<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
-------------
OR
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 1-12968
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LXR BIOTECHNOLOGY INC.
----------------------
(Exact name of issuer as specified in its charter)
Delaware 68-0282856
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Marina Way South, Richmond, California 94804
-------------------------------------------------
(Address of principal executive offices)
(510) 412-9100
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
----- -----
At July 31, 1998, the number of outstanding shares of the Registrant's Common
Stock, par value $0.0001, was 28,501,761.
1
<PAGE> 2
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 (unaudited), and December 31, 1997 3
Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 1998 and
1997 and for the period from April 20, 1992 (date of
incorporation) through June 30, 1998 (unaudited) 4
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended June 30, 1998 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 and for the period from
April 20, 1992 (date of incorporation) through June 30, 1998
(unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
2
<PAGE> 3
PART I. Financial Information
Item I. Financial Statements
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
------ ------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,313,828 $ 11,536,687
Prepaid expenses 217,004 210,695
Other receivables 47,054 40,237
------------ ------------
Total current assets 7,577,886 11,787,619
Equipment and leasehold improvements,
net of accumulated depreciation 1,293,042 1,485,847
Notes receivable from related parties 180,000 205,000
Deposits and other assets 41,540 96,633
------------ ------------
Total assets $ 9,092,468 $ 13,575,099
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 683,604 $ 740,809
Accrued private placement commission -- 467,789
Accrued payroll related expenses 216,705 161,280
Other accrued liabilities 43,269 113,503
Deferred rent obligation 303,987 290,408
Short-term portion of note payable 185,581 172,730
------------ ------------
Total current liabilities 1,433,146 1,946,519
Note payable, excluding short-term portion 305,461 409,707
------------ ------------
Total liabilities 1,738,607 2,356,226
------------ ------------
Commitments and contingencies (notes 2, 5, 6 and 7)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.0001 par value; 60,000,000
shares authorized; 28,593,773 and 27,485,850
shares issued and outstanding at June 30, 1998
and December 31, 1997, respectively 2,829 2,719
Common stock to be issued; 166,722 shares and 252,453
at June 30, 1998 and December 31, 1997, respectively 17 26
Additional paid-in capital 45,936,777 44,017,309
Deficit accumulated during the development stage (38,570,587) (32,786,006)
Treasury stock, at cost; 182,012 shares at
June 30, 1998 and December 31, 1997 (15,175) (15,175)
------------ ------------
Total stockholders' equity 7,353,861 11,218,873
------------ ------------
Total liabilities and stockholders' equity $ 9,092,468 $ 13,575,099
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
April 20, 1992
Three Months Six Months (Date of
Ended Ended Incorporation)
------------------------------- ------------------------------- through
June 30, June 30, June 30, June 30, June 30,
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Grant revenue $ -- $ 17,785 $ -- $ 39,982 $ 171,744
Funded research -- 68,211 -- 68,211 101,665
License fee revenue -- -- -- -- 1,000,000
------------ ------------ ------------ ------------ ------------
Total revenues -- 85,996 -- 108,193 1,273,409
------------ ------------ ------------ ------------ ------------
Expenses:
Research and development 1,702,227 1,673,666 3,755,165 2,979,480 27,818,493
General and administrative 897,524 807,722 2,252,196 1,505,019 12,854,807
------------ ------------ ------------ ------------ ------------
Total expenses 2,599,751 2,481,388 6,007,361 4,484,499 40,673,300
------------ ------------ ------------ ------------ ------------
Loss from operations (2,599,751) (2,395,392) (6,007,361) (4,376,306) (39,399,891)
------------ ------------ ------------ ------------ ------------
Interest income, net:
Interest income 118,877 108,489 266,080 239,119 1,272,258
Interest expense (21,971) -- (42,500) -- (435,749)
------------ ------------ ------------ ------------ ------------
Total interest income, net 96,906 108,489 223,580 239,119 836,509
------------ ------------ ------------ ------------ ------------
Loss before income taxes (2,502,845) (2,286,903) (5,783,781) (4,137,187) (38,563,382)
Income taxes 400 400 800 800 7,200
------------ ------------ ------------ ------------ ------------
Net loss $ (2,503,245) $ (2,287,303) $ (5,784,581) $ (4,137,987) $(38,570,582)
============ ============ ============ ============ ============
Net loss per share $ (0.09) $ (0.10) $ (0.20) $ (0.19)
============ ============ ============ ============
Weighted average shares used
to compute net loss per share 28,533,764 22,006,097 28,259,809 22,002,733
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Stockholders' Equity
For the six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK COMMON STOCK TO BE ISSUED
----------------- -------------------- ------------------
SHARES SHARES
ISSUED AMOUNT ISSUED AMOUNT SHARES AMOUNT
------ ------ ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 -- $ -- 27,485,850 $2,719 252,453 $26
Issuance of common stock in connection with acquisition -- -- 75,000 7 (75,000) (7)
of Cardiosol technology
Private placement of common stock (net of issuance costs) -- -- 891,658 90 (85,731) (9)
Stock options exercised -- -- 62,188 5 -- --
Warrants exercised -- -- 64,077 6 -- --
Stock options granted -- -- -- -- -- --
Issuance of common stock to consultant -- -- 15,000 2 (15,000) (2)
Stock to be issued in connection with settlement of
contract with related party -- -- -- -- 90,000 9
Net loss -- -- -- -- -- --
---- ---- ---------- ------ ------- ---
Balances at June 30, 1998 -- -- 28,593,773 $2,829 166,722 $17
==== ==== ========== ====== ======= ===
<CAPTION>
DEFICIT
ACCUMULATED TREASURY STOCK
ADDITIONAL DURING THE ------------------------- TOTAL STOCK-
PAID-IN DEVELOPMENT SHARES HOLDERS'
CAPITAL STAGE REPURCHASED AMOUNT EQUITY
----------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $44,017,309 $(32,786,006) (182,012) $(15,175) $11,218,873
Issuance of common stock in connection with acquisition
of Cardiosol technology -- -- -- -- --
Private placement of common stock (net of issuance costs) 1,368,169 -- -- -- 1,368,250
Stock options exercised 100,456 -- -- -- 100,461
Warrants exercised 92,213 -- -- -- 92,219
Stock options granted 147,139 -- -- -- 147,139
Issuance of common stock to consultant -- -- -- -- --
Stock to be issued in connection with settlement of
contract with related party 211,491 -- -- -- 211,500
Net loss -- (5,784,581) -- -- (5,784,581)
----------- ------------ -------- -------- -----------
Balances at June 30, 1998 $45,936,777 $(38,570,587) (182,012) $(15,175) $ 7,353,861
=========== ============ ======== ======== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
April 20, 1992
(Date of
Incorporation)
Six Months Ended June 30, through
------------------------------- June 30,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities: $ (5,625,203) $ (4,584,585) $(34,470,693)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of investments -- -- (3,910,150)
Purchase of equipment and leasehold
improvements (67,191) (662,442) (2,471,417)
Proceeds from maturity of investments -- -- 4,000,000
Loans to related parties -- (30,000) (205,000)
------------ ------------ ------------
Net cash used in investing activities (67,191) (692,442) (2,586,567)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 1,368,250 150,000 39,673,242
Receipt from Private Placement proceeds -- 1,278,700 1,278,700
Proceeds from notes payable to related parties -- -- 4,694,500
Proceeds from line of credit -- -- 375,000
Proceeds from note payable -- 304,291 701,249
Repayment of notes payable and line of credit (91,395) -- (1,791,318)
Principal payments for obligations under
capital lease -- -- (776,513)
Payments received for notes receivable from
stockholders -- -- 2,147
Repurchase of common stock -- -- (1,510)
Net proceeds from exercise of warrants 92,219 -- 111,724
Net proceeds from exercise of stock options 100,461 1,563 103,867
------------ ------------ ------------
Net cash provided by financing
activities 1,469,535 1,734,554 44,371,088
------------ ------------ ------------
Net increase (decrease) in cash and cash (4,222,859) (3,542,473) 7,313,828
equivalents
Cash and cash equivalents at beginning of
period 11,536,687 10,217,203 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 7,313,828 $ 6,674,730 $ 7,313,828
============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
financial position as of June 30, 1998 and December 31, 1997, results of
operations for the three and six months ended June 30, 1998 and 1997 and
for the period from April 20, 1992 (date of incorporation) through June
30, 1998, cash flows for the six months ended June 30, 1998 and 1997 and
for the period from April 20, 1992 (date of incorporation), through June
30, 1998, and changes in stockholders' equity for the six months ended
June 30, 1998.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the years ended December 31, 1997 and 1996, which are included as part
of the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1997.
The Company's condensed consolidated financial statements include the
accounts and results of operations of the Company and its wholly owned
subsidiary, Optical Analytic, Inc. (OAI). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company has incurred losses since its inception and expects to incur
substantial additional research and development costs prior to reaching
profitability, including costs related to clinical trials and
manufacturing and marketing expenses. The Company does not have any
committed sources of future equity or debt funding. Based upon its current
strategic plan, the Company believes it has sufficient funds to meet the
Company's operating and capital requirements through the first quarter of
1999. The Company will need to raise substantial additional capital to
fund its operations, including the research and development of its lead
compounds. The Company intends to seek such additional funding through
public or private financing or collaborative or other arrangements with
corporate partners. There is no assurance that such additional funds will
be available for the Company to finance its operations on acceptable
terms, if at all. Should the plans contemplated by management not be
realized, the Company may have to seek alternative sources of capital or
reevaluate its operating plans.
The Company's independent auditors have issued their report on the
Company's 1997 Consolidated Financial Statements which states in part that
the Company has suffered recurring losses which raise substantial doubt
about the ability of the Company to continue as a going concern.
(2) CAPITAL STOCK
In January 1998, the Company issued 75,000 shares of the Company's common
stock in connection with the acquisition of certain patent and other
rights related to Cardiosol(TM), a preservation solution for use during
heart transplantation ("the Cardiosol(TM) Acquisition"). These shares were
valued at the fair market value on the date the agreement was entered
into. In addition, in January 1998, the Company issued 15,000 shares of
the Company's common stock to a consultant as consideration for rendering
certain advisory services. These shares were valued at the fair market
value on the date of the grant. At December 31, 1997, the 75,000 shares
and 15,000 shares were included in common stock to be issued.
In January 1998, the Company raised approximately $368,000 (net of
offering costs), through the sale of an additional 229,123 shares of the
Company's common stock at a price of $1.75 per share and completed the
private placement of stock commenced in December 1997 (the "December 1997
Private Placement"). The Company raised a total of approximately $9.4
million (net of offering costs) in the December 1997 Private Placement. In
connection with the December 1997 Private Placement, the Company became
obligated to issue 92,828 shares of the Company's common stock to the
placement
(Continued)
7
<PAGE> 8
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(2) CAPITAL STOCK (CONTINUED)
agent as sales commission (sales commission shares). The Company issued
91,106 sales commission shares in January 1998, of which 87,453 shares
were included in common stock to be issued at December 31, 1997. As of
June 30, 1998, an additional 1,722 of shares remain to be issued as sales
commissions and are included in common stock to be issued.
In January 1998, the Company also issued warrants to purchase 571,429
shares of the Company's common stock at an exercise price of $2 per share
to the placement agent for the December 1997 Private Placement.
In February 1998, the Company raised $1,000,000 through a private
placement offering and sale of 571,429 shares of the Company's common
stock at a price of $1.75 per share to a related party.
In February 1998, the Company issued an option to purchase 250,000 shares
of the Company's common stock to G. Kirk Raab for consulting services. In
April 1998, Mr. Raab was granted additional options to purchase 500,000
shares of the Company's common stock in connection with an employment
agreement (notes 3 and 6).
In April 1998, the Company committed to issue 90,000 shares of the
Company's common stock to Mark Tomei as partial consideration of the
severance due to him upon termination of his Independent Consulting
Agreement with the Company (note 6). These shares were valued at $211,500
based on the average closing price of the Company's common stock during
the ten days prior to the termination of the Independent Consulting
Agreement. As of June 30, 1998, these 90,000 shares were included in
common stock to be issued and $211,500 was included in general and
administrative expense.
During the six months ended June 30, 1998, the Company issued 64,077
shares of the Company's common stock upon exercise of warrants issued at a
purchase price of $92,219. As of June 30, 1998, warrants to purchase
1,689,958 shares of stock remain outstanding.
In June 1998, the Company's stockholders approved a proposal to amend the
Company's Restated Certificate of Incorporation to increase the number of
shares of common stock authorized for issuance from 45,000,000 to
60,000,000.
(3) STOCK OPTION PLANS
The following summarizes the Stock Option activity:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
1993 Stock Directors Stock Other Stock
Option Plan Option Plan Option Grants
----------- ----------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1997 1,330,701 60,000 150,000
Options granted 1,393,500 20,000 410,000
Options canceled or expired (352,732) -- --
Options exercised (57,188) (5,000) --
---------- ------- -------
Balance as of June 30, 1998 2,314,281 75,000 560,000
========== ======= =======
</TABLE>
In June 1998, the Company's stockholders approved an amendment to the 1993
Stock Option Plan to increase the shares of common stock authorized for
issuance from 1,849,850 shares to 3,849,850.
In February 1998, the Company appointed G. Kirk Raab to the Board of
Directors of the Company and also entered into a three year consulting
agreement (Consulting Agreement) with him. Under the Consulting Agreement,
Mr. Raab received options to purchase 250,000 shares of the Company's
common stock at an exercise price equal to the fair market value of the
common stock on the date of
(Continued)
8
<PAGE> 9
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(3) STOCK OPTION PLANS (CONTINUED)
the grant. Options to purchase 50,000 shares of the Company's common stock
vested immediately upon signing the Consulting Agreement and the balance
vest at a rate of 1/36th per month. The Board of Directors may accelerate
the vesting of 100,000 of the stock options upon achievement of certain
milestones. In April 1998, G. Kirk Raab was appointed as the Chairman of
the Board of Directors and Interim Chief Executive Officer of the Company.
Pursuant to this change in position, the Company terminated Mr. Raab's
Consulting Agreement with the Company and entered into a separate
Employment Agreement with him. Under the terms of the Employment
Agreement, Mr. Raab was granted additional options to purchase 500,000
shares of the Company's common stock and the options to purchase 250,000
shares of the Company's common stock previously granted to him under the
Consulting Agreement continue to vest under the new Employment Agreement
in accordance with the terms established previously under the Consulting
Agreement.
As of April 20, 1998 options to purchase 61,110 shares of the Company's
common stock had vested under the Consulting Agreement. The fair value of
these 61,110 vested options, using the Black Scholes pricing model, with
an expected dividend yield of 0.0%, expected life of ten years, expected
volatility of 95.8% and risk-free interest rate of 5.73%, was estimated at
approximately $138,000 and was included in general and administrative
expense for the period ending June 30, 1998. In accordance with APB
Opinion No. 25 (APB 25), the intrinsic value of the remaining 188,890
unvested options that continue to vest under the Employment Agreement is
estimated at $153,000 representing the difference between the exercise
price and the fair market value of the Company's common stock on the date
of the Employment Agreement. As of June 30, 1998, the Company recognized
expense of approximately $9,000 related to these unvested shares. Based on
the three year vesting schedule of these options, the Company expects to
recognize total expense of approximately $174,000, $54,000, $54,000 and
$9,000 in the years ending December 31, 1998, 1999, 2000 and 2001,
respectively related to these options.
The options to purchase 500,000 shares of the Company's common stock
granted to Mr. Raab were granted under the 1993 Stock Option Plan at an
exercise price of $3.3125 per share representing the fair market value on
the date the options were granted.
In March 1998, the Board of Directors approved a resolution to grant each
director who is not an employee or substantial stockholder an option to
acquire 40,000 shares of the Company's common stock upon joining the board
and to grant every director an additional option to acquire 10,000 shares
at the end of each full year of service on the board. In March 1998, in
connection with this resolution, the Board of Directors granted options to
purchase 160,000 shares of the Company's common stock at an exercise price
of $2.875 per share, representing the fair market value of the shares on
the date the options were granted.
(4) RESTRUCTURING CHARGES
In June 1998, the Company announced and began implementing a strategic
plan to manage cash to provide for operations through approximately the
first quarter of 1999. Under the plan, the Company reallocated its
resources to the research and development of its lead compounds, suspended
most pure research at the Company and eliminated certain positions. In
connection with the implementation of the strategic plan, the Company
incurred restructuring charges of approximately $145,000, primarily
related to employee lay offs of which $73,000 was paid out during the
quarter which ended June 30, 1998. These charges are included in general
and administrative expenses in the accompanying statement of operations.
(Continued)
9
<PAGE> 10
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(5) LICENSE AND COLLABORATIVE RESEARCH AGREEMENTS:
Innovex, Inc.
In June 1998, the Company terminated its clinical service agreement with
Innovex, Inc. The Company estimates that the remaining commitment under
the contract is approximately $56,000 which is included in accrued
expenses at June 30, 1998.
(6) RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 1998, in connection with the employment
agreement with the Company's President and Chief Operating Officer (COO),
the Company forgave $25,000 of the outstanding loan in the original
principal amount of $175,000. As of June 30, 1998, the principal balance
of $150,000 remained outstanding under the loan.
In February 1998, the Company terminated its Independent Consulting
Agreement with Mark J. Tomei and included the severance of approximately
$290,000 due to him upon termination of the agreement in general and
administrative expenses. In April 1998, the Company agreed with Mr. Tomei,
to settle the severance through payment of cash of $78,500 and by issuance
of 90,000 shares of the Company's common stock (Note 2). As of June 30,
1998, the Company has paid cash severance of approximately $34,600 and the
remaining $43,900 is included in accrued payroll related expenses. The
shares of committed common stock are included in common stock to be
issued.
In April 1998, G. Kirk Raab was appointed as the Company's Chairman and
Interim Chief Executive Officer. Pursuant to this change in position, the
Company terminated the Consulting Agreement with Mr. Raab and entered into
an Employment Agreement with him. Under the Employment Agreement Mr. Raab
will receive a base compensation of $180,000, options to purchase 500,000
shares of the Company's common stock and the options to purchase 250,000
shares of the Company's Common Stock previously granted to him under the
Consulting Agreement will continue to vest under the Employment Agreement
(Note 3).
In June 1998, in connection with the implementation of the strategic plan,
the Company laid off the Company's Vice President of Molecular Biology and
entered into a twelve month consulting agreement with him to complete
existing projects and other projects to be mutually agreed upon with the
Company. The agreement provides for $72,000 in cash compensation to be
paid over the next six months and that options to purchase 91,992 shares
of the Company's common stock granted to him as an employee of the Company
will fully vest over the next twelve months. The fair value of the 91,992
unvested options, using the Black Scholes pricing model, with an expected
dividend yield of 0.0%, expected life of ten years, expected volatility of
103.3% and risk-free interest rate of 5.73%, is estimated at approximately
$170,000. Based on the twelve month term of the consulting agreement and
the vesting schedule of the options, the Company expects to recognize
consulting expenses of approximately $86,000 and $84,000 in the years
ending December 31, 1998 and 1999 respectively.
(7) LITIGATION
The Company and five of its past directors and officers are named as
defendants in Katz vs. Blech, ("Katz") and Degulis vs. LXR Biotechnology
Inc., et al. ("Degulis"). One of the five, Mark Germain, a former director
and former chairman of the Company, is named as a defendant in the above
two cases and also in In re Blech Securities Litigation, ("In re Blech").
In addition, L. Scott Minick, a former director and former officer of the
Company; James D. Coombes, a former director and former officer, and Mark
J. Tomei, a former director and former officer, are defendants in Katz and
Degulis; and Christopher Henney, a former director, is a defendant in
Katz. The Company was previously named as a defendant in In re Blech but
was dismissed by the Court on June 6, 1996.
(Continued)
10
<PAGE> 11
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(7) LITIGATION (CONTINUED)
All three cases are brought on behalf of classes of persons purchasing
common shares of the Company prior to September 21, 1994, and assert
claims arising out of the Company's Initial Public Offering and subsequent
trading of those shares. The suits allege violations of Sections 11 and 12
of the Securities Act of 1933 and Sections 10(b) and 20 of the Securities
Exchange Act of 1934, including misrepresentations and omissions in
connection with the Initial Public Offering and manipulation of share
prices. The suits also allege common law claims for fraud and deceit and
seek punitive damages. The complaints allege that defendants, including
the Company and the defendant directors and officers, failed to disclose
in securities filings connected with the Initial Public Offering, the
leveraged financial condition of the Company's underwriter, D. Blech &
Co., and its principal, David Blech. The suits further allege that
defendants failed to disclose that D. Blech & Co. would act as principle
market maker for the Company's shares following the Initial Public
Offering, and that D. Blech & Co.'s extended financial commitments would
affect its ability to maintain a market for the Company's shares. The
suits also allege that defendants assisted or acquiesced in a
post-offering scheme to manipulate the market for the Company's shares and
artificially inflate share prices. Document discovery is largely completed
and depositions are underway. Under the current scheduling order, no
deadline for completion of discovery is presently set and no trial date is
set.
None of the complaints in Katz, Degulis or In re Blech state a claim for a
specific amount of monetary damages. The complaint in In re Blech seeks
damages and interest as provided by law, costs and expenses of litigation,
attorneys fees, expert fees, other costs and disbursements, and such other
relief as may be just and proper. The complaint in Katz seeks rescission,
an award of compensatory damages, fees, costs and expenses including
expert fees, and such other relief as the court deems proper. The
complaint in Degulis seeks compensatory damages including rescissionary
damages, interest, punitive damages, counsel fees and other costs of suit,
a constructive trust over the proceeds of the offering, and such other and
further relief as the Court deems just and proper. The Company has agreed
to indemnify and/or advance defense costs to each of the former officers
and directors who are named as defendants in the litigation. A demand by
the independent underwriter for contractual indemnity has been denied.
Such denial is subject to contest by the underwriter. The Company and the
underwriter have entered into a tolling agreement whereby the Company
agreed that the running of any statute of limitations applicable to claims
of the underwriter against the Company would be tolled until the earlier
of June 30, 1999 or the termination of the tolling agreement.
The Company maintains officers and directors liability insurance under
policies providing aggregate coverage totaling $3 million, which covers
(i) the Company for amounts spent indemnifying directors and officers or
(ii) directors and officers directly if the Company fails to indemnify
them. The policies do not provide coverage to the Company itself with
respect to its own defense costs and liability. The Company and its
insurance carriers are currently involved in disputes relating to the
deductibles and exclusions under the policies. Whether or to what extent
insurance covers any settlement or judgment in the above litigation will
depend on the outcome of the disputes. The Company's primary level of
directors and officers liability insurance carrier has tentatively agreed
to provide coverage. On November 4, 1997, the Company's first level excess
insurer denied coverage based on the related party transactions exclusion
in its policy. The Company reserves the right to contest this denial of
coverage. The Company's second level excess insurers has reserved its
rights to deny coverage based on the same issue. As a result, the Company
cannot predict, at this time, the amount of insurance reimbursement that
will be obtained. During the six months ended June 30, 1998, and 1997 the
Company incurred expenses of approximately $16,200 and $35,800,
respectively relating to this litigation. To date, the Company has
received no reimbursements for these expenses. The failure of the Company
to obtain reimbursement for the amounts spent defending the indemnified
defendants, along with the Company's own costs and any judgment or
settlement payable by the Company could have a material adverse effect on
the Company's cash flows, results of operations and financial condition.
(Continued)
11
<PAGE> 12
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(7) LITIGATION (CONTINUED)
The Company denies any wrongdoing and is defending the above cases
vigorously. While it is possible that the litigation may have a material
adverse effect on the Company, uncertainty as to whether any material
judgment or settlement will result, and the possibility that some portion
of any settlement or judgment may be covered by insurance, make it
impossible to predict at this time whether the litigation will have a
material adverse financial impact on the Company.
(8) SUBSEQUENT EVENT
Agreement with the President and Chief Executive Officer
In August 1998, the Company entered into an employment agreement with its
new President and Chief Executive Officer (CEO) which provides for an
annual salary of $250,000. Under the agreement, the CEO was granted
options to purchase 1,000,000 shares of the Company's common stock under
the provisions of the Company's 1993 Stock Option Plan. This agreement
also provides for reimbursement of certain relocation costs and a loan of
$150,000, which may be forgiven over a three year period, subject to
certain conditions. The loan bears interest at the amount necessary to
avoid imputation of interest by the Internal Revenue Service. Any
remaining balance of the loan will become due and payable if the CEO
resigns or is terminated for cause. If the Company terminates the CEO
without cause, he will be entitled to receive severance equal to one
year's salary.
Perkin Elmer License Agreement:
In July 1998, Perkin-Elmer Corporation notified the Company of the
termination of its license agreement with the Company and OAI related to
the development of the Company's proprietary Scanning Laser Digital
Imaging microscope technology. As a result of this termination the Company
will not be receiving any future license payments from Perkin-Elmer
relating to SLDI.
Relationship with L. David Tomei
The Company and L. David Tomei are discussing Dr. Tomei's continued
employment with the Company. The Company has proposed that Dr. Tomei
become a consultant to the Company.
(Continued)
12
<PAGE> 13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Except for historical information, the following Management's Discussion
and Analysis of Financial Condition and Results of Operations contains
forward looking statements regarding, among other things, product
development plans, product efficacy, safety and effectiveness, corporate
partnering, capital and other expenditures, timing of FDA filings, FDA
approval thereof and clinical trial progress, sufficiency of cash
resources and the ability of the Company to raise additional funding.
These forward looking statements concern matters that involve risks and
uncertainties that could cause actual results to differ materially from
those projected in the forward looking statements. Words such as
"believe," "expects," "likely," "may" and "plans" are intended to identify
forward looking statements, although not all forward looking statements
contain these words. The following discussion and analysis should be read
in conjunction with the Company's financial statements and accompanying
notes included herein, the Company's Annual Report on Form 10-KSB/A for
the year ended December 31, 1997, the Company's Form 10Q for the quarter
ended March 31, 1998, the Company's registration statement on Form S-3,
declared effective by the Securities and Exchange Commission on May 6,
1998, and "Factors Affecting Future Results", below.
PLAN OF OPERATIONS
In 1998, the Company implemented a strategic plan to reallocate resources
to the clinical development and commercialization of Elirex(TM), and
CP-Cardiosol(TM) from other research programs including SARP's, Maspin,
Bak, and Fas(DELTA)TM and Urine DNA Analysis. Because of the limited
commercial market for heart transplant solutions, the clinical development
of HK- Cardiosol(TM) was suspended pending development in corporate
partnering discussions. The plan also entailed a significant reduction in
personnel.
In March 1998, the Company filed an IND with the FDA to begin clinical
studies of CP-Cardiosol(TM) for use in cardioplegia. In April of 1998, the
Company received a request from the FDA for additional preclinical data.
The Company is currently in the process of responding to the FDA's
request. See "Factors Affecting Future Results", below. The current
strategy for further development of CP-Cardiosol(TM) is expected to
require obtaining a corporate partner. However, there can be no assurance
that the Company will be able to secure a corporate partner or that the
clinical trials of CP-Cardiosol(TM) will commence.
The Company is currently conducting preclinical studies of Elirex(TM) in
animals for ischemic heart attack and stroke applications. The Company has
received final results of animal studies performed at Cleveland Clinic
which showed that the Elirex(TM) treated group had a 53% reduction in
extent of myocardial infarction when compared to controls. Experimental
evidence obtained in these studies also showed significant reduction of
inflammation and protection of heart function. Based on the results to
date of the preclinical studies for Elirex(TM), the Company is currently
evaluating its development strategy for Elirex(TM) and considering a plan
to seek a collaborative partnership after completing a Phase II clinical
trial. There can be no assurance that the Company will be able to secure a
collaborative partnership or commence clinical trials of Elirex(TM).
In July 1998, Perkin-Elmer Corporation terminated the license agreement
with the Company related to the development of the Company's proprietary
SLDI technology. Based on the Company's current plans, further development
of SLDI technology will depend on the Company's ability to establish
another collaborative arrangement.
The Company has completed the preclinical studies to assess the efficacy
and toxicity of Maspin under its contract with Boehringer Mannheim. The
Company and Boehringer Mannheim are currently reviewing the results of
these studies to determine whether to proceed with further research and
development of Maspin. However, Boehringer has no obligation to proceed
with the project.
(Continued)
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PLAN OF OPERATIONS (CONTINUED)
To further expand any of the basic research programs, including SARP,
Fas(DELTA)TM, and Urine DNA Analysis, the Company will pursue
business development opportunities such as licensing and collaborative
research agreements. Although the Company plans to seek additional
corporate partners for its research and development activities, its first
priority is establishing corporate partnerships for Elirex(TM) and
CP-Cardiosol(TM). There can be no assurance that the Company will be able
to secure any new corporate partner relationships.
The Company has assessed its financial and operational systems and is
currently modifying it non-compliant laboratory instruments to be year
2000 compliant. The Company continousely evaluates its vendors for Year
2000 compliance. The Company expects the project to be substantially
complete by mid-1999 and the cost of the project is not expected to have a
material impact on the Company's financial condition and results of
operations.
In June 1998, in connection with the implementation of the strategic plan,
the Company reduced its workforce and recorded a restructuring charge of
$145,000, consisting primarily of costs related to employee lay offs. As
of June 30, 1998, the Company employed 31 employees including 29 full-time
employees. Over the next 12 months, based on the existing resources and
current management plan, the Company does not expect a significant
increase in its number of employees. In August 1998, the Company hired
Paul Hastings as its President and Chief Executive Officer.
The Company made capital additions during the six months ended June 30,
1998 of approximately $124,000. The Company has prioritized the use of its
existing resources and, under the current management plan, does not expect
to incur a significant amount of capital expenditures over the next twelve
months. However, if the Company obtains additional financing, the Company
expects capital expenditures to increase.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND
1997
The Company did not generate any revenues during the six months ended June
30, 1998. The Company's revenues for the three and six months ended June
30, 1997 consisted of grant revenues from the National Institute of
Health. The Company does not have any commercially available products, and
does not anticipate generating any significant product revenues for at
least the next several years.
The Company incurred research and development expenses of approximately
$1,702,000 and $3,755,000 for the three and six months ended June 30,
1998, respectively, compared to approximately $1,674,000 and $2,979,000
for the three and six months ended June 30, 1997, respectively. These
expenses included salaries and related benefits, laboratory supplies,
depreciation of equipment, facility costs, consulting fees, research
collaboration expenses, toxicology study costs, clinical trial costs,
contract manufacturing expenses, legal fees for patents and other research
related expenditures. The increase in research and development costs is
primarily due to increased salary and benefits costs resulting from an
increase in the number of development personnel and restructuring costs,
increased consulting and recruiting fees, toxicology, contract
manufacturing costs for Cardiosol(TM) and depreciation.
The Company expects research and development expenses to decrease in the
second half of 1998, as a result of the suspension of most pure research
and the reduction in personnel. The Company will be focusing on the
clinical development and commercialization of Elirex(TM) and
CP-Cardiosol(TM).
Although the Company plans for research and development spending to
continue to increase substantially over the next several years, as the
Company undertakes clinical studies for Elirex(TM), such increases remain
contingent upon the Company's ability to obtain additional and adequate
amounts of capital resources. Unless and until such funds are received,
research and development activities will be limited by the Company's
available resources. See "Liquidity and Capital Resources" below.
(Continued)
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND
1997 (CONTINUED)
The Company's general and administrative expenses were approximately
$898,000 and $2,252,000, for the three and six months ended June 30, 1998,
respectively, compared to approximately $808,000 and $1,505,000 for the
three and six months ended June 30, 1997, respectively. The increase from
1997 to 1998 is primarily due to the accrued severance obligation
resulting from the termination of Mark Tomei's independent consulting
agreement, accrued expenses relating to the Consulting Agreement with Mr.
Raab, increased legal costs and restructuring charges. The increase in
general and administrative expenses is offset by decreased investor
relations costs. Certain costs are expected to increase due to costs
associated with recruitment, relocation and the compensation package
provided to the Company's new President and CEO. These expected increases
are expected to be offset by a decrease in other general and
administrative salaries as a result of the reduction of personnel in June
1998, and the termination of the consulting agreement with Mark Tomei.
Legal expenses may also increase as a result of the securities lawsuits
currently pending against the Company and certain of its past and present
officers and directors.
Interest income was approximately $119,000 and $266,000, for the three and
six months ended June 30, 1998, respectively, compared to approximately
$108,000 and $239,000 for the three and six months ended June 30, 1997,
respectively. The slight increase in interest income is primarily due to
interest earned on a larger investment balance. Interest expense was
approximately $22,000 and $43,000 for the three and six months ended June
30, 1998, respectively, compared to no interest expense for three and six
months ended June 30, 1997. The increase in interest expense is due to the
equipment loan of $700,000 obtained during 1997. The Company expects
interest expense in 1998 to increase due to borrowings under the Company's
Equipment Loan.
The Company incurred net losses of approximately $2,503,000 and
$5,785,000, for the three and six months ended June 30, 1998,
respectively, compared to approximately $2,287,000 and $4,138,000 for the
three and six months ended June 30, 1997, respectively. As of June 30,
1998, the Company had an accumulated deficit of approximately $38,571,000.
The Company expects to continue to incur substantial losses over the next
several years as it continues to undertake preclinical and clinical
studies.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998, the Company raised
approximately $1.4 million in net proceeds through the sale of 800,552
shares of the Company's Common Stock at a price of $1.75 per share in
private placements. In addition, the Company received approximately
$193,000 in proceeds through the exercise of stock options and warrants.
As of June 30, 1998, the Company's remaining sources of capital consist of
approximately $7.3 million in cash and cash equivalents and interest from
investments.
The Company and five of its past or present directors and officers are
defendants in class action lawsuits. (See "Note 7 of the Condensed
Consolidated Financial Statements".) The Company maintains officers and
directors liability insurance under policies providing aggregate coverage
totaling $3 million, which covers (i) the Company for amounts spent
indemnifying directors and officers or (ii) directors and officers
directly if the Company fails to indemnify them. The policies do not
provide coverage to the Company itself with respect to its own defense
costs and liability. The Company and its insurance carriers are currently
involved in disputes relating to the deductibles and exclusions under the
policies. Whether or to what extent insurance covers any settlement or
judgment in the above litigation will depend on the outcome of the
disputes. The Company's primary level of directors and officers liability
insurance carrier has tentatively agreed to provide coverage. On November
4, 1997, the Company's first level excess insurer denied coverage based on
the related party transactions exclusion in its policy. The Company
reserves the right to contest the denial of coverage. The Company's second
level excess insurers has reserved its rights to deny coverage based on
the same issue. As a result, the Company cannot predict, at this time, the
amount of any insurance reimbursement that will be obtained.
(Continued)
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the six months ended June 30, 1998, and 1997, the Company incurred
expenses of approximately $16,200 and $35,800, respectively relating to
this litigation. To date the Company has received no reimbursement for
these expenses. The failure of the Company to obtain reimbursement for the
amounts spent defending the indemnified defendants, along with the
Company's own defense costs and any judgment or settlement payable by the
Company, could have a material adverse effect on the Company's, cash
flows, results of operations and financial condition.
The Company does not have any committed sources of future equity or debt
funding. The Company has a new strategic plan and as a result it is
expected that the Company's resources will provide for operations through
the first quarter of 1999. However, there can be no assurance that
unanticipated events affecting the Company's resources will not result in
the Company depleting its capital resources before that time. Accordingly,
the Company will need to raise substantial additional capital to fund its
operations. Although the Company is currently seeking to obtain the
additional funding necessary to fund the Company's operations beyond the
first quarter of 1999, there can be no assurance that additional funding
will be available on favorable terms, if at all. Failure to raise
additional funds in the relatively near future will have a material
adverse effect on the Company.
The Company's independent auditors have issued their report on the
Company's 1997 Consolidated Financial Statements which states in part that
the Company has suffered recurring losses which raise substantial doubt
about the ability of the Company to continue as a going concern.
FACTORS AFFECTING FUTURE RESULTS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to continue the
research and development programs and preclinical and clinical testing of
its potential pharmaceutical products and to conduct marketing of any
pharmaceutical products that may be developed. The Company's capital
requirements depend on numerous factors, including the progress of its
research and development programs, the progress of preclinical and
clinical testing, the time and costs involved in obtaining regulatory
approvals, the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights, the cost of
obtaining technological rights, competing technological and market
developments, changes in the Company's existing research relationships,
the ability of the Company to establish collaborative arrangements, the
development of commercialization activities and arrangements, the purchase
of additional capital equipment and legal expenses incurred in connection
with defending certain lawsuits that have been brought against the Company
and certain of its past and present directors and officers. Based upon its
current plans, the Company believes it has sufficient funds to meet the
Company's operating expenses and capital requirements through the first
quarter of 1999. However, there can be no assurance that changes in the
Company's research and development plan or other events affecting the
Company's operating expenses will not result in the expenditure of funds
before the estimated time.
The Company will need to raise substantial additional capital to fund its
operations, including the research and development of its lead compounds.
The Company intends to seek such additional funding through public or
private financings or collaborative or other arrangements with corporate
partners. There can be no assurance, however, that additional financing
will be available from any of these sources, or if available, will be
available on favorable or acceptable terms. If the Company raises
additional funds through public or private financings, any such financing
may result in substantial dilution to the Company's stockholders. If the
Company obtains funds through entering into arrangements with
collaborative partners or others, it may be required to relinquish rights
to certain of its technologies or potential products that the Company
would not otherwise relinquish. If adequate funds are not available, the
Company may be required to further delay, scale back or eliminate the
development of its lead compounds. Failure to obtain such needed funds
could have a material adverse effect on the Company's operations.
(Continued)
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING (CONTINUED)
The Company's independent auditors have issued their report on the
Company's 1997 Consolidated Financial Statements which states in part that
the Company has suffered recurring losses which raise substantial doubt
about the ability of the Company to continue as a going concern.
EARLY STAGE OF DEVELOPMENT; REGULATORY AND TECHNOLOGICAL UNCERTAINTIES
The Company is at an early stage of development. All of the Company's
potential pharmaceutical and medical device products are currently in
research and development, and no revenues from the sale of such potential
products have been generated to date. Substantially all of the Company's
resources have been and for the foreseeable future will continue to be
dedicated to the Company's research programs and the development of
potential pharmaceutical and medical device products emanating therefrom.
There can be no assurance that the Company will be able to develop a
commercial product from these projects. All of the Company's drug and
medical device candidates except for HK-Cardiosol(TM), which is ready to
enter the clinical testing phase, are in preclinical development. While
the Company believes that the results attained to date in such preclinical
studies generally support further research and development of these
potential products, results attained in preclinical studies are not
necessarily indicative of results that will be obtained in human clinical
testing. Additionally, the Company has not previously met its forecasted
schedule for introducing products into clinical trials. Because of limited
market for heart transplant solutions, and the resource constraints, the
clinical development of HK-Cardiosol(TM) is suspended pending developments
in corporate partnering discussions and further development of
CP-Cardiosol(TM) is expected to require obtaining a corporate partner. In
addition, the Company previously reassessed the market for Lexirin in the
treatment of AIDS patients and decided not to proceed with further U.S.
clinical trials of Lexirin in AIDS patients at that time. Similar
assessments of market opportunities and priorities for allocating
available resources may again affect the Company's decision to undertake
or continue preclinical and/or clinical trials or otherwise continue to
pursue research and development programs for its potential products.
The potential pharmaceutical products currently under development by the
Company will require significant additional research and development and
preclinical testing and will require extensive clinical testing prior to
submission of any regulatory application for commercial use. The Company's
potential pharmaceutical products are subject to the risks of failure
inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that the Company's
novel approach to diagnosis and therapy will not be successful; that any
or all of the Company's potential pharmaceutical products will be found to
be unsafe, ineffective or toxic, or otherwise fail to receive necessary
regulatory clearances; that the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from
marketing such products; or that third parties will market superior or
equivalent products. As a result, there can be no assurance that any of
the Company's research and development activities will be successfully
completed; that clinical trials will be allowed by the FDA or other
regulatory authorities; that clinical trials will commence as planned;
that required United States or foreign regulatory approvals will be
obtained on a timely basis, if at all; or that any products for which
approval is obtained will result in any commercially viable products.
RELIANCE ON NOVEL SCIENTIFIC APPROACH
The Company's product development efforts are based on the novel
scientific approach of therapeutic apoptosis modulation (a process of
regulating genetically programmed cell death), which has not been widely
studied. There is, therefore, substantial risk that this approach will not
prove to be successful. Moreover, the Company is applying this novel
approach to discover new treatments for a variety of diseases that are
also the subject of research and development efforts by other companies,
many of which are much larger and better funded. Biotechnology in general
and apoptosis modulation in particular are relatively new fields in which
there is a potential for extensive technological innovation in relatively
short periods of time. The Company's competitors may succeed in developing
technologies or products that are more effective than those of the
Company. Rapid technological change or developments by others may result
in the Company's technology or proposed products becoming obsolete or
noncompetitive.
(Continued)
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its inception
in 1992. At June 30, 1998, the Company had an accumulated deficit of
approximately $38.6 million. The Company will be required to conduct
significant research, development, testing and regulatory compliance
activities that, together with projected general and administrative
expenses, are expected to result in significant operating losses for at
least the next several years. Revenues, if any, that the Company may
receive in the next few years will be limited to payments under the
Company's collaboration agreement with Boehringer, provided Boehringer
continues with the relationship, payments under research or product
development relationships that the Company may hereafter establish,
payments under license agreements that the Company may hereafter
establish, sales of products that the Company may acquire in the future
and interest payments. There can be no assurance, however, that the
Company will (i) be successful in its collaboration with Boehringer or
that such relationship will be expanded beyond its current limited scope,
(ii) be able to establish any additional collaborative relationships,
(iii) enter into any license agreements, or (iv) acquire any products in
the future. The Company's ability to achieve profitability depends upon
its ability to successfully complete either alone or with others,
development of its potential products, conduct clinical trials, obtain
required regulatory approvals, and manufacture and market its products or
to enter into license agreements on acceptable terms. In the event that
the Company does enter into any future license agreements, such license
agreements may adversely affect the Company's profit margins on its
potential products. The Company may never achieve significant revenue or
profitable operations.
DEPENDENCE ON QUALIFIED PERSONNEL AND CONSULTANTS
The Company is highly dependent on the principal members of its management
and scientific staff, including; G. Kirk Raab, Chairman of the Board of
Directors, Donald H. Picker, Ph.D., its Chief Operating Officer; and
Samuil R. Umansky, Ph.D., Vice President, Molecular Pharmacology. The
Company's loss of services of any of these persons or other members of its
staff could have a material adverse effect on the Company's operations.
The Company has recently entered into an employment agreement with Paul
Hastings, its President and Chief Executive Officer, and has an employment
agreement with Dr. Picker and Mr. Raab; however, any of them may terminate
his relationship with the Company at any time. The laws of the State of
California generally prohibit post-employment noncompetition covenants
and, therefore, none of the Company's employees is subject to any
restriction on competition in the future. Accordingly, there can be no
assurance that any of the Company's employees will remain with the Company
or that, in the future, these employees will not organize competitive
businesses or accept employment with companies competitive with the
Company. The Company and L. David Tomei, are currently discussing Dr.
Tomei's continued employment with the Company. The Company has proposed
that Dr. Tomei become a consultant to the Company. The Company is
dependent on collaborators at research institutions and its advisors and
consultants. Recruiting and retaining qualified personnel, collaborators,
advisors and consultants will be critical to the Company's success. There
is intense competition for such qualified personnel in the area of the
Company's activities, and there can be no assurance that the Company will
be able to continue to attract and retain such personnel necessary for the
development of the Company's business. The Company's planned activities
will require additional expertise in areas such as preclinical testing,
clinical trial management, regulatory affairs, manufacturing and
marketing. Such activities will require the addition of new personnel,
including management, and the development of additional expertise by
existing management personnel. The inability to acquire such services or
to develop such expertise could have a material adverse effect on the
Company's operations.
DEPENDENCE ON OTHERS; COLLABORATIONS
The Company's strategy for the research, development and commercialization
of its potential pharmaceutical products will require the Company to enter
into various arrangements with corporate and academic collaborators,
licensors, licensees and others, in addition to those already established,
and may therefore be dependent upon the subsequent success of outside
parties in performing their responsibilities. For example, the Company has
entered into a collaboration with Boehringer to jointly evaluate the
development of Maspin, a naturally occurring protein, for the treatment of
breast and
(Continued)
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEPENDENCE ON OTHERS; COLLABORATIONS (CONTINUED)
prostate cancer. There can be no assurance that such collaboration will be
successful or that the Company will enter into any further agreements with
Boehringer. In addition, the Company had provided Perkin-Elmer with
significant exclusive rights to its SLDI product, and was dependent on
Perkin-Elmer to satisfactorily commercialize such product so that the
Company would receive remuneration for its efforts in this area. However,
Perkin-Elmer has terminated the license agreement with the Company and
further development of SLDI technology to satisfactorily commercialize
such product will depend on the Company's ability to establish another
collaborative arrangement. There can also be no assurance that the Company
will be able to establish additional collaborative arrangements or license
agreements that the Company deems necessary or acceptable to develop and
commercialize its potential products, or that any of its collaborative
arrangements or license agreements will be successful. Certain of the
collaborative arrangements that the Company may enter into in the future
may place responsibility for preclinical testing and human clinical trials
and for preparing and submitting applications for regulatory approval for
potential products on the collaborative partner. Should a collaborative
partner fail to develop or commercialize successfully any potential
product to which it has rights, the Company's business may be adversely
affected. In addition, there can be no assurance that collaborators will
not be pursuing alternative technologies or developing products either on
their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases or
disorders targeted by such partners' collaborative programs with the
Company.
RISKS ASSOCIATED WITH LICENSES
The Company has licenses to technologies developed by various research
institutes and universities. Pursuant to the terms of those agreements,
the Company is obligated to make royalty payments on the sales, if any, of
licensed products and, in some instances, the Company is responsible for
the cost of filing and prosecuting patent applications. The Company's
license agreements also require that the Company exercise diligence in
bringing potential products to market. In some cases, the Company's
license agreements require that the Company make payments that may be
substantial, upon completion of certain milestones occurring in the
clinical trials and regulatory approval of licensed products. In the event
that the Company is unable to meet the diligence requirements, to make the
required milestone payments or ongoing annual license payments or
otherwise to meet its obligations under the license agreements, the
Company could lose its rights to the technologies.
LIMITED MARKETING, SALES, CLINICAL TESTING OR REGULATORY COMPLIANCE
ACTIVITIES
In view of the early stage of the Company and its research and development
programs, the Company has restricted hiring to scientists and a small
administrative staff and has made only a small investment in marketing,
product sales, clinical testing or regulatory compliance resources. If the
Company successfully develops any commercially marketable pharmaceutical
products, it may seek to enter joint venture, sublicense or other
marketing arrangements with parties that have an established marketing
capability or it may chose to pursue the commercialization of such
products on its own. There can be no assurance, however, that the Company
will be able to enter into such marketing arrangements on acceptable
terms, if at all. Further, the Company will need to hire additional
personnel skilled in the clinical testing and regulatory compliance
process and in marketing or product sales if it develops pharmaceutical
products with commercial potential that it determines to commercialize
itself. There can be no assurance, however, that it will be able to
acquire such resources or personnel.
MANUFACTURING LIMITATIONS
The Company currently does not have the capability to manufacture products
under the current Good Manufacturing Practices ("GMP") requirements
prescribed by the FDA. The Company intends either to independently
manufacture, package, label and distribute its potential pharmaceutical or
other products or to establish arrangements with contract manufacturers or
contract packagers to supply sufficient quantities of such products to
conduct clinical trials as well as for the manufacture, packaging,
labeling and distribution of finished pharmaceutical products if its
potential products are approved for commercialization. If the Company is
unable to manufacture or contract for a sufficient supply of its potential
pharmaceutical products on acceptable terms, the Company's preclinical and
human clinical
(Continued)
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANUFACTURING LIMITATIONS (CONTINUED)
testing schedule may be delayed, resulting in the delay of submission of
products for regulatory approval and initiation of new development
programs, which may have a material adverse effect on the Company. If the
Company chooses to contract for manufacturing services and encounters
delays or difficulties in establishing relationships with manufacturers to
produce, package, label and distribute its finished pharmaceutical or
other products, market introduction and subsequent sales of such products
would be adversely affected. Moreover, contract manufacturers that the
Company may use must adhere to GMP required by the FDA. The Company has
entered into a manufacturing agreement with Chesapeake Biological
Laboratories, Inc. ("CBL") to manufacture HK-Cardiosol(TM) and
CP-Cardiosol(TM) for clinical trials. There can be no assurance that CBL
will be able to manufacture sufficient quantities of HK-Cardiosol(TM) and
CP-Cardiosol(TM) for the Company's clinical trials if the Company is able
to arrange for the clinical trial in the future. California manufacturing
companies are also required to obtain a license from the State of
California to distribute any investigational products which license will
be issued only if the Company is in compliance with the GMP regulations,
as determined by an inspection conducted by the State of California. If
the Company is unable to manufacture its potential products independently
or obtain or retain third party manufacturing on commercially acceptable
terms, it may not be able to commercialize its products as planned. The
Company's potential dependence upon third parties for the manufacture of
its products may adversely affect the Company's profit margins and its
ability to develop and deliver such products on a timely and competitive
basis. The Company has no experience in the manufacture of pharmaceutical
products or medical devices in clinical quantities or for commercial
purposes. Should the Company determine to manufacture products itself, the
Company would be subject to the regulatory requirements described above,
would be subject to similar risks regarding delays or difficulties
encountered in manufacturing any such products and would require
substantial additional capital. In addition, there can be no assurance
that the Company will be able to manufacture any products successfully and
in a cost effective manner.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information in Note 7 to the Condensed Consolidated Financial
Statements included in Part I of this document is incorporated herein
by reference.
ITEM 2. CHANGES IN SECURITIES
On May 6, 1998, the Company's registration statement on Form S-3
covering the resale of 5,820,392 shares of common stock issued or
issuable in connection with the December 1997 Private Placement and
581,176 other shares of common stock issued or issuable by the Company
was declared effective by the Securities and Exchange Commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 11, 1998, the Company held its Annual Meeting of Stockholders
with the following results:
1) The following individuals were elected as directors of the Company:
<TABLE>
<CAPTION>
Shares Voting Shares
in Favor withheld
------------- --------
<S> <C> <C>
G. Kirk Raab 22,664,354 533,203
L. David Tomei, Ph.D. 22,582,332 615,225
Eugene Eidenberg 22,666,354 531,203
Kenneth McGuire 22,668,365 529,192
Neil Flanzraich 22,666,354 531,203
William Hambrecht 22,668,365 529,192
Brian Brookover 22,668,365 529,192
John C. Kane 22,663,965 533,592
</TABLE>
2) The proposal to amend the Company's 1993 Stock Option Plan to
increase the number of shares of common stock reserved for issuance
by 2,000,000 was approved with 14,507,453 shares cast in favor of
the amendment, 1,023,031 shares voting against and 58,650 shares
withheld and/or abstaining.
3) The proposal to amend the Company's Restated Certificate of
Incorporation to increase the number of the Company's authorized
shares of common stock from 45 million shares to 60 million shares
was approved with 22,408,760 shares cast in favor of the amendment,
706,647 shares voting against, and 82,150 shares withheld and/or
abstaining.
4) The selection of KPMG Peat Marwick LLP as the Company's certified
public accountants was ratified with 23,133,455 shares cast in
favor of the selection, 25,725 shares voting against, and 38,377
shares withheld and/or abstaining.
ITEM 5. OTHER INFORMATION
In April 1998, Donald H. Picker, Ph.D. and Mark J. Tomei resigned from
the Company's Board of Directors. Donald Picker continues as Chief
Operating Officer.
On April 22, 1998, the Company announced that L. David Tomei, Ph.D., a
co-founder of the Company, had stepped down as its Chairman and Chief
Executive Officer and that G. Kirk Raab was appointed as the Company's
Chairman of the Board of Directors and Interim Chief Executive Officer.
In August 1998, the Company announced the appointment of Paul Hastings
to the position of the President and Chief Executive Officer and to the
Board of Directors of the Company.
21
<PAGE> 22
ITEM 5. OTHER INFORMATION (CONTINUED)
The Company and L. David Tomei are discussing Dr. Tomei's continued
employment with the Company. The Company has proposed that Dr. Tomei
become a consultant to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are attached hereto:
<TABLE>
<CAPTION>
Exhibit
Number Title
<S> <C>
10.01 1993 Stock Option Plan, as amended to date.
10.48 Service Agreement dated April 20, 1998 between the Company
and G. Kirk Raab.
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------------
(b) Reports on Form 8-K.
On April 8, 1998, the Company filed a report on Form 8-K reporting that
the FDA required additional preclinical data on CP-Cardiosol(TM), and
that Mark Tomei and Donald Picker, Ph.D., resigned from the Company's
Board of Directors.
On April 20, 1998, the Company filed a report on Form 8-K, reporting
that L. David Tomei, Ph.D., a co-founder of the Company, had stepped
down as the Chairman and Chief Executive Officer and that Mr. G. Kirk
Raab was appointed as the Company's Chairman of the Board of Directors
and Interim Chief Executive Officer.
On June 22, 1998, the Company filed a report on Form 8-K, reporting the
implementation of a strategic plan to accelerate the transition of the
Company from a research firm to a drug development firm by focusing on
the clinical development of and commercialization of Elirex(TM), a
patented small molecule compound for the inhibition of heart muscle
damage following a heart attack and CP-Cardiosol(TM), a patented
solution for protecting hearts during cardiopulmonary bypass surgery.
22
<PAGE> 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LXR BIOTECHNOLOGY INC.
Date: August 14, 1998 By: /s/ Shelli J. Geer
--------------------------------------------
Shelli J. Geer
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title
<S> <C>
10.01 1993 Stock Option Plan, as amended to date.
10.48 Service Agreement dated April 20, 1998 between the Company and
G. Kirk Raab.
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------------
24
<PAGE> 1
EXHIBIT 10.01
LXR BIOTECHNOLOGY INC.
1993 STOCK OPTION PLAN
As adopted May 20, 1993 and
amended through June 11, 1998
1. PURPOSE. This 1993 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of LXR Biotechnology Inc., a Delaware
corporation, (the "Company"). Capitalized terms not previously defined herein
are defined in Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Revenue
Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time
of grant. The shares of stock that may be purchased upon exercise of Options
granted under this Plan (the "Shares") are shares of the common stock, $0.0001
par value per share, of the Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 3,849,850 Shares, subject to
adjustment as provided in this Plan. "Named Executive Officers" (as that term is
defined in Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act
of 1934, as amended, (the "Exchange Act") shall each be eligible to receive up
to an aggregate maximum of 2,000,000 Shares over the term of the Plan. If any
Option expires or is terminated without being exercised in whole or in part, the
unexercised or released Shares from such Option shall be available for future
grant and purchase under this Plan. At all times during the term of this Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers, directors,
consultants, independent contractors and advisers (provided such consultants,
contractors and advisers render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction) of the Company or
any Parent, Subsidiary or Affiliate of the Company. ISOs may be granted only to
employees (including officers and directors who are also employees) of the
Company or a Parent or Subsidiary of the Company. The Committee (as defined in
Section 14) in its sole discretion shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option under this Plan.
The Company may also, from time to time, substitute or assume outstanding
options granted by another company, whether in connection with an acquisition of
such other company or otherwise, by either (a) granting an Option under this
Plan in replacement of the option assumed by the Company, or (b) treating the
assumed option as if it had been granted under this Plan if the terms of such
assumed option could be applied to an Option granted under this Plan. Such
substitution or assumption shall be permissible if the holder of the substituted
or assumed option would have been eligible to be granted an Option hereunder if
the other company had applied the rules of this Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
each Option is to be an ISO or an NQSO, the number of Shares subject to the
Option, the exercise price of the Option, the period during which the Option may
be exercised, and all other terms and conditions of the Option, subject to the
following:
5.1 Form of Option Grant. Each Option granted under this Plan shall
be evidenced by a written Stock Option Grant (the "Grant") in such form (which
need not be the same for each Optionee) as the Committee
<PAGE> 2
shall from time to time approve, which Grant shall comply with and be subject
to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall be the date
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to Optionee with a copy of this Plan within a reasonable time after
the granting of the Option.
5.3 Exercise Price. The exercise price of an Option shall be not less
than 100% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of any Option granted to a person owning more than
l0% of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option is
granted.
5.4 Exercise Period. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Grant; provided,
however, that no Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted, and provided further that no ISO
granted to a Ten Percent Stockholder shall be exercisable after the expiration
of five (5) years from the date the Option is granted.
5.5 Limitations on ISOs. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by an Optionee during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such year shall be
ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the Revenue Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
5.6 Options Non-Transferable. Options granted under this Plan, and
any interest therein, shall not be transferable or assignable by Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Revenue Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder, and shall
be exercisable during the lifetime of Optionee only by Optionee; provided,
however, that NQSOs held by officers or directors of the Company or other
persons whose transactions in the Company's common stock are subject to Section
16(b) of the Exchange Act may be transferred to such family members, trusts and
charitable institutions as the Committee, in its sole discretion, shall approve
at the time of the grant of such Option.
5.7 Assumed Options. In the event the Company assumes an option
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424 of the Revenue Code). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
6.1 Notice. Options may be exercised only by delivery to the Company
of a written stock option exercise agreement (the "Exercise Agreement") in a
form approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any,
2
<PAGE> 3
as may be required by the Company to comply with applicable securities laws,
together with payment in full of the exercise price for the number of Shares
being purchased.
6.2 Payment. Payment for the Shares may be made in cash (by check)
or, where approved by the Committee in its sole discretion and where permitted
by law: (a) by cancellation of indebtedness of the Company to the Optionee; (b)
by surrender of shares of common stock of the Company having a Fair Market Value
equal to the applicable exercise price of the Options that have been owned by
Optionee for more than six (6) months (and which have been paid for within the
meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such
Shares were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares), or were obtained by Optionee
in the open public market; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD Dealer") whereby Optionee irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for the exercise price
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; (e) provided that a public
market for the Company's stock exists, through a "margin" commitment from
Optionee and an NASD Dealer whereby Optionee irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (f) by any
combination of the foregoing.
6.3 Withholding Taxes. The Optionee shall pay to the Company promptly
upon exercise of an option (the "Tax Date"), all applicable federal, state,
local and foreign withholding taxes that the Committee, in its discretion,
determines to result upon exercise of an Option or from transfer or other
disposition of shares of Common Stock acquired upon exercise of an Option or
otherwise related to an Option or Shares of Common Stock acquired in connection
with an Option. Where approved by the Committee in its sole discretion, Optionee
may provide for payment of withholding taxes upon exercise of the Option by
requesting that the Company retain Shares with a Fair Market Value equal to the
minimum amount of taxes required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined. If the Optionee has not made
other adequate provision for payment of all applicable withholding taxes
resulting from the exercise of an Option or the lapse of any restrictions on
shares acquired through the exercise of an option, the Company may withhold the
requisite amounts from any other amounts due from the Company to the Optionee.
6.4 Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, unless otherwise expressly permitted by the Committee for
NQSOs, exercise of an Option shall always be subject to the following:
6.4.1 If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, Optionee may exercise such Optionee's Options to the extent (and
only to the extent) that they would have been exercisable upon the date of
termination, within three months after the date of termination (or such shorter
time period as may be specified in the Grant).
6.4.2 If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of
Optionee or disability of Optionee, Optionee's Options may be exercised to the
extent (and only to the extent) that they would have been exercisable by
Optionee on the date of termination, by Optionee (or Optionee's legal
representative) within twelve (12) months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Options; provided that in the event of
termination due to disability, other than as defined in Section 22(e)(3) of the
Internal Revenue Code, as amended, any ISO which remains exercisable after three
months after the date of termination shall be deemed a NQSO.
6.4.3 The Committee shall have discretion to determine whether
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated.
3
<PAGE> 4
6.4.4 In the case of an Optionee who is a director, independent
consultant or adviser, the Committee will have the discretion to determine
whether Optionee is "employed by the Company or any Parent, Subsidiary or
Affiliate of the Company" pursuant to the foregoing Sections.
6.4.5 The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
6.4.6 An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or national market system, and the Company shall have no
liability for any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Grant a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party. Further, at the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the Grant
a right to repurchase a portion of or all Shares held by an Optionee upon
Optionee's termination of employment or service with the Company or a Parent,
Subsidiary or Affiliate of the Company, for any reason within a specified time
as determined by the Committee at the time of grant at Optionee's original
purchase price, the Fair Market Value of such Shares or a price determined by a
formula or other provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall have
the power to modify, extend or renew outstanding Options and to authorize the
grant of new Options in substitution therefor, provided that any such action may
not, without the written consent of Optionee, impair any rights under any Option
previously granted. Any outstanding ISO that is modified, extended, renewed or
otherwise altered shall be treated in accordance with Section 424(h) of the
Revenue Code. The Committee shall have the power to reduce the exercise price of
outstanding Options without the consent of Optionees by a written notice to the
Optionees affected; provided, however, that the exercise price per Share may not
be reduced below the minimum exercise price that would be permitted under
Section 5.3 of this Plan for Options granted on the date the action is taken to
reduce the exercise price; and provided that the exercise price per Share may
not be reduced below the par value per Share.
9. STOCK OWNERSHIP; FINANCIAL STATEMENTS. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. However, the Company shall provide to each
Optionee, during the period for which Optionee has one or more Options
outstanding, copies of the financial statements of the Company, consisting of,
at a minimum, a balance sheet and an income statement, at least annually. The
Company shall not be required to provide such information to key employees whose
duties in connection with the Company assume their access to equivalent
information.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of outstanding
shares of common stock of the Company is changed by a stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar
4
<PAGE> 5
transaction, to the shareholders of the Company, the number of Shares available
under this Plan and the number of Shares subject to outstanding Options and the
exercise price per Share of such Options shall be proportionately adjusted,
subject to any required action by the Board of Directors (the "Board") or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded up to the nearest whole number, as determined by the
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
12. CORPORATE TRANSACTIONS.
12.1 Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company in which there is to be neither a
surviving entity nor a successor in interest to the assets and liabilities of
the Company, the Administrator shall notify each Optionee of such proposed
action at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action.
12.2 Change in Control. In the event of a change in control of the
Company, options granted pursuant to the Plan shall automatically be accelerated
in full so as to become completely vested and fully exercisable. In such event,
the Administrator shall notify each Optionee at least 30 days prior to such
proposed action that the options shall be fully exercisable for a period of 30
days from the date of such notice, and all remaining, unexercised options shall
terminate upon the expiration of such 30-day period. In the event of a change in
control of the Company, any right of repurchase pursuant to Section 7 shall
expire.
For the purposes of the foregoing, a "change in control" shall mean the
occurrence of any of the following:
(a) any "person" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules promulgated thereunder) becomes
the "beneficial owner" (as that term is defined in Rule 13d-3 of the Securities
Exchange Act of 1934) of securities representing a majority of the voting power
of the then outstanding securities of the Company; or
(b) any sale of assets involving all or substantially all of
the assets of the Company, or a merger or consolidation of the Company in which
the holders of securities of the Company immediately prior to such event hold in
the aggregate less than a majority of the securities of the Company immediately
after the event; or
(c) any other event which the Board of Directors determines,
in its discretion, would materially alter the structure of the Company or its
ownership.
12.3 Certain Corporate Transactions Not Involving a Change in Control.
In the event of any merger or consolidation not involving a change in control
but in which the Company is not the surviving corporation, or any sale of all or
substantially all of the assets of the Company not involving a change in
control, any or all outstanding Options may be assumed or replaced by the
successor corporation. which assumption shall be binding on all Optionees. In
the alternative, the successor corporation may substitute an equivalent option
or provide substantially similar consideration to Optionees as was provided to
shareholders (after taking into account the existing provisions of Optionee's
options, such as the exercise price and the vesting schedule). The successor
corporation may also issue, in place of outstanding shares of the Company held
by Optionees as a result of the exercise of an Option that is subject to
repurchase, substantially similar shares or other property subject to similar
repurchase restrictions no less favorable to Optionee.
13. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall become effective on
the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted
5
<PAGE> 6
by the Board. Upon the effective date of the Plan, the Board may grant Options
pursuant to this Plan; provided that, in the event that Stockholder approval is
not obtained within the time period provided herein, all Options granted
hereunder shall terminate.
14. ADMINISTRATION. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). If two or more members of
the Board are Nonemployee Directors, the Committee will be comprised of at least
two (2) members of the Board, all of whom are Nonemployee Directors. As used in
this Plan, references to the "Committee" shall mean either the committee
appointed by the Board to administer this Plan or the Board if no committee has
been established. The interpretation by the Committee of any of the provisions
of this Plan or any Option granted under this Plan shall be final and binding
upon the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may delegate to officers of the
Company the authority to grant Options under this Plan to Optionees who are not
officers or directors of the Company or other persons whose transactions in the
Company's common stock are subject to Section 16(b) of the Exchange Act.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time to
time within a period of ten (10) years after the date on which this Plan is
adopted by the Board.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the shareholders of the Company, amend this Plan in any manner
that requires such stockholder approval pursuant to the Revenue Code or the
regulations promulgated thereunder as such provisions apply to ISO plans.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.2 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
17.3 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the Nasdaq
National Market, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Committee shall deem
appropriate).
6
<PAGE> 7
17.5 "Nonemployee Director" shall mean any person who is a member of
the Board but is not an employee of the Company or an Affiliate of the Company
and has not been an employee of the Company or any Affiliate of the Company at
any time during the preceding twelve months. Service as a Director does not
itself constitute employment for purposes of this definition.
####
7
<PAGE> 8
PLAN HISTORY.
The Stock Option Plan was adopted by the Board in May 1993 and approved
by the Company's stockholders in August 1993. In April 1995, the Board amended
the Stock Option Plan to increase the number of shares of the Company's Common
Stock authorized for issuance under the Stock Option Plan from 449,850 to
749,850, and the Company's stockholders approved the amendment at the 1995
Annual Meeting of Stockholders in June 1995.
In February 1996, the Board amended the Stock Option Plan to increase
the number of shares of the Company's Common Stock authorized for issuance
thereunder from 749,850 to 1,049,850, and the Company's stockholders approved
that amendment at the 1996 Annual Meeting of Stockholders in June 1996.
In February 1997, the Board amended the Stock Option Plan to increase
the number of shares of the Company's Common Stock reserved for issuance
thereunder from 1,049,850 to 1,849,850 and the Company's stockholders approved
that amendment at the June 1997 Annual Meeting of Stockholders.
In March and April of 1998, the Board amended the Stock Option Plan to
increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from 1,849,850 shares to 3,849,850 shares, and the Company's
stockholders approved that amendment at the June 1998 Annual Meeting of
Stockholders. The stockholders also approved a change to the section concerning
the effect on the options of a change in control of Company. While the old
provision made assumption of the options discretionary to the surviving entity,
the new provision mandates that the options vest immediately upon the occurrence
of a change in control.
8
<PAGE> 1
EXHIBIT 10.48
CONFIDENTIAL
LXR BIOTECHNOLOGY INC.
AMENDED AND RESTATED
SERVICES AGREEMENT
This Amended and Restated Services Agreement (the "Agreement") is made
and entered into as of the 20th day of April, 1998 (the "Effective Date") by and
between LXR Biotechnology Inc., a Delaware corporation having its principal
place of business at 1401 Marina Way South, Richmond, California 94804 (the
"Company") and G. Kirk Raab, residing at 999 Mountain Home Road, Woodside,
California 94062 ("Raab"). This Agreements supersedes and replaces the
Consulting Agreement between the Company and Raab dated February 13, 1998 (the
"Prior Agreement").
RECITALS
WHEREAS, on February 13, 1998, the Company and Raab entered into the
Prior Agreement, which provided, among other things, for Raab to provide
consulting services to the Company in return for the grant of an option to
purchase 250,000 shares of Common Stock;
WHEREAS, on April 20, 1998, the Board of Directors of the Company
appointed Raab as the Chairman of the Board of Directors and as acting Chief
Executive Officer;
WHEREAS, pursuant to this Agreement, the Company and Raab wish to
terminate the Prior Agreement and Raab's services as a consultant under the
Prior Agreement and to set forth the terms and conditions upon which Raab will
provide services to the Company as the Chairman of the Board and as acting Chief
Executive Officer.
AGREEMENT
In consideration of the mutual covenants set forth below, the parties
hereby agree as follows:
1. Engagement of Services.
1.1 Services as Consultant.
(a) Termination of Services as Consultant. As of the Effective
Date, Raab's services as a consultant are terminated. The parties agree that any
notice provision in the Prior Agreement have been satisfied.
(b) Option Granted Under Prior Agreement. As full and complete
compensation for Raab's services and for the discharge of all Raab's obligations
under the Prior Agreement the option granted to Raab under the Prior Agreement
shall remain outstanding as
1
<PAGE> 2
CONFIDENTIAL
provided herein, notwithstanding the termination of Raab's services as a
consultant. The terms of such option are restated as follows (such restatement
shall not be considered a regrant of options for any purposes):
(i) As of February 13, 1998, and subject to the
approval of its Board of Directors, the Company hereby grants to Raab an option
(the "Consulting Option") to purchase 250,000 shares of the Common Stock of the
Company. This Consulting Option is subject to the limitations contained in the
1993 Stock Option Plan, as amended, attached hereto as Exhibit A, and hereby
incorporated by reference. The Consulting Option is intended not to qualify as
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. Unless sooner terminated as set forth in the
1993 Stock Option Plan, the Consulting Option terminates on the earlier of (i)
February 13, 2008, (ii) if Raab voluntarily resigns as Chairman of the Board and
terminates any employment relationship with the Company, the date of such
resignation and termination of employment, or (iii) if the Company terminates
Raab as Chairman of the Board and terminates any employment relationship, the
date six months after such termination (the latter of such dates is referred to
herein as the "Consulting Option Termination Date"). The Consulting Option shall
expire and all vesting shall cease on the Consulting Option Termination Date;
provided that Raab shall have the right to exercise the Consulting Option to the
extent vested within 90 days of the Consulting Option Termination Date. The
Consulting Option shall become exercisable on the following vesting schedule:
1/5th of the shares of stock issuable upon exercise of the Consulting Option
shall vest upon the close of business on February 13, 1998, and, thereafter, the
remaining stock shall vest at a rate of 1/36th per month for every month after
February 13, 1998. Vesting will occur on the 13th day of each month. The
exercise price of this option shall be equal to the fair market value of the
Company's Common Stock on February 13, 1998, which is deemed to be the closing
price on the American Stock Exchange as of the last trading day prior to
February 13, 1998.
(ii) If prior to vesting of all the shares issuable upon
exercise of the Consulting Option the Company enters into a cooperative
development agreement or other strategic alliance with a significant
pharmaceutical or biotechnology company relating to one or more of the Company's
products, and the Board of Directors determines that Raab has contributed in a
significant way either to introducing the companies or to successfully
negotiating and entering into such agreement, then 100,000 shares of the
Consulting Option shall vest immediately upon such determination by the Board of
Directors. In no event shall the Consulting Option entitle Raab to purchase more
than 250,000 shares of Common Stock.
1.2 Services as the Chairman of the Board.
(a) Election. Effective as of the date of this Agreement, the
Board of Directors has elected Raab as Chairman of the Board of Directors. As
Chairman of the Board, Raab shall serve at the pleasure of the Board of
Directors and may be removed as Chairman of the Board at the will of the Board
of Directors and in accordance with the Bylaws of the Company.
(b) Compensation for Serving as Chairman of the Board of
Directors. As compensation for services as the Chairman of the Board of
Directors, the Company shall pay
2
<PAGE> 3
CONFIDENTIAL
Raab the following:
(i) The Company shall pay Raab a base salary of
$180,000 per year, payable on the Company's normal payroll schedule. If the
Company terminates Raab as Chairman of the Board, Raab shall be paid severance
equal to six months pay over the six months following such termination and such
payments shall be in accordance with the Company's normal payroll schedule.
(ii) As of April 20, 1998, the Company hereby grants to
Raab an option (the "COB Option") to purchase 500,000 shares of the Common Stock
of the Company. The grant of this option is contingent and shall only be
effective upon approval by the stockholders of the Company of a proposal to be
acted upon at the June 11, 1998 Meeting of Stockholders to approve an increase
in the maximum number of shares that may be granted to executive officers under
the 1993 Stock Option Plan to 2,000,000. This COB Option is granted under and is
subject to the limitations contained in the 1993 Stock Option Plan, as amended,
attached hereto as Exhibit A, and hereby incorporated by reference. The COB
Option is intended not to qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Unless
sooner terminated pursuant to the 1993 Stock Option Plan, the COB Option
terminates upon the earlier of (i) April 20, 2008, (ii) if Raab voluntarily
resigns as Chairman of the Board, on the date on which Raab ceases to be the
Chairman of the Board of Directors, or (iii) if the Company terminates Raab's
position as Chairman of the Board, the date six months after such termination
(the latter of such dates is referred to herein as the "Termination Date"). The
COB Option shall expire and all vesting shall cease on the Termination Date;
provided, however, that Raab shall have the right to exercise the COB Option to
the extent vested within 90 days of the Termination Date. The COB Option shall
become exercisable on the following vesting schedule: 1/4th of the shares of
stock shall vest upon the close of business on April 20, 1999, and, thereafter,
the remaining stock shall vest at a rate of 1/36th per month for every month
after April 20, 1999. Vesting will occur on the 20th day of each month. The
exercise price of this option shall be equal to the fair market value of the
Company's Common Stock on April 20, 1998, which is deemed to be the closing
price on the American Stock Exchange as of the last trading day prior to April
20, 1998.
1.3 Services as Acting Chief Executive Officer. Effective as of the
date of this Agreement, Raab is hereby appointed as the acting Chief Executive
Officer of the Company. Raab shall not be entitled to any compensation for
Services as the acting Chief Executive Officer beyond that paid to Raab as
Chairman of the Board. Such services shall include, among other things,
assisting the Company in locating a Chief Executive Officer. Raab shall serve as
the Chief Executive Officer at the will of the Board of Directors and may be
removed at any time with or without cause at the sole discretion of the Board of
Directors and in accordance with the Bylaws of the Company.
2. Proprietary Information Agreement.
3
<PAGE> 4
CONFIDENTIAL
Raab is bound by a Proprietary Information Agreement entered into with
the Company applicable to Raab's activities under this Agreement, and attached
hereto as Exhibit B.
3. Expense Reimbursement.
The Company will reimburse Raab for travel and other out-of-pocket costs
reasonably incurred by him in the course of performing services pursuant to this
Agreement; provided however, that the Company shall not be obligated hereunder
unless Raab provides the Company with appropriate receipts, including business
purpose, or other relevant documentation for all such costs as part of any
submission by Raab for reimbursement.
4. Affiliation with Genentech.
It is understood that Raab is presently affiliated with several other
companies in the field of biotechnology. Raab represents and warrants that the
performance of his duties under this Agreement will not conflict with Raab's
responsibilities and obligations to such other companies and as such shall not
create any rights of such other companies in any contributions hereunder. Raab
has informed the Company that certain restrictions imposed on him by an existing
agreement between Raab and Genentech (the "Genentech Agreement") affect his
ability to be involved with a company developing products which are in direct
competition with certain of Genentech's products or to actively recruit
employees from Genentech. The Company agrees to not actively recruit or hire any
employees from Genentech prior to the earlier of July 31, 2000 or the
termination of this Agreement, unless Raab is first able to obtain release from
Genentech to take such action. The Company further agrees to permit Raab to
immediately terminate this Agreement to dissociate himself from the Company
where Raab's affiliation with the Company could give rise to a conflict with
Raab's obligations arising from any of Raab's previous affiliations. Raab agrees
to indemnify, defend and hold harmless the Company and its officers, directors,
employees and agents from and against losses, damages, costs, claims, suits and
expenses, including the cost and expense of handling and defending such claims
and suits, that are attributable to the breach by Raab of his representations
and warranties set forth in this paragraph, provided that such losses, damages,
costs, claims, suits and expenses are not directly attributable to: a) the
Company actively recruiting or hiring any employees from Genentech prior to the
earlier of July 31, 2000 or the termination of this Agreement; or b) an action
the Company takes despite adequate advanced written notice from Raab that such
action will give rise to a conflict with Raab's obligations under the Genentech
Agreement.
5. Term and Termination.
5.1 Term. This Agreement commences on April 20, 1998 with respect to
services by Raab pursuant to Section 1.2 and 1.3, and, unless terminated earlier
as provided herein, shall continue until February 13, 2008.
5.2 Termination. During the term of this Agreement, either party can
terminate this Agreement without cause upon the herein specified period of
notice. The Company may terminate the services of Raab under Section 1.2 and 1.3
at the will of the Company and without notice; provided that the Consultant
Option and COB Option shall continue to vest after such
4
<PAGE> 5
CONFIDENTIAL
date in accordance with Sections 1.2 and 1.3. Raab may terminate his services
under Sections 1.2 or 1.3 upon 30 days prior written notice to the Company.
6. Assignment.
The rights and liabilities of the parties hereto shall bind and inure to
the benefit of their respective successors, heirs, executors and administrators,
as the case may be; provided that, as the Company has specifically contracted
for Raab's services, Raab may not assign or delegate Raab's obligations under
this Agreement either in whole or in part without prior written consent of the
Company.
7. Governing Law; Severability.
This agreement shall be governed by the laws of the State of California.
If any provision of this Agreement is found by a court of competent jurisdiction
to be invalid or unenforceable, such provision shall be severed and the
remainder of this Agreement shall continue in full force and effect.
8. Complete Understanding; Modification
This agreement, and all other documents mentioned herein, constitute the
final, exclusive and complete understanding and agreement of the parties hereto
and supersede all prior understandings and agreements. This Agreement amends,
restates, supersedes and replaces the Prior Agreement. Any waiver, modification
or amendment of any provision of this Agreement shall be effective only if in
writing and signed by the parties hereto.
9. Notices.
Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or sent by certified or registered mail,
three days after the date of mailing.
10. Arbitration.
Any controversy or claim arising out of, or relating to, this Agreement
or the breach of this Agreement will be settled by arbitration by, and in
accordance with the applicable National Rules for the Resolution of Employment
Disputes of the American Arbitration Association and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction.
The arbitrator(s) will have the right to assess, against a party or among the
parties, as the arbitrator(s) deem reasonable, (a) administrative fees of the
American Arbitration Association, (b) compensation, if any, to the arbitrator(s)
and (c) attorneys' fees incurred by a party. Arbitration hearings will be held
in San Francisco, Contra Costa or Alameda County, California. The provisions of
California Code of Civil Procedure Section 1283.05 will apply to any
arbitration.
5
<PAGE> 6
CONFIDENTIAL
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
LXR Biotechnology Inc. SERVICE PROVIDER:
1401 Marina Way South
Richmond, CA 94804
By:_______________________________ __________________________________
Shelli J. Geer G. Kirk Raab
Chief Financial Officer
6
<PAGE> 7
LXR Biotechnology Inc.
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my continued consulting and employment relationship
with LXR Biotechnology Inc. (the "Company"), and the compensation now and
hereafter paid to me, I hereby agree as follows:
1. Recognition of Company's Rights; Nondisclosure. At all times
during the term of my consulting and employment relationship and thereafter, I
will hold in strictest confidence and will not disclose, use, lecture upon or
publish any of the Company's Proprietary Information (defined below), except as
such disclosure, use or publication may be required in connection with my work
for the Company, or unless an officer of the Company expressly authorizes such
in writing. I hereby assign to the Company any rights I may have or acquire in
such Proprietary Information and recognize that all Proprietary Information
shall be the sole property of the Company and its assigns and the Company and
its assigns shall be the sole owner of all patent rights, copyrights, mask work
rights, trade secret rights and all other rights throughout the world
(collectively, "Proprietary Rights") in connection therewith.
The term "Proprietary Information" shall mean trade secrets,
confidential knowledge, data or any other proprietary information of the
Company. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, compounds, test results, trade secrets, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, cell lines, know-how, improvements, discoveries, developments,
designs and techniques (hereinafter collectively referred to as "Inventions");
and (b) information regarding plans for research, development, new products,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers; and information
regarding the skills and compensation of other employees of the Company.
2. Third Party Information. I understand, in addition, that the
Company has received and in the future will receive from third parties
confidential or proprietary information ("Third Party Information") subject to a
duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of my
consultation and employment and thereafter, I will hold Third Party Information
in the strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the
<PAGE> 8
Company, Third Party Information unless expressly authorized by an officer of
the Company in writing.
3. Assignment of Inventions.
3.1 Assignment. I hereby assign to the Company all my right,
title and interest in and to any and all Inventions (and all Proprietary Rights
with respect thereto) whether or not patentable or registrable under copyright
or similar statutes, made or conceived or reduced to practice or learned by me,
either alone or jointly with others, during the period and in the course of my
consultation and employment with the Company. Inventions assigned to or as
directed by the Company by this paragraph 3 are hereinafter referred to as
"Company Inventions." I recognize that this Agreement does not require
assignment of any invention which qualifies fully for protection under Section
2870 of the California Labor Code (hereinafter "Section 2870"), which provides
as follows:
(1) Any provision in an employment agreement which
provides that an employee shall assign, or offer to assign, any of his
or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time
without using the employer's equipment, supplies, facilities, or trade
secret information except for those inventions that either:
(A) Relate at the time of conception or
reduction to practice of the invention to the employer's business, or
actual or demonstrably anticipated research or development of the
employer.
(B) Result from any work performed by the
employee for the employer.
(2) To the extent a provision in an employment
agreement purports to require an employee to assign an invention
otherwise excluded from being required to be assigned under subdivision
(i), the provision is against the public policy of this state and is
unenforceable.
3.2 Government. I also assign to or as directed by the Company
all my right, title and interest in and to any and all Inventions, full title to
which is required to be in the United States by a contract between the Company
and the United States or any of its agencies.
3.3 Works for Hire. I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of the
<PAGE> 9
consulting and employment relationship and which are protectable by copyright
are "works made for hire," as that term is defined in the United States
Copyright Act (17 U.S.C., Section 101).
4. Enforcement of Proprietary Rights. I will assist the Company in
every proper way to obtain and from time to time enforce United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my consultation and
employment, but the Company shall compensate me at a reasonable rate after my
termination for the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, to act for and in my behalf to execute, verify and file any
such documents and to do all other lawfully permitted acts to further the
purposes of the preceding paragraph thereon with the same legal force and effect
as if executed by me. I hereby waive and quitclaim to the Company any and all
claims, of any nature whatsoever, which I now or may hereafter have for
infringement of any Proprietary Rights assigned hereunder to the Company.
5. Obligation to Keep Company Informed. During the period of my
consultation and employment with the Company, I will promptly disclose to the
Company fully and in writing and will hold in trust for the sole right and
benefit of the Company any and all Inventions. In addition, after termination of
my consultation and employment with the Company, I will disclose all patent
applications filed by me within a year after termination of the relationship. At
the time of each such disclosure, I will advise the Company in writing of any
Inventions that I believe fully qualify for protection under Section 2870; and I
will at that time provide to the Company in writing all evidence necessary to
substantiate that belief. I understand that the Company will keep in confidence
and will not disclose to third parties without my consent any proprietary
information disclosed in writing to the Company pursuant to this Agreement
relating to Inventions that qualify fully for protection under the provisions
<PAGE> 10
of Section 2870. I will preserve the confidentiality of any Invention that does
not fully qualify for protection under Section 2870.
6. Prior Inventions. Inventions, if any, patented or unpatented,
which I made prior to the commencement of my consultation or employment with the
Company are excluded from the scope of this Agreement. To preclude any possible
uncertainty, I have set forth on Exhibit A attached hereto a complete list of
all Inventions that I have, alone or jointly with others, conceived, developed
or reduced to practice or caused to be conceived, developed or reduced to
practice prior to the commencement of my consultation or employment with the
Company, that I consider to be my property or the property of third parties and
that I wish to have excluded from the scope of this Agreement. If disclosure of
any such Invention on Exhibit A would cause me to violate any prior
confidentiality agreement, I understand that I am not to list such Inventions in
Exhibit A but am to inform the Company that all such Inventions have not been
listed for that reason.
7. Additional Activities. I agree that during the period of my
consultation and employment with the Company I will not, without the Company's
express written consent, engage in any employment, consultation or business
activity other than for the Company in the field of (a) sterilization or
decontamination of human blood products, bodily materials or human
pharmaceuticals; or (b) vaccines; and for the period of my consultation and
employment with the Company and for one (l) year after the date of termination
of my consulting and employment relationship with the Company I will not (i)
induce any employee of the Company to leave the employ of the Company or (ii)
solicit the business of any client or customer of the Company (other than on
behalf of the Company).
8. No Improper Use of Materials. During my consultation and
employment with the Company, I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former or current
employer or any other person to whom I have an obligation of confidentiality,
and I will not bring onto the premises of the Company any unpublished documents
or any property belonging to any former or current employer or any other person
to whom I have an obligation of confidentiality unless consented to in writing
by that former employer or person.
9. No Conflicting Obligation. I represent that my performance of all
the terms of this Agreement and as a consultant and employee of the Company does
not and will not breach any agreement to keep in confidence information acquired
by me in confidence or in trust prior to my consultation or employment with the
Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith.
<PAGE> 11
10. Return of Company Documents. When my consultation and employment
is terminated with the Company, I will deliver to the Company any and all
drawings, notes, memoranda, specifications, devices, formulas, molecules, cells
and documents, together with all copies thereof, and any other material
containing or disclosing any Company Inventions, Third Party Information or
Proprietary Information of the Company. I further agree that any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement for technical and management personnel.
11. Legal and Equitable Remedies. Because my services are personal
and unique and because I may have access to and become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond, without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement.
12. Notices. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such other
address as the party shall specify in writing. Such notice shall be deemed given
upon personal delivery to the appropriate address or if sent by certified or
registered mail, three days after the date of mailing.
13. General Provisions.
13.1 Governing Law. This Agreement will be governed by and
construed according to the laws of the State of California.
13.2 Entire Agreement. This Agreement is the final, complete
and exclusive agreement of the parties with respect to the subject matter hereof
and supersedes and merges all prior discussions between us. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by the party to be
charged. Any subsequent change or changes in my duties, salary or compensation
will not affect the validity or scope of this Agreement. As used in this
Agreement, the period of my consultation includes any time during which I may be
retained by the Company as a consultant or as an employee.
13.3 Severability. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining provisions will
continue in full force and effect.
<PAGE> 12
13.4 Successors and Assigns. This Agreement will be binding
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors, and its assigns.
13.5 Survival. The provisions of this Agreement shall survive
the termination of my consultation and employment and the assignment of this
Agreement by the Company to any successor in interest or other assignee.
13.6 Waiver. No waiver by the Company of any breach of this
Agreement shall be a waiver of any preceding or succeeding breach. No waiver by
the Company of any right under this Agreement shall be construed as a waiver of
any other right. The Company shall not be required to give notice to enforce
strict adherence to all terms of this Agreement.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY CONSULTATION AND EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE
THE COMPANY'S CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY CONSULTATION
AND EMPLOYMENT RELATIONSHIP WITH THE COMPANY.
<PAGE> 13
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated: __________________ _______________________
Signature
G. Kirk Raab
999 Mountain Home Road
Address: Woodside, CA 94062
ACCEPTED AND AGREED TO:
LXR Biotechnology Inc.
By: ____________________________
Shelli J. Geer
Chief Financial Officer
<PAGE> 14
EXHIBIT A
LXR Biotechnology Inc.
1401 Marina Way South
Richmond, CA 94804
Ladies/Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my consultation and/or employment with LXR
Biotechnology Inc. (the "Company") that have been made or conceived or first
reduced to practice by me alone or jointly with others prior to my engagement by
the Company:
[ ] No inventions or improvements.
[ ] See below:
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
[ ] Due to confidentiality agreements with prior or current
employers, I cannot disclose certain inventions that would
otherwise be included on the above-described list.
[ ] Additional sheets attached.
2. I propose to bring to my consulting and/or employment relationship
the following devices, materials and documents of a former or current employer
or other person to whom I have an obligation of confidentiality that are not
generally available to the public, which materials and documents may be used in
my consulting pursuant to the express written authorization of my former or
current employer or such other person (a copy of which is attached hereto):
<PAGE> 15
[ ] No material.
[ ] See below:
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
[ ] Additional sheets attached.
Date:
Very truly yours,
-----------------------------
-----------------------------
<PAGE> 1
LXR Biotechnology Inc. and Subsidiary
Exhibit 11.01
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $ 2,503,245 $ 2,287,303 $ 5,784,581 $ 4,137,987
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding:
Common Stock 28,396,380 21,818,597 28,153,445 21,815,233
Common Stock to be issued 137,384 187,500 106,364 187,500
------------ ------------ ------------ ------------
28,533,764 22,006,097 28,259,809 22,002,733
============ ============ ============ ============
Net Loss Per Share $ (0.09) $ (0.10) $ (0.20) $ (0.19)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,313,828
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,577,886
<PP&E> 3,641,291
<DEPRECIATION> 2,348,249
<TOTAL-ASSETS> 9,092,468
<CURRENT-LIABILITIES> 1,433,146
<BONDS> 0
0
0
<COMMON> 2,846
<OTHER-SE> 7,351,015
<TOTAL-LIABILITY-AND-EQUITY> 9,092,468
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 6,007,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,500
<INCOME-PRETAX> 0
<INCOME-TAX> 800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,784,581)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0
</TABLE>
