-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LoWsdYAvKTWs95+X2C3CvwO4sjW8u6H/ouYHMLPScH440MmCuOgW3sPQjhYT3o8+ VTaFgQS0gb57zdVsk+Cy8w== 0001079974-03-000246.txt : 20030430 0001079974-03-000246.hdr.sgml : 20030430 20030430171920 ACCESSION NUMBER: 0001079974-03-000246 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HELIX BIOMEDIX INC CENTRAL INDEX KEY: 0000831749 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 912099117 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-20897 FILM NUMBER: 03674159 BUSINESS ADDRESS: STREET 1: 22122 20TH AVE SE CITY: BOTHELL STATE: WA ZIP: 98021 BUSINESS PHONE: 425 402 8400 MAIL ADDRESS: STREET 1: 22122 20TH AVE SE CITY: BOTHELL STATE: WA ZIP: 98021 FORMER COMPANY: FORMER CONFORMED NAME: CARIBBEAN ACQUISTIONS INC DATE OF NAME CHANGE: 19880725 FORMER COMPANY: FORMER CONFORMED NAME: CARTEL ACQUISITIONS INC DATE OF NAME CHANGE: 19890718 10KSB/A 1 helix10ksba2_4242003.txt AMENDMENT #2 TO FORM 10KSB =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A Amendment 2 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _____________. Commission File No. 33-20897-D HELIX BIOMEDIX, INC. Delaware 91-2099117 (State or other Jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 22122 20th Ave SE Bothell, Washington 98021 425-402-8400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No[ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Registrant's revenues for the fiscal year ending December 31, 2002: $70,000 As of March 31, 2003, there were 8,286,836 shares of common stock, $0.001 par value, of Helix BioMedix Inc. issued, and the aggregate market value of the common stock held by non-affiliates as of that date was approximately: $4,909,000. DOCUMENTS INCORPORATED BY REFERENCE: None Transitional Small Business Disclosure Format (Check One): Yes[ ] No[X] ================================================================================ HELIX BIOMEDIX, INC. FORM 10-KSB TABLE OF CONTENTS PART I..................................................................... 1 Item 1. Description of Business........................................ 1 Item 2. Description of Properties...................................... 5 Item 3. Legal Proceedings.............................................. 6 Item 4. Submission of Matters to a Vote of Security Holders............ 6 PART II.................................................................... 6 Item 5. Market for Common Equity and Related Stockholder Matters....... 6 Item 6. Management's Discussion and Analysis or Plan of Operation...... 8 Item 7. Financial Statements........................................... 14 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............................ 14 PART III................................................................... 14 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act...... 14 Item 10. Executive Compensation........................................ 15 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.................... 15 Item 12. Certain Relationships and Related Transactions................ 15 Item 13. Exhibits and Reports on Form 8-K.............................. 15 Item 14. Controls and Procedures....................................... 15 Item 15. Principal Accountant Fees and Services........................ 15 - i - Helix BioMedix, Inc. Form 10-KSB/A For the year ended December 31, 2002 Explanatory Comment The Form 10-KSB for Helix BioMedix, Inc. for the year ended December 31, 2002 is being amended to submit information for Part III of Form 10-KSB that was previously omitted pursuant to general instruction E(3) thereof, to add to Item 5 information concerning the warrants issued to the holders of the Company's convertible notes, and to correct several non-material typographical mistakes in Parts I and II. There are no other changes to its annual report on Form 10-KSB filed on April 15, 2003 (as amended by Amendment No. 1 filed April 18, 2003 to include certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 that were unintentionally omitted from the original filing), although the remaining items included therein have been restated here in their entirety for convenience of reference. PART I Item 1. Description of the Business The following discussion in this annual report on Form 10-KSB contains forward-looking statements regarding the Company, its business, prospects and results of operations that involve risks and uncertainties. The Company's actual results could differ materially from the results that may be anticipated by such forward-looking statements and discussed elsewhere herein. Forward-looking statements typically are identified by the use of such terms as "may," "will," "expect," "believe," "anticipate," "estimate," "plan," and similar words, although some forward-looking statements are expressed differently. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to revise any forward-looking statements in order to reflect on events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by the Company in this report and the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business, prospects and results of operations. In particular, readers are cautioned to review the Risk Factors set forth in Item 6 of this annual report on Form 10-KSB. Helix BioMedix, Inc. ("Helix" or the "Company"), a development stage company, is actively engaged in the research, development and commercialization of bioactive peptides (small proteins). For the fiscal year ended December 31, 2002 the Company had revenues of $70,000, and at the close of that period had incurred an operating deficit (since inception) of approximately $10,723,000. the Company, through a predecessor company, was originally incorporated in Colorado on February 2, 1988. On December 29, 2000, following approval by its shareholders, the Company merged with a wholly owned subsidiary that was incorporated in the State of Delaware (the "Merger"). As a result of the Merger, the Company adopted Delaware as its state of incorporation, adopted the subsidiary's certificate of incorporation and bylaws, and assumed the subsidiary's 2000 Stock Option Plan. In October 2001, the Company relocated its headquarters to Bothell, Washington. The Company's technology consists of a proprietary library of bioactive peptides that exhibit a broad range of activities, which the Company believes may be harnessed to develop products for various non-pharmaceutical applications including skin care products, biocides and commercial disinfectants, as well as pharmaceutical products to aid in wound healing and treating infectious diseases. These peptides are synthetic variations based on naturally occurring molecules present in many plants and animals, including humans, which fend off a variety of microbes, including bacteria, fungi, viruses and protozoa; they also facilitate the healing process. The peptides contained in the Company's intellectual property library may be referred to as "antimicrobial peptides of the innate immune system" or simply as "antimicrobial peptides". In earlier scientific journals and Company reports, the Company's peptides have been referenced as "lytic peptides" or "cytoporins". The antimicrobial peptides of the innate immune system are an important component of the host immune defense system of many species and provide a first line of defense against invading bacteria and other pathogens. The Company believes that its patent library encompasses a variety of structural classes of peptides and is supported by patent protection covering both composition of matter and relevant use claims. The Company believes that the bioactive compounds contained in the Company's library are very wide ranging, with antibacterial, antifungal, antiviral and antiparasitic properties. In addition, some aspects of the Company's peptides exhibit properties associated with wound healing, cell proliferation and anti-inflammatory processes. In the 1990's the Company's collaborative research with Therapeutic Peptides, Inc. ("TPI") led to the development of an entirely new structural class of peptides, collectively referred to by the Company as "third generation" peptides. In September 2001, the Company entered into a Licensing Agreement with TPI, whereby the Company granted TPI a non-exclusive license relating to three particular peptides and their use in topical, non-pharmaceutical skin care products. 2 In October 2001, the Company and the University of British Columbia ("UBC") reached agreement on terms for an exclusive license to the Company for the rights to several distinct classes of peptides. These various classes can be generally categorized as cecropin/melittin hybrids, bactenecins, polyphemusins and pleurocidin peptides derived from fish. A number of these peptides have demonstrated efficacy in animal models including the Pseudomonas aeruginosa lung infection model, an anti-endotoxic shock model and a fish protection model. These novel antimicrobial peptides were discovered through research conducted by R.E.W. Hancock, Ph.D., Professor, Department of Microbiology and Immunology, University of British Columbia, and Director, UBC Center for Microbial Diseases and Host Defense Research. Dr. Hancock is an internationally recognized authority on antimicrobial peptides and holds numerous patents describing their composition and use as novel antibacterial, antifungal and antiviral agents. Dr. Hancock became a consultant to the Company and a member of the Company's Scientific Advisory Board in June 2001. The UBC licensing agreement provides the Company with a diversity of peptides that further supports the development of proprietary molecules for a wide range of applications by expanding the potential number of lead peptide candidates. This acquisition of distinct structural classes of peptides has distinguished the Company from its competitors, some of whom are engaged in developing only a single class of peptide for a number of applications. The Company believes it is advantageous for future drug development to increase the diversity of its library of lead compounds. The Company believes that these new classes of synthetic, non-naturally-occurring, peptides offer promise as (i) anti-infective agents; (ii) wound healing compounds; and (iii) anti-cancer drugs. Company management believes that the Company has created a powerful platform technology based upon its extensive library of novel molecules and the acquisition of distinct structural classes of peptides as a result of the license with the University of British Columbia. The Company's technology is based on the discovery that its proprietary bioactive antimicrobial peptides appear to have the ability to kill, in-vitro, a broad spectrum of bacteria, protozoa, fungi, and viruses, which cause disease in animals and humans. In addition, some of these peptides have demonstrated the potential to promote wound healing, decrease inflammation and cause proliferation of white blood cells, which are essential to the maintenance of an effective immune system. Based upon preliminary testing, certain of the Company's peptides have been identified as having specific activity against a number of tumor cell lines. These peptides may have potential as chemotherapeutic agents in certain cancer therapies. The cost and complexity of bringing new drugs to market has led Company management to conclude that it is prudent to seek strategic alliances and licensing arrangements with larger, well-financed companies to bring the peptides through the clinical trials stage for certain applications such as wound healing, cystic fibrosis and sexually transmitted diseases. While the Company is pursuing the long-term introduction of prescription drugs through a program of strategic-partnering, it will also focus in-house efforts on the near-term introduction of proprietary products in the area of cosmetics, topical antiseptics and industrial disinfectants. All of these initiatives are in the development stage, and the Company currently has no products approved for commercial sale. In the event that the Company develops a pharmaceutical product candidate, it will be required to demonstrate safety and efficacy of that product candidate prior to receiving regulatory approval for the product's sale to the public. This regulatory process is difficult, time-consuming and expensive, and its results are uncertain. There can be no assurance that the Company will ever develop such a product for commercial sale or ever become profitable. Development Programs The Company has a number of ongoing development programs an overview of which is described below. 3 Wound Healing The aim of this program is to develop a peptide targeted at increasing the speed of wound healing and reducing scarring. A lead peptide has been identified which has demonstrated significant efficacy in pre-clinical studies, conducted at the VA Hospital San Diego by Professor Richard Gallo M.D. The peptide has no observable systemic toxicity and is entering non-GLP pig efficacy studies in a gel formulation in Q2 2003. This peptide will be targeted as a treatment for both acute and chronic wounds. Cystic Fibrosis The aim of this program is to develop a peptide therapeutic for the cystic fibrosis (CF) lung capable of improving lung function by reducing bacterial bioburden. Two of the Company's peptides initially demonstrated a proof of concept in the rat chronic lung infection model. Following a screening program of over 200 antimicrobial peptides from the Company's library five lead candidates were identified and assayed in pre-clinical testing. A lead peptide has now been identified which significantly reduces lung bioburden when administered by nebulizer and has activity against multi-drug-resistant pathogens of the CF lung. This peptide is now undergoing extended in vivo efficacy and toxicity profiling. Topical Antimicrobial The aim of this program is to develop a peptide as a broad-spectrum topical antimicrobial capable of preventing and treating skin and wound infections. A lead peptide has been identified from an in-house screening program with broad-spectrum activity including activity against multi-resistant organisms. This lead peptide is now entering pre-clinical testing. Sexually-transmitted disease (STD) / vaginitis Certain peptides in the Company's peptide library have demonstrated broad-spectrum activity against bacteria and yeast associated with sexually-transmitted disease and vaginitis. The lead therapeutic peptide candidates in gel formulation have demonstrated rapid killing of gram-positive and gram-negative bacterial pathogens as well as fungal pathogens including antimicrobial resistant strains. Once selected the lead peptide will undergo in vivo testing. HIV microbicide A number of the Company's peptides have demonstrated activity against cells acutely infected with HIV as well as those chronically infected with the virus. Researchers have previously demonstrated such effects with peptides of the innate immune system. However, the reduced length and cost effective production of the Company's peptides provides the first opportunity for a realistic topical therapy. Once lead and backup peptides have been identified and characterized, the feasibility of animal studies will be investigated. Anti-acne In addition to broad-spectrum antimicrobial peptides (described above) the Company has also identified certain peptides with more specific activity against Propionibacterium acnes, one of the biological factors involved in the pathogenesis of acne. The lead peptide in gel formulation is now in studies to determine its acceptability and efficacy as an anti-acne product. The Company currently has five peptides that can be synthesized using cost effective solution phase subunit synthesis with activity against P. acnes. The developmental course for such an application could be cosmetic, over-the-counter (OTC) or prescription. Anti-wrinkle The Company has identified a number of peptides capable of stimulating the proliferation of fibroblasts. Further testing has demonstrated that this attribute can provide significant benefit in relation to prevention and elimination of wrinkles. This property is currently being optimized to produce a peptide capable of reducing the effects of aging at a cost that would permit inclusion in non-prescription skin care products. 4 Other advances Cost of goods is an important issue in both consumer and pharmaceutical product development. During 2002 the Company made significant progress in reducing the cost of its lead peptides by (1) minimizing peptide length, (2) optimizing activity and (3) selecting peptides consisting of specific repeat units able to be assembled into full-length peptides at a fraction of the cost of standard synthesis. Business development During 2002, the Company presented its peptide technology to a wide range of potential licensees in certain consumer and pharmaceutical areas. Development licenses were signed with two such companies. In addition, the Company has provided six other companies with research quantities of specific peptides for internal assessment. The Company's Patent Estate Through its early sponsorship of research at Louisiana State University ("LSU"), as well as its prosecution and defense of patent applications, the Company obtained outright assignment of peptide patents and patent applications derived from collaborative research between the Company and LSU. These patents and patent applications have relatively early priority dates (i.e., 1987-1989) with little prior art cited. The patents include broad composition and use claims. The status of each of these patents and patent applications is as follows: Five (5) U.S. patents have issued. Twenty-two (22) foreign patents have issued, a Canadian application is pending, and a divisional application is pending in five European countries. In addition, the Company's License Agreement with the University of British Columbia ("UBC") allows the Company the use of the following patents: Antimicrobial cationic peptide derivates of Bactenecin (US Patent 6,172,185) Anti-endotoxic, cationic antimicrobial peptides and methods of use thereof (US Patent 6,288,212 B1) Antimicrobial peptides and methods of use thereof (US Patent 6,337,317) Additional Canadian, European and Australian divisional applications are pending with respect to the UBC intellectual property. Starting in 2001, the Company began efforts to protect the intellectual property regarding the "third generation" peptides developed as a collaborative effort between TPI and the Company. Two (2) U.S. patent applications and one (1) Patent Cooperation Treaty (PCT) international patent application are currently pending. From inception to the close of fiscal year 2002, the Company has invested approximately $644,000 to protect its patent estate. Competition The Company has continued its efforts to establish a strong patent position with respect to the proprietary compositions and use of its multiple structural classes of antimicrobial peptides. There is increasing interest in the biopharmaceutical industry in examining the potential for using such peptides as therapeutic drug agents. To the best of the Company's knowledge, there are five other North American biotechnology companies actively working in the field of biopharmaceutical peptide research. Some of these competitors have substantial financial resources available to them, and are pursuing product commercialization via clinical trials, strategic partnerships and other mechanisms to further develop the potential for commercialization of antimicrobial peptides. Although the Company believes the early priority dates on its patents and patent applications represent a competitive advantage, the Company has little or no control over how successful competitors may be in potential litigation affecting the Company's patent estate. However, the Company believes its experience in the field complements its patent estate and represents an asset that the Company will utilize in its attempts to commercialize the peptides. The Company further believes that the activity of certain competitors is helping to accelerate the advance of this basic technology to the commercial stage. 5 The Company's key competitive advantages include the following: 1. An extensive and diverse peptide library which generates enhanced prospects for matching the optimal peptide with each therapeutic target. 2. The Company has the ability to access both pharmaceutical and non-pharmaceutical markets providing a greater opportunity for success. 3. The Company's peptides are more cost effective to manufacture due to their shorter sequence as compared to the peptides of some other companies. 4. Many of the inventors of our core intellectual property work at the Company, i.e.: Robert Hancock, Ph.D., Timothy Falla, Ph.D., and Lijuan Zhang, Ph.D. The Company also has recognized experts with substantial pharmaceutical industry experience serving on its Scientific Advisory Board, including Robin Cooper, Ph.D., William Baker, Ph.D., and Arnold Smith, M.D. Research and Development Investment The Company's direct investment in research and development of its peptide technology has aggregated approximately $3,866,000 from inception (November 7, 1988) to December 31, 2002. Approximately $644,000 has been capitalized as legal costs incurred in patent prosecution. Other capitalized R & D and licensing costs include (i) $200,000 capitalized as a cost paid by promissory note to the Company's International Corporation to acquire the antimicrobial technology at the Company's inception; (ii) $25,000 paid in the form of 10,000 shares of common stock as partial consideration for antimicrobial technology developed for the Company by TPI prior to entering of the Cooperative Endeavor Agreement in November 1995; and (iii) approximately $61,000 for a license fee representing reimbursement to the University of British Columbia of all outstanding and future costs incurred to the date of the execution of this Agreement in applying for, registering and maintaining the patents in connection with the technology. The balance of $2,936,000 has been expensed as R & D operating expenses as the Company incurred them. Research and development expenses in 2002 and 2001 approximated $546,000 and $444,000, respectively. The Company's total investment in R & D and other operating and interest expenses to develop its peptide technology has aggregated $10,723,000 from the Company's inception through December 31, 2002. Regulatory Concerns The Company's business plan embraces the concepts of (i) long-term strategic partnering for developing pharmaceutical products; and (ii) introduction of near-term proprietary non-drug products (e.g., topical antiseptics, cosmetics, industrial disinfectants and biocides) to niche markets that do not require an extensive regulatory approval process. The time and expense of bringing prescription drugs through the FDA regulatory approval process is a factor that has influenced the Company's decision to seek well-financed strategic partners. For this reason, the Company anticipates developing, for near-term market introduction, certain non-drug products. Such products are subject to less stringent regulatory approval processes than those imposed for prescription pharmaceuticals. Employees As of December 31, 2002, the Company had seven full-time employees and one part-time employee. 6 Other Information The Company has not incurred any substantial costs to comply with environmental laws or regulations as it is not subject to significant laws or regulations at the federal, state or local level. Item 2. Description of Properties The Company's principal place of business and corporate office is in Bothell, Washington. The corporate office was relocated in October 2001 from New Orleans, Louisiana to the new location to allow the Company to incorporate in-house scientific testing and peptide synthesis essential to support its development of commercial and pharmaceutical applications. The address and telephone number for the Company office are: Helix BioMedix, Inc. Corporate Office 22122 20th Ave SE Bothell, WA 98021 Tel: (425) 402-8400 Fax: (425) 806-2999 The corporate headquarters includes a total of approximately 3,000 square feet of which half is used for administrative purposes and the remainder represents a laboratory. The Company entered into a four-year lease of the premises at a base monthly rent of $3,463. The Company's laboratories have been designed to support a central role in both clinical and non-clinical applications. State of the art peptide synthesis, analysis and purification allow the Company to provide peptides for in-house programs, research collaborations and potential licensee's evaluation in all fields of application. The biology laboratory has been equipped as a clinical microbiology facility with necessary equipment to isolate, grow and test clinical isolates and multidrug resistant pathogens. The Company also utilizes the services and facilities of third-party contract research organizations. Item 3. Legal Proceedings The Company is currently not involved in any litigation or other legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders On December 16, 2002 at a duly called Annual Meeting of the Stockholders of the Company, two matters were submitted to a stockholder vote. Specifically, stockholders of the Company voted on (i) the election of two Class II directors to serve until the Annual Meeting of Stockholders to be held in 2005, and until their successors are elected and qualified and (ii) an amendment of the Company's Certificate of Incorporation to increase the number of authorized Preferred Shares from 2,000,000 to 25,000,000 and to increase the number of authorized Common Shares from 25,000,000 to 100,000,000. The nominees for director at that meeting were: Jeffrey A. Miller , Ph.D. Daniel O. Wilds Of a total of 5,144,696 shares of common stock issued and outstanding as of the record date, October 23, 2002, 2,731,831 shares or 53% were voted in favor of the election of Dr. Miller and 2,740,671 shares or 53% were voted in favor of the election of Mr. Wilds. Continuing directors are: R. Stephen Beatty, Dr. Randall L.-W. Caudill, George A. Murray and Carlyn J. Steiner, J.D. The Company appointed officers of the Delaware corporation as follows: 7 President: R. Stephen Beatty Chief Executive Officer: R. Stephen Beatty Executive Vice President: Parker A. Sroufe Vice President: Timothy J. Falla, Ph.D. Treasurer: Kerry D. Palmer Secretary: Kerry D. Palmer Chief Financial Officer: Kerry D. Palmer Of a total of 5,162,696 shares of common stock issued and outstanding as of the record date, October 23, 2002, 2,725,701 shares or 53% were voted in favor of the amendment of the Certificate of Incorporation to increase the number of authorized Preferred and Common Shares. PART II Item 5. Market for Common Equity and Related Stockholder Matters MARKET INFORMATION Shares of the Company's common stock are traded on the Over-the-Counter Bulletin Board (the "OTCBB"). During fiscal year 2001 and 2002, public trading transactions in the Company's common stock (as reported on the OTCBB) have fluctuated at low/high price ranges and average daily market volumes shown below. The low/high quotations described reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 ------- ------- ------- ------- ------- ------- ------- ------- Low $1.31 $0.90 $0.68 $0.58 $0.60 $0.63 $0.43 $0.40 High $2.19 $1.34 $1.25 $1.10 $0.95 $0.99 $0.80 $0.90 Volume 2,292 6,552 4.775 6,659 5,307 1,691 6,011 4,249
Holders of Common Stock As of December 31, 2002, there were approximately 650 stockholders of record with respect to the Company's common stock. The Company estimates an additional 800 individuals hold Company common stock in "street name" in brokerage accounts. Dividends Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors. No dividends have been paid with respect to the common stock since the Company's inception, and no dividends are anticipated to be paid in the foreseeable future. Recent Sales of Unregistered Securities In September 2002, the Company began a private placement offering of common stock pursuant to approval at it August, 2002 Board meeting in accordance with Regulation D under Section 4(2) of the Securities Act of 1933 (the "Securities Act") at a per share price of $1.00. The offering included detachable stock purchase warrants equal to 60% of the common stock investments. The exercise price of the warrants equals $1.00 per share. As of December 31, 2002, the Company raised $1.56 million from the offering. 8 The proceeds from the private placement offering are being used to finance operations. Management continued raising funds under the private placement through March 31, 2003. As of March 31, 2003, the total amount raised in the private placement offering approximated $3.6 million. Management believes this amount will be sufficient to finance operations through at least December 31,2003. In June 2001, the Company commenced the sale of six percent unsecured promissory notes pursuant to approval at its April 18, 2001 board meeting. The promissory notes, which were originally due May 31, 2002, contained warrants to purchase common shares initially equivalent to 25% of the principal amount of the notes, at an exercise price of the lower of $1.50 per share or the price in the next equity offering, with such warrants having a term of ten years. As of December 31, 2001, the Company raised proceeds of $1,980,000 and had recorded $216,100 in paid in capital from the issuance of 495,000 common stock purchase warrants, which is considered a debt discount. The effective interest rate on the outstanding promissory notes, when compared to the valuation of the common stock purchase warrant incentives and debt issue cost was 16.9% for the year ended December 31, 2001. At a meeting in March 2002, the Board amended the terms of the existing debt offering as follow: (a) the offering size was increased from $2.77 million to $3.5 million; (b) the maturity date of the notes was extended to December 31, 2002; (c) the notes were amended to require conversion into shares of common stock in the event of an equity financing in a single or series of related transactions of at least $1.5 million on or before December 31, 2002, and (d) the warrant coverage was increased to 35% of the principal amount, subject to an increase to 40% if the principal was not paid or converted by August 31, 2002 and a further increase to 45% if the principal was not paid or converted by December 31, 2002. Purchasers prior to the date of the offering changes were given an opportunity to accept the revised terms or to reject them and obtain a refund of their purchase plus accrued interest. Refunds for approximately $55,000 were subsequently made. During the year ended December 31, 2002, the Company raised an additional $1,157,500 from the convertible debt offering. As noted above, the Company raised $1.56 million in an equity financing as of December 31, 2002. Accordingly, the convertible notes, totaling $3,082,500, together with the related accrued interest of $231,180 were converted into 3.314 million shares of common stock, at a per share price of $1.00, on December 31, 2002. Most of the shares from the 2002 equity financing through December 31, 2002, 1.55 million and the 3.314 million shares from the debt conversion were not issued until after year-end. Accordingly, the combined total, or approximately 4.86 million shares, are considered to be outstanding, but unissued at December 31, 2002 for accounting purposes. Item 6. Management's Discussion and Analysis or Plan of Operation Risk Factors This section briefly discusses certain risks that should be considered by existing and prospective investors. Investors should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10-KSB. If any of the following risks actually occur, the Company's financial condition or operating results could be harmed. In such case, investors may lose part or all of their investment. The Company has a history of net losses. The Company expects to continue to incur net losses and may not achieve or maintain profitability. The Company's limited operating history may make it difficult to evaluate its business and an investment in its common stock. The Company is a development stage Company, in a pre-clinical stage of research, and has a limited operating history upon which an investor may evaluate operations and future prospects. The Company has incurred a cumulative operating loss of approximately $10.7 million from inception (November 7, 1988) through December 31, 2002. The Company expects to make substantial expenditures to further develop and commercialize its product candidates and expects that its rate of spending will accelerate as the result of the increased costs and expenses associated with expanded in-house research and development of its lead candidates, potential clinical trials, regulatory approvals and commercialization of its antimicrobial peptide technologies. In the long-term, the Company will endeavor to identify lead compounds demonstrating the appearance of promise for commercially viable products. Development of these products will require extensive in-vitro and in-vivo testing. This testing, as well as the extension of existing pre-clinical testing, will require the establishment of strategic partnerships with third parties. In the near-term, the Company expects revenues to be derived from the non-pharmaceutical license of proprietary compounds for development in applications not requiring FDA approval, such as cosmetics and commercial disinfectants. However, the Company's revenue and profit potential is unproven and its limited operating history makes future operating results difficult to predict. Consequently, an investment in the Company's common stock must be considered in light of the risks and uncertainties that may be encountered by a development stage biotechnology Company, including the need for substantial capital to support the development of its products and technologies and its ability to manage growth. 9 The Company will need to enter strategic alliances with third parties to develop, test and produce commercially viable products from its antimicrobial peptide technologies. A key element of the Company's strategy is to enhance development programs and fund capital requirements, in part, by entering into collaborative agreements with major pharmaceutical companies and other biotechnology companies. The Company also plans to explore collaborations with non-pharmaceutical companies and opportunities for incorporating the Company's antimicrobial peptides into non-clinical applications such as cosmetics and biosides. The Company has only recently begun to seek these strategic business alliances. Although the development of such alliances is one of the Company's objectives, there can be no assurance that the Company will succeed in attracting substantial collaborative partners who can materially assist in the development and commercialization of the Company's technology. The development of commercially viable products from the Company's technology will likely require the technical collaboration and financial assistance of other, significantly larger third parties, to bear most of the costs of pre-clinical and clinical testing and regulatory approval prior to commercial sale. Even if the Company is successful in attracting collaborative partners and those collaborations yield commercially viable products, the Company's receipt of revenues will be substantially dependent upon the decisions made by and the manufacturing and marketing resources of these strategic business partners. Further, there can be no assurance that the Company's interests will coincide with those of any future collaborative partner, that such a partner will not develop, independently or with third parties, products that could compete with those products contemplated by any agreement the Company may have with that partner, or that disagreements over rights, technology or other proprietary interests will not occur. The failure to develop strategic business alliances that facilitate the development, testing and commercialization of the Company's products will have a material adverse effect on its business, operating results and financial condition. The Company may continue to need significant amounts of additional capital, which may not be available on favorable terms. The Company may need to raise significant amounts of additional capital. The Company's future capital requirements will be substantial and will depend on many factors, including the pace of its research and development efforts, its ability to identify pharmaceutical and non-pharmaceutical applications for its antimicrobial peptide compounds, its ability to enter into collaboration agreements and receive government grants (if any), the amount and timing of payments under such agreements and grants, the level and timing of its research and development expenditures, and other factors. If the Company is unable to raise sufficient additional capital it will have to curtail or cease operations. Because of the specialized nature of the Company's business, the termination of relationships with key management and scientific personnel or the inability to recruit and retain additional personnel could prevent the Company from developing its technologies, conducting clinical trials and obtaining financing. The Company is highly dependent upon several key individuals, including R. Stephen Beatty, the Company's Chief Executive Officer, Dr. Timothy Falla, its Chief Scientific Officer, and Dr. Robert E.W. Hancock, a consultant to the Company and an international authority on antimicrobial peptides and their development for commercial application, all of whom have played a critical role in the Company's research and development programs, raising financing and conducting initial trials of its antimicrobial technologies. Additionally, the Company employs several scientific personnel with significant and unique experience in the antimicrobial peptide field, some of whom may not be replaceable. The loss of the services of these key members of management or scientific personnel may prevent the Company from achieving its business objectives. 10 The competition for qualified personnel in the biotechnology field is intense, and the Company relies heavily on its ability to attract and retain qualified scientific, technical and managerial personnel. The Company's future success depends upon its ability to attract, retain and motivate highly skilled employees. In order to commercialize its products successfully, the Company will be required to expand its workforce, possibly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel. The Company faces intense competition for qualified individuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other research institutions. To the extent the Company is unable to attract and retain these individuals on favorable terms, its business may be adversely affected. The Company is at an early stage of product development and does not yet have commercially marketable products to provide revenues. Although the Company has been developing the antimicrobial peptide technology since 1987, it remains a development stage Company and to date has generated no material revenue from product sales. The Company's strategic plan contemplates the development of both pharmaceutical and non-pharmaceutical products and applications for its proprietary compounds. However, there can be no assurance that products will be commercialized in either field as a result of continued development programs or from joint efforts with any future collaborative partner. The failure to develop safe, commercially viable pharmaceutical or non-pharmaceutical applications for the Company's technology will have a material adverse effect on the Company's business, operating results and financial condition. Clinical trials for the Company's product candidates, and those for its partners and licensees, are expensive and time consuming and their outcome is uncertain. Before the Company can obtain regulatory approval for the commercial sale of any pharmaceutical product that it may wish to develop, it will be required to complete preclinical development and extensive clinical trials in humans to demonstrate the safety and efficacy of the product. Each of these trials requires the investment of substantial expense and time. However, success in pre-clinical and early clinical trials will not ensure that large-scale trials will be successful and does not predict final results. Acceptable results in early trials may not be repeated in later trials. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause it to be restructured or terminated. In addition, failure to construct appropriate clinical trial protocols could result in the test or control group experiencing a disproportionate number of adverse events and could cause a clinical trial to be repeated or terminated. The Company or its partners and licensees may choose to, or may be required to, suspend, repeat or terminate any initiated clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed. Clinical trials must be conducted in accordance with the FDA's guidelines and are subject to oversight by the FDA and institutional review boards at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced under the FDA's Good Manufacturing Practices, and may require large numbers of test patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. The FDA may suspend clinical trials at any time if it finds deficiencies in the conduct of these trials or it believes that these trials expose patients to unacceptable health risks. 11 The Company will rely on collaborators to assist in the research and development activities necessary for the commercialization of its product candidates. If the Company's collaborators do not perform as expected, the Company may not be able to commercialize its product candidates. The Company intends to continue to develop alliances with third-party collaborators to develop and market its current and future product candidates. The Company may not be able to attract third-party collaborators to develop and market product candidates and may lack the capital and resources necessary to develop its product candidates alone. If the Company is unable to locate collaborators, or if its collaborators do not prioritize and commit substantial resources to programs associated with the Company's product candidates, the Company may be unable to commercialize its product candidates, which would limit its ability to generate revenue and become profitable. The Company faces substantial competition in its product development efforts from pharmaceutical and biotechnology companies, universities and other not-for-profit institutions. The Company faces significant competition in its attempts to develop applications of its antimicrobial peptide technology from entities that have substantially greater research and product development capabilities and financial, scientific, marketing and human resources. These entities include pharmaceutical and biotechnology companies, as well as universities and not-for-profit institutions. The Company expects that competition in development of products analogous to its antimicrobial peptide technology to intensify. The Company's competitors may succeed in developing products earlier than it does, entering into successful collaborations before the Company, obtaining approvals from the U.S. Food and Drug Administration or other regulatory agencies for such products before the Company, or developing products that are more effective than those the Company develops or proposes to develop. The success of any one competitor in these or other manners will have a material adverse effect on the Company's business, operating results and financial condition. The Company may encounter difficulties in managing its growth. The Company may enter a period of rapid growth that may place a significant strain on its human and capital resources. The Company's ability to conduct research and development activities effectively may require it to continue to expend funds to improve its operational, financial and management controls, reporting systems and procedures. If the Company is unable to successfully implement improvements to its management information and control systems in an efficient and timely manner, or if the Company encounters deficiencies in existing systems and controls, management may not have adequate information to manage the Company's day-to-day operations. Issued patents may not fully protect the Company's discoveries, and the Company's competitors may be able to commercialize products similar to those covered by its issued patents. Issued patents may not provide commercially meaningful protection against competitors. Other companies or entities may challenge the Company's or any prospective collaborators' patents or independently develop products that could result in an interference proceeding in the Patent and Trademark Office or a legal action. In the event any single researcher or institution infringes upon the Company's or a prospective collaborators' patent rights, enforcing these rights may be difficult and can be time-consuming. Others may be able to design around these patents or develop unique products providing effects similar to the Company's products. In addition, others may discover uses for the Company's antimicrobial peptide technology, and these other uses may be separately patentable. Even if the Company has a patent claim on a particular antimicrobial peptide technology, the holder of a patent covering the use of that technology could exclude the Company from selling a product that is based on the same use of that technology. In addition, with respect to certain of the Company's patentable inventions, the Company may decide not to pursue patent protection outside the United States, both because management does not believe it is cost effective and because of confidentiality concerns. Accordingly, the Company's international competitors could develop and receive foreign patent protection for antimicrobial peptide technologies for which the Company has or is seeking U.S. patent protection. Failure of any of the Company's issued patents to provide meaningful protection against competition, or success by a competitor in the manner described, will have a material adverse effect on the Company's business, operating results and financial condition. 12 The Company's rights to the use of technologies to be licensed from third parties are not within its control. The Company may need to rely, in part, on licenses to use certain technologies and materials, which are important to its business. The Company will not own the patents that underlie these licenses and there can be no assurance that the Company can obtain all the licenses necessary for its business. The Company's rights to use these technologies and practice the inventions claimed in the licensed patents are subject to the Company's licensors abiding by the terms of those licenses and not terminating them. In many cases, the Company will not control the prosecution or filing of the patents to which it may hold licenses. The Company will rely upon its licensors to prevent infringement of those patents. Certain of the licenses under which the Company may obtain rights will provide it with exclusive rights in specified fields, but there can be no assurance that the scope of these rights under these and other licenses will not be subject to dispute by its future licensors or third parties. Failure of its enjoyment of any necessary licenses will have a material adverse effect on the Company's business, operating results and financial condition. The Company faces product liability risks and may not be able to obtain adequate insurance to protect against losses. The Company currently has no products that are available for commercial sale. However, the current use of any of the Company's product candidates in clinical trials and the sale of any approved products in the future may expose the Company to liability claims. These claims might be made directly by consumers and healthcare providers or indirectly by pharmaceutical companies, the Company's corporate collaborators or others selling such products. The Company may experience financial losses in the future due to product liability claims. The Company intends to expand its insurance coverage to include the sale of commercial products if marketing approval is obtained for product candidates in development. However, the Company may be unable able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect against losses. If a successful product liability claim or a series of claims is brought against the Company for uninsured liabilities or in excess of insured liabilities, Company assets may be insufficient to cover such claims and the Company's business operations could be impaired. The current legal and accounting regulatory burden is likely to increase. The current regulatory and political environment, in part a response to the recent accounting scandals, has and will continue to increase the amount and degree of legal and accounting rule-making. New laws and accounting rules issued by a variety of authoritative bodies, coupled with frequent changes to existing rules, may serve to restrict the growth of profitability and increase the cost of compliance. Plan of Operation In March, 2003, the Company completed its private placement of common stock that began during 2002. Through December 31, 2002, the Company sold 1.56 million shares at a per share price of $1.00. The offering included detachable warrants equal to 60% of the equity investment. Subsequently through March 31, 2003, the Company sold approximately 2.1 million additional shares at the same $1.00 per share price. Management believes that it has sufficient funds to satisfy its cash requirements through at least December 31, 2003. To the extent the Company is successful in completing its business development efforts and consummating license transactions, the proceeds from any such revenues will delay the point at which the Company will need to obtain new financing. 13 The Company's major research and development efforts planned for 2003 include the following: o Human acceptability and efficacy testing of the Company's skin care product candidates. o Pre-clinical evaluation of wound healing peptide. o Pre-clinical evaluation of topical antibiotic peptide. o Pre-clinical evaluation of cystic fibrosis lung antibiotic peptide. o Pre-clinical evaluation of topical sexually transmitted disease antibiotic peptide. o Selection of a lead peptide as a topical HIV microbicide. The Company's present plan for 2003 does not include the purchase or sale of any significant fixed assets. Management does not expect a significant increase in the number of employees in 2003, although the percentage increase may be substantial given the low current headcount. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company is still a development stage company which means that it has not yet achieved a significant amount of revenue. Given the nature of the Company's business and the stage of its development, it is difficult to determine with reasonable certainty when it will achieve significant revenue and reach the end of its development state. The Company intends to initiate third party testing of some of its peptides in 2003. It is unlikely that its business development efforts will materially progress until after some of this outside testing is completed with satisfactory results. It is possible that the results of early outside tests will be unsatisfactory in which case the Company will need to conduct additional internal and external research, further extending the Company's development stage. With little revenue, the Company's external sources of liquidity are limited. While management does not anticipate the need for additional funding in 2003, circumstances could change. The Company's ability to raise additional financing may be limited if the difficult biotech financing market continues or deteriorates further. Revenue The Company recognized revenue of $70,000 during 2002 while no revenue was earned in 2001. The revenue sources were described in the Company's Form 8-K filings during the fourth quarter of 2002. Management does not anticipate significant increases in revenues until certain outside testing of its peptides are satisfactorily completed and license agreements are negotiated. Research and development operating expenses Research and development expenses approximated $546,000 during the year ended December 31, 2002 compared to approximately $444,000 in the prior year, representing an increase of 23%. The increase primarily resulted from incurring a full year of salaries and benefits for scientific staff compared to a partial year in 2001 as the Company did not establish its own research facilities staffed by its own employees until the last several months in 2001. Management anticipates that research and development expenses will increase significantly during 2003, due primarily to expected increases in outside testing, consulting expenses and higher peptide synthesis costs required to achieve the research and development objectives noted above, under "Plan of Operation". These increases result from the Company's evolution toward converting its peptide technology into commercially-viable products. Depreciation and amortization operating expenses 14 Depreciation and amortization expenses totaled $115,000 in 2002 compared to $52,000 in 2001. The increase approximates $63,000 or 121%. The increase is due to higher depreciation charges 2002 as a result of the establishment of the Company's office and laboratory facilities in October 2001. The Company does not expect any significant changes in depreciation and amortization in 2003, except for higher depreciation charges resulting from the acquisition of a mass spectrometer for approximately $225,000 in late 2002. No significant fixed asset expenditures are anticipated for 2003. Accounting, legal and professional operating expenses Accounting, legal and professional operating expenses totaled $190,000 during 2002 compared to $227,000 in 2001, resulting in a decrease of approximately $37,000 or 16%. The decrease is primarily due to the volume of professional services required during 2001 as a result of the Company's reorganization as a Delaware corporation and relocation to Washington from Louisiana. Management expects that accounting, legal and professional fees will increase in 2003 substantially due to higher expenses for patent prosecution, and contract negotiation assistance. Consulting fees operating expenses Consulting fees operating expenses approximated $536,000 in 2002 compared to $557,000 in the prior year, resulting in a decrease of $21,000, or 4%. Consulting fees include estimated fair values ascribed to warrants issued by the Company to key strategic consultants, using the Black Scholes model and payments to a former president of the Company for assistance with international patent issues and to business development consultants. Consulting fees are expected to increase in 2003 primarily due to a higher planned use of business development consultants for specific industries in addition to the commencement of monthly cash payments to key strategic partners. Other general and administrative operating expenses Other general and administrative operating expenses totaled $1,149,000 in 2002 compared to $605,000 during 2001. The increase approximated $544,000 or 90%. The increase was largely due to higher expenses for salaries and wages, insurance and rent attributable to a full year of such expenses in 2002 compared to 2001 when several employees were hired and the office and laboratory facility in Bothell Washington was opened in the later half of the year. The Company does not expect other general and administrative expenses to increase significantly in 2003. Interest expense Interest expense for 2002 totaled approximately $704,000 compared to $198,000 in 2001. The increase of $506,000 primarily resulted from the decision by the Company's Board in March 2002 to amend the terms of the private placement of promissory notes that commenced in June of 2001 to provide for an automatic conversion into shares of common stock in the event of an equity financing in a single or series of related transactions of at least $1.5 million on or before December 31, 2002 and additional warrants. This resulted in the recognition of the fair value of additional warrants which were treated as a debt discount and amortized to interest expense in 2002. At the current stage of the Company's operations, there are no seasonal aspects that materially affect its financial condition or results of operations. 15 Item 7. Financial Statements Please see Pages F-1 through F-19. The following Financial Statements are filed as part of this report: Page ---- Independent Auditors' Report................................................ F-1 Report of Prior Independent Auditors........................................ F-2 Balance Sheets as of December 31, 2002 and 2001............................. F-3 Statement of Operations for the years ended December 31, 2002 and December 31, 2001 and for the period from inception (November 7, 1988) to December 31, 2002................................ F-4 Statement of Stockholders, Equity (Deficit) for the period from inception (November 7, 1988) to December 31, 2002................................ F-5 Statement of Cash Flows for the years ended December 31, 2002 and December 31, 2001 and for the period from inception (November 7, 1988) to December 31, 2002................................ F-8 Notes to Financial Statements............................................... F-9 All schedules have been omitted, as the required information is inapplicable or the information is presented in the financial statements or the notes thereto. Independent Auditors' Report The Board of Directors and Stockholders Helix BioMedix, Inc.: We have audited the accompanying balance sheet of Helix BioMedix, Inc. (a development stage company) as of December 31, 2002, and the related statements of operations, stockholders' equity (deficit), and cash flows for the year then ended and for the period from November 7, 1998 (inception) to December 31, 2002. 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 audit. The cumulative statements of operations, stockholders' equity (deficit), and cash flows for the period November 7, 1988 (inception) to December 31, 2002 include amounts for the period from November 7, 1988 (inception) to December 31, 1988 and for each of the years in the thirteen-year period ending December 31, 2001, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period November 7, 1988 through December 31, 2001 is based solely on the report of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Helix BioMedix, Inc. (a development stage company) as of December 31, 2002, and the results of its operations and its cash flows for the year ended December 31, 2002 and for the period November 7, 1988 (inception) to December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/KPMG LLP - ----------- KPMG LLP Seattle, WA April 11, 2003 F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Helix BioMedix, Inc. Bothell, Washington We have audited the accompanying balance sheet of Helix BioMedix, Inc. (a development stage company) as of December 31, 2001, and the related statements of operations, cash flows, and changes in stockholders' equity (deficit) for the year ended December 31, 2001, and for the period from inception (November 7, 1988) to December 31, 2001. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance that 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 Helix BioMedix, Inc. as of December 31, 2001, and the results of its operations, cash flows, and changes in its stockholders' equity (deficit) for the year ended December 31, 2001 and for the period from inception (November 7, 1988) to December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Denver, Colorado February 1, 2002 /S/COMISKEY & COMPANY ----------------------- PROFESSIONAL CORPORATION F-2 Helix BioMedix, Inc. (a development stage company) Balance Sheets December 31, 2002 and 2001
December 31, ---------------------------- 2002 2001 ----------- ----------- ASSETS CURRENT ASSETS Cash $ 1,031,345 $ 401,045 Accounts receivable 20,000 - Prepaid expenses and other current assets 47,822 28,989 ----------- ----------- Total current assets 1,099,167 430,034 PROPERTY AND EQUIPMENT Machinery and equipment 439,246 186,008 Furniture and fixtures 11,874 10,627 Leasehold improvements 28,216 27,324 ----------- ----------- 479,336 223,959 Less: accumulated depreciation (59,087) (9,828) ----------- ----------- 420,249 214,131 OTHER ASSETS Deposits and long-term prepaids 30,085 29,830 Antimicrobial technology (net) 73,462 87,500 Licensing agreement (net) 57,796 61,391 Patents pending and approved (net) 499,266 516,844 ----------- ----------- 660,609 695,565 ----------- ----------- Total assets $ 2,180,025 $ 1,339,730 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable - related party $ - $ 4,500 Other accounts payable 37,308 - Accrued interest payable - 45,196 Other accrued expenses 334,861 13,390 Notes payable - related parties - 163,154 Notes payable (net of unamortized discount and - 1,849,593 issue costs of $130,407 in 2001) ----------- ----------- Total current liabilities 372,169 2,075,833 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, $0.001 par value, 25,000,000 shares authorized ; no shares issued or outstanding - - Common stock, $0.001 par value, 100,000,000 shares authorized; 10,036,376 shares outstanding at December 31, 2002; 5,144,696 shares issued and outstanding at December 31, 2001. 10,037 5,145 Additional paid-in capital 12,655,386 6,819,415 Less stock subscriptions receivable (135,000) - Deficit accumulated during the development stage (10,722,567) (7,560,663) ----------- ----------- 1,807,856 (736,103) ----------- ----------- Total liabilities and stockholders' equity (deficit) $ 2,180,025 $ 1,339,730 ----------- -----------
The accompanying notes are an integral part of the financial statements. F-3 Helix BioMedix, Inc. (a development stage company) Statements of Operations For the Years ended December 31, 2002 and 2001 and For the Period from Inception ( November 7, 1988) to December 31, 2002
Inception (November 7, 1988) For the year ended to December December 31, 31, 2002 2002 2001 ------------- ------------ ------------ REVENUE $ 89,500 $ 70,000 $ - OPERATING EXPENSES Research and development 2,936,408 546,115 443,744 Depreciation and amortization 359,718 115,105 52,351 Accounting, legal and professional 1,303,399 189,750 227,426 Consulting fees 2,413,729 535,635 557,261 Other general and administrative costs 2,473,489 1,148,807 605,340 ------------- ------------ ------------ TOTAL OPERATING EXPENSES 9,486,743 2,535,412 1,886,122 LOSS FROM OPERATIONS (9,397,243) (2,465,412) (1,886,122) OTHER (INCOME) EXPENSE Gain on settlement of lawsuit (48,574) - - Interest expense 1,459,442 703,669 198,468 Interest income (85,544) (7,177) (5,783) ------------- ------------ ------------ 1,325,324 696,492 192,685 ------------- ------------ ------------ NET LOSS $ (10,722,567) $ (3,161,904) $ (2,078,807) ============= ============ ============ BASIC NET LOSS PER SHARE $ (5.50) $ (0.61) $ (0.41) ============= ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 1,949,898 5,146,998 5,047,477 ============= ============ ============
The accompanying notes are an integral part of the financial statements. F-4 Helix BioMedix, Inc. (a development stage company) Statement of Stockholder's Equity (Deficit) For the years ended December 31, 2002 and 2001 and For the period from inception (November 7, 1988) to December 31, 2002
Common Stock Stock- ---------------------- Additional Deferred Stock holders' Number Paid-in Compensation Subscription Accumulated Equity of Shares Amount Capital Costs Receivable Deficit (Deficit) ---------- --------- ----------- ---------- ------------ ----------- ---------- Initial capitalization on November 7, 1988 1,000,000 $ 66,486 $ - $ - $ - $ - $ 66,486 Restated for recapitalization of the private company (370,000) - - - - - - Reverse acquisition of Helix BioMedix, Inc by Cartel Acquisitions, Inc., on March 20, 1989 151,262 855,292 - - - - 855,292 Isssuance of stock for current or prior services: Period Per Share Amount -------------- ---------------- December 1992 $2.50 5,600 14,000 - - - - 14,000 May 1993 $5.00 8,000 40,000 - - - - 40,000 December 1993 $2.50 9,490 23,724 - - - - 23,724 March 1998 $1.00 4,900 4,900 - - - - 4,900 December 1998 $1.00 3,100 3,100 - - - - 3,100 September 1999 $0.70 40,000 28,000 - - - - 28,000 September 1999 $1.25 73,215 91,519 - - - - 91,519 ---------- --------- ----------- ---------- ------------ ----------- ---------- 144,305 205,243 - - - - 205,243 Issuance of stock for settlement of debt or accounts payable: Period Per Share Amount -------------- ---------------- May 1993 $5.00 4,000 20,000 - - - - 20,000 September 1993 $2.50 184,000 460,000 - - - - 460,000 April 1995 $2.50 41,732 104,331 - - - - 104,331 April 1995 $2.41 80,000 192,943 - - - - 192,943 September 1995 $2.50 14,731 36,828 - - - - 36,828 December 1997 $1.00 110,976 110,976 - - - - 110,976 December 1997 $2.50 and $1.00 326,785 780,025 - - - - 780,025 March 1998 $1.00 3,100 3,100 - - - - 3,100 June 1998 $1.00 1,395 1,395 - - - - 1,395 September 1998 $1.00 2,500 2,500 - - - - 2,500 September 1999 $1.25 2,000 2,500 - - - - 2,500 ---------- --------- ----------- ---------- ------------ ----------- ---------- 771,219 1,714,598 - - - - 1,714,598 Fractional shares issued in connection with 1 for 500 reverse split 29 - - - - - - Issuance of stock for cash: Period Per Share Amount ------------- ---------------- March and December 1994 $2.50 16,000 40,000 - - - - 40,000 April 1995 $2.50 4,800 12,000 - - - - 12,000 March 1998 $1.00 10,000 10,000 - - - - 10,000 ---------- --------- ----------- ---------- ------------ ----------- ---------- 30,800 62,000 - - - - 62,000 Issuance of common stock as consideration in cooperative endeavor agreement, in November 1995 10,000 25,000 - - - - 25,000 Issuance of stock options in 1995 137,400 - - - 137,400 Issuance of stock for cash in private placement, during July - Sept 1999, at $0.70 per share, net of offering costs of $107,195 2,890,643 1,916,255 - - - - 1,916,255 Escrow of stock for consulting agreement, in September 1999, at $0.70 per share - 42,000 - (42,000) - - - Compensation and deferred compensation recorded for options granted, in December 1999 - - 50,875 (44,000) - - 6,875 Deferred compensation for stock awards in December 1999 - 87,225 - (87,225) - - -
The accompanying notes are an integral part of the financial statements. F-5 Helix BioMedix, Inc. (a development stage company) Statement of Stockholder's Equity (Deficit) For the years ended December 31, 2002 and 2001 and For the period from inception (November 7, 1988) to December 31, 2002
Common Stock Stock- ----------------------- Additional Deferred Stock holders' Number Paid-in Compensation Subscription Accumulated Equity of Shares Amount Capital Costs Receivable Deficit (Deficit) ---------- ---------- ----------- ---------- ---------- ----------- ------------ Stock and options issued for services in January 2000 1,250 3,125 4,500 - - - 7,625 Amortization of deferred compensation costs 21,000 - - 21,000 Retirement of shares issued in December 1999 (250) (313) - - - - (313) Shares issued and options vested in connection with employment agreements, March 2000 267,445 700,000 - 41,306 - - 741,306 Director shares and options issued: Period Per Share Amount 36586 4.05 7,747 18,399 12,976 - - - 31,375 36678 3.17 8,750 16,953 10,828 - - - 27,781 36770 4.61 8,750 24,063 16,297 - - - 40,360 ---------- ---------- ----------- ---------- ---------- ----------- ------------ 25,247 59,415 40,101 - - - 99,516 Revaluation of deferred compensation and options vested in connection with employment agreement in June 2000. - (27,919) 33,784 16,396 - - 22,261 Options vested in connection with employment agreements, shares issued for suspension of exercise date, in September 2000. 41,000 2,313 85,000 51,012 - - 138,325 Options issued in connection with two Consulting agreements, in October 2000 - - 100,000 (75,000) - - 25,000 Director shares and options issued in September 2000, at $2.36 per share 8,659 13,259 7,197 - - - 20,456 Options vested in connection with employment agreements, and shares issued for services, in September 2000. 4,987 8,104 4,613 43,511 - - 56,228 Compensation adjustment to variable plan options in December 2000 - - (83,828) - - - (83,828) Exercise of options at $1.00 per share 45,000 112,500 (67,500) - - - 45,000 Exercise of options at $0.50 per share 600 1,500 (1,200) - - - 300 Adjustment to par value stock for Delaware re-incorporation - (5,841,061) 5,841,061 - - - - Net loss for the period from inception on November 7, 1988 to December 31, 2000 - - - - - (5,481,856) (5,481,856) ---------- ---------- ----------- ---------- ---------- ----------- ------------ Balance at December 31, 2000 5,022,196 5,022 6,152,003 (75,000) - (5,481,856) 600,169 Amortization of deferred compensation - - - 75,000 - - 75,000 Issuance of stock for services, in October 25,000 25 49,975 - - - 50,000 2001, at $2.00 per share Issuance of stock for licensing arrangement, October 2001, at $0.75 per share 97,500 98 73,027 - - - 73,125 Compensation adjustment for options and warrants in 2001 - - 328,310 - - - 328,310 Value of detachable warrants issued with convertible notes payable - - 216,100 - - - 216,100 Net loss for the year ended December 31, 2001 - - - - - (2,078,807) (2,078,807)
The accompanying notes are an integral part of the financial statements. F-6 Helix BioMedix, Inc. (a development stage company) Statement of Stockholder's Equity (Deficit) For the years ended December 31, 2002 and 2001 and For the period from inception (November 7, 1988) to December 31, 2002
Common Stock Deferred Stock- ----------------------- Additional Compen- Stock holders' Number Paid-in sation Subscription Accumulated Equity of Shares Amount Capital Costs Receivable Deficit (Deficit) ---------- ---------- ---------- -------- ---------- ------------ ---------- Balance at December 31, 2001 5,144,696 5,145 6,819,415 - - (7,560,663) (736,103) Issuance of common stock for services rendered, at $0.80 per share, on November 21, 2002 18,000 18 14,382 - - - 14,400 Conversion of convertible notes payable into equity, at $1.00 per share Principal 3,082,500 3,083 3,079,417 - - - 3,082,500 Accrued interest 231,180 231 230,949 231,180 3,313,680 3,314 3,310,366 - - - 3,313,680 Private placement of common stock (with common stock warrants equal to 60%), at $1.00 per share, September to December 2002. 1,560,000 1,560 1,558,440 - (135,000) - 1,425,000 Compensation adjustments for warrants in 2002 - - 440,331 - - - 440,331 Value of detachable warrants issued with convertible notes payable - - 512,452 - - - 512,452 Net loss for the year - - - - - (3,161,904) (3,161,904) ---------- ---------- ----------- -------- ---------- ------------ ---------- Balance at December 31, 2002 10,036,376 $ 10,037 $12,655,386 $ - $ (135,000) $(10,722,567) $ 1,807,856 ===================================================================================
The accompanying notes are an integral part of the financial statements. F-7 Helix BioMedix, Inc. (a development stage company) Statements of Cash Flows For the Period from Inception ( November 7, 1988) to December 31, 2002
Inception For the year ended to December 31, December 31, ----------------- 2002 2002 2001 ---------------------------------------------- Cash Flows from Operating Activities Net loss $ (10,722,567) $ (3,161,904 $(2,078,807) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 359,898 115,105 51,795 Amortization of debt discount to interest expense 728,552 642,859 85,693 Stock-based compensation costs 2,550,250 454,732 526,435 Interest expense converted to common stock 231,180 185,984 -- Research and development 53,000 -- -- (Increase) decrease in operating assets: Accounts receivable (20,000) (20,000) Prepaid expenses (41,812) (12,833) (22,128) Other assets (97,476) (6,255) (91,221) Increase (decrease) in operating liabilities: Accounts payable - related party 341,602 (4,500) -- Other accounts payable 39,642 37,308 2,334 Payroll taxes payable 1,675 (11,715) 13,065 Accrued interest payable -- -- -- Other accrued expenses 108,727 108,727 45,196 ----------- ---------- ----------- Net cash used for operating activities (6,467,329) (1,672,492) (1,467,638) Cash Flows from Investing Activities Investment in Helix Delaware (10) -- -- Purchase of property and equipment (254,878) (30,919) (221,975) Increase in capitalized patents (464,753) (30,635) (53,617) ----------- ---------- ----------- Net cash used for investing activities (719,641) (61,554) (275,592) ----------- ---------- ----------- Cash Flows from Financing Activities Cash received in reverse acquisition 634,497 -- -- Notes payable 3,089,894 1,102,500 1,980,000 Notes payable - related party 379,579 -- (326,308) Payment of notes payable - related party (163,154) (163,154) Issuance of stock for cash 3,444,680 1,425,000 -- Issuance of debt subsequently converted to stock 832,819 -- -- ----------- ---------- ----------- Net cash provided by financing activities 8,218,315 2,364,346 1,653,692 Net increase (decrease) in cash 1,031,345 630,300 (89,538) Cash at beginning of period -- 401,045 490,583 ----------- ---------- ----------- Cash at end of period $ 1,031,345 $ 1,031,345 $ 401,045 =========== =-========== ============ Supplemental Cash Flow Information Stock issued to acquire patents $ 66,486 $ -- $ -- Debt issued to acquire technology $ 200,000 $ -- $ -- Bridge loans outstanding at acquisition $ 200,000 $ -- $ -- Patent costs included in accounts payable $ 99,859 $ -- $ -- Accounts payable converted to notes $ 704,559 $ -- $ Accrued interest converted to notes $ 403,453 $ -- $ -- Notes converted to equity $ 4,722,048 $ 3,082,500 $ -- Accrued interest converted to equity $ 231,180 $ 231,180 $ -- Detachable warrants issued with notes payable $ 728,552 $ 512,452 $ 216,100 Issuance of stock for services provided $ 14,400 $ 14,400 $ -- Purchase of property included in accrued expenses $ 224,458 $ 224,458 $ -- Stock subscription receivable $ 135,000 $ 135,000 $ -- Cash paid for interest $ 105,430 $ 13,052 $ 22,842 Cash paid for taxes $ -- $ -- $ --
The accompanying notes are an integral part of the financial statements. F-8 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 Note 1. Summary of Significant Accounting Policies Description of Company Helix BioMedix, Inc. was originally formed under the laws of the state of Colorado on February 2, 1988 under the name Cartel Acquisitions, Inc. to create a corporate vehicle to seek and acquire a business opportunity. On March 20, 1989, the Company acquired 100% of the outstanding shares of Helix BioMedix, Inc., a Louisiana corporation ("BioMedix of Louisiana"), in exchange for 151,262 shares of the Company's common stock. The Company acquired its shares from Helix International Corporation ("Helix"). BioMedix of Louisiana was incorporated on November 7, 1988 as a separate corporate company from Helix International, Inc., to develop therapeutic biopharmaceuticals for animal and human health care. On November 1, 2000, the Company incorporated a wholly owned subsidiary, Helix BioMedix, Inc. in the state of Delaware ("Helix-Delaware"), for the purpose of merging the Company into Helix-Delaware, with Helix-Delaware as the surviving corporation. This merger is reflected in the accompanying financial statements with an effective date of December 29, 2000. Unless otherwise noted, all references herein to ("the Company") refer to Helix BioMedix, Inc., the Delaware corporation. Development Stage Activities Since 1988, the Company has been engaged in conducting research in the field of antimicrobial peptides, both internally and in conjunction with research and development arrangements with various academic and commercial organizations. During this period, the Company acquired the ownership and rights to various peptide patents and related technology. The Company is developing diverse commercial (non-FDA) and clinical (FDA) applications for its library of peptides. Prior to September 1999, the Company's research and development activities were constrained by patent related uncertainties and by limited working capital, with most of its financing during that time being advanced by the majority shareholder. In September 1999, the Company raised $2 million in an equity private placement through the sale of approximately 2.9 million common shares and stock purchase warrants. Shortly thereafter, the Company entered into various employment and consulting agreements, and a restructuring of the Board of Directors occurred. The Company granted various compensatory options and share issuances to employees and consultants during the fourth quarter of 1999 and the year 2000. During 2001, the Company raised approximately $2.0 million in a private placement of debt and detachable common stock warrants. The Company relocated its corporate headquarters from Louisiana to Bothell, Washington, leasing both office and lab facilities in the new location. The Company also hired research and administrative personnel, assembled a Scientific Advisory Board and entered into a license agreement with the University of British Columbia. During 2002, the Company amended the private placement of debt; among other changes, the notes were amended to require automatic conversion into shares of common stock in the event of an equity financing of at least $1.5 million by December 31, 2002. The Company raised an additional $1.1 million of notes payable with detachable warrants under the private placement through the first half of 2002. Beginning in September 2002, the Company began a private placement of common stock, with detachable warrants equal to 60% of the common stock investments, raising a total of $1.56 million by year end. This amount included $135,000 of stock subscriptions receivable. The convertible notes and accrued interest, totaling $3,313,680 were converted into 3,313,680 shares of common stock at a per share price of $1.00 on December 31, 2002. Subsequent to year-end, the Company raised an additional $2.1 million from the equity financing through March 31.2003. During 2002, the Company continued to conduct research into its peptides, both internally in the lab facilities opened in the prior year and externally through the services of consultants. The Company also hired new officers to round out its management team and began business development activities. The Company believes it is now positioned to implement a business plan providing for both near-term and long-term product introductions. This plan contemplates revenues from licensing and strategic alliances. Due to the fact that the Company's research and development activities are still in process, there has been no significant revenue. Accordingly, the Company is still in the development stage as defined in Statement of Financial Accounting Standards No. 7. F-9 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 Management believes that substantial progress was made during the year ended December 31, 2002 to provide sufficient cash resources to finance operations for 2003. Coupled with the progress made with respect to the Company's peptide technology and initial business development efforts, as well as continuing fund raising activities, management believes it will succeed in improving the Company's cash resources beyond 2003. However, if the Company does not begin generating revenue in 2003 or early 2004, it will be required to raise additional funds to finance operations in 2004. Intangibles Patent costs, consisting primarily of legal fees are capitalized. Amortization is taken on the straight-line method over the life of the patent(s), commencing upon the issuance of the patents, not to exceed 17 or 20 years, depending on the date the patent was issued, or the date the application was filed. Antimicrobial technology, which was purchased in conjunction with the patents, has been capitalized at the basis of the debt issued for it. This technology is being amortized ratably over twenty years. Revenue Recognition License fee revenue with no continuing involvement by the Company is recognized upon the effective date of the license. Research and Development Research and development costs are expensed as incurred. Depreciation Cost of equipment used in operations is recorded and is depreciated using the straight-line method over useful lives of 5 to 7 years. Impairment of long-lived assets Long-lived assets including property and equipment are reviewed for possible impairment whenever significant events or changes in circumstances, including changes in our business strategy and plans, indicate that an impairment may have occurred. An impairment is indicated when the sum of the expected future undiscounted net cash flows identifiable to that asset or asset group is less than its carrying value. Impairment losses are determined from actual or estimated fair values, which are based on market values, net realizable values or projections of discounted net cash flows, as appropriate. Effective January 1, 2002, the Company adopted SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 excludes goodwill from its impairment scope, allows different approaches in cash flow estimation, and extends discontinued operations treatment, previously applied only to operating segments, to more discrete business components. The impairment model under SFAS No. 144 is otherwise largely unchanged from SFAS No. 121, and adoption of this standard did not have a material effect on the Company's financial statements. No impairment of long-lived assets has been recognized in the accompanying financial statements. Concentrations of Credit Risk From time-to-time, the Company maintains cash balances in excess of FDIC insured limits. The amount of such excess at December 31, 2002 was approximately $1.0 million. Cash Equivalents The Company considers all highly liquid debt instruments with an original maturity at date of purchase of three months or less to be cash equivalents. F-10 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 Loss per Share Loss per share has been computed using the weighted average number of shares outstanding during the period. Diluted per share amounts reflect potential dilution from the exercise or conversion of securities into common stock or from other contracts to issue common stock. The Company's capital structure includes common stock options and common stock warrants, all of which have been excluded from net loss per share calculations as they are antidilutive, as follows: December 31, ------------------------------------- 2002 2001 -------------- ----------------- Outstanding options 1,133,000 836,893 -------------- ----------------- Outstanding warrants 6,636,929 4,135,643 -------------- ----------------- Use of Estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Income Taxes Deferred income taxes are provided based on the estimated future tax effects of carryforwards and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those carryforwards and temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Primary temporary differences relate to net operating loss carryforwards and R & D credit carryforwards, which are subject to a full valuation allowance. Fair Value of Financial Instruments The fair value of all reported assets and liabilities representing financial instruments (none of which are held for trading purposes) approximate the carrying values of such instruments. Stock-based Compensation The Company applies ABP Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in measuring compensation costs for its employee stock option plan. The Company discloses proforma net loss and net loss per share as if compensation cost had been determined consistent with Statement of Financial Accounting Standard (SFAS) No. 123, Accounting or Stock-Based Compensation. Stock options and warrants issued to non-employees are accounted for using the fair value method prescribed by SFAS 123 and Emerging Issues Task Force (EITF) Issue No. 96-18. Had the Company determined compensation cost based on the fair value of stock options on the grant date under SFAS No. 123, "Accounting for Stock Based Compensation," our net loss and net loss per share would have been the pro forma amounts indicated below:
Year ended December 31 ----------------------------- 2002 2001 ------------- --------------- Net loss As reported $ 3,161,904 $ 2,078,807 Add: Stock-based employee compensation expense included in reported net loss - - Deduct: Stock-based employee compensation determined under fair value based method for all awards (248,600) (300,450) ------------- --------------- Pro forma net loss $ 3,410,504 $ 2,379,257 ------------- --------------- Net loss per share As reported $ 0.61 $ 0.41 ------------- --------------- Pro forma net loss $ 0.66 $ 0.47 ------------- ---------------
F-11 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 The per share weighted-average fair value of stock options granted during 2002 and 2001 was $ 0.30 , and $0.58 respectively, on the grant date using the Black-Scholes option pricing model with the following assumptions:
Year ended December 31 ---------------------------- 2002 2001 ----------- -- ------------- Expected dividend yield 0% 0% Risk-free interest rate 4.65% 6.07 Expected volatility 110% 127% Expected life in years 3.0 2.2
Reclassifications Certain 2001 balances have been reclassified to conform with classifications adopted in 2002. Such reclassifications had no effect on the Company's financial condition or results of operations. Recently Issued Accounting Pronouncements In November 2002, the Financial Accounting Standards Board Emerging Issues Task Force issued its consensus concerning Revenue Arrangements with Multiple Deliverables ("EITF 00-21"). EITF 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables should be divided into separate units of accounting, and, if separation is appropriate, how the arrangement consideration should be measured and allocated to the identified accounting units. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not anticipate that adoption of EITF 00-21 will have a material impact on its financial statements. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 is not expected to have a material effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the Company's financial statements. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation is not expected to have a material effect on the Company's financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. F-12 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 Note 2. Notes Payable
December 31, ------------------------- 2002 2001 ---------- -------------- 6% unsecured notes payable, initially maturing on May 31, 2002 $ - $1980,000 8% note payable to shareholder, maturing September 2002 - $163,154 ----------- --------------- Total notes payable $ - $2,143,154 =========== Less discount 130,407 --------------- Notes payable $2,012,747 ===============
In June 2001, the Company commenced the sale of six percent unsecured promissory notes pursuant to approval at its April 18, 2001 board meeting. The promissory notes, which were originally due May 31, 2002, contained warrants to purchase common shares initially equivalent to 25% of the principal amount of the notes divided by $1.50 per share, at an exercise price of the lower of either (a) $1.50 per share, or (b) the per share price of the next equity offering with such warrants having a term of ten years. As of December 31, 2001 the Company raised proceeds of $1,980,000 and had recorded $216,100 in paid in capital from the issuance of related common stock purchase warrants, which is considered a debt discount. The effective interest rate on the outstanding promissory notes, when compared to the valuation of the common stock purchase warrant incentives and debt issue cost was 16.9% for the year ended December 31, 2001. At a meeting in March 2002, the Board amended the terms of the existing debt offering as follow: (a) the offering size was increased from $2.77 million to $3.5 million; (b) the maturity date of the notes was extended to December 31, 2002; (c) the notes were amended to require conversion into shares of common stock in the event of an equity financing in a single or series of related transactions of at least $1.5 million on or before December 31, 2002; and (d) the warrant coverage was increased to 35% of the principal amount, subject to an increase to 40% if the principal was not paid or converted by August 31, 2002 and a further increase to 45% if the principal was not paid or converted by December 31, 2002. Purchasers prior to the date of the offering changes were given an opportunity to accept the revised terms or to reject them and obtain a refund of their purchase plus accrued interest. Refunds for approximately $55,000 were subsequently made. During the year ended December 31, 2002, the Company raised an additional $1,157,500 from the convertible debt offering. As noted below, the Company also raised $1.56 million in an equity financing as of December 31, 2002. Accordingly, the convertible notes, totaling $3,082,500, together with the related accrued interest of $231,180 were converted into 3,313,680 shares of common stock, at a per share price of $1.00, on December 31, 2002. The number of warrants from the convertible debt financing totals 1,233,000 shares, equaling 40% of the total principal balance of $3,082,500. The warrants were originally valued based on the $1.50 strike price and were revalued at the time of conversion based on the final strike price of $1.00. The total value of the warrants during 2002 resulted in additional debt discount of approximately $512,000. The total amortization of debt discount to interest expense during 2002 totaled $643,000. The effective interest rate on the outstanding promissory notes, when compared to the valuation of the common stock purchase warrant incentives and debt issue cost was 24.4% for the year ended December 31, 2002. In September 2002, the Company began a private placement offering of common stock pursuant to approval at it August, 2002 Board meeting in accordance with Regulation D under Section 4(2) of the Securities Act of 1933 (the "Securities Act") at a per share price of $1.00. The offering included detachable stock purchase warrants equal to 60% of the common stock investments. The exercise price of the warrants equals $1.00 per share. As of December 31, 2002, the Company raised $1.56 million from the offering. The 3,313,680 shares from the debt conversion plus 1,545,000 of the shares to be issued in the 2002 equity private placement (See Note 3) were not issued until after December 31, 2002. Accordingly, the combined total, or 4,858,680 shares, are considered to be outstanding, but unissued at December 31, 2002 for accounting purposes. F-13 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 The shareholder note for $163,154 was secured by a first security interest in technology and intellectual property rights or other assets of the Company in the event of default. Interest was payable quarterly. The total note and related accrued interest were paid in 2002. Note 3. Identifiable Intangible Assets Identifiable intangible assets consist of the following as of December 31:
December 31, ------------------------------ 2002 2001 ---------- -------------- Antimicrobial technology 225,000 225,000 Licensing agreements 61,391 61,391 Patents pending and approved 644,110 613,476 ---------- -------------- 930,501 899,867 Less accumulated amortization (299,977) (234,132) ---------- -------------- Identifiable intangible assets, net 630,524 665,735 ---------- --------------
Scheduled amortization charges from identifiable assets as of December 31, 2002 are as follows:
Antimicrobial Licensing Patents pending Year technology Agreements and approved ------------- ------------------ ------------ ---------------- 2003 11,109 3,595 49,545 2004 11,109 3,595 49,545 2005 11,109 3,595 49,545 2006 11,109 3,595 49,545 Thereafter 29,026 43,416 301,086
Note 4. Stockholders' Equity On December 29, 2000, the Company was re-incorporated in the State of Delaware. The Articles of Incorporation increased the number of authorized shares of stock to 27,000,000, $0.001 par value. Of these, 25,000,000 shares are designated as Common Stock and 2,000,000 are designated as Preferred Stock. On December 16,2002, the Company's shareholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized Preferred Shares from 2,000,000 to 25,000,000 and to increase the number of authorized Common Shares from 25,000,000 to 100,000,000. Preferred Stock The Board of Directors may authorize the issuance of preferred stock from time to time in one or more series and each series shall have such voting, redemption, liquidation and dividend rights as the board may deem advisable. As of December 31, 2002, no preferred series shares had been designated by the Board. Stock Split On December 29, 1993, the Company underwent a 1 for 500 reverse stock split. All share and per share amounts in these financial statements have been retroactively restated to reflect this reverse split. Options On December 15, 2000, the shareholders of the Company approved the Helix BioMedix 2000 Stock Option Plan ("the 2000 Plan"). A total of 5,400,000 of the Company's authorized and unissued common shares are reserved for issuance under the 2000 Plan. The 2000 Plan is to be administered by non-employee directors, who shall be authorized to grant stock options to the Company's employees, consultants and/or directors. These options may be either Incentive Stock Options as defined and governed by Section 422 of the Internal Revenue Code, or Nonqualified Stock Options. The 2000 Plan specifically provides the Company with an option to repurchase, upon termination of an optionee's employment, up to ten thousand shares acquired by the optionee through the exercise of options granted thereunder at its then-current fair market value. As of December 31, 2002, no shares had been exercised under the 2000 Plan and 4,267,000 shares remain available for grant. During 2002, the Company amended the 2000 Plan as follows: F-14 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 a. The role of a committee appointed by the Board to administer the plan was clarified; b. Specific authority was granted to the Chief Executive Officer to determine stock option grants for employees, other than non-executive officers, subject to certain conditions. c. The vesting rights in the event of a change of control were specified for employees and Executive Officers. d. Extended the stock option expiration period in certain cases for up to three years. e. Increased the vesting period for future option grants generally from two to three years. A summary of activity for options for the years ended December 31, 2002 and 2001 is as follows:
Options Outstanding --------------------------------------- Number Weighted Avg. of Shares Exercise Price ------------------ ----------------- Balance at December 31, 2000 336,193 $ 1.16 Granted 660,700 $ 1.50 Exercised Canceled (160,000) $ 0.70 ------------------ ----------------- Balance at December 31, 2001 836,893 $ 1.31 Granted 350,000 $ 1.00 Exercised - - Canceled (53,893) $ 0.70 ------------------ ----------------- Balance at December 31, 2002 1,133,000 $ 1.29 ================== =================
Options Options Outstanding Exercisable ------------------------------------------------------------ --------------------------- Weighted Weighted Weighted Average Average Average Range of Number Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price ---------------- -------------- --------------- ------------ -------------- ------------ $ 0.70 165,500 4.4 $0.70 165,500 $ 0.70 $ 1.00 350,000 9.6 $1.00 - $ - $ 1.50 602,500 8.6 $1.50 540,000 $ 1.50 $ 2.50 15,000 0 $2.50 15,000 $ 2.50
Common Stock Purchase Warrants Information concerning outstanding common stock purchase warrants is set forth below:
December 31 2002 2001 ------------------------------------- -------------------------------------- Number Price range Wghtd. Number Price range Wghtd. Avg. Avg. ------------ -------------- --------- ------------ ---------------- -------- Warrants issued for services 1,577,286 $1.00 - $6.00 $1.45 750,000 $1.50 - $6.00 $2.10 Warrants issued in connection with 1999 equity financing 2,890,643 $3.25 $3.25 2,890,643 $3.25 $3.25 Warrants issued in connection with 2001 convertible debt financing 1,233,000 $1.00 $1.00 495,000 $1.50 $1.50 Warrants issued in connection with 2002 equity financing 936,000 $1.00 $1.00 - ------------ ------------ Total outstanding warrants 6,639,929 4,135,643 ------------ ------------
F-15 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 Stock Offering During 1999, the Company issued 2,890,643 shares of common stock in a private placement for $1,916,255, net of offering costs of $107,195. The shares were sold in units, each unit consisting of 150,000 common shares and 150,000 warrants. Each warrant entitles the holder to purchase one common share at an exercise price of $3.25 per share. For a period of three years, the warrants were callable at the option of the Company at a premium equal to the greater of market price less $3.25 or a price of $0.75 for the first year, $1.75 for the second year, and $2.75 for the third year. No warrants were called during the three year period. Deferred Compensation Costs During the year ended December 31, 1999, the Board of Directors approved and ratified certain consulting agreements and employment contracts. These agreements called for the issuance of stock and the granting of options, at various intervals during the year 2000. The Company recorded deferred compensation costs of $173,225 that were charged to operations, $21,000 in 1999 and $152,225 in 2000. Other agreements signed during 2000 resulted in an amount of $75,000 recorded as deferred compensation as of December 31, 2000 that was charged to operations during 2001. Stockholders' Equity and Comprehensive Income SFAS No. 130 requires companies to present comprehensive income (consisting primarily of net income items plus other direct equity changes and credits) and its components as part of the basic financial statements. The Company's financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income. Note 5. Income Taxes No income tax benefit was recognized for the Company's net losses in 2002 and 2001 The following are the components of the Company's deferred tax assets and liabilities: 2002 2001 ----------- ----------- Net operating loss carryforwards $ 3,190,000 $ 2,204,000 Research and development credits 162,000 162,000 Gross deferred tax assets 3,352,000 2,366,000 Valuation allowance (3,352,000) (2,366,000) Total deferred tax assets $ - $ - Total deferred tax liabilities $ - $ - The Company has federal net operating loss carryforwards totaling approximately $9.2 million, which expire between 2003 and 2022. The Company also has approximately $162,000 in Federal Credits for Increasing Research Activities available to offset future taxable income and related tax. The Company's ability to utilize the carryforwards may be limited in the event of an ownership change as defined in current income tax regulations. Note 6. Related Party Transactions During 2002, the Company paid $163,154 in payment of a note payable to a shareholder, the former president of the Company as more fully described in Footnote 2. On December 29, 2000, the Company entered into an agreement by which the Company, at its option, may have acquired up to 250,000 of its common shares from the shareholder at $2.00 per share through February 28, 2001 ("first option"), up to 75,000 shares at $2.75 per share through June 30, 2001 ("second option"), and up to 75,000 shares at $3.25 per share through June 30, 2001 ("third option"). Exercise of the first option would have extended the due dates of $326,308 in debt maturing in September 2001 and 2002 by one year from the original date. As of December 31, 2002, these options had not been exercised and the $326,308 of debt had been repaid. Interest paid to this shareholder approximated $13,000 and $23,000 during 2002 and 2001, respectively. F-16 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 A consulting firm substantially owned by a spouse of one of the Company's Board members serves as a key strategic consultant to the company. Another key strategic consulting firm is owned by another Board member. The companies owned by these individuals received warrants totaling 150,000 shares during 2002 and 400,000 in 2001 with exercise prices of $1.00 and $1.50, respectively. Note 7. Long Term Leases The Company leases office and lab space under non-cancelable operating lease expiring in August 2005. Future minimum lease payments required by the lease over the next three years are as follows: 2003 43,990 2004 37,774 2005 21,555 Rent expense for the years ended December 31, 2002 and 2001 approximated $83,750 and $ 72,725, respectively. Note 8. License Agreement Effective October 1, 2001, the Company entered into an exclusive, twenty year world-wide license agreement with the University of British Columbia ("UBC") for the manufacture, distribution, marketing, and sale of sublicensed products derived or developed from certain antimicrobial peptides owned by UBC and contained within the license agreement. As called for by the license agreement, the Company has issued to UBC or its assigns, 97,500 shares of the Company's common stock, options to purchase an additional 152,500 common shares at $1.50, and $61,391 in cash ($97,863 CDN), such cash payment constituting reimbursement of UBC for expenses related to the licensed patents. The agreement also requires the Company to reimburse UBC for all further costs incurred with respect to the patents, including maintenance fees. Minimum annual royalties under the agreement, ranging from $10,000 to $25,000 annually, begin in 2006. Note 9. Restatement of Quarterly Information (Unaudited) During the fourth quarter of 2002, the Company recorded the following non-cash adjustments, which resulted in the restatement of previously reported quarterly information for 2002 to properly account for the convertible notes and warrants issued to non-employees under EITF 96-18: 1. To increase stock compensation for warrants granted to non-employees for services rendered to the company $143,747 2. To decrease interest expense related to convertible notes payable for adjustments to debt discount ($7,358) F-17 Helix BioMedix, Inc. (a development stage company) NOTES TO FINANCIAL STATEMENTS For the Period From Inception (November 7, 1988) to December 31, 2002 The effect of the adjustments on the 2002 quarters is as follows: Q1 Q2 Q3 ----------- ----------- ----------- Income Statement: Research and Development As reported $ 28,425 $ 143,509 $ 115,286 As adjusted $ 28,425 $ 123,231 $ 115,286 Consulting fees As reported $ 15,000 $ 33,196 $ 73,362 As adjusted $ 137,500 $ 33,196 $ 114,887 Other general and administrative As reported $ 313,284 $ 397,776 $ 344,865 As adjusted $ 313,284 $ 256,803 $ 344,865 Interest expense As reported $ 91,606 $ 128,912 $ 108,716 As adjusted $ 146,377 $ 143,530 $ 172,942 Net loss: As reported $ (514,015) $ (777,986) $ (701,102) As adjusted $ (691,286) $ (631,353) $ (806,853) Net loss per share: As reported $ (0.10) $ (0.15) $ (0.14) As adjusted $ (0.13) $ (0.12) $ (0.16) Balance Sheet: Notes payable, net As reported $ 2,634,694 $ 2,957,230 $ 3,016,065 As adjusted $ 2,705,665 $ 2,765,406 $ 3,080,291 Additional paid-in capital As reported $ 6,909,415 $ 7,072,987 $ 7,213,470 As adjusted $ 7,015,715 $ 7,118,178 $ 7,254,995 Deficit accumulated during the development stage As reported $(8,074,678) $(8,852,665) $(9,553,767) As adjusted $(8,251,949) $(8,706,032) $(9,659,518) The adjustments had no effect in any quarter on operating, investing or financing cash flows. F-18 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On November 27, 2002, the Company filed a Form 8-K to report the change in its independent accountants from Comiskey & Co. to KPMG LLP. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act Directors: The Company's Bylaws provide for no fewer than three and no more than twelve directors, as determined from time to time by the Board. The Company's Board currently consists of seven members, divided into three classes with terms expiring at the annual meeting of shareholders as follows: Class I (Two positions with terms expiring in 2004): Name: RANDALL L-W. CAUDILL, Ph.D. Age: 55 Position: Director Tenure as Officer or Director: December 11, 2001 to present (and Corporate Consultant from October 27, 2000 to present) Name: CARLYN J. STEINER, J.D. Age: 57 Position: Director Tenure as Officer or Director: December 29, 2000 to present. Class II (Three positions with terms expiring in 2005): Name: JOHN C. FIDDES Age: 57 Position: Director Tenure as Officer or Director: March 10, 2003 to present Name: JEFFREY A. MILLER, Ph.D. Age: 54 Position: Director (and Corporate Consultant) Tenure as Officer or Director: May 12, 1999 to present as Director (and Corporate Consultant until May, 2001) Name: DANIEL O. WILDS Age: 57 Position: Director Tenure as Officer or Director: December 16, 2002 to present. Class III (Two positions with terms expiring in 2003): Name: R. STEPHEN BEATTY Age: 53 Position: President & CEO, Director Tenure as Officer or Director: May 28, 1999 to September 30, 1999 as Director (and Consultant); October 1, 1999 to present, as President & CEO and Director 19 Name: GEORGE A. MURRAY Age: 72 Position: Director Tenure as Officer or Director: May 1, 2002 to present All directors of the Company will hold office until the annual meeting of shareholders in the year their terms expire and until their successors have been elected and qualified. Executive Officers and Key Employees: Name: TIMOTHY J. FALLA, PH.D. Age: 37 Position: Vice President, Chief Scientific Officer Tenure as Officer or Director: December 11, 2001 to present as Officer; June 15, 2001 to present as Chief Scientific Officer Name: KERRY D. PALMER Age: 51 Position: Treasurer, Secretary and Chief Financial Officer Tenure as Officer or Director: June 1, 2002 to present. Name: PARKER A. SROUFE Age: 61 Position: Executive Vice President Tenure as Officer or Director: June 1, 2002 to present. The officers of the Company are elected by the Board of Directors at the first board meeting after each annual meeting of the shareholders. There are no family relationships between any executive officers or directors of the Company. The following are brief resumes of each of the ten (10) Executive Officers, Directors, and key employees listed above: MR. BEATTY has served as President and Chief Executive Officer of the Company since October 1, 1999. He was elected to the Board of Directors in May 1999 and has served on the board continuously since that date. Mr. Beatty has been President of Beatty Finance, Inc., a lending and consulting company since 1990. He is responsible for all aspects of Company operations. Additionally, he serves as a consultant to businesses in south Louisiana. He was previously employed for 18 years with BellSouth (and South Central Bell) where he managed large software development projects and was responsible for re-engineering the business process flow for commercial accounts. Mr. Beatty is a 1975 graduate of the University of South Alabama with a major in Mathematics and a minor in Economics. He obtained his MBA from University of New Orleans in 1997 where he continues his association as Co-Chairman of the Student Support Committee of the Business Alumni Council. DR. CAUDILL was elected the Company's Board of Directors in December 2001. Dr. Caudill has more than twenty years of experience in investment banking and is the founder and president of Dunsford Hill Capital Partners, a financial consulting firm serving early stage healthcare and technology companies. Dunsford Hill Capital Partners provides financial and management services to the Company. Prior to forming Dunsford Hill Capital Partners, Dr. Caudill was employed by Prudential Securities where he established and headed the firm's San Francisco investment banking practice. He also served as head of Prudential's Mergers and Acquisitions Department and was Co-head of Prudential's Investment Bank. Previously, Dr. Caudill held senior investment banking positions at the First Boston Corporation and at Morgan Grenfell, Inc. Dr. Caudill currently serves on the boards of VaxGen Inc., SBE Inc., SCOLR Inc., MediQuest Inc., RamGen Inc., Northwest Biotherapeutics and a number of not-for-profit entities. He received a master's degree in Public and Private Management from Yale University and a doctorate of philosophy from Oxford University where he was a Rhodes Scholar. 20 DR. FALLA serves as Vice President and Chief Scientific Officer. Dr. Falla joined the Company as Chief Scientific Officer in June 2001 and was appointed an Officer in December 2001. Prior to joining the Company, Dr. Falla was employed by IntraBiotics Pharmaceuticals, Inc. as Principal Scientist where he lead a multi-disciplinary scientific research team focused on antibacterial drug discovery and development. Prior to his tenure with IntraBiotics Pharmaceuticals, Dr. Falla pursued post doctoral research fellowships at the University of British Columbia and the Antimicrobial Research Centre of Leeds involving the design and synthesis of recombinant antimicrobial peptides and the isolation of novel drug targets. Dr. Falla is responsible for developing the Company's science and technology and subsequent application to clinical and non-clinical products. Dr. Falla received his Bachelor of Science in Applied Biology from the University of Wales in 1989 and obtained his Ph.D. in Molecular Biology of Infectious Disease from Oxford University and the University of Wales in 1993. DR. FIDDES was appointed to the Board of Directors in March, 2003. Dr. Fiddes is an accomplished biopharmaceutical industry executive and consultant with over twenty years experience in drug discovery and development. He is currently the Chief Executive Officer of Tao Biosciences, LLC. From 1994-2001 Dr. Fiddes served as Vice President of Research and Development and subsequently Chief Technical Officer and Vice President of Preclinical Research at IntraBiotics Pharmaceuticals, Inc. From 1991-1994, he was Vice President of Discovery Research at ImmuLogic Pharmaceutical Corp. Prior to his work at ImmuLogic, Dr. Fiddes served various executive roles at California Biotechnology, Inc., (now Scios, Inc.) from 1983-1991, where he was Deputy Director of Research from 1988-1991. Dr. Fiddes received his Bachelor of Science Degree in Molecular Biology from the University of Edinburgh, and his Doctorate Degree from King's College at Cambridge University in 1977. He did postdoctoral research as a Research Fellow at the University of California, San Francisco. Dr. Fiddes also serves on the board of directors for Asilomar Pharmaceuticals, Inc. DR. MILLER, elected to the Company's Board of Directors in May 1999, is the CEO of two investment companies: Capital Market Research and New Arc Investments, Inc. Capital Market Research performs contract research for professionals trading in futures and options on major exchanges and provides support and staff services to start-up companies engaged in research services. NewArc Investments, Inc. manages individual, partnership, and institutional investments. Dr. Miller, in conjunction with Mr. Ralph Katz, has also advised venture capital investors for the last five years. He is a principal in Katz-Miller Ventures, L.L.C., which provided financial consulting services to the Company in the past. See "Certain Relationships and Related Transactions." Dr. Miller holds a Ph.D. in Political Science (1975) from the University of Michigan. His academic background emphasizes public policy, administrative theory, economics and quantitative analysis. MR. MURRAY was appointed to the Board of Directors as of May 1, 2003. Mr. Murray is a senior executive with more than forty years in the securities industry. He recently retired as Senior Director of Prudential Securities, Inc. He remains a Director of Prudential-Bache (London) International Banking Groups. Prior to joining Prudential Securities, Inc. in 1991, Mr. Murray was Senior Executive Vice President and Director of Strategic Planning at Shearson Lehman Brothers. Mr. Murray has also held executive level positions with Hayden Stone, a predecessor firm of Shearson Lehman and Dominick and Dominick, a New York Stock Exchange firm. Mr. Murray received a B.A. degree from Bowdoin College and upon graduation served as an officer in the Air Wing of the U.S. Marine Corps. Mr. PALMER was appointed as Chief Financial Officer of the Company effective June 1, 2002. Mr. Palmer is a seasoned financial manager with over twenty years experience in providing executive level accounting and financial consulting services to corporations. From 1988 to 2000, Mr. Palmer was the Corporate Controller, Assistant Secretary and Assistant Treasurer for Wall Data, Inc., a publicly traded software development company. He assisted Wall Data in launching their 1993 Initial Public Offering, and was responsible for managing the incorporation and financial organization of their subsidiaries in several countries. Prior to his involvement with Wall Data, Mr. Palmer was employed at Price Waterhouse for over ten years, most recently as a senior audit manager. Mr. Palmer received his Bachelor of Science in Accounting from the University of Illinois in 1976. 21 MRS. STEINER, was elected to the Board of Directors in December, 2000. Mrs. Steiner graduated Cum Laude from Smith College with a Bachelor of Arts Degree in 1967 and completed a Master of Arts Degree in Political Science from the University of Chicago in 1971. In 1981 she graduated from the University Of Washington School Of Law with a J.D., was a member of the Washington Law Review and received the Order of the Coif. In addition to her consulting practice, Ms. Steiner has served on various for-profit corporate and not-for-profit corporate boards in the Seattle area. Ms. Steiner is married to George Steiner, principal of The Paisley Group LLC, which provides consulting services to the Company. See "Certain Relationships and Related Transactions." Mr. SROUFE was appointed as Executive Vice President in June 2002. Mr. Sroufe is an experienced leader of biotechnology, computer software, and financial management companies. He is currently a Partner with the Websea Group, a business-consulting firm that he formed to assist technology companies in obtaining financing and developing strategic relationships. Prior to forming the Websea Group, Mr. Sroufe organized and operated an investment-oriented limited partnership and co-founded and chaired a financial management company that managed accounts for firms including Merrill Lynch, Credit Suisse First Boston, Solomon Smith Barney, Morgan Stanley Dean Witter, and Cargill. Mr. Sroufe is the former President of Ostex International Corporation, which is now a publicly traded biotechnology company. Mr. Sroufe managed the original start-up phase of Ostex International. As Chairman of the Board and Chief Executive Officer of ESCA Corporation from 1986 to 1990, Mr. Sroufe led the turnaround of the then 200-person software company, and negotiated its sale to a French conglomerate. He also served as Vice President and Chief Financial Officer for UNICO Properties from 1977 to 1983. Mr. Sroufe began his professional career as an auditor and consultant employed by Peat Marwick Mitchell. He obtained his B.A. in Economics in 1964 from the University of Washington. MR. WILDS was elected to the Board of Directors in December 2002. Mr. Wilds has held executive level positions with pharmaceutical and biotechnology companies during his 30 year health care management career. He is the President and Chief Executive Officer of Northwest Biotherapeutics, Inc., a position that he has held since February 1998. Prior to joining Northwest Biotherapeutics, Mr. Wilds was President and Chief Executive Officer of Shiloov Biotechnologies (USA), Inc. from July 1997 to January 1998. From 1992 through 1996, Mr. Wilds was President and Chief Executive Officer of Adeza Biomedical Corporation, prior to which he served as the President and Chief Executive Officer of Medisense, Inc., President of Baxter's Chemotherapy Service, and President and Chief Operating Officer of Travenol-Genentech, Inc., a joint venture between Baxter International and Genentech, Inc. Mr. Wilds has also held other domestic and international senior management positions in the biomedical and biopharmaceutical fields and acted as a consultant to the biotechnology industry. Mr. Wilds holds a B.A. from California State University, Los Angeles and an MBA from Northwestern University. (b) Compliance with Section 16(a) of the Exchange Act The Company does not have any class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Act"), and therefore no persons or entities holding the Company's securities or serving as Officers or Directors of the Company are subject to the reporting requirements of Section 16(a) of the Act. 22 Item 10. Executive Compensation SUMMARY COMPENSATION TABLE
Annual Compensation Long-term ------------------------- Compensation -------------- Name and position Year Salary Bonus Securities underlying options - ----------------------------------- --------- ------------ --------- -------------- R. Stephen Beatty President and CEO 2002 $ 202,000 None 100,000 2001 $ 139,000 None 180,000 2000 $78,000 $10,468 (1) 80,000 Timothy Falla (2) Chief Scientific Officer 2002 $ 175,174 None 100,000 2001 $ 94,174 None 100,000
(1) Represents the value of the Company's Common Stock on the date of grant times the number of shares granted for services rendered by Mr. Beatty. (2) Dr. Falla joined the Company in June 2001. OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2002
Percent of Number of total options securities granted to underlying employees in Exercise Expiration Name and position options granted(1) fiscal year price date - ---------------------------------- ----------------- --------------- --------- ------------ R. Stephen Beatty Jul 29, President and CEO 100,000 28.6% $1.00 2012 Timothy Falla Jul 29, Chief Scientific Officer 100,000 28.6% $1.00 2012
(1) Options were granted to officers of the Company on August 1, 2002, 33.33 percent of the options will become exercisable on the first anniversary of the date of grant; thereafter options will become exercisable monthly at a rate of 2.78 percent. The exercise price of the options was equal to the per share price in the next equity financing, which was $1.00. The fair market value of the Company's Common Stock on the date of grant was $0.53. AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED DECEMBER 31, 2002 AND OPTION VALUES AT DECEMBER 31, 2002
Number of unexercised Value of unexercised in-the-money options at December 31, 2002 options at December 31, 2002 (1) -------------------------------------- ---------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - -------------------- ---------------- ------------------ -------------------- ---------------------- R. Stephen Beatty 255,000 145,000 $ 7,200 $ - Timothy Falla 75,000 125,000 $ - $ -
(1) Represents the aggregate fair market value on December 31, 2002 (based on the closing price of $.76 for the Company's Common Stock on the OTC- Bulletin Board on that date), of the shares of Common Stock subject to outstanding options, less the aggregate exercise price of the options. Director Compensation The non-employee Directors of the Company receive warrants to purchase Common Stock for their service on the Board. In July 2001, the Board authorized the issuance of 15,000 warrants to purchase Common Stock of the Company to each Director, exercisable immediately, at an exercise price of $1.50 per share. The warrants are exercisable for a period of ten years. For subsequent service in 2002 and beyond, non-employee Directors are eligible for an additional 15,000 23 10-year fully exercisable warrants priced at the closing price of the Company's Common Stock on the last day of the year. The non-employee Directors of the Company have not received any cash compensation. Employment contracts and termination of employment and change-in-control arrangements As of December 31, 2002, the Company had the following employment contracts with executive officers: The Company entered into a two-year employment contract with R. Stephen Beatty as President and Chief Executive Officer, commencing July 1, 2001. Key contract terms include (1) the payment of an annual base salary equal to $200,000; (2) the extension of the date for exercising existing options to acquire 120,000 shares of the Company's stock to June 30, 2011; and (3) an option to purchase 180,000 shares of common stock at $1.50 per share which expires on June 30, 2011. Additionally, upon termination of the Employment Agreement by the Company without Cause (as defined in the Employment Agreement), the Company will pay to Mr. Beatty any unpaid annual base salary, any amount due but not paid under any Company incentive compensation plan, earned but unused vacation and bonuses due, if any, for services already performed to the effective date of termination of employment; and monthly severance payments equivalent to six (6) months base salary. On August 1, 2002, the Board voted to grant Mr. Beatty an additional option grant of 100,000 shares at the lower of $1.50 or the per share price in the next equity financing and to increase in his annual base salary to $232,500, effective on the first day of the month following receipt of at least $1.5 million of additional equity financing and a further increase in the annual base salary to $265,000 effective on the first day following receipt of a cumulative $3.0 million of equity financing. The Company also entered into a two-year employment agreement with Dr. Timothy Falla, as Chief Scientific Officer, commencing July 1, 2001. Contract terms include (1) the payment of an annual base salary equal to $175,000; and (2) an option to purchase 100,000 shares of common stock at $1.50 per share which expires on June 30, 2011. Additionally, upon termination of the Employment Agreement by the Company without Cause (as defined in the Employment Agreement), the Company will pay to Dr. Falla any unpaid annual base salary, any amount due but not paid under any Company incentive compensation plan, earned but unused vacation and bonuses due, if any, for services already performed to the effective date of termination of employment; and monthly severance payments equivalent to six (6) months base salary. On August 30, 2002, the Board voted to grant Dr. Falla an additional option grant of 100,000 shares at the lower of $1.50 or the per share price in the next equity financing and to increase in the annual base salary to $187,500, effective on the first day of the month following receipt of at least $1.5 million of additional equity financing and a further increase in the annual base salary to $200,000 effective on the first day following receipt of a cumulative $3.0 million of equity financing. Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Securities authorized for issuance under equity compensation plans 24 EQUITY COMPENSATION PLAN INFORMATION
Number of securities Number of securities Weighted-average remaining available to be issued upon exercise price of for future issuance exercise of outstanding options, under equity outstanding options, warrants and rights compensation plans warrants and rights (excluding securities reflected in column (a) (b) (c) Plan category - -------------------------------------- ---------------------- ---------------------- ---------------------- Equity 1,133,000 $1.00 4,267,000 compensation plans approved by security holders - -------------------------------------- ---------------------- ---------------------- ---------------------- Equity Compensation plans not approved by 1,577,286 $1.47 - security holders (1) - -------------------------------------- ---------------------- ---------------------- ---------------------- Total 2,710,286 $1.27 - -------------------------------------- ---------------------- ---------------------- ----------------------
(1) Consists of 232,500 shares issuable upon exercise of warrants granted to non-employee directors, 96,667 shares issuable upon exercise of warrants granted to members of the Company's Scientific Advisory Board, and 1,248,119 shares issuable upon exercise of warrants granted to Company consultants. Such warrants generally vest upon issuance and have a ten-year term. See "Director Compensation" above and "Certain Relationships and Related Transactions" below for additional information regarding these warrants. Security Ownership of Certain Beneficial Owners - ----------------------------------------------- The following table sets forth, as of March 31, 2003, the beneficial ownership of (i) each person known by the Registrant to be the beneficial owner of five percent or more of the Registrant's Common Stock, (ii) by each Director of the Company, (iii) by the Chief Executive Officer, (iv) by the most highly compensated executive officer for the fiscal year ended December 31, 2002, other than the Chief Executive Officer, who were serving as an executive officer at December 31, 2002, and (v) by all of the Company's executive officers and directors as a group.
Name and address of beneficial owner Amount and nature of beneficial ownership Percent of (1) class -------------------------------------------- --------------------- ------------ Ralph Katz 1,071,059 (2) 12.19% 440 S. LaSalle Dr., Suite 1615 Chicago, IL 60605 Frank Nickell 824,035 (3) 9.83% 320 Park Avenue, 24th Floor New York, NY 10022 Keith Lanneau 436,831 (4) 5.26% 2151 East Lakeshore Dr. Baton Rouge, LA 70808 Carlyn Steiner 347,900 (6) 4.03% R. Stephen Beatty, President and Director 347,387 (5) 4.06% Randall L-W Caudill 330,000 (7) 3.83% Jeffrey A. Miller, Director 529,987 (8) 6.21% Timothy Falla, Chief Scientific Officer 75,000 (9) * George A. Murray 22,500 (10) * Daniel Wilds 15,000 (11) * John Fiddes - * All directors and officers as a group (10 1,682,235 (12) 17.52% persons)
25 * Less than 1%. (1) Includes shares of Common Stock subject to options currently exercisable or exercisable within 60 days of March 31, 2003. Shares subject to an option are not deemed outstanding for purposes of computing the percentage ownership of any person other than the person holding the option. (2) Includes 500,000 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. Includes shares (equaling 280,000 shares) and warrants (equaling 200,000 warrants) to purchase Common Stock held by Katz-Miller Ventures LLC, in which Mr. Katz is a partner. (3) Includes 100,000 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. (4) Includes 25,000 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. (5) Includes 25,000 shares subject to warrants to purchase Common Stock and 255,000 shares subject to options to purchase Common Stock exercisable within 60 days of March 31, 2003. (6) Includes 300,000 shares beneficially owned by Mrs. Steiner's husband, George Steiner, as principal of The Paisley Group, LLC. (7) Includes 250,000 shares beneficially owned by Dunsford Hill Capital Partners, Inc. Dr. Caudill is the owner of and controls Dunsford Hill Capital Partners, Inc. (8) Includes 245,000 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. Includes shares (equaling 200,000 shares) and warrants (equaling 200,000 warrants) to purchase Common Stock held by Katz-Miller Ventures LLC, in which Mr. Miller is a partner (9) Consists of 75,000 shares subject to options to purchase Common Stock exercisable within 60 days of March 31, 2003. (10) Consists of 22,500 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. (11) Consists of 15,000 shares subject to warrants to purchase Common Stock exercisable within 60 days of March 31, 2003. (12) Includes 957,500 shares subject to warrants to purchase Common Stock and 330,000 shares subject to options to purchase Common Stock exercisable within 60 days of March 31, 2003. Item 12. Certain Relationships and Related Transactions The Company has entered into certain contractual agreements with the following parties: (a) With University of British Columbia The Company entered into a License Agreement ("License") with the University of British Columbia ("UBC") commencing October 1, 2001 whereby UBC granted to the Company an exclusive worldwide License to use and sublicense certain defined "Technology" and any improvements within a specified field of use and including the right to manufacture, distribute and sell products utilizing the Technology. Dr. Hancock, a member of the Company's Scientific Advisory Board, is the lead investigator and inventor of the UBC patents and patent applications. The Technology is comprised primarily of three broad patents for antimicrobial peptides and related methods of use. The License extends to the Company's affiliates. In exchange for the exclusive, worldwide License, the Company agreed to pay UBC a royalty comprised of 3.5% of revenue generated from the Technology and any improvements related thereto. The Company agreed to pay graduated minimum annual royalties of $10,000, $20,000 and $25,000 beginning with the 5th, 6th, 7th and all subsequent anniversaries of the Commencement Date of the License Agreement respectively. Additionally, the Company agreed to issue to UBC or its nominee, 97,500 shares of the Company's common stock and options to purchase up to 152,500 shares of common stock at the exercise price of US $1.50 per share. The options have a term of ten years. 26 (b) With Katz- Miller Ventures, LLC Katz-Miller Ventures, LLC ("Katz-Miller") is a former consultant to the Company. The principal partners of Katz Miller are Ralph Katz and Jeffrey Miller. Mr. Katz is a former director of the Company and Mr. Miller is a current director of the Company. The Company first entered into a consulting agreement with Katz-Miller on October 1, 1999. In May 2001, the Company entered into an Amended and Restated Consulting Agreement with Katz-Miller. The Amended and Restated Consulting Agreement modifies the terms of compensation for services rendered under the prior agreement by providing for a cash payment of $80,000, a short term loan of $80,000, and issuance of warrants to purchase shares of common stock as follows: 1) 50,000 at $1.50; 2) 50,000 at $3.00; 3) 50,000 at $4.50 and 4) 50,000 at $6.00. All warrants vested upon issuance and will expire on June 30, 2011. As of this date, the Company has paid Katz-Miller $80,000 and issued Katz-Miller 280,000 shares of its common stock and 200,000 warrants as described above. See also Certain Relationships and Related Transactions - Ralph Katz, below. (c) With Dunsford Hill Capital Partners, Inc. Dunsford Hill Capital Partners, Inc. ("Dunsford Hill") is owned and controlled by Randall L-W. Caudill, Ph.D. Dr. Caudill also serves as a Director of the Company. Dunsford Hill provides consulting services to the Company on strategic, management and financial issues. The Company first entered into a Consulting Agreement with Dunsford Hill in October, 2000. The original consulting agreement has been amended and extended by subsequent agreements which extend the term of the original agreement and provide for additional compensation. Under the May 30, 2001 Amended and Restated Consulting Agreement ("Amended Agreement") with Dunsford Hill, the Company agreed to pay additional compensation in the form of warrants to purchase an aggregate of 120,000 shares of common stock at $1.50 per share, thereby eliminating certain conditions precedent that were contained in the earlier agreement. Under the August 15, 2002 Second Amended and Restated Consulting Agreement, the Company agreed to cash payments totaling $72,000 payable in installments and warrants to purchase an aggregate of 50,000 shares of common stock at the lower of $1.50 or the price of the next equity financing. As of this date, the Company has issued to Dunsford Hill warrants to purchase 250,000 shares of common stock. (d) With Paisley Group, LLC George M. Steiner is the principal of the Paisley Group, LLC and his spouse, Carlyn J. Steiner, is a Director of the Company. The Paisley Group has provided the Company with financial consulting services including consulting in conjunction with the 2001 Private Placement. The Company first entered into a Consulting Agreement with the Paisley Group. in October, 2000. The original consulting agreement has been amended and extended by subsequent agreements which extend the term of the original agreement and provide for additional compensation. Under the May 30, 2001 Amended and Restated Consulting Agreement ("Amended Agreement") with the Paisley Group, the Company agreed to pay additional compensation in the form of warrants to purchase an aggregate of 120,000 shares of common stock at $1.50 per share, thereby eliminating certain conditions precedent that were contained in the earlier agreement. Under the August 15, 2002 Second Amended and Restated Consulting Agreement, the Company agreed to cash payments totaling $72,000 payable in installments and warrants to purchase an aggregate of 100,000 shares of common stock at the lower of $1.50 or the price of the next equity financing. As of this date, the Company has issued to the Paisley Group warrants to purchase 300,000 shares of common stock. (e) With Robert E.W. Hancock, Ph.D. On June 18, 2001, the Company entered into a Consulting Agreement with Dr. Robert E.W. Hancock, Ph.D. Dr. Hancock has been engaged to serve as a member of the Company's Scientific Advisory Board ("SAB") for a period of three years as an expert consultant in the area of antimicrobial peptides. Additionally, Dr. Hancock was engaged to assist the Company in its efforts to license certain intellectual property from the University of British Columbia ("UBC"). Dr. Hancock is the lead investigator and inventor of the UBC patents and patent applications. The Company entered into a license agreement with UBC in October 2001. Dr. Hancock's Consulting Agreement generally provides for compensation in cash and in the form of warrants as follows: 1) For each year of service on the 27 SAB, the Company will grant a warrant to purchase 10,000 shares of common stock with a purchase price based on the fair market value of the company's stock and a ten year term, and 2) upon execution of the license agreement with UBC, the Company agreed to grant warrants to purchase up to 250,000 shares of common stock at a purchase price of $1.50 with a ten year term. These warrants vest in six equal installments every six months after the grant date. (f) With Keith P. Lanneau In the last two years, the Company has entered into several agreements with Keith Lanneau, the Company's founder and former Chairman of the Board. In September, 1999, the Company and Mr. Lanneau entered into an Agreement to Restructure Debt whereby Mr. Lanneau agreed to restructure certain debt owed him by the Company. Under the Agreement to Restructure Debt, Mr. Lanneau agreed to cancel a $462,218 convertible promissory note payable upon demand, and to accept substitution therefore of three (3) promissory notes totaling $489,462 in the aggregate, each in the principal amount of $163,154, with maturities of one, two, and three years respectively. As of December 31, 2002, the Company has paid off principal and accrued interest on all three notes. Mr. Lanneau continues to provide technical consulting services to the Company pursuant to a Consulting Agreement dated December 29, 2000. Pursuant to the Consulting Agreement, Mr. Lanneau receives a monthly retainer of $5,000. (g) With Ralph Katz Ralph Katz is a former director who has previously provided financial consulting services to the company as a member of Katz-Miller Ventures, LLC. Mr. Katz stepped down from the Board of Directors in May 2002, but continues to provide consulting services to the Company pursuant to a Consulting Agreement dated October 1, 2002. Under the Consulting Agreement, Mr. Katz received warrants to purchase an aggregate of 100,000 shares of common stock at $1.00 per share. The warrants have a ten year term. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description and Location No. - ------------- -------------------------------------------------------------- Plan of acquisition or reorganization 2.1 Proposal for Approval of Reincorporation of Helix BioMedix, Inc., a Colorado corporation, from Colorado to Delaware (incorporated by reference from Exhibit 2 to the Company's Form 10-KSB for the year ended December 31, 2000) Articles of Incorporation and Bylaws 3.1 Certificate of Ownership and Merger of Helix BioMedix, Inc. a Delaware corporation and Helix BioMedix, Inc., a Louisiana corporation 3.2 Certificate of Incorporation of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-a to the Company's Form 10-KSB for the year ended December 31, 2000) 3.3 Certificate of Amendment of Helix BioMedix, Inc. 3.4 Bylaws of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-b to the Company's Form 10-KSB for the year ended December 31, 2000) Executive Compensation Plans and Agreements 10.1 R. Stephen Beatty Employment Agreement dated July 1, 2001 (incorporated by reference from Exhibit 10.1 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.2 Elizabeth L. Scheer Employment Agreement dated July 1, 2001 (incorporated by reference from Exhibit 10.2 to the Company's Form 10-KSB for the year ended December 31, 2001) 28 10.3 Separation and Release Agreement dated June 3, 2002 between the Company and Elizabeth L. Scheer 10.4 Tim Falla Employment Agreement dated June 15, 2001 (incorporated by reference from Exhibit 10.3 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.5 Helix BioMedix, Inc. Amended and Restated 2000 Stock Option Plan 10.6 Warrant Agreement between Helix BioMedix, Inc. and Ralph Katz, Director. The Company has entered into substantially identical agreements with its other non-employee directors. Other Material Contracts 10.7 Agreement to Restructure Debt between the Company and Keith P. Lanneau (incorporated by reference from Exhibit 10-c to the Company's Form 10-KSB for the year ended December 31, 2000). 10.8 Consulting Agreement with Keith P. Lanneau (incorporated by reference from Exhibit 10 to the Company's Form 10-KSB for the year ended December 31, 2000). 10.9 TPI Licensing Agreement dated September 5, 2001 (incorporated by reference from Exhibit 10.4 to the Company's Form 10-KSB for the year ended December 31, 2001). 10.10 University of British Columbia License Agreement dated October 1, 2001 (incorporated by reference from Exhibit 10.5 to the Company's Form 10-KSB for the year ended December 31, 2001). 10.11 Amended and Restated Consulting Agreement with Katz Miller Ventures, LLC dated October 1, 1999 (incorporated by reference from Exhibit 10.6 to the Company's Form 10-KSB for the year ended December 31, 2001). 10.12 Amended and Restated Consulting Agreement with Dunsford Hill Capital Partners dated May 30, 2001 (incorporated by reference from Exhibit 10.7 to the Company's Form 10-KSB for the year ended December 31, 2001). 10.13 Second Amended and Restated Consulting Agreement with Dunsford Hill Capital Partners dated August 15, 2002 10.14 Amended and Restated Consulting Agreement with the Paisley Group, LLC dated May 30, 2001 (incorporated by reference from Exhibit 10.8 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.15 Second Amended and Restated Consulting Agreement with the Paisley Group, LLC dated August 15, 2002 10.16 Hancock Consulting Agreement dated June 18, 2001 (incorporated by reference from Exhibit 10.9 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.17 Beatty Finance, Inc. Amended and Restated Administrative Services, Financial Management and Office Sharing Agreement dated May, 2001 (incorporated by reference from Exhibit 10.10 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.18 Lease between the Company and Teachers Insurance & Annuity Association of America, Inc. dated August 14, 2001 (incorporated by reference from Exhibit 10.11 to the Company's Form 10-KSB for the year ended December 31, 2001) 10.19 Consulting Agreement with Ralph Katz dated October 1, 2002 Certifications 99.1 Certification of R. Stephen Beatty, Chief Executive Officer and President Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) 99.2 Certification of Kerry Palmer, Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (b) Reports on Form 8-K On October 3, 2002, the Company filed a current report on Form 8-K concerning the signing of a research use license agreement with E.I. du Pont de Nemours and Company. 29 On October 31, 2002, the Company filed a current report on Form 8-K concerning the signing of a letter of intent with Nu Skin International, Inc. On November 25, 2002, the Company filed a current report on Form 8-K concerning the change in the Company's certifying accountant from Comiskey & Co., P.C. to KPMG LLP. Item 14. Controls and Procedures Within 90 days prior to the date of this annual report, the Company carried out an evaluation, under the supervision and participation of management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic SEC filings. There were no significant changes to the Company's internal controls or in other factors that could significantly affect such internal controls subsequent to the date that the Company carried out its evaluation. 30 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: HELIX BIOMEDIX, INC. Date: April 30, 2003 By: /s/ R. STEPHEN BEATTY ---------------------------- R. Stephen Beatty President and Chief Executive Officer 31 Certification Pursuant to Rule 13a-14 and Rule 15d-14 of the Securities Exchange Act of 1934 I, R. Stephen Beatty, certify that: 1. I have reviewed this Amendment No. 2 to the annual report on Form 10-KSB of Helix BioMedix, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: i. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; ii. evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and iii. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of Company's board of directors (or persons performing the equivalent function): i. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and ii. any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30, 2003 /s/ R. STEPHEN BEATTY ---------------- --------------------- R. Stephen Beatty President and Chief Executive Officer 32 Certification Pursuant to Rule 13a-14 and Rule 15d-14 of the Securities Exchange Act of 1934 I, Kerry D. Palmer, certify that: 1. I have reviewed this Amendment No. 2 to the annual report on Form 10-KSB of Helix BioMedix, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: i. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; ii. evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and iii. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of Company's board of directors (or persons performing the equivalent function): i. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and ii. any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30, 2003 /s/ KERRY D. PALMER ----------------------- Kerry D. Palmer Chief Financial Officer 31 EX-3.1 3 helix10ksba2ex31_4282003.txt CERTIFICATE OF OWNERSHIP AND MERGER EXHIBIT 3.1 CERTIFICATE OF OWNERSHIP AND MERGER MERGING HELIX BIOMEDIX, INC, a Colorado corporation, WITH AND INTO HELIX BIOMEDIX, INC., a Delaware corporation Helix BioMedix, Inc., a corporation organized and existing under the laws of Colorado ("Helix Colorado") DOES HEREBY CERTIFY: 1. That this corporation was incorporated pursuant to the laws of the State of Colorado, the provisions of which permit the merger of a parent corporation existing under the laws of said state with and into a subsidiary corporation organized and existing under the laws of another state. 2. That this corporation owns all of the outstanding shares of the stock of Helix BioMedix, Inc., a corporation incorporated on the 1st day of November, 2000, pursuant to the General Corporation Law of the State of Delaware. 3. That this corporation, by resolution of the Board of Directors dated the 6th day of November, 2000, a copy of which is attached as Exhibit A, determined to merge into itself said Helix Delaware. 4. That in accordance with the laws of the State of Colorado, the shareholders of Helix Colorado were given notice of the proposed merger and their approval was sought therefor at the annual meeting of shareholders of Helix Colorado, held December 15, 2000. At that meeting, in excess of 70% of shareholders entitled to vote on the merger voted in favor thereof. 5. That Helix Delaware survives the merger. 6. That the effective date of the merger shall be December 29, 2000. IN WITNESS WHEREOF, said Helix Colorado has caused this Certificate to be signed by R. Stephen Beatty, its President, this 26 th day of December, 2000. HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty -------------------------------- R. Stephen Beatty, President EX-3.3 4 helix10ksba2ex33_4282003.txt CERTIFICATE OF AMENDMENT EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF HELIX BIOMEDIX, INC. Pursuant to Section 242 of the General Corporation Law of Delaware, the undersigned corporation hereby submits the following Certificate of Amendment to the corporation's Certificate of Incorporation. 1. The name of the corporation is Helix BioMedix, Inc. 2. The amendment to the Certificate of Incorporation as adopted is as follows: Article IV, Section 4.01(a) is amended in its entirety to read as follows: The total number of shares of stock that the Corporation shall have the authority to issue is one hundred twenty-five million (125,000,000) shares of capital stock, consisting of (i) twenty-five million (25,000,000) shares of preferred stock, par value $0.001 per share (the "Preferred Stock"), and (ii) one hundred million (100,000,000) shares of common stock, par value $0.001 per share (the "Common Stock"). 3. This amendment does not provide for an exchange, reclassification, or cancellation of the issued shares of the corporation. 4. The date of adoption of the amendment was December 16, 2002. 5. All of said amendment was adopted by duly approved shareholder action in accordance with the provisions of Section 242 of the General Corporation Law of Delaware. 6. This Certificate of Amendment shall be effective upon filing. DATED: December 16, 2002 HELIX BIOMEDIX, INC. By: /s/ R. Steve Beatty ----------------------------- R. Steve Beatty, President EX-10.3 5 helix10ksba2ex103_4282003.txt SEPARATION AND RELEASE AGREEMENT EXHIBIT 10.3 SEPARATION AND RELEASE AGREEMENT -------------------------------- THIS AGREEMENT is entered into as of this 3rd day of June, 2002 by and between Elizabeth Scheer (hereinafter referred to as "Employee") and Helix BioMedix, Inc. (hereinafter referred to as "Employer"). RECITALS -------- WHEREAS, Employee has been employed by Employer; and WHEREAS, both parties to this Agreement wish to clearly set forth the terms and conditions of Employee's separation from employment; NOW, THEREFORE, for and in consideration of the mutual promises and covenants contained herein, and for good and valuable consideration, the receipt and adequacy of which is acknowledged by each of the parties hereto, the parties agree as follows: EMPLOYER'S OBLIGATIONS ---------------------- 1. Payment. ----------- Employer agrees to pay Employee her base salary through the Separation Date specified below, subject to applicable withholding. To the extent that Employee has accrued, unused vacation, Employee agrees to use this time in June 2002. In addition, as consideration for and subject to Employee's agreement to the terms set forth in this Agreement, Employer will pay her a sum equal to six month's base salary, subject to applicable withholding, at regular payroll intervals beginning on the first payroll date following Employee's execution of this Agreement ("the Separation Payment"), subject to reduction pursuant to the provisions of Section 8 below. Except as otherwise provided in this Agreement, Employee agrees that Employer does not owe Employee for any other payments except that Employee will be reimbursed for any reasonable business expenses Employee has incurred prior to the Separation Date for which Employee submits appropriate documentation pursuant to Employer's reimbursement policies within 30 days of the Effective Date of this Agreement. 2. Medical Coverage. -------------------- Employer will pay the premium for Employee's continued coverage under Employer's health care plans through the Separation Date. Thereafter, Employee may elect to continue coverage under Employer's health care plans at her own expense pursuant to the provisions of COBRA. 3. Stock Options. ----------------- Employer agrees to comply with its obligations regarding stock options pursuant to Section 3(c) of Employee's Employment Agreement ("Employment Agreement") and to issue appropriate documentation reflecting all options granted. 1 4. Car Expenses. ---------------- Employer agrees to reimburse Employee for reasonable expenses, up to one thousand five hundred dollars ($1,500), for transporting Employee's car from Washington State to Louisiana. Employee agrees to submit appropriate receipts and documentation to Employer within 30 days of transportation. 5. Apartment Lease. ------------------- Employer agrees to buy out Employee's lease of an apartment located at 21433 16th Drive SE, #N304, Bothell, WA 98021. 6. Letter Regarding Employment. ------------------------------- Employer will provide a letter regarding Employee's employment upon request by Employee as to a specific prospective employer on Helix letterhead in the form attached hereto as Exhibit A. EMPLOYEE'S OBLIGATIONS ---------------------- 7. Separation Date. ------------------- Employer and Employee agree that Employee's last date of employment is July 1, 2002 ("Separation Date"). Until the Separation Date, Employee agrees to use her best efforts in the performance of her duties, and to cooperate fully with Employer in training and working with her replacement, and with other aspects of her transition out of her position with Employer. 8. Best Efforts to Obtain Other Employment. ------------------------------------------- Employee agrees to use her best efforts to obtain other employment within a reasonable time after separation. Employee agrees to notify Employer when she accepts other employment. In the event that Employee obtains other employment within six months of the Separation Date, the Separation Payment referenced in Section 1 will be reduced by the amount of base salary Employee receives from her new employment. 9. No Authority. ---------------- Employee understands and agrees that effective as of the Separation Date, she is no longer authorized to incur any expenses or obligations or liabilities on behalf of Employer nor represent herself as an employee of Employer. 10. Personal Expense Budget. ---------------------------- Employee understands and agrees that she is forfeiting any further right to her personal expense budget with Employer. Any funds or amounts remaining in the budget following the Separation Date will belong to Employer. 11. Return of Property. ----------------------- Employee warrants and represents that as of the Separation Date, she has returned to the Employer all company-owned property in Employee's possession, including, but not limited to, credit cards, access cards, keys to company buildings or property, all company-owned equipment, computers, cell phones and related equipment, and all company documents and papers, customer lists, manuals, files, price lists, and all other trade secrets and/or confidential company information, and all copies thereof, in paper, electronic or other form. 12. Waiver and Release of Claims by Employee. --------------------------------------------- 2 (a) With the exception of the obligations arising under this Agreement, Employee knowingly and voluntarily, unconditionally and forever, waives and releases any and all claims, damages, causes of action and rights, whether known or unknown, contingent or noncontingent, contractual or otherwise against Employer or any of its related, affiliated or subsidiary organizations, and each of its and their respective directors, officers, agents, representatives and employees, past and present, and each of their successors and assigns ("Releasees"). Employee makes this commitment even though Employee understands that she may not, as of this date, know all of the claims she may lawfully have against the Releasees and that she is relinquishing the right to pursue any claims which she could have pursued before courts without having the opportunity to pursue those claims to a trial and have the damages, if any, set by a judge and/or jury. (b) Employee acknowledges that among the claims that she is releasing are any claims she may have for compensation or benefits, wrongful discharge, negligent or intentional infliction of emotional distress, personal injury, defamation, libel, invasion of privacy, fraud, breach of fiduciary duty, negligent or intentional misrepresentation, breach of contract, promissory estoppel, wage and hour violations including but not limited to violations of the Fair Labor Standards Act (FLSA) and Washington Minimum Wage Act (WMA); discrimination and/or harassment in violation of any local, state, or federal law such as Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Act of 1991, Section 1981 of the Civil Rights Act of 1866, and the Washington Law Against Discrimination; claims under the Family and Medical Leave Act, the Workers Adjustment and Retraining Notification Act, and the Employment Retirement Income Security Act (ERISA); as well as any other local, state or federal statutes, administrative regulations or legal doctrines governing claims arising out of or relating to employment or the separation thereof. This release includes any claims pursuant to statute or otherwise for attorneys' fees and costs, and Employee agrees that she will bear her own attorneys' fees and costs (c) This waiver and release shall not waive or release claims (i) where the events in dispute first arise after execution of this waiver and release; or (ii) relating to Employee's rights to indemnity as a corporate officer. 13. Nondisclosure. ------------------ Employee agrees to comply fully with all continuing obligations under Section 8 of the Employment Agreement she signed upon hire, the terms of which are incorporated by reference herein. 14. Nondisparagement. --------------------- Employee agrees not to make any statements, verbally or in writing, about the Employer and its officers, directors, employees and agents in any manner that is intended to, or does, call into question their morality, conduct, business ability, or business judgment; provided that Employee will respond accurately and fully to any question, inquiry or request for information when required by legal process. 3 15. Confidentiality. -------------------- Employee agrees that from the date of this Agreement forward she will keep the terms of this Agreement confidential and will not disclose the fact or terms to anyone except to members of Employee's immediate family, attorney or counselor, and persons assisting her in financial planning or income tax preparation, provided that these people agree to keep such information confidential. Without limiting the foregoing, Employee agrees that it shall be a breach of this provision for Employee to in any way disclose, discuss, or characterize the terms of the Agreement to third parties. MISCELLANEOUS ------------- 16. Free and Voluntary Act of Employee. --------------------------------------- Employee agrees that she is entering into this Agreement freely and voluntarily act and that she has been given at least twenty-one (21) days to decide whether to sign this Agreement, and signs it only after full reflection and analysis. Employee further acknowledges that she has been advised to obtain an attorney's independent counsel and advice; that she has read it carefully and fully understands all of its provisions; and that neither Employer nor its agents or representatives have made any representations to Employee concerning the terms or effects of this Agreement other than those contained herein. If Employee elects to sign this Agreement prior to the expiration of the 21 day period, Employee acknowledges and agrees that Employee had adequate time and opportunity to fully consider her rights and this release of them. 17. No Admission of Liability. ------------------------------ This Separation and Release Agreement shall not be construed as an admission by Employer or Employee of any wrongdoing, improper conduct, liability, breach of any agreement between Employer or Employee, or violation by Employer or Employee of any statute, law or regulation. Both parties agree that neither this Agreement nor any of its terms or conditions will be offered or received in evidence in any proceeding or used in any manner as an admission of wrongdoing or liability on either party's part. 18. Governing Law and Venue. ---------------------------- Interpretation and enforcement of this Agreement shall be governed by the substantive laws which exist in the State of Washington on the date of execution of this Agreement. In any dispute arising out of or relating to this Agreement, the parties agree that venue shall be had in King County, Washington. 19. Revocation. --------------- This Agreement may be revoked by Employee by returning written notice of revocation to Steve Beatty at the following address within seven (7) days of Employee's execution of the Agreement: Helix BioMedix, Inc., 22122 20th Avenue SE, Bothell WA 98021. Unless revoked in accordance with this paragraph, the Agreement will become final and irrevocable on the 8th day following Employee's execution of the Agreement. 4 20. Changes to Agreement. ------------------------- This Agreement may not be changed orally, but only in writing signed by all parties. 21. Entire Agreement. --------------------- This Agreement and Sections 3(c) and 8 of the Employment Agreement constitute the entire agreement between the parties and it fully replaces and supersedes all prior arrangements, discussions, negotiations and agreement between the parties, including but not limited to the remaining provisions of the Employment Agreement. 22. Enforcement. ---------------- In any action to enforce any of the provisions of this Agreement, the prevailing party shall be entitled to recover its reasonable attorney's fees and costs, in addition to any other damages and remedies available at law or in equity 23. Arbitration. ---------------- Any controversies or claims out of or relating to this Agreement shall be fully and finally settled by arbitration in the City of Seattle, Washington in accordance with the rules of the American Arbitration Association then in effect ("the AAA Rules"), conducted by one arbitrator either mutually agreed upon by the Company and Executive or chosen in accordance with the AAA Rules, except that the parties shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration, and the arbitrator shall resolve any dispute that arises in connection with such discovery. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first set forth above. EMPLOYER: HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty --------------------------------- Its: President -------------------------------- Date: 06/03/02 ------------------------------- EMPLOYEE: Elizabeth Scheer Date: 06/03/02 ------------------------------- 5 EXHIBIT A July 6, 2002 To Whom It May Concern: I have known Mrs. Liz Scheer since 1997 when we met in an executive program for MBAs. During our year and a half of classes together, I was very impressed with Mrs. Scheer's leadership and management skills. In 1999, I approached her to join me at Helix BioMedix, Inc., a public biotechnology company, as one of four executives charged with re-inventing the company over a two year period. Until Mrs. Scheer resigned in July 2002, she was Vice President of the company responsible for most non-science operations. These responsibilities included (1) managing and coordinating our regulatory reports including our SEC reports and the various record keeping requirements of successful private placements in 1999 and 2002; (2) developing and implementing our corporate marketing plan; and (3) jointly coordinating the move of our corporate headquarters from New Orleans, Louisiana, to Bothell, Washington. During Mrs. Scheer's tenure at Helix BioMedix, the company grew from a single employee company with a handful of patents to a company with eight employees plus numerous consultants, and over 30 patents. In addition, the company has negotiated one license, and is well on its way to negotiating additional licenses that are projected to generate the first substantial revenue in the history of the company. As President and CEO of the company and the person to whom Mrs. Scheer reported throughout her career at Helix BioMedix, I can state unequivocally that she made major contributions to the success we have had over the past three years. Sincerely, /s/ R. Stephen Beatty - --------------------- R. Stephen Beatty President & CEO 6 EX-10.5 6 helix10ksba2ex105_4282003.txt 2000 STOCK OPTION PLAN EXHIBIT 10.5 HELIX BIOMEDIX, INC. 2000 STOCK OPTION PLAN INITIALLY ADOPTED: NOVEMBER 6, 2000 AMENDED: AUGUST 1, 2002 1. INTRODUCTIONS AND DEFINITIONS 1.1 THE PLAN This 2000 Stock Option Plan (hereinafter, this "Plan") establishes the right of and procedures for Helix BioMedix, Inc. (the "Company") to grant stock options to its employees, consultants and/or directors. This Plan provides for the granting of two types of options, namely (1) Incentive Stock Options, as defined and governed by Section 422 of the Internal Revenue Code of 1986, as amended and (2) Nonqualified Stock Options. This Plan sets forth provisions applicable to both types of options, to Incentive Stock Options only and to Nonqualified Stock Options only. 1.2 DEFINITIONS Capitalized terms used in this Plan shall have the following meanings: "ACT" means the Securities Act of 1933, as from time to time amended, or any replacement act or legislation. "BOARD" means the Board of Directors of the Company. "CAUSE" means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, any act of disloyalty to the Company or any current or future subsidiary of the Company, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Board, whose determination shall be conclusive and binding. "CHANGE OF CONTROL EVENT" means a merger, consolidation, or sale of assets, as the case may be and as described in Subsections (1) and (2) of Section 2.5(a). "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means a committee appointed by the Board, pursuant to Section 2.3 hereof, to administer the provisions of this Plan and in the absence of any such committee, references to the Committee shall mean the Board. "COMPANY" means Helix BioMedix, Inc., a Delaware corporation. "CONSULTANT" means any person engaged by the Company or any current or future subsidiary of the Company to perform services as a non-employee service provider, advisor or consultant pursuant to the terms of a written plan or contract. "Consultants" is the plural of Consultant. "DIRECTOR" means a member of the Board. "Directors" is the plural of Director. "DISABILITY" means "permanent and total disability" as that term is defined for purposes of Section 22(e)(3) of the Code. "EMPLOYEE" means, for purposes of this Plan, persons continuously employed by the Company or by any current or future subsidiary of the Company on a regular basis, whether full-time or part-time, at any time during the duration hereof. "Employees" is the plural of Employee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as from time to time amended, or any replacement act or legislation. "EXECUTIVE OFFICER" means the Chief Executive Officer, the Chief Scientific Officer, the Executive Vice President and the Chief Financial Officer of the Company and any other officer of the Company specifically designated by the Board as an Executive Officer. "FAIR MARKET VALUE" of the Company's common stock for any class shall be the average of the high and low per share sales prices for the common stock as reported by the Nasdaq National Market for a single trading. If there is no such reported price for the common stock for the date in question, then such price on the last preceding date for which such price exists shall be determinative of the Fair Market Value. "GOOD REASON" means the occurrence of any one of the following events, in the event that the Optionee (i) has given the Successor Corporation written notice of such occurrence and the Successor Corporation has failed to cure such event within thirty (30) days, and (ii) Optionee resigns within sixty (60) days following the expiration of such thirty-day period: (a) Relocation of the Optionee to any place greater than fifty (50) miles from his or her principal location prior to the occurrence of the Corporate Transaction, except for reasonably required travel on the Successor Corporation's business that is not materially greater than such travel requirements prior to the Corporate Transaction; or (b) Substantial reduction of the Optionee's compensation package, unless such a reduction is made by the Company ratably with all other employees at similar levels of responsibility. "INCENTIVE STOCK OPTION" means an option issued by the Company to purchase shares of stock of the Company that meets the definition of "incentive stock option" contained in Section 422 of the Code and that is issued by the Company to be an Incentive Stock Option. "Incentive Stock Options" is the plural of Incentive Stock Option. "NONQUALIFIED STOCK OPTION" means an option issued by the Company to purchase shares of stock of the Company that is not an Incentive Stock Option. "Nonqualified Stock Options" is the plural of Nonqualified Stock Option. "OPTIONEE" means the recipient of a Stock Option pursuant to a Stock Option Agreement. "Optionees" is the plural of Optionee. "PLAN" means this Helix BioMedix, Inc. 2000 Stock Option Plan, which also may be referred to as the "Helix BioMedix, Inc. Stock Option Plan." "PLAN GUIDELINES" shall mean the guidelines, rules, policies, regulations, forms of notice and forms of agreements and instruments, if any, adopted and amended by the Board from time to time with respect to this Plan pursuant to Section 2.3. "SHARES" shall mean the Shares of the Company reserved for issuance under this Plan as further defined in Section 2.2. "STOCK OPTION" means an agreement entered into by the Company granting the recipient the right to purchase shares of stock of the Company, at certain times and under certain conditions, subject to certain obligations and responsibilities as defined in this Plan and in the written Stock Option Agreement, whether an Incentive Stock Option or a Nonqualified Stock Option. "Stock Options" is the plural of Stock Option. "STOCK OPTION AGREEMENT" means the written contract by which a Stock Option is granted by the Company to an Optionee. "Stock Option Agreements" is the plural of Stock Option Agreement. "SUCCESSOR CORPORATION" has the meaning set forth under Section 2.5(b). 2. GENERAL PROVISIONS APPLICABLE TO BOTH NONQUALIFIED STOCK OPTIONS AND INCENTIVE STOCK OPTIONS GRANTED BY THE COMPANY. 2.1 OBJECTIVES OF THIS PLAN The purpose of this Plan is to encourage ownership of Common Stock of the Company by Employees and to provide a means of granting Stock Options to Consultants and Directors. This Plan is intended to provide an incentive to Employees for maximum effort in the successful operation of the Company and is expected to benefit the shareholders by enabling the Company to attract and retain personnel of the best available talent through the opportunity to share in the increased value of the Company's shares to which such personnel have contributed. The benefits of this Plan are not a substitute for compensation otherwise payable to Employees pursuant to the terms of their employment. 2.2 STOCK RESERVED FOR THIS PLAN Subject to the provisions of Section 2.10, the number of shares reserved for issuance upon the exercise of Stock Options granted under this Plan shall be 5,400,000 shares of the Common Stock of the Company (the "Shares"), which Shares shall be reserved from the Company's authorized and unissued shares. Shares subject to any Stock Option under this Plan which are not exercised in full or Shares as to which the right to purchase is forfeited through default or otherwise, shall remain available for other Stock Options under this Plan. The aggregate number of Shares subject to Stock Options under this Plan or reserved for issuance by the Board shall not exceed the number approved by the shareholders at the time of adoption hereof unless such increase is approved by the Company's shareholders. Such approval shall be by the affirmative vote of shareholders holding a majority of the issued and outstanding shares of common stock of the Company entitled to vote at a meeting called to approve said increase. 2.3 ADMINISTRATION OF THIS PLAN (a) This Plan shall be administered by the Board or the Committee appointed pursuant to Section 2.3(b), provided that at all times during which the Company is subject to the periodic reporting requirements of the Exchange Act each member of the Board or the Committee who participates in administration must be a "Non-Employee Director" as that term is defined in Rule 16b-3 of the Exchange Act. (b) The Board may appoint a Board committee (the "Committee") to administer this Plan in the name of the Board. The Board or the Committee so appointed shall have full power and authority to administer and interpret this plan and to adopt, from time to time, such guidelines, rules, policies, regulations, forms of notice and forms of agreements and instruments for the administration of the Plan (collectively, "Plan Guidelines") as the Board or such Committee, as the case may be, deems necessary or advisable. Such powers include, but are not limited to (subject to the specific limitations described herein), authority to determine the Employees, Consultants and Directors to be granted Stock Options under this Plan, to determine the size, type and applicable terms and conditions of grants to be made to such Employees, Consultants and Directors, to determine a time when Stock Options will be granted and to authorize grants to eligible Employees, Consultants and Directors. (c) The interpretations by the Board or its appointed Committee of this Plan and all Stock Option Agreements, including the definitions of terms used herein and in Stock Option Agreements, and all actions taken and determinations made by the Board or its appointed Committee concerning any matter arising under or with respect to this Plan or any Stock Options granted pursuant to this plan, shall be final, binding and conclusive on all interested parties, including the Company, it's shareholders and all former, present and future Employees, Consultants and Directors of the Company. So long as the Company is not subject to the reporting requirements of the Exchange Act, the Board may delegate some or all of its power and authority hereunder to the duly elected officers of the Company, such delegation to be subject to such terms and conditions as the Board in its discretion shall determine. Such delegation of authority may be contained in the Plan Guidelines. The Board or its appointed Committee may, as to questions of accounting, rely conclusively upon any determinations made by independent public accountants of the Company. (d) The Chief Executive Officer of the Company shall have the authority to determine from time to time (i) the persons to whom Stock Options are to be granted; (ii) the number of shares of Common Stock for which the Stock Options are exercisable and the purchase price of such shares; (iii) whether the Stock Options are Incentive Stock Options or nonqualified Stock Options; and (iv) any other terms and conditions (which need not be identical) of the Stock Options so long as such terms and conditions would be permissible under the provisions of this Plan if the Stock Options were granted by the Directors or the appointed Committee; provided, however that (A) the Chief Executive Officer may not grant any Stock Options to any person who is an Executive Officer or a Director of the Company at the time of the grant; (B) the purchase price of each share of Common Stock under a Stock Option granted under this section 2.3 (d) shall not be less than the Fair Market Value of such share on the date of grant of the Stock Option; and (C) the Chief Executive Officer shall promptly provide a report to the Committee of each person to whom a Stock Option has been granted under this Section 2.3 (d) and the material terms and conditions of the Stock Option. 2.4 ELIGIBILITY; FACTS TO BE CONSIDERED IN GRANTING STOCK OPTIONS The Board shall have the authority to determine the persons eligible to receive a Stock Option, the time or times at which the Shares may be purchased and whether all of the Stock Options may be exercised at one time or in increments. 2.5 RIGHTS OF OPTIONEE IN EVENT OF MERGER, CONSOLIDATION, SALE OF ASSETS OR DISSOLUTION (a) Except as provided in this Section 2.5 and in Section 13, and notwithstanding anything in this Plan to the contrary, if the Optionee is not then an Executive Officer of the Company, the Optionee may conditionally purchase during the periods set forth below in Subsections (1) through (3) of this Section 2.5 (a), the amount of Shares for which the right to purchase has already vested plus (i) the number of Shares for which the right to purchase, according to the terms of the Stock Option Agreement relating to such Shares, is scheduled to vest within 12 months of the effective, closing, or filing date, as the case may be, of a merger, consolidation, sales of assets, or dissolution, as described below, or (ii) fifty percent (50%) of the number of Shares for which the right to purchase has not yet vested, whichever is greater. Except as provided in this Section 2.5 and notwithstanding anything in this Plan to the contrary, if the Optionee is then an Executive Officer of the Company, the Optionee may conditionally purchase all of his vested or unvested Shares during the periods set forth below in Subsections (1) through (3) of this Section 2.5 (a). (1) The period commencing ten (10) days and ending five (5) days prior to the scheduled effective date of a merger or consolidation (as such effective date may be delayed from time to time) wherein the Company is not to be the surviving corporation and the shareholders of the corporation immediately prior to the merger or consolidation are not to own a majority of the capital stock of the surviving corporation immediately after the merger or consolidation, provided such merger or consolidation is not between or among the Company and other corporations related to or affiliated with the Company; (2) The period commencing ten (10) days and ending five (5) days prior to the scheduled closing date of a sale of all or substantially all of the assets of the Company (as such closing date may be delayed from time to time); and (3) The period commencing the date the shareholders of the Company approve the dissolution of the Company and ending five (5) days prior to the date of filing its Articles of Dissolution. If the merger, consolidation, sale of assets (collectively, a "Change of Control Event"), or dissolution, as the case may be and as described in Subsections (1) through (3) of this Section 2.5(a), once commenced, is canceled or revoked, the conditional purchase of Shares for which the right to purchase would not have otherwise vested at the time of said cancellation or revocation, but for the operation of this Section 2.5, shall be rescinded. With respect to all other Shares conditionally purchased, the Optionee may rescind such purchase at Optionee's discretion. If the Change of Control Event does occur or Articles of Dissolution are filed, as the case may be and as described in Subsections (1) through (3) of this Section 2.5(a), all unexercised Stock Options that have not been assumed pursuant to Section 2.5(b) shall terminate on the effective, closing, or filing date, as the case may be. (b) The Optionee shall have no right to conditionally purchase Shares for which the right to purchase would not have otherwise vested but for the operation of this Section 2.5 if: (1) The Stock Option relating to such Shares, in connection with the Change of Control Event, is either to be assumed by the successor or purchasing corporation or parent thereof (the "Successor Corporation") or to be replaced with a comparable award for the purchase of shares of the capital stock of the Successor Corporation; or (2) The Stock Option relating to such Shares is to be replaced with a cash incentive program of the Successor Corporation that preserves the spread existing at the time of the Change of Control Event and provides for subsequent payout in accordance with the same vesting schedule applicable to such Stock Option. For purposes of this Section 2.5(b)(2), the spread existing at the time of a Change of Control Event means the difference between the exercise price per Share of the Stock Option and the Fair Market Value per Share on the closing or effective date of the Change of Control Event. The determination of Stock Option comparability shall be made by the Board, and its determination shall be conclusive and binding. In the event that an Optionee's Stock Options are assumed or replaced by a Successor Corporation in a Change of Control Event, and the Optionee's employment or services are terminated within one year after the Change of Control Event either by the Successor Corporation without Cause or by the Optionee voluntarily for Good Reason, the Optionee shall have the right to purchase within ninety (90) days of termination the amount of Shares covered by such Stock Options for which the right to purchase is scheduled by the terms of the Stock Option Agreement to vest within 12 months of the date of termination. (c) If the Company shall be the surviving corporation in any merger or consolidation or is a party to a merger or consolidation which does not otherwise qualify as a Change of Control Event, any Stock Option granted hereunder shall pertain and apply to the securities to which a holder of the number of Shares of Common Stock subject to the Stock Option would have been entitled. (d) The grant of Stock Options will in no way affect the Company's right to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (e) Nothing herein shall allow the Optionee to purchase Shares, the Stock Options for which have expired. 2.6 STOCK OPTION AGREEMENTS; TERMS AND EXPIRATION OF STOCK OPTIONS Each Stock Option granted under this Plan shall be pursuant to a written Stock Option Agreement in a form substantially similar to the form attached as Annex A, which shall designate whether the Stock Option is an Incentive Stock Option or Nonqualified Stock Option, shall be subject to such amendment or modification from time to time as the Board shall deem necessary or appropriate to comply with or take advantage of applicable laws or regulations and shall contain or be subject to provisions as to the following effect, together with such other provisions as the Board shall from time to time approve: (a) That, subject to the provisions of Section 2.6(b) below, the Stock Option, as to the whole or any part thereof, may be exercised only by the Optionee or Optionee's personal representative; (b) Except as may be otherwise permitted pursuant to Section 2.13(c) or Section 3.3, that neither the whole nor any part of the Stock Option shall be transferable by the Optionee or by operation of law other than by will of, or by the laws of descent and distribution applicable to, a deceased Optionee and that the Stock Option and any and all rights granted to the Optionee there under and not theretofore effectively and completely exercised shall automatically terminate and expire upon any sale, transfer, or hypothecation or any attempted sale, transfer, or hypothecation of such rights or upon the bankruptcy or insolvency of the Optionee or Optionee's estate; (c) That subject to the foregoing provisions, a Stock Option may be exercised at different times for portions of the total number of Shares for which the right to purchase shall have vested provided that such portions are in multiples of ten (10) shares if the Optionee holds vested Stock Options for ninety-nine (99) or fewer Shares and otherwise in multiples of one hundred (100) Shares; (d) That no Optionee shall have the right to receive any dividend on or to vote or exercise any right in respect to any Shares unless and until the certificates for such Shares have been issued to such Optionee; (e) That the Stock Option shall expire with respect to vested Shares at the earliest of the following: (1) The date specified in the Stock Option Agreement; (2) With respect to any Employee, ninety (90) days after involuntary termination of Optionee's employment for cause; (3) With respect to any Employee, three (3) years after involuntary termination of Optionee's employment without cause; (4) With respect to any Employee, ninety (90) days after voluntary termination of employment, provided however that the Board or its designated Committee may extend the expiration period for any such Employee up to three (3) years; (5) With respect to any Consultant, ninety (90) days after the earlier of (i) the date either the Company or the Optionee notifies the other that the Company or the Optionee, as the case may be, is terminating the consultant relationship or (ii) the end of a period of one hundred twenty (120) days during which the consultant has not performed any service for the Company, unless in either case, such termination is on account of death or disability; (6) With respect to a Director, ninety (90) days after resignation or removal from the Board of the Company or other cessation of service as a Director other than on account of death or disability; provided however that the Board or its designated Committee may extend the expiration period for any such Director who resigns up to three (3) years; (7) Twelve (12) months after Optionee's death or disability provided that the Board or its designated Committee may extend the expiration period for such vested options up to three (3) years; or (8) In the event of a Change of Control Event, or the filing of Articles of Dissolution, as the case may be and as described in Subsections (1) through (3) of Section 2.5 (a), on the date specified in Section 2.5 (a). (f) That, to the extent a Stock Option Agreement provides for the vesting of the right to purchase in increments, such vesting shall cease as of the date of the Optionee's death, Disability, or, in the case of any Employee, voluntary or involuntary termination of Optionee's employment with the Company for any reason or, in the case of any Consultant, (i) the date either the Company or Optionee notifies the other that the Company or the Optionee, as the case may be, is terminating the consultant relationship or (ii) the end of a period of one hundred twenty (120) days during which the Consultant has not performed any service for the Company or, in the case of a Director, upon his resignation or removal from the Board of the Company or other cessation of his services as a director; (g) That the time at which or the installments in which the Stock Option shall become exercisable, is as set forth in the Stock Option Agreement; provided that if not set forth in the Stock Option Agreement, the Stock Option will become exercisable according to the following schedule, which may be waived or modified by the Board or its designated Committee at any time:
------------------------------------------------------------ ----------------------- Period of Optionee's Continuous Employment or Service With Percent of Total Option the Company or Its Subsidiaries From the Date That is Exercisable Option is Granted ------------------------------------------------------------ ----------------------- After 12 months 33.3% ------------------------------------------------------------ ----------------------- Each month period of continuous service completed thereafter An additional 2.7792% ------------------------------------------------------------ ----------------------- After 3 years 100% ------------------------------------------------------------ -----------------------
If, in the absence of this provision, a Stock Option would become exercisable for a fractional share under the terms and conditions governing its exercisability, then the Stock Option shall instead become exercisable for such fractional share at the time provided in the Stock Option Agreement for such Stock Option to become fully exercisable. (h) That the terms of the Stock Option Agreement shall be a contract between the Company and the Optionee and the specific terms of any Stock Option Agreement shall govern over the more general terms hereof; and (i) With respect to Employees, subject to the Plan Guidelines, the Stock Option Agreement shall not be affected by any changes of duties or position so long as the Optionee shall continue to be an Employee, subject to the terms hereof. 2.7 RULE 16B-3 COMPLIANCE (a) Unless an Optionee could otherwise exercise a Stock Option or dispose of Shares delivered upon exercise of a Stock Option granted under the Plan without incurring liability under Section 16 of the Exchange Act ("Section 16"), at least six months shall elapse from the date of acquisition of the Stock Option to the date of disposition of its underlying Shares. (b) It is the intent of the Company that this Plan comply in all respects with applicable provisions of Rule 16b-3 or Rule 15a-1(c)(3) under the Exchange Act in connection with any grant of Stock Options to or other transaction by an Optionee who is subject to Section 16 (except for transactions exempted under alternative Exchange Act Rules or acknowledged in writing to be non-exempt by such Optionee). Accordingly, if any provision of this Plan or any Stock Option Agreement relating to a Stock Option does not comply with the requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to such transaction, such provision will be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Optionee shall avoid liability under Section 16(b). 2.8 NOTICE OF INTENT TO EXERCISE STOCK OPTION The Optionee (or other person or persons, if any, entitled hereunder) desiring to exercise a Stock Option as to all or part of the Shares covered thereby shall in writing notify the Company at its principal office, specifying the number of Shares to be purchased and, if required by the Company, representing in form satisfactory to the Company that the Shares are being purchased for investment and not with a view to resale or distribution. The Company from time to time may issue or specify to Optionees a written form for use in connection with any such exercise. With respect to any Shares conditionally purchased pursuant to Section 2.5(a) above and for which such purchase has not been voluntarily or otherwise rescinded pursuant to Section 2.5(a), the Optionee shall be deemed to have given to the Company the notice of exercise required by this Section 2.8 as of ten (10) days prior to the closing or effective date of the Change of Control Event or the filing of Articles of Dissolution, as the case may be and as described in Subsections (1) through (3) of Section 2.5(a). 2.9 METHOD OF EXERCISE OF STOCK OPTION Within ten (10) days after receipt by the Company of the notice provided in Section 2.8, but not later than the expiration date specified in Section 2.5(e), the Stock Option shall be exercised as to the number of Shares specified in the notice by payment by the Optionee to the Company of the amount specified below in Section 3.2 and Section 4.5, as applicable. Payment of such purchase price shall be made in cash, or in accordance with procedures for a "cashless exercise" as the same may have been established from time to time by the Company to facilitate exercises of Stock Options and sales of Shares under this Plan. The Company has no obligation and has made no commitments to establish a procedure for "cashless exercise". Payment in shares of the Company's Common Stock shall be deemed to be the equivalent of payment in cash at the Fair Market Value of those shares. For purposes of the preceding sentence, "Fair Market Value" shall be determined by the Board in the same manner as utilized in determining the Fair Market Value at the time other Stock Options are granted. 2.10 RECAPITALIZATION The aggregate number of Shares for which Stock Options may be granted hereunder, the number of Shares covered by each outstanding Stock Option and the price per Share thereof in each such Stock Option Agreement shall be proportionately adjusted for an increase or decrease in the number of outstanding shares of common stock of the Company resulting from a stock split or reverse split of shares or any other capital adjustment or the payment of a stock dividend or other increase or decrease in such shares effected without receipt of consideration by the Company excluding any decrease resulting from a redemption of shares by the Company. If the adjustment would result in a fractional Share the Optionee shall be entitled to one (1) additional Share, provided that the total number of Shares to be granted under this Plan shall not be increased above the equivalent number of Shares initially allocated or later increased by approved amendment to this Plan. Any adjustment shall be made by the Board whose determination shall be final, binding and conclusive. If the Company's Common Stock is reclassified or converted into common stock or another class of common stock in accordance with the Company's Articles of Incorporation or otherwise, any then outstanding Stock Options shall automatically become options to purchase shares of stock of the Company into which the Common Stock is converted or reclassified; and all references to "Shares" herein shall refer to shares of the Company's stock into which the Common Stock is converted or reclassified. 2.11 SUBSTITUTIONS AND ASSUMPTIONS The Board shall have the right to substitute, replace, or assume options in connection with mergers, reorganizations, separations, or other "corporate transactions" as that term is defined in and said substitutions and assumptions are permitted by Section 425 of the Code and the regulations promulgated there under. The number of Shares reserved pursuant to Section 2.2 may be increased by the corresponding number of options assumed and, in the case of a substitution, by the net increase in the number of Shares subject to options before and after the substitution. 2.12 TERMINAL DATE OF PLAN This Plan shall not extend beyond a date ten (10) years from the date of adoption hereof by the Board, provided that any Stock Option to purchase shares duly granted hereunder prior to such date shall be exercisable pursuant to its terms and the terms hereof until expiration or earlier termination of such Stock Option. 2.13 GRANTING OF STOCK OPTIONS (a) The granting of any Stock Option pursuant to this Plan shall be entirely in the discretion of the Board and nothing herein contained shall be construed to give any person any right to participate under this Plan or to receive any Stock Option under it. (b) The granting of a Stock Option pursuant to this Plan shall not constitute any agreement or an understanding, express or implied on the part of the Company or a current or future subsidiary to employ or retain the Optionee for any specified period. (c) The Board shall have the authority to grant both transferable Stock Options and nontransferable Stock Options and to amend outstanding nontransferable Stock Options to provide for transferability. Each Stock Option intended to qualify as an Incentive Stock Option and each nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise shall provide by its terms that it is not transferable otherwise than by will or the laws of descent and distribution or, except in the case of Incentive Stock Options, pursuant to a "qualified domestic relations order" as defined by the Code and is exercisable, during the Optionee's lifetime, only by the Optionee. Each transferable Stock Option may provide for such limitations on transferability and exercisability as the Board may designate at the time the Stock Option is granted or is otherwise amended to provide for transferability. 2.14 WITHDRAWAL An Optionee may at any time elect in writing to abandon a Stock Option with respect to the number of Shares as to which the Stock Option shall not have been exercised. 2.15 GOVERNMENT REGULATIONS This Plan and the granting and exercise of any Stock Option hereunder and the obligations of the Company to sell and deliver Shares under any such Stock Option shall be subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies as may be required. 2.16 PROCEEDS FROM SALE OF STOCK Proceeds of the purchase of Shares by an Optionee shall be used for the general business purposes of the Company. 2.17 SHAREHOLDER APPROVAL This Plan shall be submitted to the shareholders for their approval within twelve (12) months from the date hereof. The Company may grant Stock Options prior to such approval which shall be conditioned upon subsequent shareholder approval. 2.18 COMPLIANCE WITH SECURITIES LAWS The Board shall have the right to: (a) Require an Optionee to execute, as a condition of exercise of a Stock Option, a letter evidencing Optionee's intent to acquire the Shares for investment and not with a view to the resale or distribution thereof; (b) Place appropriate legends upon the certificate or certificates for the Shares; and (c) Take such other acts as it deems necessary in order to cause the issuance of Shares to comply with applicable provisions of state and federal securities laws. In furtherance of the foregoing and not by way of limitation thereof, no Stock Option shall be exercisable unless such Stock Option and the Shares to be issued pursuant thereto shall be registered under appropriate federal and state securities laws, or shall be exempt therefrom, in the opinion of the Board upon advice of counsel to the Company. Each Stock Option Agreement shall contain adequate provisions to assure that there will be no violation of such laws. This provision shall in no way obligate the Company to undertake registration of Stock Options or Shares hereunder. Issue, transfer or delivery of certificates for Shares pursuant to the exercise of Stock Options may be delayed, at the discretion of the Board until the Board is satisfied that the applicable requirements of the federal and state securities laws have been met. The dollar value and number of Stock Options granted under this Plan are limited pursuant to Rule 701 promulgated by the Securities and Exchange Commission, which provides an exemption from the registration requirements under the Act. Any guidelines adopted pursuant to this Plan shall contain the current limitations specified in said Rule 701 until the Company is registered under the Act. 2.19 GOLDEN PARACHUTE TAXES In the event that any amounts paid or deemed paid to an employee under this Plan are deemed to constitute "excess parachute payments" as defined in Section 280G of the Code (taking into account any other payments made under this Plan and any other compensation paid or deemed paid to an employee), or if any employee is deemed to receive an "excess parachute payment" by reason of his or her vesting of Options pursuant to Section 2.5 herein, the amount of such payments or deemed payments shall be reduced (or, alternatively the provisions of Section 2.5 shall not act to vest options to such employee), so that no such payments or deemed payments shall constitute excess parachute payments. The determination of whether a payment or deemed payment constitutes an excess parachute payment shall be in the sole discretion of the Board. 3. PROVISIONS APPLICABLE SOLELY TO NONQUALIFIED STOCK OPTIONS In addition to the provisions of Section 2 above, the following paragraphs shall apply to any Stock Options granted under this Plan which are not Incentive Stock Options. 3.1 OPTION PRICE The option, or purchase, price of each Share optioned as a Nonqualified Stock Option under this Plan shall be determined by the Board and set forth in the Stock Option Agreement. 3.2 METHOD OF EXERCISE OF STOCK OPTION The amount to be paid by the Optionee upon exercise of a Nonqualified Stock Option shall be the exercise price provided for in the Stock Option Agreement, together with the amount of federal, state and local income and FICA taxes required to be withheld by the Company. If the Company has established procedures for a "cashless exercise" pursuant to Section 2.9, an Optionee may elect to pay Optionee's federal, state, or local income and FICA withholding tax by having the Company withhold shares of Company Common Stock having a value equal to the amount required to be withheld. The value of the shares to be withheld is deemed to equal the Fair Market Value of the shares on the day the Stock Option is exercised. An election by an Optionee to have shares withheld for this purpose will be subject to the following restrictions: (a) If an Optionee has received multiple Stock Option grants, a separate election must be made for each grant; (b) The election must be made prior to the day the Stock Option is exercised; (c) The election will be irrevocable; (d) The election will be subject to the disapproval of the Board; and (e) If the Optionee is an "officer" of the Company within the meaning of Section 16 as defined in Rule 16a-1 promulgated by the Securities and Exchange Commission, the election may not be made within six (6) months following the grant of the Stock Option. 3.3 ASSIGNMENT The Company may allow limited assignment rights for the gifting by Optionee of rights hereunder to vested Nonqualified Stock Options, on terms to be determined by the Board from time to time. 4. PROVISIONS APPLICABLE SOLELY TO INCENTIVE STOCK OPTIONS In addition to the provisions of Section 2 above, the following paragraphs shall apply to any Stock Options granted under this Plan which are Incentive Stock Options. 4.1 CONFORMANCE WITH INTERNAL REVENUE CODE Stock Options granted under this Plan which are "Incentive Stock Options" shall conform to, be governed by and be interpreted in accordance with Section 422 of the Code and any regulations promulgated thereunder and amendments to the Code and regulations. Only Employees may be granted Incentive Stock Options hereunder--Consultants and non-employee Directors may not receive Incentive Stock Options hereunder. 4.2 OPTION PRICE The option, or purchase, price of each Share optioned as an Incentive Stock Option under this Plan shall be determined by the Board at the time of the action for the granting of the Stock Option and set forth in the Stock Option Agreement, but shall not, in any event, be less than the Fair Market Value of the Company's Common Stock on the date of grant. 4.3 LIMITATION ON AMOUNT OF INCENTIVE STOCK OPTION The aggregate Fair Market Value of the Shares, as determined on the date of grant, vesting in any one calendar year with respect to which an Employee has the right to purchase (under this Plan or any other plan of the Company which authorizes Incentive Stock Options) shall not exceed $100,000; and to the extent any Stock Option purporting to be an Incentive Stock Option grants an Employee the right to purchase Shares with an aggregate Fair Market Value vesting in any one calendar year in excess of $100,000, as so determined (under this Plan or any other plan of the Company which authorizes Incentive Stock Options), shall be deemed a Nonqualified Stock Option for such excess amount. 4.4 LIMITATION ON GRANTS TO SUBSTANTIAL SHAREHOLDERS It is the Company's intent that it will not grant Incentive Stock Options to any Employee who, immediately prior to the grant of a Stock Option hereunder, owns stock in the Company representing more than ten percent (10%) of the voting power of all classes of stock of the Company, unless the per share option price specified by the Board for the Incentive Stock Options granted such an Employee is at least one hundred ten percent (110%) of the Fair Market Value of the Company's stock on the date of grant and such Stock Option, by its terms, is not exercisable after the expiration of five (5) years from the date such Stock Option is granted. Any Stock Option that by its terms purports to be an Incentive Stock Option that is issued to an Employee who owns stock in the Company representing more than ten percent (10%) of the voting power of all classes of stock of the Company that does not have an exercise price of at least one hundred ten percent (110%) of the Fair Market Value of the Company's stock on the date of grant or that is, by its terms, exercisable after the expiration of five (5) years from the date such Stock Option is granted, shall be deemed a Nonqualified Stock Option. 4.5 METHOD OF EXERCISE OF STOCK OPTION The amount to be paid by the Optionee upon exercise of an Incentive Stock Option shall be the purchase price per share provided for in the Stock Option Agreement. 5. COMPANY'S OPTION TO REPURCHASE 5.1 OPTION TO REPURCHASE Subject to the provisions of Section 5.3 below and unless otherwise specified by the Board, upon the termination of an Optionee's employment or business relationship with the Company or any current or future subsidiary, the Company shall have the right to repurchase up to Ten Thousand (10,000) Shares purchased upon the exercise of Stock Options (and any other shares of stock or other securities issued in connection with such Shares) granted while the Optionee was an Employee, Consultant or Director of the Company or a current or future subsidiary, as the case may be, at its then-current Fair Market Value, as determined by the Board. The Company shall give written notice to the Optionee of its intention to repurchase within the later of (i) sixty (60) days after the date of termination or (ii) sixty (60) days after the last day a Stock Option held by such Optionee might be exercised. The purchase price for the Shares to be repurchased shall be payable in cash within sixty (60) days after the notice is given and shall be offset against any amounts that may be due and owing to the Company. For purposes of this Section 5.1, "Fair Market Value" shall be determined by the Board in the same manner as utilized in determining the Fair Market Value for purposes of Stock Option grants at such time. The Board's determination of Fair Market Value shall be final. 5.2 RIGHT OF FIRST REFUSAL Subject to the provisions of Section 5.3 below and unless otherwise specified by the Board, the Optionee (or his personal representative) shall not sell or encumber the Shares purchased hereunder or any other shares issued in connection with those Shares, unless he or she has first offered to sell such Shares to the Company, as follows: If the Optionee proposes to encumber or transfer such Shares, he or she shall advise the Company of the name of the proposed recipient, the number and class of Shares and the proposed price and terms. The Company shall have an option, which option must be exercised in writing within forty-five (45) days after receipt of written notice of the proposed transfer, to purchase such Shares upon the same terms and conditions as are stated in the notice. The purchase price shall be paid by the Company within forty-five (45) days of the giving of its notice of intent to repurchase. In the event the Company does not elect to repurchase hereunder, the Optionee shall have the right to encumber or transfer such Shares in accordance with the price and terms and to the recipient stated in the notice for a period of ninety (90) days; but, if such Shares are not encumbered or transferred within said ninety (90) days, the Optionee shall not thereafter encumber or transfer such Shares without again complying with the requirements of this Section 5.2. By executing the appropriate acknowledgment on Stock Option Agreements, the spouses of Optionees shall agree and assent to the repurchase rights set forth in Sections 5.1 and 5.2. The Company may require spouses of Optionees to execute similar acknowledgments in connection with the exercise of Stock Options. Notwithstanding the foregoing restrictions in this Section 5.2, an Optionee (the "Transferor") may, during his or her lifetime, give or otherwise transfer, outright or in trust, any or all of his or her Shares to one or more of the following persons: his or her spouse, his or her lineal ancestors, or descendants, or to an entity owned and controlled by such Optionee (the "Permitted Transferees"); provided that (i) each Permitted Transferee holds such Shares subject to the terms and conditions of this Section 5.2 and signs an agreement to that effect, and (ii) each Permitted Transferee makes no further transfer of any Shares, voluntarily or otherwise, except to the Transferor or to the Transferor's other Permitted Transferees. 5.3 TERMINATION OF COMPANY'S RIGHTS The Company's repurchase rights stated in Sections 5.1 and 5.2 above will terminate in the event the Company successfully concludes a registered public offering of its common stock under the Act. 6. TERMINATION AND AMENDMENT This Plan, the Plan Guidelines and all rules and regulations adopted in respect hereof may be terminated, suspended, or amended at any time by a majority vote of the Board, provided that no such action shall adversely affect any material rights of Optionees granted under this Plan prior to such action without the consent of such Optionees and provided further that to the extent required for compliance with Section 422 of the Code or any applicable law or regulation, shareholder approval will be required for any amendment that will (a) increase the total number of shares as to which Options may be granted under the Plan, (b) modify the class of persons eligible to receive Options, or (c) otherwise require shareholder approval under any applicable law or regulation. The Board may amend the terms and conditions of outstanding Stock Options, provided, however, that (i) no such amendment would be materially adverse to the holders of such Stock Options without their consent, (ii) no such amendment shall extend the period for exercise of a Stock Option, and (iii) the amended terms of a Stock Option would be permitted under this Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Optionee, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. 7. FOREIGN EMPLOYEES Without amending this Plan, the Board may grant Stock Options to eligible Employees who are foreign nationals on such terms and conditions different from those specified in this Plan as may in the judgment of the Board be necessary or desirable to foster and promote achievement of the purposes of this Plan, and, in furtherance of such purposes the Board may make such modifications, amendments, procedures, subplans, and the like as may be necessary or advisable to comply with the provisions of the laws in other countries in which the Company operates or has Employees. 8. REGISTRATION, LISTING AND QUALIFICATION OF SHARES Each Stock Option shall be subject to the requirement that if at any time the Board shall determine that the registration, listing, or qualification of the Shares covered thereby upon any securities exchange or under any foreign, federal, state, or local law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Stock Option or the purchase of shares thereunder, no such Stock Option may be exercised unless and until such registration, listing, qualification, consent, or approval shall have been effected or obtained free of any condition not acceptable to the Board. Any person exercising a Stock Option shall make such representations and agreements and furnish such information as the Board may request to assure compliance with the foregoing or any other applicable legal requirements. 9. NO RIGHTS TO STOCK OPTIONS OR EMPLOYMENT; NO RESTRICTIONS No Employee or other person shall have any claim or right to be granted a Stock Option under this Plan. Having received a Stock Option under this Plan shall not give an Employee or other person any right to receive any other grant or Stock Option under this Plan. An Optionee shall have no rights to or interest in any Stock Option except as set forth herein. Neither this Plan nor any action taken hereunder shall be construed as giving any Employee any right to be retained in the employ of the Company or any Consultant or Director any right to be retained or engaged by the Company, or otherwise in any way affect any right and power of the Company to terminate the employment or engagement of any Employee, Consultant or Director at any time with or without assigning a reason therefor. Nothing in this Plan shall restrict the Company's rights to adopt other option plans pertaining to any or all of the Employees, Consultants or Directors covered under this Plan or other Employees, Consultants or Directors not covered under this Plan. Each Stock Option granted hereunder may be affected, with regard to both vesting schedule and termination, by leaves of absence, a reduction in the number of hours worked, partial disability and other changes in Optionee's Employee, Consultant or Director status, as the case may be. The Company's policies in such matters shall be contained in the Plan Guidelines adopted by the Board. The Plan Guidelines and the guidelines, rules, policies and regulations contained therein may be amended at any time and from time to time by the Board or the Committee, in its sole discretion and with or without notice. Optionee's rights hereunder or under any Stock Option granted hereunder at any time shall be governed by the Plan Guidelines in effect at the time of any change in Optionee's employment status as contemplated above. 10. COSTS AND EXPENSES Except as provided herein with respect to the payment of taxes, all costs and expenses of administering this Plan shall be borne by the Company and shall not be charged to any grant or any Optionee receiving a grant. 11. PLAN UNFUNDED This Plan shall be unfunded. Except for the Board's reservation of a sufficient number of authorized shares to the extent required by law to meet the requirements of this Plan, the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure payment of any grant under this Plan. 12. GOVERNING LAW This Plan shall be governed by and construed in accordance with the laws of the State of Delaware (without regard to the legislative or judicial conflict of laws rules of any state), except to the extent superseded by federal law, and venue for any action taken in connection herewith or related hereto shall exclusively reside in King County, Washington. 13. SPECIAL PROVISIONS RELATING TO CALIFORNIA RESIDENTS Notwithstanding anything to the contrary herein, the following provisions shall govern all options granted under the Plan to residents of the State of California (referred to herein as "California Options"). The following provisions are intended to comply with Rule 260.140.41 of the Regulations of the Department of Corporations of the State of California (the "California Regulations"). When issuing California options, the Company shall indicate on the options that they are issued subject to these special provisions. (a) The total number of shares granted pursuant to the Plan is as set forth in Section 2.2 of the Plan. (b) The option price or purchase price of each Share optioned under the Plan under a California Option shall be determined by the Board at the time of the action for the granting of the option but shall not, in any event, be less than eighty-five percent (85%) of the Fair Market Value of the Common Stock on the date of grant. With respect to any California Option granted to any person who owns stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company, the option price shall be at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant. (c) The exercise period with respect to California Options shall not exceed one hundred twenty (120) months from the date of grant. (d) California Options shall not be transferable other than by will or the laws of descent and distribution, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to "immediate family" as that term is defined in 17 C.F.R. 240.16a-1(e). (e) In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Company's stock, the number of shares subject to a California Option shall be adjusted in accordance with the provision of Section 2.9 of the Plan. (f) California Options shall, at a minimum, be exercisable at a rate of twenty percent (20%) per year from the date of grant. (g) Unless employment is terminated for cause as defined by applicable law, the terms of the Plan or option grant or a contract of employment, the right to exercise a California Option in the event of termination of employment with the Company, to the extent that the California Option is exercisable on the date of such termination of employment, is as follows: at least six (6) months from the date of termination if termination was caused by death or disability and at least thirty (30) days from the date of termination if termination was caused by other than death or disability. (h) There shall be no California Options granted under the Plan later than ten (10) years from the date the Plan was adopted or the date the Plan is approved by the shareholders, whichever is earlier. (i) The Plan shall be approved by the shareholders within twelve (12) months after the date of adoption of the Plan by the Board of Directors. No option may be exercised before shareholder approval is obtained. (j) The Company will comply with Section 260.140.46 of the California Code of Regulations regarding information required to be received by employees of the Company residing in the State of California. The provisions of Section 2.5(a) and (b) and paragraph (7) of subsection (e) of Section 2.6 of the Plan shall not apply to California Options with the effect that there shall be no reference in the Plan to the acceleration of the exercise period for California Options in relation to mergers, consolidations and takeovers in which the Company is not the surviving entity. 14. SEVERABILITY In the event any provision of this Plan or any Stock Option Agreement is found to be invalid or unenforceable, such provision shall be deemed reformed to the extent necessary to render it valid and enforceable. The invalidity or unenforceability of any provision in this Plan or any Stock Option Agreement shall not in any way affect the validity or enforceability of any other provision of this Plan or the Stock Option Agreement, as the case may be and this Plan and the Stock Option Agreement shall be construed in all respects as if such invalid or unenforceable provision had never been included. ANNEX A Stock Option No. ______ [FORM OF] HELIX BIOMEDIX, INC. (THE "COMPANY") STOCK OPTION AGREEMENT FOR PURCHASE OF STOCK We are pleased to inform you that the Company has granted to you, as the individual named below (the "Optionee"), this Stock Option. This Stock Option Agreement is a contract between you and the Company. It grants to you certain defined rights, at certain times and under certain conditions, to purchase shares of the Company's Common Stock, and in exchange you accept certain obligations and responsibilities, as described below and in the Company's 2000 Stock Option Plan (adopted __________ __, ____) (the "Plan") and the attached Terms and Conditions. FOR VALUABLE CONSIDERATION, the Company does hereby grant to the Optionee, as of the Date of Option Grant specified below, the right and option to purchase the number of shares of Common Stock of the Company specified below (the "Option Shares") for the Exercise Price Per Share specified below, and the right to purchase the Option Shares under this Stock Option Agreement shall accrue and vest according to the Vesting Schedule specified below: - -------------------------------------------------------------------------------- NAME OF OPTIONEE: - -------------------------------------------------------------------------------- TYPE OF OPTION: - -------------------------------------------------------------------------------- NUMBER OF OPTION SHARES: - -------------------------------------------------------------------------------- EXERCISE PRICE PER SHARE: - -------------------------------------------------------------------------------- DATE OF OPTION GRANT: - -------------------------------------------------------------------------------- TERM OF OPTION: - -------------------------------------------------------------------------------- VESTING SCHEDULE: - -------------------------------------------------------------------------------- EXECUTED as of the Date of Option Grant. HELIX BIOMEDIX, INC. By: Its: BY SIGNING BELOW AND ENTERING INTO THIS STOCK OPTION AGREEMENT, OPTIONEE AGREES TO THE TERMS HEREOF AND ALL OBLIGATIONS AND RESPONSIBILITIES AS DESCRIBED IN THE PLAN AND THE ATTACHED TERMS AND CONDITIONS. OPTIONEE , as Optionee BY SIGNING BELOW, OPTIONEE'S SPOUSE HEREBY ACKNOWLEDGES THAT, PURSUANT TO THE PLAN THE COMPANY WILL HAVE CERTAIN REPURCHASE RIGHTS WITH RESPECT TO ANY OPTION SHARES ISSUED TO OPTIONEE UPON EXERCISE OF THIS STOCK OPTION AND AS A CONDITION TO SUCH EXERCISE, THE UNDERSIGNED WILL EXECUTE SUCH DOCUMENTATION AS MAY BE REASONABLY REQUIRED BY THE COMPANY EVIDENCING THE UNDERSIGNED'S ACCEPTANCE OF AND AGREEMENT TO SUCH REPURCHASE RIGHTS. SPOUSE , as Spouse 15 TERMS AND CONDITIONS OF STOCK OPTION AGREEMENT STOCK OPTIONS ARE SUBJECT TO THE TERMS HEREOF AND OF THE COMPANY'S 2000 STOCK OPTION PLAN (ADOPTED ________ __, ____) (THE "PLAN"). CAPITALIZED TERMS USED IN THIS STOCK OPTION AGREEMENT (THIS "AGREEMENT"), IF NOT OTHERWISE DEFINED, HAVE THE MEANINGS GIVEN THEM IN THE PLAN. 1. (a) Any Option Shares which become purchasable ("vest") but are not purchased on a vesting date or anniversary date, as the case may be, may be purchased on any subsequent date, provided all options for the purchase of Option Shares must be exercised within the time periods specified in Section 2 below. (b) Optionees shall have conditional purchase rights in the event of any Change of Control Event or dissolution as described in the Plan. 2. All UNVESTED options shall expire upon any termination of Optionee's employment with or provision of services to the Company for any reason, whether voluntary or involuntary, or upon the death or Disability of Optionee, as more fully described in the Plan. Subject to the terms hereof, all VESTED options (i.e., options for which the right to purchase has accrued) shall expire at the earliest of the following: (a) The earlier of the end of the Term of Option specified on the first page of this Agreement or ten (10) years from the Date of Option Grant specified on the first page of this Agreement; (b) If Optionee is or becomes an Employee, ninety (90) days after voluntary or involuntary termination of Optionee's employment other than termination as described in Paragraphs (e) or (f) below; (c) If Optionee is or becomes a Consultant, ninety (90) days after the earlier of (i) the date either the Company or Optionee notifies the other that the Company or the Optionee, as the case may be, is terminating the consultant relationship or (ii) the end of a period of one hundred twenty (120) days during which the Consultant has not performed any service for the Company, unless in either case, such termination is pursuant to events described in Paragraphs (e) or (f) below; (d) If Optionee is a Director, ninety (90) days after resignation or removal from the Board of the Company or other cessation of service as a director other than cessation of service as described in Paragraphs (e) or (f) below; (e) Upon discharge of Optionee (removal from the Board, in the case of a Director) for "cause" as defined in any employment or consulting agreement between the Company and Optionee or, if there shall be no such employment or consulting agreement, for Cause, as defined in the Plan; (f) Twelve (12) months after Optionee's death or Disability; or (g) In the event of a Change of Control Event or dissolution as described in the Plan. However, if the Change of Control Event or dissolution, as the case may be and as described in the Plan, is not finalized, all options which are terminated pursuant to this Subsection (g) shall be reinstated as described in the Plan. Optionee agrees that all vested and unvested options granted pursuant to this Stock Option shall expire in accordance with the provisions of this paragraph 2 following involuntary or voluntary termination of Optionee's employment with, engagement by or services to the Company, as applicable, for any reason. Optionee hereby waives the right to recover as damages any vested or unvested stock options which expire according to this paragraph 2. This waiver shall include, but not be limited to, damages related to any claims Optionee may have against the Company to which Optionee may be entitled by virtue of employment with the Company or the termination of Optionee's employment. 3. This Stock Option may be exercised at different times for portions of the total number of Option Shares for which the right to purchase shall have accrued and vested hereunder, provided that such portions are in multiples of ten (10) shares if the Optionee holds vested portions for ninety-nine (99) or fewer shares and otherwise in multiples of one hundred (100) shares. 4. This Stock Option shall be adjusted for recapitalization, stock splits, stock dividends and the like as described in the Plan. 5. This is not an employment contract and while the benefits, if any, of this Stock Option may be an incident of the Optionee's employment with or provision of services to the Company, the terms and conditions of such employment or provision of services are otherwise wholly independent hereof. 6. Neither this Stock Option nor any right under this Agreement is assignable and rights under this Agreement may be exercised only by the Optionee or a person to whom the rights under this Agreement shall pass by will or the laws of descent and distribution. 7. The Optionee shall indicate Optionee's intention to exercise this Stock Option with respect to vested Option Shares by notifying the Company in writing of such intention in the form of the Notice of Exercise attached hereto as Exhibit A, indicating the number of Option Shares Optionee intends to purchase and, within ten (10) days thereafter, paying to the Company an amount sufficient to cover the total option price of such Option Shares together with the amount of federal, state and local income and FICA taxes required to be withheld by the Company, if any, as provided in the Plan. Payment of the Exercise Price Per Share specified on the first page of this Agreement shall be made in cash or in accordance with such procedures for a "cashless exercise" as may be established from time to time by the Company to facilitate exercises of Stock Options and sales of Option Shares under the Plan. 8. If the Optionee, immediately prior to the grant of an Incentive Stock Option hereunder, owns stock in the Company representing more than ten percent (10%) of the voting power of all classes of stock of the Company, the Exercise Price Per Share specified on the first page of this Agreement for Incentive Stock Options granted hereunder shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Company's Common Stock on the Date of Option Grant specified on the first page of this Agreement and such Incentive Stock Option shall not be exercisable after the expiration of five (5) years from said Date of Option Grant and notwithstanding any pricing or vesting terms hereof which appear at variance with the foregoing, all pricing and vesting terms hereof shall be deemed hereby to conform with the foregoing limitations. In lieu of the foregoing, the Optionee may elect to have a Stock Option that purports to be an Incentive Stock Option treated as a Non-Qualified Stock Option pursuant to the original terms of this Agreement. 9. Notwithstanding the foregoing, no Stock Option shall be exercisable and rights under this Agreement are not enforceable, unless and until all requirements imposed by or pursuant to Section 2.18 of the Plan are satisfied. SECTION 2.18 OF THE PLAN DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THIS OPTION CAN BE EXERCISED AND BEFORE THE COMPANY CAN ISSUE ANY OPTION SHARES TO THE OPTIONEE. AT THE PRESENT TIME THE PLAN IS NOT REGISTERED AND, ALTHOUGH SHARES MAY BE ISSUED UPON EXERCISE, THE SHARES SO ISSUED ARE NOT FREELY TRADABLE. THERE CAN BE NO ASSURANCE THAT THE EXEMPTION(S) ALLOWING ISSUANCE OF THE SHARES UPON EXERCISE WILL REMAIN AVAILABLE, NOR IS THERE ASSURANCE THAT ISSUED SHARES WILL BE REGISTERED OR THAT ONCE REGISTERED THE REGISTRATION WILL BE MAINTAINED. IF THE SHARES ARE NOT REGISTERED OR IF THE REGISTRATION IS NOT MAINTAINED, THE OPTIONEE WILL NOT BE ABLE TO TRADE SHARES OBTAINED UPON EXERCISE OF THIS STOCK OPTION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND MIGHT BE UNAVAILABLE TO THE OPTIONEE PRIOR TO THE EXPIRATION OF THIS OPTION. AS A CONSEQUENCE OF THE FOREGOING, THE OPTIONEE MIGHT NOT HAVE AN OPPORTUNITY TO EXERCISE THIS OPTION AND TO RECEIVE OPTION SHARES UPON SUCH EXERCISE AND, IF THE OPTIONEE IS ABLE TO EXERCISE THIS OPTION AND TO RECEIVE OPTION SHARES UPON SUCH EXERCISE, THE OPTIONEE MIGHT NOT HAVE THE OPPORTUNITY TO TRADE SUCH OPTION SHARES. 10. NO RIGHTS TO STOCK OPTIONS OR EMPLOYMENT; NO RESTRICTIONS Neither Optionee nor any other person shall have any claim or right to be granted a Stock Option under the Plan. Having received a Stock Option under the Plan shall not give Optionee any right to receive any other grant or option under the Plan. Optionee shall have no rights to or interest in any Option except as set forth herein, in the Plan, or in another Option specifically granted by the Company to Optionee. Neither this Option, the Plan, nor any action taken hereunder or under the Plan shall be construed as giving any Employee, Consultant or Director any right to be retained in the employ of, or be engaged as a Consultant to, or serve as a Director of, the Company, as the case may be, or otherwise in any way affect any right and power of the Company to terminate the employment or engagement of any Employee, Consultant or Director at any time with or without assigning a reason therefor. Nothing in the Plan restricts the Company's rights to adopt other option plans pertaining to any or all of the Employees, Consultants or Directors covered under the Plan or other Employees, Consultants or Directors not covered under the Plan. THIS AGREEMENT AND THE STOCK OPTION REPRESENTED HEREBY MAY BE AFFECTED, WITH REGARD TO BOTH VESTING SCHEDULE AND TERMINATION, BY LEAVES OF ABSENCE, A REDUCTION IN THE NUMBER OF HOURS WORKED, PARTIAL DISABILITY AND OTHER CHANGES IN OPTIONEE'S EMPLOYEE, CONSULTANT OR DIRECTOR STATUS, AS THE CASE MAY BE. THE COMPANY'S POLICIES IN SUCH MATTERS, IF ANY, SHALL BE CONTAINED IN THE PLAN GUIDELINES ADOPTED BY THE BOARD. THE PLAN GUIDELINES AND THE GUIDELINES, RULES, POLICIES AND REGULATIONS CONTAINED THEREIN MAY BE AMENDED AT ANY TIME AND FROM TIME TO TIME BY THE BOARD OF DIRECTORS OF THE COMPANY, OR THE COMMITTEE APPOINTED BY SUCH BOARD, IN ITS SOLE DISCRETION AND WITH OR WITHOUT NOTICE. OPTIONEE'S RIGHTS HEREUNDER OR UNDER THE PLAN AT ANY TIME SHALL BE GOVERNED BY THE PLAN GUIDELINES IN EFFECT AT THE TIME OF ANY CHANGE IN OPTIONEE'S STATUS AS CONTEMPLATED ABOVE. 11. The Stock Option represented by this Agreement is granted pursuant to and is controlled by the Plan and by the Plan Guidelines, if any, as adopted by the Board and amended from time to time. Optionee, by execution hereof, acknowledges receipt of the Plan and the Plan Guidelines as they currently exist and acceptance of the terms and conditions of the Plan, the Plan Guidelines and of this Agreement. 12. Optionee hereby acknowledges that, pursuant to the Plan and until the time the Company has made a public offering of its securities under the Securities Act of 1933, as amended, the Company will have certain repurchase rights with respect to any Shares issued to Optionee upon exercise of this Stock Option. As a condition to such exercise, Optionee shall cause his or her spouse, if any, to execute such documentation as may be reasonably required by the Company evidencing such spouse's acceptance of and agreement to such repurchase rights. 13. FOR CALIFORNIA RESIDENTS ONLY: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. 14. If any provision of this Agreement is held to be unenforceable for any reason, it shall be modified rather than voided, if possible, in order to achieve the intent of the parties to this option to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent. EXHIBIT A HELIX BIOMEDIX, INC. NOTICE OF EXERCISE OF STOCK OPTION TO: HELIX BIOMEDIX, INC. (the "Company") The undersigned hereby exercises Stock Option No. _______, granted on __________, _____, by the Company pursuant to its 2000 Stock Option Plan (adopted ________ __, ____), to purchase __________ Shares of Common Stock of the Company at a price of $________ per Share, for a total purchase price of $________. THE SHARES ARE BEING ACQUIRED BY THE UNDERSIGNED FOR INVESTMENT PURPOSES ONLY AND NOT WITH ANY PRESENT INTENTION TO TRANSFER OR DISTRIBUTE THE SAME. By this exercise, the undersigned agrees (i) to provide for the payment by the undersigned to the Company (in the manner designated by the Company) of the Company's withholding obligation, if any, relating to the exercise of the foregoing Stock Option and (ii) if this exercise relates to an Incentive Stock Option, to notify the Company in writing within fifteen (15) days after the date of any disposition of any of the Shares of Common Stock issued upon exercise of the foregoing Stock Option that occurs within two (2) years after the date of grant of such Stock Option or within one (1) year after such Shares of Common Stock are issued upon exercise of the foregoing Stock Option. - -------------------- ---------------------------------------------------- DATE SIGNATURE ---------------------------------------------------- PRINT NAME EX-10.6 7 helix10ksba2ex106_4282003.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 10.6 NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES ACT (COLLECTIVELY, THE "SECURITIES LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES (I) ARE REGISTERED UNDER THE SECURITIES LAWS OR (II) ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Warrant No.: 25 Issue Date: 1/1/2002 Number of Shares: 15000 Termination Date: 1/1/2012 (subject to adjustment) HELIX BIOMEDIX, INC. COMMON STOCK PURCHASE WARRANT THIS IS TO CERTIFY that, for value received and subject to the terms and conditions of this Warrant, Ralph Katz (the "Holder") is entitled, at any time prior to the Termination Date as defined in Section 4(c) (the "Exercise Period"), to subscribe for and purchase upon exercise of this Warrant, Fifteen thousand (15000) shares of the fully paid and nonassessable Common Stock, par value $0.001 per share, of Helix BioMedix, Inc., a Delaware corporation (the "Company") (the "Warrant Stock"). The purchase price of the Warrant Stock shall be $1.50 per share (the "Unit Price"). This Warrant is subject to the following additional terms and conditions: 1. Vesting Warrant Stock. The warrant stock shall vest immediately. --------------------- 2. Method of Exercise. ------------------ (a) This Warrant may be exercised in whole or in part, but not as to a fractional share of Common Stock, only during the Exercise Period by delivering to the Company (i) the form of "Election to Purchase" attached hereto as Exhibit A, duly completed and executed by the Holder, (ii) this warrant certificate, (iii) payment of the Unit Price, in cash or by check, for each share being purchased, and (iv) such other documents as the Company may determine to be reasonably necessary in connection with the issuance of the Warrant Stock; provided that the Holder is an "accredited investor" (as defined in Section 501 of Regulation D promulgated under the Securities Act of 1933, as amended) at the time of exercise. (b) As an alternative to exercising this Warrant pursuant to in subsection (a) above, the Holder may elect to exercise this Warrant only during the Exercise Period by delivering to the Company (i) the form of "Notice of Conversion" attached hereto as Exhibit B, duly completed and executed by the Holder, (ii) this warrant certificate, and (iii) such other documents as the Company may determine to be reasonably necessary in connection with the issuance of the Warrant Stock; provided that the Holder is an "accredited investor" (as defined in Section 501 of Regulation D promulgated under the Securities Act of 1933, as amended) at the time of exercise. Upon exercise, pursuant to this subsection 2(b) (and without payment by the Holder of the Unit Price), the Holder shall be entitled to receive that number of shares of the Common Stock of the Company equal to the quotient obtained by dividing ((A-B) x C) by A, where: A = the fair market value of one share of the Common Stock of the Company on the date of exercise of the Warrant (as determined by the Board of Directors) B = the per share Unit Price C = the total number of shares of Common Stock of the Company subject to purchase upon exercise of this Warrant If the above calculation results in a number less than one, then no shares of the Common Stock of the Company shall be issuable or issued pursuant to this Subsection (b). 3. Delivery of Stock Certificates. ---------------------------------- Within ten (10) days after the exercise of this Warrant (in full or in part), the Company at its expense (except for the payment of any applicable transfer taxes) shall issue in the name of and deliver to the Holder (a) a certificate or certificates for the number of fully paid and nonassessable shares of Warrant Stock to which the Holder shall be entitled upon such exercise, and (b) unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share) of Warrant Stock, if any, with respect to which this Warrant shall not have been exercised. The Holder shall for all purposes be deemed to have become the holder of record of such shares of Warrant Stock on the date on which this Warrant is surrendered and payment on the Warrant Price is made, irrespective of the date of delivery of the certificate or certificates representing the Warrant Stock; provided, that if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of record of such shares of Warrant Stock at the close of business on the next succeeding date on which the stock transfer books are open. 4. Covenants as to Warrant Stock. --------------------------------- The Company covenants and agrees that all shares of Warrant Stock issued pursuant to the terms of this Warrant will, upon their issuance, be validly issued and outstanding, fully paid and nonassessable. The Company further covenants and agrees that the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. 5. Termination. --------------- Upon a merger, consolidation, acquisition of all or substantially all of the property or stock, reorganization or liquidation of the Company (collectively, a "Reorganization"), as a result of which the stockholders of the Company receive cash, stock or other property in exchange for their shares of Common Stock, this Warrant shall be automatically converted as provided in Section 1(b) immediately prior to the Reorganization; provided, however, that the Company shall have delivered to the Holder notice of the Reorganization no less than ten (10) business days before the date scheduled for the Reorganization and that the Holder shall have the right immediately prior to the Reorganization to exercise this Warrant as provided in Section 3(a) or to elect in writing that this Warrant not be automatically converted as provided in this Section 5(a). Unless the Holder exercises this Warrant as provided in Section 1(a) or elects in writing that this Warrant not be automatically converted as provided in this Section 6(a), this Warrant shall be automatically converted as provided in Section 3(b) immediately prior to the Reorganization. To the extent Holder elects in writing that this Warrant not be automatically converted and otherwise does not exercise this Warrant prior to the Reorganization, this Warrant shall be canceled and all rights under this Warrant shall terminate upon the Reorganization. If not sooner canceled pursuant to the provisions of Section 5(a), this Warrant shall be canceled and the rights granted hereunder shall terminate at the close of business on September 30, 2011. The date of termination of this Warrant as provided in Sections 5(a) and 5(b) shall be referred to herein as the "Termination Date." 6. Adjustments Affecting Common Stock. -------------------------------------- (a) Reclassification. --------------------- In the case of any reclassification or change of the Common Stock issuable upon exercise of this Warrant, the Company shall execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant, in substantially the form hereof, and upon such exercise to receive, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the number and kind of shares of stock, other securities, money or property receivable upon such reclassification or change by a holder of shares of Common Stock. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. (b) Exercise Price. If any of the following events shall occur at any time or from time to time prior to the exercise in full of this Warrant or the Termination Date, the following adjustments shall be made to the Unit Price: (1) Split, Subdivision or Combination of Shares. ------------------------------------------------ If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine its Common Stock issuable upon exercise of this Warrant, the Unit Price shall be proportionately decreased in the case of a split or subdivision or increased in the case of a combination. (2) Stock Dividends and Distributions. -------------------------------------- If the Company at any time while this Warrant is outstanding and unexpired shall pay a stock dividend or other stock distribution with respect to the Common Stock (except any distribution specifically provided for in Section 6(a) or 6(b)(1) above), then the Unit Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Unit Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of the Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of the Common Stock outstanding immediately after such dividend or distribution. (d) Adjustment to Number of Shares. ----------------------------------- After any adjustment of the Unit Price pursuant to Section 6(b), the number of shares of Warrant Stock issuable at the new Unit Price shall be adjusted to the number obtained by (i) multiplying the number of shares of Warrant Stock issuable upon exercise of this Warrant immediately before such adjustment by the Unit Price in effect immediately before such adjustment and (ii) dividing the product so obtained by the new Unit Price. 7. Fractional Shares. --------------------- No fractional shares shall be issued upon the exercise of this Warrant. In lieu of fractional shares, the Company shall pay the Holder a sum in cash equal to the fair market value of the fractional shares (as determined by the Company's Board of Directors) on the date of exercise. 8. Restrictions on Transfer. ---------------------------- This Warrant or any securities purchased upon exercise of this Warrant may not be transferred with the prior written consent of the Company, which the Company may not unreasonably withhold or condition. The Company may condition its consent upon any reasonable restriction, including, but not limited to: (a) that such transfer is registered under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities or blue sky laws, (b) that the Company has received a legal opinion reasonably satisfactory to the Company to the effect that the transfer is exempt from the prospectus delivery and registration requirements of the Securities Act and any applicable state securities or blue sky laws, (c) that the Company otherwise satisfies itself that such transfer is exempt from registration, and (d) that the Holder pay the costs and expenses necessary to comply with applicable securities and other laws relating to such transfer. 9. Market Standoff Agreement. ----------------------------- In connection with any public offering of the Company's securities and upon request of the Company or the underwriters managing such offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days in the case of an initial public offering and not to exceed 90 days in any subsequent offering) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of such a public offering. 10. Legend. ----------- A legend setting forth or referring to the above restrictions shall be placed on this Warrant, any replacement hereof and any certificate representing a security issued pursuant to the exercise of this Warrant and a stop transfer restriction or order may be placed on the books of the Company and with any transfer agent until such securities may be legally sold or otherwise transferred. 11. Holder as Owner. -------------------- The Company may deem and treat the holder of record of this Warrant as the absolute owner hereof for all purposes regardless of any notice to the contrary. 12. No Rights as Stockholder. ----------------------------- This Warrant shall not entitle the Holder to any voting rights or to any other rights as a stockholder of the Company or to any other rights whatsoever except the rights stated herein; no cash dividend or interest shall be payable or shall accrue in respect of this Warrant or the Warrant Stock purchasable hereunder unless, until and to the extent that this Warrant shall be exercised. 13. Construction. ----------------- The laws of the State of Washington shall govern the validity and interpretation of the terms and provisions of this Warrant. The descriptive headings of the several sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions thereof. 14. Expiration. --------------- This Warrant shall be void and all rights represented hereby shall cease unless exercised on or before the Termination Date. All restrictions set forth herein on the shares of capital stock issued upon exercise of any rights hereunder shall survive such exercise and expiration of the rights granted hereunder. 15. Lost Warrant Certificate. ----------------------------- If this Warrant is lost, stolen, mutilated or destroyed, the Company shall issue a new Warrant of like denomination, tenor and date as this Warrant, subject to the Company's right to require the Holder to give the Company a bond or other satisfactory security sufficient to indemnify the Company against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft, mutilation or destruction of this Warrant or the issuance of such new Warrant. 16. Waivers and Amendments. --------------------------- This Warrant or any provision hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 17. Notices. ------------ All notices or other communications required or permitted hereunder shall be in writing and shall be deemed effectively delivered and given on the earlier of (a) personal delivery or (b) three days after mailing by registered or certified mail with return receipt requested, addressed as follows: If to the Holder: Ralph Katz 440 S. LaSalle Drive, Suite 1615 Chicago, IL 60605 If to the Company: Helix BioMedix, Inc. 22122 20th Avenue SE, Suite #148 Bothell, WA 98021 Each of the foregoing parties shall be entitled to specify a different address by giving five (5) days' advance written notice as aforesaid to the other party. 18. Investment Intent. ---------------------- By accepting this Warrant, the Holder represents that he is acquiring this Warrant for investment and not with a view to, or for sale in connection with, any distribution thereof. IN WITNESS WHEREOF, the Company has executed this certificate as of the date first written above. HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty ------------------------------------ R. Stephen Beatty, President and CEO EXHIBIT A ELECTION TO PURCHASE -------------------- To: HELIX BIOMEDIX, INC. The undersigned registered owner of this Warrant irrevocably exercises this Warrant for _______________ shares of Common Stock of Helix BioMedix, Inc., on the terms and conditions specified in this Warrant, and requests that a certificate for the shares hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________________, whose address is ____________________________________________ and, if such shares shall not include all of the shares into which this Warrant is exercisable, that a new Warrant of like tenor and date for the balance of the shares issuable hereunder be delivered to the undersigned. The undersigned represents (i) that the undersigned is an "accredited investor" (as defined in Section 501 of Regulation D promulgated under the Securities Act of 1933, as amended) as of the date of this Election to Purchase, (ii) that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof, and (iii) that the undersigned has no present intention of distributing or reselling such shares. Dated: --------------------- ------------------------------------ Signature of Registered Owner ------------------------------------ (Street Address) ------------------------------------ (City) (State) (Zip Code) ------------------------------------ (Social Security Number or Tax I.D. Number) EXHIBIT B NOTICE OF CONVERSION -------------------- To: HELIX BIOMEDIX, INC. (1) The undersigned hereby elects to convert the attached Common Stock Purchase Warrant (the "Warrant") into such number of shares of Common Stock of Helix BioMedix, Inc. as is determined pursuant to Section 1(b) of the Warrant, which conversion shall be effected pursuant to the terms of the Warrant. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. (3) The undersigned represents (i) that the undersigned is an "accredited investor" (as defined in Section 501 of Regulation D promulgated under the Securities Act of 1933, as amended) as of the date of this Notice of Conversion, (ii) that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof, and (iii) that the undersigned has no present intention of distributing or reselling such shares. EX-10.13 8 helix10ksba2ex1013_4282003.txt AMENDED CONSULTING AGREEMENT EXHIBIT 10.13 Second Amended Consulting Agreement - Dunsford Hill Capital SECOND AMENDED AND RESTATED CONSULTING AGREEMENT DUNSFORD HILL CAPITAL PARTNERS, INC. This SECOND AMENDED AND RESTATED CONSULTING AGREEMENT (this "Agreement"), dated as of August 15, 2002, is entered into by and among HELIX BIOMEDIX, INC., a Delaware corporation ("Helix"), and DUNSFORD HILL CAPITAL PARTNERS, INC., a California corporation ("Consultant"). PRELIMINARY RECITALS WHEREAS, Helix and Consultant entered into a Consulting Agreement on October 27, 2000 and an Amended and Restated Consulting Agreement on May 30, 2001 (the "Prior Agreements"), containing provisions relating to the services to be provided to Helix by Consultant and the compensation to be paid by Helix to Consultant; and WHEREAS, Helix and Consultant desire to amend and restate the terms governing the relationship between the parties; and WHEREAS, Helix is a publicly owned biotechnology company which is engaged in (i) developing, testing, patenting, and manufacturing synthetic bioactive peptides (small proteins) having applications in the pharmaceutical and health care fields and (ii) licensing its proprietary technology and in seeking strategic corporate alliances for further development and commercialization of its technology (collectively, the "Business"); and WHEREAS, Helix desires outside professional assistance in various areas of strategic and financial planning and believes that Consultant has experience and expertise that will be valuable to Helix; and WHEREAS, Helix desires to engage Consultant as a consultant, and Consultant desires to perform consulting services for Helix, under the terms and conditions set forth herein; and WHEREAS, Helix anticipates receipt of $1M from an equity bridge financing on or about September, 2002 ("Bridge Financing"); and WHEREAS, Helix anticipates receipt of an additional $1.5M from an equity financing occurring after receipt of the Bridge Financing funds and prior to December 31, 2002 ("Next Round of Financing"); NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: -1- 1. Novation. ------------ Except as provided in sections 2.5(a) and 16 below, the Prior Agreements are hereby extinguished and replaced in their entirety by this Agreement. 2. Consulting. -------------- 2.1 Consulting Services. ------------------------ Helix hereby engages Consultant, and Consultant hereby accepts such engagement and agrees to serve as consultant to Helix concerning the Business for a period of one year, beginning on the date hereof (the "Consulting Period"). In connection with the performance of its duties, Consultant shall cause Consultant's duties hereunder to be performed primarily by Randall L.-W. Caudill (the "Consulting Principal"). 2.2 Duties. ----------- Consultant shall faithfully and to the best of its ability perform the duties assigned by the Board of Directors of Helix and shall serve under the direction of the President and Chief Executive Officer of Helix. These duties shall include, without limitation, the following duties: (a) strategic planning, (b) assisting Helix in developing and monitoring business and science plans, (c) assisting Helix in seeking additional financing, (d) assisting Helix with efforts to enhance shareholder value, and (e) reporting on a quarterly basis Consultant's progress in respect of duties assigned by Board, in a format reasonably requested by the Chief Executive Officer of Helix. 2.3 Relationship of Parties. ---------------------------- Consultant shall be deemed an independent contractor and not an employee of Helix. All letterhead, business cards and promotional materials used or distributed by Consultant shall present Consultant as a business consultant to, and not an employee or principal of, Helix. Consultant shall be responsible for all taxes associated with payment hereunder, including but not limited to income taxes and social security taxes. 2.4 Expenses. ------------- All ordinary and reasonable out-of-pocket expenses incurred by Consultant solely as a result of the performance of Consultant's services as assigned pursuant to Section 2.2 above, including reasonable travel expenses, shall be reimbursed to Consultant by Helix, provided that Consultant shall have submitted an invoice together with other documentation of such expenses as Helix may reasonably require. -2- 2.5 Compensation. ----------------- (a) Consultant's current entitlement to options or warrants to acquire Helix stock at $1.50 per share, not including any potential entitlement contingent upon triggering events, shall survive this Novation and vest in accordance with the provisions of the Prior Agreements. (b) As consideration for the services to be rendered by Consultant hereunder, its agreement not to compete with Helix and its agreement to promote services for and through Helix during the Consulting Period, Helix hereby grants to Consultant warrants ("Warrants") to purchase an aggregate of 50,000 shares of the Helix's common stock at an exercise price per share of the lower of $1.50 or the price of the Next Equity Financing. Warrants shall have a ten-year term, commencing on August 15, 2002 and ending on August 15, 2012, when any and all unexercised Warrants granted herein shall expire and terminate. c) In addition to the compensation to be paid in the form of warrants as referenced in paragraph 2.5(b) above, upon receipt by Helix of Bridge Financing funds of $1M, Helix shall pay Consultant a one-time lump sum payment of $18,000 and thereafter $1,500 per month for the next twelve (12) months beginning on the first day of the month following receipt of such funds. (d) In addition to the compensation to be paid pursuant to paragraph 2.5(b) and (c) above, upon receipt by Helix of funds of $1.5M or more from the Next Equity Financing, Helix shall pay Consultant an additional one-time lump sum payment of $18,000 and thereafter an additional $1,500 per month for the next twelve (12) months beginning on the first day of the month following receipt of such funds. (e) In the event of any change in the outstanding shares of common stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the maximum aggregate number and class of shares of common stock which may be purchased by Consultant pursuant to the Warrants will be equitably adjusted for such event. 2.6 Restricted Stock -------------------- (a) Consultant recognizes and understands that neither the Warrants nor the shares of Common Stock of Helix to be purchased by Consultant pursuant to the Warrants (collectively, the "Securities") will be registered under the Securities Act of 1933 ("Securities Act"), or under the securities laws of any state (the "securities laws"). -3- (b) Consultant represents and warrants that (i) the Consulting Principal has knowledge and experience in business, finance, securities and investments, such experience being based on actual participation therein, (ii) the Consulting Principal is capable of evaluating the merits and risks of an investment in the Securities and the suitability thereof as an investment therefor, (iii) the Consulting Principal is an experienced and sophisticated investor in investments, including investments similar to that of the Securities, (iv) Securities to be acquired by it will be acquired solely for investment and not with a view toward resale or redistribution in violation of the securities laws, and no assurances have been made concerning the future results of Helix or as to the value of the Securities, (v) it (and the Consulting Principal) is an "accredited investor" within the meaning of Regulation D promulgated by the United States Securities and Exchange Commission (the "Commission") pursuant to the Securities Act, and (vi) the Consulting Principal is the sole shareholder of Consultant. (c) Consultant has consulted with its own counsel in regard to the securities laws and is fully aware (i) of the circumstances under which it is required to hold the Securities, (ii) of the limitations on the transfer or disposition of the Securities, and (iii) that the securities must be held indefinitely unless the transfer thereof is registered under the securities laws or an exemption from registration is available. (d) Consultant and the Consulting Principal have been furnished with a copy of the Annual Report on Form 10-KSB of Helix filed with the Commission under the Securities Exchange Act of 1934, as amended, for the fiscal year ended December 31, 2001. Helix has made available to Consultant the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information which they possess or could reasonably acquire the purpose of verifying the accuracy of the information furnished to Consultant as set forth herein or for the purpose of considering the transactions contemplated hereby. Helix has offered to, and agrees during the term of this Agreement, make available to Consultant upon request at any time all exhibits filed by Helix with the Commission as part of any of the reports filed therewith. 2.7 Company Information. ------------------------ In connection with Consultant's engagement, Helix will furnish Consultant and/or the Consulting Principal with all information concerning Helix which Consultant and/or the Consulting Principal shall reasonably request. Helix represents and warrants that all such information concerning Helix will be true and accurate in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make statements therein not misleading in light of the circumstances under which such statements are made. Helix acknowledges and agrees that Consultant and the Consulting Principal will be using and relying upon such information supplied by Helix and its officers, agents and others concerning Helix without independent investigation or verification thereof or independent appraisal by Consultant or the Consulting Principal. -4- 2.8 Restrictive Covenant. ------------------------- Except as otherwise consented to in writing by Helix, such consent being not unreasonably withheld, during the term of this Agreement and for a period of two years thereafter, neither Consultant nor the Consulting Principal shall either as an individual on his own account; as a partner, joint venturer, consultant, agent, salesman for any person; as an officer, director or stockholder (other than a beneficial holder of not more than 5% of the outstanding voting stock of a company having at least 250 holders of voting stock) of a corporation; or otherwise, directly or indirectly: (a) enter into or engage in any business or consult with any business or entity directly competitive with Helix anywhere in the world; (b) solicit or attempt to solicit any of Helix customers with whom Consultant has had contact as a Consultant or employee of Helix with the intent or purpose to perform for such customer the same or similar services which Consultant performed for such customer during the term of his service hereunder or employment by Helix; (c) employ or solicit, or attempt to employ or solicit, for himself or any third party, the employment of any of Helix's employees; or (d) induce or attempt to induce any employee, consultant or agent of Helix to discontinue services to Helix. Notwithstanding the above, Helix acknowledges and agrees that Consultant's and Consulting Principal's existing relationships with Northwest Biotherapeutics, Inc., VaxGen, Inc., and MediQuest Therapeutics, Inc. are not in violation of this Section 2.8. The provisions of this Section 2.8 shall survive the termination of this Agreement. 3. Assignment. -------------- No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall be binding and inure to the benefit of the respective legal representatives, heirs, successors affiliates and assigns of the parties hereto, whether so expressed or not. 4. Severability. ---------------- If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent. 5. Counterparts. ---------------- This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6. Descriptive Headings: Interpretation. ---------------------------------------- The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. -5- 7. Notices. ----------- All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally to the recipient, (ii) sent to the recipient by reputable express courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt and postage prepaid, or (iii) transmitted by telecopy to the recipient with a confirmation copy to follow the next day to be delivered by overnight carrier. Such notices, demands and other communication shall be sent to the addresses indicated below: (a) If to Consultant: Dunsford Hill Capital Partners, Inc. 1080 Chestnut Street, Apt. 16-A San Francisco, California 94109 Attn: Mr. Randall L.-W. Caudill (b) If to Helix: Helix Biomedix, Inc. 22122 20th Ave. SE Bothell, WA 98021 Attn: Chief Executive Officer or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The effective date of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) one day after date of delivery to the overnight courier if sent by overnight courier or (z) the next business day after the date of transmission by telecopy or e-mail. 8. Confidential Information and Discoveries. -------------------------------------------- Consultant and the Consulting Principal agree that all information of a technical or business nature such as know-how, trade secrets, secret business information, plans, data, processes, techniques, customer information, inventions, discoveries, formulae, patterns, devices, etc., ("Confidential Information") pertaining to the business of Helix, is a valuable business property right of Helix. Consultant and the Consulting Principals agree that such Confidential Information, whether in written, verbal or model form, shall not be disclosed to anyone outside the employment of Helix or otherwise used by Consultant or the Consulting Principal for any purpose other than fulfillment of their respective obligations under this Agreement, without the express authorization of Helix. Confidential Information does not include information which Consultant or the Consulting Principal can demonstrate (i) has become generally available to the public other than as a result of a disclosure by Consultant or the Consulting Principal, (ii) has become available to Consultant or the Consulting Principal on a non-confidential basis from a source other than Helix, provided such source is not bound by a confidentiality agreement with Helix or otherwise prohibited from transmitting the information to Consultant or the Consulting Principal by a contractual, legal or fiduciary obligation. -6- Any and all improvements, inventions, discoveries, formulae or processes in any way related to Helix's business which Consultant or the Consulting Principal may conceive or make during his regular working hours or otherwise shall be the sole and exclusive property of Helix and Consultant and the Consulting Principal will disclose the same to Helix and will, whenever requested by Helix to do so (either during the terms of this Agreement or thereafter), execute and assign any and all applications, assignments and/or other instruments and do all things which Helix may deem necessary or appropriate in order to apply for, obtain, maintain, enforce and defend patents, copyrights, trademarks or other forms of protection, or in order to assign and convey or otherwise make available to Helix the sole and exclusive right, title and interest in and to said improvements, inventions, discoveries, formulae, processes, applications or patents. No provision in this Agreement is intended to require assignment of any of the rights of Consultant or the Consulting Principal in an invention if no equipment, supplies, facilities, or trade secret information of Helix was used, and the invention was developed entirely on the Consultant's or Consulting Principal's own time; and the invention does not relate to the business of Helix or to Helix's actual or demonstrably anticipated research or development; and does not result from any work performed by the Consultant or the Consulting Principal for Helix. The provisions of this Section 8 shall survive the termination of this Agreement. 9. Return of Documents. ----------------------- Upon the termination of this Agreement for any reason, Consultant shall forthwith return and deliver to Helix and shall not retain any original or copies of any books, papers, price lists or customer contracts, bids or customer lists, files, books of account, notebooks and other documents and data (in printed, audio, video, electronic or other form) relating to the performance of services rendered by Consultant hereunder, all of which materials are hereby agreed to be the property of Helix. 10. Preliminary Recitals. ------------------------- The Preliminary Recitals set forth in the preamble hereto are hereby incorporated and made part of this Agreement. 11. Entire Agreement. --------------------- Except as otherwise expressly set forth herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof. 12. Governing Law. ------------------ This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of California. 13. Representations and Warranties. -7- 13.1 Helix represents and warrants that: (i) Helix is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate its Articles of Incorporation, Bylaws, or any contract or agreement by which it is bound; and (ii) this Agreement is valid and enforceable against Helix in accordance with its terms, and each instrument to be executed by Helix pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 13.2 Consultant represents and warrants that: (i) Consultant is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate its Articles of Incorporation, bylaws or any contract or agreement by which it is bound; and (ii) this Agreement is valid and enforceable against Consultant and the Consulting Principal in accordance with its terms, and each instrument to be executed by Consultant and the Consulting Principal pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 14. Compliance with Laws. ------------------------- Consultant shall comply with all federal, state, and local laws, regulations, ordinances, orders, decrees, resolutions, and other acts of any governmental entity, including, but not limited to, securities laws and regulations that are applicable to this Agreement and the work and services performed or provided hereunder. 15. Attorney's Fees. -------------------- If a dispute arises relating to the performance of the obligations of either Consultant (or the Consulting Principal) or Helix pursuant to the terms of this Agreement and legal or other costs are incurred, the prevailing party shall be entitled to recover all reasonable costs incurred in the defense or prosecution of the claim, including court costs, reasonable attorney's fees, and other claim-related expenses. 16. Indemnification. -------------------- Helix shall (A) indemnify Consultant and Consulting Principal (jointly and/or severally, the "Indemnified Parties"), and hold them harmless to the fullest extent permitted by law against any losses, claims, damages or liabilities to which the Indemnified Parties may become subject in connection with (i) their use of information that is inaccurate in any respect (as a result of misrepresentation, omission, failure to update, or otherwise) that is provided to Indemnified Parties by Helix, its representatives, agents or advisers, regardless of whether the Indemnified Parties knew or should have known of such inaccuracy, or (ii) any other aspect of rendering such services, in the case of each of clauses (i) and (ii) above unless it is finally judicially determined that such losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of any of the Indemnified Parties, and (B) reimburse Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating, preparing to defend or defending any lawsuits, claims, or other proceedings arising in any manner out of or in connection with their performance of their duties pursuant to the engagement contemplated herein, unless it is finally judicially determined that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Parties. If, for any reason, the foregoing indemnity is unavailable to the Indemnified Parties or is insufficient to hold the Indemnified Parties -8- harmless (other than in the event that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Parties), then Helix shall contribute to the amount paid or payable by Indemnified Parties as a result of such claims, liabilities, losses, damages, or expenses in such proportion as is appropriate to reflect not only the relative benefits received by Helix on the one hand and the Indemnified Parties on the other, but also the relative fault of Helix and the Indemnified Parties, as well as any equitable considerations. Notwithstanding the provisions of this Agreement, the aggregate contribution of the Indemnified Parties to all claims, liabilities, losses, damages and expenses shall not exceed the amount of the fees actually received by Consultant pursuant to its engagement by Helix. It is hereby further agreed that the relative benefits to Helix on the one hand and the Indemnified Parties on the other hand with respect to the transactions contemplated in the engagement referenced above shall be deemed to be in the same proportion as (i) the total value of the transaction bears to (ii) the fees paid to Consultant with respect to such transactions. Helix agrees that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Parties are a formal party to any such lawsuits or other proceedings, that the Indemnified Parties are entitled to retain separate counsel of their choice in connection with any of the matters to which such commitments relate, that such commitments shall be in addition to any liability that Helix may have to the Indemnified Parties at common law or otherwise, and that such commitments shall extend upon the terms set forth in this Agreement to any controlling person, director, officer, employee, agent or affiliate of Indemnified Parties and shall survive any termination of this Agreement; provided that any such claim arising other than as a result of this indemnification procedure shall serve as a set-off against any claim hereunder. Notwithstanding the provisions of Section 1 above, the indemnification provisions of the Prior Agreement shall survive this novation and the provisions of this Section 16 shall serve to supplement the provisions therein. 17. Termination. ---------------- This Agreement may be terminated by either party upon 30 days' advanced written notice to the other party. Any securities which have not vested pursuant to the retained provisions of the Prior Agreement or have not otherwise been earned pursuant to this Agreement shall automatically be terminated and canceled and Helix shall have no further obligation to Consultant or the Consulting Principal in respect of such securities. Subsection 2.8 and Sections 8 and 16 of this Agreement shall survive the expiration or termination of this Agreement. 18. Activities of Consultant. ----------------------------- In connection with this engagement, it is understood that Consultant and/or the Consulting Principal may identify and facilitate contact between Helix and corporations or individuals that may potentially become the Helix's joint venture partners, licensees, commercial collaborators, agents, directors, or investors. To the extent that Consultant and/or the Consulting Principal contact corporations or individuals as potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors, Helix acknowledges that Consultant's and/or the Consulting Principal's sole role is to initially contact such potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors and refer any resulting contact to Helix or its designated agent(s). Accordingly, Consultant and/or the Consulting Principal shall have no liability to Helix or any other person or -9- party resulting from their so acting in connection with initiating such contacts referenced herein. It is explicitly agreed that Consultant's and/or the Consulting Principal's role under this engagement will not include, without limitation: performing due diligence; verifying information provided to Consultant an/or the Consulting Principal or, directly or indirectly, to other persons or parties pursuant to contacts made by Consultant and/or the Consulting Principal as contemplated by this paragraph; preparing any offering memoranda; or, negotiating or structuring any agreements, licenses, commercial collaborations, or investments by or with third parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty --------------------------------- R. Stephen Beatty, President and Chief Executive Officer DUNSFORD HILL CAPITAL PARTNERS, INC. By: /s/ Randall L.-W. Caudill --------------------------------- Randall L.-W. Caudill, President CONSULTING PRINCIPAL /s/ Randall L.-W. Caudill --------------------------------- Randall L.-W. Caudill -10- EX-10.15 9 helix10ksba2ex1015_4282003.txt CONSULTING AGREEMENT EXHIBIT 10.15 Second Amended Consulting Agreement - Paisley Group SECOND AMENDED AND RESTATED CONSULTING AGREEMENT THE PAISLEY GROUP, L.L.C. This SECOND AMENDED AND RESTATED CONSULTING AGREEMENT (this "Agreement"), dated as of August 15, 2002, is entered into by and among HELIX BIOMEDIX, INC., a Delaware corporation ("Helix"), and THE PAISLEY GROUP, L.L.C., a Washington limited liability company ("Consultant"). PRELIMINARY RECITALS WHEREAS, Helix and Consultant entered into a Consulting Agreement on October 27, 2000 and an Amended and Restated Consulting Agreement on May 30, 2001 (the "Prior Agreements"), containing provisions relating to the services to be provided to Helix by Consultant and the compensation to be paid by Helix to Consultant; and WHEREAS, Helix and Consultant desire to amend and restate the terms governing the relationship between the parties; and WHEREAS, Helix is a publicly owned biotechnology company which is engaged in (i) developing, testing, patenting, and manufacturing synthetic bioactive peptides (small proteins) having applications in the pharmaceutical and health care fields and (ii) licensing its proprietary technology and in seeking strategic corporate alliances for further development and commercialization of its technology (collectively, the "Business"); and WHEREAS, Helix desires outside professional assistance in various areas of strategic and financial planning and believes that Consultant has experience and expertise that will be valuable to Helix; and WHEREAS, Helix desires to engage Consultant as a consultant, and Consultant desires to perform consulting services for Helix, under the terms and conditions set forth herein; and WHEREAS, Helix anticipates receipt of $1M from an equity bridge financing on or about September, 2002 ("Bridge Financing"); and WHEREAS, Helix anticipates receipt of an additional $1.5M from an equity financing occurring after receipt of the Bridge Financing funds and prior to December 31, 2002 ("Next Round of Financing"); NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: -1- 1. Novation. ------------ Except as provided in Sections 2.5(a) and 16 below, the Prior Agreements are hereby extinguished and replaced in their entirety by this Agreement. 2. Consulting. -------------- 2.1 Consulting Services. ------------------------ Helix hereby engages Consultant, and Consultant hereby accepts such engagement and agrees to serve as consultant to Helix concerning the Business for a period of one year, beginning on the date hereof (the "Consulting Period"). In connection with the performance of its duties, Consultant shall cause Consultant's duties hereunder to be performed primarily by George M. Steiner (the "Consulting Principal"). 2.2 Duties. ----------- Consultant shall faithfully and to the best of its ability perform the duties assigned by the Board of Directors of Helix and shall serve under the direction of the President and Chief Executive Officer of Helix. These duties shall include, without limitation, the following duties: (a) strategic planning, (b) assisting Helix in developing and monitoring business and science plans, (c) assisting Helix in seeking additional financing, (d) assisting Helix with efforts to enhance shareholder value, and (e) reporting on a quarterly basis Consultant's progress in respect of duties assigned by Board, in a format reasonably requested by the Chief Executive Officer of Helix. 2.3 Relationship of Parties. ---------------------------- Consultant shall be deemed an independent contractor and not an employee of Helix. All letterhead, business cards and promotional materials used or distributed by Consultant shall present Consultant as a business consultant to, and not an employee or principal of, Helix. Consultant shall be responsible for all taxes associated with payment hereunder, including but not limited to income taxes and social security taxes. 2.4 Expenses. ------------- All ordinary and reasonable out-of-pocket expenses incurred by Consultant solely as a result of the performance of Consultant's services as assigned pursuant to Section 2.2 above, including reasonable travel expenses, shall be reimbursed to Consultant by Helix, provided that Consultant shall have submitted an invoice together with other documentation of such expenses as Helix may reasonably require. 2.5 Compensation. ----------------- -2- (a) Consultant's current entitlement to options or warrants to acquire Helix stock at $1.50 per share, not including any potential entitlement contingent upon triggering events, shall survive this Novation and vest in accordance with the provisions of the Prior Agreements. (b) As consideration for the services to be rendered by Consultant hereunder, its agreement not to compete with Helix and its agreement to promote services for and through Helix during the Consulting Period, Helix hereby grants to Consultant warrants ("Warrants") to purchase an aggregate of 100,000 shares of the Helix's common stock at an exercise price per share of the lower of $1.50 or the price of the Next Equity Financing. Warrants shall have a ten-year term commencing on August 15, 2002 and ending on August 15, 2012, when any and all unexercised Warrants granted herein shall expire and terminate. c) In addition to the compensation to be paid in the form of warrants as referenced in paragraph 2.5(b) above, upon receipt by Helix of Bridge Financing funds of $1M, Helix shall pay Consultant a one-time lump sum payment of $18,000 and thereafter $1,500 per month for the next twelve (12) months beginning on the first day of the month following receipt of such funds. (d) In addition to the compensation to be paid pursuant to paragraph 2.5(b) and (c) above, upon receipt by Helix of funds of $1.5M or more from the Next Equity Financing, Helix shall pay Consultant an additional one-time lump sum payment of $18,000 and thereafter an additional $1,500 per month for the next twelve (12) months beginning on the first day of the month following receipt of such funds. (e) In the event of any change in the outstanding shares of common stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the maximum aggregate number and class of shares of common stock which may be purchased by Consultant pursuant to the Warrants will be equitably adjusted for such event. 2.6 Restricted Stock -------------------- (a) Consultant recognizes and understands that neither the Warrants nor the shares of Common Stock of Helix to be purchased by Consultant pursuant to the Warrants (collectively, the "Securities") will be registered under the Securities Act of 1933 ("Securities Act"), or under the securities laws of any state (the "securities laws"). (b) Consultant represents and warrants that (i) the Consulting Principal has knowledge and experience in business, finance, securities and investments, such experience being based on actual participation therein, (ii) the Consulting Principal is capable of evaluating the merits and risks of an investment in the Securities and the suitability thereof as an investment therefor, (iii) the Consulting Principal is an experienced and sophisticated investor in investments, including investments similar to that of the Securities, (iv) Securities to be acquired by it will be acquired solely for investment and not with a view toward resale or redistribution in violation of the securities laws, and no assurances have been made concerning the future results of Helix or as to the value of the -3- Securities, (v) it (and the Consulting Principal) is an "accredited investor" within the meaning of Regulation D promulgated by the United States Securities and Exchange Commission (the "Commission") pursuant to the Securities Act, and (vi) the Consulting Principal is the sole shareholder of Consultant. (c) Consultant has consulted with its own counsel in regard to the securities laws and is fully aware (i) of the circumstances under which it is required to hold the Securities, (ii) of the limitations on the transfer or disposition of the Securities, and (iii) that the securities must be held indefinitely unless the transfer thereof is registered under the securities laws or an exemption from registration is available. (d) Consultant and the Consulting Principal have been furnished with a copy of the Annual Report on Form 10-KSB of Helix filed with the Commission under the Securities Exchange Act of 1934, as amended, for the fiscal year ended December 31, 2001. Helix has made available to Consultant the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information which they possess or could reasonably acquire the purpose of verifying the accuracy of the information furnished to Consultant as set forth herein or for the purpose of considering the transactions contemplated hereby. Helix has offered to, and agrees during the term of this Agreement, make available to Consultant upon request at any time all exhibits filed by Helix with the Commission as part of any of the reports filed therewith. 2.7 Company Information. ------------------------ In connection with Consultant's engagement, Helix will furnish Consultant and/or the Consulting Principal with all information concerning Helix which Consultant and/or the Consulting Principal shall reasonably request. Helix represents and warrants that all such information concerning Helix will be true and accurate in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make statements therein not misleading in light of the circumstances under which such statements are made. Helix acknowledges and agrees that Consultant and the Consulting Principal will be using and relying upon such information supplied by Helix and its officers, agents and others concerning Helix without independent investigation or verification thereof or independent appraisal by Consultant or the Consulting Principal. 2.8 Restrictive Covenant. ------------------------- Except as otherwise consented to in writing by Helix, such consent being not unreasonably withheld, during the term of this Agreement and for a period of two years thereafter, neither Consultant nor the Consulting Principal shall either as an individual on his own account; as a partner, joint venturer, consultant, agent, salesman for any person; as an officer, director or stockholder (other than a beneficial holder of not more than 5% of the outstanding voting stock of a company having at least 250 holders of voting stock) of a corporation; or otherwise, directly or indirectly: -4- (a) enter into or engage in any business or consult with any business or entity directly competitive with Helix anywhere in the world; (b) solicit or attempt to solicit any of Helix customers with whom Consultant has had contact as a Consultant or employee of Helix with the intent or purpose to perform for such customer the same or similar services which Consultant performed for such customer during the term of his service hereunder or employment by Helix; (c) employ or solicit, or attempt to employ or solicit, for himself or any third party, the employment of any of Helix's employees; or (d) induce or attempt to induce any employee, consultant or agent of Helix to discontinue services to Helix. Notwithstanding the above, Helix acknowledges and agrees that Consultant's and Consulting Principal's existing relationships with Primal, Inc., Corus Pharma, Inc. and Northwest Biotherapeutics, Inc. are not in violation of this Section 2.8. The provisions of this Section 2.8 shall survive the termination of this Agreement. 3. Assignment. -------------- No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall be binding and inure to the benefit of the respective legal representatives, heirs, successors affiliates and assigns of the parties hereto, whether so expressed or not. 4. Severability. ---------------- If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent. 5. Counterparts. ---------------- This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6. Descriptive Headings: Interpretation. ---------------------------------------- The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. 7. Notices. ----------- All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally to the recipient, (ii) sent to the recipient by reputable express courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt and postage prepaid, or (iii) transmitted by telecopy to the recipient with a confirmation copy to follow the next day to be delivered by overnight carrier. Such notices, demands and other communication shall be sent to the addresses indicated below: -5- (a) If to Consultant: The Paisley Group, L.L.C. 811 - 34th Avenue East Seattle, Washington 98112 Attn: Mr. George M. Steiner (b) If to Helix: Helix Biomedix, Inc. 22122 20th Ave. SE Bothell, WA 98021 Attn: Chief Executive Officer or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The effective date of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) one day after date of delivery to the overnight courier if sent by overnight courier or (z) the next business day after the date of transmission by telecopy or e-mail. 8. Confidential Information and Discoveries. -------------------------------------------- Consultant and the Consulting Principal agree that all information of a technical or business nature such as know-how, trade secrets, secret business information, plans, data, processes, techniques, customer information, inventions, discoveries, formulae, patterns, devices, etc., ("Confidential Information") pertaining to the business of Helix, is a valuable business property right of Helix. Consultant and the Consulting Principals agree that such Confidential Information, whether in written, verbal or model form, shall not be disclosed to anyone outside the employment of Helix or otherwise used by Consultant or the Consulting Principal for any purpose other than fulfillment of their respective obligations under this Agreement, without the express authorization of Helix. Confidential Information does not include information which Consultant or the Consulting Principal can demonstrate (i) has become generally available to the public other than as a result of a disclosure by Consultant or the Consulting Principal, (ii) has become available to Consultant or the Consulting Principal on a non-confidential basis from a source other than Helix, provided such source is not bound by a confidentiality agreement with Helix or otherwise prohibited from transmitting the information to Consultant or the Consulting Principal by a contractual, legal or fiduciary obligation. Any and all improvements, inventions, discoveries, formulae or processes in any way related to Helix's business which Consultant or the Consulting Principal may conceive or make during his regular working hours or otherwise shall be the sole and exclusive property of Helix and Consultant and the Consulting Principal will disclose the same to Helix and will, whenever requested by Helix to do so (either during the terms of this Agreement or thereafter), execute and assign -6- any and all applications, assignments and/or other instruments and do all things which Helix may deem necessary or appropriate in order to apply for, obtain, maintain, enforce and defend patents, copyrights, trademarks or other forms of protection, or in order to assign and convey or otherwise make available to Helix the sole and exclusive right, title and interest in and to said improvements, inventions, discoveries, formulae, processes, applications or patents. No provision in this Agreement is intended to require assignment of any of the rights of Consultant or the Consulting Principal in an invention if no equipment, supplies, facilities, or trade secret information of Helix was used, and the invention was developed entirely on the Consultant's or Consulting Principal's own time; and the invention does not relate to the business of Helix or to Helix's actual or demonstrably anticipated research or development; and does not result from any work performed by the Consultant or the Consulting Principal for Helix. The provisions of this Section 8 shall survive the termination of this Agreement. 9. Return of Documents. ----------------------- Upon the termination of this Agreement for any reason, Consultant shall forthwith return and deliver to Helix and shall not retain any original or copies of any books, papers, price lists or customer contracts, bids or customer lists, files, books of account, notebooks and other documents and data (in printed, audio, video, electronic or other form) relating to the performance of services rendered by Consultant hereunder, all of which materials are hereby agreed to be the property of Helix. 10. Preliminary Recitals. ------------------------- The Preliminary Recitals set forth in the preamble hereto are hereby incorporated and made part of this Agreement. 11. Entire Agreement. --------------------- Except as otherwise expressly set forth herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof. 12. Governing Law. ------------------ This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Washington. 13. Representations and Warranties. ----------------------------------- 13.1 Helix represents and warrants that: (i) Helix is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate its Articles of Incorporation, Bylaws, or any contract or agreement by which it is bound; and (ii) this Agreement is valid and enforceable against Helix in accordance with its terms, and each instrument to be executed by Helix pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. -7- 13.2 Consultant represents and warrants that: (i) Consultant is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Washington, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate its Articles of Incorporation, bylaws or any contract or agreement by which it is bound; and (ii) this Agreement is valid and enforceable against Consultant and the Consulting Principal in accordance with its terms, and each instrument to be executed by Consultant and the Consulting Principal pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 14. Compliance with Laws. ------------------------- Consultant shall comply with all federal, state, and local laws, regulations, ordinances, orders, decrees, resolutions, and other acts of any governmental entity, including, but not limited to, securities laws and regulations that are applicable to this Agreement and the work and services performed or provided hereunder. 15. Attorney's Fees. -------------------- If a dispute arises relating to the performance of the obligations of either Consultant (or the Consulting Principal) or Helix pursuant to the terms of this Agreement and legal or other costs are incurred, the prevailing party shall be entitled to recover all reasonable costs incurred in the defense or prosecution of the claim, including court costs, reasonable attorney's fees, and other claim-related expenses. 16. Indemnification. -------------------- Helix shall (A) indemnify Consultant and Consulting Principal (jointly and/or severally, the "Indemnified Parties"), and hold them harmless to the fullest extent permitted by law against any losses, claims, damages or liabilities to which the Indemnified Parties may become subject in connection with (i) their use of information that is inaccurate in any respect (as a result of misrepresentation, omission, failure to update, or otherwise) that is provided to Indemnified Parties by Helix, its representatives, agents or advisers, regardless of whether the Indemnified Parties knew or should have known of such inaccuracy, or (ii) any other aspect of rendering such services, in the case of each of clauses (i) and (ii) above unless it is finally judicially determined that such losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of any of the Indemnified Parties, and (B) reimburse Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating, preparing to defend or defending any lawsuits, claims, or other proceedings arising in any manner out of or in connection with their performance of their duties pursuant to the engagement contemplated herein, unless it is finally judicially determined that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Parties. If, for any reason, the foregoing indemnity is unavailable to the Indemnified Parties or is insufficient to hold the Indemnified Parties harmless (other than in the event that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Parties), then Helix shall contribute to the amount paid or payable by Indemnified Parties as a result of such claims, liabilities, losses, damages, or expenses in such proportion as is appropriate to reflect not only the relative benefits received by Helix on the one hand and the Indemnified Parties on the other, but also the relative fault of Helix and the Indemnified Parties, as well as any equitable considerations. Notwithstanding the provisions of this Agreement, the aggregate contribution of -8- the Indemnified Parties to all claims, liabilities, losses, damages and expenses shall not exceed the amount of the fees actually received by Consultant pursuant to its engagement by Helix. It is hereby further agreed that the relative benefits to Helix on the one hand and the Indemnified Parties on the other hand with respect to the transactions contemplated in the engagement referenced above shall be deemed to be in the same proportion as (i) the total value of the transaction bears to (ii) the fees paid to Consultant with respect to such transactions. Helix agrees that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Parties are a formal party to any such lawsuits or other proceedings, that the Indemnified Parties are entitled to retain separate counsel of their choice in connection with any of the matters to which such commitments relate, that such commitments shall be in addition to any liability that Helix may have to the Indemnified Parties at common law or otherwise, and that such commitments shall extend upon the terms set forth in this Agreement to any controlling person, director, officer, employee, agent or affiliate of Indemnified Parties and shall survive any termination of this Agreement; provided that any such claim arising other than as a result of this indemnification procedure shall serve as a set-off against any claim hereunder. Notwithstanding the provisions of Section 1 above, the indemnification provisions of the Prior Agreement shall survive this novation and the provisions of this Section 16 shall serve to supplement the provisions therein. 17. Termination. ---------------- This Agreement may be terminated by either party upon 30 days' advanced written notice to the other party. Any securities which have not vested pursuant to the retained provisions of the Prior Agreements or have not otherwise been earned pursuant to this Agreement shall automatically be terminated and canceled and Helix shall have no further obligation to Consultant or the Consulting Principal in respect of such securities. Subsection 2.8 and Sections 8 and 16 of this Agreement shall survive the expiration or termination of this Agreement. 18. Activities of Consultant. ----------------------------- In connection with this engagement, it is understood that Consultant and/or the Consulting Principal may identify and facilitate contact between Helix and corporations or individuals that may potentially become the Helix's joint venture partners, licensees, commercial collaborators, agents, directors, or investors. To the extent that Consultant and/or the Consulting Principal contact corporations or individuals as potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors, Helix acknowledges that Consultant's and/or the Consulting Principal's sole role is to initially contact such potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors and refer any resulting contact to Helix or its designated agent(s). Accordingly, Consultant and/or the Consulting Principal shall have no liability to Helix or any other person or party resulting from their so acting in connection with initiating such contacts referenced herein. It is explicitly agreed that Consultant's and/or the Consulting Principal's role under this engagement will not include, without limitation: performing due diligence; verifying information provided to Consultant an/or the Consulting Principal or, directly or indirectly, to other persons or parties pursuant to contacts made by Consultant and/or the Consulting Principal as contemplated by this paragraph; preparing any offering memoranda; or, negotiating or structuring any agreements, licenses, commercial collaborations, or investments by or with third parties. -9- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty ----------------------------------------- R. Stephen Beatty, President and Chief Executive Officer THE PAISLEY GROUP, L.L.C. By: /s/ George M. Steiner ----------------------------------------- George M. Steiner, Authorized Member CONSULTING PRINCIPAL: /s/ George M. Steiner ------------------------------------------ George M. Steiner -10- EX-10.19 10 helix10ksba2ex1019_4282003.txt CONSULTING AGREEMENT EXHIBIT 10.19 CONSULTING AGREEMENT This CONSULTING AGREEMENT (this "Agreement"), dated as of October 1, 2002, is entered into by and among HELIX BIOMEDIX, INC., a Delaware corporation ("Helix"), and Ralph Katz ("Consultant"). PRELIMINARY RECITALS WHEREAS, Helix is a publicly owned biotechnology company which is engaged in (i) developing, testing, patenting, and manufacturing synthetic bioactive peptides (small proteins) having applications in the pharmaceutical and health care fields and (ii) licensing its proprietary technology and in seeking strategic corporate alliances for further development and commercialization of its technology (collectively, the "Business"); and WHEREAS, Helix desires outside professional assistance in various areas of strategic and financial planning and believes that Consultant has experience and expertise that will be valuable to Helix; and WHEREAS, Helix desires to engage Consultant as a consultant, and Consultant desires to perform consulting services for Helix, under the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consulting. -------------- 1.1 Consulting Services. ------------------------ Helix hereby engages Consultant, and Consultant hereby accepts such engagement and agrees to serve as consultant to Helix concerning the Business for a period of one year, beginning on the date hereof (the "Consulting Period"). 1.2 Duties. ----------- Consultant shall faithfully and to the best of its ability perform the duties assigned by the Board of Directors of Helix and shall serve under the direction of the President and Chief Executive Officer of Helix. These duties shall include, without limitation, the following duties: (a) strategic planning, (b) assisting Helix in developing and monitoring business and science plans, 1 (c) assisting Helix in seeking additional financing, (d) assisting Helix with efforts to enhance shareholder value, and (e) reporting on a quarterly basis Consultant's progress in respect of duties assigned by Board, in a format reasonably requested by the Chief Executive Officer of Helix. 1.3 Relationship of Parties. ---------------------------- Consultant shall be deemed an independent contractor and not an employee of Helix. All letterhead, business cards and promotional materials used or distributed by Consultant shall present Consultant as a business consultant to, and not an employee or principal of, Helix. Consultant shall be responsible for all taxes associated with payment hereunder, including but not limited to income taxes and social security taxes. 1.4 Expenses. ------------- All ordinary and reasonable out-of-pocket expenses incurred by Consultant solely as a result of the performance of Consultant's services as assigned pursuant to Section 2.2 above, including reasonable travel expenses, shall be reimbursed to Consultant by Helix, provided that Consultant shall have submitted an invoice together with other documentation of such expenses as Helix may reasonably require. 1.5 Compensation. ----------------- (a) As consideration for the services to be rendered by Consultant hereunder, its agreement not to compete with Helix and its agreement to promote services for and through Helix during the Consulting Period, Helix hereby grants to Consultant warrants ("Warrants") to purchase an aggregate of one hundred thousand (100,000) shares of the Helix's common stock at an exercise price per share of $1.00. Warrants shall have a ten-year term, commencing on October 1, 2002 and ending on October 1, 2012, when any and all unexercised Warrants granted herein shall expire and terminate. (b) In the event of any change in the outstanding shares of common stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the maximum aggregate number and class of shares of common stock which may be purchased by Consultant pursuant to the Warrants will be equitably adjusted for such event. 1.6 Restricted Stock -------------------- (a) Consultant recognizes and understands that neither the Warrants nor the shares of Common Stock of Helix to be purchased by Consultant pursuant to the Warrants (collectively, the "Securities") will be registered under the Securities Act of 1933 ("Securities Act"), or under the securities laws of any state (the "securities laws"). 2 (b) Consultant represents and warrants that (i) the Consultant has knowledge and experience in business, finance, securities and investments, such experience being based on actual participation therein, (ii) the Consultant is capable of evaluating the merits and risks of an investment in the Securities and the suitability thereof as an investment therefor, (iii) the Consultant is an experienced and sophisticated investor in investments, including investments similar to that of the Securities, (iv) Securities to be acquired by it will be acquired solely for investment and not with a view toward resale or redistribution in violation of the securities laws, and no assurances have been made concerning the future results of Helix or as to the value of the Securities, and (v) Consultant is an "accredited investor" within the meaning of Regulation D promulgated by the United States Securities and Exchange Commission (the "Commission") pursuant to the Securities Act. (c) Consultant has consulted with its own counsel in regard to the securities laws and is fully aware (i) of the circumstances under which it is required to hold the Securities, (ii) of the limitations on the transfer or disposition of the Securities, and (iii) that the securities must be held indefinitely unless the transfer thereof is registered under the securities laws or an exemption from registration is available. (d) Consultant has been furnished with a copy of the Annual Report on Form 10-KSB of Helix filed with the Commission under the Securities Exchange Act of 1934, as amended, for the fiscal year ended December 31, 2001. Helix has made available to Consultant the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information which they possess or could reasonably acquire the purpose of verifying the accuracy of the information furnished to Consultant as set forth herein or for the purpose of considering the transactions contemplated hereby. Helix has offered to, and agrees during the term of this Agreement, make available to Consultant upon request at any time all exhibits filed by Helix with the Commission as part of any of the reports filed therewith. 1.7 Company Information. ------------------------ In connection with Consultant's engagement, Helix will furnish Consultant and/or the Consulting Principal with all information concerning Helix which Consultant and/or the Consulting Principal shall reasonably request. Helix represents and warrants that all such information concerning Helix will be true and accurate in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make statements therein not misleading in light of the circumstances under which such statements are made. Helix acknowledges and agrees that Consultant and the Consulting Principal will be using and relying upon such information supplied by Helix and its officers, agents and others concerning Helix without independent investigation or verification thereof or independent appraisal by Consultant or the Consulting Principal. 3 1.8 Restrictive Covenant. ------------------------- Except as otherwise consented to in writing by Helix, such consent being not unreasonably withheld, during the term of this Agreement and for a period of two years thereafter, the Consultant shall not as an individual on his own account; as a partner, joint venturer, consultant, agent, salesman for any person; as an officer, director or stockholder (other than a beneficial holder of not more than 5% of the outstanding voting stock of a company having at least 250 holders of voting stock) of a corporation; or otherwise, directly or indirectly: (a) enter into or engage in any business or consult with any business or entity directly competitive with Helix anywhere in the world; (b) solicit or attempt to solicit any of Helix customers with whom Consultant has had contact as a Consultant or employee of Helix with the intent or purpose to perform for such customer the same or similar services which Consultant performed for such customer during the term of his service hereunder or employment by Helix; (c) employ or solicit, or attempt to employ or solicit, for himself or any third party, the employment of any of Helix's employees; or (d) induce or attempt to induce any employee, consultant or agent of Helix to discontinue services to Helix. The provisions of this Section 1.8 shall survive the termination of this Agreement. 2. Assignment. -------------- No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall be binding and inure to the benefit of the respective legal representatives, heirs, successors affiliates and assigns of the parties hereto, whether so expressed or not. 3. Severability. ---------------- If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent. 4. Counterparts. ---------------- This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 5. Descriptive Headings: Interpretation. ---------------------------------------- The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. 6. Notices. ----------- All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally to the recipient, (ii) sent to the recipient by reputable express courier service (charges prepaid) or mailed to the recipient by certified or registered mail,return receipt and postage prepaid, or (iii) transmitted by telecopy to the recipient with a confirmation copy to follow the next day to be delivered by overnight carrier. Such notices, demands and other communication shall be sent to the addresses indicated below: (a) If to Consultant: Ralph Katz 440 S. LaSalle Drive Suite 1615 Chicago, IL 60605 (b) If to Helix: Helix Biomedix, Inc. 22122 20th Ave. SE Bothell, WA 98021 Attn: Chief Executive Officer or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The effective date of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) one day after date of delivery to the overnight courier if sent by overnight courier or (z) the next business day after the date of transmission by telecopy or e-mail. 7. Confidential Information and Discoveries. -------------------------------------------- Consultant agrees that all information of a technical or business nature such as know-how, trade secrets, secret business information, plans, data, processes, techniques, customer information, inventions, discoveries, formulae, patterns, devices, etc., ("Confidential Information") pertaining to the business of Helix, is a valuable business property right of Helix. Consultant agrees that such Confidential Information, whether in written, verbal or model form, shall not be disclosed to anyone outside the employment of Helix or otherwise used by Consultant for any purpose other than fulfillment of their respective obligations under this Agreement, without the express authorization of Helix. Confidential Information does not include information which Consultant can demonstrate (i) has become generally available to the public other than as a result of a disclosure by Consultant, (ii) has become available to Consultant on a non-confidential basis from a source other than Helix, provided such source is not bound by a confidentiality agreement with Helix or otherwise prohibited from transmitting the information to Consultant by a contractual, legal or fiduciary obligation. Any and all improvements, inventions, discoveries, formulae or processes in any way related to Helix's business which Consultant may conceive or make during his regular working hours or otherwise shall be the sole and exclusive property of Helix and Consultant will disclose the same to Helix and will, whenever requested by Helix to do so (either during the terms of this Agreement or thereafter), execute and assign any and all applications, assignments and/or other instruments and do all things which Helix may deem necessary or appropriate in order to apply for, obtain, maintain, enforce and defend patents, copyrights, trademarks or other forms of protection, or in order to assign and convey or otherwise make available to Helix the sole and exclusive right, title and interest in and to said improvements, inventions, discoveries, formulae, processes, applications or patents. No provision in this Agreement is intended to require assignment of any of the rights of Consultant in an invention if no equipment, supplies, facilities, or trade secret information of Helix was used, and the invention was developed entirely on the Consultant's own time; and the invention does not relate to the business of Helix or to Helix's actual or demonstrably anticipated research or development; and does not result from any work performed by the Consultant for Helix. The provisions of this Section 7 shall survive the termination of this Agreement. 8. Return of Documents. ----------------------- Upon the termination of this Agreement for any reason, Consultant shall forthwith return and deliver to Helix and shall not retain any original or copies of any books, papers, price lists or customer contracts, bids or customer lists, files, books of account, notebooks and other documents and data (in printed, audio, video, electronic or other form) relating to the performance of services rendered by Consultant hereunder, all of which materials are hereby agreed to be the property of Helix. 9. Preliminary Recitals. ------------------------ The Preliminary Recitals set forth in the preamble hereto are hereby incorporated and made part of this Agreement. 10. Entire Agreement. --------------------- Except as otherwise expressly set forth herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof. 11. Governing Law. ------------------ This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Washington. 12. Representations and Warranties. ----------------------------------- 12.1 Helix represents and warrants that: (i) Helix is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate its Articles of Incorporation, Bylaws, or any contract or agreement by which it is bound; and (ii) this Agreement is valid and enforceable against Helix in accordance with its terms, and each instrument to be executed by Helix pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 12.2 Consultant represents and warrants that this Agreement is valid and enforceable against Consultant in accordance with its terms, and each instrument to be executed by Consultant pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 13. Compliance with Laws. ------------------------- Consultant shall comply with all federal, state, and local laws, regulations, ordinances, orders, decrees, resolutions, and other acts of any governmental entity, including, but not limited to, securities laws and regulations that are applicable to this Agreement and the work and services performed or provided hereunder. 14. Attorney's Fees. -------------------- If a dispute arises relating to the performance of the obligations of either Consultant or Helix pursuant to the terms of this Agreement and legal or other costs are incurred, the prevailing party shall be entitled to recover all reasonable costs incurred in the defense or prosecution of the claim, including court costs, reasonable attorney's fees, and other claim-related expenses. 15. Indemnification. -------------------- Helix shall (A) indemnify Consultant (jointly and/or severally, the "Indemnified Party"), and hold him harmless to the fullest extent permitted by law against any losses, claims, damages or liabilities to which the Indemnified Party may become subject in connection with (i) his use of information that is inaccurate in any respect (as a result of misrepresentation, omission, failure to update, or otherwise) that is provided to Indemnified Party by Helix, its representatives, agents or advisers, regardless of whether the Indemnified Party knew or should have known of such inaccuracy, or (ii) any other aspect of rendering such services, in the case of each of clauses (i) and (ii) above unless it is finally judicially determined that such losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of any of the Indemnified Party, and (B) reimburse Indemnified Party for any legal or other expenses reasonably incurred by him in connection with investigating, preparing to defend or defending any lawsuits, claims, or other proceedings arising in any manner out of or in connection with his performance of duties pursuant to the engagement contemplated herein, unless it is finally judicially determined that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Party. If, for any reason, the foregoing indemnity is unavailable to the Indemnified Party or is insufficient to hold the Indemnified Party harmless (other than in the event that the losses, claims, damages or liabilities relating thereto arise only out of the gross negligence or willful misconduct of the Indemnified Party), then Helix shall contribute to the amount paid or payable by Indemnified Party as a result of such claims, liabilities, losses, damages, or expenses in such proportion as is appropriate to reflect not only the relative benefits received by Helix on the one hand and the Indemnified Party on the other, but also the relative fault of Helix and the Indemnified Party, as well as any equitable considerations. Notwithstanding the provisions of this Agreement, the aggregate contribution of the Indemnified Party to all claims, liabilities, losses, damages and expenses shall not exceed the amount of the fees actually received by Consultant pursuant to its engagement by Helix. It is hereby further agreed that the relative benefits to Helix on the one hand and the Indemnified Party on the other hand with respect to the transactions contemplated in the engagement referenced above shall be deemed to be in the same proportion as (i) the total value of the transaction bears to (ii) the fees paid to Consultant with respect to such transactions. Helix agrees that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Party is a formal party to any such lawsuits or other proceedings, that the Indemnified Party is entitled to retain separate counsel of hid choice in connection with any of the matters to which such commitments relate, that such commitments shall be in addition to any liability that Helix may have to the Indemnified Party at common law or otherwise, and that such commitments shall extend upon the terms set forth in this Agreement to any controlling person, director, officer, employee, agent or affiliate of Indemnified Party and shall survive any termination of this Agreement; provided that any such claim arising other than as a result of this indemnification procedure shall serve as a set-off against any claim hereunder. Notwithstanding the provisions of Section 1 above, the indemnification provisions of the Prior Agreement shall survive this novation and the provisions of this Section 15 shall serve to supplement the provisions therein. 16. Termination. ---------------- This Agreement may be terminated by either party upon 30 days' advanced written notice to the other party. Any securities which have not been earned pursuant to this Agreement shall automatically be terminated and canceled and Helix shall have no further obligation to Consultant in respect of such securities. Subsection 1.8 and Sections 7 and 15 of this Agreement shall survive the expiration or termination of this Agreement. 17. Activities of Consultant. ----------------------------- In connection with this engagement, it is understood that Consultant may identify and facilitate contact between Helix and corporations or individuals that may potentially become the Helix's joint venture partners, licensees, commercial collaborators, agents, directors, or investors. To the extent that Consultant contacts corporations or individuals as potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors, Helix acknowledges that Consultant's sole role is to initially contact such potential joint venture partners, licensees, commercial collaborators, agents, directors, or investors and refer any resulting contact to Helix or its designated agent(s). Accordingly, Consultant shall have no liability to Helix or any other person or party resulting from his so acting in connection with initiating such contacts referenced herein. It is explicitly agreed that Consultant's role under this engagement will not include, without limitation: performing due diligence; verifying information provided to Consultant or, directly or indirectly, to other persons or parties pursuant to contacts made by Consultant as contemplated by this paragraph; preparing any offering memoranda; or, negotiating or structuring any agreements, licenses, commercial collaborations, or investments by or with third parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. HELIX BIOMEDIX, INC. By: /s/ R. Stephen Beatty -------------------------------------- R. Stephen Beatty, President and Chief Executive Officer CONSULTANT /s/ Ralph Katz -------------------------------------- Ralph Katz EX-99.1 11 helix10ksba2ex991_4282003.txt CERTIFICATION CEO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) In connection with the Amendment No. 2 to the Annual Report of Helix BioMedix, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, R. Stephen Beatty, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ R. Stephen Beatty - --------------------- R. Stephen Beatty President, Chief Executive Officer April 30, 2003 EX-99.2 12 helix10ksba2ex992_4282003.txt CERTIFICATION CFO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) In connection with the Amendment No. 2 to Annual Report of Helix BioMedix, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kerry D. Palmer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Kerry D. Palmer - ------------------- Kerry D. Palmer Chief Financial Officer April 30, 2003 -----END PRIVACY-ENHANCED MESSAGE-----