UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
-------------------------- --------
Commission File Number 0-27410
INTERCARDIA, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1924222
- ------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
- --------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 919-558-8688
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.001
par value per share)
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
-- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates
of the registrant based upon the closing price of the Common Stock on January
22, 1998, on the Nasdaq National Market was approximately $39,219,000 as of such
date. Shares of Common Stock held by each executive officer and director and by
each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status may not be conclusive for other purposes.
As of January 22, 1998, the registrant had outstanding 6,773,828 shares of
Common Stock.
<PAGE>
PART III
Certain information required by Part III was omitted from the
Registrant's report on Form 10-K filed on December 19, 1997, because at that
time Intercardia, Inc. ("Intercardia") intended to file a definitive proxy
statement for its 1998 Annual Meeting of Stockholders (the "Proxy Statement")
within 120 days after the end of its fiscal year pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended. Because the
Registrant no longer intends to file the Proxy Statement within such 120-day
period, the omitted information is filed herewith and provided below as
required. The "Company" refers collectively to Intercardia and its
majority-owned subsidiaries, CPEC, Inc., a Nevada corporation ("CPEC"), Aeolus
Pharmaceuticals, Inc. a Delaware corporation ("Aeolus") and Renaissance Cell
Technologies, Inc., a Delaware corporation ("Renaissance").
Item 10. Directors and Executive Officers of the Registrant.
As of December 31, 1997, the directors of the Registrant were as
follows:
Name Age Director Since
---- --- --------------
Clayton I. Duncan 48 1995
Glenn L. Cooper, M.D. 45 1994
Joseph J. Ruvane, Jr. 72 1995
David B. Sharrock 61 1995
CLAYTON I. DUNCAN has been President, Chief Executive Officer and a
director of Intercardia since January 1995. From 1989 until December 1993, Mr.
Duncan was President and Chief Executive Officer of Sphinx Pharmaceuticals
Corporation ("Sphinx"), a biopharmaceutical company which was acquired by Eli
Lilly and Company ("Lilly") in September 1994. From December 1993 until
September 1994, he served as an independent consultant to Sphinx with regard to
the sale of Sphinx to Lilly. From 1987 to 1989, Mr. Duncan was a General Partner
of Intersouth Partners, a venture capital firm. From 1979 to 1987, he was an
executive with Carolina Securities Corporation, serving as Executive Vice
President and a director from 1984 to 1987. Mr. Duncan was founder and Chairman
of the Board of CRX Medical, Inc., a medical products company that conducted
research and development in wound management, ophthalmic disorders and
interventional radiology. Mr. Duncan is also a director of Transcell
Technologies, Inc. ("Transcell"), a privately-held majority-owned subsidiary of
Interneuron Pharmaceuticals, Inc. ("Interneuron"). Mr. Duncan received an M.B.A.
from the University of North Carolina at Chapel Hill.
GLENN L. COOPER, M.D. has been Chairman of the Board of Directors of
Intercardia since March 1994. He was President and Chief Executive Officer of
Intercardia from March 1994 to January 1995. Dr. Cooper has been President,
Chief Executive Officer and a director of Interneuron since May 1993. Dr. Cooper
has been the acting President and Chief Executive Officer of Transcell since
March 1996. He was President and Chief Executive Officer of Progenitor, Inc.
("Progenitor"), a privately held majority-owned subsidiary of Interneuron, from
2
<PAGE>
September 1992 to June 1994. Dr. Cooper was Executive Vice President and Chief
Operating Officer of Sphinx from 1990 to 1992. He was associated with Lilly
beginning in 1985, most recently from 1987 to 1990 as Director, Clinical
Research, Europe, of Lilly Research Center Limited, and from 1986 to 1987 as
International Medical Advisor, International Research Coordination of Lilly
Research Laboratories; and from 1985 to 1986 as Medical Advisor, Regulatory
Affairs, Chemotherapy Division at Lilly Research Laboratories. Dr. Cooper is a
director of each of Genta Incorporated, a biotechnology company, Transcell,
Progenitor and InterNutria, Inc., a privately held majority-owned subsidiary of
Interneuron. Dr. Cooper received his M.D. from Tufts University School of
Medicine, performed his postdoctoral training in Internal Medicine and
Infectious Diseases at the New England Deaconess Hospital and Massachusetts
General Hospital and received his A.B. from Harvard College.
JOSEPH J. RUVANE, JR. has been director of Intercardia since May 1995.
Mr. Ruvane was a director of Sphinx from 1989 to 1994, serving as its Chairman
of the Board from 1990 to 1994. From 1988 to 1990, Mr. Ruvane served as Vice
Chairman of the Board of Directors of Glaxo PLC ("Glaxo"), a multinational
pharmaceutical company. From 1981 to 1988 he served as President and Chief
Executive Officer of Glaxo. Mr. Ruvane also serves as a director of Connective
Therapeutics, Inc., a biotechnology company, and Southern Research Institute, a
non-profit contract research organization.
DAVID B. SHARROCK has been a director of Intercardia since October
1995. Mr. Sharrock was associated with Marion Merrell Dow Inc., a multinational
pharmaceutical company, and its predecessor companies for over 35 years until
his retirement in December 1993. Most recently, since December 1989, he served
as Executive Vice President, Chief Operating Officer and a director, and in
1988, he was named President and Chief Operating Officer of Merrell Dow
Pharmaceutical Inc. Mr. Sharrock is also a director of Interneuron, Progenitor,
Unitog Co. and Cincinnati Bell Inc.
None of the directors is related by blood, marriage or adoption to any
other director or any executive officer of Intercardia.
The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth under the heading "Executive
Officers" located at the end of the Part I of this Form 10-K.
Compliance with Section 16(a) of the Securities Act of 1934.
To the Company's knowledge, there were no reports required under
Section 16(a) of the Securities Exchange Act of 1934, as amended, which were not
timely filed during the fiscal year ended September 30, 1997 ("Fiscal 1997").
3
<PAGE>
Item 11. Executive Compensation.
Executive Compensation
Summary Compensation
The following table sets forth all compensation paid or accrued by the
Company for services rendered to it in all capacities for the fiscal years ended
September 30, 1997, 1996 and 1995, to Intercardia's Chief Executive Officer and
Intercardia's other executive officers who earned at least $100,000 in the
respective fiscal year (collectively, the "Named Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Awards
---------------------
Stock
Name and Fiscal Annual Compensation Options Aeolus All Other
Principal Position Year Salary Bonus (Shares) Shares (1) Compensation (2)
- ------------------ -------- -------- ------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Clayton I. Duncan, 1997 $275,600 $95,400 -- -- $3,345
President and Chief 1996 251,667 112,500 139,241 -- 1,555
Executive Officer (3) 1995 168,750 -- 251,557 7,353 1,258
David P. Ward, M.D., 1997 207,000 54,000 20,000 -- 3,134
Senior Vice President, 1996 193,750 37,000 20,000 -- 1,364
Research & Development (4) 1995 99,615 -- 120,000 -- 1,189
Richard W. Reichow, 1997 196,650 52,725 20,000 -- 3,192
Senior Vice President, Chief 1996 173,333 30,000 20,000 -- 1,600
Financial Officer, Treasurer
and Secretary
John P. Richert, 1997 107,083 17,280 10,000 -- 1,245
Vice President, Market
Development
W. Bennett Love, 1997 105,452 17,280 29,000 -- 1,708
Vice President, Corporate
Planning/Communications
</TABLE>
- ------------------------------------
(1) Shares of the Common Stock of Aeolus were issued to Mr. Duncan during the
fiscal year ended September 30, 1995 for $0.001 per share.
(2) Consists of life and long-term disability insurance premiums and health club
fees reimbursed or paid on behalf of the Named Officers.
(3) Compensation for the fiscal year ended September 30, 1995 covers the period
commencing upon Mr. Duncan joining Intercardia in January 1995.
(4) Compensation for the fiscal year ended September 30, 1995 covers the period
commencing upon Dr. Ward joining Intercardia in March 1995.
4
<PAGE>
Management Incentive Plan
The Compensation Committee and the Board of Directors has approved a
Management Incentive Plan ("MIP") for the executive officers of Intercardia. The
MIP provides for cash payments to the executive officers upon the achievement of
certain corporate and individual objectives. The MIP is intended to be an annual
compensation program. For the calendar year ended December 31, 1996 ("Calendar
1996"), the corporate objectives related to the development and
commercialization of bucindolol, Intercardia's most advanced development
project. For the calendar year ended December 31, 1997 ("Calendar 1997"), the
corporate objectives related primarily to the development and commercialization
of bucindolol and the identification and advancement of other potential products
or programs. The corporate and individual objectives for Calendar 1997 were
evaluated and measured during January 1998, and cash payments will be made to
the executive officers prior to the end of January 1998.
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values
The following table summarizes all option grants during the fiscal year
ended September 30, 1997 to the Named Officers:
Option Grants During Fiscal Year Ended September 30, 1997
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Number of Rates of Stock Price
Shares % of Total Exercise or Appreciation for
Underlying Options Granted Base Price Option Term (2)
-----------------
Options to Employees in Per Expiration
Name Granted Fiscal Year 1997 Share (1) Date 5% 10%
- ---- ------- ---------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
David P. Ward, M.D. 20,000(3) 9.4% $ 19.00 2-19-2007 $234,908 $599,138
Richard W. Reichow 20,000(3) 9.4% 19.00 2-19-2007 234,908 599,138
John P. Richert 10,000(4) 4.7% 19.00 2-19-2007 117,454 299,569
W. Bennett Love 5,000(5) 2.3% 19.00 2-19-2007 58,727 149,784
12,000(6) 5.7% 19.00 2-19-2007 140,945 359,483
12,000(7) 5.7% 19.50 6-10-2007 147,161 372,936
</TABLE>
- ------------------------------------
(1) The exercise price may be paid in cash or a check to the order of
Intercardia, or by any other means determined by the Board of Directors.
(2) The compounding assumes a 10-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in this table may not necessarily be achieved.
(3) These options were granted in February 1997 and are exercisable in equal
installments over a 36-month period commencing in April 1999.
(4) These options were granted in February 1997 and are exercisable in equal
installments over a 36-month period commencing in July 1999.
(5) These options were granted in February 1997 and are exercisable in equal
installments over a 36-month period commencing in September 1999.
5
<PAGE>
(6) These options were granted in February 1997 and are exercisable in equal
installments over a 36-month period commencing in February 1997.
(7) These options were granted in June 1997 and are exercisable in equal
installments over a 36-month period commencing in June 1997.
The following table sets forth certain information concerning all stock
option exercises during the fiscal year ended September 30, 1997 by the Named
Officers, and the number and value of unexercised options held by the Named
Officers as of September 30, 1997:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Value of
Securities Underlying Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at September 30, 1997 at September 30, 1997 (2)
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ------ ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Clayton I. Duncan........ -- -- 173,688 217,110 $3,733,409 $2,127,229
David P. Ward, M.D....... -- -- 60,000 100,000 1,322,000 1,392,000
Richard W. Reichow....... 2,000 $37,030 57,000 100,000 1,255,580 1,392,000
John P. Richert.......... -- -- 25,333 49,667 407,666 461,334
W. Bennett Love.......... -- -- 21,333 48,667 398,166 471,334
</TABLE>
- ------------------------------------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Value based on the difference between the fair market value of the shares of
Common Stock at September 30, 1997 ($22.50), as quoted on the Nasdaq Stock
Market, and the exercise price of the options.
Employment Agreements
In December 1997, Intercardia entered into a new three-year employment
agreement with Mr. Duncan, replacing a prior three-year employment agreement
that expired in January 1998. The agreement provides for an annual base salary
and annual bonuses based on the achievement of performance milestones to be
mutually agreed upon by the Board of Directors or its Compensation Committee and
Mr. Duncan. The agreement with Mr. Duncan also provides that during the term of
the agreement and, unless Mr. Duncan terminates his employment for cause, for a
period of one year thereafter, Mr. Duncan will not compete with Intercardia,
directly or indirectly. In the event Mr. Duncan's employment is terminated by
the Board of Directors without just cause, Intercardia shall continue to pay for
a period of one year Mr. Duncan's base salary plus a percentage of his salary
equal to the average annual bonus percentage earned for the two years prior to
the date of termination.
In November 1995, Intercardia entered into three-year employment
agreements with each of Dr. Ward and Mr. Reichow. The agreements provide for
base salaries and annual bonuses based upon the achievement of performance
milestones to be set by the Board of Directors. The
6
<PAGE>
agreements also provide that during their term and, unless the employee
terminates his employment for cause, for a period of six months thereafter, the
employee will not compete with Intercardia, directly or indirectly. In the event
that the employment of Dr. Ward or Mr. Reichow is terminated by the Board of
Directors without just cause, Intercardia shall continue to pay Dr. Ward or Mr.
Reichow, as the case may be, his base salary plus the greater of prorated
bonuses earned or prorated average bonuses received while an employee for a
period of six months.
Compensation of Directors
All directors are reimbursed for expenses incurred in connection with
each board or committee meeting attended. Each director who is not an employee
of Intercardia or Interneuron receives a fee of $2,000 per Board meeting
attended in person.
The Option Plan provides for the grant of nonstatutory options to
non-employee directors of Intercardia pursuant to the Automatic Grant Program,
as described above under the heading "Intercardia Proposal No. 3 -- Approval of
Amendments to the 1994 Stock Option Plan".
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors (the "Compensation
Committee") consists of Dr. Cooper and Mr. Ruvane, and is responsible for
establishing compensation policy and administering the compensation programs of
Intercardia's executive officers. The Compensation Committee met two times
during Fiscal 1997 to review executive compensation policies, compensation
programs, and individual salaries and awards for the executive officers. The
purpose of this report is to inform stockholders of Intercardia's compensation
policies for executive officers and the rationale for the compensation paid to
executive officers in Fiscal 1997.
Compensation Philosophy
Intercardia's compensation program is designed to motivate and reward
the executives responsible for the financial and strategic objectives essential
to Intercardia's long-term success and stockholder value. The financial goals
for compensation plans are reviewed and approved by the Compensation Committee.
Intercardia's total compensation philosophy is designed to support its
overall objective of creating value for its stockholders. Key objectives of this
philosophy are:
o To attract and retain key executives critical to the long-term
success of Intercardia;
o To support a performance-oriented environment that rewards
performance with respect to Intercardia's short-term and long-term
financial goals;
o To encourage maximum performance through the use of appropriate
incentive programs; and
o To align the interests of executives with those of Intercardia's
stockholders by providing a significant portion of compensation in
Intercardia's Common Stock.
7
<PAGE>
Base Salary
The Compensation Committee annually reviews the base salary of each
officer. In determining appropriate salary levels, the Compensation Committee
considers individual performance, experience, level of responsibility, internal
equity and external pay practices for the comparable positions.
Management Incentive Plan
Intercardia has established the MIP to reward participants for their
contributions to the achievement of Company-wide performance goals. Each year
the Board of Directors will approve both the performance measures selected and
the specific financial targets used under the MIP. The Compensation Committee
believes these goals will drive the future success of the Company's business and
will enhance stockholder value. For Calendar 1996, Intercardia's corporate
objectives focused on the development and commercialization of bucindolol, the
Company's most advanced product. For Calendar 1997, Intercardia's corporate
objectives focused primarily on the development and commercialization of
bucindolol and the identification and advancement of other potential products or
programs.
The amount individual executives may earn (target awards) is directly
dependent upon the individual's position, responsibility and ability to impact
the Company's financial success. Awarded amounts are directly related to
performance. Company and individual performance for the Calendar 1997 was
evaluated during January 1998, and cash payments will be made to the executive
officers prior to the end of January 1998. See "--Executive Compensation --
Management Incentive Plan".
Stock Options
The stock option plan offered by Intercardia has been established to
provide all employees of Intercardia with an opportunity to share, along with
stockholders of Intercardia, in the long-term performance of Intercardia. Stock
options only have value to the employee if the price of Intercardia's stock
appreciates in value from the date the stock options were granted. Stockholders
also benefit from such stock price appreciation.
Grants of stock options are generally made upon commencement of
employment, with additional grants being made annually to all eligible
employees, and, occasionally, following a significant change in job
responsibility, scope or title. Stock options granted under the various stock
plans have vesting schedules of up to seven years and expire ten years from the
date of grant. The exercise price of options granted under the stock plans are
usually 100% of fair market value of the Common Stock on the date of grant. See
" -- Executive Compensation -- Option Grants, Exercises and Holdings and Fiscal
Year-End Option Values".
CEO Compensation
Mr. Duncan's base salary and grants of stock options for Fiscal 1997
were determined in accordance with the criteria described in the Base Salary and
Stock Options sections of this
8
<PAGE>
report. The annual base salary of Mr. Duncan was set at $300,000 as of January
3, 1998. Mr. Duncan received a bonus of $95,400 pursuant to the MIP for Calendar
1996.
Conclusion
The Compensation Committee believes that Intercardia's compensation
policies are structured to result in the highest level of performance from
Intercardia's executives. By providing a significant portion of each executive's
total potential compensation under the MIP and by providing each executive with
a significant number of stock options, the Compensation Committee believes that
it has closely aligned Intercardia executive's personal interests with those of
Intercardia and the stockholders. The Compensation Committee intends to continue
to review and analyze its policies in light of the environment in which
Intercardia competes for executives.
Neither the material in this report, nor the performance graph included
in this proxy statement under the heading " -- Performance Graph" (the
"Performance Graph"), is soliciting material, is or will be deemed filed with
the Securities and Exchange Commission or is or will be incorporated by
reference in any filing of Intercardia under the Securities Act of 1933, as
amended, or the Exchange Act, whether made before or after the date of this
proxy statement and irrespective of any general incorporation language in such
filing.
Submitted by: The Compensation Committee
GLENN L. COOPER, M.D., CHAIRMAN
JOSEPH J. RUVANE, JR..
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Dr. Cooper and Mr. Ruvane. Mr.
Ruvane was not at any time during the fiscal year ended September 30, 1997 or at
any other time an officer or employee of Intercardia. Dr. Cooper served as
President and Chief Executive Officer of Intercardia from March 1994 to January
1995. Mr. Duncan, the President, Chief Executive Officer and a director of
Intercardia, is also a member of the Board of Directors of Transcell, of which
Dr. Cooper, a member of Intercardia's Compensation Committee, is a director and
the acting President and Chief Executive Officer. Although Dr. Cooper has
received options to purchase shares of Transcell capital stock, he is not
compensated for his services as an executive officer of Transcell. No other
executive officer of Intercardia serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of Intercardia's Board of Directors or the Compensation
Committee.
9
<PAGE>
Performance Graph
The following graph shows a two-year(1) comparison of cumulative total
stockholder returns(2) for Intercardia, the CRSP Nasdaq Pharmaceuticals Stocks
Index and the CRSP Total Return Index of the Nasdaq Stock Market. (The "CRSP" is
the Center for Research in Securities Prices at the University of Chicago.) The
graph assumes that $100 was invested on February 1, 1996 in each of
Intercardia's Common Stock, the stocks in the CRSP Nasdaq Pharmaceuticals Stocks
Index and the stocks in the CRSP Total Return Index of the Nasdaq Stock Market.
(The performance graph appears here. Plot points are listed in table below.)
2/1/96 9/30/96 9/30/97
Pharmaceuticals 100 94 105
ITRC 100 165 150
NASDAQ 100 116 159
(1) Indicates comparison of total return for all of Fiscal 1997 and solely for
that period of fiscal year 1996 (February 1, 1996 - September 30, 1996)
during which Intercardia's Common Stock was registered under Section 12 of
the Exchange Act.
(2) Total return assumes reinvestment of dividends. Total returns for the
Nasdaq Stock Market and the Nasdaq Pharmaceuticals Stocks indices are
weighted based on market capitalization.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the ownership of
shares of Intercardia Common Stock as of January 22, 1998 by (i) each person
known by Intercardia to own beneficially more than 5% of the outstanding shares
of Intercardia Common Stock, (ii) each director and director nominee of
Intercardia, (iii) each of Intercardia's Named Officers as listed under "--
Executive Compensation -- Summary Compensation" above, and (iv) all current
directors and executive officers of Intercardia as a group.
10
<PAGE>
Name Shares Percentage
Beneficially Owned (1) Owned (2)
---------------------- ---------
Interneuron Pharmaceuticals, Inc. (3) . 4,145,029 61.2%
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173
Glenn L. Cooper, M.D. (4)
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02173 ... 4,146,184 61.2%
Clayton I. Duncan (5) ................. 268,843 3.8%
Joseph J. Ruvane, Jr. (6) ............. 15,083 *
David B. Sharrock (7) ................. 10,833 *
David P. Ward, M.D. (8) ............... 90,813 1.3%
Richard W. Reichow (9) ................ 92,280 1.3%
John P. Richert (10) .................. 29,955 *
W. Bennett Love (11) .................. 26,347 *
Dawson-Samberg Capital Management, Inc.
354 Pequot Avenue
Southport, Connecticut 06490 ..... 365,000 5.4%
Tudor Investment Corporation
One Liberty Plaza
New York, New York 10006 ......... 359,400 5.3%
All directors and executive
officers as a group (8 persons) (12) .. 4,680,338 64.2%
- ----------
* Less than one percent.
(1) Except as indicated in footnotes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock indicated below.
(2) As of January 22, 1998, Intercardia had 6,773,828 shares of Common Stock
outstanding. Share ownership in each case includes shares issuable upon
exercise of options that may be exercised within 60 days after January 22,
1998 for purposes of computing the percentage of Common Stock owned by such
person but not for purposes of computing the percentage owned by any other
person.
(3) Consists of shares held by Interneuron. Dr. Cooper is President, Chief
Executive Officer and a director of Interneuron. Dr. Cooper disclaims
beneficial ownership of such shares.
(4) Consists of 4,145,029 shares held by Interneuron, 739 shares held by Dr.
Cooper and 416 shares issuable upon exercise of options held by Dr. Cooper.
Dr. Cooper is President, Chief Executive Officer and a director of
Interneuron. Dr. Cooper disclaims beneficial ownership of the shares held
by Interneuron.
(5) Includes 1,075 shares owned and 267,768 shares issuable upon exercise of
options held by Mr. Duncan.
(6) Includes 3,000 shares owned and 12,083 shares issuable upon exercise of
options held by Mr. Ruvane.
(7) Includes 1,000 shares owned and 9,833 shares issuable upon exercise of
options held by Mr. Sharrock.
(8) Includes 813 shares owned and 90,000 shares issuable upon exercise of
options held Dr. Ward.
(9) Includes 5,280 shares owned and 87,000 shares issuable upon exercise of
options held by Mr. Reichow.
(10) Includes 1,289 shares owned and 29,955 shares issuable upon exercise of
options held by Mr. Richert.
(11) Includes 1,014 shares owned and 25,333 shares issuable upon exercise of
options held by Mr. Love.
(12) Includes shares beneficially owned by the directors and Named Officers
listed above. See footnotes (4)-(11).
As noted in the table above, Interneuron and Intercardia's executive officers
and directors own approximately 64.2% of the outstanding shares of Intercardia
Common Stock. Accordingly,
11
<PAGE>
such persons are in a position to influence the election of Intercardia's
directors and the outcome of corporate actions requiring stockholder approval.
Item 13. Certain Relationships and Related Transactions.
Intercardia was organized in March 1994 as a wholly-owned subsidiary of
Interneuron, which acquired 3,500,000 shares of Intercardia's Common Stock for
nominal consideration. In September 1994, Intercardia completed the acquisition
of 80.0% of CPEC for a purchase price equal to 170,000 shares of Interneuron
Common Stock and cash payments and reimbursement of expenses aggregating
approximately $1,852,000. The value of the 170,000 shares provided by
Interneuron to Intercardia to consummate the CPEC acquisition was deemed to be
approximately $759,000, representing approximately 70% of the market price of
the Interneuron Common Stock at such date. This amount and approximately
$608,000 of other expenses incurred by Interneuron in connection with the
acquisition of CPEC and the funding of the BEST Study were deemed to be an
advance by Interneuron to Intercardia. In December 1994, upon the initial
closing of the private placement referred to below, the aggregate amount of
advances to Intercardia of approximately $1,367,000 was converted by Interneuron
into an aggregate of 182,296 shares of Series A Preferred Stock of Intercardia
at a conversion price equal to $7.50 per share.
Intercardia is required to make two additional purchase price payments to
the former CPEC stockholders, each equal to a maximum of 75,000 shares of
Interneuron Common Stock (subject to adjustment based on the market price of
Interneuron Common Stock at the time of issuance) when a New Drug Application
with respect to bucindolol has been accepted for filing by the FDA and upon
receipt of an approval letter from the FDA with respect to bucindolol. In the
event these milestones are achieved, Intercardia will incur future charges to
operations equal to the fair market value of the Interneuron Common Stock
advanced to Intercardia to make such payments. The minimum and maximum charges
incurred in connection with each additional payment would be $750,000 and
$1,875,000, respectively. In exchange for Interneuron providing such payments of
Interneuron Common Stock, Intercardia will pay Interneuron an amount equal to
the fair market value of such Interneuron Common Stock, payable in cash or in
shares of Intercardia Common Stock, at Intercardia's option.
In January 1996, Interneuron purchased the CPEC stock held by the former
minority stockholders in exchange for 342,792 shares of Interneuron Common
Stock. The aggregate number of shares of Interneuron Common Stock was calculated
by dividing $8,750,000 by $25.525, the then market price of Interneuron's Common
Stock. Fractional shares were paid in cash. As a result of this transaction,
Interneuron recorded a non-cash charge to operations during the fiscal year
ended September 30, 1996 of approximately $6.1 million. Intercardia has a right
of first refusal, expiring in September 1999, with respect to certain sales
(registered or not) of CPEC stock by Interneuron.
In December 1995, Intercardia and Interneuron entered into a tax allocation
agreement to provide, among other things, for the payment of tax liabilities and
entitlement to tax refunds and
12
<PAGE>
the allocation of responsibility and the providing of cooperation in the filing
of tax returns. Also in December 1995, Intercardia and Interneuron entered into
an intercompany services agreement which provides, among other things, for
Intercardia to adopt certain policies and procedures and provides for
Interneuron to include Intercardia and its employees in certain programs
administered by Interneuron, at cost, such as insurance, and to provide research
and development services to Intercardia upon request, on a cost plus basis.
Pursuant to the intercompany services agreement between Intercardia and
Interneuron, Interneuron has the right to purchase additional shares of Common
Stock at fair market value, if necessary to provide that Interneuron's equity
ownership in Intercardia does not fall below 51.0%. Intercardia has adopted a
policy that all future transactions between Intercardia and its executive
officers, directors and other affiliates must be approved by a majority of the
members of Intercardia's Board of Directors and by a majority of the
disinterested members of Intercardia's Board of Directors, and must be on terms
no less favorable to Intercardia than could be obtained from unaffiliated third
parties. In addition, this policy requires that any loans by Intercardia to its
executive officers, directors or other affiliates be for bona fide business
purposes only.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERCARDIA, INC.
By:/s/ Clayton I. Duncan
------------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 27, 1998
