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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
__________, August __, 1997, at 10 a.m. at the offices of the Company, 425 Park
Avenue, 27th Floor, New York, New York 10022.
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 10,000,000 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. Such
redirection 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. The Company has entered
into a letter of intent with each of Sangen Pharmaceutical Inc. ("Sangen") and
CorBec Pharmaceutical Inc. ("CorBec") to acquire the outstanding shares of each
company. Each letter of intent contemplates the acquisition will be effected
pursuant to an acquisition agreement which will provide as part of the
consideration for their shares and their proprietary rights to drugs under
development the issuance of shares of Common Stock and options to purchase
additional shares
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and will be contingent among other things on the consummation by the Company of
an equity financing of at least $8 million.
The shares of Common Stock which would be required to be issued and
reserved for issuance to consummate the acquisitions and the related financing
will exceed the number of shares of Common Stock which the Company has
available for issuance from its authorized shares of Common Stock after
allowing for the present reservation of shares for issuance for other purposes.
Authorization of a class of Preferred Stock with authority of the
Board to issue such shares in series with such rights and limitations as it may
determine would assist the Company in negotiating other acquisitions or
licenses for other promising drugs under development.
The Company is also proposing to amend its Stock Option Plan to
increase the number of shares of Common Stock subject to the Plan to 4,200,000
and to approve the adoption by the Board of a Consultants Stock Option Plan
relating to 2,500,000 shares. The increased authority to issue options will
enhance the Company's efforts to effect other acquisitions and licenses and to
attract and obtain key employees and consultants who have the credentials and
professional experience to assist the Company.
You are entitled to vote all shares of Common Stock registered in your
name at the close of business on July 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.
We hope that you will find it convenient to attend the meeting.
Sincerely,
Dr. Taffy J. Williams
Chairman and
Chief Executive Officer
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PRELIMINARY COPY
PANAX PHARMACEUTICAL COMPANY, LTD.
425 PARK AVENUE, 27TH FLOOR
NEW YORK, NEW YORK 10022
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
August __, 1997
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Panax
Pharmaceutical Company, Ltd. ("Panax") will be held on ________, August __,
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 $.01 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 July 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
thereof. 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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Panax Shareholders
July 30, 1997
Page 2
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 J. Williams
Chairman and
Chief Executive Officer
August __, 1997
New York, New York
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PRELIMINARY COPY
PANAX PHARMACEUTICAL COMPANY, LTD.
425 Park Avenue, 27th Floor
New York, New York 10022
(212) 319-8300
PROXY STATEMENT
-------------
SPECIAL MEETING OF SHAREHOLDERS
To be held on August __, 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 _______,
August __, 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 3,342,327 shares of Common
Stock issued and outstanding at the close of business on July 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 10,000,000 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 are being mailed on or about _______, 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 Company's 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 approve the amendment to 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 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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of shares of Common Stock as of June 30, 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 June 30, 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.
Number of Shares Percentage of
Name and Address Beneficially Owned (1) Outstanding Shares
- ---------------- ------------------ ------------------
Taffy James Williams * 180,000(2) 5.1%
Tanya Akimova * 222,994(3) 6.7%
All Directors and Executive
Officers as a Group (5persons) 782,995 (4) 21.2%
- -------------------
* 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 June 30, 1997.
(3) Includes 8,334 shares subject to options exercisable within 60 days of
June 30, 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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FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAIN IN THE SECTIONS "PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION" AND "PROPOSED ACQUISITIONS" CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY.
ALL SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES INCLUDING
STATEMENTS REGARDING THE FUTURE DEVELOPMENT OF PROPOSED DRUGS AND TECHNOLOGY
WHICH RELATE TO THE PURGATIVE TABLET, THE CONSUMMATION OF THE ACQUISITIONS, THE
DEVELOPMENT OF PHARMACEUTICAL DRUGS AND TECHNOLOGIES TO BE ACQUIRED AS A RESULT
OF THE CORBEC OR SANGEN ACQUISITIONS, THE CONSUMMATION OF THE PROPOSED
FINANCING, FUTURE LICENSING OR COLLABORATIVE ARRANGEMENTS AS TO SUCH
DEVELOPMENT, AND THE ADEQUACY OF THE FINANCING AND AVAILABILITY OF FUTURE
FINANCINGS BY THE COMPANY FOR DEVELOPMENT. MANY IMPORTANT FACTORS AFFECT THE
COMPANY'S ABILITY TO ACHIEVE ITS STATED OBJECTIVES AND TO SUCCESSFULLY DEVELOP
AND COMMERCIALIZE ITS PRODUCTS CANDIDATES INCLUDING, AMONG OTHER THINGS, THE
ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDS, OBTAIN AND MAINTAIN ALL
NECESSARY PATENTS OR LICENSES, DEMONSTRATE THE SAFETY AND EFFICACY OF PRODUCT
CANDIDATES AT EACH STAGE OF DEVELOPMENT, MEET APPLICABLE REGULATORY STANDARDS
AND RECEIVE REQUIRED REGULATORY APPROVALS, MEET OBLIGATIONS AND REQUIRED
MILESTONES UNDER LICENSE AGREEMENTS, PRODUCE DRUG CANDIDATES IN COMMERCIAL
QUANTITIES AT REASONABLE COSTS, COMPETE SUCCESSFULLY AGAINST OTHER PRODUCTS AND
MARKET PRODUCTS IN A PROFITABLE MANNER. AS A RESULT, THERE CAN BE NO ASSURANCE
THAT THE FORWARD LOOKING STATEMENTS INCLUDED IN THIS PROXY STATEMENT WILL PROVE
TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY PANAX OR ANY OTHER
PERSON THAT THE OBJECTIVES AND PLANS OF PANAX WILL BE ACHIEVED IN ANY SPECIFIED
TIME FRAME, IF AT ALL.
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PROPOSAL TO AMEND THE COMPANY'S
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 10,000,000 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. See "Proposed Acquisitions". 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 of the Company in addition to cash payments.
The authority of the Board of Directors to issue shares as a series of
Preferred Stock having rights and privileges which can be geared by the Board
to the interests or the needs or circumstances of potential sellers and or
licensors will provide the Company with a flexibility which should prove
helpful in consummating acquisitions or licenses. The Company's Certificate of
Incorporation currently does not provide for a class of Preferred Stock. The
Board of Directors also believes that the Company's current name is currently
associated with the Company's plant product discovery activities. It believes
that the adoption of a new name would be desirable.
The Board accordingly has incorporated all three elements - the
increase in the authorized shares of Common Stock, the authorization of a class
of Preferred Stock and the change in the Company's corporate name into one
proposal. A vote for the proposal is in effect a vote for all three proposed
revisions; and a vote against or an abstention is in effect a vote against the
adoption of all three proposed revisions.
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COMMON STOCK
As of June 30, 1997, the Company had outstanding 3,342,327 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 Approve Amendments to the
1993 Stock Option Plan"; "Proposal to Approve the Consultant Stock Option
Plan" and "Executive Compensation" for further information.
If the proposals as to the Stock Option Plan and the Consultant Stock
Option Plan are approved, there would be reserved for issuance an aggregate of
8,499,615 shares which when added to the outstanding shares could equal
11,841,942 shares. Such amount exceeds the currently authorized 10,000,000
shares of common Stock.
Consummation of the proposed Sangen and CorBec acquisitions which
would entail the Financing is expected to result in the issuance and
reservation of additional shares of Common Stock which in the aggregate would
range from 5,470,000 shares to 12,720,000 shares. See "Proposed Acquisitions"
and "Price Range of Company's Common Stock".
PREFERRED STOCK
The proposed amendment would authorize the Board of Directors of the
Company, without action by the shareholders, to issue the shares of Preferred
Stock in one or more series and, within certain limitations, to determine the
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and in liquidation, conversion, redemption and
other rights of each such series. The Board of Directors could issue a series
with rights more favorable with respect to dividends, liquidation and voting
than those held by the holders of any class of Common Stock.
The authority of the Board to issue the Preferred Stock could have the
effect of discouraging attempts to obtain control of the Company by means of
merger, tender offer, proxy contests or otherwise or could delay and make more
costly any such attempt. The voting and conversion rights provided to such
shares could adversely affect the voting power of the holders
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of Common Stock. There are presently no agreements or understandings, and the
Board of Directors has no intention, to issue 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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PROPOSED ACQUISITIONS
SUMMARY
The Company has entered into a letter of intent with each of Sangen
Pharmaceutical Inc. ("Sangen") and CorBec Pharmaceuticals Inc. ("CorBec"), two
privately held development stage pharmaceutical companies. The letters of
intent contemplate the acquisitions by the Company of the outstanding capital
stock of Sangen and of CorBec pursuant to acquisition agreements to be prepared
and executed by the parties. The acquisitions would, among other things, be
contingent of the Company effecting an equity financing of at least $8,000,000
(the "Financing").
The acquisition of Sangen as contemplated by the related letter of
intent would provide for the issuance to Dr. Leonard S. Jacob, Sangen's sole
stockholder, officer and director 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
Capitalization" of the Company. Fully Diluted Capitalization means the sum of
(i) the shares sold and to be reserved in the Financing, (ii) the shares to be
issued in the CorBec acquisition and to acquire the license for the proprietary
rights to the Thrombospondin Technology (see "-Business of Sangen") (iv) other
shares issued and outstanding on the date of the Sangen acquisition (the
"Acquisition Date"), (v) shares reserved for issuance upon exercise of options
granted pursuant to the Sangen and CorBec acquisition agreements and related
consulting agreements and pursuant to consulting agreements with respect to the
Company's purgative product license, (vii) all other shares reserved for
issuance upon exercise of options and warrants outstanding on the Acquisition
Date other than the Warrants (the "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 to be exercisable as to $.61 per share with
respect to 1,200,000 shares and at the fair market value of the Common Stock
on the Acquisition Date with respect to the balance, if any. Dr. Jacob upon
the acquisition is to enter into a three year employment agreement as Chief
Executive Officer of the Company. The option is to provide that shares in
excess of 300,000 shares, up to a maximum of 900,000, 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
with the Company by either leaving the employ of the Company without "cause"
or being terminated for "just cause", as defined, during the three year
employment 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."
As its sole asset, Sangen has the rights to acquire by license the
rights to the Thrombospondin Technology. If the acquisition was consummated,
the license would require the Company to issue 125,000 shares of Common Stock,
pay royalties and provide funding ranging from $400,000 to $800,000 for
sponsored research and the Company would be obligated to engage the licensor as
a consultant for two years at $50,000 per year.
The acquisition of CorBec as contemplated by the related letter of
intent would require the Company to pay the CorBec stockholders from $750,000
to $500,000 (depending on
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CorBec's cash balance at closing) and issue to them 750,000 shares of Common
Stock. Additional cash payments in the aggregate amount of $16,580,000, and
additional 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 United States Food and Drug Administration (the "FDA")
allowing for the commercial sale of its drug currently under development
("CBP-101"); (ii) 80,000 shares following the first fiscal year net revenues
from CBP-1011 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
Investigation of a New Drug Application ("IND") with the FDA with respect to a
second generation compound (a "Second Drug"); (vi) $80,000 upon the successful
completion of Phase II clinical trials 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. Alan Schreiber, who is
a CorBec stockholder and the inventor, and with 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 170,000 shares of Common
Stock which become exercisable in three equal 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 acquisition agreement is to also 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.
To satisfy the condition as to Financing, the Company is presently
attempting to effect a private placement involving an offering of shares of its
Common Stock ranging from a minimum of 4,000,000 shares to a maximum of
8,000,000 shares of Common Stock, plus five year Warrants to purchase a number
of additional shares ranging from 1,000,000 to 2,000,000 shares of Common
Stock. In addition, if the offering is successfully consummated, the Placement
Agents are to receive five year Warrants to purchase such number of shares of
Common Stock as equals 10% or 12.5% of the sum of shares sold and the shares
reserved for issuance with respect to the Warrants sold in the placement.
As presently contemplated, the consummation of the acquisitions and
the related Financing would require the issuance and reservation for issuance
of from 5,470,000 to 12,720,000 shares of Common Stock in the aggregate;
accordingly, the acquisitions could not be effected without an authorization of
additional shares of Common Stock. Shareholder approval
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of the proposed Amendment to the Certificate of Incorporation therefore would
have the effect of approving the acquisitions.
The acquisitions are expected to be consummated immediately following
or shortly after the Special Meeting of Shareholders if the proposal is
approved. No assurance can be given that the proposed Financing will be
successfully consummated and that the acquisitions will be effected. (A
condition to the consummation of private placement is the simultaneous closing
of the acquisitions).
BACKGROUND
Dr. Jacob had been from 1989 to 1996 Chief Operating Officer of
Magainin Pharmaceuticals Inc., ("Magainin"), a pharmaceutical development
company of which he was a co-founder, and was responsible for setting its
technical and operating strategy. Dr. Williams had been from 1992 until he
joined the Company in 1995 Vice President of Research for Magainin. Since 1996
Dr. Jacob has been a consultant to various biotechnical companies. In May 1996,
Dr. Jacob became a consultant to the Company.
In November 1996, Dr. Jacob advised the Company that he had reached an
understanding with Dr. George Tuzynski and Allegheny University of Health and
Science ("AUHS") for a company (Sangen) to be formed by Dr. Jacob to acquire a
world-wide exclusive license to the rights to the Thrombospondin Technology
(see "-Business of Sangen") which they were developing and an understanding
with two other co-inventors to have Sangen acquire their proprietary rights or
a license to their proprietary rights to another pharmaceutical technology they
had under development (the "Other Technology").
Discussions were then held between Dr. Williams and Dr. Jacob as to
Dr. Jacob's proposal that the Company enter into an agreement to acquire Sangen
subject to Sangen having the rights to acquire the foregoing proprietary
rights. On December 19, 1996 Dr. Williams presented the proposal to the
Company's Board of Directors at its meeting. The Board then authorized its
management to effect the acquisition subject to Sangen securing the rights to
acquire the foregoing proprietary rights on the terms presented to the Board.
On January 3, 1997 the Company entered into a letter of intent with
Sangen with the understanding that the transaction will only proceed if Sangen
reach an understanding with the holders of the foregoing proprietary rights on
the terms outlined in the letter. The letter stated that the acquisitions would
be subject among other things to the negotiation and execution of a definitive
acquisition agreement and the Company securing an equity financing of at least
$7,500,000. On January 20, 1997 Dr. Jacob advised the Company that he had
entered into letters of intent with the holders of the proprietary rights to
secure licenses as to both technologies and on January 21, 1997 the Company
issued a press release advising of the letter of intent as to the proposed
acquisition of Sangen and the proposed employment of Dr. Jacob as Chairman of
the
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Board and Chief Executive Officer of the Company and of Dr. Williams as Chief
Operating Officer pursuant to long term employment agreements which were to be
effective upon consummation of the acquisition.
On May 7, 1997 the Company was advised by Dr. Jacob that Sangen had
determined not to proceed with its proposed license arrangements with the
co-inventors with respect to the Other Technology. The Executive Committee then
met on the same day and determined that the Company was not interested in
seeking the rights to the Other Technology from the proposed licensors but
desired the Company to proceed with the proposed acquisition of Sangen for the
consideration set forth in the January 3, 1997 letter of intent.
In April 1997, Dr. Jacob referred to the Company CorBec as a company
which might be interested in being acquired. Dr. Jacob had known the Chief
Executive Officer of CorBec for several years. During the period from April 15,
1997 to May 7, 1997, the Chief Executive Officer of CorBec and Dr. Williams and
Dr. Jacob held discussions as to the Company acquiring the business and capital
stock of CorBec. The Company, through its Executive Committee, on May 7, 1997
approved the terms of the proposed acquisition of CorBec as presented to the
Committee. On May 8, 1997 a letter of intent between the Company and CorBec as
to the proposed acquisition of CorBec on the terms discussed with the Company's
Executive Committee was executed. On May 8, 1997 the Company issued a press
release disclosing the execution of the letter of intent as to CorBec and
Sangen's determination not to proceed with the Other Technology license
proposal.
The acquisition agreements are currently being negotiated.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Company believes that acquisitions of the proprietary rights to
the drugs under development by CorBec and under the Thrombospondin License will
materially enhance the Company's efforts to achieve commercial success in its
recently adopted business goal to seek and acquire or license the proprietary
rights to develop commercially promising pharmaceutical drugs and technology
under development. The original focus of the Company in 1993 was the discovery
and development of new pharmaceutical compounds identified and isolated from
plants located principally in the Commonwealth of Independent States. The
results of this activity have not been as originally anticipated, with no
revenues having been generated and no compound discovered to date which appears
to present a material opportunity for successful commercial development in the
immediately foreseeable future. The Board of Directors believe that the drugs
under development by CorBec and under the license to the Thrombospondin
Technology present an opportunity to achieve commercial success in a shorter
time period. The ownership of such rights is also expected to enhance the
perception of the Company as a meaningful pharmaceutical development company
and thereby help attract for acquisition or licensing proprietary rights to
other promising drugs under development.
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The aggregate consideration to be paid for the Sangen and CorBec
acquisitions was determined by arms-length negotiations between the Company and
Dr. Jacob, the sole Sangen shareholder and between the Company and the
management and principal shareholders of CorBec, none of whom is affiliated
with the Company, Sangen, or Dr. Jacobs.
In its determination, the Board also noted that a substantial portion
of the consideration to be paid is in the form of options and that the
contingent consideration of cash and stock issuances is dependent upon the
achievement of certain milestones which if achieved should contribute value to
the Company in excess of the amount paid. The Board also believes that securing
the long term services under a long employment agreement of Dr. Jacob who has
an impressive background and record in the acquisition for development and the
development of pharmaceutical products will be of material benefit to the
Company in the pursuit of its goals to acquire and develop commercially
promising drug candidates.
The Board, however, also noted that the issuances of the securities to
effect the acquisitions and achieve the Financing will materially dilute the
equity interests of the current shareholders, that the Company will be required
to make material cash payments and incur substantial expenditures to effect the
acquisitions and to attempt to develop the drugs, and that there is no
assurance that any of the drugs under development or to be developed will be
successfully developed or if successfully developed will prove commercially
profitable for the Company.
Furthermore, it is reasonable to expect that material developmental
efforts will require the Company to seek additional funding or collaborative
arrangements with other companies for the services and facilities needed to
complete the development and to market the drug or drugs developed. No
assurance can be given that such funding or collaborative arrangements can be
successfully consummated on terms reasonably to the Company.
INTERESTS OF CERTAIN PERSONS WITH RESPECT TO THE PROPOSED ACQUISITIONS
For his services in connection with originating and negotiating the
Sangen and CorBec transactions, Dr. Williams was granted in January 1997 under
the 1993 Stock Option Plan a ten-year option to purchase 500,000 shares of
Common Stock or, if greater, such number of shares as equals 5% of the Fully
Diluted Capitalization of the Company at the time the acquisitions are
effected. The exercise price of the option as to the first 500,000 shares is
$.61 per share and as to the balance, if any, of the shares will be the fair
market value of Common Stock on the date of the acquisition of Sangen.
Dr. Jacob, who had been engaged by the Company since May 1996 as a
consultant received from the Company in connection with such engagement a
ten-year option to purchase 15,000 shares of Common Stock under the Company's
Common Stock Option Plan at a price of $1.25 per share. Dr. Jacob is to receive
in consideration for his sale of the outstanding capital stock of Sangen an
option to purchase 1,200,000 shares of Common Stock or, if greater, such
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number of shares of Common Stock as equals 7 1/2% of the Fully Diluted
Capitalization of the Company. The exercise price of options as to 1,200,000
shares is $.61 per share and as to the balance, if any, of the shares is to be
the fair market value of the Common Stock on the Acquisition Date.
Upon consummation of the acquisitions, the Company is to enter into a
long-term employment agreement with Dr. Jacob providing for his employment as
Chairman of the Board and Chief Executive Officer of the Company and to amend
its current employment agreement with Dr. Williams to provide for his long term
employment as President and Chief Operating Officer of the Company. See
"Executive Compensation" for the terms of the employment agreements.
THE PROPOSED ACQUISITION AGREEMENTS
The letters of intent contemplate a stock purchase or merger agreement
pursuant to which the outstanding capital stock of Sangen and of CorBec will be
acquired by the Company or a subsidiary of the Company on the terms set forth
under "Summary" above. Each agreement will provide that the acquisition will be
subject to the satisfaction of a number of conditions, including (i) the
consummation of the Financing, (ii) the absence of any material adverse change
with respect to the technologies which are being acquired pursuant to the
agreement or the commercialization prospects for the technology, (iii) the
consummation of the acquisition of the other company (Sangen or CorBec, as the
case may be), (iv) the receipt of certain opinions of counsel to the Company
and to the acquiree and (v) the absence of any judicial or administrative order
to restrain, enjoin or otherwise prevent the consummation of the acquisition.
The CorBec acquisition agreement will also provide as a condition to
the closing that all outstanding shares of Preferred Stock will be converted
into shares of Common Stock of CorBec prior to the closing. The CorBec
Agreement will also provide that the acquisition is to be closed by August 31,
1997
BUSINESS OF THE COMPANY
The Company, organized in 1993, originally focused on the discovery
and development of new pharmaceutical compounds isolated and identified from
plants. To that end, the Company developed, and continues to maintain, an
affiliation with a natural product isolation and synthetic chemistry laboratory
at the Komarov Botanical Institute of the Russian Academy of Sciences in St.
Petersburg, Russia (the "Komarov Institute"). In early 1996, Panax modified its
strategy, reducing its natural product discovery activities and redirecting its
principal efforts to expanding its pipeline of commercially viable
pharmaceutical products by licensing or acquiring specifically-targeted
products being developed for the treatment of certain diseases. In late 1996,
Panax began the transition of the focus of its core chemistry group into a
fee-for-services business and the provision of low-cost medicinal chemistry
services in support of Panax's future development of any newly-licensed or
acquired technologies. Revenues from such activity through March 31, 1997 have
been minimal.
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At least for the near term, the Company intends to maintain its
affiliation with the Komarov Institute and continue, although on a more limited
basis if the acquisitions of Sangen and CorBec are consummated, its natural
product discovery activities. The Company believes that the agreement with the
Komarov Institute permits a more limited participation at the option of the
Company.
The Company in February 1997 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 IND to the 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 sodium phosphate for use as a colonic cleansing agent or as a
laxative) was issued on April 1, 1997. Patents on the Purgative Product are
pending in Europe, Japan, and Canada. 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.
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Panax paid ALW $100,000 upon execution of the ALW License in February
1997 and is obligated, to pay ALW an additional $150,000 subject to and upon
consummation of a $2,000,000 financing (which will occur in its Financing if
successfully concluded). Pursuant to the ALW 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 ALW License; (ii) royalties of: (a) 2% on the
first $5,000,000 in net sales of the Purgative Product; (b) 4% on net sales of
the Purgative Product above $5,000,000 and up to $10,000,000; and (c) 6% on net
sales of the Purgative Product above $10,000,000, provided that after the
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 ALW 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 which net sales of all products under the ALW 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 were 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 ALW 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 Company will have sufficient
funding to permit the full development of the Purgative Product, 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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Chemical Libraries and Chemical Services. Panax historically has been
engaged in the discovery and development of new pharmaceutical compounds
identified in and isolated from plants. Panax had taken an ethnobotanical
approach to the study of plants which is supplemented by natural product
chemistry and synthetic medicinal chemistry.
Many of the plants targeted by Panax are indigenous to Russia and
other states of the Commonwealth of Independent States. Panax's drug discovery
efforts have been and continue to be fostered by an exclusive long term
agreement with the world renowned Komarov Institute.
Panax has laboratory space and facilities for natural product
isolation and synthetic chemistry at its Chemical Services Division at the
Komarov Institute. Routinely, as many as 20 chemists work on chemistry projects
for Panax. Costs of this program since 1994 have been less than $250,000 per
year which includes payments to the Komarov Institute and Russian personnel,
and the costs of materials and leased facilities associated with the medicinal
chemistry program.
In late 1996, Panax began to transition its Chemical Services Division
to a fee-for-services business. The group has collected a library of over
30,000 pure compounds and numerous natural products to which Panax has certain
rights and has implemented a sales strategy which includes providing third
parties access to the library and custom chemistry. The program was established
to generate revenues and provide low cost medicinal, synthetic and
combinatorial chemistry, as well as natural product isolation work, in support
of future discovery activities around new receptors or novel research programs
brought to Panax from external sources. The Company intends to evaluate the
Chemical Services Division on a regular basis to determine whether to enhance,
adjust or terminate the program. Revenues from these activities have been
minimal to date.
Legal Proceedings. The Company is not a party to any material legal
proceedings.
Facilities. The Company's offices which are located at 425 Park
Avenue, 27th floor, New York, New York, 10022 are occupied pursuant to a
sublease expiring April 2000 which provides for an annual rent of $193,500,
plus insurance, taxes and maintenance. As soon as practicable following the
closing of the acquisition, the Company plans to relocate to the Philadelphia,
Pennsylvania area. The Company has hired a consultant to assist the Company in
being released from its obligations under its current sublease. See "Certain
Transactions."
The Company also leases laboratory space and facilities at its
Chemical Services Division at the Komarov Institute in St. Petersburg, Russia
which makes available chemists to perform services on the Company's medicinal,
synthetic and combinatorial chemistry as well as its natural product isolation
work.
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Employees. As of June 30, 1997, Panax employed three persons, two of
whom are executive officers.
BUSINESS OF 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) and 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 orphan drug protection
with respect to the compound and successfully market it.
The development activities are being performed under a research
agreement with the University of Pennsylvania, which has granted CorBec
pursuant to a license agreement the exclusive world-wide rights to make, have
made, use and sell the technology and products developed subject to the right
of non-profit organizations to use the products solely for education or
research purposes. The license with respect to the licensed compounds
comprising the CorBec Technology (the "CorBec License") may be terminated by
the licensor if the Company has not, by June 1998, (i) submitted a product to
the FDA for approval, (ii) offered a product for sale, either directly or
through a sublicensee, or (iii) made continuing reasonable efforts to develop a
product for submission for FDA approval or for sale. The CorBec License may
also be terminated if the Company fails to make minimum annual royalty payments
of $50,000 during 1998 and 1999 and $100,000 thereafter.
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CorBec does not have any employees or facilities. Its managerial and
administrative activities are performed by part-time consultants. Its executive
offices are maintained under a fee arrangement with, and in the offices of,
Hillman Medical Ventures in West Conshocken, Pennsylvania.
The Company has been advised by CorBec that CorBec is not a party to
any material legal proceeding.
BUSINESS OF SANGEN
Sangen was incorporated by Dr. Jacob, its sole shareholder, executive
officer and director, in January, 1997. Its 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 Thrombospondin-1 ("TSP-1") receptor (collectively
the "Thrombospondin Technology").
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, and 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. Plans include the making of a
humanized monoclonal antibody and the exploration of its clinical utility. Dr.
Tuszynski has identified a hexapeptide structure which appears to prevent the
spread of human tumors in animals by blocking the TSP-1 receptor.
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 if the acquisition is effective the Company will be
successful in the development of commercially or profitable pharmaceutical
products from such technology or that the funds or collaboration arrangement
required for such development will be available to the Company on reasonable
terms.
The Company has been advised by Sangen of a possible claim against
Sangen for damages by two individuals who have asserted that Sangen breached an
obligation to enter into
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an agreement with them to acquire a license to the Other Technology. See
"--Background". Sangen has advised the Company that it believes that any such
claim is without merit.
PROPOSED FINANCING
The proposed Financing which is a condition to the closing of the
CorBec and Sangen acquisitions and which, if effected, will also satisfy one of
the conditions for the continuation of the ALW License is currently being
attempted in the form of a private offering exempt from registration under the
Securities Act of 1933, as amended (the "Act"), by virtue of Rule 506 under
Regulation D of the Act. The offering is in the form of Units consisting of
shares of Common Stock and five year warrants to purchase additional shares of
Common Stock, with each Unit presently intended to consist of 125,000 shares
and warrants to purchase 25,000 additional shares. It is also presently
intended that the offering will be subject to the sale by the end of the
offering period of a minimum of 32 Units to yield gross proceeds of at least
$8,000,000. An additional 32 Units are also being offered at a gross offering
price of up to an additional $8,000,000. If the offering is successfully
consummated, the Placement Agents are to receive in addition to cash
commissions of up to 7% of the gross proceeds and an expense allowance,
warrants to purchase 10% (or 12% if all the Units are sold) of the number of
shares of Common Stock sold and the number of shares subject to the warrants
included in the Units sold. Accordingly, if successfully consummated on the
foregoing terms, the Company would be required to issue from 4,000,000 to
8,000,000 shares and would be required to reserve for issuance with respect to
the Warrants included in the Units sold and the warrants to be issued to the
Placement Agents from 1,500,000 to 3,250,000 additional shares.
No assurance can be given that the Financing or any other financing
will be successfully consummated or, if successfully consummated, that it will
be consummated on the foregoing terms or that the Company will not be required
to issue and reserve for issuance a materially larger number of shares of
Common Stock than discussed above. Furthermore, it is highly likely that even
if the Financing is successfully consummated and the acquisitions condition is
satisfied, the Company will require additional financing to adequately fund the
proposed development of the technology and drug candidates which are to be
acquired with the CorBec and Sangen acquisitions.
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, Chairman and Chief
Executive Officer; 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
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positions as officers and directors and Mr. David Zaretsky from his position as
director of the Company.
In view of their recognition that the Board of Directors should
reflect the principal focus of the Company's efforts and at the same time not
be unwieldy because of its size, Dr. Akimova who is involved in Company's
activities involving securing low cost medicinal chemistry service contracts,
and Dr. Shpilenya, who is involved in the natural product discovery activities,
have advised the Company that if the acquisitions are successfully consummated
they will resign as directors of the Company. Mr. Bernard Nagelberg who has no
business experience in the pharmaceutical drug development business other than
through his association with the Company has advised the Company that for the
same reasons he would resign as an officer and director if the acquisitions
were effected. Dr. 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, and Jerry Weisbach, Ph.D and Mr. Thomas Stagnaro will be
appointed as directors.
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 that 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.
Mr. Stagnaro currently serves as President and Chief Executive Officer
of 3-Dimensional Pharmaceuticals, Inc. Where he has been instrumental in
securing financing and obtaining significant cororate partnerships. Prior to
that Mr. Stagnaro was the President and Chief Executive Officer of Univax
Biologics where
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he was responsible for numerous financings and successfully completed three
corporate partnerships. In 1995, under the direction of Mr. Stagnaro, Univax
was sold to NABI. Mr. Stagnaro also serves as Chairman of the Board of CARB
(Center for Advanced Research in Biotechnology) and is a member of the Board of
Directors of US Biomaterials and the Maryland Biotechnology Institute.
See "Executive Compensation" for information as to the proposed
employment agreements with Drs. Williams and Jacob.
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PRICE RANGE OF COMPANY'S COMMON STOCK
Panax's Common Stock has traded on the Nasdaq since January 1995. The
following table sets forth by fiscal quarter the range on the Nasdaq of high
and low closing bid prices of the outstanding Common Stock of Panax for the
period from April 1, 1996 through June 30, 1997.
Period Low High
------ --- ----
4/1/96 - 6/30/96 $.72 $1.63
7/1/96 - 9/30/96 .50 .875
10/1/96 - 12/31/96 .44 .69
1/1/97 - 3/31/97 .63 3.25
4/1/97 - 6/30/97 1.75 2.72
Dividend Policy. Panax has not paid cash dividends on its Common Stock
since its inception and does not intend to pay any dividends on its Common
Stock in the foreseeable future.
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PROPOSAL TO APPROVE THE AMENDMENT TO 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 June 30, 1997 options with respect to 30,700 shares have been
exercised and options with respect to 1,424,500 shares are outstanding,
including options with respect to 624,500 shares which have been granted
subject to the approval by the shareholders of the Company of the proposed
amendment (the "Subject-to Options"). See "Executive Compensation" and
"Proposal to Amend the Company's Certificate of Incorporation." The closing
price of a share of Common Stock on the Nasdaq SmallCap Market on July 27, 1997
was $2.09375.
The Subject-to Options were granted to the extent of 224,500 shares to
Dr. Williams and to the extent of 400,000 shares to Amercom Funding Ltd.
("Amercom") as a consultant. See "Proposed Acquisitions - Summary" and
"Executive Compensation" for terms of the options. In the event that the
proposal is not approved at this meeting, the Company plans to amend the
Subject-to Options granted to Amercom to permit their exercise upon the filing
and effectiveness of a registration statement on Form S-8 registering the
options under the Securities Act of 1933. As to the Subject-to Options granted
to Dr. Williams, the Company, in such event, plans to submit the proposal to
the next meeting of shareholder for approval. The Company, however, plans to
make available for his Subject-to-Options such additional shares as become
available under the Plan as a result of the termination or cancellation of
previously granted options
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.
23
<PAGE>
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 Mr. Sangaro. See "Proposal to Amend the Company's Certificate of
Incorporation.
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.
24
<PAGE>
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, the average closing sales price for
such period immediately preceding the date of grant as the Board or the Plan
Administrator deems reasonable in the circumstances giving consideration to
the volume of trading in the shares. 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 for such date or
period.
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. 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
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
25
<PAGE>
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.
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 in February 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
26
<PAGE>
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.
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
27
<PAGE>
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 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.
28
<PAGE>
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 June 30, 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. The options were granted to the co-Licensors of the Purgative
Product - for 450,000 shares to Dr. Craig Aronchik and 150,000 shares to each
of Dr. Scott Wright and Dr. William Lipshutz. See "Proposed Acquisitions
Business of the Company." 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 "Proposed Acquisitions
- - Business of CorBec" and "- Business of Sangen".
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 (i) the exercise price
of the options shall be determined by the Board or the Plan Administrator
subject to the only limitation that it may not be less than par value and (ii)
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.
29
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the fiscal years ended June 30, 1997, 1996 and 1995 to the
Company's Chief Executive Officer and President (and the only other executive
officer who received compensation in excess of $100,000 during any of the three
years).
<TABLE>
<CAPTION>
Annual Compensation
Year Salary Bonus Other Compensation Securities
Underlying Options
<S> <C> <C> <C> <C> <C>
Taffy James Williams, 1997 $185,000 $22,500 $ 540,000(3)
President and CEO(1) 1996 165,833 8,250 16,600(2) 60,000
1995 11,975 100,000
Robert Krell, 1997 123,400 10,000
Executive Vice President(4) 1996 33,000 60,000
</TABLE>
(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.
(3) See "Proposed Acquisitions - Summary".
(4) Mr. Krell entered the Company's employ in 1996 and resigned effective
May 9, 1997.
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 "Proposed
Acquisitions - Summary" and "--Interests of Certain Persons with respect to the
Proposed Acquisitions") , Dr. Williams and Dr. 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 "Proposed
Acquisition - Summary" 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
30
<PAGE>
year option to purchase such number of shares of Common Stock as equals
the greater of 1,200,000 shares 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 Board of Directors, or willful misconduct which
has a material adverse effect of 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 a fee of $112,500 for the
year ended June 30, 1994 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 a
ten 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
31
<PAGE>
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 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 as follows: 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.
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 table reflects information with respect to options which
have been granted under the Stock Option Plan to the executive officers named
in the Summary Compensation Table, all current executive officers as a group,
all non-executive officers as a group , and all employees as a group for the
years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
OPTION GRANTS
% 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>
Years Ended June 30, 1997
Taffy James Williams 500,000(1) 89.5% $.61 1/3/2007
40,000 7.2% $.50 12/10/2006
Robert Krell 10,000 1.5% $.50 9/2001
All Current Executive
Officers as a Group 555,000 99.4% $.50-$.61 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% $.50-$.61 12/10/2006-1/3/2007
Year Ended June 30, 1996
Taffy James Williams 60,000(1) 41.0% $0.875 6/15/2006
Robert Krell 60,000 41.0% $1.00 9/2001
All Current Executive
Officers as a Group 130,000 100.0% $.875-$1.00 4/8/2000-6/15/2006
All Non-Executive Officer Current
Directors as a Group None None None None
32
<PAGE>
All Employees as a Group 146,000 100.0% $1.875-$1.25 4/8/2000-6/15/2006
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 "Proposed Acquisitions - Summary" and "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 during the year ended June
30, 1996 to purchase 15,000 shares at a price of $1.25 per share to Dr. Jacob
and during the year ended June 30, 1997 to purchase 750,000 shares in
connection with the Purgative Product License, and to the extent of 400,000
shares to Amercom, all at a price of $.61 per share. See "--Certain
Transactions" and "Proposed Acquisitions - Business of the Company".
As of June 30, 1997 options have been exercised with respect to 30,700
shares of Common Stock. During the year ended June 30, 1997, options with
respect to 30,000 shares were exercised by Mr. Robert Krell, who resigned May
9, 1997 an Executive Vice President and options with respect to 700 shares were
exercised by a former non-executive employee for realized values of $76,900 and
$1,500, respectively, based on the market prices on dates of exercise.
The following table sets forth the values of the options held by its
Chief Executive Officer as of June 30, 1997. Mr. Krell resigned as an officer
and employee of the Company on May 9, 1997.
<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 160,000 540,000 $180,000 $772,000
All Current Executive Officers as a Group 168,334 46,666
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 30,
1997 of 2.06.
EXPERTS
The financial statements of Panax Pharmaceutical Company Ltd. as of
June 30, 1996 and for the two-year period then ended and for the period from
July 1, 1993 (commencement of
33
<PAGE>
operations) through June 30, 1996, audited by Richard A. Eisner & Company, LLP,
independent auditors, have been included in this Prospectus in reliance upon
their report appearing elsewhere herein, given upon the authority of said firm
as experts in accounting and auditing.
The financial statements of CorBec Pharmaceuticals Inc. as of December
31, 1996 and 1995 and for the years ended December 31, 1996 and 1995 and for
the period from inception (June 11, 1993) to December 31, 1996, included in
this Proxy Statement have been audited by Arthur Andersen, LLP, independent
public accountants, as indicated in their report with respect thereto and are
included in reliance upon the authority of said firm as experts in giving said
report. References is made to said report which includes an explanatory
paragraph regarding the Company's ability to continue as a going concern.
A representative of Richard A. Eisner & Company, LLP, 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.
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.
34
<PAGE>
INDEX TO PRO FORMA AND FINANCIAL STATEMENTS
PAGE
NUMBER
PANAX PHARMACEUTICAL COMPANY LTD. ------
- ---------------------------------
PRO FORMA UNAUDITED CONDENSED
BALANCE SHEET AT MARCH 31, 1997............................................F-1
NOTES TO PRO FORMA UNAUDITED CONDENSED
BALANCE SHEET AT MARCH 31, 1997............................................F-3
PRO FORMA UNAUDITED CONDENSED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996.............................F-4
PRO FORMA UNAUDITED CONDENSED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1997.............................................................F-5
REPORT OF INDEPENDENT AUDITORS.............................................F-7
BALANCE SHEET AS OF JUNE 30, 1996 .........................................F-8
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..............................F-9
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) FOR EACH OF YEARS
IN THE THREE-YEAR PERIOD FROM JULY 1, 1993 (COMMENCEMENT OF
OPERATIONS) TO JUNE 30, 1996 ....................................F-10
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................................F-11
NOTES TO FINANCIAL STATEMENTS.............................................F-12
BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED)............................F-17
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)...................F-18
STATEMENTS OF CASH FLOWS 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).......................................F-19
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)..................................F-20
<PAGE>
CORBEC PHARMACEUTICALS, INC.
- ----------------------------
REPORT OF INDEPENDENT AUDITORS............................................F-21
BALANCE SHEETS AS OF DECEMBER 31, 1996
AND DECEMBER 31, 1995...........................................F-22
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-23
STATEMENT OF STOCKHOLDERS' DEFICIT........................................F-24
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-25
NOTES TO FINANCIAL STATEMENTS.............................................F-26
BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED)............................F-30
STATEMENTS OF OPERATION FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND MARCH 31, 1996
AND FOR THE PERIOD FROM INCEPTION
(JUNE 11, 1993) TO MARCH 31, 1997 (UNAUDITED)....................F-31
STATEMENTS OF CASH FLOWS FOR THE THREE MONTH
ENDED MARCH 31, 1997 AND MARCH 31, 1996
AND FOR THE PERIOD FROM INCEPTION
(JUNE 11, 1993) TO MARCH 31, 1997 (UNAUDITED)....................F-32
SANGEN PHARMACEUTICALS INC.
- ---------------------------
BALANCE SHEET AS OF MAY 31, 1997 (UNAUDITED)..............................F-33
- -------------------
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
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 if they had occurred on
March 31, 1997: (1) the acquisition of CorBec Pharmaceutical Inc. ("CorBec")
for 750,000 shares of common stock and $750,000, (2) the acquisition of Sangen
Pharmaceutical Inc. ("Sangen") for an option for 300,000 shares of Common
Stock, (3) the issuance of 32 units at $250,000 per unit yielding net proceeds
of $6,980,000, and (4) acquisition of certain technologies from Allegheny
University ("TSP-1 Technology") for 125,000 shares of common stock and a
license from AWL Partnership for the Purgative Product for $250,000. 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 Proxy
Statement. 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>
Pro Forma Pro Forma
Historical Adjustments Adjustments Pro Forma
--------------------------------------- for for Balance
Panax CorBec Sangen Acquisitions Subtotal Financing Sheet
----------- ---------- ---------- ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents . . $ 181,000 $ 539,000 $1,000 (4) $ (20,000)
(5) (750,000)
(8) (150,000) (199,000)(6) 6,980,000 6,781,000
Certificate of deposit. . . . 549,000 549,000 549,000
Investments to be held to
maturity. . . . . . . . . . 1,046,000 1,046,000 1,046,000
Prepaid expenses and other
current assets. . . . . . . 66,000 17,000 83,000 83,000
----------- ---------- ------ ----------- ---------- --------- ----------
Total current assets . 1,842,000 556,000 1,000 (920,000) 1,479,000 (6) 6,980,000 8,459,000
Equipment, net . . . . . . . . . 33,000 33,000 33,000
Other assets . . . . . . . . . . 204,000 (8) 150,000 354,000 354,000
----------- ---------- ------ ----------- ---------- ----------
T O T A L. . . . . . . 2,079,000 556,000 1,000 (770,000) 1,866,000 6,980,000 8,846,000
=========== ========== ====== =========== ========== ========= ==========
Current liabilities:
Accounts payable and other
accrued expenses. . . . . . $ 57,000 $ 10,000 $ 67,000 67,000
------------ ----------- ---------- ==========
F-1
<PAGE>
Redeemable Convertible 2,000 (5) (2,000) 0 0
Preferred
stock
Stockholders' equity:
Common stock and additional
paid-in capital . . . . . . 6,517,000 2,667,000 1,000 (1) 623,000
(2) 503,000
(3) 313,000
(5) (2,667,000)
(5) 1,875,000
(8) 88,000
(7) 945,000
(9) 1,701,000 12,566,000)(6) 6,980,000 19,546,000
Unearned portion of
compensatory stock/warrants (9) (1,701,000)
stock/warrants (922,000) (8) (88,000) (2,954,000) (2,954,000)
(2) (243,000)
Deficit accumulated during
the development stage . . . (3,573,000) (2,123,000) (1) (623,000)
(2) (260,000)
(3) (313,000)
(4) (20,000)
(5) (2,079,000)
(5) 2,123,000
(7) (945,000) (7,813,000) (7,813,000)
----------- ---------- ------ ----------- ---------- --------- ----------
Total stockholders'
equity . . . . . . . 2,022,000 544,000 1,000 (768,000) 1,799,000 6,980,000 8,779,000
----------- ---------- ------ ----------- ---------- --------- ----------
T O T A L. . . . . . . $ 2,079,000 $ 556,000 $1,000 $ (770,000) 1,866,000 6,980,000 8,846,000
=========== ========== ====== =========== ========== ========= ==========
</TABLE>
F-2
<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 $624,000). 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. Technological feasibility of the purchased in-
process research and development has not yet been established and the
technology has no alternative uses.
(2) Reflects the estimated fair value of 295,000 options to be issued to
consultants to Sangen for TSP-1 technology and CorBec. The Company has
immediately charged operations for $260,000 for options that vest
immediately and the remaining $243,000 will be charged to operations
over the three year term of the consulting agreements.
(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 which has been charged to expense
immediately. Technological feasibility of the technology rights has
not yet been established and the technology has no alternative uses.
(4) Reflects the obligations of the Company for payment of patent costs
incurred by Allegheny University prior to completion of the
acquisition of technology rights.
(5) Reflects the acquisition of CorBec at a cost of $2,625,000 (750,000
shares of common stock and $750,000 in cash). In addition, 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 milestones and targets, as defined. 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. Technological feasibility of the purchased in-process
research and development has not yet been established and the
technology has no alternative uses. CorBec preferred stock will be
converted to common stock immediately prior to the acquisition.
(6) Reflects the issuance of 32 units, each unit consisting of 125,000
shares of Common Stock, and 25,000 Class A Redeemable Common Stock
Purchase Warrants at $250,000 per unit, yielding net proceeds of
$6,980,000 after offering costs and placement agent fees aggregating
$1,020,000.
(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) Reflects consideration of $250,000 in cash (of which $100,000 was
prepaid) for the ALW License of the purgative product and options with
an estimated fair value of $88,000 for three year consulting
agreements.
(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-3
<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 occurred 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>
Pro Forma
Historical (1) Statement
-------------------------------- Pro Forma of
Panax CorBec(2) Adjustments Operations
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Costs and expenses:
Research and
development . . . $ 644,000 $591,000 (3) $58,000
(5) 70,000
(6) 225,000 1,617,000
(7) 29,000
General and
administrative. . 812,000 141,000 (3) 23,000
(4) 567,000
(5) 75,000 1,618,000
---------- -------- --------- ---------
Total. . . . 1,456,000 732,000 1,047,000 3,235,000
Interest (income) . (239,000) (8,000) (247,000)
---------- -------- --------- ---------
NET LOSS . . . . . . . 1,217,000 724,000 1,047,000 2,988,000
========== ======== ========= =========
Pro forma loss per
share . . . . . . . $0.38 $0.37(8)
===== =====
Pro forma weighted
average shares
outstanding . . . . 3,231,038 8,106,038
========= =========
</TABLE>
(1) Does not include the operations of Sangen since they were not material.
(2) Based on management's internal financial statements
(3) To record amortization of fair value of options granted to consultants.
(4) To record amortization of fair value of options granted to the new
Chairman of the Board and Chief Executive Officer.
(5) To record additional consulting fees to be paid to consultants to Sangen
for TSP-1 Technology and CorBec.
(6) To record additional contractual funding research for TSP-1 Technology and
the CorBec Technology. In addition, the Company is also required to fund
at least $1,000,000 of additional research in furtherance of the
development of the Purgative Product over the course of two years
commencing following completion of the financing.
(7) To record amortization of fair value of options granted for consulting
services in connection with ALW License.
(8) 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 $2,702,000, which is a nonrecurring charge directly attributed
to the transaction and is treated as purchased research and development
expense.
F-4
<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(2) 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 (3) $43,000
(5) 53,000
(6) 219,000
(7) 22,000 1,487,000
General and
administrative. . 708,000 88,000 (3) 18,000
(4) 425,000
(5) 38,000 1,277,000
---------- -------- -------- ----------
Total. . . . 1,331,000 615,000 818,000 2,764,000
Interest (income) . (100,000) (7,000) (107,000)
---------- -------- ----------
NET LOSS . . . . . . . 1,231,000 608,000 818,000 2,657,000
========== ======== ======== ==========
Pro forma loss per
share . . . . . . . $0.38 $0.33 (8)
===== =====
Pro forma weighted
average shares
outstanding . . . . 3,232,986 8,107,986
========= =========
</TABLE>
(1) Does not include the operations of Sangen since they were not material.
(2) Based on management's internal financial statements
(3) To record amortization of fair value of options granted to consultants.
(4) To record amortization of fair value of options granted to the new
Chairman of the Board and Chief Executive Officer.
(5) To record additional consulting fees to be paid to consultants to Sangen
for TSP-1 Technology and CorBec.
(6) To record additional contractual funding research for TSP-1 Technology and
the CorBec Technology. In addition, the Company is also required to fund
at least $1,000,000 of additional research in furtherance of the
development of the Purgative Product over the course of two years
commencing following completion of the financing.
(7) To record amortization of fair value of options granted for consulting
services in connection with ALW license.
F-5
<PAGE>
(8) 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 $2,702,000, which is a nonrecurring charge directly attributed
to the transaction and is treated as purchased research and development
expense.
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Panax Pharmaceutical Company Ltd.
New York, New York
We have audited the accompanying balance sheet of Panax Pharmaceutical
Company Ltd. (a development stage company) as at June 30, 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period then ended and for the period July 1,
1993 (commencement of operations) through June 30, 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 enumerated above present
fairly, in all material respects, the financial position of Panax
Pharmaceutical Company Ltd. at June 30, 1996, and the results of its operations
and its cash flows for each of the years in the two-year period then ended and
for the period July 1, 1993 (commencement of operations) through June 30, 1996
in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
July 31, 1996
F-7
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
BALANCE SHEET
AS AT JUNE 30, 1996
A S S E T S
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents (Note B[4])...................................................... $ 398,689
Certificate of deposit..................................................................... 200,000
Investments to be held to maturity (Note C)................................................ 2,457,979
Prepaid expenses and other current assets (Including $28,591 prepaid to affiliates)........ 37,558
-----------
Total current assets................................................................ 3,094,226
-----------
Equipment: (Note B[1])
Testing equipment.......................................................................... 109,733
Computer equipment......................................................................... 15,872
-----------
125,605
Less accumulated depreciation.............................................................. 66,344
-----------
59,261
-----------
Other assets ................................................................................. 38,069
-----------
T O T A L........................................................................... $ 3,191,556
===========
L I A B I L I T I E S
Current liabilities:
Accounts payable and other accrued expenses................................................ $ 71,419
-----------
Management fees payable (Note G[4])........................................................... 112,500
-----------
Accrued salary - stockholder.................................................................. 28,000
-----------
Commitments (Note G)
STOCKHOLDERS' EQUITY
(NOTE F)
Common stock, $.0001 par value; authorized 10,000,000
shares; issued 3,315,710 shares ..................................................... 331
Additional paid-in capital.................................................................... 5,460,543
Unearned portion of compensatory stock/warrants .............................................. (138,819)
Deficit accumulated during the development stage.............................................. (2,342,400)
Less common stock held in treasury (180,000 shares) .......................................... (18)
-----------
Total stockholders' equity.......................................................... 2,979,637
-----------
T O T A L........................................................................... $ 3,191,556
===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-8
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) THROUGH
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Costs and expenses:
Research and development.................. $ 644,051 $391,712 $1,165,442
General and administrative............... 811,901 433,763 1,420,553
Write-off of debt discount................ 53,125 75,000
Interest expense.......................... 6,160 6,160
----------- ----------- ----------
1,455,952 884,760 2,667,155
Interest (income)........................... (239,022) (85,733) (324,755)
----------- ----------- ----------
NET LOSS..................................... $ 1,216,930 $ 799,027 $2,342,400
----------- ----------- ----------
NET LOSS PER SHARE (NOTE B[5])............... $ 0.38 $ 0.31
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING........................ 3,231,038 2,599,097
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-9
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK PORTION OF
-------------- ADDITIONAL COMMON COMPENSATORY
NUMBER OF PAID-IN STOCK OPTION/
SHARES AMOUNT CAPITAL SUBSCRIPTION WARRANTS
--------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Common stock subscription .......... 2,000,000 $200 $ 800 $(1,000)
Payment of common stock subscription
on June 23, 1994.................... 1,000
Issuance of stock rights in conjunction
with notes payable (Note F[1])...... 21,875
Capital contribution - expenses paid on
behalf of Company (Note G[4])........ 96,682
Net loss............................ _________ ___ _________ ______ _________
Balance - June 30, 1994............. 2,000,000 200 119,357 -- --
Issuance of stock rights in conjunction
with notes payable (Note F[1])...... 53,125
Initial public offering, net of expense
of $1,192,876 (Note F[2])........... 1,235,710 123 4,985,551
Value of option granted
(Note F[3])......................... 80,000
Exercise of options and stock rights 80,000 8 4,992
Net loss............................ _________ ____ _________ ______ _________
Balance - June 30, 1995............. 3,315,710 331 5,243,025 -- --
Value of option and warrants granted
(Notes F[3] and F[4])............... 217,500 $(217,500)
Compensatory options/warrants
shares earned....................... 78,681
Common stock acquired (Note F[5])... 18
_________ ____ __________ _______ _________
Net loss............................ --
Balance - June 30, 1996............. 3,315,710 $331 $5,460,543 $ -- $(138,819)
========= ==== ========== ======= =========
</TABLE>
(TABLE RESTUBED FROM ABOVE)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE TREASURY STOCK STOCKHOLDERS
DEVELOPMENT ' EQUITY
STAGE SHARES AMOUNT (DEFICIENCY)
------- ------- ------ ------------
<S> <C> <C> <C> <C>
Common stock subscription ..........
Payment of common stock subscription
on June 23, 1994.................... $ 1,000
Issuance of stock rights in conjunction
with notes payable (Note F[1])...... 21,875
Capital contribution - expenses paid on
behalf of Company (Note G[4])........ 96,682
Net loss............................ $ (326,443) (326,443)
----------- ---- ---- --------
Balance - June 30, 1994............. (326,443) -- -- (206,886)
Issuance of stock rights in conjunction
with notes payable (Note F[1])...... 53,125
Initial public offering, net of expense
of $1,192,876 (Note F[2])........... 4,985,674
Value of option granted
(Note F[3])......................... 80,000
Exercise of options and stock rights 5,000
Net loss............................ (799,027) (799,027)
----------- ------- ---- ----------
Balance - June 30, 1995............. (1,125,470) -- -- 4,117,886
Value of option and warrants granted
(Notes F[3] and F[4])...............
Compensatory options/warrants
shares earned....................... 78,681
Common stock acquired (Note F[5])... (180,000) (18)
Net loss............................ (1,216,930) (1,216,930)
----------- -------- ---- ----------
Balance - June 30, 1996............. $(2,342,400) (180,000) $(18) $2,979,637
=========== ======== ==== ==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-10
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT
OF OPERATIONS)
YEAR END YEAR END THROUGH
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (1,216,930) $ (799,027) $ (2,342,400)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization........................ 35,928 22,709 66,843
Write-off of debt discount........................... 53,125 75,000
Value of services paid by options and warrants....... 80,000 80,000
Accretion of compensatory options and warrants.... 78,681 78,681
(Increase) in prepaid expenses
and other assets.................................. (51,072) (4,719) (75,058)
Increase in accounts payable and accrued
expenses.......................................... 6,807 41,681 99,419
Expenses paid by affiliate........................... 96,682
Increase in management fees payable.................. 112,500
------------ ---------- ------------
Net cash (used in) operating activities.......... (1,146,586) (606,231) (1,808,333)
------------ ---------- ------------
Cash flows from investing activities:
Purchases of investments and certificates of deposit...... (2,181,502) (3,786,477) (5,967,979)
Redemption of investments and certificates of
deposit................................................ 3,310,000 3,310,000
Acquisition of equipment.................................. (41,757) (31,690) (125,604)
Organization costs........................................ (1,069)
Net cash provided by (used in) investing activities.. 1,086,741 (3,818,167) (2,784,652)
------------ ---------- ------------
Cash flows from financing activities:
Issuance of common stock - net of expenses................ 4,990,674 4,991,674
Proceeds from notes payable - affiliates.................. 14,000
Proceeds from notes payable - stockholders................ 41,800 96,300
Proceeds from notes payable - other....................... 212,500 300,000
Deferred offering costs................................ 25,000
Repayment of notes payable - stockholders and other....... (410,300) (410,300)
---------- ------------
Net cash provided by financing activities............ 4,859,674 4,991,674
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... (59,845) 435,276 398,689
Cash and cash equivalents - beginning of period.............. 458,534 23,258 - 0 -
------------ ---------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD.................... $ 398,689 $ 458,534 $398,689
============ ========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. - 0 - $ 6,160 $ 6,160
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-11
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
Panax Pharmaceutical Company Ltd. (the "Company") was incorporated in
May 1993 and commenced operations in July 1993. The Company was originally
formed to develop pharmaceutical products through bioassaying of plant
extracts, identifying, and isolating active compounds from plants with a
history of medicinal use grown in regions formerly comprising the Soviet Union.
The Company has contractual arrangements with scientists and the Komarov
Botanical Institute of the Russian Academy of Sciences in St. Petersburg,
Russia (see Note G[2]). The Company is in the development stage and, to date,
has generated no sales revenues, has incurred expenses and has sustained
losses. Consequently, its operations are subject to all of the risks inherent
in the establishment of a new business enterprise. For the period from
inception through June 30, 1996, the Company has accumulated a deficit of
$2,342,400.
In January 1995, the Company obtained additional financing through a
public offering of securities to fund its continued research and development
activities (Note F[2]). There can be no assurance, however, that the Company
will have sufficient funds to complete its research and development programs or
be able to commercially manufacture or market any products in the future; that
future revenues will be significant; or that any sales will be profitable.
(NOTE B) - Summary of Significant Accounting Policies:
[1] Equipment:
Equipment is stated at cost less accumulated depreciation.
Depreciation is computed using straight-line methods over the useful lives of
the assets (three years).
[2] Organization costs:
Organization costs are being amortized over five years.
[3] Research and development:
Research and development costs are charged to operations as
incurred.
[4] Cash equivalents:
The Company considers investments with original maturity
dates up to 90 days to be cash equivalents.
[5] Net loss per share:
Net loss per share is computed using the weighted average
number of shares of common stock outstanding during the period. In accordance
with certain rules of the Securities and Exchange Commission for the periods
prior to the Company's initial public offering in January 1995, common stock
and options issued during the twelve-month period prior to filing of an initial
public offering have been included in the calculation as if they were
outstanding for all periods prior to the offering.
[6] 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
reported period. Actual results could differ from those estimates.
[7] Recently Issued Accounting Pronouncements:
(continued)
F-12
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" which is effective for the
Company's fiscal year commencing July 1, 1996. SFAS No. 123 allows companies to
either account for employee stock-based compensation under the new provisions
of SFAS No. 123 (the fair value method) or under the provisions of APB No. 25
(the intrinsic value method), but requires pro forma disclosure in the
footnotes to the financial statements as if the measurement provisions of SFAS
No. 123 had been adopted. At this time, the Company intends to continue
accounting for its employee stock-based compensation in accordance with the
provision of APB No. 25.
(NOTE C) - Investments:
The Company classifies its investments as held-to-maturity, available
for sale, or trading investments. Investments including accrued interest at
June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Unrealized
Held to Maturity Amortized Cost Fair Value Gain
- ---------------- -------------- ---------- ----
<S> <C> <C> <C>
U.S. Treasury notes and bills:
due within year ending June 30, 1997: $2,457,979 $2,470,098 $12,119
</TABLE>
(NOTE D) - Income Taxes:
At June 30, 1996, the Company has available for federal income tax
purposes net operating loss carryforwards of approximately $838,000, expiring
through 2011, that may be used to offset future taxable income. The difference
between the net loss for financial reporting purposes and the net operating
loss for tax purposes is primarily due to certain general and administrative
costs which are not currently deductible for tax purposes. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit of $377,000 and the benefit of $570,000 from other temporary
differences, principally general and administrative expenses, since the
likelihood of realization cannot be determined. The difference between the
federal statutory tax rate of 34% and the Company's effective tax benefit rate
of 0% is attributable to the nondeductible portion of compensation expense for
stock options issued of $79,000 and an increase in valuation allowance of
$507,000 in 1996 and an increase in valuation allowance of $362,000 in 1995.
(NOTE E) - Related Party Transactions:
Pursuant to employment and research agreements with various
stockholders, the Company incurred research and development expenses of
approximately $107,000 and $92,000 for the years ended June 30, 1996 and June
30, 1995, respectively.
During the year ended June 30, 1996 and June 30, 1995 the Company paid
approximately $100,000 and $42,000, respectively to a company owned by certain
of its officers, directors and stockholders pursuant to a management agreement
(see Note G[4]).
(NOTE F) - Stockholders' Equity:
[1] Notes Payable:
During calendar 1994 the Company borrowed $300,000 pursuant to 4%
demand notes. The note holders received one share of the Company's common stock
for each ten dollars of notes outstanding (30,000 shares) upon completion of a
public offering of the Company's securities (Note F[2]). The value of these
stock rights was recorded as a discount on the notes and expensed immediately.
The notes were repaid in January and February 1995.
[2] Public offering:
(continued)
F-13
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Stockholders' Equity: (continued)
In January 1995, the Company effected an initial public offering of
its securities. A total of 1,235,710 units, each comprised of one share of
common stock and one redeemable common stock purchase warrant, were sold
yielding net proceeds of approximately $4,986,000 after underwriting
commissions and expenses.
[3] Stock options:
During 1993 the Board of Directors and the stockholders of the Company
approved a Stock Option Plan (the "1993 Plan") which provides for the granting
of up to 150,000 shares of common stock, pursuant to which directors,
employees, non-employees, consultants and advisors are eligible to receive
stock options. On December 15, 1995, the stockholders approved a 350,000 share
increase in the number of shares subject to the Plan. Options granted under the
1993 Plan are exercisable for a period of up to 10 years from the date of grant
at an exercise price which is not less than the fair value on date of grant,
except that the exercise period of options granted to a stockholder owning more
than 10% of the outstanding capital stock may not exceed five years and their
exercise price may not be less than 110% of the fair value of the common stock
at date of grant.
Stock option activity under the 1993 Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTION NUMBER
NUMBER PRICE OF SHARES
OF SHARES PER SHARE EXERCISABLE
--------- --------- -----------
<S> <C> <C> <C>
Granted........................................................ 157,000 $1.125
-------
Outstanding at June 30, 1995................................... 157,000 $1.125 50,000
======
Granted........................................................ 261,000 $0.875 - $1.25
-------
Outstanding at June 30, 1996................................... 418,000 $0.875 - $1.25 183,250
======= =======
</TABLE>
IN APRIL 1995, THE COMPANY GRANTED A BUSINESS CONSULTANT AN OPTION
OUTSIDE THE 1993 PLAN TO PURCHASE 50,000 SHARES AT $2.00 PER SHARE AND 50,000
SHARES AT $3.00 IN LIEU OF PAYMENT FOR SERVICES RENDERED. AT THE DATE OF GRANT
THE COMPANY RECORDED AN EXPENSE OF $45,000 FOR SUCH SERVICES. THE OPTION
AGREEMENT WAS AMENDED TO REDUCE THE OPTION EXERCISE PRICE TO $0.10 PER SHARE
FOR 50,000 SHARES (THIS OPTION WAS EXERCISED FOR 50,000 SHARES IN MAY 1995)
RESULTING IN AN ADDITIONAL EXPENSE OF $35,000. THE REMAINING OPTION FOR 50,000
SHARES WAS CANCELED. DURING THE YEAR ENDED JUNE 30, 1996 THE COMPANY ISSUED
OPTIONS TO VARIOUS CONSULTANTS (NOTE G[1]).
[4] WARRANTS:
The Company has the following warrants outstanding at June 30, 1996
for the purchase of its common stock:
SHARES/ EXERCISE
UNITS PRICE EXPIRATION DATE
----- ----- ---------------
(continued)
F-14
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Stockholders' Equity: (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Public 1,264,615 $6.84 Each warrant entitles the holder to purchase one share of common stock at
Warrants the exercise price subject to adjustment for dilution through April 27,
1997. The warrants may be redeemed by the Company at a $.05 per
warrant on 30 days prior written notice if the closing bid price of common
stock averages at least $9.00 for the 20 consecutive trading day period
ending within 15 days of the notice of redemption.
Underwriters 107,500 $7.50 January 2000 - Each warrant entitles the holder to purchase one share of
Warrant stock and one warrant exercisable at $7.50.
Issued for 320,000 $1.00 October 2000. The Company issued a warrant to purchase 320,000 shares
Services-1996 of common stock for financial and business services to be provided in
accordance with an agreement with an investment banking firm. The
Company valued the warrants at $160,000 which is being amortized over
the period of the agreement.
</TABLE>
[5] Treasury Stock:
In December 1995, the Center of Efferent Therapy returned to the
Company 30,000 shares of the Company's common stock which it received in 1993
in connection with its agreement to perform certain testing services on behalf
of the Company which was terminated. In February 1996, the Vice President of
Ethnobotany resigned and returned 150,000 shares of common stock to the Company
which he received in 1993 in connection with an employment agreement. Such
return of shares have been accounted for at their value when originally issued
or par value.
(NOTE G) - Commitments:
[1] Employment and consulting agreements:
The Company has entered into three - to five-year employment and
consulting agreements with Russian and American botanists, ethnobotanists and
phytochemists, many of whom are stockholders. At June 30, 1994 the company had
accrued $28,000 for services rendered pursuant to one such agreement. Such
amount was subsequently deferred to become payable at the end of the first
fiscal year of the Company for which the consolidated net income of the Company
and any subsidiaries is at least $500,000. At June 30, 1996, future minimum
payments are as follows for employment and consulting agreements:
1997......................... $175,000
1998......................... 99,000
1999......................... 35,000
---------
TOTAL........................ $ 309,000
=========
Effective June 5, 1995, the Company entered into a three-year
employment agreement with the President and Chief Executive Officer for a base
annual salary of $165,000 subject to annual increases as determined by the
Board of Directors. The Board of Directors approved an increase to $185,000 per
annum in June 1995.
In addition, the Company has entered into various agreements with
financial and business consultants. These agreements provide for payments of
$22,000 through February 1997.
In conjunction with these scientific and financial consulting
agreements the Company issued stock options for 115,000 shares of common stock
under the 1993 plan (Note F[3]) which were valued at $57,500 and are being
amortized over the period of these agreements.
(continued)
F-15
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Commitments: (continued)
[2] Research agreements:
The Company has entered into an agreement with the Komarov Botanical
Institute of the Russian Academy of Sciences in St. Petersburg, Russia and
other institutions of higher education, for the use of laboratories and other
facilities and for research services. At June 30, 1996, future annual minimum
payments under the agreements are as follows:
1997......................... 48,000
1998......................... 18,000
1999......................... 18,000
2000......................... 18,000
2001......................... 18,000
Thereafter................... 36,000
-----------
Total........................ $ 156,000
=========
[3] Lease commitment:
Prior to the closing of its initial public offering, nominal space was
provided at no charge by a company providing management services (the
"Management Company") (Note G[4])
In July 1995 the Company entered into a lease agreement expiring April
2000, which provides for base rent of $195,300 per annum. In connection with
its lease agreement, the Company opened an irrevocable letter of credit of
$150,000, as security for its rental obligation.
In conjunction with the lease agreement, the Company entered into a
cost-sharing agreement with the Management Company and its affiliates. The
agreement provides for the use of a substantial portion of the office space by
the Management Company at cost. The agreement also provides for reimbursement
by the Management Company of furnishings, equipment and support services.
Rent expense was approximately $66,000 after reimbursement by
affiliates and $20,000 for the years ended June 30, 1996 and June 30, 1995,
respectively.
[4] Other:
Pursuant to a management agreement with a company owned by certain of
its officers, directors and stockholders, the Company is required to pay
$112,500 for services rendered through June 30, 1994. Such amount is payable at
the end of the first fiscal year of the Company for which the consolidated net
income of the Company and any subsidiaries is at least $500,000. Effective
February 1995 the Company is required to pay $8,333.33 per month, for a
three-year period, for management services. During the fiscal year ended June
30, 1994 this affiliated company paid certain operating expenses on behalf of
the Company aggregating $94,786, which amount plus related interest of $1,896
was contributed to the Company as capital.
(NOTE H) - Fair Value of Financial Instruments:
Financial instruments consist of cash and cash equivalents and
accounts payable. The carrying amount of these instruments approximate fair
value due to their short-term nature.
F-16
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,1997
-------------
ASSETS (UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents....................................... $ 181,054
Certificate of deposit.......................................... 549,012
Investments to be held to maturity.............................. 1,045,592
Prepaid expenses and other current assets....................... 65,766
Total current assets..................................... 1,841,424
----------
Equipment:
Testing equipment............................................... 111,534
----------
Computer Equipment ............................................. 15,872
127,406
Less accumulated depreciation...................................... 93,996
----------
33,410
Other assets ...................................................... 203,586
----------
TOTAL.................................................... $2,078,421
----------
LIABILITIES
Current liabilities:
Accounts payable and other accrued expenses..................... $ 56,707
----------
Management fees payable ........................................... 0
Accrued salary - stockholder....................................... 0
----------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; authorized 10,000,000
shares; issued 3,342,327 and 3,315,710 shares, respectively..... 334
----------
Additional paid-in capital......................................... 6,516,411
----------
Unearned portion of compensatory stock/warrants .................. (921,782)
----------
Deficit accumulated during the development stage .................. (3,573,250)
Less common stock held in treasury (0 and 180,000 shares) ......... 0
----------
Total stockholders' equity............................... 2,021,714
----------
TOTAL.................................................... $2,078,421
----------
</TABLE>
F-17
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT
THREE MONTHS ENDED NINE MONTHS ENDED OF OPERATIONS)
MARCH 31, MARCH 31, THROUGH
1997 1996 1997 1996 MARCH 31, 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales ............................... $ 1,425 $ 1,425
Cost of Goods Sold .................. 900 900
---------- ---------- ---------- ----------
Profit from Sales ................... 525 525
Costs and expenses:
Research and development......... $ 198,726 $152,144 $623,350 $385,199 $1,788,792
General and administrative....... 263,094 198,018 707,895 621,946 2,128,448
Write-off of debt discount........ 75,000
Interest expense.................. 6,160
---------- ---------- ---------- ---------- ----------
461,820 350,162 1,331,245 1,007,145 3,998,400
Interest (income).................... (34,462) (62,200) (99,870) (202,774) (424,625)
---------- ---------- ---------- ---------- ----------
NET LOSS............................. $ 427,358 $ 287,962 $1,230,850 $804,371 $3,573,250
========== =========== ========== ========== ==========
Net loss per share................... $0.13 $ 0.09 $ 0.38 $ 0.25
========== =========== ========== ==========
Weighted average number of
common
shares outstanding................ 3,342,327 3,163,732 3,232,986 3,262,692
========== =========== ========== ==========
</TABLE>
F-18
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT OF
OPERATIONS)
NINE MONTHS ENDED MARCH 31, THROUGH
1997 1996 MARCH 31, 1997
----- ----- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (1,230,850) $ (804,371) $(3,573,250)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization.......................... 27,653 25,746 94,496
Write-off of debt discount............................. 75,000
Value of services paid by options and warrants........ 80,000
Accretion of compensatory options and warrants .... 132,425 51,460 211,106
(Increase) decrease in prepaid expenses
and other assets..................................... (193,726) (69,571) (268,784)
Increase (decrease) in accounts payable
and accrued expenses................................. (14,712) (24,832) 84,707
Expenses paid by affiliate............................. 96,682
Increase in management fees payable.................... 112,500
----------- ---------- -----------
Net cash (used in) operating activities............ (1,279,210) (821,568) (3,087,543)
----------- ---------- ----------
Cash flows from investing activities:
Redemption (purchases of investments and certificates of
deposit................................................. 1,063,375 582,688 1,594,604
Acquisition of equipment.................................... (1,800) (35,014) (127,404)
Organization costs.......................................... (1,069)
----------- ---------- ----------
Net cash (used in) investing activities................ 1,061,575 547,674 (1,723,077)
----------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock - net of expenses.................. 4,991,674
Proceeds from notes payable - affiliates.................... 14,000
Proceeds from notes payable - stockholders.................. 96,300
Proceeds from notes payable - other......................... 300,000
Repayment of notes payable - stockholders and other......... (410,300)
----------- ---------- ----------
Net cash provided by financing activities.............. 4,991,674
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................. (217,635) (273,894) 181,054
Cash and cash equivalents - beginning of period................ 398,689 458,534 - 0 -
----------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD...................... $ 181,054 $ 184,640 $ 181,054
----------- ---------- ----------
</TABLE>
NON-CASH ACTIVITY: Conversion of management fee payable and accrued salary into
206,617 shares of common stock (26,617 of newly issued shares and 180,000
shares held in treasury).
F-19
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTE TO FINANCIAL STATEMENTS
(unaudited)
The unaudited financial statements of Panax Pharmaceutical Company Ltd. ("Panax
or the "Company") as of March 31, 1997 and three and nine months ended March
31, 1997 and March 31, 1996 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements, prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. However, management believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements and the notes thereto should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996. The
results for the interim periods are not necessarily indicative of the results
for the full fiscal year.
F-20
<PAGE>
ARTHUR ANDERSEN, LLP
REPORT OF INDEPENDENT AUDITORS
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' deficit and cash
flows for the years then ended, and for the period from 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.
Arthur Andersen, LLP
Philadelphia, Pa.,
March 11, 1997
F-21
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
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 STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable 1,779 3,764
Contracts payable 167,524 53,019
Accrued expenses 23,573 11,000
------ ------
Total current liabilities 193,056 67,783
------- ------
MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
2,650,000 1,650,000
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8)
STOCKHOLDERS' DEFICIT:
Common Stock, $.001 par value; 10,000,000 shares
authorized; 369,230 shares issued and outstanding 369 369
Additional paid-in capital 18,278 18,278
Deficit accumulated during development stage (1,981,678) (1,072,528)
---------- ---------
Total stockholders' deficit (1,963,031) (1,053,881)
---------- ---------
$ 880,025 $ 663,902
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the For the (June 11, 1993)
Year Ended Year Ended to
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-23
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
BALANCE, JUNE 11, 1993 $ -- $ -- $ -- $ --
Issuance of 184,615 shares of Common Stock
at $.001 per share to founder on
June 11, 1993 185 -- -- 185
Issuance of 184,615 shares of Common Stock
at $.10 per share for technology on
June 17, 1993 184 18,278 -- 18,462
Net loss -- -- (238,188) (238,188)
BALANCE, DECEMBER 31, 1993 369 18,278 (238,188) (219,541)
Net loss -- -- (338,775) (338,775)
BALANCE, DECEMBER 31, 1994 369 18,278 (576,963) (558,316)
Net loss -- -- (495,565) (495,565)
BALANCE, DECEMBER 31, 1995 369 18,278 (1,072,528) (1,053,881)
Net loss -- -- (909,150) (909,150)
--- --------
BALANCE, DECEMBER 31, 1996 $369 $ 18,278 $(1,981,678) $(1,963,031)
=== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
CORBEC PHARMACEUTICALS, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
Inception
For the For the (June 11, 1993)
Year Ended Year Ended to
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 in operating activities-
Depreciation 1,972 1,973 5,424
Licensed technology acquired with stock -- -- 18,462
(Increase) decrease in prepaid expenses and
other 2,046 (2,187) (2,083)
Increase in accounts payable, contracts
payable and accrued expenses 125,273 42,229 193,056
------- ------ -------
Net cash used in operating activities (779,859) (453,550) (1,766,819)
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- -- (5,917)
-------- -------- ----------
--
Net cash used in investing activities -- -- (5,917)
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
CASH FLOWS FROM FINANCING ACTIVITIES: -- -- 185
Proceeds from issuance of common stock
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 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 PERIOD $ 877,449 $ 657,308 $ 877,449
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<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. Operations of the Company
are subject to certain risks and uncertainties including, but not limited to,
uncertainties related to technology uncertainty, uncertainties related to
clinical trials, uncertainty of future profitability and access to capital and
dependence on key personnel. See "Going Concern".
Going Concern
As of December 31, 1996 the Company has a stockholders' deficit. The Company
has incurred losses from its research and development activities and will
require additional funding 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.
Equipment
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.
F-26
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,
" the objective of which is to recognize the amount of current and deferred
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements as
measured by enacted tax laws.
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $289,000. The net operating loss
carry forwards begin to expire in 2008 and are subject to review and possible
adjustment by the Internal Revenue Service.
The approximate income tax effect of each type of temporary differences and
carry forward is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Benefit of operating loss carry forwards $ 98,260 $ 42,688
Start-up costs 108,752 60,687
Capitalized research and development 464,122 259,712
Valuation allowance (671,134) (363,087)
----------- ----------
$ -- $ --
========== ==========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset,
the Company has provided a full valuation allowance against this amount.
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 14, 1996, and expires June 17,
1997. 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. MANDATORY REDEEMABLE CONVERTIBLE 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 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
F-27
<PAGE>
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.
5. 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.
6. 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 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.
<TABLE>
<CAPTION>
Outstanding Option Aggregate
Options Prices Price
----------- -------- ---------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 -- $ -- $ --
Granted 20,000 .10 2,000
------
BALANCE, DECEMBER 31, 1994 20,000 2,000
.10
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
====== ========== =======
</TABLE>
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.
7. 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.
8. COMMITMENTS AND CONTINGENCIES:
F-28
<PAGE>
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-29
<PAGE>
CORBEC PHARMACEUTICALS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1997
(Unaudited
----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 539,241
Prepaid expenses and other 17,331
---------
Total current assets 556,572
EQUIPMENT, net --
---------
$ 556,572
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accrued expenses $10,000
---------
Total current liabilities 10,000
---------
MANDATORY REDEEMABLE PREFERRED STOCK 2,650,000
---------
STOCKHOLDERS' DEFICIT:
Common Stock 369
Additional paid-in capital 18,278
Deficit accumulated during development stage (2,122,075)
---------
Total stockholders' deficit (2,103,428)
---------
$ 556,572
---------
</TABLE>
See accompanying notes.
F-30
<PAGE>
CORBEC PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
For the For the Inception
Three Months Three Months (June 11, 1993)
Ended Ended through
March 31, March 31, March 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
------------------ ---------------- ----------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development expenses $106,356 $70,663 $1,795,921
General and administrative expenses 36,802 80,563 370,517
------ ------
------------------ ---------------- ----------------
Net loss from operations (143,158) (151,226) (2,166,438)
INTEREST INCOME: 2,761 2,607 44,363
----- -----
------------------ ---------------- ----------------
Net loss $(140,397) $(148,619) $(2,122,075)
================== ================ ================
</TABLE>
See accompanying notes.
F-31
<PAGE>
CORBEC PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
For the For the Inception
Three Months Three Months (June 11, 1993)
Ended Ended through
March 31, March 31, March 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
----------------- ---------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: $(140,397) $(148,619) $(2,122,075)
Net loss
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation 493 493 5,917
Licensed technology acquired with
stock -- -- --
(Increase) decrease in prepaid expenses
and other (15,248) 2,770 (17,331)
Increase (decrease) in accounts
payable and accrued expenses $ (183,056) (56,784) 10,000
----------- ---------- -----------
Net cash used in operating
activities (338,208) (202,140) (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 -- -- 2,650,000
----------- ------------ -----------
Net cash provided by financing
activities -- -- 2,650,185
-----------
Net increase (decrease) in cash and
cash equivalents (338,208) (202,140) 539,241
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 877,449 657,308 --
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 539,241 $ 455,168 $ 539,241
=========== ========= ===========
</TABLE>
See accompanying notes.
F-32
<PAGE>
CORBEC PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1997 and for the three months ended
March 31, 1997 and 1996 are unaudited and, in the opinion of management of
CorBec Pharmaceuticals, Inc. (the "Company"), include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results for those interim periods. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year. For further
information reference is made to the Company's year end financial statements
appearing elsewhere in this document.
2. SALE OF COMPANY
In May 1997, the Company's Board of Directors entered into a letter of intent
to sell the Company to Panax Pharmaceutical Company, Ltd. ("Panax"). The sale
is subject to certain conditions including Panax obtaining necessary financing.
F-33
<PAGE>
SANGEN PHARMACEUTICAL COMPANY
BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
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
--------
$1,000.00
Sangen Pharmaceutical Company was organized in January 1997 and
incorporated in the State of Delaware. Sangen's principal asset is its
right to enter into an exclusive worldwide license to the
Thrombospondin Technology, a cancer treatment technology, currently
owned by Allegheny University of the Health Sciences.
F-34
<PAGE>
Annex A
Certificate of Amendment of the Certificate of Incorporation
of
Panax Pharmaceutical Company Ltd.
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is Panax Pharmaceutical Company
Ltd.
SECOND: The certificate of incorporation of the corporation was filed
with the Department of State on May 27, 1993 and a certificate of amendment
thereto was filed on [ , 1994].
THIRD: The certificate of incorporation is hereby amended as
authorized in Subdivision 1 of Section 801 of the Business Corporation Law, to
delete Article "FIRST" in its entirety and to effect the following Article
FIRST:
"FIRST: The name of the corporation is Inkine Pharmaceutical Company,
Inc."
FOURTH: The certificate of incorporation is hereby amended as
authorized in Subdivision 7 of Section 801 of the Business Corporation Law, to
delete Article "FOURTH" in its entirety and to effect the following Article
FOURTH:
"FOURTH: The aggregate number of shares which the corporation shall
have the authority to issue is: (a) Fifty Million (50,000,000) shares
of Common Stock, all of which shall have a par value of One Hundredth
($.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
<PAGE>
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.
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
<PAGE>
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 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.
2
<PAGE>
(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 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 shares shall
be the closing sale price on the date of grant or the average of the closing
sales prices for such period immediately preceding the date of grant the Board
of Directors or the Plan Administrator deems reasonable in the circumstances
given, consideration the volume of trading in the shares:
A.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 the shares are traded in the over-the-counter market
and not listed or admitted on NASDAQ, the Fair Market Value or the
average of the high bids and low asked prices of a share shall be the
mean between the high bid and low asked prices as quoted for the date
of grant or for such period by the National Quotation Bureau in its
"pink sheets" or equivalent record or publication.
(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.
3
<PAGE>
(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, 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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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.
6
<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 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
<PAGE>
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 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.
-2-
<PAGE>
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 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.
(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.
-3-
<PAGE>
(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 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
-4-
<PAGE>
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 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 advisable. Without limiting the foregoing, the Board or the
-5-
<PAGE>
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 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.
-6-
<PAGE>
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.
-7-
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint TAFFY JAMES WILLIAMS and J.R. LESHUFY, or
either of them, with full power of substitution, as attorneys for and the name,
place and stead of the undersigned, to vote all the shares of the Common Stock
of PANAX PHARMACEUTICAL COMPANY LTD, owned or entitled to be voted by the
undersigned as the Record Date, at the Special Meeting of Shareholders of the
Company scheduled to be held at the offices of the Company at 425 Park Avenue,
27th Floor, New York, New York, on Wednesday, July 23, 1997, at 10:00 a.m.
(E.D.T.) or an adjournment or adjournments of said meeting, on the following
proposals as indicated.
(Continued and to be signed on the reverse)
THIS PROXY, IF PROPERLY EXECUTED AND RETURNED, WILL BE VOTED IN ACCORDANCE WITH
THE DIRECTIONS SPECIFIED HEREOF. IF NO DIRECTIONS ARE SPECIFIED THIS PROXY WILL
BE VOTED FOR APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION,
AMENDMENT OF THE 1993 STOCK OPTION PLAN AND THE ADOPTION OF THE 1997
CONSULTANTS STOCK OPTION PLAN.
-8-
<PAGE>
<TABLE>
<S> <C> <C>
THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION [_]FOR [_]AGAINST [_]ABSTAIN
THE AMENDMENT OF THE 1993 STOCK OPTION PLAN [_]FOR [_]AGAINST [_]ABSTAIN
THE ADOPTION OF THE 1997 CONSULTANT STOCK OPTION PLAN [_]FOR [_]AGAINST [_]ABSTAIN
To Transact Such Other Business As May Properly Come Before
The Meeting Or Any Adjournment Thereof
</TABLE>
Please sign exactly as your name appears
hereon and date. Joint owners should each
sign. Trustees and fiduciaries should
indicate the capacity in which they are
signing. Please be sure to sign and date
this Proxy in the box below.
Dated:
--------------------------
--------------------------------
(Stockholder sign above)
--------------------------------
(Co-holder (if any) sign above)
Please mark boxes [_] or [X] in blue or black ink.
Detach above card, sign, date and m ail in postage paid envelope provided
