<PAGE> 1
As filed with the Securities and Exchange Commission on August 13, 1997
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
ZYMETX, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 2835 73-1444040
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
800 RESEARCH PARKWAY, SUITE 100
OKLAHOMA CITY, OKLAHOMA 73104
(405) 271-1314
(Address and Telephone Number of Principal Executive Offices)
PETER G. LIVINGSTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZYMETX, INC.
800 RESEARCH PARKWAY, SUITE 100
OKLAHOMA CITY, OKLAHOMA 73104
(405) 271-1314
(Name, Address and Telephone Number of Agent for Service)
--------------------------
COPIES TO:
DOUGLAS A. BRANCH, ESQ. ROBERT C. BRIGHT, ESQ.
Phillips McFall McCaffrey McVay & Murrah, P.C. Bright & Barnes, P.C.
211 North Robinson, 12th Floor 211 North Robinson, Suite 810
Oklahoma City, Oklahoma 73102 Oklahoma City, Oklahoma 73102
(405) 235-4100 (405) 236-8016
--------------------------
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
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
effective 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. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered Per Share (1) Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $.001 par value ("Common Stock") (2) 2,645,000 $8.00 $21,160,000 $ 6,413.00
- -----------------------------------------------------------------------------------------------------------------------
Underwriters' Warrants (3) 230,000 $.001 $ 230 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------
Common Stock underlying Underwriters' Warrants 230,000 $9.60 $ 2,208,000 $ 670.00
=======================================================================================================================
TOTAL $23,368,230 $ 7,084.00
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 345,000 shares ("Overallotment Shares") that the Underwriters
have the option to purchase to cover overallotments, if any.
(3) The Underwriters' Warrants entitle the Underwriters to purchase common
stock equal to 10% of the total number of shares sold pursuant to the
Registration Statement, exclusive of any Overallotment Shares.
--------------------------
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> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
2,300,000 Shares
[LOGO]
ZYMETX, INC.
Common Stock
All of the shares of common stock, $.001 par value (the "Common Stock"),
offered hereby (the "Offering") are being sold by ZymeTx, Inc., a Delaware
corporation (the "Company" or "ZymeTx"). Prior to this Offering, there has been
no public market for the Company's Common Stock. The Company has applied for
listing of the Common Stock on the Nasdaq National Market under the trading
symbol "ZMTX." The initial public offering price is expected to be between $6.00
and $8.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
---------------------------
THESE SECURITIES ARE SPECULATIVE IN NATURE, INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 7.
---------------------------
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.
<TABLE>
<CAPTION>
======================================================================================================================
Underwriting Discounts
Price to the Public and Commissions(1) Proceeds to Company(2)(3)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
======================================================================================================================
Total(3) $ $ $
======================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at
$__________. See "Use of Proceeds" and "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable within
45 business days from the date of this Prospectus, to purchase up to
345,000 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover overallotments, if any.
If such overallotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $__________, $__________ and $__________, respectively. See
"Underwriting."
The shares of Common Stock being offered by this Prospectus are offered
by the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters subject to certain other conditions. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Capital West Securities, Inc., 211 North
Robinson, 16th Floor, Oklahoma City, Oklahoma, 73102, on or about
______________, 1997.
CAPITAL WEST SECURITIES, INC.
MILLENNIUM FINANCIAL GROUP, INC.
COMVEST PARTNERS, INC.
THE DATE OF THIS PROSPECTUS IS __________________, 1997.
<PAGE> 4
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and with quarterly reports for the first three quarters of each
year containing unaudited financial information.
--------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THEIR MARKET
PRICE OR PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
--------------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
--------------------------------
[GRAPHIC DEPICTING VIRAZYME THERAPEUTIC TECHNOLOGY]
[CAPTION: Therapeutic applications of the ViraZyme technology involve an
inhibitor compound attaching to a target enzyme which prevents the infection
cycle.]
[GRAPHIC DEPICTING VIRAZYME DIAGNOSTIC TECHNOLOGY]
[CAPTION: Diagnostic applications of the ViraZyme technology involve a two-part
compound (a substrate) which is split by the target enzyme, causing one part of
the compound to generate a blue color visible to the naked eye.]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Risk Factors and financial statements appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus: (i) reflects a 1-for-4 reverse split of Common Stock effective
July 17, 1997; (ii) assumes the automatic conversion of all outstanding shares
of the Company's Preferred Stock into shares of Common Stock upon the closing
of this Offering; and (iii) assumes that the Underwriter's overallotment option
will not be exercised. "ViraZyme," "ViraSTAT" and "ZstatFlu" are trademarks
owned by or licensed to the Company. This Memorandum includes trademarks and
trade names of companies other than the Company.
The Company
OVERVIEW
ZymeTx, Inc. (the "Company" or "ZymeTx"), is a development stage
biotechnology company engaged in the discovery and development of unique
products for the diagnosis and treatment of viruses. The scientific foundation
for the Company's plan of operations is based upon the role of enzymes in the
process of viral infection. The Company's strategy is: (i) to develop
therapeutic and diagnostic products for a broad range of viral diseases; and
(ii) to use revenues from marketing "ZstatFlu," the Company's first diagnostic
product, to sustain a comprehensive viral therapeutic research and development
program and to continue the Company's diagnostic research and development
program.
ZYMETX TECHNOLOGY
ViraZyme, the Company's core technology, exploits the subtle structural
differences and characteristics of enzymes to create viral diagnostic and
therapeutic products. The Company's diagnostic technology is a proprietary
two-part compound that will split when the compound contacts a specific target
site (an enzyme). As a result of this split, one part of the compound becomes
visible to the naked eye when collected in the Company's testing device,
permitting the user to make a diagnosis regarding the presence of the virus
targeted by the test. For proposed therapeutic products, a modified version of
the diagnostic compound is used that will bind to a specific enzyme and prevent
the enzyme from causing the targeted viral infection.
The Company's initial viral targets are respiratory infections including
influenza A and influenza B, respiratory syncytial virus ("RSV"), parainfluenza
and adenovirus, as well as the non-respiratory infections herpes simplex virus
("HSV") and cytomegalovirus ("CMV").
DIAGNOSTIC PROGRAM
The Company's first diagnostic product is ZstatFlu, a disposable
point-of-care ("POC") test that enables physicians to make an influenza
diagnosis in one hour with the product's simple color change detection method.
Under current viral-detection methods, virus cultures must be sent to a
clinical laboratory whose test results are often not available to the physician
for several days. Because ZstatFlu requires no significant instrumentation or
staff training and provides a rapid diagnosis in the physician's own office,
the Company plans to market it directly to physicians. The Company's plan is to
launch ZstatFlu for the 1997-98 U.S. influenza season expected to begin in
November 1997, and to establish utilization plans with managed care
organizations and distributors to physicians.
The Company completed clinical trials for ZstatFlu in April 1997, and
filed a 510(k) premarket notification application ("510(k)") with the Food and
Drug Administration ("FDA") on April 24, 1997. Based on the Company's past
clinical trials and the data from the clinical trials completed in April 1997,
as well as FDA 510(k) clearance for the Company's ViraZyme Culture Screen, a
product using the same core technology as ZstatFlu, the Company believes it
will receive FDA clearance for ZstatFlu in late August 1997. See "Business -
Government Regulation."
The Company's diagnostic research and development program for fiscal
1998 will emphasize the next generation of ZstatFlu and the development of
diagnostic products for other viruses.
3
<PAGE> 6
THERAPEUTIC PROGRAM
The Company believes that the ViraZyme technology will provide the
basis for the development and delivery of compounds that directly treat a wide
range of viral infections. Laboratory work has verified the Company's concept
that blocking the targeted enzyme active site with ViraZyme inhibitors can
prevent a virus from spreading. The Company is using X-ray crystallography,
rational drug design and its proprietary screening methods to select compounds
for clinical testing. Due to the high costs associated with the research and
development of therapeutic applications of its technology, the Company plans to
finance its operations in collaboration with large corporate partners or, if
relationships with corporate partners are not secured, the Company will be
required to seek additional equity or debt capital to continue these
activities. See "Business - Sales and Marketing" and "Business - Therapeutic
Research Program."
MARKET OPPORTUNITY
The Company believes that both POC viral diagnosis and viral
therapeutic intervention represent attractive market opportunities. There are
over 200 million clinically significant viral infections per year in the U.S.
alone. These infections are the single most common reason why patients visit
primary care physicians. However, because very few POC products exist,
physicians often cannot make a timely diagnosis of a virus. Even with a correct
diagnosis, there is currently little that can be done to therapeutically
intervene in the rapid spread of a virus in an infected individual. Of the
approximately 17,000 FDA-approved drugs in the U.S. in 1997, only 20 were
identified by the Company as antivirals.
Due to both the lack of rapid diagnosis as well as the few current
therapeutic alternatives, doctors routinely prescribe antibiotics which may be
effective for treating bacterial infections, but have no effect on viral
infections. This unnecessary prescription of antibiotics has contributed to a
major unintended healthcare problem: the rapid growth in drug-resistant
bacteria. According to Science (1992), by 1992 almost all common pathogenic
bacterial species had developed significant drug resistance. Thus, patients now
require stronger -- and more expensive -- antibiotics and longer hospital stays
for bacterial diseases ranging from strep throat to pneumonia. The estimated
cost to the U.S. healthcare system of antibiotic-resistant organisms exceeds
$30 billion. The Company believes that products using ViraZyme technology will
contribute to the reduction of the over-prescription of antibiotics which is a
factor in bacteria becoming drug resistant and will be marketable to healthcare
professionals and the managed care industry in part based on the potential
economic benefits of such a reduction. See "Business - Sales and Marketing."
RECENT DEVELOPMENTS
On August 7, 1997, the Company completed a private placement (the
"1997 Private Placement") of 1,437,500 shares of Series C Convertible Preferred
Stock (the "Series C Preferred"), at a price of $4.00 per share, resulting in
net proceeds to the Company of approximately $4.9 million. All outstanding
shares of Series C Preferred, as well as all outstanding shares of Series A
Convertible Preferred Stock, $.001 par value (the "Series A Preferred"), and
Series B Redeemable Convertible Preferred Stock, $.001 par value (the "Series B
Preferred"), will convert automatically upon closing of this Offering into an
aggregate of 3,056,094 shares of Common Stock. Unless otherwise indicated the
information in this Prospectus assumes that such conversion occurred prior to
this Offering and that the shares of Common Stock issuable upon conversion of
the Series A Preferred, Series B Preferred and Series C Preferred were
outstanding prior to this Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Pro Forma Balance Sheet."
EXECUTIVE OFFICES
The Company was organized in the State of Delaware in 1994. Its
address is 800 Research Parkway, Suite 100, Oklahoma City, Oklahoma 73104, and
its telephone number is (405) 271-1314. The Company's website is
www.zymetx.com.
<PAGE> 7
THE OFFERING
Common Stock Offered.................. 2,300,000 shares
Common Stock Outstanding:
Prior to the Offering (1) ........ 3,975,662
After the Offering (1)............ 6,275,662
Use of Proceeds....................... Viral therapeutic and diagnostic
research; development, production and
marketing of ZstatFlu for the
1998-1999 influenza season; and
working capital and other general
corporate purposes. See "Use of
Proceeds."
Risk Factors.......................... The securities offered hereby involve
a high degree of risk, including risk
of timely and successful marketing of
ZstatFlu, development of other Company
therapeutic and diagnostic products,
dependence on suppliers and third
party manufacturers, government
regulation, competition and the risks
of development stage companies in
general. See "Risk Factors."
Proposed Nasdaq National
Market Symbol.................... ZMTX
- ---------------------
(1) Does not include (i) shares of Common Stock issuable upon exercise of
the Underwriters' Warrants to be issued in connection with the sale of
shares of Common Stock in this Offering; (ii) 565,847 shares of Common
Stock issuable upon exercise of outstanding warrants; and (iii) 618,750
shares of Common Stock reserved for issuance under the Company's stock
option plans, of which 450,000 shares are subject to outstanding
options. See "Underwriting" and "Management - Stock Option Plans."
5
<PAGE> 8
SUMMARY - FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial information of
the Company for the years ended June 30, 1995 and 1996 and for the nine months
ended March 31, 1996 and 1997, appearing elsewhere in this Prospectus. The
following financial information should be read in conjunction with such
financial statements including the notes thereto and the Pro Forma Balance
Sheet included elsewhere herein. Also see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years ended June 30, Nine Months Ended March 31,
-------------------------- --------------------------
1995(1) 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Total revenues $ 9,197 $ 7,756 $ 6,660 $ 8,372
Operating expenses
Research and development 10,441 268,731 132,984 737,481
Cost of sales -- -- -- 2,200
Acquired technology and patent
costs from OMRF -- -- -- 958,505
General and administrative 757 98,911 40,387 298,526
Depreciation and amortization -- 426 320 20,054
----------- ----------- ----------- -----------
Total operating expenses 11,198 368,068 173,691 2,016,766
----------- ----------- ----------- -----------
Loss from operations (2,001) (360,312) (167,031) (2,008,394)
Total other income (expense) (2,969) (9,338) (3,476) 30,289
----------- ----------- ----------- -----------
Net loss $ (4,970) $ (369,650) $ (170,507) $(1,978,105)
=========== =========== =========== ===========
Net loss applicable to common stock $ (4,970) $ (369,650) $ (170,507) $(1,984,372)
=========== =========== =========== ===========
Net loss per common share
and common equivalent share $ -- $ (.27) $ (.12) $ (1.44)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 1,374,334 1,374,334 1,374,334 1,374,827
=========== =========== =========== ===========
Supplemental net loss per
common and common
equivalent share $ (.12) $ (.66)
=========== ===========
Supplemental weighted average
common and common equivalent shares 2,992,928 2,993,421
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
PRO FORMA
-----------------------------
AS ADJUSTED
FOR THE 1997
PRIVATE AS ADJUSTED FOR
BALANCE SHEET DATA ACTUAL PLACEMENT (2) THE OFFERING (3)
------------ ------------- ------------
<S> <C> <C> <C>
Cash, cash equivalents and investment securities
available for sale $ 2,247,939 $ 7,172,939 $ 21,172,939
Total assets 2,780,488 7,705,488 21,705,488
Long-term obligations and redeemable
preferred stock 407,483 407,483 282,483
Deficit accumulated during development stage (2,352,725) (2,352,725) (2,352,725)
Total stockholders' equity 2,064,711 6,989,711 21,114,711
</TABLE>
- --------------------
(1) The Company was formed February 24, 1994 but had no operations prior to
fiscal 1995.
(2) Pro forma as adjusted for the 1997 Private Placement gives effect to the
estimated proceeds of $4,925,000, net of offering costs.
(3) Pro forma as adjusted for the Offering gives effect to the 1997 Private
Placement as discussed in (2) above and the sale by the Company of the
Common Stock offered hereby at $7.00 per share (the mid-point of the
range set forth on the cover of this Prospectus) for estimated proceeds,
net of Offering costs, of $14,000,000.
6
<PAGE> 9
RISK FACTORS
An investment in the Company involves a high degree of risk. In addition
to the other information contained in this Prospectus, each prospective
investor should carefully consider the following risk factors in evaluating an
investment in the shares of Common Stock offered hereby before making an
investment decision.
HISTORY OF OPERATING LOSSES; NO ASSURANCE OF FUTURE PROFITABILITY. To
date the Company has not generated significant revenues, and has had no
historical manufacturing or marketing activities. For the nine months ended
March 31, 1997, the Company had a net loss of $2.0 million, and a deficit
accumulated during the development stage of $2.4 million. The Company's future
financial performance and its ability to achieve meaningful near-term revenues
are heavily dependent on the timely introduction of ZstatFlu during the 1997-98
influenza season, which in the U.S. ordinarily commences in November each year.
Although the Company has developed a plan to market ZstatFlu in Europe if the
U.S. market is not timely met, there can be no assurance that the Company will
be successful in launching the product in Europe. The Company's manufacturing
and marketing costs related to the launch of ZstatFlu in fiscal 1998 and the
development of its other proposed therapeutic and diagnostic products will
require a substantial increase in expenditures. Because the Company's ZstatFlu
product has no history of sales, there can be no assurance that the Company
will be able to manufacture, market and sell ZstatFlu at a profitable level.
See "- Reliance on Distributors" and "- Uncertain Availability of Healthcare
Reimbursement."
NO ASSURANCE OF SUCCESSFUL OR TIMELY DEVELOPMENT OF THE COMPANY'S
THERAPEUTIC OR OTHER DIAGNOSTIC PRODUCTS. The Company's business strategy
involves the discovery and development of products other than ZstatFlu,
particularly therapeutic products. These products are in early stages of
research and development and further research, development and extensive
testing will be required to determine their technical feasibility and
commercial viability. Until the development process for these products is
complete, there can be no assurance that such products will perform in the
manner anticipated by the Company, be commercially viable or even if
commercially viable, that such products will receive FDA clearance. The
Company's success will depend on its ability to achieve scientific and
technological advances and to translate such advances into reliable,
commercially competitive products on a timely basis. The Company may experience
delays in the commercial introduction of these products, and such delays could
be significant. The proposed development schedules for the Company's other
diagnostic and therapeutic products may be affected by a variety of factors,
many of which will not be within the control of the Company, including
technological difficulties, proprietary technology of others, possible changes
in government regulation and the availability of funding sources. Any delay in
the development, introduction and marketing of the Company's products could
result either in such products being marketed at a time when their cost and
performance characteristics would not be competitive in the marketplace or in
the shortening of their commercial lives. In light of the foregoing factors,
the long-term nature of the development of certain of the Company's products,
and the other factors described elsewhere in "Risk Factors," there can be no
assurance that the Company will be able to complete or successfully market any
of these products.
RELIANCE ON DISTRIBUTORS. The Company does not currently have a sales
force for the marketing of ZstatFlu or any other products of the Company. As a
result, the Company must establish marketing agreements with distributors to
distribute ZstatFlu units in time for the 1997-98 influenza season. It is
unlikely that distributors will enter into distribution agreements prior to
FDA 510(k) clearance of ZstatFlu. If such clearance is ultimately granted by
the FDA, the Company will have a short period of time within which to enter
into distribution agreements and actually begin distributing ZstatFlu units.
Any delays
7
<PAGE> 10
in establishing efficient distribution of ZstatFlu units could have a material
adverse effect on the Company. See "Business - Sales and Marketing."
NO MANUFACTURING CAPABILITY; RELIANCE ON THIRD-PARTY MANUFACTURERS. The
Company has limited experience in product manufacturing and currently has no
facility capable of manufacturing products on the scale necessary for adequate
market penetration. Because the Company does not currently have a manufacturing
facility, the Company has contracted with Diagnostic Chemicals, Ltd. ("DCL") to
produce finished units of ZstatFlu to achieve the level of production necessary
for commercialization of ZstatFlu. There can be no assurance that ZstatFlu will
be manufactured at a cost or in quantities that meet the Company's needs and
requirements. Production of ZstatFlu must commence in September 1997 and any
delay in establishing manufacturing arrangements or delays by the vendor in
delivering finished products in time for the 1997-98 influenza season could
have a material adverse effect on the Company.
Although the Company expects that certain of its therapeutic and
diagnostic products under development will share certain production attributes
with existing products, production of such products may require the development
of new manufacturing technologies and expertise. There can be no assurance that
such products can be manufactured by the Company or by any other party at a
cost or in quantities to make such products commercially viable. If the Company
is unable to develop or contract for manufacturing capabilities on acceptable
terms for its products under development, the Company's ability to conduct
preclinical and clinical testing will be adversely affected, resulting in the
delay of submission of products for regulatory clearance or approval and
initiation of new development programs, which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company intends to establish its own manufacturing facilities to
allow for high volume production of the chemical compounds contained in
ZstatFlu and other diagnostic and therapeutic products currently under
development, when and if such products are successfully developed. There can be
no assurance that those facilities will be established, that quality control
problems will not arise as the Company attempts to scale-up its manufacturing
or that such manufacturing capability can be achieved in a timely manner or at
a commercially reasonable cost, if at all.
CAPITAL NEEDS. The capital requirements for the Company's research and
development program beyond fiscal 1999 will be substantial, and the Company
will require additional financing to satisfy these requirements. There is no
assurance that the Company will obtain such financing on terms satisfactory to
it, or at all. With respect to therapeutic research and development
requirements, the Company will continue to actively seek research and
development contracts with corporate partners; however, no assurance can be
given that such contracts will be entered into or, if entered into, that
significant funding from such agreements will be obtained. Accordingly, the
Company may be required to fund its research and development activities
primarily from its existing capital resources and from additional equity and
debt financing. No assurance can be made that any of these sources will be
sufficient to fully fund the development of other commercially feasible viral
therapeutic products in the event the Company is unable to affiliate with a
corporate partner. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED SOURCES OF SUPPLY OF RAW MATERIALS. The Company requires certain
raw materials for ZstatFlu, and while the Company has secured sufficient
quantities of such raw materials for the 1997-98 influenza season, the sources
of supply of such raw materials are limited. Although the Company believes that
alternative sources for such raw materials are available, any interruption in
this supply could have a
8
<PAGE> 11
material adverse effect on the Company's ability to manufacture ZstatFlu. In
addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to the Company or incompatible with the manufacturing process,
could have a material adverse effect on the Company's or a third party's
ability to manufacture products or, if manufactured, on the quality of the
product manufactured. The Company currently has under development products
other than ZstatFlu which, if developed, may require the Company to enter into
such additional supplier arrangements. There can be no assurance that the
Company will be able to enter into additional supplier arrangements on
commercially reasonable terms, if at all. Failure to obtain a supplier to
manufacture its future products, if any, would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business - Manufacturing Arrangements; Sources of Raw Materials."
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY. The Company's
success will depend, in part, on its ability to obtain patents and license
patent rights, to maintain trade secret protection and to operate without
infringing on the rights of other patent holders. All patents covering the
Company's current technology have been licensed to the Company under an
exclusive and perpetual license (the "OMRF License") from Oklahoma Medical
Research Foundation ("OMRF"). See "Business - Intellectual Property." The
patent position of biotechnology firms for such types of patents generally is
highly uncertain and involves complex legal and factual issues. Certain
competitors of the Company may have filed applications for or have been issued
patents and may obtain additional patents and other proprietary rights relating
to virus substrates, chromogens, inhibitors or processes competitive with those
of the Company. The ultimate scope and validity of such patents are presently
unknown. If existing or future patents obtained by competitors are upheld as
valid by the courts, the Company may be required to obtain licenses from such
competitors. The extent to which such licenses will be available to the
Company, and the costs thereof, cannot currently be determined.
The Company intends to rely heavily on its continuing technological
innovation and the expertise of its employees to achieve and maintain a
technological advantage over its competitors. No assurance can be given,
however, that competitors will not independently develop technologies similar
or superior to the Company's technology. In addition, although the Company
requires that all of its employees and any third parties granted access to the
Company's proprietary technology enter into confidentiality agreements, there
can be no assurance that the confidentiality agreements will be honored.
Further, disputes may arise between the Company and its consultants, licensors
and future corporate partners with respect to the ownership of proprietary
technology developed under consulting, licensing or research and development
agreements. See "Business - Intellectual Property."
GOVERNMENT REGULATION. Regulation by Federal, state, local and foreign
governmental authorities of the Company's research and development activities,
as well as the use and sale of the Company's products at such time as they are
commercially viable, is currently, and is expected to remain, significant.
The introduction of the Company's products are governed by strict FDA
rules and regulations. The Company's diagnostic products are governed by an FDA
510(k) application requiring a clinical trial that compares the Company's
products to a certain standard or to a prior cleared methodology. In light of
the limited regulatory experience with enzyme based diagnostic and therapeutic
products, there can be no assurance that the Company can successfully complete
such clinical trials or meet the FDA requirements. Nor can there be any
assurance that the FDA will not require longer, more costly protocols than
required under the 510(k) procedure. If the Company cannot successfully
complete a clinical trial or is required to
9
<PAGE> 12
significantly expand its clearance protocols, the amount of capital required to
enable the Company to establish a self-sustaining level of cash flow will
increase dramatically.
The testing, manufacturing, labeling, distribution, marketing and
advertising of therapeutic products are subject to extensive regulation by
governmental regulatory authorities in the U.S. and other countries. The FDA and
comparable agencies in foreign countries impose substantial requirements on the
introduction of new pharmaceutical products through lengthy and detailed
clinical testing procedures and other costly and time-consuming compliance
procedures. The Company's therapeutic compounds will require substantial
clinical trials and FDA review as new drugs and such products are in the
discovery stage of development, requiring significant further research,
development, clinical testing and regulatory clearances. None of the Company's
proposed therapeutic products has been tested in humans, nor has the Company
filed an Investigational New Drug Application ("IND") with the FDA. The Company
cannot predict with certainty when it might submit its therapeutic products
currently under development for regulatory review. Once the Company submits its
potential therapeutic products for review, there can be no assurance that FDA or
other regulatory approvals for any such products developed by the Company will
be granted on a timely basis or at all. Due to the extended testing and
regulatory review process required for therapeutic products before marketing
clearance can be obtained, the Company does not expect to be able to
commercialize any therapeutic drug for at least several years, either directly
or through any potential corporate partners or licensees. A delay in obtaining
or failure to obtain such approvals could have a material adverse effect on the
Company's business and results of operations.
Failure to comply with regulatory requirements could subject the Company
to regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions, civil penalties, criminal prosecution,
refusals to approve new products and withdrawal of existing approvals, as well
as potentially enhanced product liability exposure. Sales of the Company's
products outside the U.S. will be subject to regulatory requirements governing
clinical trials and marketing approval. These requirements vary widely from
country to country and could delay introduction of the Company's products in
those countries. See "Business - Government Regulation."
Assuming FDA clearance is obtained, the Company will be subject to Good
Manufacturing Practices ("GMP") regulations promulgated by the FDA. The FDA
will also inspect the Company's manufacturing facilities and the facilities of
its third-party manufacturers on a routine basis for regulatory compliance with
its GMP regulations. Although the Company's employees have experience with GMP
protocols, there can be no assurance that the Company or its third party
manufacturers can satisfy these requirements. The Company would not be allowed
to manufacture its approved or cleared products in the event such GMP protocols
could not be met.
The marketability of the Company's diagnostic products may also be
affected by certain state and Federal legislation covering the use of diagnostic
tests in physician offices, including the Clinical Laboratory Improvement Act of
1988 ("CLIA") which requires physicians' offices conducting tests which require
sophisticated instruments or specially trained personnel to be certified or
licensed under CLIA. Although the Company believes that while CLIA regulations
apply, it does not believe such regulations will restrict the use of the
Company's diagnostic products in its target markets; however, there can be no
assurance that this will be true and such restriction could severely limit the
marketability of the Company's planned products. See "Business - Government
Regulation."
The Company may also be subject to the Environmental Protection Act, the
Occupational Safety and Health Act and other present and future Federal, state
and local regulations.
MANAGEMENT OF GROWTH AND INCREASING PRODUCTION REQUIREMENTS. The
Company's success will depend on its ability to expand and manage its
operations and facilities. Most of the Company's officers and
10
<PAGE> 13
employees have been with the Company for only a short period of time. There can
be no assurance that the Company will be able to manage its growth, meet the
staffing requirements of manufacturing scale-up or for current or additional
collaborative relationships or successfully assimilate and train its new
employees. In addition, to manage its growth effectively, the Company will be
required to expand its management base and enhance its operating and financial
systems. If the Company continues to grow, there can be no assurance that the
management skills and systems currently in place will be adequate or that the
Company will be able to manage any additional growth effectively. Failure to
achieve any of these goals could have a material adverse effect on the
Company's business, financial condition or results of operations.
UNCERTAIN AVAILABILITY OF HEALTHCARE REIMBURSEMENT. The Company's
ability to successfully commercialize its products under development will
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from Medicare, Medicaid or
other third-party payors, including private insurance companies. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. There can be no assurance that adequate third-party insurance
coverage will be available for the Company to establish and maintain price
levels sufficient for realization of an appropriate return on its investment in
developing new diagnostic products and therapies. Government and other
third-party payors are increasingly attempting to contain healthcare costs by
limiting both coverage and the level of reimbursement for new diagnostic and
therapeutic products approved for marketing by the FDA and by refusing, in some
cases, to provide any coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third
party payors for uses of the Company's products, the inability of the Company
to generate sufficient revenues and earnings could have a material adverse
effect on the Company.
PRODUCT LIABILITY AND INSURANCE. The testing, marketing and sale of
therapeutic products and, to a lesser degree, diagnostic products, entails an
inherent risk of adverse effects and/or medical complications to patients and,
as a result, product liability claims may be asserted against the Company. A
product liability claim or product recall could have a material adverse effect
on the Company. The Company does not currently carry product liability
insurance, but has applied for limited product liability insurance in the
aggregate amount of $10.0 million for products in human clinical testing and for
products that the Company markets. In each case, there can be no assurance that
the Company will be able to obtain such insurance, or that liability will not
exceed the insured amount. In the event of a successful suit against the
Company, insufficient insurance or lack of insurance would have a material
adverse effect on the Company.
RECENT ISSUANCES OF STOCK AND WARRANTS AT BELOW THE PUBLIC OFFERING
PRICE. Since May 1996, the Company has (i) issued 750,000 shares of Common Stock
at a purchase price of $.04 per share; (ii) in the 1996 Private Placement issued
the equivalent of 1,579,531 shares of Common Stock at $3.20 per share; (iii)
issued to OMRF in connection with the OMRF License the equivalent of 165,131
shares of Common Stock at $.76 per share; and (iv) in the 1997 Private
Placement, issued the equivalent of 1,437,500 shares of Common Stock at $4.00
per share. In addition, the Company has outstanding warrants to purchase 565,847
shares of Common Stock at a weighted average exercise price of $3.50 per share.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Delaware General
Corporation Law (the "Delaware Act") may delay, discourage or prevent a change
in control of the Company. Such provisions may discourage bids for the Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price and the voting and other rights of the holders of
Common Stock. In addition, the Board of Directors has the authority without
action by the Company's stockholders to fix the rights, privileges and
preferences of and to issue shares of the Company's Preferred Stock which may
have
11
<PAGE> 14
the effect of delaying, deterring or preventing a change in control of the
Company. See "Description of Securities."
In addition to the authorization of Preferred Stock, the Company's
Certificate of Incorporation and Bylaws include several provisions which may
have the effect of inhibiting a change of control of the Company. These include
the division of the Board of Directors into three classes serving staggered
three-year terms which could delay or prevent stockholders from effecting a
change of control of the Company, prohibiting stockholder action by written
consent unless such action has been approved by the Board of Directors and
advance notice requirements for stockholder proposals and director nominations.
These provisions may make it more difficult to change control of the Company or
replace incumbent management.
UNCERTAINTIES RELATING TO CLINICAL TRIALS. The Company must demonstrate
through preclinical studies and clinical trials that its proposed therapeutic
products are safe and effective for use in each target indication before the
Company can obtain regulatory approvals for the commercial sale of those
products. These studies and trials may be very costly and time-consuming.
The rate of completion of clinical trials for either diagnostic or
therapeutic products is dependent upon, among other factors, the rate of
enrollment of patients. Enrollment may be impacted by the acute nature and the
seasonality of certain of the Company's disease targets and the impossibility of
anticipating the geographic locations of disease out-breaks. Failure to enroll
an adequate number of clinical patients during the appropriate season could
cause significant delays and increased costs. Such delays and increased costs
could have a material adverse effect on the Company's product development
programs. Furthermore, there can be no assurance that if the Company's clinical
trials are completed, the Company will be able to submit the required FDA
notices or applications as scheduled or that any such application will be
approved or cleared by the FDA in a timely manner, if at all.
The cost to the Company of conducting human clinical trials for any
potential product can vary dramatically based on a number of factors, including
whether the product is a diagnostic or therapeutic product, the order and timing
of clinical indications pursued and the extent of development and financial
support, if any, from corporate partners. The Company may have difficulty
obtaining sufficient patient populations, clinicians or support to conduct its
clinical trials as planned and may have to expend substantial additional funds
to obtain access to such resources, or delay or modify its plans significantly.
While the Company designs and manages its preclinical studies and
clinical trials, the Company may also engage contract research organizations to
perform certain aspects of such preclinical studies and clinical trials. As a
result, the Company depends on such contract research organizations to assist
in the completion of its studies and trials.
NO ASSURANCE OF MARKET ACCEPTANCE. There can be no assurance that the
Company's potential products, if approved or cleared by the FDA and other
regulatory authorities, will achieve market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt and
timing of regulatory approvals or clearance, the availability of third-party
reimbursement and the establishment and demonstration in the medical community
of the clinical safety, efficacy and cost-effectiveness of the Company's
products and their advantages over existing technologies and therapeutics.
There can be no assurance that the Company will be able to manufacture and
successfully market its potential products even if they perform successfully
in clinical trials. Furthermore, there can be no assurance that physicians or
the medical community in general will accept and utilize any products that may
be developed by the Company.
12
<PAGE> 15
DEPENDENCE ON CORPORATE COLLABORATIONS FOR THERAPEUTIC PRODUCTS. The
Company's strategy for the research, development and commercialization of its
potential therapeutic products may require the Company to enter into various
arrangements with corporate and academic collaborators, licensors, licensees and
others. The Company may, therefore, be dependent upon the subsequent success of
these third parties in performing their responsibilities. There can be no
assurance that the Company will be able to enter into collaborative, license or
other arrangements that the Company deems necessary or appropriate to develop
and commercialize its potential therapeutic products, or that any or all of the
contemplated benefits from such collaborative, license or other arrangements
will be realized. Collaborative, license or other arrangements that the Company
may enter into in the future may place responsibility on the Company's
collaborative partners for preclinical testing and human clinical trials and for
the preparation and submission of applications for regulatory approval for
potential therapeutic products. Other collaborations may place responsibility on
partners for marketing, sales and distribution support for product
commercialization. Should any collaborative partner fail to develop or
successfully commercialize any potential therapeutic products to which it has
rights, the Company's business may be materially adversely affected. Moreover,
these arrangements may require the Company to transfer certain material rights
to such corporate partners, licensees and others. In the event that the Company
decides to license or sublicense certain of its commercial rights, there can be
no assurance that such arrangements will not result in reduced product revenue
to the Company. There can be no assurance that any revenues or profits will be
derived from the Company's future collaborative and other arrangements or that
the Company will enter into any future collaborations. Furthermore, there can be
no assurance that future collaborators will not pursue alternative technologies
or therapies either on their own or in collaboration with others, including the
Company's competitors, as a means for developing therapeutics sought to be
addressed by the Company's programs.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of
certain of its officers and scientists. These persons include Peter G.
Livingston, President and Chief Executive Officer, Craig D. Shimasaki, Ph.D.,
Vice President of Research, Gary W. Pedersen, Vice President of Marketing and
Sales, Charles E. Seeney, Vice President of Operations and Strategic
Development, and G. Carl Gibson, Controller and Treasurer. The loss of any one
of such persons could materially and adversely affect the Company's business.
Also, the Company's success will depend on its ability to continue to attract
and retain highly capable scientific and management personnel. Currently, other
than Mr. Livingston and Dr. Shimasaki, no officer or other employee has an
employment agreement with the Company; however, they are subject to covenants
not to compete and are currently bound by confidentiality agreements and
invention assignment agreements. Although to date the Company has been able to
hire and retain qualified personnel, there can be no assurance that it will be
successful in recruiting or retaining such personnel in the future. See
"Management."
TECHNOLOGY AND COMPETITION. The viral diagnostic and therapeutic field
is rapidly evolving, and the pace of technological advancement is expected to
continue. Rapid technological development may result in the Company's products
becoming obsolete before the Company recoups a significant portion of related
research, development and commercialization expenses. Technological competition
from other specialized biomedical companies, as well as from major medical
products companies, universities and research institutions, is expected to
increase. Many of these competitors and potential competitors such as Glaxo
Wellcome plc ("Glaxo Wellcome") and F. Hoffman-La Roche Ltd. ("Roche"), which
are directly competing with the Company in the development of anti-influenza
therapeutic products, and Quidel Corp. ("Quidel") and Biostar Inc. ("Biostar"),
which are directly competing with the Company for diagnostic products, have
13
<PAGE> 16
substantially greater capital resources, research and development capabilities
and marketing resources than the Company. See "Business - Competition."
DIVIDENDS NOT LIKELY. The Company makes no assurances that its proposed
operations will result in sufficient revenues to enable profitable operations
or to generate positive cash flow. For the foreseeable future, the Company
anticipates that it will use any funds available to finance the growth of the
Company and that it will not pay cash dividends to stockholders. See "Dividend
Policy."
SUBSTANTIAL DILUTION. The offering price of Common Stock is
substantially in excess of book value. On the basis of an assumed offering
price of $7.00 per share (the mid-point in the range set forth on the cover of
this Prospectus), this Offering involves an immediate dilution of approximately
$3.65 per share of Common Stock (approximately 52.1% of the offering price per
share) between the offering price per share and the net tangible book value per
share of the Common Stock immediately after the completion of this Offering.
See "Dilution."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS. The Company's current
stockholders will benefit from the Offering, principally through the creation
of a public market for the Common Stock and the potential unrealized gains in
the value of the Common Stock held by them. Based upon the difference between
the initial public offering price of $7.00 per share (the mid-point in the
range set forth on the cover of this Prospectus) and the average price per
share, before deduction of offering costs, of $2.75 paid by such current
stockholders, the current stockholders will have potential unrealized
gains of $4.25 per share, or an aggregate of approximately $16.9 million.
LIMITED UNDERWRITING EXPERIENCE. Capital West Securities, Inc., one of
the Underwriters, was first registered as a broker-dealer in May 1995 and has
participated in only seven public equity offerings as an underwriter, acting as
a manager or co-manager in four of those offerings. Prospective purchasers of
the securities offered hereby should consider this limited experience in
evaluating this Offering. See "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET. Prior to the Offering, there has been no
public market for the Company's Common Stock. The Company has applied for
listing of the Common Stock on the Nasdaq National Market, although there can be
no assurance, that an active public market will develop. The initial public
offering price was determined solely through negotiations among the Company and
representatives of the Underwriters based on several factors, and may not be
indicative of the market price for the Common Stock after the completion of the
Offering. Among the factors considered in such negotiations were prevailing
market conditions, the results of operations of the Company in recent periods,
the market capitalizations and stages of development of other companies which
the Company and the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company and the present state of the
Company's development. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICES; SEASONALITY. The trading price of
the Company's Common Stock could be subject to fluctuations in response to
quarterly variations in results of operations, the progress of clinical
trials relating to the Company's products, variations in the Company's
anticipated or actual results of operations, announcements of new products or
technological innovations by the Company or its competitors, FDA and foreign
regulatory actions, developments with respect to patent and proprietary rights,
changes in healthcare policy in the U.S. and foreign countries, the
pharmaceutical industry in general, changes in financial estimates by
securities analysts and other events or factors. See "Business." Recent
14
<PAGE> 17
history relating to the market prices of emerging growth companies indicates
that the market price of the Company's Common Stock following the Offering may
be highly volatile. At various times, the stock market has experienced
volatility that has particularly affected the market prices for stock of
particular industry groups, such as biotechnology companies, often without
regard to a particular company's operating results. In the past, following
periods of volatility in the market price of a company's stock, securities
class action lawsuits have been filed against the publicly-held company. There
can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business and results of operations. Any adverse
determination in such litigation could also subject the Company to significant
liabilities.
So long as the Company's product line is primarily in the influenza
diagnostic and therapeutic market, the Company's revenues will be seasonal,
concurrent with the times of the year in which influenza is active.
Consequently, the Company expects that revenues will be concentrated in the
second and third quarters of each fiscal year. This seasonal effect could have
negative effects on the trading price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock
by the Company or its existing stockholders, or the perception that such sales
may occur, could adversely affect the market price of the Common Stock. Upon
completion of the Offering, 6,275,662 shares of Common Stock will be
outstanding (6,620,662 shares outstanding assuming exercise of the
Underwriters' overallotment option in full). Additionally, the Company may in
the future issue significant amounts of Common and/or Preferred Stock to
finance its research, development, manufacturing and marketing activities. Of
the outstanding shares, the 2,300,000 shares (2,645,000 shares assuming the
Underwriters' overallotment option is exercised in full) sold in the Offering,
and 11,869 shares held by existing stockholders who are not, as of the date of
this Prospectus, "affiliates" of the Company, will be tradeable without
restriction. In addition, 3,932,162 shares of Common Stock to be outstanding
after the Offering are "restricted securities" (the "Restricted Shares") within
the meaning of Rule 144 under the Securities Act and may not be publicly resold,
except in compliance with the registration requirements of the Securities Act or
pursuant to an exemption from registration, including that provided by Rule 144
promulgated under the Securities Act.
Stockholders who collectively hold 2,077,968 Restricted Shares (the
"13-Month Lock-up Shares"), or approximately 33.1%, of the outstanding shares of
Common Stock after the Offering, have agreed not to offer, sell or otherwise
dispose of any of the 13-Month Lock-up Shares for a period of 13 months after
the date of this Prospectus without the prior written consent of the
Underwriters. Of the 13-Month Lock-up Shares, upon expiration of the 13-month
lockup period, 1,437,500 shares will be eligible for immediate resale, subject,
in certain cases, to certain volume, timing and other requirements of Rule 144
promulgated under the Securities Act, and 640,468 shares will be tradeable
without restriction unless held by "affiliates" of the Company. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
See "Shares Eligible for Future Sale" and "Underwriting."
In addition to the 13-Month Lock-up Shares, stockholders holding 864,065
Restricted Shares (the "24-Month Lock-up Shares"), or approximately 13.8% of
the outstanding shares of Common Stock after the Offering, have agreed not to
offer, sell or otherwise dispose of any 24-Month Lock-up Shares for a period of
24 months after the date of this Prospectus without the prior written consent
of the Underwriters.
Upon the expiration of each of the 13-month lock-up period and the 24-
month lock-up period, the Company has agreed to file a registration statement
with the SEC to permit the holders of the 13-Month Lock-up Shares and the
24-Month Lock-up Shares who have registration rights to resell their
respective shares without restriction.
Stockholders who collectively hold 837,500 Restricted Shares are not
subject to any lock-up agreement and pursuant to a Registration Rights
Agreement with the Company are entitled to have their shares registered six
months after the close of the Offering.
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<PAGE> 18
In addition to the outstanding shares of Common Stock, there are 565,847
shares subject to outstanding warrants at a weighted average exercise price of
$3.50 per share. There are also 618,750 shares of Common Stock reserved for
issuance under the Company's stock option plans, and 450,000 shares are subject
to outstanding options at a weighted average exercise price of $1.11 per share.
Although these warrants and options are also subject to the 13-month or 24-month
lock-up periods, registration statements are expected to be filed to permit the
resale of shares issuable upon exercise and, to the extent such warrants or
options have been exercised prior to the expiration of the lock-up period, the
resale of the shares acquired upon exercise could adversely affect the
prevailing market price of the Common Stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION. Certain
statements contained in this Prospectus, such as those concerning the Company's
business strategy, products and revenues, capital requirements, governmental
regulation and other statements regarding matters that are not historical
facts, are forward-looking statements (as such term is defined in the
Securities Act). Because such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." The Company undertakes no
obligation to publicly release the results of any revision of those
forward-looking statements that may be made to reflect events and circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares
being offered hereby are estimated to be approximately $14.0 million
(approximately $16.1 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial offering price of $7.00 per share (the
mid-point in the range set forth on the cover of this Prospectus) and after
deducting the estimated underwriting discounts and commissions and offering
expenses. The Company expects to use the net proceeds (assuming no exercise of
the Underwriters' over-allotment option) in fiscal 1999 approximately as
follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
USE DOLLAR AMOUNT OF NET PROCEEDS
--- ------------- ---------------
<S> <C> <C>
Inventory production costs ....................... $ 8,000,000 57.1%
Research and development of therapeutic products . 3,500,000 25.0%
Working capital and general corporate purposes ... 1,500,000 10.7%
Marketing expenses ............................... 1,000,000 7.2%
----------- -----------
Total ............................................ $14,000,000 100.0%
=========== ===========
</TABLE>
The cost, timing and amount of funds required for the foregoing uses of
proceeds by the Company will be based on the amount of sales of ZstatFlu in the
1997-98 influenza season, the anticipated inventory needs for fiscal 1999, and
the results of the Company's research and development programs. The amounts
actually expended on any particular project may vary significantly from the
Company's current plans, particularly given the lack of sales history and the
uncertainty of the Company's research and development progress.
Inventory production costs represent the amount of such costs not
covered by the Company's existing working capital or projected available
working capital. Such costs also include expenditures for opening a
manufacturing facility which are not financed through bank or other debt
sources.
Included within the expenditures for research and development for
therapeutic products, as identified in the table, is the purchase of equipment
relating to research and development.
Where appropriate, proceeds of this Offering also may be used to acquire
products or technologies that complement the Company's business, although there
are no present understandings, agreements or commitments with respect to any
such acquisitions.
Any remaining net proceeds are to be used for working capital and other
general corporate purposes. Pending application of the proceeds described
above, the net proceeds of the Offering will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company makes no assurance that its proposed operations will result
in sufficient revenues to enable profitable operations or to generate positive
cash flow. For the foreseeable future, the Company anticipates that it will use
any funds available to finance the growth of the Company and that it will not
pay cash dividends to stockholders.
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<PAGE> 20
DILUTION
At March 31, 1997, pro forma net tangible book value of the Company's
Common Stock was approximately $6.9 million, or $1.73 per share, after giving
effect to the conversion of all outstanding shares of Preferred Stock into
3,056,094 shares of Common Stock and the 1997 Private Placement, as if issued
at March 31, 1997. "Pro forma net tangible book value" per share of Common
Stock is defined as total tangible assets of the Company less total
liabilities, divided by the total number of shares of Common Stock outstanding.
Giving effect to the Offering, at an assumed initial public offering price of
$7.00 per share (the mid-point in the range set forth on the cover of this
Prospectus), the adjusted pro forma net tangible book value of Common Stock at
March 31, 1997 would have been approximately $3.35 per share of Common Stock.
This will represent an immediate dilution of $3.65 per share to new investors
purchasing shares of Common Stock in this Offering. The following table
illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................. $ 7.00
Pro forma net tangible book value
per share at March 31, 1997 ............................ $ 1.73
Increase attributable to new investors ....................... 1.62
-------
Pro forma net tangible book value per share after the Offering .. 3.35
-------
$ 3.65
=======
Dilution per share to new investors .............................
</TABLE>
The following table summarizes the differences in the total consideration
paid to the Company by officers, directors and affiliates thereof in connection
with the purchase of Common Stock and the average price per share paid by such
persons and the price to be paid by new investors purchasing shares in this
Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Officers, directors and 1,048,330 31.3% $ 453,631 2.7% $ .43
affiliates
New investors 2,300,000 68.7% 16,100,000 97.3% $7.00
--------- ------ ----------- ------
Total 3,348,330 100.0% $16,553,631 100.0% $4.94
========= ====== =========== ======
</TABLE>
The foregoing discussion and table do not assume the exercise of warrants
and stock options issued to officers, directors and affiliates of the Company
which are outstanding as of the date of this Prospectus to purchase 928,972
shares of Common Stock at a weighted average exercise price per share of $2.48.
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<PAGE> 21
CAPITALIZATION
The following table sets forth: (i) the capitalization of the Company
as of March 31, 1997;(ii) the completion of the 1997 Private Placement with net
proceeds to the Company of approximately $4.9 million, as if issued at March 31,
1997, and the amendment of the Company's Certificate of Incorporation to
increase the number of authorized shares of capital stock; and (iii) the pro
forma capitalization of the Company as of such date, after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock and
the sale of the 2,300,000 shares of Common Stock offered hereby at an assumed
offering price of $7.00 per Share (the mid-point in the range set forth on the
cover of this Prospectus). This table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Pro Forma Balance Sheet" and the Financial Statements
and Notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
PRO FORMA
-----------------------------
AS ADJUSTED FOR
THE 1997
PRIVATE AS ADJUSTED FOR
ACTUAL (1) PLACEMENT (1) THE OFFERING (2)
------------ ------------ ------------
<S> <C> <C> <C>
Long-term obligations ............................ $ 282,483 $ 282,483 $ 282,483
Redeemable preferred stock - Series B ............ 125,000 125,000 --
Stockholders' equity:
Preferred stock - Series A, $.001 par
value; 9,843,750 shares authorized;
6,318,125 shares issued and outstanding at ....... 6,318 6,318 --
March 31, 1997 ................................... --
Preferred stock - Series C, $.001 par
value; 1,750,000 shares authorized;
1,437,500 shares issued and outstanding as
adjusted for the 1997 Private Placement .......... -- 1,438 --
Common Stock; $.001 par value,
30,000,000 shares authorized; 919,568
shares issued and outstanding at March 31,
1997; 6,275,662 shares issued and
outstanding as adjusted for the Offering ......... 920 920 6,276
Additional paid-in capital ....................... 4,410,198 9,333,760 23,461,160
Deficit accumulated during the development stage . (2,352,725) (2,352,725) (2,352,725)
------------ ------------ ------------
Total stockholders' equity ....................... 2,064,711 6,989,711 21,114,711
------------ ------------ ------------
Total capitalization ............................. $ 2,472,194 $ 7,397,194 $ 21,397,194
============ ============ ============
</TABLE>
- --------------------
(1) Excludes 618,750 shares of Common Stock reserved for issuance pursuant
to the Company's stock option plans, and 565,847 shares subject to
outstanding warrants. See "Management - Stock Option Plans,"
"Description of Securities" and "Shares Eligible for Future Sale."
(2) Excludes 618,750 shares of Common Stock reserved for issuance pursuant
to the Company's stock option plans, and 795,847 shares subject to
outstanding warrants. See "Management - Stock Option Plans,"
"Description of Securities" and "Shares Eligible for Future Sale."
19
<PAGE> 22
PRO FORMA BALANCE SHEET
The following unaudited Pro Forma Balance Sheet as of March 31, 1997
reflects the historical financial position of the Company as of that date
adjusted to give pro forma effect to the 1997 Private Placement and the
Offering as if these transactions had occurred as of March 31, 1997.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable and fairly
reflect all costs associated with the 1997 Private Placement and the Offering.
The unaudited Pro Forma Balance Sheet does not purport to represent the
financial position which would have occurred had such transactions been
consummated on the dates indicated or the Company's financial position for any
future date or period. This unaudited Pro Forma Balance Sheet and notes thereto
should be read in conjunction with the historical financial statements and
notes included elsewhere herein.
20
<PAGE> 23
ZYMETX,INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA FOR PRO FORMA
ACTUAL THE 1997 PRIVATE THE 1997 PRIVATE ADJUSTMENTS FOR PRO FORMA FOR
(UNAUDITED) PLACEMENT PLACEMENT THE OFFERING THE OFFERING
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 675,991 $ 4,925,000(1) $ 5,600,991 $ 14,000,000(3) $ 19,600,991
Marketable securities, available- 1,571,948 1,571,948 1,571,948
for-sale
Inventory 64,088 64,088 64,088
Prepaid insurance and other 19,126 19,126 19,126
------------ ------------ ------------ ------------ ------------
Total current assets 2,331,153 4,925,000 7,256,153 14,000,000 21,256,153
Property, equipment and leasehold
improvements, net 327,109 327,109 327,109
Proprietary technology and other
intangibles, net 121,777 121,777 121,777
Other, net 449 449 449
------------ ------------ ------------ ------------ ------------
Total assets $ 2,780,488 $ 4,925,000 $ 7,705,488 $ 14,000,000 $ 21,705,488
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 305,254 $ 305,254 $ 305,254
Other 3,040 3,040 3,040
------------ ------------ ------------
Total current liabilities 308,294 308,294 308,294
Long term obligations --
Notes and interest payable 252,975 252,975 252,975
Deferred lease rentals 29,508 29,508 29,508
Redeemable preferred stock -- Series B 125,000 125,000 $ (125,000)(2) --
Stockholders' equity:
Preferred stock -- Series A 6,318 6,318 (6,318)(2) --
Preferred stock -- Series C -- $ 1,438(1) 1,438 (1,438)(2) --
Common Stock 920 920 3,056 (2)
2,300 (3) 6,276
Additional paid-in capital 4,410,198 4,923,562(1) 9,333,760 129,700 (2)
13,997,700 (3) 23,461,160
Deficit accumulated during the
development stage (2,352,725) (2,352,725) (2,352,725)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 2,064,711 4,925,000 6,989,711 14,125,000 21,114,711
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 2,780,488 $ 4,925,000 $ 7,705,488 $ 14,000,000 $ 21,705,488
============ ============ ============ ============ ============
</TABLE>
21
<PAGE> 24
Adjustments to Pro Forma Balance Sheet
The 1997 Private Placement:
(1) Record the issuance of 1,437,500 shares of Series C Preferred Stock of
the Company.
<TABLE>
<S> <C>
Offering proceeds $ 5,750,000
Less:
Commissions (575,000)
Expenses (250,000)
-----------
Net proceeds $ 4,925,000
===========
</TABLE>
The Offering:
(2) Record the conversion of Preferred Stock Series A and B into Common
Stock at the conversion rate of .25 to 1 and the conversion of Series C
into Common Stock at the rate of 1 to 1.
(3) Record Initial Public Offering of 2,300,000 shares of Common Stock of
the Company.
<TABLE>
<S> <C>
Offering proceeds $ 16,100,000
Less:
Commissions (1,288,000)
Expenses (812,000)
------------
Net proceeds $ 14,000,000
============
</TABLE>
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since January 1996, when the Company's management and scientific team
joined the Company from OMRF, the Company's operating activities were related
to the Company's ZstatFlu product, consisting primarily of research and
development, conducting clinical trials and submitting a 510(k) application
with the FDA. The Company has incurred losses since inception and, as of March
31, 1997, had a deficit accumulated during the development stage of $2.4
million.
The Company's ability to achieve revenues and profitability will be
dependent on its ability to receive FDA 510(k) clearance for ZstatFlu and
scale-up manufacturing and establish distribution channels for that product. If
all of these events do not occur before the start of the 1997-98 influenza
season, the Company's ability to earn revenues for fiscal 1998 will be seriously
compromised. Although the Company has contingency plans to be enacted in the
event certain steps are not achieved according to schedule (i.e., increased
marketing of ZstatFlu in Europe if FDA clearance of that product is not
received before October 1, 1997), any actions taken in response thereto may be
inadequate to allow the Company to realize significant revenues or be
profitable for fiscal 1998.
Because the Company's initial products are expected to be in the area of
influenza diagnostics and the Company's near term therapeutic research emphasis
is in the area of influenza, the Company's future revenues are likely to be
seasonal, concurrent with the times of the year in which influenza is active.
Consequently, so long as the U.S. influenza market remains the principal market
for the Company's products, the Company's revenues will be concentrated in the
second and third quarters of each fiscal year. See "Risk Factors - Possible
Volatility of Stock Prices; Seasonality" and "Business - Competition."
Comparisons of fiscal 1996 to fiscal 1995 are not informative because
the research, development and other activities relating to the Company's
products and technology were conducted by OMRF prior to January 1996.
PLAN OF OPERATIONS
The Company's plan of operations for the next 12 months is to: (i)
secure 510(k) clearance for ZstatFlu; (ii) scale-up and complete manufacturing
of ZstatFlu for the 1997 influenza season; (iii) establish distribution
channels and market ZstatFlu; and (iv) continue viral therapeutic and
diagnostic research and development.
After completion of this Offering, the Company will have adequate cash
and securities available for sale to fund the planned operations for the next 12
months. Additional capital is needed to fund larger inventories for planned
sales in fiscal year 2000 and future periods in addition to scaled-up research
and development programs.
Expenditures for research and development are estimated by management of
the Company to be $2.0 million for the next 12 months. Research will center
around continued development of compounds for the treatment of influenza and
extension of ViraZyme technology to additional disease targets.
The Company will purchase equipment in connection with the expansion of
its research program. The anticipated amount of equipment purchases during the
next 12 months is $.8 million,
23
<PAGE> 26
to be funded from existing working capital. Additional equipment will be
required if the Company establishes its own production facility; the Company
expects to finance the equipment for such a facility through debt financing. The
Company intends to lease such a facility; however, if purchase terms were
favorable the Company would finance such a purchase through debt financing.
The Company intends to hire at least five additional employees in the
next 12 months.
RESULTS OF OPERATIONS
Since its inception the Company has been a development stage company
engaged primarily in research and product development activities, and has not
generated any significant revenues.
Research and development expenses were $.7 million for the first nine
months of fiscal 1997. In addition, in July 1996, the Company acquired rights to
technology and patents from OMRF, $1.0 million of which represented acquired
in-process technology undergoing research and development. These research and
development costs were attributable to ZstatFlu. Although the Company intends to
increase research and development expenses in fiscal 1998, focusing primarily on
therapeutic products for influenza and additional ViraZyme disease targets, it
is uncertain whether the factors necessary for such an increase in research and
development activities will be present, such as securing adequate working
capital for inventory and operations in both fiscal 1998 and 1999, as well as
realizing significant revenues in fiscal 1998 from ZstatFlu. To the extent the
Company is unable to increase research and development for additional products,
commercial introduction of such products will be delayed. See "Business -
ZstatFlu," and "Business - Therapeutic Research Program."
Contract labor expense (which is included in research and development
and general and administrative categories) was $.5 million for the first nine
months of fiscal 1997, arising under the Company's Employee Services Agreement
with OMRF. See "Business - OMRF Support." The Company will continue this
arrangement for five employees; all other personnel are employees of the
Company. Accordingly, as new employees are hired, compensation expenses related
to such persons will be included in both general and administrative expenses
and research and development. See "Business - Employees."
General and administrative expenses were $.3 million for the first nine
months of fiscal 1997. These expenses are expected to increase in fiscal 1998
due to increased personnel expenses. Depreciation expense increased due to the
acquisition of equipment in connection with the expansion of operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and securities available for sale
of $2.2 million and working capital of $2.0 million. The Company funded its
operations through March 31, 1997, primarily through private placements
providing net proceeds of approximately $4.4 million in equity securities
completed in the first and second quarters of fiscal 1997, and interest income
earned on the net proceeds therefrom. Subsequent to March 31, 1997, the Company
completed the 1997 Private Placement, providing net proceeds of approximately
$4.9 million.
Effective contemporaneous with the execution of the OMRF License, the
Company issued the License Note (the "License Note") in favor of OMRF. The
License Note has a principal amount of $.4 million and bears no interest until
May 15, 1998; thereafter, unpaid principal bears interest at 8% per year.
24
<PAGE> 27
The License Note requires quarterly installments of interest commencing May 15,
1998, and commencing May 15, 1999, a principal payment of $25,000 per quarter
until the License Note is repaid.
Manufacturing and marketing expenses for ZstatFlu are estimated to be
$5.7 million for fiscal 1998, with most of such costs payable in the first two
quarters of fiscal 1998. The Company's business plan contemplates the
production and sale of approximately 1.0 million units of ZstatFlu. The Company
expects to produce an additional 200,000 units which will be used for
demonstration and marketing purposes. The total cost of packaging and chemical
compound synthesis for that level of production is estimated to be
approximately $4.8 million (approximately $4.00 per unit). In addition, the
Company's marketing costs for ZstatFlu are expected to be approximately $.9
million. The price per unit to distributors is expected to be approximately
$12.00 to $15.00.
In addition to the Company's working capital needs for fiscal 1998, the
Company will require significantly larger capital for production of inventory
for the 1998-99 influenza season. If the Company sells substantially all of the
1.0 million units of ZstatFlu produced for sale in the 1997-98 influenza
season, the Company estimates that production of ZstatFlu will be approximately
4.0 million units for the 1998-99 season, with a total manufacturing cost of
approximately $16.0 million. The Company can give no assurance that the actual
manufacturing costs will fall within the described estimates.
To the extent that sales of ZstatFlu in fiscal 1998 do not reach 1.0
million units, the Company will be required to reduce planned research and
development expenditures in fiscal 1999 or secure additional equity or debt
capital beyond that required for meeting fiscal 1999 inventory needs.
25
<PAGE> 28
BUSINESS
GENERAL
ZymeTx is a development stage biotechnology company engaged in the
discovery and development of unique products for the diagnosis and treatment of
viruses. The scientific foundation for the Company's plan of operations is
based upon the role of enzymes in the process of viral infection. The Company's
strategy is: (i) to develop therapeutic and diagnostic products for a broad
range of viral diseases; and (ii) to earn revenues from marketing "ZstatFlu,"
the Company's first diagnostic product, to sustain a comprehensive viral
therapeutic research and development program.
ViraZyme, the Company's core technology, exploits the subtle structural
differences and characteristics of enzymes to create viral diagnostic and
therapeutic products. The Company's diagnostic technology is a proprietary
two-part compound that will split when the compound contacts a specific target
site (an enzyme). As a result of this split, one part of the compound becomes
visible to the naked eye when collected in the Company's testing device,
permitting the user to make a diagnosis regarding the presence of the virus
targeted by the test. For therapeutic products, a modified version of the
diagnostic compound is used that will bind to a specific enzyme and prevent the
enzyme's contribution to the infection process.
The Company's initial viral targets are respiratory infections including
influenza A and influenza B, RSV, parainfluenza and adenovirus, as well as the
non-respiratory infections HSV and CMV.
ZYMETX TECHNOLOGY
SCIENTIFIC BACKGROUND. Significant advances made in the field of
microbiology in recent years have increased scientists' understanding of cell
biology, disease process and disease progression. These advances have opened
the field of virology to new approaches. Scientific thought has previously
acknowledged that enzymes have a critical function to perform in viruses.
However, many scientific leaders have asserted that enzyme structure is based
primarily on the function and not on the origin of the enzyme. Contrary to this
assertion, the Company believes that enzymes are gene-encoded products and
possess exploitable differences based upon their origin. The prevailing body of
science, while not in direct conflict with the Company's premise, has
maintained that if such differences in fact existed they would be too
insignificant to be exploited. The Company has demonstrated in actual clinical
trials the ability to exploit these subtle differences and thus identify
enzymes unique to the host virus.
The Company's ViraZyme technology focuses on the development of highly
specific/selective molecules that will interact only with an enzyme of specific
origin, such as viral, mammalian, bacterial, etc. This permits interaction with
one enzyme while preventing activity with a similar enzyme of different origin.
Using a proprietary series and sequence of assays that is supported by X-ray
crystallography/rational design, the Company believes, based on its clinical
trials, that it can identify the fingerprint of critical enzymes and then build
molecules that will have great preference for only the targeted form of the
enzyme.
The core of the ViraZyme approach is the identification of essential
target sites of viral enzymes and synthetic production of molecules that have
selective action at an identified target site. The Company believes that this
approach is effective for development of both diagnostic and therapeutic
programs. The early research for both the diagnostic and therapeutic programs
is quite similar and mutually supportive, with both utilizing a rational design
and a traditional organic chemistry approach.
26
<PAGE> 29
VIRAZYME TECHNOLOGY. Virus particles contain proteins which are
essential for the virus to infect its host. For example, the influenza virus
has eight of these proteins, several of which function as structural components
while others function as enzymes. Enzymes are biological catalysts which are
able to transform one biochemical substance into another, specifically and
rapidly, without being consumed in the reaction. Because of the enzyme's
location on the virus particle and the importance of catalytic reactions to the
virus' function, such sites would typically make an attractive target for
diagnostic compounds or therapeutic inhibitors. However, similar enzymes of
bacterial and mammalian origin are also present in the body and are necessary
to perform normal and vital cell functions. Until recently, scientists believed
one could not differentiate among viral, mammalian or bacterial enzymes,
thereby rendering the enzyme on the virus pointless as a viral target. However,
the ViraZyme technology demonstrates that there are subtle differences in
enzyme active sites depending upon whether they are of viral, mammalian or
bacterial origin.
The Company's ViraZyme technology uses a methodology for discovering the
subtle, origin-dependent differences of enzymes and exploiting such differences
through the use of proprietary substrate and inhibitor molecules specific to
viral enzymes. By introducing a chromogen-linked ViraZyme substrate to a virus
in a clinical specimen, the Company believes that only the targeted viral
enzyme will continuously cleave the chromogen from the substrate molecules. The
ViraZyme technology utilizes the naturally occurring enzyme to produce
thousands of reactions at the catalytic site while other methods, such as MAbs
and gene probes, employ secondary reactions which require additional steps to
produce multiple reactions. For therapeutic applications of this technology,
specifically designed inhibitor molecules are administered to a person infected
with a virus to inhibit the natural enzyme activity which is critical to the
infection process. This would theoretically stop the course of the illness. See
"Therapeutic Research Program - Influenza Therapeutic Development."
The Company has developed ZstatFlu using ViraZyme technology and is
developing diagnostic tests utilizing the ViraZyme technology for numerous
medically significant viruses beyond influenza, including HSV and RSV. The
Company also has plans to develop similar diagnostic tests for CMV and
adenovirus, and is in the early stages of research regarding therapeutics
utilizing the ViraZyme technology for enzymes associated with many of these
same viral diseases. See "Risk Factors - No Assurances of Successful or Timely
Development of the Company's Therapeutic or Other Diagnostic Products."
The selection of viral diseases other than influenza to be targeted for
commercialization of the Company's products is based on the following criteria:
potential market size, the viral disease's incidence, morbidity/mortality, the
availability of diagnostics and therapeutics, and the existence of possible
corporate partners. See "Business - Sales and Marketing." Developing any
additional products will require significant ongoing research and development.
See "Risk Factors - No Assurance of Successful or Timely Development of the
Company's Therapeutic or Other Diagnostic Products."
During fiscal 1996 and the first nine months of fiscal 1997, the Company
incurred research and development expenses of $.3 million and $.7 million,
respectively and in fiscal 1997 acquired in-process technology of approximately
$1.0 million.
ZSTATFLU
BACKGROUND. The first product the Company has developed is ZstatFlu, a
rapid POC diagnostic test for influenza. ZstatFlu will permit, for the first
time, the rapid and simple POC detection of the influenza virus directly from a
patient specimen.
27
<PAGE> 30
ZstatFlu targets the amplifying capability of the influenza
neuraminidase enzyme. The ViraZyme technology incorporates novel substrate
molecules which react with the influenza neuraminidase enzyme and allow the
presence of the influenza virus to be detected.
These substrate molecules include two parts: (i) a "recognition" portion
which enters into the catalytic site of the enzyme; and (ii) a chromogen
"reporter" portion which gives a visible signal after the enzyme has cleaved it
from the recognition portion.
A single influenza virus particle contains over 400 neuraminidase enzyme
molecules on its surface. Clinical tests have demonstrated that the cavity in
this viral enzyme is not present in the same form as that of neuraminidase of a
mammalian or bacterial origin and is the "catalytic site" or the place where
the enzyme causes the reaction to proceed. The enzyme, when placed in a
solution containing the substrate, causes a cascade of reactions where the
"reporter" portion generates a visible color indicating the presence of the
virus.
PROCEDURE. The procedure for use of ZstatFlu depicted on the inside back
cover of this Prospectus begins with the collection of a patient sample using a
standard throat swab technique (Step 1). The patient specimen is then dipped
into a plastic tube containing a liquid substance and a dropper cap is placed
on the tube (Step 2). Using the dropper cap, the entire contents of the tube is
extracted and squeezed into a vial containing the dry reagent, the vial is
capped, and the mixture of the sample and the reagent is incubated for 60
minutes (Step 3). After one hour, the reagent mixture is poured into the
ViraZyme collection device (Step 4). If influenza is present, a blue color will
appear, indicating a positive result; if there is a negative result, there will
be no color change in the device.
PRODUCT STATUS. The Company filed a 510(k) application for its ZstatFlu
product with the FDA on April 24, 1997. The Company expects to receive FDA
clearance of and the ZstatFlu product in late August 1997. There can be no
assurance, however, that the Company will receive FDA clearance or be
successful in launching this product in time for the 1997-98 influenza season.
The Company expects to sell ZstatFlu at a price to distributors between
$12 to $15 per unit, depending on volume discounts.
CURRENT PRODUCTS CLEARED BY THE FDA
The following products previously developed by the Company have received
clearance from the FDA and were successfully developed for strategic regulatory
purposes; however, the Company has chosen not to expend resources to market
these products and there can be no assurance that markets for these products
will be significant or that the Company will ever market them.
VIRAZYME CULTURE SCREEN. ViraZyme Culture Screen is a product available
to clinical labs, in contrast to the use of ZstatFlu in physician office
laboratories. The Company believes that the Culture Screen product reduces
labor-intensive procedures in the clinical laboratory, thereby reducing costs.
The FDA cleared this product in June 1996.
VIRASTAT PARAINFLUENZA 1, 2 AND 3. ViraSTAT Parainfluenza 1, 2 and 3 is
the first of a series of clinical lab products developed by the Company using
MAb technology. This product has several distinct advantages over time and
labor-intensive tests of other clinical lab products currently available. The
28
<PAGE> 31
Company intends to develop other MAb-based products for the detection of
adenovirus, RSV and the influenza A/B products which comprise the respiratory
panel, and HIV types 1 and 2. The FDA cleared this product in 1995.
OTHER DIAGNOSTIC PRODUCTS IN DEVELOPMENT
VIRAZYME INFLUENZA ID A/B. The ZstatFlu product is designed to
accurately detect the presence of the influenza virus. However, this product
does not differentiate between Type A and Type B influenza. The identification
of influenza as either Type A or Type B is important for segments of the
marketplace which require definitive diagnosis for epidemiological purposes.
The Company may utilize its proprietary antibodies which target the influenza
virus to create a ViraZyme Influenza ID A/B test which would specifically and
rapidly identify the particular type of influenza present in a specimen should
the market support such a product.
VIRASTAT FITC LABELED MONOCLONAL ANTIBODIES. The Company's scientific
staff has developed an improved proprietary method for directly labeling MAbs
with the commonly used fluorescent dye molecule fluorescein isothiocynate FITC.
Microscopy utilizing fluorescent antibodies represents the most efficient and
currently accepted method employed by clinical laboratories in the culture and
identification of viruses. Using its improved methods for directly labeling
MAbs with fluorescent dye, the Company has developed labeled MAbs for both Type
A and Type B influenza. These antibodies may be marketed separately or may be
marketed in a panel with other MAbs for detection of respiratory viruses.
In-house testing of these MAbs comparing them to those commercially available
has found the Company's ViraSTAT MAbs to be superior. Both influenza Type A and
B MAbs were successfully tested separately and as a pool in clinical studies
during the fall of 1996. These MAbs will be submitted for clearance under the
FDA 510(k) process. See "Risk Factors - Government Regulation."
HERPES SIMPLEX VIRUS. The Company has identified several promising
enzyme targets for HSV and the Company's technology is being focused on
delivering a rapid and simple diagnostic product for HSV for use in physician
offices. The Company has a goal of developing an HSV diagnostic within three
years. There can be no assurance that such a diagnostic product can be
developed within such time, or at all. See "Risk Factors - No Assurance of
Successful or Timely Development of the Company's Therapeutic or Other
Diagnostic Products."
THERAPEUTIC RESEARCH PROGRAM
INFLUENZA THERAPEUTIC DEVELOPMENT. The Company is pursuing the discovery
of therapeutic compounds for influenza. A significant issue in the development
of an influenza therapeutic is the specificity of the molecule to its targeted
site. The Company has demonstrated in its laboratories specific activity at a
targeted viral enzyme site with its novel compounds and has achieved a
significant advance in the development of its therapeutic program. The Company
has identified specific attributes of a molecule that is highly active as an
inhibitor to the target site of the influenza virus. These newly identified
attributes combined with the Company's demonstrated specificity provide the
basic model for the development of further novel compounds for use as influenza
therapeutics. See "Risk Factors - No Assurance of Successful or Timely
Development of the Company's Therapeutic or Other Diagnostic Products."
The following are milestones for the development of an influenza
therapeutic. Beginning with Milestone "5" and thereafter, the Company believes
that a pharmaceutical corporate partner will be necessary
29
<PAGE> 32
to co-develop this drug and perform the clinical trials. The Company has not
initiated substantial discussions with such a partner.
<TABLE>
<CAPTION>
VIRAZYME INFLUENZA THERAPEUTIC DEVELOPMENT MILESTONES STATUS
----------------------------------------------------- ------
<S> <C> <C>
1. Identification of novel, highly specific family of compounds. Completed
2. Selection of a "lead" compound (specific inhibitors). In Process
3. Plaque assay determination of utility. In Process
4. Viral specificity testing of potential lead compounds. In Process
5. Animal testing of potential lead compounds. 2nd Quarter FY `98
6. Initiate Phase I trials (safety challenge). Unscheduled
7. Initiate Phase II trials (dose ranging). Unscheduled
8. Initiate Phase III trials (proof of efficacy). Unscheduled
</TABLE>
There can be no assurance that such milestones will be achieved on
schedule, or at all. See "Risk Factors - No Assurance of Successful or Timely
Development of the Company's Therapeutic or Other Diagnostic Products."
HERPES SIMPLEX VIRUS. Currently the only effective therapeutic products
generally accepted for treatment of HSV are Glaxo Wellcome's acyclovir and
valcyclovir, and SmithKline Beecham's famciclovir. The Company's HSV
development program is focused on enzymes that are oriented to the maturation
or propagation of the HSV virus. The Company believes that the mode of action
of a Company-developed product will be different than that of acyclovir, and
that its technology could lead to an alternative product. The Company has a
goal of identifying in the next four years lead compounds for HSV therapeutic
development. There can be no assurance that such compounds can be identified
within such time or at all. See "Risk Factors - No Assurance of Successful or
Timely Development of the Company's Therapeutic or Other Diagnostic Products."
SALES AND MARKETING
PRIMARY CARE MARKET. The principal market for the Company's ZstatFlu
product is physicians' office laboratories, of which there are an estimated
100,000 in the U.S. The ability of a physician to conduct diagnostic tests in
the office enables the physician to identify and run additional tests that help
establish the basis for a firm diagnosis and a sound therapeutic decision. The
most effective means of reaching the physicians' office laboratory market is
for the Company to enter into marketing agreements with distributors or other
companies already reaching these physicians, thereby serving the major market
segments. Although the Company has had discussions with several distributors
concerning potential marketing agreements, no agreement has been entered into
and no agreement is expected until FDA 510(k) clearance for ZstatFlu is
received from the FDA. No assurance can be given that marketing arrangements
will be made in a time frame which will allow ZstatFlu to be launched
successfully for the 1997-98 influenza season. See "Risk Factors - Reliance on
Distributors."
The focus of the Company's sales effort during the first year will
principally be the primary care market, although some product may be sold to
the nursing home extended care market during the first year. As the Company's
production capacity increases during the second sales year, more emphasis will
be given to expanding into other markets.
30
<PAGE> 33
MANAGED CARE MARKET. Distributors with well-trained sales forces will
sell the ZstatFlu product directly to physicians. For physicians that practice
in the managed care setting, the Company's strategy is to demonstrate a
significant savings and better utilization of antibiotics. It is recognized
within the healthcare industry that antibiotics are significantly over-utilized
for upper respiratory illness, which is of great concern and cost to HMO's and
other managed care organizations. Physicians, without proper diagnostic tools
such as ZstatFlu, are unable to accurately diagnose viral versus bacterial
respiratory infections. This contributes significantly to the overuse of
antibiotics and the resultant unnecessary cost to the healthcare system.
Overuse of antibiotics also contributes to development of drug resistance by
certain bacteria. The Company has targeted ZstatFlu to the managed care
(HMO/PPO/PPM) segment where specific controls can be readily put in place for
insurers, physicians and patients that will lead to both improved quality of
care and reduced costs for management of upper respiratory infections.
PHARMACO-ECONOMIC MODEL. The potential cost savings in using ZstatFlu
has been demonstrated in a pharmaco-economic model created by the Company. The
model, which is distributed by the Company to potential customers, is presently
being reviewed by the University of South Carolina Department of Pharmacy with
the intent to publish an outcome analysis of the management of upper
respiratory infection. The purpose of the interactive computer model is to
demonstrate to the managed care market the potential savings that would become
available through the implementation of a practice protocol that utilized
ZstatFlu. The interactive feature of such model allows the managed care company
to input its own statistical data to calculate total or segment-specific
savings potentials.
The basic approach of the model is to treat an upper respiratory
infection complaint as an episode, during which a number of medical
cost-bearing activities occur. In this manner, the costs associated with
conventional upper respiratory infection treatment procedures can be compared
to a new treatment procedure involving ZstatFlu. The potential cost savings are
then converted to savings per capitated life for the managed care company.
The model considers the number of visits per influenza episode for
conventional treatment compared to treatment using ZstatFlu. It imposes a cost
per visit for the managed care company and the percentage of cases involving
upper respiratory complaints. The costs per visit include charges for the
physician evaluation, rapid strep cultures, influenza culture, blood count and
the prescription of antibiotics or decongestants. The model treats each of
these costs as variables, allowing the managed care unit to apply its empirical
percentages of involvement of those costs for comparison with use of ZstatFlu.
In comparing the cost of conventional treatment per influenza episode
with the treatment involving ZstatFlu, the managed care company can assess the
impact of reducing the percentage of cases in which antibiotics are prescribed,
as well as the potential reduction in expenses by utilizing nurse triage with
the ZstatFlu prior to involving a physician evaluation.
For example, a managed care company with 100,000 capitated lives may
experience physician involvement in 100% of influenza episodes. Its experience
may also be that a range of diagnostic procedures are run, with strep tests in
20%, a blood count in 10% and culture tests in 1% of those cases. Antibiotics
may be prescribed in 70% of those cases. With the availability of ZstatFlu, as
demonstrated by the pharmaco-economic model, the introduction of a nurse triage
function in 20% of the cases and a concurrent reduction in antibiotic
prescriptions in 35% of the cases, will result in a 13% reduction in the cost
per episode, even after the cost of the ZstatFlu unit. The figures used in this
example represent mid-ranges in national averages.
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The cost benefit generated by the use of ZstatFlu is greater if the
number of subsequent physician visits is reduced by the use of ZstatFlu. This
is because 50% of physician visits for upper respiratory illness result in
subsequent visits to the physician. The extent to which managed care companies
can reduce subsequent visits through use of ZstatFlu will make the cost savings
more significant.
The Company has held conferences with major regional HMO's in the U.S.
to demonstrate the cost benefits of ZstatFlu in the managed care environment.
At the time of launch of ZstatFlu, the Company will market heavily to medical
directors of significant HMO's. As an HMO adopts the Company's procedure for
managing upper respiratory infection, instruction is expected to pass down to
the HMO's primary care facilities which will facilitate the sales effort of the
distributors' salespeople for those accounts. NCI Managed Care, a consulting
firm in the health industry, provides the Company with consulting services
relating to marketing to managed care companies.
THERAPEUTIC PRODUCTS. For its therapeutic products, the Company does not
intend to establish its own sales and marketing force, but will seek
collaborative relationships with pharmaceutical companies. In the event that
potential collaborative partners are identified, the Company will have to
negotiate and enter into definitive agreements for the development of such
therapeutic products. There can be no assurance that the Company will be
successful in contracting with other firms for the collaborative development of
therapeutic products based on the ViraZyme technology or that any such
agreements will be on terms favorable to the Company. See "Risk Factors - No
Manufacturing Capability; Reliance on Third-Party Manufacturers."
MANUFACTURING ARRANGEMENTS; SOURCES OF RAW MATERIAL
The Company has contracted with DCL to produce ZstatFlu for the
1997-98 influenza season. Production commenced in August 1997 and is expected
to continue through November 1997. Beginning with the 1998-99 influenza
season, the Company intends to establish its own production facility located in
Oklahoma. However, the Company will do so only if conditions indicate that
having its own facility will result in no increased production costs per unit
and the availability of the principal chemical compound for ZstatFlu does not
make outsourcing advantageous relative to production by the Company.
The Company has placed purchase orders for the chemical compounds
necessary for the 1997-98 influenza season production requirements, and
material is currently available in quantities and within delivery schedules
that meet the Company's requirements. As indicated above, if material becomes
available from a greater number of suppliers and at lower costs, the Company
will be less inclined to produce ZstatFlu itself for the 1998-99 influenza
season.
The Company has the technical capability with its existing personnel to
produce the chemical for ZstatFlu in the event the Company establishes its own
production facility. Additional technicians would be required, however, for the
Company to conduct its own production operation.
EUROPEAN MARKET
Requirements for marketing a diagnostic product in Europe are generally
less stringent than in the U.S. Once an application for marketing clearance is
submitted to the FDA, the product covered by such application may be marketed
in certain European countries. Accordingly, to take advantage of the 1997-98
influenza selling season in Europe, the Company entered into a contract with
JLC of Geneva, Switzerland ("JLC") pursuant
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to which JLC will proceed with the fulfillment of the Company's marketing
requirements in certain European countries for the coming influenza season and
assist the Company in establishing an effective European distributor network.
JLC has, during the past 10 years, assisted other American biotechnology
companies in successfully marketing products in Europe. If FDA clearance for
ZstatFlu is delayed, the Company's strategy is to significantly increase
European marketing efforts; however, the shift from U.S. to Europe must be made
rapidly to meet the European influenza season and there can be no assurance
that this can be done. The Company has established a marketing office in
Geneva, Switzerland.
COMPETITION
Competition in the Company's markets is intense. The Company competes
with a large number of companies ranging from very small businesses to large
diagnostic, healthcare, pharmaceutical, biomedical and chemical companies, many
of which have substantially greater financial, manufacturing, marketing and
product research resources than the Company. Academic institutions,
governmental agencies and other public and private research organizations are
also conducting research activities and may commercialize products on their own
or through joint ventures. The Company intends to compete primarily on the
basis of the clinical utility, accuracy, speed, ease of use and other
performance characteristics of its products and, to a lesser degree, on the
price of its products.
The Company is aware that other companies are developing influenza
diagnostics which may compete with the Company's products. These diagnostic
products could compete directly with ZstatFlu and other Company products which
utilize the Company's ViraZyme technology. The existence of these and other
competing products or procedures that may be developed in the future may
adversely affect the marketability of products developed by the Company.
Although the Company's existing licensed patent rights cover a broad
field of viral diagnostics, the Company is aware of the efforts of others to
develop diagnostics for viral disease. Quidel, working with Glaxo Wellcome, and
Biostar, working with Biota Holdings, Ltd. ("Biota"), have each publicly
announced influenza diagnostic programs. The Company believes that the primary
methods being used by these competitors and others to develop such diagnostics
are substantially different than the Company's methods and do not offer the
anticipated market advantages of the ViraZyme system. There can be no
assurance, however, that the Company will be successful in fully developing its
products so that such expected marketing advantages will be realized or that
the competitive advantages of products of competitors will not exceed those of
the Company's products.
In addition, the Company is aware of influenza therapeutic programs of
other companies; specifically Glaxo Wellcome, whose influenza therapeutic the
Company believes is in FDA Phase III clinical trials, and Roche, which has
begun Phase I or Phase II clinical trials for its therapeutic for influenza.
Programs underway at Glaxo Wellcome and Roche both involve inhibition of
enzymes in a manner similar to the Company's approach. The Company recognizes
that these two competitors are further advanced in the development of
therapeutics than is the Company and may come to the market with a therapeutic
product earlier than the Company, which could be a barrier to market acceptance
of the Company's product, if developed.
A therapeutic product developed by Glaxo Wellcome or Roche will be a
strong competitor for any therapeutic which the Company may develop, because of
the size and resources of such companies. In the event the Company develops a
therapeutic product, it plans to contract with a large pharmaceutical company
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to increase the Company's ability to compete against large companies such as
Glaxo Wellcome or Roche. There can be no assurance that such a contract can be
secured on terms satisfactory to the Company, or at all. See "- Intellectual
Property" and "Risk Factors."
The Company's competitive position will also depend on its ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, implement production and marketing plans, obtain patent
protection and obtain adequate capital resources. See "Risk Factors -
Dependence on Key Personnel" and "Management."
INTELLECTUAL PROPERTY
LICENSE FROM OMRF. Under the terms of the OMRF License, the Company has
been granted an exclusive, perpetual, worldwide license covering all of the
patents which comprise the ViraZyme technology and all foreign patents and
patent applications corresponding to those patent applications (the "Patent
Rights"). The issued U.S. patents covered by the OMRF License expire in the U.S.
from 2010 to 2013. The Patent Rights relate to the methods for use of naturally
occurring viral enzymes to detect the presence of a specific virus from a
patient specimen with the test yielding a visible reaction, as well as patents
on specific novel compounds, synthesis pathways and composition of matter. The
OMRF License grants the Company the perpetual, exclusive worldwide right to
manufacture, have manufactured, use, sell or have sold, products made under the
Patent Rights. In consideration for the OMRF License, the Company has: (i) paid
OMRF a license fee of $825,000; (ii) executed the License Note in the principal
amount of $425,000; (iii) granted OMRF a 2.0% royalty on net sales of products
derived from patents held by OMRF and covered by the OMRF License; (iv) granted
to OMRF a warrant (the "OMRF License Warrant") to purchase 5,667 shares of
Common Stock at $3.20 per share; and (v) issued to OMRF 165,131 shares of Common
Stock (inclusive of 39,063 shares issued upon conversion of Series B Preferred).
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed discussion of the terms of the License Note
issued to OMRF.
Although the scope of patent protection is difficult to quantify, the
Company believes that the OMRF License to the Patent Rights should afford
adequate protection to conduct its business as described in this Prospectus.
Under the terms of the OMRF License, the Company assumed responsibility to pay
Biota a royalty of 4% of the revenues derived by the Company from sales of
diagnostic products utilizing intellectual property ("Collaboration
Intellectual Property") developed during a research collaboration between Symex
Corp. ("Symex") and Biota. The Company does not believe that the ZstatFlu
product utilizes Collaboration Intellectual Property and, therefore, does not
believe that a royalty will be due Biota. However, there can be no assurance
that Biota will not be successful in establishing that ZstatFlu utilizes
Collaboration Intellectual Property and that a royalty will be due Biota. In
the event that a royalty is payable, royalty payments to OMRF will be offset by
any royalties payable to Biota, and the Company does not believe that such
obligation to Biota would materially adversely affect the Company's
capitalization or operations.
The technology licensed from OMRF was acquired by OMRF in 1993 pursuant
to the foreclosure by OMRF on the intellectual property of Symex. OMRF
foreclosed on such intellectual property when Symex defaulted in the repayment
of $380,714 owed to OMRF. See "Certain Relationships and Related Transactions."
Subsequent to such foreclosure, the principal managerial and scientific
personnel of Symex were hired as employees of OMRF and continued as such until
January 1, 1996, when OMRF provided the services of such employees to the
Company on a lease basis. See "- OMRF Support" and "- Employees."
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The Company believes that the family of compounds being developed by it
for therapeutic use are not within the claims of any other company, including
Glaxo Wellcome or Roche, who the Company is aware have filed patent
applications for certain therapeutic products based upon the review of patent
disclosures made by such companies. See "Risk Factors - Limitations on
Protection of Intellectual Property."
OTHER PROPRIETARY RIGHTS. In addition to Patent Rights, the Company
relies on trade secrets, trademarks, and nondisclosure agreements to establish
and protect its proprietary rights. Despite these precautions, it may be
possible for unauthorized third parties to utilize the Company's technology or
to obtain and use information that the Company regards as proprietary. The laws
of some foreign countries do not protect the Company's proprietary rights in
its processes and products to the same extent as do the laws of the U.S.
The Company relies substantially on certain technologies which are not
patentable or proprietary and therefore may be available to the Company's
competitors. In addition, many of the processes and much of the know-how of
importance to the Company's technology are dependent upon the skills, knowledge
and experience of its scientific and technical personnel, which skills,
knowledge and experience are not patentable. To protect its rights in these
areas, the Company requires all employees, significant consultants and
advisors, and collaborators to enter into confidentiality agreements. There can
be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets, know-how or other proprietary
information in the event of unauthorized use or disclosure of such trade
secrets, know-how or proprietary information. Further, in the absence of patent
protection, the Company may be exposed to competitors who independently develop
substantially equivalent technology or otherwise gain access to the Company's
trade secrets, knowledge or other proprietary information. ViraZyme and
ViraSTAT are trademarks registered to OMRF and licensed to the Company under
the terms of the OMRF License.
GOVERNMENT REGULATION
The following is a summary of principal areas of governmental regulation
which affect the Company and its operations. Any change in governmental
regulations or in the interpretation thereof could have a material adverse
effect on the Company.
THERAPEUTIC PRODUCTS. The production and marketing of the Company's
therapeutic products and its therapeutic research and development activities
are subject to regulation for safety, efficacy and quality by numerous
governmental authorities in the U.S. and other countries. In the U.S., drugs are
subject to rigorous regulation. The Federal Food, Drug and Cosmetics Act, as
amended, and the regulations promulgated thereunder, as well as other federal
and state statutes and regulations, govern, among other things, the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of the Company's proposed therapeutic products.
Product development and approval within this regulatory framework take a number
of years and involve the expenditure of substantial resources. In addition to
obtaining FDA approval for each product, each drug manufacturing establishment
must be registered with, and approved by, the FDA. Domestic manufacturing
establishments are subject to regular inspections by the FDA and must comply
with GMP. To supply products for use in the United States, foreign manufacturing
establishments must also comply with GMP and are subject to periodic inspection
by the FDA or by regulatory authorities in certain of such countries under
reciprocal agreement with the FDA.
New Drug Development and Approval. The United States system of new drug
approval is the most rigorous in the world. According to a February 1993 report
by the Congressional Office of Technology Assessment, it cost an average of
$359 million and took an average of 15 years from discovery of a compound to
bring a single new pharmaceutical product to market. Approximately one in 1,000
compounds that enter the pre-clinical testing stage eventually makes it to
human testing and only one-fifth of those are
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ultimately approved for commercialization. In recent years, societal and
governmental pressures have created the expectation that drug discovery and
development costs can be reduced without sacrificing safety, efficacy and
innovation. The need to significantly improve or provide alternative strategies
for successful pharmaceutical discovery, research and development remains a
major health care industry challenge.
Pre-Clinical Testing. During the pre-clinical testing stage, laboratory
and animal studies are conducted to show biological activity of the compound
against the targeted disease, and the compound is evaluated for safety. These
tests can take up to three years or more to complete.
Investigational New Drug Application. After pre-clinical testing, an
IND is filed with the FDA to begin human testing of the drug. The IND becomes
effective if the FDA does not reject it within 30 days. The IND must indicate
the results of previous experiments, how, where and by whom the new studies will
be conducted, how the chemical compound is manufactured, the method by which it
is believed to work in the human body, and any toxic effects of the compound
found in the animal studies. In addition, the IND must be reviewed and approved
by an institutional review board consisting of physicians at the hospital or
clinic where the proposed studies will be conducted. Progress reports detailing
the results of the clinical trials must be submitted at least annually to the
FDA.
Phase I Clinical Trials. After an IND becomes effective, Phase I human
clinical trials can begin. These studies, involving usually between 20 and 80
healthy volunteers, can take up to one year or more to complete. The studies
determine a drug's safety profile, including the safe dosage range. The Phase I
clinical studies also determine how a drug is absorbed, distributed,
metabolized and excreted by the body, as well as the duration of its action.
Phase II Clinical Trials. In Phase II clinical trials, controlled
studies of approximately 100 to 300 volunteer patients with the targeted
disease assess the drug's effectiveness. These studies are designed primarily
to evaluate the effectiveness of the drug on the volunteer patients as well as
to determine if there are any side effects on these patients. These studies can
take up to two years or more and may be conducted concurrently with Phase I
clinical trials. In addition, Phase I/II clinical trials may be conducted that
evaluate not only the efficacy but also the safety of the drug on the patient
population.
Phase III Clinical Trials. This phase typically lasts up to three years
or more and usually involves 1,000 to 3,000 patients with the targeted disease.
During the Phase III clinical trials, physicians monitor the patients to
determine efficacy and to observe and report any adverse reactions that may
result from long-term use of the drug.
New Drug Application ("NDA"). After the completion of all three clinical
trial phases, the data are analyzed and if the data indicate that the drug is
safe and effective, an NDA is filed with the FDA. The NDA must contain all of
the information on the drug that has been gathered to date, including data from
the clinical trials. NDAs are often over 100,000 pages in length. The average
NDA review time for new pharmaceuticals approved in 1995 was approximately 19
months.
Fast Track Review. In December 1992, the FDA formalized procedures for
accelerating the approval of drugs to be marketed for the treatment of certain
serious diseases for which no satisfactory alternative treatment exists, such
as Alzheimer's disease and AIDS. If it is demonstrated that the drug has a
positive effect on survival or irreversible morbidity during Phase II clinical
trials, then the FDA may approve the drug for marketing without completion of
Phase III testing.
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Approval. If the FDA approves the NDA, the drug becomes available for
physicians to prescribe. The Company must continue to submit periodic reports
to the FDA, including descriptions of any adverse reactions reported. For
certain drugs which are administered on a long-term basis, the FDA may request
additional clinical studies (Phase IV) after the drug has begun to be marketed
to evaluate long-term effects.
REGULATION OF DIAGNOSTIC PRODUCTS. The manufacture, distribution and
sale of any of the Company's products in the U.S. for clinical diagnostic
purposes will require prior authorization by the FDA. The FDA and similar
agencies in foreign countries, especially Japan, have promulgated substantial
regulations which apply to the testing, marketing, export and manufacturing of
diagnostic products. To obtain FDA clearance of a new product for diagnostic
purposes, the Company will, in most cases, be required to submit proof of the
safety and efficacy of the product. Such proof typically entails clinical and
laboratory tests. The testing, preparation of necessary applications and
processing of those applications by the FDA is expensive and time consuming.
The clinical testing required by the Company's diagnostic products is
expected to be significantly less extensive than that typically required for
the development of a drug or therapeutic product or for an invasive procedure.
Nevertheless, these clinical testing protocols may take several months or even
years to complete, depending on the nature of the filing. There can be no
assurance that the FDA will act favorably or quickly in making its review, and
significant difficulties or costs may be encountered by the Company in its
effort to obtain FDA clearances that could delay or preclude the Company from
marketing its products for diagnostic purposes. Furthermore, there can be no
assurance that the FDA will not request the development of additional data
following the original submission. Based upon the data submitted to it, the FDA
may also limit the scope of the labeling or permitted use of the product or
deny the application all together. With respect to patented products or
technologies, delays imposed by the governmental approval process may
materially reduce the period during which the Company will have the exclusive
right to exploit those products or technologies.
The marketability of the Company's diagnostic products may also be
affected by certain state and Federal legislation covering the use of
diagnostic tests in physician offices, including CLIA which requires
physicians' offices conducting tests which require sophisticated instruments
or specially trained personnel to be certified or licensed under CLIA. Although
the Company believes that CLIA regulations apply, it does not believe that CLIA
will restrict the use of the Company's diagnostic products in its target
markets; however, there can be no assurance that this will be true and such
restriction could severely limit the marketability of the Company's planned
products.
The Company's currently contemplated diagnostic products are regulated
as medical devices. Prior to entering commercial distribution, all medical
devices must undergo FDA review under one of two basic review procedures: a
Section 510(k) premarket notification or a premarket approval application
("PMA"). A 510(k) is generally a relatively simple filing submitted to
demonstrate that the product in question is "substantially equivalent" to
another legally marketed device. In the event any of the Company's diagnostic
products do not qualify for clearance under the 510(k) procedure, it may be
required to file a PMA which shows (i) that the product is safe and effective
based on extensive clinical testing among several diverse testing sites and
population groups; and (ii) that the product has acceptable sensitivity and
specificity. This requires much more extensive testing than does the 510(k)
procedure and involves a significantly longer FDA review after the date of
filing. In response to a PMA, the FDA may grant marketing clearance, may
request additional information, may set restrictive limits on claims for use or
may deny the application all together.
On April 24, 1997, the Company filed a 510(k) application with the FDA
for ZstatFlu. If the FDA disallows the 510(k) procedure and requires a PMA,
such a circumstance would adversely affect the timing of market introduction of
that product and involve significantly higher costs in obtaining FDA clearance.
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Based on the Company's past clinical trials and the data from the
clinical trials completed in April 1997, the Company believes it will receive
FDA clearance for ZstatFlu in late August 1997. See "Risk Factors - Government
Regulation."
After product clearance has been received, such clearance may still be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. The FDA may require
surveillance programs to monitor the effect of products which have been
commercialized, and has the power to prevent or limit further marketing of the
products based on the results of these post-marketing programs. In addition to
obtaining FDA approval for each product, the FDA must, under the PMA
guidelines, approve the manufacturing facilities and procedures for the
product. The FDA will also inspect diagnostic companies on a routine basis for
regulatory compliance with its "Good Manufacturing Practices." The Company
believes that the use of its diagnostic products will not be restricted in
physician office laboratories located within the Company's target markets. See
"Risk Factors - Government Regulation."
REGULATION BY FOREIGN GOVERNMENTS. Sales of the Company's products
outside the U.S. are also subject to certain regulatory requirements imposed by
foreign governments. Regulatory requirements for diagnostic products vary
significantly from country to country. Regulations in Western Europe, Canada,
Australia, Japan and other developed (non third-world) countries are often less
stringent than are the regulatory requirements in the U.S. The time to meet such
regulatory requirements outside the U.S. may be longer or shorter than that
required to achieve U.S. clearance.
OTHER GOVERNMENT REGULATION. In addition to regulations enforced by the
FDA, the Company also is or will be subject to regulation under CLIA, the
Occupational Safety and Health Act, the Environmental Protection Act, the
Resource Conservation and Recovery Act and other present and future federal,
state or local regulations. The Company's research and development activities
involve the controlled use of hazardous materials, chemicals and viruses.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standard prescribed by state and
federal 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.
OMRF SUPPORT
Until January 1, 1996, the scientific and product development activities
relating to the ViraZyme technology were conducted by OMRF. Since that time,
although the Company has performed those functions, OMRF has continued to
provide, on a marginal cost basis, significant supportive and collaborative
resources permitting the Company to access state-of-the-art facilities,
equipment, services and personnel. See "- Employees." This operational
relationship will continue until 1999. This relationship has permitted the
Company to handle purchasing, equipment services and other non-technology
related needs without significant staffing increases and thereby apply more of
the Company's resources to technology and market development. The impact of
this support is expected to diminish in fiscal 1998 and thereafter as the
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Company continues to hire personnel outside of the OMRF arrangement and assume
the performance of such services.
EMPLOYEES
The Company had 15 employees as of July 31, 1997, comprising eight
laboratory personnel, two manufacturing employees, one marketing employee and
four employees in finance and administration. Four of the Company's scientific
personnel and Mr. Livingston are employed by OMRF and their services are
provided to the Company by OMRF on a lease basis. As OMRF employees, these five
persons participate in retirement, health insurance, life insurance and other
employee benefit programs which, at the inception of this arrangement would
have otherwise been unavailable to the Company or would have represented a
prohibitive compensation expense. The Company reimburses OMRF on a monthly
basis for OMRF's costs associated with such employees, and these costs consist
primarily of salaries, payroll taxes, health insurance and life insurance
premiums and contributions to an employee participant retirement plan. Such
leasing arrangement is expected to continue until 1999. See "- OMRF Support."
All other personnel are employees of the Company.
The Company believes that its relations with its personnel are
excellent. The future success of the Company will depend in large part upon its
continued ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense. See "Risk Factors - Dependence on
Key Personnel" and "Certain Relationships and Related Transactions."
FACILITIES
The Company leases approximately 10,000 square feet of laboratory and
office space located at 800 Research Parkway, Suite 100, Oklahoma City,
Oklahoma, pursuant to the terms of a lease (the "Presbyterian Lease") with
Presbyterian Health Foundation ("Presbyterian"). Approximately 1,000 square feet
of such leased space is subleased to OMRF for a technology transfer office. The
Presbyterian Lease has a term expiring March 1, 2002, with no rent payable
before March 1, 1999, and, thereafter, annual rent is payable at the rate of
$15.00 per square foot. As additional consideration for the Presbyterian Lease,
Presbyterian received warrants to purchase 20,000 shares of Common Stock at an
exercise price of $3.20 per share. The Presbyterian Lease Warrant has a term
expiring March 1, 2002. See "Certain Relationships and Related Transactions."
The Company's operations are expected to require in early fiscal 1999 an
additional 10,000 to 15,000 square feet of laboratory and office space. The
Company is in discussions with Presbyterian regarding the lease of such
additional space in the office park where the Company's existing office space is
located. No lease terms have been determined for such additional space.
LEGAL PROCEEDINGS
The Company is not now engaged in any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Peter G. Livingston(1) 43 President, Chief Executive Officer and Director
Craig D. Shimasaki, Ph.D. 40 Vice President of Research
Gary W. Pedersen 52 Vice President of Marketing and Sales
Charles E. Seeney 54 Vice President of Operations and Strategic Development
G. Carl Gibson 37 Controller, Treasurer
William I. Bergman(2) 65 Director
William A. Hagstrom(3) 40 Director
J. Vernon Knight, M.D.(1) 80 Director
David E. Rainbolt(2) 41 Director
Gilbert M. Schiff, M.D.(3) 65 Director
</TABLE>
- ----------------------
(1) Class II Director, whose term will expire at the 1999 Annual Meeting
of Stockholders.
(2) Class III Director, whose term will expire at the 2000 Annual
Meeting of Stockholders.
(3) Class I Director, whose term will expire at the 1998 Annual Meeting
of Stockholders.
Under the terms of the Placement Agency Agreement with Spencer Trask
Securities Incorporated ("Spencer Trask"), the Company has agreed upon request
of Spencer Trask, to elect to the Board of Directors at least one director,
reasonably acceptable to Spencer Trask, who is not affiliated with either the
Company or Spencer Trask. Spencer Trask has designated Mr. Bergman and Dr.
Knight as such directors, and both men have been elected to serve as directors
of the Company. Certain stockholders and all executive officers and directors
of the Company must vote in favor of such persons nominated by the Placement
Agent to stand for election to the Company's Board of Directors, and the
Company must use its best efforts, including the solicitation of proxies on
behalf of such nominees, to elect such nominees to the Board of Directors.
The Company's Certificate of Incorporation and Bylaws provide for the
division of the Board of Directors into three classes, each class consisting
(as nearly as possible) of one-third of the whole. The term of office of one
class of directors expires each year, with each class of directors being
elected for a term of three years and until the stockholders elect their
qualified successors. The Company's Bylaws provide that the Board of Directors
by resolution from time to time may fix the number of directors that shall
constitute the whole Board of Directors. The Board of Directors has set the
number at six.
Under certain registration rights granted to investors in private
placements of securities in 1996 and 1997, the Company must register 837,500
Shares of Common Stock within six months from the closing of this Offering,
2,077,968 13-Month Lock-up Shares upon expiration of the 13-month lock-up period
and 109,376 24-Month Lock-up Shares upon expiration of the 24-month lock-up
period. See "Risk Factors - Shares Eligible for Future Sale." If the Company
fails to register such shares as required, the Company must repurchase the
shares at fair market value. If the Company fails to repurchase the shares, such
stockholders have the right to elect a majority of the Board of Directors. See
"Shares Eligible for Future Sale" and "Description of Securities - Common
Stock."
40
<PAGE> 43
The following sets forth certain information concerning the directors
and executive officers of the Company.
Peter G. Livingston has served as President and as a director of the
Company since its incorporation. From September 1993 until January 1996, he
also served as Head, Virology Research Program at OMRF, for the purpose of
organizing the Company and continuing the development of the Company's
technology. From 1990 to September 1993, he served as President of Symex. From
1988 to 1990, Mr. Livingston was President of Eagle Technologies Company, Inc.,
which designed and manufactured precision plastic medical/laboratory
components. From 1986 to 1988, he was Director of Marketing for Biotechnology
for Phillips Petroleum Company. Prior to 1986 he was Director of New Products
for McNeil Pharmaceuticals, a division of Johnson & Johnson.
Craig D. Shimasaki, Ph.D., has served as Vice President of Research and
the Company's Acting Section Head of Biochemistry since January 1996. From
September 1993 to January 1996 he was employed by OMRF as a Research Scientist.
From August 1987 until September 1993, he served as Executive Director of
Research and Department Head of Biochemistry of Symex. From October 1983 to
July 1987 he worked at Genentech, Inc. as a research associate in its HIV
program. Dr. Shimasaki has set up the Company's Biochemistry Department and
co-developed and implemented a GMP manufacturing documentation system and
manufacturing area. He has developed and optimized fluorescent antibody
coupling procedures which have resulted in the investigational ViraSTAT
parainfluenza MAb kit. His work includes the purification and characterization
of influenza virus and MAbs, and the co-development of the format of the
ViraZyme assay. He is a co-inventor of the patent for the method of the
ViraZyme influenza viral detection in clinical specimens. Dr. Shimasaki
received his B.S. in Biochemistry from the University of California at Davis
and his Ph.D. in Molecular Biology and Biotechnology from the University of
Tulsa.
Gary W. Pedersen has served as Vice President for Marketing and Sales
since May 1997. From May 1995 to May 1997, Mr. Pedersen participated in various
entrepreneurial efforts in the healthcare field. From July 1994 to May 1995 he
was Vice President of Marketing at General Medical Corporation. From June 1986
to July 1994, he served in various executive positions at Anago Incorporated,
most recently serving as Senior Vice President of Sales and Marketing. Mr.
Pedersen holds a B.A. from Oakland University.
Charles E. Seeney has served as Vice President for Operations and
Strategic Development since November 1996. From August 1990 to November 1996,
he held positions with Kerr McGee Chemical Company, most recently serving as
Manager, New Product Development. From August 1978 to August 1990, Mr. Seeney
served as President of IMCERA Bioproducts, Inc., a division of the IMCERA
Group. He holds an M.S. in Polymer Science from the Institute of Polymer
Science - The University of Akron, and a B.S. in Organic Chemistry from Lincoln
University of Missouri.
G. Carl Gibson has served as Controller and Treasurer since May 1997.
From December 1989 to May 1997, he was the Chief Operating Officer of First
Commercial Bank, SSB, Lawton and Norman, Oklahoma. From February 1985 to
December 1989 he was the Chief Financial Officer at Citizens Bank in Lawton,
Oklahoma. Mr. Gibson received his B.A. in Accounting from the University of
Oklahoma and is a Certified Public Accountant.
William I. Bergman has served as a director of the Company since 1996.
Since 1990, Mr. Bergman has served as President of the Council on Family
Health. Mr. Bergman served in various positions with Richardson-Vicks Inc., a
health and personal care products company, from 1952 until he retired in 1990.
From 1985 to 1990 he served as President of Richardson-Vicks USA and,
contemporaneous therewith, from
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<PAGE> 44
1988 to 1990 as Vice President of its parent, the Proctor & Gamble Company. Mr.
Bergman serves as a director of Penederm Inc., a publicly held development
stage company engaged in developing skin and healthcare products.
William A. Hagstrom has served as a director of the Company since 1994.
Since 1989, he has been President and Chief Executive Officer of UroCor, Inc.,
which provides a broad range of diagnostic and clinical services to the urology
market to assist in the diagnosis, prognosis and management of urological
cancers. Prior to joining UroCor, Inc., he was Vice-President of the Scientific
Products Division of Baxter-Travenol, a medical products company, where he
served in various marketing, sales, product planning and general management
positions from 1982 to 1989.
J. Vernon Knight, M.D., has served as a director of the Company since
May 1996. Since 1966 he has held a variety of positions at Baylor College of
Medicine, including Professor and Chairman of the Department of Microbiology
and Immunology, Director of the Department of the Center for Biotechnology, and
Professor and Acting Chairman of the Department of Molecular Physiology and
Biophysics, and as Clinical Director of the National Institute of Allergy and
Infectious Disease at the National Institutes of Health from 1959 until 1966.
David E. Rainbolt has served as a director of the Company since January
1997. Since 1984, he has been a director of BancFirst Corporation
("BancFirst"), serving as President and Chief Executive Officer of BancFirst
since January 1992 and as Executive Vice President and Chief Financial Officer
from July 1984 to December 1991. Mr. Rainbolt was President of Trencor, Inc.
from January 1982 to January 1984.
Gilbert M. Schiff, M.D., has served as a director of the Company since
1994. From 1974 to 1995 he served as President of the Gamble Institute of
Medical Research in Cincinnati, Ohio, and from 1974 to 1992 he was Director of
the Division of Clinical Research at that institution. The Gamble Institute
merged with the Childrens Hospital Research Foundation in October 1995 and
became the Gamble Program for Clinical Studies, with Dr. Schiff as the
Director.
KEY SCIENTIFIC PERSONNEL
Komandoor E. Achyuthan, Ph.D., 42, has served as the Company's Section
Head of Enzyme Studies since August 1995 and is responsible for analysis of the
enzyme interaction of substrate and inhibitor molecules, as well as conducting
shelf life studies for the Company's products. From March 1994 to August 1995
he was affiliated with the Noble Research Foundation at OMRF as a Research
Scientist, and from July 1986 to February 1994 he served as an Assistant
Research Professor at Duke University Medical Center. He received his B.S. in
Science and his M.S. and Ph.D. in Biochemistry from Osmania University,
Hyderabad, India.
Joyce A. Hansjergen, 48, has served as Section Head of Hybridoma
Development and Viral Studies since January 1996. From September 1993 to
January 1996 she was employed by OMRF as a Research Associate. From 1987 until
September 1993 she served as Department Head of Cell Culture at Symex. Before
joining Symex, Ms. Hansjergen served in a variety of positions in the Research
and Development Department at Flow Laboratories, Inc., most recently serving as
Lab Manager/Research Associate. Ms. Hansjergen is responsible for the
acquisition, propagation and maintenance of the virus strains and isolates
needed for the ViraZyme and ViraSTAT technologies. Her responsibilities include
in-house pre-clinical studies and viral specificity testing. Ms. Hansjergen
received her B.S. in Biology from the University of Cincinnati.
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<PAGE> 45
Avraham Liav, Ph.D., 56, has served as Section Head of Synthetic Organic
Chemistry of the Company since January 1996. From September 1993 to January
1996 he was employed by OMRF as a Research Scientist. From January 1990 to
September 1993 he was Department Head of Organic Chemistry at Symex. Prior to
January 1990 he served as a Senior Research Associate for the National Jewish
Center for Immunology and Respiratory Medicine in Denver, Colorado. Dr. Liav
developed the purification scheme of the first ViraZyme substrate, and
synthesized two substrates which are highly specific to the viral
neuraminidase. Dr. Liav is a co-inventor of the patent for the method of the
ViraZyme influenza viral detection in clinical specimens. Dr. Liav received his
B.S. and M.S. in Chemistry from Hebrew University in Israel. He received his
Ph.D. from the Weizmann Institute of Science in Rehovoth, Israel.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all salaries paid by the Company (through
reimbursement to OMRF) to its President and Chief Executive Officer for fiscal
1997. No other officer of the Company received compensation in excess of
$100,000 during such period. See "Business - Employees."
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(1)
--------------------------- ---- ------ ----------
<S> <C> <C> <C>
Peter G. Livingston, President and Chief 1997 $120,000 195,000
Executive Officer
</TABLE>
- ---------------------
(1) Represents shares issuable pursuant to options granted under the Stock
Option Plan.
OPTION GRANTS IN FISCAL 1997
The following table sets forth information concerning individual
grants of stock options made during fiscal 1997 to the Company's President and
Chief Executive Officer.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(1) FISCAL 1997 PRICE PER SHARE DATE
---- ---------- ----------- --------------- ----
<S> <C> <C> <C> <C> <C>
Peter G. Livingston 195,000 55.7% $1.00 1/3/2007
</TABLE>
- --------------------
(1) Represents shares issuable pursuant to options granted under the Plan.
Options to purchase 48,750 shares are currently vested and options to
purchase an additional 48,750 shares will vest on each of January
3, 1998, 1999 and 2000.
The Company currently has key man insurance in the amount of $1.0 million
on the life of Mr. Livingston.
The Company pays its outside directors for their services as directors
an annual retainer of $4,000 each, and outside directors have been granted
options to purchase shares of the Company's Common Stock. See "- Stock Option
Plans - Directors Stock Option Plan."
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<PAGE> 46
EXECUTIVE SERVICES AGREEMENTS
Effective July 1, 1997, the Company entered into an Executive Services
Agreement with Peter G. Livingston, providing for annual salary of $120,000,
and an annual bonus up to 50%, if and to the extent awarded. The Executive
Services Agreement may be terminated by either party at any time upon 30 days
notice, provided that Mr. Livingston will be entitled to continuation of his
salary and benefits for 12 months in the event of his termination by the
Company without cause.
STOCK OPTION PLANS
ZYMETX, INC. STOCK OPTION PLAN. Under the ZymeTx, Inc. Stock Option Plan
(the "Plan"), incentive stock options, as provided in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified stock
options which do not qualify as incentive stock options, may be granted to
certain employees. Employees of the Company eligible to participate in the Plan
are selected by the Compensation Committee which is appointed by the Board of
Directors and which administers the Plan. The Plan was adopted by the Board of
Directors and approved by the Company's stockholders in 1994.
The exercise price of options granted under the Plan may not be less
than 100% of the fair market value of the Common Stock at the time of grant.
Options granted under the Plan may not be exercised later than 10 years from
the date of grant.
Under the terms of the Plan, aggregate fair market value of shares
issuable upon the exercise of incentive stock options granted thereunder
exercisable for the first time during any one calendar year may not exceed
$100,000. Generally, options granted under the Plan expire upon 30 days
following termination of an optionee's employment. Upon termination for any
other reasons, options must be exercised within 90 days or within one year
after an optionee's death or disability, but in no event later than the
originally prescribed term of the option. The Plan shall terminate on May 2,
2004, unless previously terminated by the Board of Directors.
Subject to the terms of the Plan, the Compensation Committee has the
authority to determine all terms and provisions under which options are granted
under the Plan, including the individuals to whom such options may be granted,
the exercise price and number of shares subject to such options, the time or
times during which all or a portion of each option may be exercised, and certain
other provisions of each option.
As of July 31, 1997, an aggregate of 618,750 shares of Common Stock were
reserved for issuance under both the Plan and the Directors Plan, as such term
is defined below, and 350,000 shares of Common Stock are subject to outstanding
options granted under the Plan.
DIRECTORS STOCK OPTION PLAN. Under the ZymeTx, Inc. Directors Stock
Option Plan (the "Directors Plan"), non-qualified stock options may be granted
to directors who are not employees of the Company. The Directors Plan was
adopted by the Board of Directors and approved by the Company's stockholders in
1994.
The exercise price of options granted under the Directors Plan may not
be less than 100% of the fair market value of the Common Stock at the time of
grant. Generally, options granted under the Directors Plan expire 30 days from
the date of termination of the director's service on the Board. Upon death or
disability, options must be exercised within one year after a director's death
or disability, but in no event later than the originally prescribed term of the
option. The Plan shall terminate on May 2, 2004, unless previously terminated
by the Board of Directors.
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<PAGE> 47
The Compensation Committee also administers the Directors Plan. Subject
to the terms of the Directors Plan, the Compensation Committee has the
authority to determine all terms and provisions under which options are granted
under the Directors Plan, including the individuals to whom such options may be
granted, the exercise price and number of shares subject to such options, the
time or times during which all or a portion of each option may be exercised,
and certain other provisions of each option.
Options have been granted under the Directors Plan to Mr. Bergman, Mr.
Hagstrom, Dr. Knight and Dr. Schiff, for each to purchase 25,000 shares of
Common Stock at an exercise price of $1.00 per share. These options vest over a
three-year period. For Mr. Hagstrom and Dr. Schiff, one-third of such options
was vested on January 3, 1997, the date of grant, and an additional one-third
will become vested on each of the next two anniversaries of the date of grant;
for Mr. Bergman and Dr. Knight, such options vest one-third per year on each of
the next three anniversaries of the date of grant.
COMMITTEES
The Company has an Audit Committee, a Compensation Committee and a
Finance Committee. After completion of this Offering, the Company intends to
establish a Scientific Advisory Board consisting of Dr. Knight, Dr. Schiff and
other recognized scientists in virology and enzymology.
AUDIT COMMITTEE. The Audit Committee's functions include: (i) reviewing
and recommending to the Board of Directors (subject to stockholder approval)
the independent auditors selected to audit the Company's financial statements,
including the review and approval of the fees charged for all services by the
independent auditors; (ii) reviewing the scope of the annual audit plan; (iii)
reviewing the audited financial statements of the Company; (iv) reviewing the
management letter comments from the Company's independent auditors, including
management's responses and plans of action; (v) reviewing the proposed annual
audit plan and objectives, quarterly reports of audit activity, and adequacy of
staff; (vi) reviewing from time to time the Company's general policies and
procedures with respect to auditing, accounting and the application of
resources; (vii) reviewing any other matters and making special inquiries and
investigations referred to it by the Board of Directors; and (viii) making
other recommendations to the Board of Directors as the committee may deem
appropriate. The members of the Audit Committee are William A. Hagstrom and
David E. Rainbolt. G. Carl Gibson, Controller and Treasurer of the Company,
serves as a non-voting, ex-officio member of the committee.
COMPENSATION COMMITTEE. The Compensation Committee's functions include:
(i) determining base salaries, annual incentive bonus awards and other
compensation awards to the executive officers of the Company; and (ii)
administering the Company's Stock Option Plan and Directors Plan. The members
of the Compensation Committee are William I. Bergman and William A. Hagstrom.
FINANCE COMMITTEE. The Finance Committee's functions include, generally,
to evaluate and make recommendations to the Board concerning the Company's
financing activities, and, specifically, approving matters relating to the 1997
Private Placement and this Offering. The members of the Finance Committee are
William A. Hagstrom and David E. Rainbolt.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws include certain provisions whereby officers and
directors of the Company are to be indemnified against certain liabilities. The
Certificate of Incorporation of the Company also limits, to the fullest extent
permitted by Delaware law, a director's liability for monetary damages for
breach of fiduciary duty, including gross negligence. Under Delaware law,
however, a director's liability cannot be
45
<PAGE> 48
limited for (i) breach of the director's duty of loyalty; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) the unlawful payment of a dividend or
unlawful stock purchase redemption; or (iv) any transaction from which the
director derives an improper personal benefit. Delaware law does not eliminate
a director's duty of care and this provision has no affect on the availability
of equitable remedies such as injunction or rescission based upon a director's
breach of the duty of care.
The Company has entered into indemnification agreements with each of its
current directors which provide for the indemnification of and the advancement
of expenses to such persons in instances where such persons are named in any
suit resulting from their tenure as a director of the Company. The Company
believes the limitation of liability provisions in the Certificate of
Incorporation, Bylaws and, should they become applicable, the indemnification
agreements, facilitate the Company's ability to continue to attract and retain
qualified individuals to serve as directors of the Company. In addition, the
Company intends to obtain directors' and officers' liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described below, on December 22, 1995, the Company, OMRF, ZymeTx
Purchase Partners ("ZPP") and Presbyterian entered into a Recapitalization
Letter of Intent (the "Recapitalization Letter of Intent"), which provided, in
general, for financing of the Company's operations for five months and the
transfer of technology and the provision of certain administrative and
personnel support by OMRF to the Company.
On January 16, 1996, pursuant to the terms of the Recapitalization
Letter of Intent, OMRF, ZPP and Presbyterian (the "Bridge Lenders") and the
Company entered into a Bridge Loan Agreement (the "Bridge Loan Agreement"),
under which the Bridge Lenders made loans (the "Bridge Loans") of an aggregate
principal amount of $350,500. OMRF, ZPP and Presbyterian made Bridge Loans in
the principal amounts of $87,500, $175,500 and $87,500, respectively. The
Bridge Loans were evidenced by promissory notes (the "Bridge Notes"), which
bore interest at 8% per annum. On July 29, 1996, the Company repaid all
outstanding Bridge Notes, except for Bridge Notes aggregating $87,500 held by
Presbyterian, which were ultimately canceled and converted into 27,344 shares
of Common Stock.
As additional consideration for the Bridge Loans, the Company issued to
the Bridge Lenders the Bridge Warrants, each of which entitles the holder
thereof to purchase one share of Common Stock for $3.20. OMRF, ZPP and
Presbyterian were issued Bridge Warrants entitling them to purchase 21,875
shares, 43,875 shares and 21,875 shares of Common Stock, respectively. The
Bridge Warrants will expire on March 1, 2004.
Pursuant to the terms of the Recapitalization Letter of Intent, ZPP
purchased 750,000 shares of Common Stock at a purchase price of $.004 per
share. The Recapitalization Letter of Intent also set out the terms of the OMRF
License and the Company's financial obligations thereunder, as well as OMRF's
commitment to purchase securities in the Company's 1996 Private Placement
equivalent to 101,562 shares of Common Stock at $3.20 per share. See
"Business - Intellectual Property."
In connection with the Recapitalization Letter of Intent, the Company
and Spencer Trask entered into a Placement Agency Agreement dated May 22, 1996
(the "1996 Placement Agency Agreement"), relating to the 1996 Private
Placement, pursuant to which the Company sold Series A Preferred at a Common
Stock equivalent price of $3.20 per share. Kevin Kimberlin is an affiliate of
Spencer Trask. As a
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<PAGE> 49
consequence of the closing of the 1996 Private Placement, the Company paid
agent's fees and expenses of $565,290 to Spencer Trask, which is equal to 10% of
subscriptions from non-affiliates from the 1996 Private Placement, and a
non-accountable expense allowance equal to 2% of such subscriptions. In
addition, the Company issued to Spencer Trask warrants ("1996 Placement Agent
Warrants") to purchase 236,930 shares of Common Stock, which was equal to 15% of
the number of shares of Common Stock issuable upon conversion of the securities
sold by Spencer Trask in the 1996 private placement of securities (the "1996
Private Placement"). The exercise price of the 1996 Placement Agent's Warrants
is $3.20 per share. The 1996 Placement Agent's Warrants will be exercisable
until July 2, 2004.
The Company granted Spencer Trask a right of first refusal for five
years from July 29, 1996 to purchase for its own account or to act as
underwriter or agent for any proposed public or private offering of the
Company's securities by the Company or any officer, director or holder of 5% of
more of the Company's Common Stock outstanding immediately preceding July 29,
1996. Such right entitles Spencer Trask to purchase or sell such securities on
terms no less favorable than the Company or its principal stockholders can
obtain elsewhere.
The Recapitalization Letter of Intent also provided for employment of
the Company's staff by OMRF. Accordingly, on July 24, 1996, the Company and
OMRF entered into an Employee Services Agreement. See "Business - Employees."
In addition, the Recapitalization Letter of Intent provided that the Company
will have access to OMRF's computer network for computer operations and to
OMRF's laboratories on an "at cost" basis as needed. See "Business - OMRF
Support."
Since the closing of the 1996 Private Placement, the shares of Common
Stock and Bridge Warrants held by ZPP were distributed to the partners of ZPP,
consisting of Kimberlin Family Partners, L.P. and ML Oklahoma Venture Partners,
Limited Partnership ("MLOK"). Kimberlin Family Partners, L.P. and an affiliated
partnership received 450,000 shares of Common Stock in such distribution and
all 43,875 Bridge Warrants. MLOK received 300,000 shares of Common Stock in
such distribution. Kevin Kimberlin is also an affiliate of Kimberlin Family
Partners, L.P.
On July 2, 1997, the Company and Spencer Trask entered into a Series C
Placement Agency Agreement (the "1997 Placement Agency Agreement") relating to
the 1997 Private Placement, pursuant to which the Company sold Series C
Preferred at a Common Stock equivalent price of $4.00 per share. As a
consequence of the closing of the 1997 Private Placement, the Company paid
agent's fees and expenses of approximately $690,000 to Spencer Trask, which is
equal to 10% of the sales proceeds from the 1997 Private Placement and a
non-accountable expense allowance equal to 2% of such sales proceeds. In
addition, the Company issued to Spencer Trask warrants (the "1997 Placement
Agent Warrants") to purchase 215,625 shares of Common Stock, which was equal to
15% of the number of shares of Common Stock issuable upon conversion of the
securities sold by Spencer Trask in the 1997 Private Placement. The exercise
price of the 1997 Placement Agent's Warrants is $4.00 per share. The 1997
Placement Agent's Warrants are exercisable until July 2, 2004.
47
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting securities as of August 1, 1997,
and as adjusted to reflect the sale of the Common Stock offered hereby, by (i)
each person known by the Company to own beneficially more than 5% of Common
Stock; (ii) by each director; and (iii) all of the directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
------------------------
NUMBER OF SHARES
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
---------------- ----------------- -------- --------
<S> <C> <C> <C>
Kevin Kimberlin (2) 516,851 12.5% 8.0%
c/o Spencer Trask Securities Incorporated
535 Madison Avenue
New York, New York 10022
OMRF (3) 321,294 8.0% 5.1%
825 N.E. 15th Street
Oklahoma City, Oklahoma 73105
ML Oklahoma Venture Partners, 300,000 7.5% 4.8%
Limited Partnership
c/o Merrill Lynch & Co.
World Financial Center
South Tower, 14th Floor
New York, New York 10080-6114
US Ventech, Inc. (4) 456,250 11.5% 7.3%
c/o Friedli Corporate Finance
AG Freigustrasse 5
Zurich, Switzerland 8002
Peter G. Livingston (5) 48,750 1.2% *
William I. Bergman -- -- --
William A. Hagstrom (5) 8,334 * *
J. Vernon Knight, M.D. -- -- --
David E. Rainbolt (6) 7,813 * *
Gilbert M. Schiff, M.D. (5) 8,334 * *
All Directors and Executive Officers as a 85,731 2.1% 1.4%
Group (9 persons)(7)
</TABLE>
- ----------------------------
* Represents less than 1%.
(1) The persons named in this table have sole voting and investment power
with respect to all of the securities shown as beneficially owned by
them, except as indicated in the other footnotes to this table.
Beneficial ownership is determined in accordance with the rules and
regulations of the United States Securities and Exchange Commission.
Shares of Common Stock subject to options currently exercisable or
exercisable on or before October 12, 1997 ("Currently Exercisable
Options") are deemed outstanding for purposes of computing the
percentage for such person and all officers and directors as a group,
but are not deemed outstanding in computing the percentage of any other
person.
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<PAGE> 51
(2) Kevin Kimberlin is an affiliate of the Placement Agent. The shares
beneficially owned by Mr. Kimberlin include shares held by Oshkim
Limited Partners, L.P. ("Oshkim") and 164,351 shares of Common Stock
subject to warrants held by Oshkim, Spencer Trask Holdings, Inc. and
Kimberlin Family Partners, L.P. See "Certain Relationships and Related
Transactions."
(3) Includes 27,542 shares of Common Stock subject to Bridge Warrants and
License Warrants held by OMRF. See "Certain Relationships and Related
Transactions."
(4) Includes 300,000 shares beneficially owned by Venturetec Inc., an
affiliate of US Ventech, Inc., which disclaims the beneficial ownership
of such shares. Venturetec Inc. disclaims beneficial ownership of the
shares of Common Stock beneficially owned by US Ventech, Inc.
(5) Represents shares subject to Currently Exercisable Options.
(6) Includes shares beneficially owned by Trend Venture Corp.
(7) Includes 77,918 shares subject to Currently Exercisable Options.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock,
par value $.001 per share, of which 3,975,662 shares are currently issued and
outstanding. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors from assets legally
available for that purpose after payment of dividends required to be paid on
outstanding shares of Preferred Stock, if any, and are entitled at all meetings
of stockholders to one vote for each share held by them. The shares of Common
Stock are not redeemable and do not have any pre-emptive or conversion rights.
All of the outstanding shares of Common Stock are fully paid and nonassessable.
In the event of a voluntary or involuntary winding up or dissolution,
liquidation, or partial liquidation of the Company, holders of Common Stock
shall participate, pro rata, in any distribution of the assets of the Company
remaining after payment of liabilities subject to the prior distribution rights
of any outstanding shares of Preferred Stock. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of Preferred Stock, if any.
If the Company does not satisfy certain registration rights granted to
investors in the 1996 Private Placement or the 1997 Private Placement, and the
Company has not repurchased the Common Stock owned by such investors at fair
market value at the time of such failure to register, such investors shall have
the right to elect a majority of the Company's Board of Directors. Under these
registration rights, the Company is required to file a registration statement
covering 837,500 shares of Common Stock within six months of the closing of this
Offering, and an additional registration statement covering 2,077,968 13-Month
Lock-up Shares upon expiration of the 13-month period from the closing of this
Offering and 109,376 24-Month Lock-up Shares upon expiration of the 24-month
lock-up period from the closing of the Offering. Therefore, even though the
shares of Common Stock subject to registration rights represent collectively
only 48.2% of the issued and outstanding Common Stock, in the event the Company
does not satisfy the registration rights of those investors or repurchase such
shares, those investors would have the right to elect a majority of the Board of
Directors. It is anticipated that the Company will register or repurchase these
shares.
As of August 11, 1997, there were 273 holders of record of Common Stock.
PREFERRED STOCK
The Company is authorized to issue 12,000,000 shares of Preferred Stock,
par value $.001 per share. The Preferred Stock may be issued in one or more
series, with such voting powers, designations, preferences,
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<PAGE> 52
rights, qualifications, limitations and restrictions as shall be set forth in a
resolution of the Company's Board of Directors providing for the issue thereof.
The issuance of Preferred Stock, while providing flexibility in connection with
possible financing, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of holders of Common Stock and,
under certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of the Company. At the closing of this Offering,
the Company will have no shares of Preferred Stock outstanding.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in such stockholder's best interest, including those attempts that might
result in a premium over the market price for the shares held by stockholders.
Classified Board. The Company's Certificate of Incorporation provides
that (i) the Board of Directors is divided into three classes of as equal size
as possible; (ii) the number of directors is to be fixed from time to time by
the Board; and (iii) the term of office of each class expires in consecutive
years so that each year only one class is elected. These provisions may render
more difficult a change in control of the Company or the removal of incumbent
management.
No Stockholder Action by Written Consent; Special Meetings. The
Company's Certificate of Incorporation provides that no action shall be taken
by stockholders except at an annual or special meeting of stockholders, and
prohibits action by written consent in lieu of a meeting unless approved by the
Board of Directors. See "Risk Factors - Anti-takeover Provisions." The
Company's Bylaws provide that, unless otherwise proscribed by law, special
meetings of stockholders can only be held pursuant to a resolution of the Board
of Directors or upon the request of stockholders holding a majority of the
issued and outstanding shares of Common Stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at stockholders' meetings.
Notice of stockholder proposals and director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the matters are to be acted upon or directors are to be elected. In all cases,
to be timely, notice must be received at the principal executive offices of the
Company not less than 40 days before the meeting, or, if on the day notice of
the meeting is given to the stockholders less than 45 days remain until the
meeting, (i) five days after notice is given but not less than five days prior
to the meeting in the case of stockholder proposals; and (ii) 10 days after
notice is given in the case of director nominations.
Notice to the Company from a stockholder who proposes to nominate a
person at a meeting for election as a director must contain all information
about that person as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee (including such
person's written consent to serve as a director if so elected) and certain
information about the stockholder proposing to nominate that person.
Stockholder proposals must also include certain specified information.
50
<PAGE> 53
These limitations on stockholder proposals do not restrict a
stockholder's right to include proposals in the Company's annual proxy
materials pursuant to rules promulgated under the Securities Exchange Act of
1934, as amended.
DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware Act prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock; or (iii) on or
after such date the business combination is approved by the Board of Directors
and by the affirmative vote of at least 66-2/3% of the outstanding voting stock
which is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. The effect of such statute may
be to discourage certain types of transactions involving an actual or potential
change in control of the Company.
TRANSFER AGENT
The transfer agent for the Common Stock is Liberty National Bank & Trust
Company of Oklahoma City, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the
Company's Common Stock. Sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock.
Upon completion of the Offering, the Company will have outstanding
6,275,662 shares of Common Stock. Of these shares all of the 2,300,000 shares
sold in the Offering (assuming no exercise of the Underwriters' overallotment
option) will be transferable without restriction or further registration under
the Securities Act, unless they are held by "affiliates" of the Company within
the meaning of Rule 144 promulgated under the Securities Act. Of the remaining
shares, 3,932,162 shares are Restricted Shares, and, as such, may not be sold
in the absence of registration under the Securities Act or an exemption
therefrom under Rules 144 and 701, and 43,500 shares are eligible for sale
without restriction or further registration under Rule 144(k), unless they are
held by "affiliates" of the Company or subject to "lock-up" agreements
summarized below.
Of the Restricted Shares, 2,077,968 shares are 13-Month Lock-up Shares,
and 864,065 shares are 24-month Lock-up Shares, or cumulatively approximately
46.9% of the outstanding shares of Common Stock after the Offering. See "Risk
Factors - Shares Eligible For Future Sale."
51
<PAGE> 54
Upon expiration of the respective 13-month and 24-month lock-up periods, these
shares will be eligible for immediate resale, subject, in certain cases, to
certain volume, timing and other requirements of Rule 144 promulgated under
the Securities Act. The Company has agreed to file, at the expiration of each
such lock-up period, a registration statement under the Securities Act covering
such shares.
The Company has agreed to file, within six months of the closing of
this Offering, a registration statement under the Securities Act covering
837,500 Restricted Shares, or approximately 13.3% of the outstanding shares of
Common Stock after the Offering. These Restricted Shares are not subject to the
"lock-up" agreements summarized above. Sales of substantial amounts of Common
Stock, or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. See "Underwriting."
In general, under Rule 144, any person (or persons whose shares are
aggregated for purposes of Rule 144) who beneficially owns Restricted Shares
with respect to which at least one year has elapsed since the later of the date
the shares were acquired from the Company or from an affiliate of the Company,
is entitled to sell, within any three month period, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock of the Company; or (ii) the average weekly trading volume in Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner-of-sale provisions and notice requirements, and
to the availability of current public information about the Company. A person
who is not an affiliate, has not been an affiliate within 90 days prior to sale
and who beneficially owns Restricted Shares with respect to which at least two
years have elapsed since the later of the date the shares were acquired from
the Company or from an affiliate of the Company, is entitled to sell such
shares under Rule 144(k) without regard to any of the volume limitations or
other requirements described above.
In addition to the outstanding shares of Common Stock, there are 565,847
shares of Common Stock subject to outstanding warrants at a weighted average
exercise price of $3.50 per share. Such warrants are exercisable for a period
expiring at various dates between 2003 and 2004. The Company has granted the
holders of such warrants certain registration rights relating to the Common
Stock purchasable upon the exercise of such warrants. These warrants are
subject to either the 13-month or the 24-month lock-up period.
The Company can make no prediction as to the effect, if any, that sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of Common
Stock, as well as impair the ability of the Company to raise capital through
the issuance of additional equity securities. Prior to this Offering, there has
been no trading market for the Common Stock. The Company anticipates that the
trading market in the Common Stock, if any, will be limited based upon the
number of shares currently outstanding and anticipated to be sold in this
Offering.
As of the date of this Prospectus, the Company had reserved an aggregate
of 618,750 shares of Common Stock for issuance pursuant to the Company's stock
option plans, and options to purchase 450,000 shares were outstanding on June
30, 1997. As soon as practicable following the Offering, the Company intends to
file a registration statement under the Securities Act to register shares of
Common Stock reserved for issuance under such plans. Such registration
statement will automatically become effective immediately upon filing, however
these securities are subject to the 24-month lock-up period. See
"Management - Stock Option Plan" and "- Directors Stock Option Plan."
UNDERWRITING
Each of the underwriters named below (the "Underwriters") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company the number of Shares set forth
52
<PAGE> 55
opposite their respective names below. The nature of the obligations of the
Underwriters is such that if any of such shares are purchased, all must be
purchased.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Capital West Securities, Inc.
Millennium Financial Group, Inc.
ComVest Partners, Inc.
Total 2,300,000
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock offered hereby to the public at the price to public set
forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") not in excess of $ per Share, and the
Underwriters may allow, and such dealers may reallot, to members of the NASD a
concession not in excess of $ per share. After the public offering, the price
to public, the concession and the reliance may be changed by the Underwriters.
Capital West Securities, Inc., one of the Underwriters, was first
registered as a broker-dealer in May 1995. Capital West has participated in only
seven public equity offerings as an underwriter, although certain of its
employees have had experience in underwriting public offerings while employed by
other broker-dealers. Prospective purchasers of the securities offered hereby
should consider Capital West's limited underwriting experience in evaluating
this Offering.
The Company has granted an option to the Underwriters, exercisable
within 45 business days after the date of this Prospectus, to purchase up to an
aggregate of 345,000 additional shares of Common Stock at the initial price to
public, less the underwriting discount, set forth on the cover page of this
Prospectus. The Underwriters may exercise the option only for the purpose of
covering over-allotments . To the extent that the Underwriters exercise such
option, each Underwriter will be committed, subject to certain conditions, to
purchase from the Company on a pro rata basis that number of additional shares
of Common Stock which is proportionate to such Underwriters' initial
commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed to pay to the Underwriters a nonaccountable
expense allowance of 3% of the gross proceeds derived from the sale of the
shares of Common Stock underwritten (including the sale of any shares of Common
Stock subject to the Underwriters' over-allotment option), $75,000 of which has
been paid as of the date of this Prospectus. The Company also has agreed to pay
all expenses in connection with qualifying the Common Stock offered hereby for
sale under the laws of such states as the Underwriters may designate, including
filing fees and fees and expenses of counsel retained for such purposes by the
Underwriters, and registering the Offering with the NASD.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a price of $.001 per warrant, warrants (the "Underwriters'
Warrants") to purchase shares of Common Stock equal to 10% of the total number
of shares of Common Stock sold pursuant to this Offering, excluding shares
subject to the over-allotment option. The Underwriters' Warrants are
exercisable at a price equal to 120% of the initial public offering price
($8.40 assuming an initial public offering price of $7.00 per Share (the
mid-point of the range set forth on the cover of this Prospectus)) for a period
of four years commencing one
53
<PAGE> 56
year from the date of this Prospectus (the "Exercise Period"). The
Underwriters' Warrants grant to the holders thereof, with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriters' Warrants, one demand registration
right during the Exercise Period, as well as piggyback registration rights at
any time.
Each person known to own beneficially more than 5% of the Company's
issued and outstanding Common Stock have agreed for a period of 13 months after
the date of this Prospectus, they will not offer, sell or otherwise dispose of
any shares of Common Stock beneficially owned or controlled by them (including
subsequently acquired shares) without the prior written consent of Capital West
which consent shall not be unreasonably withheld. The Company and its executive
officers, directors and certain affiliates have agreed to enter into similar
lock-up agreements, except that the term thereof is 24 months.
At the Company's request, the Underwriters have reserved up to 70,000
shares of Common Stock (the "Directed Shares") for sale at the public offering
price to approximately 25 persons who are directors, officers or employees of,
or otherwise associated with, the Company and who have advised the Company of
their desire to participate in its potential future growth. Each director and
executive officer who is a purchaser of Directed Shares will be required to
agree to restrictions on resale similar to those described in the immediately
preceding paragraph. However, the Underwriters are not obligated to sell any
shares to any such persons. The number of Shares available for sale to the
general public will be reduced to the extent of sales of Directed Shares to any
of the persons for whom they have been reserved. Any shares not so purchased
will be offered by the Underwriters on the same basis as all other shares
offered hereby.
Prior to this Offering, there has been no market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The initial public offering price was
determined by negotiations between the Company and the Underwriters. The
primary factors considered in determining such offering price included the
history of and prospects for the Company's business and the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the prospects for future earnings of the
Company, an assessment of the Company's management, the general condition of
the securities markets, the demand for similar securities of comparable
companies and other relevant factors.
The Underwriters have advised the Company that the Underwriters do not
expect any sales by the Underwriters to accounts over which they exercise
discretionary authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Phillips McFall McCaffrey McVay &
Murrah, P.C., Oklahoma City, Oklahoma ("Phillips McFall"). Douglas A. Branch, a
shareholder and director of Phillips McFall, serves as the Secretary of the
Company. Bright & Barnes, P.C., Oklahoma City, Oklahoma, has served as counsel
to the Underwriters in connection with this Offering.
EXPERTS
The financial statements of ZymeTx, Inc. at June 30, 1996, and for the
years ended June 30, 1995 and 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP,
54
<PAGE> 57
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as an expert in accounting and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended. The Company
has filed a Registration Statement on Form SB-2 (the "Registration Statement")
with the Commission under the Securities Act with respect to the Common Stock
offered hereby. 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 in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus concerning the provisions of documents
filed with the Registration Statement as exhibits and schedules are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied upon payment of the charges
prescribed by the Commission at the Public Reference Room of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a website that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission at http://www.sec.gov.
55
<PAGE> 58
GLOSSARY
Active Site - means that portion of an enzyme that acts upon a molecule
changing the molecule through the action.
Adenovirus - comprises 47 known serotypes of viruses belonging to the
family adenoviridae. These viruses can cause respiratory disease,
keratoconjunctivitis, diarrhea, cystitis and other diseases.
Antibody - means a protein molecule produced by lymphocytes following
introduction of a foreign entity. The purpose of the antibody is to assist in
elimination of the foreign entity from the body.
Capitated Lives - A population of individuals covered by health
insurance that represent a level payment per life to a health care organization
in return for an agreed upon level of health coverage.
Chromogen - means a molecule or compound capable of absorbing light in
the visible spectrum, such that a color is observed visually, or its absorbance
characteristics are measured by an instrument.
Cytomegalovirus - means a sub-family of the Herpesviridae. These viruses
cause latent infection in the salivary glands.
Deoxyribonucleic Acid (DNA) - means the genetic blueprint for encoding
all RNA and ultimately the hereditary material for all life.
Gene Probe - means a molecule that reacts with the genetic material of a
cell and is used to detect the presence of the cell by the unique map of the
genetic material.
GMP - means Good Manufacturing Procedures, a set of standards to which
the FDA requires adherence in order for an organization to sell its products to
the consumer.
Herpes Simplex Virus - means a virus from the family Herpesviridae,
subfamily Alphaherpesvirinae, genus Human Herpes Virus group. Causes "cold
sores," particularly in young children. The virus can also pass along nerves
and become latent in ganglia from which it is reactivated by stimuli such as
colds and sunlight.
Influenza Virus - means a virus from the family Orthomyxoviridae. There
are three genera, A, B, C; A&B are most common to humans, while C rarely causes
significant infection.
Inhibitor - means a molecule that is recognized by an enzyme and locks
into the active site thus reducing the ability of the enzyme to act upon other
molecules.
Monoclonal Antibody (MAb) - means an antibody derived from a single
B-cell, raised against a single localized area on the molecular surface of a
protein, nucleic acid or polysaccharide. These antibodies are highly specific
for a particular part of a macromolecule.
Neuraminidase - means an enzyme of the family Sialidase that acts upon
neuraminic acid and like compounds.
POC - means point-of-care. This refers to the site where a test is
actually conducted.
56
<PAGE> 59
Rational Design - a method of designing a molecule based upon the
foreknowledge of the desired structural characteristics being sought.
Recognition Portion - means a chemical entity capable of acting with the
active site of an enzyme.
Respiratory Syncytial Virus (RSV) - means a virus that infects humans,
usually children, which is an important cause of acute respiratory disease.
Ribonucleic Acid (RNA) - means the genetic material that encodes
protein.
Sensitivity - means the measure of actual positives versus the sum of
false positives and false negatives in a diagnostic test. A high value
indicates that the test detects even low levels of the desired target. A low
value indicates that detection occurs at higher levels of infection.
Specificity - means the measure of actual negatives versus the sum of
actual negatives and false positives in a diagnostic test. A high value
indicates that the test detects only the desired target. A low value is
indicative of detection of similar but not targeted entities.
Substrate - means the molecule acted upon by an enzyme resulting in a
change to the molecule.
Virus - (Latin meaning: poison or slime) infectious units comprising
either RNA or DNA enclosed in a protective coat which contain information that
permit them to replicate themselves once they have inserted themselves into
host cells.
X-ray Crystallography - a method of structural analysis of a substance
whereby crystals of the substance are grown and analyzed using 3-dimensional
computer aided designs.
<PAGE> 60
Index to Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets at June 30, 1996 and March 31, 1997 (unaudited) . . . . . . . . . . . . F-3
Statements of Operations for the years ended June 30, 1995 and 1996 and
the nine months ended March 31, 1996 and 1997 (unaudited) . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity for the years ended June 30, 1995 and 1996 and
the nine months ended March 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended June 30, 1995 and 1996 and
the nine months ended March 31, 1996 and 1997 (unaudited) . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 61
Report of Independent Auditors
The Board of Directors and Stockholders
ZymeTx, Inc.
We have audited the accompanying balance sheet of ZymeTx, Inc. (a development
stage company) as of June 30, 1996, and the related statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1995 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ZymeTx, Inc. (a development
stage company) at June 30, 1996, and the results of its operations and its cash
flows for the years ended June 30, 1995 and 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
July 17, 1997,
except for the first paragraph of Note 8, as to which the date is
August 7, 1997
F-2
<PAGE> 62
ZymeTx, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,469 $ 675,991
Marketable securities, available-for-sale -- 1,571,948
Inventory -- 64,088
Prepaid insurance and other -- 19,126
----------- -----------
Total current assets 39,469 2,331,153
Property, equipment and leasehold improvements, net
(Notes 2 and 3) 32,750 327,109
Proprietary technology and other intangibles, net (Note 4) -- 121,777
Deferred offering costs 58,906 --
Other, net 1,182 449
----------- -----------
Total assets $ 132,307 $ 2,780,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 115,415 $ 305,254
Other -- 3,040
----------- -----------
Total current liabilities 115,415 308,294
Long term obligations--
Notes and interest payable due after one year:
Stockholders (Note 4) 356,761 252,975
Other 32,751 --
Deferred lease rentals (Note 3) -- 29,508
Redeemable preferred stock--Series B (156,250 shares issued
and outstanding at March 31, 1997) (Note 5) -- 125,000
Stockholders' equity (Notes 5, 6 and 8):
Preferred stock $.001 par value; 9,843,750 shares
authorized--Series A (6,318,125 shares issued and
outstanding at March 31, 1997) -- 6,318
Common stock $.001 par value; 16,500,000 shares authorized;
(43,500 and 919,568 shares issued and outstanding at June 30,
1996 and March 31, 1997, respectively) 44 920
Additional paid-in capital 1,956 4,410,198
Deficit accumulated during the development stage (374,620) (2,352,725)
----------- -----------
Total stockholders' equity (deficit) (372,620) 2,064,711
----------- -----------
Total liabilities and stockholders' equity $ 132,307 $ 2,780,488
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
ZymeTx, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
1995 1996 1996 1997
-------------------------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales $ 9,197 $ 7,756 $ 6,660 $ 7,069
Other -- -- -- 1,303
----------- ----------- ----------- -----------
Total revenues 9,197 7,756 6,660 8,372
Operating expenses:
Research and development 10,441 268,731 132,984 737,481
Cost of sales -- -- -- 2,200
Acquired technology and patent costs from
OMRF (Note 4) -- -- -- 958,505
General and administrative 757 98,911 40,387 298,526
Depreciation and amortization -- 426 320 20,054
----------- ----------- ----------- -----------
Total operating expenses 11,198 368,068 173,691 2,016,766
----------- ----------- ----------- -----------
Loss from operations (2,001) (360,312) (167,031) (2,008,394)
Other income (expense):
Interest income -- -- -- 75,961
Dividend income -- -- -- 457
Interest expense (Note 4) (2,969) (9,338) (3,476) (46,129)
----------- ----------- ----------- -----------
Total other income (expense) (2,969) (9,338) (3,476) 30,289
----------- ----------- ----------- -----------
Net loss (4,970) (369,650) (170,507) (1,978,105)
Preferred stock dividends -- -- -- (6,267)
----------- ----------- ----------- -----------
Net loss applicable to common stock $ (4,970) $ (369,650) $ (170,507) $(1,984,372)
=========== =========== =========== ===========
Net loss per common and common
equivalent share $ -- $ (.27) $ (.12) $ (1.44)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 1,374,334 1,374,334 1,374,334 1,374,827
=========== =========== =========== ===========
Supplemental net loss per common and common
equivalent share $ (.12) $ (.66)
=========== ===========
Supplemental weighted average common and
common equivalent shares outstanding 2,992,928 2,993,421
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
ZymeTx, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
CONVERTIBLE DEFICIT
PREFERRED STOCK-- ACCUMULATED TOTAL
SERIES A COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
--------------------------------------- PAID-IN DEVELOPMENT EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE (DEFICIT)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 -- $ -- 43,500 $ 44 $ 1,956 $ -- $ 2,000
Net loss -- -- -- -- -- (4,970) (4,970)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 -- -- 43,500 44 1,956 (4,970) (2,970)
Net loss -- -- -- -- -- (369,650) (369,650)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 -- -- 43,500 44 1,956 (374,620) (372,620)
Issuance of common stock
(unaudited) -- -- 876,068 876 2,628 -- 3,504
Issuance of Series A Preferred
Stock, net of offering
expenses of $642,568
(unaudited) 6,318,125 6,318 -- -- 4,405,614 -- 4,411,932
Net loss (unaudited) -- -- -- -- -- (1,978,105) (1,978,105)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1997
(unaudited) 6,318,125 $ 6,318 919,568 $ 920 $ 4,410,198 $(2,352,725) $ 2,064,711
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
ZymeTx, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
-------------------------- --------------------------
1995 1996 1996 1997
-------------------------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (4,970) $ (369,650) $ (170,507) $(1,978,105)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 8,693 9,004 6,728 35,135
Acquired technology and patent costs from
OMRF -- -- -- 336,422
Accretion of interest -- 6,261 1,101 37,910
Deferred lease rentals -- -- -- 29,508
Changes in operating assets and liabilities:
Prepaid insurance and other -- -- -- (19,126)
Inventory -- -- -- 2,200
Accounts payable 1,386 114,347 59,430 189,839
Other liabilities -- -- -- 3,040
----------- ----------- ----------- -----------
Total adjustments 10,079 129,612 67,259 614,928
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 5,109 (240,038) (103,248) (1,363,177)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of marketable securities -- -- -- (1,571,948)
Purchase of property, equipment and leasehold
improvements (42,903) (7,544) (4,217) (313,909)
Purchase of inventory, proprietary technology and
other intangibles (Note 4) -- -- -- (202,917)
----------- ----------- ----------- -----------
Net cash used by investing activities (42,903) (7,544) (4,217) (2,088,774)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 42,010 350,500 123,123 --
Payments on notes payable -- (9,259) -- (297,865)
Proceeds from issuance of common stock -- -- -- 3,000
Proceeds from issuance of preferred stock --
Series A, net -- (58,906) -- 4,383,338
----------- ----------- ----------- -----------
Net cash provided by financing activities 42,010 282,335 123,123 4,088,473
----------- ----------- ----------- -----------
Net increase in cash 4,216 34,753 15,658 636,522
Cash and cash equivalents at beginning of period 500 4,716 4,716 39,469
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 4,716 $ 39,469 $ 20,374 $ 675,991
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID $ 2,969 $ 3,077 $ 2,110 $ 14,480
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
(Information for the nine months ended March 31, 1996 and 1997 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
ZymeTx, Inc. ("the Company"), a Delaware corporation, was formed February 24,
1994. The Company had no significant operations from formation through June 30,
1994. The Company is a development stage biomedical company engaged in research
and development relating to medical diagnostic and therapeutic products. The
Company currently has a 510(k) application in process with the Food and Drug
Administration ("FDA") for approval to sell and distribute its ViraZyme(R)
influenza diagnostic product. Approval of its application is not assured and
sales of its products are contingent upon such approval.
The Company anticipates working on a number of long-term development projects
which will involve experimental and unproven technology. The projects may
require many years and substantial expenditures to complete, and may ultimately
be unsuccessful. Therefore, the Company will need to obtain additional funds
from outside sources to continue its research and development activities, fund
operating expenses, pursue regulatory approvals and establish production, sales
and marketing capabilities, as necessary. Management believes it has sufficient
capital to achieve planned business objectives including supporting preclinical
development and clinical testing, through at least 1998. For periods
thereafter, the Company intends to raise additional capital through the
issuance of equity securities to existing or new investors or through alliances
with corporate partners. If adequate funds are not available, the Company may be
required to delay, reduce the scope of, or eliminate one or more of its
development programs or obtain funds through collaborative arrangements with
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid debt investments
with maturities of 90 days or less when purchased.
F-7
<PAGE> 67
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
Based on the nature of the assets held by the Company and management's
investment strategy, the Company's investments in marketable securities have
been classified as available-for-sale. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. At March 31, 1997, the securities
mature within one year and the estimated fair value of such investments
approximates cost.
INVENTORY
Inventories are carried at the lower of cost (first-in, first-out) or market.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is computed using the straight-line
method over three to seven years. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the estimated
useful lives of the assets or the remaining lease term.
PROPRIETARY TECHNOLOGY AND OTHER INTANGIBLES
Amortization of proprietary technology and other intangibles acquired is
computed using the straight-line method over periods of between five and ten
years. Accumulated amoritization amounted to $14,852 as of March 31, 1997.
DEFERRED OFFERING COSTS
Specific incremental costs directly attributable to a private placement of
preferred stock (the "1996 Private Placement") were deferred at June 30, 1996
and were charged against the gross proceeds of the 1996 Private Placement when
closed in July 1996.
STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock options. Under APB 25, because the exercise price
of the Company's employee stock options is not less than the estimated fair
value of the underlying stock on the date of grant, no compensation is
recorded.
CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in debt instruments of the U.S. Government
and its agencies, institutions and other short-term investments with strong
credit ratings. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends
in yields and interest rates. The Company has not experienced any realized
losses on its marketable securities.
F-8
<PAGE> 68
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for fixed-rate notes
payable approximates their fair value.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, convertible preferred stock and warrants are excluded from
the computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares issued during the period beginning 12 months prior
to the initial filing of the proposed public offering at prices substantially
below the assumed public offering price ("Cheap Stock") have been included in
the calculation as if they were outstanding for all periods presented (using
the treasury stock method and the assumed public offering price for stock
options and warrants and the if-converted method for convertible preferred
stock).
Supplemental net loss per share is computed as noted above except that it also
includes the common stock equivalent shares related to convertible preferred
stock which will automatically convert to common stock in connection with the
closing of an initial public offering.
F-9
<PAGE> 69
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which is required to be adopted by the Company in the
reporting period ending December 31, 1997. At that time, the Company will be
required to change the method currently used to compute net loss per share.
Under the new requirements for calculating basic earnings per share, the effect
of stock options will be excluded. The Company has determined the impact of
SFAS 128 on the calculation of net loss per share, exclusive of the Cheap Stock
rules of the SEC, would not be material.
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss per common share $(.11) $(8.50) $(3.92) $(2.19)
Weighted average common shares
outstanding 43,500 43,500 43,500 905,765
</TABLE>
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 1997 and for the nine months ended March
31, 1996 and 1997 is unaudited but includes all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position at such date and of the operating
results and cash flows for those periods. Results of the 1997 period are not
necessarily indicative of results expected for the entire year.
2. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, stated at cost, are summarized
as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
------- --------
<S> <C> <C>
Laboratory equipment $43,157 $ 98,500
Manufacturing equipment - 200,100
Computer equipment 2,846 22,621
Office furniture, equipment and leasehold improvements 4,444 43,135
------- --------
50,447 364,356
Less accumulated depreciation and amortization (17,697) (37,247)
------- --------
$32,750 $327,109
======= ========
</TABLE>
F-10
<PAGE> 70
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. LEASE COMMITMENTS
In January 1997, the Company consolidated substantially all of its operations,
research, marketing and administrative functions into newly constructed
facilities leased from a stockholder of the Company. The Company's ten-year
lease on these facilities currently covers approximately 10,000 square feet
with options available on additional space. The lease provides for no rent
payable the first two years and a fixed rate thereafter for the remaining eight
years. The Company is recognizing the total facility lease payments on a
straight-line method over the entire term of the lease agreement. Accordingly,
as of March 31, 1997, the Company has accrued a deferred lease rental liability
of $29,508. As additional consideration for the lease, this stockholder
received warrants to purchase 20,000 shares of Common Stock at an exercise
price of $3.20 per share to which the Company attributed no value. These lease
warrants expire on January 1, 2002. The Company has granted the lessor a
security interest in all equipment, inventory fixtures, furniture and other
property now owned or hereafter acquired by the Company which is located on the
leased premises.
Rental expense related to the facilities for lease during the nine months ended
March 31, 1997 approximated $29,508 (none in 1996). Prior to January 1, 1997,
the Company operated using a minimal amount of administrative space provided
rent free by one of its stockholders.
Future minimum lease commitments as of March 31, 1997 (unaudited) are as
follows:
<TABLE>
<CAPTION>
Year ended June 30:
<S> <C>
1997 $ 29,508
1998 118,032
1999 118,032
2000 118,032
2001 118,032
Thereafter (laboratory and office space to 2007) 668,856
----------
Total minimum lease payments $1,170,492
==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
Since January 1, 1996, the Company has performed scientific and product
development activities relating to the ViraZyme(R) technology; however,
Oklahoma Medical Research Foundation ("OMRF"), a stockholder, has provided, on
a marginal cost basis, significant support and collaborative resources
permitting the Company to access state-of-the-art facilities, equipment,
services and personnel. For the year ended June 30, 1996 and the nine months
ended March 31, 1997, OMRF charged the Company $306,566 and $670,687,
respectively (none in 1995), related to such arrangement. Substantially all of
such costs have been charged to research and development or general and
administrative expense in the accompanying statements of operations. This
operational arrangement has permitted the Company to handle purchasing,
equipment services, and other non-technology related needs without significant
staffing increases and thereby apply more of the Company's resources to
technology and market development. This operational arrangement will continue
until 1999.
F-11
<PAGE> 71
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
In January 1996, the Company and three stockholders entered into a bridge loan
agreement under which the stockholders made loans to the Company of $350,500 to
be used to fund operations in exchange for 8% unsecured notes (the "Notes") and
warrants to purchase 87,625 shares of the Company's Common Stock at $3.20 per
share. The Notes required repayment of principal and accrued but unpaid
interest at the earlier of the successful completion of the 1996 Private
Placement or twenty-four months from execution. In July 1996, the Company
repaid $271,521 of the outstanding notes and accrued interest and retired
$87,500 of the Notes with the issuance of 109,375 shares of Series A Preferred
Stock.
Effective July 1996, the Company entered into a license agreement (the "License
Agreement") with OMRF, a stockholder, whereby the Company was granted an
exclusive, perpetual, worldwide license covering all the patents which comprise
the ViraZyme(R) technology. The License Agreement grants the Company the right
to manufacture, use, and sell products made under the patent rights. In
exchange for the License Agreement, the Company paid OMRF $825,000, executed a
note payable (the "Note") in the principal amount of $425,000 (valued at
$210,918), issued 156,250 shares of Series B Preferred Stock (valued at $.80
per share aggregating $125,000), issued 126,068 shares of common stock (valued
at the then existing par value of $.004 per share aggregating $504), granted
the stockholder a 2% royalty on net sales of products derived from the
intellectual property conveyed with the License Agreement and issued a warrant
to purchase 5,667 shares of common stock at $3.20 per share (to which the
Company attributed no value). The aggregate value assigned to this transaction
amounted to $1,161,422 which was allocated as follows: inventory - $66,288;
developed technology and assembled workforce - $136,629; and technology in the
research and development stage - $958,505. The Company, under the terms of the
License Agreement, has also agreed to assume responsibility to pay a third
party a royalty of 4% of the revenues derived by the Company from sales of
diagnostic products utilizing specific collaboration intellectual property, as
defined. The Note bears no interest for the first twenty-four months following
issuance and interest at an 8% rate per annum thereafter, requires quarterly
interest only payments beginning in May 1998 and requires quarterly interest
and $25,000 principal payments beginning in May 1999 until paid in full. This
Note was discounted at issuance from its face amount of $425,000 to $210,918
assuming a market rate of interest of 20% per annum. Imputed interest for the
nine-month period ended March 31, 1997 included in the accompanying statement
of operations aggregated $37,910.
In July 1996, OMRF purchased 406,250 shares of the Company's Series A Preferred
Stock in the 1996 Private Placement.
The Company leases certain facilities from a stockholder, as discussed in Note
3. The Company recognized rent expense totaling $29,508 for the nine months
ended March 31, 1997 related to its facilities which are leased from this
stockholder.
In management's opinion, these license and lease transactions were conducted on
no less favorable terms than those which could have been obtained from
unrelated third parties.
F-12
<PAGE> 72
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. REDEEMABLE PREFERRED STOCK, NONREDEEMABLE PREFERRED STOCK AND COMMON STOCK
CAPITAL STOCK
As of June 30, 1996 and March 31, 1997, the Company was authorized to issue
16,500,000 shares of Common Stock, $.001 par value (the "Common Stock") and
10,000,000 shares of preferred stock, par value $.001 per share (the "Preferred
Stock"). The Preferred Stock may be issued in one or more series, with such
voting powers, designations, preference, rights qualifications, limitations and
restrictions as shall be set forth in a resolution of the Company's Board of
Directors providing for the issue thereof. In May 1996, the Company restated
its Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 2,000,000 shares to 16,500,000 shares. Simultaneously, it
consummated a reverse split, 1 for .87, of its Common Stock thereby reducing
the then outstanding common shares from 200,000 shares to 173,999 shares. In
July 1997, the Company filed restated Articles of Incorporation to effect a
one-for-four reverse split of its Common Stock, Common Stock options and
warrants. In July 1997, the stockholders also approved (i) an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 16,500,000 shares to 30,000,000 shares and
increasing the number of authorized shares of Preferred Stock from 10,000,000
shares to 12,000,000 shares, (ii) an adjustment to the rate of conversion of
the Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock to reflect the one-for-four reverse stock split, and (iii) the
establishment and designation of 1,750,000 shares of Series C Preferred Stock.
All historical financial information included in the accompanying financial
statements has been adjusted retroactively to give effect to the reverse stock
splits.
COMMON STOCK
In February 1994, the Company issued 43,500 shares of Common Stock for $2,000
in connection with the Company's formation.
In July 1996, the Company issued 750,000 shares of Common Stock for $3,000 in
connection with a recapitalization and, as discussed in Note 4, the Company
issued 126,068 shares of Common Stock as partial consideration for the License
Agreement.
PREFERRED STOCK
At March 31, 1997, the Company has designated and issued Series A and Series B
Preferred Stock, both of which are subject to antidilution adjustments.
The Series A Convertible Preferred Stock ("Series A"), of which 6,318,125
shares are issued and outstanding as of March 31, 1997, were issued in
connection with the 1996 Private Placement which commenced in May 1996 with
numerous closings in July 1996 through November 1996. Proceeds to the Company
from such 1996 Private Placement aggregated approximately $4.4 million, net of
offering expenses. Each share of the Series A is convertible, at any time at
the option of the holder, into .25 shares of Common Stock and will
automatically convert into .25 shares of Common Stock at the consummation of an
initial public offering, as defined, as well as upon certain other events. The
Series A has no specified dividend rate, entitles the holder to a number of
votes equal to the number of shares of Common Stock into which the Series A is
convertible, is not redeemable and has a liquidation preference of $.80 per
share (an aggregate of $5,054,500 as of March 31, 1997). In connection with
this transaction, the Company issued warrants to the 1996 Private Placement
agent to purchase 236,930 shares of the Company's Common Stock at $3.20 per
share.
F-13
<PAGE> 73
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. REDEEMABLE PREFERRED STOCK, NONREDEEMABLE PREFERRED STOCK AND COMMON STOCK
(CONTINUED)
The Series B Convertible Preferred Stock ("Series B"), of which 156,250 shares
are issued and outstanding as of March 31, 1997, were issued as partial
consideration for the License Agreement. The Series B is mandatorily redeemable
by the Company not later than 120 days following each fiscal year at the rate
of $3.20 for each share equal to the quotient of 20% of free cash flow divided
by $3.20 for purposes of determining the number of shares to be redeemed. Free
cash flow is defined as net income before interest, taxes and depreciation,
less debt service. Each share of Series B is convertible at any time at the
option of the holder into .25 shares of Common Stock, will automatically
convert into shares of Common Stock at the consummation of an initial public
offering, as defined, shall be entitled to cumulative annual dividends at the
rate of $.06 per share per annum and entitles the holder to a number of votes
equal to the number of shares of Common Stock into which the Series B is
convertible. Dividends in arrears as of March 31, 1997 related to the Series B
aggregated $6,267. The liquidation preference of the Series B of $3.20 per
share as of March 31, 1997, exclusive of dividends in arrears, aggregates
$500,000.
The Series C Convertible Preferred Stock ("Series C") is convertible at any
time at the option of holder into one share of Common Stock, subject to
antidilution adjustments and will automatically convert into shares of Common
Stock at the consummation of an initial public offering, as defined, as well as
upon certain other events. The Series C has no specified dividend rate,
entitles the holder to a number of votes equal to the number of shares of
Common Stock into which the Series C is convertible and has a liquidation
preference equal to the greater of $4.00 per share, or such amount per share as
would have been payable had each such share been converted to Common Stock
immediately prior to such liquidation (Note 8).
Under certain registration rights granted to investors in private placements of
securities in 1996 and 1997, the Company must register certain shares of Common
Stock within specified time periods following the closing of an initial public
offering. If the Company fails to register such shares as required, the
Company must repurchase the shares at fair market value. If the Company fails
to repurchase the shares, such stockholders have the right to elect a majority
of the Board of Directors.
WARRANTS
At March 31, 1997, there were warrants outstanding for the purchase of an
aggregate of 350,222 shares of the Company's common stock exercisable at $3.20
per share which expire from January 1998 through November 2003 (Notes 3 and 4).
6. STOCK OPTION PLANS
The Company has adopted stock option plans for employees, the ZymeTx, Inc.
Stock Option Plan (the "Employees' Plan") as well as for non-employees, the
ZymeTx, Inc. Director Stock Option Plan (the "Directors' Plan") (collectively,
the "Plans"). As of March 31, 1997, there are 450,000 shares of common stock
available for issuance under both the Employees' Plan and the Directors' Plan.
There are two forms of options: options intended to qualify as incentive stock
options ("ISO Options") under the Employees' Plan and the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified options under the Directors'
Plan (the "Nonqualified Options"). In July 1997, the stockholders approved
increasing the number of shares of the Company's Common Stock reserved for
issuance under the Plans to 618,750.
F-14
<PAGE> 74
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
In January 1997, the Company issued options to employees and directors covering
300,000 shares and 100,000 shares, respectively, of common stock exercisable at
the then estimated fair market value of $1.00 per share. Considering the nature
of the preferred stock already issued, the vesting requirements of the options
and the recent sales of the common stock of the Company, the Company estimated
that the adjusted fair value of the common stock at the date of grant of these
options did not exceed the exercise price of the options.
Activity in the Company's Employees' Plan during the nine months ended March
31, 1997 (unaudited) is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Outstanding options at beginning of period -- $ --
Granted 300,000 1.00
Exercised -- --
Surrendered, forfeited or expired -- --
---------
Outstanding options at end of period 300,000 1.00
=========
Exercisable at end of period 89,375 1.00
=========
Weighted average fair value of options
granted during period $ .32
</TABLE>
Outstanding options at March 31, 1997 had a weighted average remaining
contractual life of 9.75 years.
F-15
<PAGE> 75
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
Activity in the Company's Directors' Plan during the nine months ended March
31, 1997 (unaudited) is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Outstanding options at beginning of period -- $ --
Granted 100,000 1.00
Exercised -- --
Surrendered, forfeited or expired -- --
---------
Outstanding options at end of period 100,000 1.00
=========
Exercisable at end of period 25,000 1.00
=========
Weighted average fair value of options granted
during period $ .32
</TABLE>
Outstanding options at March 31, 1997 had a weighted average remaining
contractual life of 9.75 years.
Had compensation cost for this plan been determined consistent with FASB
Statement No. 123, the effect upon the Company's net loss and loss per share
would not have been material.
7. INCOME TAXES
As of June 30, 1996, the Company had a federal net operating loss carryforward
of approximately $374,382. The net operating loss carryforward will expire from
2010 through 2011, if not utilized. Utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to the "ownership
change" provisions of the Internal Revenue Code of 1986 (Note 8).
Because of the Company's lack of earnings history, the net deferred tax asset
comprised of its net operating loss carryforward has been fully offset by a
valuation allowance. The valuation allowance increased by $369,861 in 1996.
F-16
<PAGE> 76
ZymeTx, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. PRIVATE PLACEMENT AND INITIAL PUBLIC OFFERING
In June 1997, the Board of Directors authorized management of the Company to
initiate a private placement of up to 1,750,000 shares of Series C Preferred
Stock at a price of $4.00 per share. On August 7, 1997, the Company closed this
private placement, selling 1,437,500 shares which, net of costs and expenses,
yielded net proceeds of approximately $4,925,000.
In July 1997, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
offering shares of its Common Stock to the public. If the offering is
consummated, all of the Series A, Series B and Series C Preferred Stock
outstanding will automatically convert into shares of Common Stock upon the
closing of the offering.
F-17
<PAGE> 77
(Inside back cover)
[Graphic depicting the four steps involved in the ZstatFlu
specimen collection and testing procedure]
<PAGE> 78
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates or an
offer, to, or a solicitation of, any person in any jurisdiction where such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Pro Forma Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 23
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . 46
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . 51
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
-----------------------------
Until , 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
2,300,000 SHARES
ZYMETX, INC.
[LOGO]
_________
PROSPECTUS
_________
CAPITAL WEST
SECURITIES, INC.
MILLENNIUM FINANCIAL GROUP, INC.
COMVEST PARTNERS, INC.
____________, 1997
================================================================================
<PAGE> 79
ZYMETX, INC.
REGISTRATION STATEMENT ON FORM SB-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware grants every
corporation the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The Delaware statute also grants every corporation the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believe
to be in or not opposed to the best interests of the corporation, except that
no indemnification shall be made in respect of any claim, issue, or matter as
to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
The Delaware statute provides that to the extent that a director,
officer, employee, or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in the
statute, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually incurred by
him in connection therewith.
Article Seven of the Company's Bylaws provides that the Registrant shall
indemnify to the full extent permitted under the General Corporation Law of the
State of Delaware any director, officer, employee, or agent of the Registrant.
Article Nine of the Registrant's Certificate of Incorporation exculpates
the directors of the Registrant from and against certain liabilities. Article
Nine provides that a director of the Registrant shall have no personal
liability to the Registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) for acts or omissions specified in Section 174 of
the General Corporation Law of the State of Delaware regarding the unlawful
payment of dividends and the unlawful purchase or
II-1
<PAGE> 80
redemption of the Registrant's stock, and (d) for any transaction from which
the director derived an improper personal benefit.
The Registrant has entered into indemnification agreements with each of
its current directors which provide for the indemnification of and the
advancement of expenses to such persons in instances where such persons are
named in any suit resulting from their tenure as a director of the Registrant.
The Registrant believes the limitation of liability provisions in the
Certificate of Incorporation, Bylaws and, should they become applicable, the
indemnification agreements, facilitate the Registrant's ability to continue to
attract and retain qualified individuals to serve as directors of the
Registrant. In addition, the Registrant intends to obtain directors' and
officers' liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All expenses of registration will be
borne by the Company. All of the amounts shown are estimates, except the
registration fee, and assume exercise of the underwriters' over-allotment
option.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . $ 7,084.00
NASD fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,545.00
Underwriters' non-accountable expense allowance . . . . . . . . 370,300.00
Blue Sky fees . . . . . . . . . . . . . . . . . . . . . . . . . 5,000.00
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . 110,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . 75,000.00
Printing and engraving expenses . . . . . . . . . . . . . . . . 70,000.00
Nasdaq application fees . . . . . . . . . . . . . . . . . . . . 43,925.00
-------------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . $ 683,854.00
=============
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The following information has been adjusted to reflect the 1-for-4
split for all Common Stock effective July 17, 1997:
On May 6, 1996, the Company issued 750,000 shares of Common Stock to
ZymeTx Purchase Partners, a New York partnership, for a total purchase price of
$3,000. Such shares were distributed to four transferees on December 20, 1996.
Such issuance was effected pursuant to Section 4(2) of the Securities Act based
on there being only one offeree, and the investor's access to information,
sophistication and relationship to the Company.
In November 1996 the Company completed a private placement (the "1996
Private Placement") of 6,318,125 shares of Series A Convertible Preferred Stock
("Series A Preferred"). The 1996 Private Placement was conducted in accordance
with Rule 506 under Regulation D as promulgated under the Securities Act. The
total offering proceeds were approximately $5.1 million, or $3.20 per share.
There were 99 purchasers of Series A Preferred in such offering, all of whom
were "accredited investors," as such term is defined under Regulation D. The
Company paid $565,290 in cash to Spencer Trask Securities Incorporated
("Placement Agent"), for agent's fees and expense reimbursement in connection
with such offering, and issued warrants to the Placement Agent to purchase
236,930 shares of Common Stock at a purchase price of $3.20 per share.
On July 29, 1996, the Company issued 156,250 shares of Series B
Preferred and License Warrants to purchase 5,667 shares of Common Stock at
$3.20 per share to Oklahoma Medical Research Foundation in connection with the
transactions contemplated by the Recapitalization Letter of Intent. Such
issuances were effected pursuant to Section 4(2) of the Securities Act based
on there being only one offeree, and the investor's access to information,
sophistication and relationship to the Company.
On July 29, 1996, the Company issued Bridge Warrants to OMRF, ZPP and
Presbyterian Health Foundation, to purchase a total of 87,625 shares of Common
stock at a purchase price of $3.20 per share. Such issuances were effected
pursuant to Section 4(2) of the Securities Act, based on there being only three
offerees and the investors' access to information, sophistication and
relationship to the Company.
II-2
<PAGE> 81
On August 7, 1997, the Company completed a private placement (the "1997
Private Placement") of 1,437,500 shares of Series C Convertible Preferred Stock
("Series C Preferred"). The 1997 Private Placement was conducted in accordance
with Regulation D. The total proceeds from such offering were $5,750,000.
There were 181 purchasers in such offering, all of whom were "accredited
investors," as such term is defined in Regulation D. The Company paid $690,000
in cash to the Placement Agent for agent's fees and expense reimbursement in
connection with the 1997 Private Placement and issued to the Placement Agent
warrants to purchase 215,625 shares of Common Stock at $4.00 per share.
Since January 3, 1997, the Company has issued stock options under the
Company's stock option plans to 12 persons to purchase an aggregate of 450,000
shares of Common Stock. Such options were granted and the exercise of such
options will be made pursuant to Rule 701 promulgated under the Securities Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Name of Exhibit
------- ---------------
<S> <C>
* 1.1 Underwriting Agreement between the Company, Capital West Securities, Inc. and
Millennium Financial Group, Inc.
3.1 Amended and Restated Certificate of Incorporation (filed electronically herewith).
3.2 Amended and Restated Bylaws (filed electronically herewith).
3.3 Amended and Restated Certificate of Designations and Certificate of Increase in
Designated Series of Preferred Stock of ZymeTx, Inc. (filed electronically herewith).
* 4.1 Specimen Certificate of Common Stock.
* 4.2 Form of Warrant Agreement between the Company and the Underwriters.
4.3 ZymeTx, Inc. Stock Option Plan (filed electronically herewith)
4.4 ZymeTx, Inc. Directors Stock Option Plan (filed electronically herewith).
* 5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C. as to the legality of the
securities being registered.
10.1 Recapitalization Letter of Intent (the "Recapitalization Letter of Intent") dated
December 22, 1995, by and among the Company, ZymeTx Purchase Partners ("ZPP"), ML
Oklahoma Venture Partners, L.P. ("MLOK"), Oklahoma Medical Research Foundation
("OMRF"), and Presbyterian Health Foundation ("Presbyterian") (filed electronically
herewith).
10.2 Closing Memorandum in connection with the Recapitalization Letter of Intent (filed
electronically herewith).
10.3 Security Agreement dated January 26, 1996, by and among the Company, ZPP, OMRF and
Presbyterian (filed electronically herewith).
10.4 Bridge Loan Agreement dated January 26, 1996, by and among the Company, ZPP, OMRF
and Presbyterian (filed electronically herewith).
10.5 Form of Common Stock Purchase Warrant issued in connection with Bridge Loan
Agreement (filed electronically herewith).
10.6 Placement Agency Agreement dated May 22, 1996, by and between the Company and
Spencer Trask Securities, Incorporated ("Spencer Trask") (filed electronically
herewith).
10.7 Placement Agent Warrant Agreement dated July 29, 1996, by and between the Company
and Spencer Trask (filed electronically herewith).
</TABLE>
II-3
<PAGE> 82
<TABLE>
<S> <C>
10.8 License Agreement dated as of May 1, 1996, by and between the Company and OMRF
(filed electronically herewith).
10.9 Promissory Note dated May 15, 1996, in the principal amount of $425,000, issued in
favor of OMRF (filed electronically herewith).
10.10 Common Stock Purchase Warrant dated May 15, 1996, granted to OMRF (filed
electronically herewith).
10.11 Employee Services Agreement dated July 24, 1996, by and between the Company and OMRF
(filed electronically herewith).
10.12 Lock-Up Agreement dated July 29, 1996, by and among the Company, Spencer Trask and
certain stockholders of the Company (filed electronically herewith).
10.13 Right of First Refusal Agreement dated July 29, 1996, by and between the Company and
Spencer Trask (filed electronically herewith).
10.14 Merger and Acquisition Agreement dated July 29, 1996, by and among the Company and
Spencer Trask (filed electronically herewith).
*10.15 Executive Services Agreement dated July 1, 1997 by and between the Company and
Peter G. Livingston.
10.16 Placement Agency Agreement dated July 2, 1997 by and between the Company and Spencer
Trask (filed electronically herewith).
*10.17 Placement Agent Warrant Agreement dated August 5, 1997, by and between the Company
and Spencer Trask.
*10.18 Form of Lock-Up Agreement with Placement Agent.
*10.19 Registration Rights Agreement dated July 29, 1996, by and among the Company and
certain investors identified therein.
*10.20 Registration Rights Agreement dated August 5, 1997, by and among the Company and
certain investors identified therein.
*10.21 Non-Competition Agreement between the Company and Craig D.
Shimasaki, Ph.D.
11.1 Statement of Computation of Net Loss Per Share (filed electronically herewith).
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed electronically herewith).
23.2 Consent of Phillips McFall McCaffrey McVay & Murrah, P.C. (filed electronically
herewith).
24 Power of Attorney (included on Signature Page filed herein).
27 Financial Data Schedule (filed electronically herewith).
</TABLE>
- --------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
II-4
<PAGE> 83
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act as part of this Registration Statement as of the time the
Commission declared it effective.
(c) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the Registration Statement; and
(iii) include any additional or changed material information on
the plan of distribution.
(d) That, for the purpose of determining liability under the
Securities Act, each post-effective amendment shall be deemed to
be a new registration statement of the securities offered, and
the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination or
end of the offering.
2. 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. 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 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
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 84
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended (the "Act") the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form SB-2 and has duly
caused this Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, thereon duly authorized in the City of Oklahoma City, State of
Oklahoma, on August 13, 1997.
ZYMETX, INC.,
a Delaware corporation
By: /s/ Peter G. Livingston
-------------------------------------------------
Peter G. Livingston
President and Chief Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Peter G. Livingston and G. Carl Gibson as his
true and lawful attorney-in-fact and agent, with full power of substitution,
for him, and in his name, place and stead, in any and all capacities to sign
any or all amendments or post-effective amendment to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto the said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Peter G. Livingston President; Chief Executive August 13, 1997
------------------------------------------------ Officer; Director
Peter G. Livingston
Principal Executive Officer
/s/ G. Carl Gibson Controller; Treasurer August 13, 1997
------------------------------------------------
G. Carl Gibson
Principal Financial and Accounting Officer
/s/ William I. Bergman Director August 13, 1997
-----------------------------------------------
William I. Bergman
/s/ William A. Hagstrom Director August 13, 1997
------------------------------------------------
William A. Hagstrom
/s/ J. Vernon Knight, M.D. Director August 13, 1997
------------------------------------------------
J. Vernon Knight, M.D.
/s/ David E. Rainbolt Director August 13, 1997
------------------------------------------------
David E. Rainbolt
/s/ Gilbert M. Schiff, M.D. Director August 13, 1997
------------------------------------------------
Gilbert M. Schiff, M.D.
</TABLE>
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Name of Exhibit
------ ---------------
<S> <C>
* 1.1 Underwriting Agreement between the Company, Capital West Securities, Inc. and
Millennium Financial Group, Inc.
3.1 Amended and Restated Certificate of Incorporation (filed electronically herewith).
3.2 Amended and Restated Bylaws (filed electronically herewith).
3.3 Amended and Restated Certificate of Designations and Certificate of Increase in
Designated Series of Preferred Stock of Zymetx, Inc. (filed electronically
herewith).
* 4.1 Specimen Certificate of Common Stock.
* 4.2 Form of Warrant Agreement between the Company and the Underwriters.
4.3 ZymeTx, Inc. Stock Option Plan (filed electronically herewith)
4.4 ZymeTx, Inc. Directors Stock Option Plan (filed electronically herewith).
* 5.1 Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C. as to the legality of the
securities being registered.
10.1 Recapitalization Letter of Intent (the "Recapitalization Letter of Intent") dated
December 22, 1995, by and among the Company, ZymeTx Purchase Partners ("ZPP"), ML
Oklahoma Venture Partners, L.P. ("MLOK"), Oklahoma Medical Research Foundation
("OMRF"), and Presbyterian Health Foundation ("Presbyterian") (filed electronically
herewith).
10.2 Closing Memorandum in connection with the Recapitalization Letter of Intent (filed
electronically herewith).
10.3 Security Agreement dated January 26, 1996, by and among the Company, ZPP, OMRF and
Presbyterian (filed electronically herewith).
10.4 Bridge Loan Agreement dated January 26, 1996, by and among the Company, ZPP, OMRF
and Presbyterian (filed electronically herewith).
10.5 Form of Common Stock Purchase Warrant issued in connection with Bridge Loan
Agreement (filed electronically herewith).
10.6 Placement Agency Agreement dated May 22, 1996, by and between the Company and
Spencer Trask Securities, Incorporated ("Spencer Trask") (filed electronically
herewith).
10.7 Placement Agent Warrant Agreement dated July 29, 1996, by and between the Company
and Spencer Trask (filed electronically herewith).
10.8 License Agreement dated as of May 1, 1996, by and between the Company and OMRF
(filed electronically herewith).
10.9 Promissory Note dated May 15, 1996, in the principal amount of $425,000, issued in
favor of OMRF (filed electronically herewith).
10.10 Common Stock Purchase Warrant dated May 15, 1996, granted to OMRF (filed
electronically herewith).
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
10.11 Employee Services Agreement dated July 24, 1996, by and between the Company and OMRF
(filed electronically herewith).
10.12 Lock-Up Agreement dated July 29, 1996, by and among the Company, Spencer Trask and
certain stockholders of the Company (filed electronically herewith).
10.13 Right of First Refusal Agreement dated July 29, 1996, by and between the Company and
Spencer Trask (filed electronically herewith).
10.14 Merger and Acquisition Agreement dated July 29, 1996, by and among the Company and
Spencer Trask (filed electronically herewith).
*10.15 Executive Services Agreement dated July 1, 1997 by and between the Company and Peter G.
Livingston.
10.16 Placement Agency Agreement dated July 2, 1997 by and between the Company and Spencer
Trask (filed electronically herewith).
*10.17 Placement Agent Warrant Agreement dated August 5, 1997, by and between the Company
and Spencer Trask.
*10.18 Form of Lock-Up Agreement with Placement Agent.
*10.19 Registration Rights Agreement dated July 29, 1996, by and among the Company and
certain investors identified therein.
*10.20 Registration Rights Agreement dated August 5, 1997, by and among the Company and
certain investors identified therein.
*10.21 Non-Competition Agreement between the Company and Craig D. Shimasaki, Ph.D.
11.1 Statement of Computation of Net Loss Per Share (filed electronically herewith).
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed electronically herewith).
23.2 Consent of Phillips McFall McCaffrey McVay & Murrah, P.C. (filed electronically
herewith).
24 Power of Attorney (included on Signature Page filed herein).
27 Financial Data Schedule (filed electronically herewith).
</TABLE>
- --------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZYMETX, INC.
ZYMETX, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), does hereby certify that:
FIRST: The name of this Corporation, and the name under which it was
originally incorporated, is ZymeTx, Inc.
SECOND: The date of filing of this Corporation's original Certificate
of Incorporation with the Secretary of State of the State of Delaware was
February 24, 1994.
THIRD: Pursuant to Sections 242 and 245 of the Delaware General
Corporation Law, this Amended and Restated Certificate of Incorporation
restates, integrates and amends the provisions of the Corporation's Certificate
of Incorporation as follows:
ARTICLE I
NAME
The name of this Corporation is: ZymeTx, Inc.
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, Delaware 19801,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
DURATION
The duration of the Corporation is perpetual.
ARTICLE IV
PURPOSES
The objectives and purposes for which the Corporation is organized is
for any lawful act or activity for which a corporation may be organized under
the General Corporation Law of the State of Delaware, now or hereafter in
effect.
<PAGE> 2
ARTICLE V
AUTHORIZED CAPITAL
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 42,000,000 shares, divided
into classes designated as follows: (i) 30,000,000 shares of common stock, par
value $.001 per share (the "Common Stock"); and (ii) 12,000,000 shares of
preferred stock, par value $.001 per share (the "Preferred Stock").
ARTICLE VI
ATTRIBUTES OF STOCK
The designations, powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, for each class of stock of
the Corporation shall be as follows:
Common Stock: Each share of Common Stock shall be equal to each other
share of Common Stock and, when issued, shall be fully paid and non-assessable,
and the personal property of stockholders shall not be liable for corporate
debts. Subject to any preferential rights of the holders of Preferred Stock,
the holders of Common Stock of the Corporation shall each be entitled to share
in any dividends of the Corporation ratably, if, as and when declared by the
Board of Directors.
Each holder of record of Common Stock shall have one vote for each share
of Common Stock outstanding in his name on the books of the Corporation and
shall be entitled to vote said stock.
Preferred Stock: Shares of Preferred Stock may be issued from time to
time in one or more series as determined by the Board of Directors. All shares
of Preferred Stock shall be of equal rank and shall be identical, except in
respect of the particulars fixed by the Board of Directors for each series as
provided herein. All shares of any one series shall be identical in all
respects with all the other shares of such series, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
The Board of Directors is hereby authorized, by resolution or
resolutions to provide, out of the unissued shares of Preferred Stock not then
allocated to any series of Preferred Stock, for one or more series of Preferred
Stock. Before any shares of any such series are issued, the Board of Directors
shall fix and determine, and is hereby expressly authorized and empowered to
fix and determine, by resolution or resolutions, the powers, designations,
preferences and relative, participating, optional or other rights, if any, and
the qualifications, limitations or restrictions thereof, if any, and in
connection therewith, the Board of Directors is expressly authorized and
empowered to fix and determine any or all of the following provisions of the
shares of such series:
2
<PAGE> 3
(i) the designation of such series and the number of
shares which shall constitute such series;
(ii) the annual dividend rate payable on shares of such
series, expressed in a dollar amount per share, and the date or dates
from which such dividends shall commence to accrue and shall be
cumulative;
(iii) the price or prices at which and the terms and
conditions, if any, on which shares of such series may be redeemed;
(iv) the amounts payable upon shares of such series, in
the event of the voluntary or involuntary liquidation, distribution of
assets (other than payment of dividends), dissolution, or winding up
of the affairs of the Corporation;
(v) the sinking funds or mandatory redemption provisions,
if any, for the redemption or purchase of shares of such series;
(vi) the extent of the voting powers, if any, of the
shares of such series;
(vii) the terms and conditions, if any, on which shares of
such series may be converted into shares of stock of the Corporation
or any class or classes thereof; and
(viii) any other preferences and relative, participating,
optional or other special rights, and any qualifications, limitations
or restrictions of such preferences or rights, of shares of such
series.
ARTICLE VII
BOARD OF DIRECTORS
The Board of Directors shall be divided into three (3) classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the 1998 annual meeting of stockholders, the term of
office of the second class to expire at the 1999 annual meeting of stockholders
and the term of office of the third class to expire at the 2000 annual meeting
of stockholders. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. The number of
directors which shall constitute the whole Board of Directors of the
Corporation and each class thereof shall be as specified pursuant to the Bylaws
of the Corporation and may be altered from time to time as may be provided
therein; provided, however, the number of directors which shall constitute the
whole Board of Directors shall be no more than thirteen (13) and no less than
three (3). Directors and officers need not be
3
<PAGE> 4
stockholders. In case of vacancies in the Board of Directors, including
vacancies occurring by reason of an increase in the number of directors, a
majority of the remaining members of the Board, even though less than a quorum,
may elect directors to fill such vacancies to hold office until the next annual
meeting of the stockholders.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation. The stockholders of the
Corporation may not adopt, amend or repeal the Bylaws of the Corporation other
than by the affirmative vote of 66-2/3% of the combined voting power of all
outstanding voting securities of the Corporation entitled to vote generally in
the election of directors of the Board of Directors of the Corporation ("Voting
Power"), voting together as a single class. In addition to any affirmative
vote required by applicable law and in addition to any vote of the holders of
any series of Preferred Stock provided for or fixed pursuant to the provisions
of Article VII of this Certificate of Incorporation, any alteration, amendment
or repeal relating to this Article XI must be approved by the affirmative vote
of the holders of at least 66-2/3% of the Voting Power, voting together as a
single class.
ARTICLE IX
EXCULPATORY PROVISIONS
No director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision does not eliminate the liability of the
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid
in settlement, penalty, punitive damages, excise or other tax assessed with
respect to an employee benefit plan, or expense of any nature (including,
without limitation, counsel fees and disbursements). Each person who serves as
a director of the Corporation while this Article IX is in effect shall be
deemed to be doing so in reliance on the provisions of this Article IX, and
neither the amendment or repeal of this Article IX, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
IX, shall apply to or have any effect on the liability or alleged liability of
any director or the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article IX are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of
directors of the Corporation, as such, whether such limitations
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or eliminations arise under or are created by any law, rule, regulation, bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
If the Delaware General Corporation Law is amended to further limit or
eliminate liability of the Corporation's directors for breach of fiduciary
duty, then a director of this Corporation shall not be liable for any such
breach to the fullest extent permitted by the Delaware General Corporation Law
as so amended. If the Delaware General Corporation Law is amended to increase
or expand liability of the Corporation's directors for breach of fiduciary
duty, no such amendment shall apply to or have any effect on the liability or
alleged liability of any director of this Corporation for or with respect to
any acts or omissions of such director occurring prior to the time of such
amendment or otherwise adversely affect any right or protection of a director
of this Corporation existing at the time of such amendment.
ARTICLE X
COMPROMISE OR ARRANGEMENT BY
CORPORATION WITH CREDITORS OR STOCKHOLDERS
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, on the application in a summary way
of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of the
Delaware Code, may order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE XI
ACTIONS BY WRITTEN CONSENT
No action that is required or permitted to be taken by the
stockholders of the Corporation at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
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In addition to any affirmative vote required by applicable law
and in addition to any vote of the holders of any series of Preferred
Stock provided for or fixed pursuant to the provisions of Article VI
of this Certificate of Incorporation, any alteration, amendment or
repeal relating to this Article XI must be approved by the affirmative
vote of the holders of at least two-thirds of the Voting Power, voting
together as a single class.
FOURTH: That each one share of common stock, $.001 par value
("Pre-Split Common Stock"), of the Corporation issued and outstanding or held
by the Corporation as treasury stock, immediately prior to the time this
Amended and Restated Certificate of Incorporation is filed with the Secretary
of State of the State of Delaware, shall be and are hereby automatically
reclassified and changed (without any further act) into .25 fully-paid and
nonassessable shares of common stock, $.001 par value ("Post-Split Common
Stock"), of the Corporation. Neither certificates nor scrip for fractional
shares of Post-Split Common Stock will be issued, but the Corporation shall
issue and deliver to the holders of Pre-Split Common Stock, whole shares of
Post-Split Common Stock taking into account any fractional shares created by
reason of such reclassification by rounding up to the next highest number.
FIFTH: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, after being proposed by the directors and adopted by the
stockholders in the manner and by the vote prescribed in Section 222 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed by its President and attested to by its Secretary this 17th day of July,
1997.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
----------------------------------
Peter G. Livingston, President
ATTEST:
/s/ DOUGLAS A. BRANCH
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Douglas A. Branch, Secretary
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
ZYMETX, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of ZymeTx, Inc.
(the "Corporation") shall be in the State of Delaware, address C.T.
Corporation, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware, 19801.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine as the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. An annual meeting of stockholders for
the purpose of electing directors and of transacting such other business as may
come before it shall be held each year at such date, time, and place, either
within or without the State of Delaware, as may be specified by the Board of
Directors.
SECTION 2.2. SPECIAL MEETINGS. Unless otherwise proscribed by law,
special meetings of stockholders for any purpose or purposes may be held at
such time and place either within or without the State of Delaware as may be
stated in the notice (as described herein at Section 2.3) and may be called by
(i) a majority of the Board of Directors; or (ii) holders of a majority of the
Corporation's shares of stock entitled to vote at the proposed special meeting.
SECTION 2.3. NOTICE OF MEETINGS. (a) Unless waived, a notice of
each annual or special meeting, stating the date, hour and place and the
purpose or purposes for which the meeting is called, shall be given to each
stockholder of record entitled to vote or entitled to notice, not more than
sixty (60) days nor less than ten (10) days before the date of any such
meeting, unless a different period is proscribed by law. If mailed, such
notice shall be directed to a stockholder at his or her address as the same
appears on the records of the Corporation. If a meeting is adjourned to
another time or place and such adjournment is for thirty (30) days or less and
no new record date is fixed for the adjourned meeting, no further notice as to
such adjourned meeting need be given if the time and place to which it is
adjourned are fixed and announced at such meeting. In the event of a transfer
of shares after notice has been given and prior to the holding of the meeting,
it shall not be necessary to serve notice on the transferee. If the
adjournment is for more than thirty (30) days, or after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
<PAGE> 2
SECTION 2.4. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make available, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
SECTION 2.5. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation or these Bylaws, at any meeting of stockholders,
the holders of a majority of shares issued and outstanding of each class
entitled to vote, shall be present or represented by proxy in order to
constitute a quorum for the transaction of business. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, a
majority in voting interest of the stockholders present in person or
represented by proxy, or, in the absence of a decision by the majority, any
officer entitled to preside at such meeting, shall have power to adjourn the
meeting from time to time, without notice other than an announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present or represented. At any such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.6. ORGANIZATION. The Chairman of the Board, if any, or, in
his absence, the Vice Chairman, if any, or, in their absence, the President,
shall call to order meetings of stockholders and shall act as Chairman of such
meetings. The Board of Directors or, if the Board fails to act, the
stockholders may appoint any stockholder, director, or officer of the
Corporation to act as Chairman of any meeting in the absence of the Chairman of
the Board, the Vice Chairman, or the President. The Secretary of the
Corporation, or, if the Secretary of the Corporation not be present, the
Assistant Secretary, or if the Secretary and the Assistant Secretary not be
present, any person whom the Chairman of the meeting shall appoint, shall act
as Secretary of the meeting.
SECTION 2.7. ORDER OF BUSINESS AND PROCEDURE. The order of business
at all meetings of the stockholders and all matters relating to the manner of
conducting the meeting shall be determined by the Chairman of the meeting.
Meetings shall be conducted in a manner designed to accomplish the business of
the meeting in a prompt and orderly fashion and to be fair and equitable to all
stockholders, but it shall not be necessary to follow any manual of
parliamentary procedure.
SECTION 2.8. VOTING. Except for the election of directors, at any
meeting duly called and held at which a quorum is present, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any questions brought before such meeting,
unless the question is one upon which by express provision of law or of the
Certificate of Incorporation or these Bylaws, a greater vote is required in
which case such express provision shall govern and control the decision of such
question. At any meeting duly called and held for the election of directors at
which a quorum is present, directors shall be elected by a plurality of the
votes cast by the holders (acting as such) of shares of stock of the
Corporation entitled to elect such directors.
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SECTION 2.9. INSPECTORS. The Board of Directors in advance of any
stockholders' meeting may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at a stockholders' meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint one or more inspectors. In case any
person appointed as inspector fails to appear or act, the vacancy may be filled
by the Board of Directors in advance of the meeting or at the meeting by the
person present thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to discharge the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
SECTION 2.10. PROXIES. Unless otherwise provided in the Certificate
of Incorporation, each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy provides for a longer
period.
SECTION 2.11. NO ACTION BY CONSENT. No action that is required or
permitted to be taken by stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders, unless the action to be
effected by written consent of stockholders and the taking of such action by
such written consent have expressly been approved in advance by the Board of
Directors. Except as otherwise provided herein, no action shall be taken by
stockholders except at an annual or special meeting of stockholders.
SECTION 2.12. ADVANCE NOTICE OF STOCKHOLDERS' PROPOSALS. (a) At an
annual or special meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (ii) brought before the meeting by or at the direction of
the Board of Directors, (iii) properly brought before an annual meeting by a
stockholder or (iv) if, and only if, the notice of a special meeting provides
for business to be brought before the meeting by stockholders, properly brought
before the meeting by a stockholder. For business to be properly brought
before the meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed by first class United
States mail, postage prepaid, and received at the principal executive offices
of the Corporation not less than forty (40) days prior to the meeting;
provided, however, that in the event less than forty-five (45) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received no
later than the tenth day following the day on which such notice of the date of
the meeting was mailed or such disclosure was made, but not less than five (5)
days prior to the meeting.
(b) A stockholder's notice to submit business to a meeting of
stockholders shall set forth (i) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (ii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, (iii) a representation that the stockholder intends to appear
at the meeting in person or by proxy to submit the business specified in such
notice, (iv) any material interest of the stockholder in such business, and
(v) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, including
the complete text of any resolutions to be presented at the annual meeting, and
the reasons for conducting such business at the meeting. In addition, the
stockholder making such proposal shall promptly provide any other information
reasonably requested by the Corporation. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at a meeting except in
accordance with the procedures set forth in this Section 2.12.The Chairman of a
meeting shall, if the facts warrant, determine that business was not properly
brought before the meeting and in accordance with the
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provisions of this Section 2.12, and, if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
(c) In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth,
as to each person whom the stockholder proposes to nominate for election as a
director, (i) the name, age, business address and, if known, residence address
of such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of stock of the Corporation which are
beneficially owned by such person, (iv) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors or is otherwise required by the rules and regulations of
the Securities and Exchange Commission promulgated under the Securities
Exchange Act of 1934, as amended, (v) the written consent of such person to be
named in the proxy statement as a nominee and to serve as a director if elected
and (vi) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by such stockholder. Nominations other than those made by the Board of
Directors or its designated committee must comply with the procedures set forth
in this Section 2.12, and no person nominated by a stockholder shall be
eligible for election as a director unless nominated in accordance with the
terms of this Section 2.12. The Chairman of a meeting shall, if the facts
warrant, determine that a nomination was not properly made in accordance with
the foregoing procedures of this Section 2.12, and, if he should so determine,
he shall so declare to the meeting and the defective nomination disregarded.
(d) Notwithstanding the foregoing provisions of this Section 2.12, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
ARTICLE III
DIRECTORS
SECTION 3.1. GENERAL POWERS OF BOARD. The business of the
Corporation shall be managed by or under the direction of its Board of
Directors which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done
by the stockholders.
SECTION 3.2. NUMBER OF DIRECTORS AND TERM OF OFFICE. The Board of
Directors shall consist of at least three (3) and not more than thirteen (13)
directors; provided, however, that the Board of Directors, by resolution
adopted by vote of a majority of the then authorized number of directors, may
increase or decrease the number of directors within such minimum and maximum
limitations. The Board of Directors shall be divided into three classes, as
nearly equal in number as reasonably possible, with the terms of office of the
first class to expire at the 1998 annual meeting of stockholders, the term of
office of the second class to expire at the 1999 annual meeting of stockholders
and the term of office of the third class to expire at the 2000 annual meeting
of stockholders. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. Directors need
not be stockholders nor residents of the United States or the State of
Delaware.
SECTION 3.3. ELECTION OF DIRECTORS. The directors shall be elected by
the holders of shares entitled to vote thereon at the annual meeting of
stockholders, and each shall serve as provided herein
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and until his respective successor has be elected and qualified. At each
meeting of the stockholders for the election of directors, the persons
receiving the greatest number of votes shall be the directors.
SECTION 3.4. NOMINATIONS OF DIRECTORS. Nomination of persons for
election to the Board of Directors may be made by the Board of Directors or any
committee designated by the Board of Directors or by any stockholder entitled
to vote for the election of directors at the applicable meeting of
stockholders. Such nominations, if not made by the Board of Directors, shall
be made by timely notice in writing to the Secretary of the Corporation and
comply with the provisions of Section 2.12.
SECTION 3.5. CHAIRMAN OF THE BOARD. The Board of Directors may elect
one of their members to be Chairman of the Board. The Chairman of the Board
shall be subject to the control of and may be removed by the Board of
Directors. If he is present, the Chairman of the Board shall preside at all
meetings of the Board of Directors and of the stockholders, and he shall have
and perform such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 3.6. RESIGNATIONS. Any director of the Corporation may
resign at any time by giving written notice to the Chairman of the Board, if
any, or the Secretary of the Corporation. Such resignation shall take effect at
the time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.7. VACANCIES. In the event that any vacancy shall occur in
the Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
directors, the failure of the stockholders to elect the whole authorized number
of directors, or any other reason, such vacancy may be filled by the vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office for the
remainder of the full term of the class in which the vacancy occurred or until
their successors are duly elected and shall qualify, unless sooner displaced.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute.
SECTION 3.8. REMOVAL OF DIRECTORS. Any director may be removed at
any annual or special stockholders' meeting only for cause and shall receive a
copy of the notice of such meeting, delivered to him personally or by mail at
his last known address at least ten (10) days prior to the date of the
stockholders' meeting.
SECTION 3.9. REGULAR MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors. After such determination and
notice thereof has been once given to each person then a member of the Board of
Directors, regular meetings may be held at such intervals and time and place
without further notice being given.
SECTION 3.10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President or by a
majority of directors then in office and shall be held at such time and place
as shall be designated in the notice of the meeting.
SECTION 3.11. NOTICE. Notice of each special meeting or, where
required, each regular meeting, of the Board of Directors shall be given to
each director either by being mailed on at least the third day prior to the
date of the meeting or by being telegraphed, faxed or given personally or by
telephone on at least 24 hours notice prior to the date of meeting. Such notice
shall specify the place, date and hour of the meeting
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and, if it is for a special meeting, the purpose or purposes for which the
meeting is called. At any meeting of the Board of Directors at which every
director shall be present, even though without such notice, any business may be
transacted. Any acts or proceedings taken at a meeting of the Board of
Directors not validly called or constituted may be made valid and fully
effective by ratification at a subsequent meeting which shall be legally and
validly called or constituted. Notice of any regular meeting of the Board of
Directors need not state the purpose of the meeting and, at any regular meeting
duly held, any business may be transacted. If the notice of a special meeting
shall state as a purpose of the meeting the transaction of any business that
may come before the meeting, then at the meeting any business may be
transacted, whether or not referred to in the notice thereof. A written waiver
of notice of a special or regular meeting, signed by the person or persons
entitled to such notice, whether before or after the time stated therein shall
be deemed the equivalent of such notice, and attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director attends the meeting and prior to or at the commencement of such
meeting protests the lack of proper notice.
SECTION 3.12. QUORUM AND ORGANIZATION OF MEETINGS. At all meetings
of the Board of Directors, a majority shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specially provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at the meeting
of the Board of Directors, a majority of the directors present may adjourn the
meeting to another time and place, and the meeting may be held as adjourned
without further notice or waiver other than an announcement at the meeting,
until a quorum shall be present. Meetings shall be presided over by the
Chairman of the Board, if any, or, in his absence, by the Vice Chairman, if
any, or, in the absence of both, the President. The Secretary of the
Corporation shall act as secretary of the meeting, but, in his absence, the,
the Chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 3.13. ACTION BY UNANIMOUS CONSENT. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting, if all members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
SECTION 3.14. TELEPHONIC PARTICIPATION. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, members of the Board of
Directors may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
SECTION 3.15. COMMITTEES OF DIRECTORS. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the power or authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
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reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders a dissolution of
the Corporation or a revocation of a dissolution, or amending the Bylaws of the
Corporation; and, unless the resolution or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
SECTION 3.16. MINUTES OF COMMITTEE MEETINGS. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
SECTION 3.17. COMPENSATION OF DIRECTORS. No stated salary shall be
paid directors as such for their services, but by resolution of the Board of
Directors, a fixed sum may be allowed for attendance at regular or special
meetings of the Board of Directors; provided, however, that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. The
Corporation may reimburse directors for out-of-pocket expenses for attendance
at regular or special meetings of the Board of Directors.
ARTICLE IV
NOTICES
SECTION 4.1. METHOD. Whenever, unless the provisions of any statutes
or of the Certificate of Incorporation or of these Bylaws provide otherwise,
notice is required to be given to any director or stockholder, it shall be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid, and such
notice shall be deemed to be given at the time when the same shall be deposited
in the United States mail or delivered to the custody of a commercial courier
service. Notice to directors may also be given by telephone or facsimile.
SECTION 4.2. WAIVER. Whenever any notice is required to be given
under the provisions of any statute or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 5.1. ELECTION. The officers of the Corporation shall be
chosen by the Board of Directors. Each officer shall hold office for such term
as may be prescribed by the Board of Directors from time to time. It shall not
be necessary for any officer to be a director, and any number of offices may be
held by the same person.
SECTION 5.2. PRESIDENT. The President shall be the chief executive
officer of the Corporation, shall preside at all meetings of the stockholders
and the Board of Directors (unless the Chairman of the Board shall attend such
meeting, in which event the Chairman of the Board shall preside), shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed
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and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
SECTION 5.3. VICE PRESIDENTS. In the absence of the President or in
the event of his inability or refusal to act, the Vice President, if any (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election), shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. The Vice Presidents shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
SECTION 5.4. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the same and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a bond
(which shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 5.5. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he shall be. He shall
have custody of the seal of the Corporation and he, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
by his signature.
SECTION 5.6. COMPENSATION. The salaries and other compensation of
all officers and agents of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the
President or a Vice President and the Treasurer, or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
option or other special rights of each class of stock or series thereof and the
qualification, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the
certificates which
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the Corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided under the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, option or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 6.2. FACSIMILE SIGNATURES. The signatures of the officers
upon the certificate may be facsimiles if the certificate is countersigned by a
Transfer Agent or registered by a registrar other than the Corporation or its
employee. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
SECTION 6.3. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may in its discretion, appoint one or more banks or trust companies in such
city or cities as the Board of Directors may deem advisable, from time to time,
to act as Transfer Agents and Registrars of the shares of stock of the
Corporation; and, upon such appointments being made, no certificate
representing shares shall be valid until countersigned by one of such Transfer
Agents and registered by one of such Registrars.
SECTION 6.4. LOST CERTIFICATES. In case any certificate representing
shares shall be lost, stolen or destroyed, the Board of Directors, or any
officer or officers authorized by the Board of Directors, may authorize the
issue of a substitute certificate in place of the certificate so lost, stolen
or destroyed, and, if the Corporation shall have a Transfer Agent and
Registrar, may cause or authorize such substitute certificate to be
countersigned by the appropriate Transfer Agent and registered by the
appropriate Registrar. In each such case, the applicant for a substitute
certificate shall furnish to the Corporation and to such of its Transfer Agents
and Registrars as may require the same, evidence to their satisfaction, in
their discretion, of the loss, theft or destruction of such certificate and of
the ownership thereof, and also such security or indemnity as may by them be
required.
SECTION 6.5. TRANSFER OF SHARES. Transfers of shares shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing, and upon surrender and
cancellation of a certificate or certificates of a like number of shares, with
duly executed assignment and power of transfer endorsed thereon or attached
thereto, and with such proof of the authenticity of the signatures as the
Corporation or its agents may reasonably require. Upon the surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation, or authority to transfer, it shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
SECTION 6.6. FIXING RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new date for
the adjourned meeting.
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SECTION 6.7. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares (a) to receive dividends, (b) to vote as such owner, and
(c) to be held liable for calls and assessments. The Corporation shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the law.
ARTICLE VII
INDEMNIFICATION
Section 7.1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a stockholder, director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a member of any
committee or similar body, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not
create, of itself, a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
Section 7.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a stockholder, director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
stockholder, director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a member of any
committee or similar body, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, except that the Corporation shall make no indemnification in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 7.3. DETERMINATION OF RIGHT OF INDEMNIFICATION. The
Corporation shall indemnify a person under Section 7.1 or Section 7.2 (unless
ordered by a court order) only upon a determination in the specific case that
the director, officer, employee or agent has met the applicable standard of
conduct set forth in Section 7.1 or Section 7.2. Such determination shall be
made by: (a) the Board of Directors, by a majority vote of a quorum of
directors not a party to the action, suit or proceeding; (b) absent a quorum or
at the direction of a quorum of disinterested directors, independent legal
counsel, by a written opinion; or (c) the stockholders of the Corporation.
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Section 7.4. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VII, to the extent that a
stockholder, director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 7.1 or Section 7.2 of these Bylaws, or in
defense of any claim, issue or matter therein, the Corporation shall indemnify
him against expenses (including attorneys' fees) which he actually and
reasonably has incurred in connection therewith.
Section 7.5. ADVANCE OF EXPENSES. Expenses incurred by any person
who may have a right of indemnification under this Article VII in defending an
action or proceeding may be paid in advance of the final disposition of such
action or proceeding upon specific authorization by the Board and upon his
delivery to the Board of an undertaking by or on behalf of such person to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified under this Article VII.
Section 7.6. OTHER RIGHTS AND REMEDIES. The indemnification provided
by this Article VII shall not be deemed exclusive and is declared expressly to
be nonexclusive of any other rights to which those seeking indemnification may
be entitled under the Certificate of Incorporation or any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
actions in his official capacity and as to actions in another capacity while
holding such office. In addition, the indemnification, provided by this Article
VII shall continue as to any person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7.7. INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a stockholder, director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise or as a member of any committee or similar body, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article VII.
Section 7.8. CONSTITUENT CORPORATIONS.
For the purposes of this Article VII, references to "the Corporation"
include in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a member of any
committee or similar body, shall stand in the same position under the
provisions of this Article VII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its existence had continued.
Section 7.9. OTHER INSURANCE. The Corporation shall reduce the
amount of the indemnification of any person pursuant to the provisions of this
Article VII by the amount which such person collects as indemnification (a)
under any policy of insurance which the Corporation purchased and maintained on
his behalf or (b) from another corporation, partnership, joint venture, trust
or other enterprise.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors as and when they deem expedient
at any regular or special meeting, out of funds legally available thereof
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the Corporation's capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 8.2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meeting contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 8.3. CHECKS. All checks or demands for money, notes or other
evidence of indebtedness of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from
time to time designate by resolution.
SECTION 8.4. EXECUTION OF PROXIES. The Chairman of the Board or the
President, or in the absence or disability of the Chairman of the Board and the
President, a Vice President, may authorize from time to time the signature and
issuance of proxies to vote upon shares of stock of other corporations standing
in the name of the Corporation or authorize the execution of consents to action
taken or to be taken by such other corporation. All such proxies and consents
shall be signed in the name of the Corporation by the Chairman of the Board or
the President or a Vice President and by the Secretary or an Assistant
Secretary.
ARTICLE IX
AMENDMENTS
SECTION 9.1. AMENDMENTS. These Bylaws may be altered, amended or
repealed, and new Bylaws may be adopted by the Board of Directors. The
stockholders of the Corporation may not adopt, amend or repeal these Bylaws
other than by the affirmative vote of more than two-thirds (2/3) of the
combined voting power of all outstanding voting securities of the Corporation
entitled to vote generally in the election of directors of the Board of
Directors of the Corporation, voting together as a single class.
IN WITNESS WHEREOF, these Amended and Restated Bylaws, having been
duly adopted by the Board of Directors of the Corporation in accordance with
the provisions of the General Corporation Law of the State of Delaware, has
been executed this 17th day of July, 1997.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
-----------------------------------
Peter G. Livingston, President
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Exhibit 3.3
AMENDED
CERTIFICATE OF DESIGNATIONS
OF
ZYMETX, INC.
ZymeTx, Inc. (the "Corporation"), a corporation organized and existing
under the Delaware General Corporation Law, as amended (the "Act"), DOES HEREBY
CERTIFY:
A. On May 22, 1996, pursuant to authority conferred upon the
Board of Directors by the Corporation's Certificate of Incorporation, as
amended, and pursuant to the provisions of Section 151 of the Act, the
Corporation filed a Certificate of Designations of ZymeTx, Inc., pursuant to
which the Corporation provided for the creation and issuance of a series of
shares of the Corporation's authorized preferred stock, $.001 par value (the
"Preferred Stock"), designated as "Series A Convertible Preferred Stock" and a
series of shares of the Corporation's authorized Preferred Stock designated as
"Series B Convertible Preferred Stock"; and
B. At a meeting held June 23, 1997, pursuant to: (i) authority
conferred upon the Board of Directors by the Corporation's Certificate of
Incorporation, as amended; (ii) authority conferred on the Finance Committee of
the Board of Directors (the "Finance Committee") at a meeting of the Board of
Directors held on June 18, 1997; and (iii) pursuant to the provisions of
Section 151 of the Act, said Finance Committee unanimously adopted the
following resolutions providing for the amendment and restatement of the terms
of the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock and the creation and issuance of a series of shares of the
Corporation's authorized Preferred Stock designated as "Series C Convertible
Preferred Stock":
RESOLVED, that the number of shares constituting Series A
Convertible Participating Preferred Stock as set forth in the
Certificate of Designations adopted by the Board of Directors of the
Corporation on May 22, 1996, be reduced to 6,318,125 shares and that
the shares of Preferred Stock which were previously designated as
Preferred Stock be returned to the status of authorized but
undesignated shares of Preferred Stock to be reserved for designation
pursuant to these resolutions or for future designation;
FURTHER RESOLVED, that the rate of conversion of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
be adjusted to reflect the 1-for-4 reverse stock split approved by the
stockholders of the Corporation to be held on July 17, 1997; and
FURTHER RESOLVED, that the Board of Directors hereby amends
and restates the terms of the Series A Convertible Preferred Stock and
the Series B Convertible Preferred Stock and establish and designates
another series of the Corporation's authorized but unissued Preferred
Stock as "Series C Convertible Preferred Stock," and establishes the
designations and amounts of each such series, and the relative rights,
preferences, qualifications, limitations and restrictions of each such
series are as follows:
1. TERMS OF THE PREFERRED SHARES
1.1. Number of Shares. (a) The series of Preferred Stock
designated and known as Series A Convertible Preferred Stock shall
consist of 6,318,125 shares.
(b) The series of Preferred Stock designated and
known as Series B Redeemable Convertible Preferred Stock shall consist
of 156,250 shares.
<PAGE> 2
(c) The series of preferred stock designated and
known as Series C Convertible Preferred Stock shall consist of
1,006,250 shares.
(d) The Series A Preferred, Series B Preferred
and Series C Preferred shall be referred to herein collectively as the
"Preferred Shares."
1.2. Dividends. (a) Series A Preferred and Series C
Preferred. Except as provided hereinbelow, the holders of Series A
Preferred and Series C Preferred shall be entitled to dividends
payable in cash and/or property out of funds legally available for
that purpose; provided, however, that the Corporation shall not
declare or pay any dividends on any shares of its common stock, par
value $.001 per share (the "Common Stock"), unless it shall, at the
same time, declare and pay to each holder of Series A Preferred and
each holder of Series C Preferred a dividend equal to the dividend
which would have been payable to each holder if such share of Series A
Preferred or Series C Preferred, respectively, had been converted into
Common Stock on the date of determination of holders of Common Stock
entitled to receive such dividend.
(b) Series B Preferred. The holders of the Series B
Preferred shall be entitled to receive, out of funds legally available
therefor, annual dividends at the rate per annum of $.06 per share
(annually an "Accrued Dividend" and collectively the "Accruing
Dividends"). Accruing Dividends on the Series B Preferred shall
accrue from day to day, whether or not earned or declared, and shall
be cumulative. No dividends shall be declared or paid on the Series A
Preferred, the Series C Preferred or the Common Stock: (i) at a rate
in excess of the dividends declared and paid on the Series B
Preferred; and (ii) unless all Accruing Dividends have been paid in
full to the holders of the Series B Preferred.
1.3. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Preferred Shares shall
first be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Preferred Shares
(including, without limitation, shares of Common Stock), to be paid as
follows:
(a) In the case of Series A Preferred, an amount
equal to the greater of (i) $.80 per share, plus an amount
equal to all dividends declared but unpaid thereon, computed
to the date payment thereof is made available, or (ii) such
amount per share as would have been payable had each such
share of Series A Preferred been converted to Common Stock
pursuant to Section 1.5 immediately prior to such liquidation,
dissolution or winding up, shall be paid, and the holders of
Series A Preferred shall not be entitled to any further
payment, such amount payable with respect to one share of
Series A Preferred being sometimes referred to as the "Series
A Liquidation Preference Payment" and with respect to all
shares of Series A Preferred being sometimes referred to as
the "Series A Liquidation Preference Payments". If upon such
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Preferred shall be insufficient
to permit payment in full to the holders of Series A Preferred
of the Series A Liquidation Preference Payments, then the
entire
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Series A Liquidation Preference Payments to be so distributed
shall be distributed ratably among the holders of Series A
Preferred. After such Series A Liquidation Preference
Payments shall have been made in full to the holders of the
Series A Preferred or funds necessary for such payment shall
have been set aside by the Corporation in trust for the
account of holders of the Series A Preferred so as to be
available for such payment, the holders of Series A Preferred
shall have no further rights with respect to any remaining
assets of the Corporation legally available for distribution
to the holders of its capital stock.
(b) In the case of Series B Preferred, an amount
equal to the greater of (i) $3.20 per share, plus: (A) all
Accruing Dividends unpaid thereon (whether or not declared),
and (B) any other dividends declared but unpaid thereon,
computed to the date payment thereof is made available, or
(ii) such amount per share as would have been payable had each
such share of Series B Preferred been converted to Common
Stock pursuant to Section 1.5 immediately prior to such
liquidation, dissolution or winding up, shall be paid, and the
holders of Series B Preferred shall not be entitled to any
further payment, such amount payable with respect to one share
of Series B Preferred being sometimes referred to as the
"Series B Liquidation Preference Payment" and with respect to
all shares of Series B Preferred being sometimes referred to
as the "Series B Liquidation Preference Payments". If upon
such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series B Preferred shall
be insufficient to permit payment in full to the holders of
Series B Preferred of the Series B Liquidation Preference
Payments, then the entire Series B Liquidation Preference
Payments to be so distributed shall be distributed ratably
among the holders of Series B Preferred. After such Series B
Liquidation Preference Payments shall have been made in full
to the holders of the Series B Preferred or funds necessary
for such payment shall have been set aside by the Corporation
in trust for the account of holders of the Series B Preferred
so as to be available for such payment, the holders of Series
B Preferred shall have no further rights with respect to any
remaining assets of the Corporation legally available for
distribution to the holders of its capital stock.
(c) In the case of Series C Preferred, an amount
equal to the greater of (i) $4.00 per share, plus an amount
equal to all dividends declared but unpaid thereon, computed
to the date payment thereof is made available, or (ii) such
amount per share as would have been payable had each such
share of Series C Preferred been converted to Common Stock
pursuant to Section 1.5 immediately prior to such liquidation,
dissolution or winding up, shall be paid, and the holders of
Series C Preferred shall not be entitled to any further
payment, such amount payable with respect to one share of
Series C Preferred being sometimes referred to as the "Series
C Liquidation Preference Payment" and with respect to all
shares of Series C Preferred being sometimes referred to as
the "Series C Liquidation Preference Payments". If upon such
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed
among the holders of Series C Preferred shall be insufficient
to permit payment in full to the holders of Series C Preferred
of the Series C Liquidation Preference Payments, then the
entire
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Series C Liquidation Preference Payments to be so distributed
shall be distributed ratably among the holders of Series C
Preferred. After such Series C Liquidation Preference
Payments shall have been made in full to the holders of the
Series C Preferred or funds necessary for such payment shall
have been set aside by the Corporation in trust for the
account of holders of the Series C Preferred so as to be
available for such payment, the holders of Series C Preferred
shall have no further rights with respect to any remaining
assets of the Corporation legally available for distribution
to the holders of its capital stock.
(d) If upon such liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of
Series A Preferred, Series B Preferred and Series C Preferred
shall be insufficient to permit payment in full to the holders
of Series A Preferred of the Series A Liquidation Preference
Payments, payment in full to the holders of Series B Preferred
of the Series B Liquidation Preference Payments, and payment
in full to the holders of Series C Preferred of the Series C
Liquidation Preference Payments then the entire assets of the
Corporation to be so distributed shall be distributed ratably,
based upon Series A Liquidation Payments, the Series B
Liquidation Payments and the Series C Liquidation Payments,
among the holders of Series A Preferred, the holders of Series
B Preferred and the holders of Series C Preferred.
After the holders of Series A Preferred, Series B Preferred and Series
C Preferred shall have been paid in full the Series A Liquidation
Preference Payments, the Series B Liquidation Preference Payments, and
the Series C Liquidation Preference Payments, respectively, the
remaining net assets of the Corporation available for distribution may
be distributed ratably among the holders of Common Stock. Written
notice of such liquidation, dissolution or winding up, stating a
payment date and the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telex to non-U.S. residents, not
less than 20 days prior to the payment date stated therein, to the
holders of record of Preferred Shares, such notice to be addressed to
each such holder at its address as shown by the records of the
Corporation. The consolidation or merger of the Corporation into or
with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any
such entity or affiliate thereof (other than a merger to reincorporate
the Corporation in a different jurisdiction), and the sale, lease,
abandonment, transfer or other disposition by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this Section 1.3. For purposes hereof, the Common Stock
shall rank in liquidation junior to the Preferred Shares, and the
Series A Preferred, Series B Preferred and Series C Preferred shall
rank equally in liquidation.
1.4. Voting Rights. In addition to any voting rights
provided by law, each holder of Preferred Shares shall be entitled to
vote on all matters submitted to a vote of the holders of Common Stock
and shall be entitled to that number of votes equal to the largest
number of whole shares of Common Stock into which such holder's
Preferred Shares could be converted pursuant to the provisions of
Section 1.5 on the record date for the
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<PAGE> 5
determination of shareholders entitled to vote on such matter or, if
no record date is established, on the date such vote is taken or any
written consent of stockholders is first executed. Except as
otherwise required by law, the holders of Preferred Shares and Common
Stock shall vote together as a single class on all matters.
1.5. Conversion Rights.
(a) Optional Conversion.
(i) Subject to the terms and conditions
of this Section 1.5, the holder of any shares of Series A Convertible
Preferred Stock or Series B Convertible Preferred Stock shall have the
right, at its option at any time and from time to time, to convert all
or any portion of such shares into fully paid and nonassessable shares
of Common Stock at an initial conversion rate of one share of Series A
Convertible Preferred Stock to .25 shares of Common Stock and one
share of Series B Convertible Preferred Stock to .25 shares of Common
Stock. The rate of conversion shall be adjusted upon the occurrence
of certain events such as stock dividends, reclassifications, splits
and other similar events.
(ii) Subject to the terms and conditions
of this Section 1.5, the holder of any Series C Convertible Preferred
Stock shall have the right, at its option at any time and from time to
time, to convert all or any portion of such shares into fully paid and
nonassessable shares of Common Stock at an initial conversion rate of
one share of Series C Convertible Preferred Stock to one share of
Common Stock. The rate of conversion shall be adjusted upon the
occurrence of certain events such as stock dividends,
reclassifications, splits and other similar events.
(b) Automatic Conversion.
(i) All outstanding Preferred Shares
shall be converted automatically into the number of shares of Common
Stock into which such Preferred Shares are then convertible pursuant
to this Section 1.5, without any action by the holders of such shares
and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, at the earliest
of: (A) the time the Corporation consummates an underwritten public
offering of Common Stock; or (B) the moment immediately prior to the
consummation of a consolidation or merger of the Corporation with or
into another corporation or entity or a sale or transfer of all or
substantially all of the Corporation's assets pursuant to which
holders of Common Stock (assuming the conversion of all outstanding
Preferred Shares into Common Stock immediately prior thereto) will
receive cash and/or securities and/or property.
(ii) Upon the occurrence of an event
triggering the automatic conversion of Preferred Shares as provided in
the preceding subparagraph (i), the Corporation shall promptly give
written notice to all holders of Preferred Shares of such event. As
soon as practicable after giving such notice, the Corporation shall
issue and deliver or cause to be issued and delivered a certificate or
certificates for the number of full shares of Common Stock issuable
upon such conversion, together with any cash payment
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<PAGE> 6
to be made in lieu of fractional shares as provided in Section 1.5(f)
and any accrued but unpaid dividends on such Preferred Shares, in
exchange for the certificates representing the Preferred Shares
converted pursuant to Section 1.5(b), together with proper assignments
of such certificates.
(c) Mechanics of Conversion. The rights of
conversion under Section 1.5(a) shall be exercised by a holder of
Preferred Shares by (i) surrendering the certificates representing
such shares, together with written notice of such holder's election to
convert such shares (the "Conversion Notice"), and a proper assignment
of such certificates to the Corporation. The Conversion Notice shall
state the names and addresses in which and to which the certificates
representing the Common Stock issuable or, if applicable, the other
shares, other securities, cash or other property issuable, deliverable
or payable, upon such conversion shall be issued, delivered or paid,
as the case may be. The date upon which the certificates representing
the Preferred Shares to be converted, the Conversion Notice and the
proper assignment have all been received by the Corporation is
referred to herein as the "Conversion Date." As promptly as
practicable after the Conversion Date, the Corporation shall issue and
deliver or cause to be issued and delivered, as specified in the
Conversion Notice, certificates for the number of full shares of
Common Stock issuable upon such conversion together with any cash
instead of fractional shares and any accrued but unpaid dividends as
provided in Section 1.5(f). Such conversion shall be deemed to have
been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder of the
converted Preferred Shares shall cease and the person or persons in
whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares of Common
Stock represented thereby.
(d) Subdivision or Combination of Stock. In case
the Corporation shall at any time split or subdivide its outstanding
Common Stock into a greater number of shares other than through a
stock dividend in which the holders of the Preferred Shares
participate pursuant to Section 1.2, the rate of conversion of the
Preferred Shares in effect immediately prior to such subdivision shall
be proportionately increased, and, conversely, in case the outstanding
Common Stock of the Corporation shall be combined into a smaller
number of shares, the rate of conversion in effect immediately prior
to such combination shall be proportionately decreased.
(e) Reorganization, Reclassification,
Consolidation or Merger. In the event of any capital reorganization
or reclassification of the Corporation's outstanding capital stock, or
any consolidation of the Corporation with, or merger of the
Corporation with or into, another corporation or entity, or the sale
of all or substantially all of the Corporation's assets (each of such
events being hereinafter, referred to as an "Extraordinary Event"),
where, in connection with such Extraordinary Event, the holders of
Common Stock will be entitled to receive stock, securities, cash
and/or other property with respect to or in exchange for such Common
Stock, then each Preferred Share shall, at the effective time of such
Extraordinary Event, be converted into, without any action on the part
of the holder thereof, such shares of stock, securities, cash and/or
other property as may be issuable or payable with respect to or in
exchange for the number of shares of Common Stock which
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<PAGE> 7
would otherwise have been issuable to the holder of such Preferred
Shares upon the conversion thereof pursuant to this Section 1.5.
(f) Fractional Shares, Dividends and Partial
Conversion. No fractional shares of Common Stock (or other shares or
other securities) or scrip representing fractional shares shall be
issued upon conversion of any of the Preferred Shares. At the time of
each conversion, the Corporation shall pay in cash, out of assets
legally available therefor, an amount equal to all dividends
(excluding Accruing Dividends on the Series B Preferred) declared and
unpaid on the shares of Preferred Shares surrendered for conversion to
the date upon which such conversion is deemed to take place as
provided in subparagraph 1.5(c). In case the number of shares of
Preferred Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 1.5(c) exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Preferred
Shares represented by the certificate or certificates surrendered
which are not to be converted. If any fractional share of Common
Stock would, except for the provisions of the first sentence of this
subparagraph 1.5(f), be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to
the holder surrendering the Preferred Shares for conversion an amount
in cash equal to the current market price of such fractional share as
determined in good faith by the Corporation's Board of Directors.
(g) Reservation of Common Stock. The Corporation
shall at all times reserve and keep available and free of preemptive
rights out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, such
number of its shares of Common Stock (or other shares or other
securities as may be required) as shall from time to time be
sufficient to effect the conversion of all outstanding Preferred
Shares, and if at any time the number of authorized but unissued
shares of Common Stock (or other shares or other securities as may be
required) as shall from time to time be sufficient to effect the
conversion of all outstanding Preferred Shares, and if at any time the
number of authorized but unissued shares of Common Stock (or such
other shares or other securities) shall not be sufficient to effect
the conversion of all then outstanding Preferred Shares, the
Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or other shares or
other securities) to such number of shares as shall be sufficient for
such purpose.
(h) Cost of Conversion. The Corporation shall
pay all documentary stamp or other similar taxes attributable to the
issuance or delivery of Common Stock (or other shares or other
securities) of the Corporation upon conversion of any of the Preferred
Shares. However, the Corporation shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name
other than that of the holder of the Preferred Shares in respect of
which such shares are being issued.
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<PAGE> 8
1.6. Redemption.
(a) Mandatory Redemption of Series B Preferred.
On a date (the "Redemption Date") not later than 120 days following
each fiscal year of the Corporation ending after December 31, 1996,
the Corporation shall, to the extent and on the terms permitted in
this Section 1.6, redeem shares of Series B Preferred.
(b) Redemption Price and Payment. The shares of
Series B Preferred to be redeemed shall be redeemed by paying for each
share in cash an amount equal to $3.20 (the "Redemption Price"). The
number of shares to be redeemed hereunder shall be equal to the
quotient of: (i) 20% of the Corporation's Free Cash Flow for the most
recent fiscal year ended prior to the time of such redemption (the
"Measurement Year"), divided by (ii) $3.20. "Free Cash Flow" shall
mean for any Measurement Year of the Corporation, the net income
before interest, taxes and depreciation, less capital expenditures,
and less debt service (including principal repayment) on outstanding
indebtedness. For the purposes of calculating Free Cash Flow, only
debt service related to debt necessary for working capital and capital
improvements in the ordinary course of business shall be considered.
Such payment shall be made in full on the Redemption Date to the
holders entitled thereto. If upon any redemption the Free Cash Flow
shall be insufficient to permit redemption of all outstanding shares
of Series B Preferred, then such outstanding shares shall be redeemed
ratably, based upon the number of shares of Series B Preferred held by
each holder.
(c) Redemption Mechanics. The Corporation shall,
not less than 15 days prior to any Redemption Date, give each holder
of record of the Series B Preferred (at the close of business on the
business day next preceding the day on which written notice (the
"Redemption Notice") is given) a Redemption Notice of its obligation
to redeem the Series B Preferred, delivered in person or by certified
or registered mail, return receipt requested, telecopier or telex,
specifying the Redemption Price, the Redemption Date, the number of
shares of Series B Preferred to be redeemed from such holder (computed
on a pro rata basis in accordance with the number of such shares held
by all holders thereof) and the place where said Redemption Price
shall be payable. The Redemption Notice shall be addressed to each
holder at his address as shown by the Corporation's records. From and
after the close of business on a Redemption Date, unless there shall
have been a default in the payment of the Redemption Price, all rights
of holders of shares of Series B Preferred (except the right to
receive the Redemption Price) shall cease with respect to the shares
to be redeemed on such Redemption Date, and such shares shall not
thereafter be transferred on the Corporation's books or be deemed to
be outstanding for any purpose whatsoever. A holder of Series B
Preferred shall have the right to elect prior to the Redemption Date
to convert any shares of Series B Preferred to Common Stock in
accordance with the provisions of Section 1.5.
(d) Redeemed or Otherwise Acquired Shares to be
Retired. Any shares of the Series B Preferred redeemed pursuant to
Section 1.6 or any Preferred Shares otherwise acquired by the
Corporation in any manner whatsoever shall be canceled and shall not
under any circumstances be reissued; and the Corporation may from time
to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Preferred
Shares.
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<PAGE> 9
(e) No Right of Redemption for Series A or Series
C Preferred. The Series A Preferred and the Series C Preferred shall
not be subject to the redemption provisions provided for in this
Section 1.6.
1.7. Preemptive Rights.
The Company shall, prior to any issuance by the Company of any
of its securities (other than debt securities with no equity feature),
offer to each holder of shares of Series C Preferred (the "Series C
Holders") by written notice the right, for a period of thirty (30)
days, to purchase all of such securities for cash at an amount equal
to the price or other consideration for which such securities are to
be issued; provided, however, that such first refusal rights of the
Series C Holders shall not apply to securities issued (a) upon
conversion of any of the Preferred Shares, (b) as a stock dividend or
upon any subdivision of shares of Common Stock, provided that the
securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (c) pursuant to
subscriptions, warrants, options, convertible securities, or other
rights which are outstanding on the date of this Certificate of
Designations or granted in connection with the sale of Series C
Preferred or an underwritten public offering or any other future
securities offering by the Company, (d) solely in consideration for
the acquisition (whether by merger or otherwise) by the Company or any
of its subsidiaries of all or substantially all of the stock or assets
of any other entity, (e) pursuant to a firm commitment underwritten
public offering, (f) pursuant to the exercise of options to purchase
Common Stock granted to directors, officers, employees or consultants
of the Company in connection with the Stock Option Plans, (g) upon the
exercise of any right which was not itself in violation of the terms
of this Section 1.7. The Company's written notice to the Series C
Holders shall describe the securities proposed to be issued by the
Company and specify the number, price and payment terms. Each Series C
Holder may accept the Company's offer as to the full number of
securities offered to it or any lesser number, by written notice
thereof given by it to the Company prior to the expiration of the
aforesaid thirty (30) day period, in which event the Company shall
promptly sell and such Series C Holder shall buy, upon the terms
specified, the number of securities agreed to be purchased by such
Series C Holder. Notwithstanding the foregoing, if the Series C
Holders agree, in the aggregate, to purchase more than the full number
of securities offered by the Company, then each Series C Holder
accepting the Company's offer shall first be allocated the lesser of
(i) the number of securities which such Series C Holder agreed to
purchase, and (ii) the number of securities as is equal to the full
number of securities offered by the Company multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock
held by such Series C Holder as of the date of the Company's notice of
offer (treating such Series C Holder, for the purpose of such
calculation, as the holder of the number of shares of Common Stock
which would be issuable to such Series C Holder upon conversion,
exercise or exchange of all securities (including but not limited to
the Series A Preferred, Series B Preferred and the Series C
Preferred) held by such Series C Holder on the date such offer is
made, that are convertible, exercisable or exchangeable into or for
(whether directly or indirectly) shares of Common Stock) and the
denominator of which shall be the aggregate number of shares of Common
Stock (calculated as aforesaid) held on such date by all Series C
Holders who accepted the Company's offer, and the balance of the
securities (if any) offered by the Company shall be allocated among
the Series C Holders accepting the Company's offer in proportion to
their relative equity ownership interests in the Company (calculated
as aforesaid), provided that no Series C Holder shall be allocated
more than the number of securities which such Series C Holder agreed
to purchase and provided further that in cases covered by this
sentence all Series C Holders shall be allocated among them the full
number
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<PAGE> 10
of securities offered by the Company. The Company shall be free at any
time prior to ninety (90) days after the date of its notice of offer
to the Series C Holders, to offer and sell to any third party or
parties the number of such securities not agreed by the Series C
Holders to be purchased by them, at a price and on payment terms no
less favorable to the Company than those specified in such notice of
offer to the Series C Holders. However, if such third party sale or
sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been
purchased within such period without again complying with this Section
1.7. The first refusal rights under this Section 1.7 shall terminate
upon the earlier to occur of (x) conversion of at least fifty percent
(50%) of the shares of Series C Preferred outstanding or (y)
completion of an underwritten public offering.
2. AMENDMENTS
Except as otherwise provided by law, the Corporation shall not
amend, alter or repeal the preferences, special rights or other powers
of the Preferred Shares so as to affect adversely the Preferred Shares
without the written consent or affirmative vote of the holders of at
least 66-2/3% of each of the then outstanding Series A Preferred,
Series B Preferred and Series C Preferred given in writing or by vote
at a meeting, consenting or voting (as the case may be), each voting
separately as a class. For this purpose, the authorization or
issuance of any series of preferred stock with preference or priority
over, or on a parity with, the Preferred Shares as to any preferences,
rights or powers (including, without limitation, voting rights or the
right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up on the Corporation) shall not
be deemed so to affect adversely such Preferred Shares.
C. That on July 17, 1997, the stockholders of the Corporation
approved the Corporation's Amended and Restated Certificate of Incorporation
and such Amended and Restated Certificate of Incorporation has been filed with
the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested to by its Secretary, this 17th day of
July, 1997.
ZYMETX, INC.
By:/s/ Peter G. Livingston
----------------------------------
ATTEST: Peter G. Livingston, President
By: /s/ Douglas A. Branch
-------------------------------------
Douglas A. Branch, Secretary
(SEAL)
10
<PAGE> 11
CERTIFICATE OF INCREASE
IN DESIGNATED SERIES OF PREFERRED STOCK
OF
ZYMETX, INC.
ZymeTx, Inc. (the "Corporation"), a corporation organized and existing
under the Delaware General Corporation Law, as amended (the "Act"), DOES HEREBY
CERTIFY:
A. At a meeting held June 23, 1997, pursuant to: (i) authority
conferred upon the Board of Directors by the Corporation's Certificate of
Incorporation, as amended; (ii) authority conferred on the Finance Committee of
the Board of Directors (the "Finance Committee") at a meeting of the Board of
Directors held on June 18, 1997; and (iii) pursuant to the provisions of
Section 151 of the Act, said Finance Committee unanimously adopted resolutions
providing for the amendment and restatement of the terms of the Corporation's
Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock and the creation and issuance of 1,006,250 shares of a series of the
Corporation's authorized preferred stock, $.001 par value (the "Preferred
Stock"), designated as "Series C Convertible Preferred Stock," which
resolutions were set forth in the "Amended Certificate of Designations of
ZymeTx, Inc.," filed with the Secretary of State of the State of Delaware on
July 17, 1997;
B. At a meeting held July 25, 1997, pursuant to: (i) authority
conferred upon the Board of Directors by the Corporation's Certificate of
Incorporation, as amended; and (ii) pursuant to the provisions of Section 151
of the Act, an increase in the number of authorized shares of Series C
Convertible Preferred Stock was authorized and directed by the following
resolution adopted by said Board of Directors:
RESOLVED, that the number of shares constituting Series C
Convertible Preferred Stock as set forth in the Amended Certificate of
Designations of ZymeTx, Inc. filed with the Secretary of State of the
State of Delaware on July 17, 1997, be increased to 1,750,000 shares.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested to by its Secretary, this 31st day of
July, 1997.
ZYMETX, INC.
By:/s/ Peter G. Livingston
----------------------------------
ATTEST: Peter G. Livingston, President
By: /s/ Douglas A. Branch
----------------------------------
Douglas A. Branch, Secretary
(SEAL)
11
<PAGE> 1
EXHIBIT 4.3
ZYMETX, INC.
STOCK OPTION PLAN
1. Purpose. The purposes of the Plan are to enable the Company
to attract and retain the services of key employees and to provide them with
increased motivation and incentive to exert their best efforts on behalf of
their employer by enlarging their personal stake in their employer's success.
2. Definitions. As used in the Plan, the following definitions
apply to the terms indicated below:
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence of any of the
following after the Company consummates an initial public offering of its
securities:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
hereinafter an "Acquiring Person")) becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act,
hereinafter a "Beneficial Owner"), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
(b) an Acquiring Person becomes the Beneficial Owner,
directly or indirectly of securities of the Company representing 10%
or more of the combined voting power of the Company's then outstanding
securities and, during the two-year period commencing at the time such
Acquiring Person becomes the Beneficial Owner of such securities,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof;
<PAGE> 2
(c) the Company's stockholders approve an agreement to
merge or consolidate the Company with another corporation (other than
a corporation 50% or more of which is controlled by, or is under
common control with, the Company) and, during the period commencing
six months before such approval and ending two years after such
approval, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority
thereof; and
(d) during any two year period, individuals who at the
date on which the period commences constitute a majority of the Board
cease to constitute a majority thereof as a result of one or more
contested elections for positions on such Board.
"COMMITTEE" means the committee appointed by the Board from
time to time to administer the Plan pursuant to Section 4 hereof.
"COMPANY" means ZymeTx, Inc.
"FAIR MARKET VALUE" of a Share on a given day means, if Shares
are listed on an established stock exchange or exchanges, the highest closing
sales price of a Share as reported on such stock exchange or exchanges; or if
not so reported, the average of the bid and asked prices, as reported on the
National Association of Securities Dealers Automated Quotation System. If the
price of a Share shall not be so quoted, the Fair Market Value shall be
determined by the Committee taking into account all relevant facts and
circumstances.
"INCENTIVE STOCK OPTION" means an Option that qualifies as an
incentive stock option within the meaning of Section 422 of the Code and which
is identified as an Incentive Stock Option in the agreement by which it is
evidenced.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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<PAGE> 3
"OPTION" means a right to purchase Shares under the terms and
conditions of the Plan as evidenced by an option certificate in such form not
inconsistent with the Plan, as the Committee may adopt for general use or for
specific cases from time to time.
"NONQUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option and which is identified as a Nonqualified Stock Option
in the agreement by which it is evidenced.
"PARTICIPANT" means an employee or director, eligible to
participate in the Plan under Section 5 hereof, to whom an Option is granted
under the Plan.
"PLAN" means the ZymeTx, Inc. Stock Option Plan, including any
amendments to the Plan.
"SHARES" means shares of the Company's Common Stock, $.001 par
value, now or hereafter owned by the Company as treasury stock or authorized
but unissued shares of the Company's Common Stock, subject to adjustment as
provided in the Plan.
"SUBSIDIARY" means any corporation, now or hereafter existent,
in which the Company owns, directly or indirectly, stock comprising fifty
percent or more of the total combined voting power of all classes of stock of
such corporation.
3. Plan Adoption and Term.
A. The Plan shall become effective upon its adoption by
the Board, and Options may be issued upon such adoption and from time to time
thereafter; provided, however, that the Plan shall be submitted to the
Company's stockholders for their approval at the next annual meeting of
stockholders, or prior thereto at a special meeting of stockholders expressly
called for such purpose, or by a unanimous consent of all stockholders executed
in writing; and provided further, that the approval of the Company's
stockholders shall be obtained within twelve months of the date of adoption of
the Plan. If the Plan is not approved at the annual meeting or special meeting
by the affirmative vote of a
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<PAGE> 4
majority of all shares entitled to vote upon the matter, or by unanimous
written consent of all stockholders, then the Plan and all Options then
outstanding hereunder shall forthwith automatically terminate and be of no
force and effect.
B. Subject to the provisions hereinafter contained
relating to amendment or discontinuance, the Plan shall continue in effect for
ten years from the date of its adoption by the Board. No option may be granted
hereunder after such ten-year period.
4. Administration of the Plan. The Plan shall be administered by
the Committee, consisting of not less than three persons, who shall be
directors of the Company, who shall not be employees of the Company, and who
shall be appointed by the Board to serve at the pleasure of the Board. Except
as otherwise expressly provided in the Plan, the Committee shall have sole and
final authority to interpret the provisions of the Plan and the terms of any
Option issued under it and to promulgate and interpret such rules and
regulations relating to the Plan and Options as it may deem necessary or
desirable for the administration of the Plan. Without limiting the foregoing,
the Committee shall, subject to Section 6 and to the extent and in the manner
contemplated herein, determine who shall receive Options under the Plan and how
many Shares shall be subject to each such Option. The Committee shall report
to the Board the names of those granted Options and the terms and conditions of
each Option granted by it. The Committee may correct any defect in the Plan or
any Option in the manner and to the extent it shall deem expedient to carry the
Plan into effect and shall be the sole and final judge of such expediency.
No member of the Committee shall be liable for any action
taken or omitted or any determination made by him in good faith relating to the
Plan, and the Company shall indemnify and hold harmless each member of the
Committee and each other director or employee of the Company to whom any duty
or power relating to the administration or interpretation of the Plan has been
delegated against
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<PAGE> 5
any cost or expense (including counsel fees) or liability (including any sum
paid in settlement of a claim with the approval of the Committee) arising out
of any act or omission in connection with the Plan, unless arising out of such
person's own fraud or bad faith.
5. Eligibility. The employees of the Company and its
Subsidiaries, who, in the opinion of the Committee, have a capacity for
contributing in a substantial measure to the success of the Company and its
Subsidiaries, shall be eligible to participate in the Plan. No options
intended to qualify as Incentive Stock Options shall be granted under the Plan
to any person who, before or after the grant or exercise of any Option, owns or
would own, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or its parent or
any Subsidiary, or who is not an employee of the Company. Options may be
granted to a director of the Company only if such director is, at the time of
grant, an employee of the Company.
6. Stock Subject to the Plan. Subject to adjustment as provided
in Section 13 hereof, Options may be granted pursuant to the Plan with respect
to a number of Shares that, in the aggregate, does not exceed One Million Eight
Hundred Thousand (1,800,000) Shares, less, at the time of such grant, the sum
of: (i) any Shares subject to outstanding options under the "ZymeTx, Inc.
Directors Stock Option Plan" (the "Directors Plan") and (ii) any Shares
previously issued upon the exercise of options granted under the Directors
Plan. If, prior to the termination of the Plan, an Option shall expire or
terminate for any reason without having been exercised in full, the unpurchased
Shares subject thereto shall again be available for the purposes of the Plan.
7. Options.
A. All Options granted under the Plan shall be clearly
identified either as Incentive Stock Options or as Nonqualified Stock Options.
All Options granted under the Plan shall be evidenced by agreements in such
form, not inconsistent with the Plan, as the Committee may adopt for general
use or for specific use from time to time. An Option shall be deemed "granted"
under the Plan on the date
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<PAGE> 6
on which the Committee, by appropriate action, awards the Option to a
Participant, or on such subsequent date as the Committee may designate.
B. (i) The aggregate Fair Market Value of Shares
with respect to which Incentive Stock Options granted under the Plan are
exercisable for the first time by a Participant during any calendar year under
the Plan and any other stock option plan of the company (and its parent and
subsidiary corporations as those terms are used in Section 422 of the Code)
shall not exceed $100,000. Such Fair Market Value shall be determined as of
the date on which each such Incentive Stock Option is granted. To the extent
that the aggregate Fair Market Value of Shares with respect to such Incentive
Stock Options exceeds $100,000, such Incentive Stock Options shall be treated
as Nonqualified Options, but all other terms and provisions of such Incentive
Stock Options shall remain unchanged.
(ii) Subparagraph (i) of this Paragraph B shall be
applied by taking Options into account in the order in which they were granted.
8. Option Price. The price per share at which Shares may be
purchased pursuant to any Option granted under the Plan shall be not less than
100% of the Fair Market Value of a Share on the date the Option is granted.
9. Duration of Options. No Option granted hereunder shall be
exercisable after the expiration of ten years from the date such Option was
granted. All Options shall be subject to earlier termination as provided
elsewhere in the Plan.
10. Conditions Relating to Exercise of Options.
A. The Board may, at its discretion, provide that an
Option may not be exercised in whole or in part for any period or periods of
time specified in the Option agreement. Except as provided in the Option
agreement, an Option may be exercised in whole or in part at any time during
its term. No Option may be exercised for a fractional share of stock.
-6-
<PAGE> 7
B. No Option shall be transferable by a Participant
otherwise than by will or the laws of descent and distribution and Options
shall be exercisable during the lifetime of a Participant only by such
Participant.
C. An Option shall be exercised by the delivery to the
Company of a written notice signed by the Participant, which specifies the
number of Shares with respect to which the Option is being exercised and the
date of the proposed exercise. Such notice shall be delivered to the Company's
principal office, to the attention of its Secretary, no less than three
business days in advance of the date of the proposed exercise and shall be
accompanied by the applicable option certificate evidencing the Option. A
Participant may withdraw such notice at any time prior to the close of business
on the proposed date of exercise, in which case the option certificate
evidencing the Option shall be returned to the Participant.
D. Payment for Shares purchased upon exercise of an
Option shall be made at the time of exercise either in cash, by certified check
or bank cashier's check or in Shares owned by the Participant and valued at
their Fair Market Value on the date of exercise, or partly in Shares with the
balance in cash or by certified check or bank cashier's check. Any payment in
Shares shall be effected by their delivery to the Secretary of the Company,
endorsed in blank or accompanied by stock powers executed in blank.
E. Certificates for Shares purchased upon exercise of
Options shall be issued and delivered as soon as practicable following the date
the Option is exercised. Certificates for Shares purchased upon exercise of
Options shall be issued in the name of the Participant.
F. Notwithstanding any other provision in the Plan, no
Option may be exercised unless and until the Shares to be issued upon the
exercise thereof have been registered under the Securities Act of 1933 and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration. Prior to the occurrence of a Change in
Control, the Company
-7-
<PAGE> 8
shall not be under any obligation to register under applicable federal or state
securities laws any Shares to be issued upon the exercise of an Option granted
hereunder, or to comply with an appropriate exemption from registration under
such laws in order to permit the exercise of an Option and the issuance and
sale of the Shares subject to such Option. If the Company chooses to comply
with such an exemption from registration, the Shares issued under the Plan may,
at the discretion of the Committee, bear an appropriate restrictive legend
restricting the transfer or pledge of the Shares represented thereby, and the
Committee may also give appropriate stop-transfer instructions to the transfer
agent to the Company. On or after the occurrence of a Change in Control, the
Company shall be under an obligation to register under applicable federal or
state securities law any Shares to be issued upon the exercise of an Option
granted hereunder, or to comply with an appropriate exemption from registration
under state or federal securities laws in order to permit the exercise of an
Option and the issuance and sale of the Shares subject to such Option.
G. Any person exercising an Option or transferring or
receiving Shares shall comply with all regulations and requirements of any
governmental authority having jurisdiction over the issuance, transfer, or sale
of capital stock of the Company, and as a condition to receiving any Shares,
shall execute all such instruments as the Company in its sole discretion may
deem necessary or advisable.
H. Notwithstanding Paragraph A of this Section 10, the
Committee may, in its sole discretion, accelerate the date on which any Option
granted under the Plan, and outstanding at such time, shall become exercisable.
I. Notwithstanding Paragraph A of this Section 10, upon
the occurrence of a Change in Control (or any event which would otherwise
constitute a "Change of Control" but for the Company had not consummated an
initial public offering of its securities) any Option granted under the
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<PAGE> 9
Plan and outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration or termination as
provided in the Plan.
J. In the event of termination of a Participant's
employment by reason of such Participant's retirement in accordance with an
applicable retirement plan, any outstanding Option held by such Participant
shall be or immediately become fully exercisable as to the total number of
Shares subject thereto (whether or not exercisable to that extent prior to
termination of employment) and shall remain so exercisable but only for a
period of three months after commencement of such retirement, at the end of
which time it shall terminate (unless such Option expires earlier by its
terms).
K. In the event of termination of a Participant's
employment by reason of such Participant's disability within the meaning of
Section 22(e)(3) of the Code, any outstanding Option held by such Participant
shall be or immediately become fully exercisable as to the total number of
Shares subject thereto (whether or not exercisable to that extent prior to
termination of employment) and shall remain so exercisable but only for a
period of one year after termination of employment for such disability, at the
end of which time it shall terminate (unless such Option expires earlier by its
terms).
L. In the event of the death of any Participant
(including death during an approved leave of absence or following a
Participant's retirement or disability), any Option then held by him which
shall not have lapsed or terminated prior to his death shall be or immediately
become fully exercisable by the executors, administrators, legatees, or
distributees of his estate, as may be appropriate, as to the total number of
Shares subject thereto (whether or not exercisable to that extent at the time
of death) and shall remain so exercisable but only for a period of one year
after death, at the end of which time it shall terminate (unless such Option
expires earlier by its terms).
M. In the event of the termination of the Participant's
employment otherwise than as described in paragraphs J, K and L, any
outstanding Option held by such Participant shall be
-9-
<PAGE> 10
exercisable to the extent exercisable at the time of such termination and
remain so exercisable for a period of thirty (30) days following such
termination. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
11. No Employment Rights. Nothing contained in the Plan or any
Option shall confer upon any Participant any right with respect to the
continuation of his employment by the Company or interfere in any way with the
right of the Company, subject to the terms of any separate employment agreement
to the contrary, at any time to terminate such employment or to increase or
decrease the compensation of the Participant from the rate in existence at the
time of the grant of an Option.
12. Rights of a Stockholder. No person shall have any rights with
respect to any Shares covered by or relating to any grant hereunder of an
Option until the date of issuance of a certificate to him evidencing such
Shares. Except as otherwise expressly provided in the Plan, no adjustment to
any Option shall be made for dividends or other rights for which the record
date occurs prior to the date such certificate is issued.
13. Adjustment Upon Changes in Capital Stock.
A. If the capital stock of the Company shall be
subdivided or combined, whether by reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, then the number of
Shares authorized under the Plan, the number of Shares then subject to or
relating to unexercised Options granted hereunder and the exercise price per
Share will be adjusted proportionately. A stock dividend shall be treated as a
subdivision of the whole number of Shares equal to such whole number of Shares
so outstanding plus the number of Shares issued as a stock dividend.
B. In the case of any capital reorganization or any
reclassification of the capital stock of the Company (except pursuant to a
transaction described in Paragraph A of this Section 13) (a
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<PAGE> 11
"Reorganization"), appropriate adjustment may be made by the Committee in the
number and class of shares authorized to be issued under the Plan and the
number and class of shares subject to or relating to Options awarded under the
Plan and outstanding at the time of such Reorganization.
C. Each Participant will be notified of any adjustment
made pursuant to this Section 13 and any such adjustment, or the failure to
make such adjustment, shall be binding on the Participant.
D. Except as expressly set forth herein, the number and
kind of Shares subject to Options, shall not be affected by any transaction
(including, without limitation, any merger, recapitalization, stock split,
stock dividend, issuance of stock or similar transaction) affecting the capital
stock of the Company and no Participant shall be entitled to any additional
Options on account thereof.
14. Withholding Taxes.
A. Whenever Shares are to be issued upon the exercise of
an Option, the Company shall have the right to require the Participant to remit
to the Company in cash an amount sufficient to satisfy federal, state and local
withholding tax requirements, if any, prior to the delivery of any certificate
or certificates for such Shares.
B. Notwithstanding Paragraph A of this Section 14, at
the election of a Participant, subject to the approval of the Committee, when
Shares are to be issued upon the exercise of an Option, the Participant may
tender to the Company a number of Shares, or the Company shall withhold a
number of such shares, the Fair Market Value of which is sufficient to satisfy
the federal, state and local tax requirements, if any, attributable to such
exercise or occurrence. The Committee hereby grants its approval to any
election made pursuant to this Paragraph B, but reserves the right, in its
absolute discretion, to withdraw such approval in case of any such election
effective upon its delivery of notice thereof to the Participant.
-11-
<PAGE> 12
C. Notwithstanding Paragraph E of Section 10 hereof, if
a Participant subject to the provisions of Section 16(b) of the Exchange Act
who has not made an election pursuant to Section 83(b) of the Code, makes an
election described in Paragraph B of this Section 14 to have Shares withheld
with respect to an Option, then the Company shall hold as custodian for the
Participant certificates evidencing the total number of Shares required to be
issued pursuant to the exercise of the Option until the expiration of six
months following the date of such exercise. Upon the expiration of such
six-month period, the Company shall deliver to such Participant certificates
evidencing such Shares minus a number of such Shares, the Fair Market Value of
which on the date on which such period expires is sufficient to satisfy the
federal, state and local tax requirements attributable to such exercise.
D. Notwithstanding any other provisions of the Plan, a
individual who is subject to Section 16(b) of the Exchange Act, may not make
either of the elections described in Paragraph B of this Section 14 prior to
the expiration of six months after the date on which the applicable Option was
granted. Such elections must be made either (i) during the 10-day window
period described in Section (e)(3)(iii) of Rule 16b-3 promulgated under such
Section 16(b) of the Exchange Act, or (ii) at least six months prior to the
date as of which the income attributable to the exercise of the related Option
is recognized under the Code. Such elections shall be irrevocable and shall be
made by the delivery to the Company's principal office, to the attention of its
Secretary, of a written notice signed by Participant.
15. Amendment of the Plan.
A. The Board may at any time and from time to time
suspend, discontinue, modify or amend the Plan in any respect whatsoever except
that the Board may not suspend, discontinue, modify or amend the Plan so as to
adversely affect the rights of a Participant with respect to any grants that
have theretofore been made to such Participant without such Participant's
approval.
-12-
<PAGE> 13
B. No amendment to or modification of the Plan which:
(i) materially increases the benefits accruing to Participants; (ii) except as
provided in Sections 6 and 13 hereof, increases the number of Shares that may
be issued under the Plan; or (iii) modifies the requirements as to eligibility
for participation under the Plan shall be effective without shareholder
approval.
16. Miscellaneous.
A. It is expressly understood that the Plan grants
powers to the Committee but does not require their exercise; nor shall any
person, by reason of the adoption of the Plan, be deemed to be entitled to the
grant of any Option; nor shall any rights be deemed to accrue under the Plan
except as Options may be granted hereunder.
B. All rights hereunder shall be governed by and
construed in accordance with the laws of Oklahoma.
C. All expenses of the Plan, including the cost of
maintaining records, shall be borne by the Company.
Adopted May 2, 1994; reflects amendments effective May 10, 1996 and January 3,
1997.
-13-
<PAGE> 1
EXHIBIT 4.4
ZYMETX, INC.
DIRECTORS STOCK OPTION PLAN
1. Purpose. The purposes of the Plan are to enable the Company
to attract and retain the services of members of the Board and to provide them
with increased motivation and incentive to exert their best efforts on behalf
of their Company by enlarging their personal stake in the Company.
2. Definitions. As used in the Plan, the following definitions
apply to the terms indicated below:
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence of any of the
following after the Company consummates an initial public offering of its
securities:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
hereinafter an "Acquiring Person")) becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act,
hereinafter a "Beneficial Owner"), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
(b) an Acquiring Person becomes the Beneficial Owner,
directly or indirectly of securities of the Company representing 10%
or more of the combined voting power of the Company's then outstanding
securities and, during the two-year period commencing at the time such
Acquiring Person becomes the Beneficial Owner of such securities,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof;
<PAGE> 2
(c) the Company's stockholders approve an agreement to
merge or consolidate the Company with another corporation (other than
a corporation 50% or more of which is controlled by, or is under
common control with, the Company) and, during the period commencing
six months before such approval and ending two years after such
approval, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority
thereof; and
(d) during any two year period, individuals who at the
date on which the period commences constitute a majority of the Board
cease to constitute a majority thereof as a result of one or more
contested elections for positions on such Board.
"COMMITTEE" means the committee appointed by the Board from
time to time to administer the Plan pursuant to Section 4 hereof.
"COMPANY" means ZymeTx, Inc., a Delaware corporation.
"DATE OF GRANT" means the date the Committee grants an Option
to a Participant.
"FAIR MARKET VALUE" of a Share on a given day means, if Shares
are listed on an established stock exchange or exchanges, the highest closing
sales price of a Share as reported on such stock exchange or exchanges; or if
not so reported, the average of the bid and asked prices, as reported on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). If the Shares are not reported or quoted on an exchange or NASDAQ,
the Fair Market Value shall be determined by the Committee taking into account
all relevant facts and circumstances.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"OPTION" means a right to purchase Shares under the terms and
conditions of the Plan as evidenced by an option agreement in such form not
inconsistent with the Plan, as the Committee may adopt for general use or for
specific cases from time to time.
-2-
<PAGE> 3
"PARTICIPANT" means a director, eligible to participate in the
Plan under Section 5 hereof, to whom an Option is granted under the Plan.
"PLAN" means the ZymeTx, Inc. Stock Option Plan, including any
amendments to the Plan.
"SHARES" means shares of the Company's Common Stock, $.001 par
value, now or hereafter owned by the Company as treasury stock or authorized
but unissued shares of the Company's Common Stock, subject to adjustment as
provided in the Plan.
B. As used herein, the masculine includes the feminine,
the plural includes the singular, and the singular includes the plural.
3. Plan Adoption and Term.
A. The Plan shall become effective upon its adoption by
the Board, and Options may be issued upon such adoption and from time to time
thereafter; provided, however, that the Plan shall be submitted to the
Company's stockholders for their approval at the next annual meeting of
stockholders, or prior thereto at a special meeting of stockholders expressly
called for such purpose, or by a unanimous consent of all stockholders executed
in writing; and provided further, that the approval of the Company's
stockholders shall be obtained within twelve months of the date of adoption of
the Plan. If the Plan is not approved at the annual meeting or special meeting
by the affirmative vote of a majority of all shares entitled to vote upon the
matter, or by unanimous written consent of all stockholders, then the Plan and
all Options then outstanding hereunder shall forthwith automatically terminate
and be of no force and effect.
B. Subject to the provisions hereinafter contained
relating to amendment or discontinuance, the Plan shall continue in effect for
ten years from the date of its adoption by the Board. No option may be granted
hereunder after such ten-year period.
-3-
<PAGE> 4
4. Administration of the Plan. The Plan shall be administered by
the Committee, consisting of not less than three persons, who shall be
directors of the Company, and who shall be appointed by the Board to serve at
the pleasure of the Board. Except as otherwise expressly provided in the Plan,
the Committee shall have sole and final authority to interpret the provisions
of the Plan and the terms of any Option issued under it and to promulgate and
interpret such rules and regulations relating to the Plan and Options as it may
deem necessary or desirable for the administration of the Plan. Without
limiting the foregoing, the Committee shall, to the extent and in the manner
contemplated herein, determine who shall receive Options under the Plan and how
many Shares shall be subject to such Option. The Committee shall report to the
Board the names of those granted Options and the terms and conditions of each
Option granted by it. The Committee may correct any defect in the Plan or any
Option in the manner and to the extent it shall deem expedient to carry the
Plan into effect and shall be the sole and final judge of such expediency.
No member of the Committee shall be liable for any action
taken or omitted or any determination made by him in good faith relating to the
Plan, and the Company shall indemnify and hold harmless each member of the
Committee and each other director or employee of the Company to whom any duty
or power relating to the administration or interpretation of the Plan has been
delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in connection with the Plan,
unless arising out of such person's own fraud or bad faith.
5. Eligibility. Each director of the Company, who is not an
employee of the Company, in office as of the effective date of the Plan or as
of any date thereafter (prior to the expiration or termination of the Plan),
shall be eligible to participate in the Plan.
-4-
<PAGE> 5
6. Stock Subject to the Plan. Subject to adjustment as provided
in Section 12 hereof, Options may be granted pursuant to the Plan with respect
to a number of Shares that, in the aggregate, does not exceed One Million Eight
Hundred Thousand (1,800,000) Shares, less, at the time of such grant, the sum
of: (i) any Shares subject to outstanding options under the "ZymeTx, Inc. Stock
Option Plan" (the "Stock Option Plan") and (ii) any Shares previously issued
upon the exercise of options granted under the Stock Option Plan. If, prior to
the termination of the Plan, an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased Shares subject thereto
shall again be available for the purposes of the Plan.
7. Options.
A. All Options granted under the Plan shall be evidenced
by option agreements in such form, not inconsistent with the Plan, as the
Committee may adopt for general use or for specific use from time to time. An
Option shall be deemed "granted" under the Plan on the date which the
Committee, by appropriate action, awards the Option to a Participant, or on
such subsequent date as the Committee may designate.
B. The price per Share at which Shares may be purchased
pursuant to any Option granted under the Plan shall be not less than 100% of
the Fair Market Value of a Share on the Date of Grant.
8. Duration of Options. No Option granted hereunder shall be
exercisable after the expiration of ten years from the Date of Grant. All
Options shall be subject to earlier termination as provided elsewhere in the
Plan.
9. Conditions Relating to Exercise of Options.
A. The following percentage of Options (rounded up to
the nearest whole number of Options) granted to Participants shall become
exercisable on the following anniversaries of the Date of Grant:
-5-
<PAGE> 6
<TABLE>
<CAPTION>
ANNIVERSARY OF
DATE OF GRANT PERCENTAGE
------------- ----------
<S> <C>
First 33-1/3
Second 33-1/3
Third 33-1/3
</TABLE>
Once exercisable, an Option may be exercised at any time prior to its
expiration, cancellation or termination as provided in the Plan. Partial
exercise is permitted from time to time provided that no partial exercise of an
Option shall be for a number of Shares having a purchase price of less than
$1,000 or for a fractional number of Shares.
B. No Option shall be transferable by a Participant
otherwise than by will or the laws of descent and distribution and Options
shall be exercisable during the lifetime of a Participant only by such
Participant.
C. An Option shall be exercised by the delivery to the
Company of a written notice signed by the Participant, which specifies the
number of Shares with respect to which the Option is being exercised and the
date of the proposed exercise. Such notice shall be delivered to the Company's
principal office, to the attention of its Secretary, no less than three
business days in advance of the date of the proposed exercise and shall be
accompanied by the applicable option certificate evidencing the Option. A
Participant may withdraw such notice at any time prior to the close of business
on the proposed date of exercise, in which case the option certificate
evidencing the Option shall be returned to the Participant.
D. Payment for Shares purchased upon exercise of an
Option shall be made at the time of exercise either in cash, by certified check
or bank cashier's check or in Shares owned by the Participant and valued at
their Fair Market Value on the date of exercise, or partly in Shares with the
balance in cash or by certified check or bank cashier's check. Any payment in
Shares shall be effected
-6-
<PAGE> 7
by their delivery to the Secretary of the Company, endorsed in blank or
accompanied by stock powers executed in blank.
E. Certificates for Shares purchased upon exercise of
Options shall be issued and delivered as soon as practicable following the date
the Option is exercised. Certificates for Shares purchased upon exercise of
Options shall be issued in the name of the Participant.
F. Notwithstanding any other provision in the Plan, no
Option may be exercised unless and until the Shares to be issued upon the
exercise thereof have been registered under the Securities Act of 1933 and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration. Prior to the occurrence of a Change in
Control, the Company shall not be under any obligation to register under
applicable federal or state securities laws any Shares to be issued upon the
exercise of an Option granted hereunder, or to comply with an appropriate
exemption from registration under such laws in order to permit the exercise of
an Option and the issuance and sale of the Shares subject to such Option. If
the Company chooses to comply with such an exemption from registration, the
Shares issued under the Plan may, at the discretion of the Committee, bear an
appropriate restrictive legend restricting the transfer or pledge of the Shares
represented thereby, and the Committee may also give appropriate stop-transfer
instructions to the transfer agent to the Company. On or after the occurrence
of a Change in Control, the Company shall be under an obligation to register
under applicable federal or state securities law any Shares to be issued upon
the exercise of an Option granted hereunder, or to comply with an appropriate
exemption from registration under the rules and regulations promulgated by the
Securities and Exchange Commission in order to permit the exercise of an Option
and the issuance and sale of the Shares subject to such Option.
-7-
<PAGE> 8
G. Any person exercising an Option or transferring or
receiving Shares shall comply with all regulations and requirements of any
governmental authority having jurisdiction over the issuance, transfer, or sale
of capital stock of the Company, and as a condition to receiving any Shares,
shall execute all such instruments as the Company in its sole discretion may
deem necessary or advisable.
H. Notwithstanding Paragraph A of this Section 9, upon
the occurrence of a Change in Control, any Option granted under the Plan and
outstanding at such time shall become fully and immediately exercisable and
shall remain exercisable until its expiration or termination as provided in the
Plan. Notwithstanding the foregoing, any Option that would otherwise become
exercisable on a date that is not more than six months after the Date of Grant
shall instead become exercisable on the first day following the close of such
six month period.
I. In the event that a Participant shall cease to be a
director by reason of such Participant's retirement, any outstanding Option
held by such Participant shall be or immediately become fully exercisable as to
the total number of Shares subject thereto (whether or not exercisable to that
extent prior to such date) and shall remain so exercisable but only for a
period of three months after commencement of such retirement, at the end of
which time it shall terminate (unless such Option expires earlier by its
terms).
J. In the event that a Participant shall cease to be a
director by reason of such Participant's disability within the meaning of
Section 22(e)(3) of the Code, any outstanding Option held by such Participant
shall be or immediately become fully exercisable as to the total number of
Shares subject thereto (whether or not exercisable to that extent prior to such
date) and shall remain so exercisable but only for a period of one year after
such date, at the end of which time it shall terminate (unless such Option
expires earlier by its terms).
-8-
<PAGE> 9
K. In the event that a Participant shall cease to be a
director by reason of death (including death during an approved leave of
absence or following a Participant's retirement or disability), any Option then
held by him which shall not have lapsed or terminated prior to his death shall
be or immediately become fully exercisable by the executors, administrators,
legatees, or distributees of his estate, as may be appropriate, as to the total
number of Shares subject thereto (whether or not exercisable to that extent at
the time of death) and shall remain so exercisable but only for a period of one
year after death, at the end of which time it shall terminate (unless such
Option expires earlier by its terms).
L. In the event that a Participant shall cease to be a
director otherwise than as described in paragraphs I, J, and K, any outstanding
Option held by such Participant shall be exercisable to the extent exercisable
at the time of such termination and remain so exercisable for a period of
thirty (30) days following such termination.
10. No Election Rights. Nothing contained in the Plan or any
Option shall confer upon any Participant any right with respect to the
continuation of his tenure as a director of the Company or interfere in any way
with the right of the Company' stockholders or Board, at any time to terminate
such tenure or to fail to elect such Participant to the Board.
11. Rights of a Stockholder. No person shall have any rights with
respect to any Shares covered by or relating to any grant hereunder of an
Option until the date of issuance of a certificate to him evidencing such
Shares. Except as otherwise expressly provided in the Plan, no adjustment to
any Option shall be made for dividends or other rights for which the record
date occurs prior to the date such certificate is issued.
-9-
<PAGE> 10
12. Adjustment Upon Changes in Capital Stock.
A. If the capital stock of the Company shall be
subdivided or combined, whether by reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, then the number of
Shares authorized under the Plan, the number of Shares then subject to or
relating to unexercised Options granted hereunder and the exercise price per
Share will be adjusted proportionately. A stock dividend shall be treated as a
subdivision of the whole number of Shares outstanding immediately prior to such
dividend into a number of Shares issued as a stock dividend.
B. In the case of any capital reorganization or any
reclassification of the capital stock of the Company (except pursuant to a
transaction described in Paragraph A of this Section 12) (a "Reorganization"),
appropriate adjustment may be made by the Committee in the number and class of
shares authorized to be issued under the Plan and the number and class of
shares subject to or relating to Options awarded under the Plan and outstanding
at the time of such Reorganization.
C. Each Participant will be notified of any adjustment
made pursuant to this Section 12 and any such adjustment, or the failure to
make such adjustment, shall be binding on the Participant.
D. Except as expressly set forth herein, the number and
kind of Shares subject to Options awarded under the Plan, and the exercise
prices of any such Options, shall not be affected by any transaction
(including, without limitation, any merger, recapitalization, stock split,
stock dividend, issuance of stock or similar transaction) affecting the capital
stock of the Company and no Participant shall be entitled to any additional
Options on account thereof.
13. Withholding Taxes.
A. Whenever Shares are to be issued upon the exercise of
an Option, the Company shall have the right to require the Participant to remit
to the Company in cash an amount sufficient to
-10-
<PAGE> 11
satisfy federal, state and local withholding tax requirements, if any, prior to
the delivery of any certificate or certificates for such Shares.
B. Notwithstanding Paragraph A of this Section 13, at
the election of a Participant, subject to the approval of the Committee, when
Shares are to be issued upon the exercise of an Option, the Participant may
tender to the Company a number of Shares, or the Company shall withhold a
number of such shares, the Fair Market Value of which is sufficient to satisfy
the federal, state and local tax requirements, if any, attributable to such
exercise or occurrence. The Committee hereby grants its approval to any
election made pursuant to this Paragraph B, but reserves the right, in its
absolute discretion, to withdraw such approval in case of any such election
effective upon its delivery of notice thereof to the Participant.
14. Amendment of the Plan.
A. The Board or Committee may at any time and from time
to time suspend, discontinue, modify or amend the Plan in any respect
whatsoever except that neither the Board or Committee may suspend, discontinue,
modify or amend the Plan so as to adversely affect the rights of a Participant
with respect to any grants that have theretofore been made to such Participant
without such Participant's approval.
B. No amendment to or modification of the Plan which:
(i) materially increases the benefits accruing to Participants; (ii) except as
provided in Section 12 hereof, increases the number of Shares that may be
issued under the Plan; or (iii) modifies the requirements as to eligibility for
participation under the Plan shall be effective without stockholder approval.
15. Miscellaneous.
A. It is expressly understood that the Plan grants
powers to the Committee but does not require their exercise; nor shall any
person, by reason of the adoption of the Plan, be deemed to be
-11-
<PAGE> 12
entitled to the grant of any Option; nor shall any rights be deemed to accrue
under the Plan except as Options may be granted hereunder.
B. All rights hereunder shall be governed by and
construed in accordance with the laws of Oklahoma.
C. All expenses of the Plan, including the cost of
maintaining records, shall be borne by the Company.
Adopted May 2, 1994; reflects amendments effective May 10, 1996 and January 3,
1997.
-12-
<PAGE> 1
Exhibit 10.1
ZYMETX PURCHASE PARTNERS
December 22, 1995
Dr. William Thurman, M.D. Mr. Peter Livingston
President President and CEO
Oklahoma Medical Research Foundation ZymeTx, Inc.
Mr. Dennis McGrath
Vice President
Presbyterian Health Foundation
Dear Sirs:
The purpose of this letter is to outline the following: (1) the terms
by which ZymeTx Purchase Partners ("ZPP"), a New York Partnership to be formed
by Kevin Kimberlin ("Kimberlin") and ML Oklahoma Venture Partners, L.P.
("MLOK"), shall purchase 63% of the fully diluted outstanding common stock of
ZymeTx, Inc. ("ZymeTx"or "the Company"); (2) the terms by which Oklahoma
Medical Research Foundation ("OMRF") shall license its viral diagnostic and
therapeutic intellectual property ("IP") to ZymeTx; (3) the terms by which ZPP,
OMRF, and Presbyterian Health Foundation ("PHF") shall jointly provide bridge
financing to ZymeTx; and (4) the terms by which OMRF shall provide ongoing
developmental support and PHF shall provide leased research and manufacturing
facilities in the Oklahoma Biomedical Research Park ("OBRP"). These terms
contemplate that ZymeTx shall separately enter into an engagement letter with
Spencer Trask Securities for the completion of a private placement (the Private
Offering) of between 4,156,250 and 7,906,250 shares of convertible preferred
stock of the Company.
This letter is a non-binding indication of interest for purposes of
clarification of the terms herein. Any contractual relationships by the
parties to this letter are subject to (i) due diligence by all parties, (ii)
boards of directors and/or investment/finance committees approval by all
parties, (iii) completion of all necessary definitive contractual agreements
satisfactory to all parties and (iv) the absence of any material adverse
changes in ZymeTx's prospects.
Due to the short time-frame for these proposed transactions, we are
proposing the following time schedule be approved with the signing of this
letter:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ITEM DUE DATE
- --------------------------------------------------------------------------------
<S> <C>
1. Sign this letter of intent December 22, 1995
2. First draft of the following:
a. Acquisition Agreement December 29, 1995
b. Bridge Financing Agreement
c. ZPP Partnership Agreement
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
3. First draft of the following:
a. Private Placement Memorandum January 5, 1996
b. Facilities and Support Agreements
c. STS engagement letter
d. Technology License Agreement
4. Complete the following:
a. Acquisition by ZPP January 10, 1996
b. First Bridge Installment
c. STS engagement letter
d. Formation of ZPP
5. Complete the following:
a. Facilities and Support Agreements January 31, 1996
b. Private Placement Memorandum
c. Technology License Agreement
6. Projected First Closing 90 Days From Completion of Offering
Memorandum
7. Projected Second Closing 60 Days Thereafter
</TABLE>
The following outlines the terms by which ZPP shall acquire 63.0% of
ZymeTx's fully diluted common stock ownership:
<TABLE>
<S> <C> <C>
1. Pre-acquisition articles of incorporation: The authorized capital stock of ZymeTx shall
be changed to the following:
a. Common Stock 14.1 million shares
b. Redeemable Preferred .2 million
shares
c. Convertible Preferred 8.0
million shares
The par value of all three classes of stock shall
be $0.001 per share.
2. Pre-acquisition change in holdings: The holdings of ZymeTx common stock
ownership shall be changed to the following:
OMRF 612,500 shares
Other non-mgmt. 59,833 shares
----- --------- ------ ------
Total outstanding 672,333 shares
============================================
3. Pre-acquisition Mgmt. Stock Option Pool: The Mgmt. ISOP pool shall be re-sized to
900,000 shares and the parties shall mutually
agree as to immediate allocations and vesting
timing and percentages.
4. Pre-acquisition restructuring agreement: OMRF shall agree to the following conversion
of its estimated $1.75 million in debt
advancements, subject to the successful
completion of the Private Offering outlined below
in 15 and 16:
a. $825,000 to be paid out of the use of
proceeds of the Private Offering.
b. $425,000 to be converted to a technology
license note per the Technology License terms
outlined in 8.and 9. below.
c. $500,000 to be converted into Redeemable
Convertible Preferred Stock concurrent with
the first closing of the Private Offering. The
terms of this stock are outlined in 5. Below.
d. OMRF agrees to purchase $325,000 of units
in the offering, or 406,250 shares at $0.80/share.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
5. Redeemable Convertible Preferred Stock: The Redeemable Convertible Preferred Stock
of which OMRF shall convert $.50 million (156,250
shares at the rate of $3.20 per share) of its
existing outstanding indebtedness to, shall
accrue cumulative dividends starting on the 36th
month after issuance at the rate of 6% per annum.
The Redeemable Preferred Stock shall be
mandatorially redeemable by the Company at the
rate of 20% of Free Cash Flow.
Free Cash Flow shall be defined as
CUMULATIVE positive earnings before interest,
taxes and depreciation less capital expenditures
and less debt service on outstanding
indebtedness. The Company shall agree to limit
other outstanding indebtedness to that necessary
for working capital and capital improvements in
the ordinary course of business.
OMRF can convert the 156,250 shares of
Preferred Stock at any time into common stock at
the rate of one to one.
6. Acquisition of Common Stock by ZPP: ZPP shall purchase 3,000,000 shares of
common stock at par value.
7. Technology License Cancellation: In the event the Private Offering is not
completed or alternative funding arranged to the
satisfaction of OMRF, OMRF shall have the right
to cancel the Technology License Agreement
outlined in Number 9 below.
</TABLE>
The following outlines the terms by which OMRF shall license its viral
diagnostic and therapeutic IP to the Company:
<TABLE>
<S> <C> <C>
8. IP Note Payable: In conjunction with the signing of the
license agreement outlined in 9. below, OMRF
shall convert $425,000 of its outstanding
indebtedness to a 7.25 year IP note payable. The
note shall be secured by the IP. The note shall
be interest free for the first 24 months,
interest only (payable quarterly) for months 25
through 36 at the rate of 8% per annum and,
beginning in the 37th month, all interest (at the
rate of 8% per annum) and principal shall be paid
quarterly with principal amortized on a straight-
line basis of $25,000 per quarter for 17
quarters. OMRF shall receive warrants totalling
22,667 shares at $0.80 per share in compensation
for the two years deferred interest.
</TABLE>
3
<PAGE> 4
<TABLE>
<S><C> <C>
9. License: The Company shall receive a perpetual,
exclusive license to all OMRF IP related to viral
diagnostics and therapeutics stemming from the
Symex and/or ZymeTx research programs. The
license shall remain in force as long as the
Company performs on the note outlined in 8.
above. Once the note is paid in full, the
Company's exclusive, perpetual license shall be
freely transferable.
10. Royalty: The Company shall pay a 2.0% royalty on all
net sales of Company products which utilize
licensed diagnostic and therapeutic technology
developed from OMRF's labs up to the date of
closing. Such royalties will be reduced on a
cumulative basis by any royalties paid to Biota
Holdings, Ltd. or its affiliates.
</TABLE>
The following outlines the terms by which ZPP, OMRF and PHF shall
provide bridge financing to the Company for up to five (5) months beginning
January 1, 1996:
<TABLE>
<S> <C> <C>
11. Bridge Note Advances: On the 15th of each month, beginning in
January, 1996, for a maximum of five (5) months,
ZPP, OMRF and PHF shall make bridge advances to
the Company as follows:
ZPP $30,000
OMRF $17,500
PHF $17,500
The maximum bridge note advances shall be
$325,000.
12. Bridge Note Terms: The bridge notes shall accrue interest at
the rate of 8% and all interest and principal
shall be due and payable on the earlier of (i)
the closing of the Private Offering or (ii) 24
months. However, in the event OMRF chooses to
license the technology to another third party,
the 24 month term shall be extended as long as
the bridge note holders are receiving all product
proceeds until the notes are paid in full.
13. Bridge Note Security: The bridge notes shall be secured pro-rata
by the holders by the IP of OMRF and the Company
related to viral diagnostics and therapeutics.
This security shall be senior to all other
indebtedness. In the event the Offering is not
consummated AND OMRF determines the best exit
alternative is a technology license with little
upfront cash payments insufficient to retire the
bridge notes, the holders of those notes shall
receive all royalties until such notes are paid,
with interest, in full.
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
14. Bridge Warrants The Company shall issue warrants equal to
one share for each $1.00 of bridge notes
commitments (a total of 325,000 warrant shares),
such warrants exercisable for a period of 7 years
at $0.80 per share. The warrants shall have full
anti-dilution protection and shall be exercisable
net of issuance.
</TABLE>
This term sheet is predicated on the fact that the strategic plan of the
Company is to operate in an efficient "virtual company" atmosphere. Therefore,
the following outlines the terms by which OMRF shall provide developmental
support and PHF shall provide research and manufacturing space on a leased
basis:
<TABLE>
<S> <C>
15. PHF Lease of 8th and Lincoln Research PHF shall lease approximately 10,000 square
Center: feet of space to the Company, with a buildout
allowance of $33.90 per square feet. The lease
shall be a 10 year lease with no rent the first
two years and rent at the rate of $15.00 per
square feet thereafter. Such lease rate shall be
all inclusive and cover rent, utilities, taxes,
and building operating costs up to $4.50 per
square foot. To the extent the actual buildout
and leasehold improvements exceed $33.90 per
square foot, PHF shall finance the overage for 5
years, interest only the first two years and a
level 36 month amortization thereafter at the
rate of 10% per annum. PHF shall receive Rent
Warrants totalling one warrant share for each
$3.00 of deferred rent in the first two years,
such warrants exercisable for a period of five
years at $0.80 per share. The total lease
warrants shall equal 80,000 shares.
16. OMRF employee leasing: OMRF shall hire all Company employees and
cover them on OMRF's benefits plans and lease
them to the Company at actual cost.
17. OMRF purchasing: OMRF shall allow the Company to utilize its
vendors for purchasing purposes and the Company
shall reimburse OMRF, at cost, on terms identical
to those received by OMRF from its vendors.
18. OMRF MIS: OMRF shall allow the Company to utilize its
MIS systems, at cost.
19. OMRF Scientific Collaboration: The Company shall have access on an "as
available basis", at cost, to OMRF scientists
and labs (including but not limited to
specialized equipment) for purposes of furthering
the licensed technology. The parties shall agree
to negotiate in good faith in determining what
"as available" means.
</TABLE>
5
<PAGE> 6
Please find attached to this letter schedules outlining the
capitalization per this letter.
If the above terms are consistent with our mutual understanding, please
sign below and return to me by facsimile. This term sheet is non-binding and
is subject to (i) the completion of due diligence, (ii) the approval by each
parties' respective boards of directors and/or investment committee, (iii) the
completion of all definitive agreements satisfactory to all parties and (iv)
the absence of any adverse material changes in the Company's prospects.
Sincerely,
ZymTx Purchase Partners, by:
/s/ KEVIN KIMBERLIN
- ------------------------------------------------
Kevin Kimberlin
Proforma General Partner
/s/ JOE D. TIPPENS
- ------------------------------------------------
Joe D. Tippens
Consultant to ML Oklahoma Venture Partners, L.P.
Proforma General Partner
enclosures
- --------------------------------------------------------------------------------
Agreed to this 20th day of December, 1996
/s/ WILLIAM THURMAN
- ------------------------------------------------
Dr. William Thurman, President
Oklahoma Medical Research Foundation
/s/ DENNIS MCGRATH
- ------------------------------------------------
Mr. Dennis McGrath, Vice President
Presbyterian Health Foundation
/s/ PETER LIVINGSTON
- ------------------------------------------------
Mr. Peter Livingston, President
ZymeTx, Inc.
6
<PAGE> 1
EXHIBIT 10.2
CLOSING MEMORANDUM
The following sets forth the consummation of actions taken by ZymeTx,
Inc., an Oklahoma corporation ("ZymeTx"), ZymeTx Purchase Partners, a New York
partnership ("ZPP"), Oklahoma Medical Research Foundation ("OMRF"), and
Presbyterian Health Foundation ("Presbyterian") pursuant to the terms of that
certain letter agreement (the "Recapitalization Agreement") dated December 22,
1995, and also reflects other agreements of the parties related to the
transactions contemplated by the Recapitalization Agreement.
I. TRANSACTIONS EFFECTED PRIOR TO THE CLOSING
A. On December 22, 1995, ZymeTx, ZPP, OMRF and Presbyterian
entered into the Recapitalization Agreement, attached hereto as Exhibit "A."
B. On January 26, 1995, ZPP, OMRF and Presbyterian (collectively,
the "Lenders"), and ZymeTx entered into that certain Bridge Loan Agreement (the
"Bridge Loan Agreement"), attached hereto as Exhibit "B," and a Security
Agreement (the "Security Agreement"), attached hereto as Exhibit "C."
C. As provided under the terms of the Bridge Loan Agreement,
during the months of December 1995, through May 1996, the Bridge Lenders
collectively advanced a total of $350,500 to ZymeTx and, in return for such
advancements, were issued promissory notes (the "Bridge Notes," each of which
is attached hereto as Exhibit "D").
D. On January 10, 1996, the Board of Directors of ZymeTx approved
the terms of the Recapitalization Agreement. A copy of the minutes adopting
such resolutions are attached hereto as Exhibit "E."
E. On May 9, 1996, the Board of Directors of ZymeTx took the
following actions, pursuant to resolutions attached hereto as Exhibit "F":
(a) Approval of certain amendments to the Certificate of
Incorporation of ZymeTx, which amendments are set forth in Exhibit
"G." As a consequence of the filing of the Certificate of Amendment
of Certificate of Incorporation (the "Certificate of Amendment") with
the Secretary of State of the State of Delaware, the authorized
capital stock of ZymeTx consisted of 16,500,000 shares of common
stock, $.001 par value (the "Post-Split Common Stock"), and
10,000,000 shares of preferred stock, $.001 par value (the "Preferred
Stock").
(b) Approval of a Certificate of Designations (the
"Certificate of Designations", attached hereto as Exhibit "H")
designating 9,843,750 shares of Preferred Stock as "Series A
Convertible Preferred Stock" and 156,250 shares of Preferred Stock as
"Series B Redeemable Convertible Preferred Stock."
<PAGE> 2
(c) Approval of the Bridge Loan Agreement, Bridge Notes
and warrants (the "Bridge Warrants," attached hereto as Exhibit "I")
to the Bridge Lenders.
(d) Approval of the private offering of up to 69 units
(the "Units"), each consisting of 125,000 shares of Series A
Convertible Preferred Stock, at a per Unit price of $100,000, through
Spencer Trask Securities Incorporated (the "Placement Agent").
(e) Approval of the Placement Agency Agreement (the
"Placement Agency Agreement," attached hereto as Exhibit "J") by and
between ZymeTx and the Placement Agent, the warrant (the "Placement
Agent Warrant," attached hereto as Exhibit "K") issuable thereunder
and other related matters.
(f) Approval of the Escrow Agreement (the "Escrow
Agreement") attached hereto as Exhibit "L" by and among ZymeTx, U.S.
Trust Corporation of New York (the "Escrow Agent") and the Placement
Agent.
(g) Approval of the license agreement (the "License
Agreement," attached hereto as Exhibit "M"), by and between ZymeTx and
OMRF.
(h) Approval of the following consideration payable to
OMRF under the License Agreement:
(i) the delivery of a promissory note in the
principal amount of $425,000 (the "License Note," attached
hereto as Exhibit "N");
(ii) the issuance of 156,250 shares of Series B
Redeemable Convertible Preferred Stock;
(iii) the issuance of a warrant to purchase 22,667
shares of Post-Split Common Stock at a purchase price of $.80
per share; and
(iv) the issuance of 504,272 shares of Post-Split
Common Stock.
(i) Approval of the Warrant (the "Lease Warrant,"
attached hereto as Exhibit "O") issuable to Presbyterian upon
execution of a Lease Agreement with Presbyterian as provided in the
Recapitalization Agreement.
F. On May 1, 1996, ZymeTx and OMRF entered into the License Agreement.
G. On May 9, 1996, the holders of a majority of the outstanding
shares of common stock, $.01 par value (the "Pre-Split Common Stock"), approved
the Certificate of Amendment.
H. On May 9, 1996, the Certificate of Amendment was filed with
the Secretary of State of the State of Oklahoma.
I. On May 9, 1996, ZymeTx issued the Bridge Warrants to the
Bridge Lenders.
2
<PAGE> 3
J. On May 9, 1996, ZPP executed and delivered a subscription
agreement for the purchase of 3,000,000 shares of Post-Split Common Stock; ZPP
delivered a check in the amount of $3,000 as payment of the purchase price
therefor; and ZymeTx issued and delivered to ZPP a certificate representing
such shares.
K. On May 9, 1996, the shareholders of ZymeTx approved amendments
to the ZymeTx, Inc. Stock Option Plan and the ZymeTx, Inc. Director Stock
Option Plan, increasing the aggregated number of shares of Post-Split Common
Stock issuable under such plans to 1,800,000 shares.
II. TRANSACTIONS EFFECTED AT THE CLOSING
A. A cash payment of $825,000 was made by ZymeTx to OMRF as
required under the License Agreement.
B. The License Note and License Warrant were delivered to OMRF as
required under the License Agreement.
C. OMRF was issued 156,250 shares of Series B Redeemable
Convertible Preferred Stock, as required under the License Agreement.
D. A Subscription Agreement was issued and delivered at Closing
by OMRF for the purchase in the Private Placement of 406,250 shares, at a
purchase price of $.80 per share, of ZymeTx Series A Redeemable Convertible
Preferred Stock.
E. The Lease Warrant was delivered to Presbyterian as required by
the Recapitalization Agreement.
F. An Employee Services Agreement (attached hereto as Exhibit
"P") by and between OMRF and ZymeTx was executed.
G. The Bridge Notes were repaid, except for Bridge Notes held by
Presbyterian, the principal of which was converted into 109,375 shares of
Post-Split Common Stock and the accrued interest thereunder was paid in cash.
III. OTHER AGREEMENTS
A. OMRF and ZymeTx hereby ratify and confirm their agreements
described in items 17-19 of the Recapitalization Agreement.
B. A draft Lease Agreement by and between ZymeTx and Presbyterian
is being negotiated in accordance with the terms of the Recapitalization
Agreement. Upon execution of said Lease, ZymeTx shall issue the Lease Warrants
to Presbyterian.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties acknowledge the consummation of the
foregoing actions pursuant to the Recapitalization Agreement.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
------------------------------------
Peter G. Livingston, President
ZYMETX PURCHASE PARTNERS
By: /s/ KEVIN B. KIMBERLIN
------------------------------------
Kevin B. Kimberlin,
General Partner
OKLAHOMA MEDICAL RESEARCH FOUNDATION
By: /s/ MIKE D. MORGAN
------------------------------------
Mike D. Morgan, Vice President
PRESBYTERIAN HEALTH FOUNDATION
By: /s/ DENNIS M. MCGRATH
------------------------------------
Mr. Dennis M. McGrath,
Vice President
4
<PAGE> 1
EXHIBIT 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made and entered
into this 26th day of January, 1996, by and among Oklahoma Medical Research
Foundation, an Oklahoma, not-for-profit corporation ("OMRF"), ZymeTx Purchase
Partners, a New York partnership ("ZPP"), and Presbyterian Health Foundation
("Presbyterian").
RECITALS:
WHEREAS, OMRF, ZymeTx, Inc., a Delaware corporation (the "Company"),
ZPP and Presbyterian have entered into a Bridge Loan Agreement, dated the 26th
day of January, 1996 (the "Credit Agreement");
WHEREAS, the Company has executed and delivered to OMRF, ZPP and
Presbyterian (collectively, the "Lenders") promissory notes (the "Bridge
Notes"), as described in the Credit Agreement;
WHEREAS, OMRF has agreed to grant a security interest to ZPP and
Presbyterian (collectively, the "Secured Parties") in the proceeds of certain
Collateral (as described below) as security for the payment of the Bridge Notes
issued to the Secured Parties and the performance by the Company of its
obligations thereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Security Interest in Collateral. OMRF hereby grants a security
interest to the Secured Parties in and to all proceeds of any and all of the
Intellectual Property (as hereinafter defined), including, without limitation,
license royalties and proceeds of infringement suits, and, to the extent not
otherwise included, all payments under insurance (whether or not Secured
Parties are the loss payees thereof), or any indemnity, warranty, or guaranty,
payable by reason of loss or damage to or otherwise with respect to the
Intellectual Property (such proceeds and payments referred to herein as the
"Collateral"). For purposes of this Agreement, the term "proceeds" includes
whatever is receivable or received when the Intellectual Property is sold,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary; however, under no circumstances may the Secured
Parties take possession of the Collateral or force OMRF to pledge, assign,
transfer, sell, or otherwise encumber the Collateral. As used herein,
"Intellectual Property" shall include:
(i) Each of the trademarks, service marks, designs,
logos, trade names, corporate names, business names, and trade styles
(collectively "Trademarks") which are presently, or in the future may
be owned, held (whether pursuant to a license or otherwise) or used by
OMRF, in whole or in part, in relation to the Trademarks "ZymeTx",
"ViraStat" and "ViraZyme", all rights and interests in the Trademarks
including all common law and other rights in and to the Trademarks in
the United States and any state thereof (hereinafter called "Trademark
Rights") with respect thereto and all registrations and applications
that have heretofore been or may hereafter be issued thereon or
applied for in the United States and any state thereof (hereinafter
called "Registrations") heretofore or hereafter granted or applied
for.
<PAGE> 2
(ii) Any and all interests of OMRF in and to any
patents, patent rights and patent applications that OMRF may now have
or hereafter acquire (collectively the "Patent Rights") in the Patent
Rights listed on Schedule A hereto, as Schedule A may, from time to
time, be supplemented and any and all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part of the
foregoing.
(iii) All rights of OMRF in and to designs,
technical information, know-how, knowledge, data, discoveries,
inventions, specifications, test results and other information
relating to the Symex Technology (as hereinafter defined) or the
Patent Rights and known to, or discovered by, OMRF prior to or during
the term of this Agreement. "Symex Technology" means all intellectual
property, designs, technical information, know-how, knowledge, data,
specifications, test results and other information of Symex Corp., a
Delaware corporation ("Symex"), which was collateral under, and
retained by OMRF in full satisfaction of, the rights of OMRF under
that certain Security Agreement and Conditional Assignment dated
February 13, 1993 by and between OMRF and Symex and that certain
Security Agreement and Conditional Assignment dated March 18, 1993, by
and between OMRF and Symex.
2. Security for Obligations. This Agreement secures, and the proceeds
of the Collateral is collateral security for, the prompt payment or performance
in full when due (including the payment of amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. ss. 362(a)), of all of the indebtedness of Company to the
Secured Parties under the Credit Agreement (such obligations of Company being
the "Secured Obligations").
3. Representations and Warranties. OMRF represents, warrants, and
covenants as follows:
(a) A true and complete list of all Patent Rights owned, held
(whether pursuant to a license or otherwise) or used by OMRF, in whole or in
part, related to the Intellectual Property is set forth in Schedule A hereto.
(b) OMRF has full power, authority and legal right to pledge
all the proceeds of the Collateral pursuant to this Agreement and is the record
and beneficial owner of each of the Patent Rights listed on Schedule A.
(c) OMRF is the sole legal and beneficial owner of the entire
right, title and interest in and to each of the Trademarks, Registrations, and
Patent Rights listed on Schedules A. OMRF owns the Intellectual Property and
the Collateral free and clear of any lien or encumbrance, except for certain
rights which may be asserted by Biota Holdings, Ltd. ("Biota") under that
certain Termination Agreement between Biota and Symex dated February 16, 1993
(the "Termination Agreement"), that certain Royalty Agreement between Biota and
Symex dated February 16, 1993 (the "Royalty Agreement"), and that certain
Consent Agreement dated February 16, 1993 (the "Consent Agreement") between
OMRF and Biota (the Termination Agreement, Royalty Agreement and Consent
Agreement are referred to herein collectively as the "Biota Agreements"). No
effective financing statement or other instrument similar in effect covering
all or any part of the Intellectual Property or Collateral is on file in any
recording office. No effective filing with the United States Patent and
Trademark Office covering all or any part of the Intellectual Property or
Collateral is on file in the United States Patent and Trademark Office.
-2-
<PAGE> 3
(d) This Agreement will create in favor of Secured Parties a
valid and perfected priority security interest in the proceeds of the
Collateral upon the filing of a financing statement with the County Clerk for
Oklahoma County, Oklahoma.
(e) Except for the filing of a financing statement with the
County Clerk for Oklahoma County, Oklahoma under the Uniform Commercial Code
and filings with the United States Patent and Trademark Office, no
authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required either (a) for the
grant by OMRF of the security interest granted hereby or for the execution,
delivery, or performance of this Agreement by OMRF or (b) for the perfection of
or the exercise by Secured Parties of the rights and remedies hereunder.
(f) OMRF's chief executive office and principal place of
business is located in Oklahoma County, Oklahoma.
(g) OMRF will not encumber the Intellectual Property or the
Collateral except for the encumbrances already in existence as of the date of
this Security Agreement or those effected by the Documents.
(h) No exclusive or non-exclusive licenses have been granted
to or in the Collateral.
4. OMRF's Covenants. On a continuing basis, OMRF will make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places, all such instruments, including the appropriate financing and
continuation statements and collateral agreements, and take all such action as
may reasonably be deemed necessary or advisable by Secured Parties, or for
assuring and confirming to Secured Parties to carry out the intent and purposes
of this Agreement, or for assuring and confirming to Secured Parties the grant
or perfection of a priority security interest in the proceeds of the Collateral
or to enable Secured Parties to exercise and enforce their rights and remedies
hereunder with respect to the proceeds of the Collateral. Without limiting the
generality of the foregoing, OMRF (a) will not enter into any agreement that
would or might in any way impair or conflict with OMRF's obligations hereunder
without Secured Parties' prior written consent, and (b) will properly maintain
and care for the Intellectual Property and Collateral.
5. Secured Parties May Perform. If OMRF fails to perform any agreement
contained herein, after the expiration of thirty (30) days from receipt of
written notice by OMRF from Secured Parties, Secured Parties may perform, or
cause performance of, such agreement, and the expenses of Secured Parties,
including the reasonable fees and expenses of its counsel, so incurred in
connection therewith, all at the expense of OMRF and the Secured Parties, pro
rata.
6. Events of Default; Remedies Upon Default.
(a) Events of Default. The occurrence of any one or more of
the following events will constitute a default by OMRF under this Agreement
(herein referred to as an "Event of Default"): (i) Failure of the Company
punctually to make payment of any amount payable, whether principal or
interest, on any of the Secured Obligations when and as the same becomes due
and payable, whether at maturity, or at a date fixed for any prepayment or
partial prepayment, or by acceleration or otherwise; (ii) If any statement,
representation or warranty of OMRF made in this Agreement or in any other
document furnished in connection herewith to Secured Parties proves to have
been untrue, incorrect, misleading or incomplete in
-3-
<PAGE> 4
any material respect as of the date made; (iii) Failure of OMRF punctually and
fully to perform, observe, discharge or comply with any of the covenants set
forth in this Agreement; (iv) The occurrence of a default, an event of default
or an Event of Default under any other agreement between OMRF and the Secured
Parties pertaining to the Secured Obligations; (v) any default, or event of
default, under this Security Agreement; (vi) If the Company becomes insolvent
as defined in the Oklahoma Uniform Commercial Code or makes an assignment for
the benefit of creditors, or if any action is brought by the Company seeking
its dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of its property,
or if the Company commences a voluntary case under the Federal Bankruptcy Code,
or if any reorganization or arrangement proceeding is instituted by the Company
for the settlement, readjustment, composition or extension of any of its debts
upon any terms, or if any action or petition is otherwise brought by the
Company seeking similar relief or alleging that it is insolvent or unable to
pay its debts as they mature; (vii) If any action is brought against the
Company seeking its dissolution or liquidation of any of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other custodian for
any of its property, and such action is consented to or acquiesced in by the
Company or is not dismissed within thirty (30) days of the date upon which it
was instituted; or if any proceeding under the Federal Bankruptcy Code is
instituted against the Company and (A) an order for relief is entered in such
proceeding or (B) such proceeding is consented to or acquiesced in by the
Company or is not dismissed within thirty (30) days of the date upon which it
was instituted; or if any reorganization or arrangement proceeding is
instituted against the Company for the settlement, readjustment, composition or
extension of any of its debts upon any terms, and such proceeding is consented
to or acquiesced in by the Company or is not dismissed within thirty (30) days
of the date upon which it was instituted; or if any action or petition is
otherwise brought against the Company seeking similar relief or alleging that
it is insolvent, unable to pay its debts as they mature or generally not paying
its debts as they become due, and such action or petition is consented to or
acquiesced in by the Company or is not dismissed within thirty (30) days of the
date upon which it was brought.
(b) Upon the occurrence and continuance of an Event of
Default:
(i) Secured Parties may exercise in respect of the
proceeds of the Collateral, any and all rights of a secured party
under the laws of the State of Oklahoma.
(ii) Upon the written demand of Secured Parties,
OMRF shall execute and deliver to Secured Parties an assignment or
assignments of the proceeds of the Collateral and such other documents
as are necessary or appropriate to carry out the intent and purposes
of this Agreement. OMRF agrees that the proceeds derived from such an
assignment shall be applied to reduce the Secured Obligations
outstanding only to the extent that Secured Parties receive cash
proceeds in respect of the realization of the Collateral.
7. Application of Proceeds. All proceeds received by Secured Parties
in respect of any voluntary sale by OMRF of, collection from, or any
realization upon all or any part of the Intellectual Property may, in the
discretion of Secured Parties, be held by Secured Parties as Collateral for,
and then or at any time thereafter applied in whole or in part by Secured
Parties against the Secured Obligations in the following order of priority:
First: To the payment of the costs and expenses of such sale,
collection or other realization, and all expenses, liabilities and
advances made or incurred by OMRF in connection therewith;
Second: After payment in full of the amounts specified in the
preceding subparagraph, payment of the Bridge Notes with payment
allocated pro rata to the Lenders first to accrued interest and then
to principal; and
-4-
<PAGE> 5
Third: After payment in full of the amounts specified in the preceding
subparagraphs, to the payment to or upon the order of OMRF, or to
whomsoever may be lawfully entitled to receive the same or as a court
of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
8. General Provisions.
(a) Effect of Waiver. Secured Parties and OMRF shall not be
deemed to have waived any of their rights hereunder or under any other
agreement or instrument executed by Secured Parties or OMRF. No delay or
omission on the part of Secured Parties or OMRF in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion.
(b) Remedies Cumulative. Secured Parties' rights and remedies,
whether evidenced hereby, by the Note, or by any other agreements, instruments,
or other documents or papers, shall be cumulative and may be exercised
singularly or concurrently.
(c) Notice. Any demand upon or notice to OMRF that Secured
Parties are required to give shall be in writing, certified mail return receipt
requested, or hand delivered, and shall be effective upon the receipt thereof
by OMRF.
(d) Termination of Security Agreement. This Security
Agreement shall terminate when the Secured Obligations have been indefeasibly
paid in full to Secured Parties or otherwise canceled with Secured Parties'
consent.
(e) Successors and Assigns. The rights and obligations of
Secured Parties and OMRF hereunder shall inure to the benefit of, and shall be
binding upon their respective successors and assigns.
(f) Severability. In case any provision in, or obligation
under, this Agreement shall be determined by a court of competent jurisdiction
to be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions or obligations of this Agreement
shall not in any way be affected or impaired thereby.
(g) Counterparts. This Agreement may be executed in
counterparts including executed telecopy pages, each of which shall be deemed
an original and all of which together shall constitute one and the same
Agreement.
-5-
<PAGE> 6
This Security Agreement dated as of the day and year first above
written.
OMRF: OKLAHOMA MEDICAL RESEARCH FOUNDATION
an Oklahoma corporation
By: /s/ WILLIAM G. THURMAN
-----------------------------------
William G. Thurman, President
SECURED PARTIES: ZYMETX PURCHASE PARTNERS
a New York partnership
By: /s/ JOE D. TIPPENS
-----------------------------------
Joe D. Tippens, Consultant to
ML Oklahoma Venture Partners, L.P.
PRESBYTERIAN HEALTH FOUNDATION
an Oklahoma corporation
By: /s/ DENNIS MCGRATH
-----------------------------------
Dennis McGrath, Vice President
-6-
<PAGE> 1
EXHIBIT 10.4
BRIDGE LOAN AGREEMENT
BY AND AMONG
ZYMETX, INC.
AND
ZYMETX PURCHASE PARTNERS
AND
OKLAHOMA MEDICAL RESEARCH FOUNDATION
AND
PRESBYTERIAN HEALTH FOUNDATION
January 26, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. BRIDGE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. DELIVERIES AND ADVANCES . . . . . . . . . . . . . . . . . . . 3
4. SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 3
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . 3
6. REPRESENTATIONS AND WARRANTIES OF LENDERS . . . . . . . . . . 4
7. LENDERS CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . 5
8. COMPANY CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . 5
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
Exhibits:
Exhibit A - Specimen of Bridge Note
Exhibit B - Specimen of Warrant
Exhibit C - Security Agreement and Conditional Assignment
<PAGE> 3
BRIDGE LOAN AGREEMENT
This Bridge Loan Agreement is entered into this 26th day of January,
1996, by and among ZymeTx, Inc., a Delaware corporation (the "Company"), ZymeTx
Purchase Partners, a New York partnership ("ZPP"), Oklahoma Medical Research
Foundation ("OMRF") and Presbyterian Health Foundation ("Presbyterian").
W I T N E S S E T H:
WHEREAS, in order to further the Company's business operations, the
Lenders desire to collectively loan the Company $325,000 in consideration for
the execution and delivery to them of Bridge Notes (as hereinafter defined) and
Warrants (as hereinafter defined) issued to them;
WHEREAS, the parties desire to secure all of the Bridge Notes with the
proceeds to OMRF in the event of certain dispositions of certain intellectual
property of OMRF, as provided herein;
NOW, THEREFORE, in consideration of the premises and in consideration
of the agreements and benefits set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company and the
Lenders agree as follows:
1. DEFINITIONS
For purposes hereof, the following terms shall have the meanings set
forth below:
1.1. "Bridge Note" shall mean a promissory note having
such terms as provided in Section 2.3 and as the specimen set forth in Exhibit
"A" to this Agreement.
1.2. "Closing" shall have the meaning given in Section
2.5.
1.3. "Closing Date" shall be the date of the Closing,
which shall be held at such time as provided in Section 2.5.
1.4. "Common Stock" shall mean the common stock of the
Company, par value $0.001 per share.
1.5. "Company" shall mean ZymeTx, Inc., a Delaware
corporation.
1.6. "Intellectual Property Proceeds" shall mean the
Collateral, as such term is defined in the Security Agreement.
1.7. "Lender" or "Lenders", as the context requires, shall
mean ZPP, OMRF and Presbyterian.
1.8. "Letter Agreement" shall have the meaning given in
Section 3.1(b).
<PAGE> 4
1.9. "Maturity Date" shall mean the earlier to occur of
the closing of the Private Offering (as defined in the Letter Agreement), or
the expiration of twenty-four (24) months from the date of this Agreement.
1.10. "1933 Act" shall mean the Securities Act of 1933, as
amended.
1.11. "Principal Amount" shall mean the amount of principal
under any Bridge Note.
1.12. "Security Agreement" shall mean the Security
Agreement between OMRF, ZPP and Presbyterian, having such terms as set forth in
Section 4 and in form substantially identical to that attached hereto as
Exhibit "C."
1.13. "Warrant" shall mean a warrant to purchase Common
Stock, to be issued by the Company under the terms of Section 2.4 of this
Agreement.
2. BRIDGE LOAN
2.1. Loan by Lenders. Each Lender agrees to loan the
Company the Principal Amount as set forth below and in consideration thereof,
the Company agrees to issue to each Lender (a) a Bridge Note in such Principal
Amount as set forth below, and (b) a Warrant to purchase such number of shares
of Common Stock as set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
BRIDGE LENDER OF BRIDGE NOTE WARRANTS
------------- -------------- --------
<S> <C> <C>
ZPP $150,000 150,000
OMRF $87,500 87,500
Presbyterian $87,500 87,500
</TABLE>
2.3. Bridge Notes. Each Bridge Note shall bear interest
(computed on the basis of a 360-day year) from the Closing Date until the
Maturity Date at a per annum rate of eight percent (8%), and shall be issued in
substantially the same form as set forth in Exhibit "A" hereto. The Bridge
Notes shall be secured by a perfected first security interest in the
Intellectual Property Proceeds of OMRF, pursuant to the terms of the Security
Agreement.
2.4. Warrants. For each $1.00 of Principal Amount of
Bridge Notes held by a Lender, each Lender shall be issued a Warrant entitling
such holder to purchase one (1) share of Common Stock at an exercise price of
$.80 per share. The Warrants shall be issued in substantially the same form as
set forth in Exhibit "B" hereto.
2.5. Closing. The Closing of the transactions
contemplated by this Agreement shall take place at 10:00 a.m. at the offices of
Phillips, McFall, McCaffrey, McVay & Murrah, P.C. 12th Floor, 211 N. Robinson,
Oklahoma City, Oklahoma, on January ___, 1996, or at such time or place as the
parties hereto shall by written instrument designate.
2
<PAGE> 5
3. DELIVERIES AND ADVANCES
3.1. Deliveries by the Company. At the times hereinafter
provided, the Company will deliver to the Lenders the following:
(a) Bridge Notes. At Closing, the Bridge Notes
in their respective Principal Amounts, as provided in Section 2.1, will be
executed and delivered to the Lenders.
(b) Warrants. The Warrants, to purchase the
number of shares of Common Stock, as provided in Section 2.1, will be executed
and delivered to the Lenders immediately upon the effectiveness of the
recapitalization of the Company's common stock, $.01 par value, into common
stock, $.001 par value (the "Recapitalization"), in accordance with the letter
agreement dated December 13, 1995, by and among the Lenders, OMRF and the
Company, which is attached hereto as Annex "A" (the "Letter Agreement"). The
Company agrees that such recapitalization and any and all other necessary
corporate action shall be taken
3.2. Advances. Each Lender shall advance the funds, by
certified check or bank cashier's check or by wire transfer, in the respective
amounts set forth in Section 2.1., in five (5) equal monthly installments, with
the first installment occurring on January 26, 1996, and the remaining four
(4) monthly installments occurring on the fifteenth day of February, March,
April and May of 1996.
4. SECURITY AGREEMENT
In consideration for the transactions contemplated by the
Letter Agreement, OMRF shall, at Closing, execute and deliver the Security
Agreement in form substantially identical to that attached hereto as Exhibit
"C," pursuant to which OMRF shall grant to ZPP and Presbyterian a security
interest in the Intellectual Property Proceeds.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Lenders to enter into this Agreement
and to effect the transactions contemplated hereto, the Company represents and
warrants that the following statements are true and correct as of the date
hereof and will be true and correct at the Closing Date, except as expressly
qualified or modified herein or on the Schedules attached hereto.
5.1. Organization and Good Standing. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
enter into and perform its obligations under this Agreement and to own its
properties and to carry on its business as presently conducted and as proposed
to be conducted. The Company is duly qualified to do business as a foreign
corporation in every jurisdiction in which the failure to so qualify would have
a material adverse effect upon the Company.
3
<PAGE> 6
5.2. Validity of Transactions.
(a) Agreement Binding. This Agreement has been
duly authorized, executed and delivered by the Company and, when so executed
and delivered, is the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
affecting enforcement of creditors' rights generally and by general principles
of equity.
(b) Warrant Shares. The shares of Common Stock
issuable upon exercise of the Warrants will, upon effectiveness of the
Recapitalization, be duly authorized and reserved for issuance and, when issued
to the holders of the Warrants in accordance with the terms of the Warrants,
will be validly issued, fully paid, nonassessable, and free of any preemptive
rights.
(c) Additional Agreements. Each document
executed and delivered in connection with this transaction, including but not
limited to, the Bridge Notes, the Warrants and the Security Agreement, the
forms of which are attached hereto as Exhibits "A," "B" and "C," respectively,
have been or will have been prior to Closing duly authorized, executed and
delivered by the Company and when so executed and delivered, are the valid and
legally binding obligations of the Company enforceable in accordance with their
terms, except as limited by bankruptcy, insolvency, reorganization and
moratorium laws and other laws affecting enforcement of creditors' rights
generally and by general principles of equity.
6. REPRESENTATIONS AND WARRANTIES OF LENDERS
Each Lender represents and warrants on its own behalf and not for any
other Lender, that the following statements are true and correct as of the date
hereof:
6.1. Requisite Authority. Any and all corporate and/or
partnership action on the part of the Lender necessary for the consummation of
the transactions contemplated by this Agreement has been taken or will be taken
prior to the Closing, and this Agreement will be a valid and binding obligation
of the Lender enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors rights generally.
Execution of this Agreement by the Lender shall not be in contravention or
result in a default of any bylaw, charter, contract, mortgage, indenture,
agreement, judgment, decree, order, rule or regulation to which the Lender is a
party or by which it is bound.
6.2. Limited Transferability. The Lenders acknowledge
that neither the Bridge Notes, the Warrants nor the Common Stock issuable under
the Warrants (collectively, the "Securities") have been registered under the
1933 Act, the Oklahoma Securities Act, as amended, or the securities laws of
any other state and is being offered, and will be sold, pursuant to applicable
exemptions from such registration and will be issued as "restricted securities"
as defined by Rule 144 promulgated pursuant to the 1933 Act. The Lender is an
accredited investor as defined in Rule 501 of the Regulation D promulgated by
the Securities and Exchange Commission under the 1933 Act. The Securities may
not be resold in the absence of an effective registration thereof under the
1933 Act and applicable state securities laws or unless, in the opinion of the
Company's counsel, an applicable exemption from registration is available.
4
<PAGE> 7
6.3. Acquisition for Investment. The Lender is acquiring
the Bridge Note and Warrant for its own account, for investment purposes only
and not with a view to, or for sale in connection with, a distribution, as that
term is used in Section 2(11) of the 1933 Act thereof in a manner which would
require registration under the 1933 Act or any state securities laws.
6.4. Restrictive Legend. The certificates evidencing the
Securities issued pursuant to this Agreement shall bear a restrictive legend to
the effect described in Section 6.2.
7. LENDERS CONDITIONS TO CLOSING
The obligations of the Lenders to consummate the Closing hereunder and
to satisfy the obligations under this Agreement shall be subject to the
satisfaction of the following conditions precedent at or before the Closing;
7.1. Security Agreement. OMRF, ZPP and Presbyterian shall
have each executed and delivered the Security Agreement as set forth in Exhibit
C.
7.2. Documents and Proceedings. All documents and
instruments to be delivered by the Company at Closing in accordance with
Section 3.2 and all corporate and other proceedings of the Company in
connection with this transaction, shall have been so delivered and performed
and shall be reasonably satisfactory to the Lenders and their legal counsel.
7.3. Performance of Agreement. The Company shall have
performed all of its covenants and obligations under this Agreement.
7.4. Representations and Warranties Correct. The
representations and warranties of the Company contained in Section 5 of this
Agreement shall be true and correct in all material respects when made and
shall be deemed repeated at and as of the Closing and shall be correct in all
material respects at and as of such time, except as directly affected by the
consummation of the transaction hereby or expressly consented to in writing by
the Lender.
8. COMPANY CONDITIONS TO CLOSING
The obligations of the Company to consummate the Closing hereunder and
to satisfy its obligations under this Agreement shall be subject to the
satisfaction of the following conditions precedent at or before the Closing.
8.1. Documents and Proceedings. All documents and
instruments to be delivered by the Lenders at Closing and all corporate and
other proceedings of the Lenders in connection with this transaction, shall
have been so delivered and performed and shall be reasonably satisfactory to
the Company and its legal counsel.
8.2. Performance of Agreement. Each Lender shall have
performed all of its covenants and obligations under this Agreement.
5
<PAGE> 8
8.3. Representations and Warranties Correct. The
representations and warranties of the Lenders contained in Section 6 of this
Agreement shall be true and correct in all material respects when made and
shall be deemed repeated at and as of the Closing Date and shall be correct in
all material respects at and as of such time, except as directly affected by
the consummation of the transaction hereby or expressly consented to in writing
by the Company.
9. MISCELLANEOUS
9.1. Survival of Representations. All representations and
warranties contained herein or made in writing by the Company and the Lenders
in connection with the transactions contemplated hereby except any
representation or warranty as to which compliance may have been appropriately
waived, shall survive the execution and delivery of this Agreement for a period
of one year from the Closing Date.
9.2. Waiver of Conditions. At any time or times during
the term hereof, the Company may waive fulfillment of any one or more of the
conditions to its obligations in whole or in part, and the Lenders may waive
fulfillment of any one or more of the foregoing conditions to their obligation,
in whole or in part, by delivering to the other party a written waiver or
waivers of fulfillment thereof to the extent specified in such written waiver
or waivers.
9.3. Partial Invalidity. If any term, covenant or
condition of this Agreement or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder
of this Agreement, or the application of such term, covenant or condition to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant or
condition of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
9.4. Notices. Any notice relating to this Agreement shall
be deemed sufficiently given and served for all purposes if given by a telegram
filed, charges prepaid, or a writing deposited in the United States mail,
postage prepaid and registered or certified within the Continental United
States, addressed as follows:
IF TO THE COMPANY:
ZymeTx, Inc.
25 N.W. 4th Street
Oklahoma City, Oklahoma 73102
Attn: Peter G. Livingston, President
IF TO LENDERS:
ZymeTx Purchase Partners, Limited Partnership
5100 E. Skelly Drive, Suite 1060
Tulsa, Oklahoma 74135
Attn: Joe D. Tippens
6
<PAGE> 9
Oklahoma Medical Research Foundation
825 N.E. 13th Street
Oklahoma City, Oklahoma 73104
Presbyterian health Foundation
711 Stranton L. Young Blvd.
Oklahoma City, Oklahoma 73104
Any notice so duly send by mail shall be deemed given two (2) days
after deposit in a proper governmental mailing facility and any notice given by
telegram shall be deemed given on the day such notice is delivered to the
telegram company, charges paid.
9.5. Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of the parties
hereto and no right or liability or obligation arising hereunder may be
assigned by any parties hereto.
9.6. Law Governing. This Agreement shall be construed and
interpreted in accordance with and governed and enforced in all respects by the
laws of the State of Oklahoma.
9.7. Headings. The section, subsection and paragraph
headings throughout this Agreement are for convenience and reference only, and
the words contained therein shall not be held to expand, modify, amplify or aid
in the interpretation, construction or meaning of this Agreement.
9.8. Counterparts. This Agreement may be executed in any
number of counterparts, each signed by different persons and all of said
counterparts together shall constitute one and the same instrument, and such
instrument shall be deemed to have been made, executed and delivered on the
date first hereinabove written, irrespective of the time or times when the same
or any counterparts thereof actually may have been executed and delivered a
counterpart thereof to the Company and the Lenders.
9.9. Entire Agreement. This Agreement and the exhibits
contain the entire agreement of the parties hereto and may not be modified,
altered or changed in any manner whatsoever, except by a written agreement
signed by the parties hereto.
ZYMETX, INC.
a Delaware corporation
By: /s/ PETER G. LIVINGSTON
------------------------------------
Peter G. Livingston, President
7
<PAGE> 10
ZYMETX PURCHASE PARTNERS,
LIMITED PARTNERSHIP
a New York limited partnership
By: /s/ JOE D. TIPPENS
------------------------------------
Joe D. Tippens, President of
Chisholm Private Capital, Inc.,
General Partner
OKLAHOMA MEDICAL RESEARCH
FOUNDATION
an Oklahoma corporation
By: /s/ WILLIAM G. THURMAN
------------------------------------
William G. Thurman, President
PRESBYTERIAN HEALTH FOUNDATION
an Oklahoma corporation
By: /s/ DENNIS MCGRATH
------------------------------------
Dennis McGrath, Vice President
8
<PAGE> 1
EXHIBIT 10.5
THIS WARRANT AND THE COMMON STOCK ISSUABLE WITH RESPECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE BLUE
SKY ACTS AND MAY BE TRANSFERRED OR SOLD ONLY PURSUANT TO REGISTRATION UNDER
SUCH ACTS, OR TO EXEMPTIONS THEREUNDER.
ZYMETX, INC.
a Delaware corporation
(the "Company")
May 9, 1996
For the Purchase of_______ Shares of the
Company's Common Stock, $.001 par value
COMMON STOCK PURCHASE WARRANT
NO. ____
This certifies that ___________________, a _____________, or such
person's registered assigns (the "Warrant Holder"), is entitled, subject to the
terms and conditions hereinafter set forth at any time on or before May 9,
2003, to purchase from time to time up to a total of_______________________
(_______) shares of the Company's common stock, $.001 par value (the "Common
Stock"), at a price per share of $.80 (the "Purchase Price"). The number of
shares of Common Stock purchasable under this Common Stock Purchase Warrant
(the "Warrant") and the Purchase Price thereof shall be subject to adjustment
as hereinafter provided.
The Purchase Price shall be payable in cash or by certified or bank
cashier's check in lawful funds of the United States of America or by
cancellation of indebtedness. Upon presentation and surrender of this Warrant,
together with payment of the Purchase Price for the shares of Common Stock
thereby purchased, at the office of the Company's Transfer Agent for the
transfer of such stock or, if at any time there is no such Transfer Agent, at
the principal office of the Company, the Warrant Holder shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased (the "Shares"). All Shares that may be issued upon the exercise of
this Warrant will, upon issuance, be fully paid, nonassessable, and free from
all taxes, liens, and charges with respect thereto.
This Warrant is subject to the following additional terms and
conditions:
1. EXERCISE OF WARRANT.
1.1. At Warrant Holder's Option. This Warrant may be
exercised at any time on or before May 31, 2003 (the "Termination Date"), and
the purchase rights represented hereby are exercisable solely at the Warrant
Holder's option. If the Warrant Holder does not exercise its right to purchase
the number of shares of Common Stock designated herein, this Warrant shall
automatically expire on the Termination Date. In the event the Warrant Holder
purchases less than all the shares
<PAGE> 2
purchasable under this Warrant, the Company shall cancel this Warrant upon the
surrender hereof and execute and deliver a new Warrant of like tenor for the
balance of the shares purchasable hereunder.
2. ADJUSTMENTS.
2.1. Adjustment to Purchase Price. The Purchase Price of
the Common Stock issuable upon exercise of this Warrant shall be subject to
adjustment, from time to time, as follows:
(i)(A) If the Company shall issue any Additional
Stock (as hereinafter defined) after the date hereof for a consideration (the
"New Consideration") per share less than the Purchase Price for the Common
Stock issuable upon exercise of the Warrant in effect immediately prior to the
issuance of such Additional Stock, the Purchase Price shall be reduced so as to
be equal to such New Consideration.
(B) No adjustment of the Purchase Price for the
Common Stock issuable upon the exercise of this Warrant shall be made in an
amount less than one cent ($.01) per share, and (except to the limited extent
provided for in subparagraphs (i)(E)(y) and (i)(E)(z) of this Section 2.1) no
adjustment of such Purchase Price shall have the effect of increasing the
Purchase Price above the Purchase Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions, or other
expenses allowed, paid, or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined by
the Company's Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities that by their
terms are convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities
(which are not excluded from the definition of Additional Stock):
(w) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the
manner provided in subparagraphs (i)(C) and (i)(D) of this Section
2.1), if any, received by the Company upon the issuance of such
options or rights, plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(x) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe
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<PAGE> 3
for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at
the time such convertible or exchangeable securities were issued or
such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such
convertible or exchangeable securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received
by the Company upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in subparagraphs
(i)(C) and (i)(D) of this Section 2.1);
(y) upon any change in the number of
shares of Common Stock deliverable upon exercise of such options or
rights or conversion of or exchange for such convertible or
exchangeable securities, the Purchase Price as then in effect shall
forthwith be readjusted to such Purchase Price as would have been
obtained had the adjustment made upon the issuance of such options,
rights, or securities not converted prior to such change or options or
rights related to such securities not converted prior to such change
been made upon the basis of such change, but no further adjustment
shall be made for the actual issuance of Common Stock upon the
exercise of any such options or rights or the conversion or exchange
of such securities;
(z) upon the expiration of any such
options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Purchase Price shall
forthwith be readjusted to such Purchase Price as would have been
obtained had the adjustment made upon the issuance of such options,
rights, or securities or options or rights related to such securities
been made upon the basis of the issuance of only the number of shares
of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities, or upon
the exercise of the options or rights related to such securities.
(ii) "Additional Stock" for purposes of this
Warrant shall mean any shares of the Company's Common Stock issued by the
Company in conjunction with or after the determination of the Purchase Price as
specified hereinabove, other than:
(A) Common Stock issued pursuant to a
transaction described in Section (iii) hereof;
(B) Common Stock issuable or issued to
officers, directors, employees, or consultants of the Company, whether directly
or pursuant to the exercise of options, on terms that have been approved by the
Company's Board of Directors; and
(C) Common Stock issued or issuable upon
conversion of any shares of the Company's outstanding Preferred Stock or upon
exercise of this Warrant or any other stock warrants issued contemporaneously
herewith or issued and outstanding as of the date hereon.
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(iii) If the number of shares of Common Stock
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision payable in shares of
Common Stock or by a subdivision or split-up of shares of the Company's Common
Stock, then, following the record date fixed for the determination of holders
of Common Stock entitled to receive such stock dividend, subdivision, or
split-up, the Purchase Price for the Common Stock issuable upon the exercise of
this Warrant shall be appropriately decreased so that the number of shares of
Common Stock issuable upon the exercise of this Warrant will be increased in
proportion to such increase in the number of outstanding shares of the
Company's Common Stock.
(iv) If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse stock split of the outstanding shares of the Company's Common Stock,
then, following the record date of such combination or reverse stock split, the
Purchase Price for the Common Stock shall be appropriately increased so that
the number of shares of Common Stock issuable upon the exercise of this Warrant
will be decreased in proportion to such decrease in the number of outstanding
shares of Common Stock.
2.2. Adjustment to Number of Shares Purchasable Under
Warrant. Upon any adjustment to the Purchase Price, the number of shares
purchasable under this Warrant shall be adjusted to equal the product of (i)
the number of shares of Common Stock purchasable under this Warrant immediately
prior to such adjustment to the Purchase Price and (ii) the quotient of (A) the
Purchase Price in effect immediately prior to such adjustment divided by (B)
the Purchase Price in effect immediately after such adjustment.
2.3. Warrant Need Not be Changed to Reflect Adjustments.
This Warrant need not be changed to reflect any adjustment or changes in the
Purchase Price.
2.4. Reorganization, Merger, Etc. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation or entity, or
the sale or conveyance of all or substantially all of the Company's assets to
another corporation or entity shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, or conveyance,
lawful and adequate provision shall be made whereby the Warrant Holder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities, or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger, sale, or conveyance not taken place,
and, in any such case, appropriate provision shall be made with respect to the
rights and interests of the Warrant Holder such that the provisions hereof
(including, without limitation, provisions for adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as may be, to any stock,
securities, or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any consolidation, merger, or sale of all
or substantially all of its assets to any other corporation or entity, unless
prior to or simultaneously with the consummation
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<PAGE> 5
thereof the successor corporation or entity (if other than the Company)
resulting from such consolidation or merger, or the corporation or entity
purchasing such assets, shall assume, by written instrument executed and mailed
or delivered to the Warrant Holder at the address indicated in Section 7
hereof, the obligation of such corporation or entity to deliver to such Warrant
Holder shares of stock, securities, or assets as, in accordance with the
provisions of this Warrant, such Warrant Holder may be entitled to purchase,
and to perform and observe each and every covenant and condition of this
Warrant to be performed and observed by the Company.
2.5. Notice to Warrant Holder or Warrant Holders.
(a) Upon any adjustment of the Purchase Price,
the Company, within thirty (30) days thereafter, shall give written notice
thereof, pursuant to Section 7 hereof, which notice shall state the adjusted
Purchase Price setting forth in reasonable detail the method of calculation and
the facts (including a statement of the consideration received or deemed to
have been received by the Company for any additional shares or convertible or
exchangeable securities or rights or options) upon which such calculations are
based. Where appropriate, such notice may be given in advance and be included
as part of the notice required to be mailed pursuant to the provisions of
paragraph (b) of this Section 2.5.
(b) In case at any time:
(i) the Company shall declare any
dividend upon its Common Stock payable otherwise than in cash or in
the Common Stock of the Company or payable otherwise than out of net
income for a twelve (12) month period ending not earlier than ninety
(90) days prior to the date of payment of such dividend; or
(ii) the Company shall offer for
subscription to the holders of its Common Stock any additional shares
of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(iii) there shall be any capital
reorganization or reclassification of the capital stock of the
Company, or a sale or conveyance of all or substantially all of the
assets of the Company, or a consolidation or merger of the Company
with another corporation or entity; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation, or winding up of the Company; or
(v) the Company intends to issue or has
issued any Common Stock or rights convertible into Common Stock for a
per share consideration of less than the Purchase Price, then, in any
one or more of said cases, the Company shall give written notice,
pursuant to Section 7 hereof, at the earliest time legally practicable
(and, unless otherwise impossible for a legal reason, not less than
thirty (30) days before any record date or other date set for
definitive action) of the date as of which (A) the books of the
Company shall close or a record date shall be taken for such dividend,
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<PAGE> 6
distribution, or subscription rights or options, or (B) such
reorganization, reclassification, sale, conveyance, consolidation,
merger, dissolution, liquidation, or winding up shall take place, as
the case may be. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said
dividend, distribution, subscription rights, or options or shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidation, or
winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation, or winding up of
the Company, the right to exercise this Warrant shall cease and
terminate).
2.6. Conditions Not Specifically Covered. In case at any
time conditions shall arise by reason of action taken by the Company, which, in
the good faith judgment of the Company's Board of Directors, are not adequately
covered by the limited antidilution provisions of this Warrant so as to
potentially materially and adversely affect the rights of the Warrant Holder or
Warrant Holders, or, in case at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, its Board of
Directors shall appoint a firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the
Company's financial statements), who shall give an opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Section 2 hereof), of the Purchase Price, which is, or would be, required to
preserve, without dilution, the rights of the Warrant Holder or Warrant Holders
to the extent provided herein. The Company's Board of Directors shall make the
adjustment recommended forthwith upon the receipt of such opinion or the taking
of any such action contemplated, as the case may be.
3. STATUS OF WARRANT HOLDERS. This Warrant does not entitle the
Warrant Holder or Warrant Holders hereof to any rights as a shareholder of the
Company.
4. REMEDIES. The Company stipulates that the remedies at law of
the Warrant Holder or Warrant Holders in the event of any default or threatened
default by the Company in the performance of or compliance with any of the
terms of this Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
5. RESERVATION OF SHARES. The Company shall reserve and keep
available a sufficient number of shares of Common Stock to satisfy the
requirements of this Warrant. Before taking any action that would cause a
reduction of the Purchase Price below the then current par value of the shares
of Common Stock issuable upon exercise of this Warrant, the Company will take
any corporate action that may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Purchase Price.
6. ASSIGNMENT. This Warrant shall be binding upon and inure to
the benefit of the Company, the Warrant Holder, and their respective successors
and assigns.
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<PAGE> 7
7. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
given when personally delivered, mailed first class (postage prepaid), or
delivered to a telegraph office:
(i) if to a Warrant Holder, at the address of such
Warrant Holder as shown on the books of the Company.
(ii) if to the Company, at 825 N.E. 13th Street, Oklahoma
City, Oklahoma 73104, to the attention of the corporate Secretary, or
at such other address as may have been furnished to the Warrant Holder
in writing.
8. HEADINGS. The headings of the Sections and subsections of
this Warrant are inserted for convenience only and shall not be deemed to
constitute a part of this Warrant.
IN WITNESS WHEREOF, this Warrant has been duly executed by its duly
authorized officer as of the date first above written.
ZYMETX, INC.
a Delaware corporation
By:
------------------------------------
Peter G. Livingston, President
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<PAGE> 1
EXHIBIT 10.6
PLACEMENT AGENCY AGREEMENT
May 22, 1996
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Gentlemen:
ZymeTx, Inc., a Delaware corporation (the "Company"), hereby confirms its
agreement with Spencer Trask Securities Incorporated, a Delaware corporation
(the "Placement Agent"), as follows (unless the context otherwise requires, as
used herein, the "Company" refers to ZymeTx, Inc. and each of its subsidiaries,
if any):
1. Offering. (a) The Company will offer (the "Offering") for sale
through the Placement Agent and its selected dealers, as exclusive agent for
the Company, up to 60 units (the "Units"), plus an additional 9 Units to cover
oversubscriptions, if any. Each Unit will consist of 125,000 shares (the
"Shares") of the Company's Series A Preferred Stock, $.001 par value per share
(the "Preferred Stock").
(b) Placement of the Units will be made on a "best efforts all or none"
basis with respect to the first 30 Units (the "Minimum Amount") and on a "best
efforts" basis as to the remaining Units. The minimum subscription for Units
shall be one Unit, however, the Placement Agent may, in its discretion, offer
fractional Units. The Units will be offered commencing on the date of the
Memorandum (as defined below) for a period of 90 days, unless extended by the
Placement Agent for an additional 90 days or terminated earlier as provided
herein (the "Offering Period"). The date on which the Offering shall terminate
shall be referred to as the "Termination Date."
(c) Subscriptions for the Units will be accepted by the Company at a price
of $100,000 per Unit (the "Offering Price"); provided, however, that the
Company shall not accept subscriptions for, or sell Units to, any persons or
entities who do not qualify as "accredited investors," as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933 (the
"Act").
(d) The offering of the Units will be made by the Company solely pursuant
to the Memorandum, which at all times will be in form and substance acceptable
to the Placement Agent and its counsel and contain such legends and other
information as the Placement Agent and its counsel may, from time to time, deem
necessary and desirable to be set forth therein. "Memorandum" as used in this
Agreement means the Company's Confidential Private Placement Memorandum dated
May 22, 1996, inclusive of all exhibits, and all amendments, supplements and
appendices thereto. Unless otherwise defined, each term used in this Agreement
will have the same meaning as set forth in the Memorandum.
2. Representations and Warranties. The Company hereby represents and
warrants to the Placement Agent that:
(a) The Memorandum has been diligently prepared by the Company in
conformity with all applicable law, and is in compliance with Regulation D as
promulgated under Section 4(2) of the Act ("Regulation D"), the
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<PAGE> 2
Act and the requirements of all other rules and regulations (the "Regulations")
of the Securities and Exchange Commission (the "SEC") relating to offerings of
the type contemplated by the Offering, and the applicable securities laws and
the rules and regulations of those jurisdictions wherein the Units are to be
offered and sold. The Units will be offered and sold pursuant to the
registration exemption provided by Regulation D and Section 4(2) and/or Section
4(6) of the Act as a transaction not involving a public offering and the
requirements of any other applicable state securities laws and the respective
rules and regulations thereunder in those jurisdictions in which the Placement
Agent notifies the Company that the Units are being offered for sale. The
Memorandum describes all material aspects, including attendant risks, of an
investment in the Company. The Company has not taken nor will it take any
action which conflicts with the conditions and requirements of, or which would
make unavailable with respect to the Offering, the exemption(s) from
registration available pursuant to Regulation D or Section 4(2) and/or Section
4(6) of the Act and knows of no reason why any such exemption would be
otherwise unavailable to it. None of the Company, its predecessors or
affiliates has been subject to any order, judgment or decree of any court of
competent jurisdiction temporarily, preliminarily or permanently enjoining such
person for failing to comply with Section 503 of Regulation D.
(b) The Memorandum does not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the statements, documents,
certificates or other items prepared or supplied by the Company with respect to
the transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Placement Agent and its counsel in writing and of which the Company is
aware which materially and adversely affects or could materially and adversely
affect the business prospects, financial condition, operations, property or
affairs of the Company or any of its subsidiaries.
(c) The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Except as
set forth in the Memorandum, the Company has no subsidiaries and does not have
an equity interest in any other firm, partnership, association or other entity.
The Company and each of its subsidiaries is duly qualified to transact business
as a foreign corporation and is in good standing under the laws of each
jurisdiction where the location of its properties or the conduct of its
business makes such qualification necessary.
(d) The Company has all requisite power and authority (corporate and
other) to conduct its business as presently conducted and as proposed to be
conducted (as described in the Memorandum), to enter into and perform its
obligations under this Agreement and the other agreements contemplated hereby
and by the Memorandum (collectively, the "Transaction Documents") and to issue,
sell and deliver the Shares. Each of the Transaction Documents has been duly
authorized. This Agreement has been duly executed and delivered and
constitutes, and each of the other Transaction Documents, upon due execution
and delivery, will constitute, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
(e) None of the execution and delivery of, or performance by the Company
under, any of the Transaction Documents or the consummation of the transactions
herein or therein contemplated conflicts with or violates, or will result in
the creation or imposition of, any lien, charge or other encumbrance upon any
of the assets of the Company under, any agreement or other instrument to which
the Company is a party or by which the Company or its assets may be bound, or
any term of the charter or bylaws of the Company, or any license, permit,
judgment, decree, order, statute, rule or regulation applicable to the Company
or any of its assets.
(f) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Memorandum. All outstanding shares
of capital stock of the Company are duly
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<PAGE> 3
authorized, validly issued and outstanding, fully paid and nonassessable.
Except as set forth in the Memorandum: (i) there are no outstanding options,
stock subscription agreements, warrants or other rights permitting or requiring
the Company or others to purchase or acquire any shares of capital stock or
other equity securities of the Company or to pay any dividend or make any other
distribution in respect thereof; (ii) there are no securities issued or
outstanding which are convertible into or exchangeable for any of the foregoing
and there are no contracts, commitments or understandings, whether or not in
writing, to issue or grant any such option, warrant, right or convertible or
exchangeable security; (iii) no shares of stock or other securities of the
Company are reserved for issuance for any purpose; (iv) there are no voting
trusts or other contracts, commitments, understandings, arrangements or
restrictions of any kind with respect to the ownership, voting or transfer of
shares of stock or other securities of the Company, including without
limitation, any preemptive rights, rights of first refusal, proxies or similar
rights and (v) no person holds a right to require the Company to register any
securities of the Company under the Act or to participate in any such
registration. The issued and outstanding shares of capital stock of the
Company conform to all statements in relation thereto contained in the
Memorandum and describes all material terms and conditions thereof. All
issuances by the Company of its securities were exempt from registration under
the Act and any applicable state securities laws.
(g) The Shares and the Agent's Shares (as defined below) have been duly
authorized and, when issued and delivered against payment therefor as provided
in the Transaction Documents, will be validly issued, fully paid and
nonassessable, and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company other than as
provided in the Transaction Documents. No holder of any of the Shares or the
Agent's Securities (as defined below) will be subject to personal liability
solely by reason of being such a holder, and none of the Shares or the Agent's
Securities (as defined below) are subject to preemptive or similar rights of
any stockholder or securityholder of the Company or an adjustment under the
antidilution or exercise rights of any holders of any outstanding shares of
capital stock, options, warrants or other rights to acquire any securities of
the Company. A sufficient number of authorized but unissued shares of Common
Stock have been reserved for issuance upon the exercise of the Agent's Warrants
(as defined below).
(h) No consent, authorization or filing of or with any court or
governmental authority is required in connection with the issuance or the
consummation of the transactions contemplated herein or in the other
Transaction Documents, except for required filings with the SEC and applicable
"Blue Sky" or state securities commissions relating specifically to the
Offering (all of which filings have been made by the Company, other than those
which are required to be made after the First Closing, and which will be duly
made on a timely basis).
(i) The financial statements, together with the related notes, of the
Company provided to the Placement Agent present fairly the financial position
of the Company as of the respective dates specified and the results of its
operations and changes in financial position for the respective periods covered
thereby. Such financial statements and related notes were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. Except as set forth in such
financial statements or in the Memorandum, the Company has incurred no material
liabilities of any kind, whether accrued, absolute, contingent or otherwise or
entered into any material transactions. The other financial and statistical
information with respect to the Company and any pro forma information and
related notes included in the Memorandum present fairly the information shown
therein on a basis consistent with the audited and unaudited financial
statements of the Company included in the Memorandum. The Company does not
know of any facts, circumstances or conditions adversely affecting its
operations, earnings or prospects which have not been fully disclosed in the
Memorandum.
(j) The conduct of business by the Company as presently and proposed to be
conducted is not subject to continuing oversight, supervision, regulation or
examination by any governmental official or body of the United States or any
other jurisdiction wherein the Company conducts or proposes to conduct such
business,
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except as described in the Memorandum and except such regulation as is
applicable to commercial enterprises generally. The Company has obtained all
requisite licenses, permits and other governmental authorization to conduct its
business as presently, and as proposed to be, conducted.
(k) No default by the Company or, to the best knowledge of the Company,
any other party exists in the due performance under any of the agreements
referred to in the Memorandum to which the Company is a party or to which any
of its assets is subject (collectively, the "Company Agreements"). The Company
Agreements are the only material agreements to which the Company is bound or by
which its assets are subject, are accurately and fairly described in the
Memorandum and are in full force and effect in accordance with their respective
terms.
(l) Except as set forth in the Memorandum, there are no actions,
proceedings, claims or investigations, before or by any court or governmental
authority (or any state of facts which management of the Company has concluded
could give rise thereto) pending or, to the best knowledge of the Company,
threatened, against the Company, or involving its assets or any of its officers
or directors which, if determined adversely to the Company or such officer or
director, could result in any material adverse change in the condition
(financial or otherwise) or prospects of the Company or adversely affect the
transactions contemplated by this Agreement or the other Transaction Documents
or the enforceability thereof.
(m) The Company is not in violation of: (i) its charter or bylaws; (ii)
any indenture, mortgage, deed of trust, note or other agreement or instrument
to which the Company is a party or by which it is or may be bound or to which
any of its assets may be subject; (iii) any statute, rule or regulation; or
(iv) any judgment, decree, or order applicable to the Company, which violation
or violations individually, or in the aggregate, might result in any material
adverse change in the condition (financial or otherwise) or prospects of the
Company.
(n) The Company does not own any real property in fee simple except as
contemplated in the Memorandum, and the Company has good and marketable title
to all personal property (tangible and intangible) owned by it, free and clear
of all security interests, liens and encumbrances, except such as are described
in the Memorandum.
(o) The Company owns or possesses adequate and enforceable rights to use
all patents, patent applications, trademarks, service marks, copyrights,
rights, trade secrets, confidential information, processes and formulations
necessary for the conduct of its business, except as otherwise described in the
Memorandum (collectively, the "Intangibles"). Except as set forth in the
Memorandum, to the best knowledge of the Company it has not infringed upon the
rights of others with respect to the Intangibles and the Company has not
received notice that it has or may have infringed or is infringing upon the
rights of others with respect to the Intangibles, or any notice of conflict
with the asserted rights of others with respect to the Intangibles which could,
individually or in the aggregate, materially and adversely affect, the
condition (financial or otherwise) or prospects of the Company. Except as set
forth in the Memorandum, to the best knowledge of the Company, no others have
infringed upon the Intangibles.
(p) Subsequent to the respective dates as of which information is given in
the Memorandum, the Company has operated its business diligently and only in
the ordinary course as theretofore conducted and, except as may otherwise be
set forth in the Memorandum, there has been no: (i) material adverse change in
the condition (financial or otherwise), of the Company; (ii) transaction
otherwise than in the ordinary course of business; (iii) issuance of any
securities (debt or equity) or any rights to acquire any such securities; (iv)
damage, loss or destruction, whether or not covered by insurance, with respect
to any asset or property of the Company; or (v) agreement to permit any of the
foregoing.
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(q) The Company has filed, on a timely basis, each Federal, state, local
and foreign tax return which is required to be filed, or has requested an
extension therefor and has paid all taxes and all related assessments,
penalties and interest to the extent that the same have become due.
(r) The Company is not obligated to pay, and has not obligated the
Placement Agent to pay, a finder's or origination fee in connection with the
Offering and agrees to indemnify the Placement Agent from any such claim made
by any other person. The Company has not offered for sale or solicited offers
to purchase the Units except for negotiations with the Placement Agent. No
other person has any right to participate in any offer, sale or distribution of
the Company's securities to which the Placement Agent's rights, described
herein, shall apply.
(s) The Company has or will maintain appropriate casualty and liability
insurance coverage, in scope and amounts reasonable and customary for similar
businesses.
3. Placement Agent Appointment and Compensation. (a) The Company hereby
appoints the Placement Agent and its selected dealers as its exclusive agent in
connection with the Offering. The Company has not and will not make, or permit
to be made, any offers or sales of the Units other than through the Placement
Agent without its prior written consent. The Placement Agent has no obligation
to purchase any of the Units. The agency of the Placement Agent hereunder
shall continue until the later of the Termination Date or the Final Closing (as
defined below).
(b) The Company has caused to be delivered to the Placement Agent copies
of the Memorandum and has consented, and hereby consents, to the use of such
copies for the purposes permitted by the Act and applicable securities laws,
and hereby authorizes the Placement Agent to use the Memorandum in connection
with the sale of the Units until the Termination Date, and no person other than
the Placement Agent is or will be authorized to give any information or make
any representations other than those contained in the Memorandum or to use any
offering materials other than those contained in the Memorandum in connection
with the sale of the Units.
(c) The Company will cooperate with the Placement Agent by making
available to its representatives such information as may be requested in making
a reasonable investigation of the Company and its affairs and shall provide
access to such employees as shall be reasonably requested.
(d) The Company shall pay to the Placement Agent a placement fee equal to
ten percent (10%) of the Offering Price of all the Units sold in the Offering
(the "Placement Agent's Fee"), and a nonaccountable expense allowance of two
percent (2%) of the Offering Price of all the Units sold in the Offering (the
"Expense Allowance"). Payment of the proportional amounts of the Placement
Agent's Fee and the Expense Allowance will be made out of the proceeds of
subscriptions for the Units sold at each Closing.
(e) As additional compensation hereunder, at each Closing (as defined
below), the Company shall sell to the Placement Agent or its designees for an
aggregate purchase price of $1, warrants (the "Agent's Warrants") to purchase,
at an exercise price of $.80 per share, a number of shares of Common Stock
equal to fifteen percent (15%) of the Shares contained in the Units sold in the
Offering (the "Agent's Shares"; and collectively, with the Agent's Warrants,
the "Agent's Securities"). The Agent's Warrants shall be exercisable until the
later of the date seven years after the date of the Final Closing or the date
which is three years after the closing date of the initial public offering of
the Company's securities within such seven year period (the "Warrant Exercise
Term"). If the Company at any time has any securities registered under the Act
or the Securities Exchange Act of 1934 (the "1934 Act"), the Company agrees to
register the Agent's Securities promptly on two separate occasions, at the
request of the holders of a majority of the Agent's Securities made at any time
during the Warrant Exercise Term. The Company shall pay all expenses, other
than underwriters' discounts and
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commissions, relating to registering the Agent's Securities covered by the
first request, and the holder(s) of such Agent's Securities shall pay all
reasonable registration expenses arising from the second registration. Prior
to the First Closing, the Company and Placement Agent shall enter into a
warrant agreement (the "Warrant Agreement") which shall contain such terms and
other customary provisions including piggyback registration rights and
antidilution provisions in form and substance satisfactory to the Placement
Agent and the Company.
(f) The Company shall also pay to the Placement Agent the Placement
Agent's Fee and Agent's Warrants with respect to, and based on, any investment
by any party ("Post Closing Investor") contacted by the Placement Agent in
connection with the Offering which invests in the Company at any time within
two (2) years from the later of the Termination Date or Final Closing.
(g) On or prior to the First Closing (as defined below), the Company shall
enter into a Merger and Acquisition Agreement (the "M/A Agreement"), which will
provide that, for a period of five years from the Final Closing, if the
Placement Agent introduces potential candidates to the Company for investment
or any other transaction described in the M/A Agreement, the Placement Agent
shall be entitled to a finder's fee of seven percent (7%) of the first
$1,000,000 of consideration, six percent (6%) of the next $1,000,000, five
percent (5%) of the next $5,000,000, four percent (4%) of the next $1,000,000,
three percent (3%) of the next $1,000,000 and two and one-half percent (21/2%)
of any consideration in excess of $9,000,000 (any consideration other than cash
to be valued at fair market value) involved when, if and as received by the
Company in any transaction consummated by the Company at any time, in which the
Placement Agent introduced the other party to the Company during the period
ending five years from the First Closing. Such finder's fee may be paid to the
Placement Agent, at the option of the Placement Agent, in capital stock if the
consideration for the transaction is capital stock.
(h) On the last business day of each month during the 24-month period
commencing on the last day of the month in which the First Closing occurs, the
Company agrees to pay the Placement Agent a fee of (i) $0 per month if only the
Minimum Amount is sold in the offering, (ii) $3,000 per month if 60 or more of
the Units are sold in the Offering and (iii) a pro rata amount of $3,000 per
month if more than the Minimum Amount but less than 60 Units are sold equal to
the percentage the amount of Units actually sold is of 60, for the Placement
Agent's agreeing to provide such investment banking advisory services as the
Company may from time to time request, such as advice relating to corporate
management, strategic planning, financial planning and relationships with
banks, securities firms and financial institutions.
(i) Following the First Closing, the Placement Agent will act as the
Company's exclusive broker representative for advising the Company with respect
to executive compensation benefits, insurance and retirement planning and cash
management needs.
4. Subscription and Closing Procedures. (a) Each prospective purchaser
will be required to complete and execute one original of each of the
Subscription Agreement and Registration Rights Agreement in the forms annexed
to the Memorandum ("Subscription Documents"), which will be forwarded or
delivered to the Placement Agent at the Placement Agent's offices at the
address set forth in Section 11 hereof, together with the subscriber's check or
good funds in the full amount of the Offering Price for the number of Units
desired to be purchased.
(b) All funds for subscriptions received from the offering of the Units
will be promptly forwarded by the Placement Agent or the Company, if received
by it, to and deposited into the escrow account (the "Escrow Account")
established for such purpose with United States Trust Company of New York (the
"Escrow Agent"). All such funds for subscriptions will be held in the Escrow
Account pursuant to the terms of the Escrow Agreement among the Company, the
Placement Agent and the Escrow Agent. The Company will pay all fees related to
the establishment and maintenance of the Escrow Account. Any interest accruing
on funds in the
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<PAGE> 7
Escrow Account shall be utilized first to reimburse the Company for such fees
and the balance shall be distributed to the Placement Agent. Subject to the
receipt of such subscriptions for the Minimum Amount, the Company will either
accept or reject the Subscription Documents in a timely fashion and at each
Closing will countersign the Subscription Documents and provide duplicate
copies of such Agreements to the Placement Agent for distribution to the
subscribers. The Company will give notice to the Placement Agent of its
acceptance of each subscription. The Company will promptly return to
subscribers incomplete, improperly completed, improperly executed and rejected
subscriptions and give written notice thereof to the Placement Agent upon such
return.
(c) If subscriptions for at least the Minimum Amount have been accepted
prior to the Termination Date, the funds therefor have been collected by the
Escrow Agent and all of the conditions set forth elsewhere in this Agreement
are fulfilled, a closing shall be held promptly with respect to the Units sold
(the "First Closing"). Thereafter, the remaining Units will continue to be
offered and sold until the Termination Date. Additional closings ("Closings")
may from time to time be conducted at times mutually agreeable with respect to
additional Units sold with the final closing ("Final Closing") to occur within
10 business days from the earlier of the Termination Date or the sale of all
Units offered. Delivery of payment for the accepted subscriptions for Units
from the funds held in the Escrow Account will be made at each Closing at the
Placement Agent's offices against delivery of the Units by the Company at the
address set forth in Section 11 hereof (or at such other place as may be
mutually agreed upon between the Company and the Placement Agent). Other than
the Final Closing, no Closing shall be held for less than two (2) Units except
with the consent of the Company. Executed certificates for the Shares
constituting the Units and the Agent's Warrants will be in such authorized
denominations and registered in such names as the Placement Agent may request
on or before the second full business day prior to the date of each Closing
("Closing Date"), and will be made available to the Placement Agent for
checking and packaging at the Placement Agent's office at least one full
business day prior thereto.
(d) If Subscription Documents for the Minimum Amount have not been
received and accepted by the Company on or before the Termination Date for any
reason, the Offering will be terminated, no Units will be sold, and the Escrow
Agent will, at the request of the Placement Agent, cause all monies received
from subscribers for the Units to be promptly returned to such subscribers
without interest, penalty, expense or deduction.
5. Further Covenants. The Company hereby covenants and agrees that:
(a) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Final Closing, take any action
which would cause any of the representations and warranties made by it in this
Agreement not to be complete and correct on and as of each Closing Date with
the same force and effect as if such representations and warranties had been
made on and as of each such date.
(b) If, at any time prior to the Final Closing, any event shall occur
which does or may materially affect the Company or as a result of which it
might become necessary to amend or supplement the Memorandum so that the
representations and warranties herein remain true, or in case it shall, in the
opinion of counsel to the Placement Agent, be necessary to amend or supplement
the Memorandum to comply with Regulation D or any other applicable securities
laws or regulations, the Company will promptly notify the Placement Agent and
shall, at its sole cost, prepare and furnish to the Placement Agent copies of
appropriate amendments and/or supplements in such quantities as the Placement
Agent may request. The Company will not at any time, whether before or after
the Final Closing, prepare or use any amendment or supplement to the Memorandum
of which the Placement Agent will not previously have been advised and
furnished with a copy, or to which the Placement Agent or its counsel will have
objected in writing or orally (confirmed in writing within 24 hours), or which
is not in compliance with the Act, the Regulations and other applicable
securities laws. As soon as the Company is advised thereof, the Company will
advise the Placement Agent and its counsel, and confirm the advice in writing,
of any order preventing or suspending the use of the Memorandum, or the
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<PAGE> 8
suspension of the qualification or registration of the Shares for offering or
the suspension of any exemption for such qualification or registration of the
Shares for offering in any jurisdiction, or of the institution or threatened
institution of any proceedings for any of such purposes, and the Company will
use its best efforts to prevent the issuance of any such order and, if issued,
to obtain as soon as reasonably possible the lifting thereof.
(c) The Company shall comply with the Act, the Regulations, the 1934 Act
and the rules and regulations thereunder, all applicable state securities laws
and the rules and regulations thereunder in the states in which the Placement
Agent's Blue Sky counsel has advised the Placement Agent that the Units are
qualified or registered for sale or exempt from such qualification or
registration, so as to permit the continuance of the sales of the Units, and
will file with the SEC, and shall promptly thereafter forward to the Placement
Agent, any and all reports on Form D as are required.
(d) The Company shall use its reasonable best efforts to qualify the Units
for sale under the securities laws of such jurisdictions as may be mutually
agreed to by the Company and the Placement Agent, and the Company will make
such applications and furnish information as may be required for such purposes,
provided that the Company will not be required to qualify as a foreign
corporation in any jurisdiction. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualifications in effect for so long a period as the Placement Agent may
reasonably request.
(e) The Company shall place a legend on the certificates representing the
Shares issued to subscribers stating that the securities evidenced thereby have
not been registered under the Act or applicable state securities laws, setting
forth or referring to the applicable restrictions on transferability and sale
of such securities under the Act and applicable state laws.
(f) The Company shall apply the net proceeds from the sale of the Units to
fund its working capital requirements and for such other purposes as
specifically described under "Use of Proceeds" in the Memorandum. Except as
specifically set forth in the Memorandum, the net proceeds of the Offering
shall not be used to repay indebtedness to officers, directors or stockholders
of the Company without the prior written consent of the Placement Agent.
(g) During the Offering Period, the Company shall make available for
review by prospective purchasers of the Units during normal business hours at
the Company's offices, upon their request, copies of the Company Agreements to
the extent that such shall not violate any obligation on the part of the
Company to maintain the confidentiality thereof and shall afford each
prospective purchaser of Units the opportunity to ask questions of and receive
answers from an officer of the Company concerning the terms and conditions of
the Offering and the opportunity to obtain such other additional information
necessary to verify the accuracy of the Memorandum to the extent it possesses
such information or can acquire it without unreasonable expense.
(h) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Final Closing, engage in or commit
to engage in any transaction outside the ordinary course of business or issue,
agree to issue or set aside for issuance any securities (debt or equity) or any
rights to acquire any such securities except as contemplated by the Memorandum.
(i) For a period of five years from the Final Closing, the Company shall
deliver (i) to the Placement Agent and the Company's stockholders annual
audited financial statements setting forth fairly the financial position of the
Company, (ii) to the Placement Agent quarterly unaudited financial statements
including both a balance sheet and statement of income, (iii) to the Placement
Agent a copy of a list of its stockholders as and when so requested and (iv) to
the Placement Agent such additional information and documents concerning the
business and financial condition of the Company as the Placement Agent may from
time to time reasonably request.
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<PAGE> 9
(j) The Company shall pay all reasonable expenses incurred in connection
with the preparation and printing of all necessary offering documents and
instruments related to the Offering and the issuance of the Shares, the Agent's
Shares and the Agent's Warrants and will also pay the Company's own expenses
for accounting fees, legal fees, and other costs involved with the Offering.
The Company will provide at its own expense such quantities of the Memorandum
and other documents and instruments relating to the Offering as the Placement
Agent may reasonably request. In addition, the Company will pay all reasonable
filing fees, costs and legal fees for Blue Sky services and related filings and
expenses of counsel with respect to Blue Sky qualifications. The Blue Sky
filings shall be prepared by the Placement Agent's Blue Sky counsel and all
Blue Sky filing fees shall be paid by the Company prior to any filing. All
other fees and expenses of Blue Sky counsel shall be payable at each Closing.
(k) Until the Termination Date, neither the Company nor any person or
entity acting on its behalf will negotiate with any other placement agent or
underwriter with respect to a private or public offering of the Company's or
any subsidiary's debt or equity securities. Neither the Company nor anyone
acting on its behalf will, until the Termination Date, without the prior
written consent of the Placement Agent, offer for sale to, or solicit offers to
subscribe for Units or other securities of the Company from, or otherwise
approach or negotiate in respect thereof with, any other person. For a period
of twenty-four (24) months after the Final Closing and subject to Section 6(i)
hereof, the Company will not, without the Placement Agent's prior written
consent, which shall not be unreasonably withheld, sell any securities, or any
rights to acquire any securities, of the Company (except pursuant to any
existing options, warrants and rights and option and similar plans described in
the Memorandum) or create any additional classes or series of capital stock.
(l) Prior to the First Closing, the Company will enter into employment
agreements with (i) Peter Livingston and (ii) all key scientists of the Company
including, without limitation, Craig D. Shimasaki, Avraham Liav, Joyce
Hansjergen and Komandoor Achyuthan. Such agreements shall set forth terms of
one (1) or two (2) years, reasonable compensation and expense provisions,
noncompetition agreements, and other reasonable terms and conditions.
(m) The Company shall secure immediately following the First Closing and
thereafter maintain "key man" life insurance in the amount of $1,000,000 on
Peter Livingston, the President and CEO of the Company.
(n) Promptly upon request by the Placement Agent, the Company shall cause
its Board of Directors to have, and the Principal Stockholders (as defined
below) shall elect to the Board, at least one "independent" member who is
reasonably acceptable to the Placement Agent and who is unaffiliated with the
Placement Agent or the Company. In addition the Placement Agent shall have the
right, for a period of five (5) years from the Final Closing, to designate up
to two (2) persons reasonably acceptable to the Company to be, at the Placement
Agent's sole discretion, either nominees for director of the Company or
advisors to the Board of Directors of the Company. In the event such persons
are designated nominees for director, the Principal Stockholders (as defined
below) shall agree to vote in favor of such nominees and the Company shall use
its best efforts (which shall include, without limitation, the solicitation of
proxies on behalf of such nominees) to elect such nominees to the Board of
Directors. The Board of Directors shall consist of not more than ten (10)
directors. In the event such persons are designated advisors, such persons
shall receive notice of and have the right to attend all regular and special
meetings of the Board of Directors and shall be advised of all actions which
the Board intends to adopt by written consent, reasonably prior to the adoption
thereof. Such advisors will receive reimbursement of reasonable expenses and
such compensation for attending meetings equal to the compensation received by
any outside Director, but will have no power to vote. The Company further
agrees that it shall hold "in person" directors' meetings no less frequently
than quarterly. Thirty (30) days' advance notice of regular meetings and such
notice of special meetings as may be required to be given to directors by
statute or the Company's bylaws shall be given to the Placement Agent. The
Company agrees to indemnify and hold the Placement Agent harmless against any
and all claims, actions, awards, and judgments arising solely out of the
attendance and participation of the Placement Agent's designated nominees or
advisors at any
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<PAGE> 10
such meeting described herein. In the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
it agrees, if possible, to include the Placement Agent's designated advisors as
insured under such policy. For the purposes hereof, a "Principal Stockholder"
shall mean any person, entity or group that beneficially owns, directly or
indirectly, five percent (5%) of the Company's capital stock immediately
preceding the First Closing and all executive officers and directors of the
Company.
6. Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent hereunder are subject to the fulfillment, at or before each
Closing, of the following additional conditions:
(a) Each of the representations and warranties of the Company shall be
true and correct when made on the date hereof and on and as of each Closing
Date as though made on and as of each Closing Date.
(b) The Company shall have performed and complied with all agreements,
covenants and conditions required to be performed and complied with by it under
the Transaction Documents at or before each Closing.
(c) No order suspending the use of the Memorandum or enjoining the
offering or sale of the Units shall have been issued, and no proceedings for
that purpose or a similar purpose shall have been initiated or pending, or, to
the best of the Company's knowledge, are contemplated or threatened.
(d) As of the First Closing, the Company will have an authorized
capitalization of not more than 16,500,000 shares of common stock and
10,000,000 shares of Preferred Stock of which not more than 7,131,500 shares
shall be issued and outstanding or issuable under any options, warrants or
similar rights outstanding or reserved for issuance.
(e) The Placement Agent shall have received certificates of the Chief
Executive Officer of the Company, dated as of each Closing Date, certifying, in
such detail as Placement Agent may reasonably request, as to the fulfillment of
the conditions set forth in subparagraphs (a), (b), (c) and (d) above.
(f) The Company shall have delivered to the Placement Agent (i) a
currently dated good standing certificate from the secretary of state of its
jurisdiction of incorporation and each jurisdiction in which the Company is
qualified to do business as a foreign corporation, and (ii) certified
resolutions of the Company's Board of Directors approving this Agreement and
the other Transaction Documents, and the transactions and agreements
contemplated by this Agreement and the other Transaction Documents.
(g) At each Closing, (i) the independent auditors for the Company shall
have provided a letter confirming such matters as the Placement Agent may
reasonably request; and (ii) the Chief Executive Officer and the Chief
Financial Officer of the Company shall have provided a certificate to the
Placement Agent confirming the net worth of the Company and confirming that
there have been no material and adverse changes in the condition (financial or
otherwise) or prospects of the Company from the date of the financial
statements included in the Memorandum.
(h) At each Closing, the Company shall have (i) delivered to the Placement
Agent, the Placement Agent's Fee and the Expense Allowance as set forth in
Section 3(c) hereof, (ii) reimbursed the Placement Agent for the fees and
disbursements of the Placement Agent's counsel and Blue Sky counsel and (iii)
executed and delivered to the Placement Agent the Agent's Warrants in an amount
proportional to the Units sold.
(i) On or prior to the First Closing, each of the Company's officers,
directors and present stockholders shall have agreed in writing not to sell,
transfer or otherwise dispose of any of the Company's securities beneficially
owned by them or issuable to them pursuant to the exercise of options, warrants
or conversion of other securities without the Placement Agent's written
consent, which consent shall not be unreasonably
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withheld, for a period of twenty-four months after the Final Closing. In
addition, if within two years of the First Closing, the Company registers any
of its securities under the Act which registration is effective, the officers,
directors and present stockholders and any permitted transferees will extend
the terms of the "lockup" set forth in this Section 6(i) for a period of not
less than the shorter of 180 days from the effective date of such registration
or completion of the offering contemplated thereby, provided, however, that in
the event that such registration is an underwritten registration and the
underwriter shall agree, such officers, directors and present stockholders may
sell shares in such offering in accordance with any piggyback registration
rights granted to such persons and in effect on the date hereof.
(j) On or prior to the First Closing, the Company shall have agreed in
writing to give the Placement Agent, for a period of five (5) years from the
First Closing, the irrevocable preferential right of first refusal described
below to purchase for the Placement Agent's account, or to act as underwriter
or agent for any proposed public or private offering of, the Company's
securities by the Company. The Company agrees to offer the Placement Agent the
opportunity to purchase or sell such securities on terms no less favorable than
they can obtain elsewhere. If, within 30 business days of the receipt of a
notice of intention and statement of terms, the Placement Agent does not accept
in writing such offer to purchase such securities or to act as underwriter or
agent with respect to such offering upon the terms proposed, and subject to
Section 6(i) hereof, the Company shall be free to negotiate terms with third
parties with respect to such offering and to effect such offering on such
proposed terms. Before the Company shall accept any proposal less favorable to
them, the Placement Agent's preferential right shall be applied, and the
procedure set forth above with respect to such modified proposal adopted. The
Placement Agent's failure to exercise these preferential rights in any
situation shall not affect the Placement Agent's preferential rights to any
subsequent offering during the term of such agreement.
(k) There shall have been delivered to the Placement Agent a signed
opinion of counsel to the Company ("Company Counsel"), dated as of each Closing
Date, substantially in the form of Exhibit A hereto and otherwise in form and
substance satisfactory to counsel to the Placement Agent.
(l) All proceedings taken at or prior to each Closing in connection with
the authorization, issuance and sale of the Units and the Agent's Warrants will
be reasonably satisfactory in form and substance to the Placement Agent and its
counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
7. Indemnification. (a) The Company will (i) indemnify and hold
harmless the Placement Agent, its selected dealers and their respective
officers, directors, employees and each person, if any, who controls the
Placement Agent and such selected dealers (each an "Indemnitee") within the
meaning of the Act against, and pay or reimburse each Indemnitee for, any and
all losses, claims, damages, liabilities or expenses whatsoever (or actions or
proceedings or investigations in respect thereof), joint or several (which
will, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all reasonable attorneys' fees,
including appeals), to which any Indemnitee may become subject, under the Act
or otherwise, in connection with the offer and sale of the Units, whether such
losses, claims, damages, liabilities or expenses shall result from any claim of
any Indemnitee or any third party; and (ii) reimburse each Indemnitee for any
legal or other expenses reasonably incurred in connection with investigating or
defending against any such loss, claim, action, proceeding or investigation;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, damage or liability results from (A) an untrue
statement or alleged untrue statement of a material fact made in the Memorandum
or an omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
reliance upon and in conformity with written information furnished to the
Company by the Placement Agent or any such controlling persons specifically for
use in the preparation thereof, or (B) any violations by the Placement Agent of
the Act or state securities laws which does not result from a violation thereof
by the
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<PAGE> 12
Company or any of its affiliates. In addition to the foregoing agreement to
indemnify and reimburse, the Company will indemnify and hold harmless each
Indemnitee against any and all losses, claims, damages, liabilities or expenses
whatsoever (or actions or proceedings or investigations in respect thereof),
joint or several (which shall for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees, including appeals) to which any Indemnitee may become subject
insofar as such costs, expenses, losses, claims, damages or liabilities arise
out of or are based upon the claim of any person or entity that he or it is
entitled to broker's or finder's fees from any Indemnitee in connection with
the Offering. The foregoing indemnity agreements will be in addition to any
liability which the Company may otherwise have.
(b) The Placement Agent will indemnify and hold harmless the Company, its
officers, directors, employees and each person, if any, who controls the
Company within the meaning of the Act against, and pay or reimburse any such
person for, any and all losses, claims, damages or liabilities or expenses
whatsoever (or actions, proceedings or investigations in respect thereof) to
which the Company or any such person may become subject under the Act or
otherwise, whether such losses, claims, damages, liabilities or expenses shall
result from any claim of the Company, any of its officers, directors,
employees, any person who controls the Company within the meaning of the Act or
any third party, insofar as such losses, claims, damages or liabilities are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Memorandum but only with reference to information
contained in the Memorandum relating to the Placement Agent furnished in
writing to the Company by the Placement Agent, specifically for use in the
preparation thereof. The Placement Agent will reimburse the Company or any
such person for any legal or other expenses reasonably incurred in connection
with investigating or defending against any such loss, claim, damage, liability
or action, proceeding or investigation to which such indemnity obligation
applies. The foregoing indemnity agreements will be in addition to any
liability which the Placement Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, claim, proceeding or investigation
("Action"), such indemnified party, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, will notify the
indemnifying party of the commencement thereof, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 7 unless the indemnifying party has
been substantially prejudiced by such omission. The indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, to assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party. The indemnified party will have the right to employ
separate counsel in any such Action and to participate in the defense thereof,
but the fees and expenses of such counsel will not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
Action with counsel reasonably satisfactory to the indemnified party, provided,
however, that if the indemnified party shall be requested by the indemnifying
party to participate in the defense thereof or shall have concluded in good
faith and specifically notified the indemnifying party either that there may be
specific defenses available to it which are different from or additional to
those available to the indemnifying party or that such Action involves or could
have a material adverse effect upon it with respect to matters beyond the scope
of the indemnity agreements contained in this Agreement, then the counsel
representing it, to the extent made necessary by such defenses, shall have the
right to direct such defenses of such Action on its behalf and such case the
fees and expenses of such counsel in connection with any such participation or
defenses shall be paid by the indemnifying party. No settlement of any Action
against an indemnified party will be made without the consent of the
indemnifying party and the indemnified party, which consent shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party and no indemnifying party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party's
consent.
8. Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section 7
hereof and it is finally determined, by a judgment, order or decree
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<PAGE> 13
not subject to further appeal that such claims for indemnification may not be
enforced, even though this Agreement expressly provides for indemnification in
such case; or (ii) any indemnified or indemnifying party seeks contribution
under the Act, the 1934 Act, or otherwise, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Placement Agent
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Placement Agent on the
other shall be deemed to be in the same proportion as the total net proceeds
from the Offering (before deducting expenses) received by the Company bear to
the total commissions and fees received by the Placement Agent. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission
or alleged omission will be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company or by the Placement Agent, 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 Placement Agent agree that it would be unjust and inequitable
if the respective obligations of the Company and the Placement Agent for
contribution were determined by pro rata allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method or allocation
that does not reflect the equitable considerations referred to in this Section
8. No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person, if any, who controls the Placement Agent within the
meaning of the Act will have the same rights to contribution as the Placement
Agent, and each person, if any, who controls the Company within the meaning of
the Act will have the same rights to contribution as the Company, subject in
each case to the provisions of this Section 8. Anything in this Section 8 to
the contrary notwithstanding, no party will be liable for contribution with
respect to the settlement of any claim or action effected without its written
consent. This Section 8 is intended to supersede, to the extent permitted by
law, any right to contribution under the Act, the 1934 Act or otherwise
available.
9. Termination. (a) The Offering may be terminated by the Placement
Agent at any time prior to the expiration of the Offering Period as
contemplated in Section 1(b) hereof ("Expiration Date") in the event that (i)
any of the representations or warranties of the Company contained herein shall
prove to have been false or misleading in any material respect when made or
deemed made, (ii) the Company shall have failed to perform any of its material
obligations hereunder, (iii) the Placement Agent shall determine that it is
reasonably likely that any of the conditions to Closing set forth herein will
not, or cannot, be satisfied or (iv) there shall occur any event which could
adversely affect the Transactions contemplated hereby or the other Transaction
Documents or the ability of the parties to perform thereunder. In the event of
any such termination occasioned by or arising out of or in connection with any
breach or failure hereunder on the part of the Company, the Placement Agent
shall be entitled to receive, in addition to other rights and remedies it may
have hereunder, at law or otherwise, an amount equal to the sum of all
Placement Agent's Fees earned through the Final Closing, the full amount of the
Expense Allowance (deeming, for this purpose, all Units offered as having been
sold), all amounts payable to Placement Agent's Blue Sky counsel and related
fees, all amounts which may become payable in respect of PostClosing Investors
pursuant to Section 3(f) hereof and, in the event that the Company is sold,
merged or otherwise acquired, or the Company enters into a letter of intent or
completes a public or private offering of its securities within one year from
the Termination Date in respect of which the Placement Agent has waived its
rights under Section 6(j) hereof, an investment banking fee equal to five
percent (5%) of the total consideration received by the Company and/or its
stockholders in connection with such sale, merger, acquisition or sale of
securities. In the event of any such termination by the Placement Agent as a
result of any event described in clause (iv) above, or pursuant to Section 4(d)
hereof, not occasioned by or arising out of or in connection with any breach or
failure hereunder by the Company, the Placement Agent will be entitled to
receive the amounts set forth in the preceding sentence, provided that the
amount of
13
<PAGE> 14
the Expense Allowance shall be limited to amounts previously advanced and/or
paid in respect thereof and to be paid at the Final Closing.
(b) This Offering may be terminated by the Company at any time prior to
the Expiration Date in the event that (i) the Placement Agent shall have
failed to perform any of its material obligations hereunder or (ii) there shall
occur any event described in Section 9(a)(iv) above not occasioned by or
arising out of or in connection with any breach or failure hereunder on the
part of the Company. In the event of any termination by the Company pursuant
to clause (i) above, the Placement Agent shall be entitled to retain all
Placement Agent's Fees earned through the Final Closing and all amounts
advanced or paid in respect of the Expense Allowance, plus the nonrefundable
amounts paid to Placement Agent's counsel for Blue Sky counsel fees and
expenses but shall owe no other amounts whatsoever except as may be due under
any indemnity or contribution obligation provided herein or any other
Transaction Document, at law or otherwise. In the event of any termination by
the Company pursuant to clause (ii) above, the provisions of Section 9(c)
hereof shall apply.
(c) Upon any such termination, the Escrow Agent will, at the request of
the Placement Agent, cause all monies received in respect of subscriptions for
Units not accepted by the Company to be promptly returned to such subscribers
without interest, penalty, expense or deduction.
10. Survival. (a) The obligations of the parties to pay any costs and
expenses hereunder and to provide indemnification and contribution as provided
herein shall survive any termination hereunder.
(b) The respective indemnities, agreements, representations, warranties
and other statements of the Company set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of, and regardless of any access to information by, the
Company or the Placement Agent, or any of their officers or directors or any
controlling person thereof, and will survive the sale of the Units.
11. Notices. All communications hereunder will be in writing and, except
as otherwise expressly provided herein or after notice by one party to the
other of a change of address, if sent to the Placement Agent, will be mailed,
delivered or telefaxed and confirmed to Spencer Trask Securities Incorporated,
535 Madison Avenue, 18th Floor, New York, New York 10022, Attention: Laura
McNamara, with a copy to Hertzog, Calamari & Gleason, 100 Park Avenue, New
York, NY 10017, Attn: Stephen A. Ollendorff, Esq. and if sent to the Company,
will be mailed, delivered or telefaxed and confirmed to ZymeTx, Inc., 25 N.W.
4th Street, Oklahoma City, OK 73102, Attn: Peter Livingston with a copy to
Phillips McFall McCaffrey McVay & Murrah, P.C., One Leadership Square, 12th
Floor, 211 North Robinson, Oklahoma City, OK 73102 Attn: Doug Branch, Esq.
12. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Placement Agent, the Company, any person controlling
either of them, and their respective executors, administrators, successors and
assigns; and no other person will acquire or have any rights under or by virtue
of this Agreement. The term "successors and assigns" will not include any
purchaser, as such purchaser, of the Shares.
13. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY PERFORMED WITHIN SUCH
STATE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW
YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
AGREEMENT CONTEMPLATED HEREBY,
14
<PAGE> 15
AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR
FEDERAL COURT. THE COMPANY FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE
AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF A
NONCONVENIENT FORUM. THE COMPANY FURTHER AGREES THAT ANY ACTION OR PROCEEDING
BROUGHT AGAINST THE PLACEMENT AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR
UNITED STATES FEDERAL COURTS SITTING IN NEW YORK COUNTY. SERVICE OF PROCESS MAY
BE MADE UPON THE COMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR
REGISTERED MAIL, AT ITS ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS
AGREEMENT. THE COMPANY AND THE PLACEMENT AGENT EACH AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
THE PLACEMENT AGENT OR THE COMPANY, AS THE CASE MAY BE, SHALL BE ENTITLED TO
COSTS AND REASONABLE ATTORNEY'S FEES IN THE EVENT IT PREVAILS IN ANY CLAIMS,
ACTIONS, AWARDS OR JUDGMENT UNDER THIS AGREEMENT.
14. Miscellaneous. No provision of this Agreement may be changed or
terminated except by writing a signed by the party or parties to be charged
therewith. Unless expressly so provided, no party to this Agreement will be
liable for the performance of any other party's obligations hereunder. Any
party hereto may waive compliance by the other with any of the terms,
provisions and conditions set forth herein; provided, however that any such
waiver shall be in writing specifically setting forth those provisions waived
thereby. No such waiver shall be deemed to constitute or imply waiver of any
other term, provision or condition of this Agreement. This Agreement contains
the entire agreement between the parties hereto and is intended to supersede
any and all prior agreements between the parties relating to the same subject
matter. This agreement may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute a single agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Placement Agent in accordance with its
terms.
Very truly yours,
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
----------------------------
Peter Livingston
President
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<PAGE> 16
Accepted and agreed to this
16th day of May, 1996.
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ WILLIAM P. DIOGUORDI
------------------------------------
Its: President
-----------------------------------
16
<PAGE> 1
EXHIBIT 10.7
PLACEMENT AGENT WARRANT AGREEMENT
WARRANT AGREEMENT dated as of July 29, 1996, between ZYMETX,
INC., a Delaware corporation (the "Company"), and SPENCER TRASK SECURITIES
INCORPORATED (the "Agent").
W I T N E S S E T H
WHEREAS, the Agent has agreed pursuant to the Placement Agency
Agreement dated as of May 22, 1996, between the Agent and the Company (the
"Placement Agency Agreement") to act as the placement agent in connection with
the Company's proposed private placement of up to 60 units ("Units") (plus up
to an additional nine Units solely to cover over-subscriptions, if any) each
Unit consisting of 125,000 shares of the Company's Series A Preferred Stock
("Preferred Stock") (the "Offering"); and
WHEREAS, the Company proposes to issue to the Agent warrants
("Warrants") to purchase a number of shares of common stock, par value $.001
per share, of the Company ("Common Stock") equal to fifteen percent (15%) of
the number of shares of Preferred Stock contained in the Units sold in the
Offering; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued at each Closing (as such term is defined in the Placement Agency
Agreement) by the Company to the Agent in consideration for, and as part of the
Agent's compensation in connection with, the Agent acting as the placement
agent pursuant to the Placement Agency Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Agent to the Company of ONE DOLLAR, the agreements herein set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holders (as defined in Section 3.1
hereof) are hereby granted the right to purchase, at any time from the date
hereof until 5:30 p.m., New York time, on the later of (a) the seventh
anniversary of the date of the Final Closing (as defined in the Placement
Agency Agreement) or (b) the date which is three years after the closing date
of an initial public offering of the Company's securities (the "Warrant
Exercise Term"), a number of shares of Common Stock equal to fifteen (15%)
percent of the number of shares of Preferred Stock contained in the Units sold
in the Offering at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $0.80 per share of Common Stock, subject to
the terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions and
other variations as required or permitted by this Agreement.
<PAGE> 2
2
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are
exercisable at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share of Common Stock set forth in Section 6 hereof
payable by certified or official bank check in New York Clearing House funds.
The Exercise Price (as defined in Section 6.2 hereof) for shares of Common
Stock covered by the Warrants may also be paid in shares of Common Stock owned
by the Holder having a Fair Market Value (as defined in Section 3.3 hereof) on
the date preceding exercise equal to the aggregate Exercise Price, or in a
combination of cash and Common Stock. In addition, the Warrants may be
exercised in full or in part by surrendering the Warrant Certificate in the
manner specified in this Section 3.1 together with irrevocable instructions to
the Company to issue in exchange for the Warrant Certificate the number of
shares of Common Stock equal to the product of (x) the number of shares as to
which the Warrants are being exercised multiplied by (y) a fraction the
numerator of which is the Fair Market Value of the Common Stock less the
Exercise Price and the denominator of which is such Fair Market Value. Upon
surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price for the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") at the Company's principal offices, registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. The purchase
rights represented by each Warrant Certificate are exercisable at the option of
the Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase
all or part of the shares of Common Stock represented thereby. In the case of
the purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock.
3.2 Securities Law Exemption. Notwithstanding any other
provision of this Agreement or the Warrants, a Warrant may be exercised only if
the issuance and sale of the shares of Common Stock to the Holder upon such
exercise is exempt from the registration requirements of the Securities Act of
1933 (the "Act"), and any applicable state securities laws. The Company may
request evidence reasonably satisfactory to it of such exemption (which may
include an opinion of counsel).
3.3 Fair Market Value. As is used herein, the "Fair
Market Value" of a share of Common Stock on any day means: (i) if the principal
market for the Common Stock is The New York Stock Exchange, any other national
securities exchange or the Nasdaq National Market, the closing sales price of
the Common Stock on such day as reported by such exchange or market, or on a
consolidated tape reflecting transactions on such exchange or market, or (ii)
if the principal market for the Common Stock is not a national securities
exchange or the Nasdaq National Market and the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System, the
mean between the closing bid and the closing asked prices for the Common Stock
on such day as quoted on such System, or (iii) if the Common Stock is not
quoted on the National Association of Securities Dealers Automated Quotations
System, the mean between the highest bid and lowest asked prices for the Common
Stock on such day as reported by the National Quotation Bureau, Inc.; provided
that if clauses (i), (ii) and (iii) of this paragraph are all inapplicable, or
if no trades have been made or no quotes are available for such day, the Fair
Market Value of the Common Stock shall be determined, in good faith, by the
Board of Directors
<PAGE> 3
3
of the Company by any method which it deems to be appropriate. The
determination of the Company shall be conclusive as to the Fair Market Value of
the Common Stock.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event such issuance shall be made within ten business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof,
and such certificates shall (subject to the provisions of Sections 5 and 7
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
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.
The Warrant Certificates and the certificates representing the
shares of Common Stock (and/or other securities, property or rights issuable
upon exercise of the Warrants) shall be executed on behalf of the Company by
the manual or facsimile signature of the then present Chairman or Vice Chairman
of the Board of Directors or President or Vice President of the Company under
its corporate seal reproduced thereon, attested to be the manual or facsimile
signature of the then present Secretary or Assistant Secretary of the Company.
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Transfer of Securities. The Agent does, and the
Holders will, at the time of their acquisition of their Warrants, covenant and
agree that they are acquiring the Warrants as an investment and not with a view
to distribution thereof. Holders of the Warrants or Warrant Shares may
transfer such Warrants or Warrant Shares only pursuant to applicable federal
and state laws. No transfer of any Warrant or Warrant Shares shall be
permitted unless the Company has received notice of such transfer, at the
address provided in Section 3.1 above, in the form of assign- ment attached
hereto, accompanied by an opinion of counsel reasonably satisfactory to the
Company that an exemption from registration of such Warrants or Warrant Shares
under the Act is available for such transfer. Any transferee must also
covenant and agree that it is acquiring such Warrants or Warrant Shares as an
investment and not with a view to distribution thereof.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the Warrants shall be exercisable to
purchase Common Stock at a price of $.80 per share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
<PAGE> 4
4
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants and the Warrant Shares (collectively, the "Warrant Securities") have
not been registered under the Act for public resale. Upon exercise, in part or
in whole, of the Warrants, certificates representing the shares of Common Stock
and any of the other securities issuable upon exercise of the Warrants shall
bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("Act") for public resale,
and may not be offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to the issuer, that an
exemption from registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing
after the date hereof until the later of (a) nine years from the First Closing
(as defined in the Placement Agency Agreement) or (b) the expiration of the
Warrant Exercise Term, the Company proposes to register any of its securities
under the Act (other than in connection with a merger or pursuant to Form S-8,
S-4 or comparable registration statement) it will give written notice by
registered mail, at least thirty days prior to the filing of each such
registration statement, to the Agent and to all other Holders of the Warrant
Securities of its intention to do so. If the Agent or other Holders of the
Warrant Securities notify the Company within twenty days after receipt of any
such notice of its or their desire to include any Warrant Shares in such
proposed registration statement, the Company shall afford the Agent and such
Holders of the Warrant Securities the opportunity to have any such Warrant
Shares registered under such registration statement, subject to such cutback or
allocation as the lead underwriter of the offering shall determine in its
discretion, and subject to the prior inclusion of all shares otherwise
includable that are owned by a party to the Registration Rights Agreement dated
June ___, 1996.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect to postpone
or not to file any such proposed registration statement, or to withdraw the
same after filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) So long as the Company shall have had any of its
securities registered under the Act or the Exchange Act, then, until the
expiration of the Warrant Exercise Term, the Holders of the Warrant Securities
represent- ing a "Majority" (as hereinafter defined) of such securities
(assuming the exercise of all of the then outstanding Warrants) shall have the
right on two separate occasions (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on two occasions, a registration statement and
such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Agent and Holders
in order to comply with the provisions of the Act, so as to permit a public
offering and sale of their respective Warrant Shares
<PAGE> 5
5
for 120 days by such Holder and any other Holders of the Warrants and/or
Warrant Shares who notify the Company within ten days after receiving notice
from the Company of such request.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 7.3 by any Holder or
Holders to all other registered Holders of the Warrants and the Warrant Shares
within ten days from the date of the receipt of any such registration request.
(c) All expenses (other than underwriting discounts and
commissions) incurred in connection with registration, filings or qualification
pursuant to the first registration request made pursuant to subsection (a) of
this Section 7.3, including, without limitation, all registration, listing,
filing and qualification fees, printers and accounting fees and the fees and
disbursements of counsel for the Holders participating in such shall be borne
by the Company. Upon a second registration request pursuant to subsection (a)
of this Section 7.3, the Holders requesting registration shall bear such costs
on a pro-rata basis with respect to the Agent's securities in respect of which
they are requesting registration.
7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement promptly after receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested.
(b) The Company will take all necessary action which may
be required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(c) The Company shall indemnify the Holder(s) of the
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act or otherwise, in connection with
the offer and sale of the Warrant Shares; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or an omission or alleged omission made in such registration
statement in reliance upon and in conformity with written information furnished
to the Company by the Holder(s) or any such controlling persons specifically
for use in the preparation thereof.
(d) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
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, against all loss, claim,
<PAGE> 6
6
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from written information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement;
provided, however, that the indemnity of such Holders will apply in each case
if and to the extent, but only if and to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement in reliance upon and in conformity with written
information furnished to the Company by such Holders, specifically for use in
the preparation thereof.
(e) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(f) The Company shall not permit any securities other
than the Warrant Shares to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to
be or remain effective during the effectiveness of a registration statement
(except any registration statement filed in accordance with Section 7.2 hereof)
filed pursuant to Section 7.3 hereof, without the prior written consent of the
Holders of the Warrant Shares representing a Majority of such securities then
outstanding (assuming an exercise of all of the then outstanding Warrants).
(g) The Company shall furnish to each underwriter (or if
there is none, to each Holder) participating in an offering including Warrant
Shares pursuant to Sections 7.2 or 7.3 hereof, a signed counterpart, addressed
to such underwriter or Holder (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(h) The Company shall as soon as practicable after the
effective date of a registration statement relating to any Warrant Shares
pursuant to Sections 7.2 or 7.3 hereof, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(i) The Company shall deliver promptly to each Holder
participating in an offering including any Warrant Shares pursuant to Sections
7.2 or 7.3 hereof, who so requests and to the managing underwriter copies of
all correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission
<PAGE> 7
7
or its staff with respect to the registration statement and permit each Holder
and underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the National Association of Securities Dealers, Inc. ("NASD"). Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder shall reasonably request as it deems
necessary to comply with applicable securities laws or NASD rules.
(j) With respect to a registration pursuant to Section
7.3 hereof, the Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to be included in such underwriting.
Such managing underwriter(s) shall be satisfactory to the Company and each
Holder and such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms
as are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Shares and may, at their
option, require that any or all the representations, warranties and covenants
of the Company to or for the benefit of such underwriters shall also be made to
and for the benefit of such Holders. Such Holders shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) In addition to the Warrant Shares, subject to the
second sentence of Section 7.2, upon the written request therefor by any
Holder(s), the Company shall include in the registration statement any other
shares of Common Stock of the Company held by such Holder(s) as of the date of
filing of such registration statement.
(l) For purposes of this Agreement, the term "Majority"
in reference to the Holders of Warrants or Warrant Shares, shall mean in excess
of fifty (50%) percent of the then outstanding Warrants or Warrant Shares that
(i) are not held by the Company, an affiliate (excluding the Agent and any
affiliate of the Agent), officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of
Securities.
8.1 Computation of Adjusted Exercise Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances or
sales referred to in Section 8.7 hereof or issuance or sales upon the exercise
of Stock Options issued pursuant to the Stock Plan (each as defined in Section
8.2 hereof)), including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or the "Fair Market
Value" (as defined in
<PAGE> 8
8
Section 3.3 hereof) per share of Common Stock on the date immediately prior to
the issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the lower of the prices (calculated to the
nearest full cent) determined as follows:
(1) by dividing (i) an amount equal to the sum of (a) the number
of shares of Common Stock outstanding immediately prior to such issuance or
sale multiplied by the then existing Exercise Price, and (b) the aggregate
amount of the consideration, if any, received by the Company upon such issuance
or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issuance or sale; and
(2) by multiplying the Exercise Price in effect immediately prior
to the time of such issuance or sale by a fraction, the numerator of which
shall be the sum of (a) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Fair Market Value
immediately prior to such issuance or sale, plus (b) the aggregate amount of
the consideration received by the Company upon such issuance or sale, and the
denominator of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issuance or sale, multiplied by
(y) the Fair Market Value immediately prior to such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to the
computations in this Section 8.1 to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8.3
hereof.
For the purposes of this Section 8 the term Exercise Price
shall mean the Exercise Price per share of Common Stock set forth in Section 6
hereof, as adjusted from time to time pursuant to the provisions of this
Section 8.
For the purposes of any computation to be made in accordance
with this Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received
by the Company for such shares (or, if shares of Common Stock are offered by
the Company for subscription, the subscription price, or, if shares of Common
Stock are sold to underwriters or dealers for public offering without a
subscription offering, the public offering price, before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or
any expenses incurred in connection therewith and less any amounts payable to
security holders or any affiliate thereof, including without limitation, any
employment agreement, royalty, consulting agreement, covenant not to compete,
earnout or contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts shall be valued at the
aggregate amount payable thereunder whether such payments are absolute or
contingent and irrespective of the period or uncertainty of payment, the rate
of interest, if any, or the contingent nature thereof except if the payment of
such amounts has, pursuant to this paragraph (i), has been approved by the
Agent.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or
<PAGE> 9
9
all of which shall be other than cash, the amount of the consideration therefor
other than cash shall be deemed to be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock
for a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (ii) of this Section
8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise
of then outstanding options, rights, warrants and upon the conversion or
exchange of then outstanding convertible or exchangeable securities.
(vi) No adjustment shall be made to the Exercise Price
then in effect upon the exercise of Stock Options issued pursuant to the Stock
Plan (as hereinafter defined), the Warrants or the conversion or exchange of
convertible or exchangeable securities outstanding as of the date hereof.
8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities.
In case the Company shall at any time after the date hereof
grant or issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, where the aggregate consideration per share is less than the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, other than
stock options granted to directors, officers or employees of, or consultants to
the Company or any of its subsidiaries ("Stock Options") pursuant to the
Company's Incentive Stock Option Plan or the Directors Stock Option Plan
(collectively referred to herein as the "Stock Plan"), the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under such options, rights or warrants
shall be deemed to be issued and outstanding at the time such options, rights
or warrants were issued.
(b) The aggregate consideration for any such options,
rights or warrants shall be equal to the minimum purchase price per share
provided for in such options, rights or warrants
<PAGE> 10
10
at the time of issuance, plus the consideration, if any, received by the
Company for such options, rights or warrants.
(c) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities.
(d) The aggregate consideration for any such convertible
or exchangeable securities shall be equal to the consideration received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof.
(e) If any change shall occur in the exercise price per
share provided for in any of the options, rights or warrants or in the price
per share at which convertible or exchangeable securities referred to in
subsection (b) of this Section 8.2 are convertible or exchangeable, such
options, rights or warrants or convertible or exchangeable securities, as the
case may be, shall be deemed to have expired or terminated on the date when
such price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect of the
number of shares issuable upon the exercise of such options, rights or warrants
or the conversion or exchange of such convertible or exchangeable securities.
(f) In case there has been any adjustment hereunder in
the Exercise Price by reason of the offer, issue or sale of any subscription or
purchase rights or options or any convertible or exchangeable securities or
obligations and the purchase, conversion or exchange privilege so created
thereafter terminates unexercised or changes, such Exercise Price shall as of
the date of such termination or change be adjusted to reflect such termination
or change.
8.3 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of securities issuable upon the exercise of each Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
8.5 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value.
<PAGE> 11
11
8.6 Merger or Consolidation. In the event there is
proposed any consolidation of the Company with, or merger of the Company with
or into, another corporation, other than a merger or consolidation in which the
Company is the surviving corporation and after which at least 50% of the
outstanding voting securities of the Company are owned by the stockholders of
the Company immediately prior to such merger or consolidation, the Company
shall provide the Holder with not less than 20 days' prior written notice of
the proposed effective date of such merger or consolidation (the "Effective
Date"). The Holder shall be entitled to exercise its Warrants at any time up
to the third business day prior to the Effective Date, and this Agreement and
any unexercised Warrants shall terminate and be of no further force and effect
on the Effective Date (or such later date on which the merger or consolidation
becomes effective). Any such exercise by the Holder may be conditioned upon
and made subject to the consummation of the merger or consolidation.
8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the Warrants.
(b) If the amount of said adjustment shall be less than 2
cents (2c.) per security issuable upon exercise of the Warrants; provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least 2 cents (2c.) per
security issuable upon exercise of the Warrants.
(c) Upon the issuance of Stock Options (as defined in
Section 8.2 hereof), or any shares of Common Stock upon the exercise of Stock
Options issued pursuant to the Stock Plan.
8.8 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Warrants declare a
dividend (other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights, evidence
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such
dividend or distribution as if the Warrants had been exercised immediately
prior to such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Subsection 8.8.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
<PAGE> 12
12
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company
shall not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Warrants, but instead shall pay cash in
lieu of such fractional interests to the Holders entitled thereto based on the
Fair Market Value of the Common Stock as determined in good faith by the Board
of Directors of the Company.
11. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issuance upon the exercise of the
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, full paid,
non-assessable and not subject to the preemptive rights of any stockholder.
12. Notices to Warrant Holders. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Warrants and their exercise, any of
the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock 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
Common Stock 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) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution,
<PAGE> 13
13
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken in connection with the declaration or payment of any such dividend, or
the issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation, winding
up or sale.
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 the Warrants, 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 in
Section 3.1 hereof or to such other address as the Company may
designate by notice to the Holders.
14. Supplements and Amendments. The Company and the
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates (other than the Agent) in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provision herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Agent may deem necessary or desirable and which the Company
and the Agent deem shall not adversely affect the interests of any other
Holders of Warrant Certificates. Other amendments to this Agreement may be
made only with the written consent of the Holders of a Majority of the
outstanding Warrant Shares and the unexercised Warrants.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the
close of business on the seventh anniversary of the date hereof.
Notwithstanding the foregoing, the indemnification provisions of Section 7
hereof shall survive such termination until the close of business on the
fourteenth anniversary of the date hereof.
17. Governing Law: Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State without giving
effect to the rules of said State governing the conflicts of laws.
The Company, the Agent and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Agent and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Agent and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to
<PAGE> 14
14
it at the address as set forth in Section 13 hereof. Such mailing shall be
deemed personal service and shall be legal and binding upon the party so served
in any action, proceeding or claim. The Company, the Agent and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
18. Entire Agreement. This Agreement (including the
Placement Agency Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto and
supersedes all prior agreements and understandings, written or oral, with
respect to the subject matter hereof.
19. Severability. If any provision of this Agreement
shall be held to be invalid and unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of
this Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company and the Agent and any other registered Holder(s) of the Warrant
Certificates or Warrant Shares any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Agent and any other Holder(s) of the Warrant
Certificates or Warrant Shares.
22. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
<PAGE> 15
15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] ZYMETX, INC.
By /s/ PETER G. LIVINGSTON
----------------------------
Peter G. Livingston
President
Attest:
/s/ DOUGLAS A. BRANCH
- ---------------------
Secretary
SPENCER TRASK SECURITIES
INCORPORATED
By /s/ WILLIAM DIOGUARDI
----------------------------
Name: William Dioguardi
Title: President
<PAGE> 16
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
No. W- _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________________, or
its registered assigns, is the registered holder of ______________ Warrants
to purchase initially, at any time after the date hereof until 5:30 p.m. New
York time on the last day of the Warrant Exercise Term ("Expiration Date"), up
to ____________ fully paid and non-assessable shares of common stock, $.001
par value ("Common Stock"), of ZYMETX, INC., a Delaware corporation (the
"Company"), (shares of Common Stock are referred to herein individually as a
"Security" and collectively as the "Securities"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $.80
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the Warrant Agreement dated as of __________ __, 1996 between the
Company and Spencer Trask Securities Incorporated (the "Warrant Agreement").
Capitalized terms used herein and not defined herein shall have the meanings
ascribed to such terms by the Warrant Agreement. Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company or by any other method permitted by
the Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., New York, time,
on the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby
A-1
<PAGE> 17
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holder or registered
holders) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate and executed form of assignment as attached hereto at an
office or agency of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _____ __, 1996
[SEAL] ZYMETX, INC.
By
----------------------------
Peter G. Livingston
President
Attest:
- -----------------------
Secretary
A-2
<PAGE> 18
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _______________
shares of Common Stock.
In accordance with the terms of Section 3.1 of the Warrant
Agreement dated as of ________ __, 1996 between ZymeTx, Inc., and Spencer
Trask Securities Incorporated, the undersigned requests that a certificate for
such securities be registered in the name of ______________ whose address is
and that such Certificate be delivered to whose
address is _______________ ___________________.
Dated: , ____
Signature:
------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
A-3
<PAGE> 19
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED here sells, assigns and transfers unto
- ----------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
Signature:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
-----------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE> 1
EXHIBIT 10.8
LICENSE AGREEMENT
This Agreement is made and entered into as of the 1st day of May,
1996, by and between the OKLAHOMA MEDICAL RESEARCH FOUNDATION, an Oklahoma
nonprofit corporation ("OMRF"), 825 N.E. 13th Street, Oklahoma City, Oklahoma
73104; and ZymeTx, Inc., a corporation duly incorporated under the laws of
Delaware ("Licensee"), and maintaining offices at 825, N.E. 13th Street,
Oklahoma City, Oklahoma 73104.
RECITALS
A. OMRF owns: (1) rights in and to technology relating to
enzyme specific substrate and inhibitor compounds developed by Symex, Dr. Liav,
Mr. Shimasaki and Ms. Hansjergen, including the Licensed Technology further
described and defined below, and (2) the Licensed Marks, as also defined below.
B. Licensee desires to obtain the right to utilize Licensed
Technology in order to make, use and sell Licensed Products or Licensed
Services (as defined below) and the right to use the Licensed Marks to
advertise, market, lease and sell the Licensed Products and Licensed Services.
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS
As used herein:
1.1 "Agreement" means this Agreement including all Exhibits
attached to this Agreement together with any written amendments of any of the
foregoing.
1.2 "Effective Date" shall be that date, on or before November 15,
1996, upon which Licensee consummates Qualified Financing.
1.3 "Licensed Marks" means the trademarks, service marks and
tradenames ViraSTAT(R) and ViraZyme(R) .
<PAGE> 2
1.4 "Licensed Patents" means the following United States Patent
and Patent Applications:
(a) Serial Number 07/458,805, filed 12/29/89, "Method for
diagnosing Human Influenza and 4-Position modified chromogenic N-
Acetylneuraminic Acid Substrates for use therein," Turner, Maher,
Clinkscales and Roark inventors;
(b) Patent Number 5,252,458, issued 10/12/93, "Method for visually
detecting the presence of a virus in a clinical specimen," Liav,
Maher, Shimasaki, Clinkscales and Roark inventors;
(c) Serial Number 08/286,573, filed 8/5/94, "Synthesis of 4-
Alkoxy-N-Acetylneuraminic Acid," Liav, Hardgrave, Blystone and Turner
inventors; and
all divisionals, continuations, reissues, extensions and foreign counterparts
of the patent, these patent applications and all patents which issue thereon.
1.5 "Licensed Process" means any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
Licensed Patents in the country in which the process is practiced.
1.6 "Licensed Products" means any product or part of a product
which:
(a) is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Licensed Patents in the country in
which the product or part of a product is made, used or sold; or
(b) is manufactured using a Licensed Process; or
(c) is used in a Licensed Process and has no substantial use
except in a Licensed Process; or
(d) utilizes in whole or in part Licensed Technology.
1.7 "Licensed Services" means services provided by utilizing a
Licensed Process.
1.8 "Licensed Technology" means the designs, technical
information, know-how, knowledge, data, discoveries, inventions,
specifications, test results and other information relating to the Symex
Technology or the Licensed Patents and known to, or discovered by, OMRF prior
to or during the License Term.
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1.9 "License Term" means the period of time commencing upon the
Effective Date and continuing until the Termination Date.
1.10 "Licensed Territory" means the world.
1.11 "Licensee's Auditors" means the independent certified or
chartered accountants regularly employed by Licensee to audit its accounts and
certify its financial statements.
1.12 "Net Sales" means for each applicable period, the gross amount
invoiced by Licensee or sublicensee (under subparagraph 2.3) to unrelated third
parties for sales of Licensed Products and Licensed Services, less:
(a) all trade, quantity, case and other discounts;
(b) all commissions, credits, product returns, refunds,
rebates, chargebacks, retroactive price adjustments and any
other reasonable allowances paid to unrelated third parties;
(c) all taxes imposed on the production, sale, delivery or
use of the Product or Licensed Services;
(d) that portion of the sales value which Licensee can show
is associated with delivery systems; and
(e) any other similar and customary deductions used to
determine net sales pursuant to generally accepted accounting
procedures ("GAAP").
1.13 "Proprietary Information" is defined in Paragraph 8.1 of this
Agreement.
1.14 "Qualified Financing" means the sale by Licensee of common
and/or preferred stock of Licensee and the receipt by Licensee of gross cash
proceeds in consideration thereof at least equal to Two Million Dollars
($2,000,000).
1.15 "Required Consents" is defined in Paragraph 13.3 of this
Agreement.
1.16 "Symex" means Symex Corp., a Delaware corporation.
1.17 "Symex Technology" means all intellectual property, designs,
technical information, know-how, knowledge, data, specifications, test results
and other information of Symex which was collateral under, and retained by OMRF
in full
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satisfaction of, the rights of OMRF under that certain Security Agreement and
Conditional Assignment dated February 13, 1993 by and between OMRF and Symex,
and that certain Security Agreement and Conditional Assignment dated March 18,
1993, by and between OMRF and Symex.
1.18 "Termination Date" means the date of termination under
Paragraph 10.2, 10.3 or 10.5.
1.19 "ZymeTx Common Stock" means the common stock, $0.001 par
value, of ZymeTx, Inc.
1.20 "ZymeTx Preferred Stock" means the redeemable convertible
preferred stock, $0.001 par value, of ZymeTx, Inc.
2. GRANT OF LICENSE
2.1 License. Subject to the license retained by OMRF in Paragraph
2.2 below and the other terms of this Agreement, OMRF hereby grants to Licensee
the exclusive, worldwide right and license:
(a) during the License Term to use the Licensed Technology to develop,
make, have made, use, lease, sell and otherwise commercially exploit
Licensed Products, to practice the Licensed Processes and to sell and
perform Licensed Services; and
(b) for ten (10) years from the Effective Date to use the Licensed
Marks to advertise, market, use, lease and sell the Licensed Products
and Licensed Services. Upon expiration of such ten (10) year period
during the License Term, and if, at such time, Licensee is not in
default hereunder, OMRF shall, upon the request of Licensee, assign to
Licensee all rights in the Licensed Marks together with the goodwill
associated therewith.
2.2 Retained License. OMRF retains on behalf of itself the
perpetual, royalty-free right and license to practice the Licensed Technology
for noncommercial research and educational purposes.
2.3 Sublicenses. Provided that written approval of OMRF (expressed
by its President) is obtained in advance, which approval shall not unreasonably
be withheld, Licensee shall have the right to grant sublicenses under this
Agreement.
2.4 Sublicensee Obligations. All sublicenses granted by Licensee
shall provide that the obligations to OMRF of Licensee under Sections 3, 5, 7,
8, 9, 10,
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11 and 12 of this Agreement shall be binding upon sublicensee as if it were a
party to this Agreement, and a copy of those sections of this Agreement shall
be attached to all sublicense agreements.
2.5 Sublicense Copies and Reports. Licensee shall provide to OMRF
(1) a copy of all sublicense agreements promptly after execution, and (2)
annually, together with the report required in Paragraph 6.1 of this Agreement,
copies of all reports received by Licensee from its sublicensees during the
preceding twelve (12) month period.
2.6 No Implied License. The license and right granted in this
Agreement shall not be construed to confer any rights upon Licensee by
implication, estoppel or otherwise as to any technology not specifically
identified in this Agreement as "Licensed Technology," nor shall it be
construed to confer any rights outside the Licensed Territory.
3. PAYMENTS AND OTHER CONSIDERATION
3.1 Amounts. As part of the consideration specified under this
Agreement to be given by Licensee for the right and license granted in this
Agreement, Licensee shall pay, deliver or procure delivery to OMRF:
(a) upon the closing of the Qualified Financing, the sum of Eight
Hundred and Twenty-Five Thousand Dollars ($825,000); plus
(b) upon execution of this Agreement, a Promissory Note in the
amount of Four Hundred and Twenty-Five Thousand Dollars ($425,000) in
the form set forth in Exhibit A to this Agreement which note will not
become effective or a debt obligation of Licensee to OMRF until the
Effective Date; plus
(c) upon execution of this Agreement, One Hundred and Fifty-Six
Thousand, Two Hundred and Fifty shares (156,250) of ZymeTx Preferred
Stock and warrants in the form attached hereto as Exhibit B; plus
(d) upon execution of this Agreement, Five Hundred and Four
Thousand, Two Hundred and Seventy-Two shares (504,272) of ZymeTx
Common Stock; plus
(e) a royalty equal to two percent (2%) of Net Sales of the
Licensed Products and Licensed Services Sold by or for the Licensee
and its sublicensees. Insofar as Licensee is required to pay
royalties to Biota Holdings, Ltd. ("Biota") under its assumption of
responsibilities under the
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Biota Agreement pursuant to Section 4, Licensee shall be entitled to
an offset, from the Royalties payable under this subparagraph, in an
amount equal to such payments to Biota.
3.2 Non-cumulative Royalties. Royalties shall be payable by
Licensee with respect to all of its or sublicensees' Sales except for resale of
such products purchased from Licensor. Royalties shall not become payable at
the time of sale, transfer or disposal among Licensee and its sublicensees, but
shall become payable only when Licensee or its sublicensees sell such products
to a third party, except where such sales to a third party are not
contemplated, in which event royalties shall be payable by Licensee when such
sale, transfer or disposal among Licensee and its sublicensees occurs.
3.3 No Multiple Royalties. No multiple royalties shall be payable
because any Licensed Product or Licensed Service is covered by more than one
patent within the Licensed Patents.
3.4 Deduction of Taxes. Any income or other tax which Licensee is
required to withhold and pay on behalf of OMRF with respect to the royalties
payable to OMRF under this Agreement shall be deducted from such royalties
prior to remittance to OMRF; provided however, that in regard to any tax so
deducted, Licensee shall give OMRF such assistance as may reasonably be
necessary to enable OMRF to claim exemption therefrom and to obtain for
Licensor the most favorable tax treatment legally possible. In each case
Licensee shall furnish OMRF with proper evidence of the taxes so paid on its
behalf.
3.5 Interest. Royalty and other payments required in this
Agreement shall, if overdue, bear interest until payment at a par annum rate
four percent (4%) above the prime rate in effect at the Chase Manhattan Bank,
N.A., New York, New York, U.S.A., on the due date. The payment of such interest
shall not foreclose OMRF from exercising any other rights it may have because
any payment is late.
3.6 Currency Conversion and Delivery. All payments required in
this Agreement shall be paid in United States dollars, delivered in accordance
with Paragraphs 6.2 and 13.1 of this Agreement or to such other place as OMRF
may reasonably designate consistent with the applicable laws and regulations in
any foreign country. If any currency conversion shall be required in connection
with the payment of royalties hereunder, such conversion shall be made at no
expense to OMRF at the exchange rate prevailing at the Chase Manhattan Bank,
N.A., New York, New York, U.S.A., on the last business day of the calendar
quarterly reporting period to which such payment(s) relate.
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3.7 Board of Directors. At all times during the period beginning
on the date of this Agreement and ending on the closing of Licensee's Initial
Public Offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common
and/or Preferred Stock for the account of the Licensee, OMRF may designate one
(1) member of Licensee's Board of Directors.
4. ASSUMPTION OF OBLIGATION OF OMRF TO BIOTA HOLDINGS, LTD.
The licenses granted to Licensee under Section 2 of this Agreement are
subject to and subordinate to the rights of Biota Holdings, Ltd. ("Biota")
under that certain Termination Agreement dated February 16, 1993, by and
between Biota and Symex, that certain Royalty Agreement of the same date
between Biota and Symex and that certain Consent Agreement of the same date by
and among Biota, Symex and OMRF (collectively the "Biota Agreements").
Licensee hereby assumes the responsibilities and obligations of OMRF under the
Biota Agreements and agrees to indemnify and hold harmless OMRF for any
liabilities, damages, royalties, costs or expenses OMRF may incur as a
consequence of Licensee's failure to perform or honor the obligations of OMRF
under the Biota Agreements.
5. RECORDS
5.1 Records of Sales. Licensee shall at all times during the term
of this Agreement and for a period of five (5) years after termination of this
Agreement keep at its principal place of business true and accurate records of
all Sales subject to Section 3 of this Agreement in such form and manner that
all royalties owed hereunder to OMRF may be readily and accurately determined.
Such records shall include, but not by way of limitation, all information
necessary for Licensee's Auditors to prepare the reports required by Section 6
of this Agreement.
5.2 Inspection. OMRF shall have the right, from time to time, at
reasonable times during normal business hours, during the period of this
Agreement and for five years thereafter, to examine the records of Licensee for
the purpose of verifying the amounts owed to OMRF hereunder and the accuracy of
the reports furnished by Licensee and Licensee's Auditors under Section 6 of
this Agreement. OMRF shall maintain the confidentiality of all confidential
information obtained by it from examination of Licensee's records and shall use
such information only for the purposes of this Agreement.
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6. REPORTS
6.1 Licensee will provide OMRF with copies of all financial
reports presented to Licensee's Board of Directors and a copy of Licensee's
Auditors' annual audit report.
6.2 Licensee will provide OMRF semi-annual payment reports within
thirty (30) days of December 30 and June 30. Such reports shall include at
least the following:
(a) the total Net Sales of all Licensed Products and Licensed Services
Sold by Licensee and its sublicensees during the preceding six (6)
month period and for the calendar year to date;
(b) the royalties owed to OMRF pursuant to Paragraph 3.1(e) with
respect to the preceding six (6) month period and for the calendar
year to date;
(c) the names and address of all new sublicensees of Licensee since
the previous report.
6.3 Payments. With each such report delivered, Licensee shall pay
to OMRF all amounts due under this Agreement. If no payments are due, Licensee
shall so report.
7. PATENT PROSECUTION AND PATENT AND TRADEMARK INFRINGEMENT
7.1 Patent Prosecution. Licensee shall seek prompt issuance of,
and maintain during the License Term the patents and patent applications, as
the case may be, specifically identified by patent number or application serial
number in Paragraph 1.4 of this Agreement. The prosecution and maintenance of
all patent applications and patents within the Licensed Patents shall be the
primary responsibility of Licensee at Licensee's expense; provided, however,
that OMRF (or, at OMRF's option, its patent counsel ) shall be provided copies
of all correspondence between Licensee's patent counsel and the U. S. Patent
and Trademark Office and foreign associate counsel or other patent offices
relating to the Licensed Patents and shall be afforded reasonable opportunities
to advise Licensee, and OMRF shall cooperate with Licensee in such prosecution.
Licensee shall promptly advise OMRF of the grant, lapse, revocation, surrender,
of any threatened invalidation or of its intention to abandon any such patent
or application. Licensee shall reimburse OMRF for all out-of-pocket fees,
costs and expenses, if any, paid or incurred by OMRF in maintaining the
Licensed Patents during the License Term. Licensee shall deliver such
reimbursement to OMRF (or, if OMRF
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requests, directly to OMRF's patent counsel) within thirty (30) days after OMRF
notifies Licensee from time to time of the amount of such fees, costs and
expenses which have been paid or incurred by OMRF.
7.2 Notice of Infringement. Licensee shall promptly notify OMRF of
any alleged infringement of the Licensed Patents or Licensed Marks and of any
available evidence of such infringement.
7.3 Suit By Licensee. Licensee shall have the initial right, but
shall not be obligated, to commence suit for any infringement of the Licensed
Patents and/or Licensed Marks. The total cost of any such infringement action
commenced solely by Licensee shall be borne by Licensee, and Licensee shall
retain any recovery or damages awarded in such action.
7.4 Suit By OMRF. In the event that, after sixty (60) days from
notification by Licensee of infringement of the Licensed Patents and/or the
Licensed Marks, Licensee has not notified OMRF of its intention to commence an
action against the infringer of said Licensed Patents and/or Licensed Marks,
OMRF shall have the right to commence an action in its own name and OMRF shall
notify Licensee of such commencement. In the event OMRF commences an action
against the infringer of said Licensed Patents, Licensee shall have the right
to be joined as a party in said litigation and to be represented by counsel of
choice, provided that Licensee bear the fees of its counsel. In the event of
any recovery, through settlement or otherwise, each of the parties shall be
entitled to such portion of the proceeds realized therefrom in an amount equal
to the portion of the recovery that is commensurate with such party's
contribution to the costs of prosecuting said action (inclusive of such party's
attorney fees).
7.5 Defense. In the event that a declaratory judgment action
alleging invalidity, unenforceability or noninfringement of any of the Licensed
Patents or Licensed Marks shall be brought against OMRF, OMRF shall not have
any obligation to defend such action; provided, however, that if OMRF
determines at any time that it does not desire to defend such action, OMRF
shall promptly so advise Licensee, and Licensee shall then have the right to
defend such action on OMRF's behalf at Licensee's expense, in which event
Licensee shall indemnify OMRF against any order for costs or award of sanctions
that may be made or entered against OMRF in such proceedings. In the event that
a declaratory judgment action alleging invalidity, unenforceability or
noninfringement of any of the Licensed Patents shall be brought against
Licensee, OMRF, at its option, shall have the right, but shall not be
obligated, within ninety (90) days after commencement of such action, to be
joined as a defendant in such action at its own expense.
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7.6 Cooperation. In any suit either party may commence or defend
pursuant to its rights under this Agreement in order to enforce or defend the
validity or enforceability of the Licensed Patents or Licensed Marks, the other
party shall, at the request and expense of the party initiating or defending
such suit, cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records, papers,
information, samples, specimens and the like.
8. LICENSED MARKS
8.1 Limitation. Except as provided in Paragraph 2.1(b), Licensee
shall not have or acquire any right, title or interest in the Licensed Marks,
or in any other trademark, service mark or tradename that is now owned or
hereafter acquired by OMRF and used either alone or in conjunction with other
words or names, or in the good will thereof, other than the limited license
expressly granted herein. If Licensee, in spite of this provision, acquires
any such right, title or interest by operation of law or otherwise prior to
exercise of Licensee right under Paragraph 2.1(b), Licensee shall upon request
by OMRF reconvey the same to OMRF. Except as provided in Paragraph 2.1(b),
Licensee will immediately discontinue use of the Licensed Marks and eliminate
the Licensed Marks from all property of Licensee immediately upon the
Termination Date; provided, however, that Licensee may promptly thereafter use
up any reasonable quantity of goods and packaging materials bearing the
Licensed Marks which Licensee may have on hand at the Termination Date.
8.2 Trademark Application Prosecution. Licensee shall apply for,
seek prompt issuance of, and maintain during the License Term the trademark
applications and registrations specifically identified by registration number
or application serial number on Exhibit A to this Agreement, at Licensee's
expense; provided, however, that OMRF (or, at OMRF's option, its intellectual
property counsel) shall be provided copies of all correspondence between
Licensee's trademark counsel and the U.S. Patent and Trademark Office and
foreign associate counsel or other trademark offices relating to the Licensed
Marks and shall be afforded reasonable opportunities to advise Licensee, and
OMRF shall cooperate with Licensee in such prosecution. Licensee shall
promptly advise OMRF of the grant, lapse, revocation, surrender, of any
threatened invalidation or of its intention to abandon any such registration or
application. Licensee shall reimburse OMRF for all out-of-pocket fees, costs
and expenses, if any, paid or incurred by OMRF in maintaining the Licensed
Marks during the License Term. Licensee shall deliver such reimbursement to
OMRF (or, if OMRF requests, directly to OMRF's intellectual property counsel)
within thirty (30) days after OMRF notifies Licensee from time to time of the
amount of such fees, costs and expenses which have been paid or incurred by
OMRF.
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8.3 Quality Standards. Licensee shall at all times maintain high
manufacturing quality standards for Licensed Products and similarly high
standards for the provision of Licensed Services. Licensee shall provide OMRF,
at Licensee's expense, samples of Licensed Products manufactured or sold by
Licensee, in such reasonable quantities and at such reasonably frequent
intervals as OMRF may prescribe from time to time, for the purpose of enabling
OMRF to ascertain whether Licensee is complying with the requirements of this
section. OMRF's authorized representative shall have the right from time to
time during reasonable business hours to enter the manufacturing and assembly
plant or plants of Licensee and to inspect the manufacturing and assembly
operations of Licensee with respect to the quality and performance of the
Licensed Products being produced. In the event OMRF determines that any
Licensed Product or Licensed Service manufactured, used, leased or sold by
Licensee does not comply with applicable regulatory requirements or the
standards set forth herein, OMRF shall have the right: (a) to require Licensee
to comply with such quality standards or, (b) at OMRF's option, to terminate
the right and license to use the Licensed Marks granted in this Agreement.
9. CONFIDENTIALITY
9.1 Maintenance of Confidentiality. Licensee will not, without the
express written consent of OMRF in advance, for any reason or at any time
either during or for a period of three years subsequent to the License Term
except as otherwise provided in this paragraph, use (except in the course of
practicing the licenses granted in this Agreement) or disclose (except as is
necessary in the course of marketing and selling Licensed Products or Licensed
Services, or obtaining governmental approval to do so, as contemplated in this
Agreement) to any person (including without limitation any director, officer or
employee of Licensee who is not under an obligation of confidentiality
substantially similar to the obligation contained herein) the Licensed
Technology or any other information relating to the Licensed Products or the
Licensed Services (hereinafter referred to as the "Proprietary Information").
This obligation of non-use and non-disclosure shall not extend to Proprietary
Information:
(a) which can be demonstrated by Licensee to have been within its
legitimate possession prior to the time of disclosure by OMRF;
(b) which was in the public domain prior to disclosure by OMRF, as
evidenced by documents which were generally published prior to such
disclosure;
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(c) which, after disclosure by OMRF, comes into the public domain
through no fault of Licensee;
(d) which is disclosed to Licensee by a third party having
legitimate possession thereof and the unrestricted right to make such
disclosure; or
(e) which is disclosed by Licensee to a third party in connection
with a valid business purpose and the third party executes a
Confidentiality Agreement with Licensee containing obligations of
confidentiality substantially similar to the obligation contained
herein, but prohibiting further disclosures.
9.2 Prior Agreements. The provisions of this Agreement supersede
and shall be substituted for any terms of any prior confidentiality agreement
between Licensee and OMRF which are not consistent with this Agreement.
10. TERM AND TERMINATION
10.1 Duration. This Agreement shall commence upon the date hereof
and shall continue until the Termination Date.
10.2 Termination. OMRF shall have the right to terminate this
Agreement on the occurrence of any one or more of the following events:
(a) default by Licensee on any payment required pursuant to the
Promissory Notes provided for in paragraph 3.1(b);
(b) default by Licensee on any payment required pursuant to
royalties on the sales of Licensed Products and Licensed Services
provided for in paragraph 3.1(e);
(c) failure of Licensee to render reports to OMRF as required by
this Agreement;
(d) any assignment by Licensee of substantially all of its assets
for the benefit of creditors;
(e) placement of Licensee's assets in the hands of a receiver
unless the receivership is dissolved within thirty (30) days
thereafter;
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(f) failure to consummate a Qualified Financing on or before
November 15, 1996; or
(g) the material breach by Licensee of any other term of this
Agreement.
10.3 Exercise. OMRF may exercise its right of termination by giving
Licensee, its trustees or receivers or assigns, five (5) days prior written
notice in the case of paragraph 10.2(a) or thirty (30) days prior written
notice in the cases of paragraphs 10.2(b) through 10.2(g) of OMRF's election to
terminate. Upon the expiration of such period, this Agreement shall
automatically terminate unless the other party has previously cured the breach
or condition permitting termination under the preceding paragraph, in which
case this Agreement shall not terminate. Such notice and termination shall not
prejudice OMRF's rights to any royalties and other sums due hereunder and shall
not prejudice any cause of action or claim of OMRF accrued or to accrue on
account of any breach or default by Licensee.
10.4 Failure to Enforce. The failure of OMRF at any time, or for
any period of time, to enforce any of the provisions of this Agreement shall
not be construed as a waiver of such provisions or the right of OMRF thereafter
to enforce each and every such provision.
10.5 Termination by Licensee. Licensee may terminate this Agreement
at any time by giving OMRF six months prior written notice of Licensee's
election to terminate.
10.6 Effect. In the event this Agreement is terminated for any
reason whatsoever, Licensee shall not have any right to return of any payments
of any kind theretofore made by it to OMRF pursuant to this Agreement, Licensee
shall return, or at OMRF's direction destroy, all plans, drawings, papers,
notes, writings and other documents, samples, organisms, biological materials
and models pertaining to the Licensed Technology, retaining no copies, and
Licensee shall refrain from using or publishing any portion of the Licensed
Technology as provided in Section 9 of this Agreement. Upon the Termination
Date, Licensee shall cease manufacturing, processing, producing, using, selling
or distributing Licensed Products and Licensed Services; provided, however,
that Licensee may continue to sell in the ordinary course of business for a
period of ninety (90) days reasonable quantities of Licensed Products which are
fully manufactured and in Licensee's normal inventory at the Termination Date
if:
(a) all monetary obligations of Licensee to OMRF have been
satisfied and
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(b) royalties on such sales are paid to OMRF in the amounts and in
the manner provided in this Agreement.
The provisions of Sections 9, 11 and 12 of this Agreement shall remain in full
force and effect notwithstanding any termination of this Agreement.
11. INDEMNIFICATION AND INSURANCE
11.1 Indemnification. Licensee shall defend, indemnify, and hold
harmless OMRF and its officers, directors, trustees and employees and all of
its heirs, executors, administrators and legal representatives ("Indemnitees")
from and against any and all claims, demands, loss, liability, expense or
damage (including investigative costs, court costs and attorneys' fees)
Indemnitees may suffer, pay or incur as a result of claims, demands or actions
against any of the Indemnitees arising or alleged to arise by reason of or in
connection with any and all personal injury, economic loss and property damage
caused or alleged to be caused or contributed to in whole or in part by the
manufacture, use, lease, sale or sublicense of Licensed Products or Licensed
Services by Licensee, whether asserted under a tort or contractual theory or
any other legal theory. Licensee's obligations under this paragraph shall
survive the Termination Date.
11.2 Insurance. Without limiting Licensee's indemnity obligations
under the preceding paragraph, Licensee represents that before any Licensed
Product or Licensed Service is Sold, there will be a liability insurance policy
in force and agrees that Licensee shall maintain throughout the License Term
and for at least ten (10) years after the Termination Date such policy which:
(a) Insures Indemnitees for all claims, demands and actions
mentioned in the preceding paragraph of this agreement;
(b) Includes a contractual endorsement providing coverage for all
liability which may be incurred by Indemnitees in connection with this
Agreement;
(c) Requires the insurance carrier to provide OMRF with no less
than thirty (30) days written notice of any change in the terms or
coverage of the policy or its cancellation; and
(d) Provides Indemnitees product liability coverage in an amount
not less than Ten Million Dollar ($10,000,000) combined single limit
for bodily injury and property damage liability, subject to a
deductible of not more than Ten Thousand Dollar ($10,000) per
occurrence.
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11.3 Notice of Claims. Licensee will promptly notify OMRF of all
claims involving Products and will advise OMRF of the policy amounts that might
be needed to defend and pay any such claims. In the event OMRF believes the sum
of such policy amounts may exceed Licensee's total insurance coverage, OMRF may
request and Licensee shall acquire additional coverage, not to exceed the
amounts set forth in the preceding subparagraph of this Agreement, in order
fully to protect OMRF as set forth above.
11.4 Insurance After Termination. Licensee hereafter shall, during
the License Term and for a period of ten (10) years after the Termination
Date, provide OMRF copies of liability policies which comply fully with this
agreement. If Licensee fails at any time to maintain insurance as required in
this Agreement, OMRF may (but shall be under no obligation to) purchase its own
policy providing all or any of the coverage and recover from Licensee the cost
thereof, which shall be payable on demand.
11.5 Compliance with Securities Laws. Licensee represents that any
sales of its securities that shall be affected subsequent to the date hereof
shall only be made, and that any activities to raise funds with which Licensee
will satisfy any of its obligations to OMRF hereunder will only be conducted,
in compliance with all applicable laws, including without limitation all
applicable federal, state or foreign securities laws. Through the closing of
the Qualified Financing, Licensee shall retain independent legal counsel to
advise Licensee with respect to the liabilities and obligations arising out of,
among other things, the raising of funds by Licensee to fund its payment
obligations to OMRF hereunder and the offers or sales of securities by
licensee. Such counsel shall be experienced and competent in corporate and
securities matters such as the foregoing and shall be reasonably acceptable to
OMRF. It is understood and agreed that current counsel to Licensee, Phillips
McFall McCaffrey McVay & Murrah, P.C., and Douglas A. Branch who is counsel to
said firm, is acceptable to OMRF.
11.6 Indemnification by Licensee. Licensee shall indemnify and
hold harmless Indemnitees against and with respect to all losses, damages,
claims, liabilities or expenses (including reasonable attorneys' fees and
expenses) incurred or sustained by any of them as a result of, or arising out
of, any violation, breach or nonfulfillment on the part of Licensee of any
representation, warranty, covenant or agreement made by Licensee pursuant to
this Agreement. OMRF or other indemnified party hereunder shall notify in
writing Licensee promptly after it or they acquire actual knowledge of any
action or claim against it or them hereunder which may give rise to liability
of Licensee pursuant to this paragraph. Licensee may, at its own expense,
through legal counsel approved by OMRF, defend or settle any such claim or
action, provided that Licensee posts security that is adequate in the
15
<PAGE> 16
reasonable discretion of OMRF to protect OMRF or the other indemnified party or
parties and provided OMRF is notified in writing of Licensee's intent to do so
defend within ten days after Licensee has been notified by OMRF or such other
indemnified party of such claim or action.
11.7 Contribution by Licensee. If the indemnification provided for
in the immediately preceding paragraph is unavailable or insufficient to hold
harmless an indemnified party in respect of any of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to above, then
Licensee shall contribute to the amount paid or payable by each such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by Licensee on the one hand and OMRF and any
other indemnified parties on the other from the activities from which such
losses, claims, damages or liabilities arose, as well as the relative fault of
Licensee on the one hand and OMRF on the other in connection with the actions
or inactions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations.
12. MERCHANTABILITY, EXCLUSION OF WARRANTIES, LIMITATION OF LIABILITY AND
LICENSEE'S WARRANTIES
12.1 Warranty. Licensee possesses the expertise and skill in the
technical areas in which the Licensed Products and Licensed Processes are
involved necessary to make, and has made, its own evaluation of the
capabilities, safety, utility and commercial application of the Licensed
Technology, Licensed Products and Licensed Processes.
ACCORDINGLY, OMRF MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND WITH
RESPECT TO THE LICENSED TECHNOLOGY, LICENSED PRODUCTS, LICENSED
PROCESSES OR LICENSED SERVICES AND EXPRESSLY DISCLAIMS ANY WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER
IMPLIED WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY
OR COMMERCIAL APPLICATION OF LICENSED TECHNOLOGY, LICENSED PRODUCTS,
LICENSED PROCESSES AND LICENSED SERVICES.
16
<PAGE> 17
12.2 Limitation of Liability.
OMRF SHALL NOT BE LIABLE FOR ANY DIRECT, CONSEQUENTIAL OR OTHER
DAMAGES SUFFERED BY LICENSEE OR ANY OTHERS RESULTING FROM THE USE OF
THE LICENSED TECHNOLOGY, LICENSED PRODUCTS, LICENSED PROCESSES OR
LICENSED SERVICES.
12.3 Representations and Warranties of Licensee. Licensee hereby
makes the following representations and warranties to OMRF, which
representations and warranties, together with all other representations and
warranties of Licensee in this Agreement, are true and correct on the date
hereof:
(a) Licensee is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into this Agreement
and perform its obligations hereunder.
(b) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will (a) violate
or conflict with any provision of the Certificate of Incorporation or
By-laws of Licensee, as each may have been amended, (b) with or
without the giving of notice or the lapse of time or both (i) result
in a breach of, or violate, or be in conflict with or constitute a
default under, or result in the termination or cancellation of, or
accelerate the performance required under, any security instrument,
mortgage, note, debenture, indenture, loan, lease, contract, agreement
or other instrument, to which Licensee is a party or by which it or
any of its properties or assets may be bound or affected, or (ii)
result in the loss or adverse modification of any lease, franchise,
license or other contractual right or other authorization granted to
or otherwise held by Licensee, (c) require the consent of any party to
any such agreement or commitment to which Licensee is a party or by
which any of its properties or assets are bound, (d) result in the
creation or imposition of any lien, claim or encumbrance upon any
property or assets of Licensee, (e) require any consent, approval,
authorization, order, filing, registration or qualification of or with
any court or governmental authority or arbitrator to which Licensee is
subject or by which any of its properties or assets may be bound or
affected.
(c) All action to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein
have been duly taken, and this Agreement constitutes the valid and
binding obligation of Licensee enforceable in accordance with its
terms.
17
<PAGE> 18
(d) There are no claims (relating to patent infringement or any
other matters), actions, suits, proceedings, arbitrations or
investigations pending or, to the best of Licensee's knowledge,
threatened, against Licensee which if adversely determined would
adversely affect the Licensed Technology (or the patentability
thereof) or other technology practiced by Licensee, or Licensee's
ability to enter into or carry out this Agreement or use or license
Licensed Technology.
13. MISCELLANEOUS AND GENERAL
13.1 Export Controls. Licensee acknowledges that OMRF is subject to
United States laws and regulations controlling the export of technical data,
computer software, laboratory prototypes and other commodities and that its
obligations hereunder are contingent on compliance with all applicable United
States export and other laws and regulations. The transfer of certain technical
data and commodities may require a license from the cognizant agency of the
United States Government and/or written assurances by Licensee that Licensee
shall not export data or commodities to certain foreign countries without prior
approval of such agency. OMRF neither represents that a license shall not be
required nor that, if required, it shall be issued.
13.2 Legal Compliance. Licensee agrees that it will comply with all
applicable laws and regulations relating to its manufacture, processing,
production, use, advertisement, marketing, sale and distribution of Licensed
Products and Licensed Services and that it will not at any time take any action
which would cause OMRF or Licensee to be in violation of any of such applicable
laws and regulations.
13.3 Required Consents. Licensee shall obtain any and all licenses,
permits, approvals or authorizations ("Required Consents") required by any
governmental entity or agency having jurisdiction over the transactions
contemplated by this Agreement. OMRF shall cooperate with, and provide
reasonable assistance to, Licensee in obtaining the Required Consents;
provided, however, that Licensee shall reimburse OMRF for all of OMRF's
out-of-pocket expenses incurred in providing such assistance.
13.4 Independent Contractor. Licensee's relationship to OMRF
hereunder shall be that of a licensee only. Licensee shall not be the agent of
OMRF and shall have no authority to act for or on behalf of OMRF in any matter.
Persons retained by Licensee as employees or agents shall not by reason thereof
be deemed to be employees or agents of OMRF.
18
<PAGE> 19
13.5 Patent Marking. Licensee agrees to mark the Licensed Products
sold in the United States and, to the extent practical, identify all Licensed
Services with all applicable United States patent numbers. All Licensed
Products shipped to or sold in other countries shall be to the extent practical
marked in such a manner as to conform with the patent laws and practice of the
country of manufacture or sale.
13.6 Use of Names. None of the names of OMRF or any officers,
trustees, directors or employees of either may be used by Licensee in any
manner for announcing, advertising, promoting or marketing of Licensed
Products, Licensed Services, Licensed Processes or securities of Licensee
unless the written permission of OMRF, or the individual, as the case may be,
is obtained in advance.
13.7 Interpretation. The parties are equally responsible for the
preparation of this Agreement, and in any judicial proceeding the terms hereof
shall not be more strictly construed against one party than the other.
13.8 Place of Execution. This Agreement and any subsequent
modifications or amendments hereto shall be deemed to have bean executed in the
State of Oklahoma, U.S.A. This Agreement shall not become effective or binding
upon OMRF until signed on its behalf by its President.
13.9 Governing Law. This Agreement and all amendments,
modifications, alterations, or supplements hereto, and the rights of the
parties hereunder, shall be construed under and governed by the laws of the
State of Oklahoma and the United States of America.
13.10 Arbitration. Any controversy or claim arising out of or
relating to this Agreement of the breach thereof will be settled by arbitration
in Oklahoma City, Oklahoma, before and in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The award rendered
in that arbitration will be binding on the parties hereto, and judgement upon
the award can be entered by any court having jurisdiction thereof. Without
detracting from the generality of the foregoing, the following specific
provisions also will apply:
(a) The proceedings will be held by a panel of three arbitrators,
each party having the right to select one arbitrator, with the third
to be selected in accordance with the Rules of the American
Arbitration Association;
(b) The parties, by mutual agreement, can also provide that all or
part of the arbitration proceedings be held outside of Oklahoma City,
Oklahoma; in this event, the parties will equally bear any specific
expenses resulting from that decision;
19
<PAGE> 20
(c) Before rendering their final decisions, the arbitrators will
first act as friendly, disinterested parties for the purpose of
helping the parties reach compromise settlements on the points in
dispute; and
(d) The costs of the arbitration will be in the discretion of the
arbitrators, provided, however, that no party is obliged to pay more
than its own costs, the costs of the arbitrator it has nominated, and
the cost of the third arbitrator.
13.11 Notices. All notices, statements and reports required or
contemplated herein by one party to the other shall be in writing and shall be
deemed to have been given upon delivery in person or upon the expiration of
five (5) days after deposit in a lawful mail depository in the country of
residence of the party giving the notice, registered or certified airmail
postage prepaid, and addressed as follows:
If to OMRF: Attention: President
Oklahoma Medical Research Foundation
825 N. E. 13th Street
Oklahoma City, Oklahoma 73104
Facsimile: (405) 271-3980
With a copy to: John S. Pratt, Esq.
Kilpatrick & Cody
1100 Peachtree Street
Atlanta, GA 30309-4530
Facsimile: (404) 815-6555
If to Licensee: Attention: President
ZymeTx, Inc.
825 N.E. 13th Street
Oklahoma City, Oklahoma 73104
Facsimile: (405) 271-1708
With a copy to: Douglas A. Branch, Esq.
Phillips McFall McCaffrey McVay &
Murrah, P.C.
Twelfth Floor
One Leadership Square
211 N. Robinson
Oklahoma City, Oklahoma 73102
Facsimile: (405) 235-4133
20
<PAGE> 21
Either party hereto may change the address to which notices to such
party are to be sent by giving notice to the other party at the address and in
the manner provided above. Any notice herein required or permitted to be given
may be given, in addition to the manner set forth above, by telex, facsimile or
cable, provided that the party giving such notice obtains acknowledgement by
telex, facsimile or cable that such notice has been received by the party to be
notified. Notice made in this manner shall be deemed to have been given when
such acknowledgement has been transmitted.
13.12 Assignments and Inurement. Licensee shall not grant, transfer,
convey, sublicense or otherwise assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of OMRF
except as explicitly permitted in this Agreement, and any attempt to do so
shall be of no effect; however, this Agreement shall be assignable by OMRF.
This Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of the parties hereto.
13.13 Entire Agreement. This Agreement constitutes the entire
agreement between OMRF and Licensee with respect to the subject matter hereof
and shall not be modified, amended or terminated except as herein provided or
except by another agreement in writing executed by the parties hereto.
13.14 Headings. The section and paragraph headings are for
convenience only and are not a part of this Agreement.
13.15 Severability. All rights and restrictions contained herein may
be exercised and shall be applicable and binding only to the extent that they
do not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining provisions or portions thereof
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions or portions thereof shall remain in full force
and effect. To the extent legally permissible, any illegal, invalid or
unenforceable provision of this Agreement shall be replaced by a valid
provision which will implement the commercial purpose of the illegal, invalid
or unenforceable provision. In the event that any provision essential to the
commercial purpose of this Agreement is held to be illegal, invalid or
unenforceable and cannot be replaced by a valid provision which will implement
the commercial purpose of this Agreement, this Agreement and the rights granted
herein shall terminate.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
OKLAHOMA MEDICAL RESEARCH FOUNDATION
By: /s/ WILLIAM G. THURMAN
----------------------------------
William G. Thurman, M.D.
President & Chief Scientific
Officer
Licensee:
ZymeTx, Inc
By: /s/ PETER G. LIVINGSTON
----------------------------------
Peter G. Livingston
President
22
<PAGE> 1
EXHIBIT 10.9
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE IN RELIANCE ON AN EXEMPTION FROM SAID ACT
AND SUCH LAWS, AND THIS NOTE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL, ACCEPTABLE TO THE
BORROWER, STATING THAT THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION.
================================================================================
PROMISSORY NOTE
$425,000 May 15, 1996
Oklahoma City, Oklahoma
1. Borrower's Promise To Pay. FOR VALUE RECEIVED, the
undersigned Borrower promises to pay OKLAHOMA MEDICAL RESEARCH FOUNDATION, an
Oklahoma not-for-profit corporation ("Lender"), or order, at 825 N.E. 13th
Street, Oklahoma City, Oklahoma 74104, or such other place as Lender may
designate in writing, the principal sum of Four Hundred Twenty-Five Thousand
Dollars ($425,000), together with interest on the unpaid principal balance as
hereinafter set forth.
2. Interest. For a period of 24 months following the date
hereof, the unpaid principal balance of this Note shall bear no interest.
Thereafter, until fully paid, the unpaid principal balance of this Note shall
bear interest at a rate per annum of eight percent (8%) ("Per Annum Interest
Rate"). Any principal or interest not paid when due shall bear interest until
paid at a rate of five percent (5%) per annum greater than the Per Annum
Interest Rate. For purposes of computing interest and determining the date
principal and interest payments are received, all payments owing under this
Note will not be deemed to have been made until such payments are received by
Lender in collected funds. Interest will be calculated on the basis of the
actual number of days elapsed over a year of 360 days.
3. Payments.
3.1. Payments shall be made on May 15, August 15, November
15, and February 15 of each year (each such date constituting a "Quarterly
Payment Date"), until the principal and interest under this Note shall be paid
in full. No payments shall be due prior to May 15, 1998. Commencing on that
date, and thereafter on each Quarterly Payment Date, the Borrower shall pay
interest on the unpaid principal at the Per Annum Interest Rate. Commencing on
May 15, 1999, and thereafter on each Quarterly Payment Date, the Borrower
shall, in addition to the foregoing interest payment, make a principal payment
of Twenty-Five Thousand Dollars.
3.2. In the event any payment due under this Note becomes
due on a day which is not a regular business day of Lender, the due date of
such payment shall be extended to the next succeeding business day of Lender.
<PAGE> 2
3.3. Notwithstanding any provisions herein, the total
liability for payments in the nature of interest shall not exceed the limits
now imposed by the usury laws of the State of Oklahoma, and no holder of this
Note shall ever be entitled to receive, collect, or apply, as interest on the
indebtedness, any amount in excess of the maximum legal rate of interest
permitted to be charged by applicable law, and, in the event any holder of this
Note ever receives, collects or applies, as interest, any such excess, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of the indebtedness, and if the unpaid principal
balance of the indebtedness is paid in full, any remaining excess shall be
forthwith paid to the Borrower. In determining whether or not the interest
paid or payable under any specific contingency exceeds the highest lawful rate,
the Borrower and any holder hereof shall, to the extent permitted by applicable
laws: (a) characterize any non-principal payments as an expense, fee or premium
rather than as interest; (b) exclude voluntary prepayments and the effect
thereof; and (c) "spread" the total amount of interest throughout the entire
term of the Note.
4. Default. Upon default in any of the terms or conditions of
this Note, at the option of the holder, the entire indebtedness hereby
evidenced shall become due, payable and collectible then or thereafter as the
holder may elect, regardless of the date of maturity hereof. Notice of the
exercise of such option is hereby expressly waived.
5. Waivers and Governing Law. No waiver by holder of any payment
or other right under this Note or any related agreement or documentation shall
operate as a waiver of any other payment or right. This Note and the
obligations evidenced hereby are to be construed and governed by the laws of
the State of Oklahoma.
6. Collection Costs. The Borrower agrees that if, and as often
as, this Note is placed in the hands of an attorney for collection or to defend
or enforce any of the holder's rights hereunder, the Borrower will pay to the
holder its reasonable attorney's fees, together with all court costs and other
expenses paid by such holder.
7. Right of Offset. Any indebtedness due from holder hereof to
Borrower or any party hereto including, but without limitation, any deposits or
credit balances due from holder, is pledged to secure payment of this Note and
any other obligation to holder of Borrower, and may at any time while the whole
or any part of such obligation remains unpaid be appropriated, held or applied
toward the payment of this Note or any other obligation to holder of Borrower
or any party hereto.
8. Repayment. This Note may be prepaid, in whole or in part, at
any time without premium or penalty.
9. Miscellaneous.
9.01. Commercial Loan. It is expressly stipulated and
agreed that the loan evidenced by this Note is given for an actual lending
transaction for business purposes and not for personal, residential or
agricultural purposes.
-2-
<PAGE> 3
9.02. Notices. All notices shall be given at the following
addresses:
If to the Borrower: ZymeTx, Inc.
825 N.E. 13th Street
Oklahoma City, OK 73104
If to the Lender: Oklahoma Medical Research Foundation
825 N.E. 13th Street
Oklahoma City, OK 73104
Either party may change its address for notice purposes upon giving
ten (10) days prior notice in accordance with this section. All notices given
shall be in writing and shall be considered properly given if mailed by first
class United States Mail, postage prepaid, registered or certified with return
receipt requested, or by delivering the notice in person to the intended
addressee. Any notice mailed shall be effective upon its deposit in the custody
of the U. S. Postal Service; notice personally delivered shall be effective
upon receipt.
9.03. Captions. All caption headings are for convenience
only and shall not be interpreted to enlarge or restrict the provisions of this
Note.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
------------------------------------
Peter G. Livingston, President
-3-
<PAGE> 1
EXHIBIT 10.10
THIS WARRANT AND THE COMMON STOCK ISSUABLE WITH RESPECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE BLUE
SKY ACTS AND MAY BE TRANSFERRED OR SOLD ONLY PURSUANT TO REGISTRATION UNDER
SUCH ACTS, OR TO EXEMPTIONS THEREUNDER.
ZYMETX, INC.
a Delaware corporation
(the "Company")
May 15, 1996
For the Purchase of 22,667 Shares of the
Company's Common Stock, $.001 par value
COMMON STOCK PURCHASE WARRANT
NO. 004
This certifies that Oklahoma Medical Research Foundation or such
person's registered assigns (the "Warrant Holder"), is entitled, subject to the
terms and conditions hereinafter set forth at any time on or before May 15,
2003, to purchase from time to time up to a total of Twenty-Two Thousand Six
Hundred Sixty-Seven (22,667) shares of the Company's common stock, $.001 par
value (the "Common Stock"), at a price per share of $.80 (the "Purchase
Price"). The number of shares of Common Stock purchasable under this Common
Stock Purchase Warrant (the "Warrant") and the Purchase Price thereof shall be
subject to adjustment as hereinafter provided.
The Purchase Price shall be payable in cash or by certified or bank
cashier's check in lawful funds of the United States of America or by
cancellation of indebtedness. Upon presentation and surrender of this Warrant,
together with payment of the Purchase Price for the shares of Common Stock
thereby purchased, at the office of the Company's Transfer Agent for the
transfer of such stock or, if at any time there is no such Transfer Agent, at
the principal office of the Company, the Warrant Holder shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased (the "Shares"). All Shares that may be issued upon the exercise of
this Warrant will, upon issuance, be fully paid, nonassessable, and free from
all taxes, liens, and charges with respect thereto.
This Warrant is subject to the following additional terms and
conditions:
1. EXERCISE OF WARRANT.
1.1. At Warrant Holder's Option. This Warrant may be
exercised at any time on or before May 1, 2003 (the "Termination Date"), and
the purchase rights represented hereby are exercisable solely at the Warrant
Holder's option. If the Warrant Holder does not exercise its right to purchase
the number of shares of Common Stock designated herein, this Warrant shall
automatically expire on the Termination Date. In the event the Warrant Holder
purchases less than all the shares purchasable under
<PAGE> 2
this Warrant, the Company shall cancel this Warrant upon the surrender hereof
and execute and deliver a new Warrant of like tenor for the balance of the
shares purchasable hereunder.
2. ADJUSTMENTS.
2.1. Adjustment to Purchase Price. The Purchase Price of
the Common Stock issuable upon exercise of this Warrant shall be subject to
adjustment, from time to time, as follows:
(i)(A) If the Company shall issue any Additional
Stock (as hereinafter defined) after the date hereof for a consideration (the
"New Consideration") per share less than the Purchase Price for the Common
Stock issuable upon exercise of the Warrant in effect immediately prior to the
issuance of such Additional Stock, the Purchase Price shall be reduced so as to
be equal to such New Consideration.
(B) No adjustment of the Purchase Price for the
Common Stock issuable upon the exercise of this Warrant shall be made in an
amount less than one cent ($.01) per share, and (except to the limited extent
provided for in subparagraphs (i)(E)(y) and (i)(E)(z) of this Section 2.1) no
adjustment of such Purchase Price shall have the effect of increasing the
Purchase Price above the Purchase Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions, or other
expenses allowed, paid, or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined by
the Company's Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities that by their
terms are convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities
(which are not excluded from the definition of Additional Stock):
(w) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the
manner provided in subparagraphs (i)(C) and (i)(D) of this Section
2.1), if any, received by the Company upon the issuance of such
options or rights, plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(x) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe
-2-
<PAGE> 3
for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at
the time such convertible or exchangeable securities were issued or
such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such
convertible or exchangeable securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received
by the Company upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in subparagraphs
(i)(C) and (i)(D) of this Section 2.1);
(y) upon any change in the number of
shares of Common Stock deliverable upon exercise of such options or
rights or conversion of or exchange for such convertible or
exchangeable securities, the Purchase Price as then in effect shall
forthwith be readjusted to such Purchase Price as would have been
obtained had the adjustment made upon the issuance of such options,
rights, or securities not converted prior to such change or options or
rights related to such securities not converted prior to such change
been made upon the basis of such change, but no further adjustment
shall be made for the actual issuance of Common Stock upon the
exercise of any such options or rights or the conversion or exchange
of such securities;
(z) upon the expiration of any such
options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Purchase Price shall
forthwith be readjusted to such Purchase Price as would have been
obtained had the adjustment made upon the issuance of such options,
rights, or securities or options or rights related to such securities
been made upon the basis of the issuance of only the number of shares
of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities, or upon
the exercise of the options or rights related to such securities.
(ii) "Additional Stock" for purposes of this
Warrant shall mean any shares of the Company's Common Stock issued by the
Company in conjunction with or after the determination of the Purchase Price as
specified hereinabove, other than:
(A) Common Stock issued pursuant to a
transaction described in Section (iii) hereof;
(B) Common Stock issuable or issued to
officers, directors, employees, or consultants of the Company, whether directly
or pursuant to the exercise of options, on terms that have been approved by the
Company's Board of Directors; and
(C) Common Stock issued or issuable upon
conversion of any shares of the Company's outstanding Preferred Stock or upon
exercise of this Warrant or any other stock warrants issued contemporaneously
herewith or issued and outstanding as of the date hereon.
-3-
<PAGE> 4
(iii) If the number of shares of Common Stock
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision payable in shares of
Common Stock or by a subdivision or split-up of shares of the Company's Common
Stock, then, following the record date fixed for the determination of holders
of Common Stock entitled to receive such stock dividend, subdivision, or
split-up, the Purchase Price for the Common Stock issuable upon the exercise of
this Warrant shall be appropriately decreased so that the number of shares of
Common Stock issuable upon the exercise of this Warrant will be increased in
proportion to such increase in the number of outstanding shares of the
Company's Common Stock.
(iv) If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse stock split of the outstanding shares of the Company's Common Stock,
then, following the record date of such combination or reverse stock split, the
Purchase Price for the Common Stock shall be appropriately increased so that
the number of shares of Common Stock issuable upon the exercise of this Warrant
will be decreased in proportion to such decrease in the number of outstanding
shares of Common Stock.
2.2. No Adjustment to Number of Shares Purchasable Under
Warrant in Event of Purchase Price Adjustment Under Section 2.1(i). Upon any
adjustment to the Purchase Price under Section 2.1(i), there shall be no
adjustment in the number of shares purchasable under this Warrant.
2.3. Warrant Need Not be Changed to Reflect Adjustments.
This Warrant need not be changed to reflect any adjustment or changes in the
Purchase Price.
2.4. Reorganization, Merger, Etc. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation or entity, or
the sale or conveyance of all or substantially all of the Company's assets to
another corporation or entity shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, or conveyance,
lawful and adequate provision shall be made whereby the Warrant Holder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities, or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger, sale, or conveyance not taken place,
and, in any such case, appropriate provision shall be made with respect to the
rights and interests of the Warrant Holder such that the provisions hereof
(including, without limitation, provisions for adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as may be, to any stock,
securities, or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any consolidation, merger, or sale of all
or substantially all of its assets to any other corporation or entity, unless
prior to or simultaneously with the consummation thereof the successor
corporation or entity (if other than the Company) resulting from such
consolidation or merger, or the corporation or entity purchasing such assets,
shall assume, by written instrument executed and mailed or delivered to the
Warrant Holder at the address indicated in Section 7 hereof, the
-4-
<PAGE> 5
obligation of such corporation or entity to deliver to such Warrant Holder
shares of stock, securities, or assets as, in accordance with the provisions of
this Warrant, such Warrant Holder may be entitled to purchase, and to perform
and observe each and every covenant and condition of this Warrant to be
performed and observed by the Company.
2.5. Notice to Warrant Holder or Warrant Holders.
(a) Upon any adjustment of the Purchase Price,
the Company, within thirty (30) days thereafter, shall give written notice
thereof, pursuant to Section 7 hereof, which notice shall state the adjusted
Purchase Price setting forth in reasonable detail the method of calculation and
the facts (including a statement of the consideration received or deemed to
have been received by the Company for any additional shares or convertible or
exchangeable securities or rights or options) upon which such calculations are
based. Where appropriate, such notice may be given in advance and be included
as part of the notice required to be mailed pursuant to the provisions of
paragraph (b) of this Section 2.5.
(b) In case at any time:
(i) the Company shall declare any
dividend upon its Common Stock payable otherwise than in cash or in
the Common Stock of the Company or payable otherwise than out of net
income for a twelve (12) month period ending not earlier than ninety
(90) days prior to the date of payment of such dividend; or
(ii) the Company shall offer for
subscription to the holders of its Common Stock any additional shares
of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(iii) there shall be any capital
reorganization or reclassification of the capital stock of the
Company, or a sale or conveyance of all or substantially all of the
assets of the Company, or a consolidation or merger of the Company
with another corporation or entity; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation, or winding up of the Company; or
(v) the Company intends to issue or has
issued any Common Stock or rights convertible into Common Stock for a
per share consideration of less than the Purchase Price, then, in any
one or more of said cases, the Company shall give written notice,
pursuant to Section 7 hereof, at the earliest time legally practicable
(and, unless otherwise impossible for a legal reason, not less than
thirty (30) days before any record date or other date set for
definitive action) of the date as of which (A) the books of the
Company shall close or a record date shall be taken for such dividend,
distribution, or subscription rights or options, or (B) such
reorganization, reclassification, sale, conveyance, consolidation,
merger, dissolution, liquidation, or winding up shall take place, as
the case may be. Such notice shall also specify the date
-5-
<PAGE> 6
as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights, or
options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation, or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution,
liquidation, or winding up of the Company, the right to exercise this
Warrant shall cease and terminate).
2.6. Conditions Not Specifically Covered. In case at any
time conditions shall arise by reason of action taken by the Company, which, in
the good faith judgment of the Company's Board of Directors, are not adequately
covered by the limited antidilution provisions of this Warrant so as to
potentially materially and adversely affect the rights of the Warrant Holder or
Warrant Holders, or, in case at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, its Board of
Directors shall appoint a firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the
Company's financial statements), who shall give an opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Section 2 hereof), of the Purchase Price, which is, or would be, required to
preserve, without dilution, the rights of the Warrant Holder or Warrant Holders
to the extent provided herein. The Company's Board of Directors shall make the
adjustment recommended forthwith upon the receipt of such opinion or the taking
of any such action contemplated, as the case may be. Nothing in this Section
2.6 or any other provision of this Warrant shall permit or require adjustment
regarding the number of shares of Common Stock into which this Warrant may
hereafter be exercisable, it being the parties' intention to limit antidilution
protection in this Warrant solely to adjustments to the Purchase Price.
3. STATUS OF WARRANT HOLDERS. This Warrant does not entitle the
Warrant Holder or Warrant Holders hereof to any rights as a shareholder of the
Company.
4. REMEDIES. The Company stipulates that the remedies at law of
the Warrant Holder or Warrant Holders in the event of any default or threatened
default by the Company in the performance of or compliance with any of the
terms of this Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
5. RESERVATION OF SHARES. The Company shall reserve and keep
available a sufficient number of shares of Common Stock to satisfy the
requirements of this Warrant. Before taking any action that would cause a
reduction of the Purchase Price below the then current par value of the shares
of Common Stock issuable upon exercise of this Warrant, the Company will take
any corporate action that may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Purchase Price.
6. ASSIGNMENT. This Warrant shall be binding upon and inure to
the benefit of the Company, the Warrant Holder, and their respective successors
and assigns.
-6-
<PAGE> 7
7. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
given when personally delivered, mailed first class (postage prepaid), or
delivered to a telegraph office:
(i) if to a Warrant Holder, at the address of such
Warrant Holder as shown on the books of the Company.
(ii) if to the Company, at 825 N.E. 13th Street, Oklahoma
City, Oklahoma 73104, to the attention of the corporate Secretary, or
at such other address as may have been furnished to the Warrant Holder
in writing.
8. HEADINGS. The headings of the Sections and subsections of
this Warrant are inserted for convenience only and shall not be deemed to
constitute a part of this Warrant.
IN WITNESS WHEREOF, this Warrant has been duly executed by its duly
authorized officer as of the date first above written.
ZYMETX, INC.
a Delaware corporation
By: /s/ PETER G. LIVINGSTON
------------------------------------
Peter G. Livingston, President
-7-
<PAGE> 1
EXHIBIT 10.11
EMPLOYEE SERVICES AGREEMENT
THIS EMPLOYEE SERVICES AGREEMENT (the "Agreement"), dated July
24, 1996, by and between ZymeTx, Inc., a Delaware corporation ("ZymeTx"), and
Oklahoma Medical Research Foundation, an Oklahoma corporation ("OMRF").
WHEREAS, on December 22, 1995, OMRF, ZymeTx and certain other
parties entered into a letter agreement (the "Letter Agreement"), a copy of
which is attached hereto as Exhibit "A"; and
WHEREAS, under the terms of the Letter Agreement, OMRF agreed
to employ certain persons for the purpose of performing services for ZymeTx.
NOW, THEREFORE, in consideration of the agreements and
transactions made and consummated between ZymeTx and OMRF pursuant to the
Letter Agreement and other good and valuable consideration, the parties hereby
agree as follows:
1. EMPLOYMENT SERVICES.
1.1 Employment by OMRF; Services to ZymeTx.
During the Term of this Agreement, as hereinafter defined, OMRF hereby agrees
to employ only those persons (the "Employees") set forth on Exhibit "B" hereto,
for the purpose of performing such services to ZymeTx as shall be determined
from time to time in the sole discretion of ZymeTx.
1.2 Provision of Employee Services by OMRF. OMRF
agrees to make Employees available on a full-time basis to perform the services
required hereunder exclusively and solely for ZymeTx during the term of this
Agreement. OMRF further agrees that upon written request by ZymeTx, OMRF shall
release the Employees to become employees of ZymeTx and as a consequence
thereof, Employees shall no longer be employees of OMRF.
1.3. OMRF's Relationship with Employees. Unless
OMRF, in its sole discretion, enters into an express, written employment
contract with an Employee, all Employees are employees at will. OMRF may
terminate any Employee, with or without cause at any time, without regard to
the Termination Date, as hereinafter defined. Similarly, any Employee may
terminate his employment with OMRF at any time. Nothing in this Agreement
shall be construed by any employee as an employment contract for a specified
period of time.
2. TERM OF AGREEMENT. The term of this Agreement (the
"Term") shall commence as of the date of this Agreement (the "Commencement
Date"), and shall continue through and expire on the third anniversary thereof
(the "Termination Date") unless earlier terminated as herein provided.
<PAGE> 2
3. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. During the
Term, the Employees shall be permitted to participate in any group life,
hospitalization or disability insurance plan, health program, pension plan,
similar benefit plan or other so-called "fringe benefits" of OMRF, which may be
available to other employees of OMRF generally on the same terms as such other
employees; provided, however, the Employees shall not participate in revenue
received by OMRF from ZymeTx pursuant to that certain License Agreement by and
between OMRF and ZymeTx dated May 1, 1996.
4. OBLIGATIONS OF ZYMETX.
4.1 Reimbursement. ZymeTx shall reimburse OMRF
for all salary, compensation, payroll taxes and other employment related
expenses ("compensation expenses") incurred by OMRF and approved in advance by
ZymeTx. ZymeTx shall not be obligated to reimburse OMRF for any salary
increase which was not approved in advance by ZymeTx. OMRF shall invoice
ZymeTx monthly for such reimbursement and such invoice shall be due and payable
with ten (10) days of receipt by ZymeTx.
4.2 Indemnification. ZymeTx shall defend and
indemnify OMRF and save OMRF harmless from and against any and all loss,
damages, costs, attorneys' fees, expenses, liabilities, claims, charges or
actions arising from or out of any claim, lawsuit, or proceeding by or on
behalf of any Employee relating in any manner to Employee's employment with
OMRF during the Term, including without limitation any claims arising upon or
relating to the termination of this Agreement; claims for medical care or
benefits under the workers' compensation laws; claims under Title VII of the
Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.) and its state law
counterpart (25 O.S. Section 1101 et seq.); claims under the Age
Discrimination in Employment Act (29 U.S.C. Section 621) and any similar state
law statute; claims under the Americans with Disabilities Act (42 U.S.C. 12111,
et seq.) and its state law counterpart; claims for breach of express contract,
breach of implied contract, wrongful termination, or breach of public policy;
claims under the Fair Labor Standard Act; and claims for benefits such as
severance pay, sick leave, holiday pay, unaccrued vacation pay, birthday pay,
incentive bonus, life insurance, group medical insurance or any other fringe
benefits; provided, however, ZymeTx shall have no obligation to defend,
indemnify or same OMRF harmless if any such liability, claim, charge or action
arises solely from the actions or failure to act of OMRF, its agents or
employees other than the Employees.
5. TERMINATION.
5.1 Termination Upon Death. If any Employee dies
during the Term, this Agreement shall terminate with respect to such Employee,
except that OMRF shall be entitled to receive reimbursement for compensation
expenses which had accrued through the date of Employee's death, including any
workers compensation death benefits accruing after the date of death.
2
<PAGE> 3
5.2 Termination of Employee Services by ZymeTx.
ZymeTx has the right, at any time during the Term, to request that OMRF
terminate the leasing of any Employee to ZymeTx, with or without cause. Such
request shall be written and delivered to OMRF in accordance with the Notice
provisions of this Agreement and shall specify the date by which ZymeTx
requests the Employee's lease terminate. Upon receipt of ZymeTx's notice, OMRF
shall take action to honor ZymeTx's request in accordance with the terms
thereof. OMRF specifically reserves the right, in its sole discretion, to
transfer the Employee from the ZymeTx project, department or area to work in
another department or area at OMRF. If OMRF elects, in its sole discretion, to
transfer the Employee, ZymeTx will not be liable to indemnify OMRF, as
described in Section 4, for claims which wholly arise after the effective date
of the transfer of the Employee. If ZymeTx requests the services of any leased
employee be terminated, ZymeTx shall be liable to reimburse OMRF for all
compensation and other employment related expenses for the Employee, as
described in paragraph 4.1, through the effective date of the termination of
the lease of the Employee to ZymeTx.
5.3 Termination of Agreement. Either ZymeTx or
OMRF may terminate this Agreement at any time, upon giving the other party
sixty (60) days written notice of the party's intention to terminate this
Agreement.
6. OTHER PROVISIONS.
6.1 Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally or, if
mailed, five days after the date of deposit in the United States mail, as
follows:
(i) If to ZymeTx, to:
ZymeTx, Inc.
25 N. W. 4th Street
Oklahoma City, Oklahoma 73102
Attention: President
(ii) If to OMRF, to:
Oklahoma Medical Research Foundation
825 N. E. 13th Street
Oklahoma City, Oklahoma 73104
Attention: President
Any party may change its address for notice
hereunder by written notice to the other parties hereto.
3
<PAGE> 4
6.2 Entire Agreement. This Agreement contains
the entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior agreements, written or oral, with respect
thereto.
6.3 Waivers and Amendments. This Agreement may
be amended, modified, superseded, canceled, renewed or extended, and the terms
and conditions hereof may be waived only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any
party of any right, power or privilege hereunder, nor any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise of any other right, power or privilege hereunder.
6.4 Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State of Oklahoma
applicable to agreements made and to be performed entirely within such state.
6.5 Assignment. Neither party may assign any
rights under this Agreement without the written consent of the other party.
6.6 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
6.7 Headings. The headings in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
----------------------------------
Peter G. Livingston, President
OKLAHOMA MEDICAL
RESEARCH FOUNDATION
By: /s/ MIKE D. MORGAN
----------------------------------
Mike D. Morgan, Vice President
of Business Affairs
4
<PAGE> 1
EXHIBIT 10.12
LOCK-UP AGREEMENT
LOCK-UP AGREEMENT, dated July 29, 1996, between Spencer Trask
Securities Incorporated, a Delaware corporation (the "Placement Agent"), and
the undersigned.
WHEREAS, the undersigned constitute all of the officers,
directors and principal shareholders of Zymetx, Inc., a Delaware corporation
(the "Company"); and
WHEREAS, pursuant to Section 6(i) of the Placement Agency
Agreement, dated as of May 22, 1996, between the Placement Agent and the
Company (the "Placement Agency Agreement"), the Company has agreed to enter
into this Lock-up Agreement with the Placement Agent.
NOW, THEREFORE, for good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows.
1. Lock-Up. The undersigned hereby agree not to sell,
transfer or otherwise dispose of any of the Company's common stock, par value
$.001 per share, owned by, or issuable to, the undersigned without the prior
written consent of the Placement Agent, which consent shall not be unreasonably
withheld, for a period of 24 months after the First Closing (as defined in the
Placement Agency Agreement) or if within two years of the First Closing the
Company registers any of its shares of common stock under the Securities Act of
1933, as amended, this lock-up shall be extended for a period not less than the
shorter of 180 days from the effective date of registration or completion of
the offering contemplated thereby, except that the undersigned may make
transfers to a parent, spouse, sibling or decedent, or to a trust for the
benefit of any of the foregoing persons; provided, however, (i) that such
transfers shall be subject to Section 6(i) of the Placement Agency Agreement
and (ii) the Placement Agent may require that any such transfer be made subject
to a voting agreement pursuant to which the transferring stockholder retains
the right to vote all transferred shares for up to two years from the First
Closing.
2. Successors. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their permitted
assigns and successors.
3. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, without
giving effect to the principles of conflicts of laws thereof.
4. Severability. Should any term or provision hereof be
deemed invalid, void or unenforceable either in
<PAGE> 2
2
its entirety or in a particular application, the remainder of this Agreement
shall nonetheless remain in full force and effect and, if the subject term or
provision shall be deemed to be invalid, void or unenforceable only with
respect to a particular application, such term or provision shall remain in
full force and effect with respect to all other applications.
5. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof, and
all prior or contemporaneous agreements, understandings, representations and
statements, oral or written, with the exception of Section 6(i) of the
Placement Agency Agreement, are merged herein. No modification, waiver,
amendment, discharge or change of this Agreement shall be valid unless the same
is in writing and signed by all of the parties hereto except as to other
written instructions and the like specifically referred to above.
6. Counterparts. This Agreement may be signed in two or
more counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
/s/ PETER G. LIVINGSTON
------------------------
Peter G. Livingston
/s/ WILLIAM I. BERGMAN
--------------------------
William I. Bergman
/s/ WILLIAM A. HAGSTROM
--------------------------
William A. Hagstrom
/s/ J. VERNON KNIGHT
--------------------------
J. Vernon Knight
/s/ MICHAEL D. MORGAN
--------------------------
Michael D. Morgan
/s/ GILBERT M. SCHIFF
--------------------------
Gilbert M. Schiff
/s/ CRAIG D. SHIMASAKI
--------------------------
Craig D. Shimasaki
/s/ AVRAHAM LIAV
--------------------------
Avraham Liav
/s/ JOYCE A. HANSJERGEN
--------------------------
Joyce A. Hansjergen
/s/ KOMANDOOR E. ACHYUTHAN
--------------------------
Komandoor E. Achyuthan
OKLAHOMA MEDICAL
RESEARCH FOUNDATION
By: /s/ MIKE D. MORGAN
-----------------------
Name:
Title:
<PAGE> 4
4
ZYMETX PURCHASE PARTNERS,
by Joe Tippens, its
General Partner
/s/ JOE D. TIPPENS
---------------------------
<PAGE> 1
EXHIBIT 10.13
RIGHT OF FIRST REFUSAL AGREEMENT
RIGHT OF FIRST REFUSAL AGREEMENT, dated July 29, 1996, between
Spencer Trask Securities Incorporated, a Delaware corporation (the "Placement
Agent"), and ZymeTx, Inc. (the "Company").
WHEREAS, the Placement Agent and the Company are parties to the
Placement Agency Agreement, dated as of May 22, 1996, between the Placement
Agent and the Company (the "Placement Agency Agreement"); and
WHEREAS, pursuant to Section 6(j) of the Placement Agency Agreement
the Company has agreed to grant to the Placement Agent rights of first refusal.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows.
1. Grant of Rights.
(a) In the event that, within the five years following
the date of the First Closing (as defined in the Placement Agency Agreement),
the Company desires to (i) issue any of its capital stock or securities
convertible into, or exercisable or exchangeable for, its capital stock
("Securities") or (ii) engage any underwriter or agent for any proposed public
or private offering of the Company's Securities by the Company or any of its
principal stockholders, the Company shall, prior to any such issuance or
engagement, provide written notice (the "Notice") thereof to the Placement
Agent, describing in detail the terms thereof.
(b) The Placement Agent shall have the right, within 30
business days of receipt of any Notice, to elect in writing to purchase all of
such Securities, or to act as underwriter or agent, as described in the Notice,
on the same terms set forth in the Notice. The Placement Agent's failure to so
elect within such 30-day period shall be deemed to be a waiver of the Placement
Agent's rights under this Agreement and under Section 6(j) of the Placement
Agency Agreement with respect to the particular issuance of Securities or
engagement of an underwriter or agent described in the Notice, and the Company
may issue such Securities or engage such underwriter or agent on the terms set
forth in the Notice, subject to Section 6(i) of the Placement Agency Agreement;
provided, however, that prior to accepting any proposal with respect to the
issuance of Securities or engagement of any underwriter or agent on terms
materially less favorable to the Company than those set forth in the Notice,
the Placement Agent shall be entitled to enforce its rights of first refusal
under this Agreement.
<PAGE> 2
(c) The Placement Agent's failure to enforce its rights
of first refusal under this Agreement with respect to any Notice shall not
constitute a waiver of its rights of first refusal with respect to any
subsequent issuance of Securities or engagement of an underwriter or agent by
the Company during the term of this Agreement.
2. Successors. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their permitted
assigns and successors.
3. Governing Law. this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the principles of conflicts of laws thereof.
4. Severability. Should any term or provision hereof be
deemed invalid, void or unenforceable either in its entirety or in a particular
application, the remainder of this Agreement shall nonetheless remain in full
force and effect and, if the subject term or provision shall be deemed to be
invalid, void or unenforceable only with respect to a particular application,
such term or provision shall remain in full force and effect with respect to
all other applications.
5. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof, and
all prior or contemporaneous agreements, understandings, representations and
statements, oral or written, with the exception of Section 6(i) of the
Placement Agency Agreement, are merged herein. No modification, waiver,
amendment, discharge or change of this Agreement shall be valid unless the same
is in writing and signed by all of the parties hereto except as to other
written instructions and the like specifically referred to above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
--------------------------
Name: Peter G. Livington
Title: President
<PAGE> 1
EXHIBIT 10.14
SPENCER TRASK SECURITIES INCORPORATED
ZYMETX, INC.
825 N.E. 13th
Oklahoma City, OK 73104
July 29, 1996
Merger & Acquisition Agreement
Gentlemen:
You hereby agree that Spencer Trask Securities Incorporated
("STSI") may act as a finder or financial consultant for you in various
transactions in which ZYMETX, INC. (the "Company") may be involved with an
Introduced Party, as hereinafter defined, which transactions may include, but
shall not be limited to, the following: the purchase or sale of assets, stock,
divisions or subsidiaries, mergers, acquisitions, joint ventures and any other
business combinations for the Company, debt or lease placement and similar on
or off-balance sheet transactions. For purposes hereof, "Introduced Party"
shall mean any person or entity for which STSI has received verbal consent from
the Company (which consent shall not be unreasonably withheld) to discuss
potential transactions involving the Company and which is subsequently
introduced to the Company by STSI. The Company hereby agrees that in the event
that during the five-year period (the "Five-Year Period") commencing on the
date hereof, a transaction of the nature described above between an Introduced
Party and the Company is consummated (a "Consummated Transaction"), then the
Company shall pay to STSI a finder's fee (the "Finder's Fee") as follows:
(a) 7% of the first $1,000,000 of the consideration paid
or other amount involved in such transaction;
(b) 6% of the next $1,000,000 of the consideration paid
or other amount involved in such transaction;
(c) 5% of the next $5,000,000 of the consideration paid
or other amount involved in such transaction;
(d) 4% of the next $1,000,000 of the consideration paid
or other amount involved in such transaction;
(e) 3% of the next $1,000,000 of the consideration paid
or other amount involved in such transaction; and
<PAGE> 2
2
(f) 2 1/2% of any consideration paid in such transaction
in excess of $9,000,000.
The Finder's Fee due STSI shall be paid by the Company without
regard to whether the Consummated Transaction involves payment on an
installment basis, provided that such fee with respect to any sale by the
Company shall only be paid as and when such consideration shall be received by
the Company. Any consideration other than cash which is paid in the
Consummated Transaction shall be valued at its fair market value (determined,
if the parties hereto cannot agree, by an independent appraiser mutually
satisfactory to the parties hereto who shall be selected by the parties within
15 business days after the closing of the Consummated Transaction and costs of
which shall be shared equally by the parties); provided that if such
consideration is capital stock, STSI may elect, in its sole discretion, to be
paid its fee in capital stock. The cash consideration to be paid in the
Consummated Transaction shall include, for purposes of calculating STSI's
Finder's Fee hereunder, any payments or distributions of cash or any other
assets made to the Company or to the principals of the Company prior to,
simultaneously with, or subsequent to, the Consummated Transaction if such
payments or distributions are made in contemplation of or in connection with
the Consummated Transaction.
Notwithstanding anything to the contrary contained herein, if
at any time following the termination of the Five-Year Period a Consummated
Transaction occurs with an Introduced Party introduced prior to the termination
of the Five-Year Period, the Company shall also pay STSI the Finder's Fee as
determined above.
In the event that, for any reason, the Company shall fail to
pay to STSI all or any portion of the Finder's Fee payable hereunder when due,
interest shall accrue and be payable on the unpaid cash balance due hereunder
from the date when first due through and including the date when actually
collected by STSI, at a rate equal to four percent (4%) above the prime rate of
Citibank, N.A., in New York, New York, computed on a daily basis and adjusted
as announced from time to time.
The Company represents and warrants to STSI that this letter
agreement has been duly authorized and approved by the Board of Directors of
the Company and this letter agreement has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company enforceable in accordance with its terms.
<PAGE> 3
3
This letter agreement (i) shall be governed by the laws of the
State of New York applicable to contracts entered into and to be performed
wholly within said State, (ii) may not be assigned by the Company without prior
written consent of STSI, (iii) may not by modified or amended except in
writing, (iv) constitutes the entire agreement of the parties with respect to
the subject matter hereof superseding all prior agreements and understandings,
written or oral and (v) may be executed in counterparts each of which shall be
deemed to be an original and all of which shall constitute one agreement.
Sincerely,
SPENCER TRASK SECURITIES
INCORPORATED
By: /s/ WILLIAM P. DIOGUARDI
----------------------------
Agreed and Accepted:
This 29th day of July, 1996,
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
--------------------------------
Peter G. Livingston
President
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EXHIBIT 10.16
PLACEMENT AGENCY AGREEMENT
July 2, 1997
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Gentlemen:
ZymeTx, Inc., a Delaware corporation (the "Company"), hereby confirms its
agreement with Spencer Trask Securities Incorporated, a Delaware corporation
(the "Placement Agent"), as follows (unless the context otherwise requires, as
used herein, the "Company" refers to ZymeTx, Inc. and each of its subsidiaries,
if any):
1. Offering. (a) The Company will offer (the "Offering") for sale
through the Placement Agent and its selected dealers, as exclusive agent for
the Company, up to 35 units (the "Units"), plus an additional 5.25 Units to
cover oversubscriptions, if any. Each Unit will consist of 25,000 shares (the
"Shares") of the Company's Series C Convertible Preferred Stock, $.001 par
value per share (the "Preferred Stock").
(b) Placement of the Units will be made on a "best efforts--all or none"
basis with respect to the 35 Units. The minimum subscription for Units shall
be one Unit, however, the Placement Agent may, in its discretion, offer
fractional Units. The Units will be offered commencing on the date of the
Memorandum (as defined below) for a period of 90 days, unless extended by the
Placement Agent for an additional 90 days or terminated earlier as provided
herein (the "Offering Period"). The date on which the Offering shall terminate
shall be referred to as the "Termination Date."
(c) Subscriptions for the Units will be accepted by the Company at a price
of $100,000 per Unit (the "Offering Price"); provided, however, that the
Company shall not accept subscriptions for, or sell Units to, any persons or
entities who do not qualify as "accredited investors," as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933 (the
"Act").
(d) The offering of the Units will be made by the Company solely pursuant
to the Memorandum, which at all times will be in form and substance acceptable
to the Placement Agent and its counsel and contain such legends and other
information as the Placement Agent and its counsel may, from time to time, deem
necessary and desirable to be set forth therein. "Memorandum" as used in this
Agreement means the Company's Confidential Private Placement Memorandum dated
July 2, 1997, inclusive of all exhibits, and all amendments, supplements and
appendices thereto. Unless otherwise defined, each term used in this Agreement
will have the same meaning as set forth in the Memorandum.
2. Representations and Warranties. The Company hereby represents and
warrants to the Placement Agent that:
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(a) The Memorandum has been diligently prepared by the Company in
conformity with all applicable law, and is in compliance with Regulation D as
promulgated under Section 4(2) of the Act ("Regulation D"), the Act and the
requirements of all other rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "SEC") relating to offerings of the
type contemplated by the Offering, and the applicable securities laws and the
rules and regulations of those jurisdictions wherein the Units are to be
offered and sold. The Units will be offered and sold pursuant to the
registration exemption provided by Regulation D and Section 4(2) and/or Section
4(6) of the Act as a transaction not involving a public offering and the
requirements of any other applicable state securities laws and the respective
rules and regulations thereunder in those jurisdictions in which the Placement
Agent notifies the Company that the Units are being offered for sale. The
Memorandum describes all material aspects, including attendant risks, of an
investment in the Company. The Company has not taken nor will it take any
action which conflicts with the conditions and requirements of, or which would
make unavailable with respect to the Offering, the exemption(s) from
registration available pursuant to Regulation D or Section 4(2) and/or Section
4(6) of the Act and knows of no reason why any such exemption would be
otherwise unavailable to it. None of the Company, its predecessors or
affiliates has been subject to any order, judgment or decree of any court of
competent jurisdiction temporarily, preliminarily or permanently enjoining such
person for failing to comply with Section 503 of Regulation D.
(b) The Memorandum does not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the statements, documents,
certificates or other items prepared or supplied by the Company with respect to
the transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Placement Agent and its counsel in writing and of which the Company is
aware which materially and adversely affects or could materially and adversely
affect the business prospects, financial condition, operations, property or
affairs of the Company or any of its subsidiaries.
(c) The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Except as
set forth in the Memorandum, the Company has no subsidiaries and does not have
an equity interest in any other firm, partnership, association or other entity.
The Company and each of its subsidiaries is duly qualified to transact business
as a foreign corporation and is in good standing under the laws of each
jurisdiction where the location of its properties or the conduct of its
business makes such qualification necessary.
(d) The Company has all requisite power and authority (corporate and
other) to conduct its business as presently conducted and as proposed to be
conducted (as described in the Memorandum), to enter into and perform its
obligations under this Agreement and the other agreements contemplated hereby
and by the Memorandum (collectively, the "Transaction Documents") and to issue,
sell and deliver the Shares. Each of the Transaction Documents has been duly
authorized. This Agreement has been duly executed and delivered and
constitutes, and each of the other Transaction Documents, upon due execution
and delivery, will constitute, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
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(e) None of the execution and delivery of, or performance by the Company
under, any of the Transaction Documents or the consummation of the transactions
herein or therein contemplated conflicts with or violates, or will result in
the creation or imposition of, any lien, charge or other encumbrance upon any
of the assets of the Company under, any agreement or other instrument to which
the Company is a party or by which the Company or its assets may be bound, or
any term of the charter or bylaws of the Company, or any license, permit,
judgment, decree, order, statute, rule or regulation applicable to the Company
or any of its assets.
(f) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Memorandum. All outstanding shares
of capital stock of the Company are duly authorized, validly issued and
outstanding, fully paid and nonassessable. Except as set forth in the
Memorandum: (i) there are no outstanding options, stock subscription
agreements, warrants or other rights permitting or requiring the Company or
others to purchase or acquire any shares of capital stock or other equity
securities of the Company or to pay any dividend or make any other distribution
in respect thereof; (ii) there are no securities issued or outstanding which
are convertible into or exchangeable for any of the foregoing and there are no
contracts, commitments or understandings, whether or not in writing, to issue
or grant any such option, warrant, right or convertible or exchangeable
security; (iii) no shares of stock or other securities of the Company are
reserved for issuance for any purpose; (iv) there are no voting trusts or other
contracts, commitments, understandings, arrangements or restrictions of any
kind with respect to the ownership, voting or transfer of shares of stock or
other securities of the Company, including without limitation, any preemptive
rights, rights of first refusal, proxies or similar rights; and (v) no person
holds a right to require the Company to register any securities of the Company
under the Act or to participate in any such registration. The issued and
outstanding shares of capital stock of the Company conform to all statements in
relation thereto contained in the Memorandum and the Memorandum describes all
material terms and conditions thereof. All issuances by the Company of its
securities were exempt from registration under the Act and any applicable state
securities laws.
(g) The Shares and the Agent's Shares (as defined below) have been duly
authorized and, when issued and delivered against payment therefor as provided
in the Transaction Documents, will be validly issued, fully paid and
nonassessable, and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company other than as
provided in the Transaction Documents. No holder of any of the Shares or the
Agent's Securities (as defined below) will be subject to personal liability
solely by reason of being such a holder, and none of the Shares or the Agent's
Securities (as defined below) are subject to preemptive or similar rights of
any stockholder or securityholder of the Company or an adjustment under the
antidilution or exercise rights of any holders of any outstanding shares of
capital stock, options, warrants or other rights to acquire any securities of
the Company. A sufficient number of authorized but unissued shares of Common
Stock have been reserved for issuance upon the exercise of the Agent's Warrants
(as defined below).
(h) No consent, authorization or filing of or with any court or
governmental authority is required in connection with the issuance or the
consummation of the transactions contemplated herein or in the other
Transaction Documents, except for required filings with the SEC and applicable
"Blue Sky" or state securities commissions relating specifically to the
Offering (all of which filings have been made by the Company, other than those
which are required to be made after the Closing, and which will be duly made on
a timely basis).
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(i) The financial statements, together with the related notes, of the
Company provided to the Placement Agent present fairly the financial position
of the Company as of the respective dates specified and the results of its
operations and changes in financial position for the respective periods covered
thereby. Such financial statements and related notes were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. Except as set forth in such
financial statements or in the Memorandum, the Company has incurred no material
liabilities of any kind, whether accrued, absolute, contingent or otherwise or
entered into any material transactions. The other financial and statistical
information with respect to the Company and any pro forma information and
related notes included in the Memorandum present fairly the information shown
therein on a basis consistent with the audited and unaudited financial
statements of the Company included in the Memorandum. The Company does not
know of any facts, circumstances or conditions adversely affecting its
operations, earnings or prospects which have not been fully disclosed in the
Memorandum.
(j) The conduct of business by the Company as presently and proposed to be
conducted is not subject to continuing oversight, supervision, regulation or
examination by any governmental official or body of the United States or any
other jurisdiction wherein the Company conducts or proposes to conduct such
business, except as described in the Memorandum and except such regulation as
is applicable to commercial enterprises generally. The Company has obtained
all requisite licenses, permits and other governmental authorization to conduct
its business as presently, and as proposed to be, conducted.
(k) No default by the Company or, to the best knowledge of the Company,
any other party exists in the due performance under any of the agreements
referred to in the Memorandum to which the Company is a party or to which any
of its assets is subject (collectively, the "Company Agreements"). The Company
Agreements are the only material agreements to which the Company is bound or by
which its assets are subject, are accurately and fairly described in the
Memorandum and are in full force and effect in accordance with their respective
terms.
(l) Except as set forth in the Memorandum, there are no actions,
proceedings, claims or investigations, before or by any court or governmental
authority (or any state of facts which management of the Company has concluded
could give rise thereto) pending or, to the best knowledge of the Company,
threatened, against the Company, or involving its assets or any of its officers
or directors which, if determined adversely to the Company or such officer or
director, could result in any material adverse change in the condition
(financial or otherwise) or prospects of the Company or adversely affect the
transactions contemplated by this Agreement or the other Transaction Documents
or the enforceability thereof.
(m) The Company is not in violation of: (i) its charter or bylaws; (ii)
any indenture, mortgage, deed of trust, note or other agreement or instrument
to which the Company is a party or by which it is or may be bound or to which
any of its assets may be subject; (iii) any statute, rule or regulation; or
(iv) any judgment, decree, or order applicable to the Company, which violation
or violations individually, or in the aggregate, might result in any material
adverse change in the condition (financial or otherwise) or prospects of the
Company.
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(n) The Company does not own any real property in fee simple except as
contemplated in the Memorandum, and the Company has good and marketable title
to all personal property (tangible and intangible) owned by it, free and clear
of all security interests, liens and encumbrances, except such as are described
in the Memorandum.
(o) The Company owns or possesses adequate and enforceable rights to use
all patents, patent applications, trademarks, service marks, copyrights,
rights, trade secrets, confidential information, processes and formulations
necessary for the conduct of its business, except as otherwise described in the
Memorandum (collectively, the "Intangibles"). Except as set forth in the
Memorandum, to the best knowledge of the Company it has not infringed upon the
rights of others with respect to the Intangibles and the Company has not
received notice that it has or may have infringed or is infringing upon the
rights of others with respect to the Intangibles, or any notice of conflict
with the asserted rights of others with respect to the Intangibles which could,
individually or in the aggregate, materially and adversely affect, the
condition (financial or otherwise) or prospects of the Company. Except as set
forth in the Memorandum, to the best knowledge of the Company, no others have
infringed upon the Intangibles.
(p) Subsequent to the respective dates as of which information is given in
the Memorandum, the Company has operated its business diligently and only in
the ordinary course as theretofore conducted and, except as may otherwise be
set forth in the Memorandum, there has been no: (i) material adverse change in
the condition (financial or otherwise), of the Company; (ii)_transaction
otherwise than in the ordinary course of business; (iii)_issuance of any
securities (debt or equity) or any rights to acquire any such securities; (iv)
damage, loss or destruction, whether or not covered by insurance, with respect
to any asset or property of the Company; or (v) agreement to permit any of the
foregoing.
(q) The Company has filed, on a timely basis, each Federal, state, local
and foreign tax return which is required to be filed, or has requested an
extension therefor and has paid all taxes and all related assessments,
penalties and interest to the extent that the same have become due.
(r) The Company is not obligated to pay, and has not obligated the
Placement Agent to pay, a finder's or origination fee in connection with the
Offering and agrees to indemnify the Placement Agent from any such claim made
by any other person. The Company has not offered for sale or solicited offers
to purchase the Units except for negotiations with the Placement Agent. No
other person has any right to participate in any offer, sale or distribution of
the Company's securities to which the Placement Agent's rights, described
herein, shall apply.
(s) The Company has or will maintain appropriate casualty and liability
insurance coverage, in scope and amounts reasonable and customary for similar
businesses.
3. Placement Agent Appointment and Compensation. (a) The Company hereby
appoints the Placement Agent and its selected dealers as its exclusive agent in
connection with the Offering. The Company has not and will not make, or permit
to be made, any offers or sales of the Units other than through the Placement
Agent without its prior written consent. The Placement Agent has no obligation
to purchase any of the Units. The agency of the Placement Agent hereunder
shall continue until the later of the Termination Date or the Closing (as
defined below).
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(b) The Company has caused to be delivered to the Placement Agent copies
of the Memorandum and has consented, and hereby consents, to the use of such
copies for the purposes permitted by the Act and applicable securities laws,
and hereby authorizes the Placement Agent to use the Memorandum in connection
with the sale of the Units until the Termination Date, and no person other than
the Placement Agent is or will be authorized to give any information or make
any representations other than those contained in the Memorandum or to use any
offering materials other than those contained in the Memorandum in connection
with the sale of the Units.
(c) The Company will cooperate with the Placement Agent by making
available to its representatives such information as may be requested in making
a reasonable investigation of the Company and its affairs and shall provide
access to such employees as shall be reasonably requested.
(d) The Company shall pay to the Placement Agent a placement fee equal to
ten percent (10%) of the Offering Price of all the Units sold in the Offering
(the "Placement Agent's Fee"), and a non-accountable expense allowance of two
percent (2%) of the Offering Price of all the Units sold in the Offering (the
"Expense Allowance"). Payment of the proportional amounts of the Placement
Agent's Fee and the Expense Allowance will be made out of the proceeds of
subscriptions for the Units sold at Closing.
(e) As additional compensation hereunder, at Closing (as defined below),
the Company shall sell to the Placement Agent or its designees for an aggregate
purchase price of $1, warrants (the "Agent's Warrants") to purchase, at an
exercise price of $4.00 per share, a number of shares of Common Stock equal to
fifteen percent (15%) of the Shares contained in the Units sold in the Offering
(the "Agent's Shares"; and collectively, with the Agent's Warrants, the
"Agent's Securities"). The Agent's Warrants shall be exercisable until the
later of the date seven years after the date of the Closing or the date which
is three years after the closing date of the initial public offering of the
Company's securities within such seven year period (the "Warrant Exercise
Term"). If the Company at any time has any securities registered under the Act
or the Securities Exchange Act of 1934 (the "1934 Act"), the Company agrees to
register the Agent's Securities promptly on two separate occasions, at the
request of the holders of a majority of the Agent's Securities made at any time
during the Warrant Exercise Term. The Company shall pay all expenses, other
than underwriters' discounts and commissions, relating to registering the
Agent's Securities covered by the first request, and the holder(s) of such
Agent's Securities shall pay all reasonable registration expenses arising from
the second registration. Prior to the Closing, the Company and Placement Agent
shall enter into a warrant agreement (the "Warrant Agreement") which shall
contain such terms and other customary provisions including certain demand and
piggyback registration rights and anti-dilution provisions in form and
substance satisfactory to the Placement Agent and the Company.
(f) The Company shall also pay to the Placement Agent the Placement
Agent's Fee and Agent's Warrants with respect to, and based on, any investment
by any party ("Post Closing Investor") contacted by the Placement Agent in
connection with the Offering which invests in the Company at any time within
two (2) years from the later of the Termination Date or Closing.
4. Subscription and Closing Procedures. (a) Each prospective purchaser
will be required to complete and execute one original of each of the
Subscription Agreement and Registration Rights
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Agreement in the forms annexed to the Memorandum ("Subscription Documents"),
which will be forwarded or delivered to the Placement Agent at the Placement
Agent's offices at the address set forth in Section 11 hereof, together with
the subscriber's check or good funds in the full amount of the Offering Price
for the number of Units desired to be purchased.
(b) All funds for subscriptions received from the offering of the Units
will be promptly forwarded by the Placement Agent or the Company, if received
by it, to and deposited into the escrow account (the "Escrow Account")
established for such purpose with United States Trust Company of New York (the
"Escrow Agent"). All such funds for subscriptions will be held in the Escrow
Account pursuant to the terms of the Escrow Agreement among the Company, the
Placement Agent and the Escrow Agent. The Company will pay all fees related to
the establishment and maintenance of the Escrow Account. Any interest accruing
on funds in the Escrow Account shall be utilized first to reimburse the Company
for such fees and the balance shall be distributed to the Placement Agent.
Subject to the receipt of such subscriptions for all of the Units, the Company
will either accept or reject the Subscription Documents in a timely fashion and
at the Closing will countersign the Subscription Documents and provide
duplicate copies of such Agreements to the Placement Agent for distribution to
the subscribers. The Company will give notice to the Placement Agent of its
acceptance of each subscription. The Company will promptly return to
subscribers incomplete, improperly completed, improperly executed and rejected
subscriptions and give written notice thereof to the Placement Agent upon such
return.
(c) If subscriptions for all of the Units have been accepted prior to the
Termination Date, the funds therefor have been collected by the Escrow Agent
and all of the conditions set forth elsewhere in this Agreement are fulfilled,
a closing shall be held promptly with respect to the Units (including the
over-subscription Units) sold (the "Closing"). Delivery of payment for the
accepted subscriptions for Units from the funds held in the Escrow Account will
be made at Closing at the Placement Agent's offices against delivery of the
Units by the Company at the address set forth in Section 11 hereof (or at such
other place as may be mutually agreed upon between the Company and the
Placement Agent). Executed certificates for the Shares constituting the Units
and the Agent's Warrants will be in such authorized denominations and
registered in such names as the Placement Agent may request on or before the
second full business day prior to the date of the Closing ("Closing Date"), and
will be made available to the Placement Agent for checking and packaging at the
Placement Agent's office at least one full business day prior thereto.
(d) If Subscription Documents for all of the Units have not been received
and accepted by the Company on or before the Termination Date for any reason,
the Offering will be terminated, no Units will be sold, and the Escrow Agent
will, at the request of the Placement Agent, cause all monies received from
subscribers for the Units to be promptly returned to such subscribers without
interest, penalty, expense or deduction.
5. Further Covenants. The Company hereby covenants and agrees that:
(a) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Closing, take any action which
would cause any of the representations and warranties made by it in this
Agreement not to be complete and correct on and as of the Closing Date with the
same force and effect as if such representations and warranties had been made
on and as of each such date.
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(b) If, at any time prior to the Closing, any event shall occur which does
or may materially affect the Company or as a result of which it might become
necessary to amend or supplement the Memorandum so that the representations and
warranties herein remain true, or in case it shall, in the opinion of counsel
to the Placement Agent, be necessary to amend or supplement the Memorandum to
comply with Regulation D or any other applicable securities laws or
regulations, the Company will promptly notify the Placement Agent and shall, at
its sole cost, prepare and furnish to the Placement Agent copies of appropriate
amendments and/or supplements in such quantities as the Placement Agent may
request. The Company will not at any time, whether before or after the
Closing, prepare or use any amendment or supplement to the Memorandum of which
the Placement Agent will not previously have been advised and furnished with a
copy, or to which the Placement Agent or its counsel will have objected in
writing or orally (confirmed in writing within 24 hours), or which is not in
compliance with the Act, the Regulations and other applicable securities laws.
As soon as the Company is advised thereof, the Company will advise the
Placement Agent and its counsel, and confirm the advice in writing, of any
order preventing or suspending the use of the Memorandum, or the suspension of
the qualification or registration of the Shares for offering or the suspension
of any exemption for such qualification or registration of the Shares for
offering in any jurisdiction, or of the institution or threatened institution
of any proceedings for any of such purposes, and the Company will use its best
efforts to prevent the issuance of any such order and, if issued, to obtain as
soon as reasonably possible the lifting thereof.
(c) The Company shall comply with the Act, the Regulations, the 1934 Act
and the rules and regulations thereunder, all applicable state securities laws
and the rules and regulations thereunder in the states in which the Placement
Agent's Blue Sky counsel has advised the Placement Agent that the Units are
qualified or registered for sale or exempt from such qualification or
registration, so as to permit the continuance of the sales of the Units, and
will file with the SEC, and shall promptly thereafter forward to the Placement
Agent, any and all reports on Form D as are required.
(d) The Company shall use its reasonable best efforts to qualify the Units
for sale under the securities laws of such jurisdictions as may be mutually
agreed to by the Company and the Placement Agent, and the Company will make
such applications and furnish information as may be required for such purposes,
provided that the Company will not be required to qualify as a foreign
corporation in any jurisdiction. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualifications in effect for so long a period as the Placement Agent may
reasonably request.
(e) The Company shall place a legend on the certificates representing the
Shares issued to subscribers stating that the securities evidenced thereby have
not been registered under the Act or applicable state securities laws, setting
forth or referring to the applicable restrictions on transferability and sale
of such securities under the Act and applicable state laws.
(f) The Company shall apply the net proceeds from the sale of the Units to
fund its working capital requirements and for such other purposes as
specifically described under "Use of Proceeds" in the Memorandum. Except as
specifically set forth in the Memorandum, the net proceeds of the Offering
shall not be used to repay indebtedness to officers, directors or stockholders
of the Company without the prior written consent of the Placement Agent.
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(g) During the Offering Period, the Company shall make available for
review by prospective purchasers of the Units during normal business hours at
the Company's offices, upon their request, copies of the Company Agreements to
the extent that such shall not violate any obligation on the part of the
Company to maintain the confidentiality thereof and shall afford each
prospective purchaser of Units the opportunity to ask questions of and receive
answers from an officer of the Company concerning the terms and conditions of
the Offering and the opportunity to obtain such other additional information
necessary to verify the accuracy of the Memorandum to the extent it possesses
such information or can acquire it without unreasonable expense.
(h) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Closing, engage in or commit to
engage in any transaction outside the ordinary course of business or issue,
agree to issue or set aside for issuance any securities (debt or equity) or any
rights to acquire any such securities except as contemplated by the Memorandum.
(i) For a period of five years from the Closing, the Company shall deliver
(i)_to the Placement Agent and the Company's stockholders annual audited
financial statements setting forth fairly the financial position of the
Company; (ii)_to the Placement Agent quarterly unaudited financial statements
including both a balance sheet and statement of income; (iii)_to the Placement
Agent a copy of a list of its stockholders as and when so requested; and
(iv)_to the Placement Agent such additional information and documents
concerning the business and financial condition of the Company as the Placement
Agent may from time to time reasonably request.
(j) The Company shall pay all reasonable expenses incurred in connection
with the preparation and printing of all necessary offering documents and
instruments related to the Offering and the issuance of the Shares, the Agent's
Shares and the Agent's Warrants and will also pay the Company's own expenses
for accounting fees, legal fees, and other costs involved with the Offering.
The Company will provide at its own expense such quantities of the Memorandum
and other documents and instruments relating to the Offering as the Placement
Agent may reasonably request. In addition, the Company will pay all reasonable
filing fees, costs and legal fees for Blue Sky services and related filings and
expenses of counsel with respect to Blue Sky qualifications. The Blue Sky
filings shall be prepared by the Placement Agent's Blue Sky counsel and all
Blue Sky filing fees shall be paid by the Company prior to any filing. All
other fees and expenses of Blue Sky counsel shall be payable at Closing.
(k) Until the Termination Date, neither the Company nor any person or
entity acting on its behalf will negotiate with any other placement agent or
underwriter with respect to a private or public offering of the Company's or
any subsidiary's debt or equity securities without the prior written consent of
the Placement Agent, which shall not be unreasonably withheld. Neither the
Company nor anyone acting on its behalf will, until the Termination Date,
without the prior written consent of the Placement Agent, offer for sale to, or
solicit offers to subscribe for Units or other securities of the Company from,
or otherwise approach or negotiate in respect thereof with, any other person.
For a period of twenty-four (24) months after the Closing and subject to
Section 6(i) hereof, the Company will not, without the Placement Agent's prior
written consent, which shall not be unreasonably withheld, sell any securities,
or any rights to acquire any securities, of the Company (except pursuant to any
existing options, warrants and rights and option and similar plans described in
the Memorandum) or create any additional classes or series of capital stock.
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(l) Prior to the Closing, the Company will enter into an employment
agreement with Peter Livingston. Such agreement shall set forth terms of two
(2) years, reasonable compensation and expense provisions, non-competition
agreements, and other reasonable terms and conditions.
(m) Promptly upon request by the Placement Agent, the Company shall cause
its Board of Directors to have, and the Principal Stockholders (as defined
below) shall elect to the Board, at least one "independent" member who is
reasonably acceptable to the Placement Agent and who is unaffiliated with the
Placement Agent or the Company. In addition the Placement Agent shall have the
right, for a period of five (5) years from the Closing, to designate up to two
(2) persons reasonably acceptable to the Company to be, at the Placement
Agent's sole discretion, either nominees for director of the Company or
advisors to the Board of Directors of the Company. The Placement Agent
acknowledges and agrees that those directors are William I. Bergman and J.
Vernon Knight, who currently serve on the Company's Board of Directors. In the
event such persons are designated nominees for director, the Principal
Stockholders (as defined below) shall agree to vote in favor of such nominees
and the Company shall use its best efforts (which shall include, without
limitation, the solicitation of proxies on behalf of such nominees) to elect
such nominees to the Board of Directors. The Board of Directors shall consist
of not more than ten (10) directors. In the event such persons are designated
advisors, such persons shall receive notice of and have the right to attend all
regular and special meetings of the Board of Directors and shall be advised of
all actions which the Board intends to adopt by written consent, reasonably
prior to the adoption thereof. Such advisors will receive reimbursement of
reasonable expenses and such compensation for attending meetings equal to the
compensation received by any outside Director, but will have no power to vote.
The Company further agrees that it shall hold "in person" directors' meetings
no less frequently than quarterly. Thirty (30) days' advance notice of regular
meetings and such notice of special meetings as may be required to be given to
directors by statute or the Company's bylaws shall be given to the Placement
Agent. The Company agrees to indemnify and hold the Placement Agent harmless
against any and all claims, actions, awards, and judgments arising solely out
of the attendance and participation of the Placement Agent's designated
nominees or advisors at any such meeting described herein. In the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, it agrees, if possible, to include the Placement
Agent's designated advisors as insured under such policy. For the purposes
hereof, a "Principal Stockholder" shall mean any person, entity or group that
beneficially owns, directly or indirectly, five percent (5%) of the Company's
capital stock immediately preceding the Closing and all executive officers and
directors of the Company.
6. Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent hereunder are subject to the fulfillment, at or before the
Closing, of the following additional conditions:
(a) Each of the representations and warranties of the Company shall be
true and correct when made on the date hereof and on and as of the Closing Date
as though made on and as of the Closing Date.
(b) The Company shall have performed and complied with all agreements,
covenants and conditions required to be performed and complied with by it under
the Transaction Documents at or before Closing.
(c) No order suspending the use of the Memorandum or enjoining the
offering or sale of the Units shall have been issued, and no proceedings for
that purpose or a similar purpose shall have been initiated or pending, or, to
the best of the Company's knowledge, are contemplated or threatened.
10
<PAGE> 11
(d) As of the Closing, the Company will have an authorized capitalization
of not more than 30,000,000 shares of common stock and 12,000,000 shares of
Preferred Stock and will have an issued and outstanding capitalization as set
forth in the Memorandum.
(e) The Placement Agent shall have received certificates of the Chief
Executive Officer of the Company, dated as of the Closing Date, certifying, in
such detail as Placement Agent may reasonably request, as to the fulfillment of
the conditions set forth in subparagraphs (a), (b), (c) and (d) above.
(f) The Company shall have delivered to the Placement Agent (i) a
currently dated good standing certificate from the secretary of state of its
jurisdiction of incorporation and each jurisdiction in which the Company is
qualified to do business as a foreign corporation, and (ii) certified
resolutions of the Company's Board of Directors approving this Agreement and
the other Transaction Documents, and the transactions and agreements
contemplated by this Agreement and the other Transaction Documents.
(g) At Closing, (i) the independent auditors for the Company shall have
provided a letter confirming such matters as the Placement Agent may reasonably
request; and (ii) the Chief Executive Officer and the Chief Financial Officer
of the Company shall have provided a certificate to the Placement Agent
confirming the net worth of the Company and confirming that there have been no
material and adverse changes in the condition (financial or otherwise) or
prospects of the Company from the date of the financial statements included in
the Memorandum.
(h) At Closing, the Company shall have (i) delivered to the Placement
Agent, the Placement Agent's Fee and the Expense Allowance as set forth in
Section 3(d) hereof; (ii) reimbursed the Placement Agent for the fees and
disbursements of the Placement Agent's counsel and Blue Sky counsel; and (iii)
executed and delivered to the Placement Agent the Agent's Warrants in an amount
proportional to the Units sold.
(i) On or prior to the Closing, each of the Company's officers, directors
and present stockholders shall have agreed in writing not to sell, transfer or
otherwise dispose of any of the Company's securities beneficially owned by them
or issuable to them pursuant to the exercise of options, warrants or conversion
of other securities without the Placement Agent's written consent, which
consent shall not be unreasonably withheld, for a period of twenty-four (24)
months after the Closing. In addition, if within two (2) years of the Closing,
the Company registers any of its securities under the Act which registration is
effective, the officers, directors and present stockholders and any permitted
transferees will extend the terms of the "lock-up" set forth in this Section
6(i) for a period of not less than the shorter of 180_days from the effective
date of such registration or completion of the offering contemplated thereby,
provided, however, that in the event that such registration is an underwritten
registration and the underwriter shall agree, such officers, directors and
present stockholders may sell shares in such offering in accordance with any
piggy-back registration rights granted to such persons and in effect on the
date hereof.
(j) On or prior to the Closing, the Company shall have agreed in writing
to give the Placement Agent, for a period of five (5) years from the Closing,
the irrevocable preferential right of first refusal described below to purchase
for the Placement Agent's account, or to act as underwriter or agent for any
proposed public or private offering of, the Company's securities by the
Company. The Company agrees to offer the Placement Agent the opportunity to
purchase or sell such securities on terms no less favorable than they can
obtain elsewhere. If, within 30 business days of the receipt of a notice of
11
<PAGE> 12
intention and statement of terms, the Placement Agent does not accept in
writing such offer to purchase such securities or to act as underwriter or
agent with respect to such offering upon the terms proposed, and subject to
Section_6(i) hereof, the Company shall be free to negotiate terms with third
parties with respect to such offering and to effect such offering on such
proposed terms. Before the Company shall accept any proposal less favorable to
them, the Placement Agent's preferential right shall be applied, and the
procedure set forth above with respect to such modified proposal adopted. The
Placement Agent's failure to exercise these preferential rights in any
situation shall not affect the Placement Agent's preferential rights to any
subsequent offering during the term of such agreement.
(k) There shall have been delivered to the Placement Agent a signed
opinion of counsel to the Company ("Company Counsel"), dated as of Closing
Date, substantially in the form of Exhibit_A hereto and otherwise in form and
substance satisfactory to counsel to the Placement Agent.
(l) All proceedings taken at or prior to Closing in connection with the
authorization, issuance and sale of the Units and the Agent's Warrants will be
reasonably satisfactory in form and substance to the Placement Agent and its
counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
7. Indemnification. (a) The Company will (i) indemnify and hold
harmless the Placement Agent, its selected dealers and their respective
officers, directors, employees and each person, if any, who controls the
Placement Agent and such selected dealers (each an "Indemnitee") within the
meaning of the Act against, and pay or reimburse each Indemnitee for, any and
all losses, claims, damages, liabilities or expenses whatsoever (or actions or
proceedings or investigations in respect thereof), joint or several (which
will, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all reasonable attorneys' fees,
including appeals), to which any Indemnitee may become subject, under the Act
or otherwise, in connection with the offer and sale of the Units, whether such
losses, claims, damages, liabilities or expenses shall result from any claim of
any Indemnitee or any third party; and (ii) reimburse each Indemnitee for any
legal or other expenses reasonably incurred in connection with investigating or
defending against any such loss, claim, action, proceeding or investigation;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, damage or liability results from (A) an untrue
statement or alleged untrue statement of a material fact made in the Memorandum
or an omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
reliance upon and in conformity with written information furnished to the
Company by the Placement Agent or any such controlling persons specifically for
use in the preparation thereof, or (B) any violations by the Placement Agent of
the Act or state securities laws which does not result from a violation thereof
by the Company or any of its affiliates. In addition to the foregoing
agreement to indemnify and reimburse, the Company will indemnify and hold
harmless each Indemnitee against any and all losses, claims, damages,
liabilities or expenses whatsoever (or actions or proceedings or investigations
in respect thereof), joint or several (which shall for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees, including appeals) to which
any Indemnitee may become subject insofar as such costs, expenses, losses,
claims, damages or liabilities arise out of or are based upon the claim of any
person or entity that he or it is entitled to broker's or finder's fees from
any Indemnitee in connection with the Offering. The foregoing indemnity
agreements will be in addition to any liability which the Company may otherwise
have.
12
<PAGE> 13
(b) The Placement Agent will indemnify and hold harmless the Company, its
officers, directors, employees and each person, if any, who controls the
Company within the meaning of the Act against, and pay or reimburse any such
person for, any and all losses, claims, damages or liabilities or expenses
whatsoever (or actions, proceedings or investigations in respect thereof) to
which the Company or any such person may become subject under the Act or
otherwise, whether such losses, claims, damages, liabilities or expenses shall
result from any claim of the Company, any of its officers, directors,
employees, any person who controls the Company within the meaning of the Act or
any third party, insofar as such losses, claims, damages or liabilities are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Memorandum but only with reference to information
contained in the Memorandum relating to the Placement Agent furnished in
writing to the Company by the Placement Agent, specifically for use in the
preparation thereof. The Placement Agent will reimburse the Company or any
such person for any legal or other expenses reasonably incurred in connection
with investigating or defending against any such loss, claim, damage, liability
or action, proceeding or investigation to which such indemnity obligation
applies. The foregoing indemnity agreements will be in addition to any
liability which the Placement Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, claim, proceeding or investigation
("Action"), such indemnified party, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, will notify the
indemnifying party of the commencement thereof, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 7 unless the indemnifying party has
been substantially prejudiced by such omission. The indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, to assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party. The indemnified party will have the right to employ
separate counsel in any such Action and to participate in the defense thereof,
but the fees and expenses of such counsel will not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
Action with counsel reasonably satisfactory to the indemnified party, provided,
however, that if the indemnified party shall be requested by the indemnifying
party to participate in the defense thereof or shall have concluded in good
faith and specifically notified the indemnifying party either that there may be
specific defenses available to it which are different from or additional to
those available to the indemnifying party or that such Action involves or could
have a material adverse effect upon it with respect to matters beyond the scope
of the indemnity agreements contained in this Agreement, then the counsel
representing it, to the extent made necessary by such defenses, shall have the
right to direct such defenses of such Action on its behalf and such case the
fees and expenses of such counsel in connection with any such participation or
defenses shall be paid by the indemnifying party. No settlement of any Action
against an indemnified party will be made without the consent of the
indemnifying party and the indemnified party, which consent shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party and no indemnifying party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party's
consent.
8. Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section 7
hereof and it is finally determined, by a judgment, order or decree not subject
to further appeal that such claims for indemnification may not be enforced,
even though this Agreement expressly provides for indemnification in such case;
or (ii) any indemnified
13
<PAGE> 14
or indemnifying party seeks contribution under the Act, the 1934 Act, or
otherwise, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Placement Agent on the other in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Placement Agent on the other shall be deemed to
be in the same proportion as the total net proceeds from the Offering (before
deducting expenses) received by the Company bear to the total commissions and
fees received by the Placement Agent. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission will
be determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information supplied by the
Company or by the Placement Agent, 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 Placement
Agent agree that it would be unjust and inequitable if the respective
obligations of the Company and the Placement Agent for contribution were
determined by pro rata allocation of the aggregate losses, liabilities, claims,
damages and expenses or by any other method or allocation that does not reflect
the equitable considerations referred to in this Section 8. No person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Placement Agent within the meaning of the Act will have
the same rights to contribution as the Placement Agent, and each person, if
any, who controls the Company within the meaning of the Act will have the same
rights to contribution as the Company, subject in each case to the provisions
of this Section 8. Anything in this Section 8 to the contrary notwithstanding,
no party will be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8 is
intended to supersede, to the extent permitted by law, any right to
contribution under the Act, the 1934 Act or otherwise available.
9. Termination. (a) The Offering may be terminated by the Placement
Agent at any time prior to the expiration of the Offering Period as
contemplated in Section_1(b) hereof ("Expiration Date") in the event that
(i)_any of the representations or warranties of the Company contained herein
shall prove to have been false or misleading in any material respect when made
or deemed made; (ii)_the Company shall have failed to perform any of its
material obligations hereunder; (iii)_the Placement Agent shall determine that
it is reasonably likely that any of the conditions to Closing set forth herein
will not, or cannot, be satisfied; or (iv)_there shall occur any event which
could adversely affect the Transactions contemplated hereby or the other
Transaction Documents or the ability of the parties to perform thereunder. In
the event of any such termination occasioned by or arising out of or in
connection with any breach or failure hereunder on the part of the Company, the
Placement Agent shall be entitled to receive, in addition to other rights and
remedies it may have hereunder, at law or otherwise, an amount equal to the sum
of all Placement Agent's Fees earned through the Closing, the full amount of
the Expense Allowance (deeming, for this purpose, all Units offered as having
been sold), all amounts payable to Placement Agent's Blue Sky counsel and
related fees, all amounts which may become payable in respect of Post-Closing
Investors pursuant to Section_3(f) hereof and, in the event that the Company is
sold, merged or otherwise acquired, or the Company enters into a letter of
intent or completes a public or private offering of its securities within one
year from the Termination Date in respect of which the Placement Agent has
waived its rights under Section 6(j) hereof, an investment banking fee equal to
five
14
<PAGE> 15
percent (5%) of the total consideration received by the Company and/or its
stockholders in connection with such sale, merger, acquisition or sale of
securities. In the event of any such termination by the Placement Agent as a
result of any event described in clause (iv) above, or pursuant to Section_4(d)
hereof, not occasioned by or arising out of or in connection with any breach or
failure hereunder by the Company, the Placement Agent will be entitled to
receive the amounts set forth in the preceding sentence, provided that the
amount of the Expense Allowance shall be limited to amounts previously advanced
and/or paid in respect thereof and to be paid at the Closing.
(b) This Offering may be terminated by the Company at any time prior to
the Expiration Date in the event that (i)_the Placement Agent shall have
failed to perform any of its material obligations hereunder; or (ii)_there
shall occur any event described in Section_9(a)(iv) above not occasioned by or
arising out of or in connection with any breach or failure hereunder on the
part of the Company. In the event of any termination by the Company pursuant
to clause (i) above, the Placement Agent shall be entitled to retain all
Placement Agent's Fees earned through the Closing and all amounts advanced or
paid in respect of the Expense Allowance, plus the non-refundable amounts paid
to Placement Agent's counsel for Blue Sky counsel fees and expenses but shall
owe no other amounts whatsoever except as may be due under any indemnity or
contribution obligation provided herein or any other Transaction Document, at
law or otherwise. In the event of any termination by the Company pursuant to
clause (ii) above, the provisions of Section_9(c) hereof shall apply.
(c) Upon any such termination, the Escrow Agent will, at the request of
the Placement Agent, cause all monies received in respect of subscriptions for
Units not accepted by the Company to be promptly returned to such subscribers
without interest, penalty, expense or deduction.
10. Survival. (a) The obligations of the parties to pay any costs and
expenses hereunder and to provide indemnification and contribution as provided
herein shall survive any termination hereunder.
(b) The respective indemnities, agreements, representations, warranties
and other statements of the Company set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of, and regardless of any access to information by, the
Company or the Placement Agent, or any of their officers or directors or any
controlling person thereof, and will survive the sale of the Units.
11. Notices. All communications hereunder will be in writing and, except
as otherwise expressly provided herein or after notice by one party to the
other of a change of address, if sent to the Placement Agent, will be mailed,
delivered or telefaxed and confirmed to Spencer Trask Securities Incorporated,
535 Madison Avenue, 18th Floor, New York, New York 10022, Attention: Laura
McNamara, with a copy to Hertzog, Calamari & Gleason, 100 Park Avenue, New
York, NY 10017, Attn: Stephen A. Ollendorff, Esq. and if sent to the Company,
will be mailed, delivered or telefaxed and confirmed to ZymeTx, Inc., 25 N.W.
4th Street, Oklahoma City, OK 73102, Attn: Peter Livingston with a copy to
Phillips McFall McCaffrey McVay & Murrah, P.C., One Leadership Square, 12th
Floor, 211 North Robinson, Oklahoma City, OK 73102 Attn: Douglas A. Branch,
Esq.
12. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Placement Agent, the Company, any person controlling
either of them, and their respective executors, administrators, successors and
assigns; and no other person will acquire or have any rights under or by
15
<PAGE> 16
virtue of this Agreement. The term "successors and assigns" will not include
any purchaser, as such purchaser, of the Shares.
13. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY PERFORMED WITHIN SUCH
STATE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW
YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
AGREEMENT CONTEMPLATED HEREBY, AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR FEDERAL COURT. THE COMPANY FURTHER WAIVES ANY
OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING
IN SUCH STATE ON THE BASIS OF A NON-CONVENIENT FORUM. THE COMPANY FURTHER
AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE PLACEMENT AGENT SHALL
BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL COURTS SITTING IN
NEW YORK COUNTY. SERVICE OF PROCESS MAY BE MADE UPON THE COMPANY BY MAILING A
COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED MAIL, AT ITS ADDRESS TO BE USED
FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT. THE COMPANY AND THE PLACEMENT
AGENT EACH AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY. THE PLACEMENT AGENT OR THE COMPANY, AS THE
CASE MAY BE, SHALL BE ENTITLED TO COSTS AND REASONABLE ATTORNEY'S FEES IN THE
EVENT IT PREVAILS IN ANY CLAIMS, ACTIONS, AWARDS OR JUDGMENT UNDER THIS
AGREEMENT.
14. Miscellaneous. No provision of this Agreement may be changed or
terminated except by writing signed by the party or parties to be charged
therewith. Unless expressly so provided, no party to this Agreement will be
liable for the performance of any other party's obligations hereunder. Any
party hereto may waive compliance by the other with any of the terms,
provisions and conditions set forth herein; provided, however that any such
waiver shall be in writing specifically setting forth those provisions waived
thereby. No such waiver shall be deemed to constitute or imply waiver of any
other term, provision or condition of this Agreement. This Agreement contains
the entire agreement between the parties hereto and is intended to supersede
any and all prior agreements between the parties relating to the same subject
matter. This agreement may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute a single agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Placement Agent in accordance with its
terms.
Very truly yours,
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
-----------------------------------
Peter Livingston
President
Accepted and agreed to this
2nd day of July, 1997.
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ WILLIAM P. DIOGUARDI
-----------------------------------
William P. Dioguardi
President
16
<PAGE> 1
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
June 30, March 31,
-------------------------- -----------------------------
1995 1996 1996 1997
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Net loss $(4,970) $(369,650) $(170,507) $(1,978,105)
Preferred stock dividend requirements - - - (6,267)
------- --------- --------- -----------
Net loss applicable to common stockholders $(4,970) $(369,650) $(170,507) $(1,984,372)
======= ========= ========= ===========
Calculation of shares outstanding for
computing net loss per common and common
equivalent share:
Weighted average common shares
outstanding 43,500 43,500 43,500 905,765
Adjustments to reflect requirements of
the Securities and Exchange
Commission (effect of SAB 83) 1,330,834 1,330,834 1,330,834 469,062
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 1,374,334 1,374,334 1,374,334 1,374,827
========= ========= ========= =========
Net loss per common and common
equivalent share $ - $(.27) $(.12) $(1.44)
========= ========= ========= =========
Calculation of shares outstanding for
computing supplemental net loss per
common and common equivalent share:
Weighted average common shares
outstanding 43,500 905,765
Effect of assumed conversion of
preferred shares 1,618,594 1,618,594
Adjustments to reflect requirements of
the Securities and Exchange
Commission (effect of SAB 83)
1,330,834 469,062
--------- ---------
Supplemental weighted average common
and common equivalent shares
outstanding 2,992,928 2,993,421
========= =========
Supplemental net loss per common and
common equivalent share
$ (.12) $ (.66)
========== ==========
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 17, 1997, except for the first paragraph of Note
8, as to which the date is August 7, 1997, in the Registration Statement (Form
SB-2 No. 333-_________) and related Prospectus of ZymeTx, Inc. for the
registration of 2,645,000 shares of its common stock.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 12, 1997
<PAGE> 1
Exhibit 23.2
Consent of Counsel
Phillips McFall McCaffrey McVay & Murrah, P.C. hereby consents to the use
of its name under the heading "Legal Matters" in the Prospectus constituting
a part of Form SB-2 Registration Statement of ZymeTx, Inc. ("ZymeTx") for the
registration of 2,300,000 shares of ZymeTx common stock (2,645,000 shares
assuming the exercise in full of the overallotment option).
/s/ PHILLIPS McFALL McCAFFREY
---------------------------------
Phillips McFall McCaffrey
McVay & Murrah, P.C.
Oklahoma City, Oklahoma
August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
REGISTRANTS FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1996 AND
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> MAR-31-1997 JUN-30-1996
<CASH> 675,991 39,469
<SECURITIES> 1,571,948 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 64,088 0
<CURRENT-ASSETS> 2,331,153 39,469
<PP&E> 364,536 50,447
<DEPRECIATION> 37,247 17,697
<TOTAL-ASSETS> 2,780,488 132,307
<CURRENT-LIABILITIES> 308,294 115,415
<BONDS> 0 0
125,000 0
6,318 0
<COMMON> 920 44
<OTHER-SE> 2,057,473 (372,664)
<TOTAL-LIABILITY-AND-EQUITY> 2,780,488 132,307
<SALES> 7,069 7,756
<TOTAL-REVENUES> 8,372 7,756
<CGS> 2,200 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,014,566 368,068
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 46,129 9,338
<INCOME-PRETAX> (1,978,105) (369,650)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,978,105) (369,650)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,978,105) (369,650)
<EPS-PRIMARY> (1.44) (.27)
<EPS-DILUTED> (1.44) (.27)
</TABLE>
