<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-33563
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
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 (I.R.S. Employer
Industrial
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:
<TABLE>
<S> <C>
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
</TABLE>
---------------------
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. [ ]
---------------------
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.
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1997
PROSPECTUS
2,300,000 SHARES
ZYMETX LOGO
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 $7.00
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 PROCEEDS TO
PRICE TO THE PUBLIC AND COMMISSIONS(1) 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> 3
[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.]
[4-COLOR ARTWORK]
<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."
---------------------
<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 Underwriters' 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's contribution to the infection process.
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 received FDA
clearance for marketing ZstatFlu on September 10, 1997 and has initiated its
marketing plans with managed care organizations and distributors to physicians
to coincide with the 1997-98 influenza season which is expected to begin in
November 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.
1
<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. According to a
compilation of information prepared by Robert S. First, Inc., Management
Consultants, and derived from statistics published by the American Lung
Association, National Center for Health Statistics and Centers for Disease
Control, there are over 155 million significant respiratory 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 20,000 FDA-approved drugs in the U.S. in 1997 listed in the 1997
edition of the Physician's Desk Reference, only 20 were identified by the
Company as antivirals.
The Company believes that because of 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 annual estimated cost to the U.S. healthcare system of antibiotic-resistant
organisms exceeds $30 billion according to Laurie Garrett, author of The Coming
Plague, a non-fiction analysis of newly emerging diseases world-wide. The
Company believes that products using ViraZyme technology will contribute to the
reduction of the over-prescription of antibiotics 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,
$.001 par value (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."
2
<PAGE> 7
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.
THE OFFERING
<TABLE>
<S> <C>
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 1998-99
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
</TABLE>
- ---------------
(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
482,000 shares are subject to outstanding options. See "Underwriting" and
"Management -- Stock Option Plans."
3
<PAGE> 8
SUMMARY -- FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial information of
the Company for each of the three years in the period ended June 30, 1997. 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,
------------------------------------
1995(1) 1996 1997
--------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA
Total revenues........................................... $ 9,197 $ 7,756 $ $9,799
Operating expenses
Research and development............................... 10,441 268,731 1,098,167
Cost of sales.......................................... -- -- 2,200
Acquired technology and patent costs from OMRF......... -- -- 958,505
General and administrative............................. 757 98,911 637,262
Depreciation and amortization.......................... -- 426 27,991
--------- ---------- -----------
Total operating expenses................................. 11,198 368,068 2,724,125
--------- ---------- -----------
Loss from operations..................................... (2,001) (360,312) (2,714,326)
Total other income (expense)............................. (2,969) (9,338) 38,056
--------- ---------- -----------
Net loss................................................. $ (4,970) $ (369,650) $(2,676,270)
========= ========== ===========
Net loss applicable to common stock...................... $ (4,970) $ (369,650) $(2,684,874)
========= ========== ===========
Net loss per common share and common equivalent share.... $ -- $ (.26) $ (1.88)
========= ========== ===========
Weighted average common and common equivalent shares
outstanding............................................ 1,429,334 1,429,334 1,429,829
========= ========== ===========
Supplemental net loss per common and common equivalent
share.................................................. $ (.12) $ (.88)
========== ===========
Supplemental weighted average common and common
equivalent shares...................................... 3,047,928 3,048,423
========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------
PRO FORMA
------------------------------
AS ADJUSTED
FOR THE 1997
PRIVATE AS ADJUSTED FOR
ACTUAL PLACEMENT(2) THE OFFERING(3)
----------- ------------ ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and investment securities
available for sale................................. $ 1,820,694 $ 6,786,694 $20,786,694
Total assets......................................... 2,382,977 7,307,977 21,307,977
Long-term obligations and redeemable preferred
stock.............................................. 459,865 459,865 334,865
Deficit accumulated during development stage......... (3,050,890) (3,050,890) (3,050,890)
Total stockholders' equity........................... 1,373,158 6,298,158 20,423,158
</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 low point of the range
set forth on the cover of this Prospectus) for estimated proceeds, net of
offering costs, of $14,000,000.
4
<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 fiscal 1997, the Company had a net
loss of $2.7 million, and through June 30, 1997 has a deficit accumulated during
the development stage of $3.1 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. 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.
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. There are no
preliminary agreements or understandings between the Company and any such large
corporate partners with respect to such financing. If relationships with
corporate partners are not secured, the Company will be required to seek
additional equity or debt capital to continue these activities. There can be no
assurance that the Company can obtain such additional capital upon terms
acceptable to the Company, or at all. See "Business -- Sales and Marketing" and
"Business -- Therapeutic Research Program."
Reliance on Distributors. The Company does not currently have a sales force
for the marketing of ZstatFlu or any other products of the Company. The Company,
under FDA regulations, was unable to market ZstatFlu until FDA 510(k) clearance
was received in September 1997. Accordingly, the Company has only recently
established marketing agreements with distributors. Any delays 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 manufactur-
5
<PAGE> 10
ing facility, the Company has engaged Diagnostic Chemicals Limited (USA) ("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. Although the Company has produced a portion of its
requirements for the 1997-98 influenza season, not all units have been produced
by DCL. Delays by DCL 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. See "Business -- Manufacturing Arrangements; Sources
of Raw Material."
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 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 Material."
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
6
<PAGE> 11
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. While the Company's ZstatFlu
product has received FDA clearance, there can be no assurance that the FDA will
not require longer, more costly protocols than required under the 510(k)
procedure for its future diagnostic products or additional testing for continued
marketing of ZstatFlu.
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
7
<PAGE> 12
widely from country to country and could delay introduction of the Company's
products in those countries. See "Business -- Government Regulation."
The Company and its third-party manufacturers such as DCL are 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
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 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 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 has secured limited product liability insurance in
the aggregate amount of $11.0 million for products that the Company markets.
There can be no assurance 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.
8
<PAGE> 13
Recognition of Preferred Dividend for Fiscal 1998. As a consequence of the
difference between the price per share of Common Stock in this Offering and the
$4.00 effective price per share in the 1997 Private Placement, the Company may
be required to recognize a preferred non-cash dividend equal to such price
difference. Based on an initial public offering price per share of $7.00 (the
low point in the range set forth on the cover of this Prospectus), the Company
estimates that the amount of such dividend would be as much as $3.00 per share
on 1,437,500 shares and would reduce net income applicable to Common Stock and
earnings per share. The Company believes that the recognition of a preferred
dividend would be made in the fiscal quarter in which this Offering is
completed. Recognition of a preferred dividend will not, however, reduce cash
flow from operations, reduce net income of the Company in that quarter or
increase any net loss. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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 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 a 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.
9
<PAGE> 14
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 ZstatFlu
or any of 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 clearances, 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 products.
There can be no assurance that the Company will be able to 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.
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, executives 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, G. Carl Gibson, Controller, Secretary and Treasurer, and Robert J.
Hudson, M.D., Medical Director. 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
10
<PAGE> 15
("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 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 low point in the range set forth on the cover of this Prospectus),
this Offering involves an immediate dilution of approximately $3.76 per share of
Common Stock (approximately 53.7% of the offering price per share) between the
offering price per share and the pro forma 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 low 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 ("Capital
West"), 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; however, 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 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
11
<PAGE> 16
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 Securities") 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 2,685,780 Restricted Shares (the
"13-Month Lock-up Shares"), or approximately 42.8%, 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. 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 1,248,280
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 954,065
Restricted Shares (the "24-Month Lock-up Shares"), or approximately 15.2% 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.
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 24-Month Lock-up
Shares who have registration rights to resell their respective shares without
restriction. See "Shares Eligible for Future Sale."
Stockholders who collectively hold 229,688 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 closing of the Offering.
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 482,000 shares are subject
to outstanding options at a weighted average exercise price of $1.44 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
12
<PAGE> 17
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.
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' overallotment option is exercised in full),
assuming an initial offering price of $7.00 per share (the low 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' overallotment option) in fiscal 1999 approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
USE DOLLAR AMOUNT NET PROCEEDS
--- ------------- -------------
<S> <C> <C>
Inventory production costs................................ $ 8,000,000 57.1%
Research and development.................................. 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 for any particular use 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.
13
<PAGE> 18
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.
DILUTION
At June 30, 1997, pro forma net tangible book value of the Company's Common
Stock was approximately $6.2 million, or $1.55 per share, after giving effect to
the 1997 Private Placement, as if completed at June 30, 1997 and the conversion
of all outstanding shares of Preferred Stock into 3,056,094 shares of Common
Stock. "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
low point in the range set forth on the cover of this Prospectus), the adjusted
pro forma net tangible book value of Common Stock at June 30, 1997 would have
been approximately $3.24 per share of Common Stock. This will represent an
immediate dilution of $3.76 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 June 30,
1997................................................... $1.55
Increase attributable to new investors.................... 1.69
-----
Pro forma net tangible book value per share after the
Offering.................................................. 3.24
-----
Dilution per share to new investors......................... $3.76
=====
</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
affiliates................... 1,048,330 31.3% $ 453,631 2.7% $ .43
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.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth: (i) the capitalization of the Company as of
June 30, 1997; (ii) the effect of the completion of the 1997 Private Placement
with net proceeds to the Company of approximately $4.9 million, as if completed
at June 30, 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 low 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>
JUNE 30, 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............................... $ 334,865 $ 334,865 $ 334,865
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 June 30, 1997........... 6,318 6,318 --
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 June 30, 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.... (3,050,890) (3,050,890) (3,050,890)
----------- ----------- -----------
Total stockholders' equity..................... 1,373,158 6,298,158 20,423,158
----------- ----------- -----------
Total capitalization........................... $ 1,833,023 $ 6,758,023 $20,758,023
=========== =========== ===========
</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."
15
<PAGE> 20
PRO FORMA BALANCE SHEET
The following unaudited Pro Forma Balance Sheet as of June 30, 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 June 30, 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.
16
<PAGE> 21
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
THE 1997 FOR THE 1997 PRO FORMA
PRIVATE PRIVATE ADJUSTMENTS FOR PRO FORMA FOR
ACTUAL PLACEMENT PLACEMENT THE OFFERING THE OFFERING
----------- --------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents... $ 226,312 $4,966,000(1) $ 5,192,312 $14,000,000(3) $19,192,312
Marketable securities,
available-for-sale........ 1,594,382 1,594,382 1,594,382
Inventory................... 99,107 99,107 99,107
Prepaid insurance and
other..................... 9,210 9,210 9,210
----------- ---------- ----------- ----------- -----------
Total current
assets............. 1,929,011 4,966,000 6,895,011 14,000,000 20,895,011
Property, equipment and
leasehold improvements,
net......................... 295,393 295,393 295,393
Proprietary technology and
other intangibles, net...... 116,827 116,827 116,827
Deferred offering costs and
other, net.................. 41,746 (41,000)(1) 746 746
----------- ---------- ----------- ----------- -----------
Total assets......... $ 2,382,977 $4,925,000 $ 7,307,977 $14,000,000 $21,307,977
=========== ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............ $ 540,025 $ 540,025 $ 540,025
Other....................... 9,929 9,929 9,929
----------- ----------- -----------
Total current
liabilities........ 549,954 549,954 549,954
Long term obligations --
Note payable to stockholder
due after one year........ 265,836 265,836 265,836
Deferred lease rentals...... 69,029 69,029 69,029
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..... (3,050,890) (3,050,890) (3,050,890)
Unrealized holding gains on
marketable securities
available for sale........ 6,612 6,612 6,612
----------- ---------- ----------- ----------- -----------
Total stockholders'
equity............. 1,373,158 4,925,000 6,298,158 14,125,000 20,423,158
----------- ---------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity............. $ 2,382,977 $4,925,000 $ 7,307,977 $14,000,000 $21,307,977
=========== ========== =========== =========== ===========
</TABLE>
17
<PAGE> 22
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 at an assumed offering price of $7.00 per share (the low point in
the range set forth on the cover of this Prospectus).
<TABLE>
<S> <C>
Offering proceeds........................................... $ 16,100,000
Less:
Commissions............................................... (1,288,000)
Expenses.................................................. (812,000)
------------
Net proceeds................................................ $ 14,000,000
============
</TABLE>
18
<PAGE> 23
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 June 30,
1997, had a deficit accumulated during the development stage of $3.1 million.
The Company's ability to achieve revenues and profitability will be
dependent on its ability to scale-up manufacturing and establish distribution
channels for ZstatFlu. 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.
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 1997 to fiscal 1996 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) scale-up
and complete manufacturing of ZstatFlu for the 1997-98 influenza season; (ii)
establish distribution channels and market ZstatFlu; and (iii) continue viral
therapeutic and diagnostic research and development.
After completion of this Offering the Company believes it 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, and for 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.
In addition, product development expenditures of $1.0 million for fiscal
1998 are planned for improvements and further development of products which have
been cleared by the FDA. The extent to which the Company increases research and
development expenses in fiscal 1998 is dependent upon revenues generated in
fiscal 1998 from ZstatFlu. See "Business -- ZstatFlu" and
"Business -- Therapeutic Research Program."
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, 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 or lease financing. The Company may lease a manufacturing 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.
19
<PAGE> 24
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 $1.1 million for 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.
Contract labor expense (which is included in research and development and
general and administrative categories) was $.7 million for 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 $.6 million for 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 June 30, 1997, the Company had cash and securities available for sale of
$1.8 million and working capital of $1.4 million. The Company funded its
operations through June 30, 1997, primarily through private placements of equity
securities providing net proceeds of approximately $4.4 million completed in the
first and second quarters of fiscal 1997, and interest income earned on the net
proceeds therefrom. Subsequent to June 30, 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. 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 marketing 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 to $15.
In addition to the Company's working capital needs for fiscal 1998, the
Company will require significantly larger amounts of 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 influenza season, with a total
manufacturing cost of approximately $16.0 million. The Company can give no
assurance that 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. There is
no assurance that the Company will sell all of these units. See "Risk Factors."
20
<PAGE> 25
As a consequence of the difference between the price per share of Common
Stock in this Offering and the $4.00 effective price per share in the 1997
Private Placement, the Company may be required to recognize a preferred non-cash
dividend equal to such price difference. Based on an initial public offering
price per share of $7.00 (the low point in the range set forth on the cover of
this Prospectus) the Company estimates that the amount of such dividend would be
as much as $3.00 per share on 1,437,500 shares and would reduce net income
applicable to Common Stock and earnings per share. The Company believes that the
recognition of a preferred dividend would be made in the fiscal quarter in which
this Offering is completed. Recognition of a preferred dividend will not,
however, reduce cash flow from operations, reduce net income of the Company in
that quarter or increase any net loss. See "Risk Factors -- Recognition of
Preferred Dividend for Fiscal 1998."
21
<PAGE> 26
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 and to continue the Company's viral
diagnostic 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 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 products. 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.
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
22
<PAGE> 27
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, 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 fiscal 1997, the Company incurred research and
development expenses of $.3 million and $1.1 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.
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 front
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
23
<PAGE> 28
(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. A positive test result is predictive of influenza, while a negative
test result is presumptive that influenza is not present.
Product Status. The Company received FDA 510(k) clearance for its ZstatFlu
product on September 10, 1997. The Company expects to sell ZstatFlu at a price
to distributors between $12 to $15 per unit, depending on volume discounts.
OTHER 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
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 HSV 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."
24
<PAGE> 29
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 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>
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. Following FDA 510(k) clearance of ZstatFlu on September 10, 1997, the
Company made distribution arrangements with Bergen Brunswig Drug Co. and
McKesson General Medical Corporation. See "Risk Factors -- Reliance on
Distributors."
The focus of the Company's sales effort during the first sales 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.
25
<PAGE> 30
As the Company's production capacity increases during the second sales year,
more emphasis will be given to expanding into other markets.
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 upper respiratory infection
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.
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.
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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 need 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 -- Dependence on Corporate Collaborations for Therapeutic Products" and
"Risk Factors -- No Manufacturing Capability; Reliance on Third-Party
Manufacturers."
MANUFACTURING ARRANGEMENTS; SOURCES OF RAW MATERIAL
The Company has committed to pay DCL to process raw material into ZstatFlu
units at specified batch prices. Unit prices will vary depending upon batch
yields. 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 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. 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
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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 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 -- Dependence on Corporate Collaborations for Therapeutic
Products."
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 2014. 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
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
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<PAGE> 33
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 developed during a research collaboration between Symex
Corp. ("Symex") and Biota or utilizing intellectual property ("Collaboration
Intellectual Property") developed during or as a result of this research
collaboration. The Company does not believe that the ZstatFlu product utilizes
Collaboration Intellectual Property or other compounds developed during or as a
result of this collaboration 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."
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. Biota also has exclusive rights to any Collaboration
Intellectual Property which is useful as an influenza therapeutic. The Company
believes that no compounds which are under development by the Company for an
influenza therapeutic constitute Collaboration Intellectual Property. 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.
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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 U.S., 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 U.S. 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 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.
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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. The Company does not believe that an influenza therapeutic product will
be eligible for fast track review.
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 restrictions 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
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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.
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 Company
continues to hire personnel outside of the OMRF arrangement and assume the
performance of such services.
EMPLOYEES
The Company had 22 employees as of September 15, 1997, comprising 10
laboratory personnel, two manufacturing employees, five marketing employees and
five 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.
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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. The Company incurred certain leasehold improvements
which exceeded the defined tenant improvement allowance (the "Tenant Allowance
Overage") provided for under the lease. This Tenant Allowance Overage bears
interest at a rate of 10% over the repayment term of 60 months, with interest
only due for the first 24 months and principal and interest due monthly over the
final 36 months of the repayment term. The Tenant Allowance Overage payments
plus interest which aggregate $405,494, are due in addition to the base rent. 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..... 41 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............... 38 Controller, Secretary, 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
William G. Thurman, M.D.(1).. 69 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 seven.
Under certain registration rights granted to investors in private
placements of securities in 1996 and 1997, the Company must register 229,688
shares of Common Stock within six months from the closing of this Offering,
2,685,780 13-Month Lock-up Shares upon expiration of the 13-month lock-up period
and 954,065 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."
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
34
<PAGE> 39
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 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
35
<PAGE> 40
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.
William G. Thurman, M.D., has served as a director of the Company since
August 1997. He joined OMRF in 1979 as President and Scientific Director and
retired in September 1997. He currently serves as President Emeritus of OMRF
with responsibilities in the area of OMRF's technology transfer activities. From
1975 to 1979 he also served as Provost of the University of Oklahoma Health
Sciences Center.
KEY 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.
Robert Hudson, M.D., 58, has served as Medical Director of the Company
since September 1997. From 1996 to August 1997 he was President of The Hudson
Group, a health care consulting company. From 1995 to 1996 he served as Chief
Medical Officer and Senior Vice President of MetraHealth, a managed care
organization. From 1989 to 1994 he was employed by Metropolitan Life Insurance
Company, serving most recently as National Director of Managed Indemnity and
PPO.
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.
36
<PAGE> 41
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid to or earned by the
Company's President and Chief Executive Officer during 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
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1)
--------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Peter G. Livingston,........................ 1997 $168,000(2) $25,000 195,000
President and Chief Executive Officer
</TABLE>
- ---------------
(1) Represents shares issuable pursuant to options granted under the Stock
Option Plan.
(2) Includes $48,000 related to compensation unpaid in prior years, payment of
which was contingent upon successful financing arrangements which were
accomplished in 1997.
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
OPTIONS EXERCISE
NUMBER OF SECURITIES GRANTED TO OR BASE
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED(1) FISCAL 1997 SHARE DATE
---- -------------------- ---------------- ---------- ----------
<S> <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."
AGREEMENTS WITH OFFICERS
Effective July 1, 1997, the Company entered into an Executive Services
Agreement with Peter G. Livingston, providing for an annual salary of $145,000,
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; however, if Mr. Livingston is terminated without cause he will be
entitled to: (i) continuation of his salary and benefits for 12 months; (ii) a
cash payment equal to 50% of the previous bonus paid to him; and (iii) vesting
of any stock options which were unvested but would vest within the 12 months
following such notice of termination.
The Company's Noncompetition Agreement with Craig D. Shimasaki, Ph.D.
provides that if the Company terminates the employment of Dr. Shimasaki without
cause, the Company shall pay Dr. Shimasaki compensation equal to his annual
salary at the time of his termination.
37
<PAGE> 42
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 30 days following termination of an
optionee's employment; however, upon death or disability of the optionee, the
option must be exercised within one year after such 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 September 22, 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 482,000 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.
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 Dr. Thurman
and other recognized scientists in virology and enzymology.
38
<PAGE> 43
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 Mr. Hagstrom and Mr. Rainbolt. Mr.
Gibson, Controller and Treasurer of the Company, serves as a non-voting,
ex-officio member of the Audit 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 Mr. Bergman and Mr. 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
Mr. Hagstrom and Mr. 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 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
39
<PAGE> 44
$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 of securities
(the "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, a holder of more than 5%
of the outstanding Common Stock, is an affiliate of Spencer Trask. As a
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. 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. Mr. 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
40
<PAGE> 45
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.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting securities as of September 22, 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
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,............................... 304,579 7.7% 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 * *
William G. Thurman, M.D..................................... -- -- --
All Directors and Executive Officers
as a Group (10 persons)(7)................................ 85,731 2.1% 1.4%
</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 U.S.
Securities and Exchange Commission. Shares of Common Stock subject to
options currently exercisable or exercisable on or before November 23, 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.
(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
41
<PAGE> 46
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.
("Venturetec"), an affiliate of US Ventech, Inc. ("USVI"). USVI disclaims
the beneficial ownership of the shares held by Venturetec, and Venturetec
disclaims beneficial ownership of the shares of Common Stock beneficially
owned by USVI. Venturetec and USVI are investment companies organized under
the laws of the British Virgin Islands. Peter Friedli is the president of
both companies and the principals of both companies are non-U.S. financial
institutions.
(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 preemptive 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 229,688 shares of Common Stock within six months of the closing of this
Offering, and an additional registration statement covering 2,685,780 13-Month
Lock-up Shares upon expiration of the 13-month lock-up 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 this 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 (as of the
date of this Prospectus), 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 September 22, 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, 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
42
<PAGE> 47
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 antitakeover 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 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.
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
43
<PAGE> 48
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 American Stock Transfer & Trust
Company.
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, 2,685,780 shares are 13-Month Lock-up Shares, and
954,065 shares are 24-Month Lock-up Shares, or cumulatively approximately 58.0%
of the outstanding shares of Common Stock after the Offering. See "Risk
Factors -- Shares Eligible for Future Sale." Upon expiration of the respective
13-month and 24-month lockup 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 229,688
Restricted Shares, or approximately 3.7% 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
44
<PAGE> 49
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 482,000 shares were outstanding on
September 22, 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 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 reallow, 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 reallowance 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 overallotments. 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.
45
<PAGE> 50
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' overallotment 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 overallotment option. The Underwriters' Warrants are exercisable
at a price equal to 140% of the initial public offering price ($9.80 assuming an
initial public offering price of $7.00 per Share (the low point of the range set
forth on the cover of this Prospectus)) for a period of four years commencing
one 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.
Holders of more than 43% of the shares of Common Stock outstanding after
completion of this Offering 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 owned by them. The Underwriters have agreed that they will not
waive the lock-up period for 23% of the shares of Common Stock outstanding after
completion of this Offering. The Company and its executive officers, directors
and certain other stockholders have agreed to enter into similar lock-up
agreements, except that the term thereof is 24 months and the Underwriters have
no authority to waive the lock-up period.
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.
46
<PAGE> 51
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. 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, 1997, and for the
years ended June 30, 1996 and 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, 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 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.
47
<PAGE> 52
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 Practices, 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.
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.
48
<PAGE> 53
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.
49
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheet at June 30, 1997.............................. F-3
Statements of Operations for the years ended June 30, 1996
and 1997.................................................. F-4
Statements of Stockholders' Equity for the years ended June
30, 1996 and 1997......................................... F-5
Statements of Cash Flows for the years ended June 30, 1996
and 1997.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 55
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, 1997, and the related statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1996 and 1997. 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, 1997, and the results of its operations and its cash
flows for the years ended June 30, 1996 and 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 8, 1997
F-2
<PAGE> 56
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 226,312
Marketable securities, available-for-sale................. 1,594,382
Inventory................................................. 99,107
Prepaid insurance and other............................... 9,210
-----------
Total current assets.............................. 1,929,011
Property, equipment and leasehold improvements, net (Notes 2
and 3).................................................... 295,393
Proprietary technology and other intangibles, net (Note
4)........................................................ 116,827
Deferred offering costs and other, net...................... 41,746
-----------
Total assets...................................... $ 2,382,977
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 540,025
Other..................................................... 9,929
-----------
Total current liabilities......................... 549,954
Long term obligations --
Note payable to stockholder due after one year (Note 4)... 265,836
Deferred lease rentals (Note 3)........................... 69,029
Redeemable preferred stock -- Series B (156,250 shares
issued and outstanding) (Note 5).......................... 125,000
Stockholders' equity (Notes 5, 6 and 8):
Preferred stock $.001 par value; 9,843,750 Series A shares
authorized (6,318,125 shares issued and outstanding)... 6,318
Common stock $.001 par value; 16,500,000 shares authorized
(919,568 shares issued and outstanding)................ 920
Additional paid-in capital................................ 4,410,198
Deficit accumulated during the development stage.......... (3,050,890)
Unrealized holding gains on marketable securities
available for sale..................................... 6,612
-----------
Total stockholders' equity........................ 1,373,158
-----------
Total liabilities and stockholders' equity........ $ 2,382,977
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, CUMULATIVE
------------------------- FROM
1996 1997 INCEPTION
---------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales............................................. $ 7,756 $ 8,496 $ 25,449
Other............................................. -- 1,303 1,303
---------- ----------- -----------
Total revenues............................ 7,756 9,799 26,752
Operating expenses:
Research and development.......................... 268,731 1,098,167 1,377,339
Cost of sales..................................... -- 2,200 2,200
Acquired technology and patent costs from OMRF
(Note 4)....................................... -- 958,505 958,505
General and administrative........................ 98,911 637,262 736,930
Depreciation and amortization..................... 426 27,991 28,417
---------- ----------- -----------
Total operating expenses.................. 368,068 2,724,125 3,103,391
---------- ----------- -----------
Loss from operations................................ (360,312) (2,714,326) (3,076,639)
Other income (expense):
Interest income................................... -- 94,993 94,993
Dividend income................................... -- 2,052 2,052
Interest expense (Note 4)......................... (9,338) (58,989) (71,296)
---------- ----------- -----------
Total other income (expense).............. (9,338) 38,056 25,749
---------- ----------- -----------
Net loss............................................ (369,650) (2,676,270) (3,050,890)
Preferred stock dividends........................... -- 8,604 8,604
---------- ----------- -----------
Net loss applicable to common stock................. $ (369,650) $(2,684,874) $(3,059,494)
========== =========== ===========
Net loss per common and common equivalent share..... $ (.26) $ (1.88) $ (2.14)
========== =========== ===========
Weighted average common and common equivalent shares
outstanding....................................... 1,429,334 1,429,829 1,429,783
========== =========== ===========
Supplemental net loss per common and common
equivalent share.................................. $ (.12) $ (.88) $ (1.00)
========== =========== ===========
Supplemental weighted average common and common
equivalent shares outstanding..................... 3,047,928 3,048,423 3,048,376
========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
CONVERTIBLE DEFICIT GAINS ON
PREFERRED STOCK -- ACCUMULATED MARKETABLE TOTAL
SERIES A COMMON STOCK ADDITIONAL DURING THE SECURITIES STOCKHOLDERS'
--------------------- ------------------- PAID-IN DEVELOPMENT AVAILABLE EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE FOR SALE (DEFICIT)
--------- --------- ------- --------- ---------- ----------- ---------- -------------
<S> <C> <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................... -- -- 876,068 876 2,628 -- -- 3,504
Issuance of Series A
Preferred Stock, net of
offering expenses of
$642,568................ 6,318,125 6,318 -- -- 4,405,614 -- -- 4,411,932
Unrealized holding gains
on marketable securities
available for sale...... -- -- -- -- -- -- 6,612 6,612
Net loss.................. -- -- -- -- -- (2,676,270) -- (2,676,270)
--------- ------ ------- ---- ---------- ----------- ------ -----------
Balance at June 30,
1997.................... 6,318,125 $6,318 919,568 $920 $4,410,198 $(3,050,890) $6,612 $ 1,373,158
========= ====== ======= ==== ========== =========== ====== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 59
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, CUMULATIVE
------------------------ FROM
1996 1997 INCEPTION
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss............................................. $(369,650) $(2,676,270) $(3,050,890)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization...................... 9,004 50,183 67,880
Acquired technology and patent costs from OMRF..... -- 336,422 336,422
Accretion of interest.............................. 6,261 54,918 61,179
Deferred lease rentals............................. -- 69,029 69,029
Changes in operating assets and liabilities:
Interest receivable on marketable securities.... -- (15,822) (15,822)
Prepaid insurance and other..................... -- (9,210) (10,392)
Inventory....................................... -- (32,819) (32,819)
Accounts payable................................ 114,347 424,610 540,025
Other liabilities............................... -- 9,929 9,929
--------- ----------- -----------
Total adjustments.......................... 129,612 887,240 1,025,431
--------- ----------- -----------
Net cash used by operating activities................ (240,038) (1,789,030) (2,025,459)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of marketable securities.................... -- (1,571,948) (1,571,948)
Purchase of property, equipment and leasehold
improvements....................................... (7,544) (292,232) (342,679)
Purchase of inventory, proprietary technology and
other intangibles (Note 4)......................... -- (202,917) (202,917)
--------- ----------- -----------
Net cash used by investing activities................ (7,544) (2,067,097) (2,117,544)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable.............. 350,500 -- 392,510
Payments on notes payable............................ (9,259) (302,012) (311,271)
Proceeds from issuance of common stock............... -- 3,000 5,000
Proceeds from issuance of preferred stock -- Series
A.................................................. -- 4,383,338 4,383,338
Deferred offering costs of preferred stock........... (58,906) (41,356) (100,262)
--------- ----------- -----------
Net cash provided by financing activities............ 282,335 4,042,970 4,369,315
--------- ----------- -----------
Net increase in cash................................. 34,753 186,843 226,312
Cash and cash equivalents at beginning of period..... 4,716 39,469 --
--------- ----------- -----------
Cash and cash equivalents at end of period........... $ 39,469 $ 226,312 $ 226,312
========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID............. $ 3,077 $ 10,333 $ 16,379
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 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.
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. The securities mature within one year
and the amortized cost basis, aggregate fair value, and unrealized holding gains
at June 30, 1997 are summarized below:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE UNREALIZED
COST FAIR HOLDING
BASIS VALUE GAINS
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Government-backed treasury bills............... $ 349,110 $ 349,645 $ 535
Mortgage-backed securities.......................... 1,058,660 1,064,737 6,077
Certificates of deposit............................. 180,000 180,000 --
---------- ---------- ------
$1,587,770 $1,594,382 $6,612
========== ========== ======
</TABLE>
Inventory
Inventories are carried at the lower of cost (first-in, first-out) or
market, substantially all of which are raw materials.
F-7
<PAGE> 61
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 amortization aggregated $20,594 as of June 30, 1997.
Deferred Offering Costs
Specific incremental costs directly attributable to the private placement
of preferred stock in 1997 (the "1997 Private Placement") were deferred at June
30, 1997 and were charged against the gross proceeds of the 1997 Private
Placement when subsequently closed.
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.
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 amount reported in the balance sheet for the fixed-rate note
payable has been discounted and approximates its fair value (Note 4).
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
F-8
<PAGE> 62
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
YEAR ENDED JUNE 30, CUMULATIVE
------------------- FROM
1996 1997 INCEPTION
-------- -------- ----------
<S> <C> <C> <C>
Net loss per common share.............................. $ (8.50) $ (2.95) $ (10.13)
======= ======= ========
Weighted average common shares outstanding............. 43,500 909,206 302,078
======= ======= ========
</TABLE>
2. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, stated at cost, are
summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Laboratory equipment........................................ $ 65,135
Manufacturing equipment..................................... 200,317
Computer equipment.......................................... 33,592
Office furniture, equipment and leasehold improvements...... 43,635
--------
342,679
Less accumulated depreciation and amortization.............. (47,286)
--------
$295,393
========
</TABLE>
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 ("Base Rent"). The Company incurred certain leasehold improvements which
exceeded the defined tenant improvement allowance (the "Tenant Allowance
Overage") provided for under the lease. This Tenant Allowance Overage bears
interest at a rate of 10% over the repayment term of 60 months, with interest
only due for the first 24 months and principal and interest due monthly over the
final 36 months of the repayment term. The Tenant Allowance Overage payments are
due in addition to the Base Rent. The Company is recognizing the total facility
lease payments, including the Tenant
F-9
<PAGE> 63
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Allowance Overage, on a straight-line method over the entire term of the lease
agreement. Accordingly, as of June 30, 1997, the Company has accrued a deferred
lease rental liability of $69,029. 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 leased facilities during 1997 was $69,029
(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 June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30:
-------------------
<S> <C>
1998................................................... $ 147,811
1999................................................... 176,344
2000................................................... 233,324
2001................................................... 233,345
2002................................................... 194,706
Thereafter (laboratory and office space to 2007)....... 550,819
----------
Total minimum lease payments...................... $1,536,349
==========
</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 years ended June 30, 1996 and 1997, OMRF charged the Company
$306,566 and $963,003, respectively, related to such arrangement. Substantially
all of such costs have been charged to research and development and general and
administrative expenses 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.
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
F-10
<PAGE> 64
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 year ended
June 30, 1997 included in the accompanying statement of operations aggregated
$54,918 (none in 1996).
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 $69,029 in 1997 (none in
1996) 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.
5. REDEEMABLE PREFERRED STOCK, NONREDEEMABLE PREFERRED STOCK AND COMMON STOCK
Capital Stock
As of June 30, 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 a restated Certificate 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.
F-11
<PAGE> 65
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 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 June 30, 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 June 30, 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.
The Series B Convertible Preferred Stock ("Series B"), of which 156,250
shares are issued and outstanding as of June 30, 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 June 30, 1997 related to the Series B aggregated $8,604. The
liquidation preference of the Series B of $3.20 per share as of June 30, 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.
F-12
<PAGE> 66
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
At June 30, 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 elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is generally recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a minimum value option pricing model with the following weighted average
assumptions for 1997 (none in 1996): risk-free interest rate of 6.2% and a
weighted average expected life of the option of six years.
Because option valuation models require the input of subjective assumptions
including the expected life of the option, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
qualified and non-qualified options is amortized to expense over the options'
vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
-----------
<S> <C>
Net loss applicable to common stock......................... $(2,718,405)
Net loss per common and common equivalent share............. (1.90)
</TABLE>
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 June 30, 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.
In 1997, the Company issued options to employees and directors covering
350,000 shares and 100,000 shares, respectively, of common stock exercisable at
prices ranging from $1.00 to $2.00 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 theses options
did not exceed the exercise price of the options.
F-13
<PAGE> 67
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Company's Employees' Plan during 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Outstanding options at beginning of period.................. -- $ --
Granted..................................................... 350,000 1.14
Exercised................................................... -- --
Surrendered, forfeited or expired........................... -- --
-------
Outstanding options at end of period........................ 350,000 1.14
=======
Exercisable at end of period................................ 70,625 1.00
=======
Weighted average fair value of options granted during
period.................................................... $ .37
</TABLE>
Outstanding options at June 30, 1997 had a weighted average remaining
contractual life of 9.6 years.
Activity in the Company's Directors' Plan during 1997 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................................ 16,500 1.00
=======
Weighted average fair value of options granted during
period.................................................... $ .32
</TABLE>
Outstanding options at June 30, 1997 had a weighted average remaining
contractual life of 9.5 years.
7. INCOME TAXES
The provision (credit) for income taxes differs from the expected income
tax using the federal statutory rate on income (loss) before income taxes due to
the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Credit at federal statutory rate of 34%..................... $(125,681) $(909,932)
Permanent differences....................................... 9 755
State tax benefit........................................... (14,638) (106,966)
Change in valuation allowance............................... 140,310 1,016,143
--------- ---------
$ -- $ --
========= =========
</TABLE>
F-14
<PAGE> 68
ZYMETX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities, resulting from differences in the
timing of recognition of revenues and expenses, consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax liability:
Tax depreciation in excess of financial.................. $ 2,470 $ 12,096
Deferred tax assets:
Acquired in-process technology expensed for financial,
capitalized for tax, net of amortization.............. -- 376,732
Net operating loss carryforward.......................... 142,356 793,772
Other.................................................... 2,379 --
--------- -----------
144,735 1,170,504
Valuation allowance...................................... (142,265) (1,158,408)
--------- -----------
Net deferred tax assets.................................. 2,470 12,096
--------- -----------
Net deferred tax liability............................ $ -- $ --
========= ===========
</TABLE>
As of June 30, 1997, the Company had a federal net operating loss
carryforward of approximately $2,089,000. The net operating loss carryforward
will expire from 2010 through 2011, if not utilized. Utilization of the net
operating losses 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
valuation allowance. The valuation allowance increased by $140,310 and
$1,016,143 in 1996 and 1997, respectively.
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 (the "1997 Private Placement") 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. At such time, the Company may be required to recognize
as a charge to retained earnings a noncash dividend related to the Series C
Preferred Stock converted to Common Stock. The noncash dividend will be
equivalent to all or some portion of the difference in the price received per
share for the Series C Preferred Stock and the price received per share for the
Common Stock issued in such public offering. Such dividend will also reduce net
income applicable to Common Stock and, accordingly, reduce earnings per share in
the period the offering is consummated.
F-15
<PAGE> 69
================================================================================
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....................... 1
Risk Factors............................. 5
Use of Proceeds.......................... 13
Dividend Policy.......................... 14
Dilution................................. 14
Capitalization........................... 15
Pro Forma Balance Sheet.................. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 19
Business................................. 22
Management............................... 34
Certain Relationships and Related
Transactions........................... 39
Principal Stockholders................... 41
Description of Securities................ 42
Shares Eligible for Future Sale.......... 44
Underwriting............................. 45
Legal Matters............................ 47
Experts.................................. 47
Additional Information................... 47
Glossary................................. 48
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 LOGO
--------------------
PROSPECTUS
--------------------
CAPITAL WEST SECURITIES, INC.
MILLENNIUM FINANCIAL GROUP, INC.
COMVEST PARTNERS, INC.
, 1997
================================================================================
<PAGE> 70
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 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
II-1
<PAGE> 71
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' overallotment option.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 7,084.00
NASD fees................................................... 2,545.00
Underwriters' non-accountable expense allowance............. 483,000.00
Blue Sky fees............................................... 5,000.00
Legal fees and expenses..................................... 125,000.00
Accounting fees and expenses................................ 75,000.00
Printing and engraving expenses............................. 70,000.00
Nasdaq application fees..................................... 43,925.00
-----------
TOTAL EXPENSES.................................... $811,554.00
===========
</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 ("ZPP"), 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 ("OMRF") 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 investors' 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 ("Presbyterian") 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> 72
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 17 persons to purchase an aggregate of 482,000
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
------- ---------------
<C> <S>
1.1 -- Underwriting Agreement between the Company, Capital West
Securities, Inc. and Millennium Financial Group, Inc.
(filed electronically herewith)
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Amended and Restated Bylaws.
*3.3 -- Amended and Restated Certificate of Designations and
Certificate of Increase in Designated Series of Preferred
Stock of ZymeTx, Inc.
4.1 -- Specimen Certificate of Common Stock (filed
electronically herewith).
4.2 -- Form of Warrant Agreement between the Company and the
Underwriters (filed electronically herewith).
*4.3 -- ZymeTx, Inc. Stock Option Plan.
*4.4 -- ZymeTx, Inc. Directors Stock Option Plan.
5.1 -- Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C.
as to the legality of the securities being registered
(filed electronically herewith).
*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 "), and Presbyterian Health
Foundation ("Presbyterian").
*10.2 -- Closing Memorandum in connection with the
Recapitalization Letter of Intent.
*10.3 -- Security Agreement dated January 26, 1996, by and among
the Company, ZPP, OMRF and Presbyterian.
*10.4 -- Bridge Loan Agreement dated January 26, 1996, by and
among the Company, ZPP, OMRF and Presbyterian.
*10.5 -- Form of Common Stock Purchase Warrant issued in
connection with Bridge Loan Agreement.
*10.6 -- Placement Agency Agreement dated May 22, 1996, by and
between the Company and Spencer Trask Securities,
Incorporated ("Spencer Trask").
*10.7 -- Placement Agent Warrant Agreement dated July 29, 1996, by
and between the Company and Spencer Trask.
*10.8 -- License Agreement dated as of May 1, 1996, by and between
the Company and OMRF.
*10.9 -- Promissory Note dated May 15, 1996, in the principal
amount of $425,000, issued in favor of OMRF.
*10.10 -- Common Stock Purchase Warrant dated May 15, 1996, granted
to OMRF.
*10.11 -- Employee Services Agreement dated July 24, 1996, by and
between the Company and OMRF.
*10.12 -- Lock-Up Agreement dated July 29, 1996, by and among the
Company, Spencer Trask and certain stockholders of the
Company.
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
------- ---------------
<C> <S>
*10.13 -- Right of First Refusal Agreement dated July 29, 1996, by
and between the Company and Spencer Trask.
*10.14 -- Merger and Acquisition Agreement dated July 29, 1996, by
and among the Company and Spencer Trask.
10.15 -- Executive Services Agreement dated July 1, 1997 by and
between the Company and Peter G. Livingston (filed
electronically herewith).
*10.16 -- Placement Agency Agreement dated July 2, 1997 by and
between the Company and Spencer Trask.
10.17 -- Placement Agent Warrant Agreement dated August 5, 1997,
by and between the Company and Spencer Trask (filed
electronically herewith).
10.18 -- Form of 13-Month and 24-Month Lock-Up Agreements (filed
electronically herewith).
10.19 -- Registration Rights Agreement dated July 29, 1996, by and
among the Company and certain investors identified
therein (filed electronically herewith).
10.20 -- Registration Rights Agreement dated August 5, 1997, by
and among the Company and certain investors identified
therein (filed electronically herewith).
10.21 -- Non-Competition Agreement between the Company and Craig
D. Shimasaki, Ph.D. (filed electronically herewith).
10.22 -- Lease Agreement dated May 10, 1996 by and between the
Company and Presbyterian Health Foundation (filed
electronically herewith).
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.
*24.1 -- Powers of Attorney of Messrs. Bergman, Hagstrom and
Rainbolt and Drs. Knight and Schiff (included as part of
the signature page filed with the initial Registration
Statement.)
24.2 -- Power of Attorney of William G. Thurman, M.D. (filed
electronically herewith).
27 -- Financial Data Schedule (filed electronically herewith).
</TABLE>
- ---------------
* Previously filed.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(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.
II-4
<PAGE> 74
(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> 75
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 Amendment No. 1 to 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 September 22, 1997.
ZYMETX, INC.,
a Delaware corporation
By: /s/ PETER G. LIVINGSTON
--------------------------------------
Peter G. Livingston
President and Chief Executive Officer
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
--------- ----- ----
<C> <S> <C>
/s/ PETER G. LIVINGSTON President; Chief Executive Officer; September 22, 1997
- ----------------------------------------------------- Director
Peter G. Livingston
Principal Executive Officer
/s/ G. CARL GIBSON Controller; Treasurer September 22, 1997
- -----------------------------------------------------
G. Carl Gibson
Principal Financial and Accounting Officer
* Director September 22, 1997
- -----------------------------------------------------
William I. Bergman
* Director September 22, 1997
- -----------------------------------------------------
William A. Hagstrom
* Director September 22, 1997
- -----------------------------------------------------
J. Vernon Knight, M.D.
* Director September 22, 1997
- -----------------------------------------------------
David E. Rainbolt
* Director September 22, 1997
- -----------------------------------------------------
Gilbert M. Schiff, M.D.
* Director September 22, 1997
- -----------------------------------------------------
William G. Thurman, M.D.
By: /s/ G. CARL GIBSON
-------------------------------------------------
G. Carl Gibson, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
------- ---------------
<C> <S>
1.1 -- Underwriting Agreement between the Company, Capital West
Securities, Inc. and Millennium Financial Group, Inc.
(filed electronically herewith)
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Amended and Restated Bylaws.
*3.3 -- Amended and Restated Certificate of Designations and
Certificate of Increase in Designated Series of Preferred
Stock of ZymeTx, Inc.
4.1 -- Specimen Certificate of Common Stock (filed
electronically herewith).
4.2 -- Form of Warrant Agreement between the Company and the
Underwriters (filed electronically herewith).
*4.3 -- ZymeTx, Inc. Stock Option Plan.
*4.4 -- ZymeTx, Inc. Directors Stock Option Plan.
5.1 -- Opinion of Phillips McFall McCaffrey McVay & Murrah, P.C.
as to the legality of the securities being registered
(filed electronically herewith).
*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").
*10.2 -- Closing Memorandum in connection with the
Recapitalization Letter of Intent.
*10.3 -- Security Agreement dated January 26, 1996, by and among
the Company, ZPP, OMRF and Presbyterian.
*10.4 -- Bridge Loan Agreement dated January 26, 1996, by and
among the Company, ZPP, OMRF and Presbyterian.
*10.5 -- Form of Common Stock Purchase Warrant issued in
connection with Bridge Loan Agreement.
*10.6 -- Placement Agency Agreement dated May 22, 1996, by and
between the Company and Spencer Trask Securities,
Incorporated ("Spencer Trask").
*10.7 -- Placement Agent Warrant Agreement dated July 29, 1996, by
and between the Company and Spencer Trask.
*10.8 -- License Agreement dated as of May 1, 1996, by and between
the Company and OMRF.
*10.9 -- Promissory Note dated May 15, 1996, in the principal
amount of $425,000, issued in favor of OMRF.
*10.10 -- Common Stock Purchase Warrant dated May 15, 1996, granted
to OMRF.
*10.11 -- Employee Services Agreement dated July 24, 1996, by and
between the Company and OMRF.
*10.12 -- Lock-Up Agreement dated July 29, 1996, by and among the
Company, Spencer Trask and certain stockholders of the
Company.
*10.13 -- Right of First Refusal Agreement dated July 29, 1996, by
and between the Company and Spencer Trask.
*10.14 -- Merger and Acquisition Agreement dated July 29, 1996, by
and among the Company and Spencer Trask.
10.15 -- Executive Services Agreement dated July 1, 1997 by and
between the Company and Peter G. Livingston (filed
electronically herewith).
*10.16 -- Placement Agency Agreement dated July 2, 1997 by and
between the Company and Spencer Trask.
10.17 -- Placement Agent Warrant Agreement dated August 5, 1997,
by and between the Company and Spencer Trask (filed
electronically herewith).
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT
------- ---------------
<C> <S>
10.18 -- Form of 13-Month and 24-Month Lock-Up Agreement (filed
electronically herewith).
10.19 -- Registration Rights Agreement dated July 29, 1996, by and
among the Company and certain investors identified
therein (filed electronically herewith).
10.20 -- Registration Rights Agreement dated August 5, 1997, by
and among the Company and certain investors identified
therein (filed electronically herewith).
10.21 -- Non-Competition Agreement between the Company and Craig
D. Shimasaki, Ph.D. (filed electronically herewith).
10.22 -- Lease Agreement dated May 10, 1996 by and between the
Company and Presbyterian Health Foundation (filed
electronically herewith).
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.
*24.1 -- Powers of Attorney of Messrs. Bergman, Hagstrom and
Rainbolt and Drs. Knight and Schiff (included as part of
the signature page filed with the initial Registration
Statement.)
24.2 -- Power of Attorney of William G. Thurman, M.D. (filed
electronically herewith).
27 -- Financial Data Schedule (filed electronically herewith).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
2,300,000 SHARES
ZYMETX, INC.
(A DELAWARE CORPORATION)
(PAR VALUE $.001 PER SHARE)
UNDERWRITING AGREEMENT
, 1997
Capital West Securities, Inc.
Millennium Financial Group, Inc.
ComVest Partners, Inc.
As Representatives of the Several
Underwriters Identified in Schedule A hereto,
c/o Capital West Securities, Inc.
211 N. Robinson
16th Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
ZymeTx, Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with you as Representatives of the several underwriters named in
Schedule A hereto (herein collectively called the "Underwriters") as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
2,300,000 shares (the "Firm Shares") of its authorized and unissued common
stock , par value $.001 per share (the "Common Stock") to the Underwriters upon
the terms and subject to the conditions set forth herein. The Company also
proposes to grant to the Underwriters an option to purchase, for the sole
purpose of covering over-allotments in connection with the sale of Firm Shares,
an aggregate of up to 345,000 additional shares ("Option Shares") of Common
Stock upon the terms and subject to the conditions set forth herein and as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock of the Company, including the Shares, are hereinafter referred to as
"Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
Unless otherwise indicated or the context otherwise requires, references to the
"Company" in this Section 2 are references to ZymeTx, Inc., a Delaware
corporation. The Company represents and warrants to and agrees with the
Underwriters, as follows:
(a) A registration statement on Form SB-2 (File No.
333-33563) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration statement
and such amended prospectuses subject to completion, as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments
<PAGE> 2
to such registration statement and such amended prospectuses subject to
completion, as may hereafter be required. The Company meets the requirements
for use of a registration statement on Form SB-2. Copies of such registration
statement and any amendments and of each related prospectus subject to
completion have been delivered to you.
If the registration statement has been declared effective
under the Act by the Commission, the Company will prepare and promptly file
with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final form
of prospectus). If the registration statement has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file a
further amendment to the registration statement, including a final form of
prospectus. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) of the Rules and Regulations) and, in
the event of any amendment thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment) such registration statement as so amended. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to
the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 430A(b) of the Rules and Regulations), except
that if any revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Shares that differs from
the Prospectus on file with the Commission at the time the Registration
Statement became or becomes, as the case may be, effective (whether or not such
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto, up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
and (ii) neither the Registration Statement nor the Prospectus, nor any
amendments or supplements thereto, will 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 the light of the circumstances
under which they were made, not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph shall apply to
information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by any
Underwriter specifically for inclusion therein.
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<PAGE> 3
(c) Each contract, agreement, instrument, lease, license
or other item required to be described in the Registration Statement or the
Prospectuses or filed as an exhibit to the Registration Statement has been so
described or filed, as the case may be.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its organization, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement; the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification except where the failure to be so qualified or to be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company considered as a whole; the Company is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities which are
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is not in violation of its charter or bylaws or
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, or any material lease, contract, joint venture, or
other agreement or instrument to which it is a party or by which its property
is bound or in violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any government, governmental agency or body or court,
domestic or foreign, of which it has knowledge except such failures to comply
as would not, individually or in the aggregate, have a material adverse effect
on the Company considered as a whole.
(e) The Company has full legal right, power and authority
to enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement and the Warrant Agreement (the "Warrant Agreement") by
and between the Company and the Underwriters have been duly authorized,
executed and delivered by the Company and are valid and binding agreements on
the part of the Company, enforceable in accordance with their respective terms,
except as rights to indemnification and contribution hereunder may be limited
by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally, or by general
equitable principles; the performance of this Agreement and the Warrant
Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any material lease, contract, joint venture
or other agreement or instrument to which the Company is a party or by which
the property of the Company is bound including any licenses from third parties,
or (ii) the Certificate of Incorporation and Bylaws of the Company, or (iii)
any law, order, rule, regulation, writ, injunction, judgment or decree of any
government or governmental agency or body or court, domestic or foreign, having
jurisdiction over the Company or over the properties of the Company, except for
breaches, violations or defaults that individually or in the aggregate, would
not have a material adverse effect on the Company; and no consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation of the transactions herein contemplated, except such as
may be required under the Act, the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
(f) Except as disclosed in the Registration Statement or
the Prospectus, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company which
(i) is required to
3
<PAGE> 4
be disclosed in the Registration Statement or the Prospectus or which might
result in any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company, or
which might materially and adversely affect the properties or assets thereof;
or (ii) which might be expected to materially and adversely affect the
consummation of the transactions contemplated by this Agreement; all pending
legal or governmental proceedings to which the Company is a party or of which
any of its properties or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
Company's business, could not reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or the earnings,
business affairs or business properties of the Company considered as one
enterprise; and there are no contracts or documents of the Company which are
required to be described in the Registration Statement or the Prospectus, or to
be filed as exhibits thereto, by the Act or by the Rules and Regulations which
have not been accurately described in all material respects and filed as
exhibits to the Registration Statement. To the best of the Company's
knowledge, the contracts so described in the Prospectus are in full force and
effect on the date hereof, and the Company is not in breach of or default
under, and to the Company's knowledge, no other party is in material breach of
or material default under, any of such contracts.
(g) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all Federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities (other than such
preemptive rights or other rights to subscribe for or purchase securities as
were fully complied with or expressly waived or with respect to the violation
of which the right to make claim is barred by the applicable statute of
limitations), and the authorized and outstanding capital stock of the Company
conforms in all material respects to the statements relating thereto contained
in the Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Firm Shares and the Option Shares to be purchased from the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and nonassessable;
the shares of Common Stock issuable under the warrant (the "Underwriters'
Warrant") to be granted to the Underwriters under the Warrant Agreement have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of the Warrant Agreement, will be duly
and validly issued and fully paid and nonassessable; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right of stockholders exists with respect to any of the Firm Shares, Option
Shares or shares of Common Stock issuable under the Underwriters' Warrant or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale or transfer of the Shares except as may
be required under the Act, the Exchange Act or under state or other securities
or Blue Sky laws. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company (including the notes thereto) included
in the Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights. The shares of Common
Stock reserved for issuance upon exercise of the Company's outstanding options
and warrants have been duly and validly authorized and are sufficient in number
to meet the exercise requirements of such options.
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<PAGE> 5
(h) Ernst & Young LLP, which has audited the historical
financial statements of the Company filed with the Commission as a part of the
Registration Statement and which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited and pro forma financial statements of the Company,
together with the notes, and the unaudited financial information, forming part
of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited and pro
forma financial statements, together with the notes, and the unaudited and pro
forma financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein.
(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the business,
properties, operations, condition (financial or otherwise) or in the earnings,
business affairs or business prospects of the Company, whether or not arising
in the ordinary course of business, (ii) there have been no transactions
entered into by the Company other than those in the ordinary course of
business, which are material with respect to the Company, (iii) there has been
no obligation that is material to the Company, direct or contingent, incurred
by the Company, except obligations incurred in the ordinary course of business,
(iv) there has been no change in the capital stock of the Company, (v) there
has been no change in the outstanding indebtedness of the Company which is
material to the Company, (vi) there has been no dividend or distribution of any
kind declared, paid or made by the Company on behalf of any class of its
respective capital stock, (vii) there has been no redemption, purchase or
acquisition or agreement to redeem, purchase or acquire shares of Common Stock
of the Company, or (viii) to the knowledge of the Company, there has been no
change in any Federal, state, or other laws, rules, or regulations (or
interpretations thereof) applicable to the business of the Company that would
have a material adverse effect on the Company, and, to the knowledge of the
Company, no such change is pending other than as described in the Prospectus.
(j) Except as described in the Prospectus, (i) the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions of any kind, except those described in the
Prospectus, or those not material, singly or in the aggregate, to the business
of the Company considered as a whole, (ii) the agreements to which the Company
is a party described in the Prospectus are valid agreements, enforceable by the
Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles, and
(iii) the Company has valid and enforceable leases for the properties described
in the Prospectus as leased by it except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(k) All federal, state, local and foreign tax returns
required to be filed by the Company in any jurisdiction have been filed, and
all material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
have been paid other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable without penalty
or interest; and adequate charges, accruals and reserves have been provided for
in the financial statements referred to in Section 2(h) above in respect of all
Federal, state, local and foreign taxes for all periods as to which the tax
liability of the Company has not been finally determined or remains open to
examination by applicable taxing authorities.
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<PAGE> 6
(l) No labor dispute with the employees of the Company
exists or, to the knowledge of the Company, is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers, contractors or customers which might be
expected to result in any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company. No collective bargaining agreement exists with any of the Company's
employees and, to the Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
("Intellectual Property") presently employed by them in connection with the
business now operated by them or necessary for the conduct of its business as
described in the Registration Statement and Prospectus and the Company has not
received any notice or is otherwise aware of any infringement of or conflict
with rights of others with respect to any Intellectual Property or of any facts
or circumstances which would render any Intellectual Property rights invalid or
inadequate to protect the interest of the Company therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy singly or in the aggregate, would result
in any adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company.
(n) Except as set forth in the Prospectus, the Company is
in compliance in all material respects with all applicable laws, statutes,
ordinances, rules or regulations, the enforcement of which, individually or in
the aggregate, would be reasonably expected to have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company.
(o) The Common Stock has been approved for listing on the
Nasdaq National Market subject to official notice of issuance.
(p) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(q) The Company has not distributed and will not
distribute prior to the Closing Date or on any date on which Option Shares are
to be purchased, as the case may be, any offering material in connection with
the offering and sale of the Shares other than the Prospectus, the Registration
Statement and other materials permitted by the Act.
(r) The Company has not at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign office,
or failed to disclose fully any contribution in violation of law, or (ii) made
any payment to any Federal or state governmental officer or official, or other
person charged with similar public or quasi- public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(s) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares. The Company has not
effected any sales of securities required to be disclosed in Item 26 of Form
SB-2 under the Act, other than as disclosed in the Registration Statement.
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<PAGE> 7
(t) Each officer and director of the Company and certain
beneficial owners of at least 4% of the outstanding shares of Common Stock and
options and warrants to purchase Common Stock outstanding after completion of
this offering have agreed in writing that such persons will not, for a period
expiring 24 months after the termination of the offering pursuant to this
Underwriting Agreement, offer to sell, contract to sell, sell short, or
otherwise sell or dispose of any shares of Common Stock of the Company, any
options or warrants to purchase any shares of Common Stock of the Company, or
any securities convertible into or exchangeable for shares of the Common Stock
owned directly by such person or with respect to which such person has the
power of disposition otherwise than (i) as a gift or gifts, provided the donee
or donees thereof agree to be bound by this restriction or (ii) with the prior
written consent of Capital West Securities, Inc. ("Capital West"). In addition
holders of in excess of 90% of the Company's Series A Preferred Stock and all
the holders of the Company's Series C Preferred Stock have agreed not to offer,
sell or otherwise dispose of the shares of Common Stock into which such
preferred stock is convertible for 13 months after the termination of the
offering pursuant to this Underwriting Agreement without the prior written
consent of Capital West.
(u) Except as described in the Registration Statement,
(i) the Company is not in violation of any Federal, state, local or foreign
laws or regulations relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Environmental
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Environmental Materials
(collectively, the "Environmental Laws"), except such violations as would not,
singly or in the aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company, and (ii) to the best of the Company's knowledge, there are no
events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company relating to any
Environmental Materials or the violation of any Environmental Laws, which,
singly or in the aggregate, could reasonably be expected to have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles as in
effect in the United States and to maintain asset accountability; (iii) access
to bank accounts is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(w) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus. Neither the Company nor any employee or agent of the Company has
made any payment or transfer of any funds or assets of the Company or conferred
any personal benefit by use of the Company's assets, or received any funds,
assets or personal benefit in violation of any law, rule or regulation.
(x) On the Closing Date and upon delivery of the Option
Shares, as applicable, all transfer and other taxes (other than income taxes)
that are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters will have been paid.
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<PAGE> 8
(y) The Company currently has a pension plan subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred with
respect to such "pension plan" (as defined in ERISA) for which the Company
would have any liability, the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be qualified
under Section 401 (a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(z) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
(aa) Except as may be set forth in the Prospectus, the
Company has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by the Underwriting Agreement.
(bb) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company is engaged.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price per
share of $________________ per Share, the number of Shares set forth in
Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the Underwriters by certified or
official bank check in next day funds, payable to the order of the Company at
the offices of Capital West Securities, Inc., 211 N. Robinson, 16th Floor, One
Leadership Square, Oklahoma City, Oklahoma 73102, or at such other place as
shall be agreed upon by the Underwriters and the Company, at 9:30 a.m. on
_________________________________, 1997(or at such time and date to which
payments and delivery shall have been postponed pursuant to Section 10 hereof),
such time and date of payment and delivery being herein called the "Closing
Date." The certificates for the Firm Shares to be so delivered will be made
available to you at such office or at such other location as you may reasonably
request for checking at least one business day prior to the Closing Date and
will be in such names and denominations as you may request, such request to be
made at least two business days prior to the Closing Date. If the Underwriters
so elect, delivery of the Shares may be made by credit through full fast
transfer to the accounts at Depository Trust Company designated by the
Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by Capital West prior to the
Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by Capital West shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
8
<PAGE> 9
After the Registration Statement becomes effective, the
several Underwriters intend to offer the Firm Shares to the public as set forth
in the Prospectus.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters) and under
"Underwriting" in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the Underwriters, represent and warrant to the Company that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make such
statements, in the light of the circumstances in which they were made, not
misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with
the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration Statement or
any subsequent amendment to the Registration Statement has become effective or
any supplement to the Prospectus has been filed; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a) of the Rules and Regulations,
the Company will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus or
for additional information; promptly upon your request, it will prepare and
file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel for the several
Underwriters, may be necessary or advisable in connection with the distribution
of the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement of
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine months or more after the
effective date of the Registration Statement in connection with the sale of the
Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act, the Rules and Regulations thereunder and
the provisions of this Agreement.
9
<PAGE> 10
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will cooperate with the Underwriters and
Underwriters' counsel in connection with their efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you
may designate and to continue such qualifications in effect for so long as may
be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified as above provided, the Company will make and file such
statements and reports in each year as are or may be reasonably required by the
laws of such jurisdiction.
(d) The Company will furnish you, as soon as available,
copies of the Registration Statement (three of which will be signed and include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11 (a) of the Act and covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(f) As long as the Company is a reporting company under
the Exchange Act, the Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and for a period of five years after the effective date of
the Registration Statement, the Company will furnish to the several
Underwriters hereunder, upon request (i) concurrently with furnishing such
reports to its stockholders, statements of operations of the Company for each
of the first three quarters in the form furnished to the Company's
stockholders; (ii) concurrently with furnishing to its stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or
report thereon of independent accountants; (iii) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. ("NASD"); (iv) every material press release and every material
news item or article in respect of the Company or its affairs which was
released or prepared by the Company (excluding, in each case customary
product-related press releases and articles); and (v) any additional
information of a public nature concerning the Company, or its business which
you may reasonably request. During such five-year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated. For a
period of five years from the date of the Registration Statement, the Company
will furnish to you and, upon request, to each of the other Underwriters, as
soon as available, a copy of each report of the Company mailed to holders of
the Common Stock or publicly filed with the Commission or any automated
quotation system or national securities exchange on which any class of
securities of the Company is listed.
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(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) The Company shall comply with all provisions of all
undertakings contained in the Registration Statement.
(k) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement under Section 11(a), the Company will
pay the several Underwriters $75,000, which amount has already been paid.
(1) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(m) For a period of two years after the effective date
of the Registration Statement, without the prior written consent of Capital
West, which consent shall not be unreasonably withheld, the Company shall not,
directly or indirectly, offer, sell, contract to sell, pledge, grant any option
to purchase or otherwise dispose (or announce any offer, sale, contract of sale
or other disposition of), any shares of Common Stock or any other shares of
capital stock of the Company, or any securities convertible into or exercisable
or exchangeable for, or warrants, options or rights to purchase or acquire,
shares of Common Stock or any other shares of capital stock of the Company, or
any interest in the Common Stock (including derivative interests) other than
the Company's issuance and sale of Shares in accordance with the Underwriting
Agreement, the issuance of stock options under, the issuance of Common Stock
upon the exercise of stock options granted under, any stock option plan
described in the Prospectuses, and the issuance and sale of additional shares
of Common Stock in an offering registered under the Act on any date after the
termination of the offering pursuant to this Underwriting Agreement.
(n) During a period of 90 days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan.
(o) On the Closing Date the Company will sell to you, for
$.001 per share of Common Stock covered by each warrant, the Underwriters'
Warrants to purchase one share of Common Stock of the
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Company for each ten shares of the Company's Common Stock which have been sold
(or purchased by the Underwriters), excluding any over-allotment shares, as set
forth in the Prospectus. The Underwriters' Warrants shall have the terms and
be in the form filed as an exhibit to the Registration Statement. At any time
during the period commencing 12 months and ending five years after the
effective date of the offering and at the written request of the then holders
of 51% of the Underwriters' Warrants and the Common Stock of the Company issued
upon the exercise of the Underwriters' Warrants, and on one occasion, the
Company will file with the Commission and process to effectiveness a
registration statement covering not less than 51% of the shares of the Common
Stock of the Company issuable and/or issued upon the exercise of the
Underwriters' Warrants. The Company must file a registration statement only if
the shares of Common Stock issuable under the Underwriters' Warrants cannot be
sold without registration under Rule 144 promulgated under the Act. The
Company agrees to use its commercially reasonable best efforts to cause the
filing to become effective. The costs of the filing of such registration
statement including but not limited to, legal (including legal fees relating to
clearance in the various states, limited however to such states as may be
reasonably requested), accounting and printing fees, shall be borne by the
Company but the Company shall not be responsible for the cost of any separate
counsel to review the registration statement on behalf of or to advise the
selling stockholders and shall not be responsible for the payment of any
underwriting discount or commissions with respect to such sale. Such
registration statement shall comply with any undertaking applicable to such
shares. If the Company otherwise than upon the request of the owners of the
Underwriters' Warrants or the shares of Common Stock issuable upon the exercise
thereof files a registration statement under the Act with respect to any of its
securities at any time (other than on Form S-4, S-8, or any other form that
does not provide for resales by selling security holders), the Company will
give such persons 30 days' notice of its intention to do so, and at their
written request given within 10 days of the receipt of such notice, will
include in such registration statement such number of such Shares as they may
specify, all at no cost to them (except for underwriting discounts and the fees
and expenses of counsel to such holders). In connection with any such
registration statement covering all or a part of such shares, the Company
agrees that it will covenant with the owners of such shares with respect to
such shares and the offering thereof, in customary form substantially to the
effect contained in this Section 4. If the offering pursuant to any
registration statement provided for herein is made through Underwriters, the
Company agrees to enter into an underwriting agreement in customary form with
such underwriters in which the Company and the underwriters and each person who
controls such underwriters within the meaning of the Act grant to each other
customary reciprocal indemnities against liabilities under the Act.
(p) As long as the Company is a reporting company under
the Exchange Act, the Company will comply with the Act, the Exchange Act, the
rules and regulations of the NASD and applicable state securities or Blue Sky
laws so as to permit the continuance of sales and dealings in the Common Stock
under the Act, the Exchange Act, the rules and regulations of the NASD, and
applicable state securities or Blue Sky laws, including the filing with the
NASD and the Commission of all reports required to be filed pursuant to the
applicable provisions of the rules and regulations of the NASD, the Act, and
the Exchange Act, and will deliver to the holders of the Common Stock all
reports required to be provided to such holders pursuant to the applicable
provisions of the rules and regulations of the NASD, the Act, the Exchange Act,
and applicable state securities or Blue Sky laws.
5. EXPENSES.
(a) The Company agrees with each Underwriter that the
Company will pay and bear all costs and expenses of the Company incurred in
connection with (i) the preparation, printing, filing and mailing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary
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Prospectuses and the Prospectus and any amendments or supplements thereto; (ii)
the approval of the Common Stock for listing on the Nasdaq National Market;
(iii) the printing and mailing of this Agreement, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire
and Power of Attorney and any instruments related to any of the foregoing; (iv)
the issuance, transfer and delivery of the Shares hereunder to the Underwriters
or to Depository Trust Company, including transfer taxes, if any, and the cost
of all certificates representing the Shares and transfer agents' and
registrars' fees; (v) the fees and disbursements of counsel for the Company;
(vi) all fees and other charges of the Company's independent public
accountants; (vii) the cost of furnishing to the Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
and (viii) all costs incurred in connection with the qualification of the
Shares under the securities laws of such states as the Company and you may
designate including the fees and disbursements of counsel to the Underwriters
retained to qualify the Shares in the various states; and (ix) all other
expenses directly incurred by the Company in connection with the performance of
its obligations hereunder.
(b) Capital West shall be entitled to receive from the
Company, for itself and not as representative of the Underwriters, a
nonaccountable expense allowance equal to three percent of the aggregate public
offering price of Shares sold to the Underwriters in connection with the
Offering reduced by any amounts advanced by the Company to Capital West
pursuant to the terms of the Letter of Intent. Capital West shall be entitled
to withhold this allowance on the Closing Date.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased (the "Option Closing
Date"), as the case may be, of the representations and warranties of the
Company herein to the performance by the Company of its obligations hereunder,
and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 p.m. on the date hereof, or with the consent of
the Underwriters, at a later time and date, not later, however, than 5:30 p.m.
on the first business day following the date hereof, or at such later time and
date as may be approved by a majority in interest of the Underwriters; and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued under the Act or proceedings therefor initiated or threatened
by the Commission and any request on the part of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. If the Company has elected to rely upon Rule 430A
of the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A
of the Rules and Regulations. Qualification under the securities laws of such
states as you may deem necessary to the success of the underwriting of the
issue and sale of the Shares upon the terms and conditions set forth in this
Agreement or contemplated by this Agreement and containing no provisions
unacceptable to you will have been secured, and no stop order (or the
equivalent thereof) will be in effect denying or suspending effectiveness of
such qualification, nor will any stop order proceedings (or the equivalent
thereof) with respect thereto be instituted or pending or threatened under such
laws.
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(b) At the Closing Date and the Option Closing Date, if
any, counsel for the Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to pass upon
the issuance and sale of the Shares as contemplated herein and related
proceedings or in order to evidence the accuracy of any of the representations
and warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and
sale of the Shares as herein contemplated shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
(c) There shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any change in the condition (financial or
otherwise), earnings, operations, business affairs or business prospects of the
Company whether or not arising in the ordinary course of business which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus, and the Underwriters shall have
received a certificate of the President or Vice President of the Company and of
the chief financial or chief accounting officer of the Company, dated as of the
Closing Date, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 2 hereof are true
and correct with the same force and effect as though expressly made at and as
of the Closing Date, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior
to the Closing Date, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been initiated or threatened by the Commission or any Blue Sky jurisdiction.
(d) At the Closing Date the Underwriters shall have
received:
(1) The opinions, dated as of the Closing Date of
Phillips McFall McCaffrey McVay and Murrah, P.C., special counsel for the
Company, in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware.
(ii) The Company has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus and to enter into
and perform its obligations under this Agreement and to issue, sell and deliver
to the Underwriters the Firm Shares or the Option Shares, as the case may be,
to be issued and sold by it hereunder.
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which it owns or leases property or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction.
(iv) At the Closing Date, after giving
effect to the sale of the Firm Shares, the authorized capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein; the issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and have not been issued in violation of any preemptive right
contained in the Certificate of Incorporation or Bylaws of the Company or, to
such counsel's knowledge, any co-sale right, registration right, right of first
refusal or other similar right (other than such preemptive rights or other
rights to subscribe for or purchase securities as were fully complied with or
expressly waived or with respect to the violation of which the right to make a
claim is barred by the applicable statute of limitation).
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<PAGE> 15
(v) The Firm Shares and the Option
Shares, as the case may be, to be purchased from the Company hereunder have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment therefor in accordance with the terms hereof, will be
validly issued and fully paid and nonassessable, and will not be issued in
violation of any preemptive right under the Certificate of Incorporation or
Bylaws of the Company or, to such counsel's knowledge, any co-sale right, right
of first refusal or other similar right and the stockholders of the Company
have no preemptive right under the Certificate of Incorporation or Bylaws of
the Company or, to such counsel's knowledge, other rights to purchase any of
the Shares; the shares of Common Stock reserved for issuance upon the exercise
of the Underwriters' Warrants have been duly and validly authorized and are
sufficient in number to meet the exercise requirements thereof, and such shares
of Common Stock, when issued upon exercise, will be duly and validly issued,
fully paid (assuming exercise in accordance with the governing instruments
therefor and receipt by the Company of the exercise price thereof) and
nonassessable; the stockholders of the Company have no preemptive right under
the Certificate of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, other rights to purchase any of the Shares; and the shares of Common
Stock reserved for issuance upon the exercise of the Company's outstanding
options have been duly and validly authorized and are sufficient in number to
meet the exercise requirements of such options, and such shares of Common
Stock, when issued upon exercise, will be duly and validly issued, fully paid
(assuming exercise in accordance with the governing instruments therefor and
receipt by the Company of the exercise price thereof) and nonassessable.
(vi) The issuance of the Shares to be
purchased hereunder is not subject to preemptive or other similar rights
arising by operation of law or, to the best of their knowledge and information,
otherwise.
(vii) This Agreement and the Warrant
Agreement have been duly authorized by all necessary corporate action on the
part of the Company and have been duly executed and delivered by the Company
and assuming due authorization, execution and delivery by the Underwriters, are
valid and binding agreements of the Company, except insofar as indemnification
and contribution provisions may be limited by applicable law or equitable
principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or any general equitable principles.
(viii) The Registration Statement has been
declared effective under the Act; any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time period
required by Rule 424(b) and, to the best of their knowledge and information, no
stop order suspending the effectiveness of the Registration Statement has been
issued under the Act or proceedings therefor have been initiated or are pending
or threatened by the Commission.
(ix) The Registration Statement,
Prospectus and each amendment or supplement to the Registration Statement and
Prospectus, as of their respective effective or issue dates (other than the
financial statements and supporting schedules included therein, as to which no
opinion need be rendered) complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations.
(x) The terms and provisions of the
capital stock of the Company conform in all material respects to the
description thereof contained in the Prospectus under the caption "Description
of Securities", and the Shares have been duly approved for listing on the
Nasdaq National Market.
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(xi) The information in the Prospectus
under the caption "Description of Securities" to the extent that they
constitute matters of law or legal conclusions, has been reviewed by such
counsel and accurately and fairly summarizes in such counsel's opinion the
matters described therein and to the knowledge of such counsel, there are no
outstanding options, warrants, convertible securities, or other rights to
acquire from the Company any capital stock, except as described in the
Registration Statement; in addition, the forms of certificates evidencing the
Company stock comply with Delaware law.
(xii) To the best of their knowledge and
information, except as set forth in the Prospectus, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company is a party, or to which the property of the Company is subject, before
or brought by any court or government agency or body, which might reasonably be
expected to result in any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company, or which might reasonably be expected to materially and adversely
affect the properties or assets thereof or the consummation of this Agreement
or the performance by the Company of its obligations hereunder; and all pending
legal or governmental proceedings to which the Company is a party or that
affect any of its respective properties that are not described in the
Prospectus, including ordinary routine litigation incidental to the business,
could not reasonably be expected to result in a material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company.
(xiii) The information in the Prospectus
under the captions "Business", "Shares Eligible for Future Sale", "Certain
Relationships and Related Transactions" and "Description of Securities" in the
Prospectus and Items 24 and 26 of Part II of the Registration Statement to the
extent that such items constitute matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been reviewed by them and
is correct in all material respects, and there are no legal or governmental
actions, suits or proceedings pending or threatened against the Company that
are required to be described in the Prospectus as required by the Act or the
applicable Rules and Regulations.
(xiv) All descriptions in the Prospectus
of contracts and other documents are accurate in all material respects; to the
best of their knowledge and information, there are no agreements, no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed as exhibits thereto, the descriptions thereof or references thereto are
correct in all material respects, and to the best of counsel's knowledge and
information, the Company is not in default in the due performance or observance
of any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
so described, referred to or filed as exhibits thereto.
(xv) No authorization, approval, consent
or order of any court or governmental authority or agency (other than under the
Act or the Rules and Regulations, which have been obtained, or as may be
required under the securities or Blue Sky laws of the various states) is
required in connection with the due authorization, execution and delivery of
this Agreement or for the offering, issuance or sale of the Shares to the
Underwriters; and the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein and compliance by the
Company with its obligations hereunder (other than performance of the Company's
indemnification and contribution obligations hereunder, concerning which no
opinion need be expressed) will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach or
violation of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to any material contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company
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<PAGE> 17
is a party or by which either of them may be bound, or to which any of the
property or assets of the Company is subject, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or Bylaws
of the Company, or any applicable law, administrative regulation or court
decree, provided, however, no opinion need be rendered concerning state
securities or Blue Sky laws.
(xvi) To the best of such counsel's
knowledge and information, except as set forth in the Registration Statement
and Prospectus, no holder of any security of the Company has any right to
require registration of any shares of Common Stock or any other security of the
Company and, except as set forth in the Registration Statement and Prospectus,
all holders of securities of the Company having rights to registration of such
shares of Common Stock, or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement, or have included securities in the Registration
Statement pursuant to the exercise of such rights.
(xvii) The Company is not an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the 1940 Act.
(xviii) To the best of such counsel's
knowledge and information, the Company is not in violation of its charter or
by-laws.
(xix) To the best of such counsel's
knowledge, the conduct of the business of the Company is not in violation of
any federal, state or local statute, administrative regulation or other law
which violation could have a material adverse effect on the Company. The
Company possesses all licenses, permits, approvals and other governmental
authorizations required for the conduct of its business, as described in the
Prospectus except where the absence of any such license, permit, approval or
authorization would not be likely, in the opinion of such counsel, to have a
material adverse effect on the Company. Such licenses, permits and other
governmental authorizations possessed by the Company are in full force and
effect and, to such counsel's knowledge after due inquiry, the Company is in
all material respects complying therewith. To such counsel's knowledge, after
due inquiry, there is no reason why the Company would not receive, or would be
unlikely to receive such licenses, permits, approvals and other governmental
authorization as would be required for the conduct of the Company's business as
contemplated by the Prospectus.
(xx) To the best of such counsel's
knowledge, upon due inquiry, the Company is not in material violation of any
applicable federal, state or local environmental law.
(xxi) The Company owns or possesses all
rights to the Intellectual Property presently employed by them in connection
with the business now operated by it or necessary for the conduct of its
business as described in the Registration Statement and Prospectus.
In rendering such opinion, such counsel may rely as
to matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
In giving their opinion required by subsection (d)(1)
of this Section, Phillips McFall McCaffrey McVay and Murrah, P.C. shall
additionally state that nothing has come to their attention that would lead
them to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make
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<PAGE> 18
the statements therein not misleading or that the Prospectus, at the effective
date of the Registration Statement (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company for use
in connection with the offering of the Shares which differs from the Prospectus
declared effective by the Commission, in which case at the time it is first
provided to the Underwriters for such use) or at the Closing Date, included an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such opinion may
state that such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus except as otherwise expressly provided in such
opinion, and such counsel need express no opinion or belief as to the financial
statements, schedules, and other financial or statistical data included in the
Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of
Bright & Barnes, a Professional Corporation, counsel for the Underwriters, in
form and substance satisfactory to you, with respect to the sufficiency of all
such corporate proceedings and other legal matters relating to this Agreement
and the transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such papers, opinions and
information as they request to enable them to pass upon such matters.
(e) At the time of the execution of this Agreement, the
Underwriters shall have received from Ernst & Young LLP a letter dated such
date, in form and substance satisfactory to the Underwriters, to the effect
that:
(1) they are independent public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations;
(2) it is their opinion that the consolidated
balance sheet and the related statements of income, shareholders' equity and
cash flows of the Company included in the Registration Statement and covered by
their opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations;
(3) based upon limited procedures set forth in
detail in such letter, nothing has come to their attention which causes them to
believe that, at a specified date not more than three days prior to the date of
this Agreement, (A) the unaudited consolidated balance sheet and the related
statements of income, shareholders' equity and cash flows of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations or is not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement, or (B)
at a specified date not more than three days prior to the date of this
Agreement, there has been any change in the capital stock of the Company or any
increase in the combined long term debt of the Company or any decrease in
combined net current assets or net assets as compared with the amounts shown in
the June 30, 1997 balance sheet included in the Registration Statement or,
during the period from June 30, 1997 to a specified date not more than three
days prior to the date of this Agreement, there were any decreases, as compared
with the corresponding period in the preceding year, in combined revenues, net
income or net income per share of the Company, except in all instances for
changes, increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur;
(4) in addition to the examination referred to in
their opinion and the limited procedures referred to in clause (3) above, they
have carried out certain specified procedures, not constituting
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<PAGE> 19
an audit, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus and
which are specified by the Underwriters, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Company identified in such
letter; and
(5) they have compared the information in the
Prospectus under selected captions with the disclosure requirements of
Regulation S-B and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all material
respects with the disclosure requirements of Item 402 of Regulation S-B.
(f) At the Closing Date, the Underwriters shall have
received from Ernst & Young LLP a letter, dated as of the Closing Date, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (e) of this Section 6, except that the specified date referred to
shall be a date not more than three days prior to the Closing Date and, if the
Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the
further effect that they have carried out procedures as specified in clause (4)
of subsection (e) of this Section 6 with respect to certain amounts,
percentages and financial information specified by the Underwriters and deemed
to be a part of the Registration Statement pursuant to Rule 430(A)(b) and have
found such amounts, percentages and financial information to be in agreement
with the records specified in such clause (4).
(g) At the Closing Date, the Common Stock shall have been
approved for listing on the Nasdaq National Market.
(h) In the event that the Underwriters exercise their
option provided in Section 7 hereof to purchase all or any portion of the
Option Shares, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of the Option Closing Date and, at the
Option Closing Date, the Underwriters shall have received:
(1) A certificate, dated the Option Closing Date,
of the President or a Vice President of the Company and of the Chief Financial
or Chief Accounting Officer of the Company confirming that the certificate
delivered at the Closing Date pursuant to Section 6(c) hereof remains true and
correct as of the Option Closing Date (except that all references in such
Section to "Closing Date" shall be deemed to refer to the "Option Closing
Date").
(2) The opinion of Phillips McFall McCaffrey
McVay and Murrah, P.C., in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, relating to the Option Shares and
otherwise to the same effect as the opinion required by Section 6(d)(1) hereof
(except that all references in such Section to "Closing Date" shall be deemed
to refer to the "Option Closing Date").
(3) The opinion of Bright & Barnes, a
Professional Corporation, counsel for the Underwriters, dated the Option
Closing Date, relating to the Option Shares to be purchased on the Option
Closing Date and otherwise to the same effect as the opinion required by
Section 6(d)(2) hereof (except that all references in such Section to "Closing
Date" shall be deemed to refer to the "Option Closing Date").
(4) A letter from Ernst & Young LLP in form and
substance satisfactory to the Underwriters and dated the Option Closing Date,
substantially the same in form and substance as the letter furnished to the
Underwriters pursuant to Section 6(e) hereof, except that the "specified date"
in the letter furnished pursuant to this Section 6(h)(4) shall be a date not
more than three days prior to the Option Closing Date.
19
<PAGE> 20
(i) The Company and the Underwriters shall have entered
into the Warrant Agreement and the Company shall have sold to the Underwriters
the Underwriters' Warrants, which shall be in the form attached as an exhibit
to the Warrant Agreement.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by Capital West by notice to the Company at any time at or prior to
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that Sections 4(k)
and 8 shall survive any such termination and remain in full force and effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a non-transferable option to purchase up to an aggregate 345,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by Capital West on behalf of the
several Underwriters on one occasion in whole or in part during the period of
45 business days from and after the date on which the Firm Shares are initially
offered to the public, by giving notice to the Company. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option
as the number of Firm Shares purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Underwriters in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same day funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Capital West
Securities, Inc., 211 N. Robinson, 16th Floor, Oklahoma City, Oklahoma 73102 or
at such other place as may be agreed upon between the Underwriters and the
Company on the Option Closing Date, if written notice of the exercise of such
option is received by the Company not later than three full business days prior
to the Option Closing Date.
The certificates for the Option Shares so to be delivered will
be made available to you at such office or other location including, without
limitation, in Oklahoma City, as you may reasonably request for checking at
least two full business days prior to the date of payment and delivery and will
be in such names and denominations as you may request, such request to be made
at least three full days prior to such date of payment and delivery. If the
Underwriters so elect, delivery of the Shares may be made by credit through
full fast transfer to the accounts at Depository Trust Company by the
Underwriters.
It is understood that Capital West, individually, and not as
the representative of the Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by Capital West shall not relieve any
Underwriter of any of its or their obligations hereunder.
20
<PAGE> 21
(b) Upon exercise of any option provided for in Section
7(a) hereof the obligations of the Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment for such
Option Shares) to the accuracy of and compliance with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of their respective obligations hereunder, and
to the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants of the Company or the compliance with any of the conditions
herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or (ii) any untrue statement or alleged untrue statement made by the
Company in Section 2 hereof, or (iii) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (B) in any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company filed in any state or other jurisdiction in order to qualify any or
all of the Shares under the securities laws thereof (any such application,
documents or information being hereinafter called a "Blue Sky Application"), or
(iv) the omission or alleged omission to state in the Registration Statement or
any amendment thereto a 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, or the omission or alleged omission to
state in any Preliminary Prospectus, the Prospectus or any supplement thereto
or in any Blue Sky Application a 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; and shall reimburse each Underwriter on a
regular basis for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action; except that the Company shall not be liable in any such
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter specifically for
use in the preparation thereof and, provided further, that the indemnity
agreement provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was connected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder, unless such failure is the result of noncompliance by
the Company with Section 4(c) hereof.
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, as incurred, to which the Company
21
<PAGE> 22
may become subject, under the Act or otherwise, insofar as such losses, claims
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Registration Statement, Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (B) in any Blue Sky
Application, or (ii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
the omission or alleged omission to state in any Preliminary Prospectus, the
Prospectus or any supplement thereto or in any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
except that such indemnification shall be available in each such case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through the
Underwriters by or on behalf of such Underwriter specifically for use in the
preparation thereof, and shall reimburse the Company on a regular basis for any
legal or other expenses reasonably incurred by the Company in connection with
investigating, defending against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the person receiving them shall promptly
refund them.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 8(a)
and (b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. In the event the party giving
written notice of its demand for arbitration does not designate in such written
notice its preferences as to the arbitration tribunal, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8(a) and (b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a), 8(b) and 8(c).
(d) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the claim or the commencement of that action;
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under such
subsection. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party,
to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party; provided, however, if the defendants in any such action
include both the indemnified parties and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under such subsection for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel
22
<PAGE> 23
(together with appropriate local counsel) approved by the indemnifying party,
representing all the indemnified parties under Section 8(a) and 8(b) hereof who
are parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. In
no event shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; provided, however, that such consent shall not be
unreasonably withheld.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 for which it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the Underwriters are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company is responsible for the remaining
portion; provided, however, that (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter, and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to a contribution from any person who is not guilty of such fraudulent
misrepresentation. This subsection (d) shall not be operative as to any
Underwriter to the extent that the Company has received indemnity under this
Section 8.
(f) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may otherwise have, and
shall extend, upon the same terms and conditions, to each officer and director
of each Underwriter and to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability that the respective
Underwriters may otherwise have, and shall extend, upon the same terms and
conditions, to each director of the Company (including any person who, with his
consent, is named in the Registration Statement as about to become a director
of the Company), to each officer of the Company who has signed the Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act, in either case, whether or not such person is a party to
any action or proceeding.
(g) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including without limitation
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act. The parties are advised that Federal or state public policy,
as interpreted by the courts in certain jurisdictions, may be contrary to
certain of the provisions of this Section 8, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under this Section 8 and further agree not to
attempt to assert any such defense.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company contained in this Agreement (including, without limitation, the
agreements of the Company set forth in Section 4), or contained in certificates
of officers of the
23
<PAGE> 24
Company submitted pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Company, or any of its
officers, controlling persons or directors and shall survive delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITER. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of
such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four hours to allow the several Underwriters the privilege of substituting
within twenty-four hours (including non- business hours) another underwriter or
underwriters (which may include any non-defaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four hours, if
necessary to allow the Company the privilege of finding another underwriter or
underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriters to
take up the Firm Shares of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company shall have the right to postpone the
time of delivery for a period of not more than seven full business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective number of Firm Shares to be purchased
by the remaining Underwriters and substitute underwriters shall be taken as the
basis of their underwriting obligation. If the remaining Underwriters shall
not take up and pay for all such Firm Shares so agreed to be purchased by the
defaulting Underwriter or Underwriters or substitute another underwriter or
underwriters as aforesaid and the Company shall not find or shall not elect to
seek another underwriter or underwriters for such Firm Shares as aforesaid,
then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
24
<PAGE> 25
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of
(i) execution of this Agreement, or (ii) when notification of the effectiveness
of the Registration Statement has been released by the Commission.
(b) You shall have the right to terminate this Agreement
by giving notice as hereinafter specified at any time at or prior to the
Closing Date (i) if the Company shall have failed, refused or been unable, to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
by the Company is not fulfilled including, without limitation, any change in
the financial condition, earnings, operations, business, management, technical
staff, or business prospects of the Company from that set forth in the
Registration Statement or Prospectus which, in your sole judgment, is material
and adverse, or (ii) if trading on the New York Stock Exchange or the Nasdaq
Stock Market shall have been suspended, or minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the New York Stock Exchange or the Nasdaq Stock
Market, by the New York Stock Exchange, the Nasdaq Stock Market or by order of
the Commission or any other governmental authority having jurisdiction, or if a
banking moratorium shall have been declared by Federal, New York or Oklahoma
authorities, or (iii) if on or prior to the Closing Date, or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially and
adversely with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (iv) if
there shall have been a material adverse change in the general political or
economic conditions or financial markets in the United States as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if on or prior to the Closing
Date, or on or prior to any later date on which Option Shares are to be
purchased, as the case may be, there shall have been an outbreak or escalation
of hostilities or other international or domestic calamity, crises or material
adverse change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it in
your reasonable judgment, inadvisable to proceed with the marketing of the
Shares. In the event of termination pursuant to this Section 11(b), the
Company shall remain obligated to pay costs and expenses pursuant to Section
4(k), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone or telecopy, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone or telecopy, in
each case, confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given if mailed or transmitted
by any standard form of telecommunication. Notices to the Underwriters shall
be directed to the Underwriters in care of Capital West Securities, Inc., 211
N. Robinson, 16th Floor, One Leadership Square, Oklahoma City, Oklahoma 73102,
attention of Robert O. McDonald; notices to the Company shall be directed to it
at 800 Research Parkway, Suite 100, Oklahoma City, Oklahoma 73104, attention of
Peter G. Livingston.
25
<PAGE> 26
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors, and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors, and assigns and the controlling persons
and officers and directors referred to in Section 8 hereof any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or corporation. No purchaser of the Shares from any
Underwriter shall be construed to be a successor by reason merely of such
purchase.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma applicable to
agreements made and to be performed in said State. Specified times of day
refer to Central time.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
* * * * * * *
If the foregoing correctly sets forth your understanding of our
agreement, please sign in the space provided below for that purpose, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Company in accordance with its terms.
ZYMETX, INC.
By:
-------------------------------------
Peter G. Livingston, President
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:
-------------------------------------
Robert O. McDonald, Chairman
MILLENNIUM FINANCIAL GROUP, INC.
By:
-------------------------------------
Its:
------------------------------------
COMVEST PARTNERS, INC.
By:
-------------------------------------
Its:
------------------------------------
Its:
26
<PAGE> 27
SCHEDULE A
UNDERWRITER SHARES PURCHASED
Capital West Securities, Inc.
Millennium Financial Group, Inc.
ComVest Partners, Inc.
27
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
C [LOGO] ZymeTx, Inc.
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 989859 10 3
</TABLE>
This is to certify that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 per share,
OF
ZymeTx, Inc.
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon the surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are subject to the
laws of the State of Delaware and to the Certificate of Incorporation and
Bylaws of the Corporation, as now or hereafter amended. This certificate is not
valid unless countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ PETER G. LIVINGSTON [SEAL] /s/ G. CARL GIBSON
- ------------------------ ----------------------
PRESIDENT SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY.
<PAGE> 2
ZymeTx, Inc.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties --------- ---------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act
------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For Value Received, hereby sell, assign and transfer unto
--------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to register the transfer of the said shares of Common Stock on the books of the
within-named Corporation, with full power of substitution in the premises.
Dated
--------------------------
X
--------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE WITHOUT ALTERATION OR ANY CHANGE WHATEVER.
X
--------------------------
(SIGNATURE)
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
<PAGE> 1
EXHIBIT 4.2
ZYMETX, INC.
WARRANT AGREEMENT
__________________, 1997
CAPITAL WEST SECURITIES, INC.
MILLENNIUM FINANCIAL GROUP, INC.
COMVEST PARTNERS, INC.
c/o Capital West Securities, Inc.
One Leadership Square
211 N. Robinson, Suite 1600
Oklahoma City, OK 73102
Ladies and Gentlemen:
ZymeTx, Inc., a Delaware corporation (the "Company"), agrees
to issue and sell to you warrants (the "Warrants") to purchase the number of
shares of common stock, $0.001 par value per share (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants,
which shall be in the form attached hereto as Exhibit A, shall be issued to you
concurrently with the execution hereof in consideration of the payment by you
to the Company of the sum of $0.001 cash per share of Common Stock subject to
the Warrants, the receipt and sufficiency of which are hereby acknowledged.
The Warrants shall provide that you, or such other holder or holders of the
Warrants to whom transfer is authorized in accordance with the terms of this
Agreement, shall have the right to purchase an aggregate of two hundred thirty
thousand shares of Common Stock for an exercise price equal to $________ per
share (the "Exercise Price") or $___________________ in the aggregate. The
number, character and Exercise Price of such shares of Common Stock are subject
to adjustment as hereinafter provided, and the term "Common Stock" shall mean,
unless the context otherwise requires, the stock and other securities and
property receivable upon exercise of the Warrants. The term "Exercise Price"
shall mean, unless the context otherwise requires, the price per share of the
Common Stock purchasable under the Warrants as set forth in this Section 1, as
adjusted from time to time pursuant to Section 6.
2. Representations and Warranties. The Company
represents and warrants to you and to each subsequent holder of Warrants and
agrees that:
(a) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable in
accordance with its terms; and neither the issuance of the
Warrants nor the issuance of the shares of Common Stock
issuable upon exercise of the Warrants will result in a breach
or violation of any terms or provisions of, or constitute a
default under, any contract, indenture, mortgage, deed of
trust, loan agreement or other
<PAGE> 2
agreement or instrument to which the Company is a party or by
which the Company is bound, the Certificate of Incorporation
or Bylaws of the Company, or any law, order, rule, regulation
or decree of any government, governmental instrumentality or
court, domestic or foreign, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company.
(b) No consent, approval, authorization or order
of any court or governmental agency or body is required for
the sale and issuance of the Warrants or the sale and issuance
of the shares of Common Stock issuable upon exercise of the
Warrants, except such as have been obtained or may be required
under the Securities Act of 1933, as amended (the "Act"), and
such as may be required under state securities or blue sky
laws in connection with the issuance of the Warrants and the
shares of Common Stock issuable upon exercise of the Warrants.
Upon exercise of the Warrants by the holder thereof, the
shares of Common Stock with respect to which the Warrants are
exercised will be validly issued, fully paid, and
nonassessable, and good and marketable title to such shares of
Common Stock shall be delivered to such holder free and clear
of all liens, encumbrances, equities, claims or preemptive or
similar rights.
(c) During the term of this Agreement, the
Company shall make timely filings of all periodic and other
reports and forms and other materials required (but only to
the extent required) to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Act or
the Securities Exchange Act of 1934, as amended, and with any
national securities exchange or quotation system upon which
any of the securities of the Company may be listed.
3. Notices of Record Date; Etc.. In the event of (i)
any taking by the Company of a record date with respect to the holders of any
class of securities of the Company for purposes of determining which of such
holders are entitled to dividends or other distributions (other than regular
quarterly dividends), or any right to subscribe for, purchase or otherwise
acquire shares of stock of any class or any other securities or property, or to
receive any other right, (ii) any capital reorganization of the Company, or
reclassification or recapitalization of capital stock of the Company or any
transfer in one or more related transactions of all or a majority of the assets
or revenue or income generating capacity of the Company to, or consolidation or
merger of the Company with or into, any other entity or person, or (iii) any
voluntary or involuntary dissolution or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of a
Warrant at the time outstanding a notice specifying, as the case may be, (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 6, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event.
Any such notice shall be deposited in the United States mail,
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<PAGE> 3
postage prepaid, at least ten (10) days prior to the date therein specified,
and the holder(s) of the Warrant(s) may exercise the Warrant(s) and participate
in such event as a registered holder of Common Stock, upon exercise of the
Warrant(s) so held, within the ten (10) day period from the date of mailing of
such notice.
4. No Impairment. The Company shall not, by amendment
of its organizational documents or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other action, avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or of the Warrants, but will at all times in good
faith take any and all action as may be necessary in order to protect the
rights of the holders of the Warrants against impairment. Without limiting the
generality of the foregoing, the Company (a) will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants,
shares of Common Stock issuable from time to time upon exercise of the
Warrants, (b) will not increase the par value of any shares of stock receivable
upon exercise of the Warrants above the amount payable in respect thereof upon
such exercise, and (c) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable stock upon the exercise of the Warrants, or any of them.
5. Exercise of Warrants. At any time and from time to
time on and after the first anniversary of the date hereof and expiring on the
fifth anniversary of the effective date of the public offering of the Common
Stock at 5:00 p.m., Oklahoma City, Oklahoma time, Warrants may be exercised as
to all or any portion of the whole number of shares of Common Stock covered by
the Warrants by the holder thereof by surrender of the Warrants, accompanied by
a subscription for shares to be purchased in the form attached hereto as
Exhibit B and by a check payable to the order of the Company in the amount
required for purchase of the shares as to which the Warrant is being exercised,
delivered to the Company at its principal office at 800 Research Parkway, Suite
100, Oklahoma City, Oklahoma 73104, Attention: President. Warrants may also
be exercised from time to time, without any payment required for the purchase
of the shares as to which the Warrant is being exercised, as to all or any
portion of the number of shares of Common Stock covered by the Warrant(s) by
the holder thereof by surrender of the Warrants, accompanied by a subscription
for shares in the form attached as Exhibit C, pursuant to which the holder
thereof will be entitled to receive upon such surrender of the Warrant(s) (and
without any further payment) that number of shares of Common Stock equal to the
product of the number of shares of Common Stock obtainable upon exercise of the
Warrant(s) (or the portion thereof as to which the exercise relates)
multiplied by a fraction: (i) the numerator of which shall be the difference
between the then Current Value (as defined in this Section 5 and Section 7(d)
of one full share of Common Stock on the date of exercise and the Exercise
Price, and (ii) the denominator of which shall be the Current Value of one full
share of Common Stock on the date of exercise. Upon the exercise of a Warrant
in whole or in part, the Company will within five (5) days thereafter, at its
expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which such holder is entitled upon
exercise of the Warrant. In the event such holder is entitled to a fractional
share, in lieu thereof such holder shall be paid a cash amount equal to such
fraction, multiplied by the Current Value of one full share of Common Stock on
the date of exercise. Certificates for shares of Common Stock issuable by
reason of the exercise of the Warrant or Warrants shall be dated and shall be
effective as of the date of the surrendering of the Warrant for exercise,
notwithstanding any delays in the actual execution, issuance or delivery of the
certificates for the shares so purchased. In the event a Warrant
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<PAGE> 4
or Warrants is exercised as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
For purposes of this section, Current Value is
defined (i) in the case for which a public market exists for the Common Stock
at the time of such exercise, according to Section 7(d), and (ii) in the case
no public market exists at the time of such exercise, at the Appraised Value.
For the purposes of this Agreement, "Appraised Value" is the value determined
in accordance with the following procedures. For a period of five (5) days
after the date of an event (a "Valuation Event") requiring determination of
Current Value at a time when no public market exists for the Common Stock (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in good
faith to reach agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be the fair market
value of such securities or property, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. In the event
that the parties are unable to agree upon the Appraised Value of such
securities or other property by the end of the Negotiation Period, then the
Appraised Value of such securities or property will be determined for purposes
of this Agreement by a recognized appraisal or investment banking firm mutually
agreeable to the holders of the Warrants and the Company (the "Appraiser"). If
the holders of the Warrants and the Company cannot agree on an Appraiser within
two (2) business days after the end of the Negotiation Period, the Company, on
the one hand, and the holders of the Warrants, on the other hand, will each
select an Appraiser within ten (10) business days after the end of the
Negotiation Period and those two Appraisers will select ten (10) days after the
end of the Negotiation Period an independent Appraiser to determine the fair
market value of such securities or property, without premium for control or
discount for minority interests. Such independent Appraiser will be directed
to determine fair market value of such securities or property as soon as
practicable, but in no event later than thirty (30) days from the date of its
selection. The determination by an Appraiser of the fair market value will be
conclusive and binding on all parties to this Agreement. Appraised Value of
each share of Common Stock at a time when (i) the Company is not a reporting
company under the Exchange Act and (ii) the Common Stock is not traded in the
organized securities markets, will, in all cases, be calculated by determining
the Appraised Value of the entire Company taken as a whole and dividing that
value by the number of shares of Common Stock then outstanding, without premium
for control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
6. Protection Against Dilution. The Exercise Price for
the shares of Common Stock and number of shares of Common Stock issuable upon
exercise of the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions,
Reclassifications, Etc.. In case at any time or from time to
time after the date of execution of this Agreement, the
Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them
4
<PAGE> 5
to receive a dividend or a distribution on shares of Common
Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify its outstanding Common Stock into
a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted
in such a manner that the Exercise Price for the shares
issuable upon exercise of the Warrants immediately after such
event shall bear the same ratio to the Exercise Price in
effect immediately prior to any such event as the total number
of shares of Common Stock outstanding immediately prior to
such event shall bear to the total number of shares of Common
Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable.
When any adjustment is required to be made in the Exercise
Price under this Section 6, (i) the number of shares of Common
Stock issuable upon exercise of the Warrants shall be changed
(upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of
shares issuable pursuant to the exercise of the Warrants
immediately prior to the adjustment, multiplied by the
Exercise Price in effect immediately prior to the adjustment,
by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder
will be entitled to receive the number of shares of other
securities referred to in Section 6(a) that such holder would
have received had the Warrant been exercised prior to the
events referred to in Section 6(a).
(c) Adjustment for Reorganization, Consolidation,
Merger, Etc.. In case of any reorganization or consolidation
of the Company with, or any merger of the Company with or
into, another entity (other than a consolidation or merger in
which the Company is the surviving corporation) or in case of
any sale or transfer to another entity of the majority of
assets of the Company, the entity resulting from such
reorganization or consolidation or surviving such merger or to
which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and
equitable to the holders of Warrants) and shall assume the
obligations of the Company hereunder (by written instrument
executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants,
at any time after the consummation of such reorganization,
consolidation, merger or conveyance, the holder shall be
entitled to receive the stock or other securities or property
that such holder would have been entitled to upon consummation
if such holder had exercised the Warrants immediately prior
thereto, all subject to further adjustment as provided in this
Section 6.
(d) Certificate as to Adjustments. In the event
of adjustment as herein provided in paragraphs of this Section
6, the Company shall promptly mail to each Warrant holder a
certificate setting forth the Exercise Price and number of
shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts
requiring such adjustment. Such certificate shall also set
forth the
5
<PAGE> 6
kind and amount of stock or other securities or
property into which the Warrants shall be exercisable after
any adjustment of the Exercise Price as provided in this
Agreement.
(e) Minimum Adjustment. Notwithstanding the
foregoing, no certificate as to adjustment of the Exercise
Price hereunder shall be made if such adjustment results in a
change in the Exercise Price then in effect of less than five
cents ($0.05) and any adjustment of less than five cents
($0.05) of any Exercise Price shall be carried forward and
shall be made at the time of and together with any subsequent
adjustment that, together with the adjustment or adjustments
so carried forward, amounts to five cents ($0.05) or more;
provided however, that upon the exercise of a Warrant, the
Company shall have made all necessary adjustments (to the
nearest cent) not theretofore made to the Exercise Price up to
and including the date upon which such Warrant is exercised.
7. Registration Rights.
(a) The Company agrees that upon written notice
given to the Company at any time on or after the first
anniversary of the effective date of the public offering of
the Common Stock but before the fifth anniversary of the
effective date of the public offering, from the holder or
holders of not less than fifty one percent (51%) of the shares
issued and issuable upon exercise of the Warrants, of a
proposed distribution by such holder or holders of Common
Stock issued or issuable upon exercise of Warrants, the
Company will, within 45 days after receipt of such notice,
promptly prepare, file and diligently prosecute to
effectiveness, an appropriate filing with the Commission of a
registration statement covering the proposed sale or
distribution of all or any part of such shares under the
Securities Act of 1933, as amended (the "Act"), and the
appropriate registration statements or applications under the
securities laws of such states as such holders, in their
discretion, shall determine, and will use its reasonable best
efforts to have such registration and application (including
both the registration under the Act and the registration or
application made under the various state securities laws)
declared effective as soon as practicable after the filing
thereof and to remain effective for such period that may be
reasonably necessary to complete the distribution of
securities so registered or qualified. At least 15 days prior
to such filing, the Company shall give written notice of such
proposed filing to each registered holder of any Warrants at
the holders' addresses appearing on the records of the Company
and to each registered holder of Common Stock purchased from
the exercise of any Warrants at such holder's address
appearing on the Company records, and shall offer to include
in such registration statement any proposed distribution of
such Common Stock held or to be held by each such registered
holder; provided, however, that except as provided in Section
7(e), the Company need not effect the registration of the sale
or distribution of Common Stock purchased upon exercise of
Warrants more than once. All expenses, disbursements and fees
(including fees and expenses of counsel for the Company,
special auditing fees specifically attributable to the sale by
the selling holder or holders of Common Stock, printing
expenses (including all necessary copies of the registration
statement and prospectuses contained therein), registration
and filing fees and blue sky fees and expenses, and fees and
charges of the Company's transfer agent
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<PAGE> 7
and registrar for services rendered in connection therewith)
shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any
registration proceeding begun (in which case holders shall
bear such expenses), if the registration request is
subsequently withdrawn at any time at the request of the
holder or holders of not less that 51% of the shares issued
and issuable upon exercise of the Warrants, unless such
withdrawal is due to the misconduct of the Company or due to
an unforeseen material adverse change in the business,
properties, prospects or financial condition of the Company
occurring prior to the effectiveness of the registration
statement, in which case the Company will continue to bear
such expenses.
(b) In connection with any registration under the
Act and specified state securities law pursuant to this
Agreement, the Company will, without charge, furnish each
holder whose shares are registered thereunder with copies of
the registration statement and all amendments thereto and
will, without charge, supply each such holder with copies of
any preliminary and final prospectus included therein in such
quantities as may be necessary for the purposes of such
proposed sale or distribution that the holder or holders may
reasonably request.
(c) In connection with any registration of shares
pursuant to this Section 7, the holders whose shares are being
registered shall furnish the Company with such information
concerning such holders and the proposed sale or distribution
as shall be required for use in the preparation of such
registration statement and applications.
(d) Notwithstanding the foregoing provisions of
this Section 7, upon receipt of such written notice from the
holder or holders of not less than fifty one percent (51%) of
the shares issued and issuable upon exercise of the Warrants
requesting that the Company effect registration of the sale or
distribution of Common Stock as provided in Section 7(a) or
upon election by holders of Warrants or Common Stock to
participate in a registration pursuant to Section 7(e), the
Company shall have the option, for a period of ten (10) days
thereafter, to purchase all or any such Warrants and all or
any such shares of Common Stock acquired pursuant to the
exercise of the Warrants and held by holders providing the
request for registration under Section 7(a) and/or 7(e) and
held by any other holder of Warrants or shares issued and will
exercise its option if it so elects as follows:
(i) as to such Warrants, at a price per
Warrant equal to the difference between (A) the
average of the means between the closing bid and
asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business
days commencing 30 business days before the date of
receipt of such notice, (B) if the Common Stock is
quoted on the Nasdaq SmallCap Market, at the average
of the means of the daily closing bid and asked
prices of the Common Stock for 20 consecutive
business days commencing 30 business days before the
date of such notice, or (C) if the Common Stock is
listed on any national securities exchange or quoted
on the Nasdaq National Market, at the average of the
daily closing prices of the Common Stock for 20
consecutive business days commencing 30 business days
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<PAGE> 8
before the date of such notice and the Exercise Price
of the Warrant at the time of receipt of such notice;
and
(ii) as to shares of Common Stock
previously purchased pursuant to the exercise of
Warrants, at a price per share equal to (A) the
average of the means between the closing bid and
asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business
days commencing 30 business days before the date of
such notice, (B) if the Common Stock is quoted on the
Nasdaq SmallCap Market, at the average of the means
of the daily closing bid and asked prices of the
Common Stock for 20 consecutive business days
commencing 30 business days before the date of such
notice, or (C) if the Common Stock is listed on any
national securities exchange or the Nasdaq National
Market, at the average of the daily closing prices of
the Common Stock for 20 consecutive business days
commencing 30 business days before the date of such
notice (such value of shares so determined in this
Section 7(d)(ii), as the case may be, is referred to
herein as the "Current Value").
(e) If any time on or after the first anniversary
of the date hereof but before the fifth anniversary of the
date hereof the Company proposes to file a registration
statement under the Act covering a proposed sale of shares of
Common Stock (other than on Form S-4, S-8 or any other form
that does not provide for resales by selling security
holders), it shall give to each holder who then owns any
Warrants or any shares of Common Stock acquired pursuant to
the exercise of the Warrants notice of such proposed
registration at least 30 days prior to the filing of the
registration statement and shall afford each such holder who
then proposes to sell or distribute publicly any of the shares
subject to the Warrants upon giving not less than 10 days
notice prior to such filing, the opportunity to have such
shares included in the securities registered under the
registration statement. All expenses, disbursements and fees
(including, but without limitation, fees and expenses of
counsel, auditing fees, printing expenses, SEC filing fees and
blue sky fees and expenses, but excluding any underwriting
discounts or commissions) incurred in connection with the
registration by the Company of the sale of any shares for any
such holder under this Section 7(e) shall be borne by the
Company.
8. Indemnification; Contribution.
(a) The Company will indemnify and hold harmless
each holder and each affiliate thereof of Common Stock
registered pursuant to this Agreement with the Commission, or
under any blue sky law or regulation against any losses,
claims, damages or liabilities, joint or several, to which
such holder may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are
8
<PAGE> 9
based upon an untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus,
registration statement, prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each
such holder and affiliate for any legal or other expenses
reasonably incurred by such holder in connection with
investigating or defending any such action or claim regardless
of the negligence of any such holder or affiliate; provided,
however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any
preliminary prospectus, registration statement or prospectus,
or any such amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the
Company by any such holder expressly for use therein.
(b) Each holder of Common Stock registered
pursuant to this Agreement will indemnify and hold harmless
the Company against any losses, claims, damages or liabilities
to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus,
registration statement or prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the
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 each case to the extent,
but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in
any preliminary prospectus, registration statement or
prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information
furnished to the Company by such holder expressly for use
therein.
(c) Promptly after receipt by an indemnified
party under Sections 8(a) or (b) above of the commencement of
any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
under either such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to
notify the indemnifying party shall not relieve it from any
liability that it may otherwise have to any indemnified party.
In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party
of the commencement thereof the indemnifying party shall be
entitled to assume the defense thereof by notice in writing to
the indemnified party. After notice from the indemnifying
party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party under either of such subsections for
any legal expenses of other counsel or any other expense, in
each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable
costs of investigation incurred prior to the assumption by the
indemnifying party, unless such expenses have been
specifically authorized in writing by the indemnifying party,
the indemnifying party has failed to assume the defense and
employ counsel, or the named parties to any such action
include both the indemnified party and the indemnifying party,
as appropriate, and such indemnified party has been advised by
counsel that the representation of such indemnified party and
the indemnifying party by the same counsel would be
9
<PAGE> 10
inappropriate due to actual or potential differing interests
between them, in each of which cases the fees of counsel for
the indemnified party will be paid by the indemnifying party.
(d) If the indemnification provided for in this
Section 8 is unavailable or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any
losses, claims, damages or liabilities (or action in respect
thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by 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 the Company and the holder or holders from this
Agreement and from the offering of the shares of Common Stock.
If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, 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 and the holders in
connection with the statement or omissions that resulted in
such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
information supplied by the Company or the holder and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the holders agree that it would not be just
and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the holders
were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the
equitable considerations referred to above in this subsection
(d). Except as provided in Section 8(c), the amount paid or
payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigation or
defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation. Notwithstanding any provision in this
Section 8(d) to the contrary, no holder shall be liable for
any amount, in the aggregate, in excess of the net proceeds to
such holder from the sale of such holder's shares (obtained
upon exercise of Warrants) giving rise to such losses, claims,
damages or liabilities.
(e) The obligations of the Company under this
Section 8 shall be in addition to any liability that the
Company may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any
holder of Warrants within the meaning of the Act. The
obligations of the holders of Common Stock under this Section
8 shall be in addition to any liability that such holders may
otherwise have and shall extend, upon the same terms and
conditions to each person, if any, who controls the Company
within the meaning of the Act.
10
<PAGE> 11
9. Stock Exchange Listing. In the event the Company
lists its Common Stock on any national securities exchange, the Company will,
at its expense, also list on such exchange, upon exercise of a Warrant, all
shares of Common Stock issuable pursuant to such Warrant.
10. Specific Performance. The Company stipulates that
remedies at law, in money damages, available to the holder of a Warrant, or of
a holder of Common Stock issued pursuant to exercise of a Warrant, 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 Agreement are not and will not be
adequate. Therefore, the Company agrees that the terms of this Agreement 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.
11. Successors and Assigns; Binding Effect. This
Agreement shall be binding upon and inure to the benefit of you and the Company
and their respective successors and permitted assigns.
12. Notices. Any notice hereunder shall be given by
registered or certified mail, if to the Company, at its principal office
referred to in Section 5 and, if to the holders, to their respective addresses
shown in the Warrant ledger of the Company, provided that any holder may at any
time on three (3) days' written notice to the Company designate or substitute
another address where notice is to be given. Notice shall be deemed given and
received after a certified or registered letter, properly addressed with
postage prepaid, is deposited in the U.S. mail.
13. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the remainder of this Agreement.
14. Assignment; Replacement of Warrants. If the Warrant
or Warrants are assigned, in whole or in part, the Warrants shall be
surrendered at the principal office of the Company, and thereupon, in the case
of a partial assignment, a new Warrant shall be issued to the holder thereof
covering the number of shares not assigned, and the assignee shall be entitled
to receive a new Warrant covering the number of shares so assigned. Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and appropriate bond or
indemnification protection, the Company shall issue a new Warrant of like
tenor. Except as contemplated by Section 7 of this Agreement, the Warrants
will not be transferred, sold, or otherwise hypothecated by you or any other
person and the Warrants will be nontransferable prior to the first anniversary
of the effective date of the public offering, except to (i) one or more
persons, each of whom on the date of transfer is an officer, shareholder or
employee of you; (ii) a partnership or partnerships, the partners of which are
you and one or more persons, each of whom on the date of transfer is an officer
to you; (iii) a successor to you in merger or consolidation; (iv) a purchaser
of all or substantially all of your assets; or (v) a person that receives a
Warrant upon death of a Holder pursuant to will, trust, or the laws of
intestate succession.
15. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Oklahoma without giving
effect to the principles of choice of laws thereof.
11
<PAGE> 12
16. Definition. All references to the word "you", to
"Capital West Securities, Inc.", to "Millennium Financial Group, Inc." and to
"ComVest Partners, Inc." in this Agreement shall be deemed to apply with equal
effect to any persons or entities to whom Warrants have been transferred in
accordance with the terms hereof, and, where appropriate, to any persons or
entities holding shares of Common Stock issuable upon exercise of Warrants.
17. Headings. The headings herein are for purposes of
reference only and shall not limit or otherwise affect the meaning of any of
the provisions hereof.
Very truly yours,
ZYMETX, INC.
By:
-------------------------------------
President
Accepted as of the day of , 1997.
-------- -----------------
CAPITAL WEST SECURITIES, INC.
By:
-------------------------------------
Authorized Signatory
MILLENNIUM FINANCIAL GROUP, INC.
By:
-------------------------------------
Authorized Signatory
COMVEST PARTNERS, INC.
By:
-------------------------------------
Authorized Signatory
12
<PAGE> 1
Exhibit 5.1
September 19, 1997
ZymeTx, Inc.
800 Research Parkway, Suite 100
Oklahoma City, Oklahoma 73104
Gentlemen:
We have acted as counsel to ZymeTx, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended (the
"Registration Statement"), including the Prospectus which constitutes a part
thereof, relating to the issuance and sale of 2,300,000 shares (the "Shares")
of the Company's common stock, $.001 par value (the "Common Stock"), including
an overallotment option of up to 345,000 shares.
We have examined and are familiar with originals or copies, certified
or otherwise, identified to our satisfaction, of such corporate records of the
Company, certificates of officers of the Company and of public officials and
such other documents as we have deemed appropriate as a basis for the opinion
expressed below.
Based on the foregoing, we are of the opinion that the Shares, when
sold on the terms set forth in the Prospectus, will be legally issued, fully
paid and nonassessable.
PHILLIPS McFALL McCAFFREY
McVAY & MURRAH, P.C.
<PAGE> 1
Exhibit 10.15
EXECUTIVE SERVICES AGREEMENT
THIS EXECUTIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into as of July 1, 1997, by and between ZymeTx, Inc., a Delaware
corporation (the "Company"), and Peter G. Livingston ("Livingston").
W I T N E S S E T H
WHEREAS, Livingston is currently serving as President and Chief
Executive Officer of the Company; and
WHEREAS, on July 24, 1996, the Company and Oklahoma Medical Research
Foundation ("OMRF") entered into that certain Employee Services Agreement (the
"OMRF Agreement"), pursuant to which, among other things, OMRF has leased the
services of Livingston to the Company;
WHEREAS, the Company and Livingston desire to enter into this
Agreement in connection with Livingston's continued service to the Company;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained, and other good and valuable consideration, the adequacy of
which is hereby acknowledged, the parties hereby agree as follows:
1. ENGAGEMENT; DUTIES AND ACCEPTANCE.
1.1. Engagement by the Company. During the Term (as hereinafter
defined) and so long as Livingston is employed by OMRF (the "OMRF Term"), the
Company agrees to lease the services of Livingston from OMRF and Livingston
shall serve in such executive position with the Company as may be determined by
the Company's Board of Directors. Following the expiration of the OMRF Term,
the Company hereby agrees to employ Livingston during the Term in such an
executive position as may be determined by the Board of Directors of the
Company.
1.2 Duties. As an executive of the Company, Livingston shall
render such duties as previously rendered and as he shall be directed to render
and perform by the Board of Directors of the Company.
1.3. Acceptance of Engagement by Livingston. Livingston hereby
accepts such engagement and shall render the services described above, whether
as OMRF's employee who is leased to the Company or as an employee of the
Company itself. Livingston agrees to devote such time and attention necessary
to the performance of said services for the Company.
1.4. Continuation or Termination of Existing Contracts. On June
30, 1996, the Company, OMRF and Livingston entered into that certain Invention
Disclosure and Assignment Agreement, a copy of which is attached hereto as
Annex "A" (the "Invention Disclosure Agreement") and the terms of which are
incorporated herein. In addition, on June 30, 1996, the Company and Livingston
entered into that certain Non-Competition Agreement, a copy of which is
attached hereto as Annex "B" (the "Non-Competition Agreement") and the terms of
which are incorporated herein by reference. Further, on January 3, 1997, the
Company and Livingston entered into that certain Incentive Stock Option
Agreement, a copy of which is attached hereto as Annex "C" (the "Stock Option
Agreement") and the terms of which are incorporated herein by reference. The
terms of such agreements shall continue in effect and are hereby ratified and
affirmed by the parties to this Agreement; provided, however, Livingston and
the Company agree that the
<PAGE> 2
term of the Non-Competition Agreement shall expire on the fifth anniversary of
the Term of this Agreement and Livingston's obligations under the Invention
Disclosure Agreement shall continue after the OMRF Term so long as Livingston
is employed by the Company, whether or not the Term of this Agreement has
expired. Livingston agrees that all other agreements and contracts, whether
written or oral, relating to the current engagement of Livingston by the
Company will be terminated as of the commencement of the Term of this
Agreement.
2. TERM OF SERVICE. The term of Livingston's service under this
Agreement (the "Term") shall commence as of the date of this Agreement (the
"Commencement Date"), and shall continue through and expire on the second
anniversary of the Commencement Date (the "Termination Date") unless earlier
terminated as herein provided.
3. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. During the Term,
Livingston 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 the Company, which may be
available to employees of the Company generally on the same terms as such
employees, and shall continue to participate in all such plans described in
Schedule 3 attached hereto in which Livingston presently participates;
provided, however, during the OMRF Term, the Company shall not be required to
provide benefits which duplicate those provided by OMRF. The Company and
Livingston acknowledge the Company's grant of stock options under the Stock
Option Agreement.
4. COMPENSATION.
4.1. Annual Salary. In consideration of the observance by
Livingston of the terms of this Agreement and the performance of his duties as
set forth herein, the Company shall pay to Livingston, or reimburse OMRF during
the OMRF Term for, the sum of One Hundred Forty-five Thousand Dollars
($145,000) per year (the "Annual Salary") during the Term of this Agreement,
which payments after the OMRF Term shall be payable in accordance with the
payroll policies of the Company as such are from time to time in effect.
During the OMRF Term the Company shall make Annual Salary reimbursement in
accordance with the OMRF Agreement, and the Company shall have no obligation to
make direct payments of Annual Salary to Livingston provided that reimbursement
of Annual Salary is made to OMRF. The Annual Salary shall be reviewed by the
Compensation Committee (the "Committee") on each anniversary of the
Commencement Date of this Agreement; provided, however, that in no event will
such review result in a decrease in the Annual Salary.
4.2. Bonus. At the time of each annual review, the
Committee shall consider the appropriateness for the payment of a bonus to
Livingston equal to an amount not to exceed 50% of the previous year's Annual
Salary. At the time of each annual review, Livingston and the Committee shall
mutually agree upon performance criteria and objectives against which actual
performance by Livingston may be measured for purposes of determining a
possible bonus for the next fiscal year.
5. VACATIONS. Livingston shall be entitled each year to a
vacation of four (4) weeks during which time his compensation shall be paid in
full. Unused vacation shall be carried over to future years in accordance with
standard Company vacation policy.
-2-
<PAGE> 3
6. TERMINATION.
6.1. Termination upon Death. If Livingston dies during
the Term, this Agreement shall terminate, and if death occurs after the OMRF
Term, Livingston's legal representatives shall be entitled to receive the
Annual Salary, accrued pro rata to the date of Livingston's death. If death
occurs during the OMRF Term, Livingston's legal representatives shall be
entitled to receive compensation in accordance with standard OMRF policy.
6.2. Termination for Cause. The Company has the right, at
any time during the Term, subject to all of the provisions hereof, exercisable
by serving notice, effective in accordance with its terms, to terminate
Livingston's service under this Agreement (whether or not services are leased
by OMRF) and to discharge Livingston for "Cause" (as hereinafter defined). If
such right is exercised after the OMRF Term, the Company's obligation to
Livingston shall be limited to the payment of unpaid Annual Salary accrued up
to the effective date specified in the Company's notice of termination; if
exercised during the OMRF Term, the Company's obligation shall be limited to
reimbursement to OMRF for such amount. As used in this Section 6.2, the term
"Cause" shall mean the occurrence of one or more of the following events: (i)
Livingston's willful and repeated failure or refusal to comply in any material
respect with the reasonable and lawful policies, standards or regulations from
time to time established by the Company, or to perform his duties in accordance
with this Agreement after notice to Livingston of such failure; or (ii)
Livingston engages in criminal conduct or engages in conduct with respect to
the Company that is dishonest, fraudulent or materially detrimental to the
reputation, character or standing of the Company.
6.3 Termination Without Cause. The Company may terminate
Livingston's service without Cause upon giving thirty (30) days written notice
of termination. In such event, (a) the Company shall, for each of the twelve
(12) months thereafter, pay to Livingston his monthly payment of Annual Salary
in effect previous to such termination, (b) the Company shall pay Livingston an
amount in cash equal to 50% of the previous bonus paid to him, and (c) any
stock options which were unvested but would vest within the twelve (12) months
following such notice of termination shall immediately vest and become
exercisable under the Stock Option Agreement.
6.4. Suspension upon Disability. If during the Term
Livingston becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that Livingston is
unable substantially to perform his services hereunder for a period of four (4)
consecutive months, the Company may at any time after the last day of the four
(4) consecutive months of disability, by written notice to Livingston, suspend
the Term of Livingston's services hereunder and discontinue payments, or
reimbursements to OMRF, of the Annual Salary. If at any time Livingston shall
no longer be disabled, as evidenced by the written statement of a competent
physician licensed to practice medicine in the United States, the Company shall
fully reinstate the engagement of Livingston pursuant to this Agreement and
shall commence payment, or reimbursement to OMRF, of the Annual Salary and all
of the terms of this Agreement shall resume in full force for the balance of
the Term. Nothing in this Section 6.4 shall be deemed to extend the Term.
-3-
<PAGE> 4
7. INSURANCE. The Company may, from time to time, apply for and
take out, in its own name and at its own expense, naming itself or others as
the designated beneficiary (which it may change from time to time), policies
for health, accident, disability or other insurance upon Livingston in any
amount or amounts that it may deem necessary or appropriate to protect its
interest. In addition, the Company shall maintain a separate policy or benefits
under the same policy of the Company with Mr. Livingston's estate named as a
beneficiary for One Million Dollars ($1,000,000) of coverage. Livingston agrees
to aid the Company in procuring such insurance by submitting to medical
examinations and by filling out, executing and delivering such applications and
other instruments in writing as may be reasonably be required by an insurance
company or companies to which any application or applications for insurance may
be made by or for the Company.
8. OTHER PROVISIONS.
8.1. 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, the date of
receipt, as follows:
(i) If to the Company, to:
---------------------
ZymeTx, Inc.
800 Research Parkway, Suite 100
Oklahoma City, Oklahoma 73104
(ii) If to Livingston, to:
--------------------
Peter G. Livingston
5500 S.E. 15th St.
Edmond, Oklahoma 73013
Any party may change its address for notice hereunder by
notice to the other party hereto.
8.2. Entire Agreement. This Agreement and the Annexes
hereto contain the entire agreement between the parties with respect to the
subject matter hereof, and supersedes all prior agreements, written or oral,
with respect thereto.
8.3. 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 thereof or the exercise of any other right, power or privilege
hereunder.
-4-
<PAGE> 5
8.4. 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.
8.5. Assignment. Livingston may not delegate the
performance of any of his duties hereunder. Neither party hereto may assign
any rights hereunder without the written consent of the other party hereto.
8.6. 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.
8.7. 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.
COMPANY: ZYMETX, INC.
By /s/ G. Carl Gibson
--------------------------
G. Carl Gibson,
Controller and Treasurer
LIVINGSTON: /s/ Peter G. Livingston
--------------------------
Peter G. Livingston
-5-
<PAGE> 1
Exhibit 10.17
PLACEMENT AGENT WARRANT AGREEMENT
WARRANT AGREEMENT dated as of August 5, 1997, 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 July 2, 1997, 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 35 units ("Units") (plus up
to an additional 22.5 Units solely to cover over-subscriptions, if any) each
Unit consisting of 25,000 shares of the Company's Series C Convertible
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 $4.00 per share of Common Stock, subject to
the terms and conditions of this Agreement.
<PAGE> 2
Page 2
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.
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
<PAGE> 3
Page 3
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 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 assignment 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.
<PAGE> 4
Page 4
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 $4.00 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.
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
August 5, 1997.
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.
<PAGE> 5
Page 5
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
representing 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 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
<PAGE> 6
Page 6
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,
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
<PAGE> 7
Page 7
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 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.
<PAGE> 8
Page 8
(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 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.
<PAGE> 9
Page 9
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 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
<PAGE> 10
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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 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.
<PAGE> 11
Page 11
(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.
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
<PAGE> 12
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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.
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,
<PAGE> 13
Page 13
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, 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
<PAGE> 14
Page 14
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 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
<PAGE> 15
Page 15
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.
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Page 16
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
------------------------
Peter G. Livingston
President
Attest:
- --------------------------
Secretary
SPENCER TRASK SECURITIES
INCORPORATED
By
------------------------
Name:
Title:
<PAGE> 17
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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 $4.00
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 August 5, 1997 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 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.
<PAGE> 18
Page 18
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 _____ __, 1997
ZYMETX, INC.
[SEAL] By
-----------------------------
Peter G. Livingston
President
Attest:
- --------------------------
Secretary
<PAGE> 19
Page 19
[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 ________ __, 1997 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)
<PAGE> 20
Page 20
[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)
<PAGE> 1
EXHIBIT 10.18
FAX TO: (405) 235-4133, ATTENTION DOUGLAS A. BRANCH
AND MAIL ORIGINAL IN ENCLOSED ENVELOPE
August ___, 1997
c/o Capital West Securities, Inc.
16th Floor, One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102
Dear Sirs:
The undersigned holder of Series A Convertible Preferred Stock
("Series A Preferred") of ZymeTx, Inc., a Delaware corporation (the "Company"),
understands that Capital West Securities, Inc. (the "Underwriter") proposes to
enter into an Underwriting Agreement (the "Underwriting Agreement") with the
Company, providing for the initial public offering (the "Initial Public
Offering") by the Underwriter (and other underwriters or co-underwriters) of
shares of common stock, $.001 par value (the "Common Stock") of the Company. In
addition, the undersigned is an "Investor" under the terms of that certain
Registration Rights Agreement (the "Registration Agreement") dated July 29,
1996, by and among the Company and the Investors named therein.
To induce the Underwriter to continue in its efforts in connection
with the Initial Public Offering, the undersigned hereby agrees as follows:
1. I agree to and acknowledge the imposition of a 13-month
lock-up from the closing of the Company's Initial Public Offering (the "Lock-Up
Period") for all shares of Common Stock issuable to me upon conversion of the
Series A Preferred beneficially owned by me and, in connection therewith, I
agree that I will not offer, sell or otherwise dispose of such shares without
the prior written consent of the Underwriter.
2. I further agree to the waiver of the registration rights under
Section 2 of the Registration Agreement for the duration of the Lock-up Period.
I acknowledge that whether the Initial Public Offering occurs depends
on a number of factors, including market conditions. The Initial Public
Offering will only be made pursuant to an Underwriting Agreement, the terms of
which are subject to determination through negotiation between the Company and
the Underwriter. The terms of this letter shall expire in the event the Initial
Public Offering is not consummated on or before December 31, 1997.
Very truly yours,
----------------------------------
Signature
----------------------------------
Name (print)
----------------------------------
Title (print)
<PAGE> 2
- --------------------------------------------------------------------------------
Page 1
- --------------------------------------------------------------------------------
_________________________, 1997
Capital West Securities, Inc.
Millennium Financial Group, Inc.
ComVest Partners, Inc.
c/o Capital West Securities, Inc.
211 North Robinson, Suite 1600
Oklahoma City, OK 73102
ZymeTx, Inc.
800 Research Parkway, Suite 100
Oklahoma City, OK 73104
Re: ZymeTx, Inc.
Registration Statement on Form SB-2
Registration No. 333-33563
Ladies and Gentlemen:
The undersigned has been advised that ZymeTx, Inc., a Delaware
corporation (the "Company"), is contemplating an underwritten public offering
(the "Offering") of 2,300,000 shares of its common stock, $.001 par value per
share (the "Common Stock"), pursuant to an Underwriting Agreement (the
"Underwriting Agreement"), to be entered into with Capital West Securities,
Inc., Millennium Financial Group, Inc. and ComVest Partners, Inc. (the
"Underwriters") in connection with the Offering. Capitalized terms used herein
and not defined herein shall have the meaning ascribed to such terms in the
Underwriting Agreement.
In order to induce the Underwriters to enter into an
Underwriting Agreement with the Company the undersigned, intending to be
legally bound, hereby agrees that the undersigned and any entities through
which the undersigned owns any shares of Preferred or Common Stock of the
Company will not, directly or indirectly, sell, offer, pledge, offer to sell,
contract to sell, grant any option to purchase or otherwise transfer or dispose
of (or announce any offer, sale, pledge, offer of sale, contract of sale, grant
of an option to purchase or other transfer or disposition), any shares of
Preferred or Common Stock or any securities convertible into, exercisable or
exchangeable for, shares of Preferred or Common Stock for a period of 24 months
from the date of the Underwriting Agreement.
The undersigned acknowledges that any sale, hypothecation or
transfer of any securities of the Company in violation of this letter will be
null and void. The undersigned acknowledges that it is impossible to measure
the damages that will accrue to the Company by reason of a failure of the
undersigned to comply with the
<PAGE> 3
- --------------------------------------------------------------------------------
Page 2
- --------------------------------------------------------------------------------
provisions of this letter. Therefore, if the Company shall institute any
action or proceeding to enforce the provisions hereof, the undersigned agrees
that the Company shall be entitled to injunctive relief, and the undersigned
waives, and shall not allege, any claim or defense to such action or
proceeding, including, without limitation, any claim or defense that the
undersigned has an adequate remedy at law.
Notwithstanding the foregoing, if the undersigned is an
individual, the undersigned may transfer any securities of the Company either
during the undersigned's lifetime or upon death by will or intestacy to
immediate family or to a trust the beneficiaries of which are exclusively the
undersigned and/or a member or members of the undersigned's immediate family;
provided, however, that in any such case it shall be a condition to the
transfer that the transferee execute an agreement stating that the transferee
is receiving and holding the securities subject to the provisions of this
letter, and there shall be no further transfer of such securities except in
accordance with this letter. For purposes of this paragraph, "immediate
family" shall mean spouse, former spouse, lineal descendant, father, mother,
brother or sister of the undersigned.
Very truly yours,
By:
-----------------------------------
---------------------------------------
(Print or Type Name)
<PAGE> 1
Exhibit 10.19
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made by and
among ZymeTx, Inc. (the "Company"), and the investors listed on Schedule I
hereto (collectively, the "Investors," each an "Investor"), each of whom has
executed a signature page hereto.
RECITALS
A. The Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors up to an aggregate 69 Units
(including the Units available to cover over-subscriptions, if any), each Unit
consisting of 125,000 shares of the Company's Series A Convertible Preferred
Stock, par value $.001 per share (the "Preferred Stock"), all upon the terms
set forth in the Company's Confidential Private Placement Memorandum dated May
22, 1996 (the "Memorandum").
B. To induce Investors to purchase Units, the Company has
undertaken to register under the Securities Act of 1933, as amended, and the
rules and regulations thereunder (collectively, the "Securities Act"), the
common stock, par value $.001 per share (the "Common Stock"), underlying the
Preferred Stock contained in the Units to be purchased by the Investors. This
Agreement sets forth the terms and conditions of such undertaking.
AGREEMENTS
The Company and the Investors covenant and agree as follows:
1. Definitions. For purposes of this Agreement:
(a) The terms "register, "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act and, when
applicable, the rules and regulations promulgated thereunder, and the
declaration or ordering of effectiveness of such registration statement or
statements or similar document by the Securities and Exchange Commission (the
"SEC");
(b) The term "Registrable Securities" means (i) the Common Stock
underlying the Preferred Stock contained in the Units purchased by the
Investors; and (ii) any Common Stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of,
such Common Stock, excluding in all cases, however, any Registrable Securities
sold by an Investor in a transaction in which its registration rights under
this Agreement are not assigned; and
(c) Capitalized terms not defined herein shall have the meanings
set forth in the Memorandum.
2. Registration.
(a) In the event that the Company completes an initial public
offering of its securities prior to the second anniversary of the Final Closing
Date, the Company shall give notice in writing to such effect to the Holders
within 30 days after the effective date of the registration statement
<PAGE> 2
filed with respect thereto and will effect the registration under the
Securities Act of all Registrable Securities not later than 180 days after the
closing date of such initial public offering; provided, however, that a holder
of Registrable Securities (collectively, the "Holders" and each a "Holder") may
inform the Company in writing within 10 days after the receipt of notice from
the Company of the initial public offering that such Holder wishes to exclude
all or a portion of its Registrable Securities from such registration.
(b) In the event that the Company has not filed a registration
statement under the Securities Act prior to the third anniversary of the Final
Closing Date, the Company shall, upon the request of the Holders of a majority
in interest of the Registrable Securities, effect the registration under the
Securities Act of all Registrable Securities not later than 90 days after
receipt of such request. Any such request shall include a statement of such
Holder's intended method of distribution. The Company shall send prompt written
notice to all Holders of any request for registration received hereunder and
each such Holder shall have the right to include its Registrable Securities
therein by so requesting in writing within 15 days after receipt of such notice
from the Company. Any Holder not electing to include its Registrable Securities
in such registration will have no further rights to have such Registrable
Securities registered by the Company. The Company shall be entitled to postpone
for a reasonable period of time, not to exceed 90 days, after receipt of a
request hereunder to file a Registration Statement, the filing of any
Registration Statement otherwise required to be prepared and filed by it if, at
the time it receives a request for registration, the Company determines, in its
reasonable judgment, that such registration and offering would materially
interfere with any material transaction involving the Company or any of its
affiliates (as defined in Rule 405 of the Securities Act) and promptly gives
the Holders of Registrable Securities written notice of such determination.
(c) If at any time the Company shall propose to file a
registration statement under the Securities Act in connection with the proposed
offer and sale by it of any of its equity securities (other than a registration
statement on a form, such as Form S-4 and Form S-8, that does not permit the
inclusion of shares by its security holders), the Company will give notice in
writing to such effect to the Holders at least 30 days prior to such filing,
and, at the written request of any such Holder made within 10 days after the
receipt of such notice, will include therein at the Company's cost and expense
(except for the fees and expenses of counsel to such Holders and underwriting
discounts, commissions and filing fees attributable to the Registrable
Securities included in such registration statement), such of the Registrable
Securities as the Holders thereof so request. Notwithstanding the foregoing:
(i) if the offering being registered by the Company is underwritten, and if in
the good faith judgment of the representative of the underwriters of such
offering, the inclusion therein of all or any of such Registrable Securities
would reduce the number of shares to be offered by the Company, the number of
Registrable Securities otherwise to be included in the underwritten public
offering may be reduced pro rata among the Holders thereof requesting such
registration and any other selling security holders having piggyback
registration rights; and (ii) if a registration statement is filed by the
Company by reason of a demand registration request made by the holders of other
securities, then the underwriter of such offering shall not reduce the number
of shares being offered by the holders of such other securities seeking such
registration by reason of the inclusion of any Registrable Securities in such
offering pursuant to the rights granted to the Holders by this Section 2(c).
(d) The Holders of a majority in interest of the Registrable
Securities shall have the right to select the managing underwriters, if any,
for any registration effected pursuant to Section 2(a) or 2(b) hereof, subject
to the approval of the Company, which shall not be unreasonably withheld.
2
<PAGE> 3
(e) The Company is obligated to effect only one registration
pursuant to Section 2(b) of this Agreement.
(f) In the event that the Company fails to fulfill its
registration responsibilities pursuant to Section 2(a), (b) or (c) hereof, the
Company agrees to repurchase the Registrable Securities from the Holders
thereof at the Fair Market Value (as defined below) of such Securities, to the
extent that the Company shall have funds legally available therefor. To the
extent that the Company shall not have funds legally available to repurchase
such Registrable Securities, the Holders thereof shall have the right to elect
a majority of the Board of Directors of the Company. The Fair Market Value of
the Registrable Securities shall be the sum of (i) the appraised value thereof
calculated by each of two independent appraisal firms selected by Spencer Trask
Securities Inc. divided by (ii) two.
3. Obligation of the Company. When required under this Agreement to
effect the registration of the Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) In the case of a registration effected pursuant to Section
2(a) or 2(b) hereof, prepare and file with the SEC as soon as reasonably
practicable, a registration statement or similar documents (the "Registration
Statement" with respect to, in the case of Section 2(a), all Registrable
Securities and, in the case of Section 2(b), all Registrable Securities
requested to be registered by the Holders thereof, other than any Registrable
Securities excluded by Holders pursuant to Section 2(a) hereof, use its best
efforts to cause such Registration Statement to become effective not later than
45 days after the date of its initial filing, and keep the Registration
Statement effective for the longer of (i) a period of 120 days or (ii) until
the third anniversary of the Final Closing. The Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Notwithstanding the foregoing or anything to the contrary contained
herein: (A) the Company shall not be required to undergo an audit other than in
the ordinary course of business; and (B) the Company may defer any demand for
registration for up to 90 days for valid business reasons.
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective for the period required
under Section 3(a) hereof in the case of a registration effected pursuant to
Section 2(a) hereof and, in the case of a registration effected pursuant to
Section 2(b) hereof, for a period of 120 days or until the underwriter and the
Holders have completed the distribution described in the registration
statement, whichever first occurs, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Registration Statement.
(c) Furnish promptly to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as the Holders may reasonably request in writing in
order to facilitate the disposition of Registrable Securities.
(d) Use its best efforts to register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders, and
to prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements and to take such other actions as
may be necessary to
3
<PAGE> 4
maintain such registration and qualification in effect at all times required
hereunder and to take all other actions necessary or advisable to enable the
disposition of such securities in such jurisdictions, provided that the Company
shall not be required in connection therewith or as a condition thereto (i) to
qualify to do business or (ii) to provide any undertaking or make any change in
its charter or bylaws which the Board of Director determines to be contrary to
the best interests of the Company and it stockholders.
(e) In the event the Holders of a majority in interest of the
Registrable Securities select underwriters for the offering pursuant to Section
2(d) hereof, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering. The Holders hereby agree to enter into and
perform their customary obligations under any such agreement including, without
limitation, customary indemnification and contribution obligations.
(f) Notify the Holders, at any time when a prospectus relating to
Registrable Securities covered by the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. The Company
shall promptly amend or supplement the Registration Statement to correct any
such untrue statement or omission.
(g) Notify the Holders of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time.
(h) Permit a single firm of counsel designated as selling
stockholders' counsel by the Holders of a majority in interest of the
Registrable Securities to review the Registration Statement and all amendments
and supplements thereto for a reasonable period of time prior to their filing,
and shall not file any document in a form to which such counsel reasonably
objects.
(i) Make generally available to its security holders as soon as
practicable, but not later than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering the 12-month period beginning not later
than the first day of the Company's next fiscal quarter following the effective
date of the Registration Statement.
(j) At the request of the Holders, furnish on the date that
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement (i) an opinion addressed to the
underwriters, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwrites
and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
(k) Make available for inspection by the Holders, any underwriters
participating in the offering pursuant to the registration and the counsel,
accountants or other agents retained by the Holders
4
<PAGE> 5
or any such underwriter, all pertinent financial and other records, corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
Holders or any such underwriters in connection with the registration.
(l) If the Common Stock is listed on a national securities
exchange, use its best efforts to cause the Registrable Securities to be listed
on such exchange. If the Common Stock is not listed on a national securities
exchange, use its best efforts to facilitate the quotation of the Registrable
Securities on The Nasdaq Stock Market, Inc.
(m) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement.
(n) Take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting
the sale or transfer of such securities) representing the Registrable
Securities to be sold pursuant to the Registration Statement and to enable such
certificates to be in such denominations and registered in such names as the
Holders or any underwriters may reasonably request.
(o) Take all other reasonable actions necessary to expedite and
facilitate the registration of the Registrable Securities pursuant to the
Registration Statement.
4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
5. Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 hereof, including, without
limitation, all registration, listing, filing and qualification fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and
the reasonable fees and disbursements of one firm of counsel for the Holders
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the directors, if any, of such Holder, the officers,
if any, of such Holder who sign the Registration Statement, each person, if
any, who controls such Holder, any underwriter (as defined in the Securities
Act) for the Holders and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934
(the "Exchange Act"), against, and pay or reimburse any such persons for, any
losses, claims, damages, expenses or liabilities (joint or several) to which
any of them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages, expenses or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation") (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary
5
<PAGE> 6
prospectus or final prospectus contained therein or any amendments or
supplements thereof, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading or (iii) any Violation or alleged" Violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated thereunder, and the Company will reimburse the Holders
and each such underwriter or controlling persons, promptly as such expenses are
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the indemnity
agreement contained in this Section 6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Holders, directors or officers of the Holders or
any such underwriter or controlling person, as the case may be. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Holders or any such underwAter or controlling person or the
Company and shall survive the transfer of the Registrable Securities by
Holders.
(b) To the extent permitted by law, each Holder whose Registrable
Securities are included in a Registration Statement, severally and not jointly,
will indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the Registration Statement, each person, if any,
who controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against, and pay or
reimburse any of such persons for, any losses, claims, damages or liabilities
(joint or several) to which any of them may become subject, under the
Securities Act, the Exchange Act or any state securities law or any rule or
regulation promulgated thereunder, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and such Holder will reimburse any legal or other expense
reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld, conditioned or delayed.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, proceeding or
investigation, such indemnified party, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, 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 6 unless the indemnifying party has
been substantially prejudiced by such omission. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, 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,
and after notice from the indemnifying party to such indemnified party of its
election so to assure the defense thereof, then
6
<PAGE> 7
notwithstanding anything to the contrary contained herein, the indemnifying
party will not be liable under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. 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. 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.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 6 to the extent permitted by law, provided that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in this
Section 6, (ii) no seller of registrable securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the next
amount of proceeds received by such seller from the sale of such registrable
Securities.
7. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act or any other rule or regulation of the SEC that may at anytime
permit the Holders to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times for 90 days after the date the
first registration statement by the Company under Section 2 of this agreement
is declared effective of the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at
any time for 90 days after the effective date of the first registration
statement filed by the Company under Section 2 of this Agreement), the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such information as may be reasonably requested in
availing the Holders of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
8. Assignment of Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement may be assigned by
the Holders to transferees or assignees of such securities; provided, however,
that the Company must be, within a reasonable time after such transfers,
furnished with written notice of the name and address of such transferee or
assignee and the securities
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<PAGE> 8
with respect to which such registration rights are being assigned; and,
provided, further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act. The term
"Holders" as used in this agreement shall include permitted assignees.
9. Miscellaneous.
(a) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be received when personally delivered or sent
by overnight courier or registered mail, return receipt requested, addressed
(i) if to the Company, at ZymeTx, Inc., 800 Research Parkway, Oklahoma City,
Oklahoma 73104, Attention: President and (ii) if to a Holder, at the address
set forth under its name on the signature page hereto, or at such other address
as each party furnishes by notice given in accordance with this Section 9(a).
(b) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, will not operate as a waiver thereof. No waiver will be effective
unless and until it is in writing and signed by the party giving the waiver.
(c) This Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York, as such laws
are applied by New York courts to agreements entered into and to be performed
in New York by and between residents of New York. In the event that any
provision of this agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with any such statute or rule of law. any provision hereof which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by the Company and the Holders of a majority
interest of the Registrable Securities.
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<PAGE> 9
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this Registration Rights
Agreement this ____ day of ______________, 1996.
If the Holder is an INDIVIDUAL:
- ------------------------------------------
Print Name
- ------------------------------------------
Signature of Purchaser
- ------------------------------------------
Address
If the Holder is a PARTNERSHIP, CORPORATION OR TRUST:
- ------------------------------------------
Name of Partnership, Corporation or
Trust
By:
---------------------------------------
Name:
Title:
- ------------------------------------------
Address
ACCEPTED AND AGREED
this __ day of , 1996
------------
ZYMETX, INC.
By:
---------------------------------------
Name:
Title:
9
<PAGE> 1
Exhibit 10.20
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made by and
among ZymeTx, Inc. (the "Company"), and the investors listed on Schedule I
hereto (collectively, the "Investors" and each an "Investor"), each of whom has
executed a signature page hereto.
RECITALS
A. The Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors up to an aggregate 40.25
Units (including the Units available to cover over-subscriptions, if any), each
Unit consisting of 25,000 shares of the Company's Series C Convertible
Preferred Stock, par value $.001 per share (the "Series C Preferred"), all upon
the terms set forth in the Company's Confidential Private Placement Memorandum
dated July 2, 1997 (the "Memorandum").
B. To induce Investors to purchase Units, the Company has
undertaken to register under the Securities Act of 1933, as amended, and the
rules and regulations thereunder (collectively, the "Securities Act"), the
common stock, par value $.001 per share (the "Common Stock"), underlying the
Series C Preferred contained in the Units to be purchased by the Investors.
This Agreement sets forth the terms and conditions of such undertaking.
C. In connection with the sale of units of Series A Convertible
Preferred Stock (the "Series A Preferred") in 1996, the Company granted to the
holders of the Series A Preferred registration rights similar to those set
forth herein, which rights would take precedence over any rights granted
hereunder in the event of a conflict between the two.
AGREEMENTS
The Company and the Investors covenant and agree as follows:
1. Definitions. For purposes of this Agreement:
(a) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or statements or similar documents in compliance with the Securities
Act and, when applicable, the rules and regulations promulgated thereunder, and
the declaration or ordering of effectiveness of such registration statement or
statements or similar document by the Securities and Exchange Commission (the
"SEC");
(b) The term "Registrable Securities" means (i) the
Common Stock underlying the Series C Preferred contained in the Units purchased
by the Investors; and (ii) any Common Stock of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Common Stock, excluding in all cases, however, any Registrable Securities
sold by an Investor in a transaction in which its registration rights under
this Agreement are not assigned; and
(c) Capitalized terms not defined herein shall have the
meanings set forth in the Memorandum.
2. Registration.
(a) In the event that the Company completes an initial
public offering of its securities prior to the second anniversary of the
closing of the Offering, the Company shall give notice in writing to such
effect to the Holders, as such term is defined below, within 30 days after the
effective
<PAGE> 2
date of the registration statement filed with respect thereto and will effect
the registration under the Securities Act of all Registrable Securities not
later than 180 days after the closing date of such initial public offering;
provided, however, that a holder of Registrable Securities (collectively, the
"Holders" and each a "Holder") may inform the Company in writing within 10 days
after the receipt of notice from the Company of the initial public offering
that such Holder wishes to exclude all or a portion of its Registrable
Securities from such registration.
(b) In the event that the Company has not filed a
registration statement under the Securities Act prior to the third anniversary
of the closing date of the Offering, the Company shall, upon the request of the
Holders of a majority in interest of the Registrable Securities, effect the
registration under the Securities Act of all Registrable Securities not later
than 90 days after receipt of such request. Any such request shall include a
statement of such Holder's intended method of distribution. The Company shall
send prompt written notice to all Holders of any request for registration
received hereunder and each such Holder shall have the right to include its
Registrable Securities therein by so requesting in writing within 15 days after
receipt of such notice from the Company. Any Holder not electing to include its
Registrable Securities in such registration will have no further rights to have
such Registrable Securities registered by the Company. The Company shall be
entitled to postpone for a reasonable period of time, not to exceed 90 days,
after receipt of a request hereunder to file a Registration Statement, the
filing of any Registration Statement otherwise required to be prepared and
filed by it if, at the time it receives a request for registration, the Company
determines, in its reasonable judgment, that such registration and offering
would materially interfere with any material transaction involving the Company
or any of its affiliates (as defined in Rule 405 of the Securities Act) and
promptly gives the Holders of Registrable Securities written notice of such
determination.
(c) If at any time the Company shall propose to file a
registration statement under the Securities Act in connection with the proposed
offer and sale by it of any of its equity securities (other than a registration
statement on a form, such as Form S-4 or Form S-8, that does not permit the
inclusion of shares by its security holders), the Company will give notice in
writing to such effect to the Holders at least 30 days prior to such filing,
and, at the written request of any such Holder made within 10 days after the
receipt of such notice, will include therein at the Company's cost and expense
(except for the fees and expenses of counsel to such Holders and underwriting
discounts, commissions and filing fees attributable to the Registrable
Securities included in such registration statement), such of the Registrable
Securities as the Holders thereof so request. Notwithstanding the foregoing:
(i) if the offering being registered by the Company is underwritten, and if in
the good faith judgment of the representative of the underwriters of such
offering, the inclusion therein of all or any of such Registrable Securities
would reduce the number of shares to be offered by the Company, the number of
Registrable Securities otherwise to be included in the underwritten public
offering may be reduced pro rata among the Holders thereof requesting such
registration and any other selling security holders having piggyback
registration rights; and (ii) if a registration statement is filed by the
Company by reason of a demand registration request made by the holders of other
securities, then the underwriter of such offering shall not reduce the number
of shares being offered by the holders of such other securities seeking such
registration by reason of the inclusion of any Registrable Securities in such
offering pursuant to the rights granted to the Holders by this Section 2(c).
(d) To the extent the holders of Series A Preferred have
not already done so, the Holders of a majority in interest of the Registrable
Securities shall have the right to select the managing underwriters, if any,
for any registration effected pursuant to Section 2(a) or 2(b) hereof, subject
to the approval of the Company, which shall not be unreasonably withheld.
2
<PAGE> 3
(e) The Company is obligated to effect only one
registration pursuant to Section 2(b) of this Agreement.
(f) In the event that the Company fails to fulfill its
registration responsibilities pursuant to Section 2(a), (b) or (c) hereof, the
Company agrees to repurchase the Registrable Securities from the Holders
thereof at the Fair Market Value (as defined below) of such Securities, to the
extent that the Company shall have funds legally available therefor. To the
extent that the Company shall not have funds legally available to repurchase
such Registrable Securities, the Holders thereof shall have the right to elect
a majority of the Board of Directors of the Company, to the extent the holders
of Series A Preferred who are similarly entitled have not already done so. The
Fair Market Value of the Registrable Securities shall be the sum of (i) the
appraised value thereof calculated by each of two independent appraisal firms
selected by Spencer Trask Securities Incorporated (ii) divided by two.
3. Obligation of the Company. When required under this Agreement
to effect the registration of the Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) In the case of a registration effected pursuant to
Section 2(a) or 2(b) hereof, prepare and file with the SEC as soon as
reasonably practicable, a registration statement or similar documents (the
"Registration Statement") with respect to, in the case of Section 2(a), all
Registrable Securities and, in the case of Section 2(b), all Registrable
Securities requested to be registered by the Holders thereof, other than any
Registrable Securities excluded by Holders pursuant to Section 2(a) hereof, use
its best efforts to cause such Registration Statement to become effective not
later than 45 days after the date of its initial filing, and keep the
Registration Statement effective for the longer of (i) a period of 120 days or
(ii) until the third anniversary of the closing of the Offering. The
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading. Notwithstanding the foregoing or
anything to the contrary contained herein: (A) the Company shall not be
required to undergo an audit other than in the ordinary course of business; and
(B) the Company may defer any demand for registration for up to 90 days for
valid business reasons.
(b) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective for the period
required under Section 3(a) hereof in the case of a registration effected
pursuant to Section 2(a) hereof and, in the case of a registration effected
pursuant to Section 2(b) hereof, for a period of 120 days or until the
underwriter and the Holders have completed the distribution described in the
registration statement, whichever first occurs, and comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by the Registration Statement.
(c) Furnish promptly to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto, in conformity with the requirements of the Securities
Act, and such other documents as the Holders may reasonably request in writing
in order to facilitate the disposition of Registrable Securities.
(d) Use its best efforts to register and qualify the
securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, and to prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements and to take such other
actions as may be
3
<PAGE> 4
necessary to maintain such registration and qualification in effect at all
times required hereunder and to take all other actions necessary or advisable
to enable the disposition of such securities in such jurisdictions, provided
that the Company shall not be required in connection therewith or as a
condition thereto (i) to qualify to do business or (ii) to provide any
undertaking or make any change in its charter or bylaws which the Board of
Director determines to be contrary to the best interests of the Company and it
stockholders.
(e) In the event the Holders of a majority in interest of
the Registrable Securities select underwriters for the offering pursuant to
Section 2(d) hereof, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering. The Holders hereby agree to enter into
and perform their customary obligations under any such agreement including,
without limitation, customary indemnification and contribution obligations.
(f) Notify the Holders, at any time when a prospectus
relating to Registrable Securities covered by the Registration Statement is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. The Company shall promptly amend or supplement the Registration
Statement to correct any such untrue statement or omission.
(g) Notify the Holders of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time.
(h) To the extent the holders of Series A Preferred have
not already done so, permit a single firm of counsel designated as selling
stockholders' counsel by the Holders of a majority in interest of the
Registrable Securities to review the Registration Statement and all amendments
and supplements thereto for a reasonable period of time prior to their filing,
and shall not file any document in a form to which such counsel reasonably
objects.
(i) Make generally available to its security holders as
soon as practicable, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 under the Securities Act) covering the 12-month period beginning
not later than the first day of the Company's next fiscal quarter following the
effective date of the Registration Statement.
(j) At the request of the Holders, furnish on the date
that Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement (i) an opinion
addressed to the underwriters, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwrites and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters.
(k) Make available for inspection by the Holders, any
underwriters participating in the offering pursuant to the registration and the
counsel, accountants or other agents retained by the
4
<PAGE> 5
Holders or any such underwriter, all pertinent financial and other records,
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by the Holders or any such underwriters in connection with the
registration.
(l) If the Common Stock is listed on a national
securities exchange, use its best efforts to cause the Registrable Securities
to be listed on such exchange. If the Common Stock is not listed on a national
securities exchange, use its best efforts to facilitate the quotation of the
Registrable Securities on The Nasdaq Stock Market, Inc.
(m) Provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
(n) Take all actions reasonably necessary to facilitate
the timely preparation and delivery of certificates (not bearing any legend
restricting the sale or transfer of such securities) representing the
Registrable Securities to be sold pursuant to the Registration Statement and to
enable such certificates to be in such denominations and registered in such
names as the Holders or any underwriters may reasonably request.
(o) Take all other reasonable actions necessary to
expedite and facilitate the registration of the Registrable Securities pursuant
to the Registration Statement.
4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
5. Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3 hereof,
including, without limitation, all registration, listing, filing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one firm
of counsel for the Holders shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the directors, if any, of such Holder,
the officers, if any, of such Holder who sign the Registration Statement, each
person, if any, who controls such Holder, any underwriter (as defined in the
Securities Act) for the Holders and each person, if any, who controls any such
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934 (the "Exchange Act"), against, and pay or reimburse any such
persons for, any losses, claims, damages, expenses or liabilities (joint or
several) to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation") (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereof, (ii) the
5
<PAGE> 6
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading or (iii) any Violation or
alleged Violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated thereunder, and the
Company will reimburse the Holders and each such underwriter or controlling
persons, promptly as such expenses are incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the indemnity agreement contained in this Section 6(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Holders, directors or officers of the Holders or any such underwriter or
controlling person, as the case may be. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Holders or any such underwriter or controlling person or the Company and shall
survive the transfer of the Registrable Securities by Holders.
(b) To the extent permitted by law, each Holder whose
Registrable Securities are included in a Registration Statement, severally and
not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such holder or underwriter,
against, and pay or reimburse any of such persons for, any losses, claims,
damages or liabilities (joint or several) to which any of them may become
subject, under the Securities Act, the Exchange Act or any state securities law
or any rule or regulation promulgated thereunder, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and such Holder will reimburse any legal or other
expense reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld, conditioned or delayed.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, proceeding or
investigation, such indemnified party, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, 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 6 unless the indemnifying party has
been substantially prejudiced by such omission. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, 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,
and after notice from the indemnifying party to such indemnified party of its
election so to assure the defense thereof, then notwithstanding anything to the
contrary contained herein, the indemnifying party will not be liable under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party
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<PAGE> 7
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. 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.
(d) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under this Section 6 to the extent permitted by law,
provided that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in this Section 6, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation
and (iii) contribution by any seller of Registrable Securities shall be limited
in amount to the next amount of proceeds received by such seller from the sale
of such Registrable Securities.
7. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act or any other rule or regulation of the SEC that may at anytime
permit the Holders to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times for 90 days after
the date the first registration statement by the Company under Section 2 of
this agreement is declared effective of the offering of its securities to the
general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Holder, so long as such Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144
(at any time for 90 days after the effective date of the first registration
statement filed by the Company under Section 2 of this Agreement), the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such information as may be reasonably requested in
availing the Holders of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
8. Assignment of Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement may be
assigned by the Holders to transferees or assignees of such securities;
provided, however, that the Company must be, within a reasonable time after
such transfers, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and, provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. The term "Holders" as used in this
agreement shall include permitted assignees.
7
<PAGE> 8
9. Miscellaneous.
(a) Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be received when personally
delivered or sent by overnight courier or registered mail, return receipt
requested, addressed (i) if to the Company, at ZymeTx, Inc., 800 Research
Parkway, Suite 100, Oklahoma City, Oklahoma 73104, Attention: President; and
(ii) if to a Holder, at the address set forth under its name on the signature
page hereto, or at such other address as each party furnishes by notice given
in accordance with this Section 9(a).
(b) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, will not operate as a waiver thereof. No waiver will be effective
unless and until it is in writing and signed by the party giving the waiver.
(c) This Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New York,
as such laws are applied by New York courts to agreements entered into and to
be performed in New York by and between residents of New York. In the event
that any provision of this agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with any such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
(d) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by the Company and the Holders of a majority
interest of the Registrable Securities.
8
<PAGE> 9
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this Registration
Rights Agreement this _____________ day of ____________________________, 1997.
If the Holder is an INDIVIDUAL:
- ---------------------------------------------------
Print Name
- ---------------------------------------------------
Signature of Purchaser
- ---------------------------------------------------
Address
If the Holder is a PARTNERSHIP, CORPORATION OR TRUST:
- ---------------------------------------------------
Name of Partnership, Corporation or
Trust
By:
------------------------------------------------
Name:
Title:
- ---------------------------------------------------
Address
ACCEPTED AND AGREED to this
day of , 1997
- --------- --------------------
ZYMETX, INC.
By:
------------------------------------------------
Name:
Title:
9
<PAGE> 1
Exhibit 10.21
NON-COMPETITION AGREEMENT
July 29, 1996
Dear Dr. Shimasaki:
You are presently employed by Oklahoma Medical Research Foundation
("OMRF"), and your duties as such an employee are to perform services
exclusively for ZymeTx, Inc., a Delaware corporation ("ZymeTx"), pursuant to an
agreement between OMRF and ZymeTx. In order to expand its operations and make
available needed working capital to help ensure its future success, ZymeTx
desires to consummate the sale of its Series A Convertible Preferred Stock in a
private offering (the "Private Placement"). Consummation of the Private
Placement is expected to benefit you because such funding will ensure the
continued operations of ZymeTx for the foreseeable future and it is agreed that
you will be granted stock options to purchase shares of ZymeTx common stock,
and that you shall continue as an employee of OMRF for the purpose of
performing services for ZymeTx. As a condition to consummation of the Private
Placement, ZymeTx has agreed to use its best efforts to obtain the execution
and delivery by you of this Agreement. In consideration of the Private
Placement, the grant of stock options to you to purchase ZymeTx common stock,
and your employment by OMRF for the benefit of ZymeTx, you hereby covenant and
agree with ZymeTx as follows:
1. The term of this Agreement shall be for a period commencing on
the date hereof and ending on the first anniversary of the date on which your
services for ZymeTx through your employment by OMRF are terminated for any
reason, whether voluntarily or involuntarily.
2. During the term of this Agreement set forth in Section 1, you
will not, without the prior written consent of ZymeTx, directly or indirectly,
alone or as a partner, joint venturer, officer, director, employee, consultant,
agent, independent contractor or stockholder of any company or business, engage
in any business activity which is similar to or in competition in the Territory
with any of the products, services or research being developed, marketed,
distributed, planned, sold or otherwise provided by ZymeTx at such time. The
ownership by you of not more than three percent of the shares of stock of any
corporation having a class of equity securities actively traded on a national
securities exchange or on the Nasdaq Stock Market shall not be deemed, in and
of itself, to violate the prohibitions of this paragraph. For purposes of this
Agreement, activities which shall be similar to or in competition with ZymeTx's
operations as they are presently conducted shall be limited to the research,
development and marketing of native viral enzyme-associated and/or FITC-labeled
monoclonal antibody-associated diagnostics and native viral enzyme-associated
therapeutics. For the purposes of this Agreement, "Territory" shall mean the
United States of America.
3. During the term of this Agreement set forth in Section 1, you
will not, directly or indirectly, employ, or knowingly assist any other person,
company or business organization which employs you or is directly or indirectly
controlled by you to employ, any person who is employed by
<PAGE> 2
ZymeTx at any time during the term hereof, or in any manner seek to induce any
such person to leave his or her employment with ZymeTx.
4. During the term of this Agreement set forth in Section 1, you
will not solicit or do business with any person or entity which you have
knowledge may be a customer of ZymeTx, or any prospective customer of ZymeTx,
in connection with any business activity which would violate any other
provision of this Agreement.
5. You hereby represent that, except as you have disclosed in
writing to ZymeTx, you are not a party to, or bound by the terms of, any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information in the
course of your employment with ZymeTx or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party.
You further represent that your performance of all the terms of this Agreement
and as an employee of ZymeTx does not and will not breach any agreement to keep
in confidence proprietary information, knowledge or data acquired by you in
confidence or in trust prior to your employment with ZymeTx, and you will not
disclose to ZymeTx or induce ZymeTx to use any confidential or proprietary
information or material belonging to any previous employer or others.
6. You agree that the breach of this Agreement by you will cause
irreparable damage to ZymeTx and that in the event of such breach ZymeTx shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of your
obligations hereunder.
7. You understand that this Agreement does not create an
obligation on ZymeTx or any other person or entity to continue your employment
with OMRF or to provide services for ZymeTx.
8. Any amendment to or modification of this Agreement, and any
waiver of any provision hereof, shall be in writing and approved by the
unanimous written consent of the members of ZymeTx's Board of Directors. Any
waiver by ZymeTx of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach hereof.
9. You hereby agree that each provision herein shall be treated
as a separate and independent clause, and the unenforceability of any one
clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity or
subject so as to be unenforceable at law, such provision or provisions shall be
construed by the appropriate judicial body by limiting and reducing it or them,
so as to be enforceable to the maximum extent compatible with the applicable
law as it shall then appear.
10. The term "ZymeTx" shall include ZymeTx, Inc. and any of its
subsidiaries, subdivisions or affiliates. ZymeTx shall have the right to
assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of an be enforceable by said
successors or assigns.
2
<PAGE> 3
11. If your services for the Company shall be terminated (and your
employment with OMRF is terminated as a consequence thereof) for any reason
other than: (a) termination by you; (b) your death or Disability; or (c)
termination by the Company for Cause (as hereinafter defined), the Company
shall pay you a sum equal to your annual salary at the time of such
termination. As used in this Section 11, the following definitions shall
apply:
"Cause" shall mean and include (i) your alcoholism or drug
addiction, (ii) your misappropriation of any money or other assets or
properties of the Company or any affiliates of the Company, (iii) a
material breach by you of the terms of this Agreement or the Invention
Disclosure and Assignment Agreement of even date herewith, (iv) the
conviction of you for any felony or other serious crime, (v) your
gross moral turpitude, (vi) gross negligence or willful misconduct in
the performance of your duties as directed by the President or the
Board of Directors of the Company, (vii) breach of your fiduciary duty
to the Company, and (viii) your failure, refusal or neglect to perform
your duties as Vice President of Research or such position as the
Company's President or Board of Directors may designate. You
acknowledge that upon any such termination after the first anniversary
of the date of this Agreement, the Company shall have no obligation to
make any such payment to you.
"Disability" shall mean that you are or become physically or
mentally disabled, whether totally or partially, as evidenced by the
written statement of a competent physician licensed to practice
medicine in the United States, so that you are unable substantially to
perform your services to the Company for (i) a period of four (4)
consecutive months, or (ii) for shorter periods aggregating four
months during any twelve (12) month period.
12. This Agreement will be executed by you in the State of
Oklahoma. All questions pertaining to the validity, interpretation,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of Oklahoma. ZymeTx further agrees that
any claim, right, demand or cause of action which may arise as a result of this
Agreement or breach thereof shall be brought in the State of Oklahoma and
determined by an Oklahoma Court of competent jurisdiction.
Please indicate your acceptance of the foregoing by signing and
returning one copy to the undersigned.
Very truly yours,
ZYMETX, INC.
By: /s/ PETER G. LIVINGSTON
---------------------------
Peter G. Livingston, President
AGREED TO AND ACCEPTED as of
the date first above written:
/s/ CRAIG D. SHIMASAKI
- -----------------------------
Dr. Craig D. Shimasaki
3
<PAGE> 1
Exhibit 10.22
LEASE AGREEMENT
DATE OF LEASE EXECUTION: MAY 10, 1996.
1. DEFINITIONS.
1.1 DEFINITIONS OF BASIC LEASE TERMS. WHEN USED
HEREIN, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:
<TABLE>
<S> <C>
LANDLORD: PRESBYTERIAN HEALTH FOUNDATION
LANDLORD'S ADDRESS: 711 STANTON L. YOUNG BOULEVARD
OKLAHOMA CITY, OK 73104
TENANT: ZYMETX, INC.
TENANT'S ADDRESS:
BUILDING: 800 N. RESEARCH PARKWAY, OKLAHOMA CITY, OK 73104.
APPROXIMATE RENTABLE AREA OF
THE LEASED PREMISES: 10,000. HOWEVER, TENANT WILL PAY RENT BASED ON THE ACTUAL
RENTABLE AREA OCCUPIED. FINAL SQUARE FOOTAGE TO BE MODIFIED
BASED ON A FINAL SPACE PLAN OF THE PREMISES.
ANNUAL RENT: YEARS 1&2 - $0.00; YEARS 3-10 -
$150,000.00
MONTHLY RENT: MONTHS 1-24 - $0.00; MONTHS 25- 120 - $12,500.00
RATE PER RENTABLE
SQUARE FOOT ANNUALLY: YEARS 1&2 - $0.00; YEARS 3-10 -$15.00
PRELIMINARY PLAN
DELIVERY DATE: N/A
SCHEDULED
COMMENCEMENT DATE: DECEMBER 1, 1996
TERM: 120 MONTHS
SECURITY DEPOSIT: $12,500.00
CONTINGENCY SPACE: APPROXIMATELY 1,500 RENTABLE SQUARE FEET OF THE LEASED
PREMISES MAY BE LEASED BY UROCOR AT ANY TIME BY UROCOR GIVING
LANDLORD A MINIMUM OF 90 DAYS WRITTEN NOTICE.
PERMITTED USE: MEDICAL RESEARCH LABORATORY AND RELATED FACILITIES
</TABLE>
<PAGE> 2
1.2 Other Definitions. When used herein the
following terms shall have the following meanings:
(a) Building Regulations - The
reasonable rules and regulations adopted and published from time to time by
Landlord to promote the convenience, peace, safety and welfare of tenants of
the Building and to govern the use of the Building and related facilities and
the distribution of services. The initial Building Regulations are set forth
on Exhibit C.
(b) Commencement Date - The date on
which the term of this Lease commences. The parties anticipate that the
Commencement Date will be near the Scheduled Term Commencement Date, but the
actual Commencement Date will be determined pursuant to paragraph 3.
(c) Common Areas - Hallways, elevators,
walkways, plazas, driveways, public parking areas located on the Real Estate,
lobbies, and other parts of the Building designated by Landlord from time to
time as intended for use by the public and other tenants of the Building.
(d) Encumbrance - Any mortgages, deeds
of trust, security agreements, collateral assignments, and other encumbrances
which may now or hereafter affect Landlord's interest in this Lease, the
Building, the Real Estate, or any portion thereof, or any other property
associated therewith.
(e) Lease - This Lease Agreement as it
may from time to time be amended or supplemented by written agreement.
(f) Lease Term - The term of this Lease
Agreement, as set forth in paragraph 3.
(g) Leased Premises - Certain space in
the Building, as more particularly described on Exhibit B and the Leasehold
Improvements located therein.
<PAGE> 3
(h) Leasehold Improvements - All
improvements to be installed or constructed in or on the Leased Premises in
addition to the Building shell, and all subsequent alterations or additions
thereto, excluding moveable personal property and furniture placed in or on the
Leased Premises by Tenant.
(i) Monthly Rent - For any calendar
month shall include, in addition to the Monthly Rent specified herein, the
product of (i) Operating Costs for such month determined on an accrual basis in
accordance with generally accepted accounting principles consistently applied,
and (ii) Tenant's Share.
(j) Operating Costs - The actual
expenses incurred by Landlord of every kind and nature with respect to
operation, maintenance, and management of the Building (including Common Areas)
and all other improvements located on the Real Estate in excess of $4.50 per
rentable square foot. Operating costs include, without limitation: (i) wages,
salaries (and taxes imposed upon employers with respect to such wages and
salaries), worker's compensation insurance premiums, and fringe benefits paid
to persons employed by Landlord for rendering service in the normal operation,
maintenance and repair of such improvements; (ii) contract costs of independent
contractors hired for the operation, maintenance, management and repair of such
improvements (which contractors may include affiliates of Landlord provided
fees payable under such contracts did not exceed the prevailing fees for
similar services); (iii) costs of electricity, steam, water, sewer, and other
utilities chargeable to operation and maintenance of such improvements; (iv)
cost of insurance for such improvements; including but not limited to fire and
extended coverage, elevator, boiler, sprinkler leakage, water damage, public
liability and property damage, plate glass, and rent protection, but excluding
any charge for increased premiums due to acts or omissions of the other
occupants giving rise to extra risks for which Landlord is reimbursed by such
other occupants; (v) fuel; (vi) supplies; (vii) the cost, amortized over a
reasonable period, and associated financing costs, of any capital improvement
made after the completion of the Building if such improvement directly results
in a cost saving in operations; (viii) real and personal property ad valorem
taxes and special assessments imposed by any federal, state or local
governmental authority on the Real Estate or on the Building or any of the
other improvements now or hereafter located on the Real Estate, or on the
ownership, operation, or maintenance of all or any part thereof, together with
expenses of any proceedings for abatement of any such taxes or assessments on a
fully assessed
-3-
<PAGE> 4
basis; provided, any such ad valorem taxes or special assessments imposed or
assessed upon the Leased Premises shall be allocated to Tenant if they are a
direct result of Tenant's occupancy of the Leased Premises; (ix) all other
reasonable and necessary expenses incurred in connection with the cleaning,
operating, managing, maintaining, and repairing of such improvements; and (x)
Costs of replacement of landscaping on the Real Estate. Operating Costs shall
not include: (i) The cost of redecorating or special cleaning or other
services, the cost of which is paid by an individual tenant or tenants, (ii)
wages, salaries or fees paid to executive and accounting personnel of Landlord
or Landlord's managing agent; (iii) except as herein provided, the cost of any
repair or replacement item which, by standard accounting practice, should be
capitalized; (iv) depreciation; (v) leasing commissions; or (vi) costs of
services not provided to all tenants of the Building.
(k) Real Estate - The tract of real
property, together with all improvements thereon and appurtenances thereto
belonging, on which the Building is to be located, more particularly described
on Exhibit A.
(l) Rent - All sums to be paid by Tenant
to Landlord pursuant to paragraph 4 of this Lease, and all other amounts as are
required to be paid pursuant to the terms hereof.
(m) Rentable Area - The Rentable Area of
the Building shall be the sum of the Rentable Areas of all offices, research
laboratories, and laboratory support spaces, in the Building shall be the sum
of the Rentable Areas of all in the Building. The Rentable Area of offices
shall include area occupied by the tenant which shall be computed by measuring
to the center line of corridors or permanent partitions, to the center of
partitions that separate such office from adjoining space, and to the center
line of the permanent outer Building walls or to the center line of exterior
glass walls (with no deduction for columns or projections necessary to the
Building, and including corridors, elevator lobbies, restrooms, and janitorial
closets, to the extent included in the space occupied by the tenant, but
excluding stairs and elevator shafts).
(n) Substantial Completion - The date,
as certified by Landlord's architect, upon which construction of the Building
and the Leasehold Improvements is complete to the extent that the same can be
occupied for normal usage as a medical office.
-4-
<PAGE> 5
(o) Tenant Improvements - Those
Leasehold Improvements to be installed pursuant to the Working Drawings and
Specifications. The Tenant Improvements will be installed at the sole cost of
Tenant.
(p) Tenant's Share - A fraction, having
as its numerator the Rentable Area of the Leased Premises and as its
denominator the Rentable Area of the Building.
(q) Working Drawings and Specifications
- - The plans, specifications and drawings for construction of the Leasehold
Improvements, to be prepared in accordance with Exhibit D.
(r) Year - With reference to the Term or
any year of this Lease, refers to a twelve-month period commencing on the
Commencement Date and ending on each annual anniversary of the Commencement
Date.
2. Lease. Landlord hereby leases and rents to Tenant,
and Tenant hereby leases and rents from Landlord, the Leased Premises.
3. Term.
3..1 Length of Term. The term of this Lease shall
begin on the earlier of (a) the date on which Tenant occupies all or any part
of the Leased Premises; (b) the date of Substantial Completion; provided, if
Tenant fails to perform any of its obligations as set forth in Exhibit D or the
construction contract described therein, then the term shall begin earlier than
the date determined in accordance with the preceding provision by the number of
days of delay caused by such failure of the Tenant. Unless earlier terminated
in accordance with the terms hereof or under law, the term of this Lease shall
end on March 31, 2006, on which date the tenancy created hereunder shall
terminate without notice.
3..2 Preparation for Occupancy. Landlord agrees
to use its best efforts to have the Leased Premises ready for occupancy on or
before the Scheduled Term Commencement Date, which shall, however, be extended
for a period equal to the period of any delays due to unusual weather
conditions, governmental regulations, unusual scarcity of or inability to
obtain labor or materials, labor difficulties, casualty or other causes
reasonably beyond Landlord's control. In the event the construction should not
reach
-5-
<PAGE> 6
Substantial Completion on or before the Scheduled Term Commencement Date,
Landlord shall not be liable or responsible for any claims, damages or
liabilities by reason thereof, and this Lease will continue in full force and
effect. If Landlord is unable to deliver possession of the Leased Premises to
Tenant on or before 180 days following the Scheduled Term Commencement Date,
then, Landlord may, by written notice to Tenant, terminate this Lease in which
event, upon return of any deposit made hereunder, neither party shall have any
liability to the other. If Landlord is unable to deliver possession of the
Leased Premises to Tenant on or before 180 days following the Scheduled Term
Commencement Date, then Tenant may, by written notice to Landlord, terminate
this Lease in which event, upon return of any deposit made hereunder, neither
party shall have any liability to the other.
4. Rent.
4.1 Rent. Tenant agrees and promises to pay the
Annual Rent in monthly installments of Monthly Rent for the use of the Leased
Premises each month during the Term. Tenant shall pay the Monthly Rent on or
before the first day of each month, without deduction or setoff.
4.2 Fractional Periods. If the Lease Term shall
begin on a date other than the first day of a calendar month, the Rent due
under this paragraph for such calendar month shall be prorated to the last day
of such month and such Rent shall be due and payable on the first day of the
Lease Term. If the Lease Term ends on a date other than the last day of a
calendar month, the Rent due under this paragraph for such calendar month shall
be prorated through the last day of the Lease Term.
4.3 Delinquent Rent. If Rent or any other amount
due from Tenant to Landlord shall not be paid within ten days from the date on
which it is due, Tenant shall pay, in addition to such amount, interest on such
amount at the rate of 1- 1/2% per month from the date on which it was due until
paid. The amounts payable hereunder shall be in addition to, and not in
limitation of, other remedies available hereunder or under law.
5. Construction of Leasehold Improvements. All
Leasehold Improvements will be constructed in accordance with the procedures,
terms, and provisions of Exhibit D. All Leasehold Improvements shall remain
the property of Landlord.
-6-
<PAGE> 7
6. Use of Leased Premises. The Tenant will not use or
permit any portion of the Leased Premises to be used for any purpose other than
the Permitted Use and any purpose or use incidental thereto, nor shall the
Leased Premises be used for any purpose which is unlawful, disreputable,
adversely affects the Landlord's leasing of the Building, or increases the risk
of casualty or the rate of fire or casualty insurance covering the Building or
its contents, or any portion thereof. The Tenant will conduct the Tenant's
business and will control the Tenant's agents, employees and invitees in such a
manner as not to create any nuisance or interfere with, annoy or disturb other
tenants of the Building. The Tenant will comply with all requirements of all
governmental authorities having jurisdiction over the Leased Premises,
including requirements under the Americans With Disabilities Act, and cause the
Tenant's agents, employees and invitees to comply fully with the Building
Regulations. Without limitation of the foregoing, Tenant agrees that it will
not overload, damage, or deface the Leased Premises or the Building or do any
act which might make void or voidable any insurance on the Leased Premises, the
Building, or the Real Estate or which may result in an increase or extra
premium payable for insurance. Without prejudice to any other right or remedy
which may be available to Landlord hereunder or under law, Landlord shall have
the right to collect from Tenant upon demand any increase in any insurance
premium resulting from any use of the Leased Premises by Tenant.
7. Hours of Operation and Landlord's Services. So long
as Tenant is not in default hereunder and subject to the limitations prescribed
by the Building Regulations, Landlord agrees that it will operate the Building
and provide services as follows:
7.1 Building Hours. Landlord will keep the
Building open from 7:00 a.m. to 6:00 p.m. Monday through Friday (holidays
excepted), and 7:00 a.m. to 1:00 p.m. Saturdays. Tenant and its employees and
agents shall have access to the Leased Premises during all other hours, subject
to compliance with such security measures as shall from time to time be in
effect for the Building.
7.2 Heating and Air Conditioning. Landlord will
furnish heat and air conditioning necessary, in Landlord's reasonable judgment,
for comfortable occupancy of the Leased Premises, during regular building
hours. Landlord will also furnish, but Tenant will be charged for, heat and
air conditioning during
-7-
<PAGE> 8
Tenant's use of the Leased Premises outside of regular building hours of the
Building.
7.3 Elevators. Landlord will provide passenger
elevator service to the Leased Premises during regular building hours with one
elevator subject to call at all other times.
7.4 Janitorial Services. Landlord will provide
normal janitorial service to the Leased Premises. Any and all additional or
specialized janitorial service desired by Tenant shall be contracted for by
Tenant directly, at Landlord's option, with Landlord's janitorial agent, and
the cost and payment thereof shall be and remain the sole responsibility of
Tenant.
7.5 Structural Repairs. Landlord will perform
all necessary maintenance to the Building, including the mechanical, electrical
and plumbing systems in the Leased Premises, excluding maintenance of Leasehold
Improvements. In the event that any repair or replacement is required by
reason of the negligence or abuse of Tenant or its agents, employees or
invitees, or of any other person using the Leased Premises with Tenant's
consent, express or implied, Landlord may make such repair and following notice
thereof to Tenant add the cost thereof to the first installment of Monthly Rent
thereafter becoming due unless Landlord shall have actually recovered such cost
through insurance proceeds.
7.6 Water. Landlord will provide water for
drinking, lavatory and toilet, research laboratory, and research laboratory
support purposes drawn through fixtures installed by Landlord.
7.7 Electricity. Landlord will furnish the
Leased Premises with electric current for lighting, normal research facility
use, heating and air conditioning, and replace building standard light bulbs
and tubes in building standard fixtures when required. Tenant's use of
electric energy in the Premises shall not at any time exceed the capacity of
any of the electrical conductors and equipment in or otherwise serving the
Premises. Landlord shall also furnish emergency backup electrical power in
order to allow for continuous use of the Premises in the event of failure of
regular power supply.
7.8 Repair. The Landlord will use reasonable
diligence to repair any malfunction of the Building or any of the services to
be provided, but neither the failure to any extent to
-8-
<PAGE> 9
furnish, or any stoppage or interruption of, the foregoing services resulting
from any cause whatsoever, nor any "surges" or similar irregularities in the
electrical current will render the Landlord liable in any respect for damages
to the Tenant or any other person or be construed as an eviction of the Tenant.
If the services to be provided under paragraphs 7.2, 7.6 or 7.7 are interrupted
through no fault of Tenant or Tenant's agents or employees for a period of at
least seven (7) business days, Tenant shall be entitled to an abatement of Rent
until such service resumes.
7.9 Additional Services. In the event the Tenant
desires services in excess of those required for normal office and research
laboratory usage or in excess of or at times other than the services regularly
provided by the Landlord to other tenants of the Building, Tenant shall request
such services in advance and, although Landlord shall have no obligation to
provide such services (other than those identified in paragraphs 7.2, 7.6 and
7.7), if it agrees to do so, the Tenant agrees to pay to the Landlord such
charges as the Landlord might from time to time prescribe for such additional
services, which charges shall be a reflection of the actual costs thereof to
Landlord.
8. Quiet Enjoyment. The Landlord agrees that if the
Tenant pays the Rent and performs all other obligations of the Tenant
hereunder, the Tenant will peacefully hold the Leased Premises, free of
interference from any person, firm, or corporation claiming by, through, or
under Landlord, subject to any underlying leases, mortgages, deeds of trust and
other encumbrances now or hereafter affecting the Leased Premises and any
applicable zoning ordinances, laws, and regulations affecting the use thereof.
9. Insurance.
9.1 Hazard Insurance. Tenant will maintain, at
Tenant's expense, throughout the Lease Term, a policy or policies of insurance
insuring Tenant and Landlord against all risks of direct physical loss, subject
to standard exclusions acceptable to Landlord, covering all Leasehold
Improvements and all contents of, improvements and betterments to the Leased
Premises, to the extent of not less than 90% of the full insurable value of
such property. Such policy shall name Tenant and Landlord as insureds, as
their interests may appear, with Landlord named as loss payee, and shall be
maintained with an insurance company or companies authorized to do business in
the State of Oklahoma and otherwise satisfactory to Landlord.
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9.2 Liability Insurance. The Tenant will
maintain, at Tenant's expense, throughout the Lease Term, a policy or policies
of insurance insuring the Tenant and the Landlord against all liability for
injury to or death of any person occasioned by or arising out of or in
connection with the occupancy of the Leased Premises, such policy or policies
to have not less than $1,000,000 combined single limit coverage. Such
insurance shall name Tenant as the insured and Landlord as an additional
insured and shall be maintained with an insurance company or companies
authorized to do business in the state of Oklahoma and otherwise satisfactory
to Landlord.
9.3 Policies. The Tenant will furnish evidence
satisfactory to the Landlord of the maintenance of all insurance required by
this paragraph, including certificates of such insurance and evidence of the
payment of premiums therefor, and will obtain a written obligation on the part
of each insurance company to notify the Landlord at least thirty (30) days
prior to cancellation or material change of any such insurance.
9.4 Subrogation. The Tenant hereby waives any
cause of action which the Tenant or anyone claiming by through, or under it, by
subrogation or otherwise, might now or hereafter have against the Landlord on
account of any loss or damage which is insured against under any insurance
policy which names the Tenant as a party insured. Tenant agrees to provide
Landlord a waiver of subrogation endorsement, satisfactory to Landlord, to all
policies of insurance maintained pursuant to this Lease.
10. Alterations and Repairs. The Tenant will make no
material alterations or additions to the Leased Premises without the prior
written consent of the Landlord, which consent shall not be unreasonably
withheld or delayed. Any additions to the Leased Premises made with Landlord's
consent shall become Landlord's property upon installation, unless at the time
of such installation Landlord notifies Tenant that such additions shall remain
the property of Tenant, with respect to which Tenant shall, upon the
termination of this Lease, remove such property and repair any damage to the
Leased Premises caused by such removal.
11. Maintenance. The Tenant will, at the Tenant's
expense, maintain the Leased Premises and all Leasehold Improvements in sound
condition and good repair. Tenant will repair or replace, with material of the
same quality as that to be repaired or replaced, any damage done to the
Building or the Leased Premises by
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the Tenant or the Tenant's agents, employees or invitees. The Tenant will not
commit or allow any waste or damage to be committed on any portion of the
Leased Premises.
12. Tenant's Personal Property. Tenant shall be solely
responsible for all personal property, furniture, or fixtures placed in or on
the Leased Premises by Tenant. Tenant shall not install or operate in the
Leased Premises any equipment (other than equipment normally used in modern
offices or as may be required in connection with the Permitted Use of the
Leased Premises), without the prior written consent of the Landlord. Tenant
shall be liable for all taxes levied or assessed against personal property,
furniture, or fixtures placed or installed by Tenant in the Leased Premises.
If any such taxes are levied or assessed against Landlord or Landlord's
Property, and, if Landlord elects to pay the same or if the assessed value of
Landlord's property is increased by inclusion of personal property, furniture,
or fixtures placed by Tenant in the Leased Premises, and Landlord elects to pay
the taxes based on such increase, Tenant shall pay to Landlord, upon demand,
that portion of such taxes attributable to such property of Tenant.
13. Costs of Alterations, Equipment. Any alterations or
equipment permitted by Landlord under the preceding paragraphs hereof shall be
made or installed by persons approved in advance by Landlord. Such work,
including all costs of modifications to the Building or the Building's heating,
ventilating, air conditioning, electrical, plumbing, or other mechanical
systems necessary, as determined by Landlord, to accommodate such alterations
or equipment without interference with the normal operation of the Building,
shall be performed at the sole cost of Tenant.
14. Additional Taxes. If, during the term of this Lease,
or any renewal or extension thereof, any taxes are imposed upon the privilege
of renting or occupying the Leased Premises, or upon the amount of rent
collected therefor, Tenant will pay each month, as additional Rent, a sum equal
to such tax or charge that is imposed for such month, but nothing herein shall
require Tenant to pay any income, estate, excess profits, excise, or franchise
tax imposed upon Landlord.
15. Delivery upon Termination. On the termination of
this Lease, the Tenant will remove all moveable personal property and furniture
of Tenant and those claiming under it and deliver the Leased Premises and the
Leasehold Improvements (except those Leasehold Improvements to be removed by
Tenant in accordance with this
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Lease) to the Landlord in the condition which existed at the beginning of the
Lease Term, ordinary wear and tear excepted. Tenant shall repair any damage to
the Leased Premises caused by the removal of such property.
16. Signs. Tenant will not place signs on the Leased
Premises, the Building or the Real Estate. Landlord will place Tenant's name
on the entrance doors to the Leased Premises or the accompanying sidelights,
with lettering specified by Landlord. Identification of Tenant and Tenant's
location will also be provided in a directory located in the Building lobby,
the size and design of which shall be determined by Landlord, at Landlord's
expense.
17. Assignment and Subletting. The Tenant will not
assign or encumber this Lease, or any interest herein, or sublet the Leased
Premises, in whole or in part or suffer any other person to occupy the Leased
Premises, or any portion thereof, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld, and any such
assignment, encumbrance, subletting or occupancy without such consent will be
void. Any sale, encumbrance, or other transfer of a majority of the issued and
outstanding stock of Tenant (if Tenant is a corporation) or a majority of the
interest in the Tenant (if Tenant is a partnership or limited liability
company) shall constitute an assignment of this Lease within the meaning of the
foregoing sentence. If the Tenant desires to assign this Lease, or sublet the
Leased Premises or any part thereof, the Tenant will give the Landlord written
notice of such desire, specifying the name of the proposed assignee or
sublessee and all of the terms of the proposed assignment or sublease, at least
thirty (30) days in the case of an assignment, and at least ten (10) days in
the case of a sublease, prior to the date such assignment or sublease is
proposed to be effective. Notwithstanding any consent granted by the Landlord,
the Tenant, each Guarantor, and each assignee of Tenant will at all times
remain fully liable for the payment of Rent and for the performance of the
Tenant's obligations hereunder, unless Landlord expressly and in writing agrees
otherwise. No consent granted by the Landlord will constitute a waiver of the
provisions of this Lease except as to the specific instance covered thereby.
18. Tenant's Acceptance of Leased Premises. By taking
possession of the Leased Premises, the Tenant will be deemed to have accepted
the Leased Premises as suitable for the purposes for
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which they are leased, except as specified in a punchlist prepared by Landlord
and Tenant upon Tenant's occupancy.
19. Indemnification. Tenant agrees to indemnify, defend
and hold harmless Landlord, Landlord's building manager, and their respective
directors, trustees, officers, employees and agents, from any and all suits,
actions, damages, liability, claims and expenses arising from the occupancy or
use of the Leased Premises, the Building, the Real Estate and other
improvements on the Real Estate by Tenant, its agents, employees and invitees
unless the same is the result of the willful and gross negligence of Landlord,
its building manager or their respective directors, trustees, officers,
employees and agents, and Landlord and its building manager and their
respective directors, trustees, officers, employees and agents shall not be
liable to Tenant for any such damage or loss, whether or not the result of
their willful and gross negligence, to the extent Tenant is compensated
therefor by insurance. If the Landlord is made a party to any action commenced
by or against the Tenant with respect to a claim against which Landlord is
indemnified hereunder, the Tenant agrees to protect and hold the Landlord
harmless therefrom and to pay all loss, expenses and the reasonable attorney's
fees of the Landlord incurred in connection therewith.
20. Condemnation. If all of the Leased Premises or the
Building, or such portion thereof as to unreasonably interfere with Tenant's
use of the Leased Premises, is taken or condemned for any public use or purpose
by right of eminent domain, or is transferred by agreement in lieu of or under
threat of condemnation, this Lease will terminate as of the date Tenant is
required to yield possession thereof. If only a portion of the Leased Premises
or the Building is so taken or condemned, so as to not unreasonably interfere
with Tenant's use of the Leased Premises, then, at Landlord's option, to be
exercised by written notice to Tenant no later than thirty (30) days prior to
the date possession thereof will be delivered to such condemning authority or
transferee, this Lease will terminate as of the date possession is so delivered
or will continue unaffected. If the Landlord elects that this Lease shall
continue unaffected, there shall be no reduction or abatement of Rent or other
obligations of Tenant hereunder except the Tenant's Share shall be revised to
reflect the resulting changes in the Rentable Area of the Building and the
Leased Premises. The Landlord will receive the entire award from any such
taking (or the entire compensation paid on account of any transfer by
agreement) and the Tenant will have no claim thereto; provided, the Tenant may
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at its option seek relocation expenses from the condemning authority.
21. Casualty. If the Leased Premises are damaged by fire
or other casualty and such damage cannot be repaired within one hundred eighty
(180) days from the date of occurrence (as estimated by either party in good
faith as soon as reasonably practicable after the occurrence of such damage),
then either party may terminate this Lease by giving written notice thereof to
the other party within thirty (30) days after the occurrence of such damage,
will terminate as of the date such notice is given. On any such termination
the Tenant will pay Rent and all other obligations of the Tenant apportioned to
the date on which such damage occurs and will immediately surrender the Leased
Premises to the Landlord. If the damage can be repaired within one hundred
eighty (180) days, or if the damage cannot be repaired within one hundred
eighty (180) days but neither party exercises the option to terminate this
Lease, the Landlord shall proceed to repair, restore and rebuild the Leased
Premises and the Building to their former condition and complete such work with
reasonable promptness, and this Lease will continue in effect; but the Rent
shall abate from the date of the fire or other casualty until the repairs,
restoration and rebuilding are completed. To the greatest extent possible, the
costs of such repairs, restoration and rebuilding shall be satisfied from
insurance proceeds received under all insurance policies insuring against the
losses and damages incurred and naming either the Landlord, the Tenant or both
of them as parties insured. To the extent, however, that the costs of such
repairs, restoration and rebuilding are not satisfied through insurance
proceeds, such costs will be borne by the parties hereto as follows: (a) the
costs of repairing, restoring or replacing the Tenant's personal property
located in the Leased Premises shall be borne solely by the Tenant; and (b) all
other costs incurred in repairing, restoring and replacing the Leased Premises
and the Building shall be borne solely by the Landlord.
22. Notice of Accidents and Defects. Tenant shall give
to Landlord immediate notice of any accident occurring in the Leased Premises
and of any defects in the Leased Premises, including, without limitation, fire,
accident involving a person, and accident to or defects in the water pipes,
electric wires, elevator and heating and cooling apparatus.
23. Entry. The Landlord and the Landlord's agents,
employees and contractors will have the right to enter the Leased
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Premises at all reasonable hours (or, in any emergency, at any hour), to
inspect, clean, repair or alter the Leased Premises as the Landlord may deem
necessary, so long as Tenant's Permitted Use is unaffected, and the Tenant will
not be entitled to any abatement or reduction of Rent by reason thereof.
Without limitation of the foregoing, Tenant agrees that during the 12 month
period prior to the expiration of the Lease Term, Landlord may exhibit the
Leased Premises to prospective tenants.
24. Holding Over. Unless Landlord expressly agrees
otherwise in writing, Tenant shall pay Landlord 200% of the amount of Rent then
applicable prorated on per diem basis for each day Tenant shall retain
possession of the Premises or any part thereof after expiration or earlier
termination of this Lease, together with all damages sustained by Landlord on
account thereof. The foregoing provisions shall not serve as permission for
Tenant to hold-over, nor serve to extend the Term although Tenant shall remain
bound to comply with all provisions of this lease until Tenant vacates the
Premises. Notwithstanding the foregoing to the contrary, at any time before or
after expiration or earlier termination of the Lease, landlord may serve notice
advising Tenant of the amount of Rent and other terms required, should Tenant
desire to enter a month-to-month tenancy (and if Tenant shall hold over more
than one full calendar month after such notice, Tenant shall hereafter be
deemed a month-to-month tenant, on the terms and provisions of this Lease then
in effect, as modified by Landlord's notice, and except that Tenant shall not
be entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto.
25. Landlord's Lien. As security for the performance of
the obligations of the Tenant under this Lease, the Tenant hereby grants the
Landlord a security interest in all equipment, inventory, fixtures, furniture,
and all other property now owned or hereafter acquired by the Tenant which is
located in the Leased Premises, and all proceeds and products thereof. The
Tenant will not remove any of such personal property from the Leased Premises
until all of the Tenant's obligations under this Lease have been satisfied in
full. Without excluding any other manner of notice, any requirement for
reasonable notice to the Tenant of the Landlord's intention to dispose of any
property pursuant to the enforcement of such security interest will be met if
such notice is given at least ten (10) days before the time of such
disposition. Any sale made pursuant to the enforcement of such security
interest will be deemed to have been a public sale conducted in a commercially
reasonable manner if held at the Leased Premises after
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advertisement of the time, place, method of sale and a general description of
the property to be sold in a daily newspaper published in Oklahoma County,
Oklahoma, for five (5) consecutive days before the date of sale. The Tenant
agrees to execute and deliver to the Landlord such financing statements,
continuation statements and other instruments which might reasonably be
required to perfect, protect or continue the foregoing security interest within
ten (10) days after written request therefor.
26. Responsibility for Hazardous Material.
26.1 Definitions. As used in this paragraph,
the following terms shall have the following meanings:
(a) "Hazardous Material" means any
substance, material or waste which is reasonably considered by Landlord to be
posing an actual or potential threat to the health or safety of persons
entering the Property or which is or at any time hereafter becomes regulated as
"hazardous," "toxic" or under any other similar designation by any local, state
or federal governmental authority. Such term includes, without limitation, (i)
asbestos, (ii) any material, substance or waste defined as a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act (42
U.S.C. Section 6901, et seq.), (iii) any material, substance or waste defined
as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section
9601, et seq.), (iv) any petroleum product, or (v) any material, substance or
waste defined as a "regulated substance" pursuant to Subchapter IX of the Solid
Waste Disposal Act (42 U.S.C. Section 6991, et seq.).
(b) "Indemnified Person" means the
Landlord and any director, trustee, officer, employee or agent of Landlord.
26.2 Notices. Tenant shall promptly notify
Landlord in the event Tenant becomes aware of the presence of any Hazardous
Material or any underground storage tank on the Real Estate or in the Leased
Premises.
26.3 Indemnification. Tenant agrees that it
will not bring onto the Real Estate any Hazardous Material other than
inventory, cleaning supplies and other materials in normal quantities
ordinarily used in the operation of its business, and that it will not permit
any employee, agent, officer, director or invitee of Tenant or any person
occupying the Leased Premises, or any
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portion thereof, by, through or under Tenant to bring any Hazardous Material
onto the Real Estate. Tenant hereby indemnifies each Indemnified Person from
and against any and all loss, cost, damage and expense arising from the
introduction of any Hazardous Material onto the Leased Premises by Tenant, any
employee, agent, officer, director or invitee of Tenant or any other person
occupying the Leased Premises, or any portion thereof, by, through or under
Tenant.
26.4 Remedies of Landlord. If Landlord becomes
aware of the presence or suspected presence of any Hazardous Material brought
onto the Leased Premises in violation of this paragraph, Landlord may so notify
the Tenant and request that Tenant institute remedial action. Tenant will,
within ten days of receipt of such notice, at its sole cost and expense,
commence such action as is specified by Landlord to remove all such Hazardous
Material from the Leased Premises and will diligently pursue such action to
completion. Such work will be performed in accordance with all applicable,
laws, ordinances and regulations governing such work. If Tenant fails to
undertake the work required by this paragraph, Landlord may, at its option to
be exercised by notice to Tenant (i) undertake such work, in which event Tenant
shall reimburse Landlord for all costs and expenses, including the fees of
attorneys, engineers and other consultants, incurred by Landlord in such work,
or (ii) terminate this Lease, without prejudice to any claim for damages
resulting from Tenant's breach hereof. However, Landlord shall not be under
any obligation to exercise either of the remedies specified in the preceding
sentence, and the remedies provided in this paragraph shall not be considered
exclusive or preclude any claim for damages or any other remedy which may be
available under this Lease or under law.
27. Security Deposit. The Tenant shall deposit with the
Landlord simultaneously with the execution of this Lease the Security Deposit.
Such deposit will be held by the Landlord throughout the Lease Term without
liability for interest and as security for the performance by the Tenant of all
the Tenant's obligations under this Lease, it being expressly understood that
the deposit will not be considered an advance payment of Rent or a measure of
the Landlord's damages for any default by Tenant. The Landlord may commingle
the deposit with the Landlord's other funds and may, from time to time, without
prejudice to any other remedy, use the deposit to satisfy any obligation of the
Tenant hereunder. Following any such application of the deposit, the Tenant
will pay to the Landlord, on demand, the amount so applied and restore the
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deposit to its original amount. If the Tenant is not in default at the
termination of this Lease, the balance of the deposit remaining after any such
application will be returned by the Landlord to the Tenant. If the Landlord
transfers the Landlord's interest in the Leased Premises during the Lease Term,
the Landlord will assign the deposit to the transferee and thereafter the
transferor will have no further liability with respect to such deposit.
28. Abandoned Property. All personal property not
removed by the Tenant from the Leased Premises within five (5) days after the
expiration or earlier termination of the Lease Term will be conclusively
presumed to have been abandoned by the Tenant and the Landlord may, at the
Landlord's option,hereafter take possession of such property and either declare
the same to be the property of the Landlord or, at the expense of the Tenant,
dispose of such property in any manner and for such consideration the Landlord,
in the Landlord's sole discretion, deems advisable.
29. Default. The following events will be deemed to be
events of default by the Tenant under this Lease: (a) failure to pay any Rent
or other sum payable by the Tenant hereunder when such sum becomes due, and
such failure continues for ten (10) days following written notice of such
default given by the Landlord to the Tenant; (b) failure to comply with any
term of this Lease or the Building Regulations, and such failure continues for
ten (10) days following written notice of such default given by the Landlord to
the Tenant; (c) the filing by or against the Tenant, or any Guarantor, of any
proceedings under the federal bankruptcy act or any similar law; (d) the
adjudication of the Tenant or any Guarantor as bankrupt or insolvent in
proceedings filed under the federal bankruptcy act or any similar law; (e) the
insolvency of the Tenant, or any Guarantor, or the making by Tenant or any
Guarantor of a transfer in fraud of creditors or an assignment for the benefit
of creditors; or (f) the appointment or a receiver or trustee for the Tenant,
any Guarantor or any of the assets of the Tenant.
30. Remedies. On the occurrence of any event of default,
the Landlord will have the option to do the following, without any notice or
demand, in addition to and not in limitation of any other remedy permitted by
law or by this Lease:
30.1 Termination. The Landlord may terminate
this Lease, in which event the Tenant will immediately surrender the Leased
Premises to the Landlord, but if the Tenant fails to do so,
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the Landlord may, without notice and without prejudice to any other remedy the
Landlord might have, enter and take possession of the Leased Premises and
remove the Tenant and the Tenant's property therefrom without being subject to
any claim for damages therefor. Tenant shall pay Landlord all costs incurred
by Landlord in any such action, including the costs of taking possession of and
repairing any damage to the Leased Premises and all other damages caused by
Tenant's default.
30.2 Reletting. If Landlord does not terminate
this Lease, Landlord may, at its option, reenter the Leased Premises and remove
any personal property of the Tenant, forcibly, if necessary, without being
guilty of trespass, and relet the Leased Premises for the benefit of Tenant, in
which event the Tenant shall pay the Landlord all costs incurred by Landlord in
such action including, without limitation, the reasonable costs of taking
possession of and repairing the Leased Premises, the reasonable cost of
preparing the Leased Premises for reletting, attorneys' fees, brokerage
commissions, and all other damages caused by Tenant's default, and shall, in
addition, remain obligated to Landlord for the difference between any rent
received by Landlord as a result of such reletting and the Rent for which
Tenant is obligated hereunder. Landlord shall have no duty to relet the Leased
Premises, and the failure of Landlord to relet the Leased Premises will not
release or affect the Tenant's liability for Rent or for damages. In the event
any such reletting results in payment of rent thereunder to Landlord in excess
of the Rent for which Tenant is obligated hereunder, Landlord shall retain such
excess.
30.3 Election not to Relet. If the Landlord
elects not to terminate this Lease and does not relet the Leased Premises for
the benefit of Tenant, Tenant shall remain obligated to Landlord for all Rent
for which it is obligated hereunder for the remainder of the Lease Term,
together with all damages caused by Tenant's default.
30.4 Option to Perform. The Landlord may
perform or cause to be performed the unperformed obligations of the Tenant
under this Lease and may enter the Leased Premises to accomplish such purpose
without being liable to any claim for damages therefor. The Tenant agrees to
reimburse the Landlord on demand for any reasonable expense which the Landlord
might incur in effecting compliance with this Lease on behalf of the Tenant,
and the Tenant further agrees that the Landlord will not be liable for
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any damages resulting to the Tenant from such action, whether caused by the
negligence of the Landlord or otherwise.
31. Waiver of Default. No action by the Landlord during
the Lease Term will be deemed an acceptance of an attempted surrender of the
Leased Premises and no agreement to accept a surrender of the Leased Premises
will be valid unless made in writing and signed by the Landlord. No reentry or
taking possession of the Leased Premises by the Landlord will be construed as
an election by the Landlord to terminate this Lease, unless a written notice of
termination is given to the Tenant. The failure of the Landlord to enforce the
Building Regulations against the Tenant or any other tenant in the Building
will not be deemed a waiver thereof.
32. Attorneys' Fees. In any action by one party against
the other to enforce this Lease, the prevailing party may recover reasonable
attorney's fees and other expenses incurred by such party in connection
therewith.
33. Mechanic's and Materialmen's Liens. If any
mechanic's or materialmen's liens shall at any time be filed against the Leased
Premises, or any part thereof, by reason of any work, labor, services,
materials, or equipment furnished to or for Tenant, Tenant, within thirty (30)
days after notice of the filing thereof shall cause the same to be fully
satisfied by bond or otherwise. Nothing herein shall be deemed or construed in
any way as constituting the consent or the request of Landlord, express or
implied, to any contractor, subcontractor, laborer or materialmen for the
performance of any labor or the furnishing of any materials for any
improvement, alteration or repair of the Leased Premises, or any part thereof,
nor as giving the Tenant any right, power, authority to contract for or permit
the rendering of any services or the furnishing of any materials that would
give rise to the filing of any lien against the Leased Premises, or any part
thereof.
34. Landlord's Transfer. In the event the Landlord
transfers the Landlord's interest in the Building, the Landlord will thereby be
released from any obligation hereunder accruing from and after such transfer,
including any claims with respect to any security deposit delivered to such
transferee, and the Tenant agrees to attorn to and look solely to the
transferee for the performance of such obligations. The agreement of the
Tenant to attorn to the transferee of the Landlord will survive any termination
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of rights of the Landlord in the Building and the Tenant agrees to execute and
deliver to the transferee of the Landlord from time to time, within ten (10)
days after written request therefor, all instruments which might be required by
the Landlord to confirm such attornment. Any transferee of Landlord shall
acquire Landlord's interest in the Building subject to this Lease.
35. Subordination. Subject to the conditions set forth
in this paragraph, this Lease and all rights of the Tenant hereunder shall, at
the option of the Landlord, be subject and subordinate to any future mortgage
or other Encumbrance held by a lending institution which may hereafter affect
the Building, the Real Estate or any other property associated therewith; and
the Tenant agrees to execute and deliver to the Landlord from time to time,
within ten (10) days after written request by the Landlord, any and all
instruments which may be required by the Landlord to confirm such
subordination. As express conditions to this Lease being subordinated to any
such future mortgage or other Encumbrance, the holder of such mortgage or other
Encumbrance shall provide the Tenant with a written agreement, in form and
content satisfactory to the Tenant, to the effect that so long as no event of
default by the Tenant has occurred and is continuing under this Lease, then:
(a) Tenant shall not be named as a party defendant or otherwise joined in any
foreclosure action or other proceeding which may be taken or instituted by the
then holder of the mortgage or other Encumbrance by reason of a default under
such mortgage or other Encumbrance; and (b) this Lease shall not be terminated,
nor shall Tenant's use, possession or enjoyment of the Leased Premises be
interfered with, nor shall any of Tenant's rights under this Lease be affected
in any other manner, by reason of a default under such mortgage or other
Encumbrance or by reason of any foreclosure proceeding or other action
instituted as a result of such default. With respect to any existing mortgages
or other Encumbrances presently covering the land upon which the Building is to
be located, the execution and delivery to the Tenant of a written agreement to
the above effect by the holder of each such mortgage or other Encumbrance shall
be a condition precedent to the effectiveness of this Lease.
36. Estoppel Certificate or Three-Party Agreement. Upon
the commencement of the Lease Term, Tenant will execute and deliver to Landlord
and any Mortgagee a tenant's acceptance letter in the form of Exhibit E. At
Landlord's request, Tenant will execute any other estoppel certificate
addressed to Landlord and any mortgagee or any three-party agreement among
Landlord, Tenant and any mort-
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gagee certifying to such facts (if true) and agreeing to such notice provisions
and other matters as such persons may reasonably require. Such agreement may
contain, without limitation, an agreement by the Tenant with such mortgagee
that after the date of such certificate, the Tenant will not pay any Rent more
than thirty (30) days in advance of its due date or surrender or consent to the
modification or termination of this Lease by the Landlord. Tenant agrees that
in the event of any default by Landlord hereunder, Tenant shall take no action
to terminate this Lease or pursue any other remedies which may be available to
it without first providing to each mortgagee known to Tenant notice of such
default and a reasonable time of not less than thirty (30) days in which to
cure such default.
37. Building Name. The Landlord reserves the right at
any time to name the Building and to change the Building name without liability
to the Tenant.
38. Brokerage. The Tenant warrants that the Tenant has
had no dealings with any broker in connection with the execution of this Lease
and the Tenant agrees to indemnify and hold the Landlord harmless from all
claims for commissions or other compensation asserted by any person employed or
retained by Tenant with respect to this Lease.
39. Recording. The Landlord and the Tenant agree that
this Lease will not be recorded, but that a memorandum hereof in substantially
the form set forth at Exhibit F will be executed and delivered within (10) days
after the written request of either party, which memorandum may be recorded in
the Office of the County Clerk of Oklahoma County, Oklahoma.
40. Landlord's Liability. Anything herein contained to
the contrary notwithstanding, the obligations of Landlord under this Lease
shall be binding upon and enforceable only out of Landlord's interest in the
Real Estate, the Building and other improvements thereon, and not upon or out
of any other assets of Landlord.
41. Notices.
41.1 Form of Notice. All notices, requests,
demands, instructions, or other communications called for hereunder or
contemplated hereby shall be in writing and shall be deemed to have been given
if personally delivered in return for receipt or if
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<PAGE> 23
mailed, first class, postage prepaid, by registered or certified mail, return
receipt requested, to the parties at the address as set forth below. Either
party may change the address to which notices are to be given hereunder by
giving notice in the matter herein provided.
41.2 Notices to Landlord. Notices to Landlord
shall be addressed to the Landlord at the Landlord's Address.
41.3 Notices to Tenant. Notices to Tenant shall
be addressed to the Tenant at the Tenant's Address.
42. Joint and Several Liability. If the Tenant is more
than one person, the Tenant's obligations hereunder are joint and several. If
there is a Guarantor, the Tenant's obligations hereunder are joint and several
obligations of the Tenant and the Guarantor, and the release, forbearance or
discharge of any Guarantor will not relieve the Tenant from the performance of
the Tenant's obligations hereunder.
43. Severability. If any clause or provision of this
Lease is illegal, invalid or unenforceable under any present or future law, the
remainder of this Lease will not be affected thereby.
44. Binding Effect. The provisions of this Lease will be
binding on and inure to the benefit of the Landlord and the Tenant and their
respective personal representatives, successors and permitted assigns.
45. Time of the Essence. Time shall be the essence with
respect to the performance by the parties of their respective obligations
hereunder. If the time for performance of any obligation hereunder falls on a
Saturday, Sunday, or legal holiday, such time shall be extended to the next
succeeding business day.
46. Consent to Breach. Any assent, express or implied,
to any breach of any covenant or condition herein contained shall operate as
such only in the specific instance and shall not be construed as an assent or
waiver of any condition or covenant generally, or any subsequent breach
thereof.
47. Remedies Cumulative. The various rights, powers
elections and remedies of the parties hereto shall be considered as cumulative,
and no one of them is exclusive of the others or exclu-
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<PAGE> 24
sive of any right or power allowed by law, and no right shall be exhausted by
being exercised on one or more occasions.
48. Substitution. The Landlord has the right to
substitute for the Premises other premises (herein referred to as the "new
premises") at the Building, or another comparable building, provided: (i) the
new premises shall be similar to the Premises in area, (ii) Landlord shall give
Tenant at least thirty (30) days written notice before making such change, and
the parties shall execute an amendment to the Lease confirming the change
within thirty (30) days after either party shall request the same; and (iii) if
Tenant shall already have taken possession of the Premises: (a) Landlord shall
pay the direct, out-of-pocket, reasonable expenses of Tenant in moving from the
Premises to the new premises and improving the new premises so that they are
reasonably similar to the Premises, and, (b) such move shall be made during
evenings, weekends, or otherwise so as to incur the least inconvenience to
Tenant.
49. Arbitration. Any claim, controversy or dispute
arising out of or relating to this Agreement, except as set forth herein, shall
be settled by arbitration in Oklahoma City, Oklahoma, in accordance with the
rules for arbitration of the American Arbitration Association. Any arbitration
shall be undertaken pursuant to the Federal Arbitration Act, where possible,
and the decision of the arbitrators shall be final, binding, and enforceable in
any court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise,
a single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such
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<PAGE> 25
judicial proceedings on the merits of both this Agreement and the related
transactions pending arbitration of all underlying claims between the parties
immediately following the issuance of any such emergency or injunctive relief.
50. Entire Agreement. The Tenant agrees that there are no
representations, understandings, stipulations, or other agreements relating to
the Leased Premises which are not incorporated herein. This Lease may not be
altered, waived, amended or extended, except by a written agreement signed by
the Landlord and the Tenant.
LANDLORD: PRESBYTERIAN HEALTH FOUNDATION
ATTEST:
By /s/ Dennis McGrath
- -------------------------- ---------------------------------
Secretary Vice President
[SEAL]
TENANT: ZYMETX, INC.
ATTEST:
By /s/ Peter Livingston
- -------------------------- ---------------------------------
Secretary Peter Livingston, President
[SEAL]
-25-
<PAGE> 26
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ____
day of ______________________, 19__, by ___________________, as
________________________ of Presbyterian Health Foundation, an Oklahoma not for
profit corporation, on behalf of such corporation.
-----------------------
Notary Public
My Commission Expires:
- ----------------------
[SEAL]
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this ____
day of ________________, 19__, by _________________________, as
________________ of _____________________________________, an Oklahoma
_______________, on behalf of such ___________________.
-----------------------
Notary Public
My Commission Expires:
- ----------------------
[SEAL]
-26-
<PAGE> 27
EXHIBITS
A - Legal Description
B - Leased Premises
C - Building Rules and Regulations
D - Completion of Space
E - Estoppel Certificate
F - Memorandum of Lease
Addendum
<PAGE> 1
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------
1996 1997
--------- ----------
<S> <C> <C>
Net loss $(369,650) $(2,676,270)
Preferred stock dividend requirements - (8,604)
--------- -----------
Net loss applicable to common stockholders $(369,650) $(2,684,874)
========= ===========
Calculation of shares outstanding for
computing net loss per common and common
equivalent share:
Weighted average common shares
outstanding 43,500 909,206
Adjustments to reflect requirements of
the Securities and Exchange
Commission (effect of SAB 83) 1,385,834 520,623
--------- ---------
Weighted average common and common
equivalent shares outstanding 1,429,334 1,429,829
========= =========
Net loss per common and common
equivalent share $(.26) $(1.88)
========= =========
Calculation of shares outstanding for
computing supplemental net loss per
common and common equivalent share:
Weighted average common shares
outstanding 43,500 909,206
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)
1,385,834 520,623
--------- ---------
Supplemental weighted average common
and common equivalent shares
outstanding 3,047,928 3,048,423
========= =========
Supplemental net loss per common and
common equivalent share
$ (.12) $ (.88)
========= ==========
</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 August 8, 1997, in Amendment No. 1 to the Registration
Statement (Form SB-2 No. 333-33563) and related Prospectus of ZymeTx, Inc.
for the registration of 2,645,000 shares of its common stock.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
September 22, 1997
<PAGE> 1
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Peter G. Livingston and G. Carl Gibson,
Jr. 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 Amendment No. 1 to the Registration Statement on Form SB-2
(No. 333-33563) (the "Registration Statement") and 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 attorney-in-fact and
agent 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 attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed this 19th day of September, 1997.
/s/ William G. Thurman
------------------------------
William G. Thurman, M.D.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1997
<CASH> 39,469 226,312
<SECURITIES> 0 1,594,382
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 99,107
<CURRENT-ASSETS> 39,469 1,929,011
<PP&E> 50,447 342,679
<DEPRECIATION> 17,697 47,286
<TOTAL-ASSETS> 132,307 2,382,977
<CURRENT-LIABILITIES> 115,415 549,954
<BONDS> 0 265,836
0 125,000
0 6,318
<COMMON> 44 920
<OTHER-SE> (372,664) 4,410,198
<TOTAL-LIABILITY-AND-EQUITY> 132,307 2,382,977
<SALES> 7,756 9,799
<TOTAL-REVENUES> 7,756 9,799
<CGS> 0 2,200
<TOTAL-COSTS> 0 2,200
<OTHER-EXPENSES> 368,068 2,721,925
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,338 58,989
<INCOME-PRETAX> (369,650) (2,676,270)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (369,650) (2,676,270)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (369,650) (2,676,270)
<EPS-PRIMARY> (.27) (1.88)
<EPS-DILUTED> (.27) (.88)<F1>
<FN>
<F1>FULLY DILUTED EPS REPRESENTS SUPPLEMENTAL EPS WITH CONVERSION OF PREFERRED
STOCK AND CHEAP STOCK AS ADDITIONAL DILUTIVE SHARES.
</FN>
</TABLE>
