<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-28328
------------------------
UROCOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2117882
(State of incorporation) (IRS Employer Identification No.)
800 RESEARCH PARKWAY, OKLAHOMA CITY, OK 73104
(Address of principal executive offices) (zip code)
(405) 290-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares of issuer's Common Stock, $.01 par value, outstanding
on November 6, 1998 was 10,463,775 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UROCOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of September 30, 1998 and December 31, 1997.............................. 3
Statements of Operations for the three and nine months ended September 30, 1998 and 1997... 4
Statements of Cash Flows for the nine months ended September 30, 1998 and 1997............. 5
Notes to Unaudited Interim Financial Statements--September 30, 1998........................ 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 8-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS................................ 12
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 13
ITEM 5. OTHER INFORMATION.......................................................................... 14-19
Cautionary Statements
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 19
Signatures............................................................................................... 20
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
SEPTEMBER 30, -------------
1998
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................. $ 11,400,566 $ 6,896,033
Short-term marketable investments...................................................... 6,064,109 16,697,067
Accounts receivable, net of allowance for doubtful accounts of $8,103,226 in 1998 and
$2,619,485 in 1997................................................................... 14,353,417 13,631,144
Prepaid expenses....................................................................... 791,851 988,659
Laboratory supplies, at average cost................................................... 561,049 497,639
Inventory.............................................................................. 335,658 111,096
Deferred tax asset--current, net....................................................... 3,555,781 1,470,781
Other current assets................................................................... 1,126,802 575,875
-------------- -------------
Total current assets................................................................. 38,189,233 40,868,294
-------------- -------------
LONG-TERM MARKETABLE INVESTMENTS......................................................... 2,127,340 2,012,656
PROPERTY AND EQUIPMENT, net.............................................................. 9,254,072 8,555,511
NON-CURRENT DEFERRED TAX, net............................................................ 580,684 358,684
INTANGIBLE AND OTHER ASSETS, net......................................................... 2,166,945 2,656,974
-------------- -------------
Total assets......................................................................... $ 52,318,274 $ 54,452,119
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................................... $ 3,067,961 $ 2,263,645
Accrued compensation................................................................... 746,907 665,817
Current installments of obligations under capital leases............................... 267,990 441,435
Other accrued liabilities.............................................................. 880,897 108,421
-------------- -------------
Total current liabilities............................................................ 4,963,755 3,479,318
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments............................ 32,371 217,697
-------------- -------------
Total liabilities.................................................................... 4,996,126 3,697,015
-------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 6,000,000 shares at September 30, 1998 and
at December 31, 1997; no shares issued and outstanding at September 30, 1998 or at
December 31, 1997.................................................................... -- --
Common stock, $.01 par value, authorized 20,000,000 shares at September 30, 1998 and at
December 31, 1997; 10,430,168 shares issued and outstanding at September 30, 1998 and
10,345,616 shares issued and outstanding at December 31, 1997........................ 104,302 103,456
Additional paid-in capital............................................................. 58,726,429 58,390,646
Accumulated deficit.................................................................... (11,508,583) (7,738,998)
-------------- -------------
Total stockholders' equity........................................................... 47,322,148 50,755,104
-------------- -------------
Total liabilities and stockholders' equity........................................... $ 52,318,274 $ 54,452,119
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
UROCOR, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE................................................... $ 11,802,243 $ 7,785,528 $ 33,680,084 $ 23,658,800
OPERATING EXPENSES:
Direct cost of services and products.................... 4,555,023 3,170,621 13,023,472 9,075,557
Selling, general and administrative expenses............ 6,048,164 3,953,187 17,548,680 11,633,297
Research and development................................ 531,112 497,852 1,538,666 1,719,308
Special charges......................................... 8,205,606 -- 8,205,606 --
------------- ------------- ------------- -------------
Total operating expenses.............................. 19,339,905 7,621,660 40,316,424 22,428,162
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS):.................................. (7,537,662) 163,868 (6,636,340) 1,230,638
OTHER INCOME (EXPENSE):
Interest, net........................................... 271,813 357,940 905,176 1,132,584
Other................................................... (339,125) -- (339,125) --
------------- ------------- ------------- -------------
Total other income (expense).......................... (67,312) 357,940 566,051 1,132,584
------------- ------------- ------------- -------------
Income (loss) before income taxes......................... (7,604,974) 521,808 (6,070,289) 2,363,222
Income tax benefit........................................ 2,884,264 -- 2,301,264 --
------------- ------------- ------------- -------------
NET INCOME (LOSS)......................................... $ (4,720,710) $ 521,808 $ (3,769,025) $ 2,363,222
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME (LOSS) PER SHARE:
Basic:
Net Income (Loss) Per Common Share...................... $ (.45) $ .05 $ (.36) $ .23
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted Average Common and Common Equivalent Shares
Outstanding........................................... 10,422,252 10,183,693 10,382,736 10,161,763
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted:
Net Income (Loss) Per Common Share-- Assuming
Dilution.............................................. $ (.43) $ .05 $ (.34) $ .21
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted Average Common and Common Equivalent Shares
Outstanding--Assuming Dilution........................ 11,043,984 11,069,309 11,058,709 11,097,105
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................ $ (3,769,025) $ 2,363,222
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 1,951,514 1,105,727
Deferred income tax (benefit).................................................. (2,307,000) --
Stock option compensation expense.............................................. 93,085 96,032
(Gain) loss on disposition of equipment........................................ (3,380) 6,960
Loss on asset write downs...................................................... 2,020,204 --
Changes in assets and liabilities:
Increase in accounts receivable.............................................. (722,273) (4,526,305)
(Increase) decrease in prepaid expense....................................... 196,808 (150,463)
(Increase) decrease in laboratory supplies................................... (63,410) 221,335
Increase in inventory........................................................ (224,562) (106,689)
Increase in other current assets............................................. (550,927) (363,475)
Increase (decrease) in accounts payable...................................... 804,316 (548,676)
Increase (decrease) in accrued compensation.................................. 81,090 (941,208)
Increase (decrease) in accrued liabilities................................... 772,476 (27,459)
------------- -------------
Net cash used in operating activities...................................... (1,721,084) (2,870,999)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable investments, net................. 10,632,958 (29,374)
Maturities (purchases) of long-term marketable investments, net.................. (114,684) 4,005,654
Capital expenditures............................................................. (3,898,862) (4,205,348)
Intangible and other assets...................................................... (277,871) (272,312)
------------- -------------
Net cash provided by (used in) investing activities........................ 6,341,541 (501,380)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan....................................... 103,434 --
Proceeds from exercise of stock options.......................................... 139,415 108,063
Principal payments under capital lease obligations and other indebtedness........ (358,773) (469,044)
------------- -------------
Net cash used in financing activities...................................... (115,924) (360,981)
------------- -------------
Net increase (decrease) in cash and cash equivalents............................... 4,504,533 (3,733,360)
CASH AND CASH EQUIVALENTS, beginning of year....................................... 6,896,033 15,796,070
------------- -------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 11,400,566 $ 12,062,710
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 38,073 $ 115,282
Cash paid for income taxes....................................................... 550,000 350,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. These interim financial statements should be read in conjunction with
the financial statements and notes included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30, 1998.
Operating results for the three and nine month periods ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1998.
NOTE 2--SPECIAL CHARGES:
During the third quarter of 1998, the Company recognized special charges
consisting of the following:
<TABLE>
<CAPTION>
<S> <C>
Increased provision for accounts receivable..................................... $ 4,700,000
Exit costs related to Urology Support Services ("USS").......................... 2,220,529
Non-strategic program asset write-offs & other restructuring costs.............. 1,106,762
Severance costs for workforce reduction......................................... 178,315
------------
Special charges................................................................. $ 8,205,606
------------
------------
</TABLE>
The Company determined that collection costs on certain aged segments of its
accounts receivable outweighed the expected proceeds. Accordingly, a provision
of $4,700,000 was made for the older receivable balances.
At the end of the third quarter, the Company made the decision to exit the
USS business when it determined that a successful spin-off of the unit as an
independent entity could not be completed in a timely manner and notified all
employees affected. The exit costs related to this decision of $2,220,529
include employee severance costs for USS employees, estimated expenses for
orderly termination and transition of USS' service contracts and related asset
write-downs. Severance and outplacement costs of $128,604 are accrued for all 14
people employed by the USS business who were terminated after transitioning the
existing service contracts at the end of October 1998. These benefits are
anticipated to be paid out primarily in the fourth quarter of 1998 and the first
quarter of 1999. The write-offs for software, start-up costs and other assets
associated with the USS business totaled $1,763,178. Finally, the costs
associated with terminating and transitioning the USS' service contracts have
been accrued at $328,747 and are expected to be paid primarily in the fourth
quarter of 1998 and the first quarter of 1999.
Also at the end of the third quarter, the Company eliminated 23 positions
across all departments of the Company as part of streamlining the organizational
structure of the Company. The severance and outplacement costs associated with
this workforce reduction totaled $178,315 and are anticipated to be paid
primarily during the fourth quarter of 1998. In addition to the workforce
reduction, the Company's restructuring included the elimination of certain
non-strategic programs, which resulted in asset write-downs principally for
research and software assets totaling $888,741. Other non-recurring costs
associated with this restructuring totaled $218,021.
6
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
NOTE 3--IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires that costs of start-up activities, as defined by
SOP 98-5, be expensed as incurred in financial statements for fiscal years
beginning after December 15, 1998. The Company has historically capitalized
certain costs associated with start-up activities for new products, processes or
operations and amortized the costs over a relatively short period of time
(usually 12 to 24 months). The Company will adopt SOP 98-5 in January 1999. The
Company currently has approximately $71,000 in start-up costs included on the
balance sheet as Intangible and Other Assets, net. Given the current rate of
amortization of these start-up costs, the impact of this change in accounting
principle in January 1999 will be approximately $62,000 as a pre-tax write-off
of remaining balances.
NOTE 4--INVESTMENTS:
Pursuant to the Company's investment policy, idle and excess funds are
invested in high grade, fixed income securities generally for no more than two
years. These securities are considered available-for-sale as of September 30,
1998. The Company considers any net unrealized gain or loss on these investments
to be temporary, and reflects such gains or losses as a component of
stockholders' equity. As of September 30, 1998, there was not a material net
unrealized gain or loss on these investments.
NOTE 5--COMMITMENTS:
In June 1998, the Company amended its lease agreement with Presbyterian
Health Foundation to reflect the Company's planned relocation to an adjacent
building currently under construction. The Company anticipates it will relocate
to the new facility by mid-1999. Pursuant to the lease amendment, the Company's
rent for its facilities will increase by approximately $270,000 per year,
subject to annual adjustment. The lease expires by its terms in 2013, subject to
early termination provisions. In addition, the Company has committed to funding
a portion of the building tenant improvements and expects to spend in excess of
$2.0 million for such improvements and other capital expenditures related to the
new building.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of operations and financial condition of UroCor,
Inc. ("UroCor" or the "Company") should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Quarterly
Report on Form 10-Q. Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. See "Special Note Regarding Forward-Looking Statements" and
"Cautionary Statements" included elsewhere in this Report.
OVERVIEW
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company complements
its diagnostic services by marketing and co-promoting therapeutic products for
certain of these diseases. The Company is also developing and offering related
information services intended to enhance and expand services to its clients. The
Company has established integrated capabilities to serve the needs of urologists
and managed care organizations for the diagnostic, prognostic and therapeutic
care of patients throughout the entire course of their diseases.
The Company currently derives over 85% 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 prostate cancer,
bladder cancer and kidney stones disease. 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, such as private insurance,
managed care plans, and governmental programs (i.e. Medicare), as well as
individual patients and physicians. For the nine months ended September 30,
1998, approximately 45%, 43%, 7% and 5% of the Company's diagnostic revenue was
attributable to Medicare, private insurance and managed care, individual
patients, and physicians and hospitals, respectively.
During the nine month's ended September 30, 1998, the Company derived
approximately 10% of its revenue from the marketing of two therapeutic products
pursuant to a co-promotion agreement entered into in October 1997. Under the
agreement, the Company recognizes revenue when earned based primarily on the
attainment of mutually agreed upon sales goals, therefore, the revenues recorded
in respect of prior periods may not be indicative of future results. The Company
also has distribution rights for another therapeutic product currently under
review by the United States Food and Drug Administration (the "FDA").
At the end of the third quarter 1998, the Company took three actions
directed at increasing earnings growth potential. First, the Company decided to
exit the USS business based on its determination that completing an acceptable
spin-off transaction on a timely basis was not probable. Second, the Company
accelerated efforts directed at improving its accounts receivable billing,
processing and collection systems and, accordingly, increased its reserve levels
for significantly past due balances. Third, the Company implemented cost
reduction initiatives including elimination of non-strategic programs and
workforce reductions. Special charges related to these three actions totaled
approximately $8.2 million.
RESULTS OF OPERATIONS
REVENUE. Revenue increased 51.6%, from approximately $7.8 million in the
three months ended September 30, 1997 to approximately $11.8 million in the
three months ended September 30, 1998, and increased 42.4%, from approximately
$23.7 million in the first nine months of 1997 to approximately $33.7 million in
the first nine months of 1998. These increases resulted from an increase in case
volume of 40.6% and 34.1% for the three and nine month periods respectively, due
primarily to expansion of the Company's client base and increased utilization of
the Company's diagnostic products and services by existing clients. Revenue also
increased as a result of therapeutics product co-promotion revenue, which
totaled approximately $1.3 million for the three months ended September 30, 1998
and approximately
8
<PAGE>
$3.7 million for the nine months ended September 30, 1998. There was no
comparable therapeutics revenue for the three or nine month periods ended
September 30, 1997.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 43.7%, from approximately $3.2 million in the three months ended
September 30, 1997 to approximately $4.6 million in the three months ended
September 30, 1998, and increased 43.5%, from $9.1 million in the first nine
months of 1997 to $13.0 million in the first nine months of 1998. These
increases were due principally to higher personnel costs and supply and
distribution costs resulting from increased case volume. Incremental costs also
resulted from USS business operations and expanded utilization of the Company's
wide area network report delivery system by the Company's clients. As a
percentage of revenue, direct expenses decreased to 38.6% for the three months
ended September 30, 1998 from 40.7% for the three months ended September 30,
1997, and increased to 38.7% of revenue for the first nine months of 1998 from
38.4% for the first nine months of 1997. The decrease for the three month
periods relates, in part, to higher logistics costs resulting from a UPS strike
in August 1997. The increase for the nine month period was due to growth of the
Company's serum and microbiology products each having lower profit margins than
those of most of the Company's other products, as well as the incremental USS
operations costs and wide area network report delivery system costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 53.0%, from approximately $4.0 million in the
three months ended September 30, 1997 to approximately $6.0 million in the three
months ended September 30, 1998, and increased 50.8%, from $11.6 million in the
first nine months of 1997 to $17.5 million in the first nine months of 1998.
These increases were due principally to higher personnel costs related to
management information services personnel, sales staff and accounts receivable
personnel and increased provision for doubtful accounts receivable. As a
percentage of revenue, selling, general and administrative expenses increased to
51.2% for the three months ended September 30, 1998 from 50.8% for the three
months ended September 30, 1997, and increased to 52.1% of revenue for the first
nine months of 1998 from 49.2% for the first nine months of 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs increased
6.7%, from approximately $498,000 in the three months ended September 30, 1997
to approximately $531,000 in the three months ended September 30, 1998, and
decreased 10.5%, from $1.7 million in the first nine months of 1997 to $1.5
million in the first nine months of 1998. This decline was due primarily to
completion of certain external research agreements. As a percentage of revenue,
research and development expenses decreased to 4.5% for the three months ended
September 30, 1998 from 6.4% for the three months ended September 30, 1997, and
decreased to 4.6% of revenue for the first nine months of 1998 from 7.3% for the
first nine months of 1997.
SPECIAL CHARGES AND USS OPERATIONS. During the third quarter 1998, the
Company recognized special charges related to three actions. First, the Company
made the decision to exit the USS business when it determined that a successful
spin-off of the unit as an independent entity could not be completed in a timely
manner. The exit costs related to this decision totaled approximately $2.2
million and include severance and outplacement costs for USS employees,
estimated expenses for orderly termination and transition of USS' service
contracts and related asset write-downs. Second, as part of its ongoing
assessment of accounts receivable and reserve adequacy, the Company determined
that collection costs on specific aged segments of its accounts receivable
outweighed the expected proceeds. Accordingly, a provision of $4.7 million was
made for these older receivable balances. Third, the Company implemented cost
reduction initiatives including elimination of non-strategic programs and
workforce reductions, resulting in approximately $889,000 in asset write-downs,
approximately $178,000 in severance and outplacement costs and approximately
$218,000 in other non-recurring costs related to these initiatives. The
aggregate charges for these three actions totaled approximately $8.2 million for
the three months ended September 30, 1998 and there were no such charges for the
three months ended September 30, 1997.
9
<PAGE>
1998 operating losses for the USS business are reflected as operating
expenses in excess of associated revenue and totaled approximately $406,000 and
$1.1 million for the three and nine month periods, respectively. The following
table sets forth the effects of the special charges and the operating losses of
USS on UroCor's operating income for the three and nine month periods ended
September 30, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Operating loss, as reported........................... ($7,537,662) ($6,636,340)
Operating income, excluding Special charges and USS
operating losses.................................... 1,074,432 2,721,438
</TABLE>
OTHER INCOME (EXPENSE). Interest income net of interest expense decreased
24.0%, from approximately $358,000 in the three months ended September 30, 1997
to approximately $272,000 in the three months ended September 30, 1998, and
decreased 20.1% from approximately $1.1 million in the first nine months of 1997
to approximately $905,000 in the first nine months of 1998. This decline was due
principally to the decreased cash, cash equivalents and investments that
resulted from capital expenditures and an increase in accounts receivable. Other
expense of approximately $339,000 for both the three and nine month periods
ended September 30, 1998 was primarily due to non-recurring charges for
professional advisors fees related to implementing the Company's Stockholder
Rights Plan and review of an unsolicited purported acquisition offer in the
third quarter of 1998. The following table sets forth the effects of the special
charges, the operating losses of USS and the other expenses on UroCor's net
income and diluted earnings per share for the three and nine month periods ended
September 30, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net loss, as reported................................. ($4,720,710) ($3,769,025)
Net income, excluding special charges, USS operating
losses and other expense............................ 829,046 2,243,053
------------------ ------------------
Diluted loss per share, as reported................... ($.43) ($.34)
Diluted earnings per share, excluding special charges,
USS operating losses and other expense.............. $.08 $.20
</TABLE>
INCOME TAXES. The income tax benefits recorded for the three and nine
months ended September 30, 1998 of approximately $2.9 and $2.3 million,
respectively, reflect federal and state income tax benefits at a 38% effective
rate. No income tax provision was recognized for the three or nine month periods
ended September 30, 1997 as a result of utilization of net operating loss
carryforwards. Using an effective tax rate of 38%, the recognition of tax
benefits reduced the tax provision for the third quarter of 1997 approximately
$198,000 or $.02 per share and $898,000 or $.08 per share for the nine months
ended September 30, 1997. As of September 30, 1997, a valuation allowance
against future benefits of net deferred tax assets was recorded due to
uncertainty regarding the realizability of such assets through sustained
profitable operations. As realizability of this asset became more certain
through a demonstrated positive earning history during 1997, the Company
reevaluated the appropriateness of recognizing these future benefits and
recorded a deferred tax asset in the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, cash, cash equivalents and marketable investments
totaled approximately $19.5 million and the Company's working capital was
approximately $33.2 million. As of September 30, 1998, the components of cash,
cash equivalents and marketable investments were cash and cash equivalents of
approximately $11.4 million, short-term marketable investments of approximately
$6.1 million and
10
<PAGE>
long-term marketable investments of approximately $2.1 million. Such marketable
investments consisted principally of high-grade fixed income securities, with a
maturity of less than two years.
Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $14.4 million at September 30, 1998, an increase of approximately
$722,000 from December 31, 1997 or 5%. At September 30, 1998, the Company's
average number of days sales in receivables was approximately 115 compared to
142 at December 31, 1997. The increase in accounts receivable during the nine
months ended September 30, 1998 was partially offset by a special charge of $4.7
million as an additional provision for accounts receivable on which the
estimated cost of additional collection efforts likely outweigh the expected
proceeds. The Company believes that it has made progress in implementing certain
systems and processing changes intended to improve systems processing and
related collections results. In an effort to reduce its average number of days
sales in receivables, the Company is continuing additional systems and process
changes and is undertaking additional initiatives intended to improve its claims
efficiencies and collections results. The increase in accounts receivable is
also partially attributable to revenue from therapeutics co-promotion
activities.
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. The Company maintains what it
believes to be an adequate level of an allowance for doubtful accounts through
charges to operations which are normally included in selling, general and
administrative expenses. During the third quarter of 1998, the Company provided
a special charge of $4.7 million to increase the allowance for doubtful
accounts.
Operating activities used net cash of approximately $1.7 million for the
nine months ended September 30, 1998 compared to approximately $2.9 million for
the nine months ended September 30, 1997. The net cash used in operating
activities was primarily the result of a net loss of approximately $3.8 million
and the related deferred tax benefit of approximately $2.3 million and an
increase in accounts receivable of approximately $722,000 and other current
assets of approximately $551,000, offset in part by loss on asset write down of
approximately $2.0 million, depreciation and amortization of approximately $2.0
million and an increase of accounts payable of approximately $804,000 and
accrued liabilities of approximately $772,000.
Net cash provided by investing activities was approximately $6.3 million for
the nine months ended September 30, 1998 and consisted primarily of maturities
of short-term marketable investments of approximately $10.6 million, offset by
capital expenditures of approximately $3.9 million, an increase in intangibles
and other assets of approximately $278,000 and purchases of long-term marketable
investments of approximately $115,000. Net cash used in financing activities was
approximately $115,000 for the first nine months of 1998, consisting primarily
of principal payments under capital leases and other indebtedness of
approximately $359,000 offset by proceeds from exercise of stock options of
approximately $139,000 and proceeds of stock issuances pursuant to the employee
stock purchase plan of approximately $103,000.
The Company's capital expenditures of approximately $3.9 million for the
nine months ended September 30, 1998, were primarily for computer hardware and
software, furniture and fixtures and software development for the Company's
information services. Of the total amount, approximately $867,000 was related to
internal software development costs for information services. While future
capital expenditures will depend upon a number of factors, the level of
expenditures is expected to be higher than the historical level of such
expenditures as the Company expands to deliver therapeutics and information
services and continues to enhance current diagnostic services and operational
capabilities. In 1999, the Company expects to relocate to a new building, which
is currently being constructed adjacent to the Company's existing facilities.
The Company has committed to funding a portion of the building tenant
improvements and expects to spend in excess of $2.0 million beginning in the
second quarter of 1999 for
11
<PAGE>
such improvements and other capital expenditures related to moving to the new
building. The Company intends to finance the majority of these capital
expenditures with existing cash and investment balances.
In December 1994, the Company obtained distribution rights to a therapeutic
product currently under review for marketing approval by the FDA The total cost
of the distribution rights is $3.0 million, payable in installments based on
achievement of certain milestones by the manufacturer. Prior to 1998, the
Company made aggregate milestone payments of $1.25 million. The Company is
obligated to pay an additional milestone payment of $1.75 million if and when
the product is approved by the FDA for marketing in the United States. If the
Company is required to make this payment, it intends to do so out of existing
cash and investment balances.
In October 1997, the Company entered into a co-promotion agreement with the
manufacturer of two therapeutic products. For the nine months ended September
30, 1998, the Company recorded revenue of approximately $3.7 million under the
agreement. The Company recognizes revenue under the agreement when earned based
on the attainment of mutually agreed upon sales goals. Since these revenues are
determined based upon performance-related criteria, revenues earned in respect
of prior periods may not be indicative of future revenues. Annual sales goals
and other contract provisions are the subject of discussions initiated by the
manufacturer. The outcome of these discussions cannot be predicted, but could
potentially result in a decrease in the Company's future revenues under the
agreement.
The Company believes that its existing capital resources will be sufficient
to provide the funds necessary to maintain its present level of operations and
implement its currently planned growth strategy. However, there may be
circumstances or new business opportunities that would require additional
resources. In such event, the Company may be required to seek additional
financing and there is no assurance that the Company would be able to obtain
such financing on acceptable terms.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of key vendors, payors and customers, that
have date sensitive logic may interpret a date using "00" as the year 1900
rather than 2000. This may result in inaccurate processing or possible system
failure causing potential disruption of operations, including among other things
a temporary inability to process transactions, send bills for services or engage
in similar normal business activities.
The Company believes that it has assessed the readiness of its internal
computer systems and related applications to accommodate date-sensitive
information relating to the Year 2000. As the Company's computer systems are
relatively new, there have not been any systems identified for which incremental
cost to become Year 2000 compliant is expected to be material to the financial
condition or results of operations of the Company.
The Company will continue to analyze systems and services that utilize date
embedded codes that may experience operational problems when the Year 2000 is
reached. The Company will continue communicating with third parties with which
it does business, including third party payors and customers, to coordinate year
2000 compliance. As the ability of these third parties to address their year
2000 issues adequately is outside the Company's control, there can be no
assurance that the failure of third parties to address their respective year
2000 issues adequately will not have a material adverse effect on the Company's
results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS:
The effective date of the registration statement for the Company's initial
public offering of Common Stock and for which this use of proceeds information
is being disclosed was May 16, 1996 and the Commission file number assigned to
the registration statement was 333-3182.
From the effective date of the registration statement through September 30,
1998, the following table identifies the purposes and amounts of the net
proceeds paid directly or indirectly to others:
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities........................ $ --
Purchase and installation of machinery and equipment.................. 4,951,735
Purchases of real estate.............................................. --
Acquisition of other business(es)..................................... --
Repayment of indebtedness............................................. 2,220,211
Working Capital....................................................... 3,641,287
Temporary Investments:
Short-term Commercial Paper......................................... 6,064,109
Long-term Corporate and Treasury Notes.............................. 2,127,340
Cash Equivalents.................................................... 3,352,046
Other Purposes:
Development and Expansion of Diagnostic Product Line................ 5,433,738
Development of Information Products and Services and Urological
Disease Databases................................................. 2,646,296
Development of Therapeutic Product Line............................. 984,951
Development and Expansion of Clinical and Research Laboratories and
Lab Information System............................................ 3,128,146
</TABLE>
None of the net proceeds have been paid directly or indirectly to directors,
officers, general partners or their associates, to persons owning 10% or more of
any class of equity securities or affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's financial position,
business strategy, products, products under development, markets, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in statements set forth under "Cautionary Statements" and elsewhere in
this Report, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written and
oral forward-looking statements attributable to the Company, or persons on its
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements.
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. Over the last several years,
the Company has experienced substantial growth and expanded its operational
capabilities. The Company is also planning to offer additional therapeutic
products 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 date, the Company
primarily has experience in managing a diagnostics service business. There can
be no assurance that the Company will be able to manage expansion into and
operation of therapeutics or information services businesses.
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 seasonality, the quantities and timing of specimens
received, competitive pricing pressures, reimbursement changes, availability and
cost of diagnostic supplies, availability and cost of logistic and delivery
services, changes in the mix of products sold, 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 Company relies principally upon Federal Express, UPS and
Airborne Express for inbound and outbound shipping of specimens and kits for its
diagnostics operations; any disruption in the availability of such logistics and
delivery services could have a material adverse effect on the Company's
operating results. 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's operating results
may continue to fluctuate in the future.
UNCERTAINTY RELATED TO GOVERNMENT REGULATION. 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 various types of regulatory activity affect the Company's business by
controlling its growth, restricting licensure of the business entity or by
controlling the reimbursement for services provided. The Company cannot predict
the timing or impact of any changes in such laws and regulations or their
interpretations by regulatory bodies, 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.
14
<PAGE>
Existing federal laws governing federal health care programs, including
Medicare, as well as some state laws, regulate certain aspects of the
relationship between health care providers, including the Company, and their
referral sources, including physicians, hospitals and other facilities. The
Social Security Act, and the anti-kickback and self-referral rules thereunder,
prohibit providers and others from soliciting, offering, receiving or paying,
directly or indirectly, any remuneration in return for either making a referral
for a service or item and prohibit physicians, subject to certain exceptions,
from making such referrals to certain entities in which they have an investment
interest or with which they have a compensation arrangement. Violation of these
prohibitions is punishable by disallowance of submitted claims, civil monetary
penalties and criminal penalties and exclusion from the Medicare and other
federally funded programs. In recent months, the federal government has expanded
its investigative and enforcement activities in these areas. The federal
government also has become more aggressive recently in examining billing by
laboratories and other health care providers, and in seeking repayments and even
penalties based on how the services were billed (e.g. the billing codes used),
regardless of whether carriers had furnished clear guidance on this subject.
In July 1998, the Company received a Civil Investigative Demand (the "CID")
from the United States Department of Justice (the "DOJ") concerning allegations
that the Company may have submitted false claims in connection with bills for
services submitted to Medicare and other federal insurance programs. The DOJ has
given the Company no further information regarding the allegations or its
inquiry. The CID required the Company to produce certain documents to the DOJ.
The Company produced documents to the DOJ in response to the CID and intends to
cooperate fully with the DOJ with respect to this investigation. Although the
Company seeks to structure its practices to comply with all applicable laws, and
management believes its practices are in compliance, no assurances may be given
regarding the resolution of this matter, and the Company is unable to predict
its impact, if any, on the Company. If the DOJ were to pursue and prevail on
matters that may arise from this investigation, any significant recoupment of
funds or civil or criminal penalty or exclusion from federal and state health
care programs potentially resulting from such proceedings would have a material
adverse effect on the Company.
The Company's diagnostic laboratory operations currently are required to be
certified or licensed under the federal Clinical Laboratory Improvement Act of
1976, as amended in 1988, 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.
While the Company currently knows of no plans that the FDA has to require
FDA approval of assays developed by laboratories for in-house use, the FDA has
in the past considered drafting guidelines for such regulation. 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. Additionally, in a recent rule, the FDA stated that in some
circumstances involving in-house assays, laboratories will be required, upon
effectiveness of the rule, to indicate that the assay has not been cleared by
the FDA. There can be no assurance that such disclosure will not have an adverse
impact on reimbursement.
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
15
<PAGE>
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.
The FDA regulates products licensed or otherwise acquired from third parties
and distributed or marketed by the Company. The manufacturers of such products
are responsible for compliance with the approval and marketing regulations of
the FDA. The ability of such third parties to address their FDA regulatory
issues is outside the Company's control. There can be no assurance that the
failure of such third parties to address their FDA regulatory matters adequately
will not have a material adverse effect on the Company's results of operations
and financial condition.
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.
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, which may result in lower
profit margins for the Company. Reimbursement rates have been established for
most but not all of the services performed by the Company. The Company cannot
collect from Medicare or other third-party payors for services that those payors
have not approved for reimbursement. There can be no assurance that any products
the Company currently has under development will be approved for reimbursement
by Medicare or other third-party payors. Furthermore, Medicare and other third
party payors have, on occasion, ceased reimbursement when certain tests are
ordered for patients with certain diagnoses while maintaining reimbursement when
those tests are ordered for other diagnoses deemed appropriate by the carrier.
This practice has recently become more prevalent with respect to Medicare.
Medicare may retroactively audit and review its payments to the Company and may
determine that certain payments for services must be returned. From time to
time, the public and federal government focus significant attention on reforming
the health care system in the United States. In 1997, Congress enacted the
Balanced Budget Act of 1997 that effected numerous changes to the Medicare and
Medicaid programs that could affect health care providers, including clinical
laboratories. The 1997 act also revised the resource-based relative value scale
system that could affect health care providers that offer physician pathology
services. These 1997 changes and 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. A number of other legislative proposals have been introduced in Congress
and state legislatures in recent years that would effect major reforms of the
health care system and otherwise reduce health care spending. Because of the
uncertainties surrounding the nature, timing and extent of any such
reimbursement changes, audits and reform initiatives, the Company is unable to
predict the effects of any such matters on the Company.
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.
Any negative event related to these product lines, such as increased
competition, pricing pressures, reimbursement changes and clinical or
technological obsolescence, would have a material and adverse effect on the
Company's financial condition and results of operations.
NO ASSURANCE OF SUCCESSFUL MARKETING ARRANGEMENTS FOR THERAPEUTIC
PRODUCTS. The Company conducts marketing activities for therapeutic products
through its UroTherapeutics Group. The Company currently has acquired
distribution or co-promotion rights for three therapeutic products. For the nine
months ended September 30, 1998, the Company recorded revenue of approximately
$3.7 million under a co-
16
<PAGE>
promotion agreement with the manufacturer of two of these products. The Company
recognizes revenue under this agreement when earned based principally on the
attainment of mutually agreed upon sales goals. Since these revenues are
determined based upon performance-related criteria, revenues earned in respect
of prior periods may not be indicative of future revenues. Annual sales goals
and other contract provisions are the subject of discussions initiated by the
manufacturer. While the outcome of these discussions cannot be predicted, there
can be no assurance that the results of such discussions would not have an
adverse effect on the Company's future revenues under the agreement. There can
also be no assurance that the Company will be successful in negotiating any
additional distribution or other agreements related to therapeutic products in
the future or that it will be able to profitably market and distribute
therapeutic products in the future.
UNCERTAINTIES RELATED TO THE FDA APPROVAL OF THERAPEUTIC PRODUCT. The
Company has a distribution agreement with BioChem Vaccines, Inc. ("BioChem"), a
subsidiary of BioChem Pharma, Inc., for a therapeutic product for use in
treating certain types of bladder cancer. Pursuant to the distribution
agreement, BioChem is responsible for obtaining approvals from the FDA for
marketing the therapeutic product in the United States. In April 1995, BioChem
filed its initial applications with the FDA. In April 1996, the FDA advised
BioChem that its application was not approvable and requested additional data
regarding certain aspects of manufacturing and testing of the product, which
BioChem filed with the FDA through an amended application in August 1996.
Following a May 1997 site inspection of BioChem's manufacturing facilities and
operations, the FDA issued a report on FDA Form 483 indicating that additional
requirements related to BioChem's facility, process and documentation were
required before these applications could be approved. As a result of an August
1998 FDA site visit and subsequent discussions between BioChem and the FDA,
BioChem must yet upgrade one portion of its manufacturing process to meet FDA
requirements. Although BioChem has advised the Company that it believes it can
satisfy the FDA requirements, there can be no assurance that approval will be
obtained.
UNCERTAINTIES RELATED TO ACCOUNTS RECEIVABLE. At September 30, 1998, the
Company's average days sales in receivables was approximately 115, compared to
142 at December 31, 1997. The Company's accounts receivable have increased at a
rate greater than revenue growth and, therefore, have affected the Company's
cash flow from operations. In addition, as a result of the increase in accounts
receivable, the Company's allowance for doubtful accounts has increased. While
the Company believes that it has made progress in implementing certain systems
and processing changes intended to improve its collections results, and the
Company maintains what it believes to be an adequate allowance for doubtful
accounts, there can be no assurance that the Company will not be required to
provide additional reserves, which could have an adverse affect on the Company's
results of operations.
RISKS RELATED TO TERMINATION OF UROLOGY SUPPORT SERVICES BUSINESS. During
1998, the Company provided limited business management services, primarily
billing and collection services, to selected urologist clients, through the
Company's USS business. As a result of the Company's decision as of the end of
the third quarter to exit this business, the Company has incurred and expects to
incur severance and other expenses. The Company believes it has accrued as of
the end of the third quarter the estimable expenses associated with terminating
the existing service contracts and related exit activities. There can be no
assurance that additional expenses related to these activities or to unexpected
consequences of exiting the USS business will not affect future periods. Such
occurrences may have a material adverse affect on operating results of such
future periods.
UNCERTAINTIES RELATED TO INVESTMENTS IN DISEASE MANAGEMENT INFORMATION
SYSTEMS. The Company has been and expects to continue investing in the
development of information-based capabilities and services which it plans to
introduce in the future related to the clinical management of urologists'
patients. The Company has developed and introduced, on a limited basis, disease
outcomes reporting capabilities in one disease state. Further development and
delivery of these new services may require substantial additional investment and
represents an expansion of the type of services the Company presently provides
to
17
<PAGE>
urologists. There can be no assurance that any future revenues directly or
indirectly from these services will be sufficient to cover or otherwise justify
the costs of development and introduction.
RISKS ASSOCIATED WITH DEVELOPMENT OF DATABASE. The confidentiality of
patient medical records is subject to substantial regulation by the state and
federal governments. State and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Legislation governing the dissemination and use of medical record information is
being proposed continually at both the state and federal levels. For example,
the Health Insurance Portability and Accountability Act of 1996 requires the
Secretary of the United States Department of Health and Human Services to
recommend legislation or to promulgate regulations governing privacy standards
for individually identifiable health information. Additional legislation may
require that holders or users of confidential patient medical information
implement measures to maintain the security of such information and may regulate
the dissemination of even anonymous patient information. Physicians and other
persons providing patient information to the Company are also required to comply
with these laws and regulations. If a patient's privacy is violated, or if the
Company is found to have violated any state or federal statute or regulation
with regard to the confidentiality, dissemination or use of patient medical
information, the Company could be liable for damages, or for fines or penalties.
The Company believes that it complies in all material respects with all
applicable state and federal laws and regulations governing the confidentiality,
dissemination and use of medical record information. However, there can be no
assurance that differing interpretations of existing laws and regulations or the
adoption of new laws and regulations would not have a material adverse effect on
the ability of the Company to obtain or use patient information which, in turn,
could have a material adverse effect on the Company's plans to develop and
market its urology disease information database and related treatment. The
Company intends to continue to monitor and review the interpretation and
enactment of laws and regulations which affect the Company's plans to develop
and market its urology disease information database. In addition, the American
Medical Association (the "AMA") has issued an opinion to the effect that a
physician who does not obtain a patient's consent to the disclosure of the
patient's medical record information violates the AMA's ethical standards. While
the AMA's opinions are not law, they may influence the willingness of physicians
to obtain patient consents or to disclose patient medical information to the
Company and thus could have a material adverse effect on the Company's plans to
develop and market its urology disease information database.
UNCERTAINTIES RELATED TO MANAGED CARE. Managed care organizations are
gaining increasing control over access to health care and payment for an
increasing number of patients with urological diseases. 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 patients in certain markets. The Company has
experienced increasing pricing pressure from managed care organizations, and
such pressure is expected to continue. There can be no assurance that such
pricing pressure and any contract restrictions will not have a material adverse
effect on the Company's financial condition and results of operations.
NO ASSURANCE OF ACCESS TO AND DELIVERY OF NEW DIAGNOSTIC TECHNOLOGY. The
markets for the Company's diagnostic products and services are characterized by
rapidly changing technology, frequent new product introductions and enhancement
and, therefore, rapid product obsolescence. There can be no assurance 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 and technologies, or receive commercial acceptance for its products.
UNCERTAINTIES ASSOCIATED WITH COMPETITIVE PRESSURES. 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
18
<PAGE>
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 and with managed care organizations. There can be no assurance that
the Company will be able to compete successfully with such entities in the
marketing of products and services and in the acquisition of new technologies.
YEAR 2000 RISKS. The Company's computerized information systems are
relatively new and in assessing the readiness of all key internal systems to
accommodate date sensitive information for the year 2000, the Company has not
found any programs that will require significant effort or incremental cost to
address. Although the Company believes that it has sufficiently assessed its
internal systems and does not expect to incur significant expenditures to
address year 2000 issues, there can be no assurance that this will be the case.
Additionally, the ability of third parties with whom the Company transacts
business to address their year 2000 issues adequately is outside the Company's
control. The Company has an ongoing project to communicate with the third
parties with which it does business to coordinate year 2000 compliance. There
can be no assurance that the failure of the Company or such third parties to
address their respective year 2000 issues adequately will not have a material
adverse effect on the Company's results of operations and financial condition.
UNCERTAINTY OF ACCESS TO CAPITAL. The Company's growth since 1991 has
required, and any future growth will require, significant amounts of working
capital. Although the Company believes that existing capital resources will be
adequate to fund its present level of operations and implement its currently
planned growth strategy, there may be circumstances or new business
opportunities that would require additional resources. In such event, the
Company may be required to seek additional financing, and there is no assurance
that the Company would be able to obtain such financing on acceptable terms.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibits designated by the symbol * are filed with this Quarterly Report on
Form 10-Q. All exhibits not so designated are incorporated by reference to a
prior filing as indicated.
<TABLE>
<CAPTION>
<C> <S>
3.1* Certificate of Incorporation, as amended.
4.1 Rights Agreement dated as of August 17, 1998, between the Company and
American Stock Transfer & Trust Company, as Rights Agent (incorporated
by reference to Exhibit 4.1 to the Registrant's Current Report on Form
8-K, filed with the Commission on August 21, 1998).
4.2 Form of Right Certificate (incorporated by reference to Exhibit 4.3 to
the Registrant's Current Report on Form 8-K, filed with the Commission
on August 21, 1998).
10.1* Employment Agreement, dated July 23, 1998 between Michael W. George
and UroCor, Inc.
10.2* Amendment No. 2 dated June 16, 1998 amending the Lease Agreement
between Presbyterian Health Foundation, as Landlord and UroCor, Inc.,
as Tenant dated April 15, 1994.
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated August 21, 1998 to
report that on August 17, 1998, the Company's Board of Directors adopted a
Stockholder Rights Plan.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UROCOR, INC.
By: /s/ WILLIAM A. HAGSTROM
-----------------------------------
William A. Hagstrom
CHAIRMAN OF THE BOARD,
AND CHIEF EXECUTIVE OFFICER
November 12, 1998
By: /s/ MICHAEL N. MCDONALD
-----------------------------------
Michael N. McDonald
VICE-PRESIDENT AND CHIEF FINANCIAL
OFFICER
November 12, 1998
20
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
UROCOR, INC.
(Originally incorporated under the name
"CytoDiagnostics - Delaware, Inc."
on October 14, 1988)
FIRST: The name of the Corporation is UroCor, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name and address of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of capital stock that the
Corporation shall have authority to issue is 26,579,759 of which 6,000,000
shares of the par value of $.01 per share shall be a class designated
Preferred Stock ("Preferred Stock"), 20,000,000 shares of the par value of
$.01 per share shall be a class designated Common Stock ("Common Stock"),
513,093 shares of the par value of $.01 per share shall be a class designated
Class A Stock ("Class A Stock") and 66,666 shares of the par value of $.01
per share shall be a class designated Class B Stock ("Class B Stock").
A. 1991 SERIES A PREFERRED STOCK, SERIES I PREFERRED STOCK, SERIES B
PREFERRED STOCK, SERIES C PREFERRED STOCK, SERIES D PREFERRED STOCK,
SERIES E PREFERRED STOCK AND SERIES EG PREFERRED STOCK.
One series of Preferred Stock is designated as 1991 Series A Preferred
Stock, par value $.01 per share (the "1991 Series A Preferred Stock"), of the
Corporation. One series of Preferred Stock is designated as Series I
Preferred Stock, par value $.01 per share (the "Series I Preferred Stock"),
of the Corporation. One series of Preferred Stock is designated as Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"),
of the Corporation. One series of Preferred Stock is designated as Series C
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"),
of the Corporation. One series of Preferred Stock is designated as Series D
Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"),
of the Corporation. One series of Preferred Stock is designated as Series E
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock"),
of the Corporation. One series of Preferred Stock is designated as Series EG
Preferred Stock, par value $.01 per share (the "Series EG Preferred Stock"),
of the Corporation. The Series E Preferred Stock and the Series EG Preferred
Stock shall together be referred to herein as the "Series E/EG Preferred
Stock", unless the context shall otherwise require in which case the term
"Series E/EG Preferred Stock" shall refer to either the Series E Preferred
Stock or the Series EG Preferred Stock, as the case may be.
<PAGE>
The number of shares constituting the 1991 Series A Preferred Stock
shall be 1,199,999. The number of shares constituting the Series I Preferred
Stock shall be 80,000. The number of shares constituting the Series B
Preferred Stock shall be 1,467,608. The number of shares constituting the
Series C Preferred Stock shall be 981,071. The number of shares constituting
the Series D Preferred Stock shall be 1,154,397. The number of shares
constituting the Series E Preferred Stock shall be 763,320. The number of
shares constituting the Series EG Preferred Stock shall be 60,000.
The 1991 Series A Preferred Stock, the Series I Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E/EG Preferred Stock and shall together be
referred to herein as the "Designated Preferred Stock".
The voting powers, designations, preferences and relative,
participating, optional or other special rights of the 1991 Series A
Preferred Stock, Series I Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and the Series E/EG Preferred Stock
and the qualifications, limitations or restrictions thereof, are as follows:
1. DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Designated Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation out of funds legally available for the purpose, dividends equal to
the product of:
(i) the aggregate per share amount of any dividend declared on
the Common Stock, the Class A Stock and the Class B Stock, and, in the
event any dividend were declared on only one of such classes of stock, or
on only two of such classes of stock, the aggregate per share amount of
any such dividend, as the case may be, since the immediately preceding
payment of dividends on Designated Preferred Stock; and
(ii) the number of shares of Common Stock into which a share of
Designated Preferred Stock is convertible on the date on which the
dividend is to be paid;
and the Corporation shall declare a cash dividend on the Designated Preferred
Stock as provided in this Section 1(a) immediately after it declares a cash
dividend on the Common Stock, the Class A Stock and/or the Class B Stock, and
no dividends shall be declared on the Common Stock, the Class A Stock or the
Class B Stock, unless the Corporation has funds legally available for the
payment of such dividends on such classes of stock and for the payment of the
dividends contemplated by this Section 1 on the Designated Preferred Stock,
and no dividend shall be paid with respect to the Common Stock, the Class A
Stock or the Class B Stock, unless and until a dividend is paid with respect
to all shares of Designated Preferred Stock as contemplated by this Section
1. The Board of Directors of the Corporation may fix a record date for the
determination of holders of shares of the Designated Preferred Stock entitled
to receive payment of a dividend declared thereon, which record date shall be
no more than 60 days prior to the date fixed for the payment thereof.
(b) The holders of shares of the Designated Preferred Stock shall
be entitled to receive any non-cash dividend or other distribution
(including, without limitation, any distribution of other or additional stock
or other securities or property or rights or warrants to subscribe for or
purchase Common Stock or other securities of the Corporation or any of its
<PAGE>
subsidiaries by way of dividend or spin-off, issuance of rights, or
reclassification, recapitalization or similar corporate rearrangement) which
the Corporation shall at any time or from time to time declare, order, pay or
make on the Common Stock, the Class A Stock and/or the Class B Stock, or, in
the event such dividend or distribution is declared, ordered, paid or made on
only one of such classes of stock, or on only two of such classes of stock,
such dividend or distribution, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), and the Corporation at the same time it
declares, orders, pays or makes such dividend or distribution on the Common
Stock, the Class A Stock and/or the Class B Stock, shall declare, order, make
and pay such dividend or distribution on the Designated Preferred Stock, in
an amount per share equal to the product of:
(i) the aggregate per share amount of any such dividend or
distribution declared, ordered, paid or made on the Common Stock, the
Class A Stock and the Class B Stock, and, in the event any such dividend
or distribution were declared, ordered, paid or made on only one of such
classes of stock, or on only two of such classes of stock, the aggregate
per share amount of any such dividend or distribution; and
(ii) the number of shares of Common Stock into which a share of
Designated Preferred Stock is convertible on the date on which such
dividend or distribution is to be paid or made.
No non-cash dividend or other distribution (other than a dividend payable in
Common Stock or a subdivision of the outstanding shares of Common Stock)
shall be paid with respect to the Common Stock, the Class A Stock or the
Class B Stock, unless and until such a dividend or distribution is paid with
respect to all shares of Designated Preferred Stock as contemplated by this
Section 1.
2. VOTING RIGHTS. The holders of shares of Designated Preferred Stock
shall have the following voting rights:
(a) Each share of Designated Preferred Stock shall entitle the
holder thereof to one vote multiplied by the number of shares of Common Stock
into which such share of Designated Preferred Stock is convertible on the
record date for such vote, on all matters submitted to a vote of the
stockholders of the Corporation.
(b) Except as otherwise required by law or by the provisions of
this Restated Certificate of Incorporation, (i) the holders of 1991 Series A
Preferred Stock shall not be entitled to vote separately as a series on any
matter submitted to a vote of the stockholders of the Corporation, (ii) the
holders of shares of Series I Preferred Stock shall not be entitled to vote
separately as a series on any matter submitted to a vote of the stockholders
of the Corporation, (iii) the holders of shares of Series B Preferred Stock
shall not be entitled to vote separately as a series on any matter submitted
to a vote of the stockholders of the Corporation, (iv) the holders of shares
of Series C Preferred Stock shall not be entitled to vote separately as a
series on any matter submitted to a vote of the stockholders of the
Corporation, (v) the holders of shares of Series D Preferred Stock shall not
be entitled to vote separately as a series on any matter submitted to a vote
of the stockholders of the Corporation and (vi) the holders of shares of
Series E/EG Preferred Stock shall not be entitled to vote separately as a
series on any matter submitted to a vote of the stockholders of the
Corporation.
<PAGE>
3. LIQUIDATION.
(a) FIRST PREFERENCE. In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of record of the issued and outstanding shares of
Designated Preferred Stock and the holders of record of the issued and
outstanding shares of Class A Stock shall be entitled to receive, out of the
assets of the Corporation available for distribution, prior and in preference
to any distribution of any of the assets of the Corporation to the holders of
Common Stock or to the holders of Class B Stock or otherwise, amounts per share
as follows:
(i) the holders of record of the issued and outstanding shares
of 1991 Series A Preferred Stock shall be entitled to receive an amount
per share equal to $1.25 plus an amount equal to all dividends accrued on
the 1991 Series A Preferred Stock but unpaid at the date of such payment;
(ii) the holders of record of the issued and outstanding shares
of Series B Preferred Stock shall be entitled to receive an amount per
share equal to $1.55 plus an amount equal to all dividends accrued on the
Series B Preferred Stock but unpaid at the date of such payment;
(iii) the holders of record of the issued and outstanding shares
of Series C Preferred Stock shall be entitled to receive an amount per
share equal to $3.25 plus an amount equal to all dividends accrued on
the Series C Preferred Stock but unpaid at the date of such payment;
(iv) the holders of record of the issued and outstanding shares
of Series D Preferred Stock shall be entitled to receive an amount per
share equal to $4.30 plus an amount equal to all dividends accrued on the
Series D Preferred Stock but unpaid at the date of such payment;
(v) the holders of record of the issued and outstanding shares
of Series E/EG Preferred Stock shall be entitled to receive an amount per
share equal to $5.00 plus an amount equal to all dividends accrued on the
Series E/EG Preferred Stock but unpaid at the date of such payment;
(vi) the holders of record of the issued and outstanding shares
of Series I Preferred Stock shall be entitled to receive an amount per
share equal to $1.25 plus an amount equal to all dividends accrued on the
Series I Preferred Stock but unpaid at the date of such payment; and
(vii) the holders of record of the issued and outstanding shares
of Class A Stock shall be entitled to receive an amount per share equal
to $.25 plus an amount equal to all dividends accrued on the Class A
Stock but unpaid at the date of such payment.
<PAGE>
If, upon such liquidation, dissolution or winding up of the affairs
of the Corporation, the assets of the Corporation shall be insufficient to
permit the payment in full to the holders of shares of the Designated
Preferred Stock and Class A Stock of the amounts payable to them as aforesaid
in this Section 3(a), then the holders of shares of Designated Preferred
Stock and Class A Stock shall be treated PARI PASSU, and the entire assets of
the Corporation legally available for distribution shall be distributed
ratably among the holders of the shares of the Designated Preferred Stock and
Class A Stock in proportion to the full preferential amount to which they
otherwise would be entitled pursuant to this Section 3(a).
(b) SECOND PREFERENCE. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether
voluntary or involuntary, after the holders of shares of the Designated
Preferred Stock and Class A Stock shall have been distributed in full the
amounts to which they shall be entitled under Section 3(a), each holder of
record of the issued and outstanding shares of Class A Stock shall be
entitled to receive, out of the assets of the Corporation available for
distribution, prior and in preference to any further distribution of any of
the assets of the Corporation to the holders of shares of the Designated
Preferred Stock, and prior and in preference to any distribution of any of
the assets of the Corporation to the holders of shares of the Common Stock
and the holders of shares of Class B Stock or otherwise, an amount equal to
such holder's pro rata portion (based on the number of shares of Class A
Stock held by each such holder) of the lesser of (i) the amount that is equal
to 26% of such assets remaining available for distribution and (ii)
$1,683,396.
(c) GENERAL.
(i) All of the preferential amounts to be paid to the holders
of the Designated Preferred Stock and Class A Stock pursuant to Section 3(a)
and Section 3(b) shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any
assets of the Corporation to, the holders of the Common Stock or Class B
Stock or otherwise in connection with such liquidation, dissolution or
winding up.
(ii) In the event that the liquidation, dissolution or winding
up of the affairs of the Corporation is not pursuant to any of the events
described in Section 3(e) below in which the Market Valuation of the
Corporation as determined by such liquidation, dissolution or winding up of
the affairs of the Corporation equals or exceeds $46,220,397, after setting
apart or paying in full the preferential amounts aforesaid to the holders of
record of the issued and outstanding shares of Designated Preferred Stock and
Class A Stock as set forth in Section 3(a) and Section 3(b), the holders of
record of the Designated Preferred Stock and Class A Stock shall be entitled
to participate ratably in any distribution of any remaining assets of the
Corporation to the holders of record of the issued and outstanding shares of
Class B Stock and Common Stock, on the basis of the number of shares held by
each such holder (for purposes of this Section 3(c)(ii), treating such shares
of Designated Preferred Stock, Class A Stock and Class B Stock as if
converted into shares of Common Stock pursuant to the provisions of this
Restated Certificate of Incorporation). For the purposes hereof, "Market
Valuation" shall mean the aggregate value of the gross proceeds received in
respect of such liquidation, dissolution or winding up of the Corporation
(for the purposes of this Section 3(c)(ii), the value of any non-cash
proceeds shall be as determined in good faith by the Board of Directors of
the Corporation).
<PAGE>
(d) ADJUSTMENTS. The liquidation preferences provided for herein
with respect to any shares of any class or series of capital stock shall be
equitably adjusted to reflect any stock dividend, stock distribution, stock
split or reverse stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to any shares of any such class or
series of capital stock.
(e) CONSOLIDATION, MERGER, SALE OF ASSETS. For the purposes of this
Section 3, the merger or consolidation of the Corporation with or into any
other corporation, or the sale, lease, mortgage, pledge, exchange, transfer or
other disposition by the Corporation of all or substantially all of its assets
shall be regarded as a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this Section 3.
4. CONVERSION RIGHTS. The Designated Preferred Stock shall be
convertible as follows:
(a) OPTIONAL CONVERSION. Subject to and upon compliance with the
provisions of this Section 4, the holder of any shares of Designated Preferred
Stock shall have the right at such holder's option, at any time or from time to
time, and without the payment of any additional consideration therefor, to
convert any of such shares of Designated Preferred Stock into fully paid and
nonassessable shares of Common Stock at the Conversion Price (as defined in
Section 4(c) below) in effect on any Conversion Date (as defined in Section 4(d)
below) upon the terms hereinafter set forth.
(b) AUTOMATIC CONVERSION. Each outstanding share of Designated
Preferred Stock shall automatically be converted, without any further act of the
Corporation or its stockholders, at the Conversion Price then in effect, into
fully paid and nonassessable shares of Common Stock immediately prior to the
first closing of an underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offering and sale of shares of Common Stock, or of any equity
security that as a part of a unit includes shares of Common Stock, for the
account of the Corporation, that occurs after the effectiveness of this Restated
Certificate of Incorporation (the "Initial Public Offering").
(c) NUMBER OF SHARES. Each share of 1991 Series A Preferred Stock
shall be convertible into a number of shares of Common Stock determined by
dividing (i) $1.25 by (ii) the Conversion Price for such series in effect on any
Conversion Date. Each share of Series I Preferred Stock shall be convertible
into a number of shares of Common Stock determined by dividing (i) $1.25 by
(ii) the Conversion Price for such series in effect on any Conversion Date.
Each share of Series B Preferred Stock shall be convertible into a number of
shares of Common Stock determined by dividing (i) $1.55 by (ii) the Conversion
Price for such series in effect on any Conversion Date. Each share of Series C
Preferred Stock shall be convertible into a number of shares of Common Stock
determined by dividing (i) $3.25 by (ii) the Conversion Price for such series in
effect on any Conversion Date. Each share of Series D Preferred Stock shall be
convertible into a number of shares of Common Stock determined by dividing
(i) $4.30 by (ii) the Conversion Price for such series in effect on any
Conversion Date. Each share of Series E/EG Preferred Stock shall be convertible
into a number of shares of Common Stock determined by dividing (i) $5.00 by (ii)
the Conversion Price for such series in effect on any Conversion Date. For the
purposes of this Section 4, the term "Conversion Price" shall initially mean,
with respect to 1991 Series A Preferred Stock, $1.25, with respect to Series I
Preferred
<PAGE>
Stock, $1.25, with respect to Series B Preferred Stock, $1.55, with respect
to Series C Preferred Stock, $2.70, with respect to the Series D Preferred
Stock, $4.30, and with respect to the Series E/EG Preferred Stock, $5.00,
subject to adjustment as set forth in Section 4(f). Upon conversion, no
payment or adjustment shall be made for any dividends on the Designated
Preferred Stock or the Common Stock issuable upon such conversion. All
calculations under this Section 4(c) shall be made to the nearest cent ($.01)
or to the nearest one hundredth (1/100th) of a share, as the case may be.
(d) MECHANICS OF CONVERSION. The holder of any shares of
Designated Preferred Stock may exercise the conversion right specified in
Section 4(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be
converted. Upon the occurrence of any event specified in Section 4(b), the
outstanding shares of Designated Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided that the Corporation shall
not be obligated to issue to any holder certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates evidencing
such shares of Designated Preferred Stock are delivered either to the
Corporation or any transfer agent of the Corporation. Conversion shall be
deemed to have been effected on the date when delivery of notice of an
election to convert and of certificates for shares being converted is made or
on the date of the occurrence of any event specified in Section 4(b), as the
case may be, and such date is referred to herein as the "Conversion Date".
Subject to the provisions of Section 4(f)(iii), as promptly as practicable
thereafter (and after surrender of the certificate or certificates
representing shares of Designated Preferred Stock to the Corporation or any
transfer agent of the Corporation in the case of conversions pursuant to
Section 4(b)) the Corporation shall issue and deliver to or upon the written
order of such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as
provided in Section 4(e). Subject to the provisions of Section 4(f)(iii),
the person in whose name the certificate or certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the applicable Conversion Date. Upon conversion of only a portion
of the number of shares covered by a certificate representing shares of
Designated Preferred Stock surrendered for conversion (in the case of
conversion pursuant to Section 4(a)), the Corporation shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered
for conversion, at the expense of the Corporation, a new certificate covering
the number of shares of Designated Preferred Stock representing the
unconverted portion of the certificate so surrendered.
(e) FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Designated Preferred
Stock. If more than one share of any series of Designated Preferred Stock
shall be surrendered for conversion at any one time by the same holder, the
number of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of such series so
surrendered. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Designated Preferred
Stock, the Corporation shall pay out of funds legally available therefor a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then Current Market Price (as described in
Section 4(g) below).
<PAGE>
(f) CONVERSION PRICE ADJUSTMENTS. The Conversion Price for each
series of Designated Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Corporation shall (x) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (y)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares of Common Stock or (z) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the Conversion Price in effect for each series of Designated
Preferred Stock at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted to that price determined by multiplying
the Conversion Price in effect for each series of Designated Preferred
Stock by a fraction (x) the numerator of which shall be the total number
of issued and outstanding shares of Common Stock immediately prior to such
dividend, distribution, subdivision, combination or reclassification and
(y) the denominator of which shall be the total number of issued and
outstanding shares of Common Stock immediately after such dividend,
distribution, subdivision, combination or reclassification. Successive
adjustments in the Conversion Price shall be made whenever any event
specified above shall occur.
(ii) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this Section 4(f) shall be made to the nearest cent or
to the nearest one hundredth (1/100th) of a share, as the case may be.
Any provision of this Section 4 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.05 until the end of three years after
such adjustment would otherwise have been required; but any such amount
shall be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.05 or more, provided that if the events giving
to such adjustments occur within three months of each other, then such
adjustments shall be calculated as if these events giving rise to them
had occurred simultaneously on the date of the first such event.
(iii) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON
CERTAIN ADJUSTMENTS. In any case in which the provisions of this
Section 4(f) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event (x) issuing to the holder of any share
of Designated Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the shares of Common Stock issuable upon such
conversion before giving effect to such adjustment and (y) paying to such
holder any amount of cash in lieu of a fractional share of Common Stock
pursuant to Section 4(e); provided that the Corporation upon request shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such
cash, upon the occurrence of the event requiring such adjustment.
<PAGE>
(iv) SERIES B PREFERRED STOCK, SERIES C PREFERRED STOCK, SERIES D
PREFERRED STOCK, SERIES E PREFERRED STOCK AND SERIES EG PREFERRED STOCK.
The Conversion Price of the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock and the Series E/EG Preferred
Stock shall be subject to adjustment from time to time as follows:
(A) CERTAIN ISSUANCES OF EQUITY STOCK. If at any time
after the date on which the first share of Series D Preferred Stock is
issued the Corporation shall issue any shares of Common Stock or any
other equity security that as part of a unit or otherwise includes
Common Stock (hereinafter, "Equity Stock") or any options or warrants
exercisable for shares of Common Stock, any rights for Common Stock or
any convertible securities convertible into Common Stock, other than
Excluded Stock (as defined in Section 4(f)(iv)(B) below), without
consideration or for a consideration per share less than the
Conversion Price of the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E/EG Preferred Stock, as the
case may be, in effect immediately prior to such issuance, the
Conversion Price for such Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E/EG Preferred Stock, as the
case may be, shall be reduced to such consideration per share and the
number of shares of Common Stock reserved for issuance upon conversion
of such Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E/EG Preferred Stock, as the case may be,
shall concurrently be appropriately increased. In the event any
Equity Stock consists of an equity security that as part of a unit
includes Common Stock, the portion of the consideration received for
such unit that shall be attributed to the Common Stock component
thereof shall be as determined in good faith by the Board of Directors
of the Corporation.
For purposes of any adjustment of any Conversion Price pursuant to
this Section 4(f)(iv)(A), the following provisions shall be
applicable:
(1) CASH. In the case of the issuance of shares of
Equity Stock for cash, the amount of the consideration received
by the Corporation shall be deemed to be the aggregate amount of
cash received by the Corporation for such shares of Equity Stock.
(2) CONSIDERATION OTHER THAN CASH. In the case of the
issuance of shares of Equity Stock (otherwise than upon the
conversion of shares of capital stock or other securities of the
Corporation) for a consideration in whole or in part other than
cash, including securities acquired in exchange therefor (other
than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair
value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting
treatment; provided, however, that such fair value as determined
by the Board of Directors shall not exceed the aggregate Current
Market Price (as described in Section 4(g) below) of the shares
of Equity Stock being issued as of the date the Board of
Directors authorizes the issuance of such shares.
<PAGE>
(3) OPTIONS AND CONVERTIBLE SECURITIES. In the case
of (x) options, warrants or other rights to purchase or acquire
Equity Stock (whether or not at the time exercisable), (y)
securities by their terms convertible into or exchangeable for
Equity Stock (whether or not at the time so convertible or
exercisable), or (z) options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the
time exercisable):
(I) the aggregate maximum number of shares of
Equity Stock deliverable upon exercise of such options,
warrants or other rights to purchase or acquire Equity Stock
shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in Section 4(f)(iv)(A)(1) and (2) above)
received by the Corporation upon the issuance of such
options, warrants or rights plus the minimum purchase price
provided in such options, warrants or rights for the Equity
Stock covered thereby;
(II) the aggregate maximum number of shares of
Equity Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities, or upon
the exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the time
such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any
such securities and related options, warrants or rights,
plus the minimum additional consideration, if any, to be
received by the Corporation upon the conversion or exchange
of such securities and the exercise of any related options,
warrants or rights (the consideration in each case to be
determined in the manner provided in Sections 4(f)(iv)(A)(1)
and (2) above); and
<PAGE>
(III) on any change in the number of shares of
Equity Stock deliverable upon exercise of any such options,
warrants or rights or conversion of or exchange for such
convertible or exchangeable securities or any change in the
consideration to be received by the Corporation upon such
exercise, conversion or exchange, including, but not limited
to, a change resulting from the antidilution provisions
thereof, the Conversion Price as then in effect shall
forthwith be readjusted to such Conversion Price as would
have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised
prior to such change, or securities not converted or
exchanged prior to such change, on the basis of such change.
(B) EXCLUDED STOCK. "Excluded Stock" means (1) shares of
capital stock of the Corporation issued or reserved for issuance by
the Corporation as a stock dividend payable in shares of capital stock
of the Corporation, or upon any subdivision or split-up of the
outstanding shares of any shares of capital stock of the Corporation,
or recapitalization thereof, or upon conversion of any shares of
Designated Preferred Stock, Class A Stock or Class B Stock, (2) shares
of capital stock issuable pursuant to those certain Stock Purchase
Warrants of the Corporation dated February 13, 1991, March 13, 1991,
and April 2, 1991, as any of such warrants may be amended from time to
time, or pursuant to any stock purchase warrants issued by the
Corporation in replacement of or exchange for any of such warrants,
(3) shares of capital stock of the Corporation issued or issuable in
connection with an acquisition of a business by the Corporation as a
result of which the Corporation owns in excess of 50% of the voting
power of such business, (4) any shares of capital stock of the
Corporation issued or issuable to employees, officers, consultants or
directors of the Corporation pursuant to any approval of the Board of
Directors of the Corporation or pursuant to any employee, officer,
consultant or director benefit plan, including any stock option plan,
approved by the Board of Directors of the Corporation, (5) any shares
of capital stock of the Corporation issued or issuable to (a) banks,
savings and loan associations, equipment lessors or similar lending
institutions in connection with such entities providing credit
facilities or equipment financings to the Corporation or (b) any party
to any technology transfer agreement, distribution agreement,
marketing agreement or any other agreement similar thereto, with the
Corporation, in connection with such party (i) licensing, assigning or
otherwise transferring technology or rights to use technology to the
Corporation or (ii) granting the Corporation rights to distribute any
technology, products, services or the like, rights to market any
technology, products, services or the like or any other rights similar
thereto, if and only if such facility, agreement, transaction or
arrangement included in this clause (5) and the issuance of shares in
connection therewith is approved by the Board of Directors of the
Corporation, (6) any stock purchase warrants issued, and any shares of
capital stock issuable pursuant thereto, pursuant to that certain Note
Purchase Agreement dated as of October 18, 1993, between the
Corporation and certain investors, as any of such warrants may be
amended from time to time, or pursuant to any stock purchase warrants
issued
<PAGE>
to the Corporation in replacement of or exchange for any of such
warrants and (7) any stock purchase warrants issued, and any shares
of capital stock issued pursuant thereto, pursuant to that certain
Series E Preferred Stock and Series EG Preferred Stock Purchase
Agreement made as of June 2, 1995, between the Corporation and
certain investors, as any of such warrants may be amended from time
to time, or pursuant to any stock purchase warrants issued by the
Corporation in replacement of or exchange for any of such warrants.
(g) CURRENT MARKET PRICE. The Current Market Price at any date
shall mean, in the event the Common Stock or the Equity Stock, as the case
may be, is publicly traded, the average of the daily closing prices per share
of such equity security for 30 consecutive trading days ending no more than
15 business days before such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 30 trading day
period). The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day,
the average of the last closing bid and asked prices regular way, in either
case on the principal national securities exchange on which such equity
security is listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the closing sale price for such
day reported by NASDAQ, if such equity security is traded over-the-counter
and quoted in the National Market System, or if such equity security is so
traded, but not so quoted, the average of the closing reported bid and asked
prices of such equity security as reported by NASDAQ or any comparable system
or, if such equity security is not listed on NASDAQ or any comparable system,
the average of the closing bid and asked prices as furnished by two members
of the National Association of Securities Dealers, Inc., selected in good
faith from time to time by the Board of Directors of the Corporation for that
purpose. If such equity security is not traded in such manner that the
quotations referred to above are available for the period required hereunder,
Current Market Price per share of such equity security shall be deemed to be
the fair value as determined in good faith by the Board of Directors of the
Corporation, irrespective of any accounting treatment.
(h) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion
Price for a series of Designated Preferred Stock shall be adjusted as
provided in Section 4(f), the Corporation shall forthwith file, at the office
of any transfer agent for the 1991 Series A Preferred Stock, Series I
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, or Series E/EG Preferred Stock, as the case may be, and at
the principal office of the Corporation, a statement showing in detail the
method of calculation of such adjustment, the facts requiring such adjustment
and the Conversion Price that shall be in effect after such adjustment, and
the Corporation shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of shares of 1991 Series A
Preferred Stock, Series I Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E/EG Preferred Stock, as
the case may be, at its address appearing on the Corporation's records. Each
such statement shall be signed by the Corporation's chief financial officer.
Where appropriate, such copy may be given in advance and may be included as
part of a notice required to be mailed under the provisions of Section 4(i).
<PAGE>
(i) NOTICE TO HOLDERS. In the event the Corporation shall
propose to take any action of the type described in Section 4(f)(i), the
Corporation shall give notice to each holder of shares of 1991 Series A
Preferred Stock, Series I Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E/EG Preferred Stock in
the manner set forth in Section 4(h), which notice shall specify the record
date, if any, with respect to any such action and the approximate date on
which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable upon conversion of
shares of 1991 Series A Preferred Stock, Series I Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E/EG Preferred Stock, as the case may be. In the case of any action which
would require the fixing of a record date, such notice shall be given at
least ten days prior to the date so fixed, and in the case of all other
action, such notice shall be given at least 15 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
(j) TREASURY STOCK. For the purposes of this Section 4, the sale
or other disposition of any Common Stock theretofore held in the
Corporation's treasury shall be deemed to be an issuance thereof.
(k) COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Designated Preferred Stock; provided that the Corporation shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Designated Preferred
Stock in respect of which such shares are being issued.
5. REACQUIRED SHARES. Any shares of any series of Designated
Preferred Stock redeemed, purchased, converted or otherwise acquired by the
Corporation in any manner whatsoever shall not be reissued as part of such
series and shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement and the filing of any certificate required
in connection therewith pursuant to the Delaware General Corporation Law
become authorized but unissued shares of Preferred Stock.
6. COPIES OF AGREEMENT, INSTRUMENTS, DOCUMENTS. Copies of any of the
agreements, instruments or other documents referred to in this Article A
shall be furnished to any stockholder upon written request to the Corporation
at its principal place of business.
B. PREFERRED STOCK.
The Board of Directors is authorized, subject to any limitations prescribed
by law, to provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and any qualifications, limitations or
restrictions thereof.
<PAGE>
C. COMMON STOCK.
1. DIVIDENDS. Subject to the prior and superior right of any issued
and outstanding shares of Designated Preferred Stock, Class A Stock or Class
B Stock as set forth in this Restated Certificate of Incorporation, the Board
of Directors may, in its discretion, out of funds legally available for the
payment of dividends and at such times and in such manner as determined by
the Board of Directors, declare and pay dividends on the outstanding shares
of Common Stock of the Corporation.
2. LIQUIDATION. Subject to the provisions of this Restated
Certificate of Incorporation, in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of any preferential
amount due to the holders of shares of any other class or series of stock,
the holders of shares of Common Stock shall be entitled to receive ratably,
based on the number of shares of Common Stock held by such holders, any
assets of the Corporation available for distribution to holders of Common
Stock.
3. VOTING RIGHTS. The holders of shares of Common Stock shall have
the following voting rights:
(a) Each share of Common Stock shall entitle the holder thereof to
one vote on all matters submitted to a vote of the stockholders of the
Corporation.
(b) Except as otherwise required by law or the provisions of this
Restated Certificate of Incorporation, the holders of shares of Common
Stock shall not be entitled to vote separately as a class on any matter
submitted to a vote of the stockholders of the Corporation.
4. REACQUIRED SHARES. Any shares of Common Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever that have been
retired shall upon their retirement become authorized but unissued shares of
Common Stock.
D. CLASS A STOCK.
1. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior right of any issued and
outstanding shares of Designated Preferred Stock as set forth in this
Restated Certificate of Incorporation, the holders of shares of Class A Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation out of funds legally available for the purpose,
dividends equal to the product of:
(i) the aggregate per share amount of all dividends declared on
the Common Stock since the immediately preceding payment of dividends on
the Class A Stock; and
<PAGE>
(ii) the number of shares of Common Stock into which a share of
Class A Stock would be convertible on the date on which the dividend is to
be paid (assuming for the purpose of this Section 1(a) only that such share
was then convertible pursuant to the provisions of Section 4(a) below);
and the Corporation shall declare a cash dividend on the Class A Stock as
provided in this Section 1(a) immediately after it declares a cash dividend
on the Common Stock, and no dividends shall be declared on the Common Stock
unless the Corporation has funds legally available for the payment of such
dividend on the Common Stock and for the payment of the dividends
contemplated by this Section 1 on the Class A Stock. The Board of Directors
of the Corporation may fix a record date for the determination of holders of
shares of Class A Stock entitled to receive payment of a dividend declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
(b) Subject to the prior and superior right of any issued and
outstanding shares of Designated Preferred Stock as set forth in this
Restated Certificate of Incorporation, the holders of shares of Class A Stock
shall be entitled to receive any non-cash dividend or other distribution
(including, without limitation, any distribution of other or additional stock
or other securities or property or rights or warrants to subscribe for or
purchase Common Stock or other securities of the Corporation or any of its
subsidiaries by way of dividend or spin-off, issuance of rights, or
reclassification, recapitalization or similar corporate rearrangement) which
the Corporation shall at any time or from time to time declare, order, pay or
make on the Common Stock, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), and the Corporation at the same time it
declares, orders, pays or makes such dividend or distribution on the Common
Stock shall declare, order, make and pay such dividend or distribution on the
Class A Stock, in an amount per share of Class A Stock equal to the product
of:
(i) the aggregate per share amount of such dividend or
distribution declared, ordered, paid or made on the Common Stock; and
(ii) the number of shares of Common Stock into which a share of
Class A Stock would be convertible on the date on which such dividend or
distribution is to be paid or made (assuming for the purpose of this
Section 1(b) only that such share was then convertible pursuant to the
provisions of Section 4(a) below).
2. VOTING RIGHTS. The holders of shares of Class A Stock shall have the
following voting rights:
(a) Each share of Class A Stock shall entitle the holder thereof to
25% of one vote on all matters submitted to a vote of the stockholders of
the Corporation.
(b) Except as otherwise required by law or the provisions of this
Restated Certificate of Incorporation, the holders of shares of Class A
Stock shall not be entitled to vote separately as a class on any matter
submitted to a vote of the stockholders of the Corporation.
<PAGE>
3. LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, the Class A Stock shall have the preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in Section 3 of Part A of this
Fourth Article.
4. CONVERSION. The Class A Stock shall be convertible into Common
Stock as follows:
(a) AUTOMATIC CONVERSION. Each outstanding share of Class A Stock
shall automatically be converted, without any further act of the
Corporation or its stockholders, into one fully paid and nonassessable
share of Common Stock (i) immediately prior to the closing of the Initial
Public Offering or (ii) immediately prior to the closing of any
liquidation, dissolution or winding up of the affairs of the Corporation
pursuant to any of the events described in Section 3(e) of Part A of the
Fourth Article of this Restated Certificate of Incorporation in which the
Market Valuation (as defined in Section 3(c)(ii) of Part A of the Fourth
Article of this Restated Certificate of Incorporation) of the Corporation
as determined by such liquidation, dissolution or winding up of the
affairs of the Corporation equals or exceeds $46,220,397.
(b) MECHANICS OF CONVERSION. Upon the occurrence of any event
specified in Section 4(a), the outstanding shares of Class A Stock shall
be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares
are surrendered to the Corporation or its transfer agent; provided that
the Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing the shares of Class A Stock are delivered to
either the Corporation or any transfer agent of the Corporation.
Conversion shall be deemed to have been effected on the date of the
occurrence of the event specified in Section 4(a), and such date is
referred to herein as the "Class A Conversion Date". As promptly as
practicable after surrender of the certificate or certificates
representing shares of Class A Stock to the Corporation or any transfer
agent of the Corporation, the Corporation shall issue and deliver to or
upon the written order of such holder a certificate or certificates for
the number of shares of Common Stock to which such holder is entitled.
The person in whose name the certificate or certificates for Common Stock
are to be issued shall be deemed to have become a holder of record of
such Common Stock on the applicable Class A Conversion Date.
<PAGE>
(c) CONVERSION RATIO ADJUSTMENTS. If the Corporation shall (x)
declare a dividend or make a distribution on its Common Stock in shares of
its Common Stock, (y) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares of Common Stock or (z) combine
or reclassify the outstanding Common Stock into a smaller number of shares
of Common Stock, the conversion ratio in effect for Class A Stock at the
time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
appropriately adjusted so that the holder of any shares of Class A Stock
surrendered for conversion after such date shall be entitled to receive the
number of shares of Common Stock which such holder would have received had
such Class A Stock been converted immediately prior to such date.
Successive adjustments in the conversion ratio for the Class A Stock shall
be made whenever any event specified in this Section 4(c) shall occur.
(d) COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of Class A
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of
the holder of the shares of Class A Stock in respect of which such shares
are being issued.
5. REACQUIRED SHARES. Any shares of Class A Stock redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever (other than upon
conversion into Common Stock) that have been retired shall upon their retirement
become authorized but unissued shares of Class A Stock. Any shares of Class A
Stock converted into Common Stock shall be retired promptly after such
conversion and such shares shall not be reissued.
E. CLASS B STOCK.
1. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior right of any issued and
outstanding shares of Designated Preferred Stock as set forth in this
Certificate, the holders of shares of Class B Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, dividends equal to the product of:
(i) the aggregate per share amount of all dividends declared on
the Common Stock since the immediately preceding payment of dividends on
the Class B Stock; and
(ii) the number of shares of Common Stock into which a share of
Class B Stock is convertible on the date which the dividend is to be paid;
<PAGE>
and the Corporation shall declare a cash dividend on the Class B Stock as
provided in this Section 1(a) immediately after it declares a cash dividend
on the Common Stock, and no dividends shall be declared on the Common Stock
unless the Corporation has funds legally available for the payment of such
dividend on the Common Stock and for the payment of the dividends
contemplated by this Section 1 on the Class B Stock. The Board of Directors
may fix a record date for the determination of holders of shares of Class B
Stock entitled to receive payment of a dividend declared thereon, which
record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
(b) Subject to the prior and superior right of any issued and
outstanding shares of Designated Preferred Stock as set forth in this
Restated Certificate of Incorporation, the holders of shares of Class B Stock
shall be entitled to receive any non-cash dividend or other distribution
(including, without limitation, any distribution of other or additional stock
or other securities or property or rights or warrants to subscribe for or
purchase Common Stock or other securities of the Corporation or any of its
subsidiaries by way of dividend or spin-off, issuance of rights, or
reclassification, recapitalization or similar corporate rearrangement) which
the Corporation shall at any time or from time to time declare, order, pay or
make on the Common Stock, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), and the Corporation at the same time it
declares, orders, pays or makes such dividend or distribution on the Common
Stock shall declare, order, make and pay such dividend or distribution on the
Class B Stock, in an amount per share of Class B Stock equal to the product
of:
(i) the aggregate per share amount of such dividend or
distribution declared, ordered, paid or made on the Common Stock; and
(ii) the number of shares of Common Stock into which a share of
Class B Stock is convertible on the date on which such dividend or
distribution is to be paid or made.
2. VOTING RIGHTS. The holders of shares of Class B Stock shall have the
following voting rights:
(a) Each share of Class B Stock shall entitle the holder thereof to
25% of one vote on all matters submitted to a vote of the stockholders of
the Corporation.
(b) Except as otherwise required by law or the provisions of this
Restated Certificate of Incorporation, the holders of shares of Class B
Stock shall not be entitled to vote separately as a class on any matter
submitted to a vote of the stockholders of the Corporation.
3. LIQUIDATION. Subject to the provisions of this Restated Certificate
of Incorporation, the Class B Stock shall rank on a parity with the Common Stock
in respect of distributions upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary.
<PAGE>
4. CONVERSION. The Class B Stock shall be convertible into Common Stock
as follows:
(a) AUTOMATIC CONVERSION. Each outstanding share of Class B Stock
shall automatically be converted, without any further act of the
Corporation or its stockholders, into one fully paid and nonassessable
share of Common Stock immediately prior to the closing of the Initial
Public Offering.
(b) MECHANICS OF CONVERSION. Upon the occurrence of the event
specified in Section 4(a), the outstanding shares of Class B Stock shall
be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares
are surrendered to the Corporation or its transfer agent; provided that
the Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing the shares of Class B Stock are delivered to either
the Corporation or any transfer agent of the Corporation. Conversion shall
be deemed to have been effected on the date of the occurrence of the event
specified in Section 4(a), and such date is referred to herein as the
"Class B Conversion Date". As promptly as practicable after surrender of
the certificate or certificates representing shares of Class B Stock to the
Corporation or any transfer agent of the Corporation, the Corporation shall
issue and deliver to or upon the written order of such holder a certificate
or certificates for the number of shares of Common Stock to which such
holder is entitled. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the applicable Class B
Conversion Date.
(c) CONVERSION RATIO ADJUSTMENTS. If the Corporation shall (x)
declare a dividend or make a distribution on its Common Stock in shares of
its Common Stock, (y) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares of Common Stock or (z) combine
or reclassify the outstanding Common Stock into a smaller number of shares
of Common Stock, the conversion ratio in effect for Class B Stock at the
time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
appropriately adjusted so that the holder of any shares of Class B Stock
surrendered for conversion after such date shall be entitled to receive the
number of shares of Common Stock which such holder would have received had
such Class B Stock been converted immediately prior to such date.
Successive adjustments in the conversion ratio for the Class B Stock shall
be made whenever any event specified in this Section 4(c) shall occur.
(d) COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of Class B
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of
the holder of the shares of Class B Stock in respect of which such shares
are being issued.
<PAGE>
5. REACQUIRED SHARES. Any shares of Class B Stock redeemed,
purchased, converted or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof and shall
not be reissued.
F. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares of any class of capital stock of the
Corporation may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the shares of capital stock of the Corporation entitled to vote
on matters submitted to a vote of the stockholders of the Corporation, and no
class vote shall be required in connection therewith.
FIFTH:
A. Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the number of
directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the Whole
Board. For purposes of this Restated Certificate of Incorporation, the
term "Whole Board" shall mean the total number of authorized directors
whether or not there exist any vacancies in previously authorized
directorships. Effective upon the effectiveness of this Restated
Certificate of Incorporation, the directors, other than those who may be
elected by the holders of any series of Preferred Stock under specified
circumstances, shall be divided into three classes, with the term of
office of the first class to expire at the Corporation's first annual
meeting of stockholders held after the election of directors to such
classes, the term of office of the second class to expire at the
Corporation's second annual meeting of stockholders held thereafter
and the term of office of the third class to expire at the Corporation's
third annual meeting of stockholders held thereafter. At each annual
meeting of stockholders, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders held after their election.
During the period commencing on the effectiveness of this Restated
Certificate of Incorporation and terminating immediately prior to the
closing of the Initial Public Offering, directors may be removed with or
without cause.
B. Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause shall, unless otherwise provided by law or by
resolution of the Board of Directors, be filled only by a majority vote of
the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the authorized number of directors
shall shorten the term of any incumbent director.
C. Elections of directors need not be by written ballot unless the bylaws of
the Corporation shall so provide.
<PAGE>
SIXTH:
A. A director of the Corporation shall not be personally liable to the
Corporation 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 Corporation 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. If the Delaware General
Corporation Law hereafter is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent permitted
by the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification.
B. The Corporation shall indemnify any director who, as the result of his
acting as a director of the Corporation, 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.
SEVENTH: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to
adopt, amend or repeal the bylaws of the Corporation, or adopt new bylaws,
without any action on the part of the stockholders.
EIGHTH: Without the affirmative vote or the prior written consent of
the holders in interest of at least a majority of the shares of Series B
Preferred Stock at any time issued and outstanding (treated as if converted
into shares of Common Stock and including any shares of Common Stock then
held by such holders into which shares of Series B Preferred Stock have been
converted), the Corporation shall not and shall not permit its subsidiaries
(if any) to, together or alone, enter into any transaction of merger,
consolidation or reorganization, or dissolve, wind up or liquidate or convey,
sell, lease, exchange, transfer or otherwise dispose of in any transaction or
related series of transactions any of its respective properties, business or
assets having in the aggregate a fair market value of more than 10% of the
book value of the Corporation's assets on a consolidated basis or which
generate more than 10% of the Corporation's revenues (during the immediately
preceding 12 months) on a consolidated basis (other than pursuant to the
pledge of assets by the Corporation as collateral pursuant to any agreement
with any bank, savings and loan association, equipment lessor or similar
lending institution in connection with such entities providing credit
facilities or equipment financings to the Corporation pursuant to any
approval of the Board of Directors of the Corporation), or permit any
subsidiary of the Corporation whose property, business, assets or revenues
satisfy any of the foregoing tests to enter into any transaction of merger,
consolidation or reorganization; provided, however, that notwithstanding the
foregoing, (i) the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the aggregate number of shares
of 1991 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E/EG Preferred Stock at
any time issued and outstanding (treated as if converted into shares of
Common Stock and including any shares of Common Stock then held by such
holders into which shares of 1991 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred
<PAGE>
Stock or Series E/EG Preferred Stock have been converted), whether or not
such number includes the holders in interest of at least a majority of the
shares of Series B Preferred Stock then issued and outstanding (treated as if
converted into shares of Common Stock and including any shares of Common
Stock then held by such holders into which shares of Series B Preferred Stock
have been converted), shall be required and shall be sufficient for any of
the foregoing actions if as a result upon the closing of such action each of
the holders of shares of Series B Preferred Stock then issued and outstanding
receives proceeds (consisting of cash and/or publicly traded securities; for
purposes of this Eighth Article, the value of any publicly traded securities
shall be as determined in good faith by the Board of Directors of the
Corporation) per share equal to at least $4.65, as equitably adjusted to
reflect any stock dividend, stock distribution, stock split or reverse stock
split, combination of shares, subdivision of shares or reclassification of
shares, (ii) any subsidiary of the Corporation may be merged or consolidated
with or into the Corporation or with or into any one or more wholly owned
subsidiaries of the Corporation and (iii) any subsidiary of the Corporation
may sell, lease, exchange, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Corporation or a
wholly owned subsidiary of the Corporation.
NINTH: Without the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the shares of Series C
Preferred Stock at any time issued and outstanding (treated as if converted
into shares of Common Stock and including any shares of Common Stock then
held by such holders into which shares of Series C Preferred Stock have been
converted), the Corporation shall not and shall not permit its subsidiaries
(if any) to, together or alone, enter into any transaction of merger,
consolidation or reorganization, or dissolve, wind up or liquidate or convey,
sell, lease, exchange, transfer or otherwise dispose of in any transaction or
related series of transactions any of its respective properties, business or
assets having in the aggregate a fair market value of more than 10% of the
book value of the Corporation's assets on a consolidated basis or which
generate more than 10% of the Corporation's revenues (during the immediately
preceding 12 months) on a consolidated basis (other than pursuant to the
pledge of assets by the Corporation as collateral pursuant to any agreement
with any bank, savings and loan association, equipment lessor or similar
lending institution in connection with such entities providing credit
facilities or equipment financings to the Corporation pursuant to any
approval of the Board of Directors of the Corporation), or permit any
subsidiary of the Corporation whose property, business, assets or revenues
satisfy any of the foregoing tests to enter into any transaction of merger,
consolidation or reorganization; provided, however, that notwithstanding the
foregoing, (i) the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the aggregate number of shares
of 1991 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E/EG Preferred Stock at
any time issued and outstanding (treated as if converted into shares of
Common Stock and including any shares of Common Stock then held by such
holders into which shares of 1991 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E/EG Preferred Stock have been converted), whether or not such number
includes the holders in interest of at least a majority of the shares of
Series C Preferred Stock then issued and outstanding (treated as if converted
into shares of Common Stock and including any shares of Common Stock then
held by such holders into which shares of Series C Preferred Stock have been
converted), shall be required and shall be sufficient for any of the
foregoing actions if as a result upon the closing of such action each of the
holders of shares of Series C Preferred Stock then issued and outstanding
receives proceeds (consisting of cash and/or publicly traded securities; for
purposes of this Ninth Article, the value of any publicly traded securities
<PAGE>
shall be as determined in good faith by the Board of Directors of the
Corporation) per share of such Series C Preferred Stock (treated as if
converted into shares of Common Stock and including any shares of Common
Stock then held by such holders into which shares of Series C Preferred Stock
have been converted) equal to at least $9.75, as equitably adjusted to
reflect any stock dividend, stock distribution, stock split or reverse stock
split, combination of shares, subdivision of shares or reclassification of
shares, (ii) any subsidiary of the Corporation may be merged or consolidated
with or into the Corporation or with or into any one or more wholly owned
subsidiaries of the Corporation and (iii) any subsidiary of the Corporation
may sell, lease, exchange, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Corporation or a
wholly owned subsidiary of the Corporation.
TENTH: Without the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the shares of Series D
Preferred Stock at any time issued and outstanding (treated as if converted
into shares of Common Stock and including any shares of Common Stock then
held by such holders into which shares of Series D Preferred Stock have been
converted), the Corporation shall not and shall not permit its subsidiaries
(if any) to, together or alone, enter into any transaction of merger,
consolidation or reorganization, or dissolve, wind up or liquidate or convey,
sell, lease, exchange, transfer or otherwise dispose of in any transaction or
related series of transactions any of its respective properties, business or
assets having in the aggregate a fair market value of more than 10% of the
book value of the Corporation's assets on a consolidated basis or which
generate more than 10% of the Corporation's revenues (during the immediately
preceding 12 months) on a consolidated basis (other than pursuant to the
pledge of assets by the Corporation as collateral pursuant to any agreement
with any bank, savings and loan association, equipment lessor or similar
lending institution in connection with such entities providing credit
facilities or equipment financings to the Corporation pursuant to any
approval of the Board of Directors of the Corporation), or permit any
subsidiary of the Corporation whose property, business, assets or revenues
satisfy any of the foregoing tests to enter into any transaction of merger,
consolidation or reorganization; provided, however, that notwithstanding the
foregoing, (i) the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the aggregate number of shares
of 1991 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E/EG Preferred Stock at
any time issued and outstanding (treated as if converted into shares of
Common Stock and including any shares of Common Stock then held by such
holders into which shares of 1991 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E/EG Preferred Stock have been converted), whether or not such number
includes the holders in interest of at least a majority of the shares of
Series D Preferred Stock then issued and outstanding (treated as if converted
into shares of Common Stock and including any shares of Common Stock then
held by such holders into which shares of Series D Preferred Stock have been
converted), shall be required and shall be sufficient for any of the
foregoing actions if as a result upon the closing of such action each of the
holders of shares of Series D Preferred Stock then issued and outstanding
receives proceeds (consisting of cash and/or publicly traded securities; for
purposes of this Tenth Article, the value of any publicly traded securities
shall be as determined in good faith by the Board of Directors of the
Corporation) per share equal to at least $10.00, as equitably adjusted to
reflect any stock dividend, stock distribution, stock split or reverse stock
split, combination of shares, subdivision of shares or reclassification of <PAGE>
<PAGE>
shares, (ii) any subsidiary of the Corporation may be merged or consolidated
with or into the Corporation or with or into any one or more wholly owned
subsidiaries of the Corporation and (iii) any subsidiary of the Corporation
may sell, lease, exchange, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Corporation or a
wholly owned subsidiary of the Corporation.
ELEVENTH: Without the affirmative vote or the prior written consent of
the holders in interest of at least a majority of the aggregate number of
shares of Series E/EG Preferred Stock at any time issued and outstanding
(treated as if converted into shares of Common Stock and including any shares
of Common Stock then held by such holders into which shares of Series E/EG
Preferred Stock have been converted), the Corporation shall not and shall not
permit its subsidiaries (if any) to, together or alone, enter into any
transaction of merger, consolidation or reorganization, or dissolve, wind up
or liquidate or convey, sell, lease, exchange, transfer or otherwise dispose
of in any transaction or related series of transactions any of its respective
properties, business or assets having in the aggregate a fair market value of
more than 10% of the book value of the Corporation's assets on a consolidated
basis or which generate more than 10% of the Corporation's revenues (during
the immediately preceding 12 months) on a consolidated basis (other than
pursuant to the pledge of assets by the Corporation as collateral pursuant to
any agreement with any bank, savings and loan association, equipment lessor
or similar lending institution in connection with such entities providing
credit facilities or equipment financings to the Corporation pursuant to any
approval of the Board of Directors of the Corporation), or permit any
subsidiary of the Corporation whose property, business, assets or revenues
satisfy any of the foregoing tests to enter into any transaction of merger,
consolidation or reorganization; provided, however, that notwithstanding the
foregoing, (i) the affirmative vote or the prior written consent of the
holders in interest of at least a majority of the aggregate number of shares
of 1991 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E/EG Preferred Stock at
any time issued and outstanding (treated as if converted into shares of
Common Stock and including any shares of Common Stock then held by such
holders into which shares of 1991 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E/EG Preferred Stock have been converted), whether or not such number
includes the holders in interest of at least a majority of the shares of
Series E/EG Preferred Stock then issued and outstanding (treated as if
converted into shares of Common Stock and including any shares of Common
Stock then held by such holders into which shares of Series E/EG Preferred
Stock have been converted), shall be required and shall be sufficient for any
of the foregoing actions if as a result upon the closing of such action each
of the holders of shares of Series E/EG Preferred Stock then issued and
outstanding receives proceeds (consisting of cash and/or publicly traded
securities; for purposes of this Eleventh Article, the value of any publicly
traded securities shall be as determined in good faith by the Board of
Directors of the Corporation) per share equal to at least $10.00, as
equitably adjusted to reflect any stock dividend, stock distribution, stock
split or reverse stock split, combination of shares, subdivision of shares or
reclassification of shares, (ii) any subsidiary of the Corporation may be
merged or consolidated with or into the Corporation or with or into any one
or more wholly owned subsidiaries of the Corporation and (iii) any subsidiary
of the Corporation may sell, lease, exchange, transfer or otherwise dispose
of any or all of its assets (upon voluntary liquidation or otherwise) to the
Corporation or a wholly owned subsidiary of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation, which restates and integrates and also amends
the Corporation's Restated Certificate of Incorporation, after having been
duly adopted by the Corporation in accordance with the provisions of Sections
242 and 245 of the Delaware General Corporation Law, and written consent
having been given in accordance with and written notice having been given as
provided in Section 228 of the Delaware General Corporation Law, to be signed
by its duly authorized officer on this 28 day of March, 1996.
UROCOR, INC.
By /s/William A. Hagstrom
------------------------------------
William A. Hagstrom, President
<PAGE>
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS
of
SERIES I PREFERRED STOCK
of
UROCOR, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Socrates H. Choumbakos, Senior Vice President,
Corporate Planning and Development and Secretary of UroCor, Inc., a Delaware
corporation (the "Company"), hereby certifies that pursuant to authority
granted to and vested in the Board of Directors of the Company by the
provisions of the Restated Certificate of Incorporation of the Company, the
Board of Directors of the Company has duly adopted the following resolutions
creating a series of Preferred Stock designated as the Series I Preferred
Stock:
"RESOLVED, that pursuant to Article Fourth of the Restated
Certificate of Incorporation of UroCor, Inc., a Delaware corporation (the
"Corporation"), which (a) authorizes the Corporation to issue 6,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), none
of which are issued and outstanding at the date hereof, and (b) expressly
vests in the Board of Directors of the Corporation (the "Board"), subject to
the limitations prescribed by law and the provisions of said Article Fourth,
the authority to provide by resolution or resolutions for the issuance of
shares of Preferred Stock in series and, by filing a certificate pursuant to
the General Corporation Law of the State of Delaware, to establish from time
to time the number of shares to be included in each of such series and to fix
the designation, powers, preferences and rights of the shares of each of such
series, or of particular holders thereof, the Board hereby fixes the powers,
preferences and rights of the shares of a series of Preferred Stock and the
qualifications, limitations and restrictions thereof, as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated "Series I Preferred Stock", and the number of shares
constituting the Series I Preferred Stock shall initially be 50,000. The
number of shares of Series I Preferred Stock may be increased or decreased
from time to time by resolution of the Board, PROVIDED that no such decrease
shall reduce the number of shares of Series I Preferred Stock to less than
the sum of (a) the number of shares of Series I Preferred Stock then
outstanding, (b) the number of shares of Series I Preferred Stock that the
Corporation is obligated to issue upon the exercise of then outstanding
rights, options or warrants and (c) the number of shares of Series I
Preferred Stock that the Corporation is obligated to issue upon the
conversion of then outstanding convertible securities.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of holders of shares of any series of
Preferred Stock that ranks prior to the Series I Preferred Stock with
respect to dividends, the holders of shares of Series I Preferred Stock, in
preference to the rights of holders of shares of Common Stock, par value $.01
per share ("Common Stock"), of the Corporation with respect to dividends, and
in preference to the rights of holders of shares of any series of Preferred
Stock that ranks junior to the Series I Preferred Stock with respect to
dividends, shall be entitled to receive, when, as and if declared by the
Board out of funds legally available for that purpose, quarterly dividends,
which shall be payable in cash except as hereinafter provided, on the first
day of January, April, July and October in each year during which a share or
fraction of a share of Series I Preferred Stock is outstanding (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series I Preferred Stock, each
such dividend to be in an amount per share (rounded to the nearest cent)
equal to:
(i) subject to the provision for adjustment set forth in
the next succeeding sentence,
(A) 1,000 times the aggregate per share amount of all cash
dividends declared on the Common Stock after the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, after the first issuance of any share
or fraction of a share of Series I Preferred Stock, plus
(B) 1,000 times the aggregate per share amount, which shall be
payable in kind, of all non-cash dividends or other distributions
(other than (x) a dividend on the Common Stock that is payable in
shares of Common Stock or (y) a distribution solely on account of a
reclassification of, or other split-up, division or combination of
shares of, Common Stock) declared on the Common Stock after the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, after the first issuance
of any share or fraction of a share of Series I Preferred Stock; or
(ii) if no dividend or other distribution (other than (x) a dividend
on the Common Stock that is payable in shares of Common Stock or (y) a
distribution solely on account of a reclassification of, or other split-up,
division or combination of shares of, Common Stock) shall have been
declared on the Common Stock after the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, after the first issuance of any share or fraction of a share
of Series I Preferred Stock, $1.00.
<PAGE>
In the event that the Corporation shall at any time after August 27, 1998,
(1) declare a dividend on the Common Stock that is payable in shares of
Common Stock, (2) reclassify the Common Stock or (3) otherwise effect a
split-up, division or combination of shares of Common Stock, then in each
such case the amount per share to which holders of shares of Series I
Preferred Stock were entitled immediately prior to such event under Section
2(a)(i) shall be adjusted by multiplying such amount by a fraction, the
numerator of which shall be the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which shall
be the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) Immediately after the Board declares a dividend or other
distribution on the Common Stock (other than (x) a dividend on the Common
Stock that is payable in shares of Common Stock or (y) a distribution solely
on account of a reclassification of, or other split-up, division or
combination of shares of, Common Stock), if any share or fraction of a share
of Series I Preferred Stock is then outstanding, the Board shall declare a
dividend on the Series I Preferred Stock, which shall be payable at the time
and in the amount provided in Section 2(a). If (i) any share or fraction of
a share of Series I Preferred stock is then outstanding, (ii) no dividend or
other distribution (other than (x) a dividend on the Common Stock that is
payable in shares of Common Stock or (y) a distribution solely on account of
a reclassification of, or other split-up, division or combination of shares
of, Common Stock) shall have been declared on the Common Stock during the
period between the immediately preceding Quarterly Dividend Payment Date and
the next succeeding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, between the date of the first issuance
of any share or fraction of a share of Series I Preferred Stock and such
first Quarterly Dividend Payment Date, and (iii) there are funds legally
available for the payment of a dividend on the Series I Preferred Stock, the
Board shall, at any time prior to such next succeeding Quarterly Dividend
Payment Date or such first Quarterly Dividend Payment Date, as the case may
be, declare a dividend of $1.00 per share on the Series I Preferred Stock,
which shall be payable on such next succeeding Quarterly Dividend Payment
Date or such first Quarterly Dividend Payment Date, as the case may be.
(c) Dividends on shares of Series I Preferred Stock shall begin to
accrue and be cumulative from the Quarterly Dividend Payment Date that
immediately precedes the date of issuance of such shares unless (i) the date
of issuance of such shares is prior to the record date for the determination
of holders of shares of Series I Preferred Stock entitled to receive a
dividend on the first Quarterly Dividend Payment Date, in which event
dividends on such shares shall begin to accrue and be cumulative from the
date of issuance of such shares, (ii) the date of issuance of such shares is
a Quarterly Dividend Payment Date, in which event dividends on such shares
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date, or (iii) the date of issuance of such shares is a date after the record
date for the determination of holders of shares of Series I Preferred Stock
entitled to receive a dividend on the Quarterly Dividend Payment Date that
next succeeds the date of issuance of such shares, in which event dividends
on such shares shall begin to accrue and be cumulative from such next
succeeding Quarterly Dividend Payment Date. Accrued but unpaid dividends on
shares of Series I Preferred Stock shall not bear interest. If a dividend
is declared on the Series I Preferred Stock and the total amount of that
dividend is less than the total amount of all dividends accrued and payable
on all shares of Series I Preferred Stock at the time of payment of that
dividend, then the portion of the total amount of that dividend to be
allocated to each of such shares shall be determined by
<PAGE>
multiplying the total amount of that dividend by a fraction, the numerator of
which shall be the total amount of all dividends accrued and payable on that
share at that time and the denominator of which shall be the total amount of
all dividends accrued and payable on all such shares at that time. The Board
may fix a record date for the determination of holders of shares of Series I
Preferred Stock entitled to receive a dividend r other distribution on the
Series I Preferred Stock, which record date shall be no more than 30 days
prior to the date fixed for the payment of that dividend or other
distribution.
(d) If at any time (i) any holder of shares of Series I Preferred
Stock would have been entitled under the foregoing provisions of this Section
2 to have received by that time a dividend on such shares, assuming that such
dividend had been declared, out of funds legally available for that purpose,
at the time and in the amount provided in the foregoing provisions of this
Section 2, and (ii) such dividend or any part thereof has not been paid to
such holder, then such dividend or part thereof shall be considered accrued
and payable at that time.
Section 3. VOTING.
(a) Subject to the provision for adjustment set forth in the next
succeeding sentence, each share of Series I Preferred Stock shall, except as
otherwise provided by law, entitle the holder thereof to 1,000 votes on each
matter that is submitted to a vote of stockholders of the Corporation. In
the event that the Corporation shall at any time after August 27, 1998, (i)
declare a dividend on the Common Stock that is payable in shares of Common
Stock, (ii) reclassify the Common Stock or (iii) otherwise effect a split-up,
division or combination of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series I Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided by law or in the Restated Certificate
of Incorporation of the Corporation or the resolution or resolutions of the
Board providing for the issuance of shares of Preferred Stock (including but
not limited to these resolutions):
(i) the holders of shares of Series I Preferred Stock, the holders
of shares of Common Stock and the holders of shares of any other class or
series of capital stock of the Corporation having general voting rights
shall vote together as a single class on each matter that is submitted to
a vote of stockholders of the Corporation, and
(ii) the holders of shares of Series I Preferred Stock shall not
have any special voting rights.
<PAGE>
Section 4. CERTAIN RESTRICTIONS. Unless and until all dividends at the
time accrued and payable on all shares of Series I Preferred Stock have been
paid in full, the Corporation shall not:
(a) declare or pay any dividend, or make any other distribution, on
any class or series of capital stock of the Corporation that ranks junior,
either with respect to dividends or upon liquidation, dissolution or
winding up, to the Series I Preferred Stock (any such class or series being
referred to herein as "Junior Stock");
(b) declare or pay any dividend, or make any other distribution, on
any class or series of capital stock of the Corporation that ranks in
parity, either with respect to dividends or upon liquidation, dissolution
or winding up, with the Series I Preferred Stock (any such class or series
being referred to herein as "Parity Stock"), except dividends that are paid
ratably on all shares of Series I Preferred Stock on which dividends are
at the time accrued and payable and all shares of Parity Stock on which
dividends are at the time accrued and payable in proportion to the total
amounts of dividends at the time accrued and payable on all such shares;
(c) redeem, purchase or otherwise acquire for consideration any
shares of Junior Stock, PROVIDED that the Corporation may at any time
redeem, purchase or otherwise acquire shares of Junior Stock in exchange
for shares of other Junior Stock; or
(d) redeem, purchase or otherwise acquire for consideration any
shares of Series I Preferred Stock or any shares of Parity Stock, except
in accordance with an offer to purchase made in writing to all holders of
such shares upon terms that the Board, after considering the relative
rights and preferences of the respective series and classes of such shares,
considers in good faith will result in fair and equitable treatment among
the holders of such shares.
Section 5. REACQUIRED SHARES. Any shares of Series I Preferred
Stock that are purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. Upon their cancellation, all of such shares shall
become authorized but unissued shares of Preferred Stock and thereafter may
be issued as part of another series of Preferred Stock, subject to the rights
of holders (if any) of shares of Series I Preferred Stock set forth in these
resolutions.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation:
(a) no distribution shall be made to the holders of shares of Junior
Stock unless, prior to such distribution, the Corporation shall have paid
to each holder of shares of Series I Preferred Stock the sum of (i) $100
per share of Series I Preferred Stock held by such holder (such amount per
share being referred to herein as the "Preference Amount") plus (ii) the
total amount of all dividends at the time accrued and payable on all
shares of Series I Preferred Stock held by such holder;
<PAGE>
(b) no distribution shall be made to the holders of shares of Parity
Stock, except distributions that are made ratably on both all shares of
Series I Preferred Stock and all shares of Parity Stock in proportion to
the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up; and
(c) each holder of shares of Series I Preferred Stock shall be
entitled to receive the sum of (i) the total amount of all dividends at the
time accrued and payable on all shares of Series I Preferred Stock held by
such holder plus (ii) an aggregate amount per share (such amount per share
being referred to herein as the "Distributable Amount"), inclusive of the
Preference Amount but subject to the provision for adjustment set forth in
the next succeeding sentence, of Series I Preferred Stock held by such
holder that is equal to 1,000 times the aggregate per share amount to be
distributed to holders of shares of Common Stock upon such liquidation,
dissolution or winding up.
In the event that the Corporation shall at any time after August 27, 1998,
(1) declare a dividend on the Common Stock that is payable in shares of
Common Stock, (2) reclassify the Common Stock or (3) otherwise effect a
split-up, division or combination of shares of Common Stock, then in each
such case the Distributable Amount to which a holder of shares of Series I
Preferred Stock was entitled immediately prior to such event shall be
adjusted by multiplying such Distributable Amount by a fraction, the
numerator of which shall be the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which shall
be the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. If the Corporation shall enter
into any consolidation, merger, share exchange or other transaction in which
all outstanding shares of Common Stock are exchanged for or changed into
other securities, cash, other property or any combination thereof, then each
outstanding share of Series I Preferred Stock shall at the same time be
similarly exchanged for or changed into an amount per share, subject to the
provision for adjustment set forth in the next succeeding sentence, equal to
1,000 times the aggregate amount of securities, cash and other property for
which each outstanding share of Common Stock is exchanged or into which each
outstanding share of Common Stock is changed. In the event that the
Corporation shall at any time after August 27, 1998, (1) declare a dividend
on the Common Stock that is payable in shares of Common Stock, (2) reclassify
the Common Stock or (3) otherwise effect a split-up, division or combination
of shares of Common Stock, then in each such case the amount per share for
which Series I Preferred Stock would be exchanged, or into the amount which
Series I Preferred Stock would be changed, immediately prior to such event
under the immediately preceding sentence of this Section 7, shall be adjusted
by multiplying such amount by a fraction, the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 8. REDEMPTION. The shares of Series I Preferred Stock shall not
be redeemable.
Section 9. RANKING. The Series I Preferred Stock shall rank junior to
each other series of Preferred Stock, both with respect to dividends and upon
liquidation, dissolution or winding up, unless the certificate of
designation, powers, preferences and rights of such other series of Preferred
Stock shall provide otherwise.
<PAGE>
Section 10. AMENDMENT. If any share or fraction of a share of Series I
Preferred Stock is outstanding, neither the Restated Certificate of
Incorporation of the Corporation nor the resolution or resolutions of the
Board providing for the issuance of shares of Preferred Stock (including but
not limited to these resolutions) shall be amended in any manner that would
materially alter or change the powers, preferences or rights of holders of
shares of Series I Preferred Stock so as to affect such holders adversely
unless that amendment shall have received the affirmative vote of the holders
of a majority of the outstanding shares of Series I Preferred Stock voting
separately as a class. Notwithstanding the foregoing provisions of this
Section 10, whether or not a share or a fraction of a share of Series I
Preferred Stock is outstanding, (a) the Board may from time to time provide
by resolution or resolutions for the issuance of shares of Preferred Stock of
one or more series that rank prior to the Series I Preferred Stock, either
with respect to dividends or upon liquidation, dissolution or winding up, or
both with respect to dividends and upon liquidation, dissolution or winding
up, and (b) no vote or consent of any holder of shares of Series I Preferred
Stock shall be required either as a condition to the adoption of such
resolution or resolutions or as a condition to the issuance of such shares of
Preferred Stock.
Section 11. FRACTIONAL SHARES. Series I Preferred Stock may be issued
in fractions of a share. Each holder of a fraction of a share of Series I
Preferred Stock shall be entitled to exercise voting rights, to receive
dividends and other distributions, and to have all other rights of the
holders of whole shares of Series I Preferred Stock in proportion to the
fraction of a share of Series I Preferred Stock held by that holder.
RESOLVED FURTHER, that the proper officers of the Corporation be, and
each of them hereby is, authorized to execute a Certificate of Designation,
Powers, Preferences and Rights of Series I Preferred Stock of the
Corporation pursuant to Section 151 of the General Corporation Law of the
State of Delaware and to take all appropriate action to cause that
Certificate to be filed, recorded and become effective in accordance with
Section 103 of the General Corporation Law of the State of Delaware."
IN WITNESS WHEREOF, this Certificate has been executed this 17th day of
August, 1998.
/s/ Socrates H. Choumbakos
------------------------------------------------
Socrates H. Choumbakos
Senior Vice President,
Corporate Planning and
Development and Secretary
<PAGE>
CERTIFICATE OF RETIREMENT
OF
CERTAIN CLASSES AND SERIES OF CAPITAL STOCK
OF
UROCOR, INC.
(Pursuant to Section 243 of the General Corporation Law
of the State of Delaware)
UroCor, Inc., a Delaware corporation (the "COMPANY"), hereby certifies as
follows:
FIRST: Article Fourth of the Company's Restated Certificate of
Incorporation, as amended, authorizes the issuance of the
following classes and series of shares of stock, each of which
was originally created by amending and restating said Article
Fourth:
<TABLE>
<CAPTION>
Number of
Designation of Class or Authorized Shares of Date of
Series of Shares of Stock Each Class or Series Creation
- ------------------------- --------------------- --------
<S> <C> <C>
Class A Stock 513,093 5/9/91
Class B Stock 66,666 5/9/91
1991 Series A Preferred Stock, par value 1,199,999 5/9/91
$.01 per share
Series B Preferred Stock, par value $.01 1,467,608 11/26/91
per share
Series C Preferred Stock, par value $.01 981,071 9/30/92
per share
Series D Preferred Stock, par value $.01 1,154,397 3/29/94
per share
Series E Preferred Stock, par value $.01 763,320 6/2/95
per share
Series EG Preferred Stock, par value 60,000 6/2/95
$.01 per share
Series I Preferred Stock, par value $.01 80,000 5/9/91
per share
</TABLE>
<PAGE>
SECOND: On October 21, 1998, the Board of Directors of the Company, by
resolution, retired all of the shares of each class or series
of stock listed above, which shares constituted all of the
authorized shares of each such class or series.
THIRD: Article Fourth of the Company's Restated Certificate of
Incorporation, as amended, prohibits the reissuance of the shares
of Class A Stock and Class B Stock and, accordingly, such shares
are hereby eliminated from the authorized number of shares of
capital stock of the Company.
FOURTH: Article Fourth of the Company's Restated Certificate of
Incorporation, as amended, prohibits the reissuance of the shares
of each series of preferred stock listed above as part of any
such series and, accordingly, such shares are hereby restored to
and shall assume the status of authorized but unissued and
undesignated shares of the class of preferred stock of the
Company.
FIFTH: Pursuant to the provisions of Section 243 of the General
Corporation Law of the State of Delaware, all references in the
Company's Restated Certificate of Incorporation, as amended, to
the shares of each class and series of stock listed above are
hereby eliminated.
IN WITNESS WHEREOF, UroCor, Inc. has caused this certificate to be
signed by Michael N. McDonald, its duly authorized officer, this 22nd day of
October, 1998.
UROCOR, INC.
By /s/ Michael N. McDonald
-------------------------------------------
Michael N. McDonald, Vice President
and Chief Financial Officer
<PAGE>
Exhibit 10.1
[UroCor, Inc. Letterhead]
July 23, 1998
VIA FACSIMILE TRANSMISSION
Michael W. George
1520 Yeatman Station Road
Landenberg, PA 19350
Dear Mike:
This letter will formally outline the details that were discussed concerning
the position of President & Chief Operating Officer, which reports directly
to me. The objective of this letter is to outline the details of this offer.
START DATE: August 18, 1998
BASE SALARY: $8,461.54 bi-weekly
BONUS:
First year bonus will be 40% of base salary. Second year bonus will increase
to 50% of base salary. This bonus will be based upon achievement of corporate
objectives, as well as, individual accomplishments. Additionally, each year
will include the potential for a 25% over achievement bonus (i.e. 62.5% of
total base salary). The first year bonus will be guaranteed at 100% payout
for the period in the position from August 18, 1998 through December 31, 1998.
STOCK OPTIONS:
UroCor offers an incentive stock option program. Under this program you will
receive 150,000 initial stock options which will vest in equal amounts
annually over a five (5) year period. The price per share will be set based
upon the closing price for UroCor stock on the first day of your employment.
The exercise period will be ten (10) years.
Additionally, you will receive 10,000 incentive stock options per year for
five (5) years starting with the 1998 grant described below. The exercise
price for these shares will be based upon the closing price for UroCor stock
on the date when these shares are approved for the next Operating Plan Cycle.
Each option grant will vest on the third anniversary after the date of the
grant; however, the options will have accelerated vesting if the operating
plan is attained. (The shares will vest immediately on the date that the
Board determines that the operating plan for the previous year has been
achieved.) For 1998, you will receive 10,000 shares with the exercise price
for these shares being the closing market price for UroCor on the first day
of your employment.
You will also be eligible to participate, as appropriate, in any other
special bonus or stock option programs for senior managers.
RELOCATION:
From a relocation perspective, as we discussed, UroCor will reimburse you for
physical-moving expenses and up to $40,000 for other relocation expenses.
UroCor will also make available $1,000 per month for up to nine (9) months of
temporary living expenses. Additionally, we will make available expenses for
travel between Oklahoma City and Philadelphia on a weekly basis.
OTHER PROVISIONS:
As we discussed, in the event of termination without "cause", or
resignation for "good reason", the company will provide nine (9) months'
base salary paid on a bi-weekly basis. In the event of termination without
"cause" or resignation for "good reason" within the first year of
employment, a twelve (12) month severance provision is provided for. For
purposes of this entire offer letter: 1) "cause" is limited to fraud,
embezzlement or conviction of a felony involving moral turpitude, and 2)
<PAGE>
"good reason" shall be defined as your job title and/or responsibilities
being reduced from President and Chief Operating Officer. It is also
understood that any severance received under this offer letter shall not be
subject to offset or duty to mitigate.
In the event of a change of control, you shall receive eighteen (18) months'
severance, and all of your options will vest immediately. In the event the
Board approves a plan that affords greater benefits to Senior Management than
those stipulated in this offer letter, you will, of course, participate in
the Board approved plan. For purposes of this Offer Letter, "change in
control" shall be defined as change in ownership or control as contemplated
in Section 280G of the Internal Revenue Code.
We also discussed the election of your position to the Board of Directors of
UroCor, Inc. Our intention will be to nominate and vote on this election at
our next designated board meeting, which will be held in August.
BENEFITS:
UroCor standard benefits consist of Term Insurance at two (2) times' annual
salary (capped at $200,000), short & long-term disability, medical/dental
Insurance for you and your family at a subsidized monthly rate. In the event
you choose not to participate in the company's medical plan, you will receive
an allowance of $350 per month. Further, the company offers a 401K retirement
plan with a company match of 25% after one year of employment on the first
12% of contribution. Also, the company has an employee stock purchase plan
which provides for a 15% discount to FMV, capped at $25,000 annually. As
discussed, you will also be eligible for three (3) week's vacation per year
with an additional five (5) floating holidays/personal days for a total of
four (4) weeks per year.
As with all employees, your employment is "at will", provided the terms of
this letter are met. You will also be required to sign a Confidentiality and
a one-year Non-Compete Agreement with UroCor, Inc. As an employee of UroCor,
Inc., you will be provided with a copy of the UroCor, Inc. Employee Manual
and insurance booklets, which outline our personnel policies and benefits
program. Any questions regarding UroCor policy, benefits administration or
eligibility should be directed to Inez Dunn at extension 4121.
Mike, I am very excited about the prospect of your joining UroCor and believe
you will make a significant impact in our organization's growth over the next
several years. I look forward to working with you to accomplish great things.
Please let me know at your earliest convenience what additional areas we
should discuss.
If you have any questions, please do not hesitate to contact me at
(405) 290-4101.
Sincerely,
/s/ William A. Hagstrom
William A. Hagstrom,
Chairman & CEO
WAH:jr
/s/ Michael W. George
----------------------------------
Signature of Michael W. George
8/10/98
----------------------------------
Accepted Date
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 2
(DATED APRIL 14, 1998 FOR REFERENCE PURPOSES ONLY)
TO LEASE DATED APRIL 15, 1994
BETWEEN PRESBYTERIAN HEALTH FOUNDATION, AS LANDLORD
AND UROCOR, INC. FORMERLY KNOWN AS CYTODIAGNOSTICS, INC., AS TENANT
WHEREAS, Landlord and Tenant are the parties to the above described Lease for
the Building located at 800 N. Research Parkway; and,
Landlord and Tenant mutually desire to amend the above described Lease,
(amended via Amendment No. 1 dated April 14, 1997) as follows:
The provisions of this Amendment No. 2 shall supersede and control any
inconsistent provisions contained in the Lease, regardless of whether such
inconsistent provisions are contained in the printed portion of the Lease or
any rider, addendum or exhibit annexed thereto.
Amended Building: Tenant will relocate its Premises to
the Building to be constructed at an
address known as 840 Research Parkway
Building II, Oklahoma City, OK
Amended Leased Premises: The Leased Premises will change to
all of floors 1, 3 & 5 and
approximately 12,219 rentable square
feet on the 2nd floor and 14,924
rentable square feet on the 4th floor
of the Building. This totals
approximately 101,526 rentable square
feet at 840 Research Parkway. The
Rentable Area of the Building is
122,307 square feet. Tenant currently
occupies 59,416 rentable square feet.
This equates to an overall increase
of 42,110 rentable square feet. The
exact square footage to be calculated
at a later date but prior to Tenant
move in. Rent will be based on the
following:
<TABLE>
<CAPTION>
Tenant's Actual Rentable Square Feet
Rentable Square Footage Occupied on which lease rate is based
-------------------------------- ----------------------------
<S> <C>
is greater than or equal to 84,416 but 84,416
less than 90,916
is greater than or equal to 90,916 but 90,916
less than 97,550
is greater than or equal to 97,550 the actual rentable square footage
occupied
</TABLE>
Amended Lease Commencement: Estimated to be January 1, 1999 (See
paragraph 3.1, page 7 of the Lease)
Amended Lease Expiration: Estimated to be December 31, 2013,
unless terminated earlier as
specified below by the "Amended
Option to Terminate".
Amended Tenant Improvement Allowance: Limited to $27.00 per actual rentable
square foot leased based on the
estimated 101,526 rentable square
feet. Any excess cost of Tenant
Improvements shall be the
responsibility of the Tenant.
Inducement: Landlord agrees to reimburse Tenant
an amount not to exceed $300,000 for
previous Tenant-paid leasehold
improvements. This is subject to
Landlord's review of the proper
documents and mutual agreement by
both parties.
<PAGE>
Amended Annual and Monthly Rent The Amended Annual and Monthly Rent
shall follow the Time Periods and
Rental Amount per Rentable Square
Foot as shown below:
<TABLE>
<CAPTION>
Time Period Rental Amount per Rentable Square Foot
----------- --------------------------------------
<S> <C>
1/99 - 6/99 $10.00
7/99 - 6/01 11.50
7/01 - 6/03 12.50
7/03 - 6/05 13.50
7/05 - 12/2013 15.50
</TABLE>
Amended Security Deposit: A total of $84,605.00(equal to first
month's rent).
Amended Option to Terminate: Tenant may terminate this Lease at
the end on the last day of the tenth
(10th) year estimated to be December
31, 2008 provided: (a) Tenant gives
Landlord a minimum of 180 days prior
written notice of Tenant's intent to
terminate; and, (b) Tenant pays
Landlord, at time such notice is
given, the sum of $1,573,653. Such
payment shall, however, be waived if
(a) Tenant relocates its principal
offices and facilities within three
(3) months following such termination
to another building within the same
research park in which the Building
is located, and (b) either owns such
other building or leases at least
101,526 square feet of space in such
building under a binding lease with a
term of not less than ten (10) years.
Amended Exhibit "A": Exhibit "A" of the Lease, Legal
Description of Property, will be
replaced with the attached Exhibit
"A-1". All references in the Lease
to Exhibit "A" shall now refer to
Exhibit "A-1".
Amended Option to Expand: Paragraph 48, page 25 of the Lease,
Option to Expand, Item (i) shall be
modified as follows: (a) the amount
provided herein (which is $27.00 per
square foot for Tenant Improvements)
prorated for the remainder of the
Term.
Both parties agree to the terms of the Lease Agreement as amended by Amendment
No. 1 and this Amendment No. 2 and the Lease Agreement shall continue in full
force and effect
Landlord: Presbyterian Health Tenant: UROCOR, Inc.
Foundation
/s/ Dennis McGrath /s/ William A. Hagstrom
- ---------------------------------- ----------------------------------
Dennis McGrath, Vice President William A. Hagstrom, President/CEO
Date: 6/17/98 Date: 6/16/98
---------------------------- ----------------------------
<PAGE>
EXHIBIT ""A-1''
LEGAL DESCRIPTION
A tract of land lying in the North Half of Section 34. Township 12 North,
Range 3 West of the Indian Meridian, also being a part of Block J, OAK PARK
ADDITION, and part of Block 24, and 25, MAYWOOD ADDITION, according to the
recorded plats thereof, Oklahoma County, Oklahoma, being described as follows:
COMMENCING at the intersection of the centerline of N.E. 8th Street and the
centerline of N. Lincoln Blvd.:
THENCE South 89DEG.51'16'' West a distance of 105.00 feet;
THENCE South 00DEG.07'23'' East a distance of 40.00 feet to the POINT OF
BEGINNING.
THENCE continuing South 00DEG.07'23'' East a distance of 417.60 feet;
THENCE South 89DEG.52'37'' West a distance of 60.00 feet;
THENCE South 00DEG.07'23'' East a distance of 419.77 feet;
THENCE South 89DEG.52'37'' West a distance of 524.91 feet;
THENCE North 00DEG.05'09'' West a distance of 77.56 feet;
THENCE South 89DEG.54'30'' West a distance of 25.00 feet;
THENCE North 00DEG.03'19'' West a distance of 341.04 feet;
THENCE North 16DEG.30'17'' West a distance of 60.00 feet;
THENCE North 73DEG.29'43'' East a distance of 18.25 feet;
THENCE North 16DEG.30'17'' West a distance of 277.36 feet to a point on the
Southerly Right-Of-Way Line for N.E. 7th Street;
THENCE along said Right-Of-Way, North 64DEG.30'54'' East a distance of 48.37
feet to a point of curvature;
THENCE continuing on said Right-Of-Way on the Arc of a Curve to the Right,
said curve having a Radius of 615.43 feet and an Arc distance of 242.82 feet,
(said curve being subtended by a Chord bearing North 75DEG.49'05'' East, a
Chord length of 241.25 feet) to a point;
THENCE continuing on said Right-Of-Way on a line not tangent to last
described curve, North 79DEG.46'11'' East a distance of 60.96 feet;
THENCE on said Right-Of-Way, North 89DEG.53'14'' East a distance of 349.35 feet
to the Point Of Beginning.
Said tract of land contains 489,894 Square Feet or 11.2464 Acres more or less.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET FOR SEPTEMBER 30, 1998 AND THE STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,400,566
<SECURITIES> 6,064,109
<RECEIVABLES> 22,456,643
<ALLOWANCES> 8,103,226
<INVENTORY> 335,658
<CURRENT-ASSETS> 38,189,233
<PP&E> 14,969,005
<DEPRECIATION> 5,714,933
<TOTAL-ASSETS> 52,318,274
<CURRENT-LIABILITIES> 4,963,755
<BONDS> 0
0
0
<COMMON> 104,302
<OTHER-SE> 47,217,846
<TOTAL-LIABILITY-AND-EQUITY> 52,318,274
<SALES> 0
<TOTAL-REVENUES> 33,680,084
<CGS> 0
<TOTAL-COSTS> 13,023,472
<OTHER-EXPENSES> 20,765,773
<LOSS-PROVISION> 6,866,304
<INTEREST-EXPENSE> 65,639
<INCOME-PRETAX> (6,070,289)
<INCOME-TAX> (2,301,264)
<INCOME-CONTINUING> (3,769,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,769,025)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.34)
</TABLE>
