Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------------------------------
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number 0-23788
Xechem International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3284803
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Jersey Avenue, Bldg. B, Suite. 310, New Brunswick, NJ 08901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 247-3300
--------------------------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 of 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
Number of shares outstanding of the issuer's common stock, as of August 15,
1996, was 7,483,494 shares.
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
Page No.
Part I. Financial Information
Item 1. Consolidated Balance Sheet as of
June 30, 1996 [Unaudited]................................ 3..4
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1995 [Unaudited] ...................... 5
Consolidated Statement of Stockholders'
Equity for the six months ended
June 30, 1996 [Unaudited]................................ 6..7
Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and
1995 [Unaudited]......................................... 8..9
Notes to Consolidated Financial Statements................ 10..14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 15..20
Part II. Other Information .................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ......22..23
Signaturs.................................................. ...... 24
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
-------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
[UNAUDITED]
- ------------------------------------------------------------------------------
---------------------------------------------------------------------------
<TABLE>
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 246,967
Restricted Cash 187,500
Inventory 1,101,780
Prepaid Expenses 234,618
Other Current Assets 65,857
---------------
Total Current Assets $1,836,722
Equipment, Net of Accumulated
Depreciation of $278,574 $ 878,772
Leasehold Improvements - Net of Accumulated
Amortization of $200,868 725,524
Deposits 22,167
Patent Issuance Costs-Net of Accumulated
Amortization of $8,000 152,003
---------
Total Assets $3,615,188
See Accompanying Notes to Consolidated Financial Statements.
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3
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
[UNAUDITED]
- ------------------------------------------------------------------------------
<S> <C>
Current Liabilities:
Accounts Payable $ 333,251
Accrued Expenses 69,993
Notes Payable - Related Party 719,363
Notes Payable - Others 300,000
Other Current Liabilities 55,500
Total Current Liabilities $1,478,107
Note Payable - Related Party: $ 388,088
---------
Commitments and Contingencies $ --
---------
Stockholders' Equity:
Class A Voting Preferred Stock, $.00001 Par Value, 2,500
Shares Authorized; 2,500 Shares Issued and Outstanding $ --
Additional Paid-in Capital [Class A Voting Preferred] 2,500
Class B 8% Preferred Stock, $.00001 Par Value, 1,150 Shares
Authorized; 1,070 Shares Issued and Outstanding,
$107,000 Liquidation Value --
Additional Paid-in Capital [Class B 8% Preferred] 107,000
Class C Preferred Stock, $.00001 Par Value, 2,996,350 Shares
Authorized; 17,700 Class C Series 1 8% Convertible Shares
Issued and Outstanding, $ .01 Par Value 177
Additional Paid-in Capital [Class C Preferred] 1,681,323
Common Stock, $.00001 Par Value, 15,000,000
Shares Authorized; 6,938,894 Shares Issued and Outstanding 69
Additional Paid-in Capital [Common] 20,897,963
(Deficit) Accumulated During the Development Stage (20,940,039)
------------
Total Stockholders' Equity $1,748,993
Total Liabilities and Stockholders' Equity $3,615,188
See Accompanying Notes to Consolidated Financial Statements.
4
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
----------------------------------------------------------------------------------------------------------------
Cumulative
Period from
Three months ended Six months ended March 15,
June 30, June 30, 1990 [Date of
Inception] to
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5 June 30, 1996
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 131,183 $ 1,531 $ 157,751 $ 2,996 $ 524,624
--------- ----------- ----------- ---------- -----------
Expenses:
Research and Development $ 394,303 $ 1,033,248 $ 761,079 $1,234,315 3,801,509
Rent 33,252 28,227 65,240 55,942 412,008
General and Administrative 409,603 448,927 916,846 1,022,498 4,090,439
--------- ----------- ----------- ---------- -----------
Total Expenses $ 837,158 $ 1,510,402 $ 1,743,165 $2,312,755 $ 8,303,956
--------- ----------- ----------- ---------- -----------
(Loss) from Operations $(705,975) $(1,508,871) $(1,585,414) $(2,309,759) $(7,779,332)
Other Income 4,116 8,829 5,609 46,606 269,267
Interest (Expense) - Related Party (22,121) (17,308) (42,460) (27,515) (8,544,615)
Interest (Expense) (35,871) (4,815) (44,455) (16,269) (4,885,359)
---------- ------------ ------------ ----------- ------------
(Loss) Before Income Taxes $(759,851) $(1,522,165) $(1,666,720) $(2,306,937) $(20,940,039)
Income Taxes -- -- -- -- --
--------- ----------- ----------- ---------- -----------
Net (Loss) $(759,851) $(1,522,165) $(1,666,720) $(2,306,937) $(20,940,039)
========== ============ ============ ============ =============
Preferred Stock Dividends $ 41,371 $ 2,140 $ 43,511 $ 4,280 $ 57,897
========= =========== =========== ========== ===========
Net (Loss) Available to Common Stockholders $ (801,222) $(1,524,305) $(1,710,231) $(2,311,217) $ (20,997,936)
============ ============ ============ ============ ==================
Net (Loss) per Share $ (0.12) $ (0.25) $ (0.26) $ (0.39)
========== ============ ============ ===========
Average Number of Shares Outstanding 6,702,839 6,058,067 6,652,047 5,904,283
============ =========== ========== ===========
See Accompanying Notes to Consolidated Financial Statements.
5
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<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A AdditionaClass B AdditionaClass C AdditionXechem, Inc. Xechem InternAddition(Deficit)
Voting PrefPaiddin8% PreferredPaid in8% Conv. PrPaidrin Common Stock Common Stock Paid in Accumulated
Capital Capital Capital Capital During
# of Par # of Par # of Par # of Par # of Par Development
SharesValueClass ASharesValue Class BSharesValueClass CShares Value Shares Value Common Stage
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31,1995 2500 2500 1,070 $ -$ 107,000 $ - -$ - $ - 6,583,478 66 $20,348,239 (19,273,319)
Private Placement - Common Stock - - - - - - - - - - 3,333 - - 56,307 -
Private Placement - Preferred Stock - - - - - 22,500 225 2,137,275 - 12,500 - 28,125 -
Conversion of Preferred Stock - - - - - - (4,800) (48)(455,952) - 377,583 3 427,855 -
Exercise of options -2nd Qtr1996 - - - - - - - - 2,000 - 4,625 -
Cancellation of Apotex Stock - - - - - - - - - - (75,000) - -
Ocean Marine Settlement - - - - - - - - - - 25,000 - 32,812 -
Net (loss) for the six months ended - - - - - - - - - -- - - (1,666,720)
June 30, 1996 -
Balance - June 30, 1996 $2,500$ - 2,500 1,070 107,000 17,700 $1,681,323 $ 6,938,894 69 $20,897,963 (20,940,039)
------ ---- ---- ---- -------- ----- --------- ----------- -- ---------- -----------
See Accompanying Notes to Consolidated Financial
Statements
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<TABLE>
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A AdditionaClass B AdditionaClass C AdditionXechem, Inc. Xechem InternAddition(Deficit)
Voting PrefPaiddin8% PreferredPaid in8% Conv. PrPaidrin Common Stock Common Stock Paid in Accumulated
Capital Capital Capital Capital During
# of Par # of Par # of Par # of Par # of Par Development
SharesValueClass ASharesValue Class BSharesValueClass CShares Value Shares Value Common Stage
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock issued in exchange for equipment in- $- -$ - $ - -$ 100$ 125,000 $- $ $ - -
March 1990 at no par value
Capital contributions April 1990 - - - - - - - - - - - - - 170,000 -
Net (loss) for the period from March 15, 1990 (date
of inception) to December 31, 1990 - - - - - - - - - - - - - (159,271)
- -- ---
Balance - December 31, 1990 $ - -$ - $- -$ - $ - -$ 100$ 125,000 $- $ 170,000 (159,271)
Capital contributions July 1991 - - - - - - - - - - - - 95,971 -
Capital contributions September 1991- - - - - - - - - - - 50,172 -
Capital contributions October 1991- - - - - - - - - - - - 25,000 -
Net (loss) for the year ended Dece-ber-31, 1991 - - - - - - - - - - - - (357,390)
-
Balance - December 31, 1991 - -$ - - -$ - - -$ 100$ 125,000 $- $ 341,143 (516,661)
Capital contributions - - - - - - - - - - - - 95,000 -
Net (loss) for tye year ended Dece-ber-31, 1992 - - - - - - - - - - - - (487,301)
-
Balance - December 31, 1992 $ - -$ - $- -$ - $ - -$ 100$ 125,000 $- $ 436,143 (1,003,962)
Net (loss) for the year ended December-31, 1993 - - - - - - - - - - - - (819,816)
-
Balance - December 31, 1993 $ - -$ - $- -$ - $ - -$ 100 125,000 $- 436,143 (1,823,778)
Reorganization 2,500 - 2,500 1,070 -107,000 - - - (100)(125,000) 4,370,500 43 13,840,487 -
Initial Public Offering - - - - - - - - - - 1,150,000 12 4,542,670 -
Exercise of options - Third Quarter- 94 - - - - - - - - 105,000 1 1,049 -
Exercise of options - Fourth Quarter-94 - - - - - - - - 105,000 1 50,060 -
Net (loss) for the year ended Dece-ber-31,1994 - - - - - - - - - - - (14,316,193)
-
Balance - Decmber 31, 1994 $2,500 2,500 1,070 $ - $ 107,000 $ - -$ - $ - 5,730,500 57 $18,870,409 (16,139,971)
Private Placement - Common Stock - - - - - - - - - - 118,778 2 388,887 -
Exercise of options - First Quarter- -995 - - - - - - - - 30,000 328,125 -
Exercise of options and issuance of Apotex stock -
Second Quarter 1995 - - - - - - - - - - 674,700 7 980,806 -
Exercise of options - Third Quarte- -995 - - - - - - - - 24,500 (260,612) -
Exercise of options - Fourth Quarter-1995 - - - - - - - - 5,000 40,624 -
Net (loss) for the year ended December-31, 1995 - - - - - - - - - (3,133,348)
-
Balance - December 31, 1995 Fwd. $2,500 2,500 $1,070 -$ 107,000 $ - $ - $ - 6,583,478 $66 20,348,239 (19,273,319)
7
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<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
--------------------------------------------------------------------
----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Six months ended Inception] to
June 30, June 30,
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net (Loss) $(1,666,720) $(2,306,937) $(20,940,039)
----------- ----------- -------------
Adjustments to Reconcile Net (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation $ 60,902 $ 30,821 $ 158,071
Amortization 36,580 32,767 347,829
Loss on Sale of Assets -- -- 698
Interest and Compensation Expense
in Connection with Issuance of Equities 65,543 1,302,891 14,160,816
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (16,751) 2,515 (22,387)
Inventory (246,179) -- (1,074,545)
Prepaid Expenses (6,885) 14,140 (234,618)
Other Current Assets 23,819 (135,305) (69,810)
Deposits (1,650) -- (22,167)
Organizational Costs -- -- (13,828)
Other Assets 2,250 690 (1,592)
Increase (Decrease) in:
Accounts Payable (138,772) 28,867 334,115
Accrued Interest Payable 35,802 (13,805) 55,039
Accrued Expenses (32,550) (2,918) 77,209
Other Current Liabilities 461 16,679 461
---------- ---------- -----------
Total Adjustments $ (217,430) $1,277,342 $13,695,291
----------- ---------- -----------
Net Cash (Used) by Operating
Activities - Forward $(1,884,150) $(1,029,595) $(7,244,748)
------------ ------------ ------------
Investing Activities:
Patent Issuance Costs $ (74,085) $ (17,318) $ (159,262)
Purchases of Equipment and
Leasehold Improvements (173,049) (46,224) (1,544,248)
Proceeds from Sale of Asset -- -- 9,200
Purchase of Marketable Securities -- -- (1,476,449)
Proceeds from Sale of Marketable Securities -- 1,476,449 1,476,449
-------- ---------- -----------
Net Cash (Used) by Investing
Activities - Forward $ (247,134) $1,412,907 $(1,694,310)
----------- ---------- ------------
See Accompanying Notes to Consolidated Financial Statements.
8
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<PAGE>
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Six months ended Inception] to
June 30, June 30,
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Net Cash (Used) by Operating
Activities - Forwarded $(1,884,150) $(1,029,595) $(7,244,748)
----------- ------------ ------------
Net Cash (Used) by Investing
Activities - Forwarded $ (247,134) $1,412,907 $(1,694,310)
----------- ---------- -----------
Financing Activities:
Proceeds from Note Payable - Bank $ -- $ -- $ (390,000)
Payments on Note Payable - Bank -- -- --
Proceeds from Related Party Loans 155,000 -- 1,294,582
Proceeds from Borrowings Under
Line of Credit -- 450,000 1,365,000
Proceeds from Notes Payable - Others -- -- 445,000
Proceeds from Interim Loans 55,000 -- 970,295
Proceeds from Bridge Financing 120,000 -- 495,000
Capital Contribution -- -- 95,000
Payments on Interim Loans (55,000) -- (305,000)
Payments on Notes Payable - Others -- (125,000) (520,000)
Payment on Stockholder Loans -- -- (207,037)
Payment of Line of Credit -- (975,000) (975,000)
Proceeds from Issuance of
Common Stock 56,307 -- 4,987,866
Proceeds from Issuance of Class C
Series 1 Preferred Stock 2,109,357 -- 2,109,357
Proceeds from Exercise of Options 20 6,047 8,462
Purchase of Letter of Credit (187,500) (375,000) (187,500)
----------- ----------- -----------
Net Cash - Financing Activities $2,253,184 $(1,018,953) $9,186,025
---------- ------------ ----------
Net Increase (Decrease) in Cash
And Cash Equivalents $ 121,900 $ (635,641) $ 246,967
Cash and Cash Equivalents -
Beginning of Periods 125,067 1,075,073 --
---------- ---------- ----------
Cash and Cash Equivalents -
End of Periods $ 246,967 $ 439,432 $ 246,967
========== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest - Related Party $ 20,641 $ 13,609 $ 104,992
Interest - Other $ 2,347 $ 37,062 $ 133,818
Income Taxes $ -- $ -- $ --
See Accompanying Notes to Consolidated Financial Statements.
9
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
--------------------------------------------------------------------
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
In accordance with the terms of the Stock Plan (see Note 5), 2,000 and 54,700
options were exercised at a nominal price during each of the six months ended
June 30, 1996 and June 30, 1995 respectively. The difference between the fair
market value of the Common Stock at the time of exercise and the amount paid was
charged to compensation expense.
In April 1995, the Company issued 100,000 shares of its common stock to Apotex
U.S.A., Inc. in accordance with a series of agreements for the development,
manufacture and marketing of two niche generic anticancer compounds, paclitaxel
and bleomycin. The fair market value of the Common Stock was charged to
compensation expense.
In March 1996, the Company received a gap loan of $400,000 from an entity, which
contemplated the conversion of the principal amount of the loan to Class C
Series 1 Preferred Stock with interest on the loan payable in 12,500 shares of
the Company's Common Stock. This transaction was completed on April 16, 1996.
In May 1996, the Company entered into a settlement agreement with Ocean Marine
Services ("Ocean Marine"). The lawsuit was settled by an agreement with the
Company to make a cash payment of $115,000 and issue 25,000 shares of
unregistered Common Stock to Ocean Marine (see Note 9).
As a result of these various agreements and transactions, the Company's
statement of operations reflects non-cash interest and compensation expense of
$65,543 for the six months ended June 30, 1996 and $1,302,891 for the six months
ended June 30, 1995.
See Accompanying Notes to Consolidated Financial Statements.
10
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[1] Significant Accounting Policies
Significant accounting policies and other matters of Xechem International, Inc.
and its wholly-owned subsidiaries, Xechem, Inc., Xechem Laboratories, Inc. and
XetaPharm, Inc.(collectively the "Company"), are set forth in the financial
statements for and as of the year ended December 31, 1995 included in the
Company's Form 10-KSB, as filed with the Securities and Exchange Commission.
[2] Basis of Reporting
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include all
adjustments [consisting only of normal recurring items] which are considered
necessary for a fair presentation of the consolidated financial position of the
Company at June 30, 1996 and the consolidated results of its operations for the
six months ended June 30, 1996 and 1995 and for the cumulative period from March
15, 1990 (date of inception) to June 30, 1996 and its cash flows for the six
months ended June 30, 1996 and 1995 and for the cumulative period from March 15,
1990 (date of inception) to June 30, 1996. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Form 10- KSB for the year
ended December 31, 1995. The results of operations for the six month periods
ended June 30, 1996 and 1995 are not necessarily indicative of the operating
results for a full year.
[3] Restricted Cash
In May 1996, the Company purchased a Letter of Credit for $375,000. The Letter
of Credit was issued to Guizhou Fanya Pharmaceutical Co, Ltd. for the purchase
of partially processed raw material for paclitaxel, in accordance with the
agreement signed in September 1994. In June 1996, $187,500 was released upon
receipt of the material. In July 1996, after all testing of the material was
completed and it was accepted, the balance of the Letter of Credit was paid and
the transaction was completed.
[4] Loss per Share
Loss per share amounts are based on the weighted average number of shares
outstanding. Shares issuable upon the exercise of stock options are excluded
from the computation since the effect on the net loss per common share would be
anti-dilutive. The holders of Class B 8% Preferred Stock and C Series 1
Preferred Stock are entitled to cumulative dividends on the $100 per share
liquidation preference at the rate of 8% per annum payable quarterly. This
dividend has been reflected in the computation of loss per share available to
common stockholders.
[5] Stock Plan
As a result of the exercise of 2,000 and 54,700 stock options during the six
months ended June 30,
11
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
1996 and June 30, 1995 respectively, the Company's statements of operations
reflect a charge to non-cash compensation expense of $4,605 and $602,891,
respectively. The offsetting amount was reflected as paid-in capital. The charge
reflects the excess of the market value of the Company's Common Stock issued
over the exercise price paid.
[6] Capital Transactions
On March 29, 1995, Kensington Wells, Inc. ("KWI"), the underwriter of the
Company's initial public offering, signed a letter of intent in which it agreed
to act as a placement agent in a private offering of the Company's Common Stock.
The offering was on a best efforts, all-or-none basis, and was subsequently
amended to a minimum - maximum offering prior to the placement of any shares,
and called for a closing no later than February 15, 1996. A total of $594,500
was raised, before offering costs, and the Company closed the offering on
February 15, 1996. As part of this offering, the majority stockholder agreed to
return to the Company for $4, one share of Common Stock for each three shares of
Common Stock sold by KWI. In the first quarter 1996, gross proceeds from the
private placement totaled $60,000 for 20,000 shares of Common Stock and the
majority stockholder returned 6,667 common shares to the Company. The costs
associated with this placement amounted to $3,693, resulting in net proceeds of
$56,307.
In March 1996, the Company received a gap loan of $400,000 from an entity, which
contemplated the conversion of the principal amount of the loan to Class C
Series 1 Preferred Stock with interest on the loan payable in 12,500 shares of
the Company's Common Stock. This transaction was completed on April 16, 1996.
On March 26, 1996, the Company entered into an agreement with a new placement
agent for a non-public offering of Class C Series 1 Preferred Stock at $100 per
share convertible into Common Stock, at any time following 60 days from
issuance, together with demand registration rights for the Common Stock and a
penalty clause if such shares are not registered following demand. The Preferred
Stock is entitled to an 8% cumulative dividend, and must convert to Common Stock
at maturity, if not converted prior to maturity. Conversion rights commenced 60
days after the initial issuance of April 9, 1996. The conversion price of the
Preferred Stock is subject to a floor of $1.25 per share and a ceiling, as
amended, of $2.75 per share. The offering was made in reliance upon an exemption
from registration pursuant to Regulation S promulgated under the Securities Act
of 1933.
The offering was closed on April 30, 1996.
A total of 22,500 shares of Class C Series 1 Stock were sold, resulting in net
proceeds of $2,137,500 being received by the Company, including the conversion
of a $400,000 gap loan into 4,000 of such shares.
As of June 30, 1996, 4,800 shares of Class C Series 1 Stock were converted into
377,583 shares of Common Stock at a conversion price ranging from $1.25 - $1.70
per share. As of August 8, 1996, a total of 11,600 shares of Class C Series 1
Stock have been converted into 921,583 shares of Common Stock at a conversion
price ranging from $1.25 - $1.70 per share.
In May 1996, the Company entered into a settlement agreement with Ocean Marine
Services
12
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
("Ocean Marine"). The lawsuit was settled by an agreement with the Company to
make a cash payment of $115,000 and issue 25,000 shares of unregistered Common
Stock to Ocean Marine.
In accordance with the restructed Apotex Agreements, Apotex U.S.A., Inc.
returned to the Company 75,000 of the 100,000 shares of Common Stock previously
issued to it by the Company. These shares of Common Stock were cancelled in
May, 1996.
[7] Notes Payable - Related Party
The majority stockholder had made advances to the Company prior to the Public
Offering. The principal amounts advanced (including accrued salary of $110,000)
totaled $517,451 at December 31, 1995 and are evidenced by an eight percent (at
simple interest) note payable due April 25, 1999.
During 1995, the majority stockholder made advances to the Company aggregating
$435,000. At December 31, 1995 such advances are evidenced by an eight percent
(at simple interest) promissory note due December 31, 1996.
The majority stockholder advanced an additional $155,000 through March 31, 1996
under the same terms as the 1995 advances.
[8] Notes Payable - Other
Individuals made loans to the Company during 1995 amounting to $180,000. Each of
these loans is evidenced by a ten percent (at simple interest) promissory note
due one year from the date of the loan. An additional $120,000 was received from
different individuals through February 14, 1996 under the same interest terms.
[9] Settlement of Litigation
On October 12, 1994, counsel for Ocean Marine Services ("Ocean Marine")
requested additional information from Dr. Pandey, alleging that it would not
have entered into a settlement agreement in 1992 had it known that discussions
were ongoing with Regal One Corporation regarding a possible business
transaction. In April 1995 Ocean Marine instituted an action against Dr. Pandey
seeking to set aside the settlement agreement based upon its assertion that such
discussions were not disclosed to it, and seeking remedies under applicable
state and federal securities laws, including interest, attorneys fees and costs,
which had cumulated over $525,000 by April 20, 1996 according to Ocean Marine,
and which could include additional attorneys fees, interest and costs through
the determination of such action. Dr. Pandey denied that any wrongdoing had
occurred. However the Company determined that it was in the Company's best
interest to settle such action, given the cost of defending such action,
together with the possibility, however remote, that an adverse outcome could
have a material adverse effect on the Company. In addition, the Company
determined that the time and effort necessary to defend such action would
detract from Dr. Pandey's ability to exert full time efforts in executing the
Company's business plan. Accordingly, the lawsuit was settled in May 1996 by the
agreement of the Company to pay $115,000 and to issue 25,000 shares of
unregistered Common Stock to the plaintiffs, pursuant to its indemnification
obligation to Dr. Pandey.
13
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[10] Dividends
The Company's Class B and Class C Preferred Stock accrues cumulative dividends
at varying rates. The Company has not declared payment of such accrued dividends
and does not intend to do so until the Company has earnings and profits from
which to pay dividends.
[11] Subsequent Events
The Company's ability to continue operations is contingent upon attaining
additional financing. While the Company has a number of discussions in progress.
there have been no closures. As of August 15, 1996, the Company's remaining cash
is de minimus. At this time, it is planned that most of its employees'
employment will be significantly curtailed or suspended pending the Company's
procurement of additional financing.
14
<PAGE>
Item 2. Management's Discussion and Analysis
General
Xechem International, Inc. (the "Company" or "Xechem") is the holder of
all of the capital stock of Xechem, Inc., a development stage
bio-pharmaceutical company engaged in research, development, and production
of generic and proprietary drugs from natural sources, Xechem Laboratories,Inc.
and XetaPharm, Inc. Xechem, Inc. was formed in March 1990 to acquire
substantially all of the assets of a subsidiary of LyphoMed, Inc.
(later known as Fujisawa/LyphoMed, Inc.), a publicly traded company.
Results of Operations:
The Six Month Period Ended June 30, 1996 vs. The Six Month Period Ended
June 30, 1995
The following table sets forth certain statement of operations data of the
Company for the cumulative period from inception [March 15, 1990] to June 30,
1996 and for each of the six month periods ended June 30, 1996 and June 30,
1995:
<TABLE>
Cumulative
Six Months Ended June 30 Inception to
June 30
1996 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenue $ 157.8 $ 3.0 $ 524.6
Research and development expense $ 761.1 $ 1,234.3 $ 3,801.5
Rent, general and administrative expenses $ 982.1 $ 1,078.5 $ 4,502.4
(Loss) from operations $ (1,585.4)$ (2,309.8)$ (7,779.3)
</TABLE>
The $154,800 increase in revenue from the six month period ended June 30, 1995
to the six month period ended June 30, 1996 was attributable to an increase in
sales of services and products. Service sales increased by $79,300 in the 1996
period as compared to the 1995 period. Included in this amount is $49,000 from
the National Cancer Institute for a Small Business Innovative Research Phase I
grant, and a net increase of $30,300 from other service work. Sales of
paclitaxel for research purposes for the six month period ended June 30, 1996
increased $75,500 over the same 1995 period.
The Company=s research and development expenditures continue to emphasize
compounds for generic anticancer, antiviral and antibiotic products which enjoy
significant market demand but
15
<PAGE>
are no longer subject to patent protection. Research and development
expenditures decreased by $473,200 to $761,100 or 38.34% for the six months
ended June 30, 1996 as compared to the six months ended June 30, 1995.
Expenditures on the development of Xechem=s process for producing paclitaxel
totaled $210,100, a decrease of $38,100 or 15.4% as compared to the six month
period ended June 30, 1995before recorded $90,200 cost reimbursement. The
addition of new scientific staff members and the time applied by them to this
project was the major cause for the increased paclitaxel expenditures. In 1995,
due to an agreement between Xechem and Apotex USA, Inc. ("Apotex"), the Company
had recorded a $90,200 cost reimbursement for the paclitaxel project for the six
month period ended June 30, 1995. This agreement was revised at a later date and
the cost was never reimbursed.
Research and development costs for bleomycin were $15,100 for the six
month period ended June 30, 1996, a decrease of $50,800 or 77.1% as compared to
the six month period ended June 30, 1995 before recorded $34,800 cost
reimbursement. In 1995, under an agreement between Xechem and Apotex, the
Company had recorded $34,800 cost reimbursement for the bleomycin project for
the six month period ended June 30, 1995. This agreement was revised at a later
date and the cost was never reimbursed.
The Company's subsidiary, XetaPharm, Inc., has been formed to market, on
an initially modest scale, certain natural health products. It spent $61,800 for
market readiness on alternative medicines and nutraceuticals in the six months
ended June 30, 1996. The Company's other research and development projects, both
for customers and in-house research, totaled $90,900 for the six month period
ended June 30, 1996, an increase of $25,700 or 39.4% from the same period in
1995. The single largest cause for decrease in expenses from the six month
period ended June 30, 1995 was the reduction of $786,500 in non-cash charges
resulting from exercising of stock options by non-employees. Excluding this
non-cash expense, general research and development costs increased $189,700 as a
result of additional staffing, payroll taxes, group insurance and other overhead
for the six month period ended June 30, 1996 over the same period in 1995. The
Company anticipates that research and development expenditures will continue to
increase for paclitaxel, as well as the development of other anticancer,
antiviral and memory enhancing drugs.
Rent, general and administrative expenses decreased $96,300 or 8.9% for
the six month period ended June 30, 1996 compared to the six month period ended
June 30, 1995, due primarily to a 1996 decrease of $511,800 in non-cash expenses
related to exercised stock options by employees and consultants. This was offset
by the expense of $147,800 for the settlement in April 1996 of the Ocean Marine
Service claim against Dr. Pandey (See Page 18). Legal and accounting expenses
totaled $166,900 for the six month period ended June 30, 1996 and were $55,400
or 24.9% lower than the $222,300 for the comparable 1995 period. Other general
and administrative costs increased $323,100 or 93.9% to $667,300 in 1996
compared to the same period in 1995.
The most significant items in the increase of $323,100 were salaries and
wages ($80,800), a 109.9% increase to $154,300 which represented $55,400 for
additions in XetaPharm marketing and administration staff and $18,800 for
additional personnel in Quality Assurance/Control. Trade show ($73,100) and
consulting expenses ($37,900) both increased in the six month period ended June
30, 1996. Both of these expenses were related to the increase in marketing
activities for XetaPharm and Xechem. There were no comparative costs for the
same period ended June 30, 1995. Office
16
<PAGE>
expenses increased $31,000 or 161.5% to 50,200, of which $22,800 was related to
start up supplies for XetaPharm. Travel expenses also increased $21,200 or 121.%
to $38,700 for the six month period ended June 30, 1996, which was due primarily
for the increased marketing effort for XetaPharm and Xechem.
The Company anticipates that, provided adequate funding is available to
the Company, general and administrative expenses will increase as a result of
expansion of its operations and marketing efforts. Xechem=s planned activities
will require the addition of new personnel, including management, and the
development of additional expertise in areas such as preclinical testing,
clinical trial management, regulatory affairs, manufacturing and marketing. The
exact number and nature of persons hired, and the Company's expenses for such
persons, will depend on many factors, including the capabilities of those
persons who seek employment with the Company and the availability of funding to
finance these efforts.
The Company's loss from operations totaled $1,585,400, a decrease of
$724,400 or 31.4% for the six month period ended June 30, 1996 as compared to
the same period in 1995, and is primarily a result of the foregoing.
Interest expense increased approximately $43,100 or 98% to $86,900 in the
six month period ended June 30, 1996 as compared to the six month period ended
June 30, 1995. In the 1996 period, these expenses were the result of gap
financing loaned to the Company.
Liquidity and Capital Resources; Plan of Operations
On June 30,1996, Xechem had cash and cash equivalents of $247,000, working
capital of $358,600 and stockholder's equity of $1,749,000.
On March 29, 1995, Kensington Wells, Inc. ("KWI"), the underwriter of the
Company's initial public offering, signed a letter of intent in which it agreed
to act as a placement agent in a private offering of the Company's Common Stock.
The offering was on a best efforts, all-or-none basis, and was subsequently
amended to a minimum - maximum offering prior to the placement of any shares,
and called for a closing no later than February 15, 1996. A total of $445,100
was raised, after offering costs, and the Company closed the offering on
February 15, 1996. Of this total, $56,300, after offering costs, was raised in
the first quarter, 1996.
Due to the continuing need for operating funds, the Company obtained loans
during the first quarter of 1996 totaling $120,000 from three individuals not
affiliated with the Company. These loans are evidenced by 10% and 12% (at simple
interest) promissory notes due one year from the dates of the loans. This was in
addition to the $180,000 in loans received in 1995, from three different
individuals under similar one year terms.
The Company's majority stockholder has also made advances to the Company.
In the first quarter of 1996, the principal amount of $155,000 was advanced and
is evidenced by an 8% (at
17
<PAGE>
simple interest) promissory note due December 31, 1996. This was in addition to
$435,000 advanced in 1995 by the same individual under the same terms.
On March 26, 1996, the Company entered into an agreement with a new
placement agent for a non-public offering to issue Class C Series 1 Preferred
Stock at $100 per share convertible into Common Stock, at any time following 60
days from issuance, together with demand registration rights for the Common
Stock. The Class C Series 1 Preferred Stock is entitled to an 8% cumulative
dividend, and must convert to Common Stock at maturity (one year following
issuance). The conversion price of the Class C Series 1 Preferred Stock is
subject to a floor of $1.25 per share and ceiling, as amended, of $2.75 per
share. In March 1996, the Company received a gap loan of $400,000 from an
entity, who converted the principal amount of the loan to Class C Series 1
Preferred Stock, with interest on the loan payable 12,500 shares of the
Company's Common Stock. In April 1996, the Company received $1,737,500, after
commissions, from this offering.
As a result of its net losses to December 31, 1995 and negative working
capital and accumulated deficit since inception, the Company's accountants, in
their report on the Company's financial statements for the year ended December
31, 1995, included an explanatory paragraph indicating there is substantial
doubt about the Company's ability to continue as a going concern. The Company's
research and development activities are at an early stage and the time and money
required to determine the commercial value and marketability of the Company's
proposed products cannot be estimated with precision. The Company expects
research and development activities to continue to require significant cost
expenditures for an indefinite period in the future.
The Company continues to apply to various governmental agencies to fund
its research on specific projects and in prior years had been awarded certain
grants. In March 1996 the Company was awarded a National Cancer Institute Small
Business Innovative Research grant in the amount of $86,700 for "Enhanced Xechem
Integrated Screening Techniques" ("EXIST") for paclitaxel.
In May 1995 the Company filed a Drug Master File with the Food and Drug
Administration for the Company's facilities. The Company is in the process of
completing its technology validation and anticipates, but can provide no
assurances, that a Drug Master File for paclitaxel will be filed in the first
quarter of 1997. The Company has sufficient inventory of raw materials to
produce commercial bulk paclitaxel which has a market value of approximately
$2,500,000 at current prices and anticipates, but can provide no assurances that
it will commence sales of paclitaxel in the international market in the second
quarter of 1997. Prior to commencing such sales, the Company must file for and
obtain approvals from appropriate regulatory agencies in foreign jurisdictions.
There can be no assurance that such approvals will not be delayed or subject to
conditions or that the Company will be able to meet any such conditions. In
addition, the Company has no experience in marketing products for human
consumption and there can be no assurance that the Company will be able to
successfully market its paclitaxel product in bulk, or be able to obtain
satisfactory
18
<PAGE>
packaging of the product in single dosage vials from an independent manufacturer
From December 1989 to October 1990, Dr. Ramesh C. Pandey, the Company's
President/CEO, was a minority stockholder and director of Advanced Molecular
Technologies, Inc., a Washington-based corporation ("AMT") formed to gather
paclitaxel bark in the Pacific Northwest for sale. Dr. Pandey had no involvement
in AMT's day-to-day activities, and believes he was asked to serve on its board
of directors to add academic credibility to its efforts. Ocean Marine Services
("Ocean Marine") claimed to have made an investment of $225,000 in AMT in 1990.
AMT subsequently ceased operations. In January 1991, Ocean Marine filed a
lawsuit against Dr. Pandey and others in Federal District Court in Washington
State, alleging breaches of state and Federal securities laws in connection
Ocean Marine's investment and seeking damages. Dr. Pandey denied any wrongdoing
in connection with the litigation. However, given the time and expense
associated with a Washington-based lawsuit and the uncertainties of litigation,
an out-of-court settlement was reached in late 1992 by Dr. Pandey, with no
finding of wrongdoing by Dr. Pandey. The Company was not a party to such
proceedings, Dr. Pandey received a general release from Ocean Marine, and the
Company agreed to indemnify Dr. Pandey against any future claims by Ocean Marine
in his employment agreement.
On October 12, 1994, counsel for Ocean Marine requested additional
information from Dr. Pandey, alleging that it would not have entered into a
settlement agreement in 1992 had it known that discussions were ongoing with
Regal One Corporation regarding a possible business transaction. In April 1995
Ocean Marine instituted an action against Dr. Pandey seeking to set aside the
settlement agreement based upon its assertion that such discussions were not
disclosed to it, and seeking remedies under applicable state and federal
securities laws, including interest, attorneys fees and costs, which had
cumulated over $525,000 by April 20, 1996 according to Ocean Marine, and which
could include additional attorneys fees, interest and costs through the
determination of such action. Dr. Pandey denied that any wrongdoing has
occurred. However the Company determined that it was in the Company's best
interest to settle such action, given the cost of defending such action,
together with the possibility, however remote, that an adverse outcome could
have a material adverse effect on to the Company. In addition, the Company
determined that the time and effort necessary to defend such action would
detract from Dr. Pandey's ability to exert full time efforts in executing the
Company's business plan. Accordingly, the lawsuit was settled in May 1996 by the
agreement of the Company to pay $115,000 and to issue 25,000 shares of
unregistered Common Stock to the plaintiffs, pursuant to its indemnification
obligation to Dr. Pandey.
Xechem has expended and will continue to expend substantial funds in
connection with the research and development of its products. As a result of
these expenditures, and even with revenues anticipated from commencement of
sales of paclitaxel, the Company anticipates that losses will continue for the
foreseeable future.
Xechem=s planned activities will require the addition of new personnel,
including management, and the continued development of expertise in areas such
as preclinical testing, clinical
19
<PAGE>
trial management, regulatory affairs, manufacturing and marketing. Further, if
Xechem receives regulatory approval for any of its products, in the United
States or elsewhere, it will incur substantial expenditures to develop its
manufacturing, sales, and marketing capabilities. There can be no assurance that
Xechem will ever recognize revenue or profit from any such products. In
addition, Xechem may encounter unanticipated problems, including developmental,
regulatory, manufacturing, or marketable difficulties, some of which may be
beyond Xechem=s ability to resolve. Xechem may lack the capacity to produce its
products in-house and there can be no assurances that it will be able to locate
suitable contract manufacturers or be able to have them produce products at
satisfactory prices.
The Company is developing a limited line of over-the-counter natural
products (not requiring FDA approval) for sale through health food outlets, drug
stores and physicians specializing in natural medicines. The Company has
selected several natural, over the counter products manufactured by contract
manufacturers under the Company's XetaPharm trademark. The emphasis of the
products will be the combination of the natural health benefits of these
products with the quality of a pharmaceutical firm. Initial marketing efforts
commenced in the third quarter of 1996; however, there can be no assurances as
to the level of success for this program, or that the Company will have adequate
financial resources to support such program.
The Company's ability to continue operations is contingent upon obtaining
additional financing in the near future. It is presently engaged in discussions
with several groups that have expressed an interest in investing funds or
raising additional capital for the Company. Should additional funds not be
provided in the near future or in an amount sufficient to sustain operations
until the Company can generate funds from other sources, the Company will lack
the wherewithal to continue its operations. There can be no assurances as to the
terms upon which additional capital will be raised should the Company be
successful in attracting additional capital.
The Company's ability to continue operations is contingent upon attaining
additional financing. While the Company has a number of discussions in progress.
there have been no closures. As of August 15, 1996, the Company's remaining cash
is de minimus. At this time, it is planned that most of its employees'
employment will be significantly curtailed or suspended pending the Company's
procurement of additional financing.
20
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a).Exhibits
Exhibit 3ACertificate of Designations, Preferences and Rights of
Class C Shares/Preferred Stock of Xechem International,
Inc.
Exhibit 3BCertificate of Correction of Designations, Preferences
and Rights of Class C Shares/Preferred Stock of Xechem
International, Inc.
Exhibit 4-Amended and Restated Stock Option Plan
(b).Reports on Form 8-K
None
21
<PAGE>
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held at the Hyatt
Regency Hotel, 2 Albany Street, New Brunswick, New Jersey on Thursday, June 25,
1996 at 10:00 A.M. Eastern Daylight Savings Time. The purpose of the Annual
Meeting was to consider the vote on the following matters:
1. To elect three directors to hold office until the next annual
meeting of stockholders or otherwise as provided in the
Corporation's By-Laws.
Nominees
Ramesh C. Pandey, Ph.D.
Brian Arenare, M.D.
Lester A. Mitscher, Ph.D.
The nominees for director received the following number of votes:
Ramesh C. Pandey, Ph.D.
Class A Common
Preferred Stock Stock
For 5,682,413 2,500,000
Withheld 51,490 -0-
Non-votes 825,408 -0-
Brian Arenare, M.D. and Lester A. Mitscher, Ph.D., each
Class A Common
Preferred Stock Stock
For 5,689,313 2,500,000
Withheld 44,590 -0-
Non-votes 825,408 -0-
2. To approve an increase in the number of shares of Common Stock which
may be issued under the Xechem International, Inc. Amended and
Restated Stock Option Plan.
The vote of the stockholders was as follows:
Class A Common
Preferred Stock Stock
For 5,554,753 2,500,000
Withheld 146,650 -0-
Abstentions 32,500 -0-
Non-votes 825,408 -0-
22
<PAGE>
3. To concur in the selection of Mortenson and Associates, P.C. as the
Corporation's independent auditor for the fiscal year ending
December 31, 1996.
The vote of the stockholders was as follows:
Class A Common
Preferred Stock Stock
For 5,686,413 2,500,000
Against 24,090 -0-
Abstentions 23,400 -0-
Non-votes 825,408 -0-
All of the above matters were approved by the Stockholders. There were no other
matters voted on at the meeting.
23
<PAGE>
EXHIBIT 3A
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
XECHEM INTERNATIONAL, INC.
Date: August 15 , 1996
/s/ Ramesh C. Pandey
Ramesh C. Pandey, Ph.D.
President/Chief Executive Officer
/s/ Leonard A. Mudry
Leonard A. Mudry,
Vice President - Finance and Operations
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statements of operations
and is qualfied in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-END> jun-30-1996
<CASH> 246,967
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,101,780
<CURRENT-ASSETS> 1,836,722
<PP&E> 1,157,346
<DEPRECIATION> 278,574
<TOTAL-ASSETS> 3,615,188
<CURRENT-LIABILITIES> 1,478,107
<BONDS> 0
0
1,791,000
<COMMON> 20,898,032
<OTHER-SE> (20,940,039)
<TOTAL-LIABILITY-AND-EQUITY> 3,615,188
<SALES> 131,183
<TOTAL-REVENUES> 131,183
<CGS> 0
<TOTAL-COSTS> 837,158
<OTHER-EXPENSES> (4,116)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,992
<INCOME-PRETAX> (759,851)
<INCOME-TAX> 0
<INCOME-CONTINUING> (759,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (759,851)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
EXHIBIT 3A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF CLASS C SHARES/PREFERRED STOCK
OF
XECHEM INTERNATIONAL, INC.
Xechem International, Inc. (the "Corporation"), a corporation organized
and existing underthe General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation (as amended) of said corporation, and pursuant to
the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors at a meeting held on February 29, 1996 adopted a resolution
providing for the issuance of up to 40,000 shares of Class C Series 1 Preferred
Stock (the "C Series 1 Preferred Stock"), with the following designations,
preferences and relative, participating, optional or other rights, and
qualifications, limitations or restrictions:
(a) Ranking. Subject to Section 6(c) of the Articles of Incorporation,
the C Series 1 Preferred Stock shall rank senior to the Corporation's
Class A Preferred Stock and 8% Preferred Stock, with respect to the
payment of dividends, senior to the Corporation's Class A Preferred
Stock with respect to liquidation preference and on a parity with the 8%
Preferred Stock with respect to liquidation preference.
(b) Dividends.The holders of C Series 1 Preferred Stock shall be
entitled to receive, when, if and as declared by the board of directors
out of funds legally available for the purpose, dividends in cash at the
rate of 8% per annum from the date of issuance through the date of
conversion to Common Stock as set forth in Section 4(e). The dividends
shall be paid quarterly, in arrears, no later than the 30th day
following the end of each calendar quarter during which the Preferred
Stock is issued and outstanding. Dividends on the C Series 1 Preferred
Stock shall be cumulative from and after the date of original issuance,
whether or not earned or declared, and whether or not there shall be
funds of the Corporation legally available for the payment of such
dividends. Accruals and accumulations of dividends shall not bear
interest. All unpaid C Series 1 Preferred Stock dividends shall be
prorated up to and including the conversion date from either the date of
original issuance or the end of the calendar quarter as of which the
last dividend payment was made.
(c) Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the C Series 1 Preferred Stock shall be entitled to receive
or to have set apart for them, before any payment or distribution of the
assets of the Corporation shall be made or set apart for any Class or
Series of stock of the Corporation ranking junior to the C Series 1
Preferred Stock with respect to liquidation preference, an amount equal
to $100 per share, plus an amount equal to all dividends accrued,
accumulated, and unpaid thereon to the date of final distribution
25
<PAGE>
to such holders; but they shall be entitled to no further payment. If
the assets of the Corporation distributable to shares of the C Series 1
Preferred Stock and to the shares of any class or series of stock of the
Corporation ranking on a parity with the C Series 1 Preferred Stock with
respect to liquidation preference shall be insufficient to provide for
full payment of the preferential amounts to which the holders thereof
are respectively entitled, the Corporation shall make payments on shares
of the C Series 1 Preferred Stock and on shares of any such class or
series ratably in accordance with the preferential amounts to which such
shares are respectively entitled.
For purposes of this Section 6(c), no sale, conveyance, exchange or
transfer (for cash, shares of stock, securities, or other consideration)
of all or substantially all of the property or assets of the
Corporation, no reorganization of the Corporation, and no consolidation
or merger of the Corporation with one or more corporations shall be
deemed to be a liquidation, dissolution, or winding up, voluntary or
involuntary.
(d) Voting. Other than as provided by law or in this Section 6(d), the
holders of the C Series 1 Preferred Stock shall not be entitled to vote
at any election of directors or on any other matter submitted to
stockholders of the Corporation.
So long as any shares of C Series 1 Preferred Stock shall be
outstanding, the Corporation shall not, without the affirmative votes or
written consent of the holders of at least a majority of the aggregate
number of outstanding shares of C Series 1 Preferred Stock, amend,
alter, or repeal any of the provisions of the Certificate of
Incorporation of the Corporation so as to affect the holders of the C
Series 1 Preferred Stock materially and adversely.
(e) Conversion. At any time from 60 days following the date of issuance
of the C Series 1 Preferred Stock up to and including the first
anniversary of such issuance, any share of C Series 1 Preferred Stock
automatically shall be converted, at the option of the holder of such
share, and on the first anniversary of such issuance each share of
outstanding C Series 1 Preferred Stock automatically shall be converted
into Common Stock. The C Series 1 Preferred Stock will be converted into
a number of shares of Common Stock equal to that number of Common Shares
as can be purchased by the quotient of $100 divided by the "Conversion
Price," with any fractional amounts to, at the option of the
Corporation, either to be redeemed for cash equal to such fractional
amount, or rounded up to the nearest whole Common Stock share of the
Corporation. The Conversion Price shall be seventy-five percent (75%)
off the "Closing Price" of the Common Stock. The "Closing Price" will be
the average closing bid price of the Common Stock over the five-day
trading period ending on the last trading day prior to the date of
conversion, provided however that the Conversion Price may not exceed
$2.75 per share of Common Stock nor may it be less than $1.25 per share
of Common Stock. Any holder of C Series 1 Preferred Stock may exercise
such conversion right by delivery to the Corporation of a notice (a
"Conversion Notice"), at any time commencing 60 days following issuance
of the C Series 1 Preferred Stock to which the notice relates, stating
the number of shares of C Series 1 Preferred Stock to be converted and
to be accompanied by the certificate or certificates for the shares
26
<PAGE>
to be so converted. Delivery shall be deemed to occur effective as of
the date the Corporation or its transfer agent has physical custody of
the Conversion Notice and stock certificates for the Series 1 Preferred
Stock, provided, however that the Conversion Notice may be delivered by
facsimile for purposes of fixing the date of conversion so long as the
stock certificates are in physical custody of the Corporation or its
transfer agent not later than the fifth business day after the facsimile
is sent. If not so received, the date on which the Corporation or its
transfer agent has physical custody of the stock certificates shall
control for purposes of fixing the date of conversion. The Corporation
shall or shall cause any transfer agent to, as promptly as practicable
after receipt of any Conversion Notice, but in no event later than the
third business day following the date on which the Corporation has
received both the Conversion Notice and the stock certificates deliver
to the holder of the shares converted a certificate or certificates, in
the name of such holder, for the shares of Common Stock to which such
holder is entitled and for any shares of C Series 1 Preferred Stock
represented by the certificate or certificates delivered by the holder
which were not converted. The Corporation will not issue any fractional
shares of Common Stock upon conversion of C Series 1 Preferred Stock
into Common Stock. In case the Corporation shall consolidate or merge
into or with another corporation, or in case the Corporation shall sell
or convey to any other person or persons all or substantially all the
property of the Corporation, effective provision shall be made, in the
Certificate or Articles of Incorporation of the resulting or surviving
corporation or in any contracts of sale and conveyance, for the
protection of the conversion rights of the shares of the C Series 1
Preferred Stock. Should there be a stock split, reverse stock split,
consolidation, reorganization or other change to the Corporation's
capital structure, the conversion rights with respect to the C Series 1
Preferred Stock shall be equitably adjusted to result in convertibility
to the same percentage of beneficial ownership of the Common Stock as if
such transaction had not occurred.
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IN WITNESS WHEREOF, Xechem International, Inc. has caused the
Certificate to be signed by Ramesh C. Pandey, its Chairman of the Board of
Directors, President and Chief Executive Officer, this 9th day of April , 1996.
XECHEM INTERNATIONAL, INC.
By: /s/ Ramesh C. Pandey
Ramesh C. Pandey, Ph.D., Chairman of the
Board of Directors, President and Chief
Executive Officer
ATTEST:
By: /s/ Leonard A. Mudry
Leonard A. Mudry, Secretary
EXHIBIT 3B
CERTIFICATE OF CORRECTION
OF
DESIGNATIONS, PREFERENCES AND
RIGHTS OF CLASS C SHARES/PREFERRED STOCK
OF
XECHEM INTERNATIONAL, INC.
(pursuant to Section 103(f) of the General Corporation Law
of the State of Delaware)
I, the undersigned, being the President and Chairman of the Board of
Directors of XECHEM INTERNATIONAL, INC., a Delaware corporation incorporated on
February 10, 1994, do hereby certify that the Certificate of Designations,
Preferences and Rights of Class C Shares/Preferred Stock of Xechem
International, Inc., filed with the Office of the Secretary of State of Delaware
on April 9, 1996 contained an inaccuracy.
Section (e) contained an inaccuracy as to the conversion price of the
Class C Series 1 Preferred Stock. Section (e) provided that the Conversion
Price, as defined therein, may not exceed the average closing bid price of the
Common Stock over the five day trading period ending on the day prior to the
date on which Class C Series 1 Preferred Stock first issued. Section (e) should
have stated that the Conversion Price, as defined, may not exceed $2.75 per
share of Common Stock.
Section (e) of the Certificate of Designations, Preferences and Rights
of Class C Shares/Preferred Stock should read as follows:
(e) Conversion. At any time from 60 days following the date of issuance
of the C Series 1 Preferred Stock up to and including the first
anniversary of such issuance, any share of C Series 1 Preferred Stock
automatically shall be converted, at the option of the holder of such
share, and on the first anniversary of such issuance each share of
outstanding C Series 1 Preferred Stock automatically shall be converted
into Common Stock. The C Series 1 Preferred Stock will be converted into
a number of shares of Common Stock equal to that number of Common Shares
as can be purchased by the quotient of $100 divided by the "Conversion
Price," with any fractional amounts to, at the option of the
Corporation, either to be redeemed for cash equal to such fractional
amount, or rounded up to the nearest whole Common Stock share of the
Corporation. The Conversion Price shall be seventy-five percent (75%) of
the "Closing Price" of the Common Stock. The "Closing Price" will be the
average closing bid price of the Common Stock over the five-day trading
period ending on the last trading day prior to the date of conversion,
provided however that the Conversion Price may not exceed $2.75 per
share of Common Stock nor may it be less than $1.25 per share of Common
Stock. Any holder of C Series 1 Preferred Stock may exercise such
conversion right by delivery to the Corporation of a notice (a
"Conversion Notice"), at any time commencing 60 days following issuance
of the C Series 1 Preferred Stock to which the notice relates, stating
the number of shares of C Series 1 Preferred Stock to be converted and
to be accompanied by the certificate or certificates for the shares
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to be so converted. Delivery shall be deemed to occur effective as of
the date the Corporation or its transfer agent has physical custody of
the Conversion Notice and stock certificates for the Series 1 Preferred
Stock, provided, however that the Conversion Notice may be delivered by
facsimile for purposes of fixing the date of conversion so long as the
stock certificates are in physical custody of the Corporation or its
transfer agent not later than the fifth business day after the facsimile
is sent. If not so received, the date on which the Corporation or its
transfer agent has physical custody of the stock certificates shall
control for purposes of fixing the date of conversion. The Corporation
shall or shall cause any transfer agent to, as promptly as practicable
after receipt of any Conversion Notice, but in no event later than the
third business day following the date on which the Corporation has
received both the Conversion Notice and the stock certificates deliver
to the holder of the shares converted a certificate or certificates, in
the name of such holder, for the shares of Common Stock to which such
holder is entitled and for any shares of C Series 1 Preferred Stock
represented by the certificate or certificates delivered by the holder
which were not converted. The Corporation will not issue any fractional
shares of Common Stock upon conversion of C Series 1 Preferred Stock
into Common Stock. In case the Corporation shall consolidate or merge
into or with another corporation, or in case the Corporation shall sell
or convey to any other person or persons all or substantially all the
property of the Corporation, effective provision shall be made, in the
Certificate or Articles of Incorporation of the resulting or surviving
corporation or in any contracts of sale and conveyance, for the
protection of the conversion rights of the shares of the C Series 1
Preferred Stock. Should there be a stock split, reverse stock split,
consolidation, reorganization or other change to the Corporation's
capital structure, the conversion rights with respect to the C Series 1
Preferred Stock shall be equitably adjusted to result in convertibility
to the same percentage of beneficial ownership of the Common Stock as if
such transaction had not occurred.
I have duly executed this Certificate of Correction this 9th day of
May, 1996.
/s/ Ramesh C. Pandey
Ramesh C. Pandey, Ph.D., President and
Chairman of the Board of Directors
211985
30
EXHIBIT 4
XECHEM INTERNATIONAL, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
I. DEFINITIONS AND PURPOSES
A. Definitions
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Stock Option Plan, have the following meanings:
1. "Affiliate" means a corporation which, for purposes of
Section 422 of the Code, is a parent or subsidiary of the
Corporation, direct or indirect, each as defined in Section 424 of
the Code.
2. "Board of Directors" or "Board" means the Board of
Directors of the Corporation.
3. "Code" means the United States Internal Revenue Code of
1986, as such may be amended from time to time.
4. "Committee" means the committee to which the Board of
Directors delegates the power to act under or pursuant to the
provisions of the Plan, or the Board of Directors if no committee
is selected.
5. "Corporation" means XECHEM INTERNATIONAL, INC., a
Delaware corporation.
6. "Disability" or "Disabled" means permanent and total
disability as defined in Section 22(e)(3) of the Code.
7. "Incentive Option" means an Option, as identified below, which is
designated by the Committee as such and which, when granted, is intended to be
an "incentive stock option" as defined in Section 422 of the Code.
8. "Key Employee" means an employee of the Corporation or
of an Affiliate, (including, without limitation, an employee who is
also serving as an officer or director of the Corporation or of an
Affiliate, other than Dr. Ramesh Pandey), designated by the Board
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of Directors or the Committee to be eligible to be granted one or
more Options under the Plan.
9. "Nonstatutory Option" shall mean an Option, as defined below, which
is designated by the Committee as such and which, when granted, is not intended
to be an "incentive stock option," as defined in Code Section 422.
10. "Option" means a right or option granted under the Plan.
11. "Option Agreement" means an agreement between the
Corporation and a Participant executed and delivered pursuant to
the Plan.
12. "Participant" means a Key Employee to whom one or more Incentive
Options or Nonstatutory Options are granted under the Plan and an employee,
nonemployee director, advisor or independent contractor ("Non Key Employee") to
whom one or more Nonstatutory Options are granted under the Plan.
13. "Plan" means this Stock Option Plan.
14. "Shares" means the following shares of the capital stock of the
Corporation as to which Options have been or may be granted under the Plan:
authorized and unissued Common Stock, $.0001 par value, including fractional
shares, any shares of capital stock into which the Shares are changed or for
which they are exchanged within the provisions of Article VI of the Plan.
15. "Survivors" means a deceased Participant's legal repre sentative
and/or any person or persons who acquired the Partici pant's rights to an Option
by will or by the laws of descent and distribution.
B. Purposes of the Plan
The Plan is intended to encourage ownership of Shares by Key Employees,
non-employee directors and advisors, including, without limitation, members of
the Corporation's Scientific Advisory Board, in order to attract such persons,
to induce such persons to remain in the employ of the Corporation or of an
Affiliate, or to serve or continue to serve as an advisor to the Corporation,
and to provide additional incentive for such persons to promote the success of
the Corporation or of an Affiliate.
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II. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares as to which Options may be granted from
time to time shall be Six Hundred Thousand (600,000) Shares of the authorized
and unissued Common Stock, no par value all of which shall be eligible for grant
as Incentive Stock Options or Nonstatutory Options.
If an Option ceases to be "outstanding," in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options.
The aggregate number of Shares as to which Options may be granted shall
be subject to change only by means of an amendment of the Plan duly adopted by
the Corporation and approved by the stockholders of the Corporation within one
year before or after the date of the adoption of any such amendment, subject to
the provi sions of Article VI.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors except to the
extent the Board of Directors delegates its authority hereunder to the
Committee. Subject to the provisions of the Plan, the Board of Directors or, if
such authority be delegated, the Committee is authorized to:
A. interpret the provisions of the Plan or of any Option or
Option Agreement and to make all rules and determinations which it
deems necessary or advisable for the administration of the Plan;
B. determine which employees of the Corporation or of an
Affiliate shall be designated as Key Employees and which of the Key
Employees shall be granted Options;
C. determine the Non Key Employees to whom Nonstatutory
Options shall be granted;
D. determine whether the Option to be granted shall be an
Incentive Option or Nonstatutory Option;
E. determine the number of Shares for which an Option or
Options shall be granted; and
F. specify the terms and conditions upon which Options may
be granted; provided however, that with respect to Incentive
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Options all such interpretations, rules, determinations, terms and conditions
shall be made and prescribed in the context of preserving the tax status of the
Incentive Options as incentive stock options within the meaning of Section 422
of the Code.
All determinations of the Board of Directors or the Commit tee, if
applicable, shall be made by a majority of its members. No member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option.
IV. ELIGIBILITY FOR PARTICIPATION
Each Participant receiving an Incentive Option must be a Key Employee of
the Corporation or of an Affiliate at the time an Incentive Option is granted.
The Board of Directors, or if such authority be delegated, the
Committee, may at any time and from time to time grant one or more Options to
one or more Key Employees or Non-Key Employees and may designate the number of
Shares to be optioned under each Option so granted, provided, however, that no
Incentive Options shall be granted after the expiration of the earlier of ten
(10) years from the date of the adoption of the Plan by the Corporation or the
approval of the Plan by the Stockholders of the Corporation, and provided
further, that the fair market value (determined at the time the Option is
granted) of the Shares with respect to which Incentive Options are exercisable
for the first time by such Key Employee during any calendar year (under the Plan
and under any other Incentive Option plan of the Corporation or an Affiliate)
shall not exceed $100,000.
Notwithstanding the foregoing, no individual who is a direc tor of the
Corporation or a member of the Committee shall be eligible to receive an Option
under the Plan unless the granting of such Option shall be approved by the Board
of Directors or the Committee, with all of the members voting thereon being
disinterested directors or members unless such vote is unanimous. For the
purpose of this Article IV, a "disinterested director or member" shall be any
director or member, as the case may be, who shall not then be, or at any time
within the year prior thereto eligible to receive an Option under the Plan.
Notwithstanding any of the foregoing provisions, the Board of
Directors (or the Committee if applicable) may authorize the grant
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<PAGE>
of an Incentive Option to a person not then in the employ of the Corporation or
of an Affiliate, conditioned upon such person becoming eligible to become a
Participant at or prior to the grant of such Option.
V. TERMS AND CONDITIONS OF OPTIONS
Each Incentive Option shall be set forth in an Option Agree ment
substantially in the form hereto annexed and marked Exhibit A, duly executed on
behalf of the Corporation and by the Participant to whom such Option is granted.
Each Nonstatutory Option shall be set forth in an Option Agreement substantially
in the form hereto annexed and marked Exhibit B duly executed on behalf of the
Corporation and by the Participant to whom such Option is granted. Each such
Option Agreement shall be subject to at least the following terms and
conditions:
A. Option Price
The option price of each Option granted under the Plan shall be
determined by the Board of Directors (or the Committee, if such authority is
delegated). The Option price per share of the Shares covered by each
Nonstatutory Option shall be at such amount as may be determined by the Board of
Directors in its sole discretion on the date of the grant of the Option. In the
case of an Incentive Option, if the optionee owns directly or by reason of the
applicable attribution rules 10% or less of the total combined voting power of
all classes of share capital of the Corporation, the Option price per share of
the Shares covered by each Incentive Option shall be not less than the fair
market value per share of the Shares on the date of the grant of the Incentive
Option. In all other cases of Incentive Options, the Option price shall be not
less than one hundred ten percent (110%) of the said fair market value on the
date of grant. If such Shares are then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
Option, or, if none, on the most recent trade date thirty (30) days or less
prior to the date of the grant of the Option. If the Shares are not then listed
on any such exchange, the fair market value of such Shares shall be the closing
sales price if such is reported or otherwise the mean between the closing "Bid"
and the closing "Ask" prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the date of the
grant of the Option, or if none, on the most recent trade date thirty (30) days
or less prior to the date of the grant of the Option for which such quotations
are reported. If the Shares are not then either
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<PAGE>
listed on any such exchange or quoted in NASDAQ, the fair market value shall be
the mean between the average of the "Bid" and the average of the "Ask" prices,
if any, as reported in the National Daily Quotation Service for the date of the
grant of the Option, or, if none, for the most recent trade date thirty (30)
days or less prior to the date of the grant of the option for which such
quotations are reported. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the Board of
Directors (or the Com mittee if applicable).
B. Number of Shares
Each Option shall state the number of Shares to which it pertains.
C. Term of Option
Each Incentive Option shall terminate not more than ten (10) years from
the date of the grant thereof, or at such earlier time as the Option Agreement
may provide, and shall be subject to earlier termination as herein provided,
except that if the Option price is required under Paragraph A of this Article V
to be at least 110% of fair market value, each such Incentive Option shall
terminate not more than five (5) years from the date of the grant thereof. Each
Nonstatutory Option shall terminate not more than eleven (11) years from the
date of the grant thereof, or at such other earlier time as the Option Agreement
may provide, and shall be subject to earlier termination as herein provided.
D. Date of Exercise
Upon the authorization of the grant of an Option the Board of Directors
(or the Committee if applicable) may, subject to the provisions of Paragraph C
of this Article V, prescribe the date or dates on which the Option becomes
exercisable, and may provide that the Option rights accrue or become exercisable
in installments over a period of years, or upon the attainment of stated goals
or combination thereof.
E. Medium of Payment
The Option price shall be payable upon the exercise of the Option. It
shall be payable in such form (permitted by Section 422 of the Code in the case
of Incentive Options), as the Board of
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Directors (or the Committee if applicable) shall either by rules promulgated
pursuant to the provisions of Article III of the Plan, or in the particular
Option Agreement, provide.
F. Termination of Employment
(1) An employee Participant who ceases to be an employee of the
Corporation or of an Affiliate for any reason, other than the death or
Disability of the Participant, may exercise all or any portion of his
Options to the extent that such right to exercise has occurred on the
date of his termination within thirty (30) days after such termination.
A Participant's employment shall not be deemed terminated by reason of a
transfer to another Employer which is an Affiliate of the Corporation.
(2) An employee Participant who ceases to be an employee of the
Company or of an Affiliate by reason of Disability may exercise all or a
portion of his Option to the extent that such right to exercise has
accrued on the date of his termination during the six (6) months
immediately following his termination.
(3) The Survivor of an employee Participant who ceases to be an
employee by reason of such employee's death, may exercise all or a
portion of an Option to the extent that such right to exercise has
accrued on the date of such Participant's death during the six (6)
months immediately following his death.
An employee Participant to whom an Option has been granted under the
Plan who is absent from work with the Corporation or with an Affiliate because
of temporary disability (any disability other than a Disability as defined in
Paragraph A.7. Article 1 hereof), or who is on leave of absence for any purpose
permitted by any authoritative interpretation (i.e., regulation, ruling, case
law, etc.) of Section 422 of the Code, shall not, during the period of any such
absence be deemed, by virtue of any such absence alone, to have terminated such
Participant's employment with the Corporation or an Affiliate, except as the
Board of Directors (or the Committee if applicable) may otherwise expressly
provide or determine.
I. Exercise of Option and Issue of Stock
Options shall be exercised by giving written notice to the
Corporation. Such written notice shall: (1) be signed by the
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person exercising the Option, (2) state the number of Shares with respect to
which the Option, if any, is being exercised, (3) contain the warranty required
by paragraph M of this Article V, and (4) specify a date (other than a Saturday,
Sunday or legal holiday) not less than five (5) nor more than ten (10) days
after the date of such written notice, as the date on which the Shares will be
taken up and payment made therefor. The conditions specified above may be waived
in the sole discretion of the Corporation. Such tender and conveyance shall take
place at the principal office of the Corporation during ordinary business hours,
or at such other hour and place agreed upon by the Corporation and the person or
persons exercising the Option. On the date specified in such written notice
(which date may be extended by the Corporation in order to comply with any law
or regulation which requires the Corporation to take any action with respect to
the Option Shares prior to the issuance thereof, whether pursuant to the
provisions of Article VII or otherwise), the Corporation shall accept payment
for the Option Shares and shall deliver to the person or persons exercising the
Option in exchange therefor a certificate or certif icates for fully paid
non-assessable Shares. In the event of any failure to take up and pay for the
number of Shares specified in such written notice of the exercise of an Option
on the date set forth therein (or on the extended date as above provided) the
exercise of the Option shall terminate with respect to such number of Shares,
but shall continue with respect to the remaining Shares covered by the Option
and not yet acquired pursuant thereto.
J. Rights as a Stockholder
No Participant to whom an Option has been granted shall have rights as a
stockholder with respect to any Shares covered by such Option except as to such
Shares as have been issued to or registered in the Corporation's share register
in the name of such Participant upon the due exercise of the Option and tender
of the full Option price.
K. Assignability and Transferability of Option
By its terms, an Option granted to a Participant shall not be
transferable by the Participant and shall be exercisable, during the
Participant's lifetime, only by such Participant. Such Option shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, assignment, pledge, hypothecation or other disposition
of any
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Option or of any rights granted thereunder contrary to the provisions of this
Article V, or the levy of any attachment or similar process upon an Option or
such rights, shall be null and void.
L. Other Provisions
The Option Agreement for an Incentive Option shall contain such
limitations and restrictions upon the exercise of the Option as shall be
necessary in order that such Option can be an "incen tive stock option" within
the meaning of Section 422 of the Code. Further, the Option Agreements
authorized under the Plan shall be subject to such other terms and conditions
including, without limitation, restrictions upon the exercise of the Option, as
the Board of Directors (or the Committee, if applicable) shall deem advisable
and which in the case of Incentive Options are not inconsistent with the
requirements of Code ss.422.
M. Purchase For Investment
Unless the Shares to be issued upon the particular exercise of an Option
shall have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Corporation shall be under no obligation to
issue the shares covered by such exercise unless and until the following
conditions have been fulfilled. The persons who exercise such Option shall
warrant to the Corporation that, at the time of such exercise, such persons are
acquiring their option shares for investment and not with a view to, or for sale
in connection with, the distribution of any such Shares. In such event, the
person(s) acquiring such Shares shall be bound by the provisions of the
following legend (or similar legend) which shall be endorsed upon the
certificate(s) evidencing their Option Shares issued pursuant to such exercise.
"The shares represented by this certificate have been acquired for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, in the absence of registration of the
shares under the Securities Act of 1933 or an opinion of counsel
satisfactory to the Corporation that an exemption from registration is
then available."
N. Other Restrictions
In addition, the following legends, and such other legends as the Board
may determine, may be endorsed upon the certificate:
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"The shares represented by this certificate are subject to all of
the terms, conditions, limitations and restrictions set forth in Xechem
International, Inc. Amended and Restated Stock Option Plan ("Plan")
approved by the Corporation's stockholders on ________, 199__, and a
copy of which is on file with the Corporation, and an option agreement
(the "Option Agreement") pursuant to which the shares have been
acquired. All terms, conditions, limitations and restrictions of the
Plan and the Option Agreement are fully binding upon the holder of this
Certificate, his or her successors, estate, heirs, assigns, personal
representative, administrator, executor or guardian as the case may be,
for all purposes until such time as all terms, conditions, limitations
and restrictions of the Plan or the Option Agreement are removed waived
or otherwise vacated in a manner expressly authorized thereunder."
Without limiting the generality of the foregoing the Corporation may
delay issuance of the Shares until completion of any action or obtaining any
consent, which the Corporation deems necessary under any applicable law
(including without limitation state securities or "blue sky" laws).
VI. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the authorized and outstanding Shares of the
Corporation are changed into or exchanged for a different number or kind of
shares or other securities of the Corporation or of another corporation by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, change in par value, stock split-up, combination of shares or
dividend payable in capital stock, or the like, appropriate adjustments to
prevent dilution or enlargement of the rights granted to or available for,
Participants, shall be made in the manner and kind of shares for the purpose of
which Options may be granted under the Plan, and, in addition, appropriate
adjustment shall be made in the number and kind of shares and in the option
price per share subject to outstanding Options. No such adjustment shall be made
which shall, within the meaning of Section 424 of the Code, constitute such a
modification, extension or renewal of an Incentive Option as to cause it to be
considered as the grant of a new Incentive Option.
VII. DISSOLUTION OR LIQUIDATION OF THE CORPORATION
Upon the dissolution or liquidation of the Corporation other than in
connection with a transaction to which the preceding Article VI is applicable,
all Options granted hereunder shall
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terminate and become null and void; provided however, that if the rights of a
Participant have not otherwise terminated and expired, the Participant shall
have the right immediately prior to such dissolution or liquidation to exercise
any Option granted hereunder to the extent that the right to purchase shares
thereunder has accrued as of the date immediately prior to such dissolution or
liquidation.
VIII. TERMINATION OF THE PLAN
The Plan shall terminate (10) years from the earlier of the date of its
adoption or the date of its approval by the stock holders. The Plan may be
terminated at an earlier date by vote of the stockholders or the Board of
Directors; provided, however, that any such earlier termination shall not affect
any Options granted or Option Agreements executed prior to the effective date of
such termination.
IX. AMENDMENT OF THE PLAN
The Plan may be amended by the Board of Directors (but not by the
Committee); provided however, that no amendment may increase the numbers of
Shares on which Options may be granted other than as provided by Article VI or
change the designation of the class of employees eligible to receive Incentive
Options unless such amendment is approved by the stockholders within one (1)
year after such action by the Board of Directors. Except as approved by Article
VI, no amendment shall affect any Options theretofore granted or any Option
Agreements theretofore executed unless such amendment shall expressly so provide
and unless any Participant to whom an Option has been granted who would be
adversely affected by such amendment consents in writing thereto.
X. EMPLOYMENT RELATIONSHIP
Nothing herein contained shall be deemed to prevent the Corporation or
an Affiliate from terminating the employment or other service, including service
as a member of the Corporation's Scientific Advisory Board, of a Participant,
nor to prevent a Participant from terminating the Participant's employment or
other service with the Corporation or an Affiliate.
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XI. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee (or the
directors acting with respect to the Plan if there is no Committee) shall be
indemnified by the Corporation against all reasonable expenses, including
attorneys fees, actually and reasonably incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein to
which they or any of them may be a party by reason of any action taken by them
as members of the Committee and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member is liable for gross negligence or willful misconduct in the performance
of his or her duties. To receive such indemnification, a Committee member must
first offer in writing to the Corporation the opportunity, at its own expense,
to defend any such action, suit or proceeding.
XII. EFFECTIVE DATE
This Plan shall become effective upon adoption by the Board of
Directors, provided that within one (1) year, before or after, such adoption by
the Board of Directors the Plan is approved by the stockholders of the
Corporation.
XIII. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto,
shall be governed by the laws of the State of New Jersey and construed in
accordance therewith.
A True Copy
Secretary
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