<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1996
REGISTRATION NUMBER 333-3182
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UROCOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8071 75-2117882
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
800 RESEARCH PARKWAY
OKLAHOMA CITY, OKLAHOMA 73104
405/290-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
WILLIAM A. HAGSTROM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROCOR, INC.
800 RESEARCH PARKWAY
OKLAHOMA CITY, OKLAHOMA 73104
405/290-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT E. WILSON, ESQ. MARK P. TANOURY, ESQ.
FULBRIGHT & JAWORSKI L.L.P. COOLEY GODWARD CASTRO HUDDLESON & TATUM
1301 MCKINNEY, SUITE 5100 3000 SAND HILL ROAD, BLDG. 3, SUITE 230
HOUSTON, TEXAS 77010-3095 MENLO PARK, CALIFORNIA 94025
713/651-5151 415/843-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UROCOR, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds; Management's Discussion and Analysis
of Financial Condition and Results of Operations
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to Be Registered........... Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel............... *
11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; The Company; Use of Proceeds;
Dividend Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions; Security
Ownership of Management and Principal Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
</TABLE>
- ------------------------
*Item is omitted either because it is inapplicable or the answer thereto is
negative.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 10, 1996
2,800,000 SHARES
[LOGO]
COMMON STOCK
ALL OF THE 2,800,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY (THE "OFFERING") ARE BEING SOLD BY UROCOR, INC.
("UROCOR" OR THE "COMPANY"). PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK. IT CURRENTLY IS ANTICIPATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $8.00 AND $10.00 PER SHARE. SEE "UNDERWRITING"
FOR FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "UCOR".
-------------------
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK.
-----------------
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.
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE................................ $ $ $
TOTAL (3)................................ $ $ $
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $600,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
420,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNT AND PROCEEDS TO COMPANY WILL BE $ ,
$ AND $ , RESPECTIVELY. SEE "UNDERWRITING".
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS ARE OFFERED BY THE
SEVERAL UNDERWRITERS NAMED HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM, TO
PRIOR SALE AND TO THEIR RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART AND TO
WITHDRAW, CANCEL OR MODIFY THE OFFER WITHOUT NOTICE. IT IS EXPECTED THAT
DELIVERY OF THE CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST
PAYMENT THEREFOR AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT ,
1996.
-------------------
MONTGOMERY SECURITIES VOLPE, WELTY & COMPANY
, 1996.
<PAGE>
UROCOR
Urology is a medical specialty focused on prostate and bladder cancer, kidney
stones and other complex diseases or conditions. Urologists typically manage
their patient's total care, serving as diagnostician, surgeon and oncologist.
UroCor's goal is to complement its broad range of diagnostic services with
theraputic products and information systems to serve urologists throughout the
entire disease cycle.
A SYSTEMATIC APPROACH TO TOTAL DISEASE MANAGEMENT
URODIAGNOSTICS GROUP
-Urology-specific technical sales force and managed care specialists
-Comprehensive detection, diagnostic, prognostic and monitoring capabilities
-Advanced case reporting integrating uropathology, patient demographics and
clinical trends
<TABLE>
<S> <C>
UROTHERAPEUTICS GROUP DISEASE MANAGEMENT
-License, acquire and distribute INFORMATION SYSTEMS
urology therapeutic products -Implementing on-line network for
-Inventory and logistics management real-time communication flow
along with reimbursement assistance -Expanding disease pathway models, practice
-Oncology-directed consultation, guidelines and decision support systems
databases and outcome tracking -Databases of patient demographics, clinical
findings
and archived specimen banks
</TABLE>
UROSCIENCES GROUP
-Focus on technology solutions to clinical dilemmas
-Internal development of new diagnostic and information products
-Active collaborations with leading academic and medical research institutions
DESCRIPTION OF ARTWORK:
The background of the entire page is a body of water. Underneath the first
paragraph are five balls, arranged from left to right, over each of which is
centered a word (Detection, Diagnosis, Prognosis, Therapy and Monitoring, from
left to right). Between each of the balls is a small triangle, pointed to the
right. Underneath the balls is a box, which contains the caption "A Systematic
Approach to Total Disease Management". Arrows from this caption are directed to
each of the balls. Also in the box, in clockwise order, is a description of each
of the UroDiagnostics Group, Disease Management Information Systems, UroSciences
Group and UroTherapeutics Group. Arrows pointing in both directions link each of
such descriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION CONTAINED
IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION AND (II) THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE
COMPANY'S PREFERRED STOCK, CLASS A STOCK AND CLASS B STOCK INTO SHARES OF COMMON
STOCK IMMEDIATELY PRIOR TO THE CLOSING OF THE OFFERING.
THE COMPANY
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company's goal is to
complement its diagnostic services with therapeutic products and information
systems in order to become the leading disease management company serving the
urology market. Through its four business groups, UroDiagnostics, UroSciences,
UroTherapeutics and Disease Management Information Systems, the Company is
developing an integrated disease management approach to serve the needs of
urologists and managed care organizations for the diagnostic, prognostic and
therapeutic care of patients throughout a disease cycle. The UroDiagnostics
Group provides diagnostic services to over 1,400 urologists nationwide. This
group provides comprehensive diagnostic services to detect major urological
diseases, predict prognosis of the patient's condition, monitor the patient's
therapy and identify recurrence of the disease. The UroSciences Group's goal is
to become a leader in the development and application of advanced diagnostic
technologies and information resources for managing urological diseases. The
UroTherapeutics Group was established to acquire rights to sell through the
Company's existing sales force urological pharmaceutical products for use in the
urologist's office. The Disease Management Information Systems group is designed
to provide urologists and managed care organizations with access to the
Company's proprietary urological disease database, disease management models and
practice management guidelines in order to improve the diagnosis and treatment
of patients.
UroCor serves the segment of the United States urology market consisting of
over 7,500 office-based urologists, including those affiliated with managed care
organizations. These urologists diagnose and treat prostate cancer, bladder
cancer, kidney stone disease and other complex urological diseases. An
independent survey estimated that in 1993 there were approximately 15 million
urology patient visits in the United States. The American Cancer Society
estimates that approximately 300,000 new cases of prostate cancer and 52,000 new
cases of bladder cancer will be diagnosed in 1996, resulting in medical costs in
excess of $5.0 billion. The Company believes that the urology market is
particularly well-suited for an integrated disease management approach because
of the distinctive characteristics of urological diseases and the multiple roles
of the urologist. Urological diseases typically require extensive and prolonged
diagnosis, prognosis and monitoring throughout the course of the disease. As a
result, unlike most other medical specialties, the urologist often fulfills
almost all patient care needs by acting as diagnostician, oncologist and
surgeon. UroCor believes that it is the first company focusing solely on the
urology market to offer comprehensive products and services necessary to manage
urological diseases.
To achieve its goal of becoming the leading disease management company in
the urology market, the Company is employing these strategies: (i) increase
market penetration of office-based urologists, (ii) expand use of existing
product lines, (iii) expand total product offering and (iv) strengthen market
ties with on-line systems. To achieve increased market penetration and expanded
product use, the Company has developed a direct sales force focused on
urologists' offices and managed care organizations. To expand its total product
offering, the Company intends to develop and license technologies and products.
In December 1994, the Company licensed exclusive United States distribution
rights from IAF BioVac, Inc., a subsidiary of BioChem Pharma, Inc. ("BioVac")
for a strain of BACILLUS Calmette Guerin ("BCG"), a therapeutic product to treat
certain types of bladder cancer for which BioVac currently is seeking approval
from the United States Food and Drug Administration (the "FDA") for marketing
approval. To strengthen its ties with urologists, the Company is developing a
urology-focused, secure wide area network that will allow urologists access to
patient diagnostic results as well as the Company's proprietary disease
management models.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 2,800,000 shares
Common Stock to be outstanding after the
Offering......................................... 9,365,248 shares(1)
Use of proceeds................................... Development of new products, expansion
of business lines, certain capital
expenditures and working capital and
other general corporate purposes
Proposed Nasdaq National Market symbol............ UCOR
</TABLE>
- ------------------------
(1) Excludes 1,487,904 shares of Common Stock issuable upon exercise of
outstanding options and warrants.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 2,145 $ 4,813 $ 9,348 $ 14,531 $ 19,758 $ 4,619 $ 5,908
Operating expenses:
Direct cost of services and products..... 1,161 2,019 3,893 5,891 7,354 1,658 2,138
Selling, general and administrative
expenses................................ 2,127 3,796 6,308 8,765 9,423 2,255 2,862
Research and development................. 416 552 1,252 1,969 2,267 558 644
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............... 3,704 6,367 11,453 16,625 19,044 4,471 5,644
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............ (1,559) (1,554) (2,105) (2,094) 714 148 264
Other income (expense)..................... 93 42 (63) (203) (181) (56) (33)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ (1,466) $ (1,512) $ (2,168) $ (2,297) $ 533 $ 92 $ 231
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss) per share(1)... $ (.61) $ (.37) $ (.41) $ (.38) $ .07 $ .01 $ .03
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing pro forma net
income (loss) per share(1)................ 2,396 4,093 5,233 6,104 7,296 6,588 7,523
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 1,301 $ 24,137
Working capital....................................................................... 5,086 27,922
Total assets.......................................................................... 12,034 34,870
Long-term debt........................................................................ 950 950
Accumulated deficit................................................................... (14,124) (14,124)
Total stockholders' equity............................................................ 8,702 31,538
</TABLE>
- --------------------------
(1) Computed on the basis described in Note 2 to the Financial Statements.
(2) Adjusted to reflect the sale of 2,800,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization".
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY, TOGETHER WITH THE
INFORMATION PROVIDED ELSEWHERE IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT
IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
REORGANIZATION; HISTORY OF LOSSES; LIMITED HISTORY OF PROFITABLE OPERATIONS
As a result of certain litigation and the Company's inability to achieve
commercial viability, in 1990 the Company filed a reorganization plan under
Chapter 11 of the United States Bankruptcy Code which was confirmed by the
bankruptcy court in 1991. In the reorganization, creditors' claims were
discharged, certain litigation claims were settled and the rights and interests
of the Company's equity holders were terminated. See "The Company".
The Company recorded net losses of approximately $1.5 million, $1.5 million,
$2.2 million and $2.3 million for the years ended December 31, 1991, 1992, 1993
and 1994, respectively. While the Company reported net income of $0.5 million
for the year ended December 31, 1995, and net income of $0.2 million for the
three months ended March 31, 1996, the Company may experience losses in the
future until such time, if ever, as its operations consistently generate
sufficient revenue to cover its costs. At March 31, 1996, the Company had an
accumulated deficit of $14.1 million. There can be no assurance that the Company
will ever be consistently profitable. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
To remain competitive, the Company must continue to make significant
expenditures for expansion of its operations, including expenditures for
diagnostic product development, acquisitions of therapeutic products, marketing
resources and information systems capabilities. In addition, the Company's
growth since 1991 has required, and any future growth will require, significant
amounts of working capital. The Company believes that the proceeds from the
Offering, together with existing cash balances, cash flow from operations,
capital leases and an existing bank credit facility, will be adequate to fund
its anticipated capital expenditures and working capital needs for the next 24
months. After that 24-month period, however, the Company may require additional
equity or debt financing to meet its working capital requirements. There can be
no assurance that additional capital will not be required sooner or, if
required, that it will be available on a timely basis or on terms satisfactory
to the Company. The inability of the Company to obtain adequate additional
financing on reasonable terms when needed would have a material adverse effect
on the Company's financial condition and results of operations. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of then current stockholders of the Company would be reduced. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. See "Use of Proceeds", "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Capital Stock".
UNCERTAINTIES RELATED TO THIRD-PARTY REIMBURSEMENT; POTENTIAL HEALTH CARE REFORM
The Company typically bills governmental programs such as Medicare and other
third-party payors such as private insurance and managed care plans for its
products and services. Such third-party payors are increasingly negotiating
prices with the goal of lowering reimbursement rates. The Company expects these
pricing pressures, combined with the introduction of new diagnostic product
lines with lower average prices per specimen, to cause reduced revenue per
specimen in the future.
In 1993, 1994, 1995 and the first three months of 1996, approximately 56%,
58%, 58% and 53%, respectively, of the Company's revenue was derived from
services performed principally for beneficiaries of the Medicare program. For
many of the services performed for Medicare beneficiaries, the Company must
accept reimbursement from Medicare as payment in full, subject to applicable co-
payments and deductibles. Reimbursement rates have been established for most but
not all of the services performed by the Company. The Company, however, cannot
collect from Medicare or other third-party payors for services that those payors
have not approved for reimbursement. Approval of
5
<PAGE>
such services by Medicare or other federal agencies does not ensure approval by
other third-party payors. A formal determination for reimbursement approval is
made, however, with respect to relatively few new procedures. Most third-party
payors, including Medicare, do not cover services that they determine to be
experimental, investigational or otherwise not reasonable and necessary for
diagnosis or treatment. There can be no assurance that the Company's new
Free/Total PSA product or any other products under development will be approved
for reimbursement by Medicare or other third-party payors. Medicare also may
audit and review its prior payments to the Company, and may determine that
certain of those payments must be refunded. It is also possible that third-party
payors may cease to pay for one or more of the Company's services that currently
are reimbursed by them. Significant disapprovals by various carriers, including
Medicare, private insurance and managed care, reductions or delays in
establishing reimbursement rates and insurance carrier limitations on the
coverage of the Company's services could have a material adverse effect on the
Company's future revenue. While the Company is certified for participation in
the Medicare program, any loss of such certification, whether arising from any
action by an agency of the federal government or any other regulatory authority,
or any related civil or administrative proceedings, would have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Third Party Reimbursement".
In addition, since 1994, the Company's Medicare intermediary and certain
other third-party payors have increased the amount of time between their receipt
of claims for reimbursement and payment to the Company. At March 31, 1996, the
Company's average number of days sales in receivables was approximately 74
compared to 49 at December 31, 1994. Such delays in payments to the Company have
resulted in the Company's accounts receivable increasing at a rate greater than
the revenue growth rate and, therefore, have affected the Company's cash flow
from operations. There can be no assurance that these payors will not further
modify their payment practices, which could have a material adverse effect on
the Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
From time to time the public and the federal government focus significant
attention on reforming the health care system in the United States. Any future
changes in Medicare and other third-party payor reimbursement which may result
from health care reform or deficit reduction legislation will likely continue
the downward pressure on prices. Because of the uncertainties surrounding the
nature, timing and extent of any such reform initiatives, the Company is unable
to predict the effects of any such changes on the Company. See "Business --
Government Regulation".
DEPENDENCE ON CERTAIN PRODUCT LINES
A significant portion of the Company's revenue has been, and is expected to
continue to be, dependent upon the Company's prostate tissue analysis and
bladder cellular analysis product lines. The Company's revenue attributable to
prostate tissue analysis accounted for approximately 29%, 48%, 54% and 54% of
revenues in 1993, 1994, 1995 and the first three months of 1996, respectively.
The Company's revenue attributable to bladder cellular analysis accounted for
approximately 53%, 36%, 30% and 26% of revenue in 1993, 1994, 1995 and the first
three months of 1996, respectively. Any negative event related to these product
lines, such as increased competition, pricing pressures and clinical or
technological obsolescence would have a material and adverse effect on the
Company's financial condition and results of operations. See "Business --
Business Lines -- UroDiagnostics Group -- Products".
NO ASSURANCE OF SUCCESSFUL ACQUISITION OF DISTRIBUTION RIGHTS FOR THERAPEUTIC
PRODUCTS
Through its UroTherapeutics Group, the Company is developing a therapeutic
products distribution business. To date, the Company has acquired distribution
rights for only one therapeutic product. There can be no assurance that the
Company will be successful in negotiating any additional distribution or other
agreements related to therapeutic products in the future. The Company has never
marketed or distributed any therapeutic products. If its efforts in this regard
are unsuccessful, it could have a material adverse effect on the Company's
financial condition and results of operations. The manufacturers of therapeutic
products are responsible for compliance with FDA regulations relating to such
6
<PAGE>
products; thus the Company is and will be dependent on others to obtain
marketing approval for any therapeutic products for which it may obtain
distribution rights. The Company also will rely on third parties to manufacture
products in a timely fashion. Product unavailability could have a material
adverse effect on future business performance.
In December 1994, the Company entered into a distribution agreement with IAF
BioVac Inc. ("BioVac"), a subsidiary of BioChem Pharma, Inc., for a BCG product
for use in treating certain types of bladder cancer. Pursuant to the
distribution agreement, BioVac is responsible for obtaining approvals from the
FDA for marketing the BCG product in the United States. UroCor may not commence
selling the product in the United States until BioVac has obtained such FDA
approval. In April 1995, BioVac filed its initial applications with the FDA.
BioVac has informed the Company that in a letter dated April 18, 1996, the FDA
advised BioVac that its application is not approvable at this time and that the
FDA requested additional data regarding certain aspects of manufacturing and
testing of the product. BioVac has advised the Company that notwithstanding the
receipt of the non-approvable letter from the FDA, it believes it can satisfy
FDA requirements and procure approval for marketing the product in the United
States. There can be no assurance, however, that approval will be obtained. In
addition, if FDA approval is obtained, to maintain its exclusive distribution
rights under the agreement the Company must satisfy certain minimum sales
requirements. Although the Company has no reason to believe it will be unable to
satisfy those requirements, no assurance can be given in that regard. See
"Business -- Business Lines -- UroTherapeutics Group".
The Company's success in the distribution of therapeutic products is subject
to risks, including the possibilities that the proposed products fail to receive
necessary regulatory approvals, that the proposed products or procedures are
uneconomical to market or do not achieve broad market acceptance, that third
parties hold proprietary rights that preclude the Company from marketing them
and that third parties market a superior or equivalent product. UroCor is unable
to predict whether the distribution rights it has obtained for the proposed BCG
product or any distribution rights it may obtain in the future will result in
any commercially viable products. Further, due to the extended testing and
regulatory review process required before marketing approval can be obtained,
the development period for any such products is long and the timing for
commercialization is uncertain.
UNCERTAINTY RELATED TO GOVERNMENT REGULATION
The Company's diagnostic laboratory operations currently are required to be
certified or licensed under the federal Clinical Laboratory Improvement Act of
1967, as amended in 1988 ("CLIA"), the Medicare and Medicaid programs and
various state and local laws. In some instances, the Company is also subject to
licensing or regulation under federal and state laws relating to the handling
and disposal of medical specimens, infectious and hazardous waste and
radioactive materials, as well as to the safety and health of laboratory
employees. The sanctions for failure to comply with these regulations may
include denial of the right to conduct business, significant fines and criminal
penalties. The loss of a license, imposition of a fine or an increase in the
complexity or substantive requirements of such federal, state and local laws and
regulations could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Government Regulation" and
"Business -- Environmental Matters".
The Company's diagnostic laboratory operations currently are not regulated
by the FDA. While the FDA now indicates that it does not plan to regulate assays
developed by laboratories for in-house use, the FDA has in the past drafted
guidelines for regulation of such assays. If in the future the FDA were to issue
guidelines for the clinical laboratory market sector, such guidelines might
require the Company to meet certain FDA medical device approval requirements for
the Company's in-house assays. Such regulations, if enacted in a way that
affects the Company, would increase the cost of development and approval of new
products, slow their introduction to the market and could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Government Regulation".
7
<PAGE>
The FDA currently regulates a number of the products which the Company
purchases from third parties for use in its diagnostic services. The
manufacturers of such products are responsible for compliance with FDA
regulations relating to such products. There can be no assurance, however, that
action by the manufacturers or by the FDA would not impair the Company's ability
to obtain and offer certain services. The unavailability of certain services and
materials used in the Company's diagnostics business would have a material
adverse effect on the Company's financial condition and results of operations.
Although the Company's existing and proposed information services products
currently are not subject to regulation by the FDA, the FDA could determine in
the future that the predictive applications of these products are deemed to be
medical devices subject to FDA regulation. In that event, the Company could
experience delays in developing and marketing new services and increases in
research and development costs.
As a provider of health care related services, the Company is subject to
extensive and frequently changing federal, state and local laws and regulations
governing licensure, billing, financial relationships, referrals, conduct of
operations, purchase of existing businesses, cost-containment, direct employment
of licensed professionals by business corporations and other aspects of the
Company's business relationships. The Company cannot predict the timing or
impact of any changes in such laws and regulations, and no assurance can be
given that any such changes will not have a material adverse effect on the
Company's financial condition and results of operations. See "Business --
Government Regulation".
UNCERTAINTIES RELATED TO MANAGED CARE
Managed care organizations are gaining increasing control over the access to
health care for an increasing number of patients with urological diseases. Many
of these organizations seek to obtain health care service provider contracts
with a minimum number of large, full-service vendors for all required services,
and to obtain from such vendors large discounts or capitated contracts in which
all products or services for all their enrolled patients are paid for by a
contractual monthly fee based on the number of patients enrolled in the
organization. The majority of the Company's managed care contracts may be
canceled by the managed care organization upon 30 to 60 days notice. There can
be no assurance that the Company will be able to maintain its existing contracts
with managed care organizations or that it will be able to obtain additional
contracts with such organizations in the future which could preclude the Company
from serving large groups of physicians in certain markets. The Company has
experienced increased pricing pressure from managed care organizations, and such
pressure is expected to continue. There can be no assurance that such pricing
pressure and contract restrictions will not have a material adverse effect on
the Company's financial condition and results of operations. See "Business --
Third-Party Reimbursement".
NO ASSURANCE OF ACCESS TO AND DELIVERY OF NEW DIAGNOSTIC TECHNOLOGY
The markets for the Company's diagnostic products are characterized by
rapidly changing technology, frequent new product introductions and enhancement
and, therefore, rapid product obsolescence. The Company's future success will be
highly dependent upon its ability to continue to develop new diagnostic products
or services while enhancing current capabilities in order to keep pace with
technological advancements in urology. There can be no assurance that the
Company will be able to identify new products, trends or opportunities, develop
and bring to market new products, respond effectively to new technological
changes or product announcements by others, develop or obtain access to advanced
materials or receive commercial acceptance for its products. In addition, there
can be no assurance that products or technologies developed by others will not
render the Company's products or technologies non-competitive or obsolete.
The Company's principal sources of such technology are (i) test kits,
reagents and other products purchased from manufacturers, (ii) intellectual
property, such as processes, products, devices and software licensed from
academic and research institutions, other commercial entities and the federal
government and (iii) new technology developed under strategic alliances with
other commercial entities
8
<PAGE>
or through sponsored or collaborative research programs with academic and
research institutes. There can be no assurance that the Company will continue to
obtain new technologies important to its business in the future. The Company may
not be able to negotiate successfully technology acquisition or collaborative
arrangements in the future. The Company may enter into such arrangements but be
unable to develop any commercially viable technologies. If the Company's access
to and delivery of new technologies were substantially diminished, the Company's
business could be materially and adversely affected.
In March 1996, the FDA published a proposed rule to classify or reclassify
certain reagents supplied to the Company. The impact of this proposal, if it is
finalized, cannot be determined at this time. The proposal, however, includes
requirements with which suppliers of reagents would need to comply, including
the need to follow the FDA's Good Manufacturing Practices, as well as
registration and reporting requirements for suppliers. The proposal, if
finalized, could therefore have an impact on the Company's cost and availability
of reagents.
SUBSTANTIAL COMPETITION
The industry in which the Company's diagnostics business operates is
characterized by intense competition with many different types of competitors
including specialty laboratories, diagnostic kit and instrumentation
manufacturers, local and regional pathology services, hospital laboratories and
large general reference clinical laboratories. Many of the Company's competitors
are significantly larger and have significantly greater financial, technical and
administrative resources than the Company; many also have long established
relationships with the Company's current and prospective customers. See
"Business -- Competition".
The competition for the acquisition of new diagnostic testing technologies
and therapeutic products is intense. The Company competes with many other
companies for diagnostic products and major and other pharmaceutical companies
for therapeutic products. Many of these companies are significantly larger and
have significantly greater financial and other resources than the Company. There
can be no assurance that the Company will continue to be successful in acquiring
new technologies for use in its diagnostic services business. Although the
Company was successful in acquiring the distribution rights to the BCG product,
the Company's first proposed therapeutic product, there can be no assurance that
it will continue to be successful in this regard. See "Business -- Competition".
Competition in the marketing of pharmaceutical products is intense. The
Company is aware of two other companies that already are distributing a
therapeutic product similar to the Company's proposed BCG product. If FDA
approval for the BCG product is obtained, there can be no assurance that the
Company will be able to market successfully this product against these
competitors. See "Business -- Competition".
The market for health care information systems and services is highly
competitive. The Company's competitors include other providers of outcomes
software and databases based on claims data. Many of the Company's competitors
and potential competitors have greater financial development, technical and
marketing resources than the Company, and have substantial installed customer
bases in the health care industry. The Company also faces significant
competition from internal information services at hospitals, which have
developed their own outcomes databases. In addition, as the market for outcomes
software develops, additional competitors may enter the market and competition
may intensify. There can be no assurance that the Company's business will not be
materially and adversely affected by such competition. See "Business -- Business
Lines -- Disease Management Information Systems".
Combinations of current and future competitors through acquisitions,
mergers, alliances or marketing or distribution agreements could result in more
intense competition in the future. There can be no assurance that current or
future competitors will not succeed in developing technologies, products or
managed care marketing programs and capabilities that are more effective, easier
to use or less expensive than those that are being developed by the Company or
that would render the Company's technology, products and marketing approach
obsolete, noncompetitive or unprofitable.
9
<PAGE>
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
The Company recently has experienced substantial growth and expanded
significantly its diagnostic services operational capabilities, support
operations and research and development operations. The Company also is planning
to offer a therapeutic product line and information services. This growth and
expansion has placed, and will continue to place, a significant strain on the
Company's management, production, technical, financial and other resources. To
manage growth effectively, the Company must maintain a high level of operational
quality and efficiency, and must continue to enhance its operational, financial
and management systems and expand, train and manage its employee base. To date,
the Company has experience primarily in managing a diagnostics business and
marketing diagnostic products. The Company has no experience in managing,
operating or marketing products for a therapeutics or information services
business. There can be no assurance that the Company will be able to manage this
expansion effectively, and any failure to do so could have a material adverse
effect on the Company's financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly and annual operating results are affected by a wide
variety of factors, many of which are outside the Company's control, which have
in the past and could in the future materially and adversely affect revenue,
operating expenses and income. These factors include the quantities and timing
of specimens received, competitive pricing pressures, availability and cost of
diagnostic supplies, changes in the mix of products sold, seasonality, timing
and costs of new product and technology introductions by the Company or its
competitors, retention and expansion of the sales force and timing of payments
from Medicare and other third-party payors. The need for continued investment in
research and development and expansion of its product lines could limit the
Company's ability to reduce expenses quickly. As a result of these factors, the
Company expects its operating results to continue to fluctuate. Results of
operations in any one quarter should not be considered indicative of results to
be expected for any future period, and fluctuations in operating results may
also cause fluctuations in the market price for the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations".
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's business depends in part upon its intellectual property,
including patents, copyrights, trade secrets, know-how and continuing technology
innovation. The Company licenses patents and seeks patents when appropriate on
inventions concerning new products and improvements as part of its ongoing
research, development and marketing efforts. The Company also intends to seek
copyright protection when appropriate for any information systems products it
may develop. There can be no assurance that any steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation,
that any patents issued to or licensed by the Company will not be invalidated,
circumvented or challenged or that the rights granted thereunder will provide a
competitive advantage. Furthermore, there can be no assurance that others will
not independently develop technologies that are similar or superior to the
Company's technology and obtain patents or copyrights relating to such
technologies. In such event, the Company may not be able to license such
technologies on acceptable terms. Although the Company believes that its
products and technology do not infringe upon the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
in the future. Moreover, litigation may be necessary in the future to enforce
the Company's patents, copyrights and other intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Intellectual Property".
DEPENDENCE ON KEY PERSONNEL
The Company's ability to market and deliver its products and services and to
achieve and maintain a competitive position is dependent in large part upon the
efforts of its senior management. The loss of
10
<PAGE>
the services of one or more members of its senior management could have a
material adverse effect on the Company's financial condition and results of
operations. The Company's future success also will depend upon its ability to
attract and retain qualified management, scientific, technical and manufacturing
employees to support its future growth. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The failure to attract and retain such
persons could materially adversely affect the Company's financial condition and
results of operations. See "Management".
POTENTIAL LIABILITIES; LIMITED INSURANCE COVERAGE
Employees of the Company, like those of all companies that provide
diagnostic services dealing with human blood specimens, may be exposed to risks
of infection from AIDS, hepatitis and other blood-borne diseases if appropriate
laboratory practices are not followed. Although no infections of this type have
been reported in the Company's history, no assurance can be provided that such
infections will not occur in the future. The Company could also be subject to
legal actions arising out of the misperformance of its testing services or the
malpractice of professional physician services. Any such legal actions could
have a material adverse effect on the Company's financial condition and results
of operations.
Although the Company presently is covered by medical malpractice and general
liability insurance, there can be no assurance that the insurance coverage will
provide sufficient funds to satisfy any judgments which could be entered against
the Company in the future or that liability insurance in such amounts will be
available or affordable in the future. In addition, there can be no assurance
that all of the activities encompassed within the Company's business are covered
under the Company's insurance policies. The lack of such coverage could have a
material adverse effect on the Company's financial condition and results of
operations. Moreover, although the Company maintains personal property and
business interruption insurance and has taken what it believes to be adequate
safeguards, the catastrophic loss of the Company's tissue or cell library could
have a material adverse effect on the continued development of its database in a
manner which would not be compensated fully by insurance.
The commercial sale of therapeutic products by the Company will expose it to
potential product liability risks that are inherent in the marketing of such
products for human use. These claims might be made directly by consumers. The
Company currently has no product liability insurance, and although it plans to
obtain such insurance prior to marketing any therapeutic product, there can be
no assurance that the Company will be able to obtain or maintain such insurance
on acceptable terms or that such insurance will provide adequate coverage
against potential liabilities. A product liability claim could have a material
adverse effect on the Company's financial condition and results of operations.
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's diagnostic services and research and development activities
involve the controlled use of hazardous materials, chemicals and various
radioactive compounds. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
See "Business -- Environmental Matters".
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price is substantially higher than the pro forma
net tangible book value per share of the Common Stock. Purchasers of Common
Stock in the Offering will experience immediate and substantial dilution of
$5.67 per share, assuming an initial public offering price of $9.00 per share.
See "Dilution".
The Company has never paid cash dividends and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future. See "Dividend
Policy".
11
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the Nasdaq National
Market, there can be no assurance that an active trading market will develop or
continue upon completion of the Offering. The initial public offering price of
the Common Stock will be determined by negotiations between UroCor and the
representatives of the underwriters and may not be indicative of the market
price of the Common Stock after the Offering. There has been a history of
significant volatility in the market prices for shares of companies engaged in
the health care and biotechnology fields, and the market price of the shares of
Common Stock offered pursuant to the Offering may be highly volatile. Factors
such as fluctuations in the Company's quarterly revenues and operating results,
announcements of technological innovations or new analytical services by the
Company and its competitors and changes in third-party reimbursement and
governmental regulation may have a significant effect on the market price of the
Common Stock. For a discussion of factors to be considered in determining the
initial public offering price, see "Underwriting".
CONTROL BY EXISTING STOCKHOLDERS; POSSIBLE ANTI-TAKEOVER EFFECTS
Upon completion of the Offering, the Company's existing stockholders will
own beneficially approximately 70.1% of the Company's outstanding Common Stock
(67.1% if the Underwriters exercise the over-allotment option in full).
Accordingly, the existing stockholders, acting as a group, may be able to
influence the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions to the Company's
Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation") or Amended and Restated By-laws (the "By-laws") and the approval
of certain mergers and significant corporate transactions. These provisions and
control by existing stockholders could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock and have the
effect of delaying, deferring or preventing a change in control of the Company.
See "Security Ownership of Management and Principal Stockholders".
The Restated Certificate of Incorporation and By-laws include a number of
provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with the Company's Board of Directors rather than pursue non-negotiated takeover
attempts. These provisions include authorized blank check preferred stock,
denial of cumulative voting, limitation of the persons who may call a special
meeting of stockholders, advance notice requirements for nominations for
election to the Board of Directors and a classified Board of Directors. See
"Description of Capital Stock".
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK;
REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have outstanding 9,365,248
shares of Common Stock (9,785,248 shares if the Underwriters' over-allotment
option is exercised in full). The 2,800,000 shares to be sold in the Offering
(plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be freely tradeable in the public market without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for any shares purchased by affiliates of the
Company.
The Company and its executive officers, directors and certain of the
stockholders of the Company, all of whom together beneficially own approximately
6,102,000 shares, representing approximately 65.2% of the Common Stock after
giving effect to the issuance of the shares of Common Stock in the Offering
(62.4% if the Underwriters' over-allotment option is exercised in full), have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, directly or indirectly, offer, sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into or exchangeable for, or any rights
to purchase or acquire, Common Stock, without the prior written consent of
Montgomery Securities. Montgomery Securities, in its sole discretion, and at any
time without notice, may release all or any portion of the securities subject to
the 180-day lock-up agreement.
12
<PAGE>
Of the 6,565,248 shares of Common Stock held by existing stockholders of the
Company, (i) approximately 214,000 will be eligible for sale in the public
market immediately following the Offering and (ii) an additional approximately
5,506,000 shares will be eligible for sale in the public market immediately
following the expiration of the 180-day lock-up described above, of which
approximately 1,539,000 shares are subject to certain volume and other
restrictions under Rule 144.
As of the date of this Prospectus, options and warrants to purchase an
aggregate of 1,487,904 shares of Common Stock are outstanding of which
approximately 920,000 shares underlying such options and warrants are subject to
the 180-day lock-up agreement.
Certain of the Company's existing stockholders have certain rights with
respect to the registration under the Securities Act of an aggregate of
5,886,601 shares of Common Stock (the "Registrable Shares"). In general, such
stockholders may demand on up to two occasions that the Company register the
sale of their shares of Common Stock. Each holder of Registrable Shares also has
piggy-back registration rights, subject to certain limitations, in the event the
Company proposes to register the sale of any shares of Common Stock or any other
securities of the Company for its own account or for the account of its
stockholders. The Company is obligated to bear all of the expenses in connection
with the registration of the Registrable Shares, except underwriting commissions
and discounts. Any sales of Registrable Shares will be subject to the 180-day
lock-up described under "Shares Eligible for Future Sale" and "Underwriting".
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the ability of the Company to raise equity capital
in the future. See "Shares Eligible for Future Sale" and "Underwriting".
13
<PAGE>
THE COMPANY
The Company was incorporated in Texas in 1985 under the name
CytoDiagnostics, Inc. The Company was reincorporated in Delaware in 1988. In
1994, the Company changed its name to UroCor, Inc. The Company's executive
offices and operations are located at 800 Research Parkway, Oklahoma City,
Oklahoma 73104, and its telephone number is 405/290-4000.
As a result of certain litigation and the Company's inability to achieve
commercial viability, in November 1990, the Company filed a reorganization plan
under Chapter 11 of the United States Bankruptcy Code that was confirmed by the
bankruptcy court in March 1991. In the reorganization, creditors' claims were
discharged, certain litigation claims were settled and the rights and interests
of the Company's equity holders were terminated. In late 1989, the Company began
recruiting new senior management and refocused its strategy to provide a broad
range of diagnostic products and services intended to improve the clinical
management of certain major urological cancers and complex diseases and to
develop an integrated disease management company serving the urology market.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock offered by the Company pursuant to the Offering are estimated to be
approximately $22.8 million ($26.4 million, if the Underwriters' over-allotment
option is exercised in full), based on an assumed initial public offering price
of $9.00 per share and after deducting the estimated underwriting discount and
offering expenses payable by the Company.
The Company expects that approximately $19.0 million of the net proceeds of
the Offering will be used as follows: approximately $3 million to fund the
development and expansion of its diagnostic product line, approximately $3
million for the development of its urological disease data bases, approximately
$6 million for development of a therapeutic product line, approximately $4
million for the development and expansion of information products and services
and approximately $3 million for capital expenditures relating to the
development and expansion of clinical and research laboratory capabilities and
laboratory information systems. The Company believes that the amounts actually
expended for the development of a theraputic product line may vary significantly
depending primarily on the availability of appropriate products, the ability of
the Company to acquire rights to such products and the availability of
appropriate joint venture or other collaboration opportunities pursuant to which
the Company may acquire rights to such products without the expenditure of cash.
The Company expects that any portion of the $6.0 million of proceeds not used
for this purpose will be expended in approximately equal amounts for the other
four anticipated principal uses of proceeds.
The Company intends to use the remainder of the net proceeds for working
capital and general corporate purposes. The Company may also use a portion of
such net proceeds to acquire or invest in businesses with diagnostic or
information products and technologies that are complementary to those of the
Company, although no specific acquisitions or investments are planned as of the
date of this Prospectus, and no portion of such net proceeds has been allocated
for any particular acquisition or investment. Pending such uses, the Company
intends to invest the aggregate net proceeds from this Offering in short-term,
investment-grade, interest-bearing securities.
The Company estimates that its existing capital resources, the net proceeds
from the Offering and interest thereon, together with bank and equipment
financing, will be sufficient to fund the Company's requirements for 24 months
following the closing of the Offering. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
DIVIDEND POLICY
UroCor has never declared or paid any cash dividends on its Common Stock.
The Company intends to retain any future earnings for the development of its
business. Accordingly, the Company does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. The Company's existing bank credit
facility currently prohibits the payment of dividends. Under the General
Corporation Law of the State of Delaware, a corporation's board of directors may
declare and pay dividends only out of surplus or current net profits.
14
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of March 31, 1996, (i) to give effect to the automatic conversion of all
outstanding shares of the Company's Preferred Stock, Class A Stock and Class B
Stock into shares of Common Stock immediately prior to the closing of the
Offering and (ii), as adjusted, to reflect the issuance of 2,800,000 shares of
Common Stock pursuant to the Offering at an assumed offering price of $9.00 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
PRO FORMA AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Current installments of long-term debt and obligations under capital leases.... $ 829,622 $ 829,622
--------------- ---------------
Long-term debt and obligations under capital leases, net of current
installments.................................................................. $ 950,238 $ 950,238
--------------- ---------------
Stockholders' equity:
Preferred Stock, $.01 par value per share, 6,000,000 shares authorized, none
issued or outstanding
Common Stock, $.01 par value, 20,000,000 shares authorized; 6,564,048 and
9,364,048 shares issued and outstanding(1).................................. 65,640 93,640
Additional paid-in capital..................................................... 22,759,944 45,567,944
Accumulated deficit............................................................ (14,123,924) (14,123,924)
--------------- ---------------
Total stockholders' equity..................................................... 8,701,660 31,537,660
--------------- ---------------
Total capitalization........................................................... $ 10,481,520 $ 33,317,520
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------
(1) Excludes 1,445,904 shares of Common Stock issuable upon exercise of options
and warrants outstanding at March 31, 1996.
15
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996, was
approximately $8.4 million, or $1.28 per share of Common Stock, after giving
effect to the automatic conversion of all outstanding shares of the Company's
Preferred Stock, Class A Stock and Class B Stock into shares of Common Stock
immediately prior to the closing of the Offering. After giving effect to the
sale by the Company of the 2,800,000 shares of Common Stock pursuant to the
Offering (at an assumed initial public offering price of $9.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by the Company), the pro forma net tangible book value at such date
would have been approximately $31.2 million or $3.33 per share of Common Stock.
This represents an immediate increase in net tangible book value of $2.05 per
share to existing stockholders and an immediate dilution of $5.67 per share to
new investors purchasing shares in the Offering. The following table illustrates
the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 9.00
Net tangible book value per share at March 31, 1996(1)............. $ 1.28
Increase attributable to new investors............................. 2.05
---------
Pro forma net tangible book value per share after the Offering....... 3.33
---------
Dilution per share to new investors(2)............................... $ 5.67
---------
---------
</TABLE>
- --------------------------
(1) Net tangible book value per share is determined by dividing the Company's
tangible net worth (tangible assets less liabilities) by the number of
shares of Common Stock outstanding. Net tangible book value per share of
Common Stock excludes intangibles of $326,806, or $.05 per share.
(2) Dilution per share is determined by subtracting the pro forma net tangible
book value per share after the Offering from the assumed initial public
offering price.
Assuming the Underwriters' over-allotment option is exercised in full, pro
forma net tangible book value upon completion of the Offering would be $3.55 per
share, the immediate increase in pro forma net tangible book value of shares
owned by existing stockholders would be $2.27 per share, and the immediate
dilution to the new investors would be $5.45 per share.
The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock (after giving effect to the automatic conversion of all
outstanding shares of the Company's Preferred Stock, Class A Stock and Class B
Stock into shares of Common Stock immediately prior to the closing of the
Offering) previously purchased from the Company, the total consideration paid to
the Company and the average price per share paid (i) by existing holders of
Common Stock for shares acquired during the last five years and (ii) by the
investors purchasing shares of Common Stock in the Offering, assuming an initial
public offering price of $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 6,564,048 70.1% $ 16,313,701 39.3% $ 2.49
New investors.................................... 2,800,000 29.9% $ 25,200,000 60.7% $ 9.00
----------- --------- -------------- ---------
9,364,048 100.0% $ 41,513,701 100.0%
----------- --------- -------------- ---------
----------- --------- -------------- ---------
</TABLE>
- ------------------------
(1) Excludes 1,445,904 shares of Common Stock issuable upon exercise of options
and warrants outstanding at March 31, 1996, at a weighted average exercise
price of $2.16.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company set forth below for each of the
years ended December 31, 1993, 1994 and 1995, and at December 31, 1994 and 1995,
have been derived from the audited financial statements of the Company included
elsewhere in this Prospectus. Such financial statements have been audited by
Arthur Andersen LLP, independent public accountants. The selected financial data
for the years ended December 31, 1991 and 1992, and at December 31, 1991, 1992
and 1993, are derived from the audited financial statements of the Company which
are not included in the Prospectus and which have been audited by Arthur
Andersen LLP, independent public accountants. The selected financial data set
forth below for each of the three-month periods ended March 31, 1995 and 1996,
and at March 31, 1996, have been derived from unaudited financial statements of
the Company included elsewhere in this Prospectus. In the opinion of management
of the Company, such unaudited financial information includes all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's results of operations for the periods then ended
and the Company's financial position as of such date. Operating results for the
three-month period ended March 31, 1996, are not necessarily indicative of the
results for the entire year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 2,145 $ 4,813 $ 9,348 $ 14,531 $ 19,758 $ 4,619 $ 5,908
Operating expenses:
Direct cost of services and
products...................... 1,161 2,019 3,893 5,891 7,354 1,658 2,138
Selling, general and
administrative expenses....... 2,127 3,796 6,308 8,765 9,423 2,255 2,862
Research and development....... 416 552 1,252 1,969 2,267 558 644
--------- --------- --------- --------- --------- ----------- ---------
Total operating expenses..... 3,704 6,367 11,453 16,625 19,044 4,471 5,644
--------- --------- --------- --------- --------- ----------- ---------
Income (loss) from
operations.................... (1,559) (1,554) (2,105) (2,094) 714 148 264
Other income (expense)........... 93 42 (63) (203) (181) (56) (33)
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss)................ $ (1,466) $ (1,512) $ (2,168) $ (2,297) $ 533 $ 92 $ 231
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Pro forma net income (loss) per
share(1)........................ $ (.61) $ (.37) $ (.41) $ (.38) $ .07 $ .01 $ .03
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Shares used in computing pro
forma net income (loss) per
share(1)........................ 2,396 4,093 5,233 6,104 7,296 6,588 7,523
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 2,140 $ 3,002 $ 1,193 $ 1,823 $ 3,125 $ 1,301
Working capital.................. 1,653 2,875 1,618 2,911 5,904 5,086
Total assets..................... 2,914 4,777 5,017 7,946 12,494 12,034
Long-term debt................... 189 63 1,009 2,063 1,666 950
Accumulated deficit.............. (8,909) (10,421) (12,590) (14,887) (14,355) (14,124)
Total stockholders' equity....... 1,813 3,536 1,367 3,869 8,425 8,702
</TABLE>
- --------------------------
(1) Computed on the basis described in Note 2 to the Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, IN
"RISK FACTORS" AND "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company's goal is to
complement its diagnostic services with therapeutic products and information
systems in order to become the leading disease management company serving the
urology market. Through its four business groups, UroDiagnostics, UroSciences,
UroTherapeutics and Disease Management Information Systems, the Company is
developing an integrated disease management approach to serve the needs of
urologists and managed care organizations for the diagnostic, prognostic and
therapeutic care of patients throughout a disease cycle.
The Company currently derives substantially all of its revenue from
diagnostic products and services that its UroDiagnostics Group provides to the
urology market to assist in the diagnosis, prognosis and management of
urological diseases. The Company recognizes revenue when products are sold or
services are rendered. The Company typically bills various third-party payors
for its products and services, including governmental programs such as Medicare,
private insurance and managed care plans, as well as individual patients. For
the year ended December 31, 1995, approximately 58%, 31%, 8% and 3% of the
Company's revenue was attributable to Medicare, private insurance and managed
care, individual patients and physicians and hospitals, respectively.
The Company monitors the collection quality of its accounts receivable
through analytical review of aging categories by payor group and collections
performance compared to historical trends. Possible uncollectible accounts are
provided for by charges to operations, which are included in Selling, General
Administrative expenses in the accompanying financial statements. The Company
determines its provision for doubtful accounts on a monthly basis through
specific reserve percentages by payor aging categories, as well as general
reserve percentages, each based on past experience and adjusted as changes in
conditions become known. The Company has historically not experienced any
material write-off or collection problems for which adequate reserves had not
been established through its regular provision for doubtful accounts.
During the three months ended March 31, 1996, the Company's allowance for
doubtful accounts declined from December 31, 1995, while the related balance of
accounts receivable increased during this period. This decrease in the allowance
was due primarily to the write-off of certain delinquent receivables for which
reserves had been previously allocated.
The Company generally has been able to offset continuing downward pricing
pressures from Medicare and other third-party payors by introducing new
diagnostic products and enhancements to existing products as well as by
implementing selective price increases. The price increases effected by the
Company in 1993, 1994, 1995 and the first three months of 1996 accounted for
increased revenue in those periods of $162,000, $278,000, $284,000 and $116,000,
respectively. The net result has been an increase in the average revenue per
specimen received by the Company during 1993 through 1995. In the future,
however, the Company expects to introduce additional products to its client base
which may reduce the average revenue per specimen.
The Company's revenue has increased over the past five years primarily due
to expansion of its physician client base, increased market penetration of its
diagnostic products and services, introduction of new products and product
enhancements and selected price increases. During that period, the Company's
revenue has increased generally at a faster rate than total operating expenses,
and, therefore, total operating expenses have declined generally as a percentage
of revenue. Direct expenses as a percentage of revenue for the first three
months of 1996 totaled 36.2%, a continuing decline from prior
18
<PAGE>
annual periods, although an increase compared to the first three months of 1995.
These trends result from spreading fixed processing costs over higher sales
volumes. The Company expects such trends generally to continue primarily due to
further expansion of its client base and market penetration of its products and
services, although it does not expect the decrease in total operating expenses
as a percentage of revenue to continue at the same rate as over the past three
years. The Company's actual performance may differ materially from the Company's
expectations. The factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors".
In connection with the grant to employees of options to purchase 295,000
shares of Common Stock in December 1995 at a per share exercise price of $1.75
and considering the anticipated initial public offering price range of $8.00 to
$10.00 per share of the shares of Common Stock offered hereby and certain other
events, the Company has estimated the adjusted fair value of Common Stock at the
date of grant of the options to be $3.25 per share. The Company will treat the
difference between the adjusted fair value and the actual exercise price of the
options as imputed compensation expense. As a result, the Company will record
non-cash charges to operations of approximately $33,500 per quarter, or $134,000
annually, in each of the years ending December 31, 1996, 1997 and 1998 and
approximately $5,000 per quarter or $20,000 annually in each of the two years
ending December 31, 1999 and 2000. The quarterly charge has been reflected in
the Company's results of operations for the three months ended March 31, 1996.
No income tax expense was recorded for 1995, due to utilization of the
Company's net operating loss carryforwards. At December 31, 1995, the Company
had net operating loss carryforwards of approximately $9.6 million available to
reduce future taxable income, subject to certain annual limitations.
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a
percentage of revenue for each period indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct cost of services and products........... 41.6 40.5 37.2 35.9 36.2
Selling, general and administrative expenses... 67.5 60.3 47.7 48.8 48.4
Research and development....................... 13.4 13.6 11.5 12.1 10.9
----- ----- ----- ----- -----
Total operating expenses..................... 122.5 114.4 96.4 96.8 95.5
----- ----- ----- ----- -----
Income (loss) from operations.................. (22.5) (14.4) 3.6 3.2 4.5
Other income (expense)........................... (0.7) (1.4) (0.9) (1.2) (0.6)
----- ----- ----- ----- -----
Income (loss) before income taxes................ (23.2) (15.8) 2.7 2.0 3.9
----- ----- ----- ----- -----
Income taxes..................................... -- -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................................ (23.2)% (15.8)% 2.7% 2.0% 3.9%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
REVENUE. Revenue increased 27.9%, from approximately $4.6 million in the
first three months of 1995 to approximately $5.9 million in the first three
months of 1996. This increase was due primarily to a 44.3% increase in specimen
volume, attributable primarily to expansion of the Company's physician client
base, increased utilization of the Company's services by its clients and new
product introductions
19
<PAGE>
and enhancements. The introduction in February 1996 of the Company's new kidney
stone product line and an increase in serum based testing which have an average
revenue per specimen of $40 to $70 each served to reduce the average revenue
realized per specimen.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 28.9%, from approximately $1.7 million in the first three months of
1995 to approximately $2.1 million in the first three months of 1996. This
increase was due principally to higher personnel costs of $207,000 and supply
and distribution costs of $217,000 resulting from increased specimen volume. As
a percentage of revenue, direct expenses increased to 36.2% for the first three
months of 1996 compared to 35.9% for the first three months of 1995 due
principally to expenses related to the start-up of the Company's new kidney
stone line.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 27.0%, from approximately $2.3 million in the
first three months of 1995 to approximately $2.9 million in the first three
months of 1996. This increase was due principally to increases in personnel
costs of $352,000 due to additional marketing and sales staff and billing
personnel, as well as increases in promotional expenses of $66,000. As a
percentage of revenue, selling, general and administrative expenses were 48.4%
for the first three months of 1996 compared to 48.8% for the first three months
of 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
15.3%, from approximately $558,000 in the first three months of 1995 to
approximately $644,000 in the first three months of 1996. This increase was due
principally to additional collaborative research projects for the potential
development of new products and services. As a percentage of revenue, research
and development expenses were 10.9% for the first three months of 1996 compared
to 12.1% for the first three months of 1995. Research and development costs are
charged to operating expenses as incurred.
OTHER INCOME (EXPENSE). Interest income increased 48.9%, from approximately
$16,000 for the first three months of 1995 to approximately $23,000 in the first
three months of 1996. Interest expense decreased 20.4%, from approximately
$71,000 in the first three months of 1995 to approximately $57,000 in the first
three months of 1996, due to a decrease in average principal balances of capital
leases and the Company's bank credit facility.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE. Revenue increased 36.0%, from approximately $14.5 million in 1994
to approximately $19.8 million in 1995. This increase was due primarily to a
19.3% increase in specimen volume combined with increased average revenue per
specimen resulting from changes in product mix and the effect of the marketing
of prostate histology sextant testing services for the full year in 1995
compared to ten months in 1994.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 24.8%, from approximately $5.9 million in 1994 to approximately $7.4
million in 1995. This increase was due principally to higher personnel, supply
and distribution costs resulting from increased specimen volume. As a percentage
of revenue, direct expenses were 37.2% for 1995 compared to 40.5% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 7.5%, from approximately $8.8 million in 1994
to approximately $9.4 million in 1995. This increase was due principally to
increased costs of sales force personnel and marketing staff for the full year
in 1995, as the managed care sales group and several other positions were filled
in mid 1994. Promotional expenses related to the managed care sales effort also
increased due to activity for the full year in 1995 compared to the
approximately six months following the deployment of the managed care sales
force in mid 1994. As a percentage of revenue, selling, general and
administrative expenses were 47.7% for 1995 compared to 60.3% in 1994.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
15.1%, from approximately $2.0 million in 1994 to approximately $2.3 million in
1995. This increase was due principally to
20
<PAGE>
additional collaborative research projects for the development of potential new
products and services, as well as internal research laboratory personnel costs.
As a percentage of revenue, research and development expenses were 11.5% for
1995 compared to 13.6% in 1994.
OTHER INCOME (EXPENSE). Interest income increased 4.8%, from approximately
$104,000 in 1994 to approximately $109,000 in 1995. Interest expense decreased
5.5%, from approximately $307,000 in 1994 to approximately $290,000 in 1995, due
to a decrease in average principal balances of capital leases and the Company's
bank credit facility during 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUE. Revenue increased 55.4%, from approximately $9.3 million in 1993
to approximately $14.5 million in 1994. This increase was due primarily to a
42.2% increase in specimen volume, as well as an increase in the average revenue
per specimen principally resulting from the introduction of prostate histology
sextant testing in March 1994.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 51.3%, from approximately $3.9 million in 1993 to approximately $5.9
million in 1994. This increase was due principally to increased personnel,
supplies and logistics costs resulting from higher specimen volumes, as well as
changes in product mix due to the introduction of the prostate histology sextant
testing service. As a percentage of revenue, direct expenses were 40.5% for 1994
compared to 41.6% in 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 38.9%, from approximately $6.3 million in 1993
to approximately $8.8 million in 1994. This increase was due to an increase of
32 additional personnel in 1994 over 1993, principally a managed care sales
group, deployed in mid 1994, as well as increased sales support, information
services and billing personnel. In addition, marketing and promotional expenses
increased related to the managed care sales group, new diagnostic services and a
higher level of sales activity. As a percentage of revenue, selling, general and
administrative expenses were 60.3% for 1994 compared to 67.5% in 1993.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
57.3%, from approximately $1.3 million in 1993 to approximately $2.0 million in
1994. This increase was due principally to an increase in research personnel
from 14 in 1993 to 21 in 1994, resulting in higher personnel and supplies costs,
as well as an increase in collaborative research project fundings for the
development of potential new products and services. As a percentage of revenue,
research and development expenses were 13.6% for 1994 compared to 13.4% in 1993.
OTHER INCOME (EXPENSE). Interest income increased 130.3%, from
approximately $45,000 in 1993 to approximately $104,000 in 1994, due to higher
average balances of cash and cash equivalents during 1994. Interest expenses
increased 183.0%, from approximately $109,000 in 1993 to approximately $307,000
in 1994, due to an increase in average principal balances of capital leases and
the Company's bank credit facility during 1994.
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's results of operations for the
last 13 calendar quarters and the percentage relationship of certain items to
revenue for such quarters. This data is unaudited and includes, in the opinion
of the Company's management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the data in accordance with
generally accepted accounting principles. Such quarterly results are not
necessarily indicative of future results of operations.
The Company's quarterly operating results are affected by a wide variety of
factors, many of which are outside the Company's control, that could materially
and adversely affect revenue, operating expenses and income. These factors
include the volume and timing of specimens received, competitive pricing
pressures, availability and cost of diagnostic supplies, changes in the mix of
products sold, seasonality related to the timing of patient visits to the
urologist's office as affected by weather and
21
<PAGE>
insurance deductible status, the timing and costs of new product and technology
introductions by the Company or its competitors, retention and expansion of the
Company's sales force and timing of payments from Medicare and other third-party
payors.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
---------------------------------------------------------------------------
1993 1994
----------------------------------- -------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $1,804 $2,283 $2,252 $3,009 $2,786 $3,487 $3,741 $4,517
------ ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Direct costs of services
and products.............. 844 1,033 959 1,057 1,193 1,346 1,559 1,793
Selling, general and
administrative expenses... 1,471 1,504 1,653 1,680 1,873 2,041 2,383 2,468
Research and development... 184 296 378 394 404 457 517 591
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ (695) (550) (738) (121) (684) (357) (718) (335)
Other income (expense)....... 13 6 (28) (54) (66) (37) (41) (59)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (682) (544) (766) (176) (750) (394) (759) (394)
Income taxes (benefit)....... -- -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $ (682) $ (544) $ (766) $ (176) $ (750) $ (394) $ (759) $ (394)
------ ------- ------- ------- ------- ------- ------- -------
------ ------- ------- ------- ------- ------- ------- -------
<CAPTION>
1995 1996
------------------------------------- -------
Q1 Q2 Q3 Q4 Q1
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue...................... $4,619 $4,824 $4,784 $5,531 $5,908
------- ------- ------- ------- -------
Operating expenses:
Direct costs of services
and products.............. 1,658 1,749 1,849 2,098 2,138
Selling, general and
administrative expenses... 2,255 2,342 2,276 2,550 2,862
Research and development... 558 540 540 629 644
------- ------- ------- ------- -------
Income (loss) from
operations................ 148 193 119 254 264
Other income (expense)....... (56) (63) (40) (22) (33)
------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 92 130 79 232 231
Income taxes (benefit)....... -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)............ $ 92 $ 130 $ 79 $ 232 $ 231
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
---------------------------------------------------------------------------
1993 1994
----------------------------------- -------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct costs of services
and products.............. 46.8 45.3 42.6 35.1 42.8 38.6 41.7 39.7
Selling, general and
administrative expenses... 81.5 65.8 73.4 55.8 67.2 58.5 63.7 54.6
Research and development... 10.2 13.0 16.8 13.1 14.5 13.1 13.8 13.1
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ (38.5) (24.1) (32.8) (4.0) (24.5) (10.2) (19.2) (7.4)
Other income (expense)....... 0.7 0.3 (1.2) (1.8) (2.4) (1.1) (1.1) (1.3)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (37.8) (23.8) (34.0) (5.8) (26.9) (11.3) (20.3) (8.7)
Income taxes (benefit)....... -- -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ (37.8)% (23.8)% (34.0)% (5.8)% (26.9)% (11.3)% (20.3)% (8.7)%
------ ------- ------- ------- ------- ------- ------- -------
------ ------- ------- ------- ------- ------- ------- -------
<CAPTION>
1995 1996
------------------------------------- -------
Q1 Q2 Q3 Q4 Q1
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct costs of services
and products.............. 35.9 36.3 38.7 37.9 36.2
Selling, general and
administrative expenses... 48.8 48.5 47.6 46.1 48.4
Research and development... 12.1 11.2 11.3 11.4 10.9
------- ------- ------- ------- -------
Income (loss) from
operations................ 3.2 4.0 2.4 4.6 4.5
Other income (expense)....... (1.2) (1.3) (0.8) (0.4) (0.6)
------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 2.0 2.7 1.6 4.2 3.9
Income taxes (benefit)....... -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)............ 2.0% 2.7% 1.6% 4.2% 3.9%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's reorganization in 1991, the Company has financed its
operations primarily through the issuance of equity securities, resulting in
aggregate proceeds of approximately $16.3 million. The Company's working capital
needs have increased during that period and are expected to continue to increase
as the Company expands its operations. Since 1994, the Company's Medicare
intermediary and certain other third-party payors have increased the amount of
time between their receipt of claims for reimbursement and payment to the
Company. At March 31, 1996, the Company's average number of days sales in
receivables was approximately 74 compared to 49 at December 31, 1994. Such
delays in payments to the Company have resulted in the Company's accounts
receivable increasing at a rate greater than the revenue growth rate. Such
delays also have affected the Company's cash flow from operations. As a result,
the Company has used its bank credit facility from time to time to supplement
its cash flows.
As of March 31, 1996, the Company had cash and cash equivalents of
approximately $1.3 million and working capital of $5.1 million. Net cash used in
operating activities was approximately $2.3 million, $2.4 million and $0.5
million in 1993, 1994 and 1995, respectively and approximately $0.5 million for
the three months ended March 31, 1996. The net cash used in operating activities
in 1995 was primarily the result of a $1.9 million increase in accounts
receivable, offset in part by net income of approximately $0.5 million,
depreciation and amortization of approximately $0.9 million and an increase in
accrued compensation of approximately $0.2 million. The net cash used in
operating activities
22
<PAGE>
for the three months ended March 31, 1996, was primarily the result of increases
in accounts receivable and other current assets of $0.6 million and $0.4
million, respectively, offset in part by net income of approximately $0.2
million and by depreciation and amortization and stock option compensation
expense totaling approximately $0.3 million. The Company believes that it could
maintain its current level of operations using its existing cash resources, bank
credit facility, equipment leases and cash flow from operations.
Net cash used in investing activities was approximately $2.1 million in 1995
and consisted primarily of capital expenditures of $1.4 million for laboratory
and computer equipment and office equipment and improvements and a $0.5 million
milestone payment under the distribution rights agreement for the Company's
proposed BCG therapeutic product. Net cash provided by financing activities was
$3.9 million for 1995 and consisted primarily of net proceeds from stock
issuances ($4.0 million) and from borrowings under capital leases ($0.8
million), offset in part by principal payments under capital leases and other
indebtedness ($0.7 million) and repayments under the bank credit facility ($0.3
million). For the three months ended March 31, 1996, net cash used in investing
activities was approximately $0.6 million, consisting primarily of capital
expenditures of approximately $0.5 million for laboratory and computer equipment
and office equipment, and net cash used in financing activities was
approximately $0.7 million, primarily due to reduction of borrowings under the
Company's bank credit facility.
The Company's bank credit facility permits the Company to borrow up to $3.0
million and is secured by accounts receivable and a lien on all other tangible
assets, which does not include equipment leased by the Company under capital
leases. Funds borrowed under the credit facility bear interest monthly at a per
annum interest rate of prime plus 1.5% (9.75% as of March 31, 1996). The credit
facility expires in February 1997, and as of May 10, 1996, there were no amounts
borrowed under this credit facility.
The Company's capital expenditures were approximately $1.6 million, $1.0
million, $1.4 million and $0.5 million in 1993, 1994, 1995 and the three months
ended March 31, 1996, respectively. While future capital expenditures will
depend upon a number of factors, including the progress of certain technology
acquisitions, the level of such expenditures is expected to increase over the
historical level of such expenditures. The Company intends to finance the
majority of these capital expenditures through lease financing arrangements and
with a portion of the proceeds of the Offering. The Company historically has
been able to secure such lease financing on favorable terms. In April 1996, the
Company secured an increase in one of its existing capital leases of up to $1.5
million for future capital expenditures made through March 1997. At May 10,
1996, the Company has certain cancellable commitments for computer and
laboratory information systems totalling approximately $600,000.
In December 1994, the Company obtained distribution rights to its proposed
BCG therapeutic product currently under FDA review for marketing approval. The
total cost of the distribution rights is $3.0 million, which is being paid in
installments based on achievement of certain milestones. An initial payment of
$750,000 was made in December 1994, and a second installment of $500,000 was
paid in 1995 after the product was submitted for FDA review in April 1995. The
Company is obligated to pay an additional milestone payment of $1.75 million
when or if the product completes the FDA approval process.
The Company anticipates that its operations and growth strategy will be
financed through the net proceeds from the Offering, operating cash flow, its
existing bank credit facility and equipment leases. The Company believes that
these sources of funds will be sufficient to satisfy the Company's capital
requirements for at least 24 months. There may be circumstances, however, that
would accelerate the Company's use of proceeds from the Offering. If this
occurs, the Company may, from time to time, incur additional indebtedness or
issue, in public or private transactions, equity or debt securities. The Company
currently has no arrangements, however, for additional financing and there can
be no assurance that the Company will be able to attain requisite financing when
needed on acceptable terms.
23
<PAGE>
BUSINESS
OVERVIEW
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company's goal is to
complement its diagnostic services with therapeutic products and information
systems in order to become the leading disease management company serving the
urology market. Through its four business groups, UroDiagnostics, UroSciences,
UroTherapeutics and Disease Management Information Systems, the Company is
developing an integrated disease management approach to serve the needs of
urologists and managed care organizations for the diagnostic, prognostic and
therapeutic care of patients throughout a disease cycle. The Company's
UroDiagnostics Group provides diagnostic services to over 1,400 urologists
nationwide. This group provides comprehensive diagnostic services to detect
major urological diseases, predict prognosis of the patient's condition, monitor
the patient's therapy and identify recurrence of the disease. The UroSciences
Group's goal is to become a leader in the development and application of
advanced diagnostic technologies and information resources for managing
urological diseases. The UroTherapeutics Group was established to acquire rights
to sell through the Company's existing sales force urological pharmaceutical
products for use in the urologist's office. The Company's Disease Management
Information Systems group is designed to provide urologists and managed care
organizations with access to the Company's proprietary urological disease
database, disease management models and practice management guidelines in order
to improve the diagnosis and treatment of patients.
UROLOGY MARKET
The urology market differs from most other medical care markets, primarily
because of the distinctive characteristics of urological diseases and the
multiple roles of the urologist. The urologist often serves as the primary
diagnostician, oncologist and surgeon for the treatment of prostate cancer,
bladder cancer, kidney stone disease and other complex urological diseases.
Patients with prostate or bladder cancer generally require management of the
disease by the urologist throughout a disease cycle ranging from three to ten
years. The urologist requires sophisticated diagnostic and information services
throughout that period. Despite the urologist's need for comprehensive services,
currently, diagnostic services, therapeutic products and information resources
are provided primarily by local hospitals, pathology laboratories and other
companies that do not focus exclusively on urological disease.
UroCor serves the segment of the United States urology market consisting of
over 7,500 office-based urologists, including those affiliated with managed care
organizations. These urologists diagnose and treat patients who generally are
referred to them by another physician for prostate cancer, bladder cancer,
kidney stone disease and other complex urological diseases. An independent
survey estimated that in 1993 there were almost 15 million urology patient
visits in the United States. The American Cancer Society estimates that
approximately 300,000 new cases of prostate cancer and 52,000 new cases of
bladder cancer will be diagnosed in 1996, resulting in medical costs in excess
of $5.0 billion.
STRATEGY
To achieve its goal of becoming the leading disease management company in
the urology market, UroCor is pursuing a strategy directed at establishing
itself as a single resource for the treatment of prostate cancer, bladder
cancer, kidney stone disease and other complex diseases. The Company plans to
expand its current diagnostic products and services and to offer therapeutic and
information systems products to serve the needs of urologists and managed care
organizations, from initial indication of selected urological diseases through
ultimate disease outcome. Through its UroDiagnostics and UroSciences Groups, the
Company currently offers comprehensive diagnostic, prognostic and monitoring
services and information. The Company also plans to offer, through its
UroTherapeutics Group and
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Disease Management Information Systems, new technologies and products to
complement its diagnostic services business and to provide an integrated
resource for the management of urological disease. The Company is pursuing the
following strategies to achieve its objective:
- INCREASE MARKET PENETRATION OF OFFICE-BASED UROLOGISTS. Approximately 19%
of the more than 7,500 office-based urologists in the United States
currently use one or more of the UroDiagnostic Group's services. The
Company has established a direct sales force, including specialists whose
focus is marketing to managed care organizations, dedicated solely to this
market. Through the use of its specialized sales force and its emphasis on
managed care organizations, the Company expects to increase the number of
urologists using its services and the number of their patients served by
the Company.
- EXPAND USE OF EXISTING PRODUCT LINES. The Company's UroDiagnostics and
UroSciences Groups combine their efforts to improve the performance of,
education relating to and clinical evidence supporting the Company's
existing diagnostic products and services. In 1995, approximately 41% of
the Company's urologist clients used more than one of the Company's
services. The Company believes that it can increase the number of products
used by each urologist through continued efforts by its specialized sales
force to educate the market on the benefits of all of UroCor's product
lines.
- EXPAND TOTAL PRODUCT OFFERING. Through the UroDiagnostics Group, the
Company's direct sales force currently markets a broad range of diagnostic
products and services to urologists and managed care organizations.
Through its UroSciences Group, UroTherapeutics Group and Disease
Management Information Systems, the Company intends to increase the number
of products and services offered to its existing urologist clients by
developing, licensing or acquiring technologies and products that will
expand the total mix of products and services offered, including products
that address additional urological diseases.
- STRENGTHEN MARKET TIES WITH ON-LINE SYSTEMS. The Disease Management
Information Systems group intends to link the Company to its client base
through a dedicated customized wide area network. The initial applications
developed for the network are intended to improve the efficiency of
specimen and patient information collection by the urologists as well as
the initial reporting of diagnostic results and consultation with the
Company's pathologists. UroCor intends to strengthen its client
relationships by developing and providing on-line disease pathway models,
decision support systems and patient outcome tracking ability.
DISEASE MANAGEMENT BUSINESS
URODIAGNOSTICS GROUP -- PRODUCTS
The UroDiagnostics Group provides diagnostic services for office-based
urologists. The Company believes that the UroDiagnostics Group provides the
foundation for the development of an integrated disease management company.
Unlike its competitors, who generally offer varied products and services to a
broader health care market, the UroDiagnostics Group provides comprehensive
diagnostic services to detect and diagnose certain major urological diseases,
make a prognosis of the patient's condition, monitor the patient's therapy and
identify recurrence of the disease.
The Company emphasizes customer service, including the provision of a
comprehensive detailed report to the referring physician after completion of
each specimen analysis. The Company's relations with its clients are enhanced
through its regional customer service representatives, who are responsible for
inquiries made by referring physicians and provide support for the Company's
sales force.
The Company's sales of diagnostic services have grown rapidly. UroCor's
client base increased from 380 at the end of 1991 to 1,320 at the end of 1995.
The UroDiagnostics Group generated revenues of approximately $19.6 million in
1995, constituting approximately 99% of the Company's revenue for
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1995. The Company attributes its growth to its concentration on building a
relationship with urologists while developing and servicing an important
marketing and education channel to urologists which the Company believes it can
leverage through the delivery of additional products and services.
The following chart sets forth the principal products and services currently
offered through the UroDiagnostics Group.
<TABLE>
<S> <C>
UROLOGICAL DIAGNOSTIC SERVICES
<CAPTION>
PRODUCT APPLICATION
--------------------------------------------------------------------------------
<S> <C>
PROSTATE CANCER
SERUM BASED
PSA and PSA velocity Detects and monitors disease
Free/Total PSA* Increases specificity of detection
TISSUE BASED
Sextant biopsy Increases diagnostic accuracy
UroScore-Registered Trademark- Improves clinical staging and treatment
selection
BLADDER CANCER
CELLULAR BASED
Cellular pathology and DNA
analysis Detects and diagnoses disease
Antibody markers Detects and diagnoses disease
SOLUBLE ANTIGEN
Antibody markers Monitors disease
TISSUE BASED
Pathological examination Provides definitive diagnosis and prognosis
Antibody markers Provides definitive diagnosis and prognosis
MICROHEMATURIA
Urine protein chemistry
analysis Differentiates between upper or lower tract
disease
Microscopic examination Differentiates between upper or lower tract
disease
KIDNEY STONES
Stone analysis Determines stone structure and chemistry
Serum chemistry Identifies underlying disease
24-hour soluble urine chemistry Assesses recurrence risk
------------------------
*Not currently reimbursed by third-party payors, including Medicare.
</TABLE>
PROSTATE CANCER PRODUCTS. The American Cancer Society estimates that over
300,000 cases of prostate cancer will be diagnosed in 1996, compared to an
estimated 244,000 cases diagnosed in 1995. It also is estimated that one in five
males will suffer from the disease. The Company believes that this increase in
incidence is due to a variety of factors, including the increase in the life
expectancy of the general population and improved prostate cancer detection
capabilities. According to the American Cancer Society, the medical costs of
prostate cancer in the United States are estimated to be approximately $5.0
billion in 1996.
Management of prostate cancer requires the urologist to screen, detect,
diagnose, prognose and treat the patient and monitor progression of the disease.
UroCor has developed and markets products
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and services that assist the urologist in each of the diagnostic steps in this
disease cycle. UroCor's PSA product is used in screening for the disease to
improve the urologist's ability to identify true positive cancer patients. The
Company's Free/Total PSA product is used for the same purpose and increases the
urologist's ability to detect the disease. UroCor currently is using the
Free/Total PSA product on a limited basis to build a clinical case validating
its advantages prior to seeking reimbursement approval from third-party payors.
The current preferred method for detecting the disease after the screening stage
is the prostate biopsy. UroCor was an early proponent of the use of the sextant
biopsy technique which has been demonstrated to increase the possibility of
finding small, localized tumor tissue in the prostate.
After screening and detection of prostate cancer, the urologist must
accurately "stage" or classify the disease to determine whether the cancer has
spread beyond the prostate gland. UroCor developed its UroScore test to assist
the urologist in this step, which provides improvement in the ability to predict
whether the disease has progressed beyond the prostate gland. After staging the
disease, the urologist determines whether to treat the disease with surgery,
radiation or drug therapy or simply to monitor its progress. UroCor has
developed expertise in advising the urologist on the probability that a
patient's cancer will progress. This information is enhanced by the Company's 11
pathologists who interpret the prognostic information in conjunction with the
patient's diagnostic pathology report. After reaching a treatment decision, the
urologist can monitor the patient for evidence of recurrence or eradication of
the disease by using the Company's PSA products.
BLADDER CANCER PRODUCTS. According to the American Cancer Society, over
50,000 cases of bladder cancer are estimated to be diagnosed each year in the
United States. Some of the difficulties that the urologist faces in the
diagnosis and management of bladder cancer include detecting tumors at an early
stage and assessing the aggressiveness of tumors. UroCor's bladder cancer
products provide the urologist with analysis and information capabilities in all
significant aspects of the diagnosis and management of the disease. In addition,
unlike competing products, UroCor's bladder cellular analysis incorporates a
multi-modality approach that the Company believes provides, compared to its
competitors, increased levels of analysis and corresponding improvements in
specificity and sensitivity of test results. The Company's full bladder cancer
detection program combines the information from separate microscopic
examinations of a patient's specimen using two different techniques, an analysis
of the DNA in cell nuclei, and the use of one or more specific biomarkers to
assist the pathologist test for the presence of cancer.
MICROHEMATURIA PRODUCTS. Microhematuria, or the presence of small amounts
of blood in the urine, is one of the conditions that may relate to a number of
urinary tract diseases and infections. The initial challenge faced by the
urologist in diagnosing the underlying cause of the microhematuria is to
identify the source of the bleeding. UroCor's microhematuria diagnostic test
combines a microscopic examination of urine sediment by expert pathologists with
a urine protein chemistry analysis to provide the urologist with information on
the probable location of the bleeding and the potential underlying disease.
Because microhematuria may be one of the indications of bladder or other urinary
tract cancer, the Company's comprehensive diagnostic analysis provides the
urologist a resource to investigate and confirm potential causes of bladder
cancer.
KIDNEY STONE PRODUCTS. Kidney stone disease typically requires physical and
chemical analysis of the stone, and, in many cases, analysis of patients' urine
and serum specimens to assess the risk of disease recurrence. Traditionally, the
urologist was required to send each of the kidney stone, urine and serum
specimen to different testing service providers. UroCor's kidney stone products
offer a complete program in which the urologist delivers all specimens to UroCor
and receives an integrated analysis and report.
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<PAGE>
URODIAGNOSTICS GROUP -- SALES AND MARKETING
The Company markets its diagnostic services to the segment of the market
consisting of more than 7,500 office-based urologists in the United States, many
of whom are affiliated with one or more managed care organizations. UroCor has
developed a sales force dedicated and trained to market solely to urologists
including representatives specializing solely in marketing to managed care
organizations.
The Company's market penetration has advanced rapidly over the past five
years. The following chart sets forth historical information regarding the
urologist clients served by the Company and related information.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of urologist clients(1)......................... 380 620 1,030 1,250 1,320
Number of specimens analyzed........................... 18,300 40,500 76,500 108,900 130,000
Average annual revenue per urologist................... $ 7,200 $ 9,600 $ 11,200 $ 12,600 $ 15,200
Percentage of multiple product users among total
urologist clients..................................... 13% 19% 24% 34% 41%
Number of managed care contracts....................... -- 2 4 30 67
Total sales force...................................... 11 28 31 35 35
</TABLE>
- --------------------------
(1) Represents the number of urologists who used the Company's services in
December of each of the years indicated.
The Company intends to continue its penetration of the market by continuing
its efforts to expand its client base and to add additional products and
services to its product line for existing and future customers. The Company also
intends to use its wide area network link with its client base to enhance the
regular two-way communication between the Company and its customers. UroCor
believes that the wide area network will facilitate the introduction and support
of new products and services and increase the number of products and services
used by existing clients.
Commencing in 1994, the Company began focusing on securing managed care
contracts to permit UroCor to provide products and services to patients enrolled
in these health care organizations. The Company currently has over 600
urologists in its client base whose patients are enrolled in these
organizations. The Company intends to increase its penetration of the managed
care market by developing products and services specifically designed to meet
the cost control, quality assurance and other requirements imposed by managed
care organizations.
In addition to its focus on the individual urologist client and managed care
organizations, the Company is concentrating its marketing efforts on identifying
and marketing products to the growing number of group practices and independent
practice associations forming to specialize in urology.
UROSCIENCES GROUP
The goal of the UroSciences Group is to become a leader in the development
and application of diagnostic technologies and information resources for
managing urological diseases. The UroSciences Group combines access to external
resources at academic centers and research institutes with the Company's
internal development and assessment capabilities to develop and launch new
technologies and products. The UroSciences Group's internal capabilities combine
the expertise of five different laboratories currently staffed with 23
scientists and experienced technical personnel. Participants in the Company's
collaborative programs include M.D. Anderson Cancer Center, Johns Hopkins
Medical Institutions, Baylor College of Medicine, Michigan Prostate Institute at
the University of Michigan, Michigan Cancer Foundation, Eastern Virginia Medical
School, University of Texas Southwestern Medical Center and the University of
Washington.
The UroSciences Group has developed a database of thousands of cellular
tissue and serum specimens of patients related to the diagnosis, prognosis and
treatment of urological diseases. In addition, each tissue and cellular specimen
received and reviewed by the UroDiagnostics Group is
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<PAGE>
entered into the database, and the Company's contractual relationships with
academic and research centers provide additional specimens. Using the Company's
large and comprehensive database, UroCor's scientists are able to evaluate new
technologies or techniques under development against samples in the Company's
database, facilitating determination of the clinical contribution of potential
new products. The scientific research and product development activities
conducted by the Company's UroSciences Group constitute a key component of the
Company's efforts to build an integrated disease management company for the
urology market.
The primary purpose of the UroSciences Group is to develop additional
diagnostic products and technologies for commercialization by the UroDiagnostics
Group. The following table sets forth the current principal development
programs.
<TABLE>
<S> <C>
UROSCIENCES DEVELOPMENT PROGRAMS
<CAPTION>
DEVELOPMENT PROGRAM PROPOSED APPLICATION
- ---------------------------------------- --------------------------------------------------
<S> <C>
PROSTATE CANCER
SERUM BASED
RT-PCR PSA Assists in staging and monitoring disease
Gene discovery Enhances cancer-specific detection and monitoring
TISSUE BASED
Molecular and antibody markers Assesses tumor progression and response to therapy
Computer assisted image analysis Assesses tumor progression and staging pre-surgery
and predicts progression post-surgery
PROSTATITIS
URINE BASED
Microbiological techniques Differentiates microbial prostatitis
Molecular markers Identifies non-culturable microorganisms
BENIGN PROSTATIC HYPERPLASIA
Antibody and molecular markers Selects and monitors medical therapy
Gene discovery Selects and monitors medical therapy
BLADDER CANCER
URINE BASED -- CELLULAR
Antibody and molecular markers Enhances detection, diagnosis and prognosis
Computer assisted image analysis Enhances detection, diagnosis and prognosis
SOLUBLE
Antibody markers Enhances detection, diagnosis and prognosis
INTERSTITIAL CYSTITIS
URINE BASED -- CELLULAR AND SOLUBLE
Molecular and antibody markers Assists in definitive diagnosis and monitors
response to new therapies
</TABLE>
PROSTATE CANCER. UroCor is developing a technology called reverse
transcriptase/polymerase chain reaction ("RT-PCR") to detect prostate cells
circulating in the blood which could be relevant to the metastatic process in
this disease. UroCor is sponsoring three investigational collaborations to
determine the clinical significance and the potential for commercial
applications of the information provided
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<PAGE>
by this technology. The Company also has discovered and is evaluating the
application of novel genes that are differentially expressed in prostate cancer
and benign prostatic hyperplasia ("BPH") that may provide better diagnostic and
prognostic tools.
The UroSciences Group has developed computer assisted image analysis of
individual cancer cells in order to create statistical models, mathematical
formulae and artificial neural network systems for facilitating disease
management decisions in prostate and bladder cancer. The Company expects to
develop within the next 18 months commercial applications of this technology for
diagnostic use to improve the urologist's ability to determine the
aggressiveness of a patient's disease and to make more objective treatment
decisions.
PROSTATITIS. The Company currently is developing analytical services for
the detection, diagnosis and monitoring of acute and chronic prostatitis, a
disease characterized by inflammation of the prostate. This disease has complex
causes and poses difficulties in detection and diagnosis. UroCor is developing a
testing service planned for commercial introduction in 1997 to assist in the
diagnosis of this disease.
BENIGN PROSTATIC HYPERPLASIA. UroCor is developing a product for the
diagnosis of BPH, a prostate disease that is estimated to affect approximately
50% of all men over age 50. The Company has developed and licensed molecular and
other technologies which it believes may improve the differential diagnosis of
BPH as distinguished from prostate cancer and improve the process of medical
therapy selection.
BLADDER CANCER. The Company is developing a combination of technologies
which it believes will further enhance its ability to detect early-stage bladder
cancer and provide the urologist with diagnostic and prognostic information to
assist in more effective management of the patient's care. The Company intends
to combine specific biomarkers licensed from or supplied by others with the
Company's computer-assisted image analysis technology to increase the accuracy
of the broad range of products the Company presently provides for bladder cancer
management.
INTERSTITIAL CYSTITIS. The Company is developing a product to improve the
diagnosis of interstitial cystitis, a debilitating bladder disorder that is
estimated to affect up to 450,000 persons in the United States, approximately
90% of whom are women. UroCor's product is directed at providing a definitive
diagnosis for the disease.
UROTHERAPEUTICS GROUP
UroCor intends to provide through its UroTherapeutics Group selected
therapies to urologists for the care of patients in an office environment. The
Company plans to license, acquire from others or co-market urological
pharmaceutical products used in the urologist's office and to capitalize on its
existing specialized sales force to market these products to its existing client
base. In contrast to pharmaceutical companies that typically market a broad
range of products, the Company intends to leverage its focused approach by
marketing therapeutic products and related services of particular benefit to
urologists. The Company also plans to offer ancillary products and services such
as computerized order entry, just-in-time inventory, procedure trays to
accompany therapeutic interventions, database access and oncologist case
consultation as well as reimbursement assistance.
In December 1994, the Company entered into an agreement with BioVac,
granting exclusive distribution rights in the United States for a strain of BCG,
a therapeutic product for treating certain types of bladder cancer. BCG is
delivered directly into a patient's bladder by the urologist using a catheter,
generally in an office-based procedure. The current BCG treatment procedure
includes an initial series of six such doses over a six-week period, and recent
studies have indicated that additional maintenance doses of BCG delivered at
lengthening intervals may be effective in delaying or eliminating recurrence of
bladder cancer.
Pursuant to the distribution agreement, BioVac is responsible for obtaining
approvals from the FDA for marketing the product in the United States. UroCor
may not commence selling the product in the United States until BioVac has
obtained such FDA approval. In April 1995, BioVac filed its initial
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<PAGE>
applications with the FDA. BioVac has informed the Company that in a letter
dated April 18, 1996, the FDA advised BioVac that its product license
application is not approvable at this time and that the FDA requested additional
data regarding certain aspects of manufacturing and testing of the product.
BioVac has advised the Company that notwithstanding the receipt of the
non-approvable letter from the FDA, it believes it can satisfy FDA requirements
and procure approval for marketing the product in the United States. There can
be no assurance, however, that such approval will be obtained.
In the event the BCG product is not approved by the FDA prior to April 18,
1997, the Company has the right to terminate the distribution agreement. In the
event the FDA approves marketing of the BCG product in the United States, the
Company's ability to maintain its exclusive distribution rights is conditioned
upon meeting certain minimum sales requirements.
In addition to the proposed BCG product, the Company plans to pursue the
license or acquisition of other therapeutic products for distribution through
its specialized sales force. The Company has no current plans to develop or
manufacture therapeutic products.
DISEASE MANAGEMENT INFORMATION SYSTEMS
UroCor believes that useable, relevant information provides one of the most
important components of disease management services. The Company intends to
capitalize on its existing relationships with its urologist clients and managed
care organizations and its existing information resources to help improve the
clinical management of patients as well as its clients' productivity and
profitability.
SECURE WIDE AREA NETWORK. The Company's Disease Management Information
Systems group is developing a secure wide area network that is intended to
enhance two-way communication between UroCor and its physician client base. The
Company will initially focus application of this network toward the
UroDiagnostics Group. Through this network, a physician will be able to order a
specimen collection kit, send patient and billing information to the Company in
advance of a specimen, receive advanced case reports on current diagnostic
findings, request a status update for any specimens currently in the processing
queue and request a consultation with one of the Company's 11 pathologists. The
Company also intends to develop applications for this network that would permit
its clients to access the Company's database as an educational and practice
management resource.
CLINICAL DECISION SUPPORT SYSTEMS. The Company is developing software
applications using the UroSciences Group's database of thousands of patients'
cellular, tissue and serum specimens to assist the urologist in the prognosis
and treatment of urological diseases. The Company initiated development of the
first generation of its proprietary disease pathway computer models for prostate
cancer and bladder cancer during 1993. These models integrate much of the
relevant published literature on medical practice, technology and various costs
and claims databases to model diagnostic and therapeutic intervention points in
these diseases from the detection stage through the point at which the disease
is either cured or is determined to be incurable.
MANAGEMENT SERVICES. The Company believes that two-way computer access to
its clients' offices will enhance the Company's ability to retain its existing
clients and expand the number of products and product types used by its
customers because of the convenience and ease of product ordering and transfer
of patient and practice information. UroCor believes that this access and the
Company's active involvement in clinical practice management present further
opportunities to assist the urologist with billing, collection and other
practice management and productivity information processing.
COMPETITION
The market for providing urologists and managed care organizations with
disease management systems and services is still emerging, and the Company
believes that no other company currently is providing the comprehensive approach
pursued by the Company.
The market for providing urologists with specialized clinical diagnostic
services for detection, diagnosis, prognosis and monitoring is highly
competitive and fragmented. The majority of this market is served by the
hundreds of local free-standing or hospital-pathology services for the cellular
and tissue
31
<PAGE>
diagnostic services offered by the Company, and other hospital laboratories,
specialty laboratories and general reference laboratories provide some of the
serum testing provided by the Company. The main competitive advantage of local
hospital pathology service providers is long-established local physician
referral practices. The general reference laboratories' competitive strength
lies in their service capabilities to provide local couriers for specimen pickup
and broad-based contracting ability with managed care organizations. Other
companies that already market diagnostic products and medical supplies in other
fields have begun marketing kits for detecting certain cancers in the
urologist's office. The Company believes that it will be able to compete with
these diagnostic service providers because of its disease management approach,
its broad range of diagnostic products and services, its urology-dedicated sales
force and its focused product research and development efforts.
In the therapeutics segment of the urology market, both surgery performed by
the urologists and a number of chemotherapeutic drugs will compete with the
Company's proposed BCG therapy product for bladder cancer. Two other companies
Connaught Laboratories, Inc. and Organon, Inc., already are marketing BCG
products in the United States. Many major and mid-sized pharmaceuticals
companies which can deploy larger sales organizations and research and
development efforts compete for sales of other urological drugs. Because of its
existing relationships with urologists through its UroDiagnostics Group and
existing specialized sales force, the Company believes that it has the ability
to compete in this market.
Information systems companies provide software products that will compete
with proposed Company products that enable a urologist to store patient records
and practice information. In addition, other companies are building regional or
national databases focused on improving clinical and economic disease outcomes
similar to the Company's application of its urological disease database. The
main competitive advantage of these companies is their knowledge and focus on
software and system development. Many of these companies have considerably
greater resources and experience than the Company in the development of software
and information systems, and could gain effective access to the urologists. The
Company believes that the principal competitive factors for clinical outcomes
database software are the quality and depth of the underlying clinical outcomes
database, the usefulness of the data and reports generated by the software,
customer service and support, ease-of-use, compatibility with the customer's
existing information systems, potential for product enhancements, and vendor
reputation. The Company believes that its ability to compete in this area lies
in its expertise and focus on urology.
The Company also competes with many biotechnology companies, manufacturers
of diagnostic systems and kits as well as other producers and distributors of
medical products for the acquisition of technology for research and product
development. The Company believes its own product and technology development and
evaluation capabilities together with its expertise in urological diseases and
market access provide it with the ability to compete successfully in this area.
Many of the Company's competitors are significantly larger and have
significantly greater financial, technical and administrative resources than the
Company. Many also have long-established relationships with the Company's
current and prospective customers. See "Risk Factors -- Competition".
GOVERNMENT REGULATION
The health care industry in the United States is highly regulated and the
diagnostic service segment, which includes the Company's UroDiagnostics Group,
is no exception. The Company's diagnostic laboratory operations currently are
not regulated by the FDA. While the FDA now indicates that it does not plan to
regulate assays developed by laboratories for in-house use, the FDA in the past
has drafted guidelines for regulation of such assays. If in the future the FDA
were to issue guidelines for the clinical laboratory market sector, such
guidelines might require the Company to meet certain FDA medical device approval
requirements for the Company's in-house assays. The FDA currently regulates some
of the tests and systems purchased by the Company from third parties and used in
the Company's diagnostics business. The manufacturers of such products are
responsible for compliance with the approval and marketing regulations of the
FDA. If the UroSciences Group should decide to market any
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<PAGE>
of its diagnostic technology as test kits to be used by third parties, such test
kits would require FDA approval. The Company performs extensive internal
validation procedures and selected independent clinical trials on new tests and
markers which it intends to market. While no assurances may be given in such
regard, the Company believes that it could adjust to any reasonable changes in
applicable FDA requirements without significant disruption or financial impact.
In the event that any such changes are more extensive than anticipated, these
changes would increase the cost of development and approval of new products,
slow their introduction to the market and could have a material adverse effect
on the Company's financial condition and results of operations.
The Company's business is also subject to a variety of governmental
regulations at the federal, state and local levels. The Company's clinical
laboratory is certified under the federal Medicare program, certain state
Medicaid programs and CLIA. The Company also is licensed under the clinical
laboratory licensure laws of Oklahoma, where the Company's clinical laboratory
is located. Since the Company provides clinical testing services to patients
nationwide, its laboratory is also licensed under the laws of those state or
local governments which the Company is aware have clinical laboratory regulation
programs applicable to out-of-state laboratories. The Company believes it has
obtained all such licenses required for its operations.
In addition, certain regulatory authorities require participation in a
proficiency testing program approved by the United States Department of Health
and Human Service ("DHHS") for each of the specialties and subspecialties for
which a laboratory seeks approval from Medicare or Medicaid and licensure under
CLIA. Proficiency testing programs involve actual testing of specimens that have
been prepared by an entity running an approved program for testing by the
laboratory. The Company believes it is in compliance in all material respects
with all such applicable regulations.
The federal Social Security Act imposes criminal penalties and exclusion
from the Medicare program upon persons who make or receive kickbacks, bribes or
rebates in connection with the Medicare program. The anti-kickback rules
prohibit providers and others from soliciting, offering, receiving or paying,
directly or indirectly, any remuneration in return for either making a referral
for a Medicare-covered service or item or ordering any such covered service or
item. Because the Medicare and certain related state anti-kickback rules have
been broadly interpreted, they could limit the manner in which the Company
conducts its business. The Company believes that it currently complies with the
anti-kickback rules in its activities. No assurance can be given, however,
regarding compliance in any particular factual situation, as there is currently
no procedure for advisory opinions from government officials.
Under another provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship with
an entity furnishing clinical laboratory services (including pathology services)
may not, subject to certain exceptions, refer clinical laboratory analyses for
Medicare patients to that entity. Similarly, facilities may not bill Medicare or
any other party for services furnished pursuant to a prohibited referral.
Violation of these provisions may result in disallowance of Medicare claims for
the affected analysis services, as well as the imposition of civil monetary
penalties and program exclusion. A number of states, including New York and
California, have enacted similar prohibitions to the Stark law covering
referrals of non-Medicare as well as Medicare business. These state rules are
very restrictive, prohibit submission of claims for payment for prohibited
referrals and provide for the imposition of civil monetary and criminal
penalties. The Company believes it has no prohibited relationships with any of
its referrers, however, the Company is unable to predict how these laws may be
applied in the future, or whether the federal government or states in which the
Company operates will enact more restrictive legislation or restrictions that
could affect the Company's operations under certain circumstances.
Any exclusion or suspension from participation in the Medicare program, any
loss of licensure or accreditation or any inability to obtain any required
license or permit, whether arising from any action
33
<PAGE>
by DHHS, any state or any other regulatory authority, would have a material
adverse effect on the Company's business. Any significant civil monetary or
criminal penalty resulting from such proceedings could have a material adverse
effect on the Company's financial condition and results of operations.
The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as the Company,
from practicing medicine (including pathology) and from employing physicians to
practice medicine (including pathology). The laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial and
regulatory interpretation. The Company believes its current and planned
activities do not constitute prohibited fee splitting or violate any prohibition
against the corporate practice of medicine. There can be no assurance, however,
that future interpretations of such laws will not require structural or
organizational modifications of the Company's existing business.
Pursuant to the federal Occupational Safety and Health Act, laboratories
have a general duty to provide a work place for their employees that is safe
from hazard. The United States Occupational Safety and Health Administration
("OSHA") has issued rules relevant to certain hazards that are found in the
laboratory. In addition, OSHA issued a standard in 1992 applicable to protection
of workers from blood-borne pathogens. Failure to comply with this standard
relating to blood-borne pathogens, other applicable OSHA rules or with the
general duty to provide a safe work place could subject an employer, including a
laboratory employer such as the Company, to substantial fines and penalties.
THIRD-PARTY REIMBURSEMENT
In 1993, 1994, 1995 and the first three months of 1996, the Company received
approximately 56%, 58%, 58% and 53%, respectively, of its revenue from services
performed principally for beneficiaries of the Medicare program. Under law and
regulation, for most of the services performed for Medicare beneficiaries, the
Company must accept reimbursement from Medicare as payment in full, subject to
applicable co-payments and deductibles. In 1987, 1989 and 1990, federal budget
legislation instituted changes in Medicare's fee schedule relating to
reimbursement for laboratory services. Each such change lowered Medicare
reimbursement schedules. Other legislative proposals have been made which, if
enacted, could have an adverse effect on reimbursement of laboratory services.
Reimbursement rates for most of the Company's services have been established
by Medicare and some third-party payors, but have not been established by all
insurance carriers. Although substantially all of the Company's current services
receive reimbursement at various rates or on a case-by-case basis, some of the
services that the Company may provide in the future may not be approved by
Medicare or some other third-party payors and reimbursement rates on such
services cannot be predicted. The Company cannot collect from Medicare or any
other third-party payor for services not approved by them for reimbursement.
Approval by Medicare or other federal agencies does not assure approval by other
third-party payors. Most third-party payors, including Medicare, do not
reimburse for services that they determine to be experimental, investigational
or otherwise not reasonable and necessary for diagnosis or treatment. A formal
coverage determination is made, however, with respect to relatively few new
procedures. When such determinations do occur for Medicare purposes, they most
commonly are made by the local Medicare carrier which processes claims for
reimbursement within the carrier's geographic jurisdiction. Medicare may audit
and review its prior payments to the Company, and may determine that certain of
those payments must be refunded.
INTELLECTUAL PROPERTY
The Company has completed numerous license and option agreements with
academic centers and biotechnology companies covering technologies it believes
may be of utility in the future in improving urological disease management. Most
of these arrangements provide the Company exclusive commercial rights worldwide
in all human diagnostics and several also provide the option for therapeutic
applications.
The Company licenses patents and seeks patents when appropriate on
inventions concerning new products and improvements as part of its ongoing
research, development and marketing efforts. While
34
<PAGE>
the Company believes these technologies and particularly any patent protection
which may become available should help the Company improve its competitive
position in its market, the Company presently is not dependent on any such
patents and does not expect to become dependent on patents in the future.
The Company attempts to protect its proprietary products by relying on trade
secrets and on non-disclosure and confidentiality agreements. The Company
requires its employees, consultants, outside scientific collaborators and
sponsored researchers and other advisors to execute confidentiality agreements
upon the commencement of employment or consulting relationships with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual during the course of the relationships
is to be kept confidential and not to be disclosed to third parties except in
specific circumstances. In the case of employees, the agreements provide that
any inventions conceived by the individual within the scope of his or her
employment shall be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection for
any of the Company's trade secrets in the event of unauthorized use or
disclosure of such information.
The Company intends to seek copyright protection when appropriate for any
information systems products it may develop.
The Company has registered the service marks UROCOR-Registered Trademark-
and UROSCORE-Registered Trademark- with the United States Patent and Trademark
Office.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials, biological
specimens and wastes. Although the Company believes that it has complied in all
material respects with these laws, regulations and policies and has not been
required to take any action to correct any noncompliance, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental and health and safety regulations in the future.
The Company's research and development activities involve the controlled use
of hazardous materials, including certain hazardous chemicals and infectious
biological specimens. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
EMPLOYEES
At May 1, 1996, the Company had 208 full-time and 37 part-time employees, of
which 89 were employed in diagnostic services operations and support, 94 in
sales and marketing, 23 in research and development and 39 in administration and
accounting. At May 1, 1996, the Company employed, full time, 11 persons with
M.D. degrees and six persons with Ph.D. degrees. The Company believes that its
relationship with its employees is good.
FACILITIES AND OPERATIONS
The Company leases approximately 48,000 square feet of administration, sales
and marketing, operations and research and development space in Oklahoma City,
Oklahoma. The Company's initial lease term expires in June 2005 which may be
extended at the Company's option for an additional five years. The Company has
rights of first refusal to lease additional space in the rest of the 110,000
square foot building as well as a purchase option on the building. The Company's
monthly rental obligation for its facilities currently is approximately $32,000.
The Company believes that its leased facilities are adequate for its current
needs and that suitable, additional space will be available on acceptable terms
for the foreseeable future.
35
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information as of May 1, 1996, regarding the
executive officers, directors and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
William A. Hagstrom................ 38 Chairman of the Board, President and
Chief Executive Officer
Socrates H. Choumbakos............. 51 Vice President, Corporate Development,
Chief Financial Officer and Secretary
Mark G. Dimitroff.................. 49 Vice President and General Manager UroDiagnostics
Group
Robert W. Veltri, Ph.D............. 54 Vice President and General Manager UroSciences
Group
Kathryn L. W. Ingerly.............. 37 Vice President Disease Management Information
Systems
Gerard J. O'Dowd, M.D.............. 45 Medical Director
Michael N. McDonald................ 38 Director of Finance and Administration,
Treasurer and Assistant Secretary
Paul A. Brown, M.D.(1)(2).......... 58 Director
Herbert J. Conrad(2)............... 63 Director
Michael E. Herbert(1).............. 51 Director
Louis M. Sherwood, M.D............. 59 Director
Don E. Spyrison.................... 50 Director
Joe D. Tippens(2).................. 38 Director
</TABLE>
- --------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
WILLIAM A. HAGSTROM. Mr. Hagstrom has been a director of the Company and
served as President and Chief Executive Officer of the Company since November
1989. Mr. Hagstrom was appointed Chairman of the Board of Directors in September
1994. Before joining the Company, Mr. Hagstrom was Vice President of the
Scientific Products Division of Baxter-Travenol, a medical products company,
where he served in various marketing, sales, product planning and general
management positions from November 1985 to November 1989. Prior to joining
Baxter-Travenol, he spent three years at American Hospital Supply Corp. until it
was acquired by Baxter-Travenol and three years at Becton Dickinson & Co. in
various management positions.
SOCRATES H. CHOUMBAKOS. Mr. Choumbakos joined the Company in June 1992 as
Vice President, Corporate Development, Chief Financial Officer and Secretary.
Before joining the Company, Mr. Choumbakos was President of Venture Development
Group, a corporate and business development consulting firm, from March 1988 to
June 1992. From March 1988 to December 1990, Mr. Choumbakos was also Vice
President and Chief Financial Officer of Creative Business Strategies, Inc., a
business development consulting firm. From August 1979 to March 1988, Mr.
Choumbakos was Director of Corporate Development at Becton Dickinson & Co., a
medical products company. Prior to 1979, he was a Senior Manager with Price
Waterhouse & Co. where he worked for 13 years.
MARK G. DIMITROFF. Mr. Dimitroff joined the Company in May 1990 as Vice
President, Marketing and Sales and became Vice President and General Manager
UroDiagnostics Group in October 1994. Before joining the Company, Mr. Dimitroff
served as Vice President, Marketing and Sales for Dianon Systems, Inc., an
oncology specialty reference laboratory, from 1984 to May 1990. Prior to 1984,
he held senior marketing and sales management positions with MetPath Inc., a
large general reference laboratory, and American Hospital Supply Corp.
36
<PAGE>
ROBERT W. VELTRI, PH.D. Dr. Veltri joined the Company in October 1990 as
Vice President, Product Planning and Technology Development and Chief Scientific
Officer, and became Vice President and General Manager UroSciences Group in
October 1994. Before joining the Company, Dr. Veltri was the Executive Vice
President and Chief Technical Officer at Theracel, Inc., a therapeutics
development company, from 1988 to October 1990. From 1984 to 1988, Dr. Veltri
was a founder and President and Chief Executive Officer of American
Biotechnology Company, the predecessor to Theracel, Inc. Prior to 1984, Dr.
Veltri was Director of Research and Development for the Immunology Group (rapid
IN VITRO diagnostic test development) at Cooper Biomedical Inc., a diagnostic
products company, and was Professor of Microbiology and Surgery, Director of
Research in Otolaryngology and Supervisor of the Special Immunology and Virology
Clinical Laboratory at West Virginia University Medical School for 13 years.
KATHRYN L. W. INGERLY. Ms. Ingerly joined the Company in April 1996 as Vice
President, Disease Management Information Systems. Before joining the Company,
Ms. Ingerly was the President and Chief Executive Officer of Ingerly Alliance
Partners, L.L.C., an information technology consulting company since January
1995. From September 1988 through December 1994, Ms. Ingerly held various
positions with Market Investment Solutions, a software development and services
company, most recently as President and Chief Executive Officer. Prior to 1988,
Ms. Ingerly was the Financial and Systems Manager of the Cleo Wallace Center, a
regional health care provider in Denver, Colorado.
GERARD J. O'DOWD, M.D. Dr. O'Dowd joined the Company in August 1990 as
Medical Director. Before joining the Company, Dr. O'Dowd was in private practice
specializing in fine needle aspiration cytology and served as a pathologist for
a regional reference laboratory in the Washington, D.C. area from January 1988
to August 1990. From 1983 to December 1987, Dr. O'Dowd served on the staff of
George Washington Medical Center where he was Chief Pathologist for the Division
of Cytopathology and Hematopathology. He received his medical degree from
Georgetown University School of Medicine, completed a pathology residency at the
University of Utah and was a Cytopathology Fellow at the Medical College of
Virginia.
MICHAEL N. MCDONALD. Mr. McDonald joined the Company in June 1992 as
Controller and Assistant Secretary and became Director of Finance and
Administration and Treasurer in October 1994. Before joining the Company, Mr.
McDonald was a Manager in the Accounting and Audit Division at Arthur Andersen
LLP where he served in various capacities from December 1980 to June 1992.
PAUL A. BROWN, M.D. Dr. Brown has been a director since November 1988. He
has been Chairman of the Board and Chief Executive Officer of HeaRx Ltd., a
medical products and services company, for the past six years. Prior to founding
HeaRx, Dr. Brown was founder and Chairman of the Board of MetPath Inc. Dr. Brown
is currently on the Board of Trustees of Tufts University, past Chairman of the
Board of Overseers of the Tufts University School of Medicine, a member of the
visiting committee of Boston University School of Medicine and a part-time
member of the Columbia University College of Physicians and Surgeons.
HERBERT J. CONRAD. Mr. Conrad has been a director since October 1993. Until
his retirement in August 1993, Mr. Conrad served for more than five years as a
senior executive with Hoffmann-LaRoche, Inc., a pharmaceutical company, most
recently as a director, Senior Vice President and President of the
Pharmaceuticals Division. Mr. Conrad has more than 30 years of experience in the
pharmaceutical industry, primarily with Hoffmann-LaRoche, where he held several
senior management positions in marketing, business and strategic planning and
public affairs. Mr. Conrad has also served as a director of several
pharmaceutical-related companies, including Dura Pharmaceuticals, Biotechnology
General and Bradley Pharmaceuticals.
MICHAEL E. HERBERT. Mr. Herbert has been a director since July 1994. Mr.
Herbert has served for more than five years as President and Chief Executive
Officer of Physicians Health Services, Inc., an individual practice association
health maintenance organization ("IPA/HMO") serving members in Connecticut and
New York. Under Mr. Herbert's direction, Physicians Health Services has
developed over the past 19 years into New England's first federally qualified
IPA/HMO. Prior to joining Physicians
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<PAGE>
Health Services, Mr. Herbert was Vice President of InterStudy, a national health
policy research firm focusing on a marketplace approach to health care. Mr.
Herbert is the past Chairman of the American Managed Care and Review Association
and was Charter President of the Association of Connecticut HMOs.
LOUIS M. SHERWOOD, M.D. Dr. Sherwood has been a director since October
1993. Since 1987, Dr. Sherwood has been Senior Vice President, U.S. Medical and
Scientific Affairs, of Merck & Co., a pharmaceutical company. His academic
appointments include seven years as Baumritter Professor and Chairman of the
Department of Medicine at Albert Einstein College of Medicine, Professor of
Biochemistry and Physician in Chief at Montefiore Medical Center, eight years as
Chairman of Medicine at the Michael Reese Medical Center and Professor of
Medicine at the University of Chicago. He also served as Chief of Endocrinology
at Beth Israel Hospital and Assistant Professor of Medicine at Harvard Medical
School.
DON E. SPYRISON. Mr. Spyrison has been a director since November 1989. From
October 1988 to November 1989, he served as President, and from November 1990 to
September 1994, he served as Chairman of the Board. Mr. Spyrison has been a
general partner of The Woodlands Venture Partners, L.P., the general partner of
The Woodlands Venture Fund, L.P., a venture capital firm and a principal
stockholder of the Company, since November 1988. Since September 1994, he also
has served as special limited partner of the Woodlands-Essex Venture Partners,
L.P., a venture capital firm. Since September 1995, he has been serving as Chief
Executive Officer and director of Protocol Work Systems, Inc., an information
systems company. Mr. Spyrison was a director and President and Chief Executive
Officer of Optex Biomedical, Inc., a medical device company, from April 1992 to
December 1995, at which time Optex filed for relief under Chapter 7 of the
federal bankruptcy laws.
JOE D. TIPPENS. Mr. Tippens has been a director since May 1991. Mr. Tippens
has been President and Managing Director of Chisolm Private Capital, Inc., a
venture capital firm, since May 1994 and also serves as consultant to the
management company to ML Oklahoma Venture Partners, Limited Partnership, a
venture capital firm and a principal stockholder of the Company. From November
1988 until May 1994, Mr. Tippens was a Vice President of Merrill Lynch Venture
Capital Inc., a venture capital firm and an affiliate of ML Oklahoma Venture
Partners, Limited Partnership. From 1983 through November 1988, Mr. Tippens
worked privately in the venture capital industry. Prior to 1983, Mr. Tippens was
a Manager in the Audit Division of Arthur Andersen LLP. Mr. Tippens is a
director of Silverado Foods, Inc., a food products distribution company.
CLASSIFIED BOARD
The Restated Certificate of Incorporation provides for the classification of
the Board of Directors into three classes of directors (Class I, Class II and
Class III), with the term of each class expiring at successive annual
stockholders' meetings. At and after the 1997 Annual Meeting of Stockholders,
all nominees of the class standing for election will be elected for three-year
terms. The terms of office for Messrs. Spyrison and Tippens expire at the 1997
Annual Meeting of Stockholders, the terms of office of Mr. Conrad and Dr.
Sherwood expire at the 1998 Annual Meeting of Stockholders, and the terms of
office of Dr. Brown, Mr. Herbert and Mr. Hagstrom expire at the 1999 Annual
Meeting of Stockholders.
COMMITTEES
The Board of Directors of the Company has established an Audit Committee and
a Compensation Committee. The Audit Committee is charged with recommending to
the Board of Directors the appointment of the Company's independent auditors,
reviewing the compensation of such auditors and reviewing with such accountants
the plans for and the results and scope of their auditing engagement. The
Compensation Committee reviews the performance and compensation of directors,
executive officers and key employees and makes recommendations to the Board of
Directors with respect thereto. The Compensation Committee also administers the
Company's Amended and Restated 1992 Stock Option Plan (the "1992 Stock Option
Plan").
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION
The following table sets forth all compensation paid by the Company to its
Chief Executive Officer and each of its executive officers as to whom the total
annual salary and bonus for the year ended December 31, 1995, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
- ----------------------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
William A. Hagstrom
Chairman of the Board, President and Chief Executive Officer................ $ 160,202 $ 31,522 60,000
Socrates H. Choumbakos
Vice President, Corporate Development, Chief Financial Officer and
Secretary................................................................... 129,585 15,700 30,000
Mark G. Dimitroff
Vice President and General Manager UroDiagnostics Group..................... 129,909 18,435 40,000
Robert W. Veltri, Ph.D.
Vice President and General Manager UroSciences Group........................ 126,404 15,431 30,000
</TABLE>
- ------------------------------
(1) Represents shares issuable pursuant to options granted under the 1992 Stock
Option Plan.
The following table sets forth information concerning individual grants of
stock options made during the year ended December 31, 1995, to each of the
executive officers named in the Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1995 PER SHARE DATE 5% 10%
- ------------------------------------ ------------- --------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William A. Hagstrom................. 60,000 14.9% $ 1.75 12/15/05 $ 774,600 $1,295,400
Socrates H. Choumbakos.............. 30,000 7.4 1.75 12/15/05 387,300 647,700
Mark G. Dimitroff................... 40,000 9.9 1.75 12/15/05 516,400 863,600
Robert W. Veltri, Ph.D.............. 30,000 7.4 1.75 12/15/05 387,300 647,700
</TABLE>
- ------------------------------
(1) Represents shares issuable pursuant to options granted under the 1992 Stock
Option Plan. Options vest 33 1/3% annually beginning December 29, 1996.
(2) Future value of grants assuming appreciation in market value of the Common
Stock of 5% and 10% over the ten-year term of the options. The actual value
realized may be greater or less than the potential realizable values set
forth in the table. Solely for purposes of determining the value of options
at December 31, 1995, the Company has assumed that the fair market value of
the Common Stock issuable upon exercise of options was $9.00 per share, the
assumed initial public offering price, since the Common Stock was not
traded in an established market prior to the Offering.
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<PAGE>
None of the executive officers named in the Summary Compensation Table
exercised options in 1995. The following table sets forth information concerning
the value of unexercised options held by such persons at December 31, 1995.
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
William A. Hagstrom.................................... 63,987 102,659 $ 527,893 $ 786,937
Socrates H. Choumbakos................................. 75,080 42,120 646,210 317,490
Mark G. Dimitroff...................................... 19,690 53,128 162,443 398,306
Robert W. Veltri, Ph.D................................. 26,580 47,720 219,285 363,690
</TABLE>
- --------------------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1995, and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1995, the Company has
assumed that the fair market value of the Common Stock issuable upon
exercise of options was $9.00 per share, the assumed initial public offering
price, since the Common Stock was not traded in an established market prior
to the Offering.
EMPLOYMENT AGREEMENTS
Mr. Hagstrom entered into an employment agreement with the Company in
January 1990. Under the terms of such agreement, Mr. Hagstrom serves as
President and Chief Executive Officer. The term of the agreement is for one
year, with automatic renewals indefinitely for further successive one-year
periods unless terminated by either party. The Company may terminate the
agreement upon Mr. Hagstrom's death or disability or for cause (as that term is
defined therein). The Company may terminate the agreement at any time without
cause, provided that the Company continues to pay Mr. Hagstrom at his then
current base salary rate, on a monthly basis, for six months following the
effective date of termination. Pursuant to the terms of the agreement, the
Company may pay Mr. Hagstrom bonuses in such amounts as the Board of Directors
in its sole discretion may determine.
Messrs. Choumbakos and Dimitroff, Dr. Veltri and Ms. Ingerly each have
entered into agreements with the Company regarding the respective terms of their
employment. None of such agreements provide for fixed periods of employment. The
agreement with Mr. Choumbakos provides for a current base salary of $134,820,
subject to annual review, a bonus of up to 25% of his annual base salary and a
severance obligation of six months upon termination without cause. The agreement
with Mr. Dimitroff provides for a current base salary of $140,075, subject to
annual review, and a bonus of up to 30% of his annual base salary. In April
1996, the Company's Board of Directors approved a severance obligation for Mr.
Dimitroff of six months upon termination of employment without cause. The
agreement with Dr. Veltri provides for a current base salary of $134,724,
subject to annual review, a bonus of up to 25% of his annual base salary and a
severance obligation of three months upon termination without cause. In April
1996, the Company's Board of Directors approved an increase in Dr. Veltri's
bonus to up to 30% of his annual base salary and an increase in his severance
obligation to six months upon termination of employment without cause. The
agreement with Ms. Ingerly provides for a current base salary of $120,000,
subject to annual review, a bonus of up to 30% of her annual base salary and a
severance obligation of three months upon termination without cause.
BONUS PLAN
In 1991, the Company established a management incentive compensation program
under which most full-time employees, including executive officers, are eligible
to receive cash bonuses, subject to the Company achieving certain sales and
operating income levels as well as achievement of individual performance
criteria. Bonus levels are established for each individual, ranging from a
minimum of up to $1,000 per employee to a maximum of up to 40% of annual salary.
In February 1993, the Company paid $172,230 under the plan for the 1992 plan
year, of which an aggregate of $102,254 was paid to the four executive officers
named in the Summary Compensation Table. In March and April 1994, the Company
40
<PAGE>
paid a total of $279,863 under the plan for the 1993 plan year, of which an
aggregate of $119,539 was paid to the four named executive officers. In April
1995, the Company paid a total of $251,932 under the plan for the 1994 plan
year, of which an aggregate of $81,088 was paid to the four named executive
officers. In April 1996, the Company paid a total of $399,529 under the plan for
the 1995 year, of which an aggregate of $100,157 was paid to the four named
executive officers.
COMPENSATION OF DIRECTORS
Each director receives reimbursement for expenses related to attendance at
Board meetings. Mr. Conrad, Mr. Herbert and Dr. Sherwood each receive $1,500 for
each meeting of the Board of Directors attended.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan is administered by the Compensation
Committee of the Board of Directors. Pursuant to the plan, options to acquire an
aggregate of 1,400,000 shares of Common Stock may be granted to individuals who
are employees, officers, directors or independent contractors performing
services for the Company. As of May 10, 1996, options to purchase 1,001,594
shares of Common Stock were outstanding and 315,519 shares remained reserved for
grants of options under the plan.
The 1992 Stock Option Plan authorizes the Board of Directors to issue
options intended to qualify as incentive stock options ("ISOs"), as defined in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and
stock options that are not intended to conform to the requirements of such Code
section ("non-qualified options"). The exercise price of each ISO may not be
less than the fair market value of the Common Stock at the time of grant, and,
in the case of a grant to an employee who owns 10% or more of the outstanding
voting stock of the Company (a "10% Stockholder"), the exercise price may not be
less than 110% of the fair market value on the date of grant. The exercise price
of each non-qualified option granted under the plan may not be less than the
fair market value of the Common Stock on the date of grant. Options granted
under the plan may not be exercised after the tenth anniversary (or the fifth
anniversary in the case of an option granted to a 10% Stockholder) of their
grant.
CERTAIN TRANSACTIONS
The Company paid consulting fees to Dr. Paul A. Brown, a director of the
Company, for consultation on business and scientific matters totaling $36,000
for each of 1993, 1994 and 1995.
In October 1993, in connection with the private placement of approximately
$1.0 million aggregate principal amount of 8% convertible promissory notes, the
Company sold an aggregate principal amount of approximately $412,000, $89,000,
$100,000, $100,000, $71,000 and $121,000 of such notes to affiliates of Dillon,
Read & Co., affiliates of Gateway Associates, ML Oklahoma Venture Partners,
Limited Partnership, Advent International Group, WestMed Venture Partners and
The Woodlands Venture Fund, L.P., respectively, each of which is a principal
stockholder of the Company. Don E. Spyrison, a director of the Company, is an
affiliate of The Woodlands Venture Fund, L.P. Joe D. Tippens, a director of the
Company, is a limited partner of the general partner, and a consultant to the
management company, of ML Oklahoma Venture Partners, Limited Partnership.
In March and April 1994, the Company sold at $4.30 per share 490,092,
58,592, 24,092, 21,458, 61,086 and 75,283 shares of Series D Preferred Stock
to affiliates of Dillon, Read & Co., The Woodlands Venture Fund, L.P., ML
Oklahoma Venture Partners, Limited Partnership, affiliates of Gateway
Associates, Advent International Group and WestMed Venture Partners,
respectively, each of which is a principal stockholder of the Company. Don E.
Spyrison, a director of the Company, is an affiliate of The Woodlands Venture
Fund, L.P. Joe D. Tippens, a director of the Company, is a limited partner of
the general partner, and a consultant to the management company, of ML Oklahoma
Venture Partners, Limited Partnership.
In June 1995, the Company sold at $5.00 per share 270,130, 60,000, 45,000
and 200,000 shares of Series E or EG Preferred Stock and related warrants to
purchase at $5.00 per share an aggregate of 164,664 shares of Common Stock to
affiliates of Dillon, Read & Co., an affiliate of Gateway Associates, WestMed
Venture Partners and Kummell Investments Limited, respectively, each of which is
a principal stockholder of the Company.
41
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 1, 1996 (adjusted to
give effect to the automatic conversion of all outstanding shares of Preferred
Stock, Class A Stock and Class B Stock into Common Stock immediately prior to
the closing of the Offering), and as adjusted to reflect the sale of the Common
Stock offered pursuant to the Offering (assuming no exercise of the
Underwriters' over-allotment option), with respect to the beneficial ownership
of Common Stock by each person known by the Company to be the beneficial owner
of more than 5% of the outstanding shares of Common Stock, by each director and
executive officer of the Company and by all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
-------------------------------------
PRIOR TO AFTER
BENEFICIAL OWNER SHARES(2) OFFERING OFFERING
- ------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Concord Partners II, L.P. affiliates (3)....................................... 2,387,208 35.8% 25.2%
The Woodlands Venture Fund, L.P. (4)........................................... 536,148 8.1 5.7
Martin P. Sutter (4)......................................................... 536,148 8.1 5.7
Kummell Investments Limited (5)................................................ 530,698 8.0 5.6
ML Oklahoma Venture Partners, Limited Partnership (6).......................... 509,174 7.7 5.4
Advent International Group (7)................................................. 438,931 6.7 4.7
Gateway Associates affiliates (8).............................................. 437,335 6.6 4.6
WestMed Venture Partners (9)................................................... 410,977 6.2 4.4
Paul A. Brown, M.D............................................................. -- -- --
Herbert J. Conrad (10)......................................................... 6,250 * *
Michael E. Herbert (11)........................................................ 3,125 * *
Louis M. Sherwood, M.D. (12)................................................... 6,250 * *
Don E. Spyrison (4)............................................................ 548,648 8.3 5.8
Joe D. Tippens (6)............................................................. 509,174 7.7 5.4
William A. Hagstrom (13)....................................................... 277,279 4.2 2.9
Socrates H. Choumbakos (14).................................................... 109,080 1.6 1.2
Mark G. Dimitroff (15)......................................................... 101,734 1.6 1.1
Robert W. Veltri, Ph.D. (16)................................................... 100,414 1.5 1.1
All executive officers and directors as a group
(12 persons) (17)............................................................. 1,682,704 24.6 17.5
</TABLE>
- --------------------------
* Less than 1%.
(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such person.
(2) Each beneficial owner's percentage ownership is determined by assuming that
options, warrants and other convertible securities that are held by such
person (but not those held by any other person) and are exercisable or
convertible within 60 days have been exercised or converted. A person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days upon the exercise of options or warrants or conversion
of convertible securities. Percentage of ownership is based on 6,565,248
shares of Common Stock outstanding before the Offering and 9,365,248 shares
of Common Stock outstanding after the Offering.
(3) Includes 1,680,528 shares held by Concord Partners II, L.P., which include
86,527 shares issuable upon the exercise of certain stock purchase warrants,
and 369,700 shares held by Concord Partners Japan, Limited, which include
5,170 shares issuable upon the exercise of certain stock purchase warrants,
each of which is a private venture capital fund managed by Dillon, Read &
Co. Inc. ("Dillon Read"). Also includes 28,290 shares held by Lexington
Partners III, L.P., and 13,143 shares held by Lexington Partners IV, L.P.,
which include 800 shares issuable upon the exercise of certain stock
purchase warrants, each of which is a private investment fund, for certain
Dillon Read affiliated persons, managed by Dillon Read, and 295,547 shares
held by Dillon Read as agent for certain affiliated persons of which 13,226
shares are issuable upon the exercise of certain stock purchase warrants.
The address of such beneficial owners is 535 Madison Avenue, New York, New
York 10022.
42
<PAGE>
(4) The Woodlands Venture Partners, L.P. is the general partner of The Woodlands
Venture Fund, L.P. Martin P. Sutter and Don E. Spyrison are the general
partners of The Woodlands Venture Partners, L.P. Because of these
relationships, The Woodlands Venture Partners, L.P., Martin P. Sutter and
Don E. Spyrison may be deemed to be the beneficial owners of the 536,148
shares held by The Woodlands Venture Fund, L.P. set forth in the table. Such
shares include an aggregate of 39,244 shares of Common Stock issuable upon
exercise of certain stock purchase warrants. Messrs. Sutter and Spyrison
disclaim such beneficial ownership. The address of such beneficial owners is
2170 Buckthorne Place, Suite 170, The Woodlands, Texas 77380.
(5) The beneficial owner's shares set forth in the table include 40,000 shares
of Common Stock issuable upon exercise of certain stock purchase warrants.
The address of such beneficial owner is Suite 922 C, Europort, Gibraltar
(via London).
(6) The beneficial owner's shares set forth in the table include 12,539 shares
of Common Stock issuable upon the exercise of certain stock purchase
warrants. The address of such beneficial owner is Meridian Tower, 5100 East
Skelly Drive, Suite 1060, Tulsa, Oklahoma 74135. Mr. Tippens is a limited
partner of the general partner of ML Oklahoma Venture Partners, Limited
Partnership ("ML Oklahoma"), and a consultant to MLVC Inc., the management
company to ML Oklahoma, and may be deemed to be the beneficial owner of the
509,174 shares held by ML Oklahoma set forth in the table. Mr. Tippens
disclaims beneficial ownership of such shares.
(7) The affiliates of Advent International Group whose shares are set forth in
the table include Rovent Limited Partnership, Advent International
Technology Fund Limited Partnership, Advent International Investors Limited
Partnership, Advent Omnibus Limited Partnership and Advent S.B.P.E. Limited
Partnership. Such shares include an aggregate of 34,688 shares of Common
Stock issuable upon the exercise of certain stock purchase warrants. The
address of such beneficial owners is 101 Federal Street, 5th Floor, Boston,
Massachusetts 02110.
(8) The affiliates of Gateway Associates whose shares are set forth in the table
include Gateway Venture Partners II, L.P. and Gateway Partners L.P. Such
shares include an aggregate of 47,168 shares of Common Stock issuable upon
the exercise of certain stock purchase warrants. The address of such
beneficial owners is 8000 Maryland Avenue, Suite 1190, St. Louis, Missouri
63105.
(9) The beneficial owner's shares set forth in the table include an aggregate of
25,995 shares of Common Stock issuable upon the exercise of certain stock
purchase warrants. The address of such beneficial owner is 200 Liberty
Street, 39th Floor, New York, New York 10281.
(10) The beneficial owner's shares set forth in the table include 6,250 shares
of Common Stock issuable upon the exercise of certain stock options.
(11) The beneficial owner's shares set forth in the table include 3,125 shares
of Common Stock issuable upon the exercise of certain stock options.
(12) The beneficial owner's shares set forth in the table include 6,250 shares
of Common Stock issuable upon the exercise of certain stock options.
(13) The beneficial owner's shares set forth in the table include 63,987 shares
of Common Stock issuable upon the exercise of certain stock options.
(14) The beneficial owner's shares set forth in the table include 75,080 shares
of Common Stock issuable upon the exercise of certain stock options.
(15) The beneficial owner's shares set forth in the table include 19,690 shares
of Common Stock issuable upon the exercise of certain stock options.
(16) The beneficial owner's shares set forth in the table include 26,580 shares
of Common Stock issuable upon the exercise of certain stock options.
(17) See notes (4), (6) and (10) through (16) to this table. The beneficial
owners' shares set forth in this table include an aggregate of 273,495
shares of Common Stock issuable upon the exercise of certain stock options
and warrants.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the capital stock of UroCor
does not purport to be complete and is subject to, and qualified in its entirety
by, the Restated Certificate of Incorporation and the By-laws which are included
as exhibits to the registration statement of which this Prospectus forms a part
and by the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company has an authorized capitalization of 26,579,759 shares of capital
stock consisting of 6,000,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"), 20,000,000 shares of Common Stock, 513,093 shares of
Class A Stock, par value $.01 per share ("Class A Stock"), and 66,666 shares of
Class B Stock, par value $.01 per share ("Class B Stock"). As of the date of
this Prospectus (and giving effect to the automatic conversion of all
outstanding shares of Preferred Stock, Class A Stock and Class B Stock into
shares of Common Stock immediately prior to the closing of the Offering),
6,565,248 shares of Common Stock were issued and outstanding and held by 50
stockholders of record, and no shares of Preferred Stock, Class A Stock or Class
B Stock were outstanding. A total of 1,400,000 shares of Common Stock has been
reserved for grants of options under the 1992 Stock Option Plan. As of the date
hereof, an aggregate of 1,487,904 shares of Common Stock were reserved for
issuance upon exercise of options granted under the 1992 Stock Option Plan and
for issuance upon exercise of outstanding warrants.
The holders of the Common Stock are entitled to one vote per share in the
election of directors and in all matters on which stockholders are entitled or
permitted to vote. Such holders are not entitled to vote cumulatively for the
election of directors. Holders of Common Stock have no redemption, conversion,
preemptive or other subscription rights. In the event of the liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all of the assets of the Company remaining, if any, after
satisfaction of the debts and liabilities of the Company and the preferential
rights of the holders of the Preferred Stock, if any, then outstanding. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
pursuant to the Offering will be, upon payment therefor as contemplated herein,
validly issued, fully paid and nonassessable.
At present, there is no active trading market for the Common Stock. The
Common Stock has been approved for listing on the Nasdaq National Market under
the symbol "UCOR". See "Risk Factors -- Absence of Prior Public Market;
Determination of Offering Price; Possible Volatility of Stock Price".
Certain of the Company's existing stockholders have certain rights with
respect to the registration under the Securities Act of an aggregate of
5,886,601 shares of Common Stock (the "Registrable Shares"). In general, such
stockholders may demand on up to two occasions that the Company register the
sale of their shares of Common Stock. Each holder of Registrable Shares also has
piggy-back registration rights, subject to certain limitations, in the event the
Company proposes to register the sale of any shares of Common Stock or any other
securities of the Company for its own account or for the account of its
stockholders. The Company is obligated to bear all of the expenses in connection
with the registration of the Registrable Shares, except underwriting commissions
and discounts. Any sales of Registrable Shares will be subject to the 180-day
lock-up described under "Shares Eligible for Future Sale" and "Underwriting".
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE
OF INCORPORATION, BY-LAWS AND DELAWARE GENERAL CORPORATION LAW
The Restated Certificate of Incorporation and By-laws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender or exchange offer, a proxy contest or otherwise. The
description of such provisions set forth below is intended only as a summary and
is qualified in its entirety by reference to the Restated Certificate of
Incorporation and the By-laws, each of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. See "Risk Factors
- -- Control by Existing Stockholders; Possible Anti-Takeover Effects".
44
<PAGE>
CLASSIFIED BOARD OF DIRECTORS. The classification of directors will have
the effect of making it difficult for stockholders to change the composition of
the Board of Directors. At least two annual meetings of stockholders generally
will be required to effect a change in the majority of the Board of Directors.
Such a delay may help ensure that the Company's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer or
an extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interests of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Board of Directors
would be beneficial to the Company and its stockholders and whether a majority
of the Company's stockholders believes that such a change would be desirable.
The classification provisions also could have the effect of discouraging a
third party from initiating a proxy contest, making a tender or exchange offer
or otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. These
provisions could thus increase the likelihood that incumbent directors will
retain their positions. In addition, the classification provisions may
discourage accumulations of large blocks of the Common Stock by purchasers whose
objective is to take control of the Company and remove a majority of the Board
of Directors, and thus could tend to reduce the likelihood of fluctuations in
the market price of the Common Stock that might result from accumulations of
large blocks for such purpose. Accordingly, stockholders could be deprived of
certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case.
PREFERRED STOCK. The Restated Certificate of Incorporation authorizes the
Board of Directors to establish one or more series of Preferred Stock and to
determine, with respect to any series of Preferred Stock, the terms and rights
of such series. The Company believes that the ability of the Board of Directors
to issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financing and acquisitions and in
meeting other corporate needs that may arise. The authorized shares of Preferred
Stock, as well as shares of Common Stock, will be available for issuance without
further action by the Company's stockholders, unless such action is required by
applicable laws or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be otherwise able to change the composition of the
Board of Directors, including a tender or exchange offer or other transaction
that some, or a majority, of the Company's stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then current market price of such stock.
SPECIAL MEETING OF STOCKHOLDERS. The By-laws provide that special meetings
of stockholders may be called only by the President or the Board of Directors.
Such provisions, together with the other anti-takeover provisions described
herein, also could have the effect of discouraging a third party from initiating
a proxy contest, making a tender or exchange offer or otherwise attempting to
obtain control of the Company.
NOTICE PROCEDURES. The By-laws provide that stockholder election of
directors may be conducted only at annual meetings of stockholders and establish
advance notice procedures with regard to stockholder proposals relating to the
nomination of candidates for election as director. These procedures provide that
notice of such stockholder proposals must be timely given in writing to the
Secretary of the Company prior to the annual meeting. Generally, to be timely,
notice must be received at the principal executive offices of the Company not
less than 60 days nor more than 90 days prior to an annual meeting. The notice
must contain certain information specified in the By-laws.
45
<PAGE>
DELAWARE ANTI-TAKEOVER LAW. Under Section 203 of the Delaware General
Corporation Law (the "Delaware anti-takeover law"), certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its certificate of incorporation or bylaws not to be governed by the
Delaware anti-takeover law (the Company has not made such an election), (ii)
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder was approved by the board of
directors of the corporation before the other party to the business combination
became an interested stockholder, (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not have a
right to determine confidentially whether to tender or vote stock held by the
plan), or (iv) on or subsequent to the date the stockholder became an
"interested stockholder", the business combination was approved by the board of
directors of the corporation and ratified by 66 2/3% of the voting stock which
the interested stockholder did not own. The three-year prohibition does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's voting stock. Section 203 could
have the effect of delaying, deferring or preventing a change in control of the
Company.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. The Company is required to
indemnify any director who, as the result of his acting as a director of the
Company, was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceeding, whether civil,
criminal, administrative or investigative, to the full extent permitted by
Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices and the ability of the Company to raise equity capital in the
future. See "Underwriting".
Upon consummation of the Offering, the Company will have outstanding
9,365,248 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). The 2,800,000 shares of Common Stock sold in this
Offering will be freely tradeable within the public market without restriction
or further registration under the Securities Act, except for any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
("Rule 144") promulgated under the Securities Act. The remaining 6,565,248
outstanding shares of Common Stock are deemed to be "restricted securities"
within the meaning of Rule 144 and may be publicly resold only if registered
under the Securities Act or sold in accordance with an eligible exemption from
registration, such as Rule 144.
The Company, its executive officers and directors and certain stockholders
of the Company have agreed that, for a period of 180 days after the date of this
Prospectus, they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock or securities convertible into or exchangeable for,
or any rights to purchase or acquire, Common Stock, without the prior written
consent of Montgomery Securities. Montgomery Securities, in its sole discretion
and at any time without notice, may release all or any portion of the securities
subject to the 180-day lock-up agreement.
Of the 6,565,248 shares of Common Stock held by existing stockholders of the
Company, (i) approximately 214,000 will be eligible for sale in the public
market immediately following the Offering and (ii) an additional approximately
5,506,000 shares will be eligible for resale in the public market immediately
following the expiration of the 180-day lock-up described above, of which
approximately 1,539,000 shares are subject to certain volume and other
restrictions under Rule 144.
The 6,565,248 shares of Common Stock originally issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act and held by stockholders upon consummation of the
Offering are "restricted securities" as that term is defined in Rule 144 and may
be sold in the public market only if registered or if exempt from registration
under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of the
Company, who beneficially owns "restricted securities" acquired from the Company
or an affiliate of the Company at least two years prior to the sale is entitled
to sell within any three-month period the number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 93,652 shares based on the number of shares outstanding
immediately upon completion of the Offering, assuming no exercise of the
Underwriters' over-allotment option) and (ii) the average weekly reported
trading volume of the Common Stock during the four calendar weeks immediately
preceding the date on which notice of such sale is filed with the Securities and
Exchange Commission (the "Commission"), provided that certain manner of sale and
notice requirements and requirements as to availability of current public
information concerning the Company are satisfied (which requirements as to the
availability of current public information are expected to be satisfied
commencing 90 days after the date of this Prospectus). Under Rule 144(k), a
person who has not been an affiliate for the Company for a period of three
months preceding a sale of securities by him, and who beneficially owns such
"restricted securities" acquired from the Company or an affiliate of the Company
at least three years prior to such sale, would be entitled to sell such shares
without regard to volume limitations, manner of sale provisions, notification
requirements or requirements as to the availability of current public
information concerning the Company. Shares held by persons who are deemed to be
affiliates of the Company, including any shares acquired by affiliates in the
Offering, are subject to such volume limitations, manner of sale provisions,
47
<PAGE>
notification requirements and requirements as to availability of current public
information concerning the Company, regardless of how long the shares have been
owned or how they were acquired and, in addition, the sale of any "restricted
securities" beneficially owned by affiliates is subject to the two-year holding
period requirement. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more intermediaries
controls, or is controlled by or is under common control with, such issuer.
Any employee, officer or director of, or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permit
non-affiliates to sell their Rule 701 shares without complying with the public
information, holding period, volume limitation or notice provisions of Rule 144,
and which permit affiliates to sell their Rule 701 shares without complying with
the Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this Prospectus.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock reserved for issuance under
the 1992 Stock Option Plan, thus permitting the resale of such shares by
non-affiliates in the public market without restrictions under the Securities
Act. Such registration statement is expected to become effective shortly after
the expiration of the 180-day lock-up described above. As of the date of this
Prospectus, options to purchase 1,001,594 shares of Common Stock were
outstanding, of which options to purchase 358,180 shares of Common Stock were
vested. Of those vested, 239,430 shares are subject to the 180-day lock-up, and,
therefore, 118,750 shares of Common Stock will be available for sale after the
effective date of the registration statement on Form S-8 upon the exercise of
options.
As of the date of this Prospectus, warrants to purchase an aggregate of
486,310 shares of Common Stock were outstanding, of which 344,734 shares are
subject to the 180-day lock-up.
See "Description of Capital Stock" for information regarding certain rights
to require the Company to register shares of Common Stock.
48
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Volpe, Welty & Company (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock indicated below opposite
their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities............................................................
Volpe, Welty & Company...........................................................
-----------
Total........................................................................ 2,800,000
-----------
-----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the Offering, the offering price and other selling
terms may be changed by the Representatives. The Common Stock is offered subject
to receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 420,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, its directors and executive officers and certain other
stockholders of the Company have agreed that for a period of 180 days after the
date of this Prospectus, they will not, directly or indirectly, offer, sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock without the
prior written consent of Montgomery Securities. Montgomery Securities may, in
its sole discretion and at any time without prior notice, release all or any
portion of the shares of Common Stock subject to the lock-up agreements.
In August 1995, UroCor paid Montgomery Securities $75,000 for certain
financial advisory services.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the Offering.
49
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities markets at the time of the Offering and the
market price of and demand for publicly-traded common stocks of comparable
companies in recent periods. The estimated initial public offering price range
set forth on the cover page of this Prospectus is subject to change as a result
of market conditions and other factors.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "UCOR".
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
UroCor by Fulbright & Jaworski L.L.P., Houston, Texas. Certain legal matters for
the Underwriters will be passed upon by Cooley Godward Castro Huddleson & Tatum,
Menlo Park, California.
EXPERTS
The financial statements and schedule of the Company included in this
Prospectus and elsewhere in the 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 accounting and auditing in giving said
reports.
AVAILABLE INFORMATION
UroCor has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act with respect to the
Common Stock offered by this Prospectus. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information
contained in the Registration Statement and in the exhibits and schedules
thereto, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered by this Prospectus, reference is made to
the Registration Statement, including the exhibits thereto. Statements contained
in this Prospectus as to the contents of any contract or other document filed as
an exhibit to the Registration Statement are not necessarily complete, and in
each instance reference is hereby made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, and copies may be obtained at prescribed rates at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at Northwestern Atrium Center, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048.
Prior to the Offering, UroCor has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements reported on by independent public accountants following the
end of each fiscal year and such interim reports as it may determine to be
necessary or desirable.
50
<PAGE>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Equity......................................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
UroCor, Inc.:
We have audited the accompanying balance sheets of UroCor, Inc. (a Delaware
corporation) as of December 31, 1994 and 1995, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 UroCor, Inc. as of December
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Oklahoma City, Oklahoma ARTHUR ANDERSEN LLP
March 29, 1996
F-2
<PAGE>
UROCOR, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
--------------
1995
DECEMBER 31, --------------
------------------------------
1994 1995 (UNAUDITED)
-------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 1,822,924 $ 3,125,296 $ 1,459,589
Accounts receivable, net of allowance for doubtful accounts of
$670,845 and $982,046 at December 31, 1994 and 1995 and $756,163
and $822,044 at March 31, 1995 and 1996............................ 2,460,109 4,405,100 3,008,235
Prepaid expenses.................................................... 279,048 421,648 330,868
Laboratory supplies, at average cost................................ 323,333 234,145 254,491
Other current assets................................................ 39,961 119,862 63,314
-------------- -------------- --------------
Total current assets.............................................. 4,925,375 8,306,051 5,116,497
-------------- -------------- --------------
PROPERTY AND EQUIPMENT, net........................................... 1,967,039 2,443,737 1,892,351
INTANGIBLE AND OTHER ASSETS, net...................................... 1,053,749 1,743,722 1,034,742
-------------- -------------- --------------
Total assets...................................................... $ 7,946,163 $ 12,493,510 $ 8,043,590
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... 386,482 487,731 296,314
Accrued compensation................................................ 684,814 873,590 568,474
Other accrued liabilities........................................... 337,839 180,620 313,031
Current installments of obligations under capital leases............ 605,330 860,088 650,028
-------------- -------------- --------------
Total current liabilities......................................... 2,014,465 2,402,029 1,827,847
COMMITMENTS AND CONTINGENCIES (Note 7)................................ -- -- --
LINE OF CREDIT........................................................ 1,000,000 700,000 1,250,000
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments......... 1,063,004 966,485 996,833
-------------- -------------- --------------
Total liabilities................................................. 4,077,469 4,068,514 4,074,680
-------------- -------------- --------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value -- authorized 9,177,357
shares at December 31, 1994 and March 31, 1995, 10,132,791 shares
at December 31, 1995 and 6,000,000 shares at March 31, 1996 issued
in series; 4,883,075 shares outstanding at December 31, 1994 and
March 31, 1995 and 5,706,395 shares outstanding at December 31,
1995 and March 31, 1996............................................ 48,831 57,064 48,831
Class A stock, $.01 par value -- authorized 590,674 shares in 1994
and 1995 and 513,093 shares at March 31, 1996; 513,093 shares
issued and outstanding............................................. 5,131 5,131 5,131
Class B stock, $.01 par value -- authorized, issued and outstanding
66,666 shares...................................................... 667 667 667
Common stock, $.01 par value, authorized 8,000,000 shares at
December 31, 1994 and March 31, 1995, 8,700,000 shares at December
31, 1995 and 20,000,000 shares at March 31, 1996; no shares issued
and outstanding in 1994; 69,188 issued and outstanding at December
31, 1995 and 22,687 and 81,688 issued and outstanding at March 31,
1995 and 1996...................................................... -- 692 227
Additional paid-in capital.......................................... 18,701,314 22,716,005 18,709,028
Accumulated deficit................................................. (14,887,249) (14,354,563) (14,794,974)
-------------- -------------- --------------
Total stockholders' equity........................................ 3,868,694 8,424,996 3,968,910
-------------- -------------- --------------
Total liabilities and stockholders' equity........................ $ 7,946,163 $ 12,493,510 $ 8,043,590
-------------- -------------- --------------
-------------- -------------- --------------
<CAPTION>
1996
--------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 1,300,846
Accounts receivable, net of allowance for doubtful accounts of
$670,845 and $982,046 at December 31, 1994 and 1995 and $756,163
and $822,044 at March 31, 1995 and 1996............................ 4,981,790
Prepaid expenses.................................................... 619,049
Laboratory supplies, at average cost................................ 422,248
Other current assets................................................ 144,804
--------------
Total current assets.............................................. 7,468,737
--------------
PROPERTY AND EQUIPMENT, net........................................... 2,727,091
INTANGIBLE AND OTHER ASSETS, net...................................... 1,838,442
--------------
Total assets...................................................... $ 12,034,270
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... 425,439
Accrued compensation................................................ 747,667
Other accrued liabilities........................................... 379,644
Current installments of obligations under capital leases............ 829,622
--------------
Total current liabilities......................................... 2,382,372
COMMITMENTS AND CONTINGENCIES (Note 7)................................ --
LINE OF CREDIT........................................................ --
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments......... 950,238
--------------
Total liabilities................................................. 3,332,610
--------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value -- authorized 9,177,357
shares at December 31, 1994 and March 31, 1995, 10,132,791 shares
at December 31, 1995 and 6,000,000 shares at March 31, 1996 issued
in series; 4,883,075 shares outstanding at December 31, 1994 and
March 31, 1995 and 5,706,395 shares outstanding at December 31,
1995 and March 31, 1996............................................ 57,064
Class A stock, $.01 par value -- authorized 590,674 shares in 1994
and 1995 and 513,093 shares at March 31, 1996; 513,093 shares
issued and outstanding............................................. 5,131
Class B stock, $.01 par value -- authorized, issued and outstanding
66,666 shares...................................................... 667
Common stock, $.01 par value, authorized 8,000,000 shares at
December 31, 1994 and March 31, 1995, 8,700,000 shares at December
31, 1995 and 20,000,000 shares at March 31, 1996; no shares issued
and outstanding in 1994; 69,188 issued and outstanding at December
31, 1995 and 22,687 and 81,688 issued and outstanding at March 31,
1995 and 1996...................................................... 817
Additional paid-in capital.......................................... 22,761,905
Accumulated deficit................................................. (14,123,924)
--------------
Total stockholders' equity........................................ 8,701,660
--------------
Total liabilities and stockholders' equity........................ $ 12,034,270
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
UROCOR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------
1995
YEAR ENDED DECEMBER 31, ------------
----------------------------------------------
1993 1994 1995 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE.................................................... $ 9,348,498 $ 14,531,008 $ 19,758,170 $ 4,618,955
-------------- -------------- -------------- ------------
OPERATING EXPENSES:
Direct cost of services and products..................... 3,893,380 5,891,487 7,353,676 1,658,302
Selling, general and administrative expenses............. 6,308,134 8,764,598 9,423,216 2,254,735
Research and development................................. 1,252,009 1,969,076 2,267,102 558,264
-------------- -------------- -------------- ------------
Total operating expenses............................... 11,453,523 16,625,161 19,043,994 4,471,301
-------------- -------------- -------------- ------------
Income (loss) from operations............................ (2,105,025) (2,094,153) 714,176 147,654
OTHER INCOME (EXPENSE):
Interest income.......................................... 45,161 103,992 108,983 15,637
Interest expense......................................... (108,549) (307,239) (290,473) (71,018)
-------------- -------------- -------------- ------------
Total other income (expense)........................... (63,388) (203,247) (181,490) (55,381)
-------------- -------------- -------------- ------------
Income (loss) before income taxes.......................... (2,168,413) (2,297,400) 532,686 92,273
Income taxes (benefit)..................................... -- -- -- --
-------------- -------------- -------------- ------------
NET INCOME (LOSS).......................................... $ (2,168,413) $ (2,297,400) $ 532,686 $ 92,273
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
NET INCOME (LOSS) PER SHARE................................ $ (.41) $ (.38) $ .07 $ .01
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE....... 5,232,636 6,104,035 7,295,548 6,587,933
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
<CAPTION>
1996
------------
<S> <C>
REVENUE.................................................... $ 5,907,549
------------
OPERATING EXPENSES:
Direct cost of services and products..................... 2,138,043
Selling, general and administrative expenses............. 2,861,877
Research and development................................. 643,772
------------
Total operating expenses............................... 5,643,692
------------
Income (loss) from operations............................ 263,857
OTHER INCOME (EXPENSE):
Interest income.......................................... 23,288
Interest expense......................................... (56,506)
------------
Total other income (expense)........................... (33,218)
------------
Income (loss) before income taxes.......................... 230,639
Income taxes (benefit)..................................... --
------------
NET INCOME (LOSS).......................................... $ 230,639
------------
------------
NET INCOME (LOSS) PER SHARE................................ $ .03
------------
------------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE....... 7,522,946
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UROCOR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK
-- ISSUED IN SERIES CLASS A STOCK CLASS B STOCK COMMON STOCK
---------------------- ---------------------- -------------------------- --------------------------
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE
--------- ----------- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992....................... 3,728,678 $ 37,287 513,093 $ 5,131 66,666 $ 667 -- $ --
Net loss.................... -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----- ----------- -----
BALANCE AT DECEMBER 31,
1993....................... 3,728,678 $ 37,287 513,093 $ 5,131 66,666 $ 667 -- $ --
Stock issuance -- New Series
D.......................... 1,154,397 11,544 -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----- ----------- -----
BALANCE AT DECEMBER 31,
1994....................... 4,883,075 $ 48,831 513,093 $ 5,131 66,666 $ 667 -- $ --
Stock issuance -- New Series
E/EG....................... 823,320 8,233 -- -- -- -- -- --
Exercise of stock options... -- -- -- -- -- -- 69,188 692
Net income.................. -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----- ----------- -----
BALANCE AT DECEMBER 31,
1995....................... 5,706,395 $ 57,064 513,093 $ 5,131 66,666 $ 667 69,188 $ 692
Exercise of stock options
(unaudited)................ -- -- -- -- -- -- 12,500 125
Stock option -- compensation
expense (unaudited)........ -- -- -- -- -- -- -- --
Net income (unaudited)...... -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----- ----------- -----
BALANCE AT MARCH 31, 1996
(unaudited)................ 5,706,395 $ 57,064 513,093 $ 5,131 66,666 $ 667 81,688 $ 817
--------- ----------- --------- ----------- ----------- ----- ----------- -----
--------- ----------- --------- ----------- ----------- ----- ----------- -----
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
----------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992....................... $13,913,988 $(10,421,436) $ 3,535,637
Net loss.................... -- (2,168,413) (2,168,413)
----------- ------------- -------------
BALANCE AT DECEMBER 31,
1993....................... $13,913,988 $(12,589,849) $ 1,367,224
Stock issuance -- New Series
D.......................... 4,787,326 -- 4,798,870
Net loss.................... -- (2,297,400) (2,297,400)
----------- ------------- -------------
BALANCE AT DECEMBER 31,
1994....................... $18,701,314 $(14,887,249) $ 3,868,694
Stock issuance -- New Series
E/EG....................... 3,989,567 -- 3,997,800
Exercise of stock options... 25,124 -- 25,816
Net income.................. -- 532,686 532,686
----------- ------------- -------------
BALANCE AT DECEMBER 31,
1995....................... $22,716,005 $(14,354,563) $ 8,424,996
Exercise of stock options
(unaudited)................ 12,375 -- 12,500
Stock option -- compensation
expense (unaudited)........ 33,525 -- 33,525
Net income (unaudited)...... -- 230,639 230,639
----------- ------------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)................ $22,761,905 $(14,123,924) $ 8,701,660
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (2,168,413) $ (2,297,400) $ 532,686 $ 92,273 $ 230,639
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 417,966 681,261 875,557 208,689 251,742
Stock option compensation expense..................... -- -- -- -- 33,525
Conversion of accrued interest on convertible
promissory notes..................................... -- 37,333 -- -- --
Other................................................. 4,892 5,789 4,480 (296) (2,121)
Changes in assets and liabilities:
Increase in accounts receivable, net................ (634,251) (744,191) (1,944,991) (548,126) (576,690)
Increase in prepaid expenses........................ (154,168) (77,745) (142,600) (51,820) (197,401)
(Increase) decrease in laboratory supplies.......... (33,949) (216,097) 89,188 68,842 (188,103)
Increase in other current assets.................... (1,549) (37,761) (79,901) (23,353) (24,942)
Increase (decrease) in accounts payable............. 106,593 46,031 101,249 (90,168) (62,292)
Increase (decrease) in accrued compensation......... 225,535 14,735 188,776 (116,340) (125,923)
Increase (decrease) in other accrued liabilities.... (62,586) 151,548 (157,219) (24,808) 199,024
------------- ------------- ------------- ------------ ------------
Net cash used in operating activities............... (2,299,930) (2,436,497) (532,775) (485,107) (462,542)
------------- ------------- ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (1,621,944) (987,261) (1,362,599) (125,764) (535,509)
Intangible and other assets............................. (78,382) (923,181) (692,973) 19,007 (94,720)
------------- ------------- ------------- ------------ ------------
Net cash used in investing activities............... (1,700,326) (1,910,442) (2,055,572) (106,757) (630,229)
------------- ------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock issuances....................... -- 3,734,076 3,997,800 -- --
Exercise of stock options............................... -- -- 25,816 -- 12,500
Proceeds from capital leases and short-term debt........ 1,825,746 700,065 845,238 126,193 171,031
Principal payments under capital lease obligations and
other indebtedness..................................... (673,714) (456,991) (678,135) (147,664) (215,210)
Proceeds from line of credit............................ -- 1,000,000 1,200,000 250,000 --
Payments on line of credit.............................. -- -- (1,500,000) -- (700,000)
Net proceeds from sale of convertible notes............. 1,038,607 -- -- -- --
------------- ------------- ------------- ------------ ------------
Net cash provided by (used in) financing
activities......................................... 2,190,639 4,977,150 3,890,719 228,529 (731,679)
------------- ------------- ------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents........................................ (1,809,617) 630,211 1,302,372 (363,335) (1,824,450)
CASH AND CASH EQUIVALENTS, beginning
of period................................................ 3,002,330 1,192,713 1,822,924 1,822,924 3,125,296
------------- ------------- ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................. $ 1,192,713 $ 1,822,924 $ 3,125,296 $ 1,459,589 $ 1,300,846
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 75,997 $ 237,620 $ 262,896 $ 61,699 $ 50,013
Cash paid for income taxes.............................. -- -- $ 18,000 $ -- $ 6,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1993 -- Return of laboratory equipment in the amount of $152,500, included in accounts receivable.
1994 -- Conversion of convertible promissory notes into Series D Preferred Stock in the amount of
$1,075,940, including accrued interest.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
UroCor, Inc. ("the Company"), a Delaware corporation, operates in one
business segment and provides a broad range of diagnostic and information
services and expects to provide therapeutic products to urologists and managed
care organizations across the U.S. The Company assists its customers to better
manage patients with urological cancers and other complex urological diseases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) USE OF ESTIMATES. The preparation of these financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(B) CASH AND CASH FLOW REPORTING. The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. The fair value of such instruments equals their net book value at
December 31, 1995.
(C) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of minimum lease
payments at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
basis over the estimated useful lives of the assets. Equipment held under
capital leases and leasehold improvements are amortized on the straight-line
basis over the shorter of the remaining lease term or the economic useful life
of the asset.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of". The Company adopted the standard in 1995 with no impact on
their financial position or results of operations.
(D) SOFTWARE DEVELOPMENT COSTS. Certain internal costs related to software
development relating to the Company's information services are capitalized as
property and equipment when incurred. Capitalization begins when the project
reaches technological feasibility and ceases when the product is ready for
release. Amortization of capitalized software development costs is provided over
the estimated economic life of the software, generally two years, using the
straight-line method. Software development costs are reviewed annually for
impairment. Software development costs capitalized during 1993, 1994 and 1995
were $0, $0 and $35,000, respectively. Capitalized software development costs
capitalized in the three months ended March 31, 1996, were $57,501 (unaudited).
(E) INTANGIBLE AND OTHER ASSETS. The Company has acquired or applied for
options, licenses, patents and distribution rights for various diagnostic and
therapeutic technologies or products. The costs related to such rights are
capitalized and included in intangible and other assets in the accompanying
balance sheets. Such costs are amortized over the estimated economic life of the
related technologies or products.
(F) RESEARCH AND DEVELOPMENT. Research and development is directed
in-house by the Company, as well as off-premises under various collaborative
arrangements and studies. Such costs are expensed as incurred. At December 31,
1995, the Company had commitments totaling approximately $447,000 for various
sponsored research and collaborative arrangements through 1997.
(G) INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
Under the provisions of SFAS No. 109, deferred income taxes are recorded, where
appropriate, to reflect the estimated future tax effects of differences between
financial statement and tax bases of assets and liabilities.
F-7
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(H) REVENUE. Revenue is recognized when products are sold or services are
rendered. Revenue subject to Medicare or third-party reimbursement are recorded
at estimated reimbursable amounts. The Company receives a significant portion of
its revenues from tests performed principally for beneficiaries of the Medicare
program. In 1993, 1994 and 1995, approximately 56%, 58% and 58%, respectively,
of the Company's revenues were derived from tests performed principally for
beneficiaries of the Medicare program. For the three months ended March 31, 1995
and 1996, approximately 57% and 53% of the Company's revenues were derived
similarly from the Medicare program (unaudited). Under law and regulation, for
most of the tests performed for Medicare beneficiaries, the Company must accept
reimbursement allowed by Medicare as payment in full. Substantially all of the
Company's current services receive reimbursement at various rates or on a
case-by-case basis. The Company is not aware of any material claims, disputes or
unresolved matters relating to Medicare or other third-party payors.
(I) NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENTS. Net
income (loss) per common share and common share equivalents has been computed
based upon the weighted average number of common shares and common share
equivalents outstanding during each period. Common share equivalents recognize
the potential dilutive effects of the conversion of preferred stock to common
stock and the impact of outstanding options and warrants to acquire common stock
using the treasury stock method and the Company's estimate of the fair value of
common stock at each year end. Pursuant to the rules of the Securities and
Exchange Commission, common and common share equivalent shares issued in the 12
months prior to March 29, 1996, have been included in the computation of common
and common equivalent shares as if they were outstanding for all periods
presented, including loss years where the impact of the incremental shares is
antidilutive. All other common stock equivalents have been excluded from the
computations for 1993 and 1994 because their impact on the Company's net income
(loss) per share is antidilutive.
(J) ACCRUED COMPENSATION. Accrued compensation consists of quarterly
commissions for sales representative commissions (usually paid the month
following the quarter's end), bonus accruals for non-sales personnel (usually
paid annually during the second quarter), and reccurring monthly accruals.
(K) UNAUDITED INTERIM FINANCIAL INFORMATION. The unaudited interim
financial information as of March 31, 1995 and 1996 and for the three months
then ended has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation of this interim information. Operating results
for the three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for any other interim period or any other future
fiscal year.
3. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------------- -------------- MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment................................... $ 1,298,069 $ 1,606,846 $ 1,683,883
Computer equipment and software........................ 1,119,937 1,586,961 1,914,857
Office furniture, equipment and improvements........... 721,452 1,064,970 1,186,711
-------------- -------------- ---------------
3,139,458 4,258,777 4,785,451
Less -- Accumulated depreciation and amortization...... (1,172,419) (1,815,040) (2,058,360)
-------------- -------------- ---------------
$ 1,967,039 $ 2,443,737 $ 2,727,091
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
F-8
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT: (CONTINUED)
The depreciable lives for property and equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----------
<S> <C>
Laboratory equipment....................................................................... 3.5 to 5
Computer equipment and software............................................................ 3.5 to 5
Office furniture, equipment and improvements............................................... 3.5 to 10
</TABLE>
4. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------- ------------- MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Licenses, options, patents and trademarks............... $ 166,069 $ 320,026 $ 331,056
Less -- Accumulated amortization........................ -- (3,000) (4,250)
------------- ------------- ---------------
Net intangible assets................................... 166,069 317,026 326,806
Distribution agreement (Note 7)......................... 750,000 1,250,000 1,250,000
Deposits and other...................................... 137,680 176,696 261,636
------------- ------------- ---------------
$ 1,053,749 $ 1,743,722 $ 1,838,442
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
5. LINE OF CREDIT:
In March 1994, the Company obtained a $1.5 million line of credit secured by
accounts receivable and a lien on all other tangible assets, which excludes
equipment under capital leases, of the Company. The total amount outstanding on
the line of credit was $700,000 at December 31, 1995, which is reflected as a
non-current liability in the accompanying balance sheets. Average balances
outstanding under this line of credit have been $1,000,000 and $882,000 during
1994 and 1995, with an average interest rate of 9.2% and 10.58% respectively.
Interest is paid monthly at prime (8.75% at December 31, 1995) plus 1.75%. In
February 1996 this line of credit was extended to February 1997 and expanded to
$3.0 million at an interest rate of prime plus 1.5%. The fair value of the line
of credit equals the net book value at December 31, 1995. Under the terms of the
line of credit agreement, the Company must comply with certain restrictive
covenants.
6. LEASES:
The Company is obligated under capital lease agreements that expire during
the next four years. At December 31, 1994 and 1995, the gross amount of property
and equipment and related amortization recorded under capital leases was as
follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment.................................... $ 1,129,587 $ 1,490,575 $ 1,534,684
Computer equipment...................................... 655,305 913,639 927,392
Office furniture and equipment.......................... 296,268 629,304 742,623
------------- -------------- --------------
2,081,160 3,033,518 3,204,699
Less -- Accumulated depreciation and amortization....... (621,396) (1,337,647) (1,548,896)
------------- -------------- --------------
$ 1,459,764 $ 1,695,871 $ 1,655,803
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The Company also has noncancelable operating leases for laboratory
facilities, office space and equipment that expire over the next ten years, with
options to extend. Rental expense for operating leases during 1993, 1994 and
1995 approximated $157,000, $236,000 and $352,000, respectively.
F-9
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASES: (CONTINUED)
Future minimum lease commitments as of December 31, 1995 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -------------
<S> <C> <C>
1996...................................................................... $ 1,015,400 $ 455,477
1997...................................................................... 594,894 490,504
1998...................................................................... 352,107 529,235
1999...................................................................... 133,124 587,018
2000...................................................................... -- 624,518
Thereafter (laboratory and office space to 2005).......................... -- 3,497,814
------------- -------------
Total minimum lease payments.............................................. 2,095,525 $ 6,184,566
-------------
-------------
Less -- Amount representing interest...................................... (268,952)
-------------
Total obligations under capital leases.................................... 1,826,573
Less -- Current installments of obligations under capital leases.......... (860,088)
-------------
Obligation under capital leases, net of current installments.............. $ 966,485
-------------
-------------
</TABLE>
In June 1995, the Company consolidated all of its operations, research,
marketing and administrative functions into a new building constructed by and
leased from a shareholder of the Company. The Company's 10 year lease on this
facility covers 48,000 square feet initially with options available on
additional space up to the entire 110,000 square feet of the building. The
monthly rentals are included in the operating lease commitments above.
In March 1996, the Company received a commitment for a new $1.5 million
lease financing arrangement for capital expenditures through March 1997.
7. COMMITMENTS AND CONTINGENCIES:
(A) DISTRIBUTION AGREEMENT. In connection with a product distribution
agreement covering a product currently undergoing regulatory review by the U.S.
Food and Drug Administration ("FDA"), the Company made payments to a
manufacturer of $750,000 and $500,000 in 1994 and 1995, respectively. These
payments, totaling $1,250,000 are included in intangible and other assets, net
in the accompanying balance sheets at December 31, 1994 and 1995 (see Note 4).
The Company will be required to make a milestone payment of $1,750,000 when and
if regulatory approval by the FDA is received. If the product is not approved by
the FDA within a specified time period, the manufacturer must repay the Company
an amount equivalent to all amounts previously paid by the Company.
The aggregate payments of $3.0 million to be paid under the agreement,
assuming FDA approval, will be amortized over the expected economic life of the
distribution agreement, based on expected future unit sales of the product. The
Company anticipates that it will assume that the agreement will extend through
the initial term of five years and the renewal term of five years, but will
revise the amortization period if events support shortening the period.
Assuming and upon approval of the product by the FDA, the Company will be
required to conduct specified sales, marketing and certain other activities with
respect to the product and meet certain minimum unit sales levels. The initial
term of the distribution agreement is for five years, and the Company has an
option to renew for an additional five years, at no cost, if the minimum sales
levels are attained.
(B) EMPLOYMENT AGREEMENTS. Certain key employees of the Company have
entered into arrangements regarding their terms of employment. While none of
such arrangements provide for fixed
F-10
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
periods of employment, they do provide for continued payment of salaries for up
to six months following termination without cause, aggregating approximately
$378,000 at December 31, 1995 and March 31, 1996 (unaudited).
8. RELATED PARTY TRANSACTIONS:
The Company had certain transactions for contractual services performed by
members of the Board of Directors or their affiliates which are included in
expenses of approximately $71,000, $59,000 and $42,000 in 1993, 1994 and 1995,
respectively. In addition, the Company recognized rent expense totaling $167,000
related to the new facility which is leased from a shareholder (see Note 6). In
management's opinion, these transactions were conducted on terms equivalent to
those with unrelated third parties.
9. STOCKHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK, CLASS A STOCK AND CLASS B STOCK. The Company's
convertible preferred stock consists of the following:
<TABLE>
<S> <C>
1991 Series A, $.01 par value, authorized, issued and outstanding 1,199,999 shares
Series B, $.01 par value, authorized, issued and outstanding 1,467,608 shares in
1994 and 1995
Series B1, $.01 par value, authorized 1,467,608 shares; no shares issued and
outstanding
Series C, $.01 par value, authorized, issued and outstanding 981,071 shares in 1994
and 1995
Series C1, $.01 par value, authorized 981,071 shares; no shares issued and
outstanding
Series D, $.01 par value, authorized 1,500,000 shares in 1994 and 1,154,397 shares
in 1995; issued and outstanding 1,154,397 shares in 1994 and 1995
Series D1, $.01 par value, authorized 1,500,000 shares in 1994 and 1,154,397 shares
in 1995; no shares issued and outstanding in 1994 and 1995
Series E/EG, $.01 par value, authorized, no shares issued and outstanding in 1994;
issued and outstanding 823,320 shares in 1995
Series E1/EG1, $.01 par value, authorized 823,320; no shares issued and outstanding
in 1994 and 1995
Series I, $.01 par value, authorized, issued and outstanding 80,000 shares in 1994
and 1995
</TABLE>
In March 1996, the Company restated its Certificate of Incorporation
changing the authorized shares of preferred stock from 10,132,791 to 6,000,000
and the authorized shares of Class A Stock from 590,674 to 513,093.
SERIES D PREFERRED STOCK AND CONVERTIBLE PROMISSORY NOTES. In October 1993,
several existing stockholders of the Company purchased 8% Convertible Promissory
Notes from the Company resulting in total proceeds to the Company of $1,038,607.
Effective March 30, 1994, in connection with the sale of 849,094 shares of
Series D Preferred Stock at $4.30 per share, the 8% Convertible Promissory Notes
were converted into 250,224 shares of Series D Preferred Stock. In April 1994, a
secondary closing on sales of Series D Preferred Stock was completed with the
sale of 55,079 shares at $4.30 per share. The aggregate proceeds from the Series
D Preferred Stock offerings totaled $4,963,885, with cash proceeds of $3,887,945
and $1,075,940 from conversion of the 8% Convertible Promissory Notes and
related accrued interest, resulting in net proceeds of $4,798,870.
F-11
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
Upon conversion of the 8% Convertible Promissory Notes as discussed above,
the Company agreed to execute and deliver to the 8% Convertible Promissory Note
purchasers stock warrants to purchase 130,232 shares of Common Stock at $4.30
per share, exercisable through October 1998.
SERIES E AND SERIES EG PREFERRED STOCK. In June 1995, the Company closed
offerings of Series E and Series EG preferred stock totaling 823,320 shares at
$5.00 per share. In connection with this offering, the Company issued warrants
to purchase 164,664 shares of Common Stock with an exercise price of $5.00 per
share. These warrants expire after five years. The net proceeds from the Series
E and Series EG preferred stock offering totaled $3,997,800.
The significant attributes of each class or series of stock are described
below:
(A) CONVERSION.
(I) AUTOMATIC CONVERSION. Each outstanding share of Convertible
Preferred Stock and Class A Stock and Class B Stock will automatically be
converted into Common Stock upon the closing of an underwritten public
offering. In addition, in the event of a liquidation, dissolution, merger or
sale of the Company, in which the market valuation of the Company equals or
exceeds $46,220,397, all Class A Stock will automatically be converted into
Common Stock.
In the event of a new stock offering at a per share price below the
respective conversion price of Series B, Series C, Series D, Series E or Series
EG Preferred Stock, each share of Series B, Series C, Series D, Series E or
Series EG Preferred Stock held by a party not participating in such stock
offering will automatically convert to one share of Series B1, Series C1, Series
D1, Series E1 or Series EG1 Preferred Stock, as applicable.
(II) OPTIONAL CONVERSION. Convertible Preferred Stock is convertible at
the option of the holder, at any time, into shares of Common Stock.
(III) CONVERSION SHARES. The per share conversion factors will be
ratably adjusted to reflect any changes in capital stock such as stock
dividends, combinations or reclassifications. At December 31, 1995, all
Convertible Preferred Stock, Class A Stock and Class B Stock shares
outstanding were convertible to an equivalent number of Common Stock shares,
except that the 981,071 shares of Series C Preferred Stock were convertible
into 1,177,277 shares of Common Stock.
(B) LIQUIDATION. Upon dissolution below certain specified or aggregate
proceeds, liquidation or sale, merger or other disposition of the Company,
stockholders will receive distribution of proceeds as described below:
(I) FIRST PREFERENCE. Holders of Convertible Preferred Stock and Class
A Stock will first receive preference to Common Stock and Class B Stock
holders. The holders of Convertible Preferred Stock and Class A Stock will
receive declared but unpaid dividends plus the following amount per share:
- $.25 per share for Class A Stock;
- $1.25 per share for 1991 Series A and Series I Preferred Stock;
- $1.55 per share for Series B and Series B1 Preferred Stock;
- $3.25 per share for Series C and Series C1 Preferred Stock;
- $4.30 per share for Series D and D1 Preferred Stock; and
- $5.00 per share for Series E, Series E1, Series EG, and Series EG1
Preferred.
F-12
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
If proceeds are insufficient to permit payment in full, as described above,
then the holders of these shares will share ratably in proportion to the full
amounts otherwise distributable.
(II) SECOND PREFERENCE. If the first preference amounts are satisfied
in full, remaining proceeds will then be distributed to the holders of Class
A Stock as follows: the lesser of (i) $1,683,396 or (ii) 26% of amounts
remaining available for distribution.
If proceeds are insufficient to permit payment in full of the secondary
preference amounts, then the holders of these shares will share ratably in
proportion to the full amount otherwise distributable.
(III) GENERAL DISTRIBUTION. Upon satisfying the First and Second
Preference requirements, all holders of stock will then share ratably in any
remaining proceeds, on a basis as if converted to Common Stock. All shares
will convert to Common Stock except in the event of a liquidation,
dissolution, merger or sale of the Company, in which the market valuation of
the Company equals or exceeds $46,220,397, then after the first and second
preference distributions described above, any holders of Convertible
Preferred Stock would not participate in the general distribution described
above. In such a liquidation, dissolution, merger or sale, the Class A Stock
would be automatically converted into Common Stock and therefore would not
participate in the first and second preferences described above.
(C) REDEMPTION. All series of convertible preferred stock excluding Series
EG and EG1, were originally issued with redemption rights. In March 1996, the
shareholders of these convertible preferred shares relinquished their redemption
rights pursuant to the Company's plans for an initial public offering.
Accordingly all convertible preferred stock is classified as equity in the
accompanying balance sheet at par value.
COMMON STOCK. At December 31, 1995, the Company had 8,700,000 shares of
Common Stock authorized for the conversion of Convertible Preferred Stock, Class
A Stock, Class B Stock and the exercise of Common Stock options and warrants.
The total Common Stock shares that would have been issued assuming conversion of
all series and classes of stock and exercise of options and warrants as of
December 31, 1995 was 8,020,202. In March 1996, the Company restated its
Certificate of Incorporation changing the authorized shares of Common Stock from
8,700,000 shares to 20,000,000 shares.
WARRANTS. There are a total of 486,310 warrants outstanding for the
purchase of the Company's common stock exercisable at prices ranging between
$1.25 to $5.50 per share and expiring from October 1998 to May 2001. No value
was attributed to these warrants in connection with their issuances. At December
31, 1995, none of these warrants had been exercised. A summary of the warrants
outstanding is presented below:
<TABLE>
<CAPTION>
MARCH 31, 1996
1993 1994 1995 (UNAUDITED)
-------------------------- ------------------------ ------------------------ ------------------------
EXERCISE EXERCISE EXERCISE EXERCISE
PRICE PER PRICE PER PRICE PER PRICE PER
WARRANTS SHARE WARRANTS SHARE WARRANTS SHARE WARRANTS SHARE
----------- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year.............. 85,600 $ 1.25 85,600 $ 1.25 321,646 $1.25 - 5.50 486,310 $1.25 - 5.50
Granted............... -- 236,046 4.30 - 5.50 164,664 5.00 -- --
Exercised............. -- -- -- -- --
----------- ----------- ----------- -----------
Outstanding, end of
year................. 85,600 $ 1.25 321,646 $1.25 - 5.50 486,310 $1.25 - 5.50 486,310 $1.25 - 5.50
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-13
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN:
The Company has adopted a stock option plan, the "1992 Stock Option Plan".
The Company accounts for this plan under APB Opinion No. 25, under which no
compensation cost has been recognized, except for the stock option grant
described below. Under the Plan 1,400,000 shares of common stock are reserved as
incentive and non-qualified options for employees and officers and non-qualified
options for directors and independent contractors of the Company. These options
vest over three to five years, expire ten years after issuance and have an
exercise price equal to the stock's estimated fair market value on the date of
grant.
A summary of the status of the plan is presented below:
<TABLE>
<CAPTION>
MARCH 31, 1996
1993 1994 1995 (UNAUDITED)
---------------------- --------------------- ---------------------- ----------------------
EXERCISE EXERCISE EXERCISE EXERCISE
PRICE PER PRICE PER PRICE PRICE
SHARES SHARE SHARES SHARE SHARES PER SHARE SHARES PER SHARE
--------- ----------- --------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period............ 80,000 $.35 - .75 284,000 $.35 - .75 706,994 $.35 - 1.25 982,344 $.35 - 1.75
Granted............... 204,000 .35 - .75 423,494 .75 - 1.25 403,250 1.25 - 1.75 -- --
Exercised............. -- -- (69,188) .35 - .75 (12,500) 1.00
Expired............... -- (500) .75 (58,712) .35 - 1.50 (10,250) .75 - 1.50
--------- --------- --------- ---------
Outstanding, end of
period............... 284,000 $.35 - .75 706,994 $.35 - 1.25 982,344 $.35 - 1.75 959,594 .35 - 1.75
--------- --------- --------- ---------
--------- --------- --------- ---------
Exercisable, end of
period............... 78,990 $.35 - .75 269,320 $.35 - 1.25 341,870 $.35 - 1.75 353,580 .35 - 1.75
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
In December 1995, the Company issued options to employees covering 295,000
shares of Common Stock. Considering the Company's anticipated public offering
price per share and other events, the Company estimated that the adjusted fair
value of the Common Stock at the date of grant of these options exceeded the
exercise price of the options. Accordingly, the Company will recognize imputed
compensation expenses as a noncash charge to operations, aggregating
approximately $443,000 over the actual vesting period of these options of three
to five years.
In 1995, the Financial Accounting Standards Board issued Statement No. 123
"Accounting for Stock - Based Compensation". This Statement requires either
changing accounting methods to recognize the fair value of stock options issued
as compensation expense in the financial statements, or disclosing the effect
that such change would have had on the financial statements. The Company will
adopt Statement No. 123 in 1996 and has elected to only provide the disclosures
required by the statement. Thus, there will be no effect on the Company's
financial position.
11. EMPLOYEE BENEFIT PLAN:
The Company has established a 401(k) employee benefit plan covering
substantially all employees. The Plan is funded through voluntary employee
salary deferrals. Although the Company has the discretion to make contributions
to the Plan, no such amounts have been contributed to date.
F-14
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES:
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1994 and 1995 were:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Code Section 481 adjustment related to change to accrual method of
accounting............................................................... $ (355,022) $ (236,681)
Assets and liabilities related to capitalized leases, net................. 78,236 49,667
Depreciation and amortization............................................. 55,400 (17,889)
Allowance for doubtful accounts........................................... -- (117,961)
Alternative minimum tax carryforward...................................... -- 24,000
Net operating loss........................................................ 3,644,867 3,642,906
------------- -------------
Net deferred tax asset (liability)........................................ 3,423,481 3,344,042
Valuation allowance....................................................... (3,423,481) (3,320,042)
------------- -------------
Total net deferred tax asset.......................................... $ -- $ 24,000
------------- -------------
------------- -------------
</TABLE>
At December 31, 1995, the Company had regular tax net operating loss
carryforwards of approximately $13,700,000 which will begin to expire in 2002.
The Company's income tax provision differed from the federal statutory rate due
to the utilization of the Company's tax net operating loss carryforward. The
annual utilization of this carryforward will be limited by Internal Revenue Code
Section 382 due to the fact a cumulative change in ownership of more than 50%
has previously occurred. Therefore, the future utilization of this net operating
loss carryforward will be limited to approximately $9,600,000.
A valuation allowance against the net deferred tax asset has been recorded,
except for the amount attributable to the alternative minimum tax credit which
can be carried forward indefinitely, on the basis that significant uncertainty
exists regarding the realizability of such assets. The deferred tax asset is
included in other assets in the accompanying balance sheets.
F-15
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 5
THE COMPANY.................................... 14
USE OF PROCEEDS................................ 14
DIVIDEND POLICY................................ 14
CAPITALIZATION................................. 15
DILUTION....................................... 16
SELECTED FINANCIAL DATA........................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 18
BUSINESS....................................... 24
MANAGEMENT..................................... 36
CERTAIN TRANSACTIONS........................... 41
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
STOCKHOLDERS.................................. 42
DESCRIPTION OF CAPITAL STOCK................... 44
SHARES ELIGIBLE FOR FUTURE SALE................ 47
UNDERWRITING................................... 49
LEGAL MATTERS.................................. 50
EXPERTS........................................ 50
AVAILABLE INFORMATION.......................... 50
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
----------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,800,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MONTGOMERY SECURITIES
VOLPE, WELTY & COMPANY
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 11,104
NASD Filing Fee.......................................................... 3,720
Nasdaq National Market Listing Fee....................................... 40,000
Legal Fees and Expenses.................................................. 200,000
Accounting Fees and Expenses............................................. 100,000
Blue Sky Fees and Expenses (including legal fees)........................ 15,000
Printing Expenses........................................................ 150,000
Transfer Agent and Registrar Fees........................................ 5,000
Miscellaneous............................................................ 75,176
---------
TOTAL.................................................................. $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article X of the Company's Amended and Restated By-laws (the "By-laws")
provides for mandatory indemnification to at least the extent specifically
allowed by Section 145 of the General Corporation Law of the State of Delaware
(the "GCL").
Pursuant to Section 145 of the GCL, UroCor generally has the power to
indemnify its current and former directors, officers, employees and agents
against expenses and liabilities incurred by them in connection with any suit to
which they are, or threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was lawful. With respect to suits by or in the right of
the Company, however, indemnification is generally limited to attorneys' fees
and other expenses and is not available if such person is adjudged to be liable
to the Company unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The Company also has the
power to purchase and maintain insurance for such persons.
The above discussion of the Company's By-laws and Section 145 of the GCL is
not intended to be exhaustive and is qualified in its entirety by each of such
documents and such statute.
The Company has entered into indemnification agreements with its directors,
executive officers and certain key employees that generally obligate the Company
to indemnify such persons to the extent permitted under the GCL.
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 to be filed by amendment, which contains provisions for
indemnification of the Company, its directors, officers and any controlling
persons by the Underwriters against certain liabilities for information
furnished by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, UroCor has sold unregistered securities in the
amounts, at the time and for the aggregate amounts of consideration listed
below. With respect to sales of Preferred Stock and Class A stock, all shares
and amounts and per share prices described below have been adjusted to reflect
the automatic conversion of such shares into Common Stock immediately prior to
the closing of the Offering and a five-to-one stock split effected in March
1993. The securities were sold to purchasers directly by the Company, and such
sales did not involve any underwriter. The Company considers these securities to
have been offered and sold in transactions not involving a public offering and,
therefore, to
II-1
<PAGE>
be exempted from registration under Section 4(2) and Regulation D of the
Securities Act of 1933, as amended. For equity securities, the "Type" of stock
listed in the table below reflects the class or series of stock actually issued,
however, the number of shares has been adjusted to reflect the automatic
conversion of such shares into Common Stock immediately prior to the closing of
the Offering.
<TABLE>
<CAPTION>
AGGREGATE
AMOUNT OF
SECURITIES AGGREGATE
PURCHASER TYPE DATE ISSUED CONSIDERATION
- ------------------------------------ ---------------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Investor Group (1).................. Promissory Notes October 1993 $ 1,038,607 $ 1,038,607
Investor Group (2).................. Series D Preferred March/April 1994 1,154,397 $ 4,963,885
Investor Group (1).................. Warrants March 1994 (3) N/A
Investor Group (4).................. Series E Preferred June 1995 763,320 $ 3,816,600
Investor Group (5).................. Series EG Preferred June 1995 60,000 $ 300,000
Investor Group (4)(5)............... Warrants June 1995 (6) N/A
Various Employees and a Director
Through Exercise of Options Granted From January 1993
Under 1992 Stock Option Plan....... Common Stock through April 1996 82,288 $ 38,765
Silicon Valley Bank................. Warrant April 1994 (7) N/A
Bank of Oklahoma.................... Warrant April 1994 (8) N/A
IAF Biovac, Inc..................... Warrant December 1994 (9) N/A
</TABLE>
- --------------------------
(1) The investor group consists of Concord Partners II, L.P.; Concord Partners
Japan Limited; PB-SB 1985 Investment Partnership VII; The Woodlands Venture
Fund, L.P.; Salomon Brothers Holding Company, Inc.; WestMed Venture
Partners; ML Oklahoma Venture Partners, Limited Partnership; Presbyterian
Health Foundation; Rovent Limited Partnership; Advent International
Investors Limited Partnership; Advent Omnibus Limited Partnership; Advent
S.B.P.E. Limited Partnership; Gateway Venture Partners II, L.P.; Marco
Investment Company; Floyd E. Farha; William M. and Lu Beard Charitable
Remainder Trust; and Stanton L. Young.
(2) The investor group consists of Concord Partners II, L.P.; Concord Partners
Japan Limited; PB-SB 1985 Investment Partnership VII; The Woodlands Venture
Fund, L.P.; Salomon Brothers Holding Company, Inc.; WestMed Venture
Partners; ML Oklahoma Venture Partners, Limited Partnership; Presbyterian
Health Foundation; Rovent Limited Partnership; Advent International
Investors Limited Partnership; Advent Omnibus Limited Partnership; Advent
S.B.P.E. Limited Partnership; Gateway Venture Partners II, L.P.; Marco
Investment Company; Floyd E. Farha; William M. and Lu Beard Charitable
Remainder Trust; Stanton L. Young; Lexington Partners III, L.P.; Lexington
Partners IV, L.P.; Dillon, Read & Co. Inc., as Agent; Kummell Investments
Limited; and Dean A. McGee Eye Institute Endowment Fund.
(3) The aggregate number of shares of Common Stock issuable upon exercise of the
warrants is 130,232, subject to certain antidilution adjustments.
(4) The investor group consists of GMI/DRI Investment Trust; Dillon, Read & Co.
Inc., as Agent; Concord Partners II, L.P.; Lexington Partners IV, L.P.;
Kummell Investments Limited; WestMed Venture Partners; Smith Barney Inc., as
custodian for the benefit of Floyd E. Farha IRA Rollover; Floyd E. Farha; W.
M. and Lu Beard Charitable Remainder Trust; Marco Investment Company;
Stanton L. Young; and The Health Care and Biotechnology Fund.
(5) The investor group consists of Gateway Partners L.P.
(6) The aggregate number of shares of Common Stock issuable upon exercise of the
warrants is 164,664, subject to certain antidilution adjustments.
(7) The number of shares of Common Stock issuable upon exercise of the warrant
is 4,942, subject to certain antidilution adjustments.
(8) The number of shares of Common Stock issuable upon exercise of the warrant
is 872, subject to certain antidilution adjustments.
(9) The number of shares of Common Stock issuable upon exercise of the warrant
is 100,000, subject to certain antidilution adjustments.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation.
3.2* -- Amended and Restated By-laws.
4.1 -- Form of Common Stock Certificate.
4.2* -- See Exhibits numbered 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation
and Amended and Restated By-laws of UroCor defining the rights of the holders of Common
Stock.
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
10.1* -- The UroCor, Inc. Amended and Restated 1992 Stock Option Plan.
10.2* -- Distribution Agreement, dated December 30, 1994, between IAF BioVac Inc. and UroCor, Inc. and
letter agreement dated December 30, 1994, between IAF BioVac Inc. and UroCor, Inc.
(Confidential Treatment requested pursuant to Rule 406 under the Securities Act).
10.3* -- Loan Agreement, dated March 14, 1994, between Silicon Valley Bank and CytoDiagnostics, Inc.,
as modified by Loan Modification Agreement dated June 13, 1994 between CytoDiagnostics, Inc.
and Silicon Valley Bank, and Loan Modification Agreement dated March 9, 1995, between
Silicon Valley Bank and UroCor, Inc. and as amended by Amendment to Loan and Security
Agreement dated February 1, 1996, between Silicon Valley Bank and UroCor, Inc.
10.4* -- Lease Agreement, dated April 15, 1994, between Presbyterian Health Foundation and UroCor,
Inc.
10.5* -- Employment Agreement, dated January 1, 1990, between William A. Hagstrom and UroCor, Inc.
10.6* -- Employment Agreement, dated April 23, 1990, between Mark Dimitroff and UroCor, Inc.
10.7* -- Employment Agreement, dated September 4, 1990, between Robert Veltri and UroCor, Inc.
10.8* -- Employment Agreement, dated June 1, 1992, between Socrates Choumbakos and UroCor, Inc.
10.9* -- Form of Indemnification Agreement between UroCor, Inc. and each of the individuals named in
Schedule 10.9 thereto.
10.10* -- 1995 Management Incentive Compensation Plan.
10.11* -- Registration Rights Agreement, dated June 2, 1995, among UroCor, Inc. and the stockholders
named therein.
10.12* -- Master Equipment Lease, dated May 17, 1995, between Financing for Science International, Inc.
and UroCor, Inc., Commitment Letter dated March 18, 1996, between Financing for Science
International, Inc. and UroCor, Inc. and Amendment Letter dated April 17, 1996, by Financing
for Science International, Inc.
10.13* -- Master Lease Agreement, dated June 26, 1993, between Linc Capital Management Services, Ltd.
and CytoDiagnostics, Inc., as amended by Addendum No. 001 to Master Lease Agreement dated
June 26, 1993, between Linc Capital Management Services, Ltd. and CytoDiagnostics, Inc.,
Addendum No. 002 to Master Lease Agreement dated July 19, 1993, between Linc Capital
Management Services, Ltd. and CytoDiagnostics, Inc., Addendum No. 003 to Master Lease
Agreement dated October 8, 1993, between Linc Capital Management Services, Ltd. and
CytoDiagnostics, Inc. and Addendum No. 004 to Master Lease Agreement dated December 22,
1994, between Linc Capital Management Services, Ltd. and UroCor, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
10.14 -- Employment Agreement, dated April 5, 1996, between Kathryn L.W. Ingerly and UroCor, Inc.
<C> <C> <S>
11.1* -- Statement re Computation of Per Share Earnings.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1* -- Powers of Attorney from certain members of the Board of Directors of the Company.
</TABLE>
- ------------------------
* Previously filed.
+ To be filed by amendment.
As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Registration Statement certain instruments defining the rights of
holders of long-term debt of the Company, if any, because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company. The Company agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifiying Accounts
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a 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, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, UroCor, Inc. has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Oklahoma City,
State of Oklahoma, on May 10, 1996.
UroCor, Inc.
By: /s/ WILLIAM A. HAGSTROM
------------------------------------
William A. Hagstrom
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------------- -----------------
<S> <C> <C>
/s/ WILLIAM A. HAGSTROM Chairman of the Board, President and Chief May 10, 1996
------------------------------------------- Executive Officer (Principal Executive
William A. Hagstrom Officer)
/s/ SOCRATES H. CHOUMBAKOS Vice President Corporate Development, Chief May 10, 1996
------------------------------------------- Financial Officer and Secretary (Principal
Socrates H. Choumbakos Financial Officer)
/s/ MICHAEL N. MCDONALD Director of Finance and Administration and May 10, 1996
------------------------------------------- Treasurer (Principal Accounting Officer)
Michael N. McDonald
* Director May 10, 1996
-------------------------------------------
Paul A. Brown, M.D.
* Director May 10, 1996
-------------------------------------------
Herbert J. Conrad
/s/ MICHAEL E. HERBERT Director May 10, 1996
-------------------------------------------
Michael E. Herbert
* Director May 10, 1996
-------------------------------------------
Louis M. Sherwood, M.D.
/s/ DON E. SPYRISON Director May 10, 1996
-------------------------------------------
Don E. Spyrison
* Director May 10, 1996
-------------------------------------------
Joe D. Tippens
*By: /s/ SOCRATES H. CHOUMBAKOS
--------------------------------------
Socrates H. Choumbakos, ATTORNEY-IN-FACT FOR EACH OF
THE PERSONS INDICATED
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
UroCor, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of UroCor, Inc. included in this registration statement
and have issued our report thereon dated March 29, 1996. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index of financial statements 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 audit 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.
Oklahoma City, Oklahoma, ARTHUR ANDERSEN LLP
March 29, 1996
S-1
<PAGE>
SCHEDULE II
UROCOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
CHARGE TO CHARGE TO
BEGINNING COST AND OTHER ENDING
DESCRIPTION BALANCE EXPENSE ACCOUNTS DEDUCTION(1) BALANCE
- -------------------------------------------------- ----------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1995:
Allowance for Doubtful Accounts................. 670,845 934,482 -- (623,281) 982,046
For the Year Ended December 31, 1994:
Allowance for Doubtful Accounts................. 392,522 706,074 -- (427,751) 670,845
For the Year Ended December 31, 1993:
Allowance for Doubtful Accounts................. 204,530 496,264 -- (308,272) 392,522
</TABLE>
- ------------------------
(1) Represents write-offs of uncollectible accounts receivable against the
allowance for doubtful accounts.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation.
3.2* Amended and Restated By-laws.
4.1 Form of Common Stock Certificate.
4.2* See Exhibits numbered 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation
and Amended and Restated By-laws of UroCor defining the rights of the holders of Common Stock.
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1* The UroCor, Inc. Amended and Restated 1992 Stock Option Plan.
10.2* Distribution Agreement, dated December 30, 1994, between IAF BioVac Inc. and UroCor, Inc. and
letter agreement dated December 30, 1994, between IAF BioVac Inc. and UroCor, Inc.
(Confidential Treatment requested pursuant to Rule 406 under the Securities Act).
10.3* Loan Agreement, dated March 14, 1994, between Silicon Valley Bank and CytoDiagnostics, Inc., as
modified by Loan Modification Agreement dated June 13, 1994 between CytoDiagnostics, Inc. and
Silicon Valley Bank, and Loan Modification Agreement dated March 9, 1995, between Silicon
Valley Bank and UroCor, Inc., and as amended by Amendment to Loan and Security Agreement dated
February 1, 1996, between Silicon Valley Bank and UroCor, Inc.
10.4* Lease Agreement, dated April 15, 1994, between Presbyterian Health Foundation and UroCor, Inc.
10.5* Employment Agreement, dated January 1, 1990, between William A. Hagstrom and UroCor, Inc.
10.6* Employment Agreement, dated April 23, 1990, between Mark Dimitroff and UroCor, Inc.
10.7* Employment Agreement, dated September 4, 1990, between Robert Veltri and UroCor, Inc.
10.8* Employment Agreement, dated June 1, 1992, between Socrates Choumbakos and UroCor, Inc.
10.9* Form of Indemnification Agreement between UroCor, Inc. and each of the individuals named in
Schedule 10.9 thereto.
10.10* 1995 Management Incentive Compensation Plan.
10.11* Registration Rights Agreement, dated June 2, 1995, among UroCor, Inc. and the stockholders
named therein.
10.12* Master Equipment Lease, dated May 17, 1995, between Financing for Science International, Inc.
and UroCor, Inc., Commitment Letter dated March 18, 1996, between Financing for Science
International, Inc. and UroCor, Inc. and Amendment Letter dated April 17, 1996, by Financing
for Science International, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
10.13* Master Lease Agreement, dated June 26, 1993, between Linc Capital Management Services, Ltd. and
CytoDiagnostics, Inc., as amended by Addendum No. 001 to Master Lease Agreement dated June 26,
1993, between Linc Capital Management Services, Ltd. and CytoDiagnostics, Inc., Addendum No.
002 to Master Lease Agreement dated July 19, 1993, between Linc Capital Management Services,
Ltd. and CytoDiagnostics, Inc., Addendum No. 003 to Master Lease Agreement dated October 8,
1993, between Linc Capital Management Services, Ltd. and CytoDiagnostics, Inc. and Addendum
No. 004 to Master Lease Agreement dated December 22, 1994, between Linc Capital Management
Services, Ltd. and UroCor, Inc.
<C> <S> <C>
10.14 Employment Agreement, dated April 5, 1996, between Kathryn L.W. Ingerly and UroCor, Inc.
11.1* Statement re Computation of Per Share Earnings.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1* Powers of Attorney from certain members of the Board of Directors of the Company.
</TABLE>
- ------------------------
* Previously filed.
+ To be filed by amendment.
<PAGE>
2,800,000 SHARES
UROCOR, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
May , 1996
MONTGOMERY SECURITIES
VOLPE, WELTY & COMPANY
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. INTRODUCTORY. UroCor, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 2,800,000 shares of its authorized but
unissued shares of Common Stock, $0.01 par value per share (the "Common Stock"),
to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate of
2,800,000 shares of Common Stock are herein called the "Firm Common Shares." In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to 420,000 additional shares of Common Stock (the "Optional Common
Shares"), as provided in Section 4 hereof. The Firm Common Shares and, to the
extent such option is exercised, the Optional Common Shares are hereinafter
collectively referred to as the "Common Shares."
You have advised the Company that the Underwriters propose to make a public
offering of their respective portions of the Common Shares on the effective date
of the registration statement hereinafter referred to, or as soon thereafter as
in your judgment is advisable.
The Company hereby confirms its agreements with respect to the purchase of
the Common Shares by the Underwriters as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (Reg. No. 333-3182) with
respect to the Common Shares has been prepared by the Company in conformity,
in all material respects, with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The Company has prepared
and has filed or proposes to file prior to the effective date of such
registration statement an amendment or amendments to such registration
statement, which amendment or amendments have been or will be similarly
prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each
exhibit filed therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary prospectus
have been delivered to you in such quantities as you reasonably have
requested for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (ii) a final prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations or (iii) a term sheet (the "Term Sheet")
as described in and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the Term
Sheet and Preliminary Prospectus (as hereinafter defined), if a final
prospectus is not used, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that you shall agree in
writing to a modification, shall be in all
<PAGE>
substantive respects in the form furnished to you prior to the date and time
that this Agreement was executed and delivered by the parties hereto, or, to
the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that contained in
the latest Preliminary Prospectus) as the Company shall have previously
advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended; provided, however, that
such term shall also include (i) all Rule 430A Information deemed to be
included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and (ii) any registration statement filed pursuant to 462(b) of
the Rules and Regulations relating to the Common Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean
either (i) the prospectus relating to the Common Shares in the form in which
it is first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or, (ii) if a Term Sheet is not used and no filing pursuant
to Rule 424(b) of the Rules and Regulations is required, shall mean the form
of final prospectus included in the Registration Statement at the time such
registration statement becomes effective or (iii) if a Term Sheet is used,
the Term Sheet in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, together with the
Preliminary Prospectus included in the Registration Statement at the time it
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and
Regulations, and neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, will include any 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 the light of the
circumstances under which they were made, not misleading; provided, however,
no representation or warranty contained in this subsection 2(b) shall be
applicable to information contained in or omitted from any Preliminary
Prospectus, the Registration Statement, the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly or
through the Representatives, specifically for use in the preparation
thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware, with full corporate power and authority
to own and lease its properties and conduct its business as described in the
Prospectus; the Company is in possession of and operating in compliance in
all material respects with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of its business,
2
<PAGE>
all of which are valid and in full force and effect; the Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the ownership or leasing of properties or the
conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(d) At the time of the First Closing, the Company will have authorized
and outstanding capital stock as set forth under the heading "Description of
Capital Stock" in the Prospectus, subject to any changes resulting from
exercises of outstanding options under the Company's Amended and Restated
1992 Stock Option Plan (the "1992 Plan") and forfeiture of options granted
under the 1992 Plan; the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and conform to the
description thereof contained in the Prospectus under the heading
"Description of Capital Stock." Except as disclosed in the Prospectus and
the financial statements of the Company, and the related notes thereto,
included in the Prospectus, and except for options that may be granted under
the 1992 Plan, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option plan and the options granted and exercised thereunder, set
forth in the Prospectus, accurately and fairly presents, in all material
respects, the information required under the Act and the Rules and
Regulations to be shown with respect to such plan and options.
(e) The Common Shares have been duly authorized and, when issued,
delivered and paid for in the manner set forth in this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Prospectus under the
heading "Description of Capital Stock." No preemptive rights or other rights
to subscribe for or purchase exist with respect to the issuance and sale of
the Common Shares by the Company pursuant to this Agreement. No stockholder
of the Company has any right which has not been waived to require the
Company to register the sale of any shares owned by such stockholder under
the Act in the public offering contemplated by this Agreement. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Common Shares to
be sold by the Company as contemplated herein.
(f) The Company has all requisite corporate power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company in accordance
with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect relating to or
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except that
enforceability of the rights to indemnity and contribution contained in this
Agreement may be limited by federal or state laws and public policy
underlying such laws. The making and performance of this Agreement by the
Company and the consummation of the transactions herein contemplated will
not violate any provisions of the Restated Certificate of Incorporation (the
"Certificate of Incorporation") or the amended and restated by-laws (the
"By-laws") of the Company, and will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the
passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to
which the Company is a party or by which the Company or any of its
properties may be bound or affected (except for such conflicts, breaches,
violations or defaults,
3
<PAGE>
which, in the aggregate, would not materially adversely affect the financial
condition, properties, business, results of operations or prospects of the
Company), any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its properties.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common
Shares by the several Underwriters and the clearance of such offering with
the National Association of Securities Dealers, Inc. (the "NASD").
(g) Arthur Andersen L.L.P., who have expressed their opinion with
respect to the financial statements and schedule filed with the Commission
as a part of the Registration Statement and included in the Prospectus and
in the Registration Statement, are independent accountants as required by
the Act and the Rules and Regulations.
(h) The financial statements and schedule of the Company, and the
related notes thereto, included in the Registration Statement and the
Prospectus present fairly, in all material respects, the financial position
of the Company as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position
of the Company for the respective periods covered thereby. Such statements,
schedule and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as reported on
by the independent accountants named in subsection 2(g). No other financial
statements or schedules are required to be included in the Registration
Statement. The selected financial data set forth in the Prospectus under the
captions "Capitalization" and "Selected Financial Data" present fairly, in
all material respects, the information set forth therein on the basis stated
in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to defaults
which individually or in the aggregate would not be material to the Company,
the Company is not in violation or default of any provision of its
Certificate of Incorporation or By-laws, or other organizational documents,
or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a
party or by which it or any of its properties are bound (except for such
breaches or defaults which in the aggregate would not materially adversely
affect the financial condition, properties, business, results of operations
or prospects of the Company); and there does not exist any state of facts
which constitutes an event of default on the part of the Company as defined
in such documents or which, with notice or lapse of time or both, would
constitute such an event of default (except for such events of default,
which in the aggregate would not materially adversely affect the financial
condition, business, results of operations or prospects of the Company).
(j) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. All such contracts are in full force and
effect on the date hereof; and neither the Company nor, to the Company's
knowledge, any other party is in breach of or default under any of such
contracts.
(k) Other than as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the Company's
judgment, decree or order of any court, regulatory body, administrative
agency or other governmental body, to which the Company os or may be a party
or, to the Company's knowledge, of which property owned or leased by the
Company is or may be the subject, or related to environmental or
discrimination matters, which actio, suits, proceedings, injunctions,
judgments, decrees or orders might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement
or result in a material adverse effect on the financial condition,
properties, business, results of operations
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or prospects of the Company; and, to the Company's knowledge, no labor
disturbances by the employees of the Company exists or is threatened, which
might be expected to affect adversely the financial condition, properties,
business, results of operations or prospects of the Company.
(l) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described
(or elsewhere in the Prospectus), subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected in
such financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company holds
its leased properties under valid and binding leases, with such exceptions
as are not materially significant in relation to the business of the
Company. Except as disclosed in the Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or
as disclosed in the Prospectus as proposed to be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in the
Prospectus: (i) the Company has not incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material
oral or written agreement or other transaction which is not in the ordinary
course of business or which could result in a material reduction in the
future earnings of the Company; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and the Company is not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other
than upon the sale of the Common Shares hereunder, the conversion of
convertible securities into shares of Common Stock, the grant of options
under the 1992 Plan, and upon the exercise of options and warrants, each as
described in the Registration Statement) or indebtedness material to the
Company (other than in the ordinary course of business); and (v) there has
not been any material adverse change in the financial condition, business,
properties, results of operations or prospects of the Company.
(n) Except as disclosed in the Prospectus, (i) the Company has
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct its business as now
conducted; (ii) the expiration of any trademarks, trade names, patent
rights, copyrights, licenses, approvals or governmental authorizations would
not have a material adverse effect on the financial condition, business,
results of operations or prospects of the Company; and (iii) the Company has
no knowledge of any material infringement by it of any trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret or
other similar rights of others, and no claim has been made or, to the
Company's knowledge, has been threatened, against the Company regarding
trademark, trade name, patent, mask work, copyright, license, trade secret
or other infringement which could have a material adverse effect on the
financial condition, business, results of operations or prospects of the
Company.
(o) The Company has not been advised, and has no reason to believe, that
it is not conducting business in compliance with all applicable laws, rules
and regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in
compliance would not materially adversely affect the financial condition,
properties, business, results of operations or prospects of the Company.
(p) The Company has filed all necessary federal, state and foreign
income and franchise tax returns and have paid all taxes shown as due
thereon, except for those returns or taxes as to which in the aggregate the
failure to so file or pay would not have a material adverse effect on the
financial condition, properties, business, results of operations or
prospects of the Company; and
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the Company has no knowledge of any tax deficiency which has been or might
be asserted or threatened against the Company which could materially and
adversely affect the financial condition, properties, business, results of
operations or prospects of the Company.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration
Statement and the other materials permitted by the Act.
(s) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
(t) The Company has not at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(u) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) has received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct its business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company.
(w) The Company reasonably believes that the costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) associated with the effect of Environmental Laws on the business,
operations and properties of the Company, will not, in the aggregate, have a
material adverse effect on the Company.
(x) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(y) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the
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Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 4. PURCHASE, SALE AND DELIVERY OF COMMON SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to the Underwriters all of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company the number of Firm
Common Shares described below. The purchase price per share to be paid by the
several Underwriters to the Company shall be $ per share.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of shares set forth opposite the name of such Underwriter in
Schedule A hereto.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Fulbright &
Jaworski L.L.P., Houston, Texas (or such other place as may be agreed upon by
the Company and the Representatives) at such time and date, not later than the
third (or, if the Firm Common Shares are priced, as contemplated by Rule
15c6-1(c) under the Securities Exchange Act of 1934, after 4:30 P.M. Washington
D.C. time, the fourth) full business day following the first date that any of
the Common Shares are released by you for sale to the public, as you shall
designate by at least 48 hours prior notice to the Company (the "First Closing
Date"); provided, however, that if the Prospectus is at any time prior to the
First Closing Date recirculated to the public, the First Closing Date shall
occur upon the later of the third or fourth, as the case may be, full business
day following the first date that any of the Common Shares are released by you
for sale to the public or the date that is 48 hours after the date that the
Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company to you, for the respective accounts of the Underwriters,
against payment by you, for the accounts of the several Underwriters, of the
purchase price therefor by wire transfer, certified or official bank checks
payable in clearing house (next day available) funds to the order of the
Company. The certificates for the Firm Common Shares shall be registered in such
names and denominations as you shall have requested at least two full business
days prior to the First Closing Date, and shall be made available for checking
and packaging on the business day preceding the First Closing Date at a location
in New York, New York as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified by this Agreement is a further
condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 420,000 Optional Common Shares
at the purchase price per share to be paid for the Firm Common Shares, for use
solely in covering any over-allotments made by you for the account of the
Underwriters in the sale and distribution of the Firm Common Shares. The option
granted hereunder may be exercised at any time (but not more than once) within
30 days after the first date that any of the Common Shares are released by you
for sale to the public, upon notice by you to the Company setting forth the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Optional Common Shares to be sold by the Company pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such
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<PAGE>
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is 2,800,000 (subject to such adjustments to eliminate any fractional
share purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York as may be designated by you. The manner of payment for and delivery of the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Company as specified in the two preceding paragraphs. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Company.
You have advised the Company that each Underwriter has authorized you to accept
delivery of its Common Shares, to make payment and to receipt therefor. You,
individually and not as the Representatives of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to make a
public offering of their respective portions of the Common Shares as soon after
the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees
that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective. If the Registration Statement has become or
becomes effective pursuant to Rule 430A of the Rules and Regulations, or the
filing of the Prospectus is otherwise required under Rule 424(b) of the
Rules and Regulations, the Company will file the Prospectus, properly
completed, pursuant to the applicable paragraph of Rule 424(b) of the Rules
and Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly advise
you in writing (i) of the receipt of any comments of the Commission, (ii) of
any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its reasonable best efforts to
obtain the lifting of such order at the earliest possible moment. The
Company will not file any amendment or supplement to the Registration
Statement (either before or after it becomes effective), any Preliminary
Prospectus or the Prospectus of which you have not been furnished with a
copy a reasonable time prior to such filing or to which you reasonably
object or which is not in compliance in all material respects with the Act
and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
the Prospectus which in your judgment may be necessary or advisable to
enable the several Underwriters to continue the distribution of the Common
Shares and will use its reasonable best efforts to cause the same to become
effective as promptly as possible. The Company will fully and completely
comply, in all material respects, with the provisions of Rule 430A of the
Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) During the period within which a prospectus relating to the Common
Shares is required by law to be delivered in connection with sales by an
Underwriter or dealer, if any event occurs, as a result of which the
Prospectus, including any amendments or supplements, would include an
8
<PAGE>
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 the light of the circumstances under which they were made, not
misleading, or, if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the Rules
and Regulations, the Company will promptly advise you thereof and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance and will use its
reasonable best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a prospectus
after such period, the Company upon request, but at the expense of such
Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of the Act or the Rules
and Regulations.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period
of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During the period within which a prospectus relating to the Common
Stock is required by law to be delivered in connection with sales by an
Underwriter or dealer, the Company, at its expense, will furnish to you or
mail to your order copies of the Registration Statement, the Prospectus, the
Preliminary Prospectus and all amendments and supplements to any such
documents in each case as soon as available and in such quantities as you
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel as reasonably
required in order to qualify or register the Common Shares for sale under
(or obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate, will comply with such laws and will continue
such qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is
not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the suspension
of the qualification or registration of (or any such exemption relating to)
the Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company, with your cooperation, will use its
reasonable best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request of the Representatives, to each of
the other Underwriters: (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report to Stockholders of the Company
containing the balance sheet of the Company as of the close of such fiscal
year and statements of income, stockholders' equity and cash flows for the
year then ended and the auditor's report thereon of the Company's
independent public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Report on Form 8-K; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities (which consent may be withheld at
the sole discretion of the Montgomery Securities), the Company will not
issue, offer, sell, grant options to purchase or otherwise dispose of any of
the
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<PAGE>
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security, except for (i)
the issuance of the Common Shares pursuant to the Registration Statement,
(ii) the grant of options under the 1992 Plan and (iii) the issuance of
shares of Common Stock pursuant to the exercise of options or warrants
outstanding on the date of this Agreement and options granted pursuant to
clause (ii) of this Section 5(h).
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its reasonable best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws and will continue such qualifications, registrations and
exemptions in effect for a period of five years after the date hereof.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 6. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent public
accountants, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preliminary Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, this Agreement, the Agreement Among Underwriters, the Selected
Dealers Agreement, the Underwriters' Questionnaire, the Underwriters' Power of
Attorney and the Blue Sky memorandum, (vi) all filing fees, reasonable
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, (vii) the filing fee of the National
Association of Securities Dealers, Inc., and (viii) all other fees, costs and
expenses referred to in Item 13 of the Registration Statement. Except as
provided in this Section 6, Section 8 and Section 10 hereof, the Underwriters
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the Blue Sky laws and the Blue Sky memorandum referred to
above).
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SECTION 7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company herein set forth as of the date hereof and
as of the First Closing Date or the Second Closing Date, as the case may be, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; prior to such Closing Date, no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or shall be pending or, to the knowledge of the Company or you, shall be
contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock of the Company (other
than upon the sale of the Common Shares hereunder, the conversion of
convertible securities into shares of Common Stock, the grant of options
under the 1992 Plan and upon the exercise of options and warrants, each as
described in the Registration Statement) or any material change in the
indebtedness (other than in the ordinary course of business) of the Company,
(ii) except as set forth or contemplated by the Registration Statement or
the Prospectus, no material oral or written agreement or other transaction
shall have been entered into by the Company, which is not in the ordinary
course of business and which could reasonably be anticipated to result in a
material reduction in the future earnings of the Company, (iii) no loss or
damage (whether or not insured) to the property of the Company shall have
been sustained which materially and adversely affects the financial
condition, properties, business, results of operations or prospects of the
Company, (iv) no legal or governmental action, suit or proceeding affecting
the Company which is material to the Company or which affects or may affect
the transactions contemplated by this Agreement shall have been instituted
or threatened, and (v) there shall not have been any material change in the
financial condition, properties, business, management, results of operations
or prospects of the Company which makes it impractical or inadvisable in the
judgment of the Representatives to proceed with the public offering or
purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Fulbright & Jaworski L.L.P., counsel for the
Company, addressed to the Underwriters and dated the First Closing Date,
or the Second Closing Date, as the case may be, substantially in the form
attached hereto as Exhibit A.
In rendering such opinion, such counsel may rely as to matters of local law,
on opinions of local counsel, and as to matters of fact, on certificates of
officers of the Company and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion. Such counsel
shall also include a statement to the effect that nothing has come to such
counsel's attention that would lead such counsel to believe that either
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at the effective date of the Registration Statement or at the applicable
Closing Date the Registration Statement or the Prospectus, or any such
amendment or supplement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) Such opinion or opinions of Hyman, Phelps & McNamara, P.C.,
special regulatory counsel for the Company, dated the First Closing Date
or the Second Closing Date, as the case may be, to the effect that:
(1) The information in the Prospectus under the first four
paragraphs of "Risk Factor -- Access to, Approval and Sale of
Therapeutic Products", "Risk Factors -- Governmental Regulation" and
the first paragraph of "Business -- Government Regulation," to the
extent that it constitutes matters of law, summaries of legal matters
or legal conclusions, has been reviewed by such counsel and is
correct in all material respects.
Such counsel shall also include a statement to the effect that, with respect
to the description of the regulatory situation of the Company and other
statements in the above-referenced sections in the Registration Statement
and Prospectus, nothing has come to such counsel's attention that would lead
such counsel to believe that either at the Effective Date or at the
applicable Closing Date the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(iii) Such opinion or opinions of Cooley Godward Castro Huddleson &
Tatum, counsel for the Underwriters dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Common Shares, the
Registration Statement and the Prospectus and other related matters as
you may reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them
to pass upon such matters. In connection with such opinions, such counsel
may rely on representations or certificates of officers of the Company
and governmental officials.
(iv) A certificate of the Company executed by the Chairman of the
Board or President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing Date, as the
case may be, to the effect that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the knowledge of the
respective signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; to
his knowledge, neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto includes any
12
<PAGE>
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(4) To each of the signer's knowledge, since the initial date on
which the Registration Statement was filed, no agreement, written or
oral, transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company; and no legal or governmental action, suit or proceeding is
pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary
course of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates and except as so
disclosed, the Company has not entered into any verbal or written
agreement or other transaction which is not in the ordinary course of
business or which could result in a material reduction in the future
earnings of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any change in its
capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to the First
Closing Date or Second Closing Date; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company has not
sustained a material loss or damage by strike, fire, flood,
windstorm, accident or other calamity (whether or not insured).
(v) On the date this Agreement is executed and also on the First
Closing Date and the Second Closing Date a letter addressed to you, as
Representatives of the Underwriters, from Arthur Andersen L.L.P.,
independent accountants, the first one to be dated the day the date of
this Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(vi) On or before the First Closing Date, letters from each holder of
percent or more of the Company's Common Stock and each director and
officer of the Company, in form and substance satisfactory to you,
confirming that for a period of 180 days after the first date that any of
the Common Shares are released by you for sale to the public, such person
will not directly or indirectly sell or offer to sell or otherwise
dispose of any shares of Common Stock or any right to acquire such shares
without the prior written consent of Montgomery Securities, which consent
may be withheld at the sole discretion of Montgomery Securities.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to
you and to Cooley Godward Castro Huddleson & Tatum, counsel for the
Underwriters. The Company shall furnish you with such manually signed or
conformed copies of such opinions, certificates, letters and documents as
you request. Any certificate signed by any officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to the
Underwriters as to the statements made therein.
13
<PAGE>
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the
Company by you as Representatives without liability on the part of any
Underwriter or the Company except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except
to the extent provided in Section 10 hereof.
SECTION 8. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 7, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse you and the other Underwriters
upon demand for all out-of-pocket expenses that shall have been reasonably
incurred by you and them in connection with the proposed purchase and the sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, messenger charges and
telephone charges relating directly to the offering contemplated by the
Prospectus. Any such termination shall be without liability of any party to any
other party except that the provisions of this Section 8, Section 6 and Section
10 shall at all times be effective and shall apply.
SECTION 9. EFFECTIVENESS OF REGISTRATION STATEMENT. You and the Company
will use your and its reasonable best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
the Act against any losses, claims, damages, liabilities or expenses, joint
or several, to which such Underwriter or such controlling person may become
subject, under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof as contemplated below) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of
them, in the light of the circumstances under which they were made, not
misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained
herein or any failure of the Company to perform its obligations hereunder or
under law; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section
3 hereof; and, provided further, that the Company shall not be liable in any
such case with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the
fact the such Underwriter sold Common Shares to a person to whom there was
not sent or given at or prior to the written confirmation of such sale a
copy of the Prospectus in any case where such delivery is required by the
Act, if the Company has previously furnished copies thereof to such
Underwriter
14
<PAGE>
and the loss, claim, damage, liability or expense of such Underwriter
results from an untrue statement or omission of a material fact contained in
the Preliminary Prospectus which was corrected in the Prospectus. In
addition to its other obligations under this Section 10(a), the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company herein or
failure to perform its obligations hereunder, all as described in this
Section 10(a), it will reimburse each Underwriter on a quarterly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
each Underwriter for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, each Underwriter shall promptly return it to
the Company together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of
the highest credit standing) announced from time to time by Bank of America
NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer
or controlling person may become subject, under the Act, the Exchange Act,
or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 3 hereof; and will
reimburse the Company, or any such director, officer or controlling person
for any legal and other expense reasonably incurred by the Company, or any
such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. In addition to its other
obligations under this Section 10(b), each Underwriter severally agrees
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
this Section 10(b) which relates to information furnished to the Company
pursuant to Section 3 hereof, it will reimburse the Company (and, to the
extent applicable, each officer, director, controlling person on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person) for such expenses and the possibility that
such payments might later be held to have been
15
<PAGE>
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, controlling person
shall promptly return it to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within 30
days of a request for reimbursement, shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party under
this Section 10, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party for contribution or otherwise than under the indemnity agreement
contained in this Section 10 or to the extent it is not prejudiced as a
proximate result of such failure. In case any such action is brought against
any indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance
with the proviso to the immediately preceding sentence or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) If the indemnification provided for in this Section 10 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b)
or (c) in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of any
losses, claims, damages, liabilities or expenses referred to herein (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company and the Underwriters from the offering of the Common Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Underwriters in connection with the statements
or omissions or inaccuracies in the representations and warranties herein
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The respective relative
benefits received by the Company and the Underwriters shall be deemed to be
in the same proportion, in the case of the Company as the total price paid
to the Company for the Common Shares sold by it to the Underwriters (net of
underwriting commissions but before deducting expenses) bears to the total
price to the public set
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<PAGE>
forth on the cover of the Prospectus, and in the case of the Underwriters as
the underwriting commissions received by them bears to the total price to
the public set forth on the cover of the Prospectus. The relative fault of
the Company and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact or the
inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (c) of this Section 10, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating
or defending any action or claim. The provisions set forth in subparagraph
(c) of this Section 10 with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be
required with respect to any action for which notice has been given under
subparagraph (c) for purposes of indemnification. The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 10 were determined solely by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 10 are several in proportion to their
respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 10(a) and 10(b)
hereof, including the amounts of any requested reimbursement payments and
the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand
or notice is authorized to do so. Such an arbitration would be limited to
the operation of the interim reimbursement provisions contained in Sections
10(a) and 10(b) hereof and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by
the provisions of such Sections 10(a) and 10(b) hereof.
SECTION 11. DEFAULT OF UNDERWRITERS. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares in the
manner as described herein, that, except as hereinafter in this paragraph
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
Underwriter or Underwriters default in their obligations to purchase Common
Shares hereunder on either the First or Second Closing Date and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed to purchase on such Closing Date does not exceed 10% of the total
number of Common Shares which the Underwriters are obligated to purchase on such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Common
Shares which such defaulting Underwriters agreed but failed to purchase on
17
<PAGE>
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of Common Shares with respect to which such default occurs is
more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company except for the expenses to be paid by the Company pursuant to Section 6
hereof and except to the extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 11. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 12. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 12:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii)
immediately as to all of its provisions if at the time of execution of this
Agreement the Registration Statement has been declared effective; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 12, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon written notice by you (i) advising
Underwriters that the Common Shares are released for public offering, or (ii)
offering the Common Shares for sale to securities dealers, whichever may occur
first.
SECTION 13. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you or
by you by notice to the Company at any time prior to the time this Agreement
shall become effective as to all its provisions, and any such termination
shall be without liability on the part of the Company to any Underwriter
(except for any expenses to be paid or reimbursed by the Company pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10
hereof) or of any Underwriter to the Company (except to the extent provided
in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange
or on the American Stock Exchange or in the over the counter market by the
NASD, or trading in securities generally shall have been suspended on either
such exchange or in the over the counter market by the NASD, or a general
banking moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have
accelerated or escalated to such an extent, as, in the judgment of the
Representatives, to affect adversely the marketability of the Common Shares,
(iii) if any adverse event shall have occurred or shall exist which makes
untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information contained
therein, in the light of the circumstances under which they were made, not
misleading in any material respect, or (iv) if there shall be any action,
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<PAGE>
suit or proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the business
or properties or securities of the Company or the transactions contemplated
by this Agreement, which, in the reasonable judgment of the Representatives,
may materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common Shares.
Any termination pursuant to this subsection (b) shall without liability on
the part of any Underwriter to the Company on the part of the Company to any
Underwriter (except for any expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in
Section 10 hereof.
SECTION 14. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 15. NOTICES. All communications hereunder shall be in writing and,
if sent to the Representatives shall be mailed, delivered by overnight courier
or by facsimile transmission and confirmed to you at 600 Montgomery Street, San
Francisco, California 94111, Attention: Mike Dovey (Facsimile No. 415/249-5508,
Telephone No. 415/627-2000), with a copy to Cooley Godward Castro Huddleson &
Tatum, 3000 Sand Hill Road, Bldg. 3, Suite 230, Menlo Park, CA 94025, Attention:
Mark P. Tanoury, Esq. (Facsimile No. 415/854-2691, Telephone No. 415/843-5000);
and if sent to the Company shall be mailed, delivered by overnight courier or
facsimile transmission and confirmed to the Company at 800 Research Parkway,
Oklahoma City, OK 73104, Attention: President (Facsimile No. 415/290-4002,
Telephone No. 405/290-4000) with a copy to Fulbright & Jaworski L.L.P., 1301
McKinney Street, Suite 5100, Houston, TX 77010-3095, Attention: Robert E.
Wilson, Esq. (Facsimile No. 713/651-5246, Telephone No. 713/651-5151). The
Company or you may change the address for receipt of communications hereunder by
giving notice to the others.
SECTION 16. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 11 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 10, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 17. REPRESENTATION OF UNDERWRITERS. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 18. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 19. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
[The remainder of this page is intentionally blank]
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<PAGE>
SECTION 20. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified, and
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company and you.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement between the Company and the several Underwriters
including you, all in accordance with its terms.
Very truly yours,
UroCor, Inc.
By:
--------------------------------------
William A. Hagstrom,
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
The foregoing Underwriting Agreement
is hereby confirmed and accepted by us
in San Francisco, California as of the
date first above written.
MONTGOMERY SECURITIES
VOLPE, WELTY & COMPANY
Acting as Representatives of the
several Underwriters named in the
attached Schedule A.
By MONTGOMERY SECURITIES
By:
- --------------------------------------
Partner
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SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Montgomery Securities............................................................................
Volpe, Welty & Company...........................................................................
---------------
TOTAL........................................................................................ 2,800,000
---------------
---------------
</TABLE>
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EXHIBIT A
FORM OF OPINION OF COMPANY COUNSEL
(1) The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware, with corporate power and
authority under such laws to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus. To such counsel's knowledge, the Company is qualified as a foreign
corporation to transact business in and is in good standing in the State of
Oklahoma.
(2) The Company has an authorized capitalization of 26,579,759 shares of
capital stock, consisting of 20,000,000 shares of Common Stock, 6,000,000 shares
of preferred stock, $.01 par value per share (the "Preferred Stock"), 513,093
shares of Class A Stock, $.01 par value per share (the "Class A Stock") and
66,666 shares of Class B Stock, $.01 par value per share ("Class B Stock").
Immediately prior to the closing of the offering, upon conversion of all
outstanding shares of Preferred Stock, Class A Stock and Class B Stock into
shares of Common Stock, there will be issued and outstanding shares of
Common Stock and no other shares of capital stock of the Company will be issued
and outstanding.
(3) All of the issued and outstanding shares of Common Stock outstanding
prior to the issuance of the Firm Common Shares and any Optional Common Shares
pursuant to this Agreement have been duly authorized and validly issued and are
fully paid and nonassessable and none of them have been issued in violation of
any preemptive right under the Delaware General Corporation Law (the "DGCL") or
the Company's Restated Certificate of Incorporation or, to such counsel's
knowledge, any other similar right.
(4) The Firm Common Shares and any Optional Common Shares, when issued and
delivered in accordance with the provisions of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable and none of them will
have been issued in violation of any preemptive right under the DGCL or the
Company's Restated Certificate of Incorporation or, to such counsel's knowledge,
any other similar right. The certificates evidencing the Common Shares to be
delivered under this Agreement are in due and proper form under the DGCL.
(5) Except as disclosed in the Prospectus, such counsel knows of no other
outstanding options, warrants or rights calling for the issuance of, and no
commitment, other than pursuant to the 1992 Plan, to issue, any shares of
capital stock of the Company or any security convertible into or exchangeable
for capital stock of the Company. Such counsel does not know of any holder of
any securities of the Company who has the right to have any Common Stock or
other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company, with rights have not previously been waived.
(6) No consent, approval, authorization or other action or filing with any
federal or state court or governmental authority was required for the execution
and delivery of this Agreement by the Company or is required for the
consummation by the Company of the transactions which are the subject of this
Agreement, except such as have been obtained under the Act and the Exchange Act
and such as may be required under state securities laws (except that such
counsel need express no opinion as to the securities or Blue Sky laws of any
state) in connection with the purchase and distribution of the Firm Common
Shares and any Optional Common Shares by you and except such as will not, if not
obtained, have a material adverse effect on the transactions which are the
subject of this Agreement.
(7) Execution and delivery by the Company of, and performance by the Company
of its agreements in, this Agreement, will not (a) breach or result in a default
under any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company is a party or to which the Company
or any of its properties are subject, in each case, which are filed as exhibits
to the Registration Statement, (b) violate the Restated Certificate of
Incorporation or By-laws of the Company or any judgment, decree or order known
to such counsel of any court or governmental
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agency or body applicable to the Company or any of its properties, or (c)
violate any applicable provisions of any state or federal statutory law or
regulation (except that such counsel need express no opinion as to the
securities or Blue Sky laws of any state and no opinion as to the anti-fraud
provisions of the federal or state securities laws).
(8) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and is enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, moratorium, reorganization or similar laws from time to
time in effect relating to or affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
enforceability of the rights to indemnity and contribution contained in this
Agreement may be limited by federal or state laws and public policy underlying
such laws.
(9) All filings required by Rule 424 and 430A of the Regulations have been
made.
(10) The Registration Statement and the Prospectus, as of their respective
effective or issue dates (except for the financial statements and the notes and
schedules thereto and the auditor's report thereon, and any other information of
a financial, numerical, statistical or accounting nature set forth or referred
to therein, as to which such counsel need express no opinion), each appeared on
its face to be appropriately responsive in all material respects to the
requirements of the Act and the Regulations.
(11) To such counsel's knowledge, there are no contracts or other documents
required to be disclosed in the Registration Statement or the Prospectus other
than those disclosed therein and there are no contracts or other documents
required to be filed as exhibits to the Registration Statement other than those
filed as exhibits thereto.
(12) Except as described in the Prospectus, to such counsel's knowledge,
there is not pending or threatened any action, suit, proceeding, inquiry or
investigation to which the Company is a party or to which the property of the
Company is subject which are of such a nature that they are required to be
disclosed in the Prospectus.
(13) The information in the Prospectus under the captions "Risk Factors --
Uncertainties Related to Third-Party Reimbursement; Potential Health Care
Reform", "Business -- Third-Party Reimbursement" and under the first and last
paragraphs of "Risk Factors -- Government Regulation" and second through eighth
paragraphs of "Business -- Government Regulation", to the extent that they
constitute matters of law, summaries of legal matters or legal conclusions, have
been reviewed by such counsel and are correct in all material respects.
(14) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
To the extent deemed advisable by such counsel, it may rely as to matters of
fact on certificates of officers of the Company, on certificates or facsimile
transmissions of government officials and representations of the Company in this
Agreement.
Such counsel shall state that it has acted as counsel to the Company in
connection with certain aspects of the transactions relating to the issuances by
the Company of the shares of Common Stock, promissory notes, preferred stock and
warrants described in Item 15 of the Registration Statement, and such counsel is
aware that the Company issued such securities in reliance on exemptions from the
registration requirements afforded by Section 4(2) of the Act or Regulation D
promulgated under the Act. Based upon a review of the offering or other
materials used in connection with such transactions and the representations and
other information provided by offerees (or their representatives, as the case
may be) to whom such securities were delivered and, assuming compliance by the
Company with advice previously given by such counsel to the Company as to offers
of its securities to persons other
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than those who were parties to the aforementioned transactions, no facts have
come to such counsel's attention to cause such counsel to believe that such
reliance by the Company was not justified as to each of the transactions
pursuant to which such securities were offered or issued.
Such counsel also shall state whether it has been advised by the Commission
that the Registration Statement is effective under the Act and, whether, to such
counsel's knowledge, any stop order suspending the effectiveness of the
Registration Statement has been issued by the Commission or proceedings for that
purpose instituted by the Commission.
In addition, such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, its counsel
and representatives of the independent public accountants of the Company and
with your representatives, at which conferences the contents of the Registration
Statement and the Prospectus were discussed; and although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus and makes no representation that they have
independently verified the accuracy, completeness or fairness of such
statements, on the basis of the foregoing and the information disclosed to such
counsel (relying as to materiality to a large extent upon the officers and other
representatives of the Company and your representatives), (i) no facts have come
to such counsel's attention that would lead such counsel to believe that the
Registration Statement, as of the time it was declared effective under the Act,
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 statement
therein not misleading (it being understood that such counsel need express no
view with respect to the financial statements and the notes and schedules
thereto and the auditor's report thereon, and any other information of a
financial, numerical, statistical or accounting nature set forth or referred to
in the Registration Statement or any exhibits thereto), and (ii) no facts have
come to such counsel's attention that would lead such counsel to believe that
the Prospectus, as of the time if was filed with the Commission, 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 the make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no view with respect to the
financial statements and the notes and schedules thereto and the auditor's
report thereon, and any other information of a financial, numerical, statistical
or accounting nature set forth or referred to in the Prospectus).
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<S> <C>
<CAPTION>
COMMON STOCK
<S> <C>
</TABLE>
UROCOR, INC.
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<S> <C>
C
<CAPTION>
</TABLE>
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<S> <C>
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK
<CAPTION>
CUSIP 91727P 10 5
<S> <C>
SEE REVERSE FOR CERTAIN
DEFINITIONS
</TABLE>
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
UROCOR, INC., transferable on the books of the Corporation by the holder hereof,
in person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed or accompanied by a proper assignment. This Certificate is not
valid until countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
in facsimile by its duly authorized officers and the facsimile corporate seal to
be duly affixed hereto.
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<S> <C>
DATED:
/s/ William A. Hagstrom /s/ Socrates H. Choumbakos
PRESIDENT SECRETARY
</TABLE>
[LOGO]
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<TABLE>
<S> <C>
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
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UROCOR, INC.
The corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
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<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ..............Custodian ...........
TEN ENT -- as tenants by the
entireties (Cust) (Minor)
JT TEN -- as joint tenants with under Uniform Gifts to Minors Act
right ....................................
of survivorship and not (STATE)
as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
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<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
</TABLE>
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
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<S> <C> <C>
Dated,
X____________________________________
NOTICE: THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST CORRE-
SPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X_____________________________________
Signature(s) must be guaranteed by a bank, broker or qualified financial
institution.
</TABLE>
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FULBRIGHT & JAWORSKI
L.L.P.
A Registered Limited Liability Partnership Houston
1301 McKinney, Suite 5100 Washington, D.C.
Houston, Texas 77010-3095 Austin
Telephone: 713/651-5151 San Antonio
Telex: 76-2829 Dallas
Facsimile: 713/651-5246 New York
Los Angeles
London
Hong Kong
May 10, 1996
UroCor, Inc.
800 Research Parkway
Oklahoma City, Oklahoma 73104
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (Registration No.
333-3182), as amended (the "Registration Statement"), filed by UroCor, Inc., a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission under the Securities Act of 1933, relating to the offer by the
Company of 2,800,000 shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock"), and up to 420,000 shares of Common Stock, which may
be sold in the event the underwriters for the offering elect to exercise their
over-allotment option.
As counsel to the Company, we have examined such corporate records,
documents and questions of law as we have deemed necessary or appropriate for
the purposes of this opinion. In such examinations, we have assumed the
genuineness of signatures and the conformity to the originals of the documents
supplied to us as copies. As to various questions of fact material to this
opinion, we have relied upon statements and certificates of officers and
representatives of the Company. Upon the basis of such examination, we advise
you that in our opinion the shares of Common Stock to be offered by the Company
have been duly and validly authorized and, when sold in accordance with the
terms agreed upon in the underwriting agreement, will be legally issued, fully
paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities
Act of 1933.
Very truly yours,
/S/Fulbright & Jaworski L.L.P.
Fulbright & Jaworski L.L.P.
<PAGE>
[UROCOR LOGO]
April 3, 1996
Ms. Kathryn L.W. Ingerly
7808 Nile Circle
Arvada, CO 80007
Dear Kathryn:
I am pleased to offer you a position as part of UroCor's Executive Management
Team. The objective of this letter is to outline the offer to you.
1. Position Title: Vice President, Disease Management Information Systems
2. Position Reports to the President and CEO, Bill Hagstrom.
3. Start Date: April 9, 1996.
4. Base Salary: $4,615 each pay period (or $120,000 annually). Performance
and Salary review on the twelfth month of employment.
5. Annual Management Bonus - Up to 30% ($36,000) based on several business
and individual accomplishments. In 1995 the management bonus plan consisted
of one third Company sales revenue, one third Corporate Financial Performance
and one third individual attainment of goals and objectives. The 1996 bonus
plan is still being finalized. Management bonuses are typically paid in March
or April following the completed calendar year. Individual goals will be
agreed to by the end of the first quarter following your employment date.
Bonuses are prorated for the time in the position.
6. Stock Option Participation - Options covering 40,000 shares of common
stock, vested equally over the next five years. Vested options may be
exercised at any time over a ten year period. Exercise price will be
determined by the board in the next two to three weeks and at that time
formal issuance will be made.
7. Benefits for which you may be eligible at UroCor, consist of:
. Term life insurance at two (2) times annual salary (capped at $210,000
coverage).
. Disability insurance. (Short and Long Term)
. Medical and dental insurance for you and your family at monthly premium.
You are eligible for this benefit on the first day of the month following
your 30th work day.
. 401K retirement plan - self directed, no Company match at this time
. Two weeks vacation after 12 months Company service. An additional week
will be added to your vacation after one year. Although your vacation
accrues throughout your first year prorated to your start date, you will
be allowed to take vacation at anytime during the year anticipating your
total accrual. For 1996, your accrual would be seven days vacation. On
January 1, 1997 you will accrue vacation at the two week rate until your
anniversary date at which time your vacation will accrue at three weeks.
. Paid Company holidays, sick leave and personal time will be described to
you during your first few days of employment. Please call Inez Dunn to set
up a 30 minute appointment with her during your first few days at
UroCor. EXT 4121.
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Every employee is required to sign confidentiality and non-compete agreements
with UroCor, Inc., Inc. You have agreed to work with UroCor, Inc. in defining
an agreement that will be acceptable and in both your and UroCor's interest
with regard to actual intellectual property brought to UroCor as of April 1996.
It is anticipated that the agreement will be reached within the first month of
your employment.
Your first 90 days of employment are considered an Introductory Period, and
during that period you will accrue benefits as described in the Employee
Manual unless otherwise required by law. Completion of the Introductory
Period does not guarantee continued employment for any specified period of
time, nor does it require that a dismissal be based on "cause."
You are guaranteed a three month severance payment for termination without
"cause". In that event, you would be paid through regular payroll for the three
months following your termination date.
As an employee of UroCor, you will be provided with a copy of the UroCor
Employee Manual and insurance booklets which outline our personnel policies
and benefits program. You will be expected to read these materials
thoroughly, and sign and return a copy of the "Receipt & Acknowledgment Of
UroCor Employee Manual." You will also be required to sign a Non-Compete
agreement. Any questions regarding UroCor policy, benefits administration or
eligibility should be directed to Mrs. Lou Carmichael EXT 4120, Director,
Human Resources or Mrs. Inez Dunn EXT 4121, Coordinator Benefits and Payroll.
Your employment and compensation with UroCor are "at will" in that they can
be terminated with or without cause, and with or without notice, at any time,
at the option of either UroCor or yourself, except as otherwise provided by
law. The terms of this offer letter, therefore, do not and are not intended
to create either an express and/or implied contract of employment with
UroCor. No manager or representative of UroCor, other than the President of
UroCor, has authority to enter into any agreement for employment for any
specified period of time or to make any agreement or contract to the
foregoing, and any promises to the contrary may only be relied upon by you if
they are in writing and signed by the President of UroCor.
Our offer to hire you is contingent upon your submission of satisfactory
proof of your identity and your legal authorization to work in the United
States. If you fail to submit this proof, federal law prohibits us from
hiring you.
I look forward to your response as well as to the opportunity of working with
you in the future.
Very truly yours,
/s/ William A. Hagstrom
William A. Hagstrom
President, CEO and Chairman,
UroCor, Inc.
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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 this registration
statement.
Oklahoma City, Oklahoma ARTHUR ANDERSEN LLP
May 10, 1996
