<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
<TABLE>
<CAPTION>
<S><C>
XECHEM INTERNATIONAL, INC.
- ------------------------------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Shefsky & Froelich Ltd., Suite 2500, 444 N. Michigan Ave., Chicago, IL 60611 Attn: Dennis B. O'Boyle
- ------------------------------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identifying the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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</TABLE>
<PAGE> 2
XECHEM INTERNATIONAL, INC.
100 JERSEY AVENUE, BUILDING B
SUITE 310
NEW BRUNSWICK, NEW JERSEY 08901-3279
(732) 247-3300
=========================================================
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
=========================================================
To the Common and Class A Preferred Stockholders of Xechem International, Inc.:
Notice is hereby given that the annual meeting of stockholders (the
"Meeting" or the "Annual Meeting") of Xechem International, Inc., a Delaware
corporation (the "Corporation"), will be convened at the Corporation's
headquarters, 100 Jersey Ave., Building B, Suite 310, New Brunswick, New Jersey,
on November 18, 1998, at 10:00 a.m. Eastern Daylight Savings Time (the "Meeting
Date"). All holders of Common Stock, par value $.00001 per share, and Class A
Preferred Stock, par value $.00001 per share, of the Corporation (the
"Stockholders") are entitled to attend the Meeting. The Annual Meeting will be
held for the following purposes:
(1) To elect two directors to hold office until the next annual
meeting of stockholders or otherwise as provided in the
Corporation's By-Laws;
(2) To amend the Corporation's Certificate of Incorporation to
reflect a one share for 75 shares reverse split of the
Corporation's outstanding Common Stock;
(3) To vote 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;
(4) To concur in the selection of Moore Stephens P.C. as the
Corporation's independent auditor for the fiscal year
ending December 31, 1998; and
(5) To transact any other business as may properly come before
the Meeting, or any adjournment or postponement thereof.
Only Stockholders of record at the close of business on October 27,
1998 are entitled to receive notice of the Meeting or any adjournment thereof
(the "Eligible Holders'). A list of Eligible Holders will be available for
inspection at the Corporation's offices for at least 10 days prior to the
Meeting.
By order of the Board of Directors:
Ramesh C. Pandey, Ph.D.
President and Chief Executive Officer
<PAGE> 3
===============================================================
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
XECHEM INTERNATIONAL, INC.
NOVEMBER 18, 1998
===============================================================
This proxy statement (the "Proxy Statement") is furnished to the holders
(the "Stockholders") of shares of Common Stock (the "Common Stock"), par value
$.00001 per share, and Class A Preferred Stock (the "Class A Preferred Stock"),
par value $.00001 per share (together, the Common Stock and Class A Preferred
Stock are referred to as the "Shares"), of Xechem International, Inc., a
Delaware corporation (the "Corporation"), in connection with the solicitation of
proxies by the Corporation's board of directors (the "Board") for use at the
annual meeting of Stockholders (the "Meeting" or the "Annual Meeting"). The
Corporation's By-Laws (the "ByLaws") require the directors to call and hold an
annual meeting of stockholders each year. The Annual Meeting will be convened on
November 18, 1998, at approximately 10:00 a.m. Eastern Daylight Savings Time,
and any adjournment or postponement thereof. Copies of this Proxy Statement, and
the enclosed form of proxy were first sent or given to Stockholders on or about
October__, 1998. Stockholders who wish to attend the Meeting should contact the
Corporation at (732) 247-3300 so that arrangements can be made.
The Corporation will bear all costs in connection with the solicitation
of proxies, including the cost of preparing, printing and mailing this Proxy
Statement. In addition to the use of the mails, proxies may be solicited by the
Corporation's directors, officers or employees. None of these individuals will
be additionally compensated, but they may be reimbursed for out-of-pocket
expenses in connection with the solicitation. Arrangements will also be made
with brokerage houses, banks or other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of the Shares
held of record by those persons, and the Corporation may reimburse these
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
incurred in connection therewith.
Shares represented by properly executed proxies in the accompanying form
received by the Board prior to the Annual Meeting will be voted at the Annual
Meeting. Shares not represented by properly executed proxies will not be voted.
If a Stockholder specifies a choice with respect to any matter to be acted upon,
the Shares represented by that proxy will be voted as specified. If the
Stockholder does not specify a choice, in an otherwise properly executed proxy,
with respect to any proposal referred to therein, the Shares represented by that
proxy will be voted with respect to that proposal in accordance with the
recommendations of the Board described herein. A Stockholder who signs and
returns a proxy in the accompanying form may revoke it by: (i) giving written
notice of revocation to the Corporation before the proxy is voted at the Annual
Meeting; (ii) executing and delivering a later-dated proxy; or (iii) attending
the Annual Meeting and voting the Shares in person.
The close of business on October 27, 1998 has been fixed as the date for
determining those Stockholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). On the Record Date, the Corporation had 139,850,839
shares of Common Stock and 2,500 shares of Class A Preferred Stock outstanding.
The Corporation has also authorized Class B 8% Preferred Stock, par value
$.00001 per share (the "Class B Preferred Shares"), and Class C Preferred Stock,
par value $.00001 per share (the "Class C Preferred Shares"). Presently, there
are no outstanding Class B or Class C Preferred Shares. The Common Stock and the
Class A Preferred Stock entitle the holders thereof to one vote per share and
1
<PAGE> 4
1,000 votes per share, respectively, at the Annual Meeting. Only
Stockholders of record as of the Record Date will be entitled to vote at the
Annual Meeting. The presence of a majority of the total amount of votes
allocable to outstanding shares of Common Stock and Class A Preferred Stock,
represented in person or by proxy at the Annual Meeting, will constitute a
quorum. If a quorum is present and any votes are cast in favor of the nominees,
they will be elected directors of the Corporation. Accordingly, abstentions and
broker non-votes will not affect the outcome of the election. All other matters
to be voted on will be decided by the affirmative vote of a majority of the
Shares present or represented at the Meeting and entitled to vote. On any such
matter, an abstention will have the same effect as a negative vote and Shares
held by brokers will not be considered entitled to vote on matters as to which
the brokers have not received authority to vote from beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the total voting stock (including the Common Shares and
the Class A Preferred Shares) as of October 15, 1998 by: (i) each Stockholder
known by the Corporation to beneficially own in excess of 5% of the outstanding
Common Shares or Class A Preferred Shares; (ii) each director and director
nominee; and (iii) all directors, director nominees and executive officers, as a
group. All of the outstanding Class A Preferred Shares are owned by Dr. Ramesh
C. Pandey. Except as otherwise indicated in the footnotes to the table, the
persons named below have sole voting and investment power with respect to the
shares beneficially owned by such persons.
<TABLE>
<CAPTION>
CLASS A PREFERRED
COMMON STOCK STOCK
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT NUMBER OF PERCENT PERCENT OF
NAME AND ADDRESS SHARES OF CLASS SHARES OF CLASS VOTING STOCK (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Edward A. Blech Trust (2) 40,300,000 (3) 28.8% 0 - 28.3%
- ---------------------------------------------------------------------------------------------------------------------------------
David Blech (4) 47,980,000 (3)(5) 34.3% 0 - 33.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Michael G. Jesselson (6) (7) 15,050,000 (8) 10.8% 0 - 10.6%
- ---------------------------------------------------------------------------------------------------------------------------------
EER Systems (9) 20,000,000 14.3% 0 - 14.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Dr. Paul Plattner (10) 7,000,000 5.0% 0 - 4.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Dr. Ramesh C. Pandey (11) 22,164,545 (12) 15.8% 2,500 100% 17.3%
- ---------------------------------------------------------------------------------------------------------------------------------
All directors and executive 22,178,345 (13) 15.9% 2,500 100% 17.3%
officers as a group .... (2
persons)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gives effect to the voting rights of 2,500 Class A Preferred Shares,
all of which are owned by Dr. Pandey and which entitle him to cast
1,000 votes per share on all matters as to which Stockholders are
entitled to vote.
(2) The address of The Edward A. Blech Trust is 418 Avenue I, Brooklyn,
New York 11230.
(3) As reported in a Schedule 13D filed jointly by Mr. Blech and The
Edward A. Blech Trust.
(4) The address of Mr. Blech is 6th Floor, 94 Mercer Street, New York,
New York 10012.
(5) Includes Common Shares owned by The Edward A. Blech Trust, Common
Shares owned by Mr. Blech as Custodian for Edward A. Blech and
Common Shares owned by Mr. Blech's spouse.
2
<PAGE> 5
(6) Michael Jesselson, whose address is 1301 Avenue of the Americas,
Suite 4101, New York, New York 10019, is Trustee for each of The
Michael G. Jesselson 12/18/80 Trust, The Benjamin J. Jesselson
12/18/80 Trust and The Jesselson Grandchildren 12/18/80 Trust.
(7) As reported in a Form 3.
(8) Includes shares owned by the Michael G. Jesselson 12/18/80 Trust, The
Benjamin J. Jesselson 12/18/80 Trust and The Jesselson Grandchildren
12/18/80 Trust .
(9) As reported in a Schedule 13D and whose address is 10289 Aerospace
Road, Seabrook, MD 20706.
(10) As reported in a Schedule 13D and whose address is 2300 North
Vermilion Street, Danville, IL 61832.
(11) The address of Dr. Pandey is c/o Xechem International, Inc., 100
Jersey Avenue, Building B, Suite 310, New Brunswick, New Jersey
08901.
(12) Does not include 707,000 Common Shares subject to certain options
owned by Dr. Pandey, which presently are not exercisable, and will
not be exercisable, within 60 days from October 15, 1998.
(13) Includes 14,000 Common Shares subject to options which are
exercisable within 60 days from October 15, 1998
* Less than one percent.
On November 18, 1996, the Corporation entered into and closed the initial
stock issuances set forth in a Stock Purchase Agreement among the Corporation,
David Blech and Dr. Ramesh C. Pandey (the "Blech Purchase Agreement") dated
November 18, 1996, wherein the Corporation agreed to issue up to a total of
110,000,000 Common Shares to David Blech or his designee. See "Certain
Relationships and Related Transactions." Additional issuances under the Blech
Purchase Agreement were closed at various dates through February 22, 1998. As a
result of such issuances, Mr. Blech has the ability to control the election of
the Board of Directors, as well as a contractual right to have his nominees
elected to the Board. Accordingly, Mr. Blech has obtained the power to control
the affairs of the Corporation. The Corporation is not aware of any other
arrangements, the operation of which may at a subsequent date, result in a
change of control of the Corporation.
MATTERS TO BE CONSIDERED BY STOCKHOLDERS
1. ELECTION OF DIRECTORS
Two individuals will be elected at the Annual Meeting to serve as
directors of the Corporation until the next annual meeting of stockholders or
otherwise as provided in the By-Laws. The Board of Directors has no reason to
believe that the nominees named will be unable to serve, if elected.
The nominees for director are as follows:
Ramesh C. Pandey, Ph.D., age 59, is the founder of the Corporation. He
has been Chief Executive Officer and President and a director of the
Corporation's subsidiary, Xechem, Inc. (the "Subsidiary"), since its formation
in 1990 and the Chief Executive Officer, President, and Chairman of the Board of
Directors of the Corporation since its formation in February 1994. From 1984 to
March 1990, Dr. Pandey was the President and Chief Scientist of the
Corporation's predecessor, Xechem Inc., formerly a subsidiary of
Fujisawa/LyphoMed, Inc. Dr. Pandey served as a visiting Professor at the Waksman
Institute of Microbiology at Rutgers University from 1984 to 1986. Dr. Pandey
has also served as scientist, consultant, and research associate for several
universities and private laboratories. Dr. Pandey has published numerous
articles in professional publications, such as the Journal of Antibiotics, the
Journal of the American Chemical Society and the Journal of Industrial
Microbiology. Dr. Pandey is a member of the editorial board of the Journal of
Antibiotics and of several professional societies.
3
<PAGE> 6
Stephen F. Burg, age 61, since 1986 has been chief executive officer of
El Dorado Investments, which offers corporate growth strategies for public and
private companies, nationally and internationally. From 1978 to 1986, Mr. Burg
was Vice President-Corporate Acquisitions for Evans Products Company and from
1973 to 1978 was Corporate Director-Acquisitions and Human Services for Jack
August Enterprises.
The Corporation's By-Laws do not require that the directors meet any
specific number of times during the year. Such meetings may be held either in
person or by telephonic conference. The Board met six times during the year
ended December 31, 1997.
The Board has an audit committee presently consisting of Dr. Pandey which
was formed on May 26, 1995. The audit committee reviews with the Corporation's
independent public accountants the scope and timing of their audit services and
any other services they are asked to perform, the accountants report on the
Corporation's financial statements following completion of their audit and the
Corporation's policies and procedures with respect to internal accounting and
financial controls. In addition, the audit committee makes annual
recommendations to the Board for the appointment of independent accountants for
the ensuing year.
The audit committee held one meeting during the year ended December 31,
1997.
The Board has a stock option committee presently consisting of Dr.
Pandey which was formed on May 26, 1995. The stock option committee administers
the Xechem International, Inc. Amended and Restated Stock Option Plan (the
"Plan") and reviews and recommends to the Board stock options to be granted.
The stock option committee held one meeting during the year ended
December 31, 1997.
The Board has a compensation committee presently consisting of Dr. Pandey
which was formed on May 26, 1995. The compensation committee reviews and
recommends to the Board the compensation and benefits of all officers of the
Corporation and reviews general policy matters relating to compensation and
benefits of employees of the Corporation.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's officers and directors and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5), of Common Shares and other
equity securities of the Corporation with the U.S. Securities and Exchange
Commission (the "SEC"). The SEC requires officers, directors and greater than
ten percent stockholders to furnish the Corporation with copies of all these
forms filed with the SEC.
To the Corporation's knowledge, based solely on its review of the copies
of these forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the
Corporation believes that all filing requirements applicable to its officers,
directors, and greater than ten percent beneficial owners were complied with.
The two nominees receiving the highest vote totals will be elected
directors of the Corporation. Accordingly, abstentions and broker non-votes will
not affect the outcome of the election.
2. APPROVAL OF AN AMENDMENT TO THE CORPORATION'S CERTIFICATE OF
INCORPORATION TO REFLECT A ONE SHARE FOR 75 SHARES REVERSE SPLIT OF THE
CORPORATION'S COMMON SHARES.
4
<PAGE> 7
The Board of Directors of the Corporation has approved a proposal to
effect a reverse stock split of the Corporation's Common Shares of one share for
each 75 shares previously issued and outstanding (the "Reverse Stock Split").
Except as may result from the payment of cash for fractional shares as described
below, each Stockholder will hold the same percentage of Common Shares
outstanding immediately following the Reverse Stock split as each Stockholder
did immediately prior to the Reverse Stock Split. If approved by the
Stockholders as provided herein, the Reverse Stock Split will be effected by an
amendment to the Corporation's Certificate of Incorporation in substantially the
form attached to this Proxy Statement as Appendix A (the "Reverse Stock Split
Amendment"), and will become effective upon the filing of the Reverse Stock
Split Amendment with the Secretary of State of Delaware (the "Effective Time").
The following discussion is qualified in its entirety by the full text of the
Reverse Stock Split Amendment, which is hereby incorporated by reference herein.
At the Effective Time, each Common Share issued and outstanding will
automatically be reclassified and converted into one seventy-fifth of a Common
Share. Outstanding Class A Preferred Shares have not been specifically included
in the Reverse Stock Split Proposal because their conversion rate into Common
Shares automatically adjusts to reflect the Reverse Stock Split.
Fractional Common Shares will not be issued as a result of the Reverse
Stock Split. Stockholders entitled to receive a fractional Common Share as a
consequence of the Reverse Stock Split will, instead, receive from the Company a
cash payment in U.S. dollars determined by multiplying such fraction by 75 times
the average closing price of the Common Shares on the OTC Bulletin Board for the
five trading days immediately preceding the effective date of the Amendment to
the Corporation's Certificate of Incorporation authorizing the Reverse Split.
The Company expects that, if the Reverse Stock Split Proposal is approved
by the Stockholders at the Meeting, the Reverse Stock Split Amendment will be
filed promptly.
Reasons for the Reverse Stock Split
The primary purpose of the Reverse Stock Split is to combine the
outstanding Common Shares so that the Common Shares outstanding after giving
effect to the Reverse Stock Split trade at a significantly higher price per
share than the Common Shares outstanding before giving effect to the Reverse
Stock Split.
From January 1, 1998 to September 30, 1998, the closing bid price for the
Common Shares on the OTC Bulletin Board ranged from $0.72 to $0.09 per share.
The closing bid price for the Common Shares on October ____, 1998, was _______
per share.
The Corporation believes that such a low quoted market price per
share may discourage potential new investors, increase market price volatility
and decrease the liquidity of the Common Shares.
The Corporation also believes that the current per share price level of
the Common Shares has reduced the effective marketability of the Common Shares
because of the reluctance of many brokerage firms to recommend low priced stock
to their clients. Certain investors view low-priced stock as unattractive,
although certain other investors may be attracted to low-priced stock because of
the greater trading volatility sometimes associated with such securities. In
addition, a variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing in low priced stock. Some of
those policies and practices pertain to the payment of brokers commissions and
to time-consuming procedures that function to make the handling of low priced
stocks unattractive to brokers from an economic standpoint.
5
<PAGE> 8
In addition, since brokerage commissions on low-priced stock
generally represent a higher percentage of the stock price than commissions on
higher priced stock, the current share price of the Common Shares can result in
individual Stockholders paying transaction costs (commission, markups, or
markdowns) which are a higher percentage of their total share value than would
be the case if the share price were substantially higher. This factor also may
limit the willingness of institutions to purchase the Common Shares at their
current low share price.
The Common Shares presently are considered "penny stock" under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Exchange
Act imposes certain obligations on brokerage firms engaging in transactions
involving penny stock, including providing additional disclosure to investors
and obtaining certain written representations from such investors. These
additional obligations result in many brokerage firms declining to engage in
transactions involving penny stock.
For all the above reasons, the Corporation believes that the Reverse
Stock Split is in the best interests of the Corporation and its Stockholders.
However, there can be no assurances that the Reverse Stock Split will have the
desired consequences. The Corporation anticipates that, following the
consummation of the Reverse Stock Split, the Common Shares will trade at a price
per share that is significantly higher than the current market price of the
Common Shares. However, there can be no assurance that, following the Reverse
Stock Split, the Common Shares will trade at seventy-five times the market price
of the Common Shares prior to the Reverse Stock Split.
Effect of the Reverse Stock Split Proposal
Subject to Stockholder approval, the Reverse Stock Split Proposal will be
effected by filing the Reverse Stock Split Amendment to the Corporation's
Certificate of Incorporation, and will be effective immediately upon such
filing. Although the Corporation expects to file the Reverse Stock Split
Amendment with the Delaware Secretary of State's office promptly following
approval of the Reverse Stock Split Proposal at the Meeting, the actual timing
of such filing will be determined by the Corporation's management based upon
their evaluation as to when such action will be most advantageous to the
Corporation and its Stockholders.
Each Stockholder that owns fewer than 75 Common Shares or who, as a
result of the Reverse Split will own a number of whole Common Shares plus a
fractional Common Share will have such Stockholder's fractional Common Shares
converted into the right to receive cash as set forth below in "Exchange of
Stock Certificates and Payment for Fractional Shares." The interest of such
Stockholder in the Corporation will thereby be terminated and such Stockholder
will have no right to share in the assets or future growth of the Corporation.
Each Stockholder that owns 75 or more Common Shares will continue to own Common
Shares and will continue to share in the assets and future growth of the
Corporation as a Stockholder. Such interest will be represented by one
seventy-fifth as many shares as such Stockholder owned before the Reverse Stock
Split, subject to the adjustment for fractional shares in which case such
Stockholder shall receive cash in lieu of such fractional share. The number of
Common Shares that may be purchased upon the exercise of outstanding options,
warrants and other securities convertible into, or exercisable or exchangeable
for, Common Shares, including the Class A Preferred Shares (collectively,
"Convertible Securities") and the per share exercise or conversion prices
thereof, will be adjusted appropriately as of the Effective Date, so that the
aggregate number of Common Shares issuable in respect of Convertible Securities
immediately following the Effective Date will be one seventy-fifth of the number
issuable in respect thereof immediately prior to the Effective Date, and the
aggregate exercise or conversion prices thereunder shall remain unchanged.
6
<PAGE> 9
The Reverse Stock Split will also result in some Stockholders owning "odd
lots" of less than 100 Common Shares received as a result of the Reverse Stock
Split. Brokerage commissions and other costs of transactions in odd lots may be
higher, particularly on a per-share basis, than the cost of transactions in even
multiples of 100 shares.
The Corporation is authorized to issue 247,000,000 Common Shares, of
which 139,850,839 shares were issued and outstanding at the close of business on
the Record Date. The Corporation is also authorized to issue 3,000,000 shares of
Preferred Stock $.00001 par value (the "Preferred Stock"), of which 2,500 were
designated Class A Preferred Shares, with 2,500 issued and outstanding at the
close of business on the Record Date. The Reverse Stock Split will not effect
the amount of the Corporation's authorized shares of Common Stock and Preferred
Stock. The number of outstanding Class A Preferred Shares will not be changed by
the Reverse Stock Split Proposal because their conversion rate into Common
Shares automatically adjusts to reflect the Reverse Stock Split.
As of October 15, 1998, the Corporation had approximately 184 record
holders of Common Shares and one holder of Class A Preferred Shares and
believes, based on information received from the transfer agent and those
brokerage firms that hold the Corporation's securities in custodial or "street"
name, that such shares were beneficially owned by an aggregate of approximately
1,200 beneficial owners of Common Shares and one beneficial owner of Class A
Preferred Shares. Based on estimated stock holdings as of October 15, 1998, the
Corporation estimates that, after the Reverse Stock Split, the Corporation will
continue to have approximately the same number of Stockholders. EXCEPT FOR THE
RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES, THE REVERSE STOCK SPLIT WILL NOT
AFFECT ANY STOCKHOLDER'S PROPORTIONATE EQUITY INTEREST IN THE CORPORATION.
The par value of the Common Shares will remain at $.00001 per share
following the Reverse Stock Split, and the number of Common Shares outstanding
will be reduced. As a consequence, the aggregate par value of the outstanding
Common Shares will be reduced, while the aggregate capital in excess of par
value attributable to the outstanding Common Shares for statutory and accounting
purposes will be correspondingly increased. The Reverse Stock Split will not
affect the Corporation's retained earnings deficit, and stockholders' equity
will remain substantially unchanged.
Effectuation of the Reverse Stock Split Proposal as of December 31, 1997
would not have had an effect on the Corporation's $5.28 million consolidated net
loss for the twelve month period then ended. However, net loss per share of $.06
would have been proportionately increased to approximately $4.25. No adjustment
has been made for the reduction in the number of Common Shares resulting from
the payment of cash for fractional shares. If the Reverse Stock Split Proposal
is effected, the per share information included in consolidated financial
statements and other publicly available information of the Corporation would be
restated following the Effective Date to reflect the Reverse Stock Split.
Exchange of Stock Certificates and Payment for Fractional Shares
The combination and reclassification of Common Shares pursuant to the
Reverse Stock Split will occur automatically on the Effective Date without any
action on the part of Stockholders and without regard to the date certificates
representing Common Shares prior to the Reverse Stock Split are physically
surrendered for new certificates. If the number of Common Shares to which a
holder is entitled as a result of the Reverse Stock Split would otherwise
include a fraction, the Corporation will pay to the Stockholder, in lieu of
issuing fractional shares of the Corporation, cash in an amount equal to the
same fraction multiplied by 75 times the average closing price of the Common
Shares on the OTC Bulletin Board for the five trading days immediately preceding
the Effective Date.
7
<PAGE> 10
As soon as practicable after the Effective Date, transmittal forms will
be mailed to each holder of record of certificates for Common Shares to be used
in forwarding such certificates for surrender and exchange for certificates
representing the number of Common Shares such Stockholder is entitled to receive
as a consequence of the Reverse Stock Split. The transmittal forms will be
accompanied by instructions specifying other details of the exchange. Upon
receipt of such transmittal form, each Stockholder should surrender the
certificates representing Common Shares prior to the Reverse Stock Split, in
accordance with the applicable instructions. Each holder who surrenders
certificates will receive new certificates representing the whole number of
Common Shares that he holds as a result of the Reverse Stock Split and any cash
payable in lieu of a fractional share. STOCKHOLDERS SHOULD NOT SEND THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Date, each certificate representing Common Shares
outstanding prior to the Effective Date (an "old certificate") will, until
surrendered and exchanged as described above, be deemed, for all corporate
purposes, to evidence ownership of the whole number of Common Shares, and the
right to receive from the Corporation the amount of cash for any fractional
shares, into which the Common Shares evidenced by such certificate have been
converted by the Reverse Stock Split, except that the holder of such unexchanged
certificates will not be entitled to receive any dividends or other
distributions payable by the Corporation after the Effective Date, until the old
certificates have been surrendered. Such dividends and distributions, if any,
will be accumulated, and at the time of surrender of the old certificates, all
such unpaid dividends or distributions will be paid without interest.
Federal Income Tax Consequences
The following discussion describes the material federal income tax
consequences of the Reverse Stock Split. This discussion is based upon the
Internal Revenue Code of 1986 (the "Code"), existing and proposed regulations
thereunder, reports of congressional committees, judicial decisions, and current
administrative rulings and practices, all as amended and in effect on the date
hereof. Any of these authorities could be repealed, overruled, or modified at
any time. Any such change could be retroactive and, accordingly, could cause the
tax consequences to vary substantially from the consequences described herein.
No ruling from the Internal Revenue Service (the "IRS") with respect to the
matters discussed herein has been requested, and there is no assurance that the
IRS would agree with the conclusions set forth in this discussion. All
Stockholders should consult with their own tax advisors.
This discussion may not address certain federal income tax consequences
that may be relevant to particular Stockholders in light of their personal
circumstances or to certain types of Stockholders (such as dealers in
securities, insurance companies, foreign individuals and entities, financial
institutions, and tax-exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not address any tax
consequences under state, local or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE REVERSE SPLIT, INCLUDING THE APPLICABILITY OF
ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY
PENDING OR PROPOSED LEGISLATION.
The Company should not recognize any gain or loss as a result of the
Reverse Stock Split. No gain or loss should be recognized by a Stockholder who
receives only Common Shares upon the Reverse Stock Split. A Stockholder who
receives cash in lieu of a fractional Common Share that otherwise would be held
as a capital asset generally should recognize capital gain or loss on an amount
equal to the difference between the cash received and his basis in such
fractional share of Common Share. For this purpose, a Stockholder's basis in
such fractional share of Common Stock will be determined as if the
8
<PAGE> 11
Stockholder actually received such fractional share. Except as provided with
respect to fractional shares, the aggregate tax basis of the Common Shares
held by a Stockholder following the Reverse Stock Split will equal the
Stockholder's aggregate basis in the Common Share held immediately prior to the
Reverse Stock Split and generally will be allocated among the Common Shares held
following the Reverse Stock Split on a pro-rata basis. Stockholders who have
used the specific identification method to identify their basis in Common Shares
combined in the Reverse Stock Split should consult their own tax advisors to
determine their basis in the post-Reverse Stock Split Common Shares received in
exchange therefor.
3. APPROVAL OF AN INCREASE IN THE NUMBER OF COMMON STOCK WHICH MAY BE ISSUED
UNDER THE XECHEM INTERNATIONAL, INC. AMENDED AND RESTATED STOCK OPTION
PLAN
The Plan amends and restates the 1993 Xechem, Inc. Stock Option and
Incentive Plan, the obligations under which the Corporation assumed as part of
the Corporation's organization and prior to its April 26, 1994 public offering.
The purpose of the Plan is to encourage ownership of Common Shares by the
Corporation's key employees, non-employee directors and advisors, including
members of the Corporation's Scientific Adversary Board, in order to attract
such persons, to induce such persons to remain in the employ of the Corporation
or its affiliates, or to serve as an advisor to the Corporation, and to provide
additional compensation for such persons to promote the success of the
Corporation or its affiliates. Key employees include employees who are also
officers or directors of the Corporation or its affiliates.
The decision to grant options to these individuals is intended to reward
them for their services to the Corporation without burdening the Corporation
with significant increases in direct compensation. Since its inception, the
Corporation's directors, key employees and advisors have been endeavoring to
reach the Corporation's objectives of developing a more efficient drug discovery
process and niche generic drugs, as well as commercializing and marketing such
drugs. Through their efforts, the Corporation believes that significant progress
has been made toward these objectives. The Board believes that the ability to
achieve these objectives is best served by the alignment of the financial
success of the Corporation's directors and key employees with that of its
Stockholders.
Stockholder approval of this amendment to the Plan is sought to continue
to qualify the Plan under Rule 16b-3 of the Exchange Act and thereby render
certain pre-split transactions under the Plan exempt from certain provisions of
Section 16 of the Exchange Act.
As of the date of this Proxy Statement, the Corporation has granted
options for 1,692,000 Common Shares available for issuance under the Plan. The
Board has authorized an increase of 10,000,000 Common Shares for issuance under
the Plan, for a total of 12,600,000 shares. The Board believes that it is in the
best interests of the Corporation and the Stockholders to increase the number of
Common Shares which may be issued under the Plan in order to continue to attract
key persons to the Corporation and reward them for their efforts. With the
exception of increasing the number of Common Shares which may be issued under
the Plan, the Board is not seeking Stockholder approval of any other provisions
of the Plan.
9
<PAGE> 12
General
The Plan grants the Board authority to issue options to purchase up
to 2,600,000 (to be increased to 12,600,000) Common Shares and any other stock
or security resulting from adjustments or substitutions as described in the
Plan. Common Shares will be reserved and available for purchase upon the
exercise of options granted under the Plan.
The Plan provides for the issuance of incentive options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory options which are not intended to be incentive stock options under
Section 422 of the Code. The decision as to whether incentive options or
nonstatutory options will be issued to recipients is solely within the
discretion of the Board. The Board will administer the Plan and have the
authority to determine, among other things, the individuals to be granted
incentive options or nonstatutory options, the exercise price at which the
Common Shares may be acquired, the number of Common Shares subject to each
option and the exercise period of each option. The Board will also be authorized
to construe and interpret the Plan and to prescribe additional terms and
conditions of exercise in option agreements and provide the form of option
agreement to be utilized with the Plan.
Incentive options terminate not more than ten years from the date of
grant; however, such options terminate not more than five years from the date of
grant if such options are required to have an exercise price of at least 110% of
fair market value. Nonstatutory options terminate not more than eleven years
from the date of grant.
Options will not be transferable except by will or by the laws of descent
and distribution, and are exercisable during an optionee's lifetime only by the
optionee or the appointed guardian or legal representative of the optionee. Upon
the (i) death or permanent and total disability of an optionee, or (ii)
termination of employment with the Corporation, then any unexercised options to
acquire Common Shares will be exercisable at any time within six months in the
case of (i) and 30 days in the case of (ii) (but in no case beyond the
expiration date specified in the option agreement).
The Plan requires the optionee to pay, at the time of exercise, for
all shares acquired on exercise in cash, Common Shares or other forms of
consideration acceptable to the Board.
If the Corporation declares a stock dividend, splits its stock, combines
or exchanges its Common Shares, or engages in any other transactions which
result in a change in capital structure, such as a merger, consolidation,
dissolution, liquidation or similar transaction, the Board may adjust or
substitute, as the case may be, the number of Common Shares available for
issuance upon exercise of options granted under the Plan, the number of shares
covered by outstanding options, the exercise price per share of outstanding
options, any target price levels for vesting of the options and any other
characteristics of the options as the Board deems necessary to equitably reflect
the effects of those changes on the option holders.
The Corporation has granted options for a total of 1,692,000 Common
Shares under the Plan. Included in the count are options to purchase 318,500
Common Shares granted to former directors and a former executive officer of the
Corporation and options to purchase 851,500 Common Shares granted to current and
former employees of the Corporation.
Pursuant to the terms of the grants, the options for shares granted under
the Plan vest and are exercisable in installments as follows: (i) to the extent
of 20% of the number of Common Shares, commencing on the first anniversary of
the date of grant; and (ii) to the remaining 80% of Common
10
<PAGE> 13
Shares, an additional 20% commencing on each of the second through the fifth
anniversary of the date of grant.
Discussion of Federal Income Tax Consequences
The following summary of tax consequences is not comprehensive and is
based on laws and regulations in effect on October 15, 1998. These laws and
regulations are subject to change on a retroactive basis.
The grant of a nonqualified option under the Plan is not a taxable
event and the Corporation is not entitled to a deduction upon such grant. Upon
exercise of a nonqualified option, participants will be taxed at ordinary income
rates on the difference between the exercise price of the option and the fair
market value of the Common Shares issued pursuant to such exercise. Fair market
value generally will be determined on the date of exercise (or in the case where
a sale of property could subject a transferor to suit under Section 16(b) of the
Securities Exchange Act of 1934, the later of the date of exercise and the date
which is six months and one day after the date on which the option was granted,
unless the participant elects to be taxed based on the fair market value at the
date of exercise). The Corporation will receive a corresponding deduction for
the amount of income recognized by a participant upon exercise of an option in
the same year the participant recognizes income in connection with the exercise
of an option. The participant, generally, will have a tax basis for the Common
Shares acquired equal to the fair market value of the Common Shares at the date
of exercise. Any gain or loss realized upon the subsequent sale of the Common
Shares issued upon exercise of a nonqualified option will be taxed at either
long-term or short-term capital gain (or loss) rates, depending on the selling
stockholder's holding period. The subsequent sale would have no tax consequences
for the Corporation.
The recipient of an incentive stock option generally will not recognize
any income upon its grant or upon its exercise if no disposition of the Common
Shares received upon exercise is made within two years from the date of grant or
within one year after the acquisition of the Common Shares. The excess of the
fair market value of the Common Shares over the exercise price of the Common
Shares received upon the exercise of an incentive stock option, however, is a
tax preference item in the year of exercise which may subject the recipient to
an alternative minimum tax. Upon a subsequent sale of Common Shares acquired
pursuant to exercise of an incentive stock option, if the foregoing holding
periods are met, the recipient will recognize a long-term capital gain upon the
difference between the sale price and the exercise price, and the Corporation
will receive no deduction from taxable income. If these holding periods are not
met, the recipient generally will realize ordinary income to the extent of the
difference between the exercise price and the fair market value of the Common
Shares on the date the option is exercised. However, if the disposition is by a
sale or exchange at a price less than the fair market value of the Common Shares
on the date of exercise, then, in general, the amount of ordinary income is
limited to the gain recognized on such sale or exchange. If the sale price
exceeds the fair market value of the Common Shares on the date of exercise, such
excess will be a long-term or short-term capital gain, depending on the
employee's holding period for the Common Shares being sold. The Corporation will
have a deduction in an amount equal to the ordinary income recognized by the
optionee.
4. SELECTION OF INDEPENDENT AUDITOR
The Corporation's financial statements, including those for the fiscal
year ended December 31, 1997, are included in the Annual Report furnished to all
Stockholders. The year-end statements have been audited by the independent firm
of Moore Stephens P.C. (formerly known as Mortenson and Associates, P.C.) which
has served as the Corporation's independent auditor since its formation in
February 1994. The total fees paid or accrued to Moore Stephens P.C. in
connection with the 1997 audit were
11
<PAGE> 14
approximately $20,000. The Board believes that Moore Stephens P.C. is
knowledgeable about the Corporation's operations and accounting practices and is
well qualified to act in the capacity of independent auditor. Therefore, the
Board has selected Moore Stephens P.C. as the Corporation's independent auditor
to examine its financial statements for the fiscal year ended December 31, 1998.
Although the selection of an auditor does not require a Stockholder vote, the
Board believes it is desirable to obtain the concurrence of the Stockholders to
this selection. Due to the difficulty and expense involved in retaining another
independent firm on short notice, the Board does not contemplate appointing
another firm to act as the Corporation's independent auditor for fiscal year
1998 if the Stockholders do not concur in the appointment of Moore Stephens P.C.
Instead, the Board will consider the vote as advice in making its selection of
an independent auditor for the following year.
Representatives of Moore Stephens P.C. are expected to be present at the
Meeting and will have the opportunity to make a statement, if they so desire,
and will be available to respond to appropriate questions.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
A. DIRECTOR COMPENSATION
Directors serve without compensation for such services.
B. EXECUTIVE COMPENSATION
Set forth below is information concerning the compensation for 1995, 1996
and 1997 for the Corporation's President and Chief Executive Officer, who is the
only executive officer of the Corporation whose compensation exceeded $100,000
during such years:
<TABLE>
<CAPTION>
=================================================================================================================================
LONG TERM COMPENSATION
----------------------------
ALL OTHER
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------
SECURITIES LONG TERM
OTHER RESTRICTED UNDER- INCENTIVE
ANNUAL STOCK LYING PLAN
YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Ramesh Pandey 1995 $139,525 0 $7,072 0 0 0 0
1996 $118,365 0 $13,375 0 0 0 0
1997 $130,273 0 $7,991 0 0 0 0
=================================================================================================================================
</TABLE>
Employment Agreements.
- ---------------------
Ramesh C. Pandey is employed pursuant to an agreement which provides for
a base salary of $140,000 per year, subject to an annual increase in proportion
to the increase in the consumer price index, such bonuses as a majority of the
disinterested members of the Board of Directors may determine, and a royalty of
2 1/2% of the Corporation's net profits before taxes with respect to any
products developed by the Corporation or its affiliates during the term of the
agreement. The royalty will be payable to Dr. Pandey or his estate so long as
the Corporation continues to sell such products, notwithstanding any termination
of the agreement. The agreement provides for a ten year term, but permits either
party to terminate the agreement after five years; if the Corporation terminates
the agreement, Dr. Pandey will be
12
<PAGE> 15
entitled to receive severance equal to his compensation for the two years prior
to termination. Dr. Pandey has agreed not to engage in certain business
activities (generally similar to those currently engaged in by the Corporation)
for six months (four months, in certain cases) after the termination of his
employment with the Corporation. If there is a change in the beneficial
ownership of 20% or more of the Corporation's capital stock, Dr. Pandey may, at
any time within one year after such event, terminate the agreement, in which
event his non-compete and confidentiality agreement terminate and all
indebtedness of the Corporation to Dr. Pandey shall accelerate. Dr. Pandey has
agreed and approved the transactions contemplated by the Blech Purchase
Agreement (see "Certain Relationships and Related Transactions") and,
accordingly, such transactions do not and will not result in a "Change of
Control" as defined in the Employment Agreement. In August 1996, due to the
financial constraints of the Company, Dr. Pandey's salary was reduced by 54%. In
November 1996, 50% of the reduction was restored and in February 1997, Dr.
Pandey was returned to full salary. The reduction in salary was not accrued and
will not be paid to Dr. Pandey.
This agreement is being amended to provide to Dr. Pandey options to
purchase up to 20% of the amount of the Corporation's Common Shares purchased
(i) in a completed rights offering to those Stockholders who purchased Common
Shares pursuant to the Blech Purchase Agreement (see "Certain Relationships and
Related Transactions",) and (ii) one or more subsequent offerings to raise
additional capital for the Corporation. The exercise price of such options
shall be 1/10,000 of $.01 per share and the term of the options shall be ten
years from the date of grant. These options are not being granted under the
Corporation's Share Option Plan. As of the date of this Proxy Statement, the
Corporation is unable to determine the total number of Common Shares that may
be issued pursuant to these options.
STOCK PLAN
Effective December 1993, Xechem's sole stockholder approved the Share
Option Plan (the "Plan"), which the Corporation has assumed, providing for the
issuance to employees, consultants, and directors of options to purchase up to
2,600,000 Common Shares, which number of shares the Corporation is seeking to
increase to 12,600,000. The Plan provides for the grant to employees of
incentive stock options ("ISOs") and non-qualified stock options.
The Plan is administered by a Stock Option Committee established in May
1995 and is presently comprised of one member of the Board of Directors which
has the power to determine eligibility to receive options and the terms of any
options granted, including the exercise or purchase price, the number of shares
subject to the options, the vesting schedule, and the exercise period. The
exercise price of all ISOs granted under the Plan must be at least equal to the
fair market value of the Common Shares on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of the
Corporation's outstanding capital stock, the exercise price of any ISO granted
must equal at least 110% of the fair market value on the grant date and the
maximum exercise period of the ISO must not exceed five years. The exercise
period of any other options granted under the Plan may not exceed 11 years (10
years in the case of ISOs).
The Plan will terminate in December 2003, ten years after the date it was
first approved by the Corporation's stockholders, though awards made prior to
termination may expire after that date, depending on when granted. As of October
15, the Corporation has granted options under the Plan to purchase 1,692,000
Common Shares.
OPTION TABLES
The following table sets forth certain information with respect to
options granted to the directors and executive officers of the Corporation
during the year ended December 31, 1997 under the Plan. The Corporation did not
grant any stock appreciation rights during the year.
=======================================================
Individual Grants
=======================================================
13
<PAGE> 16
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total Options Exercise
Underlying Options Granted to Employees Price (per
Name Granted In Fiscal Year Share) Expiration Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen Burg 10,000 $0.34 06/10/07
- -----------------------------------------------------------------------------------------------------------------------
Stephen Burg 50,000 0.66 12/01/08
- -----------------------------------------------------------------------------------------------------------------------
TOTAL 60,000 4.3%
=======================================================================================================================
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises during the
year ended December 31, 1997 by the directors and executive officers of the
Corporation and the value of such parties' unexercised stock options as of
December 31, 1997.
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 12/31/97 at 12/31/97 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
(#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Ramesh C. Pandey 0 0 0 707,000(2) 0 $331,336
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Burg 0 0 1,000 64,000 $220 0(3)
====================================================================================================================================
</TABLE>
(1) Represents the excess, if any, of the closing price of the Common
Shares as quoted on the OTC Bulletin Board on December 31, 1997 ($0.47)
over the exercise price of the options, multiplied by the corresponding
number of underlying shares.
(2) These options were issued in exchange for the capital stock of the
Subsidiary in the reorganization of the Corporation. These options are
exercisable upon the Corporation attaining specific financial goals.
(3) The net exercise price of the options exceeds the closing price of
the Common Shares on the OTC Bulletin Board on December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 25, 1994, Dr. Ramesh C. Pandey, the Corporation's Chairman of
the Board and Chief Executive Officer, exchanged the capital stock of Xechem,
Inc. for 2,800,000 of the Company's Common Shares, 2,500 Class A Preferred
Shares, and certain options. On the same date, Dr. Pandey exchanged $107,000 of
indebtedness of the Subsidiary for 1,070 Class B Preferred Shares and $517,451
of indebtedness of the Subsidiary (including accrued interest) for a note of the
Corporation in the same amount. Pursuant to the Blech Purchase Agreement, Dr.
Pandey subsequently exchanged such Class B Preferred Shares and the note for
other equity securities of the Corporation.
Subject to obtaining necessary regulatory approvals in India, Dr.
Pandey has transferred his interest in Xechem India to the Corporation for no
consideration other than reimbursement of amounts (equal to
14
<PAGE> 17
approximately $5,000) Dr. Pandey advanced for organizational expenses. Dr.
Pandey's brothers own the remaining equity in Xechem India, some or all of which
the Corporation anticipates will be made available to other, unrelated, persons
in India. Both of Dr. Pandey's brothers and Mr. Anil Sharma, a chartered
accountant, serve as directors of Xechem India. No compensation is paid to Dr.
Pandey, his relatives or Mr. Anil Sharma for service as directors.
Effective June 25, 1996, an entity wholly-owned by Dr. Pandey (the
"Holding Company") became a member of Vineyard Productions, L.L.C. ("Vineyard"),
which in June 1994 acquired the building in which the Corporation leases its
offices. Prior to making such investment, Dr. Pandey informed the Board of
Directors of the opportunity for such investment, and the Board determined that
the Corporation was not interested in such opportunity and approved Dr. Pandey
making the investment. The Corporation's lease was entered into prior to that
date (with a prior owner of the building) and has not been modified subsequent
thereto. The Corporation paid Vineyard $110,491 in 1996, including $21,705
subsequent to June 25, 1996, and $130,258 in 1997.
On November 18, 1996, the Corporation entered into and closed the initial
stage of a the Blech Purchase Agreement providing for the sale of up to 55,000
shares of Class C Series 2 Voting Cumulative Preferred Stock (the "Series 2
Preferred Shares") for a purchase price of $100 per share ($5,500,000 in the
aggregate), or the underlying Common Shares, over approximately nine months. At
the initial closing, The Edward A. Blech Trust (the "Trust") purchased 5,000
Series 2 Preferred Shares for $500,000. The Trust purchased an additional 5,000
Series 2 Preferred Shares on December 30, 1996; 5,000 Series 2 Preferred Shares
on January 8, 1997; and 7,500 Series 2 Preferred Shares on February 7, 1997. The
Blech Purchase Agreement was amended, effective March 27, 1997, to modify the
dates for closing of other purchases of portions of the shares issuable
thereunder. Pursuant to the Blech Purchase Agreement, on February 7, 1997, Dr.
Ramesh Pandey, the Company's Chairman and Chief Executive Officer, exchanged
certain indebtedness owed by the Corporation to him and the 1,070 Class B
Preferred Shares of the Corporation held by him for 12,144 shares of Series 3
Preferred Shares. Pursuant to their terms, effective February 8, 1997, the then
outstanding 22,500 Series 2 Preferred Shares and 12,144 Series 3 Preferred
Shares were converted into 45,000,000 and 19,430,400 Common Shares,
respectively. For the period March 28, 1997 through December 31, 1997, The
Edward Blech Trust purchased 2,300,000 Common Shares and 15 other assignees
purchased 48,320,000 Common Shares, which included two affiliated individuals
who purchased 1,960,000 Common Shares, two trusts, not otherwise affiliated with
Mr. Blech, each purchased 5,000,000 Common Shares on March 27, 1997 and Mr.
Blech purchased 5,000,000 Common Shares on April 14, 1997. On May 1, 1997, Mr.
Blech sold (at his cost) his 5,000,000 shares to the two referenced unaffiliated
trusts and a third unaffiliated trust. To date, cash payments of $5,500,000 have
been made under the Blech Purchase Agreement and 110,000,000 Common Shares have
been or will be issued thereunder.
Pursuant to the Blech Purchase Agreement, the Corporation, Dr. Pandey and
Mr. Blech have also entered into a stockholders' agreement, which, among other
things: (i) generally prohibits the sale of any of Dr. Pandey's shares of
capital stock of the Corporation for a period of five years, except with the
consent of Mr. Blech; (ii) provides Mr. Blech with the right to sell his pro
rata portion (relative to the holdings of Dr. Pandey) of any proposed sale of
shares by Dr. Pandey, and a reciprocal right in favor of Dr. Pandey to sell his
pro rata portion of any shares sold by Mr. Blech; (iii) requires Mr. Blech to
vote for Dr. Pandey as a director of the Corporation, and to use his efforts to
cause Dr. Pandey to remain Chairman, President and Chief Executive Officer of
the Corporation; (iv) requires the Corporation and its directors (subject to
their fiduciary duties to the Corporation and the Stockholders) to take such
actions as Mr. Blech may request to elect his nominees to constitute a majority
of the directors of the Corporation
15
<PAGE> 18
(to date, Mr. Blech has not exercised such right); and (v) provides for certain
demand and piggyback registration rights in favor of Mr. Blech.
The Corporation has received an opinion from The Griffing Group, Inc., an
independent valuation and financial advisory firm, as to the fairness of the
above transactions, from a financial point of view, to the Stockholders.
During 1997 and 1998, the Corporation made secured and unsecured loans
totaling $100,000 to Consumers Choice Systems, Inc. ("CCS"), a company engaged
in the marketing and distribution of products in the over-the-counter
pharmaceutical market. The Corporation has entered into negotiations with CCS in
connection with possible distribution of XetaPharm nutraceuticals. CCS is
engaged in a private offering of its securities and, upon completion of this
offering, The Edward Blech Trust would own approximately 30.8% of CCS's common
stock.
During 1998, the Corporation made six unsecured loans totaling $72,000 to
Pacific Sensuals, Inc. ("Pacific"), a company engaged in the marketing and
distribution of products sold through health stores. The Corporation has entered
into negotiations with Pacific in connection with possible distribution of
XetaPharm nutraceuticals. David Blech, a principal Stockholder of the Company,
has an indirect 38% ownership interest in Pacific.
During 1997 and 1998, the Corporation made four unsecured loans totaling
$144,000 to Margaret Chassman. Ms. Chassman is the wife of David Blech, a
principal Stockholder of the Corporation.
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1999 Annual Meeting of Stockholders must be
received by the Corporation at its executive office in New Brunswick, New
Jersey, on or prior to __________, 1999 for inclusion in the Corporation's proxy
statement for that meeting. Any stockholder proposal must also meet the other
requirements for stockholder proposals as set forth in the rules of the U.S.
Securities and Exchange Commission relating to stockholder proposals.
OTHER MATTERS
As of the date of this Information Statement, no business, other than
that discussed above, is to be acted upon at the Meeting. If other matters not
known to the Board should, however, properly come before the Meeting, the
persons to whom the Majority Stockholders have given their consents and proxies
intend to vote in accordance with their best judgment.
Xechem International, Inc.
By the Order of the Board of Directors
Ramesh C. Pandey, Ph.D.
President and Chief Executive Officer
New Brunswick, New Jersey
October __, 1998
16
<PAGE> 19
A COPY OF THE XECHEM INTERNATIONAL, INC. 1997 ANNUAL REPORT ON FORM
10-KSB FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION WILL BE SUPPLIED
TO STOCKHOLDERS WITHOUT CHARGE. REQUESTS FOR THE REPORT SHOULD BE DIRECTED TO:
Xechem International, Inc.
100 Jersey Avenue, Building B, Suite 310
New Brunswick, New Jersey 08901-3279
===============================================================
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF PROXIES WILL
SAVE THE CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR
PROXIES. PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
===============================================================
17
<PAGE> 20
APPENDIX A
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
XECHEM INTERNATIONAL, INC.
Xechem International, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL") does hereby certify:
FIRST: That the Board of directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that, subject to Stockholder approval at the Annual Meeting,
Section 1 of Article Fourth of the Certificate of Incorporation of this
Corporation shall be amended and restated to read in its entirety as follows:
"1. Effective immediately upon the filing of this Amendment to the
Certificate of Incorporation in the office of the Secretary of State of the
State of Delaware, the outstanding shares of Common Stock shall be and hereby
are combined and reclassified as follows: each share of Common Stock shall be
reclassified as and converted into one seventy-fifth of a share of Common Stock;
provided, however, that fractional shares of Common Stock will not be issued in
connection with such combination and reclassification, and each holder of a
fractional share of Common Stock shall receive in lieu thereof a cash payment
from the Corporation determined by multiplying such fraction by 75 times the
average closing price of the Common Stock on the OTC Bulletin Board for the five
trading days immediately preceding the effective date of this Amendment, such
payment to be made upon such other terms and conditions as the officers of the
Corporation, in their judgment, determine to be advisable and in the best
interests of the Corporation.
Certificates representing shares combined and reclassified as provided in
this Amendment are hereby canceled, and, upon presentation of the canceled
certificates to the Corporation, the holders thereof shall be entitled to
receive new certificates representing the shares resulting from such combination
and reclassification.
The aggregate number of shares which the Corporation shall have authority
to issue is 250,000,000, of which 2,500 shares of the par value of $.00001 per
share shall be designated "Class A Voting Preferred Stock," 1,150 shares of the
par value of $.00001 per share shall be designated "Class B 8% Preferred Stock,"
2,996,350 shares of the par value of $.00001 per share shall be designated
"Class C Preferred Stock," and 247,000,000 shares of the par value of $.00001
per
<PAGE> 21
share shall be designated "Common Stock."
SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this
Certificate of Amendment is filed and accepted by the Secretary of State of the
State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Ramesh C. Pandey, Ph.D., its President, this ________day of November,
1998.
XECHEM INTERNATIONAL, INC.
By:______________________________________
Title:_____________________________
<PAGE> 22
XECHEM INTERNATIONAL, INC.
100 JERSEY AVENUE, BUILDING B, SUITE 310
NEW BRUNSWICK, NEW JERSEY 08901
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Dr. Ramesh C. Pandey and Stephen Burg,
and each of them, as Proxies, with the power to appoint their substitutes, and
hereby authorizes them to represent and to vote, as designated below, all the
Shares of Common Stock and Class A Preferred Stock of Xechem International, Inc.
(the "Corporation") held of record by the undersigned on October 27, 1998, at
the Annual Meeting of Stockholders when convened on November 18, 1998, or any
adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED iN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3, 4 AND 5.
CONTINUED ON THE REVERSE SIDE.
<PAGE> 23
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD PROPOSAL to elect three Directors to hold office until the next Annual
1. Election of [ ] [ ] Meeting of Stockholders, or otherwise as provided in the Corporation's
Directors Certificate of Incorporation (check one box):
NOMINEES: Dr. Ramesh C. Pandey
Stephen Burg
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For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
<TABLE>
<S><C>
FOR AGAINST ABSTAIN PROPOSAL to amend the Certificate of Incorporation of Xechem
2. Amend [ ] [ ] [ ] International, Inc. to reflect a one share for 75 shares reverse split of
Certificate of the outstanding Common Stock.
Incorporation
FOR AGAINST ABSTAIN PROPOSAL to approve an increase in the number of shares of Common
3. Stock [ ] [ ] [ ] Stock which may be issued under the Xechem International, Inc. Amended
Option Plan and Restated Stock Option Plan(check one box);
FOR AGAINST ABSTAIN PROPOSAL to concur in the selection of Mortenson and Associates, P.C. as
4. Select [ ] [ ] [ ] the Corporation's independent auditor for the fiscal year ending
Auditor December 31, 1998 (check one box); and
FOR AGAINST ABSTAIN In their discretion, the Proxies are authorized to transact any other
5. Other [ ] [ ] [ ] business as may properly come before the Meeting, or any adjournment
Business thereof.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED
ENVELOPE. PLEASE CONTACT DR. RAMESH C. PANDEY AT (732) 247-3300 WITH ANY
QUESTIONS REGARDING THE ABOVE.
SIGNATURE(S)___________________________________________________ DATE______________
NOTE: Sign exactly as name appears above. If joint tenant, both should sign.
If attorney, executor, administrator, trustee or guardian, give full
title as such. If a corporation, please sign corporate name by President
or authorized officer. If partnership, sign in full partnership name by
authorized person.
</TABLE>
