this Warrant
("Holder" or "Holders") shall be entitled to receive the securities so
purchased.
1. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable at the option of the Holder hereof, in whole or in part during any
period in which this Warrant may be exercised as set forth above.
(b) In order to exercise this Warrant, the Holder shall
surrender this Warrant, together with a Subscription Form in the form attached
hereto duly executed and, if appropriate, accompanied by cash or by a certified
or official bank check or a wire transfer in payment of the purchase price for
the securities. This Warrant shall be surrendered for exercise at the Company's
principal office.
(c) The Holder of this Warrant shall have the right to
exercise this Warrant, in whole or in part, by means of a "cashless exercise".
For example, if the securities sold in the Private Offering include shares of
common stock, par value $.01 of the Company ("Common Stock"), (or securities
convertible into or exercisable for Common Stock), and if the Current Market
Price (as hereinafter defined) of the Common Stock is
<PAGE>
greater than the purchase price for the securities sold in the Private Offering
(on a per share of Common Stock basis) as of the date of calculation, in lieu of
exercising this Warrant for cash, the Holder may elect to receive such number of
shares of Common Stock (or securities convertible into or exercisable for Common
Stock) equal to the value (as determined below) of this Warrant (or any
specified portion thereof), in which event the Company shall issue to the Holder
that number of shares of Common Stock (or securities convertible into or
exercisable for Common Stock) computed using the following formula:
CS = S x (CMP-EP)
------------
CMP
Where:
CS = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) to be issued to the
Holder;
S = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) purchasable under this
Warrant or, if only a portion of this
Warrant is being exercised, the number of
shares of Common Stock (or securities
convertible into or exercisable for Common
Stock) for which this Warrant is being
exercised;
CMP = the Current Market Price of the share(s)
of Common Stock; and
EP = the purchase price per share of Common
Stock (or securities convertible into or
exercisable for Common Stock) in the Private
Offering.
(d) If this Warrant shall not have been exercised in full, a
new Warrant shall be issued for the number of Shares which have not been
exercised. This Warrant or any portion hereof, when so surrendered, shall be
canceled by or on behalf of the Company.
2. Immediate Exercise. This Warrant shall be immediately
exercisable.
3. Issuance of Securities.
Upon the exercise of this Warrant, the issuance of securities
underlying this Warrant shall be made forthwith (and in any event within five
business days thereafter) without charge to the Holder hereof, including,
without limitation, any tax which may be payable in
-2-
<PAGE>
respect of the issuance thereof, and such securities shall (subject to the
provisions of Article 4 hereof) be issued in the name of, or in such names as
may be directed by, the Holder hereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such securities in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The securities shall be executed on behalf of the Company by the manual or
facsimile signature of one of the present or any future Chairman or President of
the Company and any present or future Vice President or Secretary of the
Company.
Irrespective of the date of issue of the securities, each person in
whose name any security is issued shall be deemed to have become the holder of
record of the securities represented thereby on the date on which the Warrant
was exercised and payment of the purchase price was tendered as provided herein.
4. Assignment.
The Holder shall have the right and option to transfer and assign this
Warrant (and all rights in connection therewith) to any other person or entity,
provided that such transfer is made in compliance with all applicable securities
laws.
5. [RESERVED]
6. Rights of Exercise; Adjustments.
(a) As used in this Warrant, the term "Private
Offering" shall mean the consummation by the
Company of a private offering of any of its
equity and/or debt securities (including
without limitation a "bridge loan" with a
warrant or other equity instrument). Prior
to consummating a Private Offering, the
Company shall provide written notice to the
Holder of its intention to consummate such
Private Offering, together with all purchase
agreements, offering materials and related
documentation associated with such Private
Offering and the Holder shall have the right
and option, exercisable at any time up until
the end of the Term, to purchase up to an
aggregate value of $337,500 of the equity
and/or debt securities sold in any such
Private Offering, upon the same terms such
equity and/or debt securities are sold. A
"Private Offering" shall not include the
issuance of 200,000 shares reserved for
issuance to Michael Anbar and 40,000 shares
reserved for issuance to the
-3-
<PAGE>
California Institute of Technology, (y) the
issuance of options or warrants (or the
shares of Common Stock issuable upon
exercise thereof) to be granted to the
Company's officers, directors, consultants
or vendors pursuant to an option plan duly
adopted by the Board of Directors and
shareholders of the Company, and (z)
warrants or shares issuable upon exercise
thereof in connection with that certain
Warrant issued to Richard A. Lippe dated
December 15, 1997.
Example 1: The Company issues shares of
Common Stock in a Private Offering at a
purchase price of $2.00 per share of Common
Stock. The holder of this Warrant will have
the right at any time during the Term to
purchase 168,750 shares of Common Stock:
$337,500 = 168,750 shares
--------
$2 per share
Example 2: The Company issues evidence of
its indebtedness together with a warrant to
purchase 1,000 shares of Common Stock at an
exercise price of $2.00 per Share of Common
Stock for each $1,000 principal amount of
indebtedness purchased. The Holder shall
have the right at any time during the Term
to purchase up to $337,500 of the
indebtedness sold and acquire warrants to
purchase 337,500 shares of Common Stock at
an exercise price of $2.00 per Share.
Example 3: The Company issues, as a "unit",
and for aggregate consideration of $3.50,
one share of a series of preferred stock
convertible into Common Stock at an initial
conversion price of $3.50 per share and one
warrant to purchase one share of Common
Stock at an exercise price of $3.50 per
share of Common Stock. The holder of this
Warrant will have the right at any time
during the Term to purchase 96,429 of such
units:
$337,500 = 96,429 units
--------
$3.50 per unit
(b) Unless previously exercised, the Holders
shall have the right to exercise this
Warrant in respect of each Private Offering
effected by the Company.
-4-
<PAGE>
(c) Stock Dividends, Subdivisions, Combinations.
If the Company (i) declares a dividend or
other distribution payable in securities or
(ii) subdivides its outstanding securities
into a larger number or (iii) combines its
outstanding securities into a smaller
number, then this Warrant shall be
proportionately adjusted to protect the
Holder hereof. In case of any consolidation
or merger of the Company with or into any
other corporation, entity or person, or any
other corporate reorganization, in which the
Company shall not be the continuing or
surviving entity of such consolidation,
merger or reorganization, or any
transactions in which in excess of fifty
percent (50%) of the Company's voting power
is transferred, or any sale of all or
substantially all of the assets of the
Company ( any such transaction being
hereinafter referred to as a
"Reorganization"), then, in each case, the
holder of this Warrant, on exercise hereof
at any time after the consummation or
effective date of such Reorganization shall
have the right, at any time during the Term,
to purchase up to $337,500 of such
securities of the surviving corporation to
which the Holder would have been entitled to
receive had it exercised this Warrant
immediately prior to the Reorganization at
the time of such Reorganization and the
right to exercise same shall survive such
Reorganization. The adjustment provided in
this subparagraph (c) shall similarly apply
to successive reorganizations, mergers,
consolidations or dispositions of assets.
(d) Current Market Price. For the purposes
hereof, the "Current Market Price" at any
date of one share of Common Stock shall be
deemed to be the average of the daily
closing prices for the 15 consecutive
business days commencing 20 business days
before the day in question. The closing
price for each day shall be the last
reported sales price regular way or, in case
no such reported sale takes place on such
day, the average of the reported closing bid
and asked prices regular way, in either case
on the principal national securities
exchange on which the Common Stock is listed
or admitted to trading, or if not listed or
admitted to trading on any national
securities exchange, the average of the
highest reported bid and lowest reported
asked prices as furnished by the National
Association of Securities Dealers, Inc.'s
Automated Quotation System, or the nearest
comparable system, or, in the absence of
either, by a reasonable determination of the
Board of Directors of the Company.
-5-
<PAGE>
(e) Notices of Record Date. In the event of (i)
any taking by the Company of a record of the
holders of any class or series of securities
for the purpose of determining the holders
thereof who are entitled to receive any
dividend or other distribution or (ii) any
reclassification or recapitalization of the
capital stock of the Company, any merger or
consolidation of the Company, or any
transfer of all or substantially all of the
property and the assets of the Company to
any other Company, entity, or person, or any
voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
the Company shall mail to the holder of this
Warrant at least twenty (20) days prior to
the record date specified therein, a notice
specifying (i) the date on which any such
record is to be taken for the purpose of
such dividend or distribution and a
description of such dividend or
distribution, (ii) the date on which any
such reorganization, reclassification,
transfer, consolidation, merger,
dissolution, liquidation, or winding up is
expected to become effective, and (iii) the
time, if any is to be fixed, as to when the
holders of record of securities shall be
entitled to exchange their shares of
securities for securities or other property
deliverable upon such reorganization,
reclassification, transfer, consolidation,
merger, dissolution, liquidation, or winding
up.
(f) Issue Taxes. The Company shall pay any and
all issue and other non-income taxes that
may be payable in respect of any issue or
delivery of shares of Common Stock on
exercise of this Warrant.
(g) No Private Offering. If no Private Offering
occurs within one year of the date hereof
(the "One Year Anniversary"), then at the
Holder's option, this Option will be
exercisable, at an aggregate exercise price
of $337,500, for up to a number of shares of
Common Stock equal to 4.3062% of the
Company's Common Stock outstanding on the
date of such One Year Anniversary (on a
fully diluted basis giving effect to the
exercise of all outstanding options,
warrants and the conversion to Common Stock
of all securities convertible into Common
Stock, but not giving effect to the exercise
of this Warrant), which is equal to a
pre-money valuation of $7.5 Million. If one
or more Private Offerings occur after the
One Year Anniversary, then this Warrant may
also be exercised based on any such Private
Offering in accordance with the terms of
paragraphs 6(a) and 6(b).
-6-
<PAGE>
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for
new warrants of like tenor and date representing in the aggregate the right to
purchase the same number of securities as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized securities, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof and thereof. The Company covenants and agrees that, upon exercise of this
Warrant, all such securities issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.
9. Registration Rights.
The Company agrees that, following the consummation by the Company of
an initial public offering (an "Initial Public Offering") of any of its
securities under the Securities Act of 1933, as amended (the "Securities Act"),
the Holder of this Warrant shall have unlimited "piggy-back" registration rights
in connection with the registration of the securities issuable upon exercise of
this Warrant. The provisions of this Section 9 shall be embodied in a
Registration Rights Agreement executed by the Company and customary for such
type of transactions. Notwithstanding the foregoing, upon the consummation by
the Company of a Private Offering, the Holder of this Warrant shall be entitled
to receive registration rights substantively similar to the registration rights
received by the investors in any such Private Offering. In addition, the Holder
agrees, if requested by the underwriter of the Company's securities in the
Initial Public Offering, not to sell the securities issuable upon exercise of
this Warrant publicly, for a time period specified by such Underwriter, provided
that each other investor in the Company is similarly required to agree to such
provision with regard to the securities owned by such investor.
-7-
<PAGE>
10. Capitalization.
The Company represents and warrants to the Holder that, immediately
prior to the issuance of this Warrant, (x) 786,666 shares of Common Stock have
been issued and are outstanding, 240,000 shares of Common Stock have been
reserved for issuance and Richard A. Lippe has acquired a warrant to purchase up
to $180,000 of the Company's securities.
11. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth on the
first page of this Warrant or to such other address
as the Company may designate by notice to the Holder.
12. Successors.
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. Headings.
The Article and Section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
14. Law Governing.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York without regard to its conflict of
laws principles. The Company hereby irrevocably submits to the exclusive
jurisdiction of any State or Federal Court in Nassau County, State of New York
for the purpose of any suit, action, proceeding or judgment relating to or
arising out of this Warrant.
-8-
<PAGE>
WITNESS the seal of the Company and the signature of its duly
authorized officers.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
--------------------
Name: /s/ Mark A. Fauci
Title: President and CEO
-9-
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
[The undersigned hereby irrevocably elects to exercise the
right to purchase _____ Shares by this Warrant according to the conditions
hereof and herewith makes payment of the Exercise Price of such Shares in full.]
[The undersigned hereby irrevocably elects to exercise the right to receive
_____ Shares pursuant to the "cashless exercise" provisions set forth herein.]
__________________________________
By:_______________________________
__________________________________
Dated: ___________, 19__ ______________________________
Taxpayer Identification Number
-10-
<PAGE>
Exhibit 10(viii)(b)
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
February 15, 1998
OMNICORDER TECHNOLOGIES, INC.
In consideration of the deferral of up to Twenty Thousand
($20,000) Dollars in legal services and other good and valuable consideration,
the receipt of which is hereby acknowledged by OMNICORDER TECHNOLOGIES, INC., a
Delaware corporation with an address at 25 E. Loop Road, Stony Brook, New York
11790 (the "Company"), MELTZER, LIPPE, GOLDSTEIN, WOLF & SCHLISSEL, P.C. or
assigns is hereby granted a warrant to purchase up to $90,000 of the equity
and/or debt securities sold by the Company in any Private Offering (as
hereinafter defined) consummated by the Company upon the same terms such equity
and/or debt securities are sold, as more particularly described in Section 6
hereof. This Warrant shall be exercisable at any time commencing on the date
hereof and ending at 5:00 P.M., New York time, on February 15, 2004 (the
"Term").
Upon surrender of this Warrant, with the annexed Subscription
Form duly executed, together with the payment of the purchase price for the
securities purchased or by means of "cashless exercise" pursuant to Section 1(c)
hereof, at the offices of the Company, the registered holder of this Warrant
("Holder" or "Holders") shall be entitled to receive the securities so
purchased.
1. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable at the option of the Holder hereof, in whole or in part during any
period in which this Warrant may be exercised as set forth above.
(b) In order to exercise this Warrant, the Holder shall
surrender this Warrant, together with a Subscription Form in the form attached
hereto duly executed and, if appropriate, accompanied by cash or by a certified
or official bank check or a wire transfer in payment of the purchase price for
the securities. This Warrant shall be surrendered for exercise at the Company's
principal office.
(c) The Holder of this Warrant shall have the right to
exercise this Warrant, in whole or in part, by means of a "cashless exercise".
For example, if the securities sold in the Private Offering include shares of
common stock, par value $.01 of the Company ("Common Stock"), (or securities
convertible into or exercisable for Common Stock), and if the Current Market
Price (as hereinafter defined) of the Common Stock is
<PAGE>
greater than the purchase price for the securities sold in the Private Offering
(on a per share of Common Stock basis) as of the date of calculation, in lieu of
exercising this Warrant for cash, the Holder may elect to receive such number of
shares of Common Stock (or securities convertible into or exercisable for Common
Stock) equal to the value (as determined below) of this Warrant (or any
specified portion thereof), in which event the Company shall issue to the Holder
that number of shares of Common Stock (or securities convertible into or
exercisable for Common Stock) computed using the following formula:
CS = S x (CMP-EP)
------------
CMP
Where:
CS = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) to be issued to the
Holder;
S = the number of shares of Common Stock (or
securities convertible into or exercisable
for Common Stock) purchasable under this
Warrant or, if only a portion of this
Warrant is being exercised, the number of
shares of Common Stock (or securities
convertible into or exercisable for Common
Stock) for which this Warrant is being
exercised;
CMP = the Current Market Price of the share(s) of
Common Stock; and
EP = the purchase price per share of Common
Stock (or securities convertible into or
exercisable for Common Stock) in the Private
Offering.
(d) If this Warrant shall not have been exercised in full, a
new Warrant shall be issued for the number of Shares which have not been
exercised. This Warrant or any portion hereof, when so surrendered, shall be
canceled by or on behalf of the Company.
2. Immediate Exercise. This Warrant shall be immediately
exercisable.
3. Issuance of Securities.
Upon the exercise of this Warrant, the issuance of securities
underlying this Warrant shall be made forthwith (and in any event within five
business days thereafter) without charge to the Holder hereof, including,
without limitation, any tax which may be payable in
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<PAGE>
respect of the issuance thereof, and such securities shall (subject to the
provisions of Article 4 hereof) be issued in the name of, or in such names as
may be directed by, the Holder hereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such securities in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The securities shall be executed on behalf of the Company by the manual or
facsimile signature of one of the present or any future Chairman or President of
the Company and any present or future Vice President or Secretary of the
Company.
Irrespective of the date of issue of the securities, each person in
whose name any security is issued shall be deemed to have become the holder of
record of the securities represented thereby on the date on which the Warrant
was exercised and payment of the purchase price was tendered as provided herein.
4. Assignment.
The Holder shall have the right and option to transfer and assign this
Warrant (and all rights in connection therewith) to any other person or entity,
provided that such transfer is made in compliance with all applicable securities
laws.
5. [RESERVED]
6. Rights of Exercise; Adjustments.
(a) As used in this Warrant, the term "Private
Offering" shall mean the consummation by the
Company of a private offering of any of its
equity and/or debt securities (including
without limitation a "bridge loan" with a
warrant or other equity instrument). Prior
to consummating a Private Offering, the
Company shall provide written notice to the
Holder of its intention to consummate such
Private Offering, together with all purchase
agreements, offering materials and related
documentation associated with such Private
Offering and the Holder shall have the right
and option, exercisable at any time up until
the end of the Term, to purchase up to an
aggregate value of $90,000 of the equity
and/or debt securities sold in any such
Private Offering, upon the same terms such
equity and/or debt securities are sold. A
"Private Offering" shall not include the
issuance of 200,000 shares reserved for
issuance to Michael Anbar and 40,000 shares
reserved for issuance to the California
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Institute of Technology, (y) the issuance of
options or warrants (or the shares of Common
Stock issuable upon exercise thereof) to be
granted to the Company's officers,
directors, consultants or vendors pursuant
to an option plan duly adopted by the Board
of Directors and shareholders of the
Company, and (z) warrants or shares issuable
upon exercise thereof in connection with
that certain Warrant issued to Richard A.
Lippe dated December 15, 1997; and that
certain Warrant issued to Meltzer, Lippe,
Goldstein, Wolf & Schlissel, P.C. on
December 15, 1997.
Example 1: The Company issues shares of
Common Stock in a Private Offering at a
purchase price of $2.00 per share of Common
Stock. The holder of this Warrant will have
the right at any time during the Term to
purchase 45,000 shares of Common Stock:
$90,000 = 45,000 shares
-------
$2 per share
Example 2: The Company issues evidence of
its indebtedness together with a warrant to
purchase 1,000 shares of Common Stock at an
exercise price of $2.00 per Share of Common
Stock for each $1,000 principal amount of
indebtedness purchased. The Holder shall
have the right at any time during the Term
to purchase up to $90,000 of the
indebtedness sold and acquire warrants to
purchase 90,000 shares of Common Stock at an
exercise price of $2.00 per Share.
Example 3: The Company issues, as a "unit",
and for aggregate consideration of $3.50,
one share of a series of preferred stock
convertible into Common Stock at an initial
conversion price of $3.50 per share and one
warrant to purchase one share of Common
Stock at an exercise price of $3.50 per
share of Common Stock. The holder of this
Warrant will have the right at any time
during the Term to purchase 25,714 of such
units:
$90,000 = 25,714 units
-------
$3.50 per unit
(b) Unless previously exercised, the Holders
shall have the right to exercise this
Warrant in respect of each Private Offering
effected by the Company.
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<PAGE>
(c) Stock Dividends, Subdivisions, Combinations.
If the Company (i) declares a dividend or
other distribution payable in securities or
(ii) subdivides its outstanding securities
into a larger number or (iii) combines its
outstanding securities into a smaller
number, then this Warrant shall be
proportionately adjusted to protect the
Holder hereof. In case of any consolidation
or merger of the Company with or into any
other corporation, entity or person, or any
other corporate reorganization, in which the
Company shall not be the continuing or
surviving entity of such consolidation,
merger or reorganization, or any
transactions in which in excess of fifty
percent (50%) of the Company's voting power
is transferred, or any sale of all or
substantially all of the assets of the
Company ( any such transaction being
hereinafter referred to as a
"Reorganization"), then, in each case, the
holder of this Warrant, on exercise hereof
at any time after the consummation or
effective date of such Reorganization shall
have the right, at any time during the Term,
to purchase up to $90,000 of such securities
of the surviving corporation to which the
Holder would have been entitled to receive
had it exercised this Warrant immediately
prior to the Reorganization at the time of
such Reorganization and the right to
exercise same shall survive such
Reorganization. The adjustment provided in
this subparagraph (c) shall similarly apply
to successive reorganizations, mergers,
consolidations or dispositions of assets.
(d) Current Market Price. For the purposes
hereof, the "Current Market Price" at any
date of one share of Common Stock shall be
deemed to be the average of the daily
closing prices for the 15 consecutive
business days commencing 20 business days
before the day in question. The closing
price for each day shall be the last
reported sales price regular way or, in case
no such reported sale takes place on such
day, the average of the reported closing bid
and asked prices regular way, in either case
on the principal national securities
exchange on which the Common Stock is listed
or admitted to trading, or if not listed or
admitted to trading on any national
securities exchange, the average of the
highest reported bid and lowest reported
asked prices as furnished by the National
Association of Securities Dealers, Inc.'s
Automated Quotation System, or the nearest
comparable system, or, in the absence of
either, by a reasonable determination of the
Board of Directors of the Company.
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<PAGE>
(e) Notices of Record Date. In the event of (i)
any taking by the Company of a record of the
holders of any class or series of securities
for the purpose of determining the holders
thereof who are entitled to receive any
dividend or other distribution or (ii) any
reclassification or recapitalization of the
capital stock of the Company, any merger or
consolidation of the Company, or any
transfer of all or substantially all of the
property and the assets of the Company to
any other Company, entity, or person, or any
voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
the Company shall mail to the holder of this
Warrant at least twenty (20) days prior to
the record date specified therein, a notice
specifying (i) the date on which any such
record is to be taken for the purpose of
such dividend or distribution and a
description of such dividend or
distribution, (ii) the date on which any
such reorganization, reclassification,
transfer, consolidation, merger,
dissolution, liquidation, or winding up is
expected to become effective, and (iii) the
time, if any is to be fixed, as to when the
holders of record of securities shall be
entitled to exchange their shares of
securities for securities or other property
deliverable upon such reorganization,
reclassification, transfer, consolidation,
merger, dissolution, liquidation, or winding
up.
(f) Issue Taxes. The Company shall pay any and
all issue and other non-income taxes that
may be payable in respect of any issue or
delivery of shares of Common Stock on
exercise of this Warrant.
(g) No Private Offering. If no Private Offering
occurs within one year of the date hereof
(the "One Year Anniversary"), then at the
Holder's option, this Option will be
exercisable, at an aggregate exercise price
of $90,000, for up to a number of shares of
Common Stock equal to 1.1858% of the
Company's Common Stock outstanding on the
date of such One Year Anniversary (on a
fully diluted basis giving effect to the
exercise of all outstanding options,
warrants and the conversion to Common Stock
of all securities convertible into Common
Stock, but not giving effect to the exercise
of this Warrant), which is equal to a
pre-money valuation of $7.5 Million. If one
or more Private Offerings occur after the
One Year Anniversary, then this Warrant may
also be exercised based on any such Private
Offering in accordance with the terms of
paragraphs 6(a) and 6(b).
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<PAGE>
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for
new warrants of like tenor and date representing in the aggregate the right to
purchase the same number of securities as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized securities, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof and thereof. The Company covenants and agrees that, upon exercise of this
Warrant, all such securities issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.
9. Registration Rights.
The Company agrees that, following the consummation by the Company of
an initial public offering (an "Initial Public Offering") of any of its
securities under the Securities Act of 1933, as amended (the "Securities Act"),
the Holder of this Warrant shall have unlimited "piggy-back" registration rights
in connection with the registration of the securities issuable upon exercise of
this Warrant. The provisions of this Section 9 shall be embodied in a
Registration Rights Agreement executed by the Company and customary for such
type of transactions; however, such rights shall be effective even in the
absence of a Registration Rights Agreement. Notwithstanding the foregoing, upon
the consummation by the Company of a Private Offering, the Holder of this
Warrant shall be entitled to receive registration rights substantively similar
to the registration rights received by the investors in any such Private
Offering. In addition, the Holder agrees, if requested by the underwriter of the
Company's securities in the Initial Public Offering, not to sell the securities
issuable upon exercise of this Warrant publicly, for a time period specified by
such Underwriter, provided that each other investor in the Company is similarly
required to agree to such provision with regard to the securities owned by such
investor.
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<PAGE>
10. Capitalization.
The Company represents and warrants to the Holder that, immediately
prior to the issuance of this Warrant, (x) 786,666 shares of Common Stock have
been issued and are outstanding, 240,000 shares of Common Stock have been
reserved for issuance, Richard A. Lippe has acquired a warrant to purchase up to
$180,000 of the Company's securities and Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C. has acquired a warrant to purchase up to $337,500 of the
Company's securities.
11. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth on the
first page of this Warrant or to such other address
as the Company may designate by notice to the Holder.
12. Successors.
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. Headings.
The Article and Section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
14. Law Governing.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York without regard to its conflict of
laws principles. The Company hereby irrevocably submits to the exclusive
jurisdiction of any State or Federal Court in Nassau County, State of New York
for the purpose of any suit, action, proceeding or judgment relating to or
arising out of this Warrant.
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<PAGE>
WITNESS the seal of the Company and the signature of its duly
authorized officers.
OMNICORDER TECHNOLOGIES, INC.
By: /s/ Mark A. Fauci
--------------------
Name: /s/ Mark A. Fauci
Title: President and CEO
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<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
[The undersigned hereby irrevocably elects to exercise the
right to purchase _____ Shares by this Warrant according to the conditions
hereof and herewith makes payment of the Exercise Price of such Shares in full.]
[The undersigned hereby irrevocably elects to exercise the right to receive
_____ Shares pursuant to the "cashless exercise" provisions set forth herein.]
________________________________
By:_____________________________
________________________________
Dated: ___________, 19__ ______________________________
Taxpayer Identification Number
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<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 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
January 28, 1999
