<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 0-24972
INKINE PHARMACEUTICAL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3754005
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
SENTRY PARK EAST
1720 WALTON ROAD
BLUE BELL, PA 19422
(Address of principal executive offices)
610-260-9350
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
At February 10, 2000, the registrant had outstanding 27,777,240 shares of common
stock, par value $.0001 per share.
<PAGE> 2
INKINE PHARMACEUTICAL COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
BALANCE SHEETS - as of December 31, 1999 (unaudited)
and June 30, 1999............................................................................3
STATEMENTS OF OPERATIONS (unaudited) -- For the Three and Six Month
Periods Ended December 31, 1999 and 1998, and the Period from July 1, 1993
(Commencement of Operations) through December 31, 1999.......................................4
STATEMENTS OF CASH FLOWS (unaudited) -- For the Six Month Periods
Ended December 31, 1999 and 1998, and the Period from July 1, 1993
(Commencement of Operations) through December 31, 1999.......................................5
NOTES TO UNAUDITED FINANCIAL STATEMENTS......................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION...........................................................7
PART II - OTHER INFORMATION....................................................................................10
SIGNATURES.....................................................................................................12
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 1999
ASSETS (UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................... $ 1,870 $ 1,968
Short term investments....................................... 4,171 4,894
Prepaid expenses and other current assets.................... 5 100
------------ ------------
Total current assets..................................... 6,046 6,962
Fixed assets, net................................................. 357 200
------------ ------------
Total assets............................................. $ 6,403 $ 7,162
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses.................. $ 625 $ 1,449
Line of credit.................................................... 900 --
Shareholders' equity:
Common stock, $.0001 par value; authorized 50,000,000
shares; issued 25,979,309 shares ............................ 3 2
Less common stock held in treasury (16,515 shares)................ (37) (37)
Additional paid-in capital........................................ 35,046 31,427
Deferred compensation............................................. (1,033) (2,560)
Other comprehensive income........................................ (3) (4)
Deficit accumulated during the development stage.................. (29,098) (23,115)
------------- -------------
Total shareholders' equity............................... 4,878 5,713
------------ ------------
Total liabilities and shareholders' equity............... $ 6,403 $ 7,162
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE> 4
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT
OF OPERATIONS)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1999 1998 1999
-------- -------- -------- -------- --------
Costs and Expenses:
<S> <C> <C> <C> <C> <C>
Research and development .............................. $ 1,984 $ 1,017 $ 3,395 $ 2,284 $ 14,138
Purchased research and development .................... -- -- -- -- 3,952
General and administrative ............................ 982 974 1,897 1,828 11,703
Separation agreement and accelerated vesting of options 835 -- 835 -- 835
Write-off debt discount ............................... -- -- -- -- 75
-------- -------- -------- -------- --------
Loss from operations ........................................ (3,801) (1,991) (6,127) (4,112) (30,703)
-------- -------- -------- -------- --------
Interest income ............................................. 81 145 144 315 1,612
Interest expense ............................................ -- -- -- -- (7)
-------- -------- -------- -------- --------
Net loss .................................................... $ (3,720) $ (1,846) $ (5,983) $ (3,797) $(29,098)
======== ======== ======== ======== ========
Basic and diluted net loss per share ........................ $ (0.14) $ (0.08) $ (0.24) $ (0.17)
Weighted average shares outstanding ......................... 25,809 22,703 24,678 22,703
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE> 5
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
SIX MONTHS ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) THROUGH
1999 1998 DECEMBER 31, 1999
--------------- --------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss ........................................... $ (5,983) $ (3,797) $ (29,098)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation ..................................... 42 26 255
Write-off of debt discount ....................... -- -- 7 5
Value of services paid by options and warrants ... -- -- 80
Amortization of deferred compensation ............ 1,829 985 6,370
Purchased research and development ............... -- -- 2,742
(Increase) decrease in prepaid expenses
and other assets ............................... 95 150 (5)
Increase (decrease) in accounts payable
and accrued expenses ........................... (824) 125 651
Expenses paid by affiliate ....................... -- -- 97
Increase in management fees payable .............. -- -- 113
--------------- --------------- ---------------
Net cash used in operating activities .............. (4,841) (2,511) (18,720)
Cash flows from investing activities:
Purchases of investments ............................ (4,131) (5,908) (37,542)
Proceeds from maturities and sales of investments ... 4,854 10,205 33,372
Capital expenditures ................................ (199) (5) (614)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 524 4,292 (4,784)
Cash flows from financing activities:
Proceeds from sale of stock and exercise
of options and warrants - net of expenses.. ........ 3,319 -- 24,511
Borrowings on line of credit ........................ 900 -- 900
Cost of shares - acquired ........................... -- -- (37)
--------------- --------------- ---------------
Net cash provided by financing activities .......... 4,219 -- 25,374
Net increase (decrease) in cash and cash equivalents . (98) 1,781 1,870
Cash and cash equivalents - beginning of period ...... 1,968 1,115 --
--------------- --------------- ---------------
Cash and cash equivalents - end of period ............ $ 1,870 $ 2,896 $ 1,870
=============== =============== ===============
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE> 6
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been
prepared by InKine Pharmaceutical Company, Inc. (the "Company") in accordance
with generally accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's audited annual financial statements have been condensed or omitted in
the Company's interim financial statements. In the opinion of management, the
interim financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair representation of the results for
the interim periods presented.
The results of operations for the interim periods may not necessarily
be indicative of the results of operations expected for the full year, although
the Company expects to incur a significant loss for the year ending June 30,
2000. These interim financial statements should be read in conjunction with the
audited financial statements for the year ended June 30, 1999, which are
contained in the Company's most recent Annual Report on Form 10-K.
2. USE OF ESTIMATES
The preparation of the 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(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
3. LINE OF CREDIT
The Company secured a $2,000,000 line of credit with a financial
institution in December 1999. Under the terms of this arrangement, the Company
makes monthly interest-only payments at a variable per annum rate of 2.20%, plus
the 30-day Dealer Commercial Paper Rate, with principal due on January 31, 2001.
The Company maintains investments of approximately 100% of the amount
outstanding at the institution as collateral for the line of credit. At December
31, 1999, $900,000 was outstanding under this line of credit.
4. SHAREHOLDERS EQUITY
In September 1999, the Company completed a private placement of
2,307,691 shares of common stock, together with warrants to purchase an
aggregate of 761,538 shares of common stock. Net proceeds to the Company
were $2,750,000. The warrants are exercisable at $1.78 per share. The shares and
warrants are subject to certain provisions which may increase the issuable
shares and decrease the exercise price for the warrants, upon certain events
which may have a dilutive effect on the investors.
5. SEPARATION AGREEMENT
A one-time charge resulted from a separation agreement with the former
President and Chief Operating Officer due to his resignation from the Company in
November 1999. His employment contract provided for certain benefits upon
resignation prior to the completion of the terms of the contract. The contract
required the immediate vesting of all outstanding unvested options which
resulted in a non-cash charge of $535,000 and the continuation of his salary and
other benefits for a period of several months. This resulted in an additional
charge of approximately $300,000.
6
<PAGE> 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains, in addition to historical information, statements
by the Company with regard to its expectations as to financial results and other
aspects of its business that involve risks and uncertainties and may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect management's current
views and are based on certain assumptions. Actual results could differ
materially from those currently anticipated as a result of a number of factors,
including, but not limited to, the risks and uncertainties discussed in this
report as well as those discussed under "Other Factors to be Considered" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 as filed with the Securities and Exchange Commission.
GENERAL
The Company is a biopharmaceutical company engaged in the development
of technologies for the diagnosis and treatment of cancer and autoimmune
diseases. The Company pursues these objectives through a technology platform
consisting of the Fc Receptor Technology, the Thrombospondin Technology and
Diacol(TM). The Company acquired these technologies in 1997.
Since commencing operations in 1993, the Company has not generated any
sales revenue. The Company has funded operations primarily from the proceeds of
public and private placements of securities. The Company has incurred net losses
in each year since its inception, and expects to incur additional losses for the
next several years. The Company expects that losses will fluctuate from quarter
to quarter, and that such fluctuations may be substantial. At December 31, 1999,
the Company's accumulated deficit was approximately $29,098,000.
RESULTS OF OPERATIONS
The Company incurred losses of $3,720,000, or $(0.14) per share, and
$5,983,000, or $(0.24) per share, for the three and six month periods ended
December 31, 1999, respectively. The Company had net losses of $1,846,000, or
$(0.08) per share, and $3,797,000, or $(0.17) per share, for the same periods, a
year ago. Losses are expected to continue in the remainder of the fiscal year as
the Company develops Diacol(TM), the Thrombospondin Technology and Fc Receptor
Technology.
Research and development expenses increased for the three and six month
periods ended December 31, 1999, as compared to the same periods a year ago, as
a result of increased manufacturing development costs associated with Diacol(TM)
and additional costs associated with the preparation and submission of an NDA to
the FDA for Diacol(TM). Research and development expenses are expected to
continue to increase in future quarters as the Company continues towards
commercialization of Diacol(TM).
General and administrative expenses increased approximately $8,000 and
$69,000 in the three and six month periods ended December 31, 1999,
respectively, as compared to the same periods a year ago principally due to
costs associated with recruiting sales and marketing personnel. Included in
general and administrative expenses is amortization of options, previously
granted to certain executive officers of $318,000 and $722,000 for the three and
six months ended December 31, 1999, respectively. General and administrative
expenses will continue to increase with the addition of other administrative
personnel and an expanded scale of operations associated with the development of
multiple technologies.
A one-time charge resulted from a separation agreement with the former
President and Chief Operating Officer due to his resignation from the Company in
November 1999. His employment contract provided for certain benefits upon
resignation prior to the completion of the terms of the contract. The contract
required the immediate vesting of all outstanding unvested options which
resulted in a non-cash charge of $535,000 and the continuation of his salary and
other benefits for a period of several months. This resulted in an additional
charge of approximately $300,000.
Interest income amounted to $144,000 and $315,000 for the six months
ended December 31, 1999 and 1998, respectively. The decrease in interest income
reflects the earnings on a decreased investment balance. Fluctuation will
continue to occur quarter to quarter due to changes in the investment balance.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash, cash equivalents and
investments of $6,041,000. The cash and investment balance at December 31, 1999
includes the effect of a private placement where the Company sold a total of
2,307,691 shares of common stock and warrants to purchase 761,538 shares of
common stock for an aggregate purchase price of $3,000,000. The cash balance
additionally includes the effect of a borrowing on the Company's line of credit
of $900,000.
The Company believes that with its current cash position, and continued
warrant and option exercises, its financial resources are adequate for its
operations for at least the next 12 months. The Company's future capital
requirements will depend on numerous factors which cannot be quantified and many
of which the Company cannot control, including continued progress in its
research and development activities, commercialization costs of Diacol(TM),
progress with pre-clinical studies and clinical trials, prosecuting and
enforcing patent claims, technological and market developments, the ability of
the Company to establish product development arrangements, the cost of
manufacturing scaleup, effective marketing activities and arrangements, and
licensing or acquisition activity. The Company may seek to obtain additional
funds through equity or debt financing, collaborative or other arrangements with
corporate partners and others, and from other sources. No assurance can be given
that necessary additional financing will be available on terms acceptable to the
Company, if at all. If adequate additional funds are not available when
required, the Company may have to delay, scale back or eliminate certain of its
research, drug discovery or development activities or certain other aspects of
its operations and its business will be materially and adversely affected.
The Company plans to invest significant resources in new personnel in
the next 12 months in connection with the expansion of its commercial activities
surrounding Diacol(TM). The Company anticipates incurring additional losses over
at least the next several years, and such losses are expected to increase as the
Company expands its commercialization activities relating to Diacol(TM) and
research and development activities relating to the Thrombospondin Technology
and Fc Receptor Technology. To achieve profitability, the Company, alone or with
others, must successfully develop and commercialize its technologies and
products, conduct pre-clinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
technologies and products. The time required to reach profitability is highly
uncertain, and there can be no assurance that the Company will be able to
achieve profitability on a sustained basis, if at all.
IMPACT OF YEAR 2000
In response to concerns that computer software and/or hardware that was
designed to define the year with a two digit date field rather than a four digit
field might fail or miscalculate data in the year 2000, causing disruption to
the operations or business activities of the Company, the Company formed a
committee to research and assess the potential risk to the Company's internal
operations systems and to test its hardware and software systems for compliance.
The costs incurred by the Company relating to this project were immaterial. No
significant disruptions to the operations, business achieved, or computer
hardware and software systems were experienced, although problems could be
discovered in the future.
NEW ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities and Exchange Commission, or SEC,
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," or SAB No. 101. SAB No. 101 provides the SEC staff's views on the
recognition of revenue including nonrefundable technology access fees received
by biotechnology companies in connection with research collaborations with third
parties. SAB No. 101 states that in certain circumstances the SEC staff believes
that up-front fees, even if nonrefundable, should be deferred and recognized
systematically over the term of the research arrangement. SAB No. 101 requires
registrants to adopt the accounting guidance contained therein by no later than
the first fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company is currently assessing the requirements of SAB No. 101 and has not
yet determined whether applying the accounting guidance of SAB No. 101 will have
a material effect on its financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities (the
"Statement"). The Statement requires costs of start-up activities, including
organizational costs, to be expensed as incurred. Start-up activities are
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting businesses in a new territory,
conducting business with a new process in an existing facility, or
8
<PAGE> 9
commencing a new operation. The Statement is effective for fiscal years
beginning after December 15, 1998. The adoption of this standard will not have a
material impact on InKine's earnings or financial position.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"). Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depend on the intended use
of the derivative and the resulting designation. This Statement is effective for
all fiscal quarters beginning after June 15, 2000. The adoption of this standard
will not have a material impact on InKine's earnings or financial position.
9
<PAGE> 10
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of shareholders was held on November 8,
1999. At this meeting, shareholders of the Company:
(i) Approved the election of six (6) directors.
The number of votes cast for, and withheld from, each nominee is set
forth below.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Leonard S. Jacob, M.D., Ph.D. 15,955,854 35,875
J.R. LeShufy 15,922,654 69,075
Steven B. Ratoff 15,955,954 35,775
Thomas P. Stagnaro 15,955,854 35,875
Robert A. Vukovich, Ph.D. 15,955,954 35,775
Jerry A. Weisbach, Ph.D. 15,949,654 42,075
</TABLE>
(ii) Approved the adoption of the InKine Pharmaceutical Company,
Inc. 1999 Equity Compensation Plan.
For Against Abstain
14,946,157 740,470 305,102
(iii) Ratified the election of KPMG, LLP as independent auditors of
the Company
For Against Abstain
15,941,858 32,246 17,625
ITEM 5. OTHER INFORMATION.
On November 4, 1999 the Company announced the resignation of Dr. Taffy
Williams as President and Chief Operating Officer and as a member of the Board
of Directors. The Company also announced on November 4, 1999 that Leonard S.
Jacob, M.D., Ph.D., Chairman and Chief Executive Officer, had been awarded an
amended employment agreement with the Company, which included a provision
extending his employment agreement through November 6, 2002.
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.18 Amendment to Employment Agreement, dated November 4, 1999,
between the Company and Leonard S. Jacob.
10.19 Severance Agreement, dated November 3, 1999, between the
Company and Taffy J. Williams.
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INKINE PHARMACEUTICAL
COMPANY, INC.
Date: February 11, 2000 By: /s/ ROBERT F. APPLE
------------------------------
Robert F. Apple
Chief Financial Officer, (Authorized Officer
and Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
10.18 Amendment to Employment Agreement, dated November 4, 1999,
between the Company and Leonard S. Jacob.
10.19 Severance Agreement, dated November 3, 1999, between the
Company and Taffy J. Williams.
27 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 10.18
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated November 4, 1999 to Employment Agreement dated as of
November 6, 1997 between InKine Pharmaceutical Company, Inc. a New York
corporation ("Employer") and Leonard S. Jacob ("Employee").
Employer and Employee are party to the Employment Agreement referred to
above (the "Agreement"). The Employer and Employee have agreed to certain
changes to the Agreement, specifically changes with respect to the term of the
Agreement, base compensation and severance.
NOW THEREFORE, in consideration of the premises and intending to be
legally bound hereby, Employer and Employee hereby agree as follows:
1. Section 1.2 of the Agreement shall be amended to read in its entirety
as follows:
1.2 Renewal. This Agreement shall be extended through November 6,
2002, and shall be automatically renewed for successive one (1) year
terms at the expiration of the current Employment Term and any
subsequent Employment Term, unless written notice to the contrary is
provided by either the Employer or the Employee at least ninety (90)
days prior to the expiration of such Employment Term.
2. The first sentence of Section 1.5 of the Agreement is hereby amended to
substitute "$290,000" for "$225,000."
3. Section 1.7(a) of the Agreement shall be amended to read, in its
entirety, as follows:
"(a) if Employer terminates this Agreement, other than for "cause"
pursuant to Section 7.3 hereof at any time during the Employment Term,
Employer shall pay to Employee an amount equal to 200% of Employee's
base annual salary in effect at the date of such termination."
4. Except as set forth above, the Agreement shall remain in full force and
effect as currently written.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Employment Agreement as of the date first above written.
INKINE PHARMACEUTICAL COMPANY, INC.
By: /s/Robert F. Apple
--------------------------------
Robert F. Apple
Senior Vice President and Chief
Financial Officer
LEONARD S. JACOB, M.D., Ph.D.
/s/Leonard S. Jacob, M.D., Ph.D.
------------------------------------
-2-
<PAGE> 1
Exhibit 10.19
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is dated November 3, 1999,
between InKine Pharmaceutical Company, Inc. (the "Company") and Taffy J.
Williams ("Williams").
Williams has been employed by the Company since 1995, and is currently
employed as President and Chief Operating Officer of the Company pursuant to the
terms of an Employment Agreement with the Company dated as of November 6, 1997
(the "Employment Agreement"). The Company and Williams have mutually agreed to
terminate the Employment Agreement and Williams's employment with the Company on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Williams,
intending to be legally bound, agree as follows:
1. Termination of Employment and Employment Agreement.
a. Williams hereby resigns as an employee of the Company, as
President of the Company, as a Director of the Company, and as an employee,
officer and director of each Affiliate (as defined below) of the Company. The
Company accepts such resignations, effective as of the date hereof. "Affiliate"
means any partially-owned or wholly-owned subsidiary of the Company and any
entity controlled by, controlling or under common control with the Company.
b. The Employment Agreement is terminated and of no further
force and effect from and after the date hereof.
2. Severance Payments and Benefits.
a. The Company shall pay Williams as a "Severance Payment" the
aggregate sum of $256,667, subject to deductions required by law, which is
equivalent to fourteen months severance pay for the period November 1, 1999
through December 31, 2000 (the "Severance Period"). The Severance Payment shall
be made in equal semi-monthly installments of $9,166.67, in arrears, less
deductions as aforesaid, during the Severance Period.
b. The Company shall pay Edward J. Kelleher's actual and
customary fee, but not in excess of $22,000, for providing Williams with
outplacement advisory and counseling services (the "Outplacement Payment"). Such
payments shall be made to Kelleher upon presentation of invoices to the Company.
c. Williams shall be paid the sum of $19,730.92, representing
unused vacation time, upon execution of this Severance Agreement.
d. Williams holds options to purchase a total of 1,871,182
shares of the Company's common stock (collectively, the "Options") of which a
portion are currently exercisable. A schedule of the Options is set forth on
Exhibit "A" hereto. The Options are exercisable at various times through June,
2000 and April, 2009. The Company agrees that, regardless of their stated
exercise and expiration dates, each of the Options is amended such that it shall
be immediately exercisable from and after the date hereof through the close of
business on June 30, 2003. Except as amended with respect to
<PAGE> 2
the date of its exercise and expiration, each of the Options shall remain in
full force and effect in accordance with its terms. Williams agrees that from
the date hereof through June 30, 2005 he will not on any day sell in the open
market that number of shares of the Company's common stock which is greater than
twenty percent (20%) of the average daily trading volume of such shares on the
principal exchange or market on which such shares are traded for the three
months immediately preceding the date of such sale. The Company agrees that so
long as it maintains an effective Registration Statement on Form S-8, and so
long as the shares underlying the Options can continue to be be included for
sale and resale in such Registration Statement, the Company will include such
underlying shares therein at no cost to Williams.
e. It is understood and agreed that the Severance Payment, the
Outplacement Payment and the changes to the terms of the Options will provide
Williams with compensation substantially in excess of that to which Williams
would otherwise be entitled under the existing policies of the Company.
3. No Further Obligations of the Company. The payments and other
consideration and benefits to Williams set forth in this Severance Agreement
shall be in lieu, and in complete discharge, of all obligations owed by the
Company to Williams. Without limiting the generality of the foregoing, Williams
shall have no right to receive any payments or benefits from or on behalf of the
Company on account of automobiles, health, disability or life insurance or other
items. Williams acknowledges he is not entitled to coverage under COBRA, as he
has not previously maintained health insurance through the Company. Nothing
herein shall affect Williams's rights with respect to his interests in the
Company's 401(k) Plan.
4. Conditions of Payments and Option Adjustments. The Company has
agreed to provide to Williams the severance payments and benefits set forth in
Section 2(a) -(d) hereof contingent upon Williams's honoring the release of
claims and covenant not to sue in favor of the Company and its Affiliates set
forth in Section 12 below, and Williams's continued compliance with the other
provisions of this Agreement.
5. Non-Disclosure. Williams hereby agrees that he shall not, at any
time hereafter, disclose or use for any purpose confidential information of the
Company (or any of its Affiliates), except as required by applicable law or
legal process; provided, however, that confidential information shall not
include any information known generally to the public or ascertainable from
public or published sources (other than as a result of unauthorized disclosure
by Williams) or any information of a type not otherwise considered confidential
by persons engaged in the same business or a business similar to that conducted
by the Company. Williams acknowledges and agrees that the Company will suffer
irreparable injury in the event of any material breach of this Section 5, that
damages resulting from such injury will be incapable of being precisely
measured, and that the Company will not have an adequate remedy at law to
redress the harm which such violation shall cause. Therefore, Williams agrees
that the Company shall have the rights and remedies of specific performance and
injunctive relief, in addition to any other rights or remedies that may be
available at law or in equity or under this Agreement, in respect of any
failure, or threatened failure, on the part of Williams to comply with the
provisions of this Section 5, including, but not limited to, temporary
restraining orders and temporary injunctions to restrain any violation or
threatened violation of this Section 5 by Williams.
-2-
<PAGE> 3
6. Certain Representations of Williams and the Company.
a. As an inducement to the Company to enter into and perform
this Severance Agreement, Williams represents and warrants to the Company the
following.
(i) All records, files, documents and equipment, all
information relating to employees (other than himself), technology,
Company licensees, licensors and suppliers, and any other materials
that in any way relate to the business of the Company and its
Affiliates which Williams has accumulated during his employment by the
Company, other than information and documents publicly known or
disseminated, are the property of the Company, including all duplicates
and copies of any of the foregoing. All such property, including all
files, letters, memoranda, reports, records, computer programs,
listings or other written, photographic or other tangible material
concerning the business or the financial affairs of the Company or any
Affiliate has been returned to the sole possession of the Company.
Williams has not retained duplicates of any of the foregoing. Nothing
contained herein shall be construed to limit Williams' ability to use
"know-how" which is personal to him, provided the information or
documents used by him are publicly known or disseminated, or
confidential to Williams or a third-party,
(ii) Williams has disclosed promptly in writing to
the Company all inventions, ideas, discoveries, and improvements,
whether or not patentable, conceived by Williams during the period of
Williams's employment with the Company, whether alone or with others,
and whether or not during regular business hours, or on the Company's
premises or with the aid of Company materials, which pertain in any way
to Williams's work with the Company or to any business activity which
is or at the time of such conception may be carried on by the Company
or an Affiliate. All such inventions, ideas, discoveries, and
improvements are the property of the Company, to which Williams hereby
assigns and transfers forever all Williams's rights, titles and
interests. Williams, upon reasonable request by the Company and at the
Company's sole expense, will prepare and execute applications for
patents for such inventions, ideas, discoveries, and improvements, both
in the United States and in foreign countries, and will do everything
necessary to ensure the issuance of such patents.
b. As an inducement to Williams to enter into and perform this
Severance Agreement, the Company represents and warrants to Williams the
following.
(i) This Severance Agreement has been duly authorized
by all necessary corporate action on the part of the Company. Without
limiting the generality of the foregoing, no further corporate action
need be taken to effect the change in the terms of the Options set
forth herein.
(ii) The Company has reserved, and at all times will
reserve a sufficient number of unissued shares of its common stock to
be issued to Williams upon exercise of the Options.
-3-
<PAGE> 4
(iii) The persons executing this Severance Agreement
on behalf of the Company are duly authorized to do so.
(iv) The shares underlying the Options are currently
subject to an effective Registration Statement on Form S-8.
7. Business Goodwill. At all times following the date hereof, Williams
shall make no comments or take any other actions, direct or indirect, that will
disparage the Company or its officers and directors in such capacity or
disparage its or their business reputation or goodwill. At all times following
the date hereof, the Board of Directors of the Company will take reasonable
efforts to instruct its members and each officer of the Company not to make
comments or take any other actions, direct or indirect, that will disparage
Williams or his business reputation or goodwill. For a period of three(3) years
from the date hereof, Williams agrees to provide reasonable assistance to the
Company with respect to all reasonable requests to testify in connection with
any legal proceeding or matter relating to the Company, including but not
limited to any federal, state or local audit, proceeding or investigation, other
than proceedings relating to the enforcement of this Severance Agreement or
other proceedings in which Williams is a named party whose interests are adverse
to those of the Company.
8. Non-Solicitation of Employees. During the Severance Period and for a
period of one (1) year thereafter, Williams shall not directly or indirectly:
(i) attempt to hire any employee of the Company or any of its Affiliates; (ii)
assist in such hiring by any other person; (iii) encourage any such employee to
terminate his employment with the Company or any of its Affiliates; (iv)
encourage any customer of the Company or any of its Affiliates to terminate its
relationship with the Company or such Affiliate; or (v) encourage any supplier
of the Company or any of its Affiliates to terminate its relationship with the
Company or such Affiliate. None of the foregoing shall be deemed to prohibit
Williams from responding to an unsolicited request to Williams to provide a
recommendation on behalf of any person.
9. Covenant Not to Compete. During the Severance Period, and for a
period of ten (10) months years thereafter, Williams may not, as an owner,
officer, director, employee, agent of, or adviser or consultant to a business
enterprise anywhere in the world, engage in the development or commercialization
of a purgative or laxative, TNF or IL-6 as related to inflammatory bowel
disease, drugs or devices used to treat ITP, or thrombospondin technology
(collectively, the "Competitive Technologies"). Each of the Competitive
Technologies is competitive with the technology and products which are being
developed or commercialized by the Company at this time. Notwithstanding the
foregoing, Williams may serve as an owner, officer, director, employee, agent
of, or adviser or consultant to a business entity engaged in Competitive
Technologies if Williams does not participate in any manner with the entity's
activities in Competitive Technology, and if Williams is effectively screened
from such participation. The Company shall have the right to be provided
reasonable assurance or evidence of such screening. Williams acknowledges that
the scope and term of the foregoing restriction is reasonable in light of
Williams's prior roles at the Company, and will not unduly limit his ability to
obtain employment in one or more areas of his expertise.
10. Consulting Agreement. The Company and Williams may, after the date
hereof, elect to enter into a Consulting Agreement which provides for Williams
to consult with the Company for the purpose of negotiating the terms of a
chemical supply agreement with a third-party supplier.
-4-
<PAGE> 5
11. Release by Company. The Company, for itself, its wholly owned
subsidiaries and those Affiliates it controls, does hereby release and forever
discharge Williams, his heirs, successors and assigns, of and from all manner of
action and actions, causes of action, suits, debts, dues, accounts, covenants,
contracts, agreements, judgments, claims and demands whatsoever, in law or
equity, which the Company or its Affiliates ever had, now has or which its
successors or assigns, or any of them, has or hereafter can, shall or may have,
for or by reason of any cause, matter or thing whatsoever up to and including
the date of execution hereof, except for any claim or right under this Severance
Agreement. The Company agrees that it shall not file a lawsuit against Williams
to assert any such claims.
12. Release by Williams.
a. Williams does hereby release and forever discharge the
Company, its successors and assigns, and all its Affiliates, and each of their
directors, officers, employees and agents of and from all manner of action and
actions, causes of action, suits, debts, dues, accounts, covenants, contracts,
agreements, judgments, claims, and demands whatsoever, in law or equity,
including, without limitation, claims for any alleged violation of the
Employment Agreement, the Civil Rights Act of 1964s and 1991, the Equal Pay Act
of 1963, the Age Discrimination in Employment Act of 1967, the Rehabilitation
Act of 1973, the Older Workers Benefit Protection Act of 1990, the Americans
with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the
Pennsylvania Human Relations Act and any other federal or state law, regulation
or ordinance, or public policy, contract or tort law having any bearing
whatsoever on the terms and conditions of employment or retirement of employment
which Williams ever had, now has, or which his heirs, successors or assigns, or
any of them, has or hereafter can, shall or may have, for or by reason of any
cause, matter or thing whatsoever, up to and including the date hereof, except
for any claim or right under this Severance Agreement. Williams agrees that he
shall not file a lawsuit against the Company or any of its Affiliates to assert
any such claims. Nothing in the foregoing release, however, shall affect or
interfere with Williams' rights, if any, to be provided a defense, contribution
and/or indemnification under any applicable federal or state law, insurance
policy, or the by-laws of the Company or any of its Affiliates.
b. Williams acknowledges that in arriving at his decision to
agree to the foregoing general release, he has not relied on any
representations, promises or agreements of any kind, including oral statements
by representatives of the Company, except as set forth in this Severance
Agreement.
c. Williams acknowledges that he has carefully read and fully
understands the provisions of the foregoing Severance Agreement, including in
particular the general release he has granted the Company in Section 12(a), that
he has had twenty-one (21) days from the date he received a copy of this
Severance Agreement in which to consider entering into this Severance Agreement
that if he signs and returns this Severance Agreement before the end of that
twenty-one (21) day period then he will have voluntarily waived his right to
consider the Severance Agreement for the full twenty-one (21) days. Williams
acknowledges that he has executed this Severance Agreement voluntarily, with
advice of counsel of his choice and with full knowledge of its significance,
meaning and binding effect, including in particular the general release in
Section 12(a).
d. Williams acknowledges that he may revoke this Severance
Agreement within seven (7) days of his execution of this document by submitting
a written notice of such revocation to the Company. Williams also understands
that this Agreement shall not become effective or enforceable until the
expiration of that seven (7) day period. If Williams revokes this Severance
Agreement as
-5-
<PAGE> 6
aforesaid, the Employment Agreement shall not be terminated, Williams will have
ceased to be a Director of the Company, and Williams shall promptly return to
the Company all amounts paid to him hereunder.
13. Miscellaneous.
a. Complete Agreement. This Severance Agreement supersedes all
prior agreements and sets forth the entire understanding between the parties
hereto with respect to the subject matter hereof and cannot be changed,
modified, extended or terminated except upon written amendment approved by the
Board of Directors of the Company and executed on its behalf by a duly
authorized officer, and executed by Williams.
b. Waiver. The failure at any time to enforce any of the
provisions of this Severance Agreement shall in no way be construed as a waiver
of such provisions and shall not affect the right of either party thereafter to
enforce each and every provision hereof in accordance with its terms.
c. Governing Law; Jurisdiction. This Severance Agreement and
performance under it, and all proceedings that may ensue from its breach, shall
be construed in accordance with and under the laws of the Commonwealth of
Pennsylvania.
d. Severability. Whenever possible, each provision of this
Severance Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Severance Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Severance Agreement; provided, however, that the
invalidity of the release contained in Section 12(a) determined as a result of
litigation between Williams and the Company, shall nullify the Company's
obligation to provide, and the Company shall be entitled to a return of, any and
all payments made and benefits provided pursuant to this Severance Agreement.
e. Binding Effect; Assignment. The rights and obligations of
the parties under this Severance Agreement shall be binding upon and inure to
the benefit of their respective successors, assigns, executors, administrators
and heirs, provided, however, that neither the Company nor Williams may assign
any duties under this Severance Agreement without the prior written consent of
the other.
f. Notices. All notices and other communications under this
Severance Agreement shall be in writing and shall be given in person or by
telecopy or, overnight delivery service (e.g., Federal Express), and shall be
deemed to have been duly given when delivered personally or by overnight
delivery, or one day after transmission of a telecopy, as the case may be, to
the respective persons named below:
-6-
<PAGE> 7
If to the Company: InKine Pharmaceutical Company, Inc.
1720 Walton Road, Suite 200
Blue Bell, PA 19422
Attn: Chairman
If to Williams: Taffy J. Williams, Ph.D.
103 Colwyn Terrace
Lansdale, PA 19446
g. Advice of Counsel. Williams acknowledges that he has been
advised by the Company to consult with legal counsel of his own choosing with
respect to the subject matter and the terms of this Severance Agreement, that he
has done so and that this Agreement is the product of negotiations between the
Company and Williams.
h. Confidentiality. Williams and the Company agree to keep
confidential the existence of this Agreement and the terms unless otherwise
required by law, rule or regulation. Notwithstanding the foregoing, Williams may
disclose the terms of this Agreement to his financial advisers and family
members, subject to such persons' agreeing to maintain the confidentiality
hereof in accordance with the first sentence of this Section 12(h).
IN WITNESS WHEREOF, the undersigned have executed this Severance
Agreement as of the date first above written.
Attest: INKINE PHARMACEUTICAL COMPANY, INC
/s/ Robert F. Apple By: /s/ Leonard S. Jacob
- --------------------------- -------------------------------
Secretary President
/s/ Taffy J. Williams
-------------------------------
TAFFY J. WILLIAMS
-7-
<PAGE> 8
Schedule A - agreement
OPTION TOTAL 1,871,182 Today's date 02-Nov-99
<TABLE>
<CAPTION>
GRANT GRANT VEST GRANT NUMBER EXERCISE
NUMBER DATE DATE VESTED PRICE
- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C>
1 09-Jun-95 01-Jan-95 100,000 50,000 $1.13
1 09-Jun-96 25,000 $1.13
1 09-Jun-97 25,000 $1.13
2 15-Jun-96 15-Jun-97 60,000 20,000 $0.88
2 15-Jun-98 20,000 $0.88
2 15-Jun-99 20,000 $0.88
3 10-Dec-96 10-Dec-96 40,000 40,000 $0.50
4 03-Jan-97 06-Nov-97 500,000 500,000 $0.61
4 06-Dec-97 1,071,182 29,755 $1.00
4 06-Jan-98 29,755 $1.00
4 06-Feb-98 29,755 $1.00
4 06-Mar-98 29,755 $1.00
4 06-Apr-98 29,755 $1.00
4 06-May-98 29,755 $1.00
4 06-Jun-98 29,755 $1.00
4 06-Jul-98 29,755 $1.00
4 06-Aug-98 29,755 $1.00
4 06-Sep-98 29,755 $1.00
4 06-Oct-98 29,755 $1.00
4 06-Nov-98 29,755 $1.00
4 06-Dec-98 29,755 $1.00
4 06-Jan-99 29,755 $1.00
4 06-Feb-99 29,755 $1.00
4 06-Mar-99 29,755 $1.00
4 06-Apr-99 29,755 $1.00
4 06-May-99 29,755 $1.00
4 06-Jun-99 29,755 $1.00
4 06-Jul-99 29,755 $1.00
4 06-Aug-99 29,755 $1.00
4 06-Sep-99 29,755 $1.00
4 06-Oct-99 29,755 $1.00
4 06-Nov-99 29,755 $1.00
4 06-Dec-99 29,755 $1.00
4 06-Jan-00 29,755 $1.00
4 06-Feb-00 29,755 $1.00
4 06-Mar-00 29,755 $1.00
4 06-Apr-00 29,755 $1.00
4 06-May-00 29,755 $1.00
4 06-Jun-00 29,755 $1.00
4 06-Jul-00 29,755 $1.00
4 06-Aug-00 29,755 $1.00
4 06-Sep-00 29,755 $1.00
4 06-Oct-00 29,755 $1.00
4 06-Nov-00 29,755 $1.00
5 13-Apr-99 100,000 $1.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000929547
<NAME> INKLINE PHARMACEUTICAL
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,870
<SECURITIES> 4,171
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,046
<PP&E> 481
<DEPRECIATION> 124
<TOTAL-ASSETS> 6,403
<CURRENT-LIABILITIES> 625
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 4,875
<TOTAL-LIABILITY-AND-EQUITY> 6,403
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,983)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,983)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,983)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
