-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/kepem5tNcy4UHi7VZS1MEQmrGjCrc6fWOC3GX/izNQic1NmTz+MQA87vlucqoV /ut5lPZ1wCZcvQYdx8GVcA== 0000950123-01-001455.txt : 20010223 0000950123-01-001455.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950123-01-001455 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000729922 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 133159796 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15190 FILM NUMBER: 1545978 BUSINESS ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553 BUSINESS PHONE: 5162220023 MAIL ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553-3649 FORMER COMPANY: FORMER CONFORMED NAME: ONCOGENE SCIENCE INC DATE OF NAME CHANGE: 19920703 10-Q 1 y45562e10-q.txt OSI PHARMACEUTICALS, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 . -------------------------------------------------- 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 0-15190 ---------------------------------------------------------- OSI Pharmaceuticals, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3159796 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 106 Charles Lindbergh Boulevard, Uniondale, New York 11553 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 516-222-0023 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (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 ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: At January 31, 2001 the registrant had outstanding 34,560,536 shares of common stock, $.01 par value. 2 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES CONTENTS
Page No. --------- PART I. FINANCIAL INFORMATION.............................................................1 Item 1. Financial Statements..............................................................1 Consolidated Balance Sheets - December 31, 2000 (unaudited) and September 30, 2000............................1 Consolidated Statements Of Operations -Three Months Ended December 31, 2000 and 1999 (unaudited)........................2 Consolidated Statements Of Cash Flows -Three Months Ended December 31, 2000 and 1999 (unaudited)........................3 Notes to Consolidated Financial Statements........................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................11 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................15 PART II. OTHER INFORMATION................................................................16 Item 1. Legal Proceedings................................................................16 Item 2. Changes in Securities and Use of Proceeds........................................16 Item 3. Defaults Upon Senior Securities..................................................16 Item 4. Submission of Matters to a Vote of Security Holders..............................16 Item 5. Other Information................................................................16 Item 6. Exhibits and Reports on Form 8-K.................................................16 SIGNATURES..................................................................................17 EXHIBIT INDEX...............................................................................18
-i- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 2000 2000 ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents...................................... $ 315,452,867 $ 48,392,635 Investment securities.......................................... 171,346,684 36,672,036 Receivables, including amounts due from related parties of $0 and $72,585 and trade receivables of $84,927 and $98,956 at December 31,2000 and September 30, 2000, respectively..... 289,748 287,035 Interest receivable............................................ 1,790,833 346,430 Grants receivable.............................................. 53,125 415,456 Prepaid expenses and other..................................... 916,543 1,165,674 ------------- ------------ Total current assets..................................... 489,849,800 87,279,266 ------------- ------------ Property, equipment and leasehold improvements -- net............ 8,906,697 9,265,005 Compound library assets -- net................................... 1,864,348 2,330,896 Other assets..................................................... 113,577 118,630 Intangible assets -- net......................................... 596,738 782,211 ------------- ------------ $ 501,331,160 $ 99,776,008 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses.......................... $ 4,049,769 $ 6,317,492 Unearned revenue -- current; including amounts received in advance from related parties of $494,954 and $369,779 as of December 31, 2000 and September 30, 2000, respectively................................................. 1,369,868 690,895 Loans payable -- current....................................... 166,656 166,656 ------------- ------------ Total current liabilities................................ 5,586,293 7,175,043 ------------- ------------ Other liabilities: Unearned revenue -- long-term; including amounts received in advance from related parties of $315,476 and $333,333 as of December 31, 2000 and September 30, 2000, respectively................................................. 1,846,726 333,333 Loans payable -- long-term..................................... 105,700 144,217 Deferred acquisition costs..................................... 360,388 355,518 Accrued postretirement benefit cost............................ 1,961,268 1,886,268 ------------- ------------ Total liabilities........................................ 9,860,375 9,894,379 ------------- ------------ Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at December 31, 2000 and September 30, 2000. -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 34,555,745 and 28,281,850 shares issued at December 31, 2000 and September 30, 2000, respectively ........................ 345,558 282,819 Additional paid-in capital..................................... 600,005,034 187,731,177 Deferred compensation.......................................... (13,956,886) (8,767,030) Accumulated deficit............................................ (87,634,902) (81,988,187) Accumulated other comprehensive loss........................... (855,317) (944,448) ------------- ------------ 497,903,487 96,314,331 Less: treasury stock, at cost; 939,641 shares at December 31, 2000 and September 30, 2000,................................. (6,432,702) (6,432,702) ------------- ------------ Total stockholders' equity............................... 491,470,785 89,881,629 ------------- ------------ Commitments and contingencies $ 501,331,160 $ 99,776,008 ============= ============
See accompanying notes to consolidated financial statements. -1- 4 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, -------------------------- 2000 1999 ---------- ----------- Revenues: Collaborative program revenues, principally from related parties............. $ 5,268,416 $ 5,999,084 Technology access fees......................... 218,750 3,500,000 Sales of products and services................. 84,193 254,163 Other research revenues........................ 48,595 90,458 License revenues............................... 75,000 25,000 ----------- ----------- 5,694,954 9,868,705 ----------- ----------- Expenses: Research and development....................... 10,570,574 8,111,482 Production and service costs................... 129,365 221,739 Selling, general and administrative............ 2,950,133 2,136,650 Amortization of intangibles.................... 185,473 313,341 ----------- ----------- 13,835,545 10,783,212 ----------- ----------- Loss from operations....................... (8,140,591) (914,507) Other income (expense): Net investment income.......................... 5,139,524 723,722 Other expense -- net........................... (20,648) (39,333) Gain on sale of diagnostics business........... -- 3,745,844 ----------- ----------- Net (loss) income before cumulative effect of accounting change............................ (3,021,715) 3,515,726 Cumulative effect of the change in accounting for the recognition of upfront fees.......... (2,625,000) -- ----------- ----------- Net (loss) income................................ $(5,646,715) $ 3,515,726 =========== =========== Weighted average number of shares of common stock outstanding: Basic.......................................... 31,403,369 21,559,280 =========== =========== Diluted........................................ 31,403,369 22,158,035 =========== =========== Net (loss) income per weighted average share of common stock outstanding: Basic: Before cumulative effect of accounting change..................................... $ (0.10) $ 0.16 Cumulative effect of accounting change....... (0.08) -- ----------- ----------- After cumulative effect of accounting change..................................... $ (0.18) $ 0.16 =========== =========== Diluted: Before cumulative effect of accounting change..................................... $ (0.10) $ 0.16 Cumulative effect of accounting change....... (0.08) -- ----------- ----------- After cumulative effect of accounting change..................................... $ (0.18) $ 0.16 =========== =========== Pro forma information: Net (loss) income, assuming new revenue recognition policy is applied retroactively.. $(3,021,715) $ 234,476 =========== =========== Basic (loss) income per share.................... $ (0.10) $ 0.01 =========== =========== Diluted (loss) income per share.................. $ (0.10) $ 0.01 =========== ===========
See accompanying notes to consolidated financial statements. -2- 5 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, -------------------------------- 2000 1999 -------------- ---------------- Cash flow from operating activities: Net (loss) income............................. $ (5,646,715) $ 3,515,726 Adjustments to reconcile net (loss) income to net cash used in operating activities: Gain on sale of diagnostics business........ -- (3,745,844) Gain on sale of investments................. -- (487,594) Depreciation and amortization............... 777,679 744,200 Amortization of library assets.............. 466,548 466,547 Amortization of intangibles assets.......... 185,473 313,341 Accretion of deferred acquisition costs..... 4,870 4,870 Non-cash compensation charges............... 2,124,354 -- Cumulative effect of the change in accounting for the recognition of upfront fees....................................... 2,625,000 -- Changes in assets and liabilities, net of the effects of a sale of a business: Receivables................................. (1,581) 3,031,337 Interest receivable......................... (1,444,403) 17,785 Grants receivable........................... 362,331 253,051 Prepaid expenses and other current assets... 259,780 (5,971) Other assets................................ 5,053 7,248 Accounts payable and accrued expenses....... (2,281,009) (1,705,325) Unearned revenue............................ (432,592) (3,743,645) Accrued postretirement benefit cost......... 75,000 75,000 ------------- ------------ Net cash used in operating activities........... (2,920,212) (1,259,274) ------------- ------------ Cash flows from investing activities: Net proceeds from sale of diagnostics business ................................... -- 8,636,104 Purchases of investments...................... (147,671,588) (293,624) Maturities and sales of short-term investments................................. 13,052,000 737,599 Additions to property, equipment and leasehold improvements................................ (354,082) (310,995) ------------- ------------ Net cash (used in) provided by investing activities.................................. (134,973,670) 8,769,084 ------------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock.... 404,307,775 -- Proceeds from exercise of stock options, stock warrants, employee purchase plan, and other....................................... 714,611 96,475 Payments on loan payable...................... (39,283) (41,663) Purchase of treasury stock.................... -- (375,000) ------------- ------------ Net cash provided by (used in) financing activities.................................... 404,983,103 (320,188) ------------- ------------ Net increase in cash and cash equivalents....... 267,089,221 7,189,622 Effect of exchange rate changes on cash and cash equivalents................................. (28,989) (8,212) Cash and cash equivalents at beginning of year.. 48,392,635 8,863,887 ------------- ------------ Cash and cash equivalents at end of year........ $ 315,452,867 $ 16,045,297 ============= ============ Non-cash activities: Issuance of common stock in satisfaction of deferred acquisition costs................... $ -- $ 375,000 ============= ============
See accompanying notes to consolidated financial statements. -3- 6 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of OSI Pharmaceuticals, Inc. and its subsidiaries (the "Company") as of December 31, 2000 and September 30, 2000, their results of operations for the three months ended December 31, 2000 and 1999 and their cash flows for the three months ended December 31, 2000 and 1999. Certain reclassifications have been made to the prior period financial statements to conform them to the current presentation. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2000. Results for interim periods are not necessarily indicative of results for the entire year. (2) Revenue Recognition Collaborative program revenues represent funding arrangements for the conduct of research and development in the field of biotechnology and are recognized when earned in accordance with the terms of the contracts and the related development activities undertaken. Other research revenues are recognized pursuant to the terms of grants which provide reimbursement of certain expenses related to the Company's other research and development activities. Collaborative and other research revenues are accrued for expenses incurred in advance of the reimbursement and deferred for cash payments received in advance of expenditures. Such deferred revenues are recorded as revenue when earned. The Company previously recognized all nonrefundable upfront fees, including technology access fees, as revenue when received and when all contractual obligations of the Company relating to such fees had been fulfilled. Effective October 1, 2000, the Company changed its method of accounting for nonrefundable upfront fees to recognize such fees over the term of the related research collaboration period. The Company believes that this change in accounting principle is appropriate based on guidance provided in the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements," as amended ("SAB No. 101"). For the year ended September 30, 2000, the Company recognized the full $3.5 million technology access fee received from Tanabe Seiyaku Co., Ltd. ("Tanabe") related to a four year term collaboration. The Company's adoption of SAB No. 101 has resulted in a $2.6 million cumulative effect of a change in accounting principle related to the Tanabe fee and has been reported as a charge in the quarter ended December 31, 2000. The cumulative effect was initially recorded as unearned revenue and will be recognized as revenue over the remaining contractual term of the collaboration agreement. -4- 7 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) During the quarter ended December 31, 2000, the impact of the change in accounting principle increased the net loss by $2.4 million, or $0.07 per share, comprised of the $2.6 million cumulative effect of the change as described above ($0.08 per share), net of the $0.2 million of related deferred revenue that was recognized as revenue during the quarter ended December 31, 2000 ($0.01 per share). Had the change in accounting principle been applied retroactively, net income for the quarter ended December 31, 1999 would have decreased by $3.3 million, or $0.15 per basic and diluted weighted average number of shares of common stock outstanding for the period ended December 31, 1999. (3) Comprehensive (Loss) Income Comprehensive (loss) income for the three months ended December 31, 2000 and 1999 was as follows:
For the three months ended December 31, ------------ 2000 1999 ---- ---- Net (loss) income............................ $(5,646,715) $3,515,726 Other comprehensive (loss) income: Foreign currency translation adjustments............................ 34,071 (54,723) Unrealized holding gain (loss) arising during period........................ 55,060 (34,370) ----------- ---------- 89,131 (89,093) ----------- ---------- Total comprehensive (loss) income............ $(5,557,584) $3,426,633 =========== ==========
The components of accumulated other comprehensive losses were as follows:
December 31, September 30, 2000 2000 ---- ---- Cumulative foreign currency translation adjustment............................... $(663,097) $(697,168) Unrealized losses on short-term investments.. (192,220) (247,280) ---------- --------- Accumulated other comprehensive losses....... $(855,317) $(944,448) ========= =========
-5- 8 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (4) Net (Loss) Income per Common Share A reconciliation between the numerators and the denominators of the basic and diluted (loss) income per share computation is as follows:
For the three months ended December 31, ------------ 2000 1999 ---- ---- Net (loss) income available for common stockholders $(5,646,715) $ 3,515,726 =========== =========== Weighted average common shares............... 31,403,369 21,559,280 Effect of dilutive stock options............. -- 598,755 ----------- ----------- Weighted average common and potential common shares outstanding.................. 31,403,369 22,158,035 ========== ========== Basic (loss) income per share................ $ (.18) $ .16 =========== ========== Diluted (loss) income per share.............. $ (.18) $ .16 =========== ==========
For the three months ended December 31, 2000, all stock options were not included in the net loss per share calculation because their effect would have been anti-dilutive. For the three months ended December 31, 1999, 1,982,899 stock options were not included in the net income per share calculation because they would have been anti-dilutive. (5) Stock Options Issued to Consultants In December 2000, the Company granted options to certain non-employees to purchase 127,000 shares of common stock as part of an arrangement with Nadler Pharma Associates, L.L.C. to provide clinical development expertise to support the Company's drug development program for OSI-774. Such options vest over a three year period, based upon future service requirements. The Company recorded net deferred compensation of $6.1 million based on the fair value of such options as of December 31, 2000 as determined using a Black-Scholes option pricing model. Such compensation cost is amortized as expense over the respective vesting periods using the method prescribed in FASB Interpretation No. 28. In accordance with EITF Issue 96-18 - "Accounting For Equity Instruments that Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services," the amount of compensation expense to be recorded in future periods related to the non-employee grants is subject to change each reporting period based upon the then fair value of the options, using a Black-Scholes option pricing model, until expiration of the options' vesting periods. The Company recorded compensation expense of approximately $375,000 related to these grants for the three months ended December 31, 2000. -6- 9 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (6) Sale of Diagnostics Business On November 30, 1999, the Company sold assets of its diagnostics business to The Bayer Corporation ("Bayer") including the assets of the Company's wholly-owned diagnostics subsidiary, OSDI, Inc. ("OSDI") based in Cambridge, Massachusetts. The assets sold included certain contracts, equipment and machinery, files and records, intangible assets, intellectual property, inventory, prepaid expenses and other assets primarily related to the operations of the diagnostics business. In connection with the sale, the Company and OSDI entered into certain agreements with Bayer including an Assignment and Assumption of Lease with respect to OSDI's facility located in Cambridge and certain patent assignment and license agreements. Certain employees of the Company and OSDI entered into employment agreements with Bayer. Under the terms of the sale, the Company received $9.2 million up-front from Bayer with additional contingent payments of $1.25 million to be made to the Company by 2001. Bayer intended to retain all employees of OSDI and maintain the unit's headquarters in Cambridge. The Company recorded a gain on the sale of approximately $3.7 million during fiscal 2000. The net gain was calculated as follows (in thousands): Cash received from Bayer........................................ $ 9,151 Accrued expenses assumed by Bayer............................... 599 Net book value of fixed assets sold............................. (611) Net book value of patent costs (intangibles).................... (4,748) Professional and legal fees incurred............................ (172) Commission costs paid........................................... (315) Other related costs............................................. (158) ---------- Gain on sale of assets of diagnostics business.................. $ 3,746 ==========
(7) Public Offering On November 6, 2000, the Company concluded a public offering of 5.35 million shares of common stock at a price of $70.00 per share. Gross proceeds totaled $374.5 million with net proceeds of approximately $351.5 million after all underwriting and other related fees are deducted. In addition, on November 21, 2000, the underwriters associated with this offering exercised their over-allotment option to purchase an additional 802,500 shares of common stock at a price of $70.00 per share. Gross proceeds from the exercise of the over-allotment option totaled $56.2 million with net proceeds of approximately $52.8 million. (8) Accounting for Derivative and Hedging Activities Effective October 1, 2000, the Company adopted the provisions of Statement of Financial Accounting Standards No. 133 - "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS No. 133"), which establishes new accounting and reporting guidelines for derivative instruments and hedging activities. SFAS No. 133 requires the -7- 10 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) recognition of all derivative financial instruments as either assets or liabilities in the consolidated balance sheet and measurement of those instruments at fair value. Changes in fair values of those derivatives will be reported in earnings or other comprehensive income depending on the designation of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of a derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the asset or liability hedged. Under the provisions of SFAS No. 133 the method that will be used for assessing the effectiveness of a hedging derivative, as well as the measurement approach for determining the ineffective aspects of the hedge, must be established at the inception of the hedging relationship. For derivatives designated as cash flow hedges, the change in fair value of the derivative instrument is adjusted to fair value and is reported in other comprehensive income. The Company believes it is prudent to minimize the risk caused by foreign currency fluctuations. The Company, at times, minimizes this risk by hedging the foreign currency exposure of the Company's net investment in foreign operations through the purchase of forward foreign exchange contracts. At December 31, 2000, the Company did not have any forward foreign currency exchange contracts or other derivative instruments. The Company does not enter into derivative instruments for any other purposes other than cash flow hedging; the Company does not speculate using derivatives. The impact of adopting SFAS No. 133 did not have any effect on the Company's consolidated financial statements. (9) Subsequent Event -- Collaborations with and Sale of Stock to Roche and Genentech On January 8, 2001, the Company announced that it had entered into certain agreements (the "Collaboration Agreements") with Genentech, Inc. ("Genentech") and F.Hoffmann-La Roche Ltd ("Roche") for the global co-development and commercialization of the Company's lead anti-cancer drug, OSI-774. The Collaboration Agreements consist of a Development and Marketing Collaboration Agreement between the Company and Genentech (the "OSI/Genentech Agreement"); a Development Collaboration and Licensing Agreement between the Company and Roche (the "OSI/Roche Agreement"); and a Tripartite Agreement by and among the Company, Genentech and Roche (the "Tripartite Agreement"). The Company received upfront fees of $25 million related to these agreements. Under the OSI/Genentech Agreement, the Company and Genentech have agreed to collaborate in the product development of OSI-774 with the goal of obtaining regulatory approval for commercial marketing and sale in the United States of products resulting from the collaboration. Under the OSI/Genentech Agreement, the parties have established a joint steering committee composed of representatives from each of the Company and Genentech. The responsibility of the joint steering committee will be, among other things, to approve overall strategy of the collaboration; review and approve development, clinical trial strategies and budgets; review and -8- 11 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) approve manufacturing activities; review and approve marketing and sales budgets; and perform other similar functions. The parties have also established a joint project team responsible for formulating overall development plans and budgets. The parties will conduct clinical trials of indications for licensed products as defined in the OSI/Genentech Agreement in accordance with such agreement. Consistent with the parties' development plan under the OSI/Genentech Agreement, and with the approval of the joint steering committee, the parties will agree as to who will own and be responsible for the filing of drug approval applications with the Food and Drug Administration other than the first new drug application which the Company will own and be responsible for filing and the first supplemental new drug application which the Company will have the option to own and be responsible for filing. Genentech will have responsibility for the design and implementation of all product launch activities and the promotion, marketing and sales of all products resulting from the collaboration in the United States, its territories and Puerto Rico, while the Company will have certain co-promotion rights. Genentech will pay the Company certain milestone payments and the Company will share in the operating profits or losses on products resulting from the collaboration. Under the OSI/Genentech Agreement, the Company has granted to Genentech a non-transferable (except under certain circumstances), non-sublicensable (except under certain circumstances), co-exclusive license under the Company's patents related to OSI-774 to use, sell, offer for sale and import products resulting from the collaboration. In addition, Genentech has granted to the Company a non-transferable (except under certain circumstances), non-sublicensable (except under certain circumstances), co-exclusive license to certain patents held by Genentech to use, make, have made, sell, offer for sale and import products resulting from the collaboration. Each party is generally responsible for its own patent filings. In addition, each party, generally, has the right, but not the obligation, to institute, prosecute and control against patent infringement claims. The term of the OSI/Genentech Agreement is until the date on which the parties are no longer entitled to receive a share of the operating profits or losses on any products resulting from the collaboration. The OSI/Genentech Agreement is subject to early termination in the event of certain defaults by either party and early termination by Genentech under certain circumstances. Under the OSI/Roche Agreement, the Company has granted to Roche, and Roche has obtained, a license under the Company's intellectual property rights with respect to OSI-774. Roche will collaborate with the Company and Genentech in the product development of OSI-774 and will be responsible for future marketing and commercialization of OSI-774 outside of the United States in certain territories as defined in the OSI/Roche Agreement. The grant is a royalty-bearing, non-transferable (except under certain circumstances), non-sublicensable (except with consent), sole and exclusive license to use, sell, offer for sale and import products resulting from the development of OSI-774 in the world, other than the territories covered by the OSI/Genentech Agreement. In addition, Roche has the right, but not the obligation, to manufacture OSI-774 for -9- 12 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) its territory, subject to certain exceptions. Roche will pay milestone and royalty payments to the Company. The Company has primary responsibility for patent filings for the basic patents protecting OSI-774, and, in addition, has the right, but not the obligation, to institute, prosecute and control against patent infringement claims. The term of the OSI/Roche Agreement is until the date on which the Company is no longer entitled to receive a royalty on products resulting from the development of OSI-774. The OSI/Roche Agreement is subject to early termination in the event of certain defaults by either party. In addition, after two and one half years from the effective date, Roche may terminate the agreement on a country-by-country basis. OSI may also have the right to terminate the agreement on a country-by-country basis if Roche has not launched or marketed a product in such country under certain circumstances. Under the Tripartite Agreement, the Company, Genentech and Roche have agreed to establish a structure which is intended to generally result in the optimization of the use of each party's resources to develop OSI-774 in certain countries around the world, and share certain global development costs on an equal basis; to share information generated under a global development plan, as defined in the Tripartite Agreement; to facilitate attainment of necessary regulatory approvals of OSI-774 products for commercial marketing and sale in the world; and to work together on such matters as the parties agree from time to time during the development of OSI-774. Under the Tripartite Agreement, the parties have established a global development committee composed of representatives from each party. The global development committee is generally responsible for, among other things, approving material changes to the global development plan, including the annual budget; overseeing execution of the global development plan; resolving disputes concerning overall strategy or funding; and performing other similar functions. The parties have also established a liaison team to work with the teams organized under the OSI/Roche and OSI/Genentech Agreements. The responsibilities of the liaison team include coordination of pre-clinical activities, clinical team activity, regulatory activity, manufacturing activity, and communication and publication strategy. In addition, the liaison team must prepare budgets and updates to present to the global development committee and prioritize and allocate the supply of OSI-774. Each party may at its own expense conduct clinical and pre-clinical activities for additional indications for OSI-774 not called for under the global development plan, subject to certain conditions. The Tripartite Agreement will terminate when either the OSI/Genentech Agreement or the OSI/Roche Agreement terminates. Concurrently with the execution of the Collaboration Agreements, the Company entered into separate Stock Purchase Agreements (the "Stock Purchase Agreements") on January 8, 2001 with each of Genentech and Roche Holdings, Inc. for the sale to each of 462,570 newly-issued shares of the Company's common stock. The purchase price was $75.664 per share, or an aggregate purchase price of $35 million each. No underwriters or placement agents were involved in the purchase and sale of the securities. The sale of the securities was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as sales to accredited investors in a private placement. The Company agreed to register the resale of the shares of common stock issued in the private placement and expects to file a registration statement on Form S-3 with the Securities and Exchange Commission within a commercially reasonable time upon the closing of the sale. The transactions contemplated under the Collaboration Agreements and Stock Purchase Agreements closed on January 30, 2001. -10- 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 OVERVIEW We are engaged in the discovery and development of gene targeted, small molecule drugs, primarily in the area of cancer, respiratory diseases, diabetes and cosmeceuticals. To date, none of our proprietary or collaborative programs have resulted in a commercial product; and therefore, we have not received any revenues or royalties from the sale of products by us or by our collaborators. We have funded our operations primarily through public and private placements of equity securities and payments under collaborative research agreements with major pharmaceutical companies. Historically, we have conducted most of our drug discovery programs through funded collaborations with major pharmaceutical companies. These arrangements have typically included milestone and royalty payments on the successful development and marketing of products discovered in the collaborations. Using this business model, we were able to leverage the research, development and financial resources of our corporate partners to help build and sustain a fully-integrated drug discovery capability and a large pipeline of product opportunities supplemented by those within our own proprietary programs. More recently, as we have generated the financial resources to invest more fully in our own programs, we are transitioning away from a partner-funded alliance model in favor of OSI-owned and sponsored drug candidates. We intend to develop our own drug candidates through the early stages of clinical development prior to entering into co-development and commercialization agreements with leading pharmaceutical companies in return for a greater share of the revenues derived from product sales. The most advanced of our product candidates is OSI-774, which has demonstrated encouraging indications of activity and has, to date, exhibited a well-tolerated side-effect profile as a monotherapy in three ongoing open-label, Phase II clinical trials for the treatment of non-small cell lung, ovarian and head and neck cancers. On January 8, 2001, we entered into concurrent agreements with Genentech, Inc. and F.Hoffmann-La Roche Ltd for the global co-development and commercialization of OSI-774. These agreements could result in a total of up to $187 million in upfront fees, equity investments, and scheduled milestone payments to us. Milestone payments will be based on the successful filing and registration of the drug in major markets. In the United States, we will employ an essentially equal cost and profit sharing arrangement for commercialization with Genentech. Outside of the United States, we will receive royalties on net sales from Roche. The overall costs of the development program will be split equally among the three parties. In addition to our OSI-774 program, our collaborative partner in cancer, Pfizer Inc., is conducting Phase I clinical trials for two additional candidates. We also have a total of eleven candidates in late stage pre-clinical development in cancer and other programs. We had a net loss of $5.7 million for the three months ended December 31, 2000 compared to net income of $3.5 million for the three months ended December 31, 1999. Included in the -11- 14 loss for the three months ended December 31, 2000 was a non-cash charge of $2.6 million related to the cumulative effect of a change in accounting principle (see note 2 to the accompanying consolidated financial statements). Excluding the effect of this change in accounting principle, the net loss for the three months ended December 31, 2000 would have been $3.0 million, or $0.10 per share. Included in the net income for the three months ended December 31, 1999 was the gain of $3.7 million from the sale of the assets of our diagnostics business (see note 6 to the accompanying consolidated financial statements). REVENUES Revenues for the three months ended December 31, 2000 were approximately $5.7 million, a decrease of $4.2 million or 42%, compared to revenues of $9.9 million for the three months ended December 31, 1999. This decrease is due primarily to a one-time technology access fee of $3.5 million from Tanabe Seiyaku Co., Ltd. recognized in October 1999. In connection with a change in accounting principle effective October 1, 2000 (see note 2 to the accompanying consolidated financial statements) to comply with the provisions of Staff Accounting Bulletin No. 101, this previously recognized technology access fee will be recognized over the four year term of the agreement, resulting in approximately $219,000 in revenue recognition for the three months ended December 31, 2000. Assuming the technology access fee received from Tanabe had been recognized over the term of the agreement in fiscal 2000, revenues would have been $6.6 million for the quarter ended December 31, 1999. Total collaborative program revenues decreased approximately $731,000 or 12% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. This decrease was primarily due to the conclusion in September 2000 of our funded collaborative research agreement with Aventis Pharmaceuticals Inc., and the termination of our diagnostics collaboration with The Bayer Corporation upon the sale of the assets of our diagnostics business to Bayer in November 1999. This decrease was partially offset by increased revenues from the Tanabe collaboration. Sales of products and services derived from pharmaceutical services of our UK subsidiary, OSI Pharmaceuticals (UK) Limited, and from diagnostics sales of our U.S. subsidiary, OSDI, Inc., decreased approximately $170,000 or 67% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. The decrease was due to a shift in focus of pharmaceutical services from external sales to internal programs and to the sale of our diagnostics assets to Bayer in November 1999. We are currently in the process of terminating the historical pharmaceutical services business and its associated revenues. EXPENSES Operating expenses increased approximately $3.1 million or 28% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. Research and development expenses increased approximately $2.5 million or 30% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. This increase was primarily related to the initiation of clinical development of OSI-774 upon the return of all rights to us from Pfizer in June 2000; our increased investment in proprietary drug discovery programs, including cancer, functional genomics, and G-protein coupled -12- 15 receptor directed drug discovery; and certain non-cash, stock option-based compensation charges as discussed below. In December 2000, we granted 127,000 stock options to non-employee consultants with an exercise price equal to the fair market value on the date of grant. These grants resulted in compensation expense of approximately $375,000 for the three months ended December 31, 2000, and net deferred compensation of approximately $6.1 million which will be recognized as compensation expense over the vesting period of the options. In addition, compensation expense recognized from grants issued to non-employee consultants in prior years was approximately $877,000 for the three months ended December 31, 2000, which is included in research and development expense. Total net deferred compensation for research and development non-employee consultants was approximately $8.7 million as of December 31, 2000. The amount of compensation expense to be recorded in future periods related to the non-employee grants is subject to change each reporting period based upon the then fair value of these options, using a Black-Scholes option pricing model, until expiration of the options' vesting periods. At September 30, 2000, we had recorded approximately $4.4 million of deferred compensation expense related to stock options granted to our new President and Head of Research and Development. This amount will be recognized as compensation expense on a straight line basis over the vesting period of the options. For the three months ended December 31, 2000, this grant resulted in compensation expense of approximately $364,000. Production and service costs decreased approximately $92,000 or 42% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. The decrease was due to a shift in focus of pharmaceutical services from external sales to internal programs and to the sale of our diagnostics assets to Bayer in November 1999. Selling, general and administrative expenses increased approximately $813,000 or 38% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. The increase was primarily attributable to the increased expenses for additional management and administrative personnel and consultants, as well as an increase in facilities expenses and other professional fees associated with expansion and development activities. Consulting expenses include stock options granted to non-employees in connection with their consulting arrangements that have resulted in compensation expense of approximately $509,000 for the three months ended December 31, 2000 and net deferred compensation of $1.2 million as of December 31, 2000. We expect that general and administrative expenses will continue to increase as we continue to expand the business. Amortization of intangibles decreased approximately $128,000 or 41%. The decrease was related to the inclusion of our diagnostic patent estate in the sale of our diagnostics assets to Bayer, which eliminated the related amortization expense effective November 30, 1999. OTHER INCOME AND EXPENSE Net investment income increased approximately $4.4 million or 610% for the three months ended December 31, 2000, compared to the three months ended December 31, 1999. The increase was largely due to investment of funds generated from: (i) a major public offering in -13- 16 November 2000; (ii) a private placement of our common stock in February 2000; (iii) the exercise of options and warrants during 2000; and (iv) the sale of the assets of our diagnostics business in November 1999. The public offering is more fully explained in "Liquidity and Capital Resources" below. Other income during the quarter ended December 31, 1999 represents the gain of approximately $3.7 million on the sale of the assets of our diagnostics business to Bayer. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, working capital, representing primarily cash, cash equivalents and short-term investments, aggregated approximately $484.3 million compared to $80.1 million at September 30, 2000. This increase resulted primarily from the closing of a public offering of 6,152,500 shares of our common stock in November 2000, for net proceeds of approximately $404.3 million. On November 6, 2000, we concluded a public offering of 5.35 million shares of common stock at a price of $70.00 per share. Gross proceeds totaled $374.5 million with net proceeds of approximately $351.5 million after all underwriting and other related fees are deducted. In addition, on November 21, 2000, the underwriters associated with this offering exercised their over-allotment option to purchase an additional 802,500 shares of our common stock at a price of $70.00 per share. Gross proceeds from the exercise of the over-allotment option totaled $56.2 million with net proceeds of approximately $52.8 million. In June 2000, we received a license to develop and market OSI-774 from Pfizer. Our goal for OSI-774 is to seek rapid regulatory approval, assess its utility in combination with existing chemotherapy agents, demonstrate a survival benefit for earlier stage cancer patients enabling its front-line use in major cancers, and broaden its application to additional cancers. We expect our drug development expenses will increase significantly during fiscal 2001 as a result of our OSI-774 program. In January 2001, we secured co-development and marketing partnerships with Genentech and Roche to maximize the healthcare benefit and commercialization of OSI-774, and received $95 million in upfront fees and equity investments. The alliance will divide the work of OSI-774 development equally among the parties. As a result of this alliance, we only anticipate a modest increase in our fiscal 2001 operating cash burn over fiscal 2000, since the increased OSI-774 expenses will be offset somewhat by upfront fees and higher interest earnings. We anticipate a more significant increase in our fiscal 2002 operating cash burn over fiscal 2001, due to an increase in OSI-774 expenses, a decrease in our collaborative revenue base, and the absence of upfront fees. We believe that amounts received from Genentech and Roche, proceeds from our public offering, existing cash resources, and projected funding from collaborative research and development programs will be sufficient to fund the operations and capital requirements for at least the next several years. We expect to incur additional losses over the next several years as we increase our investment in OSI-774 and other internal proprietary programs. Additionally, as we shift our focus toward internal drug development, we expect collaborative revenues to decrease in the future. The funded phases of our collaborations with Aventis Pharmaceuticals Inc. and Solvay Pharmaceuticals, B.V. ended on September 30, 2000 and December 31, 2000, respectively. -14- 17 The funded phase of our cancer collaboration with Pfizer will conclude at the end of the current funding period on March 31, 2001. To achieve profitability, we, alone or with others, must successfully develop and commercialize our technologies and products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and obtain adequate assistance to successfully manufacture, introduce and market such technologies and products. The ability and time required to reach profitability is uncertain. During fiscal 2000, we received a commitment from the State of New York to expand and refurbish a state-of-the-art discovery research facility located in the Broad Hollow BioScience Park on the SUNY campus in Farmingdale, New York, which we will lease from the State. We expect to move certain research operations to this new facility by the end of 2001. With this additional available space, we believe that our facilities will be adequate to meet our current requirements. FORWARD LOOKING STATEMENTS A number of the matters and subject areas discussed in this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report that are not historical or current facts deal with potential future circumstances and developments. The discussion of these matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and these discussions may materially differ from our actual future experience involving any one or more of these matters and subject areas. These forward looking statements are also subject generally to the other risks and uncertainties that are described in our annual report on Form 10-K for the fiscal year ended September 30, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our cash flow and earnings are subject to fluctuations due to changes in interest rates in our investment portfolio of debt securities, to the fair value of equity instruments held, and, to an immaterial extent, to foreign currency exchange rates. We maintain an investment portfolio of various issuers, types and maturities. These securities are generally classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) included in stockholders' equity. Our investments in certain biotechnology companies are carried on the equity method of accounting. Other-than-temporary losses are recorded against earnings in the same period the loss was deemed to have occurred. It is uncertain whether other-than-temporary losses will be material to our results of operations in the future. Other than foreign currency exchange rates, we do not currently hedge these exposures. We hedge some of our foreign currency exchange rates exposure through forward contracts as more fully described in note 11(d) to the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended September 30, 2000. -15- 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS *3.1 Certificate of Incorporation, as amended 3.2 Amended and Restated By-Laws (1) --------------------------- * Filed herewith. (1) Included as an exhibit to the Company's current report on Form 8-K, filed on January 8, 1999, and incorporated herein by reference. (b) REPORTS ON FORM 8-K The Company filed a current report on Form 8-K on November 9, 2000 with the Securities and Exchange Commission via EDGAR, pertaining to the announcement of updated findings from two ongoing clinical studies of the Company's lead anti-cancer drug candidate, OSI-774, as a single agent. The earliest event covered by the report occurred on November 9, 2000. -16- 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OSI PHARMACEUTICALS, INC. ------------------------------------ (Registrant) Date: February 14, 2001 /s/ Colin Goddard, Ph.D. ------------------------------------ Colin Goddard, Ph.D. Chairman of the Board and Chief Executive Officer Date: February 14, 2001 /s/ Robert L. Van Nostrand ------------------------------------ Robert L. Van Nostrand Vice President and Chief Financial Officer (Principal Financial Officer) -17- 20 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- *3.1 Certificate of Incorporation, as amended 3.2 Amended and Restated By-Laws (1)
-------------------------- * Filed herewith. (1) Included as an exhibit to the Company's current report on Form 8-K, filed on January 8, 1999, and incorporated herein by reference. -18- EX-3.1 2 y45562ex3-1.txt CERTIFICATE OF INCORPORATION, AS AMENDED 1 EXHIBIT 3.1 CERTIFICATE OF DESIGNATION OF SERIES SRP JUNIOR PARTICIPATING PREFERRED STOCK OF OSI PHARMACEUTICALS, INC. OSI PHARMACEUTICALS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "GCL"), DOES HEREBY CERTIFY THAT: Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of said corporation, and pursuant to the provisions of Section 151 of the GCL, said Board of Directors duly adopted at a meeting pursuant to Section 141 of the GCL, a resolution creating Sixty Thousand (60,000) shares of Series SRP Junior Participating Preferred Stock, which resolution is attached hereto as Exhibit "A". IN WITNESS WHEREOF, said OSI PHARMACEUTICALS, INC. has caused this certificate to be signed by its Secretary, this 23rd day of June 1999. OSI PHARMACEUTICALS, INC. By: /s/ ROBERT L. VAN NOSTRAND --------------------------- Robert L. Van Nostrand Secretary 2 Exhibit "A" OSI PHARMACEUTICALS, INC. Resolutions of Board of Directors To be Adopted on June 23, 1999 Authorization of Series SRP Preferred Stock RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation by the Certificate of Incorporation, the Board of Directors does hereby provide for the issuance of a series of preferred stock, par value $.01 per share (the "Preferred Stock"), to be designated "Series SRP Junior Participating Preferred Stock" (hereinafter referred to as the "Series SRP Preferred Stock"), initially consisting of 60,000 shares, and to the extent that the designations, relative rights, preferreds, limitations and restrictions of the Series SRP Preferred Stock are not stated and expressed in the Certificate of Incorporation, does hereby fix and herein state and express such designations, relative rights, preferreds, limitations and restrictions thereof as follows (all terms used herein which are defined in the Certificate of Incorporation shall be deemed to have the meanings provided therein): Section 1. Designation and Amount. The shares of such series shall be designated as "Series SRP Junior Participating Preferred Stock" and the number of shares constituting such series shall be 60,000. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series SRP Preferred Stock with respect to dividends, the holders of shares of Series SRP Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on March 15, June 15, September 15 and December 15 in each year (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 SRP Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.025 or (b) 1,000 times the aggregate per share (rounded to nearest cent) amount of all cash dividends and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of common stock (the "Common Stock") or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series SRP Preferred Stock. 3 (B) The Corporation shall declare a dividend or distribution on the Series SRP Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.025 per share on the Series SRP Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on each outstanding share of Series SRP Preferred Stock from the first Quarterly Dividend Payment Date following the date of issue of such share unless such date of issue is a date after the record date for the determination of holders of shares of Series SRP Preferred Stock entitled to receive a quarterly dividend on such Quarterly Dividend Payment Date, in which event such dividends shall begin to accrue and be cumulative on such shares from the second Quarterly Dividend Payment Date following the date of issue of such share. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series SRP Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series SRP Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series SRP Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series SRP Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as otherwise provided herein or by law, the holders of shares of Series SRP Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series SRP Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (a "Default Period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series SRP Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each Default Period, all holders of Preferred Stock (including holders 4 of the Series SRP Preferred Stock) on which dividends are in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) directors. (ii) During any Default Period, such voting rights of the holders of Series SRP Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting rights nor the right of the holders of any other series of Preferred Stock, if any, to increase the authorized number of directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing Default Period, they shall have the right, voting as a class, to elect directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) directors or, if such right is exercised at an annual meeting, to elect two (2) directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect directors in any Default Period and during the continuance of such period, the number of directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series SRP Preferred Stock. (iii) During an existing Default Period, unless the holders of Preferred Stock shall have previously exercised their right to elect directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to such holder at such holder's last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. 5 (iv) In any Default Period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Preferred Stock shall have exercised their right to elect two (2) directors voting as a class, after the exercise of which right (x) the directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the Default Period and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to directors elected by the holders of a particular class of stock shall include directors elected by such directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a Default Period, (x) the right of the holders of Preferred Stock as a class to elect directors shall cease, (y) the term of any directors elected by the holders of Preferred Stock as a class shall terminate and (z) the number of directors shall be such number as may be provided for in or fixed pursuant to the Certificate of Incorporation or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the Certificate Incorporation or By-laws). Any vacancies in the Board of Directors affected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining directors. (D) Except as set forth herein, holders of Series SRP Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series SRP Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series SRP Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series SRP Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution 6 or winding up) with the Series SRP Preferred Stock, except dividends paid ratably on the Series SRP Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series SRP Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series SRP Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series SRP Preferred Stock or any shares of stock ranking on a parity with the Series SRP Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferreds of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series SRP Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) of the Series SRP Preferred Stock unless, prior thereto, the holders of 7 shares of Series SRP Preferred Stock shall have received $.01 per share plus an amount equal to accrued and unpaid dividends and distribution thereon, whether or not declared, to the date of such payment (the "Series SRP Liquidation Preferred"). Following the payment of the full amount of the Series SRP Liquidation Preferred, no additional distributions shall be made to the holders of shares of Series SRP Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series SRP Liquidation Preferred by (ii) 1,000 (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series SRP Liquidation Preferred and the Common Adjustment in respect of all outstanding shares of Series SRP Preferred Stock and Common Stock, respectively, holders of Series SRP Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series SRP Liquidation Preferred and the liquidation preferreds of all other series of Preferred Stock, if any, which rank on a parity with Series SRP Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferreds. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or other property, then in any such case the shares of Series SRP Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and other property (payable in kind) into which or for which each share of Common Stock is changed or exchanged. Section 8. No Redemption. The shares of Series SRP Preferred Stock shall not be redeemable. Section 9. Ranking. The Series SRP Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferreds or special rights of the Series SRP Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series SRP Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series SRP Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series SRP Preferred Stock. 8 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF OSI PHARMACEUTICALS, INC. ---------------------------------- Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware --------------------------------- We, the President and Secretary of OSI PHARMACEUTICALS, INC., a corporation existing under the laws of the State of Delaware, do hereby certify as follows: FIRST: That Article IV of the Certificate of Incorporation of said corporation has been amended in its entirety to read as follows: ARTICLE IV CAPITAL STOCK (a) Authorized Stock. The total number of shares of stock which the Corporation shall have authority to issue is 55,000,000 shares, consisting of 50,000,000 shares of Common Stock, having a par value of $.01 per share, and 5,000,000 shares of Preferred Stock having a par value of $.01 per share. (b) Preferred Stock. The board of directors is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of 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 other special and relative rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the board of directors with respect to each series shall include, but not be limited to, determination of the following: i. the number of shares constituting that series and the distinctive designation of that series, which number may be increased and decreased (but not below the number of shares then outstanding) from time to time by action of the board of directors; 9 ii. the dividend rate, if any, on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; iii. whether that series shall have voting rights in addition to the voting rights provided by law, and if so, the terms of such voting rights; iv. whether that series shall have conversion privileges, and if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon the occurrence of such events as the board of directors shall determine; v. whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; vi. whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amounts of such sinking fund; and vii. the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and any other relative rights, preferences and limitations of that series. SECOND: That Article VII of the Certificate of Incorporation of said corporation has been amended in its entirety to read as follows: 10 ARTICLE VII MEETINGS OF STOCKHOLDERS AND MEETINGS AND CONSENTS OF DIRECTORS; CORPORATION BOOKS; ELECTIONS OF DIRECTORS; AND NOTICES Meetings of holders of Capital Stock of the Corporation and of the board of directors and of any committee thereof may be held outside the State of Delaware if the by-laws so provide. Except as otherwise provided by law or by this certificate of incorporation, all actions of stockholders shall be taken at an annual or special meeting of stockholders of the Corporation. No stockholder action may be taken without a meeting, without prior notice and without a vote. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting as provided by statute if the by-laws of the Corporation so provide. The elections of directors need not be by ballot unless the by-laws of the Corporation so provide. Except as otherwise provided by law, the books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. Any notice permitted or required by this certificate of incorporation shall be written, signed by the sender and mailed, postage prepaid, in the United States by certified or registered mail. THIRD: That such amendments have been duly adopted in accordance with the provisions of the General Corporation Law of the State of Delaware by the affirmative vote of the holders of not less than a majority of the outstanding stock entitled to vote thereon. IN WITNESS WHEREOF, we have signed this certificate this 12th day of April, 1999. /s/ Colin Goddard ------------------------------ Colin Goddard, Ph.D. President and Chief Executive Officer ATTEST: /s/ Robert L. Van Nostrand ------------------------------ Robert L. Van Nostrand Secretary 11 CERTIFICATE OF OWNERSHIP AND MERGER MERGING OSI Pharmaceuticals, Inc. INTO Oncogene Science, Inc. (Pursuant to Section 253 of the General Corporation Law of Delaware) Oncogene Science, Inc., a Delaware corporation (the "Corporation"), does hereby certify: FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of each class of the capital stock of OSI Pharmaceuticals, Inc., a Delaware corporation. THIRD: That the Corporation, by the following resolutions of its Board of Directors, duly adopted at a meeting thereof held on June 11, 1997, determined to merge OSI Pharmaceuticals, Inc. into itself on the conditions set forth in such resolutions: RESOLVED, that the Corporation authorizes the formation of a subsidiary under the Delaware General Corporation Law to be named OSI Pharmaceuticals, Inc. and to be wholly-owned by the Corporation; and further RESOLVED, that effective October 1, 1997, the subsidiary shall be merged with and into the Corporation, with the Corporation to be the surviving corporation, and, upon the effective date of the merger, the name of the surviving corporation shall be changed to OSI Pharmaceuticals, Inc.; and further 12 RESOLVED, that the officers of the Corporation be, and they hereby are, authorized, empowered and directed to take such actions as shall be necessary or appropriate to effectuate the foregoing resolutions. FOURTH: That this certificate of ownership and merger shall not become effective until 12:01 a.m. Eastern Time on October 1, 1997. IN WITNESS WHEREOF, Oncogene Science, Inc. has caused its corporate seal to be affixed hereto and this certificate to be signed by Robert L. Van Nostrand, its authorized officer, this 26th day of September, 1997. [SEAL] ONCOGENE SCIENCE, INC. By: /s/ Robert L. Van Nostrand ----------------------------- Robert L. Van Nostrand Vice President and Chief Financial Officer 13 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF ONCOGENE SCIENCE, INC. I, the President of Oncogene Science, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), do hereby certify that (i) Article Fourth of the Corporation's Certificate of Incorporation has been amended in its entirety to read as set forth below, and (ii) such amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH. The total number of shares of stock that the Corporation shall have authority to issue is 50,000,000 shares of common stock, having a par value of $.01 per share, all of the same class. IN WITNESS WHEREOF, I have hereunto set my hand and seal as of the 31st day of March, 1993. (Corporate Seal) Attest: /s/ Theresa R. Dragone /s/ Gary E. Frashier (SEAL) - ------------------------------ ------------------------------ Theresa R. Dragone Gary E. Frashier, President Secretary 14 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF ONCOGENE SCIENCE, INC. Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware We, the President and Secretary of ONCOGENE SCIENCE, INC., a corporation existing under the laws of the State of Delaware, do hereby certify as follows: FIRST: That Article IX of the Certificate of Incorporation of said corporation has been amended in its entirety to read as follows: ARTICLE IX INDEMNIFICATION AND INSURANCE SECTION 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was the director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity 15 while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (out, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a Proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 1 shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such Proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director of officer is not entitled to be indemnified under this Section or otherwise. SECTION 2. Non-Exclusivity of Rights. The rights conferred on any person by Section 1 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-laws, agreement, vote of stockholders or disinterested directors, or otherwise. SECTION 3. Limitation of Liability of Directors. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach 16 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. SECTION 4. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECOND: That such amendment has been duly adopted in accordance with the provisions of the General Corporation Law of the State of Delaware by the affirmative vote of the holders of not less than a majority of the outstanding stock entitled to vote thereon. IN WITNESS WHEREOF, we have signed this certificate this 9th day of April, 1987. /s/ Robert E. Ivy ------------------------------ Robert E. Ivy, President ATTEST: /s/ Gary Takata ------------------------------ Gary Takata, Secretary 17 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF ONCOGENE SCIENCE, INC. Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware We, the President and Secretary of ONCOGENE SCIENCE, INC., a corporation existing under the laws of the State of Delaware, do hereby certify as follows: FIRST: That Article FOURTH of the Certificate of Incorporation of said corporation has been amended in its entirety to read as follows: "FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is 20,000,000 shares of common stock, of the par value of $.01 per share, all of the same class." SECOND: That such amendment has been duly adopted in accordance with the provisions of the General Corporation Law of the State of Delaware by the written consent of the holders of not less than a majority of the outstanding stock entitled to vote thereon and that written notice of the corporation action has been given to those stockholders who have not consented in writing, all in accordance with the provisions of Section 228 of the General Corporation Law. 18 IN WITNESS WHEREOF, we have signed this certificate this 18th day of January, 1986. /s/ Robert E. Ivy ------------------------------ Robert E. Ivy, President ATTEST: /s/ Gary Takata ------------------------------ Gary Takata, Secretary 19 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF ONCOGENE SCIENCE, INC. (a Delaware corporation) Adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware THE UNDERSIGNED, Steven Gelles, sole incorporator of ONCOGENE SCIENCE, INC., does hereby certify: FIRST: That the Certificate of Incorporation of ONCOGENE SCIENCE, INC. (the "Corporation") was filed in the office of the Secretary of State of Delaware on March 6, 1983 and a certified copy thereof was recorded in the office of the Recorder of Kent County, Delaware on March 16, 1983. SECOND: That the Corporation has not received payment for its stock. THIRD: That the Certificate of Incorporation of the Corporation is amended as follows: (i) By striking out paragraph FIRST thereof as it now exists and inserting in lieu thereof ARTICLE I, reading as follows: ARTICLE I NAME The name of the corporation is ONCOGENE SCIENCE, INC. 20 (ii) By striking out paragraph SECOND thereof as it now exists and inserting in lieu thereof ARTICLE II, reading as follows: ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The registered office of the Corporation in the State of Delaware is located at 229 South State Street, City of Dover, County of Kent. The name and the address of the registered agent of the Corporation in the State of Delaware is The Prentice-Hall Corporation System, Inc., 229 South State Street, Dover, Delaware. (iii) By striking out paragraph THIRD thereof as it now exists and inserting in lieu thereof ARTICLE III, reading as follows: ARTICLE III CORPORATE PURPOSES AND POWERS The nature of the business of the Corporation, or the objects or purposes to be transacted, promoted or carried on by the Corporation are any and all lawful acts or activities for which corporations may be organized under the General Corporation Law of Delaware, including but not limited to research and development, manufacture, production, purchase or acquisition, and sale, licensing, leasing, or disposition of materials, supplies, substances, chemicals or equipment used or useful in the field of biotechnology or in any other field in which such materials, supplies, substances, chemicals or equipment may profitably be used. (iv) By striking out paragraph FOURTH thereof as it now exists and inserting in lieu thereof ARTICLE IV, reading as follows: ARTICLE IV CAPITAL STOCK The amount of the total authorized capital stock of this Corporation is One Hundred Thousand Dollars ($100,000) consisting of Ten Million (10,000,000) common shares, with a par value of one cent ($.01) each. (v) By striking out paragraph FIFTH thereof as it now exists and inserting in lieu thereof ARTICLE V, reading as follows: 21 ARTICLE V INCORPORATOR The name and mailing address of the sole incorporator of the Corporation is: Name Address ---- ------- Steven Gelles 122 East 42nd Street Suite 606 New York, New York 10168 (vi) By adding thereto additional ARTICLES VI - XI, reading as follows: ARTICLE VI POWERS OF BOARD OF DIRECTORS In addition to and not in limitation of the powers conferred by statute, the board of directors of the Corporation expressly is authorized: (a) To make, adopt, alter, amend or repeal the by-laws, except as otherwise expressly provided in any by-law adopted by the holders of Capital Stock of the Corporation entitled to vote thereon. Any by-law may be altered, amended or repealed by the holders of Capital Stock of the Corporation entitled to vote thereon at any annual meeting or at any special meeting called for that purpose; (b) To authorize and cause to be executed mortgages, liens, and other security interests upon the real and personal property of the Corporation; (c) To determine the use and disposition of any surplus and net profits of the Corporation including, without limitation by specification, the determination of the amount of working capital required by the Corporation, to set apart out of any of the funds of the Corporation, whether or not available for dividends, a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created; (d) To designate, by resolution passed by a majority of the members of the board of directors, one or more committees, each consisting of two or more directors of the Corporation which, to the extent provided in the resolution designating 22 the committee or provided in the by-laws of the Corporation, have and may exercise, subject to the provisions of the General Corporation Law of Delaware, all the powers and authority of the board of directors in the management of the business and affairs of the Corporation. Such committee or committees may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be provided in the by-laws of the Corporation or as may be determined from time to time by resolution adopted by the board of directors; (e) To grant rights or options entitling the holders thereof to purchase from the Corporation shares of its Capital Stock evidenced by or in such instrument or instruments as shall be approved by the board of directors. The terms upon which, the time or times at or within which, the persons to whom, and the price or prices at which any such rights or options may be issued and any shares of Capital Stock may be purchased from the Corporation upon the exercise of any such right or option shall be such as shall be fixed in a resolution or resolutions adopted by the board of directors providing for the creation and issuance of such rights or options. In the absence of actual fraud in the transaction, the judgment of the board of directors as to the consideration for the issuance of such rights or options and the sufficiency thereof shall be conclusive. No such rights or options shall be invalidated or in any way affected by the fact that any director shall be a grantee thereof or shall vote for the issuance of such rights or options to himself or for any plan pursuant to which he may receive any such rights or options; (f) To adopt such plans as from time to time may be approved by the board of directors for the purchase by officers or employees of the Corporation and of any corporation either affiliated with or a subsidiary of the Corporation of shares of Capital Stock of the Corporation. The terms upon which, the time or times at or within which and the price or prices at which shares of Capital Stock may be purchased from the Corporation pursuant to such plan shall be fixed in the plan by the board of directors. No such plan which is not at the time of adoption unreasonable or unfair shall be invalid or in any way affected because any director shall be entitled to purchase shares of Capital Stock of the Corporation thereunder and shall vote for such plan; (g) To adopt or assume and carry out such plans as from time to time may be approved by the board of directors for the distribution among the officers or employees of the Corporation and of any corporation which is affiliated with or a subsidiary of the Corporation, or any of them, in addition to their regular salaries, of part of the earnings of the Corporation, in consideration for or in recognition of services rendered by such officers or employees or as an inducement to future efforts. No such 23 plan which is not at the time of adoption or assumption unreasonable or unfair shall be invalidated or in any way affected because any director shall be a beneficiary thereunder or shall vote for any plan under which he may benefit or for any distribution thereunder in which he may participate; (h) To adopt such pension, profit sharing, retirement, deferred compensation or other employee benefit plans or provisions as may, from time to time, be approved by the board of directors, providing for pensions, profit sharing, retirement income, deferred compensation or other benefits for officers or employees of the Corporation and of any corporation which is affiliated with or a subsidiary of the Corporation, or any of them, in consideration for or in recognition of the services rendered by such officers or employees or as an inducement to future efforts. No such plan or provision, which is not at the time of adoption unreasonable or unfair shall be invalidated or in any way affected because any director shall be a beneficiary thereunder or shall vote for any plan or provision under which he may benefit; and (i) To exercise, in addition to the powers and authorities herein or by law conferred upon the board of directors, any such powers and authorities and do all such acts and things as may be exercised or done by the Corporation subject, nevertheless, to the provisions of the General Corporation Law of Delaware, this certificate of incorporation and any by-laws from time to time adopted by the holders of Capital Stock of the Corporation entitled to vote thereon. ARTICLE VII MEETINGS AND CONSENTS OF STOCKHOLDERS AND DIRECTORS; CORPORATION BOOKS; ELECTIONS OF DIRECTORS; AND NOTICES Meetings of holders of Capital Stock of the Corporation and of the board of directors and of any committee thereof may be held outside the State of Delaware if the by-laws so provide. Except as otherwise provided by law or by this certificate of incorporation, any action required to be taken at any annual, or special meeting of stockholders of the Corporation or any action which may be taken at any annual or special meeting of such stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding Capital Stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares of Capital Stock entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action required or permitted to be taken 24 at any meeting of the board of directors or of any committee thereof may be taken without a meeting as provided by statute if the by-laws of the Corporation so provide. Except as otherwise provided by law, the books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. The elections of directors need not be by ballot unless the by-laws of the Corporation so provide. Any notice permitted or required by this certificate of incorporation shall be written, signed by the sender and mailed, postage prepaid, in the United States by certified or registered mail. ARTICLE VIII TRANSACTIONS WITH DIRECTORS AND OFFICERS No contract or transaction between the Corporation and one or more of its directors or officers or between the Corporation and any other corporation, partnership, association or other organization, in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for such reason or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction or solely because his or their votes are counted for such purpose if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee and the board of directors or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors even though the disinterested directors may be less than a quorum; or (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the stockholders or the board of directors or of a committee which authorizes the contract or transaction. ARTICLE IX INDEMNIFICATION AND INSURANCE SECTION 1. Indemnification by Corporation. (a) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in the right of the 25 Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the Corporation, unless similar indemnification is provided by such other corporation or organization which may be involved (any funds received by any person as a result of the provisions of this Article shall be deemed an advance against his receipt of any such other indemnification from any such other corporation or organization), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Any such person who could be indemnified pursuant to the preceding sentence except for the fact that the subject action or suit is or was by or in the right of the Corporation shall be indemnified by the Corporation against expenses (including attorneys' fees) actually and reasonably incurred by him, in connection with the defense or settlement of such action or suit except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duties to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper; (b) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph (a) of this Section 1 or in defense of any claim, issue or matter therein, he shall be indemnified by the Corporation against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith without the necessity of any action being taken by the Corporation other than the determination, in good faith, that such defense has been successful. In all other cases wherein indemnification is provided by this Article, unless ordered by a court, indemnification shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct specified in this Article. Such determination shall be made: (1) By the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding; or (2) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent 26 legal counsel in a written opinion; or (3) by the holders of a majority of the Capital Stock outstanding; (c) The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not create, of itself, a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Entry of a judgment by consent as part of a settlement shall not be deemed final adjudication of liability for negligence or misconduct in the performance of duty or of any other issue or matter; (d) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the specific case upon receipt of an undertaking by the director, officer, employee or agent involved to repay such amount unless it ultimately shall be determined that he is entitled to be indemnified by the Corporation; and (e) The indemnification provided in this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 2. Insurance. By action of the board of directors, notwithstanding any interest of the directors in the action, the Corporation may purchase and maintain insurance, in such amounts as the board of directors deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation shall have the power to indemnify him against such liability under the provisions of this Article. 27 ARTICLE X COMPROMISE OR ARRANGEMENT BETWEEN CORPORATION AND ITS CREDITORS OR STOCKHOLDERS Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. ARTICLE XI RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this certificate of incorporation in the manner now or hereafter prescribed by law and by this certificate of incorporation. All the provisions of this certificate of incorporation and all rights and powers conferred in this certificate of incorporation on stockholders, directors and officers are subject to such reserved power. FOURTH: That such amendment has been duly adopted in accordance with the provision of Section 241 of the General Corporation Law of the State of Delaware. 28 IN WITNESS WHEREOF, I have signed this certificate this 15th day of April, 1983. /s/ Steven Gelles ------------------------------ STEVEN GELLES 29 CERTIFICATE OF INCORPORATION OF ONCOGENE SCIENCE, INC. FIRST: The name of this Corporation is ONCOGENE SCIENCE, INC. SECOND: Its Registered Office in the State of Delaware is to be located at 600 Bay Road, in the City of Dover, Zip Code 19901. The Registered Agent in charge thereof is Ms. Pam Goldsborough. THIRD: The purpose of the Corporation is to perform research and to develop, manufacture, produce, purchase or otherwise acquire, and to sell, license, lease or otherwise dispose of materials, supplies, substances, chemicals or equipment used or useful in the field of Biotechnology or in any other field in which such materials, supplies, substances, chemicals or equipment may be profitably used and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The amount of the total authorized capital stock of this Corporation is One Hundred Thousand Dollars ($100,000) divided into Ten Million (10,000,000) shares, of One Cent ($.01) each. FIFTH: The name and mailing address of the incorporator are as follows: Name: Steven Gelles Mailing Address: 122 East 42nd Street, Suite 606 Zip Code: New York, New York 10168 I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of the State of Delaware, do make, file and record this Certificate, and do certify that the facts herein stated are true, and I have accordingly hereto set my hand this Tenth day of March, 1983. /s/ Steven Gelles - ---------------------------- ------------------------------ - ---------------------------- -----END PRIVACY-ENHANCED MESSAGE-----