Sales Agency Agreement

LXR BIOTECHNOLOGY INC.


A minimum of 2,750,000 and
a maximum of 7,500,000 shares of Common Stock


SALES AGENCY AGREEMENT


Sunrise Securities Corp. 135 East 57th Street New York, New York 10022
December 11, 1996


Dear Sirs:


LXR Biotechnology Inc., a Delaware corporation (the "Company"), proposes to offer for sale in a private offering in the United States (the "Offering"), pursuant to Rule 506 of Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the "Act"), a minimum of 2,750,000 and a maximum of 7,500,000 shares of Common Stock, par value $0.0001 per share (the "Shares") (including "Affiliate Shares", as hereinafter defined, if any). This is to confirm our agreement concerning your acting as our exclusive placement agent (the "Placement Agent") in connection with the Offering.


The Company has prepared and has delivered to the Placement Agent copies of a confidential private offering memorandum, dated October 30, 1996, relating to, among other things, the Company, the Shares and the terms of the sale of the Shares. Such confidential private offering memorandum, including all exhibits thereto and all documents delivered therewith and incorporated by reference therein, is referred to herein as the "Memorandum" unless such confidential private offering memoranda or any such exhibits or documents shall be supplemented or amended in accordance with this Agreement, in which event the term "Memorandum" shall refer to such confidential private offering memorandum and such exhibits and documents as so supplemented or amended from and after the time of delivery to the Placement Agent of such supplement or amendment.


1. Appointment of Placement Agent.


On the basis of the representations and warranties contained herein, and subject to the terms and conditions set forth herein, the Company hereby appoints you as its Placement Agent and grants to you the exclusive right to offer, as its agent, the Shares pursuant to the terms of this Agreement. On the basis of such representations and warranties, and subject to such conditions, you hereby accept such appointment and agree to use your best efforts to secure subscriptions to purchase a minimum of 2,750,000 and a maximum of 7,500,000 Shares pursuant to the terms of this Agreement. The agency created hereby is not terminable by the Company except upon termination of the Offering or upon expiration of the Offering Period (as hereinafter defined) in accordance with the terms of this Agreement.


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2. Terms of the Offering.


(a) A minimum of 2,750,000 and a maximum of 7,500,000 Shares shall be offered for sale to prospective investors in this Offering ("Prospective Investors") at a purchase price equal to $2.00 per Share (the "Purchase Price"). Officers, directors and employees of the Placement Agent may purchase Shares on the same terms and conditions as other investors (the "Affiliate Shares"). The Affiliate Shares shall be included in determining whether the minimum and maximum number of Shares have been subscribed for, and all references herein to subscriptions from Prospective Investors shall be deemed to include the Affiliate Shares.


(b) The Offering shall commence on the date hereof and shall expire at 5:00 P.M., New York time, on December 31, 1996. Such period, as the same may be so extended, shall hereinafter be referred to as the "Offering Period".


(c) Each Prospective Investor who desires to purchase Shares shall be required to deliver to the Placement Agent one copy of a subscription agreement in the form annexed to the Memorandum (a "Subscription Agreement"), including the investor questionnaire, and payment in the amount necessary to purchase the number of Shares such Prospective Investor desires to purchase. The Placement Agent shall not have any obligation to independently verify the accuracy or completeness of any information contained in any Subscription Agreement or the authenticity, sufficiency or validity of any check or other form of payment delivered by any Prospective Investor in payment for Shares.


(d) Pursuant to an Amended and Restated Escrow Agreement, dated as of November 4, 1996 (the "Escrow Agreement"), the Placement Agent has established a special account with the United States Trust Company of New York (the "Escrow Agent") entitled "LXR Biotechnology Inc. - Escrow Account" (the "Special Account"). The Placement Agent shall deliver each check received from a Prospective Investor to the Escrow Agent for deposit in the Special Account and shall deliver the executed copy of the Subscription Agreement received from such Prospective Investor to the Company. The Company shall notify the Placement Agent promptly of the acceptance or rejection of any subscription. The Company shall not unreasonably reject any subscription.


(e) If subscriptions to purchase at least 2,750,000 Shares are not received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Offering shall be canceled, all funds received by the Escrow Agent on behalf of the Company shall be refunded in full without interest, and this Agreement and the agency created hereby shall be terminated without any further obligation on the part of either party, except as provided in Section 10 hereof.


3. Closing.


(a) Subject to the conditions set forth in Section 8 hereof, if subscriptions to purchase 2,750,000 Shares have been received prior to the expiration of the Offering Period and accepted by the Company, the initial closing under this Agreement (the "Closing") shall be held


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at the offices of Squadron, Ellenoff, Plesent & Sheinfeld, LLP ("SEP&S"), 551 Fifth Avenue, New York, New York, at 10:00 A.M., New York time, as soon as practicable after the Placement Agent receives notice that subscriptions to purchase at least 2,750,000 Shares (including Affiliate Shares) have been so accepted or at such other place, time and/or date as the Company and the Placement Agent shall agree upon. The Company shall provide the notice required by the preceding sentence as promptly as practicable. The date upon which the Closing is held shall hereinafter be referred to as the "Closing Date."


(b) Subject to the conditions set forth in Section 8 hereof, if, subsequent to the date the subscriptions referred to in Section 3(a) hereof are received and accepted and prior to the expiration of the Offering Period, additional subscriptions to purchase Shares are received from Prospective Investors, which subscriptions are accepted by the Company, one or more additional closings under this Agreement (each, an "Additional Closing") shall be held at the offices of SEP&S at 10:00 A.M., New York time, as soon as practicable after the Placement Agent receives notice from the Company that additional subscriptions for at least an additional 500,000 Shares (except with respect to the final closing which can be for any amount of Shares) have been so accepted, or at such other place, time or date as the Company and the Placement Agent shall agree upon. The Company shall notify the Placement Agent as promptly as practicable whether any additional subscriptions so received have been accepted. The date upon which any Additional Closing is held shall hereinafter be referred to as an "Additional Closing Date."


Notwithstanding anything contained here into the contrary, in no event shall the Company accept subscriptions to purchase in excess of 7,500,000 Shares (including Affiliate Shares).


(c) Promptly after the Closing Date, or an Additional Closing Date, as the case may be, the Company shall deliver to the purchasers of Shares certificates representing the Shares to which they are entitled.


4. Compensation.


(a) If subscriptions to purchase 2,750,000 Shares (including Affiliate Shares) are received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, you shall be entitled, as compensation for your services as Placement Agent under this Agreement, to an amount equal to 8% of the gross proceeds received by the Company from the sale of the Shares. Such compensation is payable by the Company on the Closing Date, or an Additional Closing Date, as the case may be, with respect to the Shares sold on such date and shall be paid in Shares of the Company valued at $1.84 per share.


(b) If subscriptions to purchase at least 2,750,000 Shares (including Affiliate Shares) have been received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Company shall issue to you or your designees, in addition to the amount set forth in Section 4(a) above, warrants (individually, a "Warrant" and collectively, the "Warrants") to purchase a number of Shares of the Company equal to 8% of the aggregate number of Shares issued in the Offering, including shares issued to the Placement Agent


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pursuant to Sections 4(a) and 7(b). Each Warrant will entitle the holder thereof for a five-year period commencing on the date of issuance to purchase one Common Share of the Company at an exercise price equal to 110% of the Purchase Price per share (the "Warrant Shares"). The Warrants shall be in the form attached hereto as Exhibit I. The Company shall only be obligated to issue Shares or Warrants pursuant to Sections 4(a) and/or (b) to accredited persons who make appropriate investment representations, and to the extent that such is not contrary to applicable securities law.


(c) Notwithstanding anything contained herein to the contrary, the number of Shares upon which the commission provided for in Section 4(a) and the Warrants described in Section 4(b) shall be based shall include Shares with respect to which the Company unreasonably rejected subscriptions.


(d) If the Company terminates the Offering for any reason (other than due to a breach by the Placement Agent or the inability of the Placement Agent to consummate the Offering by December 31, 1996), prior to the end of the Offering Period, and if within six months of such termination, the Company consummates a sale of any of its securities other than in connection with an acquisition of the Company, the Company shall pay the Placement Agent at the time of the consummation of such transaction a fee equal to 10% of the gross sales price of such securities and shall issue to the Placement Agent Warrants to purchase a number of shares equal to 8% of the number of securities so sold (including commission shares). The Warrants shall be in the form attached hereto as Exhibit I.


5. Representations and Warranties.


(a) Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Placement Agent that:


(i) The Memorandum, at all times during the period from the date hereof to and including the later of the Closing Date and the expiration of the Offering Period, and the last Additional Closing Date (if any), does not, and during such period will not, contain 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 not misleading, all in light of the circumstances under which they were made. Each contract, agreement, instrument, lease, license or other document described in the Memorandum has been accurately described therein in all material respects.


(ii) No document provided by the Company to Prospective Investors pursuant to Section 6(a)(vii) hereof, and no oral information provided by the Company to Prospective Investors, will contain 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 not misleading when taken together with other information provided to the Investor. Contracts to which the Company is a party provided by the Company to Prospective Investors shall not be deemed to contain any untrue statement of a material fact or to omit to state any material fact if the contract so provided is a true, correct and complete copy of such contract, as amended or modified through the date it is so provided.


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(iii) The Company has not, directly or indirectly, solicited any offer to buy or offered to sell any Shares or any other securities of the Company during the twelve-month period ending on the date hereof except as may be described in the Memorandum or which would not be integrated with the sale of the Shares in a manner that would require the registration of the Offering pursuant to the Act and has no present intention to solicit any offer to buy or offer to sell any Shares or any other securities of the Company other than pursuant to this Agreement, pursuant to an agreement with Ventec or pursuant to a registered public offering of the Company's securities which may be commenced after the completion of the Offering, except in connection with the Boehringer Mannheim transaction.


(iv) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with (collectively, "Consents"), all federal, state, local, foreign, and other governmental authorities and all courts and other tribunals, to own, lease, license and use its properties and assets and to carry on its business in the manner described in the Memorandum, except where the failure to have obtained such Consents would not have a material adverse effect on the Company. The Company is duly qualified to do business and is in good standing in every jurisdiction in which its ownership, leasing, licensing or use of property and assets or the conduct of its business makes such qualification necessary. The Company does not have any subsidiaries other than Optical Analytic, Inc.


(v) The Company has, as of the date hereof, an authorized and outstanding capitalization as set forth in the Memorandum. Each outstanding Share of the Company is duly authorized, validly issued, fully paid and nonassessable and has not been issued and is not owned or held in violation of any preemptive rights set forth in the Company's Certificate of Incorporation or By-laws, each as amended to date, or any agreement to which the Company is a party. There is no commitment, plan or arrangement to issue, and no outstanding option, warrant or other right calling for the issuance of, any Share of the Company or any security or other instrument which by its terms is convertible into, exercisable for or exchangeable for Shares of the Company, except as may be described in the Memorandum. There is outstanding no security or other instrument which by its terms is convertible into or exchangeable for any class of Share of the Company, except as may be described in the Memorandum.


(vi) The financial statements of the Company included in the Memorandum (by incorporation by reference or otherwise) fairly present the financial position, the results of operations, cash flows and the other information purported to be shown therein at the respective dates and for the respective periods to which they apply. Such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, are correct and complete and are in accordance with the books and records of the Company. There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company from the latest information set forth in the Memorandum, except as may be described in the Memorandum as having occurred.


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(vii) There is no litigation, arbitration, governmental or other proceeding (formal or informal) or claim or investigation pending or, to the knowledge of the Company, threatened with respect to the Company or any of its operations, businesses, properties or assets, except as may be described in the Memorandum or such as individually or in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties or assets of the Company. The Company is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment or decree, except as may be described in the Memorandum or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties, assets or future prospects of the Company.


(viii) Except as described in the Memorandum, any real property and buildings held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as in the aggregate are not material.


(ix) Neither the Company, nor, to the knowledge of the Company, any other party, is in violation or breach of or in default with respect to, complying with any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding which is material to the Company, and each such contract, agreement, instrument, lease, license, arrangement and understanding is in full force and effect and is the legal, valid and binding obligation of the parties thereto enforceable as to them in accordance with its terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). Except as described in the Memorandum, the Company enjoys peaceful and undisturbed possession under all real property leases under which it is operating. The Company is not in violation or breach of, or in default with respect to, any term of its Certificate of Incorporation or its By-laws, each as amended to date.


(x) To the best of the Company's knowledge, there is no right under any patent, patent application, trademark, trademark application, trade name, service mark, copyright, franchise or other intangible property or asset (all of the foregoing being herein called "Intangibles") necessary to the business of the Company as presently conducted or as the Memorandum indicates it contemplates conducting, except as may be so designated in the Memorandum and which the Company has the right or license to use as necessary. To the Company's knowledge, except as described in the Memorandum, the Company has not infringed nor is it infringing with respect to Intangibles of others, and the Company has not received notice of infringement with respect to asserted Intangibles of others. Except as described in the Memorandum, to the knowledge of the Company, there is no Intangible of others which has had or may in the future have a materially adverse effect on the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company.


(xi) The Company has all requisite power and authority to execute, deliver and perform this Agreement, the Warrants, the Subscription Agreements, the Escrow Agreement and the Registration Rights Agreement made by the Company for the benefit of purchasers of Shares (the "Registration Rights Agreement") (collectively, the "Operative Agreements") and to consummate the transactions contemplated by the Operative Agreements. All necessary


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corporate proceedings of the Company have been duly taken to authorize the execution, delivery and performance by the Company of the Operative Agreements. This Agreement and the Escrow Agreement have been duly authorized, executed, and delivered by the Company, are the legal, valid and binding obligations of the Company and are enforceable as to the Company in accordance with their terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). The Subscription Agreements and the Registration Rights Agreement have been duly authorized by the Company and, when executed and delivered by the Company, will be the legal, valid and binding obligations of the Company enforceable against it in accordance with their respective terms (subject to applicable bankruptcy, insolvency and other laws affecting the enforceability of creditors' rights generally and to general equitable principles). No consent, authorization, approval, order, license, certificate or permit of or from, or registration, qualification, declaration or filing with, any federal, state, local, foreign or other governmental authority or any court or other tribunal is required by the Company for the execution, delivery or performance by the Company of the Operative Agreements or the consummation of the transactions contemplated by the Operative Agreements, except (A) the filing of a Notice of Sales of Securities on Form D pursuant to Regulation D and (B) such consents, authorizations, approvals, registrations and qualifications as may be required under securities o ...