UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
_____ Exchange Act of 1934. For the quarterly period ended December 31,
1998.
_____ 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
incorporation or organization) (I.R.S. Employer Identification Number)
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC 27709
- -------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code 919-558-8688
---------------
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of February 10, 1999
------------ -----------------------------------
Common Stock, par value $.001 7,304,453 Shares
<PAGE>
INTERCARDIA, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 (unaudited )
and September 30, 1998............................................ 3
Consolidated Statements of Operations for the Three Months
ended December 31, 1998 and 1997 (unaudited)...................... 4
Consolidated Statements of Cash Flows for the Three Months ended
December 31, 1998 and 1997 (unaudited)............................ 5
Notes to Unaudited Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................15
SIGNATURE.........................................................16
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INTERCARDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,241 $ 10,647
Marketable securities 7,690 9,314
Accounts receivable 333 1,096
Prepaids and other current assets 98 117
------------ ------------
Total current assets 16,362 21,174
Marketable securities 2,042 3,601
Property and equipment, net 3,050 2,976
Other assets 84 85
----------- -----------
$ 21,538 $ 27,836
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,436 $ 752
Accrued expenses 2,178 3,191
Current portion of capital lease obligations 383 565
Current portion of notes payable 200 194
Accounts payable to Interneuron 1,751 1,865
------------ ------------
Total current liabilities 5,948 6,567
Long-term portion of capital lease obligations 919 816
Long-term portion of notes payable 738 777
Stockholders' equity:
Common stock, $.001 par value per share, 40,000,000
shares authorized, 7,304,453 and 7,289,153
shares issued and outstanding at December 31,
1998 and September 30, 1998, respectively 7 7
Additional paid-in capital 78,569 78,399
Deferred compensation (878) (1,086)
Accumulated deficit (63,765) (57,644)
------------ ------------
Total stockholders' equity 13,933 19,676
------------ ------------
$ 21,538 $ 27,836
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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<PAGE>
INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1998 1997
---------- -----------
<S> <C> <C>
Revenue:
Contract and license fee revenue $ 191 $ 534
---------- -----------
Costs and expenses:
Research and development 5,818 2,656
General and administrative 647 1,005
---------- -----------
Total costs and expenses 6,465 3,661
---------- -----------
Loss from operations (6,274) (3,127)
Investment income, net 153 141
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Net loss $ (6,121) $ (2,986)
========== ===========
Net loss per common share:
Basic $ (0.67) $ (0.43)
========== ===========
Diluted $ (0.67) $ (0.43)
========== ===========
Weighted average common shares
outstanding 7,297 6,998
========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
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INTERCARDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,121) $ (2,986)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 191 264
Noncash compensation 329 88
Interest expense on notes payable to
Interneuron - 311
Change in assets and liabilities:
Accounts receivable 763 45
Prepaids and other assets 20 (4)
Accounts payable and accrued expenses (329) (8,367)
Deferred revenue - (167)
-------- ---------
Net cash used in operating activities (5,147) (10,816)
-------- ---------
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 4,227 7,915
Purchases of marketable securities (1,044) (10,211)
Purchases of property and equipment (265) (448)
-------- ---------
Net cash provided by (used in) investing
activities 2,918 (2,744)
-------- ---------
Cash flows from financing activities:
Net proceeds from exercise of stock options 49 53
Proceeds from notes payable - 2
Principal payments on notes payable (33) (7)
Principal payments on capital lease obligations (79) (196)
Advances from (payments to) Interneuron, net (114) 1,559
-------- ---------
Net cash provided by (used in) financing
activities (177) 1,411
-------- ---------
Net decrease in cash and cash equivalents (2,406) (12,149)
Cash and cash equivalents at beginning of period 10,647 18,186
------- --------
Cash and cash equivalents at end of period $ 8,241 $ 6,037
======== =========
</TABLE>
The accompanying notes are integral part of these unaudited consolidated
financial statements.
5
<PAGE>
INTERCARDIA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The "Company" refers collectively to Intercardia, Inc. ("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"). As of December
31, 1998, Intercardia owned 80.1% of the outstanding stock of CPEC, 65.8% of the
outstanding stock of Aeolus and 79.6% of the outstanding stock of Renaissance.
Intercardia is a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc.
("Interneuron"). As of December 31, 1998, Interneuron owned 61.8% of the
outstanding capital stock of Intercardia and the 19.9% of the outstanding stock
of CPEC not owned by Intercardia.
All significant intercompany activity has been eliminated in the
preparation of the consolidated financial statements. The consolidated financial
statements included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). 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. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. The
consolidated balance sheet at September 30, 1998 was derived from the Company's
audited financial statements included in the Company's Annual Report on Form
10-K. The unaudited consolidated financial statements included herein should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and in the Company's other SEC filings.
Results for the interim period are not necessarily indicative of the results for
any other interim period or for the full fiscal year. The Company's financial
statements for the three-month period ended December 31, 1997 have been restated
to reflect the merger (the "Transcell Merger") of Transcell Technologies, Inc.
("Transcell") and the Company in May 1998. The former Transcell operation, which
is now a division of Intercardia, is referred to as Intercardia Research
Laboratories ("IRL").
The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA(R), a compound currently in Phase III clinical trials for the
treatment of congestive
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heart failure ("CHF"). The Company's other programs are in the early stages of
development.
B. Recent Accounting Pronouncements
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," effective October
1, 1998. The Company had no items of comprehensive income for the three months
ended December 31, 1998 and 1997.
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for the fiscal year ending September 30,
1999. SFAS No. 131 specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
disclosed. Management believes its current disclosures will not be materially
affected by the adoption of SFAS No. 131.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Introduction
This Report contains, in addition to historical information, statements by
the Company with respect to expectations about its business and future financial
results, which are "forward-looking" statements under the Private Securities
Litigation Reform Act of 1995. These statements and other statements made
elsewhere by the Company or its representatives, which are identified or
qualified by words such as "likely," "will," "suggests," "expects," "may,"
"believe," "could," "should," "would," "anticipates" or "plans," or similar
expressions, are based on a number of assumptions that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated or suggested due to a number of factors, including those set forth
herein, those set forth in the Company's Annual Report on Form 10-K and in the
Company's other SEC filings, and including, in particular, risks relating to
funding requirements, dependence on collaborative partners, dependence on one
product, competition, the early stage of products under development, the results
of clinical trials and regulatory filings. All forward-looking statements are
based on information available as of the date hereof, and the Company does not
assume any obligation to update such forward-looking statements.
The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA(R), a compound currently in Phase III clinical trials for the
treatment of congestive heart failure. The Company's other programs are in
earlier stages of development.
As a result of the Transcell Merger in May 1998, the Company's financial
statements for the three months ended December 31, 1997 have been restated to
include the results of operations of Transcell.
Results of Operations
The Company incurred net losses of $6,121,000 and $2,986,000 for the three
months ended December 31, 1998 and 1997, respectively.
Contract and license fee revenue decreased by $343,000 (64%) to $191,000
for the three months ended December 31, 1998 from $534,000 for the three months
ended December 31, 1997, due to the termination in September 1998 of a
collaboration which the Company had with Astra Merck Inc. ("Astra Merck") for
the U.S. development and commercialization of bucindolol (the "Astra Merck
Collaboration"). Contract and license fee revenue of $191,000 for the three
months ended December 31, 1998 consisted primarily of contract revenue payments
from Merck & Co., Inc. ("Merck") pursuant to a collaboration (the "Merck
Collaboration") between Intercardia and Merck related to the carbohydrate
combinatorial chemistry technology of IRL. Contract and license fee revenue of
$534,000 for the three
8
<PAGE>
months ended December 31, 1997 consisted primarily of contract revenue payments
received from both the Merck Collaboration and the Astra Merck Collaboration.
Research and development ("R&D") expenses increased by $3,162,000 (119%)
to $5,818,000 from $2,656,000 primarily due to increases in bucindolol expenses
borne by the Company, and increased expenses incurred at IRL
Bucindolol and general R&D expenses increased by $1,928,000 (290%) to
$2,593,000 for the three months ended December 31, 1998 from $665,000 for the
three months ended December 31, 1997. This increase was primarily due to
increases in the Company's share of bucindolol clinical trial costs associated
with the Bucindolol Evaluation after Acute myocardial infraction Trial ("BEAT")
in Europe and the Beta-blocker Evaluation of Survival Trial ("BEST") in the
United States. In June 1998, BASF Pharma/Knoll AG ("Knoll"), the Company's
international partner for BEXTRA, initiated BEAT in Denmark and the United
Kingdom. BEST commenced in June 1995, however, the Company's share of costs for
BEST for the three months ended December 31, 1998 increased significantly over
prior quarters, due to the termination of the Astra Merck Collaboration in
September 1998. For the three months ended December 31, 1997 Astra Merck had
assumed approximately $1,219,000 of BEST and U.S. bucindolol development costs.
IRL R&D expenses increased by $1,130,000 (84%) to $2,471,000 for the three
months ended December 31, 1998 from $1,341,000 for the three months ended
December 31, 1997. This increase was primarily due to increases in license fees
to Princeton University, payroll costs, patent fees and consultant noncash
compensation.
Aeolus R&D expenses increased by $65,000 (13%) to $576,000 for the three
months ended December 31, 1998 from $511,000 for the three months ended December
31, 1997. This increase was primarily due to an increase in sponsored research
expenses.
Renaissance R&D expenses for its liver stem cell program increased by
$39,000 (28%) to $178,000 for the three months ended December 31, 1998 from
$139,000 for the three months ended December 31, 1997. This increase was
primarily due to increases in sponsored research and patent expenses.
General and administrative expenses decreased by $358,000 (36%) to
$647,000 for the three months ended December 31, 1998 from $1,005,000 for the
three months ended December 31, 1997, primarily due to the elimination of
certain IRL administrative personnel and functions after the Transcell Merger.
9
<PAGE>
Liquidity and Capital Resources
As of December 31, 1998, the Company had cash, cash equivalents and
marketable securities of $17,973,000, which was $5,589,000 less than the balance
at September 30, 1998. This decrease was primarily due to the funding of the
Company's operations for the three-month period ended December 31, 1998. The
Company believes it has sufficient cash for planned expenditures through the
fiscal year ending September 30, 1999, without raising additional capital or
finding a U.S. development and marketing partner. However, the Company's capital
requirements may change due to numerous factors, including the progress of the
Company's research and development programs, the terms of collaborative
arrangements and other factors, many of which are beyond the Company's control.
Following termination of the Astra Merck Collaboration in September 1998,
the Company has been responsible for all U.S. bucindolol development and
marketing costs. This has resulted in increased expenses to the Company, and a
lower accounts receivable balance, because Astra Merck had funded a large
portion of such costs over the period of the Astra Merck Collaboration from
December 1995 through September 1998. The Company estimates that it could incur
additional U.S. bucindolol study costs of up to $6,000,000 during fiscal 1999,
primarily to support BEST. The Company is evaluating opportunities to share
bucindolol development and marketing responsibilities and costs in the United
States with other potential partners.
Pursuant to a collaboration with Knoll (the "Knoll Collaboration") for the
development, manufacturing and marketing of bucindolol in countries other than
the United States and Japan (the "Knoll Territory"), the Company is responsible
for approximately 40% of the development and marketing costs of bucindolol for
the Knoll Territory, subject to certain maximum dollar limitations. The
remaining portion of the Company's obligation for development and clinical
trials costs of the twice-daily formulation of bucindolol for the Knoll
Territory is estimated to be $9,000,000, which is expected to be incurred over
the two years. The Company's portion of marketing costs prior to product launch
is estimated to be $4,000,000. Upon product launch, the Company will receive 40%
of the net income and will be responsible for 40% of the net loss in the Knoll
Territory, if any, as defined. The Company is also responsible for approximately
40% of the costs incurred to develop a once-daily formulation of bucindolol for
the Knoll Territory and approximately 67% of the once-daily development costs
that have a worldwide benefit.
The Company's future prospects substantially depend on favorable results
of BEST. The Phase III studies of three other beta-blockers have terminated
before their scheduled completion date because of positive results. However,
bucindolol differs in some respects from those other compounds and the results
of the other studies may not be predictive of the results of BEST. BEST is
sponsored by the National Institutes of Health (the "NIH") and the Department of
Veterans Affairs (the "VA"), and the schedule, conduct and analysis of the study
is not under the control of the Company. Once the study ends, the NIH and VA
plan to submit the data for publication in a scientific journal, and the Company
is not entitled to receive the data from the trial before a manuscript is
accepted for publication. The Company
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<PAGE>
cannot control the timing of the publication's preparation or review, and the
timing of its receipt of the BEST database therefore cannot be predicted. If the
BEST results are positive, the Company must obtain approval of the U.S. Food and
Drug Administration (the "FDA") before bucindolol can be marketed in the United
States. The Company currently intends to submit a New Drug Application (an
"NDA") for BEXTRA to the FDA within six months after it receives the BEST data,
if the study results are favorable. The U.S. submission would be used as the
basis for an equivalent submission by Knoll in Europe. There can be no assurance
that the Company will meet this planned schedule, that any regulatory authority
will review the regulatory submissions for bucindolol in a timely manner, or
that BEXTRA will receive marketing approval in any country. Failure of BEST to
demonstrate the safety and efficacy of bucindolol, or the failure of the Company
to obtain regulatory approvals in major markets, would materially adversely
affect the Company. Even assuming successful completion of BEST and regulatory
approval of BEXTRA, the Company does not expect that BEXTRA will be commercially
available before fiscal 2001.
The Company faces competition in all the therapeutic areas in which it has
development programs. One beta-blocker has been approved by the FDA for use in
treating CHF, and positive results for two other beta-blockers have been
announced from pivotal CHF patient clinical trials. If the BEST results are
positive and the Company is able to obtain regulatory approval of BEXTRA,
bucindolol could be the third or fourth beta-blocker to be introduced in the
U.S. market for CHF therapies. The Company expects competition to be intense.
The other companies who currently market, or who are expected to market,
competitive beta-blockers are large, multinational pharmaceutical companies who
have greater marketing resources and experience than the Company.
The Company will incur additional charges to operations relating to its
1994 acquisition of CPEC in the event that certain milestones are achieved in
the development and commercialization of bucindolol. The Company will be
required to issue to the former CPEC stockholders shares of Interneuron's common
stock upon achieving the milestones of filing an NDA and receiving an approval
letter (an "Approval Letter") from the FDA to market bucindolol. Each additional
payment would have minimum and maximum charges to the Company of $750,000 and
$1,875,000, respectively. The value of these additional shares was not included
in the purchase price because their issuance is contingent upon achieving these
milestones. In exchange for Interneuron providing such shares, Intercardia will
pay Interneuron the value of such shares, either in cash or Intercardia Common
Stock, at Intercardia's option. In the event the Company files an NDA for
bucindolol, the Company expects it would recognize the expense immediately, and
in the event an Approval Letter for bucindolol is received, the Company expects
it would capitalize the amount and amortize it over the expected life of the
product.
In conjunction with the Transcell Merger, Intercardia must issue
additional shares of Intercardia Common Stock to the former Transcell
stockholders. Additional installments consisting of $3,000,000 of Intercardia
Common Stock, as valued at each issuance date, will be issued in August 1999 and
February 2000. The impact of the issuance of these additional shares has not
been reflected in Intercardia's Common Stock outstanding or its earnings per
share calculations, but was included in the determination of the value of the
purchase price consideration of Transcell. Because of its prior majority
ownership of Transcell, Interneuron will receive the majority of the shares
issued in these future installments.
Intercardia may be subject to various risks arising from Interneuron's
influence over Intercardia, including conflicts of interest relating to new
business opportunities that could be pursued by Intercardia or by Interneuron
and its other affiliates, and significant corporate transactions for which
stockholder approval is required. Because Interneuron owns 61.9% of the
outstanding Common Stock of Intercardia, Interneuron has the ability to elect
all of the
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directors of Intercardia and control voting with respect to other matters
submitted to a vote of the stockholders, including extraordinary corporate
transactions such as a merger or sale of substantially all of the Company's
assets. Interneuron's voting control over Intercardia may have the effect of
delaying or preventing sales of additional securities or other financing of
Intercardia, a sale of the Company, or other change of control supported by the
other stockholders of Intercardia. Pursuant to an inter-company services
agreement between Intercardia and Interneuron, Interneuron has the right to
purchase from Intercardia additional shares of Intercardia's Common Stock at
fair market value, if necessary to provide that Interneuron's equity ownership
in Intercardia does not fall below 51.0%. In the event that all or part of the
shares of Intercardia Common Stock held by Interneuron are sold or otherwise
transferred, the market price of the Intercardia Common Stock could be adversely
affected. Interneuron is entitled to receive royalties based on sales of certain
products being developed by IRL under the Merck Agreement, which are payable in
Intercardia Common Stock unless Intercardia and Interneuron agree that the
royalty may be paid in cash. Interneuron also owns directly 19.9% of CPEC,
Intercardia's 80.1% owned subsidiary. As of December 31, 1998, the Company owed
Interneuron $1,751,000 from net advances by Interneuron to the Company.
The Company expects to incur substantial additional costs and losses over
the next few years. The Company's working capital and capital requirements will
depend upon numerous factors, including: the progress of the development and
clinical trials of bucindolol; the timing and cost of obtaining regulatory
approvals; the effect of competitive drugs on commercialization of bucindolol;
and the ability of the Company to establish additional collaborative
arrangements with other companies to provide research or development funding to
the Company and to conduct clinical trials, obtain regulatory approvals, and
manufacture and market certain of the Company's products. The Company may
acquire other products, technologies or businesses that complement the Company's
existing and planned products, although the Company currently has no
understanding, commitment or agreement with respect to any such acquisitions.
Although the Company believes it has adequate funds to finance operations
through fiscal 1999, the Company will require additional financing to fund
operating activities beyond fiscal 1999, to complete its clinical trials, to
make payments to fund 40% of development and marketing costs of bucindolol in
the Knoll Territory pursuant to the Knoll Collaboration and to fund new business
opportunities and growth. The Company intends to raise additional capital
through collaborative partnering arrangements, debt financing or equity
financing during fiscal 1999. However, there can be no assurance that adequate
funds
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will be available on terms acceptable or favorable to the Company, if at all. It
is currently difficult for biotechnology companies to raise funds in the equity
markets and, if the results of BEST are delayed or are not positive, raising
funds in the equity markets will be even more difficult. Any additional equity
financing, if available, would result in dilution to Intercardia's stockholders.
The Company does not have any commitments to obtain any additional funds and has
not established banking arrangements through which it can obtain additional debt
financing. If the Company is unable to enter into additional collaborations or
raise additional capital to support its current level of operations after
fiscal 1999, the Company would be required to reduce or discontinue one or more
of its research and development programs, or obtain funds through strategic
alliances on terms that are not favorable to the Company or its existing
stockholders.
Year 2000
The Company recognizes the need to ensure that "Year 2000" hardware and
software issues will not adversely impact its operations. In 1998, the Company
initiated a program, and subsequently established a Year 2000 committee, to
assess the expected impact of the Year 2000 date recognition problem on its
existing internal systems, those which it intends to implement and the systems
of its key business vendors. The purpose of this program is to attempt to ensure
that this problem does not have a material adverse effect on the Company's
business operations or its financial condition. The Company has initiated an
assessment of its internal information systems which support business
applications leading to the process of modifying or replacing those portions of
software, hardware and other equipment that are determined to be non-compliant.
Key financial, information and operational systems, including equipment with
embedded microprocessors, will continue to be inventoried and assessed, and
detailed plans have been finalized to ready the Company's internal operating
systems. As of December 31, 1998, the Company believes its Year 2000 compliance
programs were approximately 25% complete. The Company's goal is to continue
upgrading its personal computer hardware and software to become fully Year 2000
compliant by the end of calendar 1999.
In addition, the Company is beginning to assess its key business vendors'
Year 2000 compliance so as to minimize the likelihood that non-compliance of any
vendor would significantly impact the Company's operations. Informational
requests will be distributed and/or formal discussions with key business vendors
will be held, and replies and readiness will be evaluated pending receipt or
completion of these inquiries and/or discussions. Key business vendors will be
requested to provide assurances regarding their Year 2000 compliance. Risk
assessment, readiness evaluation and action and contingency plans related to
these vendors are expected to be completed by October 1999. Due to the Company's
evolving internal systems and reliance on third parties, the Company anticipates
periodic re-evaluation and maintenance regarding its internal systems and
business vendors throughout 1999.
Due to the Company's relatively short operating history and evolving
internal systems, the modification or replacement of internal systems has not
been, nor is it expected
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to be, a material expenditure for the Company. Total expenditures to date for
Year 2000 compliance have been less than $25,000 and future expenditures are
expected to be less than $50,000. Expenditures required to make the Company Year
2000 compliant have been and will continue to be expensed as incurred. The
Company does not believe it has a risk of loss of significant revenues due to
the Year 2000 because the Company does not expect that any of its potential
pharmaceutical products are likely to have attained FDA approval prior to
January 2000.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12 Intercardia, Inc. 1995 Employee Stock Purchase Plan, as amended.
10.38 Employment Agreement between Michael J. Sofia and Intercardia,
Inc., dated December 10, 1998.
11.1 Statement re computation of net loss per share
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
(b) No reports on Form 8-K were filed by the Company during the three months
ended December 31, 1998.
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SIGNATURE
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.
INTERCARDIA, INC.
Date: February 12, 1999 By: /s/ Richard W. Reichow
----------------------------------------
Richard W. Reichow, Executive Vice
President, Chief Financial Officer
and Treasurer (Principal Financial
and Accounting Officer)
16
Exhibit 10.12
INTERCARDIA, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
1. Purpose. The Intercardia, Inc. 1995 Employee Stock Purchase Plan
(the "Plan") is established to provide eligible employees of Intercardia Inc., a
Delaware corporation, and any successor corporation thereto (collectively,
"Intercardia"), and any current or future parent corporation or subsidiary
corporations of Intercardia as the Board of Directors of Intercardia (the
"Board") shall from time to time designate (collectively referred to as the
"Company" and individually referred to as a "Participating Company"), with an
opportunity to acquire a proprietary interest in the Company by the purchase of
common stock of Intercardia. For purposes of the Plan, a parent corporation and
a subsidiary corporation shall be as defined in sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
Intercardia intends that the Plan shall qualify as an "employee
stock purchase plan" under section 423 of the Code (including any amendments or
replacements of such section), and the Plan shall be so construed. Any term not
expressly defined in the Plan but defined for purposes of section 423 of the
Code shall have the same definition herein.
An employee participating in the Plan (a "Participant") may withdraw
such Participant's accumulated payroll deductions (if any) and terminate
participation in the Plan or any Offering (as defined below) therein at any time
during a Purchase Period (as defined below). Accordingly, each Participant is,
in effect, granted an option pursuant to the Plan (a "Purchase Right") which may
or may not be exercised at the end of a Purchase Period.
2. Administration. The Plan shall be administered by the Board
and/or by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references to the Board shall also mean
the committee if a committee has been appointed. All questions of interpretation
of the Plan or of any Purchase Right shall be determined by the Board and shall
be final and binding upon all persons having an interest in the Plan and/or any
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
3. Share Reserve. The maximum number of shares which may be issued
under the Plan shall be Two Hundred Thousand (200,000) shares of Intercardia's
authorized but unissued common stock, $.001 par value (the "Shares"). In the
event that any Purchase Right for any reason expires or is canceled or
terminated, the Shares allocable to the unexercised portion of such Purchase
Right may again be subjected to a Purchase Right.
<PAGE>
4. Eligibility. Any employee of a Participating Company is eligible
to participate in the Plan except employees who:
(a) customarily work less than 20 hours per week;
(b) customarily work not more than five months in any calendar
year; or
(c) as of the start of an Offering, own stock of Intercardia
(or its parent or subsidiary corporations) and/or own or hold options to
purchase or who, as a result of participation in the Plan, would own or hold
options to purchase, stock of Intercardia (or its parent or subsidiary
corporations), possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of Intercardia (or its parent or
subsidiary corporations) within the meaning of section 423(b)(3) of the Code.
Notwithstanding anything herein contained to the contrary, any
individual performing services for a Participating Company solely through a
leasing agency or employment agency shall not be deemed an "employee" of such
Participating Company.
5. Offering Dates.
(a) Offering Periods. Except as otherwise set forth below, the
Plan shall be implemented by offerings (individually, an "offering") of
approximately twelve (12) months duration (an "Offering Period"). The "Initial
Offering Date" is the date immediately preceding the effective date of a
registration statement filed with the Securities and Exchange Commission
relating to an initial public offering of Intercardia's securities. The Initial
Offering Period shall commence on the Initial Offering Date and shall end on the
first September 30 following the Initial Offering Date which is at least six
months after the Initial Offering Date (the "Initial Offering Termination
Date"). Subsequent Offerings shall commence on October 1 and end on the
September 30 occurring thereafter. Notwithstanding the foregoing, the Board may
establish a different term for one or more Offerings and/or different commencing
and/or ending dates for such Offerings. An employee who becomes eligible to
participate in the Plan after an Offering Period has commenced shall not be
eligible to participate in such Offering but may participate in any subsequent
Offering provided such employee is still eligible to participate in the Plan as
of the commencement of any such subsequent Offering. Eligible employees may not
participate in more than one Offering at a time. The first day of an Offering
Period shall be the "Offering Date" for such Offering Period. In the event the
first and/or last day of an Offering Period is not a business day, Intercardia
shall specify the business day that will be deemed the first or last day, as the
case may be, of the Offering Period.
(b) Purchase Periods. Each Offering Period, except for the
Initial Offering Period, shall consist of two (2) consecutive purchase periods
of six (6) months duration (individually, a "Purchase Period"). The last day of
each Purchase Period shall be the "Purchase
<PAGE>
Date" for such Purchase Period. The Initial Offering Period shall consist of one
Purchase Period, commencing on the Initial Offering Date and ending on the
Initial Offering Termination Date. Each Purchase Period commencing on April 1
shall end on the next September 30 and each Purchase Period commencing on
October 1 shall end on the next March 31. Notwithstanding the foregoing, the
Board may establish a different term for one or more Purchase Periods and/or
different commencing dates and/or Purchase Dates for such Purchase Periods. In
the event the first and/or last day of a Purchase Period is not a business day,
Intercardia shall specify the business day that will be deemed the first or last
day, as the case may be, of the Purchase Period.
(c) Governmental Approval; Stockholder Approval.
Notwithstanding any other provision of the Plan to the contrary, any Purchase
Right granted pursuant to the Plan shall be subject to (i) obtaining all
necessary governmental approvals and/or qualifications of the sale and/or
issuance of the Purchase Rights and/or the Shares, and (ii) obtaining
stockholder approval of the Plan. Notwithstanding the foregoing, stockholder
approval shall not be necessary in order to grant any Purchase Right granted in
the Plan's Initial Offering Period; provided, however, that the exercise of any
such Purchase Right shall be subject to obtaining stockholder approval of the
Plan.
6. Participation in the Plan.
(a) Initial Participation. An eligible employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements and delivering to the Company's payroll office not later than the
close of business for such payroll office on the last business day before such
Offering Date (the "Subscription Date") a subscription agreement indicating the
employee's election to participate in the Plan and authorizing payroll
deductions. An eligible employee who does not deliver a subscription agreement
to the Company's payroll office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such employee subsequently enrolls in the Plan by filing a
subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
proper administration of the Plan.
(b) Continued Participation. A Participant shall automatically
participate in the Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
until such time as such Participant (i) ceases to be eligible as provided in
paragraph 4, (ii) withdraws from the Plan pursuant to paragraph 11(b) or (iii)
terminates employment as provided in paragraph 12. If a Participant is
automatically withdrawn from an Offering at the end of a Purchase Period of such
Offering pursuant to paragraph 11(d), then the Participant shall automatically
participate in the next Offering Period. If a Participant automatically may
participate in a subsequent Offering Period pursuant to this paragraph 6(b),
then the Participant is not required to file any additional subscription
agreement for such subsequent Offering Period in order to continue participation
in
<PAGE>
the Plan. However, a Participant may file a subscription agreement with respect
to a subsequent Offering Period if the Participant desires to change any of the
Participant's elections contained in the Participant's then effective
subscription agreement.
7. Right to Purchase Shares. Except as set forth below, during an
Offering Period each Participant in such Offering Period shall have a Purchase
Right consisting of the right to purchase the lesser of:
(a) that number of whole Shares arrived at by dividing Fifty
Thousand Dollars ($50,000.00) by the fair market value of a share of the common
stock of Intercardia on the Offering Date of such Offering Period; and
(b) 10,000 Shares.
The fair market value of Shares shall be determined in
accordance with paragraph 8 below. Shares may only be purchased through a
Participant's payroll withholding pursuant to paragraph 9 below. In no event
shall a Participant's Purchase Right permit such Participant to acquire more
Shares in any calendar year than is permitted under Section 10(a) hereof.
8. Purchase Price. The purchase price at which Shares may be
acquired in a given Purchase Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan (the "Offering Exercise
Price") shall be set by the Board; provided, however, that the Offering Exercise
Price shall not be less than eighty-five percent (85%) of the lesser of (i) the
fair market value of the Shares on the Offering Date of the Offering Period of
which the Purchase Period is a part, or (ii) the fair market value of the Shares
on the Purchase Date for such Purchase Period; provided, however that the fair
market value of the Shares on the Initial Offering Date shall be deemed to be
the initial public offering price of Intercardia's Common Stock. Unless
otherwise provided by the Board prior to the commencement of an Offering Period,
the Offering Exercise Price for each Purchase Period in that Offering Period
shall be eighty-five percent (85%) of the lesser of (i) the fair market value of
the Shares on the Offering Date of such Offering Period or (ii) the fair market
value of the Shares on the given Purchase Date. The fair market value of the
Shares on the applicable dates shall be the closing sales price on the Nasdaq
National Market (or the average of the closing bid and asked prices if the
Shares are so quoted instead) or as reported on such other national or regional
securities exchange or market system if the Shares are traded on such other
exchange or system instead, or as determined by the Board if the Shares are not
so reported. If the relevant date does not fall on a day on which the common
stock of Intercardia is quoted on the Nasdaq National Market or such other
national or regional securities exchange or market, the date on which the fair
market value per Share shall be established shall be the last day on which the
common stock of Intercardia was so quoted to such relevant date.
<PAGE>
9. Payment of Purchase Price. Shares which are acquired pursuant to
the exercise of all or any portion of a Purchase Right may be paid for only by
means of payroll deductions from the Participant's Compensation during the
Offering Period. For purposes of the Plan, a Participant's "Compensation" with
respect to an Offering (i) shall include the Participant's base salary before
deduction for any contributions to any plan maintained by a Participating
Company and described in section 401(k) or section 125 of the Code, commissions,
overtime and bonuses and (ii) shall not include annual awards, other incentive
payments, shift premiums, long-term disability, worker's compensation or any
other payments not specifically referenced in (i). Except as set forth below,
the amount of Compensation to be withheld from a Participant's Compensation
during each pay period shall be determined by the Participant's subscription
agreement.
(a) Election to Decrease, Increase or Stop Withholding. During
an Offering Period, a Participant may elect to decrease the amount withheld, or
stop withholding, from his or her Compensation by filing as amended subscription
agreement with the Company on or before the "Change Notice Date." The "Change
Notice Date" shall initially be the seventh (7th) day prior to the end of the
first pay period for which such election is to be effective; however, the
Company may change such Change Notice Date from time to time. A Participant may
elect to increase the amount withheld from the Participant's Compensation once
during any Purchase Period.
(b) Limitations on Payroll Withholding. The amount of payroll
withholding with respect to the Plan for any Participant during any pay period
shall be in one percent (1%) increments not to exceed ten percent (10%) of the
Participant's Compensation for such pay period. Notwithstanding the foregoing,
the Board may change the limits on payroll withholding effective as of a future
Offering Date, as determined by the Board. Amounts withheld shall be reduced by
any amounts contributed by the Participant and applied to the purchase of
Company stock pursuant to any other employee stock purchase plan qualifying
under section 423 of the Code.
(c) Payroll Withholding. Payroll deductions shall commence on
the first payday following the Offering Date and shall continue to the end of
the Offering Period unless sooner altered or terminated as provided in the Plan.
(d) Participant Accounts. Individual accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
(e) No Interest Paid. Interest shall not be paid on sums
withheld from a Participant's Compensation, unless the Board elects to make such
payments to all Participants on a non-discriminatory basis.
<PAGE>
(f) Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole Shares arrived at by dividing
the total amount of the Participant's accumulated payroll deductions for the
Purchase Period by the Offering Exercise Price; provided, however, in no event
shall the number of Shares purchased by the Participant exceed the number of
Shares subject to the Participant's Purchase Right or the limitations imposed by
Section 10(a) hereof. No Shares shall be purchased on a Purchase Date on behalf
of a Participant whose participation in the Offering or the Plan has terminated
on or before such Purchase Date.
(g) Return of Cash Balance. Any cash balance remaining in the
Participant's account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole Share, the Company may establish procedures
whereby such cash is maintained in the Participant's account and applied toward
the purchase of Shares in the subsequent Purchase Period or Offering Period.
(h) Tax Withholding. At the time the Purchase Right is
exercised, in whole or in part, or at the time some or all of the Shares are
disposed of, the Participant shall make adequate provision for the foreign,
federal and state tax withholding obligations of the Company, if any, which
arise upon exercise of the Purchase Right and/or upon disposition of Shares,
respectively. The Company may, but shall not be obligated to, withhold from the
Participant's Compensation the amount necessary to meet such withholding
obligations.
(i) Company Established Procedures. The Company may, from time
to time, establish or change (i) a minimum required withholding amount for
participation in an Offering, (ii) limitations on the frequency and/or number of
changes in the amount withheld during an Offering, (iii) an exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars, (iv)
payroll withholding in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (v) the date(s) and manner by which the
fair market value of the Shares is determined for purposes of administration of
the Plan and/or (vi) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion which are consistent with the Plan
and in accordance with the requirements of section 423 of the Code.
(j) Expiration of Purchase Right. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which such Purchase Right relates shall expire immediately upon the
end of such Offering Period.
10. Limitations on Purchase of Shares; Rights as a Stockholder.
<PAGE>
(a) Fair Market Value Limitation. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase Shares under
the Plan (and under all other employee stock purchase plans which are intended
to meet the requirements of section 423 of the Code sponsored by the Company or
a parent or subsidiary corporation of the Company) at a rate which exceeds
$25,000 in fair market value, which fair market value is determined for Shares
purchased during a given Offering Period as of the Offering Date for such
Offering Period (or such other limit as may be imposed by the Code), for each
calendar year in which such Participant's Purchase Right with respect to such
Offering Period remains outstanding under the Plan (and under all other employee
stock purchase plans described in this sentence).
(b) Pro Rata Allocation. In the event the number of Shares
which might be purchased by all Participants in the Plan exceeds the number of
Shares available in the Plan, the Company shall make a pro rata allocation of
the remaining Shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable.
(c) Rights as a Stockholder and Employee. A Participant shall
have no rights as a stockholder by virtue of the Participant's participation in
the Plan until the date of the issuance of a stock certificate(s) for the Shares
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate(s) are issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Company or interfere in any way with any right of the Company to
terminate the Participant's employment at any time.
11. Withdrawal.
(a) Withdrawal From an Offering. A Participant may withdraw
from an Offering by signing and delivering to the Company's payroll office, a
written notice of withdrawal on form provide by the Company for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period; provided, however, if a Participant withdraws after the Purchase Date
for a Purchase Period of an Offering, the withdrawal shall not affect Shares
acquired by the Participant in such Purchase Period. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. By withdrawing from an Offering effective as of
the close of a given Purchase Date, a Participant may have Shares purchased on
such Purchase Date and commence participation in the next Offering commencing
after such Purchase Date. A Participant is prohibited from again participating
in an Offering at any time upon withdrawal from such Offering. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Company's payroll office for a reasonable period prior to the
effectiveness of the Participant's withdrawal from an Offering.
<PAGE>
(b) Withdrawal from the Plan. A Participant may withdraw from
the Plan by signing a written notice of withdrawal on a form provided by the
Company for such purpose and delivering such notice to the Company's payroll
office. Withdrawals made after a Purchase Date for a Purchase Period shall not
affect Shares acquired by the Participant on such Purchase Date. In the event a
Participant voluntarily elects to withdraw from the Plan, the Participant may
not resume participation in the Plan during the same Offering Period, but may
participate in any subsequent Offering under the Plan by again satisfying the
requirements of paragraphs 4 and 6(a) above. The Company may impose, from time
to time, a requirements that the notice of withdrawal be on file with the
Company's payroll office for a reasonable period prior to the effectiveness of
the Participant's withdrawal from the Plan.
(c) Return of Payroll Deductions. Upon withdrawal from an
Offering or the Plan pursuant to paragraphs 11(a) or 11(b), respectively, the
withdrawn Participant's accumulated payroll deductions which have not been
applied toward the purchase of Shares shall be returned as soon as practicable
after the withdrawal, without the payment of any interest (unless the Board
decides otherwise pursuant to paragraph 9(e) above), to the Participant, and the
Participant's interest in the Offering and/or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
(d) Automatic Withdrawal From an Offering. If the fair market
value of the Shares on a Purchase Date of an Offering (other than the final
Purchase Date of such Offering) is less than the fair market value of the Shares
on the Offering Date for such Offering, then every Participant shall
automatically (i) be withdrawn from such Offering at the close of such Purchase
Date and after the acquisition of Shares for such Purchase Period and (ii) be
enrolled in the next Offering commencing subsequent to such Purchase Period. A
Participant may elect not to be automatically withdrawn from an Offering Period
pursuant to this paragraph 11(d) by delivering to the Company not later than the
close of business on the last day before the Purchase Date a written notice
indicating such election.
(e) Participation Following Withdrawal. An employee who is
also an officer or director of the Company subject to section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and who is
deemed to "cease participation" in the Plan within the meaning of Rule 16b-3
promulgated under the Exchange Act as amended from time to time or any successor
rule or regulation ("Rule 16b-3") as a consequence of his or her withdrawal from
an Offering pursuant to paragraph 11(a) above or withdrawal from the Plan
pursuant to paragraph 11(b) above shall not again participate in the Plan for at
least six months after the date of such withdrawal.
(f) Waiver of Withdrawal Right. The Company may, from time to
time, establish a procedure pursuant to which a Participant may elect (an
"Irrevocable Election"), at least six (6) months prior to a Purchase Date, to
have all payroll deductions accumulated in his or her Plan account as of such
Purchase Date applied to purchase Shares under the Plan, and (i) to waive his or
her
<PAGE>
right to withdraw from the Offering or the Plan and (ii) to waive his or her
right to increase, decrease, or cease payroll deductions under the Plan from his
or her Compensation during the Purchase Period ending on such Purchase Date.
Such election shall be made in writing on a form provided by the Company for
such purpose and must be delivered to the Company not later than the close of
business on the day preceding the date which is six (6) months before the
Purchase Date for which such election is to first be effective.
12. Termination of Employment. Termination of a Participant's
employment with the Company for any reason, including retirement, disability or
death or the failure of a Participant to remain an employee eligible to
participate in the Plan, shall terminate the Participant's participation in the
Plan immediately. In such event, the payroll deductions credited to the
Participant's account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the Participant's
death, to the Participant's legal representative, and all of the Participant's
right under the Plan shall terminate. Interest shall not be paid on sums
returned to a Participant pursuant to this paragraph 12 unless the Board elects
otherwise pursuant to paragraph 9(e) above. A Participant whose participation
has been so terminated may again become eligible to participate in the Plan by
again satisfying the requirements of paragraphs 4 and 6(a) above.
13. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to
Intercardia.
(a) a merger or consolidation in which Intercardia is not
the surviving corporation;
(b) a merger or consolidation in which Intercardia is the
surviving corporation where the stockholders of Intercardia before such merger
or consolidation do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of Intercardia;
(c) the sale, exchange, or transfer of all or substantially
all of Intercardia's assets other than a sale, exchange, or transfer to one (1)
or more subsidiary corporations (as defined in section 1, above) of Intercardia;
(d) the direct or indirect sale or exchange by the
stockholders of Intercardia of all or substantially all of the stock of
Intercardia where the stockholders of Intercardia before such sale or exchange
do not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of Intercardia after such sale or exchange; or
(e) the liquidation or dissolution of Intercardia;
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation, as the case may be (the "Acquiring Corporation"), for the Acquiring
Corporation to assume Intercardia's rights and
<PAGE>
obligations under the Plan. All Purchase Rights shall terminate effective as of
the date of the Transfer of Control to the extent that the Purchase Right is
neither exercised as of the date of the Transfer of Control nor assumed by the
Acquiring Corporation.
14. Capital Changes. In the event of changes in the common stock of
Intercardia due to a stock split, reverse stock split, stock dividend,
recapitalization, combination, reclassification, or like change in Intercardia's
capitalization, or in the event of any merger (including a merger effected for
the purpose of changing Intercardia's domicile), sale or other reorganization,
appropriate adjustments shall be made by Intercardia in the securities subject
to purchase under a Purchase Right, the Plan's share reserve, the number of
Shares subject to a Purchase Right, and in the purchase price per Share.
15. Transferability. A Purchase Right may not be transferred in any
manner otherwise than by will or the laws of descent and distribution and shall
be exercisable during the lifetime of the Participant only by the Participant.
Intercardia, in its absolute discretion, may impose such restrictions on the
transferability of the Shares purchasable upon the exercise of a Purchase Right
as it deems appropriate, and any such restriction shall be set forth in the
respective subscription agreement and may be referred to on the certificates
evidencing such Shares.
16. Reports. Each Participant who exercised all or part of his or
her Purchase Right for a Purchase Period shall receive, as soon as practicable
after the Purchase Date of such Purchase Period, a report of such Participant's
account setting forth the total payroll deductions accumulated, the number of
Shares purchased, the fair market value of such Shares, the date of purchase and
the remaining cash balance to be refunded or retained in the Participant's
account pursuant to paragraph 9(g) above, if any. In addition, each Participant
shall be provided information concerning Intercardia equivalent to that
information generally made available to Intercardia's common stockholders.
17. Plan Term. This Plan shall continue until terminated by the
Board or until all of the Shares reserved for issuance under the Plan have been
issued.
18. Restriction on Issuance of Shares. The issuance of Shares under
the Plan shall be subject to compliance with all applicable requirements of
foreign, federal or state law with respect to such securities. A Purchase Right
may not be exercised if the issuance of Shares upon such exercise would
constitute a violation of any applicable foreign, federal or state securities
laws or other law or regulations. In addition, no Purchase Right may be
exercised unless (i) a registration statement under the Securities Act of 1933,
as amended, shall at the time of exercise of the Purchase Right be in effect
with respect to the Shares issuable upon exercise of the Purchase Right, or (ii)
in the opinion of legal counsel to Intercardia, the Shares issuable upon
exercise of the Purchase Right may be issued in accordance with the terms of an
applicable exemption from the registration requirements of said Act. As a
condition to the exercise of a Purchase Right, Intercardia may require the
Participant to satisfy any qualifications that may be
<PAGE>
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto as
may be requested by the Company.
19. Legends. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal and/or state
securities restrictions or any provision convenient in the administration of the
Plan on some or all of the certificates representing Shares issued under the
Plan. The Participant shall, at the request of Intercardia, promptly present to
Intercardia any and all certificates representing Shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this subparagraph. Unless otherwise specified by Intercardia,
legends placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER THE
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE ______________. THE REGISTERED HOLDER
SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME
(AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. Notification of Sale of Shares. Intercardia may require the
Participant to give Intercardia prompt notice of any disposition of Shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. Intercardia may require that until such time as a Participant
disposes of Shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such Shares in the Participant's name (and not in the name of any
nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. Intercardia may direct that the
certificates evidencing Shares acquired by exercise of a Purchase Right refer to
such requirement to give prompt notice of disposition.
21. Amendment or Termination of the Plan. The Board may at any time
amend or terminate the Plan, except that such termination shall not affect
Purchase Rights previously granted under the Plan, nor may any amendment make
any change in a Purchase Right previously granted under the Plan which would
adversely affect the right of any Participant (except to the extent permitted by
the Plan or as may be necessary to qualify the Plan as an employee stock
purchase plan pursuant to section 423 of the Code or to obtain qualification or
registration of the Shares under applicable foreign, federal or state securities
laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would change the number of Shares authorized for
issuance under the Plan or would change the definition of the employees (or
class of employees) eligible to participate in the Plan, including the
corporations that may be designated by the Board as Participating Companies.
Furthermore, the approval of the Company's stockholders shall be sought for any
amendment to the Plan for which the Board deems stockholder approval necessary
in order to comply with Rule 16b-3 promulgated under section 16 of the Exchange
Act.
<PAGE>
The foregoing Intercardia, Inc. 1995 Employee Stock Purchase Plan
was duly adopted by the Board of Directors of Intercardia on the 27th day of
October, 1995, and amended by the Board of Directors on the 20th day of
February, 1996 and on the 1st day of December 1998.
Exhibit 10.38
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is by and between Intercardia,
Inc., a Delaware corporation having a place of business at 3200 East Highway
54, Cape Fear Building, Suite 300, Post Office Box 14287, Research Triangle
Park, North Carolina, 27709 (the "Corporation"), and Michael J. Sofia
("Employee").
W I T N E S S E T H:
WHEREAS, the Corporation has employed and desires to continue to employ
the Employee as Vice President, Intercardia Research Laboratories, and the
Employee desires to be employed by the Corporation as Vice President of
Research, all pursuant to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained and other good and valuable consideration the
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT; DUTIES
(A) The Corporation engages and employs the Employee, and the Employee
hereby accepts engagement and employment, as Vice President, Intercardia
Research Laboratories.
(B) The Employee shall have such powers and perform all such duties as
from time to time may be assigned to him by the Board of Directors (the
"Board"), the Chairman of the Board, the Chief Executive Officer or the
President.
(C) The Employee shall devote such of his time and efforts as shall be
necessary to the proper discharge of his duties and responsibilities under this
Agreement.
2. TERM
The Employee's employment hereunder shall be for the period commencing on
the date of this Agreement and continuing through April 30, 2001.
3. COMPENSATION
(A) As compensation for the performance of his duties under this
Agreement, the Employee shall be compensated as follows:
(i) The Employee shall be granted options to purchase shares of
Common Stock of the Corporation as deemed appropriate by the Board or its
Compensation Committee. To the maximum extent permitted by law, the stock
options shall be incentive stock options.
<PAGE>
Employee Agreement
Michael J. Sofia
Page 2
(ii) The Corporation shall pay the Employee an annual base salary
("Base Salary") of One Hundred Fifty Five Thousand Dollars ($155,000), payable
in accordance with the usual payroll period of the Corporation. Base Salary will
be adjusted periodically to reflect Employee's then current salary, which will
be subject to an annual review in the sole discretion of the Board of Directors
or its Compensation Committee, provided however, that the Base Salary may not be
adjusted downward.
(iii) The Corporation shall pay the Employee bonuses, the amount of
which shall be in the discretion of the Corporation, upon the achievement of
substantial milestones to be mutually agreed upon from time to time by the Chief
Executive Officer, the Board of Directors or its Compensation Committee of the
Board.
(iv) The Corporation shall withhold all applicable federal, state
and local taxes, social security and workers' compensation contributions and
such other amounts as may be required by law and any additional amounts agreed
upon by the parties with respect to the compensation payable to the Employee
pursuant to section 3(A) hereof.
(B) The Corporation shall reimburse the Employee for all normal, usual and
necessary expenses incurred by the Employee in furtherance of the business and
affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
Employee's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board of
Directors of the Corporation.
(C) The Employee shall be, during the term of this Agreement, entitled to
vacation time of four (4) weeks per year.
(D) The Corporation shall make available to the Employee and his
dependents, such medical, disability, life insurance and such other health
benefits as the Corporation makes available to its senior officers.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND CORPORATION
The Employee hereby represents and warrants to the Corporation as follows:
(A) Neither the execution and delivery of this Agreement nor the
performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
<PAGE>
Employee Agreement
Michael J. Sofia
Page 3
(B) The Employee has the full right, power and legal capacity to enter and
deliver this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the Employee enforceable against him in accordance with its terms. No approvals
or consents of any persons or entities are required for the Employee to execute
and deliver this Agreement or perform his duties and other obligations
hereunder.
(C) The Employee understands that some or all of the stock issuable upon
exercise of the Options received by the Employee pursuant to section 3(A) hereof
may not be registered under the Securities Act of 1933 (the "1933 Act"), and
acknowledges that he may be obligated to agree, as a condition to the issuance
thereof, that he will acquire such stock for his own account for investment and
not with a view to, or for resale in connection with a distribution thereof, and
will bear the economic risk of his investment in such stock for an indefinite
period of time.
(D) The Corporation hereby represents and warrants to the Employee as
follows:
(i) The Corporation is duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all requisite corporate
power and authority to own its properties and conduct its business in the manner
presently contemplated.
(ii) The Corporation has full power and authority to enter into this
Agreement and to incur and perform its obligations hereunder.
(iii) The execution, delivery and performance by the Corporation of
this Agreement does not conflict with or result in a breach or violation of, or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Corporation, or any agreement or instrument to which the Corporation is a party
or by which the Corporation or any of its properties may be bound or affected.
5. NON-COMPETITION
(A) The Employee understands and recognizes that his services to the
Corporation are special and unique and agrees that, during the term of this
Agreement and, unless such termination is by the Employee pursuant to
7(A)(iii)(a) below, for a period of six (6) months from the date of termination
of his employment hereunder, he shall not in any manner, directly or indirectly,
on behalf of himself or any person, firm, partnership, joint venture,
corporation or other business entity ("Person"), enter into or engage in any
business engaged in the development or commercialization of products directly
competitive with products of the Corporation, including products under
development by the Corporation, either as an individual for his own account, or
as a partner, joint venturer, executive, agent, consultant, salesperson,
officer, director or shareholder of a Person operating or intending to operate
in the areas of
<PAGE>
Employee Agreement
Michael J. Sofia
Page 4
therapeutics for congestive heart failure, carbohydrate-based combinatorial
chemistry, the treatment of diseases by drugs which act through the modulation
of superoxide dismutase, or Corporation's future business, proposed business or
future research activities or any additional areas of business as shall be
updated from time to time by the parties to take into account additional areas
of business in which the Corporation may become engaged), within the geographic
area of the Corporation's business. This Paragraph 5(A) shall not be construed
to prohibit the ownership by Employee of not more than 1% of the capital stock
of any corporation engaged in any of the foregoing businesses which has a class
of securities registered pursuant to the Securities Exchange Act of 1934.
(B) During the term of this Agreement and for six (6) months thereafter,
Employee shall not, directly or indirectly, without the prior written consent of
the Corporation, solicit or induce any employee of the Corporation or any
affiliate to leave the employ of the Corporation or any affiliate or hire for
any purpose any employee of the Corporation or any affiliate or any employee who
has left the employment of the Corporation or any affiliate within six months of
the termination of said employee's employment with the Corporation; or
(C) In the event that the Employee breaches any provisions of this Section
5 or there is a threatened breach, then, in addition to any other rights which
the Corporation may have, the Corporation shall be entitled to seek injunctive
relief to enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this Section 5, the
Corporation shall not be prevented from seeking any other remedies which may be
available.
6. CONFIDENTIALITY AND INVENTIONS
Employee agrees to comply with the provisions of his Employee's Invention
Assignment; Confidential Information and Non-Competition Agreement dated May 6,
1998 signed at the commencement of employment, which provisions are incorporated
herein by reference and are made part of this Agreement as if they were
explicitly set forth herein.
7. TERMINATION
(A) The Employee's employment pursuant to this Agreement shall continue
for the period set forth in Section 2 hereof unless sooner terminated upon the
first to occur of the following events:
(i) The death of the Employee;
(ii) Termination by the Board of Directors of the Corporation for
cause. Any of the following actions by the Employee shall constitute cause:
<PAGE>
Employee Agreement
Michael J. Sofia
Page 5
(a) Material breach by the Employee of Section 5 or Section
6 of this Agreement;
(b) Material breach by the Employee of any provision of this
Agreement other than Section 5 or Section 6 or the willful or reckless failure
by Employee to perform his duties hereunder which breach or failure is not cured
by the Employee within fifteen (15) days notice thereof from the Corporation; or
(c) The commission by the Employee of an act of fraud or theft
against the Corporation or any of its subsidiaries, or the conviction of
Employee of any criminal act;
(iii) Termination by the Employee for cause. Material breach by the
Corporation of any provision of this Agreement which is not cured by the
Corporation within fifteen (15) days notice thereof from the Employee shall
constitute cause; or
(iv) Termination by the Board of Directors, the President, or the
Chief Executive Officer of the Corporation without cause.
(B) Upon termination by the Board without cause pursuant to Section
7(A)(iv) or by Employee for cause pursuant to Section 7(A)(iii) or upon
termination resulting from Employee's death pursuant to Section 7(A)(i),
Employee (or his estate in the event of a termination pursuant to Section
7(A)(i)) will be entitled to the following:
(i) all vested compensation then due and owing;
(ii) as of the date of the termination, at the option of the
Corporation, the Corporation will pay either (i) a lump sum equal to fifty
percent (50%) of Employee's then current Base Salary, or (ii) six (6) equal
monthly payments equal to the total sum of fifty percent (50%) of the Employee's
then current Base Salary; and
(iii) Corporation will continue to pay for his, or his heirs', COBRA
premiums and the premium for his executive disability insurance coverage, if
applicable, for a period of six (6) months commencing as of the date of
termination.
(C) Employee may terminate his employment with the Corporation at any
time, without cause, upon two weeks written notice to his supervisor. In such
event, Employee shall not be entitled to any benefits under this Agreement, but
shall be entitled upon termination to such benefits, if any, as are granted by
law or pursuant to the Corporation's policies, in each case, as in effect on the
date the notice of termination is given by Employee.
<PAGE>
Employee Agreement
Michael J. Sofia
Page 6
(D) Termination of employment under this Agreement by either party, for
any reason, shall not affect the Employee's obligations under Sections 5 and 6
hereof, all of which shall survive such termination in accordance with their
respective terms.
8. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: when delivered personally against
receipt therefor; one (1) day after being sent by Federal Express or similar
overnight delivery; or three (3) days after being mailed registered or certified
mail, postage prepaid, return receipt requested, to either party at the address
set forth above, or to such other address as such party shall give by notice
hereunder to the other party.
9. RENEWAL OF AGREEMENT
Upon expiration of the term of this Agreement, this agreement may be
renewed for additional one (1) year periods by the parties by mutual written
agreement.
10. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
11. ENTIRE AGREEMENT MODIFICATION
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
12. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns, and
upon the Employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.
<PAGE>
Employee Agreement
Michael J. Sofia
Page 7
13. NON-WAIVER
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect. No waiver of
any term or condition shall be effective for any purpose whatsoever unless such
waiver is in writing and signed by such party.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware without regard to principles
of conflict of laws.
15. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect an interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the later of the following dates.
INTERCARDIA, INC.
By: /s/ Clayton I. Duncan /s/ Michael J. Sofia
------------------------------- ------------------------------
Name: Clayton I. Duncan MICHAEL J. SOFIA
Title: President and Chief Executive
Officer
Date: 12-10-98 Date: 12/8/98
------------------------------- -------------------------------
EXHIBIT 11.1
INTERCARDIA, INC.
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share data)
Three Months Ended
December 31,
--------------------
1998 1997
--------- ---------
Net loss per Unaudited Consolidated
Statements of Operations $(6,121) $(2,986)
========= =========
Weighted average of common shares
and common share equivalents outstanding
- basic and diluted 7,297 6,998
========= =========
Net loss per common share:
- basic $(0.67) $(0.43)
========= =========
- diluted $(0.67) $(0.43)
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,241
<SECURITIES> 9,732
<RECEIVABLES> 333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,362
<PP&E> 3,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,538
<CURRENT-LIABILITIES> 5,948
<BONDS> 1,657
0
0
<COMMON> 7
<OTHER-SE> 13,926
<TOTAL-LIABILITY-AND-EQUITY> 21,538
<SALES> 0
<TOTAL-REVENUES> 191
<CGS> 0
<TOTAL-COSTS> 6,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,121)
<EPS-PRIMARY> (0.67)<F1>
<EPS-DILUTED> (0.67)
<FN>
<F1> EPS BASIC
</FN>
</TABLE>
