<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ________ to _________
COMMISSION FILE NUMBER 1-14004
XENOMETRIX, INC.
----------------------------------------------------------
(Name of small business issuer as specified in its charter)
DELAWARE
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
# 04-3166089
------------------------------------
(IRS Employer Identification Number)
2425 NORTH 55TH STREET, BOULDER, CO 80301
--------------------------------------------------
(Address of principal executive offices)(zip code)
ISSUER'S TELEPHONE NUMBER (303) 447-1773
Check whether issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Outstanding at
Class February 3, 1997
------------------------------ ----------------
Common Stock, $0.001 par value 2,934,267 shares
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE> 2
XENOMETRIX, INC
FORM 10-QSB
FOR THE PERIOD ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Balance Sheet - December 31, 1996 . . . . . . . . . . . . . . . . . . . Page 1
Statement of Operations - Periods ended December 31, 1996 and 1995 . . . Page 2
Statement of Cash Flows - Periods ended December 31, 1996 and 1995 . . . Page 3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . Page 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . Page 5
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . Page 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . Page 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 9
- ----------
</TABLE>
<PAGE> 3
PART 1.-FINANCIAL INFORMATION
XENOMETRIX, INC.
Balance Sheet
December 31, 1996
(Unaudited)
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 2,102,000
Accounts receivable, net 275,000
Receivable from termination of operating lease 223,000
Inventory 157,000
Deposits and prepaid expenses 113,000
------------
Total current assets 2,870,000
Property and equipment, net 978,000
Patents, net 364,000
------------
Total assets $ 4,212,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 501,000
Accrued liabilities 256,000
------------
Total current liabilities 757,000
Stockholders' Equity:
Preferred stock--$0.001 par value; 5,000,000
shares authorized; no shares issued and
outstanding --
Common stock--$0.001 par value; 20,000,000
shares authorized; 2,931,267 shares issued
and outstanding 3,000
Additional paid-in capital 15,553,000
Accumulated deficit (12,101,000)
------------
Total stockholders' equity 3,455,000
------------
Total liabilities and stockholders'
equity $ 4,212,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
XENOMETRIX, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
-------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales and services $ 214,000 $ 173,000 $ 380,000 $ 338,000
Cost of sales and services 184,000 125,000 348,000 250,000
---------- ---------- ----------- ----------
Gross profit 30,000 48,000 32,000 88,000
---------- ---------- ----------- ----------
Research and development 339,000 210,000 589,000 457,000
Selling, general and administrative 654,000 696,000 1,211,000 1,139,000
---------- ---------- ----------- ----------
Total operating expenses 993,000 906,000 1,800,000 1,596,000
---------- ---------- ----------- ----------
Operating loss (963,000) (858,000) (1,768,000) (1,508,000)
Other income:
Grant income 27,000 -- 59,000 --
Interest income, net 31,000 45,000 71,000 30,000
Gain on termination of
operating lease -- -- 1,028,000 --
---------- ---------- ----------- ----------
Loss before extraordinary item (905,000) (813,000) (610,000) (1,478,000)
Extraordinary item: Early
extinguishment of debt
issuance costs -- (115,000) -- (115,000)
---------- ---------- ----------- ----------
Net loss $ (905,000) $ (928,000) $ (610,000) $(1,593,000)
========== ========== =========== ===========
Loss per common share:
Loss before extraordinary item $ (0.31) $ (0.33) $ (0.21) $ (0.99)
Extraordinary item -- (0.05) -- (0.08)
---------- ---------- ----------- ----------
Net loss $ (0.31) $ (0.38) $ (0.21) $ (1.07)
========== ========== =========== ===========
Weighted avg. common shares
outstanding 2,930,000 2,430,000 2,923,000 1,491,000
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
XENOMETRIX, INC.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (610,000) $(1,593,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 148,000 98,000
Early extinguishment of debt issuance
cost -- 115,000
Changes in assets and liabilities:
Accounts receivable (138,000) (27,000)
Receivable from termination of operating
lease (223,000) --
Inventory (11,000) 7,000
Deposits and prepaid expenses 59,000 (79,000)
Accounts payable and accrued liabilities 268,000 (274,000)
----------- -----------
Net cash used in operating activities (507,000) (1,753,000)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures and leasehold improvements (732,000) (28,000)
Patent acquisition cost (46,000) (46,000)
----------- -----------
Net cash used in investing activities (778,000) (74,000)
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from issuance of senior
subordinated note -- 875,000
Repayment of senior subordinated note -- (1,000,000)
Proceeds from issuance of common stock 97,000 6,778,000
----------- -----------
Net cash provided by financing activities 97,000 6,653,000
----------- -----------
Net change in cash (1,188,000) 4,826,000
Cash and cash equivalents at beginning of period 3,290,000 489,000
----------- -----------
Cash and cash equivalents at end of period $ 2,102,000 $ 5,315,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
XENOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING DECEMBER 31, 1996
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited. However, in the opinion of
management, the accompanying financial statements reflect all adjustments,
consisting of only normal recurring adjustments, necessary for fair
presentation. Interim results of operations are not necessarily indicative of
results for the full year. These financial statements should be read in
conjunction with the Xenometrix Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1996.
Except for the historical information contained in this Form 10-QSB, this
report contains forward looking statements that involve risks and
uncertainties. Xenometrix' actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this report and
any documents incorporated herein by reference, as well as in the Xenometrix
Annual Report on Form 10- KSB for the fiscal year ended June 30, 1996 and the
Company's Prospectus dated October 17, 1995.
NOTE 2. TERMINATION OF OPERATING LEASE
In July 1996, Xenometrix entered into an agreement to lease approximately
22,700 square feet in an existing building located at 2425 North 55th Street in
Boulder, Colorado. The lease is for a six-year period, with two optional
renewal periods of three years each. Xenometrix has moved its entire
operations to this new facility. On December 31, 1996, the new landlord paid
$204,000 of tenant finish costs incurred by Xenometrix in outfitting the
facility to meet its needs.
Also, in July 1996, Xenometrix entered into an agreement with another company
whereby such company is paying Xenometrix certain consideration for
relinquishing its former operating lease enabling such company to enter into a
new lease on this space. By the terms of the agreement such company paid
Xenometrix $700,000 upon Xenometrix' termination of its former lease, paid
$18,000 of Xenometrix' actual moving expenses and began paying $360,000 in six
quarterly installments beginning in October 1996 and continuing through
December 1997. This agreement resulted in a gain on lease termination of
$1,028,000.
4
<PAGE> 7
ITEM 2. XENOMETRIX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the financial statements and notes thereto.
See Item 1.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED DECEMBER 31, 1996 AND 1995
NET SALES AND SERVICES. Net sales and services include revenues recognized
from the sale of the Company's commercial products and contract laboratory
services. For the quarter ended December 31, 1996, net sales and services
increased 24% to $214,000 from $173,000 reported in the comparable quarter of
1995. The increase was primarily attributable to higher sales of assay kits
and contract laboratory services which utilize the Company's recently
introduced Ames II product line.
GROSS PROFIT. For the quarter ended December 31, 1996, gross profit decreased
to $30,000 (14% of sales) from $48,000 (28% of sales) reported in the
comparable quarter in 1995. The decrease in gross profit was primarily
attributable to higher manufacturing costs, including higher costs associated
with the Company's new facility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
1996 quarter increased 61% to $339,000 from $210,000 reported in the comparable
1995 quarter. In the 1995 quarter, research and development resources were
utilized to perform contract laboratory services for customers, and thus were
charged to cost of sales and services. In 1996, such services were performed
by a newly formed department. The 1995 quarter also reflected spending
reductions which were effected to conserve resources pending completion of
financing. In the 1996 quarter, higher expense levels also reflected increases
in spending to validate the Ames II products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). For the quarter ended
December 31, 1996, SG&A expenses decreased 6% to $654,000 from $696,000
reported for the comparable 1995 quarter. The decrease was primarily
attributable to lower sales, marketing and business development expenditures,
partially offset by higher legal and administrative costs.
OTHER INCOME AND EXPENSES. Xenometrix earned $27,000 of grant income in the
1996 quarter from a National Institutes of Health grant. There were no such
grants in the 1995 quarter. In the 1996 quarter, interest income decreased 31%
to $31,000 from $45,000 reported for the comparable quarter in 1995, primarily
due to lower cash balances.
NET LOSS. For the quarter ended December 31, 1996, the Company's net loss
decreased to $905,000 or $0.31 per share from $928,000 or $0.38 per share in
the prior year. Results in the prior year included a one-time, non-cash charge
of $115,000 or $0.05 per share relating to the early extinguishment of debt.
5
<PAGE> 8
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
NET SALES AND SERVICES. For the six months ended December 31, 1996, net sales
and services increased 12% to $380,000 from $338,000 reported in the comparable
period in 1995. The increase was attributable to increased sales of assay kits
and contract laboratory services utilizing the Ames II product line recently
introduced by the Company.
GROSS PROFIT. For the six months ended December 31, 1996, gross profit
declined to $32,000 from $88,000 reported in the comparable period in 1995.
The decrease in gross profit was primarily attributable to higher manufacturing
costs, including higher costs associated with the Company's new facility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
six months ended December 31, 1996 increased 29% to $589,000 from $457,000
reported in the 1995 period. This increase was attributable to expenses
associated with accelerated efforts to validate the Ames II product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). For the six month period
ended December 31, 1996, SG&A expenses were $1,211,000 up 6% from the
$1,139,000 in the comparable 1995 period. This increase was primarily
attributable to higher legal, accounting, executive and administrative costs
associated with being a public company and the Company's relocation to its new
facility.
NET LOSS. For the six months ended December 31, 1996, the net loss decreased
to $610,000 or $0.21 per share from the net loss of $1,593,000 or $1.07 per
share, reported for the same period in 1995. During the current period, the
Company recognized a one-time gain of $1,028,000 from the early termination of
an operating lease.
6
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company's cash and cash equivalents were $2,102,000
compared to $3,290,000 at June 30, 1996. During the current six month period
$507,000 was used to fund the Company's operations, $732,000 was invested in
capital expenditures and leasehold improvements, $46,000 was invested in
patents, and $97,000 was provided from the issuance of the Company's common
stock upon the exercise of stock options and the conversion of warrants.
In July 1996 Xenometrix entered into an agreement to lease approximately 22,700
square feet in an existing building located at 2425 No. 55th Street in Boulder,
Colorado. The lease is for a six-year period, with two optional renewal periods
of three years each. Xenometrix has moved its entire operations to this new
facility. On December 31, 1996, the new landlord paid $204,000 of tenant
finish costs incurred by Xenometrix in outfitting the facility to meet its
needs.
Also in July 1996, Xenometrix entered into an agreement with another company
whereby such company is paying Xenometrix certain consideration for
relinquishing its former operating lease enabling such company to enter into a
new lease on this space. By the terms of the agreement such company paid
Xenometrix $700,000 upon Xenometrix' termination of its former lease, paid
$18,000 of Xenometrix' actual moving expenses and is paying $360,000 payable in
six quarterly installments beginning October 1996 and continuing through
December 1997. This agreement resulted in a gain on lease termination of
$1,028,000.
Xenometrix has used substantially all of the $700,000 lease termination
incentive and the $204,000 tenant finish allowance for leasehold improvements
and equipment purchases for its new facility. Beginning in September 1996,
Xenometrix' rent expense increased by approximately $16,000 per month.
Xenometrix has incurred an accumulated deficit of $12,101,000 since inception
and expects to continue to incur losses through at least the fiscal year ending
June 1997. Xenometrix estimates that its existing capital resources will be
adequate to maintain its current and planned operations through June 1997.
However, no assurance can be given that changes will not occur that would
consume available capital resources before such time. Xenometrix' future
capital requirements may be substantial and will depend on, and could increase
as a result of, many factors, including the pace of growth, if any, in sales
and services, progress of Xenometrix' research and development programs, the
cost of continuing validation of Xenometrix' molecular information assays and
other prospective technology, the cost involved in filing, prosecuting and
enforcing patent claims, payments received under prospective collaborative
agreements, agreements for and changes in collaborative research relationships,
the cost associated with commercialization of its products, the cost and
availability of third party financing for capital expenditures, and legal and
administrative expense.
7
<PAGE> 10
Based on current plans, Xenometrix will need to raise additional capital in
order to continue its operations following the current fiscal year. Xenometrix
is currently exploring options for raising additional capital. There can be no
assurance that additional financing will be available on satisfactory terms or
at all. If Xenometrix is unable to obtain additional financing, it may be
required to curtail or discontinue operations.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Shareholders Meeting was held on November 20, 1996 in
Westminster, Colorado, for the purpose of re- electing Edson D. de Castro,
Bruce N. Ames, Walter M. Lovenberg, James A. Mitarotonda, John K.A.
Prendergast, Lindsay A. Rosenwald, Randal P. Schumacher, and Ralph Z. Sorenson
to the Board of Directors.
The following votes were cast by the Shareholders with respect to the
election of directors named in the Proxy Statement:
<TABLE>
<CAPTION>
Shares Shares Shares Shares Broker
Voted Voted Voted Voted Non-
Director For Against Withheld Withheld Votes
<S> <C> <C> <C> <C> <C>
Edson D. de Castro 1,930,615 - 114,584 - -
Bruce N. Ames 1,930,615 - 114,584 - -
Walter M. Lovenberg 1,930,315 - 114,884 - -
James A. Mitarotonda 1,927,615 - 117,584 - -
John K.A. Prendergast 1,930,615 - 114,584 - -
Lindsay A. Rosenwald 1,930,315 - 114,884 - -
Randal P. Schumacher 1,930,615 - 114,584 - -
Ralph Z. Sorenson 1,930,315 - 114,884 - -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.27 Employment Agreement, dated December 31, 1996, between
the Company and Stephen J. Sullivan.
27.1 Summary Financial Information Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered
by this report.
8
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf.
XENOMETRIX, INC.
/s/ Ronald L. Hendrick
February 14, 1997 Ronald L. Hendrick
Vice President and Chief Financial Officer
Principal Financial Officer
/s/ Kimberly A. Marks
February 14, 1997 Kimberly A. Marks
Controller
Principal Accounting Officer
9
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.27 Employment Agreement, dated December 31, 1996,
between the Company and Stephen J. Sullivan.
27.1 Summary Financial Data Schedule
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYEE AGREEMENT, dated as of December 31, 1996, by and between
XENOMETRIX, INC., a Delaware corporation (the "Corporation"), and STEPHEN J.
SULLIVAN (the "Employee").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Employee and the Employee
desires to be employed by the Corporation as its Chief Executive Officer, all
pursuant to the terms and conditions hereinafter set forth; and
WHEREAS, the Employee recognizes that the Corporation is at this point in
its development dependent upon his capabilities, that its products during its
first years of operation may be few in number and limited in scope, and that
the imposition of the restrictions set forth below upon the Employee and other
key employees and advisors may be essential to the success of the Corporation
and the livelihood of the Employee's associates in the Corporation;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT; DUTIES.
(a) The Corporation engages and employs the Employee, and the Employee
hereby accepts engagement and employment, as the Chief Executive Officer of the
Corporation. During the Employment Period (as hereinafter defined), the
Employee shall have responsibility for overall direction of the Corporation and
performing such other services and duties, consistent with the office of Chief
Executive Officer, as he may from time to time be reasonably requested to
perform by the Board of Directors of the Corporation (the "Board"). In
performing his duties hereunder, the Employee shall report directly to the
Board of Directors of the Corporation. The Employee will also serve as a
director of the Corporation without additional compensation during the
Employment Period (as defined below).
(b) During the Employment Period, the Employee shall devote his full
time and best efforts to the business and affairs of the Corporation.
Notwithstanding the foregoing, the Employee shall be permitted to serve on the
board of directors of commercial and charitable organizations and to make
investments which are not related to the business and affairs of the
Corporation for which he may receive compensation, so long as such activities
or investments do not interfere with the performance of the
<PAGE> 2
Employee's duties and obligations hereunder. Employee and Board of Directors
will periodically review such outside commitments to insure that such
commitments do not interfere with the Employee's duties with the Corporation.
2. TERM.
The term of employment under this Agreement shall be for a period
commencing not later than February 10, 1997 and continuing through the third
anniversary of such date. The term of employment referred to in this Section
2, together with any extensions thereof shall be referred to herein
collectively as the "Employment Period."
3. COMPENSATION AND BENEFITS.
As compensation for the performance of his duties on behalf of the
Corporation, the Employee shall be compensated as follows:
(a) During the period commencing not later than February 10, 1997 and
ending one year from such date (the "Initial Period"), the Corporation shall
pay or cause to be paid to the Employee a base salary at an annual rate of
$225,000, payable in substantially equal installments in accordance with the
Corporation's usual practice. The Employee's annual salary for any subsequent
periods contemplated hereunder, shall be reviewed by the Board of Directors not
less often than annually and the Board of Directors shall grant increases
thereof based on the performance of the Corporation and the Employee's relative
contribution to that performance. The annual base salary payable in any year
pursuant to this Agreement is hereinafter known as the "Annual Salary." Any
increase in Annual Salary or other compensation shall in no way limit or reduce
any other obligation of the Corporation hereunder. The Corporation shall
withhold all applicable federal, state and local taxes, social security and
workers'' compensation contributions and such other amounts as may be required
by law or agreed upon by the parties with respect to the compensation payable
to the Employee pursuant to this Section 3(a).
(b) In addition to the Annual Salary, Employee shall be entitled to
receive as annual incentive compensation a cash bonus pursuant to a bonus plan,
the terms and payment of which shall be mutually agreed upon by the Board of
Directors and the Employee; provided that, such bonus shall be (i) not less
than $33,750 for the Initial Period and (ii) up to thirty percent (30%) of the
Annual Salary, based on the achievement of performance goals established by the
Board of Directors, for the duration of the Employment Period.
(c) The Corporation shall reimburse the Employee for all reasonable
expenses incurred by the Employee in furtherance of the business and affairs of
the Corporation, including reasonable travel and entertainment, against receipt
by the Corporation of appropriate vouchers or other proof of the Employee's
expenditures and
2.
<PAGE> 3
otherwise in accordance with such policies and procedures as may from time to
time be adopted by the Board.
(d) The Employee shall be entitled to the number of paid vacation days
in each calendar year determined by the Corporation from time to time for its
officers, but not less than two weeks in any calendar year. The Employee shall
also be entitled to all paid holidays given to the Corporation's officers.
(e) The Corporation shall make available to the Employee and his
dependents such retirement, life insurance, health insurance and disability
benefits as the Corporation makes available to its other officers.
(f) The Employee shall be entitled to a stock option grant for the
purchase of one hundred thousand (100,000) shares of the Corporation's Common
Stock, with an exercise price equal to the average of the high and low trade
prices of the Company's Common Stock as reported on the NASDAQ Small Cap Market
System on the date of grant. These options will expire ten (10) years after
the date of grant and become exercisable as follows: (i) 25,000 shares one
year after the grant date, (ii) 50,000 shares two years after the grant date,
(iii) 75,000 shares three years after the grant date, and (iv) in full four
years after the grant date. To the extent permitted by applicable governmental
regulation, such options will be Incentive Stock Options, as defined by the
Internal Revenue Code of 1986, as amended.
(g) Employee will be entitled to be reimbursed for the reasonable
expenses of two (2) round trips per month to Lake Forest, Illinois from
Boulder, Colorado. The Employee will also be entitled to receive up to $800
per month as reimbursement for living expenses for a residence in Boulder,
Colorado while Employee is living in Lake Forest, Illinois.
(h) The Employee will be entitled to be reimbursed for reasonable
relocation expenses if Employee elects to relocate to Boulder, Colorado or in
the vicinity thereof.
4. NON-COMPETITION.
(a) The Employee understands and recognizes that his services to the
Corporation are special and unique and agree that, during the term of this
Agreement and for a period of two (2) years from the date of termination of his
employment hereunder, he shall not in any manner, directly or indirectly, on
behalf of himself or any person, firm, partnership, joint venture, corporation
or other business entity (a "Person"), enter into or engage in any business
competitive with the Corporation's business, proposed business or research
activities, either as an individual for his own account, or as a partner, joint
venture, executive, agent, consultant, sales or marketing person, officer,
director or
3.
<PAGE> 4
shareholder (other than passive investments of not more than five percent (5%)
of the outstanding shares of, or any other equity interest in, any company or
entity listed or traded on a national securities exchange or an interest in a
partnership for which the Employee does not exercise control over investment
decisions of such partnership) of a Person operating or selling or intending to
operate or sell in the areas of business and within the product markets listed
in Schedule I attached hereto, within the geographic area of the Corporation's
business. Schedule I hereto shall be amended from time to time upon agreement
by the parties hereto to take into account additional areas of business and
product markets in which the Corporation may become engaged.
(b) During the term of this Agreement and for two (2) years thereafter,
the Employee shall not, directly or indirectly, without the prior written
consent of the Corporation interfere with the business of the Corporation by
soliciting, attempting to solicit, inducing or otherwise causing any employee
of the Corporation to terminate his or her employment in order to become an
employee, consultant or independent contractor to or for any competitor of the
Corporation.
(c) In the event that the Employee breaches any provisions of this
Section 4 or there is a threatened breach, then, in addition to any other
rights which the Corporation may have, the Corporation shall be entitled,
without the posting of a bond or other security, to injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this Section 4,
the Employee shall not urge as a defense that there is an adequate remedy at
law nor shall the Corporation be prevented from seeking any other remedies
which may be available.
5. TERMINATION.
(a) DEATH OR RETIREMENT. The Employee's employment hereunder shall
terminate upon his death or retirement.
(b) DISABILITY. If, as a result of the Employee's incapacity due to
physical or mental illness ("Disability"), the Employee shall have been absent
from his duties hereunder for ninety (90) consecutive business days, and within
thirty (30) days after written Notice of Termination (as hereinafter defined)
is given shall not have returned to the performance of his duties hereunder on
a full-time basis, the Corporation may terminate the Employee's employment
hereunder.
(c) CAUSE. The Corporation may terminate the Employee's employment
hereunder for "Cause." For purposes of this Agreement, "Cause" shall mean (i)
the willful engaging by the Employee in gross misconduct materially injurious
to the Corporation, (ii) the will full and material violation by the Employee
of the provisions of
4.
<PAGE> 5
Section 4 hereof or of the Proprietary Agreement or (iii) the willful and
material violation by the Employee of any provision of this Agreement, other
than Section 4 hereof or of the Proprietary Agreement, which is not cured by
the Employee within fifteen (15) days after written notice thereof from the
Corporation. For purposes of this paragraph, no act, or failure to act, on the
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Corporation. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a copy of a
resolution, duly adopted by the Board of Directors at a meeting of the Board of
Directors called and held (after five (5) days' notice to the Employee of such
meeting and an opportunity for him, together with his counsel, to be heard
before the Board of Directors at such meeting) for the purposes of finding that
in the good faith opinion of the Board of Directors the Employee was guilty of
conduct set forth above in clauses (i), (ii) or (iii) of this Section 5(c).
(d) CHANGE OF DUTIES. Any assignment of the Employee of duties which
are inconsistent with the Employee's status as Chief Executive Officer of the
Corporation or are a substantial reduction in the nature or the status of the
Employee's responsibilities may be treated by him as a termination pursuant to
Section 5(f).
(e) SALE OF ASSETS. In the event of the sale of all or substantially
all of the Corporation, or a sale of all or substantially all of the assets of
the Corporation, the Employee may treat his employment as having been
terminated pursuant to Section 5(f) herein.
(f) OTHER TERMINATION BY THE CORPORATION. Notwithstanding the
foregoing provisions, the Corporation may terminate the Employee's employment
hereunder at any time, subject to the provisions of Section 6(d) hereof.
(g) Voluntary Termination by the Employee. Notwithstanding the
foregoing provisions, the Employee may terminate his employment hereunder at
any time upon three months' written notice to the Corporation, subject to the
provisions of Section 6(c) hereof.
(h) NOTICE OF TERMINATION. Any termination by the Corporation pursuant
to paragraphs (b), (c) or (d) above or by the Employee pursuant to paragraph
(e) above shall be communicated by a written Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provisions in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.
5.
<PAGE> 6
(i) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Employee's employment is terminated as a result of the Employee's incapacity
due to physical or mental illness, thirty (30) days after Notice of Termination
is duly given (provided that the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (ii) the date of the Employee's death or retirement or, (iii) if the
Employee terminates his employment or his employment is terminated for any
other reason, the date on which a Notice of Termination is duly given.
6. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If the Employee's employment shall be terminated due to death, the
Employee's estate or other legal representative shall be entitled to receive
any accrued but unpaid annual salary installments and any accrued reimbursable
expenses (to the extent provided in Section 3(c) hereof). In addition, the
Employee's estate shall be entitled to receive a payment for (i) any accrued
but unused vacation days and (ii) a pro rata portion of any cash bonus due
pursuant to Section 3(b) hereof. In the event of the Employee's death, rights
and benefits of the Employee under employee benefit and fringe benefit plans
and programs of the Corporation will be determined in accordance with the terms
and provisions of such plans and programs.
(b) During any period that the Employee fails to perform his duties
hereunder due to Disability, the Employee shall continue to receive his full
Annual Salary until the Employee's employment is terminated pursuant to Section
5(b) hereof. After termination due to Disability, the Employee shall be paid
disability benefits in accordance with any long term disability plan of the
Corporation then in effect. In the event of the Employee's disability as
determined above, rights and benefits of the Employee under employee benefit
and fringe benefit plans and programs of the Corporation will be determined in
accordance with the terms and provisions of such plans and programs.
(c) If the Employee's employment shall be terminated for Cause or if
the Employee shall terminate his employment pursuant to Section 5(g) hereof,
the Corporation shall pay the Employee any accrued but unpaid Annual Salary
installments and any accrued reimbursable expenses (to the extent provided in
Section 3(c) hereof) only through the Date of Termination and the Corporation
shall have no further obligations to the Employee under this Agreement. Any
rights and benefits the Employee may have under employee benefit plans and
programs of the Corporation will be determined in accordance with the terms of
such plans and programs.
(d) If the Employee's employment shall be terminated by the Corporation
pursuant to Section 5(d), (e) or (f) hereof then the Corporation shall continue
to pay the Employee his regular salary through the earlier of (i) the date
which is one (1) year after the Date of Termination or (ii) one (1) year after
the expiration of the
6.
<PAGE> 7
Employment Period; provided, however, that the Corporation's obligation to pay
such salary shall terminate at such time as the Employee commences any
alternative full-time employment. Notwithstanding the foregoing, the
Corporation will only be obligated to reimburse the Employee for reimbursable
expenses (to the extent provided in Section 3(c) hereof) accrued through the
Date of Termination. The Employee shall also be entitled to receive a payment
for (i) any accrued but unused vacation days and (ii) a pro rata portion of any
cash bonus due pursuant to Section 3(b) hereof. If the Employee's employment
shall be terminated by the Corporation pursuant to Section 5(d), (e) or (f)
hereof, and if the Employee shall be ineligible to participate in any of the
Corporation's fringe benefit plans or arrangements as a result of his ceasing
to be an employee of the Corporation, then the Corporation shall arrange to
provide the Employee with substantially equivalent benefits as if he remained
employed by the Corporation until the earlier of (i) one (1) year after the
Date of Termination or (ii) one (1) year after the expiration of the Employment
Period at no additional expense to the Employee.
(e) If the Employee's employment is terminated due to retirement, the
Employee shall be entitled to receive accrued but unpaid Annual Salary
installments and any accrued reimbursable expenses (to the extent provided in
Section 3(c) hereof).
7. NOTICES.
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: (i) when delivered personally against
receipt therefor; (ii) one day after being sent by Federal Express or similar
overnight delivery; or (iii) three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to the Employee at
such address as the Employee shall provide to the Corporation or to the
Corporation at the following address:
Xenometrix, Inc.
2425 N. 55th Street
Boulder, Colorado 80301
Attn.: Chief Executive Officer
or to such other address or person as either party may have furnished to the
other in writing in accordance herewith.
8. RENEWAL OF AGREEMENT.
Upon expiration of the term of this Agreement, this Agreement may be
renewed for additional one (1) year periods by the mutual written agreement of
the parties hereto.
7.
<PAGE> 8
9. SEVERABILITY OF PROVISIONS.
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provisions shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law
and the remaining conditions and provisions or portions thereof shall
nevertheless remain in full force and effect and enforceable to the extent they
are valid, legal and enforceable, and no provision shall be deemed dependent
upon any other covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT; MODIFICATION.
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be
valid unless made in writing and signed by the parties hereto. This Agreement
supersedes any previous terms of employment between the Corporation and
Employee and any previous employment contractual terms are terminated as of the
date hereof.
11. BINDING EFFECT.
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns, and
upon the employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.
12. NON-WAIVER.
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and effect.
No waiver of any term or condition of this Agreement on the part of either
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
13. GOVERNING LAW.
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Colorado without regard to principles
of conflict of laws.
8.
<PAGE> 9
14. HEADINGS.
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
XENOMETRIX, INC.
By: /s/ Edson D. deCastro
-----------------------
Its: Chief Executive Officer
-----------------------
STEPHEN J. SULLIVAN
/s/ Stephen J. Sullivan
<PAGE> 11
SCHEDULE I
Development manufacture or sale of in vitro and in vivo toxicity,
mutagenicity or carcinogenicity diagnostic products marketed to the
pharmaceutical, chemical, consumer products and environmental companies that
test new chemical entities or test for environmental contaminants.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,102
<SECURITIES> 0
<RECEIVABLES> 498
<ALLOWANCES> 0
<INVENTORY> 157
<CURRENT-ASSETS> 2,870
<PP&E> 1,501
<DEPRECIATION> 523
<TOTAL-ASSETS> 4,212
<CURRENT-LIABILITIES> 757
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 3,452
<TOTAL-LIABILITY-AND-EQUITY> 4,212
<SALES> 214
<TOTAL-REVENUES> 214
<CGS> 184
<TOTAL-COSTS> 184
<OTHER-EXPENSES> 993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (905)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (905)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> 0
</TABLE>
