<PAGE> 1
As filed with the Securities and Exchange Commission on January 30, 1998.
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LXR BIOTECHNOLOGY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0282856
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
1401 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804 (510) 412-9100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
L. DAVID TOMEI, PH.D.
CHIEF EXECUTIVE OFFICER
LXR BIOTECHNOLOGY INC.
1401 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
(510) 412-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies of all orders, notices and communications to:
STEPHEN C. FERRUOLO
HELLER EHRMAN WHITE & MCAULIFFE
525 UNIVERSITY AVENUE, PALO ALTO, CALIFORNIA 94301
(415) 324-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment
plans, check the following box [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number
of the earlier registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE AGGREGATE OFFERING REGISTRATION
PER SHARE(1) PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value 6,401,568 $2.06 $13,187,230 $3,891
========================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, as amended, based on the average of the high and low prices of the
Common Stock on the American Stock Exchange on January 27, 1998, as
reported on The Wall Street Journal.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
PROSPECTUS
6,401,568 SHARES
LXR BIOTECHNOLOGY INC.
COMMON STOCK
This prospectus ("Prospectus") covers the resale of shares (the
"Shares") of Common Stock, $0.0001 par value per share (the "Common Stock"), of
LXR Biotechnology Inc. ("LXR," the "Company" or the "registrant") held or
issuable to certain persons named in this Prospectus ("Selling Stockholders").
The Company will not receive any of the proceeds from the sale of the Shares.
The Shares covered hereby include 5,820,392 shares of Common Stock held by
Selling Stockholders and up to an additional 581,176 shares of Common Stock
issuable upon exercise of warrants and other rights to purchase Common Stock
(the "Warrants") held by Selling Stockholders. See "Selling Stockholders" for
information with respect to Shares held by or issuable to the Selling
Stockholders. This Prospectus does not cover the issuance or transfer of the
Warrants themselves; but covers only the dispositions of the shares of Common
Stock issuable upon exercise of the Warrants.
All of the shares of Common Stock offered hereby are being sold by the
Selling Stockholders. Such shares are being offered on a continuous basis
pursuant to Rule 415 under the Securities Act of 1933, as amended. The Company's
Common Stock is traded on the American Stock Exchange under the symbol "LXR". On
January 27, 1998, the closing price for the Common Stock, as reported on the
American Stock Exchange, was $2.00.
Shares offered by this Prospectus may be offered for sale from time to
time by the Selling Stockholders at such prices and on such terms as may then be
obtainable, in negotiated transactions, or otherwise. See "Plan of
Distribution". This Prospectus may be used by the Selling Stockholders or by any
broker-dealer who may participate in sales of securities covered hereby. The
Selling Stockholders and the brokers and dealers through whom such sales are
effected may be deemed to be underwriters under the Securities Act of 1933, as
amended (the "Securities Act"). The Selling Stockholders will pay all
commissions, transfer taxes, and other expenses associated with the sales of
Shares by them. Pursuant to agreements with certain of the Selling Stockholders,
the Company has paid the expenses of the preparation of this Prospectus. The
Company has also agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities arising under the Securities Act.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the securities offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from
the Commission upon payment of the prescribed fees.
-----------------
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
The date of this Prospectus is February ___, 1998
<PAGE> 4
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations or projections of future performance
other than those contained in this Prospectus, and any such other information,
projections, or representations, if given or made, must not be relied upon as
having been so authorized. The delivery of this Prospectus or any sale hereunder
at any time does not imply that the information herein is correct as of any time
subsequent to its date. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction where, and to any person to whom, it is unlawful to make such offer
or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such Registration Statement, reports, proxy statements and other
information can be inspected and copied at public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at such address. Such
reports, proxy statements and other information can also be inspected at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Northwest Atrium Center, 500 West Madison, Chicago, Illinois
60661, and at the offices of the American Stock Exchange at 86 Trinity Place,
New York, New York 10006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
(a) The Company's annual report on Form 10-KSB filed with the
Commission for the fiscal year ended December 31, 1996.
(b) The Company's current report filed with Commission on Form
8-K dated January 31, 1997.
(c) The Company's quarterly report on Form 10-QSB filed with the
Commission for the fiscal quarter ended March 31, 1997.
(d) The Company's current report filed with the Commission on
Form 8-K dated April 24, 1997.
(e) The Company's current report filed with the Commission on
Form 8-K dated June 13, 1997.
(f) The Company's quarterly report on Form 10-QSB filed with the
Commission for the fiscal quarter ended June 30, 1997.
(g) The Company's quarterly report on Form 10-QSB filed with the
Commission for the fiscal quarter ended September 30, 1997.
(h) The Company's current report filed with the Commission on
Form 8-K dated December 15, 1997.
(i) The Company's current report filed with the Commission on
Form 8-K dated December 23, 1997.
(j) The Company's current report filed with the Commission on
Form 8-K dated January 7, 1998.
(k) The description of the Company's Common Stock contained in
the Registration Statement filed under the 1934 Act registering such Common
Stock under Section 12 of the 1934 Act and any amendment or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus.
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<PAGE> 5
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents which are
not specifically incorporated by reference into the information that this
Prospectus incorporates. Requests for such copies should be directed to: LXR
Biotechnology Inc., 1401 Marina Way South, Richmond, California 94804,
Attention: Investor Relations, Telephone (510) 412-9100.
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<PAGE> 6
THE COMPANY
The principal executive offices of the Company are located at 1401
Marina Way South, Richmond, California 94804, its telephone number is (510)
412-9100 and its fax number is (510) 412-9109. In this Prospectus, the term
"LXR" or "Company" refers to LXR Biotechnology Inc., a Delaware corporation, and
subsidiaries, unless the context otherwise requires.
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following risk factors in evaluating the Company and its business. This
Prospectus contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, such
as statements of the Company's or its management's plans, objectives,
expectations, intentions, beliefs and estimates. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Factors which could cause such
results to differ materially from those described in the forward-looking
statements include those set forth in the risk factors below.
EARLY STAGE OF DEVELOPMENT; REGULATORY AND TECHNOLOGICAL UNCERTAINTIES
LXR is at an early stage of development. Other than the SLDI microscope,
a prototype of which was sold to Perkin-Elmer Corporation ("Perkin-Elmer"), all
of the Company's potential pharmaceutical and medical device products are
currently in research and development, and no revenues from the sale of 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 any of these projects.
All of the Company's drug and medical device candidates except for HK-Cardiosol,
which is now entering the clinical testing phase, and Lexirin, which is
discussed below, 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. The
Company recently 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 this 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 United States Food and
Drug Administration (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.
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RELIANCE ON NOVEL SCIENTIFIC APPROACH
The Company's product development efforts are based on the novel
scientific approach of therapeutic apoptosis modulation, 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.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its
inception in 1992. At September 30, 1997, the Company had an accumulated deficit
of approximately $29.8 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 from Perkin-Elmer under the License Agreement dated as of
August 29, 1996 between the Company, on behalf of itself and Optical Analytic,
Inc., a wholly-owned subsidiary of the Company, and Perkin-Elmer (the
"Perkin-Elmer Agreement"), payments under the Company's collaboration agreement
with Boehringer Mannheim GmbH "(Boehringer"), 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) receive any additional
funds under the Perkin-Elmer Agreement, as Perkin-Elmer may terminate such
agreement at any time in its discretion, (ii) be successful in its collaboration
with Boehringer or that such relationship will be expanded beyond its current
limited scope, (iii) be able to establish any additional collaborative
relationships, (iv) enter into any license agreements, or (v) 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.
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 third quarter of 1998.
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 development of its lead compounds. The Company
intends to seek such additional funding through public or private financings or
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<PAGE> 8
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 adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its research and
development programs, including but not limited to the development of its lead
compounds, or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products that the Company
would not otherwise relinquish. Failure to obtain such needed funds could have a
material adverse effect on the Company's operations.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 27, 1998, the Company had outstanding approximately
27,714,067 shares of Common Stock and options, warrants and other rights to
purchase up to approximately 3,359,742 shares of the Company's Common Stock. Of
the outstanding shares, 5,714,286 were issued in the Company's private placement
in December 1997 and January 1998 at a price of $1.75 per share. An additional
106,106 shares were issued for consulting services and services rendered in
connection with the private placement. These 5,820,392 shares, together with
581,176 shares underlying the Warrants are being registered pursuant to this
Registration Statement. Upon effectiveness of this Registration Statement, the
holders of such shares will be able to publicly sell such shares at any time in
their sole discretion, subject to certain limited exceptions. As the
aforementioned 6,401,568 shares to be newly registered are equal to
approximately 21 percent of the Company's currently outstanding Common Stock
(assuming all shares underlying warrants and other rights offered hereby are
outstanding), and the Company's stock has historically had a low trading volume,
the sale of these shares on the open market could have a material adverse effect
on the market price of the Company's Common Stock. In addition, pursuant to a
registration statement which became effective on May 8, 1996 (the "1996
Registration Statement"), 10,756,992 of the Company's outstanding shares and
1,079,847 shares issuable upon the exercise of then outstanding warrants were
registered for public resale. The holders of such shares may sell such shares at
any time in their sole discretion, subject to certain exceptions. The Company
believes that, as of January 27, 1998, a total of approximately 6,232,170 of
such shares have been sold under the 1996 Registration Statement. Additionally,
pursuant to a registration statement which became effective on February 6, 1997
(the "1997 Registration Statement"), 5,810,735 of the Company's outstanding
shares and 693,895 shares issuable upon the exercise of then outstanding
warrants were registered for public resale. The holders of such shares may sell
such shares at any time in their sole discretion, subject to certain exceptions.
The Company believes that, as of January 27, 1998, a total of approximately
2,277,563 of such shares have been sold under the 1997 Registration Statement.
Since the Company's stock has historically had a low trading volume, the sale of
additional shares on the open market under the 1996 Registration Statement, the
1997 Registration Statement or otherwise, could have a material adverse effect
on the market price of the Company's Common Stock. Furthermore, future sales of
the Company's Common Stock by the Company's stockholders under Rule 144 of the
Securities Act of 1933, as amended, or otherwise, could also have a material
adverse effect on the market price of the Company's Common Stock.
DEPENDENCE ON QUALIFIED PERSONNEL AND CONSULTANTS
The Company is highly dependent on the principal members of its
management and scientific staff, including L. David Tomei, Ph.D., its current
Chairman and Chief Executive Officer; Donald H. Picker, Ph.D., its President,
Chief Operating Officer and Director; and Samuil R. Umansky, Ph.D., Vice
President, Molecular Pharmacology and Chief Scientific Officer. 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 entered into employment agreements with Drs. Tomei and
Picker, however, either 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. In addition, the Company is dependent on collaborators at
research institutions
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<PAGE> 9
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 provided Perkin-Elmer with significant exclusive rights to its SLDI product,
and is dependent on Perkin-Elmer to satisfactorily commercialize such product so
that the Company will receive remuneration for its efforts in this area. There
can be no assurance that Perkin-Elmer's efforts to commercialize this product
will be successful, or that the Company will receive any such remuneration. In
addition, 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 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. 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 costs 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.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patents
and/or appropriate licenses from third parties, to protect trade secrets, to
operate without infringing upon the proprietary rights of others and to prevent
others from infringing on the proprietary rights of the Company. The Company's
policy is to seek to protect its proprietary position by, among other methods,
filing United States and foreign patent applications related to its proprietary
technology, inventions and improvements that are important to the development of
its business. Proprietary rights relating to the Company's planned and potential
products will be protected from unauthorized use by third parties only to the
extent that they are covered by valid and enforceable patents or are effectively
maintained as trade secrets. There can be no assurance as to the
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<PAGE> 10
breadth of protection that any such patents may afford the Company. There can be
no assurance that the Company will choose to prosecute to allowance all of the
pending patent applications or maintain all of the patents now owned or licensed
by the Company. Some of the Company's patent applications do not cover
compositions of matter, but rather relate only to the method of use of specific
compounds for certain disease indications, or to screening methods for
identifying compositions of matter. The scope of potential patent protection for
such methods may not be as broad as it is for compositions of matter.
The patent position of biotechnology firms generally is highly
uncertain, involves complex legal and factual questions, and has recently been
the subject of frequent litigation. There is a substantial backlog of
biotechnology patent applications at the United States Patent and Trademark
Office ("USPTO"), and no consistent policy has emerged from the USPTO and the
courts regarding the breadth of claims allowed or the degree of protection
afforded under biotechnology patents. Additionally, the USPTO may request data
demonstrating efficacy of potential therapeutic agents. The need to provide such
data, if required, could delay or adversely affect the Company's ability to
obtain patent protection for any of its potential products.
There can be no assurance that any patent applications relating to the
Company's potential products or processes will result in patents being issued,
or that resulting patents, if any, will provide protection against competitors
who successfully challenge the Company's patents, obtain patents that may have
an adverse effect on the Company's ability to conduct business, or are able to
circumvent the Company's patent position. A substantial number of patents have
been applied for by and issued to other pharmaceutical, biotechnology and
biopharmaceutical companies. Although the Company has conducted database
searches to discover the existence of previous patents and to determine the
state of the art of its inventions, such searches are not conclusive. The
Company is aware of one case where other parties have published papers and/or
filed applications on subjects with respect to which the Company has claims in
pending patent applications. In April 1995, the Company and two other scientific
groups simultaneously published (in separate articles) the sequence of the BAK
gene. Further, International Patent Application Number WO 96/35951, filed by a
third party, discloses and claims a BAK protein similar to a protein claimed in
one of the Company's pending patent applications. Although the Company believes
that the priority dates of its patent applications relating to BAK are prior to
the dates on which these other parties made their discoveries, there can be no
assurance of this. Thus, the impact of the work done by these parties and
possibly other parties cannot be assessed. There can be no assurance that others
will not independently develop pharmaceutical products similar to or obsoleting
those under development by the Company, or duplicate any of the Company's
products.
Interference proceedings in the USPTO may be necessary to determine the
priority of inventions with respect to patents and patent applications of the
Company. In addition, litigation may be necessary to defend against or assert
claims of infringement, to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company or to determine the scope and
validity of the proprietary rights of others. There can be no assurance any such
efforts by the Company would be successful. Further, litigation or interference
proceedings could result in substantial costs to and diversion of effort by the
Company, and could have a material adverse effect on the Company's business,
financial condition and results of operations.
In view of the time delay in patent approval and secrecy afforded patent
applications, the Company does not know and is not able to determine if there
are patent applications belonging to others which have priority over
applications belonging to the Company. Moreover, portions or all of the
Company's patent applications could be rejected and there could be a material
adverse effect on the Company's business and future prospects if patents or
prior art exist that were not uncovered through database searches or if there
are patent applications that have priority over any of the Company's patent
applications.
Other companies or institutions may have filed applications for, may
have been issued patents or may obtain additional patents and proprietary rights
relating to products or processes similar in function or effect to those of the
Company or products that treat conditions that may be treated by the Company's
potential products. At this time, the Company cannot predict whether or not
these patents, patent applications and/or proprietary rights will lead to the
development of products competitive with the Company's potential products. If
such competitive products are developed and successfully commercialized, they
could adversely affect the Company's ability to commercialize its potential
products.
8
<PAGE> 11
If the USPTO should determine that any issued or pending patents claim the same
subject matter as any of the Company's pending patent applications and that the
subject matter of such issued or pending patents was invented first, the Company
could be prevented from obtaining patent protection or the scope of such
protection could be narrowed. Further, because of the extensive time required
for development, testing and regulatory review of a potential product, it is
possible that, before any of the Company's products can be commercialized, any
related patent may expire or remain in existence for only a short period
following commercialization, thus reducing any advantage of the patent, which
could adversely affect the Company's ability to protect future product
development and, consequently, its operating results and financial position.
The Company's competitive position is also dependent upon unpatented
trade secrets. The Company is developing a substantial database of information
concerning its research and development. However, trade secrets are difficult to
protect. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. In an effort to protect its trade secrets, the Company has a
policy of requiring its employees, consultants, advisors and, when appropriate,
Scientific Advisory Board members to execute proprietary information and
invention assignment agreements upon commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
relationship must be kept confidential except in specified circumstances. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary information in
the event of unauthorized use or disclosure of confidential information.
Invention assignment agreements executed by Scientific Advisory Board members,
consultants and advisors may conflict with, or be subject to, the rights of
third parties with whom such individuals have employment or consulting
relationships.
The Company may be required to obtain licenses to patents or proprietary
rights of others. As the biotechnology industry expands and more patents are
issued, the risk increases that the Company's potential products may give rise
to claims that they infringe the patents of others. No assurance can be given
that any licenses required under any such patents or proprietary rights would be
made available on terms acceptable to the Company. If the Company does not
obtain such licenses, it could encounter delays in product market introductions
while it attempts to design around such patents, or could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, or to determine the scope and validity of the
proprietary rights of others, and could result in substantial costs to and
diversion of effort by, and may have a material adverse impact on, the Company.
In addition, there can be no assurance that these efforts by the Company will be
successful.
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 choose 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.
GOVERNMENT REGULATION AND PRODUCT APPROVAL
The FDA and comparable agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the testing,
manufacturing, labelling, distribution, and marketing of therapeutics and
diagnostics through lengthy and detailed laboratory and clinical human testing
procedures, premarket approval or clearance requirements, manufacturing
standards, sampling activities and other costly and time consuming procedures
and requirements.
9
<PAGE> 12
Satisfaction of these requirements typically takes several years or more (five
to ten years or more for a drug or biological product) and varies substantially
based upon the type, complexity and technological novelty of the drug or
diagnostic product.
In late 1997, the Company received notice from the FDA that its
Investigational Drug Exemption application ("IDE") for use of HK-Cardiosol as a
heart preservation solution had been approved. The Company expects to initiate
clinical trials of HK-Cardiosol during the first quarter of 1998. There can be
no assurance as to the results of such trial, or whether or when the FDA will
permit the Company to conduct additional trials of HK-Cardiosol. In December
1997, the Company announced it had rescheduled the filing of an Investigational
New Drug application ("IND") to conduct clinical studies for the use of
CP-Cardiosol for improved organ protection during heart/lung bypass operations
for the first quarter of 1998. The Company decided to reschedule these clinical
trials and to do a number of confirmatory animal experiments because of changes
in the protocol of some preclinical animal studies. There can be no assurance
that the Company will be able to file the IND during the first quarter of 1998,
nor can there be any assurance as to whether or when the FDA will approve the
Company's IND for CP-Cardiosol. There also can be no assurance as to whether or
when the Company will make filings with the FDA for the commencement of clinical
trials of any other potential product, or whether or when the Company will
submit to the FDA an application to market any other potential product.
The Company has relied on scientific, technical, clinical, commercial
and other data supplied or disclosed by others, including its academic
collaborators, in obtaining the FDA's approval to begin clinical trials of
HK-Cardiosol and the Company may rely on such data in support of INDs to enter
human clinical trials for its other potential products, including the IND to
conduct clinical studies of CP-Cardiosol that the Company currently is
preparing. Although the Company has no reason to believe that this information
contains errors or omissions of fact, there can be no assurance that there are
no errors or omissions of fact that would change materially the Company's view
of the future likelihood of FDA approval of INDs or of the commercial viability
of these potential products. There can be no assurance that clinical data from
studies performed by others will be available to the Company or acceptable to
the FDA or other regulatory agencies in support of the Company's applications
for marketing approval, and the FDA may, among other things, require the Company
to collect additional data and conduct controlled clinical studies prior to
acceptance of any such applications.
The effect of compliance with government regulation may be to delay for
a considerable period of time or prevent the marketing of any product that the
Company may develop and/or to impose costly requests for additional animal,
human or other data upon the Company, the result of which may be a delay in the
marketing of its products, thus furnishing an advantage to its competitors.
There can be no assurance that FDA or other regulatory approval to market or
clinically test any products developed by the Company will be granted on a
timely basis or at all or that, if granted, such approval will not be
subsequently suspended or withdrawn. Any such delay in obtaining or failure to
obtain such approvals would adversely affect the marketing of the Company's
potential products and the ability to earn product revenues or royalties. As
with all investigational products, additional government regulations may be
promulgated requiring additional research and data to be submitted that could
delay marketing approval of the Company's potential products. The Company cannot
predict whether any adverse government regulation might arise from future
legislation or administrative action.
MANUFACTURING LIMITATIONS
Although the Company has received approval from local authorities to
undertake manufacturing, it 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 to supply
sufficient quantities of such products to conduct clinical trials as well as for
the manufacture, packaging, labelling 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 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
10
<PAGE> 13
manufacturing agreement with Chesapeake Biological Laboratories, Inc. ("CBL") to
manufacture HK-Cardiosol for clinical trials. There can be no assurance that CBL
will be able to manufacture sufficient quantities of HK-Cardiosol for the
Company's clinical trials.
Manufacturing facilities must pass a pre-approval plant inspection
before the FDA will issue a pre-market approval or product and establishment
licenses, where applicable, for the products. The Company will also be required
to obtain a license from the State of California to manufacture any
investigational products, which license will be issued only if the Company is in
compliance with 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.
COMPETITION AND TECHNOLOGICAL CHANGE
There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized biotechnology
companies, engaged in developing synthetic pharmaceuticals and biotechnological
products for certain of the applications being pursued by the Company.
Additionally, increasing numbers of companies are focusing on apoptosis
modulation as a promising area for research and development. Many of these
companies have substantially greater capital, research and development,
manufacturing, marketing and human resources and experience than the Company and
represent substantial long-term competition for the Company. Such companies may
succeed in developing products that are more effective, or less costly or more
successful than any that may be developed by the Company. The industry in which
the Company proposes to compete is characterized by extensive research efforts
and rapid technological progress. New developments are expected to continue and
there can be no assurance that discoveries by others will not render the
Company's programs or potential products noncompetitive. Competition may
increase further as a result of advances that may be made in the commercial
applicability of technologies and greater availability of capital for investment
in these fields.
RISK OF PRODUCT LIABILITY
Clinical trials or marketing of any of the Company's potential
pharmaceutical and other products may expose the Company to liability claims
related to the use of such products. To date, the Company has conducted limited
Phase I clinical trial of Lexirin, and it expects to be beginning clinical
trials of HK-Cardiosol for heart preservation in transplant patients during the
first quarter of 1998. None of the Company's other potential products has
entered clinical trials or been marketed (other than marketing undertaken by the
Company in connection with its SLDI product). Accordingly, the Company currently
does not carry product liability insurance. The Company presently is seeking
product liability insurance. However, there can be no assurance that the Company
will be able or will choose to obtain such insurance or, if obtained, that
sufficient coverage can be acquired at a reasonable cost. An inability to obtain
sufficient insurance coverage at an acceptable cost or otherwise protect against
potential product liability claims could prevent or inhibit the
commercialization of any products developed by the Company. Furthermore, a
product liability related claim or recall could have a material adverse effect
on the business or financial condition of the Company.
HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS
The Company's research and development processes involve the controlled
use of hazardous and radioactive materials. The Company is subject to federal,
state and local laws and regulations governing the manufacture, storage,
handling, use and disposal of such materials and certain waste products.
Although the Company believes that its safety procedures for storing, using,
handling and disposing of such materials comply with the standards prescribed by
such laws
11
<PAGE> 14
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. Although the Company believes that it
is in compliance in all material respects with applicable environmental laws and
regulations and currently does not expect to make material capital expenditures
for environmental control facilities in the near-term, there can be no assurance
that the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future, nor that the operations,
business or assets of the Company will not be materially adversely affected by
current or future environmental laws or regulations.
UNCERTAINTY OF PRODUCT PRICING; HEALTHCARE REFORM AND RELATED MATTERS
The Company's future revenues may be affected by the continuing efforts
of governmental and third party payors to contain or reduce the costs of
healthcare through various means. For example, in certain foreign markets
pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and there may
continue to be, federal and state proposals to implement similar government
control. It is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for healthcare goods and services may
take in response to any healthcare reform proposals or legislation. There can be
no assurance that any such proposals or reforms will not have a material adverse
effect on the Company. Further, to the extent that such proposals or reforms
have a material adverse effect on the business, financial condition and
profitability of other pharmaceutical companies that are prospective
collaborators for certain of the Company's potential products, the Company's
ability to commercialize its potential products may be adversely affected.
In addition, in both the United States and elsewhere, sales of
prescription medical products are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Significant uncertainty exists as to the reimbursement
of newly approved health care products, and third party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis.
POSSIBLE VOLATILITY OF STOCK PRICE
The price of the Company's Common Stock has fluctuated substantially
since its initial public offering ("IPO"). The market price of the shares of the
Company's Common Stock, like that of the common stock of many other
biotechnology companies, is likely to continue to be highly volatile.
Additionally, the Company's Common Stock has historically not been heavily
traded, which could increase the volatility of the price of such stock. Factors
such as the timing and results of preclinical studies and clinical trials by the
Company or its competitors, other evidence of the safety or efficacy of
pharmaceutical products of the Company or its competitors, announcements of
technological innovations or new therapeutic products by the Company or its
competitors, governmental regulation, healthcare legislation, developments in
patent or other proprietary rights of the Company or its competitors, including
litigation, fluctuations in the Company's operating results, and market
conditions for life science stocks in general could have a significant impact on
the future price of the Common Stock.
OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS
As of January 27, 1998, the Company had outstanding options, warrants
and other rights to purchase approximately 3,359,742 shares of Common Stock. To
the extent that these options, warrants or rights are exercised, the interests
of the Company's stockholders would be diluted. Moreover, as long as such
options, warrants or rights are outstanding, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected since
the holders of the outstanding options, warrants or rights can be expected to
exercise them, to the extent they are able to, at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in the options, warrants or rights.
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<PAGE> 15
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
As of January 27, 1998, the Company's management and existing holders of
5% or more of the Company's Common Stock beneficially owned, in the aggregate,
approximately 38% of the outstanding Common Stock of the Company. As a
result, such persons may have the ability to significantly influence the
Company-and direct its affairs and business. The Company's charter provides for
45,000,000 authorized shares of Common Stock and 5,000,000 authorized shares of
Preferred Stock. As of January 27, 1998, there were approximately 27,714,067
shares of Common Stock and no shares of Preferred Stock outstanding. The rights,
preferences, qualifications, limitations and restrictions of the Preferred Stock
may be fixed by the Board of Directors without any further vote or action by the
stockholders. Issuance of these shares, or shares of the Company's authorized
but unissued Common Stock, could have the effect of delaying, deferring or
preventing a change of control of the Company, or diluting the Common Stock.
RISKS OF LITIGATION
The Company and five of its past and present directors and officers are
named as defendants in Katz vs. Blech, 95 Civ. 7215 (S.D.N.Y.) ("Katz"), and
Degulis vs. LXR Biotechnology Inc., et al., 95 Civ. 4204 (S.D.N.Y.) ("Degulis").
In addition, one of the five defendants, Mark Germain, is also named as a
defendant in In re Blech Securities Litigation, 94 Civ. 7696 (S.D.N.Y.)
("Blech"). The Company was previously named as a defendant in Blech but was
dismissed from the case on June 6, 1996.
All three cases were 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 IPO and subsequent trading of those shares. The
suits allege violations of Sections 11 and 12 of the Securities Act and
Sections 10(b) and 20 of the 1934 Act, including misrepresentations
and omissions in connection with the IPO 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 IPO the leveraged financial condition of the Company's
underwriter, D. Blech & Company, Inc. ("D. Blech & Co."), and its principal,
David Blech. The suits further allege that defendants failed to disclose that D.
Blech & Co. would act as principal market maker for the Company's shares
following the IPO, and that D. Blech & Co.'s extended financial commitments
would effect 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, discovery is expected to be
completed by the end of February 1998. No trial date has been set.
The Company has agreed to indemnify and/or advance defense costs to each
of the current or 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, 1998 or the termination of the tolling agreement.
The Company's primary level 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. Under the Company's directors and officers liability
policies, coverage is not provided for the Company's own liability, but only for
the amounts paid in indemnity by the Company to or on behalf of the director and
officer defendants. The extent to which insurance would cover any defense costs,
settlements or judgments in this case is presently unknown.
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, the current stage of the litigation, 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. An adverse judgment or
settlement could have a material adverse effect on the Company.
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<PAGE> 16
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock before and after the sale of the Shares
offered hereby by the Selling Stockholders as of January 27, 1998. Because all
of the Shares offered hereby may be sold without limitation or restriction, no
estimate can be given as to the actual amount of Shares that will be held by the
Selling Stockholders after completion of the distribution. See "Plan of
Distribution." Except as described below, based on information supplied to the
Company, no Selling Stockholder had any position, office or other material
relationship with the Company within the past three years.
<TABLE>
<CAPTION>
Common
Common Stock Stock Common Stock
Beneficially Owned Offered Beneficially Owned
Prior to Offering(1) Hereby After Offering
-------------------- ------- --------------------
Name Number Percent Number Percent
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Alfa Mutual Fire Insurance 410,715 1.5% 285,715 125,000 *
Bear Stearns Securities
Corp.(2) 315,631 1.1 9,747 305,884 1.1%
Michael Brailov 100,000 * 100,000 -- --
Brian D. Brookover(3) & 5,295,034(4) 19.1(4) 4,513,734(5) 781,300(6) 2.8(6)
Maureen LeComte Brookover
Grace Brothers, Ltd.(7) 5,145,034 18.5 4,363,734 781,300 2.8
Pequot Scout Fund, LP 500,000 1.8 300,000 200,000 *
SciFin, Inc. 15,000 * 15,000 -- --
Trenton Small Cap Fund 170,000 * 170,000 -- --
Harold L. Weinberg 59,123 * 59,123 -- --
Marvin Whitmore IRA 285,714 1.0 285,714 -- --
Custodian Account
Derek Caldwell(8) 33,606 * 20,000 13,606 *
Lorne Caplan(9) 8,500 * 8,500 -- --
Family Trust of Nathan A. Low 1,261,161 4.4 214,293 1,046,868(11) 3.7(11)
dated 4/12/94(10)
Dwight Miller(12) 50,247 * 20,785 29,462 *
Richard Stone(13) 639,714 2.3 249,892 389,822 1.4
Alan Swerdloff(14) 14,976 * 3,779 11,197 *
Preston Tsao(15) 560,836 2.0 145,286 415,550 1.5
</TABLE>
- ---------------
* Less than 1%
(1) Applicable percentage of ownership is based on 27,714,067 shares of
Common Stock outstanding as of January 27, 1998.
(2) Represents an option that is fully exercisable held by holder as pledgee
pursuant to a pledge by D. Blech & Co. Inc. 305,884 shares issuable upon
exercise of such option have been previously registered.
(3) Mr. Brookover was elected to the Company's Board of Directors on January
22, 1998.
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<PAGE> 17
(4) Mr. Brookover is the Portfolio Manager of Grace Brothers, Ltd. ("Grace
Brothers"). Includes 5,145,034 shares beneficially owned by Grace
Brothers, of which Mr. Brookover disclaims beneficial ownership.
(5) Includes the 4,363,734 Shares offered hereby by Grace Brothers.
(6) Represents the 781,300 shares to be held by Grace Brothers upon
completion of the offering contemplated hereby.
(7) Information is as of December 31, 1997 as provided by holder in its
Schedule 13G filed with the Securities and Exchange Commission on
January 15, 1998. Holder has reported sole voting power and sole
disposition power as to all such shares. Holder's address is 1560
Sherman Avenue, Suite 900, Evanston, Illinois 60201.
(8) Represents warrants transferred from Sunrise Securities Corp.
("Sunrise") that are immediately exercisable, including a Warrant
exercisable for 20,000 Shares.
(9) Represents a Warrant transferred from Sunrise that is immediately
exercisable.
(10) Represents 430,516 shares of Common Stock and warrants for 830,645
shares that are immediately exercisable transferred from Sunrise,
including a Warrant exercisable for 214,293 Shares. Includes 430,516
shares of Common Stock and warrants for 616,352 shares beneficially
owned by Nathan A. Low, co-trustee, of which the Nathan A. Low Family
Trust disclaims beneficial ownership.
(11) Represents the 1,046,846 shares beneficially owned by Nathan A. Low.
(12) Represents 21,713 shares of Common Stock and warrants for 28,530 shares
that are immediately exercisable transferred from Sunrise, including
6,500 Shares and a Warrant exercisable for 14,285 Shares.
(13) Represents 294,510 shares of Common Stock and warrants for 345,204
shares that are immediately exercisable transferred from Sunrise,
including 84,606 Shares and a Warrant exercisable for 165,286 Shares.
(14) Represents warrants transferred from Sunrise that are immediately
exercisable, including a Warrant exercisable for 3,779 Shares.
(15) Represents 225,019 shares of Common Stock and warrants for 335,817
shares that are immediately exercisable transferred from Sunrise,
including a Warrant exercisable for 145,286 Shares. Sunrise served as
placement agent for the Company's private placements in January 1996,
December 1996 and December 1997-January 1998. Messrs. Caldwell, Caplan,
Low, Miller, Stone, Swerdloff and Tsao are employees of Sunrise.
Certain of the Shares offered hereby by the Selling Stockholders were
acquired pursuant to (i) Subscription Agreements (the "Subscription Agreements")
among the Company and the Selling Stockholders, (ii) a Financial Consulting
Agreement between the Company and SciFin, Inc. dated September 9, 1997 (the
"Consulting Agreement"); (iii) a Letter Agreement dated December 11, 1997,
between the Company and Sunrise Securities Corp. ("Sunrise") (the "Letter
Agreement"); and (iv) Investment Representation Letters (the "Investment
Representation Letters"). In addition, certain of the Shares offered hereby by
the Selling Shareholders are issuable upon the exercise of Warrants issued
pursuant to the Letter Agreement; these Warrants are exercisable immediately for
$2.00 per share and expire in January 2003. In addition, another Selling
Shareholder holds an option to purchase up to 315,631 shares of the Company's
Common Stock, 9,747 of which are being offered hereby. That option is
exercisable immediately at $4.99 per share and expires in May 1999.
This Prospectus does not cover the issuance or the transfer of the
Warrants. Rather, it covers dispositions of the shares of Common Stock issuable
upon exercise of such Warrants.
Under the Subscription Agreements, the Consulting Agreement, the Letter
Agreement and the Investment Representation Letters, each Selling Stockholder
represented to the Company that it was acquiring the Shares from the Company for
investment purposes, without any present intention of effecting a distribution
of those shares. However, in accordance with the Subscription Agreements,
Consulting Agreement and the Letter Agreement, the Company agreed to register
the resale of the Shares offered hereby by the Selling Stockholders to permit
such resales from time to time in the market or in privately-negotiated
transactions. The Company has also agreed to bear certain expenses in connection
with the registration statement.
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<PAGE> 18
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling
Stockholders may be delivered and/or sold in transactions from time to time on
the over-the-counter market, on the American Stock Exchange, in negotiated
transactions, or a combination of such methods of sale, at market prices
prevailing at the time, at prices related to such prevailing prices or at
negotiated prices and/or may also be used to cover any short positions
previously established. The Selling Stockholders may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders. The Selling Stockholders and any
broker-dealers that participate in the distribution may under certain
circumstances be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such broker-dealers and any
profits realized on the resale of Shares by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The Company has
agreed to indemnify the Selling Stockholders with respect to the Shares offered
hereby against certain liabilities, including, without limitation, certain
liabilities under the Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Stockholders (and, if they act as agent for
the purchaser of such Shares, from such purchaser). Broker-dealers may agree
with the Selling Stockholders to sell a specified number of Shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable to
do so acting as agent for the Selling Stockholders, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution or the resale of Shares may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act, and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.
The Selling Stockholders will pay all commissions, transfer taxes, and
other expenses associated with the sale of securities by them. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has paid the expenses of the preparation of this
Prospectus.
This offering will terminate as to each Selling Stockholder on the
earlier of (a) the date on which such Selling Stockholder's shares may be resold
pursuant to Rule 144 under the Securities Act; or (b) the date on which all
Shares offered hereby have been sold. There can be no assurance that any of the
Selling Stockholders will sell any or all of the Shares offered hereby.
16
<PAGE> 19
LEGAL MATTERS
The legality of the issuance of the securities being offered hereby is
being passed upon for the Company by Heller Ehrman White & McAuliffe, Palo Alto,
California.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and for each of the years in the three year period ended December 31, 1996 have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in auditing and accounting.
MATERIAL CHANGES
Since the quarter ended September 30, 1997, the Company has experienced
the following material changes in its affairs:
In January 1998, the Company completed a private placement for 5,714,286
shares of Common Stock aggregating $10 million in total gross proceeds and
approximately $9.4 million in net proceeds. The selling price was $1.75 per
share of Common Stock. In connection with the private placement, the Company
issued 91,106 additional shares for services rendered by the private placement
agent and issued warrants for an additional 571,429 shares, exercisable for
$2.00 per share. The securities sold in the private placement are among those
being registered for resale pursuant to the Registration Statement of which this
Prospectus forms a part. See "Risk Factors -- Shares Eligible for Future Sale."
In late 1997, the Company received notice from the FDA that its IDE for
use of HK-Cardiosol as a heart preservation solution had been approved. The
approval authorizes the Company to proceed with clinical trials in up to eight
medical centers and 150 heart transplant patients. The Company expects to
initiate clinical trials of HK-Cardiosol during the first quarter of 1998. There
can be no assurance as to the results of such trial, or whether or when the FDA
will permit the Company to conduct additional trials of HK-Cardiosol. In
December 1997, the Company announced it had rescheduled the filing of an IND to
conduct clinical studies for the use of CP-Cardiosol for improved organ
protection during heart/lung bypass operations for the first quarter of 1998.
The Company decided to reschedule these clinical trials and to do a number of
confirmatory animal experiments because of changes in the protocol of some
preclinical animal studies. There can be no assurance as to whether or when the
FDA will approve the Company's application for CP-Cardiosol. There also can be
no assurance as to whether or when the Company will make filings with the FDA
for the commencement of clinical trials of any other potential product, or
whether or when the Company will submit to the FDA an application to market any
other potential product.
In December, 1997, the Company entered into an agreement with Chesapeake
Biological Laboratories, Inc., for the process validation and clinical trial
production of the Company's proprietary Cardisol formulation. In exchange for
services to be provided by CBL, the Company agreed to pay CBL certain fees and
expenses.
In November 1997, Shelli Geer was appointed Chief Financial Officer and
Secretary of the Company. Ms. Geer succeeds Mark J. Tomei, who had served as the
Company's Chief Financial Officer since September 1993. Mr. Tomei remains a
Director of and consultant to the Company. In addition, the Company accepted the
resignation of Ian Bathhurst, Vice President, Manufacturing and Process
Development effective January 30, 1998.
Neil Flanzraich and Brian Brookover were elected to the Company's Board
of Directors in November 1997 and January 1998, respectively. Mr. Brookover
replaces Jack Watson, who resigned from the Company's Board of Directors in
January 1998.
17
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates except for the Securities and Exchange Commission
Registration Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 3,891
American Stock Exchange Filing Fee 17,500
Accounting Fees 25,000
Legal Fees and Disbursements 50,000
Miscellaneous 8,609
--------
TOTAL: $105,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the maximum extent permitted by the Delaware Law. The Delaware Law does not
permit liability to be eliminated (i) for any breach of a director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, the Bylaws of the Registrant provide that the Registrant shall
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware Law, including those circumstances in which indemnification
would otherwise be discretionary, subject to certain exceptions. The Bylaws also
provide that the Registrant will advance to directors and executive officers
expenses incurred in connection with an action or proceeding as to which they
may be entitled to indemnification, subject to certain exceptions.
The Registrant has entered into indemnification agreements with each of
its directors and executive officers that provide the maximum indemnity allowed
to directors and executive officers by the Delaware Law and the Company's
Bylaws, subject to certain exceptions, as well as certain additional procedural
protections. In addition, the indemnification agreements provide generally that
the Registrant will advance expenses incurred by directors and executive
officers in any action or proceeding as to which they may be entitled to
indemnification, subject to certain exceptions.
The indemnification provisions in the Registrant's Bylaws, and the
indemnity agreements entered into between the Registrant and its directors and
executive officers, may permit indemnification for liabilities arising under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
II-1
<PAGE> 21
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
4.1 Form of Share Purchase Warrant
5 Opinion of Heller Ehrman White & McAuliffe
10.1 Letter Agreement with Sunrise Securities Corp. dated December
11, 1997
23.1 Consent of Heller Ehrman White & McAuliffe (included in Exhibit
5)
23.2 Consent of KPMG Peat Marwick LLP Independent Certified Public
Accountants
24 Power of Attorney (See Page II-4)
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
Provided, however, that paragraphs (i) and (ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 22
B. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such Director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Richmond, State of California, on the 30th day of January,
1998.
LXR BIOTECHNOLOGY INC.
By: /s/ L. DAVID TOMEI
------------------
L. David Tomei
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. David Tomei or Shelli Geer, or either
of them, with the power of substitution, her or his attorney in fact, to sign
any amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ L. DAVID TOMEI Chief Executive Officer and January 30, 1998
- ----------------------------------- Director
L. David Tomei
/s/ DONALD H. PICKER President, Chief Operating Officer January 30, 1998
- ----------------------------------- and Director
Donald H. Picker
/s/ SHELLI GEER Chief Financial Officer and January 30, 1998
- ----------------------------------- Secretary
Shelli Geer
/s/ BRIAN D. BROOKOVER Director January 30, 1998
- -----------------------------------
Brian D. Brookover
/s/ EUGENE EIDENBERG Director January 30, 1998
- -----------------------------------
Eugene Eidenberg
/s/ NEIL FLANZRAICH Director January 30, 1998
- -----------------------------------
Neil Flanzraich
</TABLE>
II-4
<PAGE> 24
<TABLE>
<S> <C> <C>
/s/ MARK J. TOMEI Director January 30, 1998
- -----------------------------------
Mark J. Tomei
/s/ KENNETH R. MCGUIRE Director January 30, 1998
- -----------------------------------
Kenneth R. McGuire
</TABLE>
II-5
<PAGE> 25
LXR BIOTECHNOLOGY INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
4.1 Form of Share Purchase Warrant
5 Opinion of Heller Ehrman White & McAuliffe
10.1 Letter Agreement with Sunrise Securities Corp. dated December
11, 1997
23.1 Consent of Heller Ehrman White & McAuliffe (included in Exhibit
5)
23.2 Consent of KPMG Peat Marwick LLP Independent Certified Public
Accountants
24 Power of Attorney (See Page II-4)
</TABLE>
II-6
<PAGE> 1
EXHIBIT 4.1
WARRANT TO PURCHASE __________SHARES
FORM OF
SHARE PURCHASE WARRANT
TO PURCHASE SHARES OF COMMON STOCK (PAR VALUE $0.0001)
OF
LXR BIOTECHNOLOGY INC.
(DELAWARE CORPORATION)
EXPIRES JANUARY 6, 2003
<PAGE> 2
Warrant No. ____
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE
TRANSFERRED EXCEPT IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT.
VOID AFTER 5:00 P.M. NEW YORK TIME, ON JANUARY 6, 2003
LXR Biotechnology Inc.
Warrant to Purchase Shares of Common Stock
_________ Shares
THIS CERTIFIES that, for good and valuable consideration
received, _________________ (the "Holder"), is entitled to subscribe for and
purchase from LXR Biotechnology Inc., a Delaware corporation (the "Company"),
upon the terms and conditions set forth herein, at any time or from time to time
until 5:00 P.M. New York City time on January 6, 2003 (the "Expiration Date"),
all or any portion of _________________ Shares of common stock of the Company,
par value $0.0001 per share, subject to adjustment as provided herein (the
"Warrant Shares"), at a price of $2.00 per share, subject to adjustment as
provided herein (the "Exercise Price"). This Warrant shall not be redeemable by
the Company. The term "Shares" used herein shall mean the Company's Shares of
Common Stock, par value $0.0001 per share. This Warrant may be sold,
transferred, assigned or hypothecated at any time and the term the "'Holder" as
used herein shall include any transferee to whom this Warrant has been
transferred.
1. Method of Exercise. This Warrant may be exercised at any time
prior to the Expiration Date, as to the whole or any lesser number of Warrant
Shares, by the surrender of this Warrant (with the election at the end hereof
duly executed) to the Company at its office at 1401 Marina Way South, Richmond,
CA 94804-3745 or at such other place as may be designated in writing by the
Company, together with a certified or bank cashier's check payable to the order
of the Company in an amount equal to the Exercise Price multiplied by the number
of Warrant Shares for which this Warrant is being exercised. In lieu of the
payment of the Exercise Price, the Holder shall have the right (but not the
obligation), during the Exercise Period, to require the Company to convert this
Warrant, in whole or in part, into the Warrant Shares as provided for in this
Section (the "Conversion Right"). Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of the
Exercise Price) that
2
<PAGE> 3
number of shares of Common Stock equal to (i) the number or warrant share
issuable upon exercise of the portion of the Warrant being converted, multiplied
by (ii) the quotient obtained by dividing (x) the value of the Warrant (on a per
Warrant Share basis) at the time the Conversion Right is exercised (determined
by subtracting the Exercise Price from the Current Market Price (as determined
pursuant to Section 5(e) below), for the shares of Common Stock issuable upon
exercise of the Warrant immediately prior to the exercise of the Conversion
Right) by (y) the Current Market Price of one share of Common Stock immediately
prior to the exercise of the Conversion Right. The Conversion Rights provided
under this Section may be exercised in whole or in part and at any time and from
time to time while any Warrants remain outstanding. In order to exercise the
Conversion Right, the Holder shall surrender to the Company, at its offices,
this Warrant accompanied by the form of Subscription Agreement duly filled in
and signed and a duly completed Conversion Notice in the form attached hereto.
The presentation and surrender shall be deemed a waiver of the Holder's
obligation to pay all or any portion of the aggregate purchase price payable for
the Warrant Shares being issued upon such exercise of this Warrant. This Warrant
(or so much thereof as shall have been surrendered for conversion) shall be
deemed to have been converted immediately prior to the close of business on the
day of surrender of this Warrant for conversion in accordance with the foregoing
provisions. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver to the Holder (i) a certificate or
certificates representing the largest number of whole Warrant Shares which the
Holder shall be entitled as a result of the conversion, and (ii) if such Warrant
is being converted in part only, a new Warrant exercisable for the number of
Warrant Shares equal to the unconverted portion of the Warrant. Upon any
exercise (which term, as used herein, shall include any exercise of the
Conversion Right) of this Warrant, in lieu of any fractional Warrant Shares to
which the Holder shall be entitled, the Company shall pay to the Holder cash in
accordance with the provisions of Section 5(d) hereof.
2. Issuance of Certificates. Upon each exercise of the Holder's
rights to purchase Warrant Shares, the Holder shall, as of the close of business
on such day, be deemed to be the holder of record of the Warrant Shares issuable
upon such exercise, notwithstanding that the transfer books of the Company shall
then be closed or certificates representing such Warrant Shares shall not then
have been actually delivered to the Holder. As soon as practicable after each
such exercise of this Warrant, the Company shall issue and deliver to the Holder
a certificate or certificates for the Warrant Shares issuable upon such
exercise, registered in the name of the Holder or its designee. If this Warrant
should be exercised in part only, upon surrender of this Warrant for
cancellation, the Company shall execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
3
<PAGE> 4
3. Recording of Transfer. Any warrants issued upon the transfer
or exercise in part of this Warrant shall be numbered and shall be registered in
an Warrant Register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his or its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new warrant or warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder hereof, for another warrant, or other warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause this Warrant to be transferred on its
books to any person if counsel to the Company reasonably requests a legal
opinion that such transfer does not violate the provisions of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder,
unless such opinion is delivered.
4. Reservation of Shares. The Company shall at all times reserve
and keep available out of its authorized and unissued Shares, solely for the
purpose of providing for the exercise of the warrants, such number of shares of
Shares as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Shares issuable upon exercise of this Warrant, upon
receipt by the Company of the full payment therefor, shall be validly issued,
fully paid, nonassessable and free of preemptive rights.
5. Exercise Price Adjustments. Subject to the provisions of this
Section 5, the Exercise Price in effect from time to time shall be subject to
adjustment, as follows:
(a) In case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on the outstanding Shares
payable in shares of its capital stock or securities convertible into or
exchangeable for capital stock, (ii) subdivide the outstanding Shares, (iii)
combine the outstanding Shares into a smaller number of shares, or (iv) issue
any shares by reclassification of the Shares (other than a
4
<PAGE> 5
change in par value, or from par value to no par value, or from no par value to
par value), then, in each case, the Exercise Price in effect, and the number of
Shares issuable upon exercise of the warrants outstanding, at the time of the
record date for such dividend or at the effective date of such subdivision,
combination or reclassification, shall be proportionately adjusted so that the
holders of the warrants after such time shall be entitled to receive upon
exercise of the warrant the aggregate number and kind of shares which, if such
warrants had been exercised immediately prior to such time, such holders would
have owned upon such exercise and immediately thereafter been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall distribute to all holders of
Shares (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
surviving or continuing corporation) evidences of its indebtedness, cash, or
assets (other than distributions and dividends payable as contemplated by
Section 5(a) above), or rights, options, or warrants to subscribe for or
purchase Shares or securities convertible into or exchangeable for Shares, then,
in each case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Price (as determined pursuant to Section
5(e) hereof) per Share on such record date, less the fair market value (as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Current Market Price per Share. Such adjustment shall become effective at the
close of business on such record date.
(c) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall within 15 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares issuable hereunder and the exercise price thereof after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(d) The Company shall not be required to issue fractions of
Shares or other shares of the Company upon the exercise of this Warrant. If any
fraction of a share would be issuable upon the exercise of this Warrant (or
specified portions
5
<PAGE> 6
thereof), the Company may issue a whole share in lieu of such fraction or the
Company may purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such Shares on the date of exercise of
this Warrant.
(e) The Current Market Price per Share on any date shall be
deemed to be the average of the daily closing prices for the five (5)
consecutive trading days immediately preceding the date in question. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or a similar organization
if Nasdaq is no longer reporting such information. If on any such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by Nasdaq or any similar organization, the fair value
of a share of Common Stock on such date, as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive
absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required if
such adjustment is less than $0.05; provided, however, that any adjustments
which by reason of this Section 5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
thousandth of a share, as the case may be.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in this Section 5, the warrants shall thereafter evidence
the right to purchase, at the adjusted Exercise Price, that number of Shares
(calculated to the nearest hundredth) obtained by dividing (i) the product
obtained by multiplying the number of Shares purchasable upon exercise of the
warrants prior to adjustment of the number of Shares by the Exercise Price in
effect prior to adjustment of the Exercise Price by (ii) the Exercise Price in
effect after such adjustment of the Exercise Price.
6. (a) Consolidations and Mergers. In case of any consolidation
with or merger of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving or continuing
corporation and which does not result in any reclassification of the outstanding
Shares or the conversion of such outstanding Shares into shares of other stock
or other securities or property), or in case of any sale, lease or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
6
<PAGE> 7
deliverable upon exercise of this Warrant (in lieu of the number of Shares
theretofore deliverable) the kind and amount of shares of stock or other
securities, cash or other property which would otherwise have been deliverable
to a holder of the number of Shares upon the exercise of this Warrant upon such
Reorganization if this Warrant had been exercised in full immediately prior to
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of this Warrant. Any such
adjustment shall be made by and set forth in a supplemental agreement between
the Company, or any successor thereto, and the Holder and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or prior to the consummation
thereof the successor corporation, or if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of Shares
outstanding at the effective time thereof, then such issuer, shall assume by
written instrument the obligation to deliver to the Holder such shares of stock,
securities, cash or other property as the Holder shall be entitled to purchase
in accordance with the foregoing provisions.
(b) In case of any reclassification or change of the Shares
issuable upon exercise of this Warrant (other than a change in par value or from
no par value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the Shares (other than a change in
par value, or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
upon such reclassification, change, consolidation or merger by a holder of the
number of Shares for which this Warrant might have been exercised immediately
prior to such reclassification, change, consolidation or merger. Thereafter,
appropriate provision shall be made for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
7
<PAGE> 8
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of Shares and to successive
consolidations, mergers, sales, leases, or conveyances.
7. Notice of Certain Events. In case at any time any of the
following occur:
(a) The Company shall take a record of the holders of its
Shares for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Shares
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) The Company shall take any action to effect any
reclassification or change of outstanding Shares or any consolidation, merger,
sale, lease or conveyance of property, described in Section 6; or
(d) The Company shall take any action to effect any
liquidation, dissolution or winding-up of the Company or a sale of all or
substantially all of its property, assets and business;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least
fifteen (15) days prior to (i) the date as of which the holders of record of
Shares to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined, (ii) the date on which any
such offer to holders of Shares is made, or (iii) the date on which any such
reclassification, change of outstanding Shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution or winding-up is
expected to become effective and the date as of which it is expected that
holders of record of Shares shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution or winding-up. Nothing herein shall allow a
Holder to delay or prevent any of the foregoing actions.
8
<PAGE> 9
8. Registration Rights.
(a) The holders of the Warrant or Warrant Shares (the
"Eligible Holders") shall be entitled to the same registration rights and rights
included therein as the purchasers of securities of the Company are entitled to
pursuant to the Subscription Agreements, dated December 12, 1997 (as amended on
December 23, 1997 and December 31, 1997), December 23, 1997, December 31, 1997
and January 5, 1998, among the purchasers described therein and the Company (
the "Subscription Agreements"); provided, however, that the Eligible Holders
shall not be entitled to receive any additional shares as compensation for any
failure of the Company to file a timely registration statement in accordance
with the terms of the Subscription Agreements.
(b) The Company agrees that until all the Warrant Shares have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall, so long as it is so required by applicable law, timely file all
reports, statements and other materials required to be filed with the Commission
to permit holders of the Warrant Shares to sell such securities under Rule 144,
for a period of up to five years from the date hereof.
(c) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents and counsel, and each person, if any, who
controls any such person within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
from and against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 8, without
limitation, reasonable attorneys' fees and any and all expense whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Warrant Shares, or (B) in any application or other document or
communication (in this Section 8 collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to register or
qualify any of the Warrant Shares under the securities or blue sky laws thereof
or filed with the Commission or any securities exchange; or any omission or
alleged
9
<PAGE> 10
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to such Eligible Holder by or on behalf of such
person expressly for inclusion in any registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be, or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Warrant. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of
its officers, directors, partners, employees, agents or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnify may be sought against the Company pursuant to the foregoing paragraph,
such indemnified party or parties shall promptly notify the Company in writing
of the institution of such action (but the failure so to notify shall not
relieve the Company from any liability other than pursuant to this Section 8(c)
and shall not relieve the Company from any liability pursuant to this Section
8(c) except to the extent the Company has been prejudiced in any material
respect by such failure) and the Company shall promptly assume the defense of
such action, including the employment of counsel (reasonably satisfactory to
such indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it or them
or to other indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses of one
counsel shall be borne by the Company, and the Company shall not have the right
to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 8 to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent, which shall not be unreasonably withheld. The
Company shall not, without the prior written consent (which shall not be
unreasonably withheld) of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnify may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent or termination includes an
10
<PAGE> 11
unconditional release of each indemnified party from all liability in respect of
such action. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of any Warrant Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Warrant
Shares.
(d) Each of the Holder and any Eligible Holder agrees to
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed any registration statement covering
Warrant Shares held by the Holder and any Eligible Holder, each other person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and its or their respective counsel, to the
same extent as the foregoing indemnity from the Company to the Holder in Section
8(c), but only with respect to statements or omissions, if any, made in any
registration statement or final prospectus, or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder by or on behalf
of the Holder or with respect to any Eligible Holder or by on on behalf of such
Eligible Holder expressly for inclusion in any such registration statement or
final prospectus, or any amendment or supplement thereto, or in any application,
as the case may be; provided, however, that the Holder and each Eligible Holder
shall be liable only for written information furnished to the Company by it or
on its own behalf for inclusion in a registration statement; and provided,
further, that no Eligible Holder shall be liable in an amount greater than the
net proceeds received by such Eligible Holder in connection with the applicable
registration. If any action shall be brought against the Company or any other
person so indemnified based on any such registration statement or final
prospectus, or any amendment or supplement thereto, or in any application, and
in respect of which indemnity may be sought against the Holder pursuant to this
Section 8(c), the Holder and each Eligible Holder, as the case may be, shall
have the rights and duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(d).
(e) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(c) or
8(d) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
11
<PAGE> 12
respective counsel), as one entity, and the Eligible Holders of the Warrant
Shares included in such registration in the aggregate (including for this
purpose any contribution made by or on behalf of an indemnified party), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 8(e). In no case shall any Eligible Holder be responsible for
a portion of the contribution obligation imposed on all Eligible Holders in
excess of its pro rata share based on the number of shares of Common Stock owned
(or which would be owned upon exercise of all Warrants) by it and included in
such registration as compared to the number of shares of Common Stock owned (or
which would be owned upon exercise of all Warrants) by all Eligible Holders and
included in such registration nor shall any Eligible Holder be responsible for
an amount greater than the net proceeds received by such Eligible Holder in
connection with the applicable registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(e), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent and counsel of each such Eligible Holder or control person shall have the
same rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 8(e).
Anything in this Section 8(e) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of
12
<PAGE> 13
any claim or action effected without its written consent. This Section 8(e) is
intended to supersede any right to contribution under the Act, the Exchange Act
or otherwise.
9. Taxes. The issuance of any shares or other securities upon the
exercise of this Warrant and the delivery of certificates or other instruments
representing such shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder (except for any tax that is payable in respect of
any such transfer and any related exercise of this Warrant and that would be
payable pursuant to the first sentence of this Section 9 were such certificate
to be issued in the name of the Holder) and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. Legend. Unless registered pursuant to the provisions of
Section 8 hereof, the certificate or certificates evidencing the Warrant Shares,
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR STATE SECURITIES LAWS, BUT HAVE BEEN ISSUED OR
TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT. NO DISTRIBUTION, SALE, OFFER FOR SALE,
TRANSFER, DELIVERY, PLEDGE, OR OTHER DISPOSITION OF THESE
SECURITIES MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH THE ACT, ANY
APPLICABLE STATE LAWS, AND THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION AND STATE AGENCIES PROMULGATED
THEREUNDER."
In addition, if, after the Warrant Shares are registered pursuant to Section
8(a) hereof, the Holder wishes to have the original legend removed, then the
certificate or certificates evidencing the Warrant Shares shall bear the
following legend:
13
<PAGE> 14
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, UNLESS COUNSEL OF COMPANY ADVISES IN
WRITING THAT SUCH POST-EFFECTIVE AMENDMENT IS NOT REQUIRED, IN
WHICH EVENT SUCH SHARES MAY BE OFFERED PURSUANT TO THE ORIGINAL
REGISTRATION STATEMENT PURSUANT TO WHICH THESE SHARES HAVE BEEN
REGISTERED, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
11. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses and execution of a reasonable
lost security indemnification agreement, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor and denomination.
12. No Rights as Stockholder. The Holder of any Warrant shall not
have, solely on account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in
this Warrant.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first
page of this Warrant or to such other address as the Company may designate by
notice to the Holder.
14
<PAGE> 15
14. Successors. All the covenants, agreements, representations
and warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
15. Headings. The Article and Section headings in this Warrant
are inserted for purposes of convenience only and shall have no substantive
effect.
16. Governing Law. This Warrant shall be construed in accordance
with the laws of the State of New York applicable to contracts made and
performed within such State, without regard to principles of conflicts of law.
17. Modification of Agreement. This Warrant shall not otherwise
be modified, supplemented or amended in any respect unless such modification,
supplement or amendment is in writing and signed by the Company and the Holder
of this Warrant and Holders of any portion of the Warrant subsequently assigned
or transferred in accordance with the terms of this Warrant.
18. Consent to Jurisdiction. The Company and the Holder
irrevocably consent to the jurisdiction of the courts of the State of New York
and of any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Warrant, any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Warrant, or a breach of this Warrant or any such document or instrument. In any
such action or proceeding, the Company waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 13 hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument
as of the date set forth below.
Dated: January 6, 1998 LXR BIOTECHNOLOGY INC.
By:___________________________________
Name:_________________________________
Title:________________________________
15
<PAGE> 1
EXHIBIT 5.1
January 30, 1998
24052-0001
LXR Biotechnology Inc.
1401 Marina Way South
Richmond, CA 94804
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to LXR Biotechnology Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 which the Company proposes to file with the Securities and Exchange
Commission on or about January 30, 1998 (the "Registration Statement") for the
purpose of registering under the Securities Act of 1933, as amended (the
"Securities Act"), a secondary offering of 6,401,568 shares of its Common Stock,
$0.0001 par value (the "Shares"). The Shares offered include 9,747 shares
issuable upon the exercise of an outstanding option (the "Option Shares") and
571,429 shares issuable upon the exercise of an outstanding warrant (the
"Warrant Shares").
We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
records, documents and instruments submitted to us as copies. In rendering our
opinion, we have examined the following documents:
(a) The Certificate of Incorporation of the Company certified by the
Secretary of State of the State of Delaware as of January
26,1998, and certified to us by an officer of the Company as
being complete and in full force and effect as of the date of
this opinion;
(b) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the
date of this opinion;
<PAGE> 2
LXR Biotechnology Inc. Heller Ehrman White & McAuliffe
January 30, 1998 ATTORNEYS
Page 2
(c) A Certificate of the Chief Financial Officer of the Company: (i)
attaching records certified to us as constituting all records of
proceedings and actions of the Board of Directors of the
Company, including any committee thereof, relating to the
Shares; and (ii) certifying as to certain factual matters;
(d) The Registration Statement;
(e) Option dated May 13, 1994 (reissued December 9, 1996) (the
"Option");
(f) Share Purchase Warrant dated January 6, 1998 (the "Warrant");
and
(g) A letter dated January 27, 1998 from Continental Stock Transfer
& Trust Company, the Company's transfer agent, as to the number
of shares of Company's Common Stock outstanding as of January
27, 1998.
This opinion is limited to the federal laws of the United States of
America, the laws of the State of California and the General Corporation Law of
the State of Delaware. We disclaim any opinion as to the laws of any other
jurisdiction. We further disclaim any opinion as to any other statute, rule,
regulation, ordinance, order or other promulgation of any other jurisdiction or
any regional or local governmental body or as to any related judicial or
administrative opinion.
Based upon the foregoing and our examination of such questions of law as
we have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold; (ii) the Option Shares
and Warrant Shares are issued, delivered and paid for in accordance with the
terms of the Option and Warrant, respectively; and (iii) all applicable
securities laws are complied with, it is our opinion that:
1. The Shares covered by the Registration Statement, excluding the
Option Shares and Warrant Shares, are validly issued, fully paid and
nonassessable; and
2. The Option Shares and Warrant Shares covered by the Registration
Statement will be validly issued, fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of
<PAGE> 3
LXR Biotechnology Inc. Heller Ehrman White & McAuliffe
January 30, 1998 ATTORNEYS
Page 3
any change of law that occurs, or any facts of which we become aware, after the
date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ HELLER EHRMAN WHITE & MCAULIFFE
<PAGE> 1
EXHIBIT 10.1
December 11, 1997
LXR Biotechnology Inc.
1401 Marina Way South
Richmond, CA 94804-3746
Attention: L. David Tomei, Ph.D.
Chairman and Chief Executive Officer
Gentlemen:
The purpose of this letter is to outline our agreement pursuant to which
Sunrise Securities Corp. ("Sunrise") will act as placement agent in connection
with a "best efforts" private placement (the "Offering") of securities of LXR
Biotechnology Inc. (the "Company").
The terms of our agreement are as follows:
1. The Offering shall consist of the sale of a minimum of
$5,000,000 and a maximum of $10,000,000 of the Company's Common
Stock ("Shares") at a price ("Sales Price") of not less than
$1.75 per share. Sunrise will act as placement agent, subject
to, among other things, completion of its due diligence
examination.
2. The commission to Sunrise shall be 6.5% of the gross sales price
of shares sold in this Offering. Sunrise shall also be
reimbursed for all documented out-of-pocket expenses incurred in
connection with the Offering subject to a maximum of 2% of the
gross proceeds. Such commission and expenses may be paid, at
Sunrise's option, in shares of the Company's Common Stock valued
at the Sales Price ("Commission Shares"). The Commission Shares
shall have substantially the same registration rights as granted
to the Subscribers for the shares sold in the offering,
provided, however, that
<PAGE> 2
Sunrise should not be entitled to receive additional
compensation in the event the Company should fail to file a
timely Registration Statement.
3. As soon as practicable, the necessary state securities law
filings will be made with respect to the Offering. The Company
and Sunrise will cooperate in obtaining the necessary approvals
and qualifications in such states as Sunrise deems desirable.
4. Subscribers for the shares sold in the Offering will receive
certain registration rights for the resale of such shares. The
Company shall, at its expense, (i) not later than the earlier of
(x) January 30, 1998 or (y) 30 business days after the final
closing of the offering of which the Shares are a part (in
either case, the "Filing Deadline") file a registration
statement (the "Registration Statement") with the Securities and
Exchange Commission ("Commission") to register under the Act the
resale by the subscribers of the Shares, (ii) use its reasonable
best efforts to cause the Registration Statement to become
effective under the Act as promptly as practicable, (iii) after
the Registration Statement is declared effective under the Act,
furnish subscribers with such number of copies of the prospectus
(the "Prospectus") included in the Registration Statement as the
subscribers may reasonably request to facilitate the resale of
the Shares; and (iv) use its reasonable best efforts to cause
such Registration Statement to remain effective until such time
as the subscribers become eligible to resell the Shares pursuant
to Rule 144. In the event that the Company shall fail to file a
timely Registration Statement in accordance with the above, the
Company shall issue to the subscribers, as compensation
therefor, shares of Common Stock equal to (I) 1% of the Shares
for each 30 days or part thereof the filing is delayed until 60
days after the Filing Deadline and (ii) 2% of the Shares for
each 30 days or part thereof the filing is delayed from 60 days
after the filing Deadline; provided, however, that the Company
shall not be required to issue such shares if such failure has
been caused by the failure of the subscribers to provide
information in connection with the Registration Statement.
5. Concurrent with the closing of the Offering, the Company shall
sell to Sunrise (or its designees) purchase warrants (the
"Agent's Warrants") covering a number of shares of Common Stock
sold in the Offering, inclusive of the Commission Shares, if
any, issued to Sunrise. The price of the Agent's Warrants shall
be one mil ($0.001) per option. Such warrants will expire five
years after the Offering closes. The Agent's Warrants will be
exercisable at a price of $2.00 per share. The Agent's Warrants
shall not be redeemable. The Company will register the
underlying shares under the
<PAGE> 3
Act concurrently with the registration of the shares sold in the
Offering and the Commission Shares, if any, issued to Sunrise.
The Agent's Warrants may be exercised as to all or a lesser
number of the shares represented thereby and will contain
provisions substantially similar to those contained in the
warrants issued to Sunrise in connection with the private
placement pursuant to the Confidential Private Memorandum dated
October 30, 1996.
6. The Company shall provide, at its cost, such opinions of counsel
and letters from auditors as shall be reasonably requested by
Sunrise. Any such opinions or letters addressed to any
subscribers in the Offering shall also be addressed to Sunrise,
and Sunrise shall be entitled to rely thereon.
7. Sunrise shall be entitled to rely upon any officer's certificate
delivered in connection with any closing of the Offering and
upon the representations and warranties made by the Company in
the Subscription Agreement for the Offering. The Company agrees
to indemnify and hold harmless Sunrise, its officers, directors,
stockholders, employees, agents, advisors, consultants and
counsel against any and all loss, liability, claim, damage and
expense whatsoever including attorneys' fees as and when
incurred due to or arising out of any breach of any
representation or warranty made by the Company set forth
therein.
Please indicate your agreement to the terms set forth in this letter by
signing where indicated below.
Very truly yours,
/s/ PRESTON TSAO
----------------------------------
Preston Tsao
Managing Director
ACCEPTED AND AGREED TO
LXR BIOTECHNOLOGY INC.
By: /s/ L. DAVID TOMEI
----------------------------------
L. David Tomei, Ph.D.
Chairman & Chief Executive Officer
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
LXR Biotechnology, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 30, 1998
