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PRELIMINARY COPY
PANAX PHARMACEUTICAL COMPANY, LTD.
_____________, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of
Shareholders of Panax Pharmaceutical Company, Ltd. ("Panax") to be held on
Wednesday, July 23, 1997, at 10 a.m. at the offices of the Company, 425 Park
Avenue, 27th Floor, New York, New York.
At this meeting, you will be asked to consider and vote upon (i) a
proposal to amend Panax's Certificate of Incorporation to change the name of
the Company to "Inkine Pharmaceutical Company, Inc.," and to change the
authorized capital stock by creating a class of Preferred Stock, par value
$.0001 per share, of 5,000,000 shares and increasing the number of authorized
shares of Common Stock, par value $.0001 per share, from 12,000,000 to
50,000,000 shares, (ii) a proposal to increase the number of shares of Common
Stock subject to the 1993 Stock Option Plan to 4,200,000 and (iii) a proposal
to approve the adoption of the 1997 Consultant Stock Option Plan which relates
to 2,500,000 shares of the Common Stock of the Company.
The proposals arise from the redirection of the focus of Panax's
operations to the acquisition of proprietary rights or licenses to commercially
promising drug candidates and platform technologies under development which
will require the issuance of shares, or rights or options to acquire shares, of
capital stock of the Company to sellers or licensors, qualified employees and
consultants and financiers.
You are entitled to vote all shares of Common Stock registered in
your name at the close of business on June 30, 1997.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS SOON AS
POSSIBLE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
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We hope that you will find it convenient to attend the meeting.
Sincerely,
Dr. Taffy Williams
Chairman and
Chief Executive Officer
<PAGE>
PRELIMINARY COPY
PANAX PHARMACEUTICAL COMPANY, LTD.
425 PARK AVENUE, 27TH FLOOR
NEW YORK, NEW YORK 10022
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
July 23, 1997
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Panax Pharmaceutical Company, Ltd. ("Panax") will be held on Wednesday, July
23, 1997, at 10 A.M. (E.D.T.) at the offices of the Company, 425 Park Avenue,
27th Floor, New York, New York 10022. At the Special Meeting, the shareholders
of the Company will be asked to consider and vote upon the following proposals:
1. To approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company to "Inkine Pharmaceutical
Company, Inc.", increase the number of authorized shares of Common Stock, par
value $.0001 per share to 50,000,000 shares and to authorize a class of
5,000,000 shares of Preferred Stock, par value $.0001 per share.
2. To approve an amendment to the Company's 1993 Stock Option Plan
to increase the number of shares of Common Stock under the plan to 4,200,000.
3. To approve the adoption of the 1997 Consultant Stock Option Plan
which relates to 2,500,000 shares of Common Stock.
4. To transact such other business as properly may come before the
Special Meeting or any adjournments thereof.
The Board of Directors of the Company has fixed the close of
business on June 30, 1997 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting or any
adjournment. You are entitled to vote all shares of Common Stock registered in
your name at the close of business on such date.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, WE URGE YOU TO SIGN THE ENCLOSED PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND RETURN
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IT IN THE ACCOMPANYING ENVELOPE (FOR WHICH NO POSTAGE NEED BE AFFIXED IF MAILED
IN THE UNITED STATES) AS SOON AS POSSIBLE, SO THAT YOUR SHARES MAY BE
REPRESENTED AT THE MEETING. IT IS IMPORTANT THAT YOUR PROXY BE RETURNED
PROMPTLY IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION. YOU
ARE URGED TO READ THE ATTACHED PROXY STATEMENT, WHICH CONTAINS INFORMATION
RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING.
By Order of the Board of Directors,
Dr. Taffy Williams
Chairman and
Chief Executive Officer
__________ __, 1997
New York, New York
<PAGE>
PRELIMINARY COPY
PANAX PHARMACEUTICAL COMPANY, LTD.
425 Park Avenue, 27th Floor
New York, New York 10022
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To be held on July 23, 1997
Your proxy is solicited by the Board of Directors (the "Board") of
Panax Pharmaceutical Company, Ltd. ("Panax" or the "Company") in connection
with the Special Meeting of Shareholders of the Company to be held on
Wednesday, July 23, 1997, at 10:00 A.M. (E.D.T.) at the offices of Panax, 425
Park Avenue, 27th Floor, New York, New York 10022 and any postponement or
adjournment thereof (the "Special Meeting").
Panax has authorized one class of voting securities, Common Stock,
par value $.0001 per share ("Common Stock"). There were 3,326,512 shares of
Common Stock issued and outstanding at the close of business on June 30, 1997
(the "Record Date"). All shareholders of record of the Common Stock at the
close of business on the Record Date will be entitled to vote at the Special
Meeting. Each share of Common Stock is entitled to one vote.
If the accompanying proxy is properly executed, returned to Panax
in time to be voted at the Special Meeting, and not revoked, the shares of
Common Stock represented thereby will be voted in accordance with the
instructions marked on the proxy. Unless contrary instructions are given, the
persons designated as proxy holders in the proxy will vote FOR the following
proposals:
1. To approve an amendment to the Company's Certificate of
Incorporation to (i) change the name of Panax to
"Inkine Pharmaceutical Company, Inc.," and (ii) change
the authorized capital stock of the Company to create a
class of 5,000,000 shares of Preferred Stock, par value
$.0001 per share, and increase the number of
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authorized shares of Common Stock from 12,000,000 to
50,000,000, with the same par value of $.0001 per
share.
2. To approve an amendment to the 1993 Stock Option Plan
to increase the number of shares available under the
plan to 4,200,000; and
3. To approve the adoption of the 1997 Consultant Stock
Option Plan relating to 2,500,000 shares of Common
Stock.
Any shareholder giving a proxy has the right to attend the Special
Meeting and vote his or her shares of Common Stock in person (thereby revoking
any prior proxy) and also has the right to revoke a previously granted proxy at
any time before it is exercised by written notice filed with the Secretary of
the Company. Attendance at the Special Meeting will not, in itself, constitute
revocation of a previously granted proxy.
The Proxy Statement and the accompanying form of proxy and Notice
of Meeting and a copy of each of Panax's Annual Report on Form 10-KSB for the
year ended June 30, 1996 and Quarterly Report on Form 10-QSB for the three
months ended March 31, 1997 are being mailed on or about July 2, 1997 to the
Company's shareholders of the Record Date.
In addition to solicitation by mail, officers, directors
("Directors") and employees of Panax may solicit proxies by telephone, telecopy
and personal contact. All costs of solicitation, including printing and mailing
of this Proxy Statement and accompanying materials, reimbursement of brokerage
firms and others for their expenses in forwarding solicitation material to the
beneficial owners of the Company's Common Stock, and supplementary
solicitations to submit proxies, if any, will be borne by Panax.
QUORUM AND VOTING REQUIREMENTS
The presence at the Special Meeting, in person or by proxy, of the
holders of a majority of the shares of Common Stock outstanding on the Record
Date will constitute a quorum.
Approval of the proposal to amend the Certification of
Incorporation requires the affirmative vote of a majority of the shares of
Common Stock outstanding. Abstentions and indications by brokers that they do
not have authority to vote certain shares will have the effect of a negative
vote on such proposal.
Approval of each of the proposals to amend the 1993 Stock Option
Plan and to adopt the 1997 Consultant Stock Option Plan requires the
affirmative vote of the holders of at least a majority of the shares of Common
Stock present in person or represented by proxy at the Special Meeting.
Abstentions will have the effect of negative votes, but if a broker indicates
that it does not have authority to vote certain shares of Common Stock, those
votes will not be considered as
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shares present and entitled to vote at the Special Meeting with respect to such
matters and will not be counted toward the outcome of the vote.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of shares of Common Stock as of May 31, 1997, of each
shareholder of Panax known to Panax to be a beneficial owner of more than 5% of
the outstanding shares of Common Stock, and all executive officers and
Directors as a group. The number of shares beneficially owned is determined
under the rules of the Securities and Exchange Commission and the information
is not necessarily indicative of beneficial ownership for any other person.
Under such rules, "beneficial ownership" includes shares as to which the
undersigned has sole or shared voting power or investment power and shares
which the undersigned has the right to acquire within 60 days of May 31, 1997
through the exercise of any stock option or warrant. Unless otherwise
indicated, the named person has sole investment and voting power with respect
to the shares set forth in the table.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address Beneficially Owned (1) Outstanding Shares
- ---------------- ------------------ ------------------
<S> <C> <C>
Taffy James Williams * 179,000(2) 4.9%
Tanya Akimova * 222,995 (3) 5.5%
All Directors and Executive
Officers as a Group (5 persons) 742,995 (4) 21.2%
</TABLE>
- ----------------------
* His or her address is c/o Panax, 425 Park Avenue, New York, New
York 10022.
(1) Unless otherwise indicated, the persons named in the table above
have sole voting and investment power with respect to all shares
beneficially owned by them.
(2) Includes 170,000 shares subject to options and 5,000 shares subject
to warrants exercisable within 60 days of May 31, 1997.
(3) Includes 8,334 shares subject to options exercisable within 60 days
of May 31, 1997 and 40,000 shares owned by her husband, as to
which shares she disclaims beneficial ownership.
(4) Includes 183,334 shares subject to options and warrants exercisable
within 60 days and 220,000 shares owned by spouses as to which
beneficial ownership has been disclaimed and 60,000 shares owned by
minor children.
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PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has adopted, subject to
shareholder approval, an amendment to the Company's Certificate of
Incorporation, changing the name of the Company to "InKine Pharmaceuticals
Inc.", increasing the authorized shares of Common Stock, par value at $.0001
per share, from 12,000,000 to 50,000,000 shares and authorizing a class of
5,000,000 shares of Preferred Stock, par value $.0001.
The Board of Directors believes the amendment, if approved, will
enhance the Company's efforts to change the focus of its operations from the
discovery and development of new pharmaceutical compounds identified and
isolated from plants located principally in the Commonwealth of Independent
States to the acquisition and development of proprietary rights to
pharmaceutical drug and platform technologies under development. In connection
with this redirection, the Company has entered into and plans to seek to enter
into agreements to acquire or license the proprietary rights to pharmaceutical
products and technologies which the Company believes are promising candidates
for commercially successful development. To effect such acquisitions and
licenses and to attract and retain the services of qualified persons to assist
in their development and the location and evaluation of other promising
compounds and technologies for possible acquisition or license, the Company in
many instances will be required to issue to the owners or holders of such
rights and to consultants and employees shares of capital stock or rights,
options, or, warrants to acquire shares of capital stock in the Company in
addition to cash payments. Additional shares and options and warrants may also
be required to be issued to finance acquisitions, development, promotion and
marketing.
COMMON STOCK
As of May 31, 1997, the Company had outstanding 3,326,512 shares of
Common Stock. In addition there was reserved for issuance: (i) 1,264,615 shares
upon exercise of the outstanding Redeemable Common Stock Purchase Warrants
which are currently exercisable on or prior to April 27, 1998 at $6.84 per
share and which were issued along with shares of Common Stock as part of the
Units constituting the Company's public offering on January 1995 (the "IPO
Warrants"); (ii) 215,000 shares upon exercise of an option expiring January
2000 granted to the underwriter of the Company's initial public offering to
purchase 107,500 Units at a price of $7.33 per Unit, each consisting of one
share and one IPO Warrant; (iii) 320,000 shares upon exercise on or prior to
October 2, 2000 of a warrant issued to a financial consultant at a price of
$1.00 per share, (iv) 1,424,500 shares upon exercise of options outstanding
under the Company's 1993 Stock Option Plan with the number of shares to be
reserved under the Plan to increase to 4,200,000 shares if the proposed
amendment to the 1993 Stock Option Plan is approved, and (v) 2,500,000 shares
upon exercise of options to be granted under the 1997 Consultant Stock Option
Plan if approved at this Meeting. See "Proposal to Amend the 1993 Stock Option
Plan"; "Proposal to Approve the Consultant Stock Option Plan" and "Executive
Compensation" for further information.
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The Company has obtained a world-wide exclusive license as to a
purgative tablet under development (the "Purgative Product") and has agreed in
principle pursuant to letters of intent to enter into agreements to acquire two
privately held development stage pharmaceutical companies, CorBec
Pharmaceuticals, Inc. ("CorBec") and Sangen Pharmaceutical Inc. ("Sangen"). The
acquisitions are to be subject, among other things, to the execution of
definitive agreements which are to provide for payments of cash and issuance by
the Company of shares of Common Stock and options to purchase additional shares
of Common Stock. The license and the acquisitions are to be subject to the
successful consummation by the Company of certain levels of financing:
$2,000,000 as to the Purgative Product License, $8,000,000 as to the CorBec
acquisition and $7,500,000 as to the Sangen acquisition; accordingly a
financing of at least $8,000,000 by the Company will satisfy the financing
conditions as to the license and the two proposed acquisitions.
The Purgative Product License. In February 1997, the Company
entered into an exclusive world-wide license agreement with ALW Partnership
("ALW") (consisting of Craig Aronchick, M.D., Scott H. Wright, M.D. and
William H. Lipshutz, M.D.) to develop, use, market, sell, manufacture, have
manufactured and sub-license in the field of colonic purgatives or laxatives
a solid dosage form of sodium phosphate salt for use as a colonic purgative or
laxative (the "Purgative Product"), along with ALW's body of proprietary,
technology information, trade secrets and know-how relating thereto. Panax's
rights under the ALW License automatically extend to improvements developed by
Panax and/or ALW which are derivative of the Purgative Product, Panax also has
a right of first refusal with respect to any new products which relate to the
field of use of the Product but which are not derivative of the Purgative
Product. A Phase IIb clinical study was completed by Dr. Aronchick, Head of the
Endoscopy Unit at Pennsylvania Hospital and Associate Professor of Medicine at
Jefferson Medical College, and his colleagues. Dr. Aronchick serves as a
consultant to the Company and is a member of its Scientific Advisory Board. The
study enrolled 342 patients undergoing colonoscopy who were randomized to one
of three purgative methods (Colyte, Fleet's Phospho-soda or sodium phosphate
tablets). All three preparations in this study showed equal efficacy with
respect to the quality of bowel surface cleansing. Over 10% of patients taking
liquid Colyte and over 40% of patients taking liquid Fleets Phospho-soda found
the taste unacceptable. Colyte and Fleet's Phospho-soda resulted in moderate to
severe vomiting in 6% of the patients taking a liquid preparation compared to
none taking the Purgative Product. All patients taking the Company's sodium
phosphate tablets found the pills to have no taste or a pleasant taste. Almost
all patients who took the Purgative Product during this study, and who had
previously had liquid Colyte or liquid Fleet's Phospho-soda for prior
colonoscopies, preferred the tablets for future colonoscopies. The Company
intends to submit an investigational new drug application (IND) to the United
States Food and Drug Administration (FDA) and expand on these clinical findings
by conducting a multi-center Phase III pivotal clinical trial. It is
anticipated, although there can be no assurance, that this confirmatory
clinical trial could begin in the fourth quarter of 1997 and be completed in
1998.
A U.S. patent as to the Purgative Product (covering any solid form
of administration of
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sodium phosphate for use as a colonic cleansing agent or as a laxative) was
issued on April 1, 1997. To expand its product lines under the ALW License,
Panax recently filed a patent application covering alternative salt mixtures
which may be utilized in place of the sodium phosphate formulation used in the
Purgative Product.
Panax paid ALW $100,000 upon execution of the License in February
1997 and is obligated, to pay ALW an additional $150,000 upon consummation of
the $2,000,000 financing. Pursuant to the License and three-year consulting
agreements with the partners of ALW, additional cash payments of royalties and
options to purchase shares of Common Stock are to be made as follows: (i)
$250,000 upon the Company's receipt of a New Drug Application (NDA) with the
FDA of any product under the License; (ii) royalties of: (a) 2% on the first
$5,000,000 in net sales of the Purgative Product during each calendar year;
(b) 4% on net sales of the Purgative Product above $5,000,000 and up to
$10,000,000 during each calendar year; and (c) 6% on net sales of the Purgative
Product above $10,000,000 during each calendar year, provided that after
February 2003, in order to maintain exclusivity of the licensed rights, the
Company must make minimum annual payments to the ALW of $100,000; and (iii)
options exercisable at $.61 per share to purchase an aggregate of (a) 250,000
shares during the period commencing on the date of the consummation of the
$2,000,000 financing and ending February 14, 2007; (b) 250,000 shares during
the period commencing with the first sale of any product under the License and
ending the later of February 14, 2007 or the earlier of the third anniversary
of the first sale or February 14, 2010 and (c) 250,000 shares during the period
which commences with the first day following the first fiscal year in which net
sales of all products under the License exceeds $20,000,000 but no later than
February 14, 2010. The Company is also to fund at least $1,000,000 of
additional research over the course of two years commencing with the
consummation of the financing.
The options have been granted under the 1997 Consultant Stock
Option Plan. If the Plan is not approved, the options will remain outstanding
and the Company is obligated to register under the Securities Act of 1933, as
amended, the shares subject to the options on a Form S-8 Registration
Statement.
The License is terminable by ALW if the Company: (i) fails to commit
at least $1,000,000 of funding to the development of the Purgative Product for
the first two years following consummation of the $2,000,000 financing, (ii)
has not paid royalties by February 2003 of at least $100,000 per year,
(iii) has failed to conclude the $2,000,000 financing by November 14, 1997
or (iv) if no commercial sales of the product or "improvement" as defined have
commenced by February 2005.
No assurances can be given that the Purgative Product will be fully
developed, that the required approvals from the FDA and other regulatory bodies
will be obtained or that if developed and approvals are obtained that the
Product will prove commercially profitable for the Company or that the issued
patents or those that are obtained will provide the Company with adequate
protection.
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CorBec. The agreement with respect to CorBec is to provide for the
acquisition of outstanding capital stock of CorBec by means of a merger of a
subsidiary of the Company into CorBec.
Founded in 1993 by Hillman Medical Ventures to discover and develop
pharmaceuticals designed to modulate the immune system by manipulating
macrophage and mast cell function, CorBec has focused on developing treatments
in three therapeutic areas: autoimmune disease, serious infections and
asthma/allergy. The therapeutic agents which have traditionally constituted the
mainstay for the treatment of autoimmune disorders are glucocorticoid hormones
(typically prednisone), which inhibit macrophage Fc receptor expression but
which must be administered in high dosages and/or for extended periods of time
and which are accompanied by substantial side effects, including exacerbation
of diabetes, hypertension, electrolyte imbalance, weight gain, osteoporosis and
increased susceptibility to infection. In the case of idiopathic
thrombocytopenia purpura (ITP), an autoimmune disease, from which over 100,000
patients in the United States suffer, most patients relapse after
glucocorticoid treatment is tapered, and in a majority of such cases, surgical
removal of the spleen is ultimately required. The CorBec technology, developed
under the guidance of Alan D. Schreiber, M.D., Professor of Medicine and
Assistant Dean for Research at the University of Pennsylvania School of
Medicine, consists of progesterone derivatives which do not have the toxic side
effects of glucocorticoid hormone treatments and which also do not have the
potentially undesirable sex-organ hormonal effects normally associated with
traditional progesterone and other sex hormone treatments.
The most advanced product in the family of compounds comprising the
CorBec technology is CBP-1011, a potential ITP treatment. CorBec also is in an
early stage of development of CBP-2011/2012, a second generation compound of
CBP-1011. CBP-1011 is an orally administered steroid analog, demonstrating
steroid-like properties but without the side-effect profile commonly
associated with steroids. Clinical testing to date suggests that CBP-1011 is
safe and effective in the treatment of patients with ITP. After a meeting with
the FDA in September 1996, Phase III pivotal trials were initiated at 15 sites
in the United States. There can be no assurance, however, that the Phase III
clinical trials of CBP-1011 will be successful, that, even if such trials are
successful, CBP-1011 will be approved by the FDA, or that, even if it is so
approved, the Company will be able obtain and maintain protection under the
Orphan Drug Act with respect to the compound and successfully market it.
The CorBec stockholders, including Dr. Schreiber, are to
receive for their shares $750,000 in cash (subject to reduction by as much
as $250,000 to the extent that CorBec's cash balance at the time of the
acquisition is less than $250,000) and 750,000 shares of the Company's Common
Stock. Additional cash payments in the aggregate amount of $16,580,000, and
issuances of an aggregate of 720,000 shares of Common Stock are to be made upon
the achievement, if any, of the following milestones and targets: (i) $500,000
and 180,000 shares upon the Company's receipt of a letter of approval from the
FDA allowing for the commercial sale of CBP-1011; (ii) 80,000 shares following
the first fiscal year net revenues from CBP-1011
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sales equals or exceeds $20,000,000; (iii) $7,500,000 (payable in five equal
annual installments) following the first fiscal year net revenues from CBP-1011
equals or exceeds $30,000,000; (iv) 180,000 shares following the first fiscal
year net revenues from CBP-1011 sales equals or exceeds $40,000,000; (v)
$500,000 and 30,000 shares upon the Company's filing of an IND with respect to
CBP-2011/2012 or any other second generation compound (a "Second Drug"); (vi)
$80,000 upon the successful completion of Phase II clinical trials with respect
to a Second Drug; (vii) 120,000 shares of Common Stock upon the Company's
filing of an NDA with respect to a Second Drug; (viii) $500,000 and 130,000
shares upon receipt of a letter of approval from the FDA allowing for the
commercial sale of a Second Drug; and (ix) $7,500,000 (payable in five equal
annual installments) following the first fiscal year net revenues from the
Second Drug equals or exceeds $75,000,000. In addition, the Company is to
enter into three-year consulting agreements with Dr. Schreiber and the Chief
Executive Officer of CorBec, providing for aggregate annual consulting fees of
$150,000 during the first year, $170,000 during the second year and $185,000
during the third year, and for the grant to them of five year options to
purchase at the market price on the date of the CorBec acquisition an aggregate
of 120,000 shares of Common Stock which become exercisable in three equal
cumulative annual installments. An option to purchase an additional 200,000
shares at the market price for the five year period following FDA approval,
if any, of an IND and the commencement of clinical trials with respect to a
third generation compound is also to be granted to Dr. Schreiber. The agreement
will require the Company to fund up to $240,000 of sponsored research over the
course of three years and at least $1,000,000 to fund clinical trials of the
CBP-1011.
Sangen. The agreement with Sangen, a recently organized
corporation, and Leonard S. Jacob, M.D., its sole shareholder, executive
officer and director, is to provide for the acquisition of its outstanding
capital stock. Sangen's sole asset is its right to acquire a world-wide
exclusive license to develop, manufacture, sell, have manufactured or
sub-license the technology for inhibition and prevention of tumor metastasis,
specifically certain peptides invented by and a murine polyclonal antibody
developed by Dr. George Tuszynski, Professor of Surgery, Medicine and Pathology
at the Allegheny University of Health Science (AUHS) and his laboratory at AUHS
and the TSP-1 receptor (collectively the "Thrombospondin Technology").
Thrombospondin-1 ("TSP-1") is a large glycopeptide secreted by
platelets and synthesized by many cell types including tumor cells. The Company
believes that when TSP-1 binds to its receptor, tumor cell adhesion and
metastasis are promoted. From this discovery, Dr. Tuszynski invented a series
of peptide molecules. A patent for the molecules has been allowed in the
United States. These molecules have in preclinical studies significantly
reduced metastasis of a mouse tumor cell line and a human tumor cell line when
injected into athymic mice. Preclinical testing is to be conducted to determine
if the pharmacokinetics and safety profile warrant the introduction of this
molecule into humans.
The murine polyclonal antibody against the TSP-1 receptor was also
shown to prevent or significantly reduce metastasis in athymic mice in
preliminary studies. A patent application has been filed in the United States
with respect to this polyclonal antibody. The Company plans to make a humanized
monoclonal antibody and explore its clinical utility.
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No assurance can be given that further studies will indicate the
use of the Thrombospondin Technology will prove to be successful in the
inhibition of metastases, that the Company will be successful in the
development of commercially or profitable pharmaceutical products from such
technology or that the funds or collaboration arrangements required for such
development will be available to the Company on reasonable terms.
The agreement is to provide for the issuance in consideration for
the Sangen capital stock to Dr. Jacob, who is a presently a part-time
consultant to, and is to become upon the acquisition Chairman of the Board and
Chief Executive Officer of, the Company under a three year employment agreement,
a ten year option to purchase the greater of 1,200,000 shares of Common Stock
or such number of shares of Common Stock as will equal 7 1/2% of the "Fully
Diluted Capitalization" of the Company. Fully Diluted Capitalization means the
sum of (i) the shares sold in the financing which is a condition to the
closing, (ii) the shares to be issued in the CorBec acquisition and to acquire
the license for the proprietary rights to the Thrombospondin Technology, (iv)
other shares issued and outstanding on the date of the Sangen acquisition (the
"Acquisition Date"), (v) Shares reserved for issuance pursuant to agreements
(including shares reserved for issuance upon exercise of options granted
pursuant to agreements) related to the Sangen and CorBec acquisition
agreements and related consulting agreements and consulting agreements with ALW,
(vii) all other shares reserved for issuance upon exercise of options and
warrants outstanding on the Acquisition Date other than IPO Warrants and the
Unit Purchase Option issued to the underwriters of the initial public offering
and (viii) shares issued after the Acquisition Date upon exercise of the IPO
Warrants or the Unit Purchase Option. The option is exercisable as to $.61 per
share with respect to 1,200,000 shares and at the market price of the Common
Stock on the Acquisition Date as to the balance, if any. The option is to
provide that any shares, up to a maximum of 900,000, in excess of 300,000
shares acquired by Dr. Jacob upon exercise may be repurchased by the Company
at the exercise price in the event Dr. Jacobs has failed to fulfill his
Employment Agreement obligations by either leaving the employ of the Company
without "cause" or being terminated for "just cause" as defined during the
three year period; such right however to expire at the rate of 25,000 shares
for each month he was employed under the Agreement. See "Executive
Compensation."
The agreement as to the license to the proprietary rights to the
Thrombospondin Technology is to provide for the issuance of (i) 125,000 shares
of Common Stock and ten years options to purchase 125,000 shares to AUHS, (ii)
five year options to each of AUHS and Dr. Tuszynski to purchase 125,000 shares
exercisable commencing as to 62,500 shares on approval of the date of filing of
the Company sponsored IND with the FDA for a compound derived from the
technology and as to 62,500 shares on the date of such compound. The exercise
price of the options is to be $.61 per share. In addition, the Company is to
pay a royalty to AUHS of 2% of net sales of products derived from the
technology and 10% of revenues of the Company from the sub-license of products
incorporating the technology upon the achievement of certain milestones. The
Company has further agreed to fund sponsored research in Dr. Tuszynski's
laboratory at a rate of $200,000 per year for a minimum of
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two years; if Phase II clinical trials are completed on a product incorporating
the Technology, for an additional year; and $200,000 for a fourth year upon
successful completion, if any, of a Phase II clinicial trial. The Company is
also to retain Dr. Tuzynski for a minimum of two years to assist in the
development of the technology at a consultant fee of $50,000 per year.
Dr. Taffy J. Williams, Chairman, President and Chief Executive
Officer who is to become upon closing of the Sangen acquisition, President and
Chief Operating Officer of the Company, has been granted under the 1993 Stock
Option Plan in consideration of his services with respect to the proposed
Sangen acquisition and the Purgative Product License, a ten year option to
purchase the greater of 500,000 shares of the Company's Common Stock or such
number of shares as will equal 5% of the Fully Diluted Capitalization of the
Company. The exercise price as to 500,000 shares is $0.61 per share and as to
the balance, if any, of the shares, is the market price of the Common Stock on
the Acquisition Date. The option will not be exercisable prior to the Sangen
acquisition.
Possible Financing. To satisfy the conditions as to financing for
the Purgative Product License and effect the CorBec and Sangen acquisitions as
well as to fund related and other research and development and general
corporate purposes, including payment of salaries of its Chief Executive
Officer and Chief Operating Officer, the Company is attempting to effect a
private placement of its equity for gross proceeds of up to $14,000,000. The
Company has engaged Placement Agents on a best efforts basis with respect to an
offering of Units consisting of shares of Common Stock and five year Warrants
to purchase additional shares of Common Stock pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Act") afforded
by Section 4(2) and Section 506 of Regulation D thereunder. Consummation of the
offering is to be subject to the sale of securities for gross proceeds of at
least $8,000,000.
No assurance can be given that the financing or any other financing
can be successfully consummated, that if consummated that it will not require
the issuance and reservation for issuance of a materially larger number of
shares of Common Stock than indicated or that either acquisition will be
consummated.
Possible Change of Control. If the CorBec and Sangen acquisitions
are effected, there will be changes in the Board of Directors and officers of
the Company. The Board currently consists of five members - Dr. Taffy J.
Williams; Dr. Tanya Akimova, Vice President, Research Administration; Mr. J.R.
LeShufy, Vice President, Investor Relations, Mr. Bernard Nagelberg, Vice
President, Finances and Dr. Leonid Shpilenya, Vice President, Russia
Operations. The Board was reduced in February 1997 from eight members as a
result of the resignations in February 1997 of Dr. Armen L. Takhtajan, Chairman
of the Board and Mr. Norman Eisner, Vice President, Chief Financial Officer,
Treasurer and Secretary from their positions as officers and
10
<PAGE>
directors and Mr. David Zaretsky from his position as director of the Company.
If the acquisitions are effected, Dr. Akimova and Dr. Shpilenya have indicated
that they will resign as directors and Mr. Nagelberg has advised he will resign
as an officer and director. Dr. Leonard S. Jacob will then be appointed as
Chairman of the Board and Chief Executive Officer, Dr. Williams will remain as
President and become Chief Operating Officer, Jerry Weisbach, Ph.D will be
appointed a director and the Board will elect at least one additional director
who will not be an employee of the Company. The Company has not determined who
the additional director will be.
Dr. Jacob, age 48, the President and Chief Executive Officer of
Sangen, has been since June 1996 a consultant to various biotechnology
companies. From 1989 to 1996, Dr. Jacob, as a co-founder of Magainin
Pharmaceuticals Inc., was employed as Chief Operating Officer and was
responsible for setting Magainin's technical and operational strategy. From
1980 to 1988, Dr. Jacob was employed by SmithKline and French Laboratories
where he served as Worldwide Vice President and a member of SmithKline
Beacham's Corporate Management Committee. Dr. Jacob had responsibility for 500
physicians, scientists and other technical personnel and managed a budget of
$50 million per year. Under his leadership, 17 IND's were successfully
submitted and 4 NDA's were approved. Dr. Jacob received his medical degree from
the Medical College of Pennsylvania and his Ph.D. in molecular pharmacology
from the Temple University School of Medicine. He is an elected member of Alpha
Omega Alpha, the National Medical Honor Society. Dr. Jacob has served on the
Board of Directors of Endorex Pharmaceutical Corp., MacroMed Corp. and Orasomal
Technologies, Inc. He also serves on the Board of Directors of AUHS where he is
an Adjunct Professor.
Jerry Weisbach, Ph.D, age 63, is a former Vice President of the
Warner Lambert Company and President of its Pharmaceutical Research Division,
where, from 1979 to 1987, he was responsible for all pharmaceutical research
and development activities of the company. Prior to joining Warner Lambert in
1979, Dr. Weisbach was employed at SmithKline and French Laboratories from 1960
to 1979, where he was Vice President, Research from 1977 to 1979. From 1988 to
1994, he was Director of Technology Transfer at the Rockefeller University.
Currently, Dr. Weisbach is a member of the Board of Directors at Hybridon,
Neose Technologies, Cima Labs, Xytronics and Synthon. He also consults in the
area of licensing and technology and serves on a number of scientific advisory
boards. Dr. Weisbach received his Ph.D. in Organic Chemistry from Harvard
University.
See "Executive Compensation" for information as to the proposed
employment agreements with Drs. Williams and Jacob.
PREFERRED STOCK
The Board of Directors believes that the ability to effect
acquisitions and licenses and develop market attractive pharmaceutical
compounds and technologies will also be enhanced by having the flexibility to
issue without shareholder approval one or more series of a class of
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<PAGE>
5,000,000 shares of Preferred Stock with such rights and limitations as to
dividends, liquidation, redemption, voting and conversion as determined by the
Board of Directors at the time of issuance.
The existence of this authority, to issue such series however,
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender, offer, merger, proxy contest or otherwise.
The Board has no present plan or intention to authorize the
issuance of any shares of Preferred Stock.
CHANGE OF NAME
The Board believes that in view of the change in the Company's
focus the adoption of the name "InKine Pharmaceuticals, Inc." will be more
descriptive of the Company's business and operations.
A copy of the proposed amendment to the Certificate of
Incorporation of the Company is set forth in Annex A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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<PAGE>
PROPOSAL TO AMEND THE
1993 STOCK OPTION PLAN
GENERAL
Shareholders are being asked to approve an amendment to the
Company's 1993 Stock Option Plan, which as amended in December 1996 relates to
800,000 shares of Common Stock, (the "1993 Plan") to increase to 4,200,000 the
number of shares subject to the 1993 Plan. The following description of the
1993 Plan is qualified in its entirety by reference to the 1993 Plan, a copy of
which is attached as Annex B.
As of May 31, 1997 options with respect to 700 shares have been
exercised and options with respect to 799,300 shares are outstanding. Options
with respect to at least an additional 440,807 shares have been granted subject
to the approval by the shareholders of the Company of the proposed amendment.
See "Executive Compensation" and "Proposal to Amend Certificate of
Incorporation." The closing price of a share of Common Stock on the Nasdaq
SmallCap Market on June 11, 1997 was $2.50.
The 1993 Plan provides for the grant of options to purchase Common
Stock to Directors of the Company, employees of the Company or its subsidiaries
and non-employee consultants and advisors who render bona fide services to the
Company or its subsidiaries. Options granted under the 1993 Plan may be
incentive stock options (as defined in the Code) or non-qualified stock
options.
The Board of Directors believes that the Company's future success
depends upon its ability to attract and retain the highest caliber personnel
and to use their capabilities to the fullest extent possible by encouraging
their dedication to the Company's interest and welfare through an opportunity
to acquire a proprietary interest in the Company. The Board believes that one
of the best ways to provide such opportunities is by means of stock options
granted under the 1993 Plan.
ADMINISTRATION AND SUMMARY OF THE 1993 PLAN
The 1993 Plan is administered by the Board of Directors or a
committee appointed and maintained by the Board (the "Plan Administrator"),
which must consist of at least three members who shall serve at the pleasure of
the Board. The Plan Administrator currently is a Committee consisting of Dr.
Taffy James Williams and Messrs. Bernard Nagelberg and J.R. LeShufy, current
officers and Directors of the Company. If the proposed CorBec and Sangen
acquisitions are consummated, the Board will reconstitute the Committee to
include Dr. Weisbach and at least one other nonemployee director. See "Proposal
to Amend the Certificate of Incorporation.
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<PAGE>
The Board or the Plan Administrator has full power and authority:
(i) to designate participants; (ii) to designate Options or any portion thereof
as ISOs; (iii) to determine the terms and provisions of respective Option
Agreements (which need not be identical) including, but not limited to,
provisions concerning the time or times when and the extent to which the
Options may be exercised and the nature and duration of restrictions as to
transferability or restrictions constituting substantial risk of forfeiture;
(iv) to accelerate the right of an optionee to exercise in whole or in part any
previously granted Option; and (v) to interpret the provisions and supervise
the administration of the Plan.
The Board or the Plan Administrator also has the authority to grant
Options in its discretion to the holder of an outstanding Option, in addition
to or in exchange for the surrender and cancellation of the outstanding Option,
which additional or new Option may have a purchase price lower than provided in
the outstanding Option and containing such other terms and conditions as the
Board or the Plan Administrator may prescribe in accordance with the provisions
of the Plan.
All decisions and selections made by the Board or the Plan
Administrator pursuant to the provisions of the Plan shall be made by a
majority of its members except that no member of the Board or Plan
Administrator shall vote on, or be counted for quorum purposes, with respect to
any proposed action of the Board or Plan Administrator relating to any Option
to be granted to that member. Any decision reduced to writing and signed by a
majority of the members who are authorized to make such decision shall be fully
effective as if it had been made by a majority at a meeting duly held.
The purchase price of each share subject to an ISO shall not be
less than 100% (or 110%, if at the time of grant the optionee owns, directly or
indirectly, more than 10% of the combined voting power of all classes of stock
of the Company or of any subsidiary of the Company) of the Fair Market Value of
such share (as defined in the 1993 Plan) on the date the ISO is granted. The
purchase price of each share subject to an Option or any portion thereof which
is not designated by the Board or Committee as an ISO shall not be less than
the Fair Market Value of such share on the date the Option is granted or the
par value of the Company's Stock.
The Fair Market Value of a share shall be the closing sales price
on the date of grant of the Common Stock on a national securities exchange or,
if not listed on an exchange, on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if no sales have been effected on
such date the average of the closing sale prices on the most recent three
trading days preceding the date of grant on the exchange in which it is listed
or on NASDAQ if not listed or admitted on an exchange or if no sales were
effected on any of such markets during such trading day period, the mean
between the high bid and low-asked prices on the exchange or NASDAQ on the date
of grant, as the case may be. If the shares are traded in the over-the-counter
market but not listed or admitted on NASDAQ, the Fair Market Value shall be the
mean between the high bid and low-asked prices as quoted by the National
Quotation Bureau, Inc. on the OTC Bulletin Board.
14
<PAGE>
The option price shall be payable upon the exercise of the Option
in cash, by check, or, at the option of the Board or the Committee, in shares
of the Company's stock (valued at their Fair Market Value) or other form
satisfactory to the Board or the Committee, including a "cashless exercise".
The proceeds of the sale of the Stock subject to an Option are to be added
to the general funds of the Company and used for its corporate purposes.
The Option Agreement sets forth the terms of the Option, including
the period during which it must be exercised, except that no Option may be
exercisable after the expiration of 10 years from the date of grant or, if an
ISO and granted to a person who owns more than 10% of the voting stock of the
Company at the time of grant, after the expiration of five years from the date
of grant.
Options granted under the Plan shall not be transferable by
optionees other than by will or the laws of descent and distribution, and
during an optionee's lifetime shall be exercisable only by that optionee.
Options granted to the Company's employees or directors may not be
exercised after the termination of the term of employment of the employee or,
if the optionee is a non-employee director, after service as a director, unless
(I) prior to the date of termination of employment or service, the Board or the
Plan Administrator authorizes, in the relevant Option Agreement or otherwise,
an extension of the term of all or part of the Option beyond the date of such
termination for a period not to exceed the period during which the Option by
its terms would otherwise have been exercisable, (ii) termination of employment
of the optionee is without cause, in which event any Option still in force and
unexpired may be exercised within a period of 90 days from the date of such
termination, but only with respect to the number of shares purchasable at the
time of such termination, or (iii) termination is the result of death or
disability, in which event any Option still in force and unexpired may be
exercised in whole or in part without regard to the installment exercise
provisions of the Option, within a period designated in the Option Agreement,
but not less than 60 days from the date of termination. An Option held by a
consultant or advisor may by its terms permit its exercise beyond the date of
the consultancy period but not beyond the term of that option. An Option held
by a non-employee consultant or advisor which is still in force and unexpired
on the date of such person's death may be exercised by such person's legal
representative in whole or in part without regard to the installment exercise
provisions of the Option, within a period designated in the Option Agreement,
but not less than 60 days from the date of death.
Optionees are protected against dilution, and appropriate changes
will be made to the aggregate number and kind of shares available under the
1993 Plan and those subject to each outstanding option and to the exercise
prices, in the event of a stock dividend, recapitalization, stock split,
merger, consolidation, combination, exchange of shares or the like.
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<PAGE>
The Board of Directors may, from time to time, adopt amendments to
the 1993 Plan. The 1993 Plan may be suspended or terminated at any time by the
Board, but such action shall not affect options previously granted. In the
event an option, for any reason, expires or terminates unexercised, the shares
subject to such option may again become available for option under the 1993
Plan. Unless sooner terminated, the 1993 Plan will terminate on August 1, 2003
after which no further options will be granted under the 1993 Plan, but
outstanding options at the date of termination will not be canceled by such
termination.
FEDERAL INCOME TAX TREATMENT
Non-Qualified Stock Options
The following is a general summary of the federal income tax
consequences under current tax law of non-qualified stock options
("Non-Qualified Options"). This summary does not purport to cover all of the
special rules, including the state or local income or other tax consequences,
inherent in the ownership and exercise of Non-Qualified Options and the
ownership and disposition of the underlying shares.
An individual who receives a Non-Qualified Option will not
recognize any taxable income upon the grant of such Non-Qualified Option. In
general, upon exercise of a Non- Qualified Option, an individual will recognize
ordinary income in an amount equal to the excess (at the time of exercise) of
the fair market value of the shares of Common Stock received over the aggregate
exercise price. However, if the individual is an executive officer or Director
of the Company or the beneficial owner of more than ten percent of any class of
equity securities of the Company, the timing of recognition of income (and the
determination of the amount thereof) under certain circumstances possibly may
be deferred for a period following the exercise of a Non-Qualified Option (the
"Deferral Period"), unless the individual files a written election with the
IRS, within 30 days after the date of exercise, to include in income the excess
(on the date of exercise) of the fair market value of the shares of Common
Stock received over the aggregate exercise price.
An individual's tax basis in the shares of Common Stock received
upon the exercise of a Non-Qualified Option for cash paid on exercise, plus the
amount of ordinary income recognized by the optionee upon the exercise of such
option. The holding period for such shares would begin just after the receipt
of such shares or, in the case of an executive officer, Director or beneficial
owner of more than ten percent of any class of equity securities of the
Company, just after the expiration of the Deferral Period, if any (unless the
individual elected to be taxed as of the date of exercise). A deduction for
federal income tax purposes will be allowed to the Company in an amount equal
to the ordinary income included by the optionee, provided that such deduction
constitutes an ordinary and necessary business expense to the Company and is
reasonable in amount and the limitations of Section 162(m) of the Code do not
apply.
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<PAGE>
If an individual exercises a Non-Qualified Option by delivering
other shares of Common Stock, the individual will not recognize gain or loss
with respect to the exchanged shares, even if their then fair market value is
different from the individual's tax basis in such shares. The individual,
however, will be taxed as described above with respect to the exercise of the
Non-Qualified Option as if the individual had paid the exercise price in cash,
and the Company generally will be entitled to an equivalent tax deduction.
Provided the individual receives a separate identifiable stock certificate
therefor, the individual's tax basis in that number of shares received on such
exercise which is equal to the number of shares surrendered on such exercise
will be equal to the individual's tax basis in the shares surrendered and the
individual's holding period for such number of shares received will include the
individual's holding period for the shares surrendered. The individual's tax
basis and holding period for the additional shares received on exercise of a
Non-Qualified Option paid for, in whole or in part, with shares of Common Stock
will be the same as if the individual had exercised the Non-Qualified Option
solely for cash.
Incentive Stock Options
The following is a general summary of the federal income tax
consequences under current tax law of incentive stock options. It does not
purport to cover all of the special rules, including special rules relating to
optionees subject to Section 16(b) of the Exchange Act, and the exercise of an
option with previously acquired shares or the state or local income or other
tax consequences inherent in the ownership and exercise of incentive stock
options and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income
tax purposes upon the grant of an incentive stock option. In the case of an
incentive stock option, no taxable income is recognized upon exercise of the
option. If the optionee disposes of the shares of Common Stock acquired
pursuant to the exercise of an incentive stock option more than two years after
the date of grant and more than one year after the transfer of the shares of
Common Stock to the optionee, the optionee will recognize long-term capital
gain or loss and the Company will not be entitled to a compensation deduction.
However, if the optionee fails to hold such shares of Common Stock for the
required period, the optionee would realize ordinary income on the excess of
the fair market value of the Common Stock at the time the option was exercised
over the exercise price (with the balance, if any, being long-term capital
gain, provided that the holding period for the shares exceeded one year and the
optionee held such shares as a capital asset at such time), and the Company
will generally be entitled to deduct such amount, provided that such amount
constitutes an ordinary and necessary business expense to the Company and is
reasonable in amount and the limitations of Section 162(m) of the Code do not
apply. In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to the
extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an incentive stock option, the excess of the fair market value of
the shares over the exercise price thereof is a tax preference item. If an
optionee is required to pay an alternative minimum tax, the amount of such tax
which is attributable to the incentive stock
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<PAGE>
option preference (and other deferral preferences) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
it is not used, it is carried forward.
Section 162(m)
Section 162(m) of the Code precludes a public corporation from
taking a tax deduction for certain compensation in excess of $1 million paid to
its chief executive officer or any of its four other highest-paid executive
officers. This limitation, however, does not apply to certain performance-based
compensation. Under Section 162(m) of the Code and the regulations adopted by
the IRS to implement such section, the Company believes that any compensation
expense derived from the exercise of stock options granted under and pursuant
to the 1993 Plan will be deductible by the Company for federal income tax
purposes to an exemption for performance-based plans.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN.
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PROPOSAL TO APPROVE THE
1997 CONSULTANT STOCK OPTION PLAN
GENERAL
The Board of Directors has adopted, subject to approval of the
shareholders, the 1997 Consultant Stock Option Plan, a copy of which is
attached hereto as Annex C (the "Consultant Plan"). The Consultant Plan
provides for the grant to non-employee consultants and advisors to the Company
and its subsidiaries, of options to acquire up to 2,500,000 shares of Common
Stock.
As of May 31, 1997, options were granted to consultants to purchase
an aggregate of 750,000 shares subject to the approval of the Consultant Plan
at this Meeting in connection with the Purgative Product License entered into
in February 1997. In addition, the Company has agreed to grant options under
the Consultant Plan with respect to an additional 820,000 shares under the Plan
upon consummation of proposed acquisitions. See "Proposal to Amend the
Certificate of Incorporation".
In view of the Company's limited resources and the desirability of
attracting and motivating qualified scientific, technical and professional
persons who are available only on a part time basis to provide their technical
and professional advice to the Company, the Company believes that a separate
option plan dedicated to consultants and advisors will prove helpful in
attracting and rewarding such persons.
The terms and administration of the Consultant Plan are materially
the same as those of the 1993 Stock Option Plan except that under the current
provisions of the Internal Revenue Code, options granted under the Consultant
Plan under current provisions of the Internal Revenue Code cannot qualify as an
ISO.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE COMPANY'S 1997 CONSULTANT STOCK OPTION PLAN.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
the Company during the fiscal years ended June 30, 1996 and June 30, 1995 to
the Company's Chief Executive Officer and President (no other executive officer
received compensation in excess of $100,000 during either year).
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Year Salary Bonus Other Compensation Securities
Capacities in which Underlying Options
served
<S> <C> <C> <C> <C> <C>
Taffy James Williams, 1996 $165,833 $8,250 $16,600(2) 60,000
President and CEO(1) 1995 $ 11,975 100,000
</TABLE>
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<PAGE>
(1) Dr. Williams entered the Company's employ on June 5, 1995.
(2) Represents a nonaccountable expense allowance equal to 10% of the base
salary through June 5, 1996
Dr. Williams, President and Chief Executive Officer of the Company
is employed pursuant to a three year agreement, dated June 4, 1995, providing
for his full time employment at an annual salary of $165,000 for the first year
with the salary for each of the following years of the term to be determined by
the Board of Directors but to be not less than the salary for the preceding
12-month period. The Board of Directors increased Dr. Williams' salary in June
1996 to an annual rate of $185,000. The agreement may be terminated by Dr.
Williams either upon six months prior notice, or in the event of a default by
the Company upon 30 days prior notice if the default remains uncured, or by the
Company either upon three days prior notice with the Company obligated for
additional salary for a four month period or immediately upon cause.
If the acquisition of Sangen is consummated (see "Proposal to Amend
the Certificate of Incorporation."), Dr. Williams and Dr. Leonard S. Jacob,
currently a consultant to the Company and sole executive officer, director and
stockholder of Sangen, will each enter into employment agreements with the
Company. Dr. Williams' agreement will supersede his current agreement and will
provide for him to serve as President and Chief Operating Officer at an annual
base salary of $200,000 for the first year. Dr. Jacob's agreement will provide
for him to serve as Chairman of the Board and Chief Executive Officer at an
annual base salary of $225,000 for the first year. The annual salary for each
for subsequent years is to be increased as determined by the Board of
Directors, but not less than an increase based on the increase in the Consumer
Price Index. Each is to receive a bonus at the end of the first year -- at
least $34,000 for Dr. Williams and at least $56,250 for Dr. Jacob. See
"Proposal to Amend the Certificate of Incorporation" for information as to the
issuances of a ten year option to Dr. Williams under the 1993 Stock Option Plan
to purchase the greater of 500,000 shares or 5% of the "Fully Diluted
Capitalization" of the Company and possible issuance to Dr. Jacob of a ten year
option to purchase the greater of 1,200,000 shares of Common Stock or 7 1/2% of
the Fully Diluted Capitalized of the Company, each exercisable commencing with
the date of the acquisition of Sangen.
The Company's agreements with each of Drs. Williams and Jacob shall
continue for the three year period unless terminated by either party on written
notice of not less than 30 days. Each employment agreement may be terminated by
the Company with or without "Just Cause". In the event the Company terminates
the officer's employment other than for Just Cause, the Company is required to
pay as severance (i) if termination occurs during the first year, a lump sum
payment equal to one year's salary based on the annual rate in effect on the
date of termination; (ii) if termination occurs during the second year, a lump
sum payment equal to one and one-half year's salary based on the annual rate in
effect on the date of termination; or (iii) if termination occurs during the
third year or thereafter, a lump sum payment equal to two year's salary based
on the annual rate in effect on the date of termination. "Just Cause" is
defined as conviction of a crime involving moral turpitude, material violation
of a written directive of the
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<PAGE>
Board of Directors, or willful misconduct which has a material adverse effect
on the Company as determined by a majority of the Board including each
independent director.
Under a Management Services Agreement dated December 31, 1993 and
amended as of September 30, 1994, Amercom Funding Ltd. ("Amercom") has provided
advice to the Company with respect to strategic planning, financial matters,
merger and acquisition policies, executive employment and investor relations
and the services as executive officers of Messrs. LeShufy and Nagelberg,
currently officers and directors, and Messrs. Norman Eisner and David Zaretsky,
former officers and directors, all four of whom are stockholders, officers and
directors of Amercom, or comparable services or in the event any of the
foregoing individuals is unable to perform such duties, a reasonably capable
replacement, subject to the approval of a majority of the Company's directors.
Each such officer may be required under the agreement to provide services for
up to 20 hours per five consecutive business days and up to an aggregate of 75
hours per 20 consecutive business days. Amercom provided through February 1,
1995, the initial closing date of the public sale of the Company's Units,
certain administrative services and executive offices and facilities in New
York City.
For the period from February 1 through June 30, 1995, the year
ended June 30, 1996 and through January 1, 1998 Amercom received and is to
receive a monthly fee of $8,333. In November 1996, the Company agreed to issue
to Amercom 165,441 shares of Common Stock in satisfaction of the management fee
of $112,500 for the period ended June 30, 1997 which was to be payable after,
and subject to, the Company achieving net income for fiscal year of at least
$500,000 as determined in accordance with generally accepted accounting
principles.
The agreement which was to expire on February 1, 1998, was extended
on January 3, 1997 for an additional two year period with the fee for the first
year of the extended term to be $100,000 and the fee for the second year is a
five year option granted under the 1993 Stock Option Plan to purchase commencing
February 1, 1998, 175,000 shares of the Company's Common Stock at a price of
$0.61 per share, representing the average of the closing sales prices of Common
Stock of the Company on the Nasdaq SmallCap Market for the 30 consecutive
trading day period commencing on the 45th trading day prior to January 3, 1997.
The option also relates to 225,000 additional shares which are to become
exercisable in the following amounts and after the following events related to
the services of Amercom to relieve or reduce the Company's obligations under
its sublease, which expires in April 2000 and provides for an annual rent of
$193,000 plus real estate taxes, insurance and maintenance which has a term
ending in April 2000, of its facilities at 425 Park Avenue, New York, New York:
56,250 shares commencing on the date Amercom secures a return of the Company's
$150,000 security obligation and up to 168,750 shares based on the date it
secures a release of the Company from the sublease: all 168,000 shares if the
release occurs on or prior to December 31, 1997; 112,500 shares if effected
thereafter but not later than December 31, 1998; 56,250 shares if effected
thereafter but not later than December 31, 1999 and no shares if the release is
not secured by the latter date.
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Amercom and other affiliates of Messrs LeShufy, Nagelberg, Eisner
and Zaretsky occupy a portion of the Company's facilities at 425 Park Avenue,
New York City for which they reimburse the Company for the Company's costs for
making available such space.
During the term of the Management Services Agreement, the Company
will not pay any compensation or fees to Amercom or any officers, directors or
affiliates of Amercom who are also officers, directors or affiliates of the
Company except pursuant to the Management Services Agreement.
GRANTS AND EXERCISES OF OPTIONS
The following tables reflect information with respect to options
which have been granted to the Chief Executive Officer of the Company (no other
executive officer has received compensation in excess of $100,000 for any
fiscal year) for the eleven months ended May 31, 1997, and the year ended June
30, 1996 and June 30, 1995.
OPTION GRANTS
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
GRANTED TO
NUMBER OF SHARES EMPLOYEES IN
UNDERLYING OPTIONS GRANTED FISCAL YEAR(2) EXERCISE PRICE EXPIRATION DATE
-------------------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
11 Months Ended May 31, 1997
Taffy James Williams 500,000(1) 89.5% $.61 1/3/2007
40,000 7.2 $.50 12/10/2006
All Current Executive
Officers as a Group 555,000 99.4% $1.50-$.75 12/10/2006-1/3/2007
All Non-Executive Officer Current
Directors as a Group None None None None
All Employees as a Group 558,500 100.0% $1.50-$.75 12/10/2006-1/3/2007
Year Ended June 30, 1996
Taffy James Williams 60,000(1) 41.0% $0.875 6/15/2006
All Current Executive
Officers as a Group 160,000 100.0% $1.875-$1.25 6/9/2000-6/15/2006
All Non-Executive Officer Current
Directors as a Group None None None None
All Employees as a Group 160,000 100.0% $1.875-$1.25 6/9/2000-6/15/2006
Year ended June 30, 1995
Taffy James Williams 100,000 100.0% $1.125 6/8/2000
All Current Executive
Officers as a Group 100,000 100.0% $1.125 6/8/2000
All Non-Executive Officer Current
Directors as a Group None None None None
All Employees as a Group 100,000 100.0% $1.125 6/8/2000
</TABLE>
(1) See "Proposal to Amend Certificate of Incorporation" for information as to
terms of the option and possible increase of the amount.
(2) Does not include options granted to consultants, including in the period
ended May 31, 1997, options as to 400,000 shares to Amercom Funding Ltd., see
"-- Certain Transactions," options to
22
<PAGE>
purchase 15,000 shares to Dr. Leonard S. Jacob, all exercisable at $.61 per
share.
Options have been exercised with respect to 700 shares of Common
Stock by an employee who is not an executive officer. The exercise occurred
during the eleven months ended May 31, 1997 for a realized value, based on the
market price on date of exercise, of approximately $1,500.
The following table sets forth the values of the options held by
its Chief Executive Officer as of May 31, 1997.
23
<PAGE>
<TABLE>
<CAPTION>
OPTION VALUES
Name Number of Securities Underlying Options Value of Unexercised in-the-Money Options (1)
Exercisable / Unexercisable Exercisable / Unexercisable
<S> <C> <C> <C> <C>
Taffy James Williams 160,000 40,000 $235,000 $80,000
All Current Executive Officers
as a Group
All Non-Executive Officer
Current Directors as a Group
All Employees as a Group
</TABLE>
(1) Based on the closing sales price for the Company's Common Stock on June 11,
1997 of $2.50.
INDEPENDENT AUDITORS
A representative of Richard A. Eisner & Company, LLP, certified
public accountants, which has audited the Company's financial statements as of
June 30, 1996 and the years ended June 30, 1996 and June 30, 1995 is expected
to be present or available by telephone at the Meeting with an opportunity to
make a statement to the shareholders if he or she desires to do so, and respond
to appropriate questions.
24
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to present, and does not
have any reason to believe that others intend to present, any matter of
business at the meeting other than as set forth above. If any other matter
should be presented properly, it is the intention of the persons named in the
enclosed form of proxy to vote any proxies in accordance with their best
judgment with respect to any such matter.
SHAREHOLDERS ARE URGED TO FORWARD THEIR PROXIES WITHOUT
DELAY. A PROMPT RESPONSE WILL BE GREATLY APPRECIATED.
25
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
PAGE
NUMBER
------
PRO FORMA UNAUDITED CONDENSED
BALANCE SHEET AS AT MARCH 31, 1997 F-1
NOTES TO PRO FORMA UNAUDITED CONDENSED
BALANCE SHEET AS AT MARCH 31, 1997 F-2
PRO FORMA UNAUDITED CONDENSED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 F-3
PRO FORMA UNAUDITED CONDENSED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 F-4
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
AS AT MARCH 31, 1997
The following pro forma condensed balance sheet assumes the
transactions indicated below will occur (the Purgative Product License did
occur in February 1997) and reflects the transactions (including the Purgative
Product License)as if they had occurred on March 31, 1997: (1) the acquisitions
of CorBec Pharmaceutical Inc. ("CorBec"), and Sangen Pharmaceutical Inc.
("Sangen"), (2) the issuance of 32 units at $250,000 per unit yielding net
proceeds of $6,980,000, and (3) acquisition of certain technologies and
licenses. The acquisitions of CorBec and Sangen are accounted for as purchases
in accordance with Accounting Principles Board Opinion No. 16. In the opinion
of the management of Panax Pharmaceutical Company Ltd., all adjustments
necessary to present fairly such pro forma balance sheet have been made.
The pro forma condensed balance sheet should be read in conjunction
with the notes thereto, the financial statements of the Company, CorBec and
Sangen and the related notes thereto, included elsewhere in this Prospectus.
The pro forma condensed balance sheet is not necessarily indicative of what the
actual financial position would have been had the transactions occurred at
March 31, 1997 nor does it purport to represent the financial position of the
Company.
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------------------- Pro Forma Balance
Panax CorBec Sangen Adjustments Sheet
------------ ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents . . $ 181,000 $ 539,000 $1,000 (4) $ (20,000)
(5) (750,000)
(6) 6,980,000
(8) (150,000) $ 6,781,000
Certificate of deposit. . . . 549,000 549,000
Investments to be held to
maturity. . . . . . . . . . 1,046,000 1,046,000
Prepaid expenses and other
current assets. . . . . . . 66,000 17,000 83,000
------------ ----------- ------- ------------ -----------
Total current assets . 1,842,000 556,000 1,000 6,060,000 8,459,000
Equipment, net . . . . . . . . . 33,000 33,000
Other assets . . . . . . . . . . 204,000 (8) (100,000) 104,000
------------ ------------ ------- ------------ -----------
T O T A L. . . . . . . $ 2,079,000 $ 556,000 $1,000 $ 5,960,000 $ 8,596,000
============ ============ ======= ============ ===========
Current liabilities:
Accounts payable and other
accrued expenses. . . . . . $ 57,000 $ 10,000 $ 67,000
------------ ------------ -----------
Stockholders' equity:
Preferred stock . . . . . . . 2,000 (5) (2,000) - 0 -
Common stock and additional
paid-in capital . . . . . . 6,517,000 2,667,000 1,000 (1) 311,000
(2) 250,000
(3) 313,000
(5) (2,667,000)
(5) 1,875,000
(6) 6,980,000
(8) 260,000
(7) 945,000 19,153,000
Unearned portion of (9) 1,701,000
compensatory stock/warrants (922,000) (2) (120,000) (2,743,000)
Deficit accumulated during (9) (1,701,000)
the development stage . . . (3,573,000) (2,123,000) (1) (311,000)
(2) (130,000)
(3) (313,000)
(4) (20,000)
(5) (2,079,000)
(5) 2,123,000
(7) 945,000 19,153,000
(7) (945,000)
(8) (510,000) (7,881,000)
----------- ----------- ------- ------------ ------------
Total stockholders'
equity . . . . . . . 2,022,000 546,000 1,000 5,960,000 8,529,000
------------ ----------- ------- ------------ -----------
T O T A L. . . . . . . $ 2,079,000 $ 556,000 $1,000 $ 5,960,000 $ 8,596,000
============ =========== ======= ============ ===========
</TABLE>
F-1
<PAGE>
PANAX PHARMACEUTICAL COMPANY, LTD.
(a development stage company)
NOTES TO PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
AS AT MARCH 31, 1997
(1) Reflects acquisition of Sangen, for 300,000 options issued at an
exercise price of $.61 per share (estimated fair value $312,000). The
excess of the cost over the estimated fair value of the net assets of
Sangen is treated as purchased research and development and charged to
expense immediately.
(2) Reflects the estimated fair value of 295,000 options to be issued to
consultants to Sangen for TSP-1 technology and CorBec.
(3) Reflects the issuance of 125,000 shares of common stock at an
estimated market price of $2.50 per share to Allegheny University for
certain technology rights.
(4) Reflects the payment of patent costs incurred by Allegheny
University.
(5) Reflects the acquisition of CorBec at a cost of $2,625,000 (750,000
shares of common stock and $750,000 in cash). The excess of cost over
the estimated fair value of the net assets of CorBec is treated as
purchased research and development and expensed immediately.
(6) Reflects the issuance of 32 units at $250,000 per unit,
yielding net proceeds of $6,980,000.
(7) Reflects the recognition of compensation expense ($945,000) for the
difference between the fair value of the underlying common stock and
the exercise price of 500,000 options issued to the President and
Chief Operating Officer.
(8) Consideration of $250,000 in cash (of which $100,000 was prepaid) and
options with an estimated fair value of $260,000 for the ALW License
of the purgative product.
(9) Reflects the recognition of unearned compensation of $(1,701,000) for
the difference between the underlying common stock (estimated at $2.50
per share) and the exercise price of 900,000 options to be issued to
the new Chairman of the Board and Chief Executive Officer.
F-2
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
The following pro forma condensed statement of operations reflects the
recurring operations on the assumption that the acquisitions of CorBec
Pharmaceutical Inc. ("CorBec"), and Sangen Pharmaceutical Inc. ("Sangen") will
occur and reflects such transactions as if they had occured on July 1, 1995.
The acquisitions of CorBec and Sangen have been accounted for as purchases in
accordance with Accounting Principles Board Opinion No. 16. In the opinion of
management of the Company, all adjustments necessary to present fairly such pro
forma statements of operations have been made.
This pro forma condensed statement of operations should be read in
conjunction with the notes thereto, the financial statements of the Company and
CorBec and the related notes thereto. The pro forma condensed statements of
operations are not necessarily indicative of what the actual results of
operations would have been had the transactions occurred at July 1, 1995 nor do
they purport to indicate the results of future operations.
<TABLE>
<CAPTION>
Historical (1) Pro Forma
------------------------------------ Statement
Pro Forma of
Panax CorBec Adjustments Operations
-------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Costs and expenses:
Research and
development . . . $ 644,000 $591,000 (2) $28,000 $1,263,000
General and (2) 12,000
administrative. . 812,000 141,000 (3) 567,000 965,000
----------- --------- --------- ----------
Total. . . . 1,456,000 732,000 607,000 2,795,000
Interest (income) . (239,000) (8,000) (247,000)
----------- --------- -------- -----------
NET LOSS . . . . . . . $1,217,000 $724,000 $607,000 $2,548,000
=========== ========= ========= ==========
Pro forma loss per
share . . . . . . . $0.31(4)
=====
Pro forma weighted
average shares
outstanding . . . . 8,106,038
=========
</TABLE>
(1) Does not include the operations of Sangen since they were not material.
(2) To record amortization of fair value of options granted to consultants.
(3) To record amortization of fair value of options granted to the new Chairman
of the Board and Chief Executive Officer.
(4) The net loss and pro forma loss per share does not reflect the excess of
cost over the estimated fair value of the net assets of CorBec and Sangen
aggregating $2,390,000, which is a nonrecurring charge directly attributed
to the transaction and is treated as purchased research and development
expense.
F-3
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
The following pro forma condensed statement of operations reflects the
recurring operations on the assumption that the acquisitions of CorBec
Pharmaceutical Inc. ("CorBec"), and Sangen Pharmaceutical Inc. ("Sangen") will
occur and reflects such transactions as if they had occurred on July 1, 1996.
The acquisitions of CorBec and Sangen have been accounted for as purchases in
accordance with Accounting Principles Board Opinion No. 16. In the opinion of
management of the Company, all adjustments necessary to present fairly such pro
forma statements of operations have been made.
This pro forma condensed statement of operations should be read in
conjunction with the notes thereto, the financial statements of the Company and
CorBec and the related notes thereto. The pro forma condensed statements of
operations are not necessarily indicative of what the actual results of
operations would have been had the transactions occurred at July 1, 1996 nor do
they purport to indicate the results of future operations.
<TABLE>
<CAPTION>
Pro Forma
Historical (1) Statement
----------------------------------- Pro Forma of
Panax CorBec Adjustments Operations
------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . $ 1,000 $ 1,000
Cost of goods sold . . 1,000 1,000
----------- ----------
- 0 - - 0 -
Costs and expenses:
Research and
development . . . 623,000 $527,000 (2) $22,000 1,172,000
General and (2) 9,000
administrative. . 708,000 88,000 (3) 425,000 1,230,000
----------- --------- ---------- ---------
Total. . . . 1,331,000 615,000 456,000 2,402,000
Interest (income) . (100,000) (7,000) (107,000)
----------- --------- -------- -----------
NET LOSS . . . . . . . $1,231,000 $608,000 $456,000 $2,295,000
=========== ========= ========= ==========
Pro forma loss per
share . . . . . . . $0.28(4)
=====
Pro forma weighted
average shares
outstanding . . . . 8,107,986
=========
</TABLE>
(1) Does not include the operations of Sangen since they were not material.
(2) To record amortization of fair value of options granted to consultants.
(3) To record amortization of fair value of options granted to the new Chairman
of the Board and Chief Executive Officer.
(4) The net loss and pro forma loss per share does not reflect the excess of
cost over the estimated fair value of the net assets of CorBec and Sangen
aggregating $2,390,000, which is a nonrecurring charge directly attributed
to the transaction and is treated as purchased research and development
expense.
F-4
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Panax
Report of Independent Public Accountants *
Balance Sheets as of June 30, 1996 and June 30, 1995 *
Statements of Operations for years ended
June 30, 1996 and June 30, 1995 and
for the period July 1, 1993 (commencement
of operations) through June 30, 1996 *
Statements of Cash Flows for years ended
June 30, 1996 and June 30, 1995 and the
period July 1, 1993 (commencement of
operations) through June 30, 1996 *
Notes to Financial Statements *
Balance Sheet as of March 31, 1997 (unaudited) **
Statements of Operations for the three and nine months ended
March 31, 1997 and ended March 31, 1996 (unaudited)
and the period July 1, 1993 (commencement of
operations) through March 31, 1997 (unaudited) **
Statements of Cash Flow for the nine months ended
March 31, 1997 (unaudited) and March 31, 1996
(unaudited) and the period July 1, 1993
(commencement of operations) through
March 31, 1997 (unaudited) **
CorBec Pharmaceuticals, Inc.
Report of Independent Public Accountants........................F-5
Balance Sheets as of December 31, 1996
and December 31, 1995..............................F-6
Statements of Operation for the years ended
December 31, 1996 and December 31, 1995 and the period
from inception (June 11, 1993)
to December 31, 1996................................F-7
Statements of Cash Flows for the years ended
December 31, 1996 and December 31, 1995 and the period
from inception (June 11, 1993)
to December 31, 1996................................F-8
Notes to Financial Statements...................................F-9
Balance Sheet as of March 31, 1997 (unaudited).................F-13
Statements of Operation for the three months
ended March 31, 1997 and the
period from inception (June 11, 1993)
through March 31, 1997 (unaudited).................F-14
<PAGE>
Statement of Cash Flows for the three months
ended March 31, 1997 and the
period from inception (June 11, 1993)
through March 31, 1997 (unaudited).................F-15
Sangen Pharmaceuticals Inc.
Balance Sheet as of March 31, 1997 (unaudited).................F-16
<FN>
- -------------
* Included in the Annual Report on Form 10-KSB for the year ended
June 30, 1996 of Panax and incorporated herein by reference thereto.
** Included in the Quarterly Report on Form 10-QSB for the three
months ended March 31, 1997 of Panax and incorporated herein by
reference thereto.
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CorBec Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of CorBec Pharmaceuticals, Inc.
(a Delaware corporation in the development stage) as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, and for the period form inception (June 11,
1993) to December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CorBec Pharmaceuticals, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended and for the period from inception to
December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has incurred losses from its research and development activities and will
require additional funding to continue those activities. Such factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Philadelphia, Pa.,
March 11, 1997
F-5
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
.
December 31
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 877,449 $657,308
Prepaid expenses and other 2,083 4,129
------------ ----------
Total current assets 879,532 661,437
EQUIPMENT, net 493 2,465
---------- ---------
$ 880,025 $ 663,902
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 193,056 $ 67,783
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 6 and 7)
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $.001 par value;
5,000,000 shares authorized
Series A, 1,000,000 shares issued and outstanding
($1,000,000 liquidation value) 1,000 1,000
Series B, 520,000 shares issued and outstanding
($650,000 liquidation value) 520 520
Series C, 500,000 shares issued and outstanding
($1,000,000 liquidation value) 500 --
Common Stock, $.001 par value;
5,000,000 shares authorized;
369,230 shares issued and outstanding 369 369
Additional paid-in capital 2,666,258 1,666,758
Deficit accumulated during development stage (1,981,678) (1,072,528)
----------- -----------
Total stockholders' equity 686,969 596,119
----------- ----------
$ 880,025 $ 663,902
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
statements.
F-6
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the For the (June 11, 1993)
Year Ended Year Ended through
December 31, December 31, December 31,
1996 1995 1996
-------------------- ------------------- --------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development expenses $770,163 $441,263 $1,689,565
General and administrative expenses 146,739 63,575 333,715
-------------------- ------------------- --------------------
Net loss from operations (916,902) (504,838) (2,023,280)
INTEREST INCOME 7,752 9,273 41,602
-------------------- ------------------- --------------------
Net loss $ (909,150) $ (495,565) $ (1,981,678)
==================== =================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the For the (June 11, 1993)
Year Ended Year Ended through
December 31, December 31, December 31,
1996 1995 1996
---------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (909,150) $ (495,565) $(1,981,678)
Adjustments to reconcile net loss to net cash used
operating activities- in
Depreciation 1,972 1,973 5,424
Licensed technology acquired with stock -- -- 18,462
Increase in prepaid expenses and other (2,046) (2,187) (2,083)
Increase (decrease) in accounts payable and
accrued expenses 125,273 42,229 193,056
---------------- ----------------- -----------------
Net cash used in operating activities (779,859) (453,550) (1,766,819)
---------------- ----------------- -----------------
CASH FROM INVESTING ACTIVITIES
Purchase of equipment -- -- (5,917)
---------------- ----------------- -----------------
Net cash used in investing activities -- -- (5,917)
---------------- ----------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- -- 185
Proceeds from issuance of preferred stock 1,000,000 650,000 2,650,000
---------------- ----------------- -----------------
Net cash provided by financing
activities 1,000,000 650,000 2,650,185
---------------- ----------------- -----------------
Net increase (decrease) in cash and
cash equivalents 220,141 196,450 877,449
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 657,308 460,858 --
---------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF $ 877,449 $ 657,308 $ 877,449
PERIOD
================ ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BACKGROUND AND GOING CONCERN:
Background
CorBec Pharmaceuticals, Inc. (the "Company") is a development-stage company,
which was incorporated in Delaware on June 11, 1993, for the purposes of
developing, manufacturing and marketing therapies for the modification of Fc
receptor expression on macrophage white blood cells.
Gong Concern
The Company has incurred losses from its research and development activities
and will require additional funding to continue those activities. Management of
the Company anticipates that it will be successful in raising sufficient
capital to allow the Company to continue those activities. There is no
assurance that future financing will be available when needed or that the
Company's planned products will be commercially successful. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents for the purpose of
determining cash flows. Cash equivalents at December 31, 1996 and 1995 consist
of money market accounts.
Research and Development
Expenditures for research and development are charged to expense as incurred.
In addition, it is the Company's policy to charge patent costs to expense as
incurred.
F-9
<PAGE>
Equipment consists of computer equipment recorded at cost and depreciated over
an estimated useful life of three years. As of December 31, 1996 and 1995,
accumulated depreciation was $5,424 and $3,452, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The Company has net operating loss carryforwards for tax reporting purposes
that begin to expire in 2008. Since realization of the tax benefit associated
with this carryforward is not assured, a valuation allowance was recorded
against this tax benefit as required by SFAS No. 109. In addition, pursuant to
the Tax Reform Act of 1986, the annual utilization of these losses may be
limited. The Company believes that any such limitation will not have a material
impact on the utilization of these carryforwards.
3. RESEARCH AND LICENSE AGREEMENTS
On June 17, 1993, the Company and the Trustees of the University of
Pennsylvania ("U of P") entered into a Research Agreement and a License
Agreement. This agreement was extended on June 1, 1995, and expires May 31,
1996. Under the Research Agreement, the Company is required to fund the
sponsored research and development in accordance with the Research Agreement.
In 1996 and 1995, the Company charged $50,000 and $37,500, respectively, to
research and development expense. Under the Research Agreement, the Company is
committed to pay U of P the sum of $25,000 in 1997.
Under the Licensing Agreement, the Company will receive the first option to
acquire an exclusive worldwide royalty bearing right and license over certain
patent rights, information and inventions of U of P. The Company is required to
pay U of P a royalty, as defined, on all of the net sales of any product
utilizing the licensed technology. Minimum royalties are required under the
agreement beginning in 1998. The License Agreement will terminate upon the
expiration of the last patent right covered under the Research and License
Agreements or may be terminated by either party by following the specific
actions stipulated in the License Agreement.
4. STOCKHOLDERS' EQUITY:
Preferred Stock
The Company has authorized 5,000,000 shares of Convertible Preferred Stock.
During 1993, the Company sold 1,000,000 shares of Series A Convertible
Preferred Stock ("Series A") for $1 per share, generating proceeds of
$1,000,000. The Series A shares are convertible into Common Stock based on a
defined conversion rate (currently one Common Stock share for each Series A
share). Prior to an initial public offering, the Series A shares are redeemable
at the option of the holder at any time. The Series A shareholders are entitled
to dividends equal to those declared to Common Stock shareholders at an amount
based on the number of Common Stock shares that would be outstanding if the
Series A shares were converted to Common Stock on the date of the declaration
of the dividend. The Series A redemption price equals the sum of all accrued or
declared but unpaid dividends, plus $1 per Series A share. The Series A
shareholders have the
F-10
<PAGE>
same voting rights as the Common Stock shareholders and are entitled to one
vote for each Series A share held.
During 1995, the Company sold 520,000 shares of Series B Convertible Preferred
Stock ("Series B") for $1.25 per share generating proceeds of $650,000. The
rights and obligations of the Series B shareholders are the same as the Series
A shareholders except for the redemption price, which equals the sum of all
accrued but unpaid dividends, plus $1.25 per Series B share.
During 1996, the Company sold 500,000 shares of Series C Convertible Preferred
Stock ("Series C") for $2.00 per share, generating proceeds of $1,000,000. The
rights and obligations of the Series C shareholders are the same as the Series
A shareholders except for the redemption price, which equals the sum of all
accrued but unpaid dividends, plus $2.00 per Series C share.
Common Stock
On June 11, 1993, the Company issued 184,615 shares of Common Stock to its
founder at a price of $.001 per share. Subsequent to the preferred stock
financing, on June 17, 1993, the Company issued 184,615 shares of Common Stock
to U of P as part of the Licensing Agreement discussed in Note 3. The fair
market value of the shares issued of $18,462 was charged to research and
development expense.
5. STOCK OPTION PLAN:
On June 17, 1993, the Company issued nonqualified stock options to a consultant
to purchase 49,231 shares of Common Stock at $.10 per share. These options are
exercisable in full upon the date of issuance. The options expire ten years
from the date of issuance or upon other events as defined in the agreement.
None of these options has been exercised as of December 31, 1996.
The Company's Amended and Restated 1993 Equity Incentive Plan provides for both
incentive and nonqualified stock options to be granted to employees and
consultants of the Company. Under the plan, options may be granted for the
purchase of up to 180,000 shares of Common Stock. The number of options to be
granted and the option prices are determined by the Stock Option Committee in
accordance with the terms of the plan. The exercise price of the incentive
stock options granted under the plan must be at least equal to the fair market
value of such shares on the date of grant, and the maximum exercise period is
five years.
The exercise price of the nonqualified stock option granted under the plan must
be at least equal to 85% of the fair market value of such shares on the date of
grant, and the maximum exercise period is ten years.
The Company accounts for the Option Plan under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for the Option
Plan been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income would have been reduced by
approximately $2,600 for the year ended December 31, 1996. The fair value of
options granted at market during the year ended December 31, 1996 was estimated
as $0.15.
The fair value of each option grant is estimated on the date of grant using the
Black- Scholes option-pricing model with the following with the following
weighted average assumptions: risk-free interest rate of 6.10% for 1996 and
1995 grants; an expected life of seven years; dividend yield of zero; and
volatility of zero for all grants. Because SFAS No. 123 method of accounting is
not required to be applied to options granted prior to January 1, 1995, the
resulting pro forma compensation charge may not be representative of that to be
expected in future years.
F-11
<PAGE>
Outstanding Option Aggregate
Options Prices Price
BALANCE, DECEMBER 31, 1993 --- $ --- $ ---
Granted 20,000 .10 2,000
-------- ----------- ----------
BALANCE, DECEMBER 31, 1994 20,000 .10 2,000
Granted 60,000 .125 7,500
-------- ----------- ---------
BALANCE, DECEMBER 31, 1995 80,000 .10-.125 9,500
Granted 10,000 .20 2,000
-------- ----------- --------
BALANCE, DECEMBER 31, 1996 90,000 $.10-$20 $11,500
======== =========== ========
As of December 31, 1996, there were 46,662 options exercisable under the
Amended and Restated 1993 Equity Incentive Plan. In addition, in 1995, the
Company committed to grant 100,000 options to a consultant subject to the
attainment of specific milestones, as defined. As of December 31, 1996, none
of these milestones have been attained.
6. RELATED-PARTY TRANSACTIONS
Included in research and development expense for 1996 and 1995 is $60,000
related to a consulting agreement with a stockholder of the Company. The
agreement provides for monthly payments of $5,000 and expires in June 1997.
7. COMMITMENTS AND CONTINGENCIES:
On December 5, 1996, the Company renewed an agreement with an individual
to provide management services for the Company. The agreement provides for
compensation of $110,000 to be paid in equal monthly installments over the
one-year term of the contract. During 1996, the Company charged $100,833 to
research and development expense under this agreement. Future commitments under
this agreement are $100,833.
On April 15, 1996, the Company entered into an agreement with a clinical
services laboratory to provide the Company with chemical and other clinical
services. During 1996, the Company charged $98,244 to research and development
expense related to this agreement. Future commitments under this agreement are
$391,248 and are expected to be incurred over the course of the study, which
is expected to run through March of 1998.
On August 1, 1996, the Company entered into an agreement with a clinical
services laboratory to provide the Company with general clinical services.
During 1996, the Company charged $4,513 to research and development expense
related to this agreement. Future commitments under this agreement are $46,520
and are to be incurred over the course of the study. The term of this agreement
commences on August 1, 1996 and will automatically renew for successive one
year terms, terminating at the conclusion of the testing protocol.
F-12
<PAGE>
CORBEC PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996 1995
---------------- --------------- ---------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 539,241 877,449 657,308
Prepaid expenses and other 17,331 2,083 4,129
------ ----- -----
Total current assets 556,572 879,532 661,437
EQUIPMENT, net -- 493 2,465
----------- --------- ---------
$ 556,572 $ 880,025 $663,902
========= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES: $10,000 $193,056 $67,783
------- -------- -------
Accounts payable and accrued expenses
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock
Series A 1,000 1,000 1,000
Series B 520 520 520
Series C 500 500 --
Common Stock 369 369 369
Additional paid-in capital 2,666,258 2,666,258 1,666,758
Deficit accumulated during development stage (2,122,075) (1,981,678) (1,072,528)
----------- ----------- -----------
Total stockholders' equity 546,572 686,969 596,119
------- ------- -------
$ 556,572 $ 880,025 $ 663,902
--------- --------- ---------
</TABLE>
F-13
<PAGE>
CORBEC PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the (June 11, 1993)
Three Months For the For the through
Ended March 31, Year Ended Year Ended March 31,
1997 December 31, December 31, 1997
(Unaudited) 1996 1995 (Unaudited)
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development expenses 106,356 770,163 441,263 1,795,921
General and administrative expenses 36,802 146,739 63,575 370,517
------------------ ---------------- ---------------- ----------------
Net loss from operations (143,158) (916,902) (504,838) (2,166,438)
INTEREST INCOME: 2,761 7,752 9,273 44,363
------------------ ---------------- ---------------- ----------------
Net loss (140,397) (909,150) (495,565) (2,122,075)
================== ================ ================ ================
</TABLE>
F-14
<PAGE>
CORBEC PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the (June 11, 1993)
Three Months For the For the through
Ended March 31, Year Ended Year Ended March 31,
1997 December 31, December 31, 1997
(Unaudited) 1996 1995 (Unaudited)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: (140,397) (309,150) (495,565) (2,122,075)
Net loss
Adjustments to reconcile net
loss to net cash used in
operating activities-
Depreciation 493 1,972 1,973 5,917
Licensed technology acquired
with stock -- -- -- --
(Increase) decrease in prepaid
expenses and other (15,248) 2,046 (2,167) (17,331)
Increase (decrease) in
accounts payable and
accrued expenses (183,056) 125,273 42,229 10,000
----------------- ---------------- ----------------- ----------------
Net cash used in operating
activities (338,208) (779,859) (453,550) (2,105,027)
----------------- ---------------- ----------------- ----------------
CASH FROM INVESTING
ACTIVITIES:
Purchase of equipment -- -- -- (5,917)
----------------- ---------------- ----------------- ----------------
Net cash used in investing
activities -- -- -- (5,917)
----------------- ---------------- ----------------- ----------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock -- -- -- 185
Proceeds from issuance of
preferred stock -- 1,000,000 650,000 2,650,000
----------------- ---------------- ----------------- ----------------
Net cash provided by financing
activities -- 1,000,000 650,000 2,650,185
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in cash
and cash equivalents (338,208) 220,141 196,450 539,241
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 877,449 657,308 460,858 --
----------------- ---------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 539,241 $ 877,449 $ 657,308 $ 539,241
================= ================ ================= ================
</TABLE>
F-15
<PAGE>
SANGEN PHARMACEUTICAL COMPANY
BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $1,000
STOCKHOLDER'S EQUITY
Stockholder's Equity
Common Stock, $1.00 par value,
1000 shares authorized, 100 shares
issued and outstanding $ 100.00
Additional paid-in capital $ 900.00
---------
$1,000.00
---------
</TABLE>
Sangen Pharmaceutical Company was organized in January 1997
and incorporated in the State of Delaware. Sangen's principal
asset is its right to enter into an exclusive worldwide
license to the Thrombospondin Technology, a cancer treatment
technology, currently owned by Allegheny University of the
Health Sciences.
F-16
<PAGE>
Annex A
Certificate of Amendment of the Certificate of Incorporation
of
Panax Pharmaceutical Company Ltd.
Under Section 805 of the Business Corporation Law
----------------------
It is hereby certified that:
FIRST: The name of the corporation is Panax Pharmaceutical Company Ltd.
SECOND: The certificate of incorporation of the corporation was filed with
the Department of State on May 27, 1993 and a certificate of amendment thereto
was filed on [ , 1994].
THIRD: The certificate of incorporation is hereby amended as authorized in
Subdivision 1 of Section 801 of the Business Corporation Law, to delete Article
"FIRST" in its entirety and to effect the following Article FIRST:
"FIRST: The name of the corporation is Inkine Pharmaceutical
Company, Inc."
FOURTH: The certificate of incorporation is hereby amended as authorized
in Subdivision 7 of Section 801 of the Business Corporation Law, to delete
Article "FOURTH" in its entirety and to effect the following Article FOURTH:
"FOURTH: The aggregate number of shares which the corporation
shall have the authority to issue is: (a) Fifty Million (50,000,000) shares
of Common Stock, all of which shall have a par value of One Hundredth
1
<PAGE>
($.001) of a cent; and (b) Two Million (2,000,000) shares of Preferred
Stock in series and the authority to establish and fix the designations of
each series and the variations in the relative rights, preferences and
limitations as between series shall be vested in the Board of Directors of
the corporation. The Board of Directors is authorized to file an amendment
to the certificate of incorporation of the corporation under Section 805-A
of the BCL setting forth the designations of each series and the
variations in the relative rights, preferences and limitations of each
series of preferred stock without further action by the shareholders of
the corporation."
FIFTH: The foregoing amendment of the certificate of incorporation of the
corporation was authorized by the vote in writing of all the members of the
Board of Directors of the corporation, followed by the vote of the holders of
at least a majority of all the outstanding shares of the corporation entitled
to vote on the said amendment of the certificate of incorporation.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained herein have been examined by us and are true and correct.
Panax Pharmaceutical Company Ltd
Date: ____________ __, 1997 ________________________________
By: , President
and
________________________________
By: , Secretary
2
<PAGE>
Annex B
PANAX PHARMACEUTICAL COMPANY, LTD.
STOCK OPTION PLAN
1. Purpose of Plan. The Panax Pharmaceutical Company, Ltd.
Stock Option Plan (the "Plan") is intended as an incentive to attract and
retain persons of training, experience and ability as directors, employees and
non-employee consultants and advisors of Panax Pharmaceutical Company, Ltd., a
New York corporation (the "Company") and its subsidiaries, to encourage the
sense of proprietorship of such persons, and to stimulate the active interest
of such persons in the development and financial success of the Company and its
subsidiaries. Stock options ("Options") granted under the Plan may, at the
discretion of the granting authority, but need not, contain such terms as will
qualify the Options as incentive stock options ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision thereto.
2. Administration of Plan. The Board of Directors (the
"Board") or a committee appointed and maintained by the Board shall administer
the Plan (the "Plan Administrator"). The Plan Administrator shall consist of at
least three members who shall serve at the pleasure of the Board. The Board or
the Plan Administrator shall have full power and authority: (i) to designate
participants; (ii) to designate Options or any portion thereof as ISOs; (iii)
to determine the terms and provisions of respective Option Agreements (which
need not be identical) including, but not limited to, provisions concerning the
time or times when and the extent to which the Options may be exercised and the
nature and duration of restrictions as to transferability or restrictions
constituting substantial risk of forfeiture; (iv) to accelerate the right of an
optionee to exercise in whole or in part any previously granted Option; and (v)
to interpret the provisions and supervise the administration of the Plan.
<PAGE>
The Board or the Plan Administrator shall also have the
authority to grant Options in its discretion to the holder of an outstanding
Option, in addition to or in exchange for the surrender and cancellation of the
outstanding Option, which additional or new Option may have a purchase price
lower than provided in the outstanding Option and containing such other terms
and conditions as the Board or the Plan Administrator may prescribe in
accordance with the provisions of the Plan.
All decisions and selections made by the Board or the Plan
Administrator pursuant to the provisions of the Plan shall be made by a
majority of its members except that no member of the Board or Plan
Administrator shall vote on, or be counted for quorum purposes, with respect to
any proposed action of the Board or Plan Administrator relating to any Option
to be granted to that member. Any decision reduced to writing and signed by a
majority of the members who are authorized to make such decision shall be fully
effective as if it had been made by a majority at a meeting duly held.
Each member of the Board or the Plan Administrator shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees) reasonably incurred by him or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with the Plan unless arising out of
such member's own fraud or bad faith, to the extent permitted by applicable
law. Such indemnification shall be in addition to any rights of indemnification
the member may have as director or otherwise under the by-laws of the Company,
any agreement, vote of stockholders or disinterested directors, or otherwise.
3. Designation of Participants. The persons eligible for
participation in the Plan as recipients of Options shall include only directors
of the Company and employees and non-employee consultants and advisors of the
Company or any of its subsidiaries; provided that only employees of the Company
or of any subsidiary of the
2
<PAGE>
Company shall be eligible to be recipients of ISOs; and provided further
that eligible consultants and advisors shall be only those who render bona fide
services to the Company or any subsidiary, which services may not be in
connection with the offer or sale of securities in a capital-raising
transaction.
4. Stock Reserved for Plan. Subject to adjustment as provided
in paragraph 6 hereof, a total of 4,200,000 shares of the Common Stock, $.0001
par value, of the Company ("Stock") shall be subject to the Plan. The shares
subject to the Plan shall consist of unissued shares, and such number of shares
shall be, and hereby is, reserved for sale for such purpose. Any of such shares
which may remain unsold and which are not subject to outstanding Options at the
termination of the Plan shall cease to be reserved for the purpose of the Plan,
but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares to meet the requirements of the Plan. Should any
Option for any reason expire or be cancelled prior to its exercise or
relinquishment in full, the shares theretofore subject to such Option may again
be subjected to an Option under the Plan.
5. Option Price. (a) The purchase price of each share subject
to an ISO shall not be less than 100% (or 110%, if at the time of grant the
optionee owns, directly or indirectly, more than 10% of the combined voting
power of all classes of stock of the Company or of any subsidiary of the
Company) of the Fair Market Value of such share (as defined in paragraph (b))
on the date the ISO is granted. The purchase price of each share subject to an
Option or any portion thereof which is not designated by the Board or Committee
as an ISO shall not be less than the Fair Market Value of such share on the
date the Option is granted or the par value of the Company's Stock.
(b) The determination of the Fair Market Value of a share
shall be made by the Board of Directors using such method as it determines to
be reasonable in the circumstances unless the shares of Common Stock are listed
or admitted for trading on a national securities exchange or on the National
Association of Securities Dealers
3
<PAGE>
Automated Quotation System ("NASDAQ") or, if not so listed or admitted, selling
prices are quoted by the National Quotation Bureau, Inc. If listed or admitted,
the Fair Market Value of the share shall be the closing sale price on:
A. the date of grant on:
(i) the national securities exchange, if listed or
admitted on such exchange; or
(ii) if not so listed or admitted, on NASDAQ, if
listed or admitted on NASDAQ; or
B. if no sales have been effected on such date, the
average of the closing sale prices on the most recent three
trading days preceding the date of grant on the national
securities exchange on which it is listed or admitted or on
NASDAQ if not listed or admitted on an exchange or, if no
such sales were effected on any of such markets during such
three trading days, the Fair Market Value shall be the mean
between the high bid and low asked prices on the exchange or
NASDAQ on the date of grant, as the case may be.
C. If the shares are traded in the over-the-counter
market and not listed or admitted on NASDAQ, the Fair Market
Value of a share shall be the mean between the high bid and
low asked prices as quoted for the date of grant by the
National Quotation Bureau in its "pink sheets" or equivalent
record or publication or, if no bid prices are quoted on such
date, the next preceding date to the date of grant for which
a bid price is quoted.
4
<PAGE>
(c) The option price shall be payable upon the exercise of
the Option in cash, by check, or, at the option of the Board or the Committee,
shares of the Company's stock (valued at their Fair Market Value) or other form
satisfactory to the Board or the Committee.
(d) The proceeds of the sale of the Stock subject to an
Option are to be added to the general funds of the Company and used for its
corporate purposes.
6. Adjustments. (a) If the Company is reorganized, or merged
or consolidated with another corporation while unexercised Options remain
outstanding under the Plan, there shall be substituted for the shares subject
to the unexercised portions of such outstanding Options an appropriate number
of shares of each class of stock or other securities of the reorganized, or
merged or consolidated corporation which were distributed to these stockholders
of the Company in respect of such shares; provided, however, that all such
Options may be exercised in full by the optionees as of the effective date of
any such reorganization, merger or consolidation of the Company without regard
to the installment exercise provisions of the Option, by the optionees' giving
notice in writing to the Company of their intention to so exercise.
(b) If the Company is liquidated or dissolved while
unexercised Options remain outstanding under the Plan, then all such
outstanding Options may be exercised in full by the optionees as of the
effective date of any such liquidation or dissolution of the Company without
regarding to the installment exercise provisions of the Option, by the
optionees' giving notice in writing to the Company of their intention to so
exercise.
(c) If the outstanding shares of Stock shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Company, or otherwise in cash,
or any other like event by or of the Company,
5
<PAGE>
and as often as the same shall occur, then the number, class and kind of shares
subject to this Plan and subject to any outstanding Options theretofore
granted, and the option prices, shall be appropriately and equitably adjusted
so as to maintain the proportionate number of shares without changing the
aggregate option price; provided, however, that no adjustment shall be made by
reason of the distribution of subscription rights on outstanding stock.
7. Term and Exercise of Options. (a) The Option Agreement
evidencing the Option shall set forth the terms of the Option, including the
period during which it must be exercised, except that no Option may be
exercisable after the expiration of 10 years from the date of grant or, if
granted to a person who owns more than 10% of the voting stock of the Company
at the time of grant, after the expiration of five years from the date of
grant.
(b) Options granted under the Plan shall not be transferable
by optionees other than by will or the laws of descent and distribution, and
during an optionee's lifetime shall be exercisable only by that optionee.
(c) Options granted to the Company's employees or directors
may not be exercised after the termination of the term of employment of the
employee or, if the optionee is a non-employee director, after service as a
director, unless (I) prior to the date of termination of employment or service,
the Board or the Plan Administrator shall authorize, in the relevant Option
Agreement or otherwise, an extension of the term of all or part of the Option
beyond the date of such termination for a period not to exceed the period
during which the Option by its terms would otherwise have been exercisable,
(ii) termination of employment is without cause of the optionee, in which event
any Option still in force and unexpired may be exercised within a period of 90
days from the date of such termination, but only with respect to
the number of shares purchasable at the time of such termination, or (iii)
termination is the result of death or disability, in which event any Option
still in force and unexpired may be exercised in whole or in part without
6
<PAGE>
regard to the installment exercise provisions of the Option, within a period
designated in the Option Agreement, but not less than 60 days from the date of
termination. An Option held by a non-employee consultant or advisor which is
still in force and unexpired on the date of such person's death may be
exercised by such person's legal representative in whole or in part without
regard to the installment exercise provisions of the Option, within a period
designated in the Option Agreement, but not less than 60 days from the date of
death.
(d) The holders of Options shall not be or have any of the
rights or privileges of stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until,
following exercise, certificates representing such shares shall have been
issued by the Company to such holders.
(e) Any form of Option Agreement authorized by the Plan may
contain such other provisions as the Board or the Plan Administrator may, from
time to time, deem advisable. Without limiting the foregoing, the Board or the
Plan Administrator may, with the consent of the optionee, from time to time
cancel all or any portion of any Option then subject to exercise, and the
Company's obligation in respect of such Option may be discharged by (i) payment
to the optionee of an amount in cash equal to the excess, if any, of the Fair
Market Value of the shares at the date of such cancellation subject to the
portion of the Option so cancelled over the aggregate purchase price of such
shares, (ii) the issuance or transfer to the optionee of shares of Stock with a
Fair Market Value at the date of such transfer equal to any such excess, or
(iii) a combination of cash and shares with a combined value equal to any such
excess, all as determined by the Board or the Plan Administrator in its sole
discretion.
(f) Options shall be exercised by the optionee by giving
written notice to the Company, which exercise shall be effective upon receipt
of such notice by the Secretary of the Company at its principal office. The
notice shall specify the number of shares with respect to which the Option is
being exercised.
7
<PAGE>
8. Maximum ISO Award. The aggregate Fair Market Value of
Stock (determined as of the date of the grant of options) with respect to which
ISOs are exercisable for the first time by any optionee during any calendar
year shall not exceed the limitation provided under Section 422 of the Code or
any successor provision thereto.
9. Purchase for Investment. Unless shares of Stock covered by
the Plan have been registered under the Securities Act of 1933, as amended (the
"Act"), or the Company has determined that such registration is unnecessary,
each person exercising an Option under the Plan may be required by the Company
to give a representation in writing that such person is acquiring such shares
for his or her own account, for investment and not with a view to, or for sale
in connection with, the distribution of any part thereof. The Company reserves
the right to appropriately legend certificates evidencing the shares issuable
upon exercise that the shares may not be sold or transferred until they are
registered under the Act or transferred in a transaction exempt from
registration thereunder and to place stop transfer orders on their records as
to such shares.
10. Termination of Plan. The Plan shall be effective as of
August 1, 1993 and shall terminate on a date 10 years thereafter.
11. Amendments or Termination. The Board may amend, alter, or
discontinue the Plan, except that no amendment or alteration shall be made
which would impair the rights of the holder of any Option theretofore granted
without his consent, and except that no amendment or alteration shall be made
which, without the approval of the stockholders of the Company, would:
(a) Increase the total number of shares reserved for the
purposes of the Plan, except as is provided in Section 6, or decrease the
option price provided in
8
<PAGE>
Section 5, or change the class of persons eligible to participate in the Plan
as provided in Section 3; or
(b) Extend the option period provided for in Section 7.
12. Government Regulations. The Plan, and the granting and
exercise of Options hereunder, and the obligation of the Company to sell and
deliver shares or cash under such Options, shall be subject to all applicable
laws, rules, and regulations, including the registration of the shares under to
the Securities Act of 1933, and to such approvals by any governmental agencies
or national securities exchanges as may be required.
13. Governing Law. This Plan shall be deemed made in the
State of New York and shall be governed by and construed and enforced in
accordance with the laws of such State applicable to contracts made and to be
performed in such State, without giving effect to the principles of conflict
laws.
9
<PAGE>
ANNEX C
PANAX PHARMACEUTICAL COMPANY LTD.
1997 CONSULTANT STOCK OPTION PLAN
1. Purpose of Plan. The Panax Pharmaceutical Company Ltd. 1997
Consultant Stock Option Plan (the "Plan") is intended as an incentive to
attract and retain persons of training, experience and ability as consultants
and advisors to Panax Pharmaceutical Company Ltd. (the "Company") and its
subsidiaries, to encourage the sense of proprietorship of such persons, and to
stimulate the active interest of such persons in the development and financial
success of the Company and its subsidiaries.
2. Administration of Plan. The Board of Directors of the Company (the
"Board") or a Stock Option Committee (the "Committee") appointed and maintained
by the Board shall have the power to administer the Plan. The Committee shall
consist of at least two members who shall serve at the pleasure of the Board.
The Board or the Committee shall have full power and authority: (i) to
designate participants; (ii) to determine the terms and provisions of
respective Option Agreements (which need not be identical) including, but not
limited to, provisions concerning the time or times when and the extent to
which the Options may be exercised and the nature and duration of restrictions
as to transferability or restrictions constituting substantial risk of
forfeiture; (iii) to accelerate the right of an optionee to exercise in whole
or in part any previously granted Option; and (iv) to interpret the provisions
and supervise the administration of the Plan.
The Board or the Committee shall also have the authority to
grant Options in its discretion to the holder of an outstanding Option, in
addition to or in exchange for
<PAGE>
the surrender and cancellation of the outstanding Option, which additional or
new Option may have a purchase price lower than provided in the outstanding
Option and containing such other terms and conditions as the Board or the
Committee may prescribe in accordance with the provisions of the Plan and as
agreed to by the Optionee.
All decisions and selections made by the Board or the
Committee pursuant to the provisions of the Plan shall be made by a majority of
its members except that no member of the Board or Committee shall vote on, or
be counted for quorum purposes, with respect to any proposed action of the
Board or Committee relating to any Option to be granted to that member. Any
decision reduced to writing and signed by a majority of the members who are
authorized to make such decision shall be fully effective as if it had been
made by a majority at a meeting duly held.
Each member of the Board or Committee shall be indemnified
and held harmless by the Company against any cost or expense (including counsel
fees) reasonably incurred by him or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any act
or omission to act in connection with the Plan unless arising out of such
member's own fraud or bad faith, to the extent permitted by applicable law.
Such indemnification shall be in addition to any rights of indemnification the
member may have as director or otherwise under the by-laws of the Company, any
agreement, vote of stockholders or disinterested directors, or otherwise.
3. Designation of Participants. The persons eligible for participation
in the Plan as recipients of Options shall include only consultants and
advisors to the
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Company or any of its subsidiaries; and provided that eligible consultants and
advisors shall be only those who render bona fide services to the Company or
any subsidiary, which services may not be in connection with the offer or sale
of securities in a capital-raising transaction. Employees of the Company are
not eligible to participate in the Plan.
4. Stock Reserved for Plan. Subject to adjustment as provided in
paragraph 6 hereof, a total of 2,500,000 shares of the Common Stock, $.001 par
value, of the Company ("Stock") shall be subject to the Plan. The Stock subject
to the Plan shall consist of unissued shares, and such number of shares shall
be, and hereby is, reserved for sale for such purpose. Any of such Stock which
may remain unsold and which are not subject to outstanding Options at the
termination of the Plan shall cease to be reserved for the purpose of the Plan,
but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares of Stock to meet the requirements of the Plan.
Should any Option for any reason expire or be cancelled prior to its exercise
or relinquishment in full, the Stock theretofore subject to such Option may
again be subjected to an Option under the Plan.
5. Option Price.
(a) The purchase price of each share subject to an Option
shall be determined by the Board of Directors but shall not be less than the
par value of the shares.
(b) The option price shall be payable upon the exercise of
the Option in cash, by check, or, at the option of the Board or the Committee
or as otherwise
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permitted by the Option Agreement, shares of the Company's
stock (valued at their Fair Market Value) or other form or value satisfactory
to the Board or the Committee.
(c) Fair Market Value on the date of the exercise shall be:
(i) if the shares of Common Stock are listed or admitted for
on a national securities exchange or if not listed or trading on
an exchange, on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the closing sales price
of shares of the Common Stock on such date; or
(ii) If no sales have been effected on such date, the average
of the closing sale prices on the most recent three trading days
preceding the date of exercise on the national securities
exchange on which it is listed or admitted or on NASDAQ if not
listed or admitted on an exchange or, if no such sales were
effected on any of such markets during such three trading days,
the Fair Market Value shall be the mean between the high bid and
low asked prices on the exchange or NASDAQ on the date of
exercise, as the case may be; or
(iii) If the shares are traded in the over-the-counter market
and not listed or admitted on NASDAQ, the mean between the high
bid and low asked prices as quoted on the date of exercise on
the Over-The-Counter Bulletin Board by the National Association
of Securities Dealer Inc. or, if no bid prices are quoted on
such date, the next preceding date to the date of grant for
which a bid price is quoted.
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(d) The proceeds of the sale of the Stock subject to an
Option are to be added to the general funds of the Company and
used for its corporate purposes.
6. Adjustments.
(a) In the case of any reorganization of the Company or
reclassification or recapitalization of the outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision of combination) or
in the case of any consolidation of the Company with, or merger of the Company
into another corporation, or in the case of any sale, lease, transfer or
conveyance of all, or substantially all, of the assets of the Company, then, as
a part of such reorganization, reclassification, recapitalization,
consolidation, merger, sale, lease, transfer or conveyance, provision shall be
made so that the Optionee shall thereafter be entitled to receive upon exercise
hereof the number of shares of stock, warrants, or other securities, property
or other assets of the Company, or of the successor corporation resulting from
such reorganization, reclassification, recapitalization, consolidation, merger,
sale, lease, transfer or conveyance, to which a holder of that number of
shares of Stock deliverable upon the exercise of Options previously granted
hereunder would be entitled on such reorganization, reclassification,
recapitalization, consolidation, merger, sale, lease, transfer or conveyance as
if such Options had been exercised in full immediately prior to the
effectiveness of such reorganization, reclassification, recapitalization,
consolidation, merger, sale, lease, transfer or conveyance, subject to further
adjustment as provided for in such Option agreements; provided, however, that
any unexercised Options may be exercised in full by the Optionees at any time
prior to the effective date
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<PAGE>
of any such reorganization, reclassification, recapitalization, consolidation,
merger, sale, lease, transfer or conveyance, by giving written notice to the
Company.
(b) In case, prior to the expiration of the Options by
exercise or by their terms, the Company shall at any time make any distribution
of its assets to holders of its Common Stock as a liquidating or partial
liquidating dividend by way of return of capital or otherwise (other than as
either a cash dividend payable out of any surplus legally available for the
payment of dividends under the laws of the State of New York or as a stock
dividend) or the Company is dissolved, then upon receipt of any Stock upon
exercise of such Option after the date of record for the determination of
holders of Common Stock entitled to such distribution of assets, the Optionee
shall also be entitled to receive, in addition to the Stock, the amount of such
assets or dividend which the Optionee would have received had it been the
holder of record on the record date for the determination of those entitled to
such distribution of such assets; provided that any unexercised Options may be
exercised in full by the Optionee at any time prior to the effective date of
any such liquidating dividend or dissolution by giving written notice to the
Company.
(c) If the outstanding shares of Common Stock shall at any
time be changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, extraordinary dividend payable in stock of a
corporation other than the Company, or otherwise in cash, or any like event by
or of the Company, and as often as the same shall occur, then the number, class
and kind of Stock subject to this Plan and subject to any outstanding Options
theretofore granted, and the option prices, shall be appropriately and
equitably adjusted so as to maintain the proportionate
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number of shares of Stock without changing the aggregate option price;
provided, however, that no adjustment shall be made by reason of the
distribution of a subscription right on outstanding stock.
(d) The Board of Directors or the Committee may
provide in the Option Agreement for other adjustments.
7. Term and Exercise of Options.
(a) The Option Agreement evidencing the Option shall set
forth the terms of the Option, including the period during which it must be
exercised, except that no qualifies as an "incentive stock option" under the
applicable provision of the Internal Revenue Code (the "Code") may be
exercisable after the period, if any, prescribed in the Code.
(b) Options granted under the Plan shall not be transferable
by optionees other than by will or the laws of descent and distribution, and
during an optionee's lifetime shall be exercisable only by that optionee.
(c) An Option which is still in force and unexpired on the
date of such person's death may be exercised by such person's legal
representative in whole or in part during the period designated in the Option
Agreement.
(d) The holders of Options shall not be or have any of the
rights or privileges of stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until,
following exercise, certificates representing such shares shall have been
issued by the Company to such holders.
(e) Any form of Option Agreement authorized by the Plan may
contain such other provisions as the Board or the Committee may, from time to
time, deem
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advisable. Without limiting the foregoing, the Board or the Committee may, with
the consent of the optionee, from time to time cancel all or any portion of any
Option then subject to exercise, and the Company's obligation in respect of
such Option may be discharged by (i) payment to the optionee of an amount in
cash equal to the excess, if any, of the Fair Market Value of the Stock at the
date of such cancellation subject to the portion of the Option so cancelled
over the aggregate exercise price of such shares, (ii) the issuance or transfer
to the optionee of shares of Stock with a Fair Market Value at the date of such
transfer equal to any such excess, or (iii) a combination of cash and shares
with a combined value equal to any such excess, all as determined by the Board
or the Committee in its sole discretion.
(f) Options shall be exercised by the optionee by giving
written notice to the Company, which exercise shall be effective upon receipt
of such notice by the Secretary of the Company at its principal office or as
otherwise provided in the Option Agreement. The notice shall specify the number
of shares with respect to which the Option is being exercised.
8. Purchase for Investment. Unless shares of Stock covered by the plan
have been registered under the Securities Act of 1933, as amended (the "1933
Act"), or the Company has determined that such registration is unnecessary,
each person exercising an Option under the Plan may be required by the Company
to give a representation in writing that such person is acquiring such shares
for his or her own account, for investment and not with a view to, or for sale
in connection with, the distribution of any part thereof. The Company reserves
the right appropriately to legend certificates evidencing the shares of Stock
issuable upon exercise, that the such Stock
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may not be sold or transferred until they are registered under the 1933 Act or
transferred in a transaction exempt from registration thereunder and to place
stop transfer orders on their records as to such shares.
9. Termination of Plan. The Plan shall be effective as of February 14,
1997 and shall terminate on a date 10 years thereafter. The termination of the
Plan shall not affect any Option previously granted under the Plan.
10. Amendments. The Board may amend or alter the Plan, except that no
amendment or alteration shall be made which would impair the rights of the
holder of any Option theretofore granted without his consent, and except that
no amendment or alteration shall be made which, without the approval of the
stockholders of the Company, would increase the total number of shares reserved
for the purposes of the Plan, except as is provided in Section 6.
11. Government Regulations. The Plan, and the granting and exercise of
Options hereunder, and the obligation of the Company to sell and deliver shares
or cash under such Options, shall be subject to all applicable laws, rules, and
regulations, including the registration of the shares under the 1933 Act, and
to such approvals by any governmental agencies or national securities exchanges
as may be required.
12. Governing Law. This Plan shall be deemed made in the State of New
York and shall be governed by and construed and enforced in accordance with the
laws of such State applicable to contracts made and to be performed in such
State, without giving effect to the principles of conflict of laws.
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