<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
OR
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 1-12968
LXR BIOTECHNOLOGY INC.
----------------------
(Exact name of issuer as specified in its charter)
Delaware 68-0282856
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3095 Richmond Parkway, Suite 213, Richmond, California 94806
------------------------------------------------------------
(Address of principal executive offices)
(510) 758-4396
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
At November 1, 1999, the number of outstanding shares of the Registrant's Common
Stock, par value $0.0001, was 29,657,489.
<PAGE> 2
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1999 and
1998 and for the period from April 20, 1992 (date of
incorporation) through September 30, 1999 4
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1999 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 and for the period
from April 20, 1992 (date of incorporation) through
September 30, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
------ ------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 898,392 $ 3,495,582
Prepaid expenses 50,236 93,811
Other receivables 11,196 133,339
------------ ------------
Total current assets 959,824 3,722,732
Equipment and leasehold improvements,
net of accumulated depreciation 68,384 975,284
Notes receivable from related parties 100,000 180,000
Deposits and other assets 15,970 40,898
------------ ------------
Total assets $ 1,144,178 $ 4,918,914
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 120,433 $ 289,542
Accrued payroll related expenses 10,499 133,635
Other accrued liabilities 185,453 36,777
Litigation settlement payable - 170,000
Deferred rent obligation - 317,564
Short-term portion of note payable - 199,388
------------ ------------
Total current liabilities 316,385 1,146,906
Note payable, excluding short-term portion - 193,459
------------ ------------
Total liabilities 316,385 1,340,365
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued or outstanding - -
Common stock, $0.0001 par value; 60,000,000
shares authorized; 29,839,501 and 28,691,669
shares issued and outstanding at September 30,
1999 and December 31, 1998, respectively 2,954 2,839
Common stock to be issued; 137,099 shares and 75,000
at September 30, 1999 and December 31, 1998, respectively 14 8
Additional paid-in capital 47,730,522 46,176,875
Deficit accumulated during the development stage (46,890,522) (42,585,998)
Treasury stock, at cost; 182,012 shares at
September 30, 1999 and December 31, 1998 (15,175) (15,175)
------------ ------------
Total stockholders' equity 827,793 3,578,549
------------ ------------
Total liabilities and stockholders' equity $ 1,144,178 $ 4,918,914
============ ============
See accompanying notes to condensed consolidated financial statements
</TABLE>
3
<PAGE> 4
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
April 20, 1992
(Date of
Three months Nine Months Incorporation)
Ended September 30, Ended September 30, through
---------------------------- ----------------------------- September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Grant revenue $ -- $ -- $ -- $ -- $ 171,744
Funded research -- -- -- -- 215,703
License fee revenue -- 50,000 -- 50,000 1,050,000
------------ ------------ ------------ ------------ ------------
Total revenues -- 50,000 -- 50,000 1,437,447
------------ ------------ ------------ ------------ --------------
Expenses:
Research and development 277,189 1,284,914 2,630,760 5,040,079 32,826,346
General and administrative 455,696 808,125 1,902,481 3,060,321 16,664,619
------------ ------------ ------------ ------------ ------------
Total expenses 732,885 2,093,039 4,533,241 8,100,400 49,490,965
------------ ------------ ------------ ------------ ------------
Loss from operations (732,885) (2,043,039) (4,533,241) (8,050,400) (48,053,518)
------------ ------------ ------------ ------------ ------------
Other income (expense), net:
Gain on disposal of assets 184,781 -- 184,781 -- 184,781
Interest income 12,390 87,716 71,847 353,796 1,485,453
Interest expense -- (18,635) (26,711) (61,135) (498,033)
------------ ------------- ------------ ------------- ------------
Total other income, net 197,171 69,081 229,917 292,661 1,172,201
------------ ------------ ------------ ------------ ------------
Loss before income taxes (535,714) (1,973,958) (4,303,324) (7,757,739) (46,881,317)
Income taxes 400 400 1,200 1,200 9,200
------------ ------------ ------------ ------------ ------------
Net loss $ (536,114) $ (1,974,358) $ (4,304,524) $ (7,758,939) $(46,890,517)
============ ============ ============ ============ ============
Net loss per share $ (0.02) $ (0. 07) $ (0.15) $ (0. 28)
=========== ============ =========== ============
Weighted average shares used
to compute net loss per share 29,794,588 28,579,869 29,409,962 28,093,525
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statement of Stockholders' Equity
For the nine months ended September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Common stock
Preferred stock Common Stock to be issued
----------------- ------------------- ---------------- Additional
Shares Shares paid-in
issued Amount issued Amount Shares Amount capital
-------- ------ ----------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 -- $ -- 28,691,669 $2,839 75,000 $ 8 $46,176,875
Issuance of common stock to be issued on acquisition of
Cardiosol technology -- -- 75,000 8 (75,000) (8) --
Private placement of common stock -- -- 1,060,000 106 -- -- 999,894
Common stock to be issued to Boehringer Mannheim -- -- -- -- 137,099 14 199,986
Stock options exercised -- -- 12,832 1 -- -- 384
Stock options granted -- -- -- -- -- -- 234,703
Stock option repricing -- -- -- -- -- -- 118,680
Net loss -- -- -- -- -- -- --
-------- ------ ----------- ------ --------- ------ ------------
Balances at September 30, 1999 -- $ -- 29,839,501 $2,954 137,099 $ 14 $47,730,522
======= ====== ========== ====== ======= ==== ===========
Deficit
accumulated Treasury stock
during the ----------------------- Total stock-
development Shares holders'
stage repurchased Amount equity
------------ ---------- -------- -----------
Balances at December 31, 1998 $(42,585,998) (182,012) $(15,175) $ 3,578,549
Issuance of common stock to be issued on acquisition of
Cardiosol technology -- -- -- --
Private placement of common stock -- -- -- 1,000,000
Common stock to be issued to Boehringer Mannheim -- -- -- 200,000
Stock options exercised -- -- -- 385
Stock options granted -- -- -- 234,703
Stock option repricing -- -- -- 118,680
Net loss (4,304,524) -- -- (4,304,524)
------------ ---------- -------- -----------
Balances at September 30, 1999 $(46,890,522) (182,012) $(15,175) $ 827,793
============ ========== ======== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
April 20, 1992
(Date of
Incorporation)
through
Nine months Ended September 30, September 30,
1999 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities: $(3,914,221) $(7,648,738) $(42,079,605)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of investments - - (3,910,150)
Purchase of equipment and leasehold
improvements (15,990) (67,191) (2,487,953)
Proceeds from sale of assets 525,483 525,483
Proceeds from maturity of investments - - 4,000,000
Loans to related parties - (150,000) (355,000)
Repayment of loans to related parties - - 125,000
----------- ----------- ------------
Net cash used in investing activities 509,493 (217,191) (2,102,620)
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 1,200,000 1,368,250 42,151,942
Proceeds from notes payable to related parties - - 4,694,500
Proceeds from line of credit - - 375,000
Proceeds from equipment loan - - 701,249
Repayment of notes payable and line of credit (392,847) (139,611) (2,282,360)
Principal payments for obligations under
capital lease - - (776,513)
Payments received for notes receivable from
stockholders - - 2,147
Repurchase of common stock - - (1,510)
Net proceeds from exercise of warrants - 92,219 111,724
Net proceeds from exercise of stock options 385 100,646 104,438
----------- ----------- ------------
Net cash provided by financing
activities 807,538 1,421,504 45,080,617
----------- ----------- ------------
Net increase (decrease) in cash and cash (2,597,190) (6,444,425) 898,392
equivalents
Cash and cash equivalents at beginning of
period 3,495,582 11,536,687 -
----------- ----------- ------------
Cash and cash equivalents at end of period $ 898,392 $ 5,092,262 $ 898,392
============ ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and contain all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Company's financial position as of September 30,
1999, results of operations for the three and nine months ended
September 30, 1999 and 1998 and for the period from April 20, 1992 (date
of incorporation) to September 30, 1999, cash flows for the nine months
ended September 30, 1999 and 1998 and for the period from April 20, 1992
(date of incorporation) to September 30, 1999, and changes in
stockholders' equity for the nine months ended September 30, 1999.
These condensed consolidated financial statements should be read in
conjunction with the Company's 1998 audited consolidated financial
statements, which are included as part of the Company's 1998 Annual
Report on Form 10-K.
The Company's condensed consolidated financial statements include the
accounts and results of operations of the Company and its wholly owned
subsidiary, Optical Analytic, Inc. (OAI). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company has incurred losses since its inception and expects to incur
additional losses for the foreseeable future. The Company does not have
any committed sources of future equity or debt funding. The Company has
implemented certain cost containment measures and currently expects to
exhaust its remaining cash reserves in the first quarter of 2000. If the
Company reestablishes itself as an operating company, it would need to
raise substantial additional capital to fund its operations, including
the development of its lead compounds. The Company has no immediate
plans to seek such additional funding and will decide on its next steps
in the near future, which may include the winding up of its operations
and the sale or auction of its remaining non-cash assets, although no
such decision has yet been made by the Company.
The Company's independent auditors have issued their report on the 1998
Consolidated Financial Statements which states in part that the Company
has suffered recurring losses and has limited liquidity, both of which
raise substantial doubt about the ability of the Company to continue as
a going concern.
(2) CAPITAL STOCK
In January 1999, the Company issued 75,000 shares of the Company's
common stock in connection with the acquisition of certain patent and
other rights related to Cardiosol, a preservation solution for use
during heart transplantation ("the Cardiosol Acquisition"). These shares
were valued at the fair market value on the date the agreement was
entered into. At December 31, 1998 the 75,000 shares were included in
common stock to be issued.
In March 1999, the Company raised approximately $1,000,000 through the
sale of 1,000,000 shares of the Company's common stock at a price of
$1.00 per share (the "March 1999 Private Placement"). The Company also
issued 60,000 shares as a sales commission in connection with the March
1999 Private Placement.
As of September 30, 1999, warrants to purchase 1,689,958 shares of the
Company's common stock remained outstanding.
7
<PAGE> 8
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(3) STOCK OPTION PLANS
The following summarizes the Company's stock option activity during the
nine months ended September 30, 1999:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
Balance as of December 31, 1998 3,860,729
Options granted 61,000
Options canceled or expired (3,726,623)
Options exercised (12,832)
----------
Balance as of September 30, 1999 182,274
==========
</TABLE>
In June 1999, the Company's stockholders approved an amendment to the
1993 Stock Option Plan to increase the shares of common stock authorized
for issuance from 3,849,850 shares to 4,849,850 shares.
The Company recorded expense of approximately $119,000 in the nine
months ended September 30, 1999 as a result of its October 1998
repricing of stock options.
(4) OPERATING LEASE
In June 1999, the Company signed a lease termination agreement for its
facility. Under the terms of the agreement, the Company paid $66,000 in
cash, forfeited a security deposit of approximately $23,000, and
transferred title to leasehold improvements with a net book value of
approximately $340,000 to the landlord in exchange for the termination
of the lease agreement. The book value of the leasehold improvements
approximated the fair value, and was offset against the deferred rent
balance. The cash paid and deposit forfeited were amortized to rent
expense over the remaining three months of the lease.
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
In July 1999, the Company auctioned equipment with a net book value of
approximately $342,000. The net proceeds of the auction were
approximately $525,000.
(6) RELATED PARTY TRANSACTIONS
In September 1999, the Company terminated its consulting agreement with
Dr. L. David Tomei. Under the terms of the termination agreement, dated
as of June 10, 1999, the Company paid Dr. Tomei a total of $240,000,
forgave the $30,000 note receivable from Dr. Tomei and granted Dr. Tomei
rights in certain urine DNA analysis technology that is not being
developed by the Company, in exchange for the release of the Company
from any further compensation obligation under the consulting agreement,
the cancellation of Dr. Tomei's options to purchase Common Stock of the
Company, and the mutual release of any claims between Dr. Tomei and the
Company. The $240,000 payment and the $30,000 loan forgiveness are
included in research and development expenses for the nine months ended
September 30, 1999.
In June 1999, in connection with the resignation of Paul Hastings as
President and Chief Executive Officer of the Company, the Board of
Directors requested that Mr. Hastings continue as a Director of the
Company and manage and supervise, on a part-time basis, the Company's
operations. Based on his continued service on behalf of the Company, the
Board did not accelerate the repayment by Mr. Hastings of the loan from
the Company in the aggregate amount of $150,000, which is due on
September 8, 2001. As a result of his continued service, $50,000 of the
amount owed under the note was forgiven pursuant to the terms of the
note, effective August 13, 1999 and was included in general and
administrative expenses for the nine months ended September 30, 1999.
In addition, the Board agreed to pay Mr. Hastings a bonus in an
appropriate amount to be determined, for continuing to act on behalf of
the Company.
(7) LITIGATION
The Company and five of its past or present directors and officers are
named as defendants in Katz vs. Blech, ("Katz") and Degulis vs. LXR
Biotechnology Inc., et al. ("Degulis"). One of the five, Mark Germain, a
former director and former chairman of the Company, is named as a
defendant in the above two cases and also in In re Blech Securities
Litigation, ("In re Blech"). In addition, L. Scott Minick,
8
<PAGE> 9
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(7) LITIGATION, CONTINUED
James D. Coombes and Mark J. Tomei, all former directors and former
officers of the Company, are defendants in Katz and Degulis; and
Christopher Henney, a former director, is a defendant in Katz. The
Company was previously named as a defendant in In re Blech but was
dismissed by the Court on June 6, 1996.
All three cases are brought on behalf of classes of persons purchasing
common shares of the Company prior to September 21, 1994, and assert
claims arising out to the Company's Initial Public Offering and
subsequent trading of those shares.
The Company announced on January 25, 1999, that it has reached an
agreement in principle with plaintiffs' class action counsel to settle
the above litigation against the Company and the five former officers
and directors. The agreement provides for payment of $500,000, of which
approximately $155,000 was paid by the Company and approximately
$345,000 is to be paid by the Company's insurer. The amount paid by the
Company is being held in an escrow account by the Company's attorneys
and is not included in the cash balance at September 30, 1999.
The settlement agreement is subject to negotiation and execution of a
detailed stipulation of settlement between the parties, submission of
the stipulation of settlement to the court, provision of notice to class
members of the settlement terms, a fairness hearing, and financial
approval of the settlement by the court. The Company cannot predict
exactly how long these procedures will take or when final dismissal will
be obtained.
The above settlement agreement does not constitute an acknowledgement of
wrongdoing by the Company or its former officers and directors.
The Company has also settled a claim for indemnity from the independent
underwriter in the initial public offering by payment of $12,500.
During the nine months ended September 30, 1999 and 1998, the Company
incurred expenses of approximately $28,000 and $16,000, respectively,
relating to this litigation. As of September 30, 1999, $155,000 has been
paid into an escrow account for payment of the proposed settlement and
is not included in the cash balance at September 30, 1999.
(8) SUBSEQUENT EVENT
In October 1999, The University of Tennessee filed a complaint against
the Company seeking damages in the amount of $70,000, and interest and
costs, based on amounts alleged to be due under a research agreement.
The Company is defending the action and believes that it has valid
defenses to the claims asserted against it.
9
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Except for historical information, the following Management's Discussion
and Analysis of Financial Condition and Results of Operations contains
forward looking statements regarding, among other things, whether we will
continue as a going concern; decisions about our business, operations and
product development plans; the prospects for realizing revenues or profits
from our products or technology; and the adequacy of our cash resources
for continuing as an operating company. These forward looking statements
concern matters that involve risks and uncertainties that could cause
actual results to differ materially from those projected in the forward
looking statements. Words such as "believe," "expects," "likely," "may"
and "plans" are intended to identify forward looking statements, although
not all forward looking statements contain these words. The following
discussion and analysis should be read in conjunction with our financial
statements and accompanying notes included herein, our Annual Report on
Form 10-K for the year ended December 31, 1998, and our quarterly reports
on Form 10-Q for March 31, 1999 and June 30, 1999.
OVERVIEW
In April 1999, we announced the preliminary results from preclinical
studies of Elirex(TM), our drug candidate for treatment of heart attack.
The preliminary results suggested that Elirex(TM) did not reduce infarct
size in three of four preclinical studies conducted. In a fourth
preclinical study, Elirex(TM) appeared to reduce infarct size by 33% in a
pretreatment model of ischemia/reperfusion. Given the results of these
preclinical studies, our need for cash to continue the preclinical
development of these compounds and our cash-burn rate, we implemented a
cash conservation plan while we are identifying strategic alternatives. We
also retained US Bancorp Piper Jaffray to assist us in identifying
strategic alternatives. As part of our cash conservation plan, we effected
a layoff of 18 employees, signed a lease termination agreement for our
research laboratory and administrative offices and sold our laboratory
equipment and other personal property in a public auction.
Currently, our employees consist of one administrative employee and one of
our Directors who is supervising our operations on an unpaid, part-time
basis. We currently expect our cash resources to be exhausted in the first
quarter of 2000. To date, our evaluation of strategic alternatives has not
resulted in the identification of a purchaser of our technology or a
transaction that would provide shareholders with a return on their
investment, and we have advised US Bancorp Piper Jaffray that it would not
be worthwhile for it to continue its services on our behalf. As a result,
we anticipate that we may wind up our operations in the near future and
sell or auction off our remaining assets, including our technology and
product candidates, although we have not yet decided to do so.
Our independent auditors have issued their report on our 1998 Consolidated
Financial Statements which states in part that we have suffered recurring
losses and have limited liquidity, both of which raise substantial doubt
about our ability to continue as a going concern.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
We did not generate any revenues for the three and nine months ended
September 30, 1999 and 1998. We do not have any commercially available
products, and do not at present anticipate generating any significant
product revenues for the foreseeable future.
Research and development expenses included salaries and related benefits,
laboratory supplies, depreciation of equipment, facility costs, consulting
fees, research collaboration expenses, toxicology study costs, contract
manufacturing expenses, legal fees for patents and other research related
expenditures. We incurred research and development expenses of
approximately $277,000 and $2,631,000 for the three and nine months ended
September 30, 1999 and approximately $1,285,000 and $5,040,000 for the
three and nine months ended September 30, 1998. The decrease in research
and development costs from 1998 to 1999 is primarily due to decreased
salary and benefits costs resulting from the reduction of personnel in
June 1998 and the further reduction of personnel in April 1999, decreased
supply costs resulting from the reduction in personnel, and decreased
research collaboration costs resulting from the termination of the
agreement with Oxford Asymmetry Limited in April 1998, partially offset by
an increase in preclinical animal study costs for Cardiosol and Elirex and
severance paid to terminated employees.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998 (CONTINUED)
We expect research and development expenses to continue to decrease in
1999, as a result of the reduction of personnel in April 1999. Our
expenditures will also be limited by our efforts to maintain enough cash
to operate into the first quarter of 2000. See "Liquidity and Capital
Resources" below.
General and administrative expenses consist of salaries and related
benefits, legal expenses for litigation and general corporate matters,
depreciation of office furniture and equipment, facility costs, consulting
fees and other administrative expenses. We incurred general and
administrative expenses of approximately $456,000 and $1,902,000 for the
three and nine months ended September 30, 1999, and $808,000 and
$3,060,000 for the three and nine months ended September 30, 1998. The
decrease in 1999 compared to 1998 is primarily due to reductions in salary
and benefit costs resulting from the reduction in personnel; severance
costs paid to a former officer; compensation expense related to option
grants; and legal fees. These reductions were partially offset by
severance paid to terminated employees. General and administrative
expenses are expected to continue to decrease as a result of the reduction
of personnel in April 1999.
Interest income was approximately $12,000 and $72,000 for the three and
nine months ended September 30, 1999 and $88,000 and $354,000, for the
three and nine months ended September 30, 1998. The decrease in interest
income in 1999 compared to 1998 is primarily due to the decrease in the
cash balance. Interest expense was $0 and approximately $27,000 for the
three and nine months ended September 30, 1999, and $19,000 and $61,000
for the three and nine months ending September 30, 1998. The decrease in
interest expense in 1999 compared to 1998 is due to the paydown of the
equipment loan obtained during 1997. We expect interest expense in 1999 to
decrease further due to the payoff of our equipment loan in June 1999.
We incurred net losses of approximately $536,000 and $4,305,000 for the
three and nine months ended September 30, 1999 and $1,974,000 and
$7,759,000, for the three and nine months ended September 30, 1998. As of
September 30, 1999, we had an accumulated deficit of approximately
$46,891,000. We expect to continue to incur losses for the foreseeable
future.
YEAR 2000
We have completed our assessment of the impact of the "year 2000" problem
and believe our systems that are critical to our business operations will
be able to recognize a date using "00" as the year 2000. In addition, we
have asked our vendors that provide certain outside services we rely upon,
such as payroll, banking services and research organizations, to determine
their year 2000 readiness. While we believe these service providers will
be ready for the year 2000, failure of any of them to be ready for the
year 2000 could be disruptive to our business operations if their systems
are unavailable for an extended period of time. However, we believe our
business operations would not be materially adversely affected by the
disruption of such services. We continuously evaluate our vendors for year
2000 compliance. We believe if our systems are not year 2000 compliant, we
would be able to address and resolve any non-compliance before a material
adverse effect occurs on our business operations. Our key processes could
be manually performed for a sufficient period of time.
To date, we have not incurred substantial costs to address the year 2000
issue. We estimate additional costs, if any, for actions we take to
address the year 2000 problem would not be material. Despite our efforts
to address the year 2000 impact on our systems and business operations, if
the year 2000 problems are more disruptive than we reasonably expect and
our plans prove inadequate, the year 2000 problem could result in a
material disruption of our business or it could have a material adverse
effect on our business, financial condition or results of operation. The
relevance of any year 2000 issue will also be affected by whether we
continue as a going concern.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1999, we raised approximately $1,000,000 in net
proceeds through the sale of 1,000,000 shares of our Common Stock at a
price of $1.00 per share in a private placement. In addition, in April
1999 we received $200,000 for the purchase of 137,099 shares of common
stock at $1.4588 per share, under the Boehringer Mannheim Letter of
Intent.
As of September 30, 1999, our remaining sources of capital consist of
approximately $900,000 in cash and cash equivalents and interest from
investments.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
We and five of our past directors and officers are defendants in class
action lawsuits. (See "Note 5 of the Condensed Consolidated Financial
Statements".) We maintain officers and directors liability insurance under
policies providing aggregate coverage totaling $3 million, which covers
(i) us for amounts spent indemnifying directors and officers or (ii)
directors and officers directly if we fail to indemnify them. The policies
do not provide us with coverage with respect to our own defense costs and
liability. On January 25, 1999, we announced that we reached an agreement
in principle with the plaintiffs' class action counsel to settle the above
litigation against us and the five former officers and directors. The
agreement provides for payment of $500,000, of which approximately
$155,000 is to be paid by us and approximately $345,000 is to be paid by
our insurer. We incurred expenses of approximately $32,000 in the nine
months ended September 30, 1999 and approximately $41,000 in the nine
months ended September 30, 1998, relating to this litigation.
The settlement agreement is subject to negotiation and execution of a
detailed stipulation of settlement between the parties, submission of the
stipulation of settlement to the court, provisions of notice to class
members of the settlement terms, a fairness hearing, and financial
approval of the settlement by the court. We cannot predict exactly how
long these procedures will take or when final dismissal will be obtained.
We also negotiated a settlement agreement and mutual release with
Shoenberg Hieber, Inc., which was named as a defendant in Degulis v. LXR
Biotechnology Inc. Shoenberg acted as an independent underwriter in the
initial public offering and asserted claims for indemnity against us under
the underwriting agreement. We paid $12,500 in March 1999 to settle this
claim.
In October 1999, The University of Tennessee filed a complaint against us
seeking damages in the amount of $70,000, and interest and costs, based on
amounts alleged to be due under a research agreement. We are defending the
action and believe that we have valid defenses to the claims asserted
against us.
In September 1999, we terminated our consulting agreement with Dr. L.
David Tomei, our former President and Chief Executive Officer. Under the
terms of the termination agreement, dated as of June 10, 1999, we paid Dr.
Tomei a total of $240,000, forgave the $30,000 note receivable from Dr.
Tomei and granted Dr. Tomei rights in certain urine DNA analysis
technology that is not being developed by us, in exchange for the release
of us from any further compensation obligation under the consulting
agreement, the cancellation of Dr. Tomei's options to purchase Common
Stock, and the mutual release of any claims between Dr. Tomei and us.
In June 1999, in connection with the resignation of Paul Hastings as our
President and Chief Executive Officer, the Board of Directors requested
that Mr. Hastings continue as a member of the Board and manage and
supervise our operations on a part-time basis. Based on his continued
service on our behalf, the Board did not accelerate the repayment by Mr.
Hastings of the loan to him in the aggregate amount of $150,000, which is
due on September 8, 2001. As a result of his continued service, $50,000 of
the amount owed under the note was forgiven pursuant to the terms of the
note, effective August 13, 1999 and was included in general and
administrative expenses for the nine months ended September 30, 1999.
In addition, the board agreed to pay Mr. Hastings a bonus in an
appropriate amount to be determined, for continuing to act on behalf of
us.
We do not have any committed sources of future equity or debt funding and
at present have no prospect of obtaining any such funding. We have
implemented cost containment measures and established critical priorities
in order to manage cash to provide for operations into the first quarter
of 2000. However, there can be no assurance that unanticipated events will
not result in depletion of our capital resources before that time. As
stated above, our evaluation of our strategic alternatives has not
resulted to date in the identification of a purchaser of our technology or
a transaction that would provide shareholders a return on their
investment. As a result, we anticipate that we may wind up our operations
in the near future and sell or auction off our remaining assets, including
our technology and product candidates, although we have not yet decided to
do so.
Our independent auditors have issued their report on our 1998 Consolidated
Financial Statements which states in part that we have suffered recurring
losses and have limited liquidity, both of which raise substantial doubt
about our ability to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our
operations or investment portfolio. We do not have exposure to market
risks associated with changes in interest rates as we have no variable
interest rate debt outstanding. We do not believe we have any other
material exposure to market risks associated with interest rates.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information in Note 7 to the Condensed Consolidated Financial
Statements included in Part I of this document is incorporated herein
by reference.
ITEM 5. OTHER INFORMATION
Our Common Stock was delisted from the American Stock Exchange
effective at the opening of business on August 5, 1999. Our stock now
trades on the Nasdaq OTC Bulletin Board.
In July 1999, John C. Kane resigned from our Board of Directors. In
August 1999, William Hambrecht and Eugene Eidenberg resigned from the
Board of Directors. Additionally, in September 1999, G. Kirk Raab and
Brian Brookover resigned from our Board of Directors, at which time Mr.
Raab also ceased acting as our President. Following Mr. Raab's
resignation, Mr. Hastings resumed supervisory responsibility for our
operations on a part-time basis.
In June 1999, we signed a lease termination agreement for our facility.
Under the terms of the agreement, we paid $66,000 in cash, forfeited a
security deposit of approximately $23,000, and transferred title to
leasehold improvements with a net book value of approximately $340,000
to the landlord in exchange for the termination of the lease agreement.
We vacated the space in September 1999.
In July 1999, we completed the auction of our equipment and other
personal property. The net proceeds from the auction were approximately
$525,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are attached hereto:
<TABLE>
<CAPTION>
Exhibit
Number Title
------- -----
<S> <C>
10.55 Termination Agreement with L. David Tomei
10.56 Assignment and Assumption Agreement
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------------
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K for the three months
ended September 30, 1999.
13
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
LXR BIOTECHNOLOGY INC.
Date: November 15, 1999 By: /s/ Paul J. Hastings
------------------------------
Paul J. Hastings
Director & Acting Chief Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title
------- -----
<S> <C>
10.55 Termination Agreement with L. David Tomei
10.56 Assignment and Assumption Agreement
11.01 Computation of Net Loss Per Share
27.01 Financial Data Schedule
</TABLE>
- -----------------------
15
<PAGE> 1
EXHIBIT 10.55
[LXR BIOTECHNOLOGY INC. LETTERHEAD]
June 11, 1999
Dr. L. David Tomei
1321 Sanderling Island
Richmond, CA 94801
Dear David:
The purpose of this letter is to set forth the substance of the agreement
("Agreement") between LXR BIOTECHNOLOGY INC. ("Company") and you in connection
with the termination of your consulting relationship with the Company. You have
previously acted as a consultant to the Company under the letter agreement
dated July 29, 1998 ("Consulting Agreement"). The Company and you are also
entering into an Assignment and Assumption Agreement dated the date hereof
("Assignment") pursuant to which the Company is licensing certain technology to
you and you are agreeing to assume certain obligations.
1. TERMINATION OF CONSULTANCY. Your last day of consulting with the
Company shall be June 10, 1999 ("Termination Date"). You acknowledge that you
have not acted as an employee of the Company during the period covered by the
Consulting Agreement. You also acknowledge that effective as of June 10, 1999,
you ceased to be a director of the Company.
2. ACCRUED COMPENSATION. Effective as of the Termination Date, the
Company has paid you all accrued compensation payable to you under the
Consulting Agreement.
3. TERMINATION PAYMENT; TAX REPORTS. In consideration of the termination
of the Consulting Agreement and the amendment of certain provisions regarding
your options to purchase Company stock held by you (as provided in section 9
below), the Company will (i) make a cash payment to you in the amount of
$240,000 (less any amounts paid to you under the Consulting Agreement for
periods subsequent to June 10, 1999, including the prorated June payment and
any later payments), and (ii) forgive the unpaid principal amount of $30,000
plus accrued interest of $4,584 owed by you to the Company as of the
Termination Date. The cash payment will be paid to you in one lump sum within
30 days of the later of the Termination Date or the date on which you sign and
return this Agreement. You will be solely responsible for all tax returns and
payments required to be filed with or made to any federal, state or local tax
authority with respect to receipt of payments under this Agreement and
indebtedness forgiven pursuant to it; the Company will not withhold or make
payments on your behalf. The Company will report the amount paid to you,
including the amount of indebtedness forgiven, by filing Form 1099-MISC with
the Internal Revenue Service as required by law.
4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, you will be eligible to continue your group health
insurance benefits at your own expense
<PAGE> 2
through January 31, 2000. Later, you may be able to convert to an individual
policy through the provider of the Company's health insurance, if you wish. The
Company will continue to pay COBRA premiums for you and your dependents through
August 31, 1999, but not thereafter.
5. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after the Termination Date, whether under
this Agreement, the Consulting Agreement or the Assignment.
6. EXPENSE REIMBURSEMENT. You agree that, within 60 days of the
Termination Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the Termination
Date, if any, for which you seek reimbursement. The Company will reimburse you
for these expenses pursuant to its regular business practice.
7. RETURN OF COMPANY PROPERTY. You represent that you have previously
returned to the Company all Company documents (and all copies thereof) and
other Company property that you have had in your possession at any time,
including, but not limited to, Company files, notes, drawings, records,
business plans and forecasts, financial information, specifications,
computer-recorded information, tangible property (including, but not limited to,
computers), credit cards, entry cards, identification badges and keys, and any
materials of any kind that contain or embody any proprietary or confidential
information of the Company (and all reproductions thereof); provided, however,
that you may retain confidential and proprietary information to the extent it
relates to the technology licensed to you under the Assignment.
8. ASSIGNMENT OF EQUIPMENT AND WARRANTY OF TITLE. Attached hereto as
Exhibit B is a list of equipment ("Equipment") which you previously provided to
the Company. In further consideration of the compensation payable to you under
this Agreement and the technology licensed to you under the Assignment, you
hereby sell, assign and quitclaim to the Company, its successors and assigns,
any right, title and interest you may have in the Equipment. Additionally, you
hereby warrant and agree to defend the Company's ownership of the Equipment in
case of a claim to the contrary by any third party based on any claim or right
arising or existing on or prior to the date hereof. You further represent that
you receive that, as of the date of this Agreement, there is no third party
with any valid claim to ownership or possession of the Equipment and that, to
the best of your knowledge, no such claim has been asserted.
9. EXPIRATION OF STOCK OPTIONS. In further consideration of the
compensation payable to you under this Agreement and the technology licensed to
you under the Assignment, you agree that all options to purchase common stock
of the Company, whether vested or unvested, and whether granted as incentive or
nonqualified stock options, including without limitation options to purchase
300,000 shares of the Company's common stock granted to you effective as of
April 20, 1998, shall be deemed to be canceled and rescinded effective as of
September 11, 1999, to the extent you do not exercise any vested stock options
before that date. You also agree that vesting of your stock options shall cease
effective as of the Termination Date.
<PAGE> 3
10. PROPRIETARY INFORMATION OBLIGATIONS. A copy of the Employee Invention
Assignment and Confidentiality Agreement you signed in connection with your
previous employment by the Company is attached hereto as Exhibit C. You hereby
reaffirm your continuing obligations to the Company under that agreement. You
also hereby reaffirm your obligations to the Company contained in the
Consulting Agreement under the headings "Invention Assignment" and
"Confidential Information," which obligations shall survive termination of the
Consulting Agreement.
11. NONDISPARAGEMENT. Both you and the Company agree not to disparage the
other party, and the other party's officers, directors, employees, shareholders
and agents, in any manner likely to be harmful to them or their business,
business reputation or personal reputation; provided that both you and the
Company may respond accurately and fully to any question, inquiry or request
for information when required by legal process.
12. RELEASE. In exchange for the payments and other consideration under
this Agreement, you agree to execute the Release Agreement attached hereto as
Exhibit A.
13. EFFECTIVE DATE. This Agreement shall not be effective until the
eighth day after this Agreement was executed by you and has not been revoked by
you; provided that the Company has also executed this Agreement by that date.
14. MISCELLANEOUS. This Agreement, including the Exhibits, together with
the Assignment, constitutes the complete, final and exclusive embodiment of the
entire agreement between us with regard to the subject matter hereof. It is
entered into without reliance on any promise or representation, written or
oral, other than those expressly contained herein, and it supersedes any other
agreements, promises, warranties or representations in their entirety,
including without limitation the Consulting Agreement. This Agreement may not
be modified or amended except in a writing signed by both you and a duly
authorized officer of the Company. This Agreement will bind, and inure to the
benefit of, your heirs and personal representatives and the successors and
assigns of both you and the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement and the
provision in question will be modified by the court so as to be rendered
enforceable. This Agreement will be deemed to have been entered into and will
be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.
<PAGE> 4
If this Agreement is acceptable to you, please sign below and on the attached
Release Agreement, which is part of this Agreement, and return the originals of
both to the Company.
Sincerely,
LXR BIOTECHNOLOGY INC.
By: /s/ G. Kirk Raab
----------------------------
G. Kirk Raab
Acting President
ACCEPTED AND AGREED:
L. David Tomei
Date: /s/ L. David Tomei
--------------------------
Exhibit A - Release Agreement
Exhibit B - List of Equipment
Exhibit C - Employee Invention Assignment and Confidentiality Agreement
<PAGE> 5
EXHIBIT A
RELEASE AGREEMENT
Except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, its subsidiaries, and their officers,
directors, agents, servants, employees, attorneys, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorney fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of
or in any way related to agreements, events, acts or conduct at any time prior
to and including the execution date of this Agreement, including but not
limited to: all such claims and demands directly or indirectly arising out of
or in any way connected with my previous employment with, or consulting for,
the Company or the termination of that employment or consulting; claims or
demands related to compensation, bonuses, commissions, stock, stock options, or
any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any other form of compensation;
claims pursuant to any federal, state or local law, statute, or cause of action
including, but not limited to, the federal Civil Rights Act of 1964, as
amended; the federal Americans with Disabilities Act of 1990; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the California
Fair Employment and Housing Act, as amended; tort law; contract law; wrongful
discharge; discrimination; harassment; fraud; defamation; emotional distress;
and breach of the implied covenant of good faith and fair dealing.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA, as amended. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that: (a) my waiver and release do not apply to any rights or claims
that may arise after the execution date of this Agreement; (b) I have been
advised hereby that I have the right to consult with an attorney prior to
executing this Agreement; (c) I have twenty-one (21) days to consider this
Agreement (although I may choose to voluntarily execute this Agreement
earlier); (d) I have seven (7) days following the execution of this Agreement
by the parties to revoke the Agreement; and (e) this Agreement will not be
effective until the date upon which the revocation period has expired, which
will be the eighth day after this Agreement is executed by me, provided that
the Company has also executed this Agreement by that date ("Effective Date").
I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS. In giving this release, which includes claims which may be
unknown to me at present, I acknowledge that I have read and understand Section
1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE
DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST
IN FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive
and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any unknown or
unsuspected claims I may have against the Company.
By: /s/ L. David Tomei Date: September 10, 1999
---------------------------
(Signature)
<PAGE> 6
EXHIBIT B
[THE OHIO STATE UNIVERSITY LETTERHEAD]
October 26, 1992
L. David Tomei, Ph.D.
4385 Hayden Falls Dr.
Columbus, Ohio 43221
================================================================================
TRANSFER OF EQUIPMENT -- LETTER OF APPROVAL
================================================================================
At the request of David E. Schuller, M.D., Chairman of the Department of
Otolaryngology at The Ohio State University, and pursuant to agreement(s)
between The Ohio State University and L. David Tomei, Ph.D., the items/equipment
listed herein are hereby transferred from The Ohio State University to L. David
Tomei, Ph.D.
(1) Transilluminator, model number CR1766, OSU inventory number 880012.
(1) Computer with keyboard, disk drives and monitor, model number DTK
386-SX-16, OSU inventory number 875352.
(1) Spectrometer, Luminescence, model number LS-508, Well Plate Reader, OSU
Purchase Order number 205048.
(1) Bio Dot Apparatus, OSU Purchase Order number 202591.
(1) Eppindorf Microcentrifuge, model number 5415C, OSU Purchase Order number
202617.
(1) Sartorius Top-Load Balance, model number B3105. OSU Purchase Order number
200147.
(1) Computer with keyboard, disk drives and monitor, model number DTK 80386,
OSU inventory number 864087.
(1) Nikon Diaphot Microscope, model number 76516, OSU inventory number 828305.
(continued on page two)
<PAGE> 7
Equipment Transfer
The Ohio State University - L. David Tomei, Ph.D.
10/26/92
Page Two
This equipment has been approved for transfer from The Ohio State University to
L. David Tomei, Ph.D.
This letter of approval issued by the Office of Surplus Materials Disposal &
Recycling shall also serve as the official authorization for release of this
equipment to L. David Tomei, Ph.D. as witnessed by signature of the Manager of
the Office of Surplus Materials Disposal & Recycling below.
All ownership and title to this equipment is hereby transferred to L. David
Tomei, Ph.D.
/s/ CHARLES D. JONES 10/26/92
-------------------- -----------
Charles D. Jones Date
/CDJ
\transfer\tran001
cc: David E. Schuller, M.D.
A. L. Mathews
<PAGE> 8
EXHIBIT C
LXR BIOTECHNOLOGY, INC.
EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT
In consideration of my employment with LXR Biotechnology, Inc., a Delaware
corporation (the "Company"), I hereby represent to, and agree with the Company
as follows:
1. COMPANY BUSINESS. I understand that the Company is engaged in a
continuous program of research, development, production and marketing in
connection with its business and that, as an essential part of my employment
with the Company, I may be expected to make new contributions to and create
inventions of value for the Company.
2. DISCLOSURE OF INVENTIONS. From and after the date I first became
employed with the Company, I will promptly disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works, and trade secrets ("Inventions"), whether or not
patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by me, either alone or
jointly with others, during the period of my employment, whether or not in the
course of my employment.
3. WORK FOR HIRE: ASSIGNMENT OF INVENTIONS. I acknowledge that
copyrightable works prepared by me within the scope of my employment are "works
for hire" under the Copyright Act and that the Company will be considered the
author thereof. I agree that all inventions that (a) are developed using
equipment, supplies, facilities or trade secrets of the Company, (b) result
from work performed by me for the Company or (c) relate to the Company's
business or current or anticipated research and development, will be the sole
and exclusive property of the Company ("Company Inventions") and are hereby
assigned by me to the Company.
4. LABOR CODE 2870 NOTICE. I have been notified and understand that I
shall not be obligated to assign to the Company any invention that qualifies
fully under the provisions of Section 2870 of the California Labor Code, which
states as follows:
ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN EMPLOYEE SHALL
ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS IN AN INVENTION TO HIS OR
HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT THE EMPLOYEE DEVELOPED
ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER'S EQUIPMENT,
SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION EXCEPT FOR THOSE INVENTIONS
THAT EITHER: (1) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF
THE INVENTION TO THE EMPLOYER'S BUSINESS, OR ACTUALLY OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER, OR (2) RESULT FROM ANY
WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. TO THE EXTENT A
<PAGE> 9
PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN
AN INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER
CALIFORNIA LABOR CODE SECTION 2870(a), THE PROVISION IS AGAINST THE PUBLIC
POLICY OF THIS STATE AND IS UNENFORCEABLE.
5. ASSIGNMENT OF OTHER RIGHTS. I hereby irrevocably transfer and assign
to the Company: (a) all worldwide patents, patent applications, copyrights,
mask works, trade secrets and other intellectual property rights in any Company
Invention; and (b) any and all "Moral Rights" (as defined below) that I may
have in or with respect to any Company Invention. I also hereby forever waive
and agree never to assert any and all Moral Rights I have in or with respect to
any Company Invention, even after termination of my work on behalf of the
Company. "Moral Rights" means any rights of paternity or integrity, any right
to claim authorship of an invention, to object to any distortion, mutilation or
other modification of, or other derogatory action in relation to, any
invention, whether or not such would be prejudicial to my honor or reputation,
and any similar right, existing under judicial or statutory law of any country
in the world, or under any treaty, regardless of whether or not such right is
denominated or generally referred to as a ""moral right".
6. ASSISTANCE. I agree to assist the Company in every proper way to
obtain for the Company and enforce patents, copyrights, mask work rights, and
other legal protections for the Company's inventions in any and all countries.
I will execute any documents that the Company may reasonably request for use in
obtaining or enforcing such patents, copyrights, mask works rights, trade
secrets and other legal protections. My obligations under this paragraph will
continue beyond the termination of my employment with the Company, provided
that the Company will compensate me at a reasonable rate after such termination
for time or expenses actually spent by me at the Company's request on such
assistance. I appoint the Secretary of the Company as my attorney-in-fact to
execute documents on my behalf for this purpose.
7. PROPRIETARY INFORMATION. I understand that my employment by the
Company creates a relationship of confidence and trust with respect to any
information of a confidential or secret nature that may be disclosed to me by
the Company that relates to the business of the Company or to the business of
any parent, subsidiary, affiliate, customer or supplier of the Company or any
other party with whom the Company agrees to hold information of such party in
confidence ("Proprietary Information"). Such Proprietary Information includes
but is not limited to Company Inventions, marketing plans, product plans,
business strategies, financial information, forecasts, personnel information
and customer lists.
8. CONFIDENTIALITY. At all times, both during my employment and after
its termination, I will keep and hold all such Proprietary Information in
strict confidence and trust, and I will not use or disclose any of such
Proprietary Information without the prior written consent of the Company,
except as may be necessary to perform my duties as an employee of the Company.
Upon termination of my employment with the Company, I will promptly deliver to
the Company all documents and materials of any nature pertaining to my work
with the Company and I will not take
<PAGE> 10
PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN
AN INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER
CALIFORNIA LABOR CODE SECTION 2870(a). THE PROVISION IS AGAINST THE PUBLIC
POLICY OF THIS STATE AND IS UNENFORCEABLE.
5. ASSIGNMENT OF OTHER RIGHTS. I hereby irrevocably transfer and assign
to the Company: (a) all worldwide patents, patent applications, copyrights, mask
works, trade secrets and other intellectual property rights in any Company
Invention; and (b) any and all "Moral Rights" (as defined below) that I may have
in or with respect to any Company Invention. I also hereby forever waive and
agree never to assert any and all Moral Rights I may have in or with respect to
any Company Invention, even after termination of my work on behalf of the
Company. "Moral Rights" means any rights of paternity or integrity, any right to
claim authorship of an invention, to object to any distortion, mutilation or
other modification of, or other derogatory action in relation to, any invention,
whether or not such would be prejudicial to my honor or reputation, and any
similar right, existing under judicial or statutory law of any country in the
world, or under any treaty, regardless of whether or not such right is
denominated or generally referred to as a "moral right".
6. ASSISTANCE. I agree to assist the Company in every proper way to
obtain for the Company and enforce patents, copyrights mask work rights, and
other legal protections for the Company's Inventions in any and all countries.
I will execute any documents that the Company may reasonably request for use in
obtaining or enforcing such patents, copyrights, mask works rights, trade
secrets and other legal protections. My obligations under this paragraph will
continue beyond the termination of my employment with the Company, provided
that the Company will compensate me at a reasonable rate after such termination
for time or expenses actually spent by me at the Company's request on such
assistance. I appoint the Secretary of the Company as my attorney-in-fact to
execute documents on my behalf for this purpose.
7. PROPRIETARY INFORMATION. I understand that my employment by the
Company creates a relationship of confidence and trust with respect to any
information of a confidential or secret nature that may be disclosed to me by
the Company that relates to the business of the Company or to the business of
any parent, subsidiary, affiliate, customer or supplier of the Company or any
other party with whom the Company agrees to hold information of such party in
confidence ("Proprietary Information"). Such Proprietary Information includes
but it not limited to Company Inventions, marketing plans, product plans,
business strategies, financial information, forecasts, personnel information
and customer lists.
8. CONFIDENTIALITY. At all times, both during my employment and after
its termination, I will keep and hold all such Proprietary Information in
strict confidence and trust, and I will not use or disclose any of such
Proprietary Information without the prior written consent of the Company,
except as may be necessary to perform my duties as an employee of the Company.
Upon termination of my employment with the Company, I will promptly deliver to
the Company all documents and materials of any nature pertaining to my work
with the Company and I will not take
<PAGE> 11
with me any documents or materials or copies thereof containing any Proprietary
Information.
9. NO BREACH OF PRIOR AGREEMENT. I represent that my performance of all
the terms of this Agreement and my duties as an employee of the Company will
not breach any invention assignment, proprietary information or similar
agreement with any former employer or other party. I represent that I will not
bring with me to the Company or use in the performance of my duties for the
Company any documents or materials of a former employer that are not generally
available to the public or have not been legally transferred to the Company.
10. NOTIFICATION. I hereby authorize the Company to notify my actual or
future employers of the terms of this Agreement and my responsibilities
hereunder.
11. INJUNCTIVE RELIEF. I understand that in the event of a breach or
threatened breach of this Agreement by me the Company may suffer irreparable
harm and will therefore be entitled to injunctive relief to enforce this
Agreement.
12. GOVERNING LAW. This Agreement will be governed and interpreted in
accordance with the internal laws of the State of California, excluding that
body of law governing conflicts of law.
13. NO DUTY TO EMPLOY. I understand that this Agreement does not
constitute a contract of employment or obligate the Company to employ me for
any stated period of time. This Agreement shall be effective as of the first
day of my employment by the Company, namely: Oct.1, 1992.
LXR BIOTECHNOLOGY, INC. EMPLOYEE:
By: /s/ SCOTT MINICK /s/ L. DAVID TOMEI
-------------------------- -------------------------------
Title: CEO L. DAVID TOMEI
----------------------- -------------------------------
Name (Please print)
<PAGE> 1
EXHIBIT 10.56
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is entered into as of June 11,
1999, by and between LXR BIOTECHNOLOGY INC. ("LXR"), a Delaware corporation, and
Dr. L. David Tomei, with an address of 1321 Sanderling Island, Richmond, CA
94801 ("Dr. Tomei").
LXR has rights in certain technology relating to the detection of DNA in
bodily fluids ("Technology") acquired under the Cooperative Development
Agreement dated as of May 19, 1997 between LXR and Dr. Anatoly V. Lichtenstein
("Lichtenstein Agreement"). Dr. Tomei is desirous of acquiring LXR's entire
right, title and interest in and to the Technology in exchange for his
assumption of all obligations of LXR under the Lichtenstein Agreement and as
further consideration for entering into a letter agreement and related release
dated the date hereof terminating Dr. Tomei's consulting relationship with LXR
("Termination and Release Agreements").
Accordingly, for good and valuable consideration, the parties agree as
follows:
1. ASSIGNMENT OF RIGHTS BY LXR; ASSUMPTION OF OBLIGATIONS BY DR. TOMEI
1.1 The term "Inventions" shall refer only to the patent
applications listed in Exhibit A, and any continuations,
continuations-in-part, divisions, reissues or extensions thereof
and letters patent issuing with respect thereto, and all
discoveries, inventions, improvements, developments, products,
processes, procedures, techniques and technical information, to
the extent they relate to the Technology, that have been made,
conceived or reduced to practice by LXR, alone or with others,
in connection with the Lichtenstein Agreement.
1.2 LXR hereby assigns, transfers and sells to Dr. Tomei, his heirs,
personal representatives, successors and permitted assigns, all
of LXR's right, title and interest in and to the Inventions,
whether or not patentable, and all of LXR's interest and rights
under the Lichtenstein Agreement.
1.3 Dr. Tomei hereby assumes and agrees to pay and discharge all
obligations of LXR under the Lichtenstein Agreement of whatever
kind or nature, including without limitation, obligations or
claims arising prior to, or after, the date hereof. Neither Dr.
Tomei nor his heirs, personal representatives, successors or
assigns shall look to LXR for the discharge or payment of any
obligation or claim of any kind with respect to the Lichtenstein
Agreement, the Inventions or the Technology.
<PAGE> 2
2. CONSIDERATION FOR ASSIGNMENT
2.1 As consideration for the assignment of the Inventions and the
Technology, and in addition to his assumption of certain
obligations under paragraph 1.3 hereof, Dr. Tomei has entered
into the Termination and Release Agreements pursuant to which he
has released LXR from certain obligations and claims and has
agreed to a termination of the Consulting Agreement dated July
29, 1998 between LXR and Dr. Tomei. This agreement shall not
become effective unless and until the Termination and Release
Agreements become effective.
3. MISCELLANEOUS
3.1 LXR has identified those files and documents needed by Dr. Tomei
to perfect his ownership of the Inventions and Technology. Dr.
Tomei has reviewed these files and documents and agrees that
these are the only such files and documents needed from LXR. At
its expense, LXR shall transfer these files and documents to Dr.
Tomei to such location as he may designate within the U.S. All
expenses incurred after the date hereof related to the
prosecution and maintenance of the Inventions shall be borne by
Dr. Tomei, including any expenses incurred or accrued prior to
the date hereof and not yet paid.
3.2 Neither LXR nor Dr. Tomei will enter into any agreement that
would conflict with their respective obligations under this
Agreement.
3.3 For the purposes of this Agreement, the parties shall be
considered independent contractors and not agents or employees
of the other party. Neither party shall have the authority to
make any statements, representations or commitments of any kind,
nor to take any action that would be binding on the other party,
except as may be expressly provided for herein or authorized in
writing. LXR and Dr. Tomei are neither partners nor joint
venturers under this Agreement, and nothing shall be construed
as causing them to be such.
3.4 Except as provided herein, this Agreement constitutes the entire
agreement between the parties relating to the subject matter
hereof and all other prior negotiations, representations,
agreements, and understandings are superseded by this Agreement.
No agreements altering or supplementing the terms of this
Agreement may be made except in writing and signed by authorized
representatives of the parties.
3.5 The laws of the State of California shall govern the validity
and interpretation of this Agreement and the legal relations of
the parties to it.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
LXR BIOTECHNOLOGY INC. DR. L. DAVID TOMEI
By: /s/ G. Kirk Raab By: /s/ L. David Tomei
------------------------------- -------------------------------
G. Kirk Raab L. David Tomei
Acting President
Date: June 11, 1999 Date: September 10, 1999
CONSENT OF DR. ANATOLY LICHTENSTEIN
The undersigned hereby consents to this Assignment and Assumption
Agreement between LXR BIOTECHNOLOGY INC. and DR. L. DAVID TOMEI, understands
that Dr. Tomei is assuming and agreeing to pay all obligations of LXR under the
Lichtenstein Agreement and agrees, for himself and his heirs, personal
representatives, successors and assigns, that he will not look to LXR, its
successors or assigns, except Dr. Tomei, for the discharge or payment of any
obligation or claim of any kind with respect to the Lichtenstein Agreement, the
Inventions or the Technology.
By: /s/ Anatoly V. Lichtenstein
-------------------------------------
Dr. Anatoly V. Lichtenstein
Date: August 1, 1999
3
<PAGE> 4
EXHIBIT A
U.S. Patent Application Serial No. 09/230,704
Title: "Method for Detection of Nucleic Acid Sequences in Urine"
European Patent Application No. 98924998.2
Title: "Method for Detection of Nucleic Acid Sequences in Urine"
4
<PAGE> 1
LXR Biotechnology Inc. and Subsidiary
Exhibit 11.01
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $ 536,114 $1,974,358 $ 4,304,524 $ 7,758,939
----------- ---------- ------------ ------------
Weighted average number of shares outstanding:
Common Stock 29,657,489 28,503,147 29,329,611 28,017,919
Common Stock to be issued 137,099 76,722 80,351 75,606
----------- ---------- ----------- -----------
29,794,588 28,579,869 29,409,962 28,093,525
=========== ============ =========== ==========
Net Loss Per Share $ (0.02) $ (0.07) $ (0.15) $(0.28)
=========== ============ =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 898,392
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 959,824
<PP&E> 209,458
<DEPRECIATION> 141,074
<TOTAL-ASSETS> 1,144,178
<CURRENT-LIABILITIES> 316,385
<BONDS> 0
0
0
<COMMON> 2,954
<OTHER-SE> 824,839
<TOTAL-LIABILITY-AND-EQUITY> 1,144,178
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,533,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,711
<INCOME-PRETAX> (4,303,324)
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,304,524)
<EPS-BASIC> (0.15)
<EPS-DILUTED> 0
</TABLE>
