<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1998
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ONCORMED, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C>
DELAWARE 52-1842781
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
205 PERRY PARKWAY, GAITHERSBURG, MARYLAND 20877
(301) 208-1888
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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TIMOTHY J. TRICHE, M.D., PH.D.
CHIEF EXECUTIVE OFFICER
ONCORMED, INC.
205 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
(301) 208-1888
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service of Process)
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Copies Of All Communications To:
ALEXANDER D. LYNCH, ESQ.
ALAN P. BLAUSTEIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP
1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10019
(212) 581-1600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AGGREGATE PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED AMOUNT TO BE REGISTERED UNIT (1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(2) 1,596,189 shares $6.625 $10,574,753 $3,120
</TABLE>
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(1) Estimated pursuant to Rule 457(c) solely for the purpose of computing the
registration fee based upon the average of the high and low prices of the
Common Stock, as reported on the American Stock Exchange as of a date
which is within five business days of the date of this Registration
Statement.
(2) Includes (i) up to 1,259,820 shares of Common Stock to be issued upon
conversion of the Company's 6% Series A Convertible Preferred Stock, (ii)
up to 75,585 shares of Common Stock issuable as dividends for a period of
two years from February 27, 1998 on the Company's 6% Series A Convertible
Preferred Stock, (iii) up to 260,784 shares of Common Stock to be issued
upon exercise of certain warrants to purchase the Company's Common Stock,
and (iv) an indeterminate number of additional shares of Common Stock as
may from time to time become issuable upon conversion of the 6% Series A
Convertible Preferred Stock, upon exercise of certain Warrants, or upon
payment of dividends on the 6% Series A Convertible Preferred Stock beyond
February 27, 2000, which shares are registered hereunder pursuant to Rule
416 promulgated under the Securities Act of 1933, as amended.
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.
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<PAGE> 2
1,596,189 SHARES
ONCORMED, INC.
COMMON STOCK
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This Prospectus relates to the offer and resale by the persons listed
herein under "Selling Stockholders" (collectively, the "Selling Stockholders")
of up to 1,596,189 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), of Oncormed, Inc., a Delaware corporation (the
"Company" or "Oncormed"), to be issued from time to time to the Selling
Stockholders: (i) upon conversion of the Company's 6% Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), (ii) as dividends on the
Series A Preferred Stock for a period of two years from February 27, 1998, and
(iii) upon exercise of certain warrants to purchase the Company's Common Stock
(collectively, the "Warrants"). The Shares represent the sum of (i) 200% times
the maximum number of shares of Common Stock into which the Series A Preferred
Stock is convertible, (ii) the number of shares of Common Stock issuable upon
exercise of certain of the Warrants, and (iii) the number of shares of Common
Stock issuable upon payment of dividends on the Series A Preferred Stock,
assuming each share of Series A Preferred Stock is outstanding for two years.
This Prospectus also covers, in accordance with Rule 416 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the resale by the
Selling Stockholders of such presently indeterminate number of additional shares
of Common Stock as may from time to time become issuable (i) upon conversion of
the Series A Preferred Stock, based upon adjustments or fluctuations in the
conversion price of the Series A Preferred Stock, (ii) upon exercise of certain
Warrants, based on adjustments in the exercise price of such Warrants, and (iii)
upon payment as dividends on the Series A Preferred Stock beyond February 27,
2000. The Series A Preferred Stock, the shares of Common Stock issuable upon the
conversion thereof, the Warrants, and the shares of Common Stock issuable upon
the exercise thereof, have been and will be issued in transactions exempt from
the registration requirements of the Securities Act.
The Shares may be offered by the Selling Stockholders from time to time in
transactions on the American Stock Exchange, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, including without
limitation: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction, (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus, (c) an exchange distribution in accordance with
the rules of such exchange, (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (e) privately negotiated
transactions, and (f) a combination of any such methods of sale. In effecting
sales, brokers and dealers engaged by the Selling Stockholders may arrange for
other brokers of dealers to participate. In order to comply with the securities
laws of certain states, if applicable, the Shares will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, the Selling Stockholders may pledge or make gifts of their Shares and
such Shares may also be sold by the pledgees or transferees. To the extent
required, the specific Shares to be sold, the names of the Selling
Stockholders, the public offering price, the names of any such agent, dealer or
underwriter, and any applicable commission or discount with respect to any
particular offer will be set forth in an accompanying Prospectus Supplement.
See "Selling Stockholders" and "Plan of Distribution."
None of the proceeds from the sale of the Shares will be received by the
Company. The Company has agreed to bear certain expenses in connection with
the registration of the Shares pursuant to certain preexisting agreements with
the Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders and their affiliates against certain liabilities, including
liabilities under the Securities Act. The Selling Stockholders have agreed to
indemnify the Company and its affiliates against certain liabilities, including
liabilities under the Securities Act under certain circumstances.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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The Common Stock is traded on the American Stock Exchange under the symbol
"ONM." The last reported sales price of the Common Stock on the American Stock
Exchange on March 24, 1998 was $6.75 per share.
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The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by them and any profit on
the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
herein for a description of indemnification arrangements.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS MARCH 25, 1998
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act
with respect to the Shares offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
the schedules thereto. For further information with respect to the Company and
such Shares, reference is made to the Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and, with respect to any contract or other document filed as an
exhibit to the Registration Statement, each such statement is qualified in all
respects by reference to such exhibit. Copies of the Registration Statement and
the exhibits and schedules thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the public reference facilities of the Commission described
below.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected, and copies of such material may be obtained upon
payment of the prescribed fees, at the Commission's Public Reference Section,
Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, as well as at the
Commission's Regional Offices at Seven World Trade Center, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, or may be obtained from the Commission's Internet site on
the world wide web at http://www.sec.gov. Copies of such material can be
obtained in person from the Public Reference Section of the Commission at its
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the prescribed fees.
The Common Stock of the Company is traded on the American Stock Exchange,
and in accordance therewith, annual and quarterly reports, proxy statements and
other information concerning the Company may be inspected at the American Stock
Exchange's offices located in New York.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are hereby incorporated
by reference in this Prospectus: (1) the Annual Report of the Company on Form
10-K for the fiscal year ended December 31, 1996; (2) the Quarterly Reports of
the Company on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997,
and September 30, 1997; (3) the Proxy Statement of the Company in connection
with the Annual Meeting of the Stockholders held on June 24, 1997; (4) the Form
8-K filed on March 6, 1997; (5) the Form 8-K filed on November 21, 1997, and
(6) the Form 8-K filed on March 5, 1998.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement incorporated herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
report or other document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom reports or
this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such reports or documents, unless such exhibits are
specifically incorporated by reference into such document). Requests for such
documents should be submitted in writing to Mr. L. Robert Johnston, Jr., Senior
Vice President and Chief Financial Officer, Oncormed, Inc., 205 Perry Parkway,
Gaithersburg, Maryland 20877.
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<PAGE> 4
THE COMPANY
The Company was incorporated in Delaware in July, 1993. The Company's
principal offices are located at 205 Perry Parkway, Gaithersburg, Maryland
20877, and its telephone number is (301) 208-1888.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and should not be made by any investor who cannot afford the
loss of his entire investment. Accordingly, prospective investors should
carefully consider the following factors, in addition to all of the other
information presented in this Prospectus, before purchasing any of the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF
FUTURE PROFITABILITY
The Company commenced operations in July 1993, has a limited operating
history and is a development stage company. Since its inception, the Company
has been engaged in research and development activities, organizational efforts
and sales and marketing activities, including the development of its services,
the hiring of its scientific and marketing staff and its initial sales and
marketing efforts. The Company has incurred operating losses since its
inception. As of September 30, 1997, the Company's accumulated deficit was
approximately $27.1 million. The Company's losses have resulted principally
from selling, general and administrative expenses, laboratory operations and
research and development expenses. The Company has yet to generate any
significant revenues and the Company cannot anticipate when, or if, it will be
able to generate significant revenues in the future. The Company expects its
operating losses to continue as its sales and marketing efforts, research and
development programs and laboratory operations continue and increase. The
Company's ability to achieve profitability depends on its ability to
successfully market and sell its services. There can be no assurance when, or
if, the Company will become profitable.
ADDITIONAL FINANCING REQUIREMENTS; ACCESS TO CAPITAL
The Company has incurred negative cash flows from operations since its
inception. The Company will need additional capital in the second quarter of
1998 to continue to fund its operations. There can be no assurance, however,
that additional financing will be available, or if available, will be available
on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to existing stockholders will result and future
investors may be granted rights superior to those of existing stockholders. If
the Company is unable to raise additional funds in the second quarter of 1998,
the Company will be unable to continue to fund its operations. Moreover, the
Company will be unable to implement its business strategy and will be required
to delay, scale back or eliminate certain of its research and product
development programs or to license to third parties rights to commercialize
products or technologies that the Company would otherwise seek to develop
itself. The unavailability of adequate funds in the near future would have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, trade secret and copyright
laws and confidentiality agreements to protect its proprietary technology,
rights and know-how. The Company's success will depend in part
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<PAGE> 5
on its ability or the ability of its licensors or sublicensors to
obtain patents, defend patents, maintain trade secrets, defend copyrights and
operate without infringing upon the proprietary rights of others, both in the
United States and in foreign countries. The patent position of companies
relying upon biotechnology is highly uncertain in general and involves complex
legal and factual issues, and no consistent policy has emerged regarding the
breadth of claims allowed in biotechnology patents. Except for a patent issued
to the Company in early July 1997 for a pattern recognition methodology and in
early August 1997 related to the BRCA1 gene, to date, none of the Company, its
licensors or its sublicensors has been granted any patents related to the
technology or genetic discoveries underlying the Company's services. Although
the Company and certain of the Company's licensors and sublicensors have patent
applications pending relating to such technologies and discoveries, there can
be no assurance that patents will be issued as a result of such patent
applications or that, if issued, such patents will be sufficiently broad to
afford protection against competitors with similar technologies or discoveries.
There can also be no assurance that any patents issued to the Company, or for
which the Company has license or sublicense rights, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The commercial success of the Company
also will depend upon avoiding the infringement of patents issued to third
parties, obtaining licenses to third parties' technologies and genetic
discoveries and maintaining licenses upon which certain of the Company's
services are, or might be, based. In particular, third parties, including
competitors such as Myriad Genetics, Inc. ("Myriad") and other potential
competitors, have been issued patents relating to certain genes and genetic
mutations including BRCA1 and related mutations, underlying certain of the
Company's services, and have filed and may in the future file additional patent
applications relating to genes and genetic mutations including BRCA2, p16 and
related mutations. On November 19, 1996, the Company filed suit in the U.S.
District Court for the District of Columbia, against the National Institutes of
Health challenging the improper grant of an exclusive license to the University
of Utah in BRCA1. On November 17, 1997, the Company filed suit in U.S.
District Court for the District of Columbia against Myriad. The suit claims
infringement of the Company's BRCA1 gene patent issued to the Company in August
1997 (No. 5,654,155). On December 2, 1997, Myriad filed suit in U.S. District
Court for the District of Utah, Central Division, against the Company for
infringement of a patent issued to Myriad in December 1997 (No. 5,693,473). On
January 20, 1998, the Company and Steven A. Narod filed suit in the U.S.
District Court for the District of Columbia, against Myriad. The suit is an
action to correct inventorship regarding Dr. Narod on U.S. Patents No.
5,693,473 and 5,709,999 issued to Myriad, and requests that the Court order the
Commissioner of Patents and Trademarks to include Dr. Narod as an inventor on
the patents. On January 20, 1998, the Company filed suit against Myriad
claiming that the patent entitled "Linked Breast and Ovarian Gene" issued to
Myriad (No. 5,709,999) infringes upon the Company's BRCA1 gene patent (No.
5,654,155). On January 20, 1998, Myriad filed suit against the Company
claiming that the Company's BRCA1 gene patent (No. 5,654,155) infringes upon
Myriad's "Linked Breast and Ovarian Gene" patent (No. 5,709,999). There can be
no assurance that the Company will prevail in such litigation or be successful
in defending its BRCA1-related proprietary rights. In addition, such
litigation could subject the Company to significant liability for damages and
could result in invalidation of the Company's proprietary rights and, even if
not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition. Further, if unsuccessful, such litigation may hinder
or prevent the Company from providing certain related genetic services and
could require the Company to enter into licenses with Myriad or cease such
activities. There can be no assurance that any required licenses would be
available on acceptable terms, or at all. The failure of the Company to
successfully defend its intellectual property rights, or the failure by the
Company to obtain any licenses related to such rights, if required, would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Under an agreement with Oncor, Inc. ("Oncor"), Oncor has the primary right
and obligation to obtain, maintain and enforce proprietary rights in relation to
its own technologies and any improvements to such technologies assigned to Oncor
by the Company. The amount and timing of resources devoted to such activities
are beyond the Company's control. There can be no assurance that Oncor will
perform such obligations on a timely basis or at all, or that it will expend
sufficient resources on such activities. The Company has the primary right and
obligation to obtain, maintain and enforce proprietary rights in relation to all
its own technologies.
The Company relies on certain technologies, trade secrets and know-how
that are not patentable or proprietary and are available to the Company's
competitors. Although the Company has taken steps to protect its unpatented
technologies, trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors.
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<PAGE> 6
RELATIONSHIP WITH ONCOR
In February 1997, the Company and Oncor agreed to certain changes to an
agreement with Oncor regarding sublicenses for certain proprietary technology
(the "Oncor Agreement"). Pursuant to the Oncor Agreement, Oncor is providing the
Company with an exclusive worldwide license to certain of Oncor's existing human
genome technologies that are useful for the development and commercialization of
certain of the Company's services, including: (i) testing, detection and/or
analysis of genes; (ii) genetic assessment of risk of an individual to develop
cancer; and (iii) testing and analysis for the purposes of cancer management. In
addition, Oncor is providing the Company with a non-exclusive worldwide license
to certain of Oncor's existing human genome technologies, and any future
improvements thereto, to be used by the Company in the provision of services
direct to third parties other than services that are provided pursuant to the
exclusive license. The Company does not have the right to sublicense any Oncor
technologies licensed to it by Oncor without Oncor's prior written consent.
Technologies sublicensed to the Company by Oncor include technologies covered by
the collaborative licensing and research agreements between Oncor and each of
The Johns Hopkins University and the Massachusetts General Hospital. The term of
the Oncor Agreement shall expire in June 2004 unless earlier terminated in
accordance with its terms. Further, in the event of a change of control of
Oncor, the acquiring party shall have the option to either maintain the Oncor
Agreement or to terminate the Oncor Agreement. In the event that the acquiror
terminates the Oncor Agreement, both the exclusive license and the non-exclusive
license shall remain in full force and effect under rates to be determined.
Certain of the Company's services are reliant on the technologies licensed
directly from Oncor and from third parties through Oncor which form the basis
for some of the Company's services. The Company's rights under the Oncor
Agreement are subject to certain rights retained by Oncor, which include
Oncor's right to use the licensed technologies for internal, non-commercial
research and development purposes and for development and commercialization of
Oncor's products. Oncor intends to develop its technologies into diagnostic
products for sale to third parties. These third parties may then use these
products to provide services that compete directly with the Company's services,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Oncor
Agreement will be renewed at the end of its initial term or that it will not be
terminated earlier pursuant to its terms. There also can be no assurance that
conflicts of interest between Oncor and the Company will not arise with respect
to the Oncor Agreement, any services that might be provided by Oncor to the
Company in the future or other aspects of the Company's relationship with
Oncor.
The Company's rights to technologies licensed to the Company from third
parties through Oncor are subject to various provisions in the license
agreements between such third parties and Oncor. No assurance can be given that
Oncor will perform its obligations under such agreements, that such agreements
will not be terminated or that such agreements can be renewed upon termination
or expiration. If Oncor breaches such agreements or otherwise fails to comply
with such agreements, or if such agreements are terminated or otherwise expire,
the development or commercialization of certain of the Company's services may
be delayed or terminated, or the Company would have to expend substantial
additional resources on development and commercialization, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Oncor currently owns approximately 25.4% of the
Company's outstanding Common Stock. Accordingly, Oncor may be able to
effectively control or influence certain actions such as the election of
directors and the authorization of certain transactions that require
stockholder approval and may be able to otherwise effectively control the
Company's policies without concurrence of the Company's other stockholders. In
addition, Stephen Turner, Chief Executive Officer and Chairman of the Board of
Directors of Oncor, is a director of the Company, and Timothy J. Triche, M.D.,
Ph.D., a director of Oncor, is the Chief Executive Officer and Chairman of the
Board of Directors of the Company.
RELIANCE ON PHARMACEUTICAL INDUSTRY
The Company expects that a significant portion of its revenues in the
foreseeable future will be derived from services provided to the genomics,
pharmaceutical and biotechnology industries. Accordingly, the Company's
success in the foreseeable future will be directly dependent upon the success
of the companies within those industries
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<PAGE> 7
and their continued demand for the Company's services. The Company's
operations may in the future be subject to substantial period-to-period
fluctuations as a consequence of reductions and delays in research and
development expenditures by companies in such industries resulting from factors
such as changes in economic conditions, pricing pressures, market-driven
pressures on companies to consolidate and reduce costs, and other factors
affecting research and development spending.
LENGTHY SALES CYCLE
The ability of the Company to obtain collaborators and subscribers for its
services depends in significant part upon the perception that such services can
help accelerate the translation of cancer-related genetic discoveries into
clinically-useful products. The sales cycle for the Company's services is
typically lengthy due to the education effort that is required as well as the
need to effectively sell the benefits of the Company's services to a variety of
constituencies within potential collaborators and subscribers, including
research and development personnel and key management. In addition, each
subscription and collaboration will involve the negotiation of agreements
containing terms that may be unique to each subscriber or collaborator. The
Company may expend substantial funds and management effort with no assurance
that a collaboration or subscription will result.
LIMITED PATIENT POPULATIONS FOR CERTAIN SERVICES
Certain of the Company's services currently address subtypes of broader
types of cancers. Patients with such subtypes typically represent only a small
percentage of those patients who are under treatment or have a history of the
broader types of cancer. Accordingly, the market for such services may be
limited and such services may not generate significant revenues.
UNPROVEN COMMERCIAL STRATEGY
The Company's success will depend upon its ability to assemble a portfolio
of identified disease-related genes and regulatory regions which have potential
therapeutic value and to select appropriate commercialization strategies for
drug discovery and development. While the Company anticipates that it will
select appropriate commercialization strategies, depending on the service, with
several different strategic partners, failure to allocate its resources to
those services with the most commercial potential and to the appropriate
strategic partner could have a material adverse effect on the Company's
business, financial condition and results of operations. Even if the Company
is successful in identifying disease-related genes, relatively few products
based on genes have been developed and commercialized to date, and there can be
no assurance that the Company or other entities working in collaboration with
the Company will be able to discover drugs and develop commercial products
based upon its gene discoveries. In addition, the development and
commercialization of drugs based on genes discovered by the Company will be
subject to the risks inherent in any new drug. These risks include the
possibilities that any or all of the products will be found to be ineffective
or toxic, or otherwise fail to receive necessary regulatory clearances; that
the products, if safe and effective, will be difficult to manufacture on a
large scale or uneconomical to market; that proprietary rights of third parties
will preclude the Company or its strategic partners from marketing products; or
that third parties will market superior or equivalent products. As a result,
the Company's commercial strategy is unproven.
The Company's clinical genomics services represent a new approach to
cancer management for which there is little precedent and for which the market
is evolving. The Company's business is to help accelerate the translation of
cancer related genetic discoveries into clinically useful cancer therapeutics
and diagnostics. The Company's ability to successfully develop its business is
unproven and is dependent on its ability to establish its services as the
standard of care in the translation of cancer related genetic discoveries into
clinically useful cancer therapeutics and diagnostics; expand the distribution
of its services both domestically and internationally; develop strategic
alliances and collaborations with pharmaceutical, genomics and biotechnology
partners; identify, license and develop emerging genetic discoveries and
mutation detection technologies; and continue to expand its portfolio of
services. The Company's ability to succeed is also dependent upon the
acceptance by potential customers and patients of the Company's services as
effective tools for cancer management. There can be no assurance that the
market for the
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<PAGE> 8
Company's services will continue to evolve or that the Company's business
strategy will be successful. The discoveries and technologies which form the
basis for the Company's services have not been widely adopted by the medical
community. Accordingly, the Company is pursuing clinical correlation studies at
academic medical centers and research institutions that are designed to
determine the clinical utility, reliability and accuracy of the Company's
services. There can be no assurance that these studies will confirm the
clinical utility, reliability and accuracy of the Company's services. The
failure of these studies to do so could have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT AND MARKET
ACCEPTANCE OF SERVICES
The successful commercialization of the Company's genetic testing and
information services depends in part on the ability of its customers to obtain
adequate reimbursement for such services and related treatments from
governmental agencies, private health care insurers and other third party
payors. Government and private third party payors are increasingly attempting
to contain health care costs by limiting both the extent of coverage and the
reimbursement rate for new diagnostic and therapeutic products and services.
Medicare has determined that the Company's genetic testing and information
services are screening services and therefore are excluded from coverage under
Medicare. Although various third party payors have begun to reimburse some of
the Company's services, there can be no assurance that third party
reimbursement for the Company's services will be consistently available to its
customers or that any such reimbursement will be adequate. Disapproval of, or
limitations in, coverage by third party payors could materially and adversely
affect market acceptance of the Company's services which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON STRATEGIC COLLABORATIONS AND LICENSES WITH OTHERS
The Company's strategy for the research, development and commercialization
of certain of its services is to rely in part on various collaborative and
license arrangements with academic medical centers, research institutions and
commercial entities. Accordingly, the Company is dependent in part upon such
third parties performing their obligations. The Company has entered into
certain collaborative and license arrangements, including arrangements with
Hereditary Cancer Institute ("HCI"), Affymetrix, Inc. ("Affymetrix"), ZENECA
Diagnostics, Incyte Pharmaceuticals, Inc. ("Incyte") and Cancer Research
Campaign Limited and Duke University ("CRCT/Duke"), and is continually seeking
to enter into additional arrangements with other collaborators and licensors.
There can be no assurance that the Company will be able to enter into
acceptable collaborative and license arrangements in the future or that the
parties with which the Company has established or will establish arrangements
will perform their obligations under such arrangements. There also can be no
assurance that its current arrangements or any future arrangements will lead to
the development of additional services with commercial potential, that the
Company will be able to obtain or license proprietary rights with respect to
any technology developed in connection with these arrangements and that the
Company will be able to ensure the confidentiality of any proprietary rights
and information developed in such arrangements or prevent the public disclosure
thereof. In general, the Company's collaborative and license arrangements
provide that they may be terminated under certain circumstances. There can be
no assurance that such arrangements will not be terminated or that the Company
will be able to extend any of its collaborative and license arrangements upon
their expiration. The Company currently has certain licenses from third
parties, either directly or indirectly through the Oncor Agreement, and in the
future may require additional licenses from these or other parties to develop
and market commercially viable services. There can be no assurance that such
licenses will be obtainable on commercially reasonable terms, if at all, or
renewable, that the patents underlying such licenses, if any, will be valid and
enforceable or that the nature of the technology underlying such licenses will
remain proprietary.
The Company's rights to technologies licensed to the Company from third
parties through the Oncor Agreement are subject to the license agreements
between such third parties and Oncor. No assurance can be given that the third
parties to these agreements will perform their obligations under such
agreements on a timely basis or at all. If such third parties breach or
terminate their agreements with Oncor or otherwise fail to, or are unable to,
comply with the provisions of their agreements with Oncor for whatever reason,
the Company would have no direct
-7-
<PAGE> 9
recourse and would be dependent on Oncor to enforce such agreements. The
agreements between Oncor and the third parties expire at various times. There
can be no assurance that these agreements will be renewed at the end of their
initial terms or that such agreements will not be terminated or canceled prior
to their expiration. The Company has no rights under these third party
agreements and is reliant upon Oncor to negotiate renewals of such agreements
and resolve disputes under such agreements. If the third parties to the
agreements that the Company licenses from Oncor through the Oncor Agreement
breach such agreements or otherwise fail to comply with such agreements, or
such agreements are terminated or otherwise expire, the development or
commercialization of certain of the Company's services may be delayed or
terminated, or the Company would have to expend substantial additional
resources on development and commercialization, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The Company is engaged in the genomics, biotechnology and pharmaceutical
industries which are characterized by extensive research and development
efforts, rapid technological progress and intense competition. There are many
public and private companies, including well-known pharmaceutical companies,
biotechnology companies and academic institutions, engaged in developing
medical services and the technology underlying such services. Although there
are relatively few direct competitors of the Company, it is anticipated that
the number of direct competitors will increase significantly in the future.
Many of the Company's current and potential competitors have substantially
greater financial and technological resources, sales and marketing capabilities
and experience, and research and development experience than the Company.
Accordingly, the Company's competitors may succeed in developing services and
the underlying technology more rapidly than the Company and in developing
services that are more accurate and useful and less costly than any of the
Company's services. The Company's competitors also may be more successful than
the Company in marketing and selling such services. In addition, other
technologies are, or in the future may become, the basis for competitive
products and services. Oncor may develop technologies under the Oncor Agreement
into products that Oncor will sell to third parties. These third parties may
then use these products to provide services that compete directly with the
Company's services, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company relies on certain technologies that are not patentable or
proprietary and consequently may be available to the Company's competitors.
Competition may increase further as a result of the potential advances in the
technology underlying the services developed by the Company. The Company also
is aware that other companies have developed or may be developing genomics
discovery, development and information technologies, services and products that
are and may be competitive with the Company's services. There can be no
assurance that the Company's competitors will not succeed in developing
technologies, services and products that are more accurate and useful than any
being developed by the Company or that would render the Company's technology
and services obsolete or noncompetitive.
The Company requires that all employees and consultants (including certain
scientific advisors) enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and
require disclosure and assignment to the Company of their ideas, developments,
discoveries or inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of the Company
will not gain access to trade secrets and other proprietary information
developed by the Company and disclosed to employees, consultants and/or
scientific advisors.
GOVERNMENT REGULATION
CLIA provides for regulation of clinical laboratories by the United States
Department of Health and Human Services ("HHS"). These regulations mandate that
virtually all clinical laboratories be certified to perform testing on human
specimens and provide specific conditions for certification. These regulations
also contain requirements for the qualifications, responsibilities, training,
working conditions and oversight of clinical laboratory employees. In addition,
specific standards are imposed for each type of test that is performed in a
laboratory.
-8-
<PAGE> 10
The Company's laboratory is certified under these regulations and the
Company believes that it is in substantial compliance with them. CLIA and the
regulations promulgated thereunder are enforced through continuous quality
inspections of test methods, equipment, instrumentation, materials and supplies
on a bi-annual and "spot" basis. While the United States Food and Drug
Administration (the "FDA") minimally the genetic tests underlying the
Company's services if they are performed in the Company's CLIA certified
clinical laboratory, there can be no assurance that the FDA will not seek to
further regulate such tests in the future. If, in the future, the FDA should
determine that the tests underlying the Company's services should receive FDA
approval prior to their provision in the Company's laboratory, or impose other
requirements, there can be no assurance that such requirements would be met on
a timely basis or at all. Any change in CLIA or related regulations, or in the
interpretation thereof or in the Company's certification under CLIA, or in the
FDA's position on regulating the tests underlying the Company's services, could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's laboratory is licensed and regulated
by the State of Maryland, in which it is located. The Company's laboratory is
also regulated by certain other states from which the Company may accept
specimens. The Company has received approval for a license from the State of
New York and intends to seek approval from other states as required. No
assurance can be given that the Company will be able to obtain such approvals
on a timely basis or at all. The loss of, or the failure to obtain, any
required state license or other required approval could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The use of human tissue in medical research and the operation of human
tissue repositories to collect, store and distribute human tissue materials for
research purposes are regulated under federal regulation (Regulation 45CFR46).
This regulation mandates that IRBs are the mechanism by which research
protocols are reviewed and approved to assure the protection of human rights.
The Health and Human Services Office for the Protection from Research Risks
oversees this process and issues guidelines for IRBs to use when evaluating
research protocols to assure informed consent and that privacy is protected and
confidentiality is maintained. Some States have requirements that are similar
to the foregoing guidelines. The Company believes that it is in compliance
with federal and state regulations in the establishment and operation of a
human tissue repository for use in genomics research. The Company operates its
repository under an IRB-approved protocol and requires that all institutions
and pathologists supplying tissue have an IRB-approved protocol to assure
patient informed consent, privacy and confidentiality. The Company does not
have access to patient identifiers. The use of human tissue, especially for
genetic research, is continuously examined by a number of agencies. There are
no assurances that federal or state regulations will not be passed in the
future that would materially affect the Company's ability to operate a human
tissue repository.
The Company is subject to extensive federal, state and local regulation,
including regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other laws, rules and regulations governing
health care, clinical laboratory activities, waste disposal, handling of toxic,
dangerous or radioactive materials and other matters. Although the Company's
services are currently considered screening services under Medicare and are
therefore excluded from coverage under Medicare, the Company's services may
still be subject to laws, rules and regulations governing reimbursement and
fraud and abuse and prohibiting the filing of false claims. These laws, rules
and regulations include "anti-kickback" and "Stark" laws, which contain
extremely broad proscriptions, the violation of which may result in exclusion
from Medicare and Medicaid and criminal and civil penalties. In addition, the
Company is subject to state laws, rules and regulations limiting certain
financial relationships between health care service providers and physicians
and other referral sources as well as state Medicaid requirements. Although the
Company believes that it is in substantial compliance with all applicable laws,
rules and regulations, there can be no assurance that the Company will remain
in compliance with applicable laws, rules and regulations or that changes in,
or new interpretations of, existing laws, rules and regulations would not have
a material adverse effect on the Company's business, financial condition and
results of operations.
CONFIDENTIALITY; RISK OF DISCRIMINATION AGAINST CUSTOMERS; POTENTIAL ADVERSE
IMPACT ON INSURABILITY
The availability of genetic predisposition testing and human tissue usage
for research purposes has raised certain ethical, legal and social issues
regarding the appropriate utilization and confidentiality of information
provided by such testing. The medical information obtained or determined about
an individual from the Company's
-9-
<PAGE> 11
services is of an extremely sensitive nature. In providing its services, the
Company is subject to certain statutory, regulatory and common law requirements
regarding the confidentiality of such medical information. The Company
maintains an internal regulatory compliance review program to monitor
compliance with applicable confidentiality requirements, and believes that it
is in substantial compliance with such requirements. Failure to comply with
such confidentiality requirements could result in material liability to the
Company. It is possible that discrimination by insurance companies could occur
through the raising of premiums by insurers to prohibitive levels, the
cancellation of insurance or the unwillingness to provide coverage to patients
shown to have a genetic predisposition to a particular disease. The Company
could experience a delay in market acceptance or a reduction in the size of its
potential serviceable market if insurance discrimination were to become a
significant factor, which would have a material adverse effect on the Company's
business, financial condition and results of operations. Similarly,
governmental authorities could, for social or other purposes, limit the use of
or prohibit genetic predisposition testing and human tissue usage for research
purposes. If efforts by the Company and others to mitigate potential
discrimination are not successful or if the use of genetic testing is limited,
the Company could experience a delay or reduction in market acceptance of its
services, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has limited experience in selling and marketing its services
and will have to further develop its sales force and/or rely on collaborators,
licensees or others to provide for the sales and marketing of its services.
There can be no assurance that the Company will be able to establish adequate
sales and marketing capacity or make arrangements with collaborators, licensees
or others to perform such activities on acceptable terms or at all.
RISK OF LIABILITY; ADEQUACY OF INSURANCE COVERAGE
The marketing and sale of genetic testing and information services could
expose the Company to the risk of certain types of litigation, including
medical malpractice or negligence claims or contract disputes. The Company
currently maintains medical malpractice insurance coverage. There can be no
assurance, however, that such coverage will be adequate to protect the Company
against future claims or that insurance will be available to the Company in the
future on acceptable terms, if at all. A medical malpractice or other claim for
which the Company was not adequately insured could have a material adverse
effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management,
scientific advisory board and consultants. The loss of the services of one or
more members of senior management could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the loss of the services of certain members of the Company's scientific
advisory board and certain consultants could materially and adversely affect
the Company to the extent that the Company is pursuing research and development
in areas of such scientific advisors' or consultants' expertise. Although the
Company is the beneficiary of $1 million key-man life insurance policies on
each of its Chief Executive Officer, Timothy J. Triche, M.D., Ph.D., and its
President and Chief Operating Officer, Douglas Dolginow, M.D., the Company does
not believe such amounts would be adequate to compensate for the loss of either
executive. Due to the specialized scientific nature of the Company's business,
the Company is also highly dependent upon its ability to attract and retain
qualified scientific, technical and key management personnel. There is intense
competition for qualified personnel in the areas of the Company's activities
and there can be no assurance that the Company will be able to continue to
attract and retain the qualified personnel necessary for the development of its
existing business and its expansion into areas and activities requiring
additional expertise. The loss of, or failure to recruit, scientific,
technical, sales and marketing and managerial personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's scientific advisors and consultants may be employed by or
have consulting agreements with entities other than the Company, some of which
may compete with the Company. To the extent that members of
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<PAGE> 12
the Company's scientific advisory board or consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially and adversely affected. Any inventions or processes
independently discovered by the scientific advisors or the consultants will
not, unless otherwise agreed, become the property of the Company and will
remain the property of such persons or their full-time employers. In addition,
the institutions with which the scientific advisors and consultants are
affiliated may make available the research services of their scientific and
other skilled personnel, including the Company's scientific advisors and
consultants, to competitors of the Company pursuant to sponsored research
agreements. Under such sponsored research agreements, such institutions may be
obligated to assign or license to a competitor of the Company patents and other
proprietary information that may result from research sponsored by an entity
other than the Company, including research performed by a scientific advisor or
consultant for a competitor of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation grants the Board of Directors
the authority to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. Pursuant to the terms of that
certain Convertible Preferred Stock Purchase Agreement, dated February 27,
1998, between the Company and the investors named therein (the "Stock Purchase
Agreement"), the Company has issued an aggregate of 333 shares of 6% Series A
Preferred Stock to certain investors. In addition, pursuant to the terms of
the Stock Purchase Agreement, the Company may, subject to certain conditions,
issue 333 shares of 6% Series B Convertible Preferred Stock (the "Series B
Stock"). The rights of the holders of Common Stock will be subject to, and may
be materially and adversely affected by, the rights of the holders of the
Series A Stock, the Series B Stock or any Preferred Stock that may be issued in
the future. The issuance of the Series A Stock, the Series B Stock or any
additional shares of Preferred Stock could have the effect of discouraging a
third party from acquiring a majority of the outstanding Common Stock of the
Company and preventing stockholders from realizing a premium on their shares.
In addition, the Company is subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years unless certain conditions are met.
DIVIDEND POLICY
The Company is obligated on a quarterly basis to pay dividends of 6% per
annum on the Series A Stock, which amount is payable by the Company either in
cash or through the issuance of shares of Common Stock. The Company has never
declared or paid any cash dividends on its Common Stock and does not intend to
pay any cash dividends on the Common Stock in the foreseeable future. The
Company currently anticipates that it will retain all its earnings for use in
the operation of its business and, therefore, does not anticipate that it will
pay any cash dividends on its Common Stock in the foreseeable future.
POSSIBLE VOLATILITY OF STOCK PRICE
The price of the Company's Common Stock has fluctuated substantially since
its initial public offering on September 27, 1994. See "Market Price for
Common Stock." The market price of the shares of Common Stock, like that of
the common stock of many other biotechnology companies, is likely to continue
to be highly volatile. Factors such as the timing and results of clinical
trials by the Company or its competitors, governmental regulation, healthcare
legislation, developments in patent or other proprietary rights of the Company
or its competitors, including litigation, fluctuations in the Company's
operating results, and market conditions for biotechnology stocks and life
science stocks in general, could have a significant impact on the future price
of the Common Stock. In addition, the number of shares of Common Stock
issuable upon conversion of the Series A Stock and the subsequent sale of such
shares could have a significant impact on the future price of the Common Stock.
Further, the failure of the Company to maintain compliance with the listing
requirements of the American Stock Exchange could result in the delisting of
the Company's Common Stock from the American Stock Exchange.
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<PAGE> 13
CONTROL BY EXISTING STOCKHOLDERS
As of September 30, 1997, officers and directors of the Company and
stockholders owning more than five percent of the Common Stock, together with
their affiliates, beneficially owned approximately 54.9% of the outstanding
Common Stock. As a result, these stockholders, if acting together, would be
able to significantly influence all matters requiring approval by the
stockholders of the Company, including the election of directors and the
approval of mergers and consolidations, sales of all or substantially all of
the assets of the Company or other business combination transactions.
SECURITIES ELIGIBLE FOR FUTURE SALE; OUTSTANDING REGISTRATION RIGHTS
At September 30, 1997, the Company had 7,869,688 shares of Common Stock
outstanding, approximately 3,556,123 of which are freely tradable by the holders
thereof without limitations under the Securities Act. The 4,313,565 remaining
shares of Common Stock are held by officers, directors and other stockholders
who may be deemed to be "affiliates" of the Company and therefore are generally
subject to the volume and other limitations of Rule 144 promulgated under the
Securities Act. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
the trading price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities. Pursuant
to the Stock Purchase Agreement, except in certain limited circumstances, the
Company shall not, for a period of not less than 90 trading days after the date
that a Registration Statement on Form S-3 relating to shares of Common Stock
underlying the Series A Preferred Stock is declared effective by the United
States Securities and Exchange Commission, (i) issue or sell any of its or any
of its affiliates equity or equity equivalent securities pursuant to Regulation
S promulgated under the Securities Act, or (ii) register for resale any
securities of the Company.
OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS
As of September 30, 1997, options to purchase a total of 1,549,042
shares of Common Stock were outstanding with a weighted average exercise price
of $3.14 per share, of which options to purchase 1,080,043 shares of Common
Stock were then exercisable. In addition, as of such date, an additional
511,900 shares of Common Stock were available for future option grants under
the Company's stock option plan. As of September 30, 1997, warrants to
purchase a total of 920,468 shares of Common Stock were outstanding with a
weighted average exercise price of $7.84 per share. As of September 30, 1997,
a convertible note was outstanding which is convertible into 35,787 shares of
Common Stock. To the extent that the aforementioned options, warrants or the
convertible note are exercised, the interests of the Company's stockholders
would be diluted. Moreover, as long as such options, warrants and the
convertible note are outstanding, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the outstanding options and warrants and other rights can be expected to
exercise them, to the extent they are able to, at a time when the Company
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company than those provided in the options, warrants or other
rights. The Company has registered for sale under the Securities Act the
shares of Common Stock included in the stock option plan and shares of Common
Stock included in its employee Stock Purchase Plan.
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<PAGE> 14
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the accounts of
the Selling Stockholders. See "Selling Stockholders" and "Plan of
Distribution."
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $0.81 per share of Common Stock. Pro forma net tangible book value
represents the Company's total tangible assets less total liabilities
(including proceeds of approximately $3.33 million received from the issuance
of Series A Preferred Stock in February 1998). Pro forma net tangible book
value per share after conversion and exercise is calculated by dividing the pro
forma net tangible book value by the pro forma number of outstanding shares of
Common Stock after giving effect to (i) the conversion of the Series A
Preferred Stock into Common Stock, and (ii) the exercise of the warrants issued
pursuant to the Stock Purchase Agreement. Dilution per share represents the
difference between the pro forma net tangible book value per share before
giving effect to the conversion and exercise and the pro forma net tangible
book value per share after giving effect to the conversion and exercise. This
represents an immediate dilution in pro forma net tangible book value of $0.05
per share as illustrated in the following table:
<TABLE>
<S> <C>
Pro forma net tangible book value per share before conversion and exercise $0.81
-------
Pro forma net tangible book value per share after conversion and exercise (1) 0.76
-------
Dilution in pro forma net tangible book value per share assuming conversion 0.05
-------
</TABLE>
(1) For purposes of the calculation, the Series A Preferred Stock has been
assumed to convert into shares of Common Stock at a conversion price equal
to $5.9776 per share (97% of the average of the closing bid prices of the
Common Stock on March 6, 1998, March 9, 1998, March 10, 1998,
March 11, 1998 and March 12, 1998).
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<PAGE> 15
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned by each of the Selling Stockholders as of February 28, 1998.
Except as set forth in the notes below, none of the Selling Stockholders has
had a material relationship with the Company within the past three years other
than as a result of the ownership of the Shares or other securities of the
Company. The Shares offered by this Prospectus may be offered from time to
time by the Selling Stockholders. See "Plan of Distribution."
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Beneficial Ownership
After Offering(5)
-----------------
Number of Shares Number of Shares
Beneficially Owned Registered for Number
Name of Selling Stockholder Prior to Offering(1)(2) Sale Hereby(3)(4) of Shares Percent
- --------------------------- ----------------------- ---------------- --------- -------
<S> <C> <C> <C> <C>
Southbrook International
Investments, Ltd................. 301,317(6) 563,777 - *
Westover Investments L.P......... 105,939(7) 198,325 - *
Montrose Investments, LTD........ 195,379(8) 365,453 - *
Brown Simpson Strategic Growth
Fund, L.P.................. 28,927(9) 54,123 - *
Brown Simpson Strategic Growth
Fund, Ltd.................. 91,601(10) 171,389 - *
Incyte Pharmaceuticals, Inc.
3174 Porter Drive
Palo Alto, California 94304 859,038(11) 149,004 779,323 9.9
Gaines, Berland Inc.............. 94,118(12) 94,118 - *
--------- ------- ------- -------
TOTAL............................ 1,676,319 1,596,189 779,323
========= ========= =======
</TABLE>
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of
February 28, 1998 upon the exercise of all rights beneficially owned by
the indicated stockholders on that date. Beneficial ownership is
determined in accordance with the rules of the Commission and includes
voting and investment power with respect to shares. Unless otherwise
indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
(2) The Series A Preferred Stock was issued by the Company to the Series A
Stockholders on February 27, 1998 and March 24, 1998 in a transaction
exempt from the registration requirements of the Securities Act pursuant
to Regulation D promulgated thereunder. Except as described below, each
holder of Series A Preferred Stock has the right at any time, and from
time to time, to convert some or all such shares into fully paid and
nonassessable shares of Common Stock. The number of shares of Common
Stock issuable upon conversion of each share of Series A Preferred Stock
will equal (i) the sum of (a) $10,000 and (b) accrued and unpaid dividends
on such share, divided by (ii) the lesser of (a) $7.5625 or (b) an
applicable percentage (ranging from 97% to 85% depending upon the time of
such conversion) of the average of five (5) closing bid prices of the
Common Stock on the American Stock Exchange during the thirty (30) trading
days immediately preceding the time of such conversion. For the purposes
of the calculation set forth herein, the conversion price per share of
Series A Preferred Stock was assumed to be $5.2865 (97% of the average of
the closing bid prices of the Common Stock on January 15, 1998, January
16, 1998, January 20, 1998, January 21, 1998 and January 22, 1998). The
Series A Preferred Stock accrues dividends in the amount of 6% per annum,
which dividends are payable on a quarterly basis by the Company either in
cash or through the issuance of Common Stock. Certain Selling Stockholders
have agreed to restrict their ability to convert the Series A Preferred
Stock into Common Stock to the extent that the number of shares of Common
Stock held by such holders and their affiliates after such conversion
exceeds 4.999% of the then issued and outstanding shares of Common Stock
following such conversion.
(3) The number of shares of Common Stock being registered for sale hereby on
behalf of certain of the Selling Stockholders (collectively, the "Series
A Stockholders") includes the sum of (i) 200% times the maximum number of
shares of Common Stock into which the Series A Preferred Stock is
convertible, (ii) the number of shares of Common Stock issuable upon
exercise of certain of the Warrants, and (iii) the number of shares of
Common Stock issuable on payment of dividends on the Series A Preferred
Stock during the two-year period commencing February 27, 1998.
(4) The number of shares of Common Stock being registered for resale by the
Selling Stockholders does not include such presently indeterminate number
of additional shares of Common Stock as may from time to time become
issuable (i) upon conversion of the Series A Preferred Stock, based upon
adjustments or fluctuations in the conversion price of the Series A
Preferred Stock, (ii) upon exercise of certain Warrants, based on
adjustments in the exercise price of such Warrants, and (iii) upon payment
as dividends on the Series A Preferred Stock beyond February 27, 2000.
-14-
<PAGE> 16
Certain Selling Stockholders have agreed to restrict their ability to
convert the Series A Preferred Stock into Common Stock to the extent that
the number of shares of Common Stock held by such holders and their
affiliates after such conversion exceeds 4.999% of the then issued and
outstanding shares of Common Stock following such conversion.
(5) The number of shares of Common Stock and the percentage of Common Stock
beneficially owned by each Selling Stockholder after the offering are
based on the assumption that all of the Selling Stockholders will sell all
of the Shares registered for sale hereby. See "Plan of Distribution."
(6) Consists of 236,452 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 2,365 shares of Common Stock issuable as
dividends on the Series A Preferred Stock and 62,500 shares of Common
Stock issuable upon exercise of a Warrant.
(7) Consists of 83,231 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 833 shares of Common Stock issuable as
dividends on the Series A Preferred Stock and 21,875 shares of Common
Stock issuable upon exercise of a Warrant.
(8) Consists of 153,221 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 1,533 shares of Common Stock issuable as
dividends on the Series A Preferred Stock and 40,625 shares of Common
Stock issuable upon exercise of a Warrant.
(9) Consists of 22,700 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 227 shares of Common Stock issuable as
dividends on the Series A Preferred Stock and 6,000 shares of Common
Stock issuable upon exercise of a Warrant.
(10) Consists of 71,882 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 719 shares of Common Stock issuable as
dividends on the Series A Preferred Stock and 19,000 shares of Common
Stock issuable upon exercise of a Warrant.
(11) Includes 62,424 shares of Common Stock issuable upon conversion of Series
A Preferred Stock (which shares were issued on March 24, 1998 but which,
for purposes of this calculation, are assumed to have been outstanding as
of February 28, 1998), 625 shares of Common Stock issuable as dividends on
the Series A Preferred Stock and 16,666 shares issuable upon exercise of a
Warrant. Except in certain specified circumstances, Incyte cannot convert
its Series A Preferred Stock or exercise its Warrants if the number of
shares of Common Stock held by it after such conversion and/or exercise
exceeds 9.95% of the then issued and outstanding shares of Common Stock
following such conversion and/or exercise. Pursuant to an agreement with
Incyte, the Company and Incyte have formed a collaboration in clinical
genomics. Additionally, the Company has issued to Incyte a warrant
to purchase up to an aggregate of ten (10%) percent of the Company's Common
Stock issued and outstanding on the date of such warrant's exercise. See
"Description of Capital Stock-Common Stock Purchase Warrants."
(12) Consists of 94,118 shares issuable upon exercise of a Warrant. Gaines,
Berland Inc. served as the underwriter in connection with the Company's
initial public offering.
The Shares registered for sale hereby were acquired by certain of the
Selling Stockholders from the Company through a private placement of securities
consummated in February 1998 and March 1998 resulting in aggregate gross
proceeds of approximately $3.33 million, which proceeds were to be used for
general corporate purposes. The Company has agreed to bear certain expenses in
connection with the registration of the Shares.
The Company has agreed to prepare and file such amendments and supplements
to the Registration Statement as may be necessary to keep this Registration
Statement continuously effective until the earlier of two years after the date
of effectiveness of this Registration Statement or until all of the Shares have
been sold pursuant to the terms hereof or may be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act.
-15-
<PAGE> 17
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock,
$0.01 par value.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the Company's 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 therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to any 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 or sinking fund provisions applicable to the Common
Stock. The rights, preferences and privileges of the holders of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of the Series A Preferred Stock and any series of Preferred Stock that
the Company may designate in the future.
As of September 30, 1997, there were 7,869,688 shares of Common Stock
issued and outstanding. Based upon the number of shares outstanding as of that
date, and assuming (i) the conversion of the Series A Preferred Stock into
Common Stock, and (ii) the exercise of the Warrants, there would have been
8,687,551 shares of Common Stock outstanding as of that date. The foregoing
assumes that outstanding options to purchase Common Stock as of September 30,
1997 have not been exercised, that a convertible note outstanding as of
September 30, 1997 has not been converted and that the Company's other
outstanding warrants as of September 30, 1997 have not been exercised. See
"Selling Stockholders" for the derivation of the assumed conversion price of the
Series A Preferred Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation grants the Board of Directors
the authority to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders.
On February 27, 1998, the Company, entered into the Stock Purchase
Agreement with certain of the Selling Stockholders. Pursuant to the Stock
Purchase Agreement, such Selling Stockholders purchased a total of Three
Hundred Thirty Three (333) shares of the Series A Preferred Stock from the
Company for Three Million Three Hundred Thirty Thousand Dollars ($3,330,000).
The holders of the Series A Preferred Stock may convert their shares at
any time into shares of the Company's Common Stock, at a conversion price per
share equal to the lesser of (i) $7.5625 or (ii) a percentage (ranging from 97%
to 85% depending upon the timing of such conversion) of the average of five (5)
closing bid prices of the Common Stock over a thirty (30) trading day period
immediately preceding the time of such conversion. In addition, at any time on
or after February 27, 2000, the Company may require that the Series A Preferred
Stock be converted into Common Stock if, among other things, the closing bid
prices of the Common Stock for at least twenty (20) consecutive trading days
immediately preceding such conversion shall have been at least $11.34375 per
share. Except in certain specified circumstances, Incyte cannot convert its
Series A Preferred Stock or its Warrants if the number of shares of Common
Stock held by it after such conversion and/or exercise exceeds 9.95% of the
then issued and outstanding shares of Common Stock following such conversion
and/or exercise. Further, in certain limited circumstances, the holders of the
Series A Preferred Stock can require that the Company redeem their respective
shares of Series A Preferred Stock.
Dividends in the amount of six percent (6%) per annum will be due
quarterly on the shares of Series A Preferred Stock. The Company may pay such
dividends either in cash or through the issuance of shares of Common Stock. If
dividends are paid in shares of Common Stock, the number of shares of Common
Stock payable to each holder shall be equal to the cash amount of such dividend
payable to such holder on such dividend payment date divided by the closing bid
price of the Common Stock on the trading day immediately prior to the Company's
dividend payment notice.
-16-
<PAGE> 18
COMMON STOCK PURCHASE WARRANTS
Pursuant to the Stock Purchase Agreement, the purchasers of Series A
Preferred Stock received warrants to purchase an aggregate of One Hundred
Sixty-Six Thousand Six Hundred Sixty-Six (166,666) shares of the Company's
Common Stock at an exercise price of $8.54 per share. Such warrants expire on
February 27, 2001 and contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares underlying the
warrants upon the occurrence of certain events, including, without limitation,
any recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. Except in certain specified circumstances
Incyte cannot convert its Series A Preferred Stock or exercise its Warrants
if the number of shares of Common Stock held by it after such conversion and/or
exercise exceeds 9.95% of the then issued and outstanding shares of Common
Stock following such conversion and/or exercise.
The Company has warrants outstanding to purchase an aggregate of 133,500
shares of Common Stock. The warrants are exercisable at $6.90 per share for a
period of three years ending on September 27, 1999. The warrants contain
anti-dilution provisions providing for adjustments of the exercise price and
the number of shares underlying the warrants upon the occurrence of certain
events, including any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction.
In connection with that certain License, Services and Marketing
Agreement, dated February 25, 1997 between the Company and Incyte (the "Incyte
License Agreement") the Company issued Incyte a warrant to purchase up to an
aggregate of ten percent (10%) of the Company's Common Stock issued and
outstanding on the date of such warrant's exercise (the "Warrant Shares"). The
warrant is exercisable until February 25, 2000 at an exercise price per share
equal to the greater of one hundred-ten percent (110%) of the fair market value
per share of Common Stock on the trading day prior to the date of exercise and
(i) Nine Dollars ($9.00) per share (if the warrant is exercised after February
25, 1998 but on or prior to February 25, 1999), or (ii) Thirteen Dollars and
Fifty Cents ($13.50) per share (if the warrant is exercised after February 25,
1999 but on or prior to February 25, 2000). Notwithstanding the foregoing,
Incyte has the option to fix the exercise price per share during each of the
aforementioned periods; provided, however, that in no event shall the exercise
price per share during each of the aforementioned periods be less than Nine
Dollars ($9.00) per share and Thirteen Dollars and Fifty Cents ($13.50) per
share, respectively.
CONVERTIBLE NOTE
The Company has a note outstanding, in the principal amount of $715,751,
which is convertible at the option of the holder into 35,787 shares of Common
Stock at a conversion price of $20 per share. The note contains anti-dilution
provisions providing for adjustments of the conversion price upon the
occurrence of certain events, including any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction.
REGISTRATION RIGHTS
In connection with the purchase of the Series A Preferred Stock, the
Company and certain Selling Stockholders entered into a Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company has
agreed to use commercially reasonable efforts to file with the Securities and
Exchange Commission this Registration Statement on Form S-3 covering the resale
by the such Selling Stockholders of shares of Common Stock issuable (i) upon
conversion of the Series A Preferred Stock, (ii) upon exercise of the Warrants,
and (iii) as dividends on the Series A Preferred Stock.
In connection with the Incyte License Agreement, the Company and Incyte
entered into an Investor's Rights Agreement. Incyte was granted certain
registration and other stockholder rights with respect to the shares of Common
Stock issued or issuable to Incyte.
In connection with the issuance of certain warrants, the holders of the
Common Stock issuable upon exercise of the warrants have certain registration
rights. Under the terms of the agreement between the Company and the holders
of such registrable securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
of such Common Stock therein. The stockholders benefiting from these rights
may also require the Company to file a registration statement under the
Securities Act at its expense with respect to their shares of Common Stock, and
the Company is required to use its best efforts to effect such registration.
The right to notice and inclusion in any registration statement filed by the
Company is effective for seven years after September 27, 1994. The right to
demand the registration of the Common Stock issuable upon exercise of the
warrants extends from September 27, 1996 to September 27, 1999.
-17-
<PAGE> 19
PLAN OF DISTRIBUTION
The Shares offered hereby are being offered directly by the Selling
Stockholders. The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. The sale of the Shares may
be effected by the Selling Stockholders from time to time in transactions on
the American Stock Exchange, in negotiated transactions, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices
or at negotiated prices. The Shares may be sold by the Selling Stockholders by
one or more of the following methods, including without limitation: (a) block
trades in which the broker or dealer so engaged will attempt to sell the Shares
as agent buy may position and resell a portion of the block as principal to
facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this
Prospectus, (c) an exchange distribution in accordance with the rules of such
exchange, (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (e) privately negotiated transactions, and (f) a
combination of any such methods of sale. In addition, from time to time, the
Selling Stockholders may sell or deliver the Shares to settle positions taken
by the Selling Stockholders in the Company's securities. In effecting sales,
brokers and dealers engaged by the Selling Stockholders may arrange for other
brokers of dealers to participate. Brokers or dealers may receive commissions
or discounts from the Selling Stockholders (or, if any such broker-dealer acts
as agent for the purchaser of such shares, from such purchaser) in amounts to
be negotiated which are not expected to exceed those customary in the types of
transactions involved. Broker-dealers may agree with the Selling Stockholders
to sell a specified number of such Shares at a stipulated price per share, and,
to the extent such broker-dealer is unable to do so acting as agent for a
Selling Stockholder, to purchase as principal any unsold Shares at the price
required to fulfill the broker-dealer commitment to the Selling Stockholders.
Broker-dealers who acquire Shares as principal may thereafter resell such
Shares from time to time in transactions (which may involve block transactions
and sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market or otherwise at prices
and on terms then prevailing at the time of sale, at prices then related to the
then-current market price or in negotiated transactions and, in connection with
such resales, may pay to or receive from the purchasers of such Shares
commissions as described above. The Selling Stockholders may transfer their
Shares under certain circumstances to other persons who may, in turn, resell
Shares in the manner described above. In addition, the Selling Stockholders
may pledge or make gifts of their Shares and such Shares may also be sold by
the pledgees or transferees.
At the time a particular offer of Shares is made, to the extent required,
a Prospectus Supplement will be distributed which will set forth the number of
Shares being offered and the terms of the offering including the name or names
of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the Shares purchased from Selling Stockholders, any discounts,
commissions and other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the Selling
Stockholders.
The Selling Stockholders may also transfer their Shares pursuant to Rule
144, whether or not the Registration Statement, of which this Prospectus forms
a part, is effective at the time of any such transfer.
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by them and any profit on
the resale of the Selling Stockholder Shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act. The Company
has agreed to indemnify the Selling Stockholders and their affiliates against
certain liabilities, including liabilities under the Securities Act. The
Selling Stockholders have agreed to indemnify the Company and its affiliates
against certain liabilities, including liabilities under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including reasonable fees and disbursements (not to
exceed an aggregate of $10,000) of counsel to the Selling Stockholders. The
Company has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.
-18-
<PAGE> 20
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The audited financial statements of the Company incorporated in this
Prospectus by reference in this Prospectus and included elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
-19-
<PAGE> 21
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations for the years ended December 31, 1996, 1995 and 1994; F-4
and for the period from Inception (July 12, 1993) through December 31, 1996
Statements of Stockholders' Equity for the period from Inception (July 12, 1993) F-5
through December 31, 1993, and for the years ended December 31, 1994, 1995 and 1996
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994; F-6
and for the period from Inception (July 12, 1993) through December 31, 1996
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OncorMed, Inc.:
We have audited the accompanying balance sheets of OncorMed, Inc. (a Delaware
corporation in the development stage) as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception
(July 12, 1993) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OncorMed, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception
to December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
February 26, 1997 (except with respect to
the matter discussed in Note 10, as to
which the date is March 23, 1998)
F-2
<PAGE> 23
ONCORMED, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,031,809 $ 718,844
Short term investments 1,466,871 ---
Accounts receivable, net of allowance for doubtful accounts
of $32,000 and $7,000 at 12/31/96 and 12/31/95,
respectively 129,366 86,154
Other current assets 306,078 126,124
------------- ------------
Total current assets 7,934,124 931,122
------------- ------------
Non-current assets:
Property and equipment, net 1,179,851 1,220,937
Deferred offering costs --- 299,815
------------- ------------
Total non-current assets 1,179,851 1,520,752
------------- ------------
TOTAL ASSETS $ 9,113,975 $ 2,451,874
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 680,575 $ 123,443
Accrued expenses and other liabilities 593,037 889,052
Payable to Oncor, Inc. 124,730 137,909
Deferred revenue 46,420 181,402
------------- ------------
Total current liabilities 1,444,762 1,331,806
------------- ------------
Non-current liabilities:
Note payable to Oncor Finance, Inc. 715,751 715,751
Deferred revenue 3,583 10,510
------------- ------------
Total non-current liabilities 719,334 726,261
------------- ------------
TOTAL LIABILITIES 2,164,096 2,058,067
------------- ------------
Commitments And Contingencies (Notes 1 and 6)
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none outstanding --- ---
Common stock, $.01 par value, 40,000,000 shares
authorized, 6,991,108, and 4,950,050 shares issued
and outstanding as of 12/31/96 and 12/31/95, respectively 69,911 49,501
Additional paid-in capital 25,741,842 11,782,817
Deferred compensation (75,629) (108,239)
Deficit accumulated during the development stage (18,786,245) (11,330,272)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 6,949,879 393,807
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,113,975 $ 2,451,874
============= ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 24
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
(July 12, 1993)
For the Year Ended December 31, Through
------------------------------------------ December 31,
1996 1995 1994 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 627,390 $ 311,387 $ 34,303 $ 973,080
OPERATING EXPENSES:
Cost of sales - direct 283,082 167,568 11,154 461,804
Laboratory operations 2,759,656 2,259,136 1,126,240 6,362,032
Selling, general and administrative 4,791,029 4,119,221 2,471,220 11,729,972
Research and development 709,340 451,596 523,860 1,960,008
----------- ----------- ------------ ------------
Total expenses 8,543,107 6,997,521 4,132,474 20,513,816
----------- ----------- ------------ ------------
OPERATING LOSS (7,915,717) (6,686,134) (4,098,171) (19,540,736)
Interest income 514,205 228,470 145,177 890,214
Interest expense (54,461) (52,883) (28,379) (135,723)
----------- ----------- ------------ ------------
NET LOSS $(7,455,973) $(6,510,547) $ (3,981,373) $(18,786,245)
=========== =========== ============ ============
NET LOSS PER SHARE $ (1.10) $ (1.32) $ (0.90) $ (3.59)
=========== =========== ============ ============
SHARES USED IN COMPUTING
NET LOSS PER SHARE 6,805,083 4,947,991 4,404,622 5,232,052
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 25
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock Stock
--------------------- ------------------------ Subscription
Shares Amount Shares Amount Receivable
------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
INCEPTION, July 12, 1993 ----- $----- ----- $----- $-----
Sale of Common Stock at $0.50
per share, July & September,
1993 ----- ----- 2,250,000 22,500 (125,000)
Issuance of Common Stock in
exchange for software and technology,
recorded at fair value of $0.50 per share,
September 1993 ----- ----- 110,000 1,100 -----
Exercise of stock options for
cash at $0.50 per share,
November 1993 ----- ----- 50,000 500 -----
Cash received in payment of
stock subscriptions,
November and December 1993 ----- ----- ----- ----- 100,000
Sale of Series A Convertible
Preferred Stock to investors
for cash at $3.00 per share,
December 1993 (net of stock
issuance costs of $9,561) 1,000,000 2,990,439 ----- ----- ----
Net loss ----- ----- ----- ----- -----
---------- ---------- --------- ------- --------
BALANCE, December 31, 1993 1,000,000 $2,990,439 2,410,000 $24,100 $(25,000)
Cash received in payment of stock
subscription, February 1994 ----- ----- ----- ----- 25,000
Sale of Common Stock from initial
public offering on October 5, 1994,
at $6.00 per share, net of expenses ----- ----- 1,335,000 13,350 ------
Issuance of Common Stock
Warrants in connection with initial
public offering on October 5, 1994
exercisable at $6.00 per share ----- ----- ----- ----- -----
Conversion of Series A Convertible
Preferred Stock to Common Stock
due to initial public offering (1,000,000) (2,990,439) 1,000,000 10,000 -----
Sale of Common Stock from initial
public offering -- Over-allotment,
on November 4, 1994 at $6.00
per share, net of expenses ----- ----- 200,250 2,003 -----
Compensation element of stock
option grants ----- ----- ----- ----- -----
Amortization of deferred
compensation ----- ----- ----- ----- -----
Net loss ----- ----- ----- ----- -----
---------- ---------- --------- ------- --------
BALANCE, December 31, 1994 ----- $ ----- 4,945,250 $49,453 $ -----
Exercise of stock options for cash
at $0.50 per share ----- ----- 4,800 48 -----
Amortization of deferred compensation ----- ----- ----- ----- -----
Net Loss ----- ----- ----- ----- -----
---------- ---------- --------- ------- --------
BALANCE, December 31, 1995 ----- $ ----- 4,950,050 $49,501 $ -----
Sale of Common Stock from public
offering on February 2, 1996, net
of expenses ----- ----- 2,000,000 20,000 -----
Exercise of stock options for cash
at a range of $0.50-$6.00 per share ----- ----- 41,058 410 -----
Compensation element of non-employee
stock option grants ----- ----- ----- ----- -----
Amortization of non-employee stock
option grants ----- ----- ----- ----- -----
Amortization of deferred compensation ----- ----- ----- ----- -----
Net Loss ----- ----- ----- ----- -----
---------- ---------- --------- ------- --------
BALANCE, December 31, 1996 ----- $ ----- 6,991,108 $69,911 $ -----
========== ========== ========= ======= ========
<CAPTION>
Deficit
Accumulated
Common Additional During the
Stock Paid-in Deferred Development
Warrants Capital Compensation Stage Total
-------- ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
INCEPTION, July 12, 1993 ----- $----- $----- $----- $-----
Sale of Common Stock at $0.50
per share, July & September,
1993 ----- 1,102,500 ----- ----- 1,000,000
Issuance of Common Stock in
exchange for software and technology,
recorded at fair value of $0.50 per share,
September 1993 ----- 53,900 ----- ----- 55,000
Exercise of stock options for
cash at $0.50 per share,
November 1993 ----- 24,500 ----- ----- 25,000
Cash received in payment of
stock subscriptions,
November and December 1993 ----- ----- ----- ----- 100,000
Sale of Series A Convertible
Preferred Stock to investors
for cash at $3.00 per share,
December 1993 (net of stock
issuance costs of $9,561) ----- ----- ----- ----- 2,990,439
Net loss ----- ----- ----- (838,352) (838,352)
--------- ---------- --------- --------- ----------
BALANCE, December 31, 1993 ----- $1,180,900 $ ----- $(838,352) $3,332,087
Cash received in payment of stock
subscription, February 1994 ----- ----- ----- ----- 25,000
Sale of Common Stock from initial
public offering on October 5, 1994,
at $6.00 per share, net of expenses ----- 6,317,903 ----- ----- 6,331,253
Issuance of Common Stock
Warrants in connection with initial
public offering on October 5, 1994
exercisable at $6.00 per share 133,500 100 ----- ----- 100
Conversion of Series A Convertible
Preferred Stock to Common Stock
due to initial public offering ----- 2,980,439 ----- ----- -----
Sale of Common Stock from initial
public offering -- Over-allotment,
on November 4, 1994 at $6.00
per share, net of expenses ----- 1,049,309 ----- ----- 1,051,312
Compensation element of stock
option grants ----- 256,500 (256,500) ----- -----
Amortization of deferred
compensation ----- (4,686) 86,333 ----- 81,647
Net loss ----- ----- ----- (3,981,373) (3,981,373)
-------- ----------- ---------- ------------ ------------
BALANCE, December 31, 1994 133,500 $11,780,465 $(170,167) $(4,819,725) $6,840,026
Exercise of stock options for cash
at $0.50 per share ----- 2,352 ----- ----- 2,400
Amortization of deferred compensation ----- ----- 61,928 ----- 61,928
Net Loss ----- ----- ----- (6,510,547) (6,510,547)
-------- ----------- ---------- ------------ -------------
BALANCE, December 31, 1995 133,500 $11,782,817 $(108,239) $(11,330,272) $393,807
Sale of Common Stock from public
offering on February 2, 1996, net
of expenses ----- 13,892,825 ----- ----- 13,912,825
Exercise of stock options for cash
at a range of $0.50-$6.00 per share ----- 38,369 ----- ----- 38,779
Compensation element of non-employee
stock option grants ----- 27,831 (27,831) ----- -----
Amortization of non-employee stock
option grants ----- ----- 6,404 ----- 6,404
Amortization of deferred compensation ----- ----- 54,037 ----- 54,037
Net Loss ----- ----- ----- (7,455,973) (7,455,973)
-------- ----------- ---------- ------------ ------------
BALANCE, December 31, 1996 133,500 $25,741,842 $(75,629) $(18,786,245) $ 6,949,879
======== =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 26
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
For the Year Ended December 31, (July 12, 1993)
------------------------------------------- Through
1996 1995 1994 December 31, 1996
----------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,455,973) $(6,510,547) $(3,981,373) $(18,786,245)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization 517,435 365,080 151,701 1,043,447
Amortization of deferred compensation
and non-employee stock option grants 60,441 61,928 81,647 204,016
Changes in operating assets and liabilities:
Accounts receivable (43,212) (83,979) (2,175) (129,366)
Other assets (179,954) 71,853 (196,955) (306,078)
Accounts payable 557,132 52,336 60,751 680,575
Accrued expenses and other liabilities (296,015) 322,449 526,749 593,037
Deferred revenue (141,909) 158,193 33,719 50,003
Payable to Oncor, Inc. (13,179) (7,068) 144,977 124,730
----------- ------------ ----------- ------------
Net cash used in operating activities (6,995,234) (5,569,755) (3,180,959) (16,525,881)
----------- ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (476,350) (675,996) (864,999) (2,168,299)
----------- ------------ ----------- -------------
Net cash used in investing activities (476,350) (675,996) (864,999) (2,168,299)
----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 13,912,825 -- 7,407,665 22,420,490
Net proceeds from sale of preferred stock -- -- -- 2,990,439
Net proceeds from exercise of stock options 38,780 2,400 -- 66,180
Net proceeds from Note payable to Oncor Finance, Inc. -- -- 51,682 715,751
Deferred offering costs 299,815 (299,815) -- --
----------- ------------ ----------- ------------
Net cash provided by (used in) financing activities 14,251,420 (297,415) 7,459,347 26,192,860
----------- ------------ ----------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 6,779,836 (6,543,166) 3,413,389 7,498,680
CASH AND CASH EQUIVALENTS, beginning of period 718,844 7,262,010 3,848,621 --
----------- ------------ ---------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 7,498,680 $ 718,844 $ 7,262,010 $ 7,498,680
=========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for software
and technology $ -- $ -- $ -- $ 55,000
=========== ============ =========== ============
Issuance of common stock in exchange for stock
subscription receivable $ -- $ -- $ -- $ 25,000
=========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 54,461 $ 52,883 $ 28,379 $ 135,723
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 27
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1996, 1995 and 1994,
and for the period from Inception (July 12, 1993) through December 31, 1996
1. BUSINESS DESCRIPTION:
OncorMed, Inc. (the "Company"), was incorporated on July 12, 1993, in the
State of Delaware as a subsidiary of Oncor, Inc. ("Oncor"). As of
December 31, 1996, Oncor's ownership of the Company's outstanding common
stock was approximately 29 percent. Giving effect to the equity
transaction with Incyte Pharmaceuticals, Inc. in February 1997, Oncor's
ownership of the Company's outstanding common stock was reduced to
approximately 25.6%. The Company was formed to develop and provide
gene-based cancer diagnostic testing and information services for
physicians, hospitals, clinical laboratories and pharmaceutical companies.
The Company is in the development stage and has a limited operating
history, has incurred operating losses since its inception and expects
losses to continue and increase. Since its inception, the Company has been
engaged in research and development programs and organizational efforts,
including the development of its initial services, recruiting its
scientific and management personnel, establishing marketing capabilities,
engaging its Scientific Advisory Board and raising capital. The Company's
services are currently offered principally in the United States. There can
be no assurance that the Company will be successful in the development or
commercialization of its services or that any required additional financing
will be available when needed or on terms acceptable to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the entity's assets, liabilities,
revenue and expenses. Actual results may vary from these estimates.
Cash Equivalents and Short Term Investments
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents; investments
with maturities between three and twelve months are considered to be short
term investments. The Company invests its excess funds in commercial paper
with high quality banks, money market instruments in U.S. treasury and
investment grade securities, and overnight reverse repurchase agreements
collateralized by U.S. treasury and investment grade securities. Short
term investments are stated at cost, which approximates market.
Impairment of Long-Lived Assets
The Company complies with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of. The Company
reviews its long-lived assets, principally property, plant and equipment,
for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its
F-7
<PAGE> 28
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows will be less than the carrying amount of the
assets. Impairment is measured at fair value.
Other Current Assets
Included in other current assets as of December 31, 1996 is approximately
$188,000 for prepaid insurance.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
expense is calculated using the straight-line method over estimated useful
lives of three to five years. Leasehold improvements are amortized over
the shorter of the lease terms or useful lives.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
As of December 31,
------------------
1996 1995
---------- ----------
<S> <C> <C>
Laboratory equipment $ 756,495 $ 627,838
Computer equipment 409,560 319,938
Computer software 335,160 165,340
Furniture/office equipment 428,716 366,033
Leasehold improvements 293,368 267,800
---------- ----------
2,223,299 1,746,949
Less-accumulated depreciation and amortization (1,043,448) (526,012)
---------- ----------
Property and equipment, net $1,179,851 $1,220,937
========== ==========
</TABLE>
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
As of December 31,
------------------
1996 1995
--------- --------
<S> <C> <C>
Payroll and related expenses $ 318,408 $342,154
Insurance 130,406 ----
Professional/legal fees 58,868 223,624
Marketing/operations costs 48,385 46,190
Deferred offering costs ---- 250,000
Other 36,969 27,084
--------- --------
Total accrued expenses and other liabilities $ 593,036 $889,052
========= ========
</TABLE>
F-8
<PAGE> 29
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
No.109"). The Company has incurred losses for both financial and income
tax reporting purposes since inception. Accordingly, no provision or
benefit for income taxes has been recorded in the accompanying financial
statements.
The components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
As of December 31,
------------------
1996 1995
------------- --------------
<S> <C> <C>
Net operating loss and credit carryforwards $ 7,330,000 $ 4,250,000
Total other 181,000 250,000
----------- -----------
Total deferred tax assets 7,511,000 4,500,000
Less - total deferred tax liabilities (112,000) (42,000)
----------- -----------
Net deferred tax asset 7,339,000 4,458,000
Less - valuation reserve (7,339,000) (4,458,000)
----------- -----------
Deferred tax asset, net of valuation reserve $ ----- $ -----
=========== ===========
</TABLE>
SFAS No. 109 requires that the benefit of deferred tax assets be recorded
to the extent that management assesses the realization of such deferred tax
assets to be "more likely than not." As of December 31, 1996 and 1995, a
valuation reserve was recorded against the Company's entire deferred tax
asset due to the uncertainty of realization.
At December 31, 1996, the Company had net operating loss ("NOL")
carry-forwards of approximately $18.8 million available to offset future
taxable income. The Company also has research and development tax credits
of approximately $75,000 available to reduce future Federal income tax. A
portion of the NOL carry-forwards and research and development tax credit
carry-forwards are subject to a limitation due to the change in ownership
which occurred on the date of the Company's initial public offering. Due
to the ownership change which occurred, the amount of the net operating
loss carry-forward and research and development tax credit carry-forward
which can be utilized on an annual basis will be subject to limitations;
however, the Company believes the entire net operating loss carry-forward
will be available to be utilized during the carry-forward period. The tax
NOL and research and development tax credits may be used through 2011, but
begin to expire in 2008. Despite the NOL and research and development
credit carry-forwards, the Company may have an income tax liability in
future years due to the application of the alternative minimum tax rules.
The utilization of these tax NOL and research and development credit
carry-forwards is subject to statutory limitation regarding subsequent
changes in ownership.
F-9
<PAGE> 30
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Revenue Recognition
Revenues are derived from providing genetic testing and information
services and, in certain circumstances, software licensing associated with
its risk assessment service. Revenues are also derived from
Company-sponsored educational conferences. Revenues from the Company's
services are recognized as those services are provided. Revenues from its
risk assessment service are recognized over the license period.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Net Loss Per Share
Net loss per share is based on the weighted-average number of shares
outstanding during the periods presented. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all shares
(including common shares issuable upon conversion of convertible preferred
stock) and options to purchase shares were treated as if they were
outstanding for all periods prior to the initial public offering. In the
periods after the initial public offering, the effects of options,
warrants, and the outstanding convertible note have not been considered,
since the effect would be antidilutive.
Reclassification
Certain 1994 and 1995 balances have been reclassified to conform with 1996
financial statement presentation.
3. RELATED-PARTY TRANSACTIONS:
License Agreement
Previously, under the license agreement with Oncor (the "Oncor Agreement"),
the Company was obligated to pay royalties on a semi-annual basis to Oncor
for Oncor technologies existing as of the date of the Oncor Agreement,
equal to the greater of (i) six percent of the Company's net sales revenues
resulting from services based on Oncor's technologies, subject to certain
adjustments, or (ii) $100,000. Fees payable to Oncor under the Oncor
Agreement of approximately $200,000, $200,000, $200,000 and $692,000 are
included in laboratory operations expense for the years ended December 31,
1996, 1995 and 1994, and the period from inception (July 12, 1993) to
December 31, 1996, respectively. The Company and Oncor recently agreed to
certain changes to the Oncor Agreement, dated June 6, 1994. Pursuant to
the agreement, Oncor is providing the Company with an exclusive worldwide
license to certain of Oncor's existing human genome technologies that are
useful for the purposes of development
F-10
<PAGE> 31
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. RELATED-PARTY TRANSACTIONS: (Continued)
and commercialization of certain of the Company's services, including: (i)
testing, detection and/or analysis of cancer-predisposing genes; (ii)
genetic assessment of risk of an individual to develop cancer; and (iii)
testing and analysis for the purposes of cancer management. In addition,
Oncor is providing the Company with a non-exclusive worldwide license to
certain of Oncor's existing human genome technologies, and any future
improvements thereto, to be used by the Company in the provision of
services direct to third parties other than those to whom services are
provided pursuant to the exclusive license. The Company does not have the
right to sublicense any Oncor technologies licensed to it by Oncor without
Oncor's prior written consent. Technologies sublicensed to the Company by
Oncor include technologies covered by the collaborative licensing and
research agreements between Oncor and each of The Johns Hopkins University
and the Massachusetts General Hospital. The term of the agreement shall
expire in June 2004 unless earlier terminated in accordance with its terms.
Under the terms of the agreement, the Company is obligated to make payments
on a quarterly basis to Oncor equal to a range of four percent (4%) to two
percent (2%) of the Company's annual net sales. During the first year of
the agreement, the Company is obligated to pay Oncor a minimum amount equal
to $50,000 per quarter. During the second year of the agreement, the
Company is obligated to pay Oncor a minimum amount equal to $25,000 per
quarter. Thereafter, there shall be no minimum payment required to be made
by the Company to Oncor in connection with the agreement.
In addition, subject to certain third-party contractual limitations, prior
to the license or disposition (whether by assignment, transfer or license)
to a third party by the Company or Oncor of their respective technologies,
the non-offering party shall have a thirty (30) day right of first offer
with respect to such technologies. If the non-offering party accepts the
offer, the Company and Oncor shall negotiate in good faith the terms and
conditions of any such license or acquisition agreement.
Oncor has the primary right and obligation to obtain, maintain and enforce
proprietary rights in relation to all its own technologies and any
improvements to such technologies assigned to Oncor by the Company. The
Company has the primary right and obligation to obtain, maintain and
enforce proprietary rights in relation to all its own technologies.
Services Agreements with Oncor, Inc. and Affiliate
In July, 1993, the Company and Oncor entered into a management services
agreement whereby Oncor furnished the Company administrative and
bookkeeping services and office space ("Management Services Agreement").
The Management Services Agreement was terminated on June 1, 1994.
During the second quarter of 1995, the Company finalized a services
agreement with Oncor and Codon Pharmaceuticals, Inc. ("Codon", a 41.6
percent owned affiliate of Oncor), whereby the Company agreed to pay for
laboratory supplies and equipment provided by Oncor and Codon ("Services
Agreement"). The Services Agreement also provides that the Company will
perform certain experiments for Oncor and Codon at specified rates.
F-11
<PAGE> 32
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. RELATED-PARTY TRANSACTIONS: (Continued)
Related party revenues and expenses are as follows:
<TABLE>
<CAPTION>
Period from
Inception
(July 12, 1993)
For the Year Ended December 31, Through
------------------------------------------ December 31,
1996 1995 1994 1996
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Sales to related party $ 5,700 $ 42,180 $ --- $ 47,880
Operating Expenses to related party:
Laboratory operations 272,610 200,000 200,000 764,610
Selling, general and administrative 4,394 247,000 378,000 977,896
Research and development 71,784 --- --- 170,282
</TABLE>
All of the related party revenues for the year ended December 31, 1996 were
for testing services performed for Oncor. Of the related party expenses
for the year ended December 31, 1996, $72,000 in laboratory operations was
for equipment rental from Codon. All other related party expenses were for
services received from Oncor. As of December 31, 1996, the total amount
owed to Oncor and Codon by the Company under the above agreements and for
other services excluding the Oncor License was approximately $19,000 and
$6,000, respectively.
Promissory Note with Oncor, Inc. and Affiliate
In June 1994, the Company converted $715,751 owed to Oncor for license fees
previously incurred and for prior services rendered into a Convertible
Subordinated Promissory Note (the "Convertible Note"), which principal is
due in June 1999. The Convertible Note bears interest at seven percent and
is convertible into common stock at the holder's option at a conversion
price of $20 per share of common stock. During the fourth quarter of 1994,
Oncor assigned the Convertible Note to its wholly-owned subsidiary Oncor
Finance, Inc. Interest expense recorded by the Company relating to the
Convertible Note was $50,938 for the year ended December 31, 1996. The
fair value of the Convertible Note is not materially different from the
carrying value.
4. DEFERRED REVENUES:
Deferred revenues totaling approximately $50,000 and $181,000 as of
December 31, 1996 and 1995, respectively consisted of prepaid fees related
to various risk assessment service agreements as well as laboratory
testing.
F-12
<PAGE> 33
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY:
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of preferred
stock. In December 1993, the Company completed a private placement of
1,000,000 shares of Series A Convertible Preferred Stock for $3,000,000.
Concurrent with the initial public offering, each share of Series A
Convertible Preferred Stock was converted into common stock on a one for
one basis.
Common Stock
On October 25, 1995, the Board approved and on November 27, 1995, the
stockholders approved an increase in authorized common stock from
10,000,000 shares to 40,000,000 shares.
On February 2, 1996, the Company completed the sale of 2,000,000 shares of
common stock in a public offering ("Offering") resulting in gross proceeds
to the Company of approximately $15.5 million. Net proceeds to the Company
for the Offering, after transaction costs, were approximately $13.9
million. As a result of the Offering, Oncor's ownership of the Company's
outstanding common stock was reduced from approximately 40 percent to
approximately 29 percent.
On February 25, 1997, the Company completed the sale of 372,555 shares of
common stock resulting in gross proceeds to the Company of approximately
$3.0 million. Also, in consideration for licensed technology, the Company
issued 401,033 shares of common stock and a warrant for an additional 10%
of common stock. See Footnote 9-Subsequent Event.
Warrants
Concurrent with the initial public offering, the Company issued warrants
to the underwriter to purchase an aggregate of 133,500 shares of common
stock at $6.90 per share. The warrants are exercisable from September 27,
1996 to September 26, 1999. See Footnote 9-Subsequent Event for additional
warrants.
Stock Purchase Plan
On April 19, 1996, the Board approved and on June 12, 1996, the
stockholders approved the adoption of the Company's Employee Stock Purchase
Plan to provide all eligible employees, who have completed ninety days of
service, an opportunity to purchase shares of its common stock through
payroll deductions. Each purchase period has a duration of six (6) months.
Purchase periods run from the first business day in August to the last
business day in January and from the first business day in February to the
last business day in July. The purchase price is the lower of 85% of the
fair market value of the stock on the first or last day of the purchase
period. The aggregate number of shares purchased by an employee may not
exceed 750 shares per purchase period (subject to periodic
F-13
<PAGE> 34
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY: (Continued)
adjustments and limitations imposed by the Internal Revenue Code). A total
of 200,000 shares are available for purchase under the plan. There were no
shares issued under the plan during fiscal 1996. On January 31, 1997,
approximately 8,000 shares of common stock were issued under the plan.
Stock Option Plan
The Board of Directors of the Company approved a restated stock option
plan, under which 1,500,000 shares of the Company's common stock were
originally reserved for issuance. On October 25, 1995, the Board approved
and on November 27, 1995, the stockholders approved the increase of shares
authorized for issuance from 1,500,000 shares to 2,250,000 shares. The
Company's options generally vest over three to five years and terminate in
ten years after the date of grant. The Company adopted the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation,
effective for the Company's December 31, 1996 financial statements. The
Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plan. Accordingly, compensation cost has been
recognized for its stock plans based on the intrinsic value of the stock
option at date of grant (i.e. the difference between the exercise price and
the fair market value of the Company's common stock). Had compensation
expense been recorded for the Company's stock-based compensation plan based
on the fair market value of the Company's Common Stock at the grant dates
for stock option awards under the plan consistent with the method of SFAS
No. 123, the Company's net loss and earnings per share would have been
increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Net loss, as reported $(6,510,547) $(7,455,973)
Net loss, pro forma $(6,548,304) $(7,604,319)
Earnings per share, as reported $ (1.32) $ (1.10)
Earnings per share, pro forma $ (1.32) $ (1.12)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1995 and 1996: no dividend yield, expected volatility of 30%,
risk-free interest rate of 6.04% and 6.12%, respectively, turnover of 3.6%
and 30.7%, respectively, and expected life of five years. Because the SFAS
No. 123 method of accounting has not been applied to options granted prior
to January 1, 1995, per the rules, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
F-14
<PAGE> 35
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY: (Continued)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Number of Wtd Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1993 405,000 $ .50
Granted 909,500 $2.87
Exercised ---- ---
Canceled (14,500) $1.83
--------- ---------
Options outstanding at December 31, 1994 1,300,000 $2.14
Granted 158,500 $8.11
Exercised (4,800) $ .50
Canceled (14,200) $5.72
--------- ---------
Options outstanding at December 31, 1995 1,439,500 $2.77
Granted 283,000 $5.29
Exercised (41,058) $ .94
Canceled (139,200) $6.75
--------- ---------
Options outstanding at December 31, 1996 1,542,242 $2.92
========= =========
</TABLE>
The number of options exercisable as of December 31, 1996, 1995 and 1994
was 1,001,193, 641,306, and 263,493, respectively, with weighted average
exercise prices of $2.36, $2.07 and $1.41, respectively.
The options exercisable at December 31, 1996 have exercise prices between
$0.50 and $10.125 with a weighted average exercise price of $2.46 and a
weighted average remaining contractual life of 8 years. The remaining
outstanding options at December 31, 1996 have exercise prices between $0.50
and $10.125 with a weighted average exercise price of $3.91 and a weighted
average remaining contractual life of 8.8 years.
Included in the grants described above for the year ended December 31,
1996, are options to purchase 18,000 shares granted to non-employees.
Pursuant to SFAS No. 123, the Company accounts for these options using a
fair value method, with the fair value of these options determined at the
date of issuance. For these options, the Company recorded $6,400 in
expenses and $21,400 in deferred compensation for the year ending December
31, 1996.
Compensation expense for employees is recognized for the difference between
the exercise price of the options granted and the fair market value of the
Company's common stock. Total deferred compensation of $256,500 was
recorded in 1994. This amount was adjusted by $4,686 due to the
cancellation of options. Compensation expense of $54,037, $61,928 and
$81,647 has been recognized for the years ended December 31, 1996, 1995 and
1994, respectively.
F-15
<PAGE> 36
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS:
Lease Commitments and Rental Expense
The Company leases office space under operating lease agreements which
expire at various dates through 1998. The Company expects to renew its
leases in 1998. Minimum future annual lease payments under these lease
agreements as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
For the Year Ending
December 31, Amount
------------------- ----------
<S> <C>
1997 $ 182,000
1998 188,000
---------
Total $ 370,000
=========
</TABLE>
Total rent expense approximated $177,000, $180,000, $102,000, and $463,000
for the years ended December 31, 1996, 1995 and 1994 and the period from
inception (July 12, 1993) to December 31, 1996, respectively.
Licensing and Research Agreements
In addition to the Oncor License discussed in Note 3 and the Incyte
Agreement discussed in Note 9, the Company has entered into several
licensing, consulting and clinical study agreements. The terms of
significant agreements are as follows:
MD Anderson Cancer Center--The Company is funding clinical correlation
studies at The University of Texas, MD Anderson Cancer Center. The
agreement was executed on May 31, 1994 and was extended in September 1995.
The Company is obligated to provide funding in the aggregate of
approximately $262,000 for such studies. As of December 31, 1996, $262,000
had been expended.
Hereditary Cancer Institute--In September, 1993, the Company entered into a
licensing and marketing agreement with The Hereditary Cancer Institute
("HCI") and the Creighton University School of Medicine, which included
access to HCI's familial cancer database, software and physician consulting
services. In July 1995, the Company extended for five years the license
agreement, expanded the scope of the license agreement to include
commercialization rights to HCI's DNA library, and entered into a services
agreement for the provision by HCI of genetic history reports. Under the
extended license agreement, the Company continues to pay an annual
sponsorship fee of $250,000, in quarterly installments which is offset by a
percentage of the amounts paid under the services agreement. In addition,
under the extended license agreement, the Company is required to pay a
royalty on net sales of products and services which make use of the HCI
database, other than genetic history reports, and on license income derived
from sublicenses to third parties of the Company's rights to the HCI
database.
F-16
<PAGE> 37
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS: (Continued)
Roche Molecular Systems--The Company entered into a license agreement for
the use of certain polymerase chain reaction technology in the performance
of human in vitro clinical laboratory services with Roche Molecular
Systems, Inc. Under the agreement, the Company is obligated to pay
royalties for the use of the technology as clinical laboratory services are
performed. Royalty payments are payable semi-annually, 60 days after the
end of each six month period.
Dana-Farber Cancer Institute--The Company entered into a license agreement
for the use of certain genes and genetic mutations associated with
Hereditary Nonpolyposis Colon Cancer with the Dana-Farber Cancer Institute,
Inc., the State of Oregon, the University of Vermont, and Yale University
in June 1994. Royalty payments on sales of services using technology or
patents covered by the agreement are payable quarterly with an alternative
minimum payment of $7,500 due on January 1 of each year.
Sloan-Kettering Institute for Cancer Research--The Company entered into an
agreement, effective August 1, 1994, with the Sloan-Kettering Institute for
Cancer Research and its affiliate, Memorial Hospital for Cancer and Allied
Disease pursuant to which the Company is obligated to fund clinical
correlative studies. The amount of funding which the Company is obligated
to provide is $183,500 in the aggregate which is payable quarterly. In
September 1995, the parties agreed to extend the study at no additional
cost to the Company. As of December 31, 1996, $183,500 had been expended.
The Regents of the University of California--The Company entered into a
license agreement, effective August 8, 1996, with the Regents of the
University of California for the use of certain genetic markers for breast
and ovarian cancer. Under the agreement, the Company is obligated to pay
royalties for the use of the technology as clinical laboratory services are
performed. Royalty payments are payable quarterly, 60 days after the end
of each quarter.
Minimum payments due under these and other agreements, excluding the Oncor
License, as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
For the Year Ending December 31, Amount
-------------------------------- ----------
<S> <C>
1997 $ 515,934
1998 266,456
1999 257,500
2000 132,500
2001 7,500
----------
$1,179,890
==========
</TABLE>
F-17
<PAGE> 38
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. AGREEMENTS:
In February, 1995, the Company and Preferred Oncology Networks of America,
Inc. ("PONA") entered into a service agreement. The agreement provides for
the Company to render services to PONA, as requested, at agreed upon prices
quoted in the contract. Upon signing of the agreement, PONA made an
advance payment of $100,000. In December, 1996, the Company and PONA
mutually agreed to resolve the outstanding nonrefundable $100,000 advance
payment. As of December 31, 1996, PONA has not and does not intend to use
the Company's services. In accordance with the amendment to the agreement,
the Company recognized $62,500 of the advance payment as revenue and
rebated $37,500 to PONA.
8. RETIREMENT PLAN:
The Company sponsors a 401(k) defined contribution plan ("401(k) Plan") in
which all regular employees who have attained age 21 may participate.
Because the 401(k) Plan does not currently provide for Company
contributions, no related expense has been recorded since inception.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards Nos. 106 and 112, Employers Accounting for
Post-Retirement Benefits Other than Pensions and Employers Accounting for
Post-Employment Benefits. These standards do not have a significant effect
on the Company's reported financial position or future results of
operations because the Company does not offer post-retirement and
post-employment benefits.
9. SUBSEQUENT EVENT:
Pursuant to a License, Services and Marketing Agreement (the "Incyte
Agreement"), dated February 25, 1997, the Company and Incyte
Pharmaceuticals, Inc., a Delaware corporation ("Incyte"), have formed a
broad-based collaboration in clinical genomics designed to create an
integrated genomics and sequence-based mutation analysis capability for the
two companies. The term of the Incyte Agreement expires on February 25,
2000 (the "Initial Term") unless extended by mutual agreement or earlier
terminated in accordance with its terms.
The Company has agreed to perform certain specified clinical genomic
services relating to the creation of a tissue repository and the
performance of a gene functional studies program (the "Collaborative
Services"). Incyte has agreed to purchase a specified minimum of
Collaborative Services during each year of the Initial Term. In addition,
under the terms of the Incyte Agreement, the Company has obtained a
non-exclusive, royalty-bearing license (without the right to sublicense) to
use Incyte's high-throughput sequencing technology for use in the Company's
clinical diagnostic services for a period ending five (5) years following
termination of the Incyte Agreement, subject to certain limitations. In
consideration for the grant of the license, the Company has issued to
Incyte (i) 401,033 shares of the Company's Common Stock (the "Definite
Technology Shares"), and (ii) a warrant to purchase up to an aggregate of
10% of the Company's Common Stock issued and outstanding on the date of
such
F-18
<PAGE> 39
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. SUBSEQUENT EVENT: (Continued)
warrant's exercise (the "Warrant Shares"). The warrant is exercisable
until February 25, 2000 at an exercise price per share equal to the greater
of 110% of the fair market value per share of Common Stock on the trading
day prior to the date of exercise or (i) $8.00 per share (if the warrant is
exercised on or prior to February 25, 1998), (ii) $9.00 per share (if the
warrant is exercised after February 25, 1998, but on or prior to February
25, 1999), or (iii) $13.50 per share (if the warrant is exercised after
February 25, 1999, but on or prior to February 25, 2000). Notwithstanding
the foregoing sentence, Incyte has the option to fix the exercise price per
share during each of aforementioned periods; provided, however, that in no
event shall the exercise price per share during each of the aforementioned
periods be less than $8.00, $9.00 or $13.50 per share, respectively.
Furthermore, pursuant to a Securities Purchase Agreement between the
Company and Incyte, Incyte purchased 372,555 shares of Common Stock from
the Company for $3,000,000 (the "Cash Purchase Shares") or the equivalent
of $8.05 per share. In addition, under the terms of the Securities
Purchase Agreement the Company has agreed to issue to Incyte, under certain
circumstances, up to an aggregate of 130,726 shares of the Company's Common
Stock (the "Additional Shares"). Pursuant to the terms of an Investor's
Rights Agreement between the Company and Incyte, Incyte was granted certain
registration and other stockholder rights with respect to the Definite
Technology Shares, Warrant Shares, the Cash Purchase Shares and the
Additional Shares.
The Company is in the process of valuing the consideration issued in this
transaction and allocating that value to the various assets acquired. The
Company, based on its preliminary analysis, believes that substantially all
of the purchase price in excess of cash received will be allocated to
research & development projects in process and expensed in the first
quarter of 1997.
10. SUBSEQUENT EVENTS:
The Company has continued to incur significant operating losses through
February 1998 and, at March 23, 1998, the Company had cash, cash equivalents
and short-term investments of approximately $2.1 million. Currently, the
Company expends from $800,000 to $1,000,000 per month and will need to
raise additional funds in the second quarter of 1998 to continue to fund
the Company's operations. Management has developed a plan to obtain
additional financing to mitigate the Company's liquidity risk. However,
there can be no assurance that such financing will be secured on terms
acceptable to the Company, or at all.
F-19
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTS
To OncorMed, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
financial statements of OncorMed, Inc. (a Delaware corporation in the
development stage), included in this Form S-3 and have issued our report
thereon dated February 26, 1997 (except with respect to the matter described
in note 101, as to which the date is March 23, 1998). Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index to the financial statements is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein, in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
February 26, 1997
S-1
<PAGE> 41
OncorMed, Inc.
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Balance
beginning to costs at end
Description of period and expenses Write-off of period
- ----------- -------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
December 31, 1993
- ------------------
Allowance for doubtful accounts $ --- $ --- $ --- $ ---
December 31, 1994
- ------------------
Allowance for doubtful accounts --- --- --- ---
December 31, 1995
- ------------------
Allowance for doubtful accounts --- 7,000 --- 7,000
December 31, 1996
- ------------------
Allowance for doubtful accounts 7,000 28,000 3,000 32,000
</TABLE>
S-2
<PAGE> 42
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, by any Selling Stockholder or by any other person. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy the Shares to any person
or by anyone in any jurisdiction in which such offer or solicitation may not
lawfully be made.
------------------
Table of Contents
<TABLE>
<S> <C>
Available Information................................ 2
Incorporation of Certain Information by Reference.... 2
The Company.......................................... 3
Risk Factors......................................... 3
Use of Proceeds...................................... 13
Dilution............................................. 13
Selling Stockholders................................. 14
Description of Capital Stock......................... 16
Plan of Distribution................................. 18
Legal Matters........................................ 19
Experts.............................................. 19
</TABLE>
1,596,189
ONCORMED, INC.
Common Stock
------------------
PROSPECTUS
------------------
MARCH 25, 1998
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the expenses to be incurred
by the Company in connection with the issuance and distribution of the
securities being registered:
<TABLE>
Amount to
Be Paid
<S> <C>
Registration Fee - SEC ................................ $ 3,120
American Stock Exchange Listing Fee ................... 17,500
Legal Fees and Expenses ............................... 90,000
Accounting Fees and Expenses .......................... 5,000
Miscellaneous ......................................... 300,000
-------
Total ................................................. $415,620
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Registrant's Certificate of Incorporation, as amended,
provides that the Registrant shall, to the full extent permitted by law,
indemnify all directors, officers, employees or agents of the Registrant.
Section 145 of the General Corporation Law of Delaware permits indemnification
of directors, officers, employees, and agents of a corporation under certain
conditions and subject to certain limitations. The Section provides generally
that such persons may be indemnified unless they engage in a material act or
omission in bad faith or that is the result of active and deliberate
dishonesty, they actually receive an improper personal benefit in money,
property or services, or, in the case of a criminal proceeding, they have
reasonable cause to believe that the act or omission is unlawful. Provision is
made for reimbursement of reasonable expenses so long as it is finally
determined that the standards of conduct have been met. The Selling
Stockholders have agreed to indemnify officers, directors and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act under certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following is a list of Exhibits filed as part of the Registration
Statement:
<TABLE>
<S> <C>
3.1** Certificate of Incorporation of the Company.
3.2* Bylaws of the Company.
3.3 Certificate of Designation, Preferences and Rights of 6% Series A
Convertible Preferred Stock of Oncormed, Inc.
4.1** Specimen certificate for shares of the Company's Common Stock.
4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate
of Incorporation and Bylaws of the Company defining rights of holders
of capital stock of the Company.
4.3** Form of Underwriter's Warrant Certificate.
4.4 (Reserved)
4.5 Form of Common Stock Purchase Warrant issued by the Company to
Purchasers of 6% Series A Convertible Preferred Stock.
5.1 Opinion and consent of Brobeck, Phleger and Harrison LLP.
10.1** Sublease, dated June 1994, between the Company and Oncor, Inc.
10.2** Lease, dated December 1, 1993, between Scoular Properties, Inc., and
the Company, as amended.
</TABLE>
II-1
<PAGE> 44
<TABLE>
<S> <C>
10.3** Asset Purchase Agreement and Plan of Reorganization, dated September
1, 1993, among the Company, Genetic Systems Management, Inc., Henry T.
Lynch, Ralph Rosenberg, Steven Evans and Jerome Block.
10.4** Form of Subscription Agreement, with a schedule of substantially
identical documents.
10.5** Form of Registration Rights Agreement, with a schedule of
substantially identical documents.
10.6** License Agreement, dated September 1, 1993, among Creighton
University, The Hereditary Cancer Institute and the Company.
10.7** Services Agreement, dated September 1, 1993, between the Company and
The Hereditary Cancer Institute.
10.8** Stock Purchase Agreement, dated September 15, 1993, between the
Company and Morgan Guarantee Trust Company of New York and Socrates G.
Pappajohn, as Trustees.
10.9** Technology License Agreement, dated as of July 12, 1993, between Oncor and the Company.
10.10** Restated Technology License Agreement, dated as of June 6, 1994, between Oncor and the Company.
10.11** Consulting Agreement, dated March 1, 1994, with David Sidransky.
10.12** Restated 1993 Stock Option Plan.
10.13** Note, dated June 6, 1994, issued by the Company to Oncor.
10.14** Clinical Study Agreement, dated May 31, 1994, between the Company
and The University of Texas, MD Anderson Cancer Center.
10.15** Research and License Agreement, dated February 1, 1994, between
Oncor, Inc. and The General Hospital Corporation.
10.16** License Agreement, dated March 9, 1994, between The Johns Hopkins
University and the Company.
10.17** License Agreement, dated October 27, 1993, between The Johns
Hopkins University and the Company.
10.18** License Agreement, dated November 1, 1993, among Oncor, Inc.,
Institut Suisse De Recherches Experimentales Sur Le Cancer and The
General Hospital Corporation.
10.19** Collaborative Research Agreement, dated October 20, 1992, between
Oncor, Inc. and The Johns Hopkins University.
10.20** Agreement between Roche Molecular Systems, Inc. and the Company.
10.21** Licensing Agreement and related correspondence between Genetic
Systems Management and Hoag Cancer Center.
10.22** Licensing Agreement and related correspondence between Genetic
Systems Management and Harris Methodist Northwest.
10.23** Clinical Study Agreement, dated August 1, 1994, between the Company
and Sloan-Kettering Institute of Cancer Research.
10.24** Licensing Agreement, dated June 1, 1994, among the Company, the
Dana-Farber Cancer Institute, Inc., The State of Oregon, the
University of Vermont and Yale University.
10.25* Stock Option Agreement, dated February 6, 1995, between the Company
and Leslie Alexandre.
10.26* Services Agreement, dated February 16, 1995, between the Company and
Preferred Oncology Networks of America, Inc.
10.27* Lease, dated December 2, 1994, between Saul Holdings Limited
Partnership and Oncor.
10.28* Assignment of Lease, dated March 15, 1995, between Oncor, the
Company and Saul Holdings Limited Partnership.
10.29*** Sponsored Research and License Agreement among the Company, the
Hereditary Cancer Institute and Creighton University.
10.30*** Services Agreement among the Company, the Hereditary Cancer
Institute and Creighton University.
</TABLE>
II-2
<PAGE> 45
<TABLE>
<S> <C>
10.31*** Services Agreement between the Company and Oncor.
10.32**** Correspondence, dated September 26, 1995, from the Company to Memorial Sloan-Kettering Cancer Center.
10.33**** Correspondence, dated September 7, 1995, from the Registrant to UT MD Anderson Cancer Center.
10.34***** Term Sheet, dated February 24, 1997 between the Company and Oncor.
10.35***** License, Services and Marketing Agreement, dated February 25,
1997 between the Company and Incyte Pharmaceuticals, Inc.
10.36****** License Agreement, dated July 7, 1997 between the Company,
Cancer Research Campaign Technology Limited and Duke University.
10.37 Convertible Preferred Stock Purchase Agreement, dated February
27, 1998, by and between the Company and Southbrook International
Investments, Ltd., Westover Investments L.P., Montrose Investments,
Ltd., Brown Simpson Strategic Growth Fund, L.P., Brown Simpson
Strategic Growth Fund, Ltd., and Incyte Pharmaceuticals, Inc.
10.38 Registration Rights Agreement, dated February 27, 1998 by and
between Oncormed, Inc. and Southbrook International Investments, Ltd.,
Westover Investments L.P., Montrose Investments, Ltd., Brown Simpson
Strategic Growth Fund, L.P., Brown Simpson Strategic Growth Fund,
Ltd., and Incyte Pharmaceuticals, Inc.
10.39 Amendment No. 1 to the Convertible Preferred Stock Purchase
Agreement, dated March 23, 1998, by and between the Company and Southbrook
International Investments, Ltd., Westover Investments L.P., Montrose
Investments, Ltd., Brown Simpson Strategic Growth Fund, L.P., Brown Simpson
Stategic Growth Fund, Ltd., and Incyte Pharmaceuticals, Inc.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.2).
24. Powers of Attorney (see signature page).
</TABLE>
- ---------------
*Incorporated by reference to the Exhibits filed with the Company's Form
10-K for the year ended December 31, 1994.
**Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-80758.
***Incorporated by reference to the Exhibits filed with the Company's Form
10-Q for the period ended June 30, 1995.
****Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-98826.
*****Incorporated by reference to the Exhibits filed with the Company's
Form 10-Q for the period ended, March 31, 1997.
******Incorporated by reference to the Exhibits filed with the Company's
form 10-Q for the period ended September 30, 1997.
(b) Financial Statement Schedules
i) Schedule II - Valuation and Qualifying Accounts
II-3
<PAGE> 46
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of 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 Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained
II-4
<PAGE> 47
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Gaithersburg, State of Maryland, on March 23,
1998.
ONCORMED, INC.
By: /s/ Timothy J. Triche
---------------------------------------------
Timothy J. Triche, Chairman of the Board of
Directors and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Oncormed, Inc. (the
"Company"), hereby severally constitute and appoint Timothy J. Triche, Chairman
of the Board of Directors, and L. Robert Johnston, Jr., Senior Vice President
and Chief Financial Officer, and each of them individually with full powers of
substitution and resubstitution, our true and lawful attorneys, with full
powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the Registration Statement on Form S-3 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, in connection with the registration under the Securities
Act of 1933, as amended, of equity securities of the Company, and to file or
cause to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them
might or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
causes to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on March 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Timothy J. Triche
- ---------------------------
Timothy J. Triche Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive
/s/ L. Robert Johnston, Jr.
- ---------------------------
L. Robert Johnston, Jr. Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
/s/ Douglas Dolginow
- ---------------------------
Douglas Dolginow President, Chief Operating Officer and Director
/s/ John W. Colloton
- ---------------------------
John W. Colloton Director
/s/ John Pappajohn
- ---------------------------
John Pappajohn Director
/s/ Wayne C. Patterson
- ---------------------------
Wayne C. Patterson Director
/s/ Stephen Turner
- ---------------------------
Stephen Turner Director
</TABLE>
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1** Certificate of Incorporation of the Company.
3.2* Bylaws of the Company.
3.3 Certificate of Designation, Preferences and Rights of 6% Series A Convertible Preferred Stock of Oncormed, Inc.
4.1** Specimen certificate for shares of the Company's Common Stock.
4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and Bylaws of the Company defining rights of holders of
capital stock of the Company.
4.3** Form of Underwriter's Warrant Certificate.
4.4 (Reserved)
4.5 Form of Common Stock Purchase Warrant issued by the Company to
Purchasers of 6% Series A Convertible Preferred Stock.
5.1 Opinion and consent of Brobeck, Phleger and Harrison LLP.
10.1** Sublease, dated June 1994, between the Company and Oncor, Inc.
10.2** Lease, dated December 1, 1993, between Scoular Properties, Inc., and
the Company, as amended.
10.3** Asset Purchase Agreement and Plan of Reorganization, dated September 1,
1993, among the Company, Genetic Systems Management, Inc., Henry T.
Lynch, Ralph Rosenberg, Steven Evans and Jerome Block.
10.4** Form of Subscription Agreement, with a schedule of substantially
identical documents.
10.5** Form of Registration Rights Agreement, with a schedule of substantially
identical documents.
10.6** License Agreement, dated September 1, 1993, among Creighton University,
The Hereditary Cancer Institute and the Company.
10.7** Services Agreement, dated September 1, 1993, between the Company and
The Hereditary Cancer Institute.
10.8** Stock Purchase Agreement, dated September 15, 1993, between the Company
and Morgan Guarantee Trust Company of New York and Socrates G. Pappajohn,
as Trustees.
10.9** Technology License Agreement, dated as of July 12, 1993, between Oncor and the Company.
10.10** Restated Technology License Agreement, dated as of June 6, 1994, between Oncor and the Company.
10.11** Consulting Agreement, dated March 1, 1994, with David Sidransky.
10.12** Restated 1993 Stock Option Plan.
10.13** Note, dated June 6, 1994, issued by the Company to Oncor.
10.14** Clinical Study Agreement, dated May 31, 1994, between the Company and
The University of Texas, MD Anderson Cancer Center.
10.15** Research and License Agreement, dated February 1, 1994, between Oncor, Inc. and The General Hospital Corporation.
10.16** License Agreement, dated March 9, 1994, between The Johns Hopkins University and the Company.
10.17** License Agreement, dated October 27, 1993, between The Johns Hopkins University and the Company.
10.18** License Agreement, dated November 1, 1993, among Oncor, Inc., Institut
Suisse De Recherches Experimentales Sur Le Cancer and The General
Hospital Corporation.
10.19** Collaborative Research Agreement, dated October 20, 1992, between Oncor, Inc. and The Johns Hopkins University.
10.20** Agreement between Roche Molecular Systems, Inc. and the Company.
10.21** Licensing Agreement and related correspondence between Genetic Systems Management and Hoag Cancer Center.
10.22** Licensing Agreement and related correspondence between Genetic Systems
Management and Harris Methodist Northwest.
10.23** Clinical Study Agreement, dated August 1, 1994, between the Company
and Sloan-Kettering Institute of Cancer Research.
10.24** Licensing Agreement, dated June 1, 1994, among the Company, the
Dana-Farber Cancer Institute, Inc., The State of Oregon, the University
of Vermont and Yale University.
10.25* Stock Option Agreement, dated February 6, 1995, between the Company and
Leslie Alexandre.
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
10.26* Services Agreement, dated February 16, 1995, between the Company and
Preferred Oncology Networks of America, Inc.
10.27* Lease, dated December 2, 1994, between Saul Holdings
Limited Partnership and Oncor.
10.28* Assignment of Lease, dated March 15, 1995, between Oncor, the
Company and Saul Holdings Limited Partnership.
10.29*** Sponsored Research and License Agreement among the Company, the
Hereditary Cancer Institute and Creighton University.
10.30*** Services Agreement among the Company, the Hereditary Cancer Institute and Creighton University.
10.31*** Services Agreement between the Company and Oncor.
10.32**** Correspondence, dated September 26, 1995, from the Company to Memorial Sloan-Kettering Cancer Center.
10.33**** Correspondence, dated September 7, 1995, from the Registrant to UT MD Anderson Cancer Center.
10.34***** Term Sheet, dated February 24, 1997 between the Company and Oncor.
10.35***** License, Services and Marketing Agreement, dated February 25, 1997
between the Company and Incyte Pharmaceuticals, Inc.
10.36****** License Agreement, dated July 7, 1997 between the Company, Cancer
Research Campaign Technology Limited and Duke University.
10.37 Convertible Preferred Stock Purchase Agreement, dated February 27,
1998, by and between the Company and Southbrook International
Investments, Ltd., Westover Investments L.P., Montrose Investments,
Ltd., Brown Simpson Strategic Growth Fund, L.P., Brown Simpson
Strategic Growth Fund, Ltd., and Incyte Pharmaceuticals, Inc.
10.38 Registration Rights Agreement, dated February 27, 1998 by and between
Oncormed, Inc. and Southbrook International Investments, Ltd.,
Westover Investments L.P., Montrose Investments, Ltd., Brown
Simpson Strategic Growth Fund, L.P., Brown Simpson Strategic Growth
Fund, Ltd., and Incyte Pharmaceuticals, Inc.
10.39 Amendment No. 1 to the Convertible Preferred Stock Purchase
Agreement, dated March 23, 1998, by and between the Company and Southbrook
International Investments, Ltd., Westover Investments L.P., Montrose
Investments, Ltd., Brown Simpson Strategic Growth Fund, L.P., Brown Simpson
Stategic Growth Fund, Ltd., and Incyte Pharmaceuticals, Inc.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP. (included in
Exhibit 5.2).
24. Powers of Attorney (see signature page).
</TABLE>
- ---------------
*Incorporated by reference to the Exhibits filed with the Company's Form
10-K for the year ended December 31, 1994.
**Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-80758.
***Incorporated by reference to the Exhibits filed with the Company's Form
10-Q for the period ended June 30, 1995.
****Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-98826.
*****Incorporated by reference to the Exhibits filed with the Company's
Form 10-Q for the period ended, March 31, 1997.
******Incorporated by reference to the Exhibits filed with the Company's
form 10-Q for the period ended September 30, 1997.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
6% SERIES A CONVERTIBLE PREFERRED STOCK
OF
ONCORMED, INC.
The undersigned officers of Oncormed, Inc. (the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, do hereby certify that, pursuant to
authority conferred by the Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of the Corporation adopted a resolution adopting a Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock (this
"Certificate of Designation") providing for certain designations, powers,
number, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of Three
Hundred Thirty-Three (333) shares of 6% Series A Convertible Preferred Stock,
$.01 par value per share, which resolution is as follows:
RESOLVED: That pursuant to Article V of the Amended and Restated
Certificate of Incorporation of this Corporation, the Board of
Directors hereby establishes the following series of Preferred Stock,
$.01 par value per share, of the Corporation having the designations,
powers, number, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof set forth below:
Section 1. Designation, Amount and Par Value. The
series of preferred stock shall be designated as 6% Series A Convertible
Preferred Stock (the "Series A Preferred") and the number of shares so
designated shall be 333 (which shall not be subject to increase without the
consent of the holders of the Series A Preferred ("Holder")). Each share of
Series A Preferred shall have a par value of $.01 per share and a stated value
of $10,000 per share (the "Stated Value").
Section 2. Dividends.
(a) Holders of Series A Preferred shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 6% per
annum, payable on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year during the term hereof (each a "Dividend Payment
Date"), commencing on June 30, 1998, in cash or shares of Common Stock (as
defined in Section 6) at
<PAGE> 2
(subject to the terms and conditions set forth herein) the option of the
Company, provided, that such initial payment on June 30, 1988 shall contain
dividends accrued since the Original Issue Date. Any dividends not paid on any
Dividend Payment Date shall accrue and shall be due and payable upon conversion
of the Series A Preferred. A party that holds shares of Series A Preferred on
a Dividend Payment Date will be entitled to receive such dividend payment and
any other accrued and unpaid dividends which accrued prior to such Dividend
Payment Date, without regard to any sale or disposition of such Series A
Preferred subsequent to the applicable record date. All overdue accrued and
unpaid dividends and other amounts due herewith shall entail a late fee at the
rate of 15% per annum (to accrue daily, from the date such dividend is due
hereunder through and including the date of payment). Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued and unpaid on account of the Series A Preferred or on
account of the Company's 6% Series B Convertible Preferred Stock (the "Series B
Preferred"), if issued pursuant to the Purchase Agreement, such payment shall
be distributed ratably among the holders of the Series A Preferred and Series B
Preferred based upon the number of shares held by each Holder. The Company
shall provide the Holders notice of its intention to pay dividends in cash or
shares of Common Stock not less than 10 Trading Days prior to the Dividend
Payment Date for so long as shares of Series A Preferred are outstanding. If
dividends are paid in shares of Common Stock, the number of shares of Common
Stock payable as such dividend to each Holder shall be equal to the cash amount
of such dividend payable to such Holder on such Dividend Payment Date divided
by the closing bid price of the Common Stock on the Trading Day immediately
prior to such notice ("Dividend Conversion Price").
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of
dividends (and must deliver cash in respect thereof) on the Series A Preferred
if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay
such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in
respect of such dividends are not registered for resale pursuant to an
effective registration statement that names the recipient of such dividend as a
selling stockholder thereunder and may not be sold without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in the form
and substance acceptable to the Holder;
(iii) the shares of Common Stock to be issued in
respect of such dividends are not listed on the American Stock Exchange (the
"AMEX") or any other exchange or quotation system on which the Common Stock is
then listed for trading; or
(iv) the Company has failed to timely satisfy its
obligations pursuant to any Conversion Notice (as defined in Section 5(a)(ii)).
<PAGE> 3
(c) So long as any Series A Preferred shall remain
outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in Section 6), nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 5) upon, nor shall any distribution be made
in respect of, any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities or shares pari passu with the Series A Preferred (except
for the Series B Preferred), except for repurchases effected by the Company on
the open market pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided
herein and as otherwise required by law, the Series A Preferred shall have no
voting rights. However, so long as any shares of Series A Preferred are
outstanding, the Company shall not, and shall cause its subsidiaries not to,
without the affirmative vote of the Holders of all of the shares of the Series
A Preferred then outstanding, (a) alter or amend this Certificate of
Designation, (b) authorize or create any class of stock ranking as to dividends
or distribution of assets upon a Liquidation (as defined in Section 4) or
otherwise senior to or pari passu with the Series A Preferred, except for the
Series B Preferred, (c) amend its Certificate of Incorporation, bylaws or other
charter documents so as to affect adversely any rights of any Holders, (d)
increase the authorized number of shares of Series A Preferred, or (e) enter
into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Series A Preferred an amount equal to the Stated Value plus all accrued but
unpaid dividends per share, whether declared or not, before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts, then
the entire assets to be distributed to the Holders shall be distributed among
the Holders ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. A
Change of Control Transaction (as defined in Section 6) shall not be treated as
a Liquidation, but instead shall be subject to the provisions of Section 5.
The Company shall mail written notice of any such Liquidation, not less than 30
Trading Days prior to the payment date stated therein, to each record Holder of
Series A Preferred.
Section 5. Conversion.
(a)(i) Each share of Series A Preferred (in minimum amounts
of $50,000 aggregate Stated Value or such lesser amounts as the Company agrees)
shall be convertible into shares of Common Stock (subject to reduction pursuant
to Section 5(a)(iii) and Section 3.15 of the Purchase Agreement at the
Conversion Ratio (as defined in Section 6)) at the option of the Holder, in
whole or in part, at any time after the Original Issue Date. The Holders shall
effect conversions by surrendering the certificate or certificates representing
the shares of Series A
3
<PAGE> 4
Preferred to be converted to the Company, together with the form of conversion
notice attached hereto as Exhibit A (the "Holder Conversion Notice"). Each
Holder Conversion Notice shall specify the number of shares of Series A
Preferred to be converted and the date on which such conversion is to be
effected (the "Holder Conversion Date"), which date may not be prior to the
date the Holder is deemed to have delivered such Holder Conversion Notice
pursuant to Section 5(h). If no Holder Conversion Date is specified in the
Holder Conversion Notice, the Holder Conversion Date shall be the date that the
Holder Conversion Notice is deemed delivered pursuant to Section 5(h). Subject
to Sections 5(b) and 5(a)(iii) hereof, each Holder Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all shares
of Series A Preferred represented by the certificate or certificates tendered
by the Holder with the Holder Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly deliver
to such Holder (in the manner and within the time set forth in Section 5(b)) a
certificate for such number of shares of Series A Preferred as have not been
converted.
(ii) On or after the second anniversary of the
Original Issue Date, the Company may require the conversion of all, or a
portion thereof, of the then outstanding and unconverted shares of Series A
Preferred with such conversion being effectuated at the Conversion Price then
in effect (subject to reduction pursuant to Section 5(a)(iii)) by delivering to
the Holder of such shares to be converted a notice in the form attached hereto
as Exhibit B (the "Company Conversion Notice"), provided, that, no such
conversion is permitted unless at the time of the delivery of the Company
Conversion Notice and on the Company Conversion Date (as defined below), (a)
the Company shall have complied in all material respects with its obligations
under the Registration Rights Agreement, (b) the shares of Common Stock
issuable upon such conversion are listed for trading on the AMEX or any other
exchange or quotation system on which the Common Stock is then listed for
trading, (c) the Company is in compliance with all of its obligations under
this Certificate of Designation, the Purchase Agreement and the Warrants, (d)
the closing bid price of the Common Stock for at least 20 consecutive Trading
Days immediately preceding the date of the Company Conversion Notice shall have
been at least 150% of Initial Conversion Price. Each Company Conversion Notice
shall specify the date on which such conversion is to be effected, which date
may not be prior to the day after the Company delivers such Company Conversion
Notice by facsimile or later than 10 Trading Days subsequent to such delivery
(the "Company Conversion Date"). If no Company Conversion Date is specified in
a Company Conversion Notice, the Company Conversion Date shall be the date that
the Company Conversion Notice is deemed delivered pursuant to Section 5(ii). A
Holder Conversion Date and a Company Conversion Date are sometimes referred to
as the "Conversion Date" and a Holder Conversion Notice and a Company
Conversion Notice are sometimes referred to as a "Conversion Notice." Any
conversion pursuant to this Section 5(a)(ii) shall be subject to Section 5(b)
with respect to consequences of the Company's failure to deliver shares of
Common Stock in respect of a conversion under this Section 5. If a conversion
hereunder cannot be effected in full for any reason, the Company shall promptly
deliver to such tendering Holder (in the manner and within the time set forth
in Section 5(b)) a certificate for such number of shares of Series A Preferred
as have not been converted.
4
<PAGE> 5
(iii) If on the Conversion Date applicable to any
conversion, (A) the Common Stock is then listed for trading on the AMEX or any
other exchange or quotation system on which the Common Stock is then listed or
traded, (B) the Conversion Price then in effect is such that the aggregate
number of shares of Common Stock that would then be issuable upon conversion of
all outstanding shares of Series A Preferred and Series B Preferred, if issued,
together with any shares of Common Stock previously issued upon conversion of
Series A Preferred or of Series B Preferred, if issued, and in respect of
payment of dividends hereunder or thereunder and shares of Common Stock
issuable upon the exercise of Warrants, would equal or exceed 19.999%, or any
threshold set by such exchange or quotation system, of the number of shares of
Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and (C) the Company has not previously obtained Stockholder Approval (as
defined below), then the Company shall either (1) issue to any Holder so
requesting conversion of Series A Preferred its pro rata portion of the
Issuable Maximum in the same ratio that the number of shares of Series A
Preferred held by any such Holder bears to all shares of Series A Preferred
then outstanding and, with respect to any shares of Common Stock that otherwise
would have been issuable to such Holder in respect of the Conversion Notice at
issue or in respect of payment of dividends hereunder in excess of the Issuable
Maximum, the Holder may require the Company to, as promptly as possible, but in
no event later than 45 Trading Days convene a meeting of the holders of the
Common Stock and use reasonable commercial efforts to obtain the Stockholder
Approval, or (2) redeem, from funds legally available therefor at the time of
such redemption, the balance of the Series A Preferred subject to such
Conversion Notice at a price per share equal to the product of (i) the average
Per Share Market Value for the five (5) Trading Days immediately preceding (x)
the Conversion Date or (y) the date of payment in full by the Company of such
redemption price, whichever is greater, and (ii) the Conversion Ratio
calculated on the Conversion Date; provided, however, that if the Company opts
to obtain Stockholder Approval under Section 5(iii)(c)(1) above and the Company
fails for any reason to obtain such Stockholder Approval within the time period
set forth in Section 5(iii)(c)(1) above, the Company shall be obligated to
redeem the Series A Preferred not converted as a result of the provisions of
this Section in accordance with the provisions of Section 5(iii)(c)(2) above,
and, in such case, the late fee contemplated by the immediately succeeding
sentence shall be deemed to accrue from the Conversion Date. If the Company
has opted to redeem shares of Series A Preferred pursuant to Section
5(iii)(c)(2) above, and the Company fails for any reason to pay the redemption
price under Section 5(iii)(c)(2) above within five Trading Days after the
Conversion Date, the Company will pay a late fee on such redemption price at a
rate of 15% per annum to the converting Holder, accruing from the Conversion
Date until the redemption price plus any accrued late fees thereon is paid in
full. The entire redemption price, including late fees thereon, shall be paid
in cash. "Stockholder Approval" means the approval by a majority of the total
votes cast on the proposal, in person or by proxy, at a meeting of the
stockholders of the Company held in accordance with the Company's Certificate
of Incorporation and by-laws, of the issuance by the Company of shares of
Common Stock exceeding the Issuable Maximum as a consequence of the conversion
of Series A Preferred and Series B Preferred, payment of dividends thereon and
exercise of the Warrants into Common Stock at a price less than the greater of
the book or market value on the Original Issue Date as and to the extent
required pursuant to Rule 713 of the AMEX (or any successor or replacement
provision thereof
5
<PAGE> 6
or any equivalent rule of any other exchange or quotation system on which the
Common Stock is then listed or traded).
(b) Not later than three Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement) representing the number of shares of Common Stock being acquired
upon the conversion of shares of Series A Preferred (subject to reduction
pursuant to Section 5(a)(iii) and Section 3.15 of the Purchase Agreement), (ii)
one or more certificates representing the number of shares of Series A
Preferred not converted, (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued but unpaid dividends in
cash) and (iv) if the Company has elected to pay accrued but unpaid dividends
in shares of Common Stock, certificates, which shall be free of restrictive
legends and trading restrictions (other than those required by Section 3.1 (b)
of the Purchase Agreement), representing such number of shares of Common Stock
as equals such dividend divided by the Conversion Price on the Dividend Payment
Date; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Series A Preferred until certificates evidencing such shares of
Series A Preferred are either delivered for conversion to the Company or any
transfer agent for the Series A Preferred or Common Stock, or the Holder of
such Series A Preferred notifies the Company that such certificates have been
lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use reasonable commercial efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case
of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or
as directed by the applicable Holder by the fourth Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Series A
Preferred tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, prior to the third
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each day after
such third Trading Day until such certificates are delivered. If the Company
fails to deliver to the Holder such certificate or certificates pursuant to
this Section prior to the 7th Trading Day after the Conversion Date, the
Company shall, at the Holder's option (i) redeem, from funds legally available
therefor at the time of such redemption, such number of shares of Series A
Preferred then held by such Holder, as requested by such Holder, and (ii) pay
all accrued but unpaid dividends on account of the Series A Preferred for which
the Company shall have failed to issue Common Stock certificates hereunder, in
cash. The redemption price shall be equal to the sum of (A) the aggregate of
all accrued but unpaid dividends, plus (B) the number of shares of Series
6
<PAGE> 7
A Preferred then held by such Holder multiplied by (1) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (x) the
Conversion Date or (y) the date of payment in full by the Company of such
prepayment price, whichever is greater, multiplied by, (2) the Conversion Ratio
calculated on the Conversion Date. If the Holder has requested that the
Company redeem shares of Series A Preferred pursuant to this Section and the
Company fails for any reason to pay the redemption price set forth in the
immediately preceding sentence within five Trading Days after such redemption
notice is deemed delivered pursuant to Section 5(i), the Company will pay a
late fee on the redemption price at a rate of 15% per annum, in cash to such
Holder, accruing from such fifth Trading Day until the redemption price and any
accrued late fees thereon is paid in full. Nothing herein shall limit a
Holder's right to pursue actual damages for the Company's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such Holder to make delivery on a sale
effected in anticipation of receiving certificates representing shares of
Common Stock upon conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common Stock so
purchased minus (B) the aggregate amount of net proceeds, if any, received by
such Holder from the sale of the shares of Common Stock issued by the Company
pursuant to such conversion), and such Holder shall have the right to pursue
all remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).
(c) (i) The conversion price for each share of Series
A Preferred (the "Conversion Price") in effect on any Conversion Date shall be
the lesser of (a) 110% of the Per Share Market Value for the Trading Day
immediately preceding the Original Issue Date (the "Initial Conversion Price")
or (b) the Applicable Percentage (as defined in Section 6) multiplied by the
average of five (5) closing bid prices of the Common Stock on the AMEX or other
market or exchange on which the Common Stock is then listed or traded, during
the thirty (30) Trading Days prior to the date of the applicable Conversion
Notice, which five closing bid prices shall be chosen by the Holder converting
such shares of Series A Preferred; provided, however, that, (a) if the
Underlying Shares Registration Statement (as defined in the Registration Rights
Agreement) is not filed on or prior to the Filing Date (as defined in the
Registration Rights Agreement), or (b) if the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2
promulgated under the Securities Exchange Act of 1934, as amended, within three
(3) Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed," or not subject to further
review, or (c) if the Underlying Shares Registration Statement is not declared
effective by the Commission on or prior to the 90th day after the Original
Issue Date, or (d) if such Underlying Shares Registration Statement is filed
with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term is defined in the Registration Rights
Agreement), without being succeeded within 10 Trading Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) if trading in the Common Stock shall be suspended for
more than three (3) consecutive Trading Days or five (5) Trading Days in the
aggregate, or (f) if the conversion rights of the
7
<PAGE> 8
Holders are suspended for any reason, or (g) if the Company breaches in a
material respect any covenant or other material term or condition to this
Agreement, the Purchase Agreement (other than a representation or warranty
contained therein), the Warrants, the Registration Rights Agreement or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach
continues for a period of thirty (30) days after written notice thereof to the
Company, or (h) if the Company is required to convene a stockholders meeting
pursuant to Section 5(a)(iii) and fails to convene a meeting of stockholders
within the time periods specified in Section 5(a)(iii) or does so convene a
meeting of stockholders within such time period but fails to obtain Stockholder
Approval at such meeting, or (i) if the Company has breached Section 3(p) of
the Registration Rights Agreement (any such failure or breach being referred to
as an "Event," and for purposes of clauses (a), (c), (f) and (h) the date on
which such Event occurs, or for purposes of clause (b) the date on which such
five (5) day period is exceeded, or for purposes of clause (d) the date which
such 10 Trading Day-period is exceeded, or for purposes of clause (e) the date
on which such three Trading Day period is exceeded, or for clause (g) the date
on which such thirty (30) day period is exceeded, being referred to as "Event
Date"), the Conversion Price shall be decreased by 2% each month (i.e., the
Conversion Price would decrease by 2% as of the Event Date and an additional 2%
as of each monthly anniversary of the Event Date) until the earlier to occur of
the second month anniversary after the Event Date and such time as the
applicable Event is cured. Commencing the second month anniversary after the
Event Date, the Company shall pay to the Holders $50,000 (each Holder being
entitled to receive such portion of such amount as equals its pro rata portion
of the Series A Preferred then outstanding) in cash as liquidated damages, and
not as a penalty on the first day of each monthly anniversary of the Event Date
until such time as the applicable Event, is cured, provided, however, that for
purposes of clause (e) above, such liquidated damages payment shall be payable
by the Company on the second month anniversary of any such suspension but will
not be payable on any subsequent liquidated damages date unless trading in the
Common Stock shall again be suspended for more than three (3) consecutive
Trading Days or five (5) Trading Days in the aggregate prior to any such
subsequent damages payment date. Any decrease in the Conversion Price pursuant
to this Section shall continue notwithstanding the fact that the Event causing
such decrease has been subsequently cured.
(ii) If the Company, at any time while any shares
of Series A Preferred are outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities or pari passu securities (other than with respect to the Series B
Preferred) payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section 5(c)(ii) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
8
<PAGE> 9
(iii) If the Company, at any time while any shares
of Series A Preferred are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value of
Common Stock at the record date mentioned below, the Initial Conversion Price
shall be multiplied by a fraction, of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants. However, upon the expiration of
any right or warrant to purchase Common Stock the issuance of which resulted in
an adjustment in the Initial Conversion Price pursuant to this Section
5(c)(iii), the Initial Conversion Price shall immediately upon such expiration
be recomputed, and effective immediately upon such expiration, be increased to
the price which it would have been (but reflecting any other adjustments in the
Initial Conversion Price made pursuant to the provisions of this Section 5
after the issuance of such rights or warrants) had the adjustment of the
Initial Conversion Price made upon the issuance of such rights or warrants been
made on the basis of that number of shares of Common Stock actually purchased
upon the exercise of such rights or warrants.
(iv) If the Company, at any time while shares of
Series A Preferred are outstanding, shall distribute to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 5(c)(ii) and (iii) above), then in each such case the
Conversion Price at which each share of Series A Preferred shall thereafter be
convertible shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Series A Preferred
dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Holders of a majority in interest of
the shares of Series A Preferred then outstanding; and provided, further, that
the Company, after receipt of the determination by such Appraiser shall have
the right to select an additional Appraiser, in good faith, in which case the
fair market value shall be equal to the average of the determinations by each
such Appraiser. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so
9
<PAGE> 10
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.
(vi) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(i),(ii),(iii) or (iv), the Company shall promptly mail
to each Holder of Series A Preferred, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(vii) In case of a Change of Control Transaction,
the Holders of the Series A Preferred then outstanding shall have the right
thereafter to convert such shares solely into other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such Change of Control Transaction, and the Holders shall be entitled
upon such Change of Control Transaction to receive such amount of securities,
cash or property as the shares of the Common Stock into which such shares of
Series A Preferred could have been converted immediately prior to such Change
of Control Transaction would have been entitled. The terms of any such Change
of Control Transaction shall include such terms so as to continue to give to
the Holders the right to receive the securities, cash or property set forth in
this Section 5(c)(vii) upon any conversion or redemption following such Change
of Control Transaction. This provision shall similarly apply to successive
Change of Control Transactions. With respect to any such Change of Control
Transaction, each Holder shall have the option to require the Company to
redeem, from funds legally available therefor at the time of such redemption,
its shares of Series A Preferred at a price per share equal to the product of
(i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the effective date, the date of the closing or the
date of the announcement, as the case may be, of the Change of Control
Transaction triggering such redemption right or (2) the date of payment in full
by the Company of the redemption price hereunder, whichever is greater, and
(ii) the Conversion Ratio calculated on the date of the closing or the
effective date, as the case may be, of the Change of Control Transaction
triggering such redemption right, as the case may be. The entire redemption
price shall be paid in cash, and if any portion of the applicable redemption
price shall not be paid by the Company within five (5) Trading Days after the
date due, late fees shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such late fees are paid in full (which amount shall
be paid as liquidated damages and not as a penalty). In addition, if any
portion of such redemption price remains unpaid for more than five (5) Trading
Days after the date due, the Holder of the Series A Preferred subject to such
redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Series A Preferred for which such redemption price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Redemption Shares"), in
which event the Per Share Market Price for such shares shall be the lower of
the Per Share Market Price calculated on the date such redemption price was
originally due and the Per Share Market Price as of the Holder's written demand
for conversion, or (ii) invalidate ab initio such
10
<PAGE> 11
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (i) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject to such
Holder conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (ii) above, the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt
of Holder's notice of such election, return to the Holder all of the Unpaid
Redemption Shares.
(viii) If:
A. the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any shares
of capital stock of any class or of
any rights; or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any Change of Control Transaction;
or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall use reasonable commercial efforts to file at each office
or agency maintained for the purpose of conversion of Series A Preferred, and
shall use reasonable commercial efforts to mail to the Holders at their last
addresses as they shall appear upon the stock books of the Company, at least 15
Trading Days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such Change of
Control Transaction is expected to become effective or close, and the date as
of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such Change of Control Transaction; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. Holders are entitled to convert shares of
Series A
11
<PAGE> 12
Preferred during the 15-Trading Day period commencing the date of such notice
to the effective date of the event triggering such notice.
(ix) If the Company (i) makes a public
announcement that it intends to enter into a Change of Control Transaction or
(ii) any person, group or entity (including the Company, but excluding a Holder
or any affiliate of a Holder) publicly announces a bona fide tender offer,
exchange offer or other transaction to purchase 50% or more of the Common Stock
(such announcement being referred to herein as a "Major Announcement" and the
date on which a Major Announcement is made, the "Announcement Date"), then, in
the event that a Holder seeks to convert shares of Series A Preferred on or
following the Announcement Date, the Conversion Price shall, effective upon the
Announcement Date and continuing through the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Per Share Market Value on the five Trading Days
immediately preceding (but not including) the Announcement Date and (y) the
Conversion Price in effect on the Conversion Date for such Series A Preferred.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or other transaction for which a public announcement as
contemplated by this paragraph has been made, the date upon which the Company
(in the case of clause (i) above) or the person, group or entity (in the case
of clause (ii) above) publicly announces the termination or abandonment of the
proposed transaction or tender offer, exchange offer or another transaction
which caused this paragraph to become operative.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Series A Preferred and
payment of dividends on Series A Preferred, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of Common Stock as
shall (subject to any additional requirements of the Company as to reservation
of such shares set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(a) and Section 5(c)) upon
the conversion of all outstanding shares of Series A Preferred and payment of
dividends hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and freely tradeable, subject to the
legend requirements of Section 3.1 (b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder
of a share of Series A Preferred shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common
Stock on conversion of Series A Preferred shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate,
12
<PAGE> 13
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of
such shares of Series A Preferred so converted 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.
(g) Shares of Series A Preferred converted into Common
Stock shall be canceled and shall have the status of authorized but unissued
shares of undesignated preferred stock.
(h) Any and all notices or other communications or
deliveries to be provided by the Holders of the Series A Preferred hereunder,
including, without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to the attention of the Chief Executive Officer of
the Company at the facsimile telephone number or address of the principal place
of business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Series A Preferred at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 8:00 p.m. (Eastern Time), (ii) the date
after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Section later
than 8:00 p.m. (Eastern Time) on any date and earlier than 11:59 p.m. (Eastern
Time) on such date, (iii) upon receipt, if sent by a nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Applicable Percentage" means (i) 97% for any conversion
honored on or prior to March 31, 1998, (ii) 94% for any conversion honored
during the first calendar month immediately following such date, (iii) 91% for
any conversion honored during the second calendar month immediately following
such date, (iv) 88% for any conversion honored during the third calendar month
immediately following such date, (v) 85% for any conversion honored thereafter.
For purposes hereof, a conversion is deemed to have been honored when the
shares of Common Stock issuable in respect of such conversion are received by
the Holder in accordance with the terms hereof.
"Change of Control Transaction " means the occurrence of any
of (i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule
13
<PAGE> 14
13d-5(b)(1) promulgated under the Exchange Act) of in excess of 50% of the
voting securities of the Company, (ii) a replacement of more than one-half of
the members of the Company's board of directors which is not approved by those
individuals who are members of the board of directors on the date hereof in one
or a series of related transactions, (iii) the sale of all or substantially all
of the assets of the Company in one or a series of related transactions, (iv)
the merger or consolidation of the Company with or into another entity unless
the holders of the Common Stock immediately prior to such transactions continue
to hold at least 50% of such securities immediately following such transaction
or (v) the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth above
in (i), (ii) or (iii).
"Common Stock" means the Company's common stock, $.01 par
value, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid late fees thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company which are junior in rights and liquidation
preference to the Series A Preferred.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Series A Preferred regardless of the number of
transfers of any particular shares of Series A Preferred and regardless of the
number of certificates which may be issued to evidence such Series A Preferred.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the AMEX or any
other stock exchange or quotation system on which the Common Stock is then
listed or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date, or
(b) if the Common Stock is not listed then on the AMEX or any stock exchange or
quotation system, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority in interest of the shares of the Series A Preferred then
outstanding; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average
of the determinations by each such Appraiser; and provided, further that
14
<PAGE> 15
all determinations of the Per Share Market Value shall be appropriately
adjusted for any stock dividends, stock splits or other similar transactions
during such period.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original Holders of the Series A Preferred.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and
the original Holders of the Series A Preferred.
"Trading Day" means (a) a day on which the Common Stock is
traded on the AMEX or other stock exchange or quotation system on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on the
AMEX or any stock exchange or market, a day on which the Common Stock is traded
in the over-the-counter market, as reported by the OTC Bulletin Board, or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible, the shares of Common Stock issuable upon
payment of dividends thereon and the shares of Common Stock issuable upon
exercise of the Warrants in accordance with the terms hereof, the Purchase
Agreement and the Warrants.
"Warrants" means the common stock purchase warrants issued
pursuant to the Purchase Agreement.
Section 7. Redemption Option Upon Triggering Event. In
addition to all other rights of the Holders contained herein, after a
Triggering Event (as defined below), each Holder shall have the right, as such
Holder's option, to require the Company to redeem all or a portion of such
Holder's Series A Preferred at a price per share of Series A Preferred equal to
the product of (i) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (1) the date of the Triggering Event or (2) the date
of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Conversion Ratio calculated on the date of the Triggering
Event. A "Triggering Event" shall be deemed to have occurred at such time as
any of the following events:
15
<PAGE> 16
(i) the failure of the Registration
Statement to be declared effective by the Commission on or prior to the date
that is 180 days after the Original Issue Date;
(ii) while the Registration Statement is
required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to the Holder of the Series A Preferred for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) other than in
accordance with the terms of the Registration Rights Agreement, provided that
the cause of such lapse or unavailability is not due to factors solely within
the control of such Holder seeking to be redeemed pursuant to this Section 8;
(iii) the failure of the Common Stock to be
listed on the AMEX, or any other exchange or quotation system on which the
Common Stock is then listed for trading, for a period of five consecutive
Trading Days; or
(iv) the Company's notice to any Holder of
Series A Preferred, including by way of public announcement, at any time, of
its intention not to comply with proper requests for conversion of any Series A
Preferred into shares of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE> 17
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Series A Preferred)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of Common Stock, $.01
par value (the "Common Stock"), of Oncormed, Inc. (the "Company") according to
the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned will pay
all transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the Holder for any conversion, except for
such transfer taxes, if any.
Conversion calculations:
---------------------------------------------
Date to Effect Conversion
---------------------------------------------
Number of shares of Series A Preferred
to be Converted
---------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name
---------------------------------------------
Address
<PAGE> 18
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Oncormed, Inc. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert [ ] shares of its 6% Series A Convertible Preferred
Stock (the "Series A Preferred") held by the Holder into shares of Common
Stock, $.01 par value (the "Common Stock"), of the Company according to the
terms hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any
which may be incurred by the Company if shares are to be issued in the name of
a person other than the person to whom this notice is addressed.
Conversion calculations:
---------------------------------------------
Date to effect Conversion
---------------------------------------------
Number of shares of Series A Preferred to be
Converted
---------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Name of Holder
---------------------------------------------
Address of Holder
2
<PAGE> 19
IN WITNESS WHEREOF, the undersigned has executed, signed, and
acknowledged this Certificate of Designation this 25th day of February, 1998.
ONCORMED, INC.
By: /s/ DOUGLAS DOLGINOW
-----------------------------------------------
Douglas Dolginow
President
ATTEST:
/s/ L. ROBERT JOHNSTON, JR.
- -------------------------
L. Robert Johnston, Jr.
Secretary
3
<PAGE> 1
EXHIBIT 4.5
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER, IN EACH CASE
PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AND
IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ONCORMED, INC.
WARRANT
Warrant No. [ ] Dated February 27, 1998
Oncormed, Inc., a corporation organized and existing under the laws of
Delaware (the "Company"), hereby certifies that, for value received, [ ]
or its registered assigns ("Holder"), is entitled, subject to the terms set
forth below, to purchase from the Company up to a total of [ ] shares of
Common Stock, $.01 par value per share (the "Common Stock"), of the Company
(each such share, a "Warrant Share" and all such shares, the "Warrant Shares")
at an exercise price equal to $8.54(1) per share (as adjusted from time to time
as provided in Section 8, the "Exercise Price"), at any time and from time to
time from and after the date hereof and through and including February 27, 2001
(the "Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register
this Warrant, upon records to be maintained by the Company for that purpose
(the "Warrant Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
- --------------------
(1) 122% of the closing price of the Common Stock for the trading day
immediately preceding the applicable Closing Date.
<PAGE> 2
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at the office specified in or pursuant to Section 3(b). Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the
surrender hereof by the Holder to the office of the Company specified in or
pursuant to Section 3(b) for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder. Any such New Warrant will be dated the date of such
exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:30 P.M., Eastern Time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., Eastern Time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void
and of no value. This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon
surrender of this Warrant, with the Form of Election to Purchase attached
hereto duly completed and signed, to the Company at its address for notice set
forth in Section 11 and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in
lawful money of the United States of America, in cash or by certified or
official bank check or checks, all as specified by the Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise (as defined herein)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends other
than as required by the Convertible Preferred Stock Purchase Agreement dated as
of February 27, 1998 between the Holder, the Company and the other purchasers
named therein (the "Purchase Agreement"). Any
-2-
<PAGE> 3
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.
4. Piggyback Registration Rights. During the term of
this Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements of the
Company filed on Form S-8 or Form S-4, each as promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to which the Company
is registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including supplements
thereto, but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder, unless the Company provides the Holder with not less
than 20 days notice to each of the Holder and Robinson Silverman Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York 10104,
attention Kenneth L. Henderson, notice of its intention to file such
registration statement and provides the Holder the option to include any or all
of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until the earlier
of (i) the date on which all of the Holder's Warrant Shares have been sold in
accordance with an effective registration statement and (ii) the Expiration
Date. The Company will pay all registration expenses in connection therewith
except that the Holder shall be responsible for the payments of any fees and
expenses in connection with an underwritten offering of the Warrant Shares
including any underwriting commissions and discounts.
-3-
<PAGE> 4
5. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the issuance of Warrant Shares upon the
exercise of this Warrant; 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 registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder, and the Company shall not be required
to issue or cause to be issued or deliver or cause to be delivered the
certificates for Warrant Shares 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 Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants
that it will at all times reserve and keep available out of the aggregate of
its authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and number
of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 8. Upon each such
adjustment of the Exercise Price pursuant to this Section 8, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable
-4-
<PAGE> 5
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this
Warrant is outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, other than the dividends payable under the Purchase Agreement, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company
in which the consideration therefor is equity or equity equivalent securities
or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities or property, then the Holder shall have the
right thereafter to exercise this Warrant only into shares of stock or other
securities or property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property of the Company's business
combination partner equal to the amount of Warrant Shares such Holder would
have been entitled to had such Holder exercised this Warrant immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 8(b) upon
any exercise following any such reclassification, consolidation, merger, sale,
transfer or share exchange.
(c) If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common Stock (and
not to holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any
-5-
<PAGE> 6
security (excluding those referred to in Sections 8(a), (b) and (d)), then in
each such case the Exercise Price shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined
by a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) In the event that at any time or from time to
time the Company shall issue rights, options or warrants entitling the holders
thereof to subscribe for shares of Common Stock, or securities convertible into
or exchangeable or exercisable for Common Stock, in each case, to all holders
of Common Stock (other than in connection with the adoption of a shareholder
rights plan by the Company) without any charge, entitling such holders to
subscribe for or purchase shares of Common Stock at a price per share that, as
of the record date for such issuance, is less than the Per Share Market Value
(as defined in the Purchase Agreement), the number of shares of Common Stock
issuable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock theretofore
issuable upon exercise of each Warrant by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options, warrants or securities plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options,
warrants or securities plus the total number of shares of Common Stock which
the aggregate consideration expected to be received by the Company (assuming
the exercise or conversion of all such rights, options, warrants or securities)
would purchase at the then Per Share Market Value. In the event of any such
adjustment, the Exercise Price shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such date of issuance by the
aforementioned fraction. Such adjustment shall be made immediately after such
rights, options or warrants are issued and shall become effective, retroactive
to the record date for the determination of stockholders entitled to receive
such rights, options, warrants, or securities. No adjustment shall be
-6-
<PAGE> 7
made pursuant to this Section 8(d) which shall have the effect of decreasing
the number of shares of Common Stock purchasable upon exercise of each Warrant
or of increasing the Exercise Price.
(e) For the purposes of this Section 8, the
following clauses shall also be applicable:
(i) Record Date. In case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock, or (B)
to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares
of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.
(g) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common
Stock; or
(ii) the Company shall declare a
special nonrecurring cash
dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights or
warrants to subscribe for or
purchase any shares of
capital stock of any class or
of any rights; or
(iv) the approval of any
stockholders of the Company
shall be required in
connection with any
reclassification of the
Common Stock of the Company,
-7-
<PAGE> 8
any consolidation or merger
to which the Company is a
party, any sale or transfer
of all or substantially all
of the assets of the Company,
or any compulsory share
exchange whereby the Common
Stock is converted into other
securities, cash or property;
or
(v) the Company shall authorize
the voluntary dissolution,
liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the
Exercise Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
(b) Cashless Exercise. The Holder shall
surrender this Warrant to the Company together with a notice of cashless
exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder
-8-
<PAGE> 9
Y = the number of Warrant Shares with respect
to which this Warrant is being exercised.
A = the closing sale prices of the Common
Stock for the Trading Day immediately prior
to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise of
this Warrant. The number of full Warrant Shares which shall be issuable upon
the exercise of this Warrant shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of this Warrant so presented.
If any fraction of a Warrant Share would, except for the provisions of this
Section 10, be issuable on the exercise of this Warrant, the Company shall, at
its option, (i) pay an amount in cash equal to the Exercise Price multiplied by
such fraction or (ii) round the number of Warrant Shares issuable, up to the
next whole number.
11. Notices. Any and all notices or other communications
or deliveries hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section, (ii) the business day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iii) upon
actual receipt by the party to whom such notice is required to be given. The
addresses for such communications shall be: (1) if to the Company, to 205
Perry Parkway, Gaithersburg, Maryland 20877, or to Facsimile No.: (301)
527-1539 Attention: Chief Financial Officer, with a copy to Brobeck, Phleger &
Harrison LLP, 1633 Broadway, 47th Floor, New York, NY 10019, Attn: Alexander D.
Lynch, Esq. or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent
under this Warrant. Upon thirty (30) days' notice to the Holder, the Company
may appoint a new warrant agent.
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<PAGE> 10
(b) Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further act.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed (by first class mail, postage prepaid) to the
Holder at the Holder's last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder.
(b) Subject to Section 13(a), above, nothing in
this Warrant shall be construed to give to any person or corporation other than
the Company and the Holder any legal or equitable right, remedy or cause under
this Warrant; this Warrant shall be for the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only,
do not constitute a part of this Warrant and shall not be deemed to limit or
affect any of the provisions hereof.
(e) In case any one or more of the provisions of
this Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ONCORMED, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 12
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To Oncormed, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock, $.01 par value, of Oncormed, Inc. (the "Common Stock")
and encloses herewith $________ in cash or certified or official bank check or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) for the number of shares of Common Stock to which this Form of
Election to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dated: , Name of Holder:
----------------- -----
(Print)
-------------------------
(By:)
---------------------------
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
<PAGE> 13
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________ the right represented by the
within Warrant to purchase ____________ shares of Common Stock of Oncormed,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Oncormed, Inc. with full power of
substitution in the premises.
Dated:
_______________, ____
---------------------------------------
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
<PAGE> 1
EXHIBIT 5.1
March 25, 1998
Oncormed, Inc.
205 Perry Parkway
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3, (the
"Registration Statement") transmitted for filing by you with the Securities and
Exchange Commission on March 25, 1998, in connection with the registration
under the Securities Act of 1933, as amended, of 1,596,189 shares of your Common
Stock, $.01 par value (the "Shares").
We have examined such records and documents and have made such
examination of laws as we considered necessary to form a basis for the opinion
set forth herein. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with the originals of all documents submitted to us as copies
thereof.
Based upon and subject to the foregoing, we are of the opinion
that the Shares, when issued in the manner described in the Registration
Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the use of our name under the caption
"Legal Matters" in the Registration Statement, including the prospectus
constituting a part thereof, and any amendment to the Registration Statement,
and consent to the filing of this opinion as an exhibit thereto.
Very truly yours,
/s/BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.37
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
ONCORMED, INC.,
SOUTHBROOK INTERNATIONAL INVESTMENTS,
LTD.,
WESTOVER INVESTMENTS L.P.,
MONTROSE INVESTMENTS, LTD.,
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
and
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
Dated as of February 27, 1998
<PAGE> 2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of February 27, 1998, between Oncormed, Inc., a Delaware corporation
(the "Company") and Southbrook International Investments, Ltd., a corporation
organized and existing under the laws of the British Virgin Islands
("Southbrook"), Westover Investments L.P., a Delaware limited partnership
("Westover"), Montrose Investments, Ltd., a Cayman Islands exempt company
("Montrose"), Brown Simpson Strategic Growth Fund, L.P., a New York limited
partnership ("Brown Simpson LP"), and Brown Simpson Strategic Growth Fund,
Ltd., a Cayman Islands exempt company ("Brown Simpson Limited"). Southbrook,
Westover, Montrose, Brown Simpson LP and Brown Simpson Limited are each
referred to herein as a "Purchaser" and are collectively referred to herein as
the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, shares of the Company's 6%
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred"), and the Company's 6% Series B Convertible Preferred Stock, par
value $.01 per share (the "Series B Preferred" and together with the Series A
Preferred, the "Preferred Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and conditions
set forth herein, the Company shall issue and sell to the Purchasers, and the
Purchasers, severally and not jointly, shall purchase from the Company: (i) an
aggregate of 300 shares, or 333 shares if the Incyte Series A Closing (as
defined below) occurs, of Series A Preferred (the "Series A Shares"); and (ii)
an aggregate of 300 shares, or 333 shares if the Incyte Series A Closing (as
defined below) occurs, of Series B Preferred (the "Series B Shares" and
together with the Series A Shares, the "Shares").
(b) The Series A Preferred shall have the respective
rights, preferences and privileges set forth in Exhibit A attached hereto (the
"Series A Terms"), which shall be incorporated into a Certificate of
Designation to be approved by the Purchasers and filed on or prior to the
Series A Closing (as defined below) by the Company with the Secretary of State
of Delaware (the "Series A Designation"). The Series B Preferred shall have
respective rights, preferences and privileges identical to the Series A Terms,
mutatis mutandis, and shall rank pari passu with the Series A Preferred with
regard to dividends, liquidation, voting rights and any other preferential
rights designated therein, except that (i) the Conversion Price (as defined
below) for conversion of the Series B Shares shall be determined as of the
Original Issue Date (as defined below) for such Series B Shares and (ii) in the
"Applicable Percentage" definition
<PAGE> 3
the date "March 31, 1998" shall be replaced with the date which is the last day
of the month in which the Series B Closing Date occurs.
The Series B Preferred shall be authorized pursuant to a Certificate
of Designation prepared by the Company, subject to the approval of the
Purchasers, and filed at or prior to the Series B Closing Date (as defined
below), by the Company with the Secretary of State of Delaware (such
certificate of designation and the Series A Designation are referred to as the
"Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall have
the meanings set forth in Exhibit A; and "Market Price" as at any date shall
mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date.
1.2 Purchase Price. The purchase price per Share shall be
$10,000.
1.3 The Closings.
(a) The Series A Closing. (i) The closing of the
purchase and sale of the Series A Shares (the "Series A Closing") shall take
place at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP
("Robinson Silverman"), 1290 Avenue of the Americas, New York, New York 10104,
immediately following the execution hereof or such later date as the parties
shall agree, but not prior to the date that the conditions set forth in Section
4.1 have been satisfied or waived by the appropriate party. The date of the
Series A Closing is hereinafter referred to as the "Series A Closing Date." At
the Series A Closing, the Company shall sell and issue to the Purchasers, and
the Purchasers shall, severally and not jointly, purchase from the Company, an
aggregate of 300 Series A Shares for an aggregate purchase price of $3,000,000
(the "Series A Purchase Price").
(ii) At the Series A Closing, (a) the Company
shall deliver to each Purchaser (1) one or more stock certificates representing
the Series A Shares purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule 1 attached hereto, each registered in the name of
such Purchaser, (2) Warrants in the form of Exhibit B (the "Series A Warrants")
to purchase an aggregate of 150,000 shares of the Company's common stock, $.01
par value (the "Common Stock"), at an exercise price equal to 122% of the
closing price of the Common Stock on the Trading Day immediately prior to the
Series A Closing Date, exercisable for three years from the Original Issue
Date, each registered in the names of such Purchaser and in the amounts set
forth in Schedule 1, (3) the legal opinion referenced in Section 4.1(b)(vi),
substantially in the form attached hereto as Exhibit D, and (4) all other
documents, instruments and writings required to have been delivered at or prior
to the Series A Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement, dated the date hereof, by and between the
Company and the Purchasers, in the form of Exhibit C (the "Registration Rights
Agreement"), and (b) each Purchaser shall deliver to the Company (1) its
portion of the Series A Purchase Price set forth next to its name on Schedule
1, in United States dollars in immediately available funds by wire transfer to
an account designated in writing by the Company
-2-
<PAGE> 4
for such purpose prior to the Series A Closing Date, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Series A Closing by such Purchaser pursuant to this Agreement and the
Registration Rights Agreement.
(iii) If Incyte Pharmaceuticals, Inc, ("Incyte")
exercises its right by March 6, 1998 to purchase shares of Series A Preferred
Stock and Warrants, then the Company shall sell to Incyte and Incyte shall
purchase from the Company (the "Incyte Series A Sale") 33 shares of Series A
Preferred Stock and warrants to purchase 16,666 shares of Common Stock for an
aggregate amount of $330,000 and upon such sale Incyte shall execute a
signature page to each of this Agreement and the Registration Rights Agreement
and shall thereby become a Purchaser under this Agreement and a Holder under
the Registration Rights Agreement, subject to all of the terms, conditions,
rights and obligations of a Purchaser hereunder and a Holder thereunder. Upon
consummation of the Incyte Series A Sale the term "Purchaser" under this
Agreement shall include Incyte and the term "Series A Warrants" shall include
the warrants sold to Incyte in the Incyte Series A Sale. The Company shall
notify the Purchasers in writing within two Trading Days following the Incyte
Series A Sale and shall distribute Incyte signature pages together with such
notice.
(b) The Series B Closing. (i) Subject to the terms and
conditions set forth in this Agreement, the Purchasers shall have the right to
deliver to the Company and the Company shall have the right to deliver to the
Purchasers a written notice (a "Series B Subsequent Financing Notice")
requiring either the Company to sell or the Purchasers to buy, as the case may
be, 300 Series B Shares, for an aggregate purchase price of $3,000,000, if
Incyte has not become a Purchaser (or 333 Series B Shares, for an aggregate
purchase price of $3,330,000, if Incyte has become a Purchaser) (the "Series B
Purchase Price") at a per share purchase price of $10,000. The Purchasers may
deliver to the Company or the Company may deliver to the Purchasers a Series B
Subsequent Financing Notice no earlier than 90 days after the effective date of
the Underlying Shares Registration Statement (as defined in the Registration
Rights Agreement) relating to the securities issued at the Series A Closing
Date and no later than 150 days after such effective date. At the Series B
Closing each Purchaser shall be obligated (subject to the terms and conditions
herein) to purchase such portion of such Series B Shares as equals such
Purchaser's pro-rata portion of the purchase price for the Series A Shares
issued and sold at the Series A Closing. The closing of the purchase and sale
of the Series B Shares (the "Series B Closing") shall take place at the offices
of Robinson Silverman on such date indicated in the Series B Subsequent
Financing Notice (which may not be prior to the 15th Trading Day or subsequent
to the 30th Trading Day after receipt by either party of the Subsequent
Financing Notice, or as otherwise agreed to by the parties); provided that in
no case shall the Series B Closing take place unless and until the conditions
listed in Section 4.2 have been satisfied or waived by the appropriate party.
The date of the Series B Closing is hereinafter referred to as the "Series B
Closing Date."
(ii) At the Series B Closing, (a) the Company shall
deliver to each Purchaser (1) a pro rata portion of the Series B Shares
(determined by reference to the amount of Series A Shares issued and sold at
the Series A Closing and, if Incyte has become a Purchaser under this
Agreement, the Incyte Series A Closing, provided that Brown Simpson LP and
Brown
-3-
<PAGE> 5
Simpson Limited shall collectively, in their sole discretion, have the option
to purchase up to $1,000,000 of the Series B Shares) to be issued and sold
thereat (or such other amount upon which the parties may agree), registered in
the name of the appropriate Purchaser, (2) Warrants in the form of Exhibit B
(the "Series B Warrants" and together with the Series A Warrants, the
"Warrants") to purchase a pro rata portion of an aggregate of 100,000 shares of
the Common Stock (determined by reference to the percentage of Series B Shares
purchased by each Purchaser) at an exercise price equal to 122% of the closing
price of the Common Stock on the Trading Day immediately prior to the Series B
Closing Date, exercisable for three years from the Original Issue Date, each
registered in the names of such Purchaser, (3) the legal opinion referenced in
Section 4.2(xii), substantially in the form attached hereto as Exhibit D, and
(4) all other documents, instruments and writings required to have been
delivered at or prior to the Series B Closing by the Company to the Purchasers
pursuant to this Agreement; and (b) each Purchaser shall deliver to the Company
(1) its portion of the Series B Purchase Price in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company for such purpose on or prior to the Series B Closing
Date and (2) all documents, instruments and writings required to have been
delivered at or prior to the Series B Closing by such Purchaser pursuant to
this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.
The Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth
in Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Preferred
Stock or any of the Transaction Documents (as defined below) in any material
respect, (y) have or result in a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company and the
Subsidiaries, taken as a whole or (z) adversely affect the Company's ability to
perform fully on a timely basis its obligations under any Transaction Document
in any material respect (any of (x), (y) or (z), being a "Material Adverse
Effect").
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(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to perform its obligations hereunder and thereunder.
This Agreement, the Certificates of Designation, the Warrants and the
Registration Rights Agreement are collectively referred to as the "Transaction
Documents". The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company. With respect to
the Series A Closing, each of the Transaction Documents to be executed by the
Company on or prior to the Series A Closing Date has been duly executed by the
Company and when delivered in accordance with the terms hereof will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms and, with respect to the Series B Closing, each of
the Transaction Documents to be executed by the Company on or prior to the
Series B Closing Date has been duly executed by the Company and when delivered
in accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, in each case, except as rights to indemnification or contribution
may be limited by applicable laws, equitable principles or public policy and
except as enforceability thereof may be limited by applicable bankruptcy,
reorganization, moratorium, liquidation or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate of incorporation, articles, by-laws or other
charter documents. Prior to each of the Series A Closing Date and the Series B
Closing Date, the respective Certificate of Designation has been or will have
been filed with the Secretary of State of the State of Delaware and will be in
full force and effect.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c).
Except as set forth in Schedule 2.1(c), no shares of Common Stock are entitled
to preemptive or similar rights, nor is any holder of the Common Stock entitled
to preemptive or similar rights arising out of any agreement or understanding
with the Company by virtue of any of the Transaction Documents. Except as
disclosed in Schedule 2.1(c), there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares and
Warrants, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock. To the knowledge of the Company, except as
specifically disclosed in the SEC Documents (as defined below) or Schedule
2.1(c), no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) or has the right to acquire by agreement with
or by obligation binding upon the Company beneficial ownership of in excess of
5% of the Common Stock. A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
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<PAGE> 7
venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of Shares and Warrants. The Shares and the
Warrants are duly authorized, and when issued and paid for in accordance with
the terms hereof, or the Warrants, as the case may be, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of first refusal of any kind (collectively, "Liens"). The Company, as
at the Series A Closing Date and the Series B Closing Date (each a "Closing
Date"), as the case may be, will have and at all times while the Shares and any
Warrants are outstanding will maintain an adequate reserve of duly authorized
shares of Common Stock to enable it to perform its obligations under this
Agreement, the Warrants and the Certificates of Designation with respect to the
number of Shares and Warrants issued and outstanding at such Closing Date and
in no circumstances shall such reserved and available shares of Common Stock be
less than the sum of (i) 200 % of the maximum number of shares of Common Stock
which would be issuable upon conversion of the Shares issued pursuant to the
terms hereof with respect to the number of Shares issued and outstanding at
such Closing Date were such conversion effected on the Original Issue Date for
such Shares, (ii) the number of shares of Common Stock issuable upon exercise
of the Warrants and (iii) the number of shares Common Stock which would be
issuable upon payment of dividends on the Shares, assuming each Share is
outstanding for two years. The shares of Common Stock issuable upon conversion
of the Shares or exercise of the Warrants and which may be issued as payment of
dividends on the Shares are collectively referred to herein as the "Underlying
Shares." When issued in accordance with the Certificates of Designation, and
upon exercise of the Warrants, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and
performance of this Agreement and the other Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other charter
documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including, assuming the accuracy of Sections
2.2(b) through (f) of this Agreement, Federal and state securities laws and
regulations), or by which any material property or asset of the Company is
bound or affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, would not have a
Material Adverse Effect.
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<PAGE> 8
(f) Consents and Approvals. Except as specifically set
forth in Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filings of the Certificates of Designation with
respect to the Preferred Stock with the Secretary of State of Delaware, which
filings with respect to the Series A Shares shall be effected prior to the
Series A Closing Date and with respect to the Series B Shares shall be effected
prior to the Series B Closing Date, (ii) the filing of Underlying Shares
Registration Statements with the Securities and Exchange Commission (the
"Commission"), which shall be filed in accordance with and in the time periods
set forth in the Registration Rights Agreement, (iii) the application(s) or any
letter(s) acceptable to the American Stock Exchange (the "AMEX") for the
listing of the Underlying Shares with the AMEX (and with any other national
securities exchange or quotation system on which the Common Stock is then
listed), (iv) any filings, notices or registrations under applicable Federal
and state securities laws, and (v) other than, in all other cases, where the
failure to obtain such consent, waiver, authorization or order, or to give such
notice or make such filing or registration would not have or result in,
individually or in the aggregate, a Material Adverse Effect (together with the
consents, waivers, authorizations, orders, notices and filings referred to in
Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically
disclosed in Schedule 2.1(g) or the Disclosure Materials (as hereinafter
defined) there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which, if
determined adversely to the Company, (i) could reasonably be expected to
adversely affect or challenge the legality, validity or enforceability of any
of the Transaction Documents or the Preferred Stock or (ii) could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, (ii) is in violation of any
order of any court, arbitrator or governmental body applicable to it, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority to which it is subject, except as could not reasonably be expected
to, in any such case (individually or in the aggregate), have or result in a
Material Adverse Effect.
(i) Schedules. On the Series A Closing Date, the
Schedules to this Agreement furnished by or on behalf of the Company with
respect to the Series A Closing do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company shall have the right to update the Schedules
to this Agreement in connection with the Series B Closing so that on the Series
B Closing Date the Schedules to this Agreement do not contain any untrue
statement of a material fact or omit to state any
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<PAGE> 9
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(j) Private Offering. Neither the Company, any Person
controlled by the Company, nor, to the Company's knowledge, any Person acting
on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act").
(k) SEC Documents; Financial Statements; No Adverse
Change. The Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
three years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
Schedules to this Agreement, the "Disclosure Materials") on a timely basis or
has received a valid extension of such time of filing and has filed any such
SEC Documents prior to the expiration of any such extension. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company
is a party or to which the property or assets of the Company are subject have
been filed as exhibits to the SEC Documents as required. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the date of
the financial statements included in the Company's last filed Quarterly Report
on Form 10-Q for the period ended September 30, 1997, there has been no event,
occurrence or development that has had a Material Adverse Effect which has not
been specifically disclosed to the Purchasers by the Company. The Company last
filed audited financial statements with the Commission on March 30, 1997, and
has not received any comments from the Commission in respect thereof.
(l) Seniority. No class of equity securities of the
Company is senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
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(n) Certain Fees. Except for certain fees payable to
Brown Simpson Asset Management, LLC pursuant to Section 3 of the letter
agreement dated February 12, 1998 between the Company and Brown Simpson Asset
Management, LLC (the "Engagement Letter"), and fees payable to the Company to
Hambrecht & Quist LLC pursuant to that certain engagement letter dated February
12, 1998, no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank with respect to the
transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this Agreement.
The Company shall indemnify and hold harmless each of the Purchasers, its
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses suffered in respect
of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Shares, the Warrants or the Underlying Shares other than the Disclosure
Materials and materials provided pursuant to Section 2.2(f) hereof and, in each
case, any amendments and supplements thereto or (ii) solicited any offer to buy
or sell the Shares, the Warrants or the Underlying Shares by means of any form
of general solicitation or advertising. None of the Disclosure Materials or
any other information provided to the Purchasers by or on behalf of the Company
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(p) Form S-3 Eligibility. The Company is, and at each
Closing Date will be, eligible to register securities for resale with the
Commission under Form S-3 promulgated under the Securities Act.
(q) Exclusivity. The Company shall not issue and sell
the Preferred Stock to any Person other than the Purchasers pursuant to this
Agreement other than with the specific prior written consent of each of the
Purchasers.
(r) Listing and Maintenance Requirements Compliance. The
Company has not in the two years preceding the date hereof received notice
(written or oral) from the AMEX (or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market.
(s) Patents and Trademarks. Except as set forth in
Schedule 2.1(s), the Company has, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and rights (collectively, the "Intellectual Property
Rights") which are necessary for use in connection with its business, as
currently conducted and as described in the SEC Documents, and which the
failure to so have would have a Material Adverse Effect. Except as disclosed
in Schedule 2.1(s), to the best
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<PAGE> 11
knowledge of the Company, there is no existing infringement by another Person
of any of the Intellectual Property Rights which are necessary for use in
connection with the Company's business, as currently conducted and as described
in the SEC Documents.
(t) Acknowledgement of Dilution. The Company
acknowledges that the issuance of the Underlying Shares upon (i) conversion of
the Shares and payment of dividends thereon in accordance with the Certificates
of Designation and (ii) exercise of the Warrants may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its
obligation to issue Underlying Shares upon (x) conversion of the Shares and
payment of dividends thereon in accordance with the Certificates of Designation
and (y) upon exercise of the Warrants is unconditional and absolute subject to
the limitations set forth herein in the Certificate of Designation or pursuant
to the Warrants, regardless of the effect of any such dilution.
(u) Registration Rights; Rights of Participation. Except
as described on Schedule 2.1(u) hereto, (A) the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied and (B) no
Person, including, but not limited to, current or former shareholders of the
Company, underwriters, brokers or agents, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by this Agreement or any other Transaction
Document.
(v) Title. The Company owns no real property. Except as
disclosed in Schedule 2.1(v), the Company and the Subsidiaries have good and
marketable title to all personal property owned by them which is material to
the business of the Company and its Subsidiaries, as currently conducted and as
described in the SEC Documents, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(w) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents except where the
failure to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and neither the Company
nor any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
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(a) Organization; Authority. Each Purchaser is a
corporation duly incorporated or a limited partnership duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation with the requisite power and authority, corporate or
otherwise, to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Purchaser of the
Shares and the Warrants hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against such Purchaser, in accordance with its terms, in
each case, except as rights to indemnification or contribution may be limited
by applicable laws, equitable principles or public policy and except as
enforceability thereof may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(b) Investment Intent. Each Purchaser is acquiring the
Shares, the Warrants and the Underlying Shares for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Shares, Warrants or Underlying Shares or any part thereof or
interest therein, without prejudice, however, to such Purchaser's right,
subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Shares, Warrants or Underlying Shares pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was
offered the Shares and the Warrants, it was, and at the date hereof, it is, and
at each Closing Date and each exercise date under the Warrants, it will be, an
"accredited investor" as defined in Rule 501(a)(1)-(8) under the Securities
Act.
(d) Experience of Purchaser. Each Purchaser either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, the Warrants
and the Underlying Shares, and has so evaluated the merits and risks of such
investment.
(e) Ability of Purchaser to Bear Risk of Investment.
Each Purchaser is able to bear the economic risk of an investment in the
Shares, the Warrants and the Underlying Shares and, on each of the Series A
Closing Date and the Series B Closing Date, as applicable, is able to afford a
complete loss of such investment.
(f) Access to Information. Each Purchaser acknowledges
receipt of the Disclosure Materials and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Shares, the Warrants and the
Underlying Shares and the merits and risks of investing in the Shares, the
Warrants and
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<PAGE> 13
the Underlying Shares; (ii) access to information about the Company and the
Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment and to verify the accuracy and completeness of the information
contained in the Disclosure Materials.
(g) Reliance. Each Purchaser understands and
acknowledges that (i) the Shares, the Warrants and the Underlying Shares are
being offered and sold to it without registration under the Securities Act in a
private placement that is exempt from the registration provisions of the
Securities Act under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder and (ii) the availability of such exemption, depends in
part on, and the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and warranties and such Purchaser hereby consents to
such reliance.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If any Purchaser should decide to
dispose of the Shares or any portion of the Warrants (and upon conversion or
exercise thereof, as the case may be, of any of the Underlying Shares) held by
it, each Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the Company or
pursuant to an available exemption from the registration requirements of the
Securities Act. In connection with any transfer of any Shares, Warrants or any
Underlying Shares other than pursuant to an effective registration statement or
to the Company, the Company may require the transferor thereof to provide to
the Company a written opinion of counsel experienced in the area of United
States securities laws selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred securities
under the Securities Act. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register (i) any transfer of Shares or Warrants by
one Purchaser to another Purchaser, and agrees that no documentation other than
executed transfer documents shall be required for any such transfer, and (ii)
any transfer of Shares or Warrants by any Purchaser to an Affiliate of such
Purchaser or to an Affiliate of another Purchaser, or any transfer among any
such Affiliates, provided that transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
Any such transferee shall be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
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(b) Each Purchaser agrees to the imprinting, so long as
is required by this Section 3.1(b), of the following legend on the Shares, the
Warrants and the Underlying Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE [EXERCISABLE] HAVE] [THE SECURITIES
REPRESENTED HEREBY HAVE NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION SET
FORTH IN A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF
FEBRUARY 27, 1998, EXECUTED BY THE ORIGINAL HOLDER HEREOF. A COPY OF
THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF ONCORMED, INC.
The Underlying Shares issuable upon conversion of Shares or as
payment of dividends thereon or exercise of the Warrants shall not contain the
legend set forth above nor any other legend if, in the written opinion of
counsel to the Company experienced in the area of United States securities
laws, such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company agrees that it will provide each
Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder.
3.2 Stop Transfer Instruction. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which expand the restrictions of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns
Shares, Warrants or Underlying Shares, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any
Purchaser owns Shares, Warrants or Underlying Shares, if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange
Act, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and
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analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. The Company further
covenants that it will take such further action as any holder of Shares may
reasonably request, all to the extent required from time to time to enable such
Person to sell Underlying Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act, including the legal opinion referenced above in this
Section. Upon the request of any such Person, the Company shall deliver to
such Person a written certification of a duly authorized officer as to whether
it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions
as the Purchasers may request and shall continue such qualification or
exemption at all times through the third anniversary of the last Closing Date;
provided, however, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified or to take any action that would subject the Company
to general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
3.5 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares, the Warrants or the Underlying Shares in a manner
that would require the registration under the Securities Act of the sale of the
Shares or the Underlying Shares to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Shares, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser with respect to the Shares or any rights of the
Purchasers pursuant to the Transaction Documents; (ii) declare, authorize, set
aside or pay any dividend or other distribution with respect to the Common
Stock except as permitted under the Certificates of Designation; (iii) except
in connection with open market purchases of Common Stock pursuant to a Company
direct stock purchase plan, repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock in any manner; or (iv) enter into
any agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares. (a) The
Company shall (i) not later than the fifth Trading Day following the applicable
Closing Date prepare and file with the AMEX (as well as any other national
securities exchange or quotation system on which the Common Stock is then
listed) an additional shares listing application or a letter acceptable to the
AMEX (or any other national securities exchange or quotation system on which
the Common Stock is then listed) covering and listing a number of shares of
Common Stock which is at least
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equal to 200% of the maximum number of Underlying Shares then issuable assuming
the payment of all future dividends on the Shares then outstanding were made in
shares of Common Stock, (ii) take all steps necessary to cause the Underlying
Shares to be approved for listing in the AMEX (as well as on any other national
securities exchange or quotation system on which the Common Stock is then
listed), and (iii) provide to the Purchasers evidence of such listing, and the
Company shall use its commercially reasonable efforts to maintain the listing
of its Common Stock on the AMEX (or any other national securities exchange or
quotation system on which the Common Stock is then listed).
(b) The Company shall reserve for issuance upon
conversion of the Shares and for payment of dividends thereupon in shares of
Common Stock pursuant to the terms of the Certificates of Designation and upon
exercise of the Warrants in accordance with their terms the number of shares to
be listed on the AMEX (and such other national securities exchange or market on
which the Common Stock is then listed or traded) as set forth in Section
3.7(a). Shares of Common Stock reserved for issuance upon the conversion of
the Shares as set forth in Section 3.7(a) shall be allocated pro rata to each
of the Purchasers in accordance with the amount of Shares issued and delivered
to such Purchaser at each Closing, as applicable.
3.8 No Violation of Applicable Law. Notwithstanding any provision
of this Agreement to the contrary, if the redemption of Shares or Underlying
Shares otherwise required under this Agreement or any other Transaction
Document would be prohibited by the relevant provisions of the Delaware General
Corporation Law, such redemption shall be effected as soon as it is permitted
under such law; provided, however, that from the 5th day after such redemption
notice until such redemption price is paid in full, interest on any such unpaid
amount shall accrue at the rate of 15% per annum.
3.9 Notice of Breaches. (a) Each of the Company and each
Purchaser shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to the Series B Closing Date which would
reasonably be likely to cause any representation or warranty or other agreement
of such party, as the case may be, contained herein to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to
this Section 3.9 shall be deemed to cure any breach of any representation,
warranty or other agreement contained herein or in the Registration Rights
Agreement.
(b) Notwithstanding the generality of Section 3.9(a), the
Company shall promptly notify each Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated hereby and by the Registration
Rights Agreement violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the holders of the Shares a copy of any
written statement in support of or relating to such claim or notice.
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(c) The default by any Purchaser of any of its
obligations, representations or warranties under any Transaction Document shall
not be imputed to, and shall have no effect upon, any other Purchaser or affect
the Company's obligations under the Transaction Documents to any non-defaulting
Purchaser.
3.10 Conversion and Exercise Obligations of the Company. The
Company covenants to convert the Shares and to deliver Underlying Shares in
accordance with the terms and conditions and time period set forth in the
respective Certificates of Designation and to deliver Underlying Shares upon
exercise of Warrants in accordance with the terms and conditions and time
periods set forth in the Warrants.
3.11 Subsequent Registrations. Other than Underlying Shares and
other "Registrable Securities" (as defined in the Registration Rights
Agreement) to be registered in accordance with the Registration Rights
Agreement, the Company shall not, for a period of not less than 90 Trading Days
after the date that the respective Underlying Shares Registration Statement
relating to the securities issued at the Series A Closing Date and the Series B
Closing Date is declared effective by the Commission, without the prior written
consent of the Purchasers, (i) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register for resale any
securities of the Company. Any Trading Days that any Purchaser is unable to
sell Underlying Shares under an Underlying Shares Registration Statement shall
be added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.12 Press Release. The Company shall issue a press release within
two Trading Days of each of the Series A Closing Date and the Series B Closing
Date relating to the issue and sale of the Shares and Warrants to the
Purchasers which press releases shall be approved by each party to this
Agreement.
3.13 Use of Proceeds. The Company shall use all of the proceeds
from the sale of the Shares for working capital and general corporate purposes
and not for the satisfaction of any portion of Company borrowings or to redeem
Company equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.14 Reimbursement. In the event that any Purchaser, other than by
reason of its bad faith, gross negligence or willful misconduct, becomes
involved in any capacity in any action, proceeding or investigation brought by
or against any person, including stockholders of the Company, in connection
with or as a result of the consummation of the transactions contemplated
pursuant to the Transaction Documents, the Company will reimburse such
Purchaser for its reasonable legal and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith. In
addition, with respect to each Purchaser, other than with respect to any matter
in which such Purchaser is a named party, the Company will pay such Purchaser
the reasonable charges, as reasonably determined by such Purchaser, for the
time of any officers or employees of such Purchaser devoted to appearing and
preparing to appear
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as witnesses, assisting in preparation for hearings, trials or pretrial
matters, or otherwise with respect to inquiries, hearings, trials, and other
proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of each Purchaser and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of each Purchaser and any such affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, each Purchaser and any such affiliate and any
such person. The Company also agrees that no Purchaser or any such affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the bad
faith, gross negligence or willful misconduct of such Purchaser or entity in
connection with the transactions contemplated by this Agreement.
3.15 Conversion Limitation. In no event shall a Purchaser be
permitted to convert any shares of Preferred Stock in excess of the number of
such shares upon the conversion of which, (x) the number of shares of Common
Stock beneficially owned by such Purchaser (other than shares of Common Stock
issuable upon conversion of shares of Preferred Stock) plus (y) the number of
shares of Common Stock issuable upon the conversion of such shares of Preferred
Stock, would be equal to or exceed (z) 4.999% of the number of shares of Common
Stock then issued and outstanding, including shares issuable on conversion of
the Preferred Stock held by such Purchaser after application of this Section
3.15. As used herein, beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder. To the extent
that the limitation contained in this Section 3.15 applies, the determination
of whether shares of Preferred Stock are convertible (in relation to other
securities owned by a Purchaser) and of which shares of Preferred Stock are
convertible shall be in the sole discretion of such Purchaser, and the
submission of shares of Preferred Stock for conversion shall be deemed to be
such Purchaser's determination of whether such shares of Preferred Stock are
convertible (in relation to other securities owned by a Purchaser) and of which
shares of Preferred Stock are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. This paragraph may be
amended in order to clarify an ambiguity or otherwise to give effect to such
limitation, by the board of directors of the Company and the holders of
two-thirds (2/3) of the shares of Preferred Stock then outstanding. Nothing
contained herein shall be deemed to restrict the right of a Purchaser to
convert such shares of Preferred Stock at such time as such conversion will not
violate the provisions of this paragraph. The provisions of this Section 3.15
may be waived by a Purchaser as to itself (and solely as to itself) upon not
less than 65 days prior notice to the Company, and the provisions of this
Section 3.15 shall continue to apply until such 65th day (or later, if stated
in the notice of waiver).
3.16 Incyte Conversion Limitation. In no event shall Incyte be
permitted to convert any shares of Preferred Stock in excess of the number of
shares upon the conversion of which (x) the number of shares of Common Stock
owned by Incyte (other than shares of
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Common Stock issuable upon conversion of shares of Preferred Stock) plus (y)
the number of shares of Common Stock issuable upon the conversion of such
shares of Preferred Stock, would be equal to or exceed (z) 9.99% of the number
of shares of Common Stock then issued and outstanding, including shares
issuable upon conversion of the Preferred Stock held by Incyte after
application of this Section 3.16 (such number of shares of Preferred Stock in
excess of clause (z) to be referred to herein as the "Incyte Excess Shares").
To the extent that the limitation contained in this Section 3.16 applies, the
Company shall use commercially reasonable efforts to either (i) facilitate the
transfer of the Incyte Excess Shares to a third party at a price per share on
an as-converted basis equal to the Per Share Market Value for the Trading Day
immediately preceding the Conversion Date, or (ii) redeem, from funds legally
available therefor at the time of such redemption, the Incyte Excess Shares at
a price per share equal to the product of (i) the Per Share Market Value for
the Trading Day immediately preceding the Conversion Date and (ii) the
Conversion Ratio calculated on the Conversion Date.
ARTICLE IV
CONDITIONS
4.1 (a) Conditions Precedent to the Obligation of the
Company to Sell the Series A Shares. The obligation of the Company to sell the
Series A Shares and the Series A Warrants hereunder is subject to the
satisfaction by the Purchasers or waiver by the Company, at or before the
Series A Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations
and Warranties. The representations and warranties of each Purchaser shall be
true and correct in all material respects as of the date when made and as of
the Series A Closing Date, as though made on and as of such date;
(ii) Performance by the Purchasers. Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Series A Closing, including, without limitation, payment of the Series A
Purchase Price; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Shares or exercise of any of the
Warrants.
(b) Conditions Precedent to the Obligation of the
Purchasers to Purchase the Series A Shares. The obligation of each Purchaser
hereunder to acquire and pay for the Series A Shares is subject to the
satisfaction by the Company or waiver by such Purchaser, at or before the
Series A Closing, of each of the following conditions:
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(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth in
this Agreement and in the Registration Rights Agreement shall be true and
correct in all material respects as of the date when made and as of the Series
A Closing Date, as though made on and as of such date;
(ii) Performance by the Company. The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by
the Company at or prior to the Series A Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Shares or exercise of any of the
Warrants;
(iv) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which had a Material Adverse Effect and no
material adverse change in the financial condition or prospects of the Company
shall have occurred which is not disclosed in the Disclosure Materials (for
purposes hereof changes in the market price of the Common Stock may be
considered in determining whether there has occurred an event which has had a
Material Adverse Effect or whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock.
The trading in the Common Stock shall not have been suspended by the Commission
or on the AMEX (or such other exchange or quotation system on which the Common
Stock is then traded) which suspension shall remain in effect;
(vi) Legal Opinion. The Company shall have
delivered to the Purchasers the opinion of Brobeck, Phleger & Harrison LLP, the
Company's counsel, in substantially the form attached hereto as Exhibit D,
respectively;
(vii) Required Approvals. All Required Approvals
required to have been made on or prior to the Series A Closing Date shall have
been obtained;
(viii) Shares of Common Stock. On or prior to the
Series A Closing Date, the Company shall have duly reserved the number of
Underlying Shares required by the Transaction Documents to be reserved for
issuance upon conversion of Series A Shares and payment of dividends thereon
and exercise of the Series A Warrants;
(ix) Delivery of Stock Certificates. The Company
shall have delivered to each Purchaser or such Purchaser's designee the stock
certificate(s) representing the Series A Shares, registered in the name of such
Purchaser, each in form satisfactory to the Purchaser;
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<PAGE> 21
(x) Registration Rights Agreement. The Company
shall have executed and delivered the Registration Rights Agreement;
(xi) Certificates of Designation. The Series A
Designation shall have been duly filed with the Secretary of State of Delaware
and the Company shall have delivered a copy thereof to the Purchaser certified
as filed by the office of the Secretary of State of Delaware;
(xii) Change of Control. No Change of Control (as
hereafter defined) shall have occurred between the date hereof and the Series A
Closing Date; and
(xiii) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit E attached hereto, shall
have been delivered to and acknowledged in writing by the Company's transfer
agent.
4.2 (a) Conditions Precedent to the Obligation of
the Company to Sell the Series B Shares. The obligation of the Company to sell
the Series B Shares and the Series B Warrants hereunder is subject to the
satisfaction by the Purchasers or waiver by the Company, at or before the
Series B Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations
and Warranties. The representations and warranties of each Purchaser shall be
true and correct in all material respects as of the date when made and as of
the Series B Closing Date, as though made on and as of such date;
(ii) Performance by the Purchasers. Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Series B Closing, including, without limitation, payment of the Series B
Purchase Price; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Shares or exercise of any of the
Warrants.
(b) Conditions Precedent to the Obligation of the
Purchasers to Purchase the Series B Shares. The obligation of each Purchaser
hereunder to acquire and pay for the Series B Shares is subject to the
satisfaction by the Company or waiver by each Purchaser, at or before the
Series B Closing of each of the following conditions:
(i) Series A Closing. The Series A Closing shall
have occurred;
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(ii) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained herein
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Series B Closing Date
as though made on and as of such date;
(iii) Performance by the Company. The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by
the Company at or prior to the Series B Closing Date;
(iv) Underlying Shares Registration Statement.
The Underlying Shares Registration Statement with respect to the Underlying
Shares issuable on conversion of all outstanding Series A Shares and as payment
of dividends thereon and exercise of the Series A Warrants shall have been
declared effective under the Securities Act by the Commission. On such Closing
Date, the Underlying Shares Registration Statement shall be effective, not
subject to any stop order and not be subject to any suspension pursuant to
Section 3(p) of the Registration Rights Agreement, and shall have been
effective and shall not have been subject to any stop order for the ninety (90)
days prior to such Closing Date and no stop order shall be pending or
threatened as at such Closing Date;
(v) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Shares or exercise of the Warrants;
(vi) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which had a Material Adverse Effect and no
material adverse change in the financial condition or prospects of the Company
shall have occurred which is not disclosed in the Disclosure Materials (for
purposes hereof changes in the market price of the Common Stock may be
considered in determining whether there has occurred an event which has had a
Material Adverse Effect or whether a material adverse change has occurred);
(vii) Litigation. No litigation shall have been
instituted or threatened against the Company, which, if determined adversely to
the Company, could have a Material Adverse Effect;
(viii) Management. In the reasonable judgment of
each Purchaser, there have been no substantial changes in the senior management
of the Company;
(ix) No Suspensions of Trading in Common Stock.
The trading in the Common Stock shall not have been suspended by the Commission
or on the AMEX (or any other national securities exchange or quotation system
on which the Common Stock is then
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listed) (except for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the Company or as a
result of exchange imposed "circuit brakers");
(x) Listing of Common Stock. The Common Stock
shall have been at all times since the Series A Closing Date listed for
trading on the AMEX (or any other national securities exchange or quotation
system on which the Common Stock is then listed);
(xi) Change of Control. No Change of Control in
the Company shall have occurred. "Change of Control" means the occurrence of
any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of in excess of 50% of the voting securities of the Company, (ii)
a replacement of more than one-half of the members of the Company's board of
directors which is not approved by those individuals who are members of the
board of directors on the date hereof in one or a series of related
transactions, (iii) the sale of all or substantially all of the assets of the
Company in one or a series of related transactions, (iv) the merger or
consolidation of the Company with or into another entity unless the holders of
the Common Stock immediately prior to such transactions continue to hold at
least 50% of such securities immediately following such transaction or (v) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii);
(xii) Legal Opinion. The Company shall have
delivered to the Purchasers the opinions of the Company's counsel, in
substantially the form attached hereto as Exhibit D dated the Series B Closing
Date;
(xiii) Required Approvals. All Required Approvals
required to have been made on or prior to the Series B Closing Date shall have
been obtained;
(xiv) Shares of Common Stock. On the Series B
Closing Date, the Company shall have duly reserved the number of Underlying
Shares required by this Agreement to be reserved for issuance upon conversion
of Series B Shares and payment of dividends thereon;
(xv) Delivery of Stock Certificates. The Company
shall have delivered to each Purchaser or such Purchaser's designee the stock
certificate(s) representing the Series B Shares, registered in the name of such
Purchaser, each in form satisfactory to such Purchaser;
(xvi) Certificates of Designation. The Series B
Designation shall have been duly filed with the Secretary of State of Delaware
and the Company shall have delivered a copy thereof to the Purchaser certified
as filed by the office of the Secretary of State of Delaware;
(xvii) Performance of Conversion/Exercise
Obligations. The Company shall have (a) delivered Underlying Shares upon
conversion of Series A Shares and otherwise
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performed its obligations in accordance with the terms, conditions and timing
requirements of each Certificate of Designation and (b) delivered Underlying
Shares upon exercise of the Series A Warrants and otherwise performed its
obligations in accordance with the terms of the Series A Warrants;
(xviii) Closing Thresholds. For the thirty Trading
Days immediately prior to the Series B Closing Date (the "Look-Back Period")
(i) the average Per Share Market Value shall have been equal or greater than
$8.00, and (ii) the average trading volume for the Common Stock shall have been
equal or greater than 25,000 shares, provided, however, that, with respect to
clause (ii) above, any Trading Day during the Look-Back Period in which the
trading volume in the Common Stock exceeds 75,000 shares shall be excluded from
the Look-Back Period and the Look-Back Period shall be extended backward by one
additional Trading Day for each Trading Day so excluded;
(xix) Research Coverage. Hambrecht & Quist LLP or
any comparable investment banking firm reasonably satisfactory to the
Purchasers shall be providing research coverage on the Company;
(xx) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit E attached hereto, shall
have been delivered to and acknowledged in writing by the Company's transfer
agent; and
(xxi) Updated Schedules. If the Company has made
any changes to the Schedules to this Agreement as permitted under Section
2.1(i), such changes shall be satisfactory to the Purchasers.
(xxii) Officer's Certificate. On the Series B
Closing Date the Company shall deliver to the Purchasers an Officer's
Certificate dated the Closing Date and signed by an executive officer of the
Company confirming the accuracy of the Company's representations, warranties
and covenants as of the Series B Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Series B Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay $20,000 to
Robinson Silverman Pearce Aronsohn and Berman LLP, counsel to the Purchasers
(which shall be credited against the amounts paid by the Company pursuant to
Section 3 of the Engagement Letter) in connection with the preparation of the
Transaction Documents and for such counsel's representation of the Purchasers
in connection with the transactions contemplated by the Transaction Documents,
and otherwise each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
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by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, except as set forth in the Registration Rights
Agreement. The Company shall pay all stamp and other taxes and duties levied
in connection with the issuance of the Shares pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Registration Rights
Agreement, each Certificate of Designation (each when filed) and the Warrants
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, except that the provisions of Section 3
and Section 5 of the Engagement Letter shall survive.
5.3 Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been received (a) upon hand delivery (receipt acknowledged) or delivery by
telex (with correct answer back received), telecopy or facsimile (with
transmission confirmation report) at the address or number designated below (if
delivered on a Trading Day during normal business hours where such notice is to
be received), or the first Trading Day following such delivery (if delivered on
a Trading Day after during normal business hours where such notice is to be
received) or (b) on the second Trading Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be as set forth below each parties name on Schedule
1, and if to the Company with copies to Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, NY 10019, Attn: Alexander D. Lynch, Esq., fax:
(212) 586-7878, and if to any Purchaser with copies to Robinson Silverman
Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, NY 10104,
Attn: Kenneth L. Henderson, Esq., fax: (212) 541-4630, or such other address as
may be designated in writing hereafter, in the same manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by both the Company and the Purchasers; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each of the
Purchasers. No Purchaser may assign this Agreement (other than to an Affiliate
of such Purchaser) or any rights or obligations hereunder without the prior
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<PAGE> 26
written consent of the Company, except that any Purchaser may assign its rights
hereunder and under the Transaction Documents without the consent of the
Company as long as such assignee demonstrates to the reasonable satisfaction of
the Company its satisfaction of the representations and warranties set forth in
Section 2.2 and such assignment is to an Affiliate of such Purchaser. This
provision shall not limit a Purchaser's right to transfer securities or
transfer or assign rights hereunder or under the Registration Rights Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
5.8 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.
5.9 Survival. The agreements and covenants contained in
Article III and this Article V shall survive the delivery and conversion of the
Shares pursuant to this Agreement and the representations and warranties of the
Company and the Purchasers contained in Article II shall survive each Closing
hereunder and any conversion of the Shares and exercise of the Warrants.
5.10 Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
5.11 Publicity. The Company and each Purchaser shall
consult with each other in issuing any press releases or otherwise making
public statements with respect to the
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<PAGE> 27
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the
other party with prior notice of such public statement. The Company shall not
publicly or otherwise disclose the names of any of the Purchasers without each
such Purchaser's prior written consent, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
5.12 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 Remedies. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages,
the parties hereto will be entitled to specific performance of the obligations
of the other parties under the Transaction Documents. Each of the Company and
the Purchasers (severally and not jointly) agree that monetary damages would
not be adequate compensation for any loss incurred by reason of any breach of
its obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense that
a remedy at law would be adequate.
5.14 Independent Nature of Purchasers' Obligations and
Rights. The obligations of each Purchaser hereunder is several and not joint
with the obligations of the other Purchasers hereunder, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
5.15 No Reliance. Each party acknowledges that (i) it has
such knowledge in business and financial matters as to be fully capable of
evaluating this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of the other party in connection with entering into this
Agreement, the other Transaction Documents or such transactions (other than the
representations made in this Agreement or the other Transaction Documents),
(iii) it has not
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<PAGE> 28
received from such party any assurance or guarantee as to the merits (whether
legal, regulatory, tax, financial or otherwise) of entering into this Agreement
or the other Transaction Documents or the performance of its obligations
hereunder and thereunder, and (iv) it has consulted with its own legal,
regulatory, tax, business, investment, financial and accounting advisors to the
extent that it has deemed necessary, and has entered into this Agreement and
the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by such party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by their
respective authorized persons as of the date first indicated above.
ONCORMED, INC. SOUTHBROOK INTERNATIONAL INVESTMENTS,
LTD.
By: /s/ LEE ROBERT JOHNSTON, JR By: /s/ KENNETH E. HUNDERSON
----------------------------- ----------------------------------
Name: LEE ROBERT JOHNSTON, JR Name: KENNETH E. HUNDERSON
Title: VP & CFO Title: ATTORNEY-IN-FACT
WESTOVER INVESTMENTS L.P.
By: /s/ WILLIAM E. ROSE
----------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
MONTROSE INVESTMENTS, LTD.
By: /s/ WILLIAM E. ROSE
----------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
BROWN SIMPSON STRATEGIC GROWTH FUND,
L.P.
By:/s/ MITCHELL D. KAYE
----------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
BROWN SIMPSON STRATEGIC GROWTH FUND,
LTD.
By:/s/ MITCHELL D. KAYE
----------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
INCYTE PHARMACEUTICALS, INC.
By:
----------------------------------
Name:
Title:
<PAGE> 30
SCHEDULE 1
Company:
- -------
ONCORMED, INC.
205 Perry Parkway
Gaithersburg, Maryland 20877
Attn: Dr. Timothy Triche
Fax: (301) 527-1539
Purchasers:
- ----------
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Attn: Robert L. Miller
Fax: (212) 332-3256
Portion of Series A Purchase Price - $1,250,000
Series A Shares - 125
Number of Shares
underlying Warrant - 62,500
WESTOVER INVESTMENTS L.P.
777 Main Street, Suite 2750
Fort Worth, Texas 76102
Attn: Will Rose
Fax: (817) 870-6190
Portion of Series A Purchase Price - $440,000
Series A Shares - 44
Number of Shares
underlying Warrant - 21,875
MONTROSE INVESTMENTS, LTD.
777 Main Street, Suite 2750
Fort Worth, Texas 76102
Attn: Will Rose
Fax: (817) 870-6190
Portion of Series A Purchase Price - $810,000
Series A Shares - 81
Number of Shares
underlying Warrant - 40,625
<PAGE> 31
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
152 West 57th street, 40th Floor
New York, New York 10019
Attn: Mitchell Kaye
Fax: (212) 247-1329
Portion of Series A Purchase Price - $120,000
Series A Shares - 12
Number of Shares
underlying Warrant - 6,000
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Mitchell Kaye
Fax: (212) 247-1329
Portion of Series A Purchase Price - $380,000
Series A Shares - 38
Number of Shares
underlying Warrant - 19,000
INCYTE PHARMACEUTICALS, INC.
3174 Porter Drive
Palo Alto, CA 94304
Attn: Chief Executive Officer
Fax: (415) 845-4500
Portion of Series A Purchase Price - $330,000
Series A Shares - 33
Number of Shares
underlying Warrant - 16,666
<PAGE> 1
EXHIBIT 10.38
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of February 27, 1998, among Oncormed, Inc., a Delaware
corporation (the "Company"), Southbrook International Investments, Ltd., a
corporation existing under the laws of the British Virgin Islands
("Southbrook"), Westover Investments L.P., a Delaware limited partnership
("Westover"), Montrose Investments, Ltd., a Cayman Islands exempt company
("Montrose"), Brown Simpson Strategic Growth Fund, L.P., a New York limited
partnership ("Brown Simpson LP"), Brown Simpson Strategic Growth Fund, Ltd., a
Cayman Islands exempt company ("Brown Simpson Limited"). Southbrook, Westover,
Montrose, Brown Simpson LP and Brown Simpson Limited are each referred to
herein as a "Purchaser" and are collectively referred to herein as the
"Purchasers."
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
at least 50% of the securities of such Person, or the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"AMEX" means the American Stock Exchange
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, $.01 par
value.
<PAGE> 2
"Effectiveness Date" means (i) with respect to the
Registration Statement to be filed with respect to the shares of Common Stock
underlying the Series A Shares and the Series A Warrants, the earlier of (a)
the 90th day following the Series A Closing Date, or, if such day is not a
Trading Day, the Effectiveness Date shall be the next succeeding Trading Day,
or (b) three Trading Days following the receipt by the Company of a notice from
the Commission that such Registration Statement will not be subject to review,
and (ii) with respect to the Registration Statement to be filed with respect to
the shares of Common Stock underlying the Series B Shares and the Series B
Warrants, the earlier of (a) the 90th day following the Series B Closing Date,
or, if such day is not a Trading Day, the Effectiveness Date shall be the next
succeeding Trading Day, or (b) three Trading Days following the receipt by the
Company of a notice from the Commission that such Registration Statement filed
with respect to the Series B Shares and the Series B Warrants will not be
subject to review.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means (i) with respect to the shares of Common
Stock issuable upon conversion of the Series A Shares, the 25th day following
the Series A Closing Date, and (ii) with respect to the shares of Common Stock
issuable upon conversion of the Series B Shares, the 25th day following the
Series B Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 6% Series A
Preferred Stock, $0.01 par value, and shares of 6% Series B Preferred Stock,
$0.01 par value, issued to the Purchasers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, notice of
violation, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced
or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A
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<PAGE> 3
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such Prospectus.
"Registrable Securities" means (a) with respect to the
Registration Statement to be filed after the Series A Closing, the shares of
Common Stock issuable upon (i) conversion of the Series A Shares, (ii) exercise
in full of the Series A Warrants, and (iii) payment of dividends in respect of
the Series A Shares, assuming all dividends were paid in shares of Common
Stock, and (b) with respect to the Registration Statement to be filed after the
Series B Closing, the shares of Common Stock issuable upon (i) conversion of
the Series B Shares, (ii) exercise in full of the Series B Warrants, and (iii)
payment of dividends in respect of the Series B Shares, assuming all dividends
were paid in shares of Common Stock; provided, however that in order to account
for the fact that the number of shares of Common Stock that are issuable upon
conversion of shares of Preferred Stock is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities for
each Registration Statement shall include (but not be limited to) a number of
shares of Common Stock equal to no less than the sum of (1) 200% times the
maximum number of shares of Common Stock into which the applicable series of
Preferred Stock are convertible, assuming such conversion occurred on the
particular Closing Date for such series of Preferred Stock, (2) the number of
shares of Common Stock issuable upon exercise of the Warrants then outstanding,
and (3) the number of shares of Common Stock issuable on payment of dividends
on such series of Preferred Stock during the two-year period after the
applicable Closing Date, assuming all such dividends were paid in shares of
Common Stock. Such registered shares of Common Stock shall be allocated among
the Holders pro-rata based on the total number of Registrable Securities issued
or issuable as of each date that a Registration Statement, as amended, relating
to the resale of the Registrable Securities, is declared effective by the
Commission. Notwithstanding anything herein contained to the contrary, if the
actual number of shares of Common Stock into which the shares of Preferred
Stock are convertible exceeds 200% times the maximum number of shares of Common
Stock into which the particular series of Preferred Stock are convertible based
upon a computation at a particular Closing Date, the term "Registrable
Securities" shall be deemed to include such additional shares of Common Stock.
The Company shall be required to file additional Registration Statements to the
extent the actual number of shares of Common Stock into which the Preferred
Stock is convertible (together with dividends accrued but unpaid thereon) and
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in accordance with the immediately prior sentence. The Company
shall have 20 Trading Days to file such additional Registration Statement after
notice of the requirement thereof, which the Holders may give at such time when
the number of shares of Common Stock as are issuable upon conversion of
Preferred Stock exceeds 185% times the maximum number of shares of Common Stock
into which Preferred Stock are convertible, assuming such conversion occurred
on the Closing Date or the Filing Date (whichever yields a lower Conversion
Price). Notwithstanding anything herein contained to the contrary, the term
"Registrable Securities" shall not include any shares of Common Stock issued or
issuable to the Holders (i) that are freely tradeable pursuant to Rule 144(k)
promulgated by the Commission
-3-
<PAGE> 4
pursuant to the Securities Act, (ii) that have been sold pursuant to Rule 144,
or (iii) that have been sold pursuant to a Registration Statement.
"Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Trading Day" means (a) a day on which the Common Stock is
traded on the AMEX or other stock exchange or quotation system on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on the
AMEX or any stock exchange or market, a day on which the Common Stock is traded
in the over-the-counter market, as reported by the OTC Bulletin Board, or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
action to close.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
-4-
<PAGE> 5
2. Shelf Registration
(a) On or prior to each applicable Filing Date, the
Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if otherwise directed by the Holders of a majority in interest
of the applicable Registrable Securities in accordance herewith or if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith). The Registration Statement shall state, to the
extent permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to effect (i)
conversion of the Preferred Stock to prevent dilution resulting from stock
splits, stock dividends or similar events, or by reason of changes in the
Conversion Price in accordance with the terms of the applicable Certificate of
Designation and (ii) exercise of the Warrants in full to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Exercise Price (as defined in the Warrants) in accordance with
the terms of the Warrants. The Company shall (i) not permit any securities
other than the Registrable Securities and those securities listed in Schedule
2.1(u) of the Purchase Agreement to be included in the Registration Statement
and (ii) use its commercially reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the Effectiveness
Date, and to keep such Registration Statement continuously effective under the
Securities Act until the date which is two years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement
have been sold or may be sold without volume restrictions pursuant to Rule 144
as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"). If an additional Registration Statement is required
to be filed because the actual number of shares of Common Stock into which the
Preferred Stock is convertible plus shares issuable upon payment of dividends
and exercise of the Warrants exceeds the number of shares of Common Stock
initially registered in respect of any particular series of Preferred Stock
based upon the computation on a particular Closing Date, the Company shall, as
promptly as reasonably possible, but no later than 20 Trading Days to file such
additional Registration Statement, and the Company shall use its commercially
reasonable efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible.
(b) If the Holders of a majority of the Registrable
Securities so elect, an offering of Registrable Securities pursuant to the
Registration Statement may be effected on no more than two occasions in the
form of an Underwritten Offering. In such event, and, if the managing
underwriters advise the Company and such Holders in writing that in their
opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such
Underwritten Offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold, and such amount shall be
allocated pro rata among the Holders proposing to sell Registrable Securities
in such Underwritten Offering.
-5-
<PAGE> 6
(c) If any of the Registrable Securities are to be sold
in an Underwritten Offering, the investment banking firm in interest that will
administer the offering will be selected by the Holders of a majority of the
Registrable Securities included in such offering provided that the Company
shall consent to the inclusion of such investment banking firm, which consent
shall not be unreasonably withheld and provided further that the selection of
such investment banking firm will be subject to the agreement dated February
12, 1998, between the Company and Hambrecht & Quist LLC. No Holder may
participate in any Underwritten Offering hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to
each applicable Filing Date, a Registration Statement on Form S-3 (or if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3 such registration shall be on another appropriate form in
accordance herewith, or, in connection with an Underwritten Offering hereunder,
such other form agreed to by the Company and by the Holders of a majority of
Registrable Securities) in accordance with the method or methods of
distribution thereof as specified by the Holders (except if otherwise directed
by the Holders), and cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that not less than five
(5) Trading Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall,
if reasonably practicable, (i) furnish to the Holders, their Special Counsel
and any managing underwriters, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of such Holders, their Special Counsel and such managing
underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of the Special Counsel and any managing
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders
of a majority of the Registrable Securities, their Special Counsel, or any
managing underwriters, shall reasonably object in writing within three (3)
Trading Days of their receipt thereof in which case the Company shall revise
the Registration Statement and Prospectus substantially in accordance with the
reasonable comments of the Holders of a majority of the Registrable Securities,
their Special Counsel, or any managing underwriters until such person or entity
approves the Registration Statement and prospectus for filing. If the Company
is unable to file the Registration Statement with the Commission by the Filing
Date solely because of the additional time necessary to address such comments,
then the Filing Date shall be extended by the amount of time necessary, but in
no case more than 4 Trading Days, for the Company to make the necessary
revisions to the
-6-
<PAGE> 7
Registration Statement and prospectus in order to receive filing approval from
such Person or entity.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective
as to the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as commercially
reasonable possible to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented.
(c) Notify the Holders their Special Counsel and any
managing underwriters as promptly as reasonably possible (and, in the case of
(i)(A) below, not less than three (3) Trading Days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one (1) Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement, and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose; (iv) if at any time any
of the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated
therein by reference untrue in any material respect or that requires any
revisions to the Registration Statement, Prospectus or other documents so that,
in the case of the Registration Statement or the Prospectus, as the case may
be, it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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<PAGE> 8
(d) Use its commercially reasonable efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the
Holders of a majority in interest of the Registrable Securities to be sold in
connection with an Underwritten Offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein
and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects, results of operations or financial
conditions of the Company.
(f) Promptly deliver to each Holder, their Special
Counsel, and any managing underwriters, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the Holders and any managing underwriters in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) Prior to any public offering of Registrable
Securities, use its commercially reasonable efforts to register or qualify or
cooperate with the Holders, their Special Counsel and any managing underwriters
in connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder or managing underwriter requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where
it is not then so subject or subject the Company to any material tax in any
such jurisdiction where it is not then so subject.
(h) Cooperate with the Holders and any managing
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee pursuant to
a Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two (2)
Trading Days prior to any sale of Registrable Securities.
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<PAGE> 9
(i) Upon the occurrence of any event contemplated by
Section 3(c)(vi), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated therein
by reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(j) Use its commercially reasonable efforts to cause all
Registrable Securities relating to such Registration Statement to be listed on
the AMEX and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(k) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other reasonable actions in connection therewith
(including those reasonably requested by any managing underwriters and the
Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings
and confirm the same if and when requested; (ii) in the case of an Underwritten
Offering, obtain and deliver copies thereof to the managing underwriters, if
any, of opinions of counsel to the Company and updates thereof addressed to
each such underwriter, in form, scope and substance reasonably satisfactory to
any such managing underwriters and Special Counsel to the Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of
delivery of any Registrable Securities sold pursuant thereto, use its
commercially reasonable efforts to obtain and deliver copies to the Holders and
the managing underwriters, if any, of "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed to the Company in form and substance as
are customary in connection with Underwritten Offerings; (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the Holders and the
underwriters, if any, than those set forth in Section 6 (or such other
provisions and procedures acceptable to the managing underwriters, if any, and
holders of a majority of Registrable Securities participating in such
Underwritten Offering); and (v) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(k)(i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
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<PAGE> 10
(l) Make available for inspection by the Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant retained
by such Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries
to supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, in accordance with the terms of a confidentiality agreement to
be entered into by such parties, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in
the opinion of counsel to such Person, is required by law; (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by such Person; or (iv) such information
becomes available to such Person from a source other than the Company and such
source is not known by such Person to be bound by a confidentiality agreement
with the Company.
(m) Comply in all material respects with all applicable
rules and regulations of the Commission.
(n) The Company may require each Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the
Registration Statement, and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(f) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any,
will comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue
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<PAGE> 11
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(i), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
(o) If (a) there is material non-public information
regarding the Company which the Company's Board of Directors reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (b) there is a significant
business opportunity (including but not limited to the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Company's Board of Directors reasonably determines not to
be in the Company's best interest to disclose, then the Company may postpone or
suspend filing or effectiveness of a registration statement for a period not to
exceed 20 consecutive days, provided that the Company may not postpone or
suspend its obligation under this Section 3(o) for more than 60 days in the
aggregate during any 12 month period; provided, however, that no such
postponement or suspension shall be permitted for consecutive 20 day periods,
arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the AMEX or each other securities exchange or market on which Registrable
Securities are required hereunder to be listed, and (B) in compliance with
state securities or Blue Sky laws (including, without limitation, reasonable
fees and disbursements of the Special Counsel in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses
incurred by the Company, (iv) reasonable fees and disbursements of counsel for
the Company and the Special Counsel, (v) Securities Act liability insurance, if
the Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated
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<PAGE> 12
by this Agreement (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit.
(b) If the Holders require an Underwritten Offering
pursuant to the terms hereof, the Company shall be responsible for all costs,
fees and expenses in connection therewith, except that the Holders shall be
responsible for the fees and disbursements of the underwriters (including any
underwriting commissions and discounts which shall be borne by the Holders) and
the underwriters' legal counsel and accountants (which shall be borne by the
Holders). Therefore, in such circumstances, the Holder shall bear the expenses
of the fees and disbursements of their legal counsel any legal counsel or
accounting firm retained by the underwriters in connection with such
Underwritten Offering and the costs of any determination (but not filing) by
the underwriters of the eligibility of the Registrable Securities for
investment under the applicable state securities laws. By way of illustration
which is not intended to diminish from the provisions of Section 4(a), the
Holders shall not be responsible for, and the Company shall be required to pay
the fees or disbursements incurred by the Company (including by its legal
counsel and accountants) in connection with, the preparation and filing of a
Registration Statement and related Prospectus for such offering, the
maintenance of such Registration Statement in accordance with the terms hereof,
the listing of the Registrable Securities in accordance with the requirements
hereof, and printing expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
costs of preparation and reasonable attorneys' fees and expenses)
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading (in the case of any
Prospectus or form of Prospectus or supplement thereto, in light of the
circumstances under which they were made), except to the extent, but only to
the extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities
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<PAGE> 13
and was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus
or in any amendment or supplement thereto. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.
(b) Indemnification by Holders. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, the
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of or based
solely upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto, or arising solely out of or based solely upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for
inclusion in the Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in the
Registration Statement, such Prospectus or such form of prospectus or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus, or in any amendment or
supplement thereto. In no event shall the liability of any Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly
shall notify the Person from whom indemnity is sought (the "Indemnifying
Party") in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all reasonable fees and expenses incurred
in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced
the Indemnifying Party.
An Indemnified Party shall have the right to employ one
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of one such counsel shall be at the expense
of such Indemnified Party or Parties unless: (1) the Indemnifying Party has
agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party
shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any
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<PAGE> 14
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ one separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a
failure or refusal of a governmental authority to enforce such indemnification
in accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the
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<PAGE> 15
immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Rule 144
As long as any Holder owns Shares, Warrants or Underlying
Shares (as such term is defined in the Purchase Agreement), the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as any Holder owns Shares, Warrants or Underlying Shares
prior to the date on which all Holders may resell all of its Shares, Warrants
or Underlying Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable
to the Company's transfer agent for the benefit of and enforceable by any
Holder), if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders
and make publicly available in accordance with Rule 144(c) promulgated under
the Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Person to sell Underlying Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act, including providing any legal opinions referred to in the
Purchase Agreement. Upon the request of any Holder, the Company shall deliver
to such Holder a written certification of a duly authorized officer as to
whether it has complied with such requirements.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or
by a Holder, of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of
any of the
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<PAGE> 16
provisions of this Agreement and hereby further agrees that, in the event of
any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as disclosed in Schedule 2.1(u) of the Purchase
Agreement, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company
under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(c) No Piggyback on Registrations. Neither the Company
nor any of its security holders (other than the Holders in such capacity
pursuant hereto or as disclosed in Schedule 2.1(u) of the Purchase Agreement)
may include securities of the Company in the Registration Statement other than
the Registrable Securities or as disclosed in Schedule 2.1(u) of the Purchase
Agreement, and the Company shall not after the date hereof enter into any
agreement providing any such right to include securities of the Company in the
Registration Statement with any of its security holders.
(d) Piggy-Back Registrations. If at any time when there
is not an effective Registration Statement covering Registrable Securities, the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form
S-4 or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Registrable Securities written notice of such
determination and, if within fifteen (15) Trading Days after receipt of such
notice, any such holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable Securities
such holder requests to be registered; provided, however, that the Company
shall not be required to register any Registrable Securities pursuant to this
Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the
Commission. In the case of an underwritten public offering, if the managing
underwriter(s) or underwriter(s) should reasonably object to the inclusion of
the Registrable Securities in such registration statement, then if the Company
after consultation with the Underwriter's Representative should reasonably
determine that the inclusion of such Registrable Securities, would materially
adversely affect the offering contemplated in such registration statement, and
based on such determination recommends inclusion in such registration statement
of fewer or none of the Registrable Securities of the Holders, then (x) the
number of Registrable Securities of the Holders included
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<PAGE> 17
in such registration statement shall be reduced pro-rata among such Holders
(based upon the number of Registrable Securities requested to be included in
the registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities, or (y) none of the
Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; provided, however, that
if securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Registrable Securities intended to be offered by the Holders than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of at least two-thirds of the then
outstanding Registrable Securities; provided, however, that, for the purposes
of this sentence, Registrable Securities that are owned, directly or
indirectly, by the Company, or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 8:00 p.m.
(Eastern Time) on a Trading Day, (ii) the Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (Eastern Time) on any date and earlier than 11:59 p.m. (Eastern Time) on
such date, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given to each Holder at its
address set forth under its name on Schedule 1 attached hereto or such other
address as may be designated in writing hereafter, in the same manner, by such
Person. Copies of notices to any Holder shall be sent to Robinson Silverman
Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, NY 10104,
Attn: Kenneth L. Henderson, Esq., fax: (212) 541-4630 and copies of all
notices to the Company shall be sent to Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, NY 10019, Attn: Alexander D. Lynch, Esq., fax:
(212) 586-7878.
(g) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder
-17-
<PAGE> 18
without the prior written consent of each Holder. Each Purchaser may assign its
rights hereunder in the manner and to such Persons as permitted under the
Purchase Agreement.
(h) Assignment of Registration Rights. The rights of
each Holder hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by each Holder to any Affiliate of such
Holder, any other Holder or Affiliate of any other Holder and up to four other
assignees of all or a portion of the shares of Preferred Stock, the Warrants or
the Registrable Securities if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement. The rights to assignment shall apply
to the Holders (and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
-18-
<PAGE> 19
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or its Affiliates (other than any Holder or transferees or
successors or assigns thereof if such Holder is deemed to be an Affiliate
solely by reason of its holdings of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
ONCORMED, INC. SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
By: /s/ L. ROBERT JOHNSTON By:
---------------------- -------------------------------------
Name: L. ROBERT JOHNSTON Name:
Title: VP & CFO Title:
WESTOVER INVESTMENTS L.P.
By: /s/ WILLIAM E. ROSE
-------------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
MONTROSE INVESTMENTS, LTD.
By: /s/ WILLIAM E. ROSE
-------------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ MITCHELL D. KAYE
-------------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
By: /s/ MITCHELL D. KAYE
-------------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
INCYTE PHARMACEUTICALS
By:
-------------------------------------
Name:
Title:
-20-
<PAGE> 21
SCHEDULE 1
Company:
ONCORMED, INC.
205 Perry Parkway
Gaithersburg, Maryland 20877
Attn: Dr. Timothy Triche
Fax: (301) 527-1539
Purchasers:
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Attn: Robert L. Miller
Fax: (212) 332-3256
WESTOVER INVESTMENTS L.P.
777 Main Street, Suite 2750
Fort Worth, Texas 76102
Attn: Will Rose
Fax: (817) 870-6190
MONTROSE INVESTMENTS, LTD.
777 Main Street, Suite 2750
Fort Worth, Texas 76102
Attn: Will Rose
Fax: (817) 870-6190
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
152 West 57th street, 40th Floor
New York, New York 10019
Attn: Mitchell Kaye
Fax: (212) 247-1329
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
152 West 57th street, 40th Floor
New York, New York 10019
Attn: Mitchell Kaye
Fax: (212) 247-1329
<PAGE> 22
SCHEDULE 1 (PAGE 2)
INCYTE PHARMACEUTICALS, INC.
3174 Porter Drive
Palo Alto, CA 94304
Attn: Chief Executive Officer
Fax: (415) 845-4500
-22-
<PAGE> 1
EXHIBIT 10.39
AMENDMENT NO. 1 TO THE CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
WHEREAS, effective as of February 27, 1998, Oncormed, Inc., a
Delaware corporation (the "Company") and Southbrook International Investments,
Ltd., a corporation organized and existing under the laws of the British Virgin
Islands ("Southbrook"), Westover Investments L.P., a Delaware limited
partnership ("Westover"), Montrose Investments, Ltd., a Cayman Islands exempt
company ("Montrose"), Brown Simpson Strategic Growth Fund, L.P., a New York
limited partnership ("Brown Simpson LP"), and Brown Simpson Strategic Growth
Fund, Ltd., a Cayman Islands exempt company ("Brown Simpson Limited"), entered
into that certain Convertible Preferred Stock Purchase Agreement (the
"Agreement"). Southbrook, Westover, Montrose, Brown Simpson LP, Brown Simpson
Limited and Incyte Pharmaceuticals, Inc., a Delaware corporation ("Incyte") are
each referred to herein as a "Purchaser" and are collectively referred to
herein as the "Purchasers";
WHEREAS, on March 6, 1998, Incyte exercised certain rights
provided for in the Agreement to purchase shares of the Company's 6% Series A
Convertible Preferred Stock, thereby becoming a party to the Agreement;
WHEREAS, pursuant to Section 5.4 of the Agreement, no
provision of the Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by both the Company and the
Purchasers; and
WHEREAS, the Company and the Purchasers desire to amend
Section 3.16 of the Agreement in the following manner.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Amendment No. 1 to the Agreement (the
"Amendment"), the parties agree as set forth below.
A. AMENDMENTS TO AGREEMENT. Section 3.16 of the Agreement is hereby
amended to read in its entirety as follows:
"3.16 Incyte Conversion Limitation. In no event shall
Incyte be permitted to convert any shares of Preferred Stock
for Common Stock, the number of which shares of Common Stock,
when added to the number of shares of Common Stock actually
held by Incyte immediately prior to such conversion, would
equal or exceed 9.95% of the number of shares of Common Stock
then issued and outstanding immediately after such conversion,
unless (i) concurrently with such conversion or immediately
thereafter, there is effected (A) a consolidation or merger of
the Company with or into any other person pursuant to which
the holders of the shares of capital stock of the Company
entitled to vote generally in the election of directors of the
Company immediately before such transaction hold, immediately
after such transaction,
<PAGE> 2
less than 50% of the total voting power of all shares of
capital stock of the surviving corporation entitled to vote
generally in the election of directors of the surviving
corporation, (B) the sale or transfer of all or substantially
all of the assets of the Company in which the consideration
therefor is equity or equity equivalent securities, or (C) any
other transaction involving the Company pursuant to which the
Common Stock is converted into the right to receive other
securities, cash or property or a combination thereof or (ii)
immediately prior to such conversion the number of shares of
Common Stock actually held by Incyte (without giving effect to
concurrent conversions by Incyte of Company securities by
which Incyte will obtain additional Common Stock) does not
equal or exceed 10% of the number of shares of Common Stock
then issued and outstanding and at the time of such exercise
there is pending a tender or exchange offer by a third party
for some or all of the Common Stock (such number of shares of
Preferred Stock in excess of the 9.95% limitation set forth
above to be referred to herein as the "Incyte Excess Shares").
To the extent that the limitation contained in this Section
3.16 applies, the Company shall use commercially reasonable
efforts to either (i) facilitate the transfer of the Incyte
Excess Shares to a third party at a price per share on an
as-converted basis equal to the Per Share Market Value for the
Trading Day immediately preceding the Conversion Date, or (ii)
redeem, from funds legally available therefor at the time of
such redemption, the Incyte Excess Shares at a price per share
equal to the product of (i) the Per Share Market Value for the
Trading Day immediately preceding the Conversion Date and (ii)
the Conversion Ratio calculated on the Conversion Date. "
B. MISCELLANEOUS.
1. Except as amended hereby, the Agreement shall remain
in full force and effect.
2. Except as the context may otherwise require,
capitalized terms used herein and not defined herein shall have the meaning
ascribed to such term in the Agreement.
3. This Amendment shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Amendment and agrees that such
service shall constitute
2
<PAGE> 3
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
4. This Amendment may be signed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Amendment as of March __, 1998.
ONCORMED, INC. SOUTHBROOK INTERNATIONAL INVESTMENTS,
LTD.
By:/s/ L. ROBERT JOHNSTON By: /s/ KENNETH E. HUNDERSON
---------------------- ----------------------------------
Name: L. ROBERT JOHNSTON Name: KENNETH E. HUNDERSON
Title: VP & CFO Title: ATTORNEY-IN-FACT
WESTOVER INVESTMENTS L.P.
By: /s/ WILLIAM E. ROSE
----------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
MONTROSE INVESTMENTS, LTD.
By: /s/ WILLIAM E. ROSE
----------------------------------
Name: WILLIAM E. ROSE
Title: AUTHORIZED SIGNATORY
BROWN SIMPSON STRATEGIC GROWTH FUND,
L.P.
By:/s/ MITCHELL D. KAYE
----------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
BROWN SIMPSON STRATEGIC GROWTH FUND,
LTD.
By:/s/ MITCHELL D. KAYE
----------------------------------
Name: MITCHELL D. KAYE
Title: PRINCIPAL
INCYTE PHARMACEUTICALS, INC.
By:
----------------------------------
Name:
Title:
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
March 23, 1998
